DOING BUSINESS IN THE NEW CONTAMINATED SITE REGIME

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1 1200 Waterfront Centre 200 Burrard Street, P.O. Box Vancouver, B.C., Canada V7X 1T2 tel: (604) fax: (604) DOING BUSINESS IN THE NEW CONTAMINATED SITE REGIME Mary Jo Campbell December 4, 2003 TABLE OF CONTENTS I INTRODUCTION... 1 II CURRENT LEGISLATIVE AND POLICY INITIATIVES... 1 III PRINCIPAL AMENDMENTS IN EMA CHANGE IN DEFINITION OF CONTAMINATED SITE ELIMINATION OF CONDITIONAL CERTIFICATES OF COMPLIANCE LIMITATION ON REOPENER LICENCED ENVIRONMENTAL PROFESSIONALS RESCISSION OF APPROVALS AND CERTIFICATES EMA SUPPORTING REGULATION... 6 A. Modification of Triggers for Site Investigation and Site Profiles currently set out in Section 26.1 of the WMA (and related legislation)... 6 B. Notification on Commencement of Site Investigations... 7 C. Site Classification... 7 D. Role of LEPs... 7 E. Revision of Standards... 8 F. Crystallizing Numeric Remediation Standards... 8 G. High Risk Sites... 8 H. Hazardous Waste... 8 C ALGARY M ONTR É AL O TTAWA T ORONTO V ANCOUVER IV DUE DILIGENCE RISK ASSESSMENT CONDITIONS IN CERTIFICATES HIGH RISK SITES is an Ontario Limited Liability Partnership - i -

2 4.4 LICENCED ENVIRONMENTAL PROFESSIONALS RELIANCE LETTERS SITE INVESTIGATION TRIGGERS NOTICE OF INVESTIGATION V ADDITIONAL CONTRACT CLAUSES REMEDIATION COVENANT LICENCED ENVIRONMENTAL PROFESSIONALS REPRESENTATION OF NO CONTAMINANTS REPRESENTATION REGARDING CERTIFICATE CONTAMINANTS ENVIRONMENTAL LAWS VI REMEDIATION MUNICIPAL APPROVALS CLOSURE CRYSTALLIZATION OF STANDARDS INDEPENDENT REMEDIATION VII EFFECT OF OTHER LEGISLATIVE AND POLICY CHANGES ON DEALS REVISED PROTOCOL 6 - ROLE OF ROSTERED EXPERTS WASTE MANAGEMENT AMENDMENT ACT, CSR AMENDMENT FEB CHANGES IN STANDARDS VIII IMPACT OF RECENT CASES ON DEALS BC HYDRO ESCAPES LIABILITY REMEDIATION COST RECOVERY CLAIMS COURTS SUPPORT RECOVERY SEABRIGHT ENVIRONMENTAL APPEAL BOARD DECISION DEEP POCKETS AND RELUCTANCE TO NAME GOVERNMENTS NEGLIGENT GOVERNMENT SIGN-OFF REMEDIATION STANDARDS FAILING TO PROMPTLY LITIGATE CLAIMS WRONGFUL WITHHOLDING OF APPROVALS BY MWLAP i

3 8.9 INDUSTRY RESPONSIBLE INADEQUATE REMEDIATION OF RESIDENTIAL SUBDIVISIONS IX ADDITIONAL PRACTICE POINTERS FOR BULLET-PROOFING PURCHASE AND SALE AGREEMENTS GENERAL REVIEW CERTIFICATES OF COMPLIANCE DUE DILIGENCE DEFINITION OF CONTAMINANTS INDEMNITIES ENVIRONMENTAL INSURANCE X LANDLORD'S LIABILITY FOR TENANT CAUSED CONTAMINATION LANDLORD'S LIABILITY IMPORTANCE OF LEASE TERMS XI CONCLUSION SCHEDULE A - NEW B.C. MIGRATING CONTAMINATION NOTICE REQUIREMENT (FEBRUARY 2002)... A-1 B.C. MIGRATING CONTAMINATION NOTICE REQUIREMENT ADDITIONAL INFORMATION (MARCH 2002)... A-3 SCHEDULE B - RELEASE AND INDEMNITY IN FAVOUR OF VENDOR... B-1 ii

4 1200 Waterfront Centre 200 Burrard Street, P.O. Box Vancouver, B.C., Canada V7X 1T2 tel: (604) fax: (604) DOING BUSINESS IN THE NEW CONTAMINATED SITE REGIME Mary Jo Campbell December 4, 2003 I INTRODUCTION The B.C. Environmental Management Act, S.B.C. 2003, c. 53 (the "EMA") received Royal Assent on October 23, 2003 and is expected to be brought into force in late January 2004 or early February It consolidates and will replace the B.C. Waste Management Act (the "WMA") and the Environment Management Act. The EMA has made certain changes to the WMA which, when combined with a series of expected changes to the regulations and future changes to the EMA, will materially amend the regime governing contaminated sites. The B.C. Ministry of Water, Land & Air Protection ("MWLAP") has indicated that it wishes to create, "a regulatory system that is simple, clear and cost-effective, that provides greater release of low risk sites, that relies on increased involvement of registered professionals and retains clear remediation objectives needed to provide certainty of process and to ensure the timely and appropriate remediation of high risk sites" (page 2 of Process Discussion Paper as defined in section II(e) below). Although the amendments have merit, the EMA and proposed changes create a more complex regulatory regime. It may result in less sites being subject to extensive remediation. However, it will require a significant level of knowledge to navigate the numerous provisions, procedures and alternative approaches to the investigation and remediation of contaminated sites. II CURRENT LEGISLATIVE AND POLICY INITIATIVES MWLAP engaged in an extensive review of the contaminated sites regime through the appointment of the Minister's Advisory Panel on Contaminated Sites and as a result of the Advisory Panel's Final Report on Contaminated Sites dated January 2003 (the "Final Report") (which may be found on MWLAP's website at contam_sites/ministers_panel/ministerspanel.html). The current initiatives to be aware of, in addition to the EMA, are the following: C ALGARY M ONTR É AL O TTAWA T ORONTO V ANCOUVER is an Ontario Limited Liability Partnership

