In a recent decision, the BC Supreme Court held that “stigma damages,” or compensation for diminution in the market value of an asset attributable to a defendant’s wrongful acts, are not recoverable as part of a cost recovery claim under the Environmental Management Act (EMA). Stigma damages must be recovered through a tort action.
Two BC properties located across from each other lay at the heart of Jansen. Jansen Industries 2010 Ltd. owned the first property (the Jansen Site), while the second property (the Victory Motors Site) was owned by Victory Motors (Abbotsford) Ltd. Jansen and Victory Motors are two separate corporate entities but are both owned, directly or indirectly, by the same family.
A gas station had operated on the Victory Motors Site from World War II until 1994. Between 2009-2010, Jansen and Victory Motors discovered their properties had been contaminated by leaking underground gasoline storage tanks. After this discovery, Jansen and Victory Motors each brought an action against Actton Super-Save Gas Stations Ltd., which had operated the gas station from 1982-1992, and other parties.
Before the trial in Jansen, certificates of compliance were obtained for both properties. The remediation efforts that resulted in these certificates of compliance being issued cost $395,706. The remediation did not remove all of the contaminated soil from the properties however, and the certificates of compliance were issued subject to the condition that the properties continue to be used for commercial purposes.
In addition to the remediation costs, the plaintiffs claimed stigma damages on the basis that their properties were less valuable because of the remaining contaminated soil.
In his reasons for judgment, Sewell J. held that the stigma damages claimed by the plaintiffs were not recoverable as a remediation cost pursuant to the EMA. In his view, the EMA is concerned with the costs of remediating sites to comply with the standards set out in the EMA and the Contaminated Sites Regulation, and the purpose of a certificate of compliance is to certify a site has been remediated to a point that the director under the EMA considers adequate. Accordingly, Sewell J. concluded that only the costs of bringing a site into compliance are properly recoverable in a cost recovery action pursuant to the EMA, and that if owners wish to remediate their property to a condition beyond that approved by the director, they can only recover the incremental remediation costs through an action in tort.
Accordingly, while stigma damages are not available under the EMA as a remediation cost, they may be recoverable through an action in tort. Sewell J. held that to recover stigma damages in tort, plaintiffs would have to prove they suffered a diminution in value of their properties because they or subsequent owners of their properties are or would be precluded from making optimal use of their properties as a result of the defendant’s wrongful conduct. To do so, the plaintiffs would have to establish that the use permitted by any certificates of compliance does not represent the highest and best use of the property.
It was undisputed that, because the contamination originated on the Victory Motors Site, Victory Motors had no claim in nuisance or pursuant to the doctrine in Rylands v Fletcher. As a result, Sewell J. held that Victory Motors could not advance a tort claim for stigma damages.
The evidence before the court indicated that the commercial use of the Jansen Site was the highest and best use of the property. As well, there was no evidence of any reasonable prospect of a zoning change in the foreseeable future to permit a non-commercial use that might increase the property value. Because there was no evidence that the commercial use permitted by the certificate of compliance was not the highest and best use of the Jansen Site, the court held that Jansen had not suffered any stigma damages in this case.
Ultimately, the court held that the only amounts that were recoverable were the remediation costs incurred to obtain the certificates of compliance. The court proceeded to allocate these remediation costs between various responsible persons in the remainder of the decision.
The Jansen decision clarifies that stigma damages are not recoverable as a remediation cost under the EMA in a cost recovery action in BC. Stigma damages, however, may be recovered in a tort action if plaintiffs can prove they are precluded from using their property for its highest and best use, in accordance with the test set out by Justice Sewell.
For further reading about developments in contaminated sites law in British Columbia, we encourage readers to see our other publications on the topic.
The authors wish to thank Ryan Griffith for his help in preparing this legal update.