Never Going To Let You Go: BC's EMA May Allow Creditors To Seek Recovery From Third Parties For Environmental Remediation Claims

The recent decision from the Supreme Court of British Columbia (the “Court”) in Cordy Environmental Inc. v Obsidian Energy Ltd., 2023 BCSC 1198 (“Cordy Environmental”) has opened the door for creditors of an insolvent company to recover pre-filing amounts relating to environmental remediation from certain third parties. The main issue in Cordy Environmental was whether a service company that performed remediation work on a pipeline spill could rely on the statutory indemnification provisions under the Environmental Management Act, S.B.C. 2003, c. 53 (the “EMA”) to recover unpaid amounts from a prior owner of the pipeline with whom the service company had no contractual relationship.

The trial judge found that, pursuant to EMA s. 47, the prior owner of the pipeline may be jointly and separately liable for the costs of remediation incurred by the service company, and that such liabilityis independent of any contractual relationship between the parties. Further, the Court held that the prior owner's liability for the costs of remediation continues to operate notwithstanding the insolvency of the party that originally created the obligations owing to the service company for its remediation work.

Background Facts

In 2015, a pipeline near Fort St. John, B.C. (the “Pipeline”) owned by Obsidian Energy Ltd. (“Obsidian”) was affected by a forest fire, which caused a pipeline spill (the “Spill”). The Pipeline was deactivated and abandoned in May 2016, and in July 2017 the British Columbia Oil and Gas Commission issued a general remediation order over the area contaminated by the Spill. By that time, Obsidian had transferred the Pipeline to a subsequent owner who agreed to perform the remediation work. That third party then transferred the Pipeline to Opsmobil Energy Services Inc./Ranch Energy Corporation (“Ranch Energy”) three months after the issuance of the remediation order.

Ranch Energy retained Cordy Environmental Inc. (“Cordy”) to provide remediation services regarding the Spill in March and April 2018. Shortly thereafter, in July 2018, Ranch Energy was placed into receivership. At that time, the amount owing to Cordy for the remediation services remained unpaid and outstanding. As a result, Cordy advised Ranch Energy's receiver of its claim relating to the unpaid services in the approximate amount of $765,000 (the “Claimed Amount”), but did not receive any distribution because the realization from Ranch Energy's estate failed to yield sufficient funds to make any payment to unsecured creditors.

Cordy then commenced a claim and sought summary judgment to recover the Claimed Amount from Obsidian under the EMA. Cordy asserted that Obsidian, as the prior owner of the pipeline when the Spill occurred, has a statutory duty to remediate the Spill, and therefore it is liable for the costs associated with the remediation services provided by Cordy, even if the services were provided at Ranch Energy's direction.

Obsidian opposed Cordy's summary judgment application and brought a cross-application for summary dismissal of Cordy's claim on the basis that, among other things:

1. the remediation costs were not incurred by Cordy, but by Ranch Energy, and that Cordy's claim should be limited to the non-payment of debt within Ranch Energy's receivership proceeding and subject to the orders of the Alberta Court of Queen's Bench in those proceedings;
2. Obsidian should not be considered a “responsible person” under the EMA because it transferred the Pipeline and environmental liabilities to a subsequent purchaser who was fully aware of the environmental liabilities associated with the Pipeline and the Spill and assumed them, and the price for the Pipeline reflected the risks associated with those liabilities; and
3. Cordy was not an owner who was ordered to remediate the site around the Pipeline, and it had no interest in the remediated property. Accordingly, the recovery provisions of the EMA did not apply to Cordy in the circumstances. Rather, section 46 of the EMA applied to Cordy, which expressly provided that it was not a person responsible for remediation of a contaminated site.

The Court's Decision

Tindale J. began his analysis by reviewing the relevant provisions of the EMA. Section 45 of the EMA provides that a prior owner or operator of a site is responsible for remediation of any contamination at that site. Accordingly, on a plain reading of the legislation, Obsidian was clearly included as a person responsible for remediation of the Spill as a result of being a previous owner of the Pipeline. The Court also noted that whether or not Obsidian had a contractual claim for indemnity against the subsequent purchaser of the Pipeline did not absolve Obsidian of its responsibilities under the EMA.

Next, the Court's analysis shifted to EMA s. 47(1), which provides as follows:

The Court determined that Cordy's claim may be captured by EMA s. 47(1) because:

1. Obsidian was clearly a “responsible person” for remediation at the Pipeline;
2. Cordy was a “person” as contemplated by the EMA; and
3. Cordy had incurred costs in performing remediation services regarding the Spill.

On a complete reading of the EMA and considering its purpose, the Court determined that the EMA allows for a company such as Cordy to make a claim for the costs incurred in the remediation of a contaminated site against all responsible persons. Regarding Obsidian's submission that an unsecured creditor's claim against an insolvent estate could not be transferred to a claim against a third party, Tindale J. found that Cordy was not shifting liability for the receivership claim, but rather, it was seeking to enforce a separate claim under the EMA.

Notwithstanding the foregoing, the Court was unwilling to make a summary determination of Cordy's application because Cordy did not provide sufficient evidence to prove that its costs were reasonably incurred, as is required under the EMA. In the result, the Court referred the matter to trial on the issues of (1) whether Cordy's costs were reasonable, and (2) whether Obsidian has any statutory defenses to Cordy's claim.

Implications and Conclusions

Cordy Environmental is a novel application of the cost recovery provisions of the EMA and puts all property owners and operators on notice that their liability for remediation costs may extend beyond the transfer of ownership of the property, even if the subsequent purchaser agrees to assume the environmental liabilities. Viewed from the opposite perspective, this decision may create a new path for creditors to recover unpaid obligations relating to remediation services owing by insolvent customers.

Notably, however, Cordy Environmental may only be applicable to cost recovery for remediation services performed in British Columbia. While the legislation in other western provinces contains similar provisions identifying the persons responsible for remediation costs, they do not contain the same broad language as s. 47 of British Columbia's EMA thatmakes all prior owners and operators of a site liable to any other person who incurs reasonable costs remediating contamination at that site. Rather, in other provinces, only government regulators or other responsible persons have a statutory right to recover remediation costs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.