5 (a) (b) (c) (d) (e) (f) (g) (h) B.C. Regulation 419\2003 amending the Contaminated Sites Regulation (the "CSR") effective December 1, The Regulation amends the fees payable for MWLAP actions and for external reviews; further housekeeping amendments to the CSR to reflect the replacement of the WMA with the EMA, which amendments are expected in early 2004; the proclamation of the Waste Discharge Regulation (expected in early 2004) which will define those high risk activities which require a permit and those medium risk activities which only require compliance with a code of practice. (This topic is the subject of other papers and will not be further discussed in this paper); the proclamation of the Hazardous Waste Regulation which will replace the Special Waste Regulation. Part of this regulation is expected to come into force in early 2004 with the remainder not coming into force for at least a year; MWLAP Discussion Paper dated October 22, 2003 entitled "A New Contaminated Sites Regulatory Process Investigation, Classification and Remediation Process Overview" (the "Process Discussion Paper"), with the associated chart, found on the Ministry website at: MWLAP Discussion Paper dated October 20, 2003 entitled "Contaminated Sites Regulation Review of the Site Investigation Trigger Process" (the "Investigation Trigger Discussion Paper") found on the MWLAP website at (The Process and Investigation Trigger Discussion Papers are herein collectively the "Discussion Papers"); further amendments of the EMA and CSR based on the Discussion Papers expected in Spring 2004 (the "EMA Supporting Regulation"); other staged amendments of the EMA and CSR. The EMA and other MWLAP work has, according to MWLAP, addressed 18 of the 80 Advisory Panel's recommendations. Other recommendations will be dealt with over time through a series of legislative amendments;

6 (i) (j) III amendments to the liability provisions of the EMA and CSR will likely not be addressed until after the next election in 2005; and extensive regulations pursuant to section 62 and 63 of the EMA and protocols of the director of MWLAP pursuant to section 64 of the EMA. Broad latitude for further amendments to the EMA are created by the grant of extensive powers to make regulations and protocols pursuant to those sections. PRINCIPAL AMENDMENTS IN EMA This section will outline the principal amendments affecting contaminated sites in the EMA and MWLAP's proposals set forth in the Process Discussion Paper and the Investigation Trigger Discussion Paper which were the subject of recent stakeholder consultations this Fall. 3.1 CHANGE IN DEFINITION OF CONTAMINATED SITE The definition of contaminated site in Part 4 of the EMA has been amended to include the concept of concentrations of contaminants exceeding risk based or numerical criteria (which will be prescribed by regulation). The intention was to focus on those sites which present a real threat to human health or the environment. The Advisory Panel recommended tiering sites based on risk and for MWLAP to focus on the high risk sites only. It was believed that a number of sites which exceeded numeric standards did not constitute a risk to human health and the environment and were unnecessarily caught in the remediation process. The Advisory Panel recommended the use of a screening level risk assessment to determine which sites exceeding numeric criteria did not pose a risk to human health or the environment because for example the contamination could not reach a receptor (such as people). (A screening level risk assessment would be a new simple, streamlined form of risk assessment.) The Advisory Panel recommended that sites, which pass a screening level risk assessment, should not constitute a contaminated site. MWLAP indicates acceptance of use of a screening level risk assessment in its Process Discussion Paper. MWLAP's current view is that such sites will not require remediation. However, in its view, such sites will be considered contaminated sites as a change in site activities (such as the removal of paving or the relocation of a building) could change an acceptable risk to an unacceptable risk. Based on MWLAP's current approach, a site which

7 passes a screening level risk assessment will be a contaminated site but one which is satisfactorily remediated. A certificate of compliance with conditions relating to the risk assumptions would be available for such sites. The EMA Supporting Regulation will need to be carefully reviewed once available to determine whether sites which meet a screening level risk assessment are contaminated sites but satisfactorily remediated (as suggested by MWLAP) or are not contaminated sites (as recommended by the Advisory Panel and supported by the BC Business Council). This will have due diligence and contract drafting impacts. If the latter approach is adopted, purchasers and lenders will want to ensure they understand the nature and extent of any contamination remaining on site. Currently based on the Discussion Papers, MWLAP contemplates the following categories of sites: (a) (b) (c) (d) Numeric Sites which are not contaminated sites as they do not contain substances in the soil or groundwater exceeding numeric standards; Screening Level Risk Assessment Sites which exceed numeric criteria, but which do not pose an unacceptable risk given the absence of pathways of exposures to receptors (i.e. people or the environment); Detailed Risk Assessment Sites which exceed numeric criteria and fail a screening level risk assessment, but which, based on more extensive risk assessment analysis, do not pose an unacceptable risk to human health or the environment. This type of site may or may not also need physical works (such as groundwater interceptors) or institutional controls to meet acceptable risk levels; and High Risk Sites Sites which exceed "hot spot numbers" (being contaminant concentrations capable of causing significant harm) and other site characteristics or conditions to be prescribed. Certificates of compliance will, based on MWLAP's Discussion Papers and recent stakeholder consultations, be available for sites meeting the level set forth in sections 3.1(a) to (c) above, with risk assessment conditions contained in certificates for sites in sections 3.1(b) and (c). Licenced environmental professionals ("LEPs") will oversee the regulatory process on sites within sections 3.1(a) and (b) and as time proceeds and their expertise increases, sites within

