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Cousins v. McColl-Frontenac Inc.

Court rules on appropriate measure of damages for contamination


Court rules on appropriate measure of damages for contamination

A recent case out of New Brunswick provides some guidance on the issue of damages in the context of contaminated land and, specifically, whether an impacted property owner is entitled to the actual costs of remediation as a measure of damages. This case will be of interest to those who own or operate landfills, or manage any property where potential contamination might occur.

Background

The case, Cousins v. McColl-Frontenac Inc., involved the purchase by Edward Cousins of a closed service station in St. George, New Brunswick that had a history of a leaking underground storage tank pipe coupling. The service station was purchased by Mr. Cousins in 1986 for $45,100 from Texaco Canada Inc., a predecessor to the named defendant, McColl-Frontenac Inc.

Cousins later acquired additional adjacent lands from other parties in order to increase the size of his property, as he intended to open a convenience store or repair shop. Unfortunately, he found the lands were contaminated and that the costs of remediation were substantial, far exceeding the $100,000 value of all the lands. As a result, he commenced a claim against McColl-Frontenac in respect of both the Texaco property and the adjacent contaminated lands he purchased from other parties.

The Agreement of Purchase and Sale between Cousins and Texaco was “as is” — essentially meaning that no assurances were provided regarding the condition of the lands. While there was a covenant in the agreement that Texaco would remove the underground gasoline and waste oil storage tanks and then backfill the excavation, there was nothing about removal of contaminated soil.

Discovery of contamination

When Cousins attempted to arrange for the construction of a donut shop on the lands in 1993, he was asked to conduct an environmental assessment by his lender. This assessment found the presence of extensive gasoline contamination in the soil. Cousins commenced his claim in 1999, but did not argue that there was any fraud or misrepresentation involved in the sale of the Texaco property.

In fact, Cousins told the court that he believed that he was told by a Texaco representative that the station had closed due to a leak in an underground gasoline tank, when Cousins was inquiring about purchasing the service station. In addition, Cousins had worked in automotive operations and had some understanding of the operation of service stations, and some experience with leaking underground storage tanks.

The decision

The court held that Cousins had commenced his claim against the defendant within the applicable six-year limitation period on the basis of the discovery of the contamination in 1993. The court held that Cousins’ failure to conduct a “modern environmental assessment” in 1986, when he purchased the property, did not start the limitation period running then. However, the court held that Cousins could not, in any event, succeed with respect to his action relating to the Texaco property because of the “as is” nature of the transaction.

The court then considered, in a separate decision, whether there was any basis for recovery by Cousins against McColl-Frontenac in respect of the adjacent properties on the basis that contamination had migrated from the Texaco property to those properties. The former Texaco property comprised one-third of Cousins’ total lands. The other third was acquired from the Roman Catholic Bishop in 1987 for roughly $5,000, and the remaining lands consisted primarily of property acquired from the Town of St. George in 2003.

The court found that migration of petroleum hydrocarbon contamination from the Texaco property onto adjoining properties started before the purchase of the Texaco property by Cousins in 1986. According to the court, the property purchased from the Bishop was impacted “far beyond economical remediation” before the Texaco property was sold to Cousins, and the migration continued after the purchase by Cousins.

On this basis, the court concluded that Cousins had a valid cause of action for the contamination on the lands he bought from the Bishop. The court also found that, although the former roadway that Cousins acquired from the town in 2003 was also contaminated by pollutants from the Texaco property, Cousins ought to have known that when he purchased the roadway in 2003. On this basis, the court concluded that the Cousins was only entitled to recover “reasonable damages” from McColl-Frontenac for the land he acquired from the Bishop in 1987.

Reasonable damages

The court then considered the assessment of damages relating to the land acquired from the Bishop. Cousins had requested that damages be based on the significant amounts of money that were required for remediation of the property, and that the pollution problems had caused Cousins to miss an opportunity involving the donut shop. On this basis, Cousins claimed damages in the range of $1.5 million to $2.3 million for the property bought from the Bishop for roughly $5,000 in 1987.

The court held that “it would not be reasonable to assess damages on the basis of speculative remediation expenses of undeveloped land or theoretical assumptions about lost profits from development that did not occur.” The court also held that it would not be fair to assess damages on the present value of the entire lot in an uncontaminated state or on the amount paid by Cousins to purchase the property from the Bishop plus carrying charges and interest.

The court held that a reasonable measure of damages for the contaminated land acquired from the Bishop and the resulting losses to Cousins would be on the basis of one-third of his net investment and carrying charges on the entire property over the years, with a reasonable allowance for interest. On this basis, Cousins was awarded approximately $125,000 by the court. The court stated that, “although that is high compared to the value of the entire property if it were not contaminated, in my opinion it is a fair and reasonable approach to assessing damages and interest.”

The trial judge’s decision was appealed to the New Brunswick Court of Appeal which released its decision late last year. The Court of Appeal upheld the trial judge’s Reasons for Judgment with respect to the question of civil liability for the soil contamination, and his “conclusion that it would be unreasonable, on the facts of this case, to assess damages on the basis of the cost of remediation.”

This decision has important implications and provides some guidance in the context of assessing damages for contaminated land. In particular, the decision affirms that the calculation of damages associated with contaminated land is not simply the costs of remediation, particularly where those costs far exceed the value of the land.

Rosalind Cooper, LL.B. is a partner with Fasken Martineau DuMoulin LLP, with offices across Canada. Ms. Cooper is based in Toronto, Ontario. Contact Rosalind at rcooper@tor.fasken.com


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