Limitation Period for Environmental Contamination Claim Driven by Knowledge of Actual Claim (Not Potential Claim)

The dispute in Crombie Property Holdings Ltd. v. McColl-Frontenac Inc. centered around a landowner’s deadline to sue for environmental contamination migrating from an adjacent former gas station.

In early 2012, the now-owner first became interested in purchasing the land next to the gas station.

After making an offer, and as part of its due diligence, the owner hired a consulting firm to investigate for environmental contamination.  A Phase I environmental assessment report, delivered in early March 2012, was inconclusive. Shortly afterwards, the owner chose to waive the environmental due diligence conditions and close the deal. A Phase II report was delivered in September 2012, long after the closing that took place in April 2012. That second report showed conclusively that the soil and groundwater on the owner’s land were environmentally contaminated.

About two years after the purchase date, on April 28, 2014, the owner launched an action for damages against the current and former owners of the adjacent gas station. In the pleadings, the new owner claimed it was unaware of soil and groundwater contamination on its property until September 2012 when the Phase II report was formally delivered.

The defendant neighbours countered that the action was out of time, since the two-year limitation period under the Limitations Act, 2002 (the “Act”) had already expired.  Pursuant to the Act, a party has 2 years from the date when a claim is known or ought to be known to commence an action.  In this regard, the neighbours claimed that the owner knew of the contamination long before the September 2012 Phase II report, and that the clock on the two-year limitation period had started to run at that earlier time. To prevail in raising this defence, the defendant neighbours had to show that the owner knew or ought to have known that it had a claim at some point prior to April 28, 2012.

On appeal, the Ontario Court of Appeal overturned the motion judge’s earlier ruling that the owner was out of time to bring a claim. In doing so, the Appeal Court examined the basis for the motion judge’s misapprehension that the owner knew or ought to have known of the claim more than two years prior to the lawsuit.

First, the motion judge had concluded that the owner knew of potential (rather than actual) claim, as revealed by the Phase I report delivered in early March 2012, was the same as knowledge of an actual claim for the purposes of the two-year limitation period. That was the motion judge’s initial error.

Secondly, the motion judge erred in assessing the impact of the information leading up to the Phase II report. Although the final version was delivered in September 2012, certain laboratory results and groundwater sampling results were “made available” to the owner at the end of March 2012, and delivered in May 2012. The motion judge had incorrectly presumed that by having the information “available” the owner must have been actually aware of its impact for limitation period purposes.

The Appeal Court added that in making this incorrect assumption, the motion judge completely ignored the relevant circumstances of the owner’s purchase of the property, which was part of a multi-property transaction. Specifically, in March 2012, the owner had waived all conditions (not just environmental ones) relating to 22 different properties, and that context should have informed the motion judge’s assessment of the owner’s state of knowledge.

In failing to apply the correct test to the facts, the motion judge made palpable and overriding errors as to when the owner knew of its claim, and concluded incorrectly that the limitation period had expired. The Appeal Court set aside the dismissal of the plaintiff’s action, which would allow the trial of the damages claim to proceed. See: Crombie Property Holdings Ltd. v. McColl-Frontenac Inc. 2017 ONCA 16.