8 section 3.1(c). MWLAP involvement will, in the short term be limited to sites in sections 3.1(c) and (d) and with time, only to high risk sites. MWLAP will continue to sign certificates of compliance, but it is expected that the LEPs will do so in the long term, other than on high risk sites. 3.2 ELIMINATION OF CONDITIONAL CERTIFICATES OF COMPLIANCE The EMA eliminates conditional certificates of compliance and simply refers to certificates of compliance which may or may not have conditions. This means that parties will have to carefully review certificates of compliance to verify what conditions, if any, are attached to the site and what contamination remains on site. Lenders or purchasers cannot simply rely on a certificate of compliance as evidencing compliance with numeric criteria without reviewing the certificate in greater detailed to understand its scope. Section 140(5) provides that a conditional certificate of compliance issued under the WMA that is valid and subsisting when the EMA comes into force is deemed to be a certificate of compliance issued under the EMA. Nothing further is therefore required and the liability exemption against additional remediation for greener use at section 46(1)(m) of the EMA will apply as if the conditional certificate was a certificate of compliance issued under the EMA. 3.3 LIMITATION ON REOPENER Section 60 of the EMA no longer provides the MWLAP with the right to take further action based on a change in standards. Although MWLAP views this amendment as a significant concession, the impact of the amendment is limited as section 60(c) of the EMA provides MWLAP with the right to take further action if information becomes available about "a contaminating substance at the site that leads to a reasonable inference that the site poses a threat to human health or the environment". A simple change in standards will not permit further action, but discovery of a contaminating substance posing a threat to human health or the environment (even through a change in standards) may result in further action being required which, it is submitted, is the current effect of section 28.7 of the WMA and the related MWLAP procedure under that section.

9 3.4 LICENCED ENVIRONMENTAL PROFESSIONALS Section 42 of the EMA authorizes the director of MWLAP to establish a roster of qualified professionals to perform activities under the EMA. It is expected that the role of LEPs will continue to expand under the EMA and the EMA Supporting Regulation to include all sites, other than high risk sites. It is also expected that the number of consultants and their professions will be expanded. MWLAP is currently exploring the creation of an independent association to regulate LEPs. 3.5 RESCISSION OF APPROVALS AND CERTIFICATES Section 53(5) of the EMA provides that a director of MWLAP may rescind an approval in principle (i.e. an approval of a remediation plan) or a certificate of compliance if any fees are outstanding or if the conditions imposed on the approval or certificate are not complied with. This is a new provision and can result in an existing certificate being rescinded or terminated. In light of this new provision, it is prudent for purchasers and lenders to obtain a representation from the vendor or the borrower, as the case may be, that the terms and conditions of the subject approval in principle or certificate of compliance are in good standing and have been complied with and that all fees payable under Part 4 of the EMA or the regulations have been paid in full. 3.6 EMA SUPPORTING REGULATION The Discussion Papers and recent stakeholder consultations raise the following issues which may be addressed in the EMA Supporting Regulation expected in Spring 2004: A. Modification of Triggers for Site Investigation and Site Profiles currently set out in Section 26.1 of the WMA (and related legislation) The municipal permit or approval triggers are being reviewed. It is possible that those triggers may be limited to a change in land use (for example, from industrial land use to residential land use or a change in exposure pathways and receptors at a site). Narrowing the trigger to change in use will address the current concern over inability to obtain permits for expansion of existing industrial facilities where operations are ongoing and will continue. Under the WMA, permits for such an expansion would not be forthcoming without remediation. Decommissioning will likely continue to also be a trigger for site investigation. However, it is hoped that the definition of decommissioning will be clarified so as not to catch partial demolitions of buildings at a facility,

