DATE: 20060906

DOCKET: C44550

COURT OF APPEAL FOR ONTARIO

SIMMONS, CRONK, and MACFARLAND JJ.A.

B E T W E E N :

MICHAEL E. JOHNSTON

Dianne Saxe for the appellant

Appellant

• and -

SHELL CANADA PRODUCTS LIMITED

Laurence A. Pattillo and Jennifer Conroy for the respondent

Respondent

Heard: May 29, 2006

On appeal from the judgment of Justice Hugh R. McLean of the Superior Court of Justice dated November 15, 2005.

SIMMONS J.A.:

[1] This case involves a dispute between Mr. Johnston and Shell Canada Products Limited (“Shell”) concerning whether Shell has fulfilled its obligations under Minutes of Settlement.

[2] Mr. Johnston owns property that he formerly operated as a Shell Canada service station. During the period that Mr. Johnston operated the service station, Shell owned the gasoline and gasoline handling equipment that was on the property.

[3] In 1997, Mr. Johnston sued Shell and claimed damages for Shell’s alleged failure to properly investigate and remediate petroleum hydrocarbon contamination on the property. In 2001, Mr. Johnston and Shell entered into Minutes of Settlement addressing Shell’s remediation obligations. At issue in this case is the proper interpretation of a requirement in the Minutes of Settlement that Shell conduct “appropriate further testing” of Mr. Johnston’s property.

[4] The motion judge concluded that the Minutes of Settlement delegated the determination of what was “appropriate further testing” to an environmental consulting company, Golder & Associates, and that Shell had met its obligations under the Minutes. The appellant disputes these findings on appeal. For the reasons that follow, I would dismiss the appeal.

Background

[5] In April 1990, Mr. Johnston purchased 82 Main Street, Warkworth, together with a service station business operating at that address (collectively the “Property”). At the time of this purchase, the appellant was aware that, since 1940, the Property had been the site of a gasoline service station business operating under Shell’s name (or that of its corporate predecessor, White Rose).

[6] Following the purchase, Mr. Johnston carried on a service station business on the Property under Shell’s name until October 1994. Although he owned and operated the business, Shell owned the gasoline and gasoline handling equipment on the Property, including fuel pumps and underground fuel storage tanks.

[7] In October 1994, Mr. Johnston and Shell discontinued their relationship. As a result, with the assistance of a consultant, Shell began decommissioning the Property by removing the existing gasoline handling equipment and cleaning up hydrocarbon contamination. However, in 1995, Shell’s environmental consultant, Central Projects Group Inc., raised concerns that there could be underground fuel storage tanks beneath an office now located on part of the Property.

[8] At the time that the decommissioning process began, the Ministry of the Environment had issued Interim Guidelines for the Assessment and Management of Petroleum Sites in Ontario (the “Interim Guidelines”). Decommissioning of the Property was delayed because of various disputes between the parties. In early 1996, Shell’s consultant reported that soil samples taken from an area underneath the office located on the Property contained concentrations of petroleum-related hydrocarbons that exceeded the permissible limits established by the Interim Guidelines.

[9] After receiving the consultant’s report, the parties discussed remediation of that part of the Property situated under the office but they were unable to reach an agreement. In the meantime, effective July 1, 1996, the Interim Guidelines were replaced by the Final Guideline for Use at Contaminated Sites in Ontario (the “Guideline”). In the light of that development, Shell asked its consultant to reassess the data previously collected in relation to the Property. In December 1996, the consultant reported that the existing soil samples met the new remediation criteria set forth in the Guideline.

[10] On July 8, 1997, Mr. Johnston commenced this action, claiming damages for Shell’s failure to properly investigate and remediate the Property. In due course, a trial was scheduled for April 2001. However, on April 6, 2001, Mr. Johnston brought a motion seeking leave to deliver an expert report from Oakridge Environmental Limited (the “Oakridge report”) concerning the environmental status of the Property. Because of the timing of that request, the trial was adjourned to October 2001.

[11] Oakridge did not conduct its own tests on the Property; rather, it critiqued the expert reports that had been prepared previously in connection with the Property. Based on Oakridge’s comments, it was apparent that there were at least three areas of dispute between the parties: i) whether the Property should be classified as residential or commercial/industrial; ii) whether the Property should be assessed under Table A or Table B of the Guideline; and iii) having regard to items i) and ii), whether the Property had been remediated in accordance with the applicable standards.

[12] Shortly before the October 2001 trial date, the parties entered into Minutes of Settlement, which included the following terms:

THE PARTIES HEREBY AGREE AS FOLLOWS:

1. Shell shall conduct, at its own expense, appropriate further testing of the Johnston property situate within Warkworth.

2. Shell shall retain Golder & Associates who shall be acknowledged and agreed as the acceptable consultant to conduct the testing referenced in paragraph 1.

3. Golder shall make all inquiries and make all determinations it deems necessary regarding the application of the Ministry of the Environment guidelines for use at contaminated sites in Ontario and Table A or B of the generic criteria of those guidelines. The property shall be considered as a commercial use. Golder shall be permitted to make its own professional determination of the appropriate table. However, the same shall be subject to reasonable review by the parties and their experts.

