GRJ Holdings Ltd v GBM Trailer Service Ltd, 2017 ABQB 731

Court of Queen’s Bench of Alberta Citation: GRJ Holdings Ltd v GBM Trailer Service Ltd, 2017 ABQB 731 Date: 20171130 Docket: 0701 05922 Registry: Calgary Between: G.R.J. Holdings Ltd. Plaintiff - and - Total Energy Services Ltd. and G.B.M. Trailer Service Ltd. Defendants _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice G.A. Campbell _______________________________________________________ I INTRODUCTION [ 1 ] This action arises out of a sale and leaseback of property entered into between the Plaintiff, G.R.J. Holdings Ltd., and the Defendants, G.B.M.

Trailer Service Ltd. and its parent company, Total Energy Services Ltd. (collectively referred to as the “Defendants”). [ 2 ] This four-day trial determines which party is responsible for the costs of removing an underground storage tank (the “Storage Tank”) and associated contaminants from the Plaintiff’s land located in southeast Calgary, Alberta (the “Land”). The Storage Tank was situated underground when the Plaintiff purchased the Land from the Defendants, who had used the Storage Tank in carrying

out their tanker truck repair business. After the purchase, the Plaintiff leased the Land back to the Defendants under a written lease agreement dated May 14, 2001 (the “Lease”) and the Defendants continued to use the Storage Tank in the course of conducting their business. [ 3 ] When the Defendants vacated the Land at the end of the Lease, they left the Storage Tank installed underground.

A Phase II environmental site assessment (the “Phase II Assessment”), conducted after the Defendants ceased operations and vacated the property, concluded that the Land had not been significantly compromised by the Defendants’ onsite and offsite facilities and activities. [ 4 ] When the Defendants refused to remove the Storage Tank from the Land, the Plaintiff arranged to do so. In the process of its removal, the Storage Tank was punctured, tipped, and contaminants spilled onto the soil. Subsequent testing showed unacceptable levels of contamination in the area where the Storage Tank had been installed.

The Plaintiff paid for the removal of the Storage Tank and the contaminated soil from the Land. [ 5 ] The Plaintiff seeks to recover the costs it incurred in removing the Storage Tank and rectifying the contamination of the Land. II FACTS [ 6 ] There is little dispute as to the facts. An Agreed Statement of Facts (the “Agreed Facts”), entered as Exhibit 1 at trial, sets out the background facts in detail. The Agreed Facts are not restated in their entirety as part of this decision, as they are included in the Appendix hereto.

I refer to specific facts when relevant to the discussion. [ 7 ] In addition to the Agreed Facts, three witnesses testified as to the parties’ business dealings. Gerry Stotts, the president of the Plaintiff, testified to his role and recollection of the Plaintiff’s dealings with the Defendants.

Total’s chairman and chief executive officer, Dan Halyk, and its former chief financial officer, David Hawkins, testified to their roles and recollections of the Defendants’ dealings with the Plaintiff. [ 8 ] These witnesses’ testimony was useful in providing a more complete understanding of the parties’ dealings and understandings. Where relevant, their evidence together with the Agreed Facts provides the findings of fact that are relied upon in this decision. III ISSUES [ 9 ] I must decide the following issues: (

a) Who owns the Storage Tank? (

b) Did the Defendants have a legal obligation to remove the Storage Tank from the Land at the end of the Lease? (

c) Who is responsible for the costs of removing the Contaminants found on the Land in December 2006?

IV ANALYSIS A Who Owns the Storage Tank? 1 The Land Purchase Negotiations [ 10 ] The Plaintiff purchased the Land from the Defendants under a sale agreement entitled “Offer to Purchase and Interim Agreement” (the “Sale Agreement”) that closed on June 29, 2001. [ 11 ] When it was sold, the Land consisted of approximately 4.75 acres on which there was a single storey office building with attached 10,000 square foot warehouse and shop, a large storage yard area to the east, a parking lot to the northwest and a tanker truck steam purging and washing facility to the south of the building.

The warehouse area was used as a repair shop for tanker trailers. The steam purging and washing facility included a steam rack and underneath it, the Storage Tank. A concrete pad covered the Storage Tank. [ 12 ] Mr. Stotts negotiated the purchase on behalf of the Plaintiff, which had yet to be incorporated. He explained that the Plaintiff was the vehicle used to purchase the Land, which was being acquired by Mr. Stotts and his partner for investment purposes. The Land is the Plaintiff’s only asset. What interested Mr.

Stotts and his partner in purchasing the Land was that the purchase would generate an immediate return as the Defendants were looking to lease back the Land so that they could continue their tanker truck repair operations uninterrupted. [ 13 ] Mr. Stotts testified that, at the time of the purchase, he was aware of the Defendants’ tanker truck repair business, as his company had supplied GBM with materials. Mr.

Stotts testified that he was also aware of the existence of the underground Storage Tank. [ 14 ] The Defendants were interested in a land sale that included a lease back to them so that they could continue their business operations uninterrupted. They used the Land to carry out their primary business, which was the repair of crude and refined petroleum tanker trucks, but also as a storage area. An integral part of their tanker truck repair operations was the “steam purging” of dangerous

fumes and flammable residue from the interior of tanker trucks. [ 15 ] Mr. Halyk described the steam purging process. Every tanker truck underwent steam purging before being brought into the building for repairs to ensure that they were safe to be serviced. Tanker trucks were driven over to the steam rack area, where they were parked underneath the steam rack and over the concrete pad covering the Storage Tank. Steam lines were connected to the top of the truck’s tank and steam was used to purge the tank interior of petroleum products and fumes.

The bottom valves of the tank were opened to drain any residue and steam waste (sometimes described as wash water) into the Storage Tank, which was later pumped out and disposed of offsite. [ 16 ] During the negotiations for the Land purchase, there were no discussions between the Plaintiff and the Defendants about who owned the Storage Tank and whether it was being sold with the Land. As Mr.

Stotts testified, “not much thought” was given to the existence of the Storage Tank or whether it should be included as a specific item for discussion in the parties’ negotiations. [ 17 ] On the closing of the sale, the Storage Tank remained installed underground.

As contemplated by the parties, there was no interruption to the Defendants’ tanker truck repair operations, which simply continued but with them as tenant and no longer owner of the Land. [ 18 ] It is clear that the parties never specifically addressed whether the purchase of the Land included the Storage Tank; it is equally clear that the parties held differing views on this issue. Mr. Stotts’ testimony was that the Plaintiff never intended to purchase the Storage Tank and did not believe that its purchase of the Land included it. Mr. Halyk and Mr.

Hawkins both testified that the Defendants’ understanding was that the Land was sold with all of its improvements or fixtures, and one such fixture or improvement was the Storage Tank. 2 The Sale Agreement [ 19 ] The Sale Agreement sets out that the Land being purchased included “the lands together with all existing improvements and chattels used for or in connection with the maintenance and operation of the building as at the date of this Offer (the lands, and the building and chattels being hereinafter collectively referred to as the ‘Property’) ...”. [ 20 ] It seems clear that the reference to “existing improvements” was not intended to be qualified by the words “used in connection with the maintenance and operation of the building”, particularly given that a building — an existing improvement in and of itself — was located on the Land at the time of purchase and sale. [ 21 ] It follows that the Sale Agreement expressly specified that three categories of real and personal property were being sold: the physical land, existing improvements on the land, and lastly, all chattels used for or in connection with the maintenance and operation of the building. [ 22 ] Thus, ownership of the Storage Tank turns on a consideration of whether the Storage Tank was an existing improvement (a fixture) or a chattel on the Land.

If the Storage Tank is a fixture, then it was part of the “existing improvements” on the Land purchased by the Plaintiff and became owned by them. If the Storage Tank is a chattel, then it remained owned by the Defendants. 3 Fixture or Chattel: Relevant Legal Principles [ 23 ] The parties referred to case law that considered whether an

article on land is a fixture and therefore part of the land, or whether it is a chattel and therefore not part of the land. [ 24 ] The seminal case of Stack v T. Eaton Co . (1902), 4 OLR 335 (HCJ) at p 338, set out the principles that the courts have since applied in determining whether an

article on land is a fixture or a chattel: I take it to be settled law:

(1) That articles not otherwise attached to the land than by their own weight are not to be considered as part of the land, unless the circumstances are such as shew that they were intended to be part of the land.

