Commercial Litigation and Dispute Resolution Blog

The British Columbia Court of Appeal has overturned previous decisions on the recoverability of legal costs associated with remediation under the Environmental Management Act (“EMA”). The decision is likely to have important ramifications on contaminated sites actions and on the role of lawyers in remediation in the future.

The EMA governs remediation (clean up) of polluted sites in B.C. and provides a mechanism for any person who remediates a contaminated site to recover their “reasonably incurred” costs of doing so from defined categories of ‘responsible persons’ (such as former owners or operators of the site).

In Victory Motors v Super Save^[1], the Chief Justice of the Court of Appeal reversed previous case law on the legal fees of remediation. Previously, courts had found that legal costs were not recoverable as remediation costs (that is, recoverable in full). The previous analysis turned on distinctions between ‘innocent’ and ‘responsible’ parties in the EMA.^[2]

The recent decision changes that analysis, determining recoverability by the type of cost, rather than the status of the party seeking them. The court determined that there are two categories of legal costs:

Litigation legal costs: (being the normal costs of litigation) are not remediation costs and will be dealt with under the rules of court (meaning pragmatically that only a proportion of them will be recoverable at the end of a trial because they will be subject to a tariff under court rules).

Remediation legal costs: are a new category of costs which (subject to reasonableness) ought to be fully recoverable under the EMA. The court set out specific (non-exclusive) examples of remediation legal costs:

• advising the client;
• negotiating with the government;
• creating a remediation plan;
• obtaining regulatory approvals;
• executing the remediation plan;
• investigating other responsible persons; and
• negotiating and drafting remediation agreements.

The immediate effect of this is to increase the amount that can be recovered by successful plaintiffs.

However, the new framework also creates numerous potential issues for remediating parties, suggesting that the future of recovering costs in cost-recovery actions may not be as clear-cut. Some potential issues include:

1. Excessive claims for remediation legal costs: the new framework incentivizes plaintiffs to potentially ‘front-load’ legal work, so that activity which would usually be done as part of litigation in the normal course of a lawsuit, is done more pro-actively before a case is commenced. Defendants will need to closely analyse what is being claimed. Arguably, the types of cost set out by the court are limited and in most cases should not represent a large part of the quantum of costs. However, it is expected that these issues may be hotly contested in future litigation.
2. Increased role for lawyers in remediation: This decision allows recovery of costs incurred and encourages parties to engage lawyers early on. This should be welcomed by clients seeking to navigate a complicated legal and regulatory landscape.
   
3. Reasonableness of legal costs: in considering how the reasonableness of legal costs is to be assessed, the court made reference to the Legal Profession Act and related cases.^[3] This methodology raises the possibility that counsel at trial will be required to defend their own conduct on a file. Litigating such issues will no doubt be complicated and contentious.
   
4. Waiver of privilege: remediating parties will now have to proceed on the basis that much of their correspondence with their lawyers may potentially be disclosed in court. The court in Victory Motors specifically advised lawyers dealing with such matters to maintain separate files and bills. However, this may prove to be a complicated issue.
5. Betterment claims: the Court of Appeal expressly refused to rule on whether awards for betterment (reducing the value of EMA cost recovery awards because a plaintiff achieved an increase in the value of their land). This remains an open question in British Columbia.

While beyond the scope of this article, the court in Victory Motors also commented on the effect of certain provisions of the EMA in the context of a share sale. This is a complex and fact-dependent issue and anyone considering buying land or shares where environmental contamination is at issue should seek legal advice.

Victory Motors provides a detailed analysis of the history of the EMA, and a framework for the treatment of legal costs in future cases. It will be a critical case in the development of litigation in this area.

_{[1] Victory Motors (Abbotsford) Ltd. v. Actton Super-Save Gas Stations Ltd., 2021 BCCA 129 (“Victory Motors”)}

_{[2] Canadian National Railway Company et al. v. A.B.C. Recycling Ltd.,2005 BCSC 647; Canadian National Railway Co. v. A.B.C. Recycling Ltd.,2006 BCCA 429; and Gehring et al. v. Chevron Canada Limited et al.,2007 BCSC 468}

_{[3] Legal Profession Act, S.B.C. 1998, c.9; Yule v Saskatoon (City), (1995) 1 D.L.R. (2d) 540 (Sask. C.A.)}