Environmental Contamination: Proof of Disclosure

Yesterday, the Ontario Court of Appeal (the “Court”) dismissed an appeal by Crosslink Bridge Corp. (“Crosslink”) who was seeking to get out of a transaction to buy property from Canadian National Railway Company (“CN”).

On December 18, 2006, the property in question was owned by CN, and was made subject to a Director’s Order issued pursuant to the Environmental Protection Act (the “EPA”) requiring that certain remedial work be completed. In addition, before “dealing with” the property in any way, CN was under an obligation to give a copy of the Director’s Order to any person who acquires an interest in the property.

By May 2007, Crosslink had offered to purchase the property and the sale was complete by November 2008. Four years later, in 2012, Crosslink sought to avoid the transaction by relying on s. 197(4) of the EPA:

“A dealing with real property by a person who is subjected to a requirement imposed under section (1) or (3) is voidable at the instance of a person who was not given the copy of the order or decision in accordance with the requirement.”

Essentially, Crosslink argued that it was never provided with the Director’s Order and, as such, the transaction is voidable. CN refused to void the transaction.

In considering all of the evidence, Justice Murray of the Superior Court of Justice concluded that an inference could be drawn that Crosslink or its solicitors were provided with a copy of the Director’s Order prior to the closing of the transaction. He listed twelve facts that “overwhelmingly” led to such inference.

On appeal, Crosslink argued that the statutory onus rests on the proposition that CN was required to establish precisely when, where and how it had given Crosslink a copy of the Director’s Order. The Court, however, determined that the boxes of information provided by CN to Crosslink in advance of the transaction contained very detailed information relating to the environmental problems for the property and that it would have been apparent, from the Certificate of Requirement on title, that an order requiring remediation work had been made.

The Court found the following to be instructive:

– Crosslink knew that the Director’s Order had been made;

– there was full disclosure of the environmental reports that led to the Director’s Order;

– following a lengthy due diligence period, Crosslink waived all conditions with respect to the environmental condition of the property, acknowledged that CN had delivered all environmental reports in its possession and conclusively waived all requisitions concerning any matters relating to the property; and

– before closing the transaction, Crosslink requisitioned a copy of the Order “[t]o the extent not already provided” and then failed to respond to CN’s reply: [p]lease advise us if your client has not yet received a copy of this Order”.

On those facts, the Court found a sufficient evidentiary record to support Justice Murray’s finding that CN had given Crosslink a copy of the Director’s Order. The Court awarded costs of the appeal to CN in the amount of $35,000.00.

Word of warning, a vendor does not need to establish precisely when, where and how it provided a Director’s Order for remediation. An assessment of the facts, as a whole, may be sufficient to establish that provision of the Director’s Order occurred.

The full decision can be read here: Crosslink Bridge Corp. v Canadian National Railway Company 2014 ONCA 247 (CanLII).

By James Early.