(2) That articles affixed to the land even slightly are to be considered part of the land unless the circumstances are such as to shew that they were intended to continue chattels.

(3) That the circumstances necessary to be shewn to alter the prima facie character of the articles are circumstances which shew the degree of annexation and object of such annexation, which are patent to all to see.

(4) That the intention of the person affixing the

article to the soil is material only so far as it can be presumed from the degree and object of the annexation.

(5) That, even in the case of tenants' fixtures put in for the purposes of trade, they form part of the freehold, with the right, however, to the tenant, as between him and his landlord, to bring

them back to the state of chattels again by severing them from thesoil, and that they pass by a conveyance of the land as part of it, subject to this right of the tenant. [25] Alberta courts have somewhat refined these principles. Our Court of Appeal in Blower v Alberta (Workers' CompensationBoard) (1983), 50 AR 66 at p 71 (QB), affirmed (1984), 68 AR 156 (CA) framed the test as follows: The degree of annexation is [a] function of the ease of severance and the amount of damage to the structure which would occur onseverance. The more difficult the severance and the more extensive the damage, the more likely is the

article to be seen as a fixture. The test for deciding the object of annexation is this: was the object of affixing the

article to improve the freehold or for the betterenjoyment of the

article as a chattel? [26] In Alberta Agricultural Development Corp v Corey Livestock Ltd (1992), (AB KB), 130 AR 50 (QB) (atpara 7) Master Waller, in determining whether certain agricultural developments were fixtures or chattels, found particularly instructivethe following words of Milvain J (as he then was) in Elleker v Farmers & Merchants Trust Co (1964), (AB KB), 47WWR 96 at p 101: I have reached the conclusion that great confusion is created by courts which slavishly follow cases rather than principles.

As Iunderstand the law it is a question of intent as to whether chattels become part of the realty, and such intent is to be found in thecircumstances of each case as a finding of fact. I do not believe the proper principle can be better stated than was done by Spence, J. inRe Davis, [supra], where he says at p. 190: ‘I think the test of whether these bowling alleys should be considered to be part of the real estate and therefore whether their valueshould be included in the calculation of the dower is best obtained in Haggart v. Brampton (Twp.) [supra], particularly at p. 182.

If theobject of the affixing of chattels is to improve the freehold, then, even if the chattels are only slightly affixed to the realty, they may wellbecome part of the realty. If, on the other hand, the object of the affixation of the chattels is the better enjoyment of the chattels, then theaffixation does not make them part of the realty. In the case at bar I do not think the machinery ever became a part of the realty.

In my view, the degree of affixation was clearly done forthe better enjoyment of the machines, as machines and not with the intent and for the purpose of improving the freehold. [27] Stevenson, JA, writing for the Alberta Court of Appeal in AMIC Mortgage Investment Corp v Investors Group Trust Co,1985 ABCA 173, affirmed this test, rephrasing it slightly at para 4: “Whether a particular chattel has become a fixture is essentially a question of fact.

The Court must consider the degree of annexation andwhether the object of the annexation is the enjoyment of the chattel as distinct from the improvement of the property, or, put anotherway, whether the annexation is for the convenience of the owner rather than for the purpose of improving the lands and premises. ... [28] Thus, to be a fixture, the

article must be annexed or affixed in some fashion to the land. Whether an

article is a fixture dependson the circumstances of each case: see Holland v Hodgson (1872), LR 7 CP 328. The factors relevant to the inquiry include the nature,degree and object of the annexation to the land; the manner of attachment and the purposes served; the intention of the property ownerwho placed the

article on the land; and, the article’s intended use. 4 Relevant Facts about the Storage Tank [29] In 1998, the Defendants removed two 5,000 litre steel underground steam waste water tanks and replaced them with theStorage Tank, which is a 30,000 litre fiberglass tank. Mr. Halyk testified that they replaced the two old storage tanks with the newStorage Tank to modernize and upgrade their business activities. The Storage Tank, with its larger capacity, did not have to be emptied asoften, saving them time and money. [30] That same year, the Defendants’ personnel designed and had the steam rack built.

The steam rack is a manifold that directssteam into hoses used for cleaning the interior of tanker trucks. The steam rack was installed on top of a cement pad that covered theStorage Tank. The steam rack consisted of eight legs welded to supports that were then embedded into the concrete pad. Inlet or fillpipes led from the Storage Tank up through the cement pad where they were connected and sealed in a drain pan that was connected tothe steam rack.

A steam pipe ran from the top of the steam rack overhead across the lot to the warehouse building where it was run intothe interior of the building where it then connected to a boiler. The boiler was bolted to the floor of the warehouse building and wasconnected by piping to the natural gas system. The boiler produced the steam that came out of the steam rack into hoses used to steamclean the tanker trucks. [31] The Storage Tank was buried underground. It was placed inside an excavated hole with a fabric liner.

The Storage Tank wasstrapped to two large concrete anchors at the bottom of the hole, which held the Storage Tank in place, preventing it from floating in thehole. Backfill consisting of clean pea gravel covered the Storage Tank. A large concrete pad of approximately six to eight inches inthickness was installed on top of the Storage Tank. The concrete pad was designed to capture any spillage from the tanker trucks beingcleaned and direct the spillage into the hole to the Storage Tank. The tanker trucks were parked on the concrete pad while their tankswere being steam cleaned. [32] Mr.

Halyk acknowledged that the Storage Tank could perhaps have been installed above ground, but he testified that the bestand safest option for the steam purging activities was to bury the Storage Tank underground. This was because gravity assisted indraining the steam water from tanker trucks into the Storage Tank if it was situated directly below the tankers. Mr. Halyk furtherexplained that for safety code reasons, GBM’s steam-purging operation required the Storage Tank to be underground. [33] Mr. Halyk confirmed that the Storage Tank was an integral part of the steam rack system.

He explained that the steam rackwas designed to be moveable, although he was not certain if movability was an objective they had in mind at the time of designing the

steam rack. [ 34 ] Mr. Halyk stated the Defendants’ view that the steam rack was its chattel, to be removed at the end of the Lease. Consistent with that view, when the Defendants vacated the Land, they dismantled the steam rack by removing bolts and disconnecting gas lines and unbolted the boiler from the concrete floor in the building. They then took the steam rack and boiler with them to their new premises. Mr.

Halyk testified that the Defendants did not remove and take the Storage Tank because they believed it was a fixture that had been sold as part of the Land to the Plaintiff. [ 35 ] The evidence also reveals that the registration of the Storage Tank with the Petroleum Tank Management Association of Alberta (the “PTMAA”) continued in the Defendants’ name throughout their occupation of the Land and they renewed this registration annually.

The Defendants also continued to maintain regulatory compliance for the Storage Tank, including undertaking periodic vacuum tests, until they vacated the Land in June 2006. [ 36 ] On March 22, 2006, Plaintiff’s counsel corresponded with Defendants’ counsel seeking confirmation that the Lease term was ending on May 31, 2006 and that the Defendants would be “remov[ing] the underground tank from the [Land] and remediat[ing] any issues related thereto” when they vacated.

On April 3, 2006, Defendants’ counsel replied asking Plaintiff’s counsel to advise “on what basis your client is requesting the removal of underground tanks”. On May 3, 2006, Plaintiff’s counsel advised that “the lease calls for the removal of all contaminants. Our advice is that the tank is a ‘contaminant’ and accordingly is to be removed”. [ 37 ] Mr. Stotts testified that at the end of the Lease the Defendants cut off and capped or plugged the two inlet pipes located below ground that had connected the steam rack to the Storage Tank.

Two other pipes remained visible, protruding out of the ground above the Storage Tank. Mr. Stotts identified these as the pump out pipe and the level probe. 5 Storage Tank Not a Fixture or Improvement to the Land [ 38 ] The Defendants installed the Storage Tank underground when they owned the Land. They say that they always viewed the steam rack as a removable chattel that was never intended to become a fixture or improvement to the Land. Unlike the steam rack, however, the Storage Tank was buried in the ground, covered with soil and a cement pad.

The Defendants say that they never intended to remove the Storage Tank because of the cost of its removal and the risk that removal might damage it. That is, the Defendants’ intention, unlike their intention vis-a-vis the steam rack, was that the Storage Tank would remain as a permanent fixture or improvement to the Land. [ 39 ] The fact that the Storage Tank is buried underground, covered by pea gravel and a concrete pad, supports the presumption that it is a fixture. Yet it was attached to the Land only by two concrete anchors placed at the bottom of the hole so that it did not float.