10 for example. High risk sites will trigger site investigation, but it is unclear how or when such a trigger will occur. It is hoped that this uncertainty will be eliminated soon as parties will be reluctant to enter into transactions involving high risk sites without knowing when MWLAP involvement will commence and the extent of such involvement. It is also expected that MWLAP will retain the right to require a site investigation when circumstances warrant it. Comments have been made to MWLAP that site profiles are of little value and should be replaced with Stage I Preliminary Site Investigation reports. B. Notification on Commencement of Site Investigations MWLAP appears to have backed off this initiative in recent stakeholder consultations given the deterrent effect of such a requirement on investigations. C. Site Classification See section 3.1 of this letter for the four proposed classifications of sites and the nature of certificates of compliance which will be available for them. MWLAP has backed off the creation of a separate instrument referred to as a "no further action letter" in order that a single instrument would be available for each category of site simply with different conditions depending upon the classification of site. MWLAP is also expected to simplify the term of "record of site condition" to site status summary, for example, as the document is intended to be a summary prepared by the LEP to be submitted to MWLAP in support of a recommendation for a certificate of compliance or other MWLAP approval and to be used to update the site registry. D. Role of LEPs LEPs will oversee the regulatory process on sites at the numeric and screening risk assessment levels and as time proceeds and their expertise increases, on sites the subject of detailed risk assessment, thereby ultimately limiting MWLAP's involvement to high risk sites only. MWLAP will continue to sign certificates of compliance, but it is expected that LEPs will do so in the long term, other than on high risk sites. The Discussion Papers also suggest the expansion of LEPs' role into enforcement including notifying regulators of certain events and advising regulators of effective measures having been or having not been undertaken with respect to migrating contamination. Stakeholders have strongly encouraged MWLAP to place notification requirements on responsible parties and not to place LEPs in a conflict of interest.

11 E. Revision of Standards MWLAP has created a Science Advisory Board to review standards and to, among other things, amend the generic soil and water standards in Schedules 4 and 6 of the CSR to include similar risk assessment analysis as was used for the creation of the matrix standards in Schedule 5, and with an emphasis on health risk. The Board will also assist in developing the requirements for the screening level risk assessment. F. Crystallizing Numeric Remediation Standards The Process Discussion Paper recommends the crystallization of numeric remediation standards applicable to a site commencing on commencement of remediation for five years thereafter. This is a significant improvement and will eliminate the current unfairness of a party remediating a site at great expense and an intervening change in standards preventing it from obtaining a certificate of compliance. G. High Risk Sites Little detail is provided in the Process Discussion Paper on the actual threshold for high risk sites. MWLAP has indicated that the threshold will be high and will only catch a handful of sites. However, reference has also been made to 30% of sites. MWLAP contemplates active involvement and potentially a very prescriptive role in the investigation and remediation of the sites. Examples in the Process Discussion Paper include notification obligations, including early in the process on investigation of the site, no right to independently remediate and a mandatory obligation to obtain an approval in principle. The treatment of high risk sites could be problematic if the category includes more than a handful of sites. This issue should be monitored as more details on likely provisions are forthcoming from MWLAP. H. Hazardous Waste The Process Discussion Paper recommends the deletion of reference to hazardous waste in the definition of contaminated site in Part 4 of the EMA. It states that this will occur at the time of replacement of the Special Waste Regulation with the Hazardous Waste Regulation which will exempt historic in-situ hazardous waste from the requirements of that Regulation as the matter will be governed by the CSR. It is likely that the Hazardous Waste Regulation will continue to govern the transport and off-site treatment and disposal of hazardous waste. It is hoped that all

12 in-situ hazardous waste will be exempt from the requirements of the Hazardous Waste Regulation and not only "historical hazardous waste contaminated sites" as currently defined in the Special Waste Regulation which only captures sites contaminated prior to April IV DUE DILIGENCE The principal elements of due diligence in buying, selling and developing a site are unchanged. Site investigations and record searches will continue as currently conducted. New issues or steps to consider in a due diligence review are as follows: 4.1 RISK ASSESSMENT Are you satisfied with a site meeting a screening level risk assessment without requiring remediation to numeric standards? Currently the marketplace values risk assessed properties less than sites remediated to numeric standards. This result is supported by the case Tridan Developments Ltd. v. Shell Canada Products Ltd., [2002] O.J. No. 1 Docket No. C34404 (Ontario Court of Appeal) where it was found that a residual loss of value would be incurred if the lands were only remediated to the level in the Ministry's Guidelines as opposed to pristine levels. It is likely that with time and more sites being remediated on this basis, market acceptance of sites remediated based on risk based standards will increase. This decision will be made on a case by case basis by parties based on the particular contamination at a site and the parties' risk tolerance. Purchasers and lenders will need to carefully examine the extent of contamination remaining on a risk assessed site, including a screening level risk assessment site, to ensure they are satisfied with the nature, extent and risk of migration of such contamination. This may entail a peer review by an independent environmental consultant. Extra vigilance will be required if MWLAP changes its current stance and treats screening level risk assessment sites as not contaminated sites as no certificate of compliance would then be available for them and no cost recovery action would be available for them. 4.2 CONDITIONS IN CERTIFICATES Carefully review the conditions in the certificate of compliance. Does the proposed development meet the conditions in the certificate and is it within the assumptions of the risk assessment report on which the certificate is based? If there are conditions to be performed after closing, who is responsible to perform them?