4. Shell undertakes to remediate the property in an appropriate manner, if same is required, arising out of the Golder testing and investigation. The scope and nature of any remediation will have to be determined by the results obtained by Golder and will be the subject of further discussions between the parties. It is understood by the parties that if the property meets the applicable guideline generic criteria, no remediation shall be required…

5. The testing, evaluation of the site, and any remediation shall be all undertaken with reasonable diligence and within a reasonable time save and except matters that are not within the control of the participants.

[13] In accordance with the Minutes of Settlement, Shell retained Golder to proceed with the required work. In a letter dated November 1, 2001 (the “retainer letter”), counsel for Shell provided Golder with the following instructions concerning the work to be performed:

More specifically, it was agreed that Golder Associates would provide its opinion as to whether i) the Property should be classified under Table A or Table B of the guidelines; and ii) whether the Property currently meets the criteria under whichever of the tables is selected. In either case, the Property should be classified as “commercial” for purposes of the guidelines. In reaching its opinion, Golder shall be free to conduct such further testing on the Property as it decides is necessary to determine whether the Property does or does not meet the appropriate guideline criteria [emphasis added].

[14] Shell’s counsel sent a copy of the retainer letter to counsel for Mr. Johnston, who made no comments in response.

[15] On May 21, 2002, Golder issued a report addressed to counsel for both parties. In its report, Golder concluded that the Table B generic criteria applicable to non-potable groundwater and coarse textured soils for commercial/industrial land use are the appropriate criteria against which to assess the environmental quality of the Property. Further, based on groundwater testing that it conducted near the site where Shell had removed the gas pumps and on the soil testing previously performed by Shell’s consultant, Golder concluded that the Property meets the Table B Guideline criteria.

[16] In an affidavit filed in support of his motion to enforce the Minutes of Settlement, Mr. Johnston deposed that when Golder representatives attended at the Property to do their investigation, he showed them historical photographs of the White Rose service station premises that depicted gasoline handling equipment in the area of what is now the office, and asked the Golder representatives to conduct groundwater testing in that area. Mr. Johnston also stated, “For reasons unknown to me, Golder’s representatives refused to do so.”

[17] After receiving the Golder report, Shell’s counsel wrote to Mr. Johnston’s counsel on May 23, 2002, and stated, “consistent with paragraph 4 of the minutes of settlement, Shell shall not be conducting any further remediation on your client’s property”. Shell’s counsel received no response to his May 23, 2002 letter.

[18] On March 17, 2004, new counsel for Mr. Johnston wrote to Golder, enclosed a report from Cardinal Environmental Services Consulting Limited dated October 2003, and asked whether Golder remained of the view that the Property complies with Table B of the Guideline. In its report, Cardinal expressed the following conclusions:

• soil samples taken by Cardinal on August 1, 2003, from beneath a portion of the office located on the Property contain concentrations of hydrocarbons exceeding the applicable Table B criteria; and
• detectable concentrations of petroleum hydrocarbons were identified in a groundwater sample taken from beneath a portion of the office located on the Property. The concentrations were below the Table B criteria for applicable parameters (Benzene, Toluene, Ethylbenzene, and Xylene).

[19] Golder did not answer the March 17, 2004 letter. However, in a letter dated March 23, 2004, Shell’s counsel responded that the matter had been settled for nearly two years and that there was no basis for the request by Mr. Johnston’s counsel.

[20] On May 19, 2004, Mr. Johnston’s counsel wrote to the Ministry of the Environment and asked various questions concerning the Golder report and inquired whether, in the Ministry’s view, the Property complies with the Guideline. A response from the Ministry dated August 20, 2004, includes the following statements:

• based on the information provided in the Golder report, Table B is the appropriate cleanup benchmark for the Property;
• however, there is no cleanup criteria for total petroleum hydrocarbons (TPH) in groundwater within Table B. Therefore, the cleanup criteria for TPH defaults to Table A or the consultants could undertake a Site Specific Risk Assessment to determine risk based remediation criteria;
• based on test results in the Cardinal report, the Property does not comply with Table B; and
• based on the information provided, “the cleanup is proponent driven as opposed to compliance driven as the potential for offsite impacts is considered low”.

[21] On the motion to enforce the Minutes of Settlement, Mr. Johnston and Shell each filed an expert’s report addressing the quality of testing that had been done on the Property.

The Motion Judge’s Decision

[22] In his reasons, the motion judge noted that Golder was retained at the request of Mr. Johnston, that Golder had identified the appropriate standard for evaluating the Property, and that it was satisfied that the appropriate standard had been met. While recognizing that Mr. Johnston had filed a consultant’s report suggesting that the standard had not been met, the motion judge concluded that the Minutes of Settlement were unambiguous in establishing a regime under which Golder would look at the existing test results, conduct further tests, and arrive at an opinion as to whether further remediation was required. The motion judge concluded, “They also conducted further tests. It seems, therefore, when we consider the Minutes of Settlement as a whole, the appropriate standards as required by the Minutes of Settlement, have been met and that, notwithstanding the subsequent report as to hydrocarbons, Shell has met its obligations under the Minutes of Settlement.”

