What is liability?
As discussed in the section What are the barriers to redevelopment? liability is the greatest barrier to brownfield redevelopment. Liability is a complex, multifaceted topic. The following sections are meant to provide municipalities a better general understanding of liability but should not be regarded as legal advice.
Polluter pays principle
In the context of brownfield redevelopment, liability generally refers to environmental liability related to contamination. In theory, Alberta follows the polluter pays principle as the Environmental Protection and Enforcement Act sets out the “responsibility of polluters to pay for the costs of their actions”.
As described by the Canadian Institute of Resources Law in its report, Strategies for Cleaning up Contaminated Sites in Alberta, the province most often deals with contaminated land as a “substance release” into the environment which causes an adverse effect. A person responsible for a “substance release” can include:
- the owner and previous owner of a substance;
- any person with charge, management or control of a substance; and
- any person who acts as a principal or agent of those persons mentioned above.
The province can issue an order to a person responsible to investigate or clean up the site. The province can also issue an “administrative penalty” or ticket to a person responsible.
The province can also designate a property as a contaminated site, which then provides a broad scope of liability under EPEA. “Persons responsible” for a contaminated site can include those that owned or controlled a substance present on the property as noted above, as well as current and past owners of the site where the contamination is present.
Types of liability
Brownfield sites are difficult to redevelop because they often involve various types of liability for the person or persons responsible:
The legal and financial responsibility to undertake remediation of contaminated property to Provincial Guidelines relevant to the zoning and usage requirements for the neighborhood.
The responsibility to fund remediation and exposure control management costs during property reclamation.
Legal (Civil) Liability
The power of the law to compel a party to remediate property to specific standards and/or compensate injured parties for damages caused by contamination.
The requirement to hold property owners to environmental standards and regulations as set out by the Province of Alberta
City of Edmonton, Contaminated Gas Stations Task Force Report
In practice, application of the polluter pays principle through these legislative provisions can be difficult, particularly in the case of brownfields with legacy contamination. The following section draws on an explanation of liability provided in an article published by the Canadian Consulting Engineer magazine.
Often the activity causing the contamination occurred decades ago and the original “polluter” no longer exists, cannot be found, cannot be compelled to cooperate, successfully delays action or has no funds. For example, many municipalities in Alberta contain former gas stations that were independently owned and where the owner has abandoned the property and cannot be found.
Liability does not depend on traditional concepts of fault or negligence, and diligence (i.e., reasonable care) - is not taken into account. Often the activities that caused the contamination were legal and best practice at the time they took place. For example, a commonly used substance called trichloroethylene is now known to be a toxic substance that can cause groundwater contamination. Until the 1970s, however, disposal instructions advised pouring spent trichloroethylene on dry ground to allow it to evaporate. Even if an activity that resulted in contamination was legal at the time it occurred, it does not negate the responsibility for remediating the contamination.
Liability is unlimited
Corporations, individuals and governments can be held joint and severally liable for the full costs of remediation. “Joint and several” liability is a common law principle that those who have combined to cause a loss are each liable to the injured party for the full amount of the damage suffered. A defendant may be only one percent at fault, but might still be obliged to pay for the plaintiff’s entire judgement, particularly in cases where the other defendants are unable to pay their share.
Liability is indefinite
Even if a party remediates the brownfield to applicable government standards, the same party may be “on the hook” again years later if standards change. Land owners who sell brownfield properties also remain open to liability claims despite the sale of such properties. Brownfield landowners are therefore often hesitant to sell or remediate their properties because the potential liabilities and associated cleanup costs may exceed the potential returns on sale.
Compounding these liability issues is the fact that contamination often spreads past property boundaries to other sites, which adds further complexity as it can be difficult to the determine the source(s) of contamination in order to determine who is liable.
How does liability impact municipalities?
Municipalities can become liable for costs associated with brownfield sites in a number of circumstances.