13 4.3 HIGH RISK SITES Determine whether the site is a high risk site and if so, ensure that you understand the remediation requirements to be contained in the EMA Supporting Regulation. You will want to ensure that the timing and cost of that process are acceptable for the proposed development or transaction. No detail is available on this topic yet. 4.4 LICENCED ENVIRONMENTAL PROFESSIONALS The quality and credibility of the environmental consultant or LEP is of increasing importance. In the majority of instances (excluding high risk sites and initially sites subject to detailed risk assessment), the LEPs will be doing all the investigative and remedial work and will be the person upon whom MWLAP will rely in signing certificates. Purchasers and lenders will more readily accept the validity of certificates in the due diligence process if an LEP with a strong reputation is used. It will not only expedite the regulatory process but also any deal. A purchaser will want to consider whether a peer review of the vendor's consultant's reports and certificate of compliance are necessary. As there will be no independent MWLAP review, there will be a greater likelihood of mistakes being made and certificates being improperly issued. 4.5 RELIANCE LETTERS Purchasers should ensure the vendor is obligated to provide reliance letters from the vendor's environmental consultants in order that the purchaser may rely on those consultants' reports. That will provide the purchaser with recourse against those consultants if an error is contained in the reports. This will save the purchaser time and expense as the purchaser's environmental consultants will not have to duplicate the work already performed by the vendor's environmental consultants. In addition, the validity of the certificate of compliance will be based on those reports. 4.6 SITE INVESTIGATION TRIGGERS Verify what the triggers for site investigation are under the EMA Supporting Regulation. Are you required to investigate and remediate your site as a condition of the proposed development? If so, ensure you have the appropriate environmental investigation report to prove there is no obligation to remediate (historically in the form of a site profile and usually a stage one preliminary site investigation indicating no contamination) or in the event of contamination, sufficient investigative reports to determine the nature and extent of contamination and a

14 remediation plan and strategy for obtaining the appropriate MWLAP approval or certificate by the point in time you require the closure instrument pursuant to the EMA Supporting Regulation. That point in time is currently on rezoning, subdivision, development permit, soil removal permit or decommissioning. In the future, it may only be on change in land use or decommissioning or as ordered by MWLAP. 4.7 NOTICE OF INVESTIGATION If an obligation to provide notice to MWLAP of commencement of site investigation is created, vendors will want to consider limiting a purchaser's right to investigate a site. Depending upon the wording of any notification obligation, it may be possible that so long as the vendor does not see or receive a copy of the purchaser's report, the vendor will not be obliged to provide notification. The exact wording of the notification obligation will need to be reviewed to determine the best manner to handle that obligation. Providing notice may give rise to claims and litigation and will need to be handled with care. V ADDITIONAL CONTRACT CLAUSES The following are additional contract drafting points to consider in light of the changes in the EMA and expected in the EMA Supporting Regulation: 5.1 REMEDIATION COVENANT Purchasers and potential lenders will want to include more requirements in any remediation covenant. For any site that will be risk assessed, they will want to be satisfied with the remediation plan and have the right to approve any conditions in the certificate of compliance. They will want to prescribe the nature, amount and location of any contamination that will remain on site and any management measures to monitor or contain any contamination left on site. 5.2 LICENCED ENVIRONMENTAL PROFESSIONALS Identification of, or approval rights over, the LEP is worthwhile. Purchasers will want credible LEPs given the lack of regulatory oversight and the potential for future random audits by MWLAP.

15 5.3 REPRESENTATION OF NO CONTAMINANTS Purchasers should obtain a representation that the property is free of contaminants with a definition of contaminants referencing any substance, the storage, manufacture, disposal, handling, treatment, generation, use, transport, remediation or release into the environment of which is regulated under environmental laws, without reference to a particular standard. That representation should disclose the vendor's knowledge of contaminants on site regardless of the site classification. If, for example, sites which pass a screening level risk assessment are not contaminated sites as recommended by the Advisory Panel, representations that a property is not a contaminated site, that it complies with laws and that no orders are issued in respect of it, will not be a meaningful tool to verify whether contamination is present at the site. 5.4 REPRESENTATION REGARDING CERTIFICATE Representations should be included that: (a) (b) the terms and conditions of the subject approval in principle or certificate of compliance are in good standing and have been complied with and that all fees payable under Part 4 of the EMA and the regulations have been paid in full, as described in greater detail in section 3.5 of this paper; and with respect to conditional certificates of compliance existing on the date the EMA comes into force, the conditional certificate of compliance is valid and subsisting on such date, as described in greater detail in section 3.2 of this paper. 5.5 CONTAMINANTS The definition of "Contaminants" should include reference to "hazardous waste" given the imminent replacement of the Special Waste Regulation with the Hazardous Waste Regulation. My practice is to refer to both hazardous waste and special waste pending the change in regulation. 5.6 ENVIRONMENTAL LAWS Ensure any definition of "Environmental Laws" includes reference to protocols, standards and criteria in addition to laws, regulations, bylaws etc., in light of the extensive power to establish protocols and enact regulations under the EMA.

16 VI REMEDIATION 6.1 MUNICIPAL APPROVALS It is not yet clear how MWLAP will amend the site investigation trigger for municipal permits or approvals. Whether or not a permit or approval is available given site contamination has a significant effect on the feasibility, timing and cost of a development. As a result, the developments on this issue in the next few months should be monitored. See section 3.6A of this paper for contemplated amendments of triggers. In addition, if the triggers are only change in land use and decommissioning, for example, the timing which MWLAP will select under the Investigation Trigger Discussion Paper is not yet clear. The partial release approach described in section of the Investigation Trigger Discussion Paper would require a certificate of compliance prior to occupancy permit whereas the complete release approach in section of that Discussion Paper would not require any instrument prior to permitting. That Discussion Paper also raises the possibility that either approach may be limited to only certain types of sites. This process is critical in the land development industry given the significant effect on timing and cost. In addition, if MWLAP is prepared to narrow the triggers for investigation or only to require a certificate prior to occupancy or not at all, it will be important to verify whether individual municipalities have additional requirements that must be met. 6.2 CLOSURE Please see sections 3.1 to 3.3 for a description of certificates of compliance and the ability of MWLAP to reopen the certificate following remediation. 6.3 CRYSTALLIZATION OF STANDARDS See section 3.6.F regarding a possible amendment to crystallize numeric remediation standards for five years commencing on commencement of remediation. 6.4 INDEPENDENT REMEDIATION It is not clear whether the current MWLAP band-aid solutions to the municipal permitting bottleneck will continue following the above-described EMA amendments. Those band-aid solutions include remediating pursuant to Draft Technical Guidance Document No. 4, no investigation letters and Bill 32 determinations of no significant risk or acceptance of independent remediation. These tools have provided material flexibility to the current