Mostly, it was anchored by the soil. Unlike the steam rack, it was not attached to any building, thus its degree of annexation to the Land was not significant. [ 40 ] The evidence is that the Storage Tank could be and was removed without injury to the Land. Removal involved breaking up the concrete pad (which, given its location, served no obvious useful purpose for the Land), removing the pea gravel, uncovering the Storage Tank and lifting it out of the ground with a crane or similar piece of machinery. After removal, the excavation had to be refilled with soil or gravel, which was done here.

It cost about $8,000 to remove the Storage Tank (although the Defendants properly contend that the cost would have been higher had a PTMAA approved company been used for its proper removal). [ 41 ] The Storage Tank, like the steam rack, could easily be restored to its character as a chattel and moved by severing its connection with the soil without causing damage to or interference with the normal use of the Land.

The Land would revert to the same condition for use as an industrial yard as it was in prior to removal of the Storage Tank. [ 42 ] What did the Defendants’ intend when they installed the Storage Tank on the Land? It is clear that the Defendants were in the business of operating tanker truck repairs on the Land for which the steam rack together with the Storage Tank were useful and important articles; the steam rack was integral to their business activities. Further, it is equally clear that the Storage Tank was an integral part of the steam rack apparatus and operation.

The steam rack could not do what it was built and installed to do without the Storage Tank and the Storage Tank served no purpose except when used in connection with the steam rack. In this way, the Storage Tank was an important

article for use of the steam rack, which in turn made it an important

article used by the Defendants in carrying out their business activities. [ 43 ] The evidence also establishes that the Storage Tank could have been installed above ground, but it was buried underground because this position allowed for more efficient and safer operation of the steam purging activities.

That is, the object or intent of affixing the Storage Tank underground was to improve the operation of the tank to receive the steam waste water and for the overall better enjoyment and use of the steam rack as a machine and not with the intent and purpose of improving the Land. [ 44 ] I find the evidence establishes that the Defendants’ prime purpose for burying the Storage Tank underground was to ensure a safer and more efficient functioning of the Storage Tank as part of the steam rack operation.

I further find that the installation of the Storage Tank underground was not done for the purpose of making better use of the Land or to make the Land more valuable or attractive as land. [ 45 ] When the Storage Tank was installed, the Defendants knew or should have known that it could not be a permeant enhancement of the Land. The Defendants were responsible operators of a business that handled the storage and disposal of contaminated waste by using an underground storage tank.

The Defendants knew that, as owners of an underground tank storing contaminants, they had legal obligations associated with such ownership. In particular, the Defendants knew that at some time the Storage Tank, like the two 5,000 steel litre tanks it replaced, would have to be removed and replaced in the normal course for commercial or environmental reasons. In this regard, reference is made to

section 4.3.17 of the Alberta Fire Code, which states that an underground storage tank is “not intended to form a permanent part of the realty” and is to be removed from the ground once abandoned or unused for two years.

[ 46 ] All of the above leads me to conclude that the Storage Tank, like the steam rack, was not intended to be a permanent enhancement of the Land.

Rather, the Storage Tank was a chattel that, together with the steam rack, worked to efficiently and safely facilitate the drainage of steam waste water from tanker trucks into storage until disposal. 6 Conclusion on Storage Tank Ownership [ 47 ] After considering the totality of the evidence in light of the applicable legal principles, I conclude that the Storage Tank was installed underground for a period of uncertain duration to work in conjunction with the steam rack to make the Defendants’ steam purging system more efficient and safe, rather than to benefit or improve the Land. [ 48 ] Therefore, I find that the Storage Tank, like its associated steam rack, was a chattel at the time of its installation and remained a chattel at all times.

I further find that as a chattel, the Storage Tank was not conveyed to the Plaintiff when the Land was sold or otherwise came to vest as the property of the Plaintiff. In short, the Defendants were the owners of the Storage Tank at all material times; it remained their property throughout. B Did the Defendants have a legal obligation to remove the Storage Tank from the Land at the end of the Lease? [ 49 ] I have found that the Defendants were the owners of the Storage Tank. As such, the Defendants were responsible for removing it when they vacated the Land.

In addition to this conclusion, I also find that the Defendants had a contractual obligation under the Lease to remove the Storage Tank from the Land. 1 Principles of Contractual

Interpretation [ 50 ] The overriding purpose of contractual

interpretation is to determine and give effect to the objective intentions of the parties at the time the contract was made. To do so, the operative words of the contract are read as a whole, giving meaning to every provision where possible. Words must be given their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time they entered into the contract. The surrounding circumstances, which are often referred to as the factual matrix, are those facts known or that reasonably ought to have been known to the parties at or before the date of the contract.

Finally, c onflicting terms must be harmonized, if possible, with effect given to all the terms of the contract, and no terms should be excluded as having no meaning: Sattva Capital Corp v Creston Moly Corp , 2014 SCC 53 at paras 47 and 58 . [ 51 ] Thus, contractual

interpretation involves a somewhat blended approach. The focus is on the words of the contract but, even if there is no ambiguity, the court must also consider the surrounding circumstances that existed when the contract was formed.

The facts known to the parties at the time of contracting inform this interpretative exercise, by providing the court with a better understanding of their mutual and objective intentions as conveyed by the contract’s words: Sattva , at para 57. [ 52 ] It is particularly important in a commercial context to interpret the contract in accordance with sound commercial principles and good business sense: IFP Technologies (Canada) Inc. v EnCana Midstream and Marketing , 2017 ABCA 157 at para 88 .

In the absence of evidence of a bad bargain, t he courts should not interpret a contract in a way that yields an unrealistic or absurd result. [ 53 ] The contractual

interpretation process enables the court to enforce the objective intention of the parties having regard to the entire written text, relevant contractual background and commercial context: IFP Technologies , at para 89. 2 The Lease Agreement and Surrounding Circumstances [ 54 ] An integral part of the Defendants’ sale of the Land was that any purchase would include a lease of the Land back to them.

Consistent with this intention, the Sale Agreement contained a condition subsequent that provided the Sale Agreement was conditional upon the parties entering into a mutually satisfactory lease agreement within 10 days following acceptance of the Sale Agreement. If no lease was agreed to and executed by the parties, then the Sale Agreement would become null and void. [ 55 ] For reasons not relevant to this action, the Lease was not executed until May 14, 2001, a date well beyond the 10 day period provided for in the Sale Agreement.

During this time, the Defendants continued to occupy the Land and carry on their tanker truck repair operations. The Lease, once signed, provided that it would expire June 30, 2006. With the execution of the Lease, the Sale became final. The Plaintiff became the Landlord and the Defendants became the Tenant. [ 56 ] It is not in dispute that the Plaintiff was concerned with contamination and remediation of the Land.

This is because the Defendants had been and would continue to carry on their tanker truck repair business, which involved possessing and disposing of oil and other hazardous and toxic waste material. [ 57 ] Correspondence between the parties’ counsel indicates that the Plaintiff had environmental concerns it sought to address in the Lease. In that correspondence, the parties’ counsel discussed the type of environmental assessment that would satisfy the Plaintiff’s concern that the Land be contaminant-free at the end of the Lease.

For example, in correspondence dated January 9, 2001, Plaintiff’s counsel requested that the Lease include a provision that would detail the environmental reports that the Defendants would obtain to satisfy the Plaintiff that “no environmental problems had arisen during the currency of the [L]ease”. [ 58 ] Presumably to address the Plaintiff’s environmental concerns,

Article 20 “Environmental Matters” was included in the Lease.

Article 20 specifically provides for the rights and obligations of each party in relation to environmental matters during and at the end of the Lease term. The relevant provisions of

Article 20 follow.