Municipality caused the contamination
A municipality may be liable for contamination that has resulted from its own past activities. For example, municipal public works or transportation yards are often contaminated due to the nature of work done on these sites. Municipalities should follow the province’s Contaminated Sites Policy Framework to assess options for the management of contaminated land they own or operate. In addition, municipalities are expected to account for and report on any financial liability associated with the cost of remediating a contaminated site, in accordance with the Public Sector Accounting Board (PSAB) Standard on Liability for Contaminated Sites as outlined in the section Complying with the PSAB Standard on Liability for Contaminated Sites?
Municipality acquired contaminated land
The Environmental Protection and Enhancement Act (EPEA), section 107(1)(c)(vii), provides an exemption from liability to municipalities for lands acquired through tax forfeiture. In addition, Section 1(tt)(v) of EPEA, excludes municipalities from being the "person responsible" both in cases of tax forfeiture and where "parcel of land [is] acquired by it by decision or gift of an environmental reserve, municipal reserve, school reserve, road, utility lot or right of way under Part 17 of the Municipal Government Act, unless after the date on which the land is acquired the municipality releases on that parcel a new or additional substance into the environment that may cause, is causing or has caused an adverse effect or aggravates the adverse effect of the release of a substance into the enviornment on that parcel." Nevertheless, municipalities should consult with a legal expert before accepting land that may be contaminated.
When a municipality acts as a land developer -- such as for industrial parks, affordable housing or municipal buildings -- it can incur potential future liability related to the subsequent purchaser and occupants of sites if the remediation measures the municipality undertook were subsequently deemed to be inadequate or if standards change.
Municipalities are potentially liable for any negligent approvals for land use amendments, development permit and subdivision. Impacted parties may cite that the municipality should have completed its due diligence prior to granting approvals.
Where ongoing risk management measures are imposed as a condition of planning development approvals, the municipality may incur third party civil liability for failure to inspect and endorse risk management measures in the future.
How does liability impact the private sector?
The liability associated with brownfield sites is also of concern to the private sector.
Owners of brownfield sites are often hesitant to invest in remediating the site and redeveloping it themselves as they may have due to the risk of remediation being required if standards change in the future. This is the case even if, after remediating the site, it is sold to a third party as there is currently no way to close or transfer liability for an entire site.
At the same time, developers are concerned that they will be responsible for any costs relating to contamination on a site, even though they did not have any role in causing that contamination. Even if a developer is willing to take this risk themselves, these uncertainties may pose challenges in obtaining the financial capital needed to redevelop a brownfield site. Lenders and investors, like banks, trust companies and pension funds, require a certain level of assurance that a brownfield project will succeed financially.
How can liability be addressed?
Brownfield Working Group recommendations
Solutions to address many of the issues around liability were identified in the 2012 report of the Brownfield Working Group, made up of municipal associations, industry groups and the province.
The working group’s priority recommendation was to expand Alberta’s Remediation Certificate program in line with what other provinces have done.
In 2009 the province began to issue remediation certificates which regulatory liability closure for remediation of a contaminated area against a future change in remediation standards related to a specific land use, i.e. residential, commercial, industrial, agricultural. In other words, a brownfield property that is being developed into a residential property will have to meet different standards than one that is being turned into an industrial warehouse.
However, a Remediation Certificate is not issued for an entire site or property, only the portion of a site where remediation took place in relation to a specific spill event or historical contamination. The working group recommended providing a Site-Based Remediation Certificate (SBRC) that closes future regulatory liability for the entire site, as this would greatly increase certainty for current and future owners. The working group also recommended that provincially approved SBRC instruments should be registered on property title for public transparency. Public interest can be protected through requiring increased transparency of site conditions and active management. The issuance of the Site-Based Remediation Certificate does not result in the persons responsible for the contamination on the site being less responsible for any off-site liabilities as they must continue to appropriately manage the impacts on third parties.
Other provinces have successfully taken this approach. For example, British Columbia has a mechanism similar to remediation certificates, called Certificates of Compliance (CoC), which apply liability closure to entire sites. The province has issued over 1,300 certificates since 1997, which are registered on title by the Ministry of Environment. In 2003, BC’s Environment Management Act was tightened to make the requirements for the COCs more stringent and to lessen the chance of remediation being found insufficient at a future date. The Government of BC has had feedback from developers that the COCs provide the assurance they need to move ahead with projects and have been crucial to securing project funding from lending institutions.