17 remediation process. Unless the new process provides such flexibility, these alternative approaches should be retained and LEPs authorized to make the determinations in lieu of MWLAP. VII EFFECT OF OTHER LEGISLATIVE AND POLICY CHANGES ON DEALS There have been a number of other legislative and policy changes, cases and remediation orders with related statements of reasons under Part 4 of the WMA and the CSR (hereafter collectively the "Contaminated Sites Legislation"). The balance of this paper will outline the most important of these developments other the last two years and their impact on deals. 7.1 REVISED PROTOCOL 6 - ROLE OF ROSTERED EXPERTS One of the most significant changes that has positively affected deals is revised Protocol 6 of the B.C. Ministry of Water, Land and Air Protection ("MWLAP") effective in early January The revised Protocol dramatically extends the type of contaminated sites that will be considered low to moderate risk sites. If a site is a low to moderate risk site, an environmental consultant, who is on MWLAP's Roster of professional experts, may perform the review of reports and make recommendations to MWLAP regarding contaminated site determinations, issuance of approvals in principle and certificates of compliance and endorsing contaminated soil relocation agreements. Proceeding by way of Roster review significantly shortens timelines for MWLAP signoff. Instead of several months, the approvals only take a number of weeks. Revised Protocol 6 allows Roster review on all sites except sites: being remediated by risk-based standards; under remediation order or other order; being remediated by site specific numerical standards or local background concentrations, unless MWLAP pre-approves the matter; where only part of the contamination is being remediated; or where remediation under an approval in principle will take more than two years.

18 Revised Protocol 6 has made a significant change in the time and cost of remediation. It also reflects less government involvement on the majority of sites, but preserves MWLAP's role in high risk sites. Hiring an environmental consultant who is on the Roster will save time and expense as that consultant may not only do the investigations and reports, but may also perform the Roster review. 7.2 WASTE MANAGEMENT AMENDMENT ACT, 2002 The Waste Management Amendment Act, 2002 (the "2002 Amending Act") came into force on May 9, 2002 and made two changes of note for the real estate industry. Firstly, it clarified the prerequisites which must be satisfied prior to a cost recovery action for remediation costs. The legislation eliminated the uncertainty arising from a number of conflicting case authorities regarding whether MWLAP determinations had to be obtained prior to going to Court to recover cleanup costs. The legislation provides that: where remediation is not by way of the independent remediation process, the prerequisite to Court action is: the site must be determined by MWLAP to be a contaminated site under section 26.4 of the Act, or MWLAP must have issued an approval in principle, certificate of compliance or conditional certificate of compliance, appointed an allocation panel, made a minor contributor determination or entered a voluntary remediation agreement; or where remediating independently and there has not been a determination of contaminated site under section 26.4 of the Act, the Court will make the determination. At a practical level, anyone remediating who wishes to reserve their right to recover cleanup costs against others will want to obtain a MWLAP site determination, approval in principle or certificate. Generally, anyone remediating will in any event be obtaining a certificate of compliance or conditional certificate of compliance for municipal development approvals, marketability or financing reasons. If so, they will have preserved their right to sue for recovery of cleanup costs pursuant to the cost recovery action in the Contaminated Sites Legislation.

19 The 2002 Amending Act has eliminated the unfortunate result of persons losing their right to sue simply because they failed to obtain a MWLAP determination of contaminated site. These provisions of the 2002 Amending Act do raise a strategic question of whether a site owner should simply obtain an approval in principle or certificate of compliance and not seek a formal MWLAP site determination which involves notice to other potentially responsible parties and the potential for appeal to the Environmental Appeal Board. It is anticipated that except on sites with complex contamination and multiple potentially responsible parties, most owners will simply seek an approval in principle or certificate of compliance. It will, however, still be important to provide other potentially responsible parties with notice of the contamination and the intended manner of remediation to support the site owner's claim that the remediation costs incurred were reasonable. It should also be noted that these provisions do not have retroactive effect and will not be applicable to lawsuits commenced prior to May 9, Secondly, the 2002 Amending Act expanded the ways in which MWLAP may authorize release of municipal development approvals, such as rezoning, subdivisions and development permits on contaminated sites. Originally in 1997 the site owner required an approval in principle, certificate of compliance or conditional certificate of compliance. The 2002 Amending Act has formalized the previous policy (MWLAP's draft Technical Guidance Document No. 4) of also using a no investigation letter from MWLAP (where MWLAP is generally satisfied with the site proponent, its consultants and the proposed remediation plan). The 2002 Amending Act also permits a letter that in MWLAP's opinion the site would not present a significant threat or risk if the municipal approval was granted. These amendments have facilitated the flow of MWLAP's letters pursuant to these sections and have expedited project approvals. These amendments constitute a material improvement and have resulted in greater MWLAP flexibility and responsiveness. In my experience, MWLAP prefers to continue to use no investigation letters, given the absence of any policy as to what constitutes a site that does not present a significant threat or risk. 7.3 CSR AMENDMENT FEB B.C. Regulation 17/2002 (the "CSR Amendment") amended the CSR effective February 4, The primary change of importance in the CSR Amendment was the addition of the obligation to provide notice to neighbours (copied to MWLAP) of the discovery of migrating

