Innocent Purchasers are Exempt from Liability (maybe): ‘The Innocent Purchaser Exemption’

In 2016, the B.C. Supreme Court rendered a decision in the case of Domovitch v. Willows, 2016 BCSC 1068, which considered a number of important issues in the context of a residential cost recovery claim.  Given that very few cases involving residential contamination go to trial, the decision provides valuable insight into the interpretation and application of key sections of the cost recovery regime under the Environmental Management Act, S.B.C. 2003, c. 53 (the “EMA”), which has implications for both residential and commercial purchasers.

In the Domovitch case, the plaintiff had argued that he fell within the innocent acquisition exemption provided under the EMA on the basis that when he purchased the subject property, he was advised by its previous owner that an underground storage tank (UST) had been decommissioned and was inert.  The plaintiff was also provided with an inspection report from the Fire Department confirming this and furthermore, as part of his purchase of the property from the previous owner, he required an express warranty in the contract of purchase and sale indicating that the UST had been rendered inert and that this information was on file with the local Fire Department.  In short, the plaintiff argued that he had undertaken all appropriate inquiries and had no reason to believe that the property was contaminated as required by the exemption under section 46(1)(d) of the EMA, which provides that:

Persons not responsible for remediation

46 (1)   The following persons are not responsible for remediation of a contaminated site:

(d) an owner or operator who establishes that

(i)         at the time the person became an owner or operator of the site,

(A)       the site was a contaminated site,

(B)       the person had no knowledge or reason to know or suspect that the site was a contaminated site, and

(C)       the person undertook all appropriate inquiries into the previous ownership and uses of the site and undertook other investigations, consistent with good commercial or customary practice at that time, in an effort to minimize potential liability,

(ii)        if the person was an owner of the site, the person did not transfer any interest in the site without first disclosing any known contamination to the transferee, and

(iii)       the owner or operator did not, by any act or omission, cause or contribute to the contamination of the site;

After evaluating the evidence, the Court ultimately agreed with the plaintiff, concluding that on the basis of the information that the plaintiff was provided (namely, the 1999 inspection report), it was reasonable for him to infer that this meant the property was not contaminated as a result of the historical UST.  In other words, the Court held that, despite knowing of the existence of the UST when he purchased the property and the common fact that many historical USTs have contamination issues, without anything more, the plaintiff had no reason to suspect that the property may have been contaminated and he was not required, in these circumstances, to make any further inquiries or investigations.  Accordingly, the plaintiff was found to be exempt from responsible person status, thereby avoiding liability.

Domovitch is a helpful case in that the Court engaged in a fairly detailed analysis of the cost recovery regime under the EMA and considered a number of provisions often applicable in the context of a case involving contamination and a possible exemption from liability.  It also provides an example of a case where the purchaser engaged in enough due diligence and sought sufficient information to fall within the parameters of the innocent acquisition exemption.  On this point, the court’s generous approach to the interpretation and application of the exemption suggests that purchasers may be able to more readily rely on it in the future, provided that they have no reason to suspect contamination and were reasonable in their degree of investigation.

That being said, it is possible that the Courts may be inclined to apply a more onerous standard (and one more consistent with the plain language of the legislation) when it comes to more sophisticated parties seeking to rely on the exemption, which may have significant implications for commercial purchasers.  Therefore, although the Domovitch decision demonstrates one instance where a purchaser was able to successfully secure an exemption from responsible person status, more sophisticated corporate entities would still be wise to seek specific legal advice when it comes to their commercial purchase transactions and the potential regulatory liability that flow from them.

Questions? Comments? Please contact Adam Way at away@harpergrey.com or anyone else from our team listed on the Authors page.

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