[ 59 ]

Article 20.1 defines “Contaminants” as: ... any explosives, radioactive materials, asbestos materials, urea formaldehyde, chlorobiphenyls, hydrocarbon contaminants, underground tanks , pollutants, contaminants, hazardous, corrosive or toxic substances, special waste or waste of any kind or any substance the storage, manufacture, disposal, treatment, generation, use, transport, remediation or release into the environment of which is prohibited, controlled, regulated or licensed under Environmental Laws. [Emphasis added.] [ 60 ]

Article 20.6 titled “Removal of Contaminants” states: Prior to any termination of this Lease or to any ... parting with possession of the Premises, the Tenant acknowledges and agrees that it shall leave the Premises free from any and all Contaminants brought onto, created, or that exist on the Premises and effected by the Tenant or its employees, agents, contractors, subtenants, licensees or invitees or otherwise resulting from the use or occupation of the Premises by the Tenant or the exercise of the Tenant’s rights pursuant to this Lease. [ 61 ]

Article 20.7 titled “Ownership of Contaminants” states: If the Tenant shall bring or create upon the Premises any Contaminants then, notwithstanding any rule of law to the contrary, such Contaminants shall be and remain the sole and exclusive property of the Tenant and shall not become the property of the Landlord, notwithstanding the degree of affixation of the Contaminants or the goods containing the Contaminants to the Premises and notwithstanding the expiry or earlier termination of this Lease. This

Section supersedes any other provision of this Lease to the contrary. [ 62 ] Another relevant provision of the Lease is

Article 11.1 “Possession”, which states: ... Notwithstanding anything contained in this paragraph 11.1, upon the expiration ... of the Term and at the Tenant’s cost, the Tenant shall remove all or any part of the improvements constructed, erected or installed by the Tenant as may be required by the Landlord and shall make good any damage caused by reason of the installation and removal of such improvements. ... the Tenant has the right at all times during the Term and at the end of the Term to remove all trade fixtures installed by it at the Premises, provided that the Tenant shall repair any damage resulting from the removal of such trade fixtures. 3

Interpretation of

Article 20 [ 63 ] In essence, the Defendants argue that the Lease does not apply to any activities that occurred or circumstances that existed before it was executed. The Defendants contend that because the Storage Tank was on the premises before the Lease came into effect, neither

Article 11 nor

Article 20 apply. In particular, they suggest that

Article 11 does not apply because the Storage Tank was not an improvement made, constructed, erected or installed on the Land during the term of the Lease. [ 64 ] I agree with the Defendants’ argument regarding

Article 11. In my view,

Article 11 was intended to apply to any improvements made to the Land by the Defendants during the currency of the Lease. The Storage Tank was not installed during the currency of the Lease, thus

Article 11 does not apply. Furthermore, in light of my conclusion that the Storage Tank is a chattel and not an improvement or fixture, this provision is not operative. [ 65 ] The Defendants also submit that

Article 20.6 does not apply to create obligations in relation to the Storage Tank because it was not “effected” by them as Tenant. That is, the Defendants did not, using the language of

Article 20.6, “bring, create and effect” the existence of the Storage Tank on the Land during the term of the Lease. [ 66 ] The Defendants argue the Storage Tank existed on the Land before they entered into the Lease. Further, they say the Storage Tank did not result from the exercise of their rights pursuant to the Lease because the Storage Tank was already on the Land.

The Defendants argue that the circumstances surrounding the formation of the Lease establish that the Plaintiff’s concern was with new contaminants being brought onto the Land by the Defendants and not the Storage Tank, which was a known, existing contaminant. [ 67 ] The Lease does not explicitly refer to the Storage Tank, although the definition of Contaminants includes “underground tanks.” It is unclear whether

Article 20.6 applies to the Storage Tank as one of the “Contaminants brought onto, created, or that exist on the Premises and effected by the Tenant... or otherwise resulting from the use or occupation of the Premises by the Tenant or the exercise of the Tenant’s rights pursuant to this Lease.” On its face, this phrase is ambiguous with regard to the Defendants’ obligations in relation to the Storage Tank. [ 68 ] In interpreting what was intended by

Article 20.6, I review the circumstances surrounding the negotiation and execution of the Lease. When the Plaintiff bought the Land from the Defendants, the Sale Agreement required a lease of the Land back to the Defendants so they could continue their tanker truck repair business. At the time of purchase, the Storage Tank was on the Land.

W hile there was no lease from the date the Land was sold to the Plaintiff until the Lease was executed in May 2001, the fact is that during this interval the Defendants continued to occupy the Land and carry on their business operations using the Storage Tank. [ 69 ] It is clear that the Plaintiff was concerned about contaminants being left on the Land at the end of the Lease and wanted any contaminants “brought on, created or that exist” on the Land and effected by the Defendants to be removed by them at the end of the Lease.

The Plaintiff was aware of the existence of the Storage Tank and that it would be used by the Defendants to store hazardous waste material. [ 70 ] Presumably to address this concern,

Article 20 of the Lease expressly includes “underground tanks” in its definition of “Contaminants” and

Article 20.6 requires the removal of any Contaminants by the Defendants at the end of the Lease. By definition, this includes any underground tanks. The inclusion of underground tanks as an identified Contaminant is unusual when reading what other items are included in the definition. All of the other items are hazardous substances. Underground tanks are unlike the other items listed as Contaminants.

[ 71 ] This specific inclusion suggests that the parties intended that

Article 20 would capture the Storage Tank, an underground tank, and any replacement or additional underground tanks that the Defendants might install on the Land during the currency of the Lease. [ 72 ] In my view, having regard to the commercial context, it would lead to an absurd result to interpret the contact to exclude the existing Storage Tank as a Contaminant when both parties knew it was being used to store hazardous waste, but to include any other underground tanks that might be installed on the Land during the currency of the lease, regardless of whether they would be used to store hazardous substances. [ 73 ] As quoted above,

Article 20.6 sets out the Defendants’ obligation to remove any “Contaminants brought onto, created, or that exist on the Premises and effected by the Tenant ... or otherwise resulting from the use or occupation of the Premises by the Tenant or the exercise of the Tenant’s rights pursuant to this Lease.” [ 74 ] The word “effected” in

Article 20.6 is used as a verb. The Oxford English Dictionary defines the verb “effected” as meaning “bring about (a result).” Dictionary.com defines the verb effect (used with an object) as meaning “bring about, make happen, accomplish.” The Business Dictionary defines “effected” as meaning “to actually do something, to execute, produce or bring about something. It's an action word of actually doing something.” These meanings make clear that the word “effected” when used as verb is meant to describe something that was caused. [ 75 ] In applying this definition to

Article 20.6, the meaning of the contractual language is straightforward.

It requires the Defendants to remove any Contaminants that they “effected” or “brought about” or “caused.” That is, if they were the party responsible for a Contaminant on the Land at the end of the Lease, whether by bringing it onto the Land or creating it, or by simply having a Contaminant that exists on the Land or where the Contaminant otherwise resulted from their use or occupation of the Land or from the exercise of their rights as Tenant under the Lease, then they were under an obligation to remove it. [ 76 ] It is true that the Defendants did not bring or create the Storage Tank on the Land as Tenant; the Storage Tank already existed on the Land when the Lease was executed.

But the Defendants are the ones who brought the Storage Tank on the Land, they created the Storage Tank on the Land when they installed it, and the Storage Tank’s existence on the Land was effected or brought about by them. It was their underground tank and they used it to carry out their business operations on the Land during their tenancy. To use the words of

Article 20.6, the Defendants “brought onto and created” the Storage Tank on the Land and the same Storage Tank “existed” on the Land at the end of the Lease. [ 77 ] In my view, it is a legal fiction, especially in the case of a sale and leaseback transaction, to suggest that when the Defendants’ status changed from landowner to Tenant that they were not bound by

Article 20.6 because as Tenant they had not “brought onto or created” the Storage Tank on the Land and its existence had not been effected by them as Tenant. Even if there was a notional surrender of the Land by operation of law when the Land was sold to the Plaintiff and simultaneously leased back to the Defendants, the change in ownership should not relieve the Defendants from responsibility for past actions. The reality of the circumstances of the Defendants’ actual prior possession cannot be ignored.

Finally, I note that the reference to the Defendants as “Tenant” in the Lease is for convenience; the reference does not impose legal rights and obligations. [ 78 ] I also find that the Defendants are responsible for the sludge remaining in the bottom of the Storage Tank, which will be discussed in more detail below.

Article 20.7 stipulates that any Contaminant brought onto or created by the Defendants on the Land is to remain the property of the Defendants, notwithstanding any provision to the contrary in the Lease. Thus, any Contaminants brought onto or created on the Land by the Defendants remain their property and become their responsibility to remove. Clearly the sludge inside the Storage Tank was a Contaminant “brought onto or created on” the Land by the Defendants.

