Environmental liability protection seems to be nothing more than paperwork … until it’s not.
Who Pays for Environmental Damages?
We often discuss issues surrounding environmental liability, because every time a property changes hands, this is, potentially, a very big deal. Earlier this year, my colleague Allan Clifford Lawton, discussed the Redwater Energy Case and who will pay for abandoned oil wells when an oil company goes bankrupt.
The Redwater Decision has potentially far-reaching consequences across Canada. Provincial and local governments, as well as the public, have personal interests in how environmental issues will be addressed and who will pay.
In the Redwater Case, the community may ultimately bear the burden of the environmental liability.
Another environmental liability issue we discussed was the Kawartha Lakes heating oil spill (see: Property owners need to be concerned about clean up liability following the Kawartha Lakes spill). The community, again (the municipality of Kawartha Lakes), was forced to accept the environmental cleanup burden and was required to sue other parties for financial relief.
We, as well as others, suggested that Kawartha Lakes was a potential game changer with respect to who pays for an impact to the environment.
These incidents (Redwater and Kawartha Lakes) were both roughly categorized as “polluter pays” issues. This next example has potential application to “routine” environmental transactions.
Who Can Rely on a Phase One ESA?
When you retain an environmental consultant, you do so to protect your interests. As you might guess, those two words which are italicized and bolded are key.
In this case (The Court of Appeal for Newfoundland and Labrador case of Community Mental Health Initiative Inc v Summit Lounge Ltd.), the purchaser’s claim was against the environmental consultants who conducted a Phase One Environmental Site Assessment (ESA). The purchaser was alleging negligence on behalf of the consultants. The significant twist was that the Phase One was not conducted for the purchaser.
According to East Coast Environmental Law:
Community Mental Health Initiative Inc. (“CMHI”) arranged to purchase property from Summit Lounge Inc. (“Summit”). The purchase agreement between the two companies stated that Summit would carry out an environmental site assessment to verify that the property was not contaminated. Summit hired Jacques Whitford Stantec Ltd. (“Stantec”) to carry out the site assessment, and the agreement between Summit and Stantec stated clearly that Stantec would not be liable to any third party for the quality and accuracy of its work.
After CMHI discovered contamination on the property, it sued Stantec. In turn, Stantec applied for a summary judgment dismissing CMHI’s claim, arguing that CMHI was a third party to the contract between Summit and Stantec, and therefore could not hold Stantec liable for any losses or injuries it had suffered. After considering the terms of the contracts, the Court agreed with Stantec’s position, and CMHI’s action was dismissed.
We don’t know the extent of the contamination or what was missed during the Phase One and in the end, it doesn’t matter. This was a contractual matter.
A Race to the Bottom
The unfortunate truth is environmental liability protection is often treated as just paperwork. And, for many, beginning with the Phase One ESA, the process that is intended to provide you with liability protection, is a commodity – a race to the bottom in price and often service.
Whether you are protecting your company/shareholders’ interests, your community, or your own small business, take the time to assemble your advisory team (legal and technical) with great care.
If you are looking at a future transaction, I am happy to talk with you about our experienced technical staff (who average 20 years of experience), as well as provide you with names of legal counsel to consider. You can reach me at 519-979-7300, Ext. 134.