As Alberta’s Remediation Certificate Regulation expired in June 2016, AUMA and other members of the Brownfield Working Group such as the Canadian Fuels Association have called on the province to reconvene the group to help renew and improve the regulations. For more details see the section What is AUMA doing to address brownfields?
No Further Action Certificates
Another recommendation of the Brownfield Working Group was for the province to establish a mechanism for No Further Action Certificates (NFAC) to be issued for sites where a report of site condition has been made to the province demonstrating that regulatory standards have been met and the site does not require remediation. NFACs provide liability closure based on current site conditions and standards for a specific land use (e.g. residential versus industrial).
Whereas the recommended improvements to the remediation certificate program require changes to an existing regulation, NFAC would require creation of a new regulation under EPEA.
Municipal liability closure
The Brownfield Working Group also identified that further review of municipal liability was warranted. There are some general provisions in the Municipal Government Act related to the extent of a municipality’s civil liability when exercising municipal powers and there are specific provisions in EPEA related to the extent of a municipality’s regulatory liability as a “person responsible”. However, these provisions do not specifically address a municipality’s liability for the issuance of land use, subdivision and development approvals for brownfield redevelopment. The working group therefore recommended that consideration should be given to extending liability exemptions in a manner parallel to liability exemption provisions for provincial regulators with respect to dealing with contamination issues.
Implementing the recommendations
As mentioned above, expanding the scope of Alberta’s Remediation Certificate Regulation is the first priority in terms of solving liability issues. Once the update to the Remediation Certificate Regulation is complete, further updates to the EPEA to provide liability closure can be explored.
While changes to provincial legislation may take years, there are actions municipalities can take today to limit their liability. Municipal development plans can require the assessment of land prior to approving an area structure plan, plan of subdivision or issuing a development permit, in order to demonstrate environmental due diligence.
For example, the City of Edmonton’s Municipal Development Plan requires that an environmental site assessment be provided with any development applications associated with structure plans, rezoning, and subdivision and development permits in order to ensure the site is suitable for the intended use. To support this process the City has published an Environmental Site Assessment Guidebook.
To help other municipalities take a similar approach, the Environmental Law Centre is developing a model by-law allowing for formal incorporation of environmental site assessment into municipal planning. It is anticipated that the model by-law will be available in 2017.
Complying with the Public Sector Accounting Board Standard on Liability for Contaminated Sites?
The Municipal Government Act (MGA) requires that every Alberta municipality complete annual audited financial statements, a copy of which must be submitted to Municipal Affairs, by May 1 of each year. The financial statements must be prepared in accordance with generally accepted accounting principles for municipal governments in Canada as set out in the Public Sector Accounting Handbook.
As of the 2015 fiscal year, municipalities and other public sector agencies are required to account for and report on any liabilities associated with the remediation of a contaminated site in accordance with the Public Sector Accounting Board (PSAB) standard PS 3260- Liability for Contaminated Sites.
PSAB offers a four step approach involving identification, recognition, measurement and disclosure to help municipalities and other governments comply with the standard. A summary of these steps is based on guidance provided by BDO Canada and the Manitoba Municipal Government Municipal Finance and Advisory service,
Source: Manitoba Municipal Government – Municipal Finance and Advisory Services
Public Sector Accounting Board Standard PS 3260- Liability for Contaminated Sites
The following is a summary of the steps involved in meeting PSAB 3260, based on BDO’s A Practical Approach to Section PS 3260 and Manitoba Municipal Finance and Advisory Services’ A guide for the Adoption of PS 3260: Liability for Contaminated Sites. This document should not be regarded as formal legal or accounting advice.
Step 1: Identification
Assemble a team of knowledgeable people from different areas, such as finance, public works, engineering, and legal, to help identify a contaminated site. Your team should ask:
- Are there any sites with known contamination?
- Are there any sites where unexpected contamination has occurred (such as a chemical spill)?
- Are there any sites that have a history of contamination (such as a site previously used for industrial purposes)?