20 contamination. Such a notice will often result in a claim by the neighbour and failing resolution, in litigation. Given this risk, thought should be given to the location and sequencing of a site investigation as well as if adverse results are obtained, whether the specific prerequisites of the obligation have been satisfied. The obligation arises in two situations. Firstly, a responsible party who carries out a site investigation that discloses one or more substances have migrated or are likely to have migrated to a neighbouring site and are or are likely causing contamination of the neighbouring site must provide written notice to the owner of the neighbouring site with a copy to MWLAP within 15 days after the responsible party becomes aware of the migration or likely migration of each substance to the neighbouring site. The required content of the notice is set forth in section 60.1(2) of the CSR. Secondly, a responsible party who carries out independent remediation is under a similar obligation pursuant to section 57(1) and (1.1) of the CSR. MWLAP has issued a guideline that these obligations only arise in respect of investigations or independent remediation underway or carried out on or after February 4, See our attached Alerts from February and March 2002 attached as Schedule A to this paper if you wish further details on this obligation and strategies in respect of it. The CSR Amendment made a number of other amendments. A further amendment of general interest is the addition of dry cleaning facilities, sawmills and sites affected by migrating contamination to the list of industrial or commercial activities triggering a site profile. (The CSR Amendment had provided that MWLAP fees would be based on the actual or estimated area of contamination if known, rather than the area of the legal parcel. This amendment has been deleted in Regulation 419/2003 referred to in section II(a).) 7.4 CHANGES IN STANDARDS Changes in standards continue to occur on a relatively regular basis. Given the technical nature of these, you should direct questions of this nature to your environmental consultants.

21 VIII IMPACT OF RECENT CASES ON DEALS 8.1 BC HYDRO ESCAPES LIABILITY In British Columbia Hydro and Power Authority v. British Columbia (Environmental Appeal Board), 2003 B.C.C.A. 436, the British Columbia Court of Appeal decided in July 2003 that BC Hydro was not liable for the activities of its predecessor B.C. Electric Corporation. The case involved coal tar contamination at 9250 Oak Street, Vancouver, B.C. A coal gasification plant operated by B.C. Electric had been a supplier of coal tar to 9250 Oak Street from 1920 up until In 1965 B.C. Electric was amalgamated with two other corporations to form BC Hydro. The amalgamation was effected under an agreement under a special act of the Legislature and a special Order in Council, as opposed to a typical amalgamation under the B.C. Company Act. The amalgamation agreement and the Order in Council provided that BC Hydro is subject only to those obligations of B.C. Electric that existed as liabilities immediately before the amalgamation in The Court held that the WMA does not operate retroactively, but only retrospectively and that therefore immediately prior to the amalgamation in 1965 B.C. Electric was not a responsible person and BC Hydro could not be fixed with that liability. The Court was split on the issue with each judge rendering different reasons for judgment. Leave to appeal has been filed with the Supreme Court of Canada and a decision on that application is not expected until early There are a number of contaminated sites in British Columbia contaminated by B.C. Electric that will be affected by this decision. The Court made it clear that there were unusual circumstances associated with this amalgamation and that under a normal amalgamation under the B.C. Company Act, the continuing company would be assuming the ongoing liabilities of entities that existed prior to the amalgamation. The Supreme Court's decision on retrospective liability will be important as the concept could apply in a similar manner to the assumption of liabilities of a company being wound up prior to 1997 when the Contaminated Sites Legislation came into effect. 8.2 REMEDIATION COST RECOVERY CLAIMS COURTS SUPPORT RECOVERY The British Columbia Court of Appeal issued judgment on January 28, 2003 in two cases, Seabright Holdings Ltd. v. Imperial Oil Limited and Mohawk Canada Limited, 2003 BCCA 57 and Workshop Holdings Ltd. v. CAE Machinery Ltd., 2003 BCCA 56. The Seabright case involved the on-site contamination of a site used for 69 years as a gas station at the corner of Collingwood and 41 st Avenue in Vancouver. The Workshop case involved a property on East