As such, they were liable for its removal as well. 4 Conclusion on Storage Tank Removal [ 79 ] In conclusion, I find that the Storage Tank was a “Contaminant” brought onto the Land and effected by the Defendants or otherwise resulting from their use or occupation of the Land and, pursuant to

Article 20.6, they were contractually obligated to remove it at Lease end. They did not do so and they are liable to the Plaintiff for the costs of its removal. [ 80 ] These costs include fees in the amount of $7,953.81 paid to Hard Rock for removal of the Storage Tank and fees in the amount of $2,176.18 paid to Newalta to remove the remaining Contaminants from the Storage Tank. [ 81 ] Despite the Plaintiff’s suggestion, I do not find that the fees in the amount of $7,504.02 paid to Global Engineering and Testing Ltd are properly part of the costs incurred for the Storage Tank removal.

While it may true that proper removal of the Storage Tank would require supervision by an entity such as Global Engineering, the fees paid to Global Engineering were not for supervising the removal of the Storage Tank but for its soil testing and remediation services. [ 82 ] Therefore, I find the Defendants are liable to pay the Plaintiff the amount of $10,129.99 as reimbursement for the expenses incurred by the Plaintiff to remove the Defendants’ Storage Tank from its Land. C Who is responsible for the costs of removing the Contaminants found on the Land in December 2006? 1 Parties’ Positions

[ 83 ] The parties dispute which of them caused the contamination discovered on the Land in November and December 2006 and who is ultimately responsible for the remediation costs incurred to remove the contaminated soil from the Land. [ 84 ] The Plaintiff contends that the Lease makes the Defendants responsible for removal of all Contaminants, including the Storage Tank and its contents. Despite this obligation, the Defendants left behind the Storage Tank, which had not been completely pumped dry of Contaminants. Those Contaminants then spilled onto the Land when the Storage Tank was punctured during its removal.

The Plaintiff also suggests that the Defendants’ operations contaminated the soil around the Storage Tank area. For these reasons, the Plaintiff asserts that the Defendants breached the Lease by leaving Contaminants on the Land and that they should be responsible for the costs incurred to remediate the area to remove those Contaminants. [ 85 ] The Defendants assert that they obtained an “all clear” Phase II Assessment from an independent company approved by the Plaintiff, as required by the Lease.

They point to the results of that Phase II Assessment, which concluded that the Land was free of any Contaminants resulting from their operations on the Land. They also point to the Plaintiff’s own environmental assessment conducted on the Land in August 2006.

The Defendants assert that, in accordance with the Lease, the clean Phase II Assessment, obtained after they vacated the Land operates to fully discharge and release them from all obligations and liability in respect of environmental matters. [ 86 ] The Plaintiff contends that the Defendants cannot rely on the Phase II Assessment to avail themselves of the release and discharge provided for in

Article 20.6, because the Phase II Assessment did not specifically address whether the Storage Tank was an acceptable or unacceptable Contaminant. [ 87 ] The Defendants also assert that they hired a third party contractor to clean the Storage Tank of any Contaminants. They contend that any contamination found in the Storage Tank or around the Storage Tank area resulted from the Plaintiff’s puncture of the Storage Tank during its removal or from third party activities that occurred after they had vacated the Land.

In the result, the Defendants say that they left the Land free of Contaminants, complied with the Lease by obtaining a clean Phase II Assessment and have no responsibility for the subsequently discovered contamination to the Land, which they say was caused by the Plaintiff or others. 2 Who Caused the Contamination? [ 88 ] In 2003, the Defendants hired O’Connor Associates Environmental Inc. (“O’Connor”) to conduct a Phase I Environmental Assessment (the “2003 Assessment”).

The 2003 Assessment noted that there was some contamination in 1998 when the two underground storage tanks were removed and replaced with the Storage Tank. Global Engineering carried out remedial excavation at that time, removing and disposing of all contaminated soil from the Land. [ 89 ] On June 9, 2006, prior to vacating the land, the Defendants hired independent contractor Pedro Services Ltd. to vacuum out the contents of the Storage Tank.

Pedro Services’ trucking ticket stated that they removed 21,000 cubic metres from the 30,000 cubic metre Storage Tank. [ 90 ] The Defendants ceased active operations on the Land some time prior to June 19, 2006. On June 19, 2006, they again hired Pedro Services to vacuum out the contents of the Storage Tank. This time the trucking ticket stated that 28,000 cubic meters were removed from the Storage Tank. The Defendants then vacated the Land, on or before June 30, 2006. [ 91 ] To satisfy

Article 20.6 of the Lease, the Defendants were required to obtain a clear Phase II Assessment from an independent environmental audit agency. To this end, the Defendants consulted with the Plaintiff and obtained its approval to hire O’Connor to carry out the Phase II Assessment. The Phase II Assessment included shallow soil sampling at 5 test-hole locations across the Land in areas of surficial staining and deeper soil sampling in the area of the Storage Tank. [ 92 ] O’Connor found that concentrations of petroleum hydrocarbons, metals in the soil and groundwater were less than applicable criteria.

The Phase II Assessment concluded that “the quality of soil and groundwater beneath the [Land] have not been significantly compromised by onsite and offsite facilities and activities since 1997.” There is no dispute that the Phase II Assessment did not identify any unacceptable levels of contaminants on the Land. [ 93 ] The Defendants made the Phase II Assessment available to the Plaintiff for review on conditions.

The Plaintiff chose not to review the assessment because it did not want to pay the costs associated with its preparation. [ 94 ] The Plaintiff entered into a lease agreement with its new tenant, Kiowa International Inc. in April 2006. Kiowa began its occupation of the Land as tenant on August 1, 2006.

Kiowa’s primary business was the storage of plastic coated stainless steel pipes or coils before they were transported on large transport trucks to clients. [ 95 ] In July or August 2006, the Plaintiff retained Global as its own environmental engineering and testing firm to conduct an environmental assessment of the Land to determine if there was excessive subsurface hydrocarbon contamination on the Land. In a report dated August 2006, Global concluded that “subsurface VOC and hydrocarbon contamination may not exist in the subsoil and groundwater at the subject site.” [ 96 ] Mr.

Stotts testified that he did not hire Global to conduct a Phase II or environmental assessment; rather, Global was asked to assess the soil strength and ground conditions in the parking lot and address associated drainage issues with the Land. [ 97 ] Mr. Stotts testified that after the Defendants vacated the Land in June, he contacted their representatives numerous times asking them to remove the Storage Tank to no avail. He said he eventually came to the conclusion that the Defendants were not going to remove the Storage Tank so he decided to have it removed. [ 98 ] In November 2006, Mr.

Stotts hired Hard Rock Paving Ltd. to remove the Storage Tank from the Land. He explained that the Storage Tank had to be removed and the area refilled with soil, compacted and graded, to satisfy City of Calgary requirements and the Plaintiff’s lease obligations to Kiowa.

[ 99 ] Mr. Stotts acknowledged that Hazco Environmental Services was a company approved by the PTMAA to remove underground storage tanks. Mr. Stotts explained that because Hazco was too busy to remove the Storage Tank when he wanted it done, he decided to go ahead and hire Hard Rock and Kiowa employees to remove it.

Neither Hard Rock nor Kiowa had been approved by the PTMAA to remove underground storage tanks. [ 100 ] Stotts confirmed that no one checked to make sure the Storage Tank was empty before they began work to remove it. [ 101 ] Hard Rock used a backhoe to break-up the concrete pad above the Storage Tank and excavate down to remove the soil and other material from around the tank. While excavating, the backhoe punctured the Storage Tank around its middle area.

No substances were observed coming out of the Storage Tank at that time. [ 102 ] After the puncture, a Kiowa employee came over to the excavation site with a forklift and chains to assist in the Storage Tank’s removal from the ground. Chains were placed around the Storage Tank and the Kiowa employee used a forklift to lift the Storage Tank out from the excavated hole. As the Storage Tank was being lifted, it rolled and tipped over. Some liquid spilled out of the puncture hole onto the Land and into the excavated hole. Mr. Stotts described the liquid as water with an oily film at the bottom of the excavated hole.