- Are there any sites not in use and why are these sites not in use? Are there any sites not included on the list where contamination may exist?
Step 2: Recognition
The criteria for recognition of a contaminated site is outlined in five phases. These include:
1) An environmental standard exists in a statute, regulation, by-law, order, permit, contract or agreement (See the following section on provincial standards and regulation).
2) Contamination exceeds the existing environmental standard. Some factors to consider when determining if the contamination exceeds the standard include:
- The nature of past activities at the site or adjacent properties
- Site location, hydrology and geology
- Results from testing and field investigations
- Similarities to and experience at other known contaminated sites
- Significance of the site
- Cost versus benefit of conducting a detailed site assessment
3) The municipality is directly responsible or accepts responsibility for the contamination.
- Responsibility- A municipality may be directly responsible for remediation due to its own past activities that have caused contamination (such as a municipally operated transportation work yard). A municipality may also be directly responsible when activities occurred on government-owned land or land the government has since acquired, and a responsible party cannot be identified or lacks the means for remediation
- Accepted Responsibility- If it so chooses, a municipality may voluntarily accept responsibility for the remediation of a contaminated site.
- Uncertain Responsibility- A situation may occur where an environmental standard exists, contamination exceeds the standard, the municipality is not responsible and does not accept responsibility, but there is uncertainty as to whether the municipality may be responsible. The municipality may in fact have a contingent liability. A municipality’s liability may be recognized if it can be reasonably estimated.
4) It is expected that future economic benefits will be given up (such as the payment of cash or provision of services)
5) In determining whether the recognition criteria for each site has been identified, the following should be considered:
- Have we identified all the existing environmental standards the municipality is required to comply with?
- Has contamination actually exceeded any of these environmental standards?
- Is the municipality directly responsible for the site?
- If not directly responsible, has the government accepted responsibility?
- Is there uncertainty as to whether the government is responsible for remediating a contaminated site?
- Are there any sites where contamination exceeding an environmental standard exists, but for which the government does not expect to give up future economic benefits and it is unlikely the municipality would be forced to remediate these sites?
- Are there any contaminated sites where the municipality is unable to come up with a reasonable estimate of the amount for remediation?
Step 3: Measurement
For each site that meets the recognition criteria, determine an appropriate estimate of the liability. This should include costs required to bring a site up to the current minimum standard for its use prior to contamination. These costs include activities such as:
- Post-remediation operation, maintenance and monitoring costs that are an integral part of the remediation strategy for a contaminated site, which would include costs such as payroll and benefits, equipment and facilities, materials, legal and other professional costs;
- Costs of tangible capital assets acquired as part of remediation activities to the extent those assets have no alternative use; and
- Costs related to natural resource damage (such as re-vegetation outlays), but only if they are incurred as part of an environmental standard.
Furthermore, the measurement technique used by the municipality to determine liability should result in the best estimate of the amount required to remediate the contaminated site. The amount would be based on the best estimate of the expenditures required to complete the remediation. Professional judgment, third party quotes and reports of third party experts should be considered. A present value technique is often the best manner technique to use when the cash flows required to settle or otherwise extinguish the liability are expected to occur over extended periods.
The liability for remediation is reduced by any expected net recoveries if the recognition criteria is satisfied.
The goal is to ensure that the estimate of the liability for remediation of each contaminated site is reasonable. The following should be considered:
- Was the information used in estimating the liability available at the financial statement date?
- Are the costs included in the estimated liability directly attributable to the remediation activities?
- Have we taken into consideration available site assessment information and experience gained at other similar sites?
- Was an appropriate measurement technique used?
- Have we evaluated the consistency of information across similar sites?
- Has an expert been used? If not, is an expert needed?
- Has the liability for remediation been reduced by any expected net recoveries that meet the recognition criteria?
Step 4: Disclosure
At this point in the process, the liability for remediation of all contaminated sites will be recognized and presented in the financial statements. The following disclosures must be included:
- The nature and source of the liability;
- The basis for the estimate of the liability;
- When a net present value technique is used, the estimated total undiscounted expenditures and discount rate;
- The reasons for not recognizing a liability; and
- The estimated recoveries.