22 Pender in Vancouver which was used for an iron and brass foundry for 25 years between 1924 and As the cases arose prior to the 2002 Amending Act, that Act was not applicable to the matters. The Court decided that it was not necessary to obtain a determination that a site is contaminated prior to a remediation cost recovery action. This decision is important for all contaminated site lawsuits commenced prior to May 9, 2002 when the 2002 Amending Act came into force. It is noteworthy that the Court of Appeal stressed in both cases that one of the fundamental purposes of the Contaminated Sites Legislation is the remediation of sites in a timely manner and that the Court will interpret the Legislation in a fair, large and liberal manner to best ensure attainment of that objective. The Court acknowledged that its decision means that other potentially responsible parties may lose procedural protections (the right of input and appeal offered by the MWLAP determination). However, the objective of facilitating speedy remediation was found to prevail over other responsible parties' procedural protection based on the wording and intent of the Legislation. Potentially responsible parties will want to consider their strategy in how proactively to respond to notices of contamination received from site owners who are remediating a site. Their strategy will depend on the extent of their contribution to the contamination, the length of their involvement with the site and the number of other potentially responsible parties who may have contributed to the contamination. The strategy will turn on the specific facts. However, generally the greater a potentially responsible party's involvement with the site and contamination, the more proactive it should be in the remediation process. The Court's statements in these cases in support of remediation and cost recovery suits will bolster cost recovery claims against tenants or previous owners who have contaminated sites where leases or purchase agreements may not provide a strong claim in contract. The Courts appear to be treating the cost recovery claim relatively independently from contracts between the parties which may contain limited rights of recourse particularly where the contacts pre-date In another case, L-2176 Holding Ltd. v B.C. Ltd. et al., 2002 BCSC 993 (June 24, 2002), the British Columbia Supreme Court permitted a purchaser of a contaminated site to pursue its claim for breach of a purchase and sale agreement without remediation or a cost

23 recovery action. The vendor's warranty at issue was the "subject property contains no hazardous soil contamination". The claim for damages was for the diminution in value of the property of $1,625,000 based on the difference between the purchase price of $5.25 million and the resale price of $3.625 million. The defendant had sought to convince the Court that the case was in fact a remediation cost recovery action as the defendant had been found by an allocation panel to be a minor contributor and yet was facing a significant damage claim. 8.3 SEABRIGHT ENVIRONMENTAL APPEAL BOARD DECISION In a decision rendered October 28, 2002, South Pacific Development Ltd. and Imperial Oil Limited v. Assistant Regional Waste Manager (Appeal No. 2002WAS-010 and 2002WAS- 011(b)), the British Columbia Environmental Appeal Board found that Imperial Oil Limited and South Pacific Development Ltd. were properly named on the remediation order in respect of the off-site contamination at the gas station formerly at Collingwood and 41st Avenue in Vancouver. Both responsible parties were owners and operators of the property. I will highlight two practice points arising from this case. South Pacific argued that it should not be named in light of the private agreement (the sale agreement) whereby the purchaser of the site in 1997 agreed as follows: "... the Buyer agrees to pay for the clean-up cost of the Property and any remediation which may be required by the Ministry of Environment... The Buyer will release the Seller from any liability or obligation relating to (same)." The purchaser had since spent in excess of $1 million to remediate the on-site contamination. The Environmental Appeal Board found that this clause did not clearly on its face allocate liability for remediation of the offsite contamination. As a result, the Board found that MWLAP had not failed to take into account this agreement in naming South Pacific to the order. Contracts should clearly allocate liability for remediation in respect of all aspects of the contamination to qualify as a private agreement that MWLAP will take into account in not naming a person on a remediation order. Imperial owned the site for 10 years and operated the station for 5 years of the station's 69 years of operation. Imperial argued that the MWLAP erred in basing its decision on the portion of Imperial's ownership from 1983 to 1987 when the property was leased to Mohawk. It argued that the tenant's indemnity in the lease and Mohawk's subsequent indemnity in favour of Imperial in the purchase and sale agreement were sufficient to relieve Imperial from liability. The lease indemnity was for claims arising out of "Mohawk's use and occupation of the

24 premises" and the indemnity in the sale agreement used similar wording. The Board held that broadly worded, general indemnities were not "agreements respecting liability for remediation" under the Contaminated Sites Legislation. Although such findings by the Board do not preclude resort to the Courts for interpretation of these clauses in a cost recovery action, such clauses will not insulate a person from being named on a remediation order. It is another reminder to draft indemnities which are specific to environmental liabilities and in particular, for example, the liability for remediation of on-site and off-site contamination. 8.4 DEEP POCKETS AND RELUCTANCE TO NAME GOVERNMENTS On July 25, 2002, the Director of Waste Management at MWLAP denied CN's application to add the BC government, federal government, North Fraser Port Authority and Land and Water British Columbia Inc. to the remediation order for 8335 Meadow Avenue in Burnaby (one of the significant contaminated sites that has been under order since 1997). The government entities were the owner of the foreshore leased to the operator, and the federal government and Port Authority also conducted dredging and pile driving in the foreshore that worsened the creosote contamination. CN submitted that just as it had been named to the order as an owner of the contaminated site, so should the four government entities be added. MWLAP decided not to name the four government entities as remediation would not be jeopardized in their absence. CN and Beazer were "very substantial enterprises that are well able to fund the remediation". The Board noted that CN and Beazer can resort to the Courts to pursue any cost recovery remedies they may have against the government entities. On appeal of this decision to the Environmental Appeal Board, the Board held in the Fall of 2002 that a refusal to amend an order is not a type of decision that can be appealed based on the wording of the Act and that it has no jurisdiction over the appeal. The parties were therefore left without recourse on the order in respect of this issue. This decision illustrates the unfortunate result that once a remediation order has been issued naming one or more entities with deep pockets, it will be difficult to subsequently add others unless for some reason prompt and effective remediation is being jeopardized. When consulted prior to issuance of a remediation order, submissions regarding other material responsible parties should be made to make every effort to have them named at first instance and on a consistent basis. The decision also makes a strong case for the amendment of the Act to permit the refusal of MWLAP to act to be appealed.