Once the Storage Tank was out of the hole and sitting on the ground, Mr. Stotts observed “a substantial amount of sludge” in the bottom of the Storage Tank. [ 103 ] On November 21, 2006, Mr. Stotts hired Newalta Corporation to vacuum out and dispose of the contents of the Storage Tank. Newalta suctioned out 2,680 kilograms or litres of asphalt/diesel sludge from the Storage Tank. [ 104 ] Mr. Stotts testified that “he knew” that Kiowa had not used the Storage Tank because it had no use for the substances that were removed from the Storage Tank. Mr.

Stotts pointed out that Kiowa is in the transport business and not in the tanker truck repair business. [ 105 ] The Storage Tank was left sitting on the Land outside the excavated hole. Hard Rock returned the next day to backfill the excavation with the concrete and fill it had earlier removed, as well as five truckloads of gravel that it had brought in to fill the hole and make the area level.

Any of the substances that had spilled out of the Storage Tank were covered over with the backfill and new gravel. [ 106 ] There is no allegation or suggestion that the Storage Tank was leaking at any time prior to its removal from the ground. Mr. Stotts testified that he observed cracks in the concrete pad covering the Storage Tank and it appeared to him that the underside of the concrete pad was hollow. He also observed dark staining on the Storage Tank and the concrete anchors to which the Storage Tank had been strapped in the ground. Mr.

Stotts speculated that contaminants steamed from the tanker trucks had seeped through the cracks in the concrete pad into the ground and over the Storage Tank. [ 107 ] By contrast, Mr. Halyk testified that the steam water drained from the tanker trucks did not go onto the cement pad but were directed through a hose from the interior of the truck tank into the Storage Tank. The cement pad was there to contain any liquids that might potentially leak or spill out in the steaming process and direct them directly into the Storage Tank.

He was unaware of any such spillage. [ 108 ] A couple of weeks later, on December 4, 2006, Hazco and Global attended at the Land to complete the removal and disposal of the Storage Tank. The regulations governing the removal of underground storage tanks require that a qualified contractor complete the removal and determine whether any contamination was encountered at the site during the removal process. [ 109 ] To satisfy these requirements, Hazco removed the concrete and soil that had been backfilled by Hard Rock into the excavation area.

During the re-excavation, Global took soil samples at regular intervals and checked for hydrocarbon vapour to confirm the extent of any contamination. Any soil that tested positive for the presence of hydrocarbon vapour during the excavation was stockpiled near the excavation site on polyethylene sheets. [ 110 ] Soil sample tests showed contamination that exceeded Alberta Environment’s Risk Management Guidelines for Petroleum Storage Tank Sites (2001) in two portions of the soil samples analyzed.

Samples taken from the soil that had been stockpiled contained unacceptable levels of the chemicals Xylene and Toluene, thus could not be transported off the Land for disposal. Global’s findings were set out in its December 2006 report. [ 111 ] Following Global’s recommendation, Hazco aerated and mixed the stockpiled contaminated soil with clean soil to dilute the concentration of the contamination within the soil.

After Global determined that the mixed and aerated soil contained acceptable levels of contamination, Hazco loaded and hauled away 549.49 tons of the mixed and aerated soil. [ 112 ] The Plaintiff paid Hazco $57,003.39 for the services it provided in connection with removing the Storage Tank, remediating the excavation, and disposing of the soil.

The Plaintiff paid Global Engineering $7,504.52 for its soil testing and remediation activities provided during Hazco’s removal of the Storage Tank and contaminated soil from the Land and $1,165.68 for an environmental inspector who inspected each load of contaminated soil hauled off the Land during remediation. 3 Source of the Contamination [ 113 ] There is no real dispute that some five to six months after the Defendants vacated the Land, Contaminants were found in the Storage Tank and in the soil surrounding the Storage Tank. [ 114 ] There was a gap in time of approximately 5 months between when the Defendants ceased operations and vacated the Land and when the Storage Tank was ruptured and Contaminants were discovered on the Land. [ 115 ] I accept that Pedro Services pumped out what it could from the Storage Tank after the Defendants ceased operations, which was recorded as being 28,000 cubic meters.

I further accept that the Defendants did not deposit any further Contaminants into the Storage Tank after Pedro Services completed its pumping out activities in June 2006.

[ 116 ] Despite the gap in time, however, I find that it is more likely than not that the Defendants’ operations were the source of the Contaminants that spilled out of the Storage Tank in November 2006. [ 117 ] First, there is evidence that the Storage Tank had the capacity to hold the amount of Contaminants that were first removed by Pedro (28,000 cubic metres). Subsequently, some five months later, an indeterminate amount of Contaminants spilled from the Storage Tank and Newalta removed an additional 2,680 cubic metres or litres of Contaminants.

While these quantities would appear to exceed the Storage Tank’s 30,000 metre (or litre) capacity, I accept the Plaintiff’s explanation that this excess volume was possible for any one of the following reasons: (

a) There may have been an overflow element built into the Storage Tank; (

b) The manhole cover at the top of tank may not have been included in calculating the volume capacity; and, (

c) Either Pedro Services’ or Newalta’s measurements may not have been completely accurate. For example, Pedro Services invoiced for the removal of exactly 21,000 cubic metres in early June and exactly 28,000 cubic metres later in the month, whereas Newalta invoiced for the removal of 2,680 litres.

Pedro Services’ invoices suggest a practice of rounding up or down to an even number. [ 118 ] Any one of these is a reasonable possibility that would account for the Storage Tank appearing to hold more than its 30,000 litre capacity. [ 119 ] Second, other than speculation, there is no evidence that anyone other than the Defendants used the Storage Tank. [ 120 ] To the contrary, there is Mr. Stotts’ evidence that no one had used the Storage Tank. In support of his evidence is the fact that the inlet pipes had been cut off and capped or plugged, making access to the Storage Tank difficult although not impossible.

While the Defendants pointed to the new tenant Kiowa as a possible source of the Contaminants, this does not seem likely given that Kiowa’s business primarily involves the transportation and storage of plastic coated stainless steel pipes or coils, with no obvious business need to use or dispose of the type of Contaminants found on the Land.

I also find it unlikely that some unknown third party would trespass onto the Land for the purpose of depositing contaminants into an underground storage tank, its only visual marking at the time being pipes protruding from the ground. [ 121 ] Third, it appears likely that the design of the Storage Tank itself permitted the final 2,680 litres of sludge to remain in the bottom of the tank after Pedro Services allegedly pumped out all its contents.

The evidence indicates that the pump-out pipe to which Pedro Services connected its pump did not extend completely to the bottom of the tank but ended approximately 305 millimetres above the bottom of the tank. Indeed, both Mr. Halyk and Mr. Hawkins testified that they would not have been surprised to learn that some amount of sludge had accumulated and remained at the bottom of the Storage Tank. Their evidence is also consistent with the sludge that was present in the two steel storage tanks that the Storage Tank replaced.

As conceded by the Defendants, it is accepted in the industry that there would in all likelihood be some residue of Contaminant left in a storage tank. [ 122 ] All of this evidence leads me to find that no third party deposited Contaminants into the Storage Tank after the Defendants vacated the Land.

Therefore, I am satisfied that the Plaintiff has proven on a balance of probabilities that the Defendants’ operations were the source of the Contaminants discovered in the Storage Tank and those that spilled out of the puncture hole onto the Land. [ 123 ] While I have concluded that the Defendants were the source of the Contaminants contained in the Storage Tank, the question remains as to what extent, if any, they were the source of the contaminated soil that was removed from the Land after the Plaintiff punctured the Storage Tank. [ 124 ] It is clear that the Plaintiff was responsible for the puncture to the Storage Tank and subsequent spillage of Contaminants onto the Land.

It can also be assumed that if the Plaintiff had hired qualified personnel to remove the Storage Tank properly, it is more likely than not that the subsequent puncture and spillage of Contaminants would not have occurred. That is, the Storage Tank would have contained the Contaminants. [ 125 ] Further compounding the harm from the spill is the fact that the Plaintiff then had the hole where the contaminants had spilled backfilled with soil and concrete material such that the Contaminants mixed with the clean soil and other backfill material.

The area was then left untouched for a couple of weeks, during which time it was possible for groundwater to percolate, potentially migrating the contamination more extensively throughout the backfilled area. [ 126 ] The question that arises is whether there was pre-existing contamination in the soil in the excavated area or whether the contamination resulted solely from what was spilled onto the Land by the Plaintiff. [ 127 ] The Defendants argue that the Phase II Assessment determined that there were no concentrations of petroleum hydrocarbons or other Contaminant substances detected on the Land that exceeded applicable criteria.

