Litigation Strategy Should Be Integrated Into Development Strategy to Succeed in Both Arenas

A recent decision from the Superior Court should caution developers to be mindful of the implications of their decisions and actions on their ability to successfully pursue an environmental claim. Failure to contemplate the evidentiary requirements in the determination of a contamination source prior to alteration of the project site could create significant difficulties for project developers later on. Further, a development strategy that incorporates the needs of litigation will better track the costs and damages of the contamination.

Background

Tre Memovia Developments Ltd. v. 1491316 Ontario Inc., 2020 ONSC 1568 is an interim decision involving a request to permit invasive testing, which would be intended to provide evidence at trial. For the reasons discussed below, the court did not permit the plaintiff to complete certain testing after it had altered its property.

Tre Memovia is concerned with contamination on two properties being used for a condominium development that included a two-story underground parking garage (the “Development Site”). Tre Memovia Developments Ltd. (the “Developer”) discovered chlorinated solvents in the groundwater, but not soil, at its Development Site in 2012 during the second of two environmental site assessments. A prior assessment in 2011 did not reveal the presence of chlorinated solvents in the soil or groundwater. Three sources of potentially contaminating activities were identified: two neighbouring dry cleaners, and a past fire on one of the two properties in 2001 that resulted in a building demolishment and off-site fill being brought on site.¹ However, despite discovery of the contamination, the Developer did not attempt to conduct more tests after the 2012 test results, nor did it take samples from the off-site fill in the Development Site when it was being excavated.² Instead, the Developer chose to work with the Ministry of the Environment to undertake risk assessment measures in relation to the planned construction.³

In March 2013, the Developer commenced an action against the Defendant, one of the neighbouring dry cleaners, for the contamination on the Development Site.⁴ The Developer hired a new environmental consultant in 2017 and then brought a motion pursuant to Rule 32.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 to do intrusive testing on the Defendant’s property in 2018.⁵

The Decision

The matter was originally determined by Master Smart who denied the request to comply with the testing of the Defendant’s property. In the appeal of Master Smart’s decision, the Court confirms the approach outlined in Peel School District No.19 v. 553518 Ontario Ltd., [2000] O.J. NO.3581 with respect to permitting intrusive testing on a party’s property. Specifically for this matter, will the proposed testing be “‘probative’ of the source of the contaminants found in 2012?”⁶ If it is established that the testing is useful, the Court must then consider if the testing will prejudice the Defendant and balance that fact with the benefit derived from the testing. Master Short found that “[e]ven if PCE or TCE [chlorinated solvents] were found in the soil or groundwater beneath the defendant’s property, it would not determine whether such contamination migrated to the plaintiff’s property in the past and caused the contamination found in 2012.”⁷ The Court noted that Master Short set out the correct test with respect to evaluating the Developer’s motion to do intrusive testing and it also found that the Master did not make a palpable or over-riding error with respect to the facts.⁸ There was evidence before the Master that there was a change in soil and/or groundwater conditions under both properties⁹ and the Developer’s own consultant “noted that the direction of the water table is affected by underground structures such as underground parking garages, such as that constructed by the Plaintiff.”¹⁰

Master Short stated “the desired searches could have been made prior to the commencement of construction and … the defendants are in no way responsible for the tactical extent of inspection decisions made on the Plaintiff’s behalf while the property was intact and undisturbed.”¹¹

With respect to the matter of prejudice to the Defendant, the Court noted that “the two concepts of prejudice blurred in the context of the case”¹² i.e. prejudice in the context of the action as a whole versus prejudice from the cost and disruption of operations of the Defendant’s business due to the testing. The Master stated that the argument for both aspects was persuasive, specifically noting “the destruction of the evidence by the Plaintiff would create an uneven playing field”¹³ between the parties i.e. the fill in the Development Site had already been removed. The Court found no basis to interfere with the Master’s conclusion in denying an order to allow the Developer to do intrusive testing on the Defendant’s property.¹⁴

Analysis

Collecting evidence for litigation is understandably not the highest priority for most builders and developers. However, this decision makes it clear that decisions made during construction can have serious consequences on litigation to recover damages for contamination.

While it seems likely that the Developer would have been successful in obtaining an order to conduct intrusive testing if the request had been made within a reasonable time after the discovery of the contamination in 2012, it is likely that a more comprehensive approach – incorporating litigation into the development process – would have led to additional evidence being gathered by the Developer, which may have obviated the need for testing by the plaintiff on the Defendant’s property. Such evidence may also have incented the Defendant to settle or caused the Defendant to gather additional evidence to exculpate itself.

By delaying testing to determine the source of contamination until after construction started, the Developer, arguably unintentionally but effectively, changed the condition of the Development Site and impaired the value of any evidence that could potentially be gathered and used to answer this key question. As acknowledged above, the underground parking structure likely had an impact on groundwater movements. While the fact that the litigation was against a small business, which likely also played a role in denying the order, as a small business would suffer more from business interruption than a larger business would, it does not reduce the importance of being able to control the preparation and gathering of evidence rather than needing to rely upon the court to assist in those efforts.

Conclusion

Developers of contaminated lands with potential environmental claims should develop an evidence gathering and preservation strategy that is incorporated into the development process. This will ensure necessary evidence is gathered to put forth the best claim possible and will also allow the tracking of costs to support the claim for damages without unnecessarily delaying or increasing the costs of development. An early strategy session of the developer, environmental consultant and legal counsel could pay significant dividends later on and avoid inadvertent mistakes that will hinder any future litigation.

*The authors would like to thank Matthew Patterson, a 2020 summer student at the firm, for his assistance with the article.