[23] Concerning Mr. Johnston’s submission that Golder had failed to conduct additional tests in the area of the office, the motion judge said it was undisputed that Golder had the previous test results from that area. He said that Mr. Johnston was aware that the previous test results suggested that hydrocarbons were present in that area and that Mr. Johnston had signed the Minutes of Settlement “without, apparently, adverting to the necessity of further testing at this place”.

Analysis

[24] The main issue on appeal is whether the motion judge erred in interpreting the Minutes of Settlement as delegating to Golder the authority to determine the “appropriate further testing” to be performed under para. 1 of the Minutes of Settlement.

[25] In particular, Mr. Johnston contends that because the Minutes of Settlement were signed following several years of disagreement regarding the level of contamination under the office and what should be done about it, the Minutes can only properly be read as imposing an absolute obligation on Shell to conduct testing that is appropriate in accordance with an objective standard. Given that Cardinal’s testing demonstrates that the Property does not comply with Table B of the Ministry Guideline, Mr. Johnston maintains that Shell has not complied with its testing obligation under the Minutes of Settlement and should be ordered to do so.

[26] Mr. Johnston submits that an interpretation of the Minutes of Settlement that would allow Shell, as the polluter, to walk away from the Property without conducting that appropriate testing and remediation is absurd. Moreover, he submits, such an interpretation would ignore the difference in wording between paras. 1 and 3 of the Minutes of Settlement. Whereas para. 3 contains an explicit delegation to Golder of the authority to determine whether Table A or B of the Guideline applies, para. 1 contains no such delegation. Rather, it imposes on Shell alone the obligation to conduct appropriate testing on the property.

[27] I do not accept Mr. Johnston’s submissions. I conclude, for two reasons, that the motion judge made no error in holding that the Minutes of Settlement delegate to Golder the authority to determine the “appropriate further testing” to be conducted.

[28] First, in my view, it is necessary to read the Minutes of Settlement as a whole to determine the scope of Shell’s obligation to conduct further tests.

[29] While para. 1 imposes an obligation on Shell to conduct appropriate further testing, para. 2 requires Shell to retain Golder to conduct the tests and para. 4 stipulates that Shell will “remediate the property … if same is required, arising out of the Golder testing…” Para. 4 also states: “The scope and nature of any remediation will have to be determined by the results obtained by Golder and will be the subject of further discussions between the parties.” Importantly, para. 4 further records the parties’ agreement that if the Property met the “applicable guideline generic criteria”, as determined by Golder, “no remediation shall be required”.

[30] Read as a whole, these provisions indicate that Shell’s obligation to remediate the Property is tied expressly to the results of the Golder testing. In accordance with para. 4, the parties agreed that the results of the Golder testing would determine both whether remediation was necessary, and, if it was, the scope and nature of the remediation to be performed. Significantly, while Shell bears the obligation to conduct appropriate testing, it has no right to perform any tests itself.

[31] Given these provisions, the nature of the issues between the parties at the time that the Minutes of Settlement were signed, and the fact that Golder was retained at the request of Mr. Johnston, a proper reading of the Minutes of Settlement indicates that Golder was named in para. 2 as the “acceptable consultant to conduct the testing” because Golder was to determine what further testing on the Property was appropriate.

[32] Second, contrary to Mr. Johnston’s submission, the language of para. 3 of the Minutes of Settlement does not undermine the conclusion that Golder was authorized to determine the further testing to be performed.

[33] While para. 3 explicitly delegates to Golder the authority to determine which Table of the Guideline applies to the Property, this authority is not absolute; to the contrary, it is “subject to reasonable review by the parties and their experts”.

[34] Significantly, however, this qualification does not apply to Golder’s determination of the testing to be performed. Thus, the purpose of para. 3 is to make clear that Golder’s authority to identify the appropriate standard for evaluating the Property is limited. But the fact that there is no reference in the Minutes of Settlement to anyone other than Golder having input into the further testing to be conducted, supports the conclusion that Golder alone is entitled to make that determination.

[35] Based on the foregoing factors, I am satisfied that the motion judge did not err in holding that the Minutes of Settlement delegate to Golder the authority to determine the appropriate further testing to be conducted on the Property and, consequently, whether further remediation is necessary. Absent demonstration of a palpable and overriding error, the motion judge’s conclusion that Shell met its obligations under the Minutes of Settlement is entitled to deference in this court.

Disposition

[36] For the foregoing reasons, I would dismiss the appeal. Shell is entitled to its costs of the appeal, if demanded, on a partial indemnity basis fixed at $7,500, inclusive of disbursements and applicable G.S.T.

RELEASED: September 6, 2006 “JS”

“Janet Simmons J.A.”

“I agree E.A. Cronk J.A.”

“I agree J. MacFarland J.A.”