They note that the Phase II Assessment states “deeper soil sampling” had been taken in the area of Storage Tank. [ 128 ] They further point to Global’s assessment, undertaken at Mr. Stotts’ request in August 2006, which also found no evidence of contamination, confirming the Phase II Assessment. These two assessments indicate there was no appreciable contamination around the Storage Tank area. [ 129 ] While Mr.

Stotts testified to observing staining underneath the concrete pad and expounded his theory that cracks in the concrete pad had led to the contamination that was ultimately discovered in the area surrounding the Storage Tank, neither O’Connor nor Global commented on the staining, its effect or whether it evidenced widespread contamination.

Indeed, neither of these two assessments found any contamination in the area of the Storage Tank. [ 130 ] In discussing the contamination arising from the spillage, the December Global report noted that the “leaked waste oil was mainly in the soil and remained above the concrete slab [at the bottom around the depth of 10.0 to 11.0 feet] without infiltrating deeper.”

This suggests that the spilled contaminants remained on top of the soil at the level of the lower concrete pad and had not permeated deeper into the soil.

Yet Global’s December 2006 assessment found contaminated soil at different levels and in different places in the area of the Storage Tank. [ 131 ] While this finding suggests there may have been widespread contamination that simply was not discovered while the Storage Tank was still in place, there is also the possibility raised by the Defendants that the Plaintiff’s actions in backfilling clean soil into a contaminated hole resulted in some, if not all, of the many truckloads of soil that had to be removed from the Land.

It is possible that the backfilling process mixed the contaminated spillage with clean soil, spreading the contamination throughout the backfilled area. [ 132 ] There may have been no contamination to the soil had the Plaintiff properly removed the Storage Tank, but we will never know. Further, we do not know the amount of Contaminant spilled by the Plaintiff. It was likely not a large amount given the Storage Tank capacity and the volumes of contaminated liquid that were removed by Pedro Services and Newalta.

It is also possible that the small amount that was spilled migrated and affected a larger area because soil and other material was backfilled over it and groundwater percolated through the area.

In the result, it is impossible to ascertain what amount of contamination resulted from the Plaintiff’s failure to properly remove the Storage Tank and what may have pre-existed from the Defendants’ activities in the immediate vicinity of the Storage Tank. 4 What are the parties’ respective responsibilities for the costs of remediation? [ 133 ] Thus, the question remains as to who is responsible for the costs associated with remediating the Land once the contamination was discovered. This again is a question of contractual

interpretation. [ 134 ] In addition to the first paragraph of

Article 20.6, quoted earlier in these reasons,

Article 20.6 requires the Tenant to conduct a Phase II Assessment and relieves them of all liability if the assessment results provide an all clear: ... In this regard the Tenant agrees that prior to any such termination ... or parting with possession of the Premises the Tenant shall be required to obtain a clear Phase II environmental audit respecting the Premises. The Tenant agrees that it shall consult with and obtain the approval of the Landlord in relation to the selection of the environmental audit agency chosen for the purposes of this clause. ...

The Landlord agrees that should the environmental audit conclude that no un-acceptable levels of Contaminants exist on the Premises then in such event the Tenant shall be fully discharged and released from all obligations and liability to the Landlord in respect of environmental matters set out in this

Article 20 including, without limitation, the indemnity of the Tenant set forth in paragraph 20.8 herein, provided however, that this release and discharge shall not apply to any environmental issues, problems or Contaminants purposely or willfully hidden, covered up or concealed from the Landlord by the Tenant. [ 135 ]

Article 20.7, quoted earlier in these reasons, makes the Tenant the owner of and fully responsible for any Contaminants it brought or created upon the Land. [ 136 ]

Article 20.8 contains the indemnity referenced in

Article 20.6: The Tenant shall indemnify and save harmless the Landlord ... from any and all liabilities, actions, damages, claims, losses, costs and expenses whatsoever (including without limitation, the full amount of all reasonable legal fees, costs, charges and expenses and the costs of removal, treatment, storage and disposal of Contaminants and remediation of the Premises) which may be paid by, incurred by or asserted against the Landlord ... with respect to, or as a direct or indirect result of, the presence of any Contaminants on, in or under, or the escape, seepage, leakage, spillage, discharge, emission or other release of any Contaminants from any part of the Premises caused in any way or in any manner whatsoever by the acts or omissions of the Tenant... . [ 137 ]

Article 20.9 states that the Tenant’s obligations, including its obligations regarding remediation and indemnity, survive the expiry or early termination of the Lease. [ 138 ] The combined effect of the above provisions suggests that it was an implied term of the Lease that, on termination, the Defendants would return the Land to the Plaintiff in an uncontaminated state. [ 139 ]

Article 20.8 requires the Defendants to indemnify the Plaintiff for all costs and expenses associated with the removal and disposal of Contaminants and remediation of the Land caused by them.

Article 20.6, however, releases them from all environmental obligations and liabilities, including their liability to indemnify the Plaintiff for any expenses related to environmental remediation, if they obtain a clearance from an environmental audit agency. The language of the release makes clear that it was intended to cover all subsequent claims by the Landlord against the Tenant relating to any Contaminants discovered after the Tenant vacated the Land.

The purpose of the environmental audit was to provide assurance to the Plaintiff and the Defendants that any subsequently discovered Contaminants on the Land were not the Defendants’ responsibility. [ 140 ] The Defendants obtained the Phase II Assessment that concluded there were no un-acceptable levels of Contaminants on the Land. The Plaintiff was aware of the acceptable Phase II Assessment. Nonetheless, I find that the Phase II Assessment cannot operate to relieve the Defendants from all liability. [ 141 ] The Storage Tank was a defined Contaminant under the Lease.

At the time the Defendants hired O’Connor to carry out the Phase II Assessment they had left a specific identified Contaminant on the Land. While O’Connor mentions the existence of the Storage Tank in its Phase II Assessment, it does not otherwise reference it as a Contaminant or as a concern. Certainly it was not instructed to consider the Storage Tank as a Contaminant, in and of itself.

Article 20.6 requires that the environmental audit conclude that “no un-

acceptable levels of Contaminants exist on the Premises”. Yet the Storage Tank is a defined Contaminant and O’Connor should have been told of this specific term of the Lease. The existence of the Storage Tank on the Land was prima facie unacceptable, regardless of whether the party carrying out the environmental audit was told to consider it as such. [ 142 ] Consider if an environmental auditor is instructed to give the all clear in relation to chemical A. It does so. This does not mean that the land is free of chemical B, since the auditor was not asked to address chemical B.

An environmental assessment can only be as accurate as the information upon which it is built. Without knowing that the Storage Tank was deemed a Contaminant, O’Connor could not give a fully informed “all clear” assessment. [ 143 ] The Defendants breached the Lease by not removing a Contaminant, the Storage Tank. They cannot now rely on the Phase II Assessment to release them from liability when a Contaminant remained on the Land during that assessment and after the termination of the Lease.

We can only speculate as to whether O’Connor’s Phase II Assessment would have come to the same conclusions had the Storage Tank been removed. Perhaps O’Connor would have found contamination in the soil in the area directly surrounding the former Storage Tank site, perhaps not. O’Connor did what it could in the circumstances and carried out deeper soil samples in the vicinity of the Storage Tank, but the fact is that a defined Contaminant remained on the Land. [ 144 ] In the result, I conclude that the release provided for in

Article 20.6 is not operative. The Defendants have not been released from “all obligations and liability to” the Plaintiff, including the indemnity granted under

Article 20.8. [ 145 ] The total cost for removal and remediation of the contaminated soil was $65,673.59, comprised of the fees paid to Hazco and Global. While the Defendants and their business were the source of the Contaminants in the Storage Tank that then spilled onto the Land, it was the Plaintiff’s actions that resulted in the spill. Furthermore, it is unclear to what extent the Plaintiff’s action in backfilling clean soil over the spill contaminated a larger quantity of soil.

Finally, the Phase II Assessment, while insufficient to release the Defendants from all liability, did suggest that there were no unacceptable levels of Contaminants around the property. [ 146 ] I am not satisfied that the evidence is sufficient to find that the contamination discovered after the Storage Tank was removed was caused solely by the Defendants. The Plaintiff must bear some responsibility for the contamination to the Land, and in particular, its improper removal of the Storage Tank. Further, the indemnification at

Article 20.8 only requires the Tenant to indemnify the Landlord for harm it caused; it does not require the Tenant to indemnify the Landlord for harm resulting from the Landlord’s own improper actions, such as puncturing the Storage Tank. [ 147 ] In these circumstances, I find it reasonable to apportion 50% of the total cost of $65,673.59 for removing the contaminated soil and remediating the Lands, in the amount of $32, 836.79, to the Plaintiff and an equal 50% of those costs of $32,836.79 to the Defendants.

D Decision [ 148 ] For these reasons, I have assessed the Plaintiff’s damages at $42,966.78, comprised of reimbursement of $10,129.99 it paid for the Storage Tank Removal and 50% of the remediation costs, being $32,836.79. There will be judgment for the Plaintiff against the Defendants in this amount. [ 149 ] With respect to costs, the Plaintiff was substantially successful on the predominant issues and the ones that consumed most of the trial time, namely whether the Defendants were the owners of the Storage Tank and responsible for its removal.

Yet I appreciate that the Plaintiff did not succeed on all of the issues in the action. [ 150 ] The appropriate order appears to be that the Plaintiff is entitled to its taxable costs on the appropriate column of

Schedule C. I am unaware, however, of any other matters between the parties that may have a bearing on the costs determination. If the parties cannot agree on costs, they may make a written request within 30 days of these reasons to arrange an appearance before me. Dated at the City of Calgary, Alberta this 30th day of November, 2017 . G.A. Campbell J.C.Q.B.A. Appearances: Simon J. E. Muller for the Plaintiff

Robert J. Hawkes, Q.C. for the Defendants APPENDIX The Parties 1. The Plaintiff G.R.J. Holdings Ltd. (“G.R.J.”) is an Alberta Corporation and the owner of a parcel of land located at 8516 40 th Street SE in Calgary (the “Lands”). 2. The Defendant G.B.M. Trailer Service Ltd. (“G.B.M.”) is an Alberta Corporation and was a wholly owned subsidiary of Total Energy Services Ltd. (“Total”) until March 21, 2003, when it was sold. 3. Up until June 19, 2006, G.B.M. operated a tanker trailer repair business on the Lands which repaired damage to trailers used in liquid bulk transport. 4.

Prior to June of 2001, G.B.M. owned the Lands. Background 5. In 1998 G.B.M. installed a 30,000 litre underground storage tank (the “Underground Storage Tank”) on the Lands. The Underground Storage Tank was installed by third party contractors to G.B.M. and was installed in accordance with all applicable legislation and regulations. 6.

In the ordinary course of its business, G.B.M. would “steam purge” liquid bulk trailers before bringing them into its repair shop to make sure they were safe to work on. 7. “Steam purging” involved connecting steam lines to the top of the trailer tank, opening the bottom valves of the trailer tank, and draining any residue within the trailer tank and the steam into the Underground Storage Tank for storage. 8. “Steam purging” would often be done to purge trailer tanks of dangerous fumes and flammables. 9.

The Underground Storage Tank was used to store the substances purged from the trailer tankers, until such substances were pumped from it and disposed of offsite by G.B.M.’s third party contractor. The Sale Agreement 10. G.R.J. purchased the Lands from G.B.M. under a sale agreement that was entitled Offer to Purchase and Interim Agreement (“Sale Agreement”) that closed on or about June 29, 2001. The Sale Agreement governed the sale of the Premises and there was no further or “final” sale agreement. 11.

The Underground Storage Tank was still installed underground on the Lands on the date G.B.M. sold the Lands to G.R.J.. 12. In connection with the sale of the Lands to G.R.J., G.R.J. entered into a lease agreement dated May 14, 2001 with G.B.M., whereby G.R.J. agreed to lease the Lands to G.B.M, with no change or interruption to the business of G.B.M. (the “Lease”). 13. Following the sale of the Lands, G.B.M. became G.R.J.’s tenant, and subject to the terms of the Lease. The Underground Storage Tank and Contaminants 14. The Underground Storage Tank was operational at the time G.R.J. acquired the Lands. 15.

During the term of its tenancy under the Lease, G.B.M. continued to bring contaminants lawfully onto the Lands and store them in the Underground Storage Tank up to and including June 19, 2009. 16. G.B.M. ceased operations at the Lands prior to June 19, 2006, shortly before the Lease expired. 17. On or before June 30, 2006, G.B.M. vacated the Lands. 18. When G.B.M. vacated the Lands, the Underground Storage Tank was still installed underground of the Lands. 19. At no time did G.B.M. remove the Underground Storage Tank. 20.

G.B.M. conducted a Phase II environmental site assessment in June of 2006 after they ceased active operations at the Lands (“Phase II Assessment”). 21. The Phase II Assessment was conducted by a third party assessment company that G.R.J. specifically approved for the purpose of preparing the assessment. 22. After it was completed, the Phase II Assessment was made available to G.R.J. for review; however, G.R.J. chose not to

review the Assessment. 23. G.R.J. retained its own environmental engineering and testing firm which conducted tests at the Lands in July or August 2006. 24. G.R.J. obtained its own report of environmental conditions of the Lands and submitted it to at least one third party, either to obtain financing or otherwise for its own commercial use, for reasons unrelated to G.B.M. Removal of the Underground Storage Tank 25. In or about the fall of 2006, after G.B.M. vacated the Lands, G.R.J. chose to undertake certain work on the Lands. 26. The removal process occurred after the Lease had expired. 27.

Between November 15 and 22, 2006 G.R.J. had Hard Rock Paving Ltd. attend at the Lands to break the concrete pad above the Underground Storage Tank, excavate down and remove the Underground Storage Tank, and then backfill the excavation with the concrete and fill it had earlier removed. 28. Hard Rock Paving Ltd. charged, and G.R.J. paid, $7,953.18 for the work described in paragraph 26. 29. While the Underground Storage Tank was being removed by G.R.J. (or it’s Contractor) in or about November of 2006, the Underground Storage Tank was punctured during the removal process. 30.

Prior to attempting to remove the Underground Storage Tank in or about November of 2006, neither G.R.J., nor anyone on their behalf, checked to make sure that the Underground Storage Tank was empty. 31. On November 21, 2006 G.R.J. had Newalta Corporation (“Newalta”) attend the Lands to vacuum out and dispose of the contents of the Underground Storage Tank. Newalta vacuumed out 2,680 kg of asphalt/diesel sludge from the Underground Storage Tank. 32. Newalta charged, and G.R.J. paid, $2,176.18 to vacuum out the Tank and haul away the asphalt/diesel sludge. Clean Up of the Contamination 33.

On December 4, 2006 G.R.J. had Jack Kao, professional engineer and president of Global Engineering and Testing Ltd. (“Global”), attend the Lands. 34. Also on December 4, 2006 G.R.J. had Hazco Environmental Services (“Hazco”) attend at the Lands. 35. Beginning on December 4, 2006, Hazco removed the concrete and soil fill from the excavation area, which had been backfilled by Hard Rock Paving Ltd. 36. During the excavation by Hazco, soil samples were taken at regular intervals by Global and checked for hydrocarbon vapor and to confirm the extent of any contamination.

Any soil that tested positive for the presence of hydrocarbon vapor during the excavation was stockpiled near the excavation site on polyethylene sheets. 37. Global had two soil samples and a groundwater sample from the excavation sent for chemical analysis by Maxxam Analytics Inc. (“Maxxam”). 38. Maxxam provided Global with the results of the soil sample tests referenced in paragraph 38 showing contamination that exceeded the Risk Management Guidelines for Petroleum Storage Tank Sites (2001) of Alberta Environment in two portions of the soil sample that was sent for analysis. 39.

Global also had soil samples taken for the purposes of determining if the soil removed from the excavation could be transported and disposed of. These samples were also tested by Maxxam. 40. The soil that had been stockpiled had unacceptable levels of the chemicals Xylene and Tolune and therefore could not be sent out for disposal. 41.

Global provided an environmental engineering report dated December 18, 2006, which demonstrated environmental contamination at the site of the Underground Storage Tank, which was obtained after the Underground Storage Tank had been punctured and some contents of the Underground Storage Tank escaped onto the soil. 42. Global recommended that the stockpiled soil be aerated and mixed with clean soil to dilute the concentration of the contamination within the soil. 43. Hazco aerated and mixed the sto

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