Executive Summary: Key Legal and Evidentiary Issues

• Two interrelated applications were before the court: the plaintiffs' application to strike portions of the defendants' Amended Response to Civil Claim, and the defendants' application for leave to file a counterclaim out of time.
• Central to the main action is an indemnity clause (s. 4.1) in a commercial real estate purchase agreement, under which the vendor agreed to indemnify the purchaser for costs arising from hazardous substances on the property prior to closing.
• Defendants attempted to invoke the contra proferentum doctrine and an "as is, where is" clause (s. 6.5) to defeat the plaintiffs' indemnity and statutory claims under the Environmental Management Act, S.B.C. 2003, c. 53.
• Several paragraphs of the amended defence were found to disclose no reasonable defence, to be vexatious, or to otherwise constitute an abuse of process, including a novel argument that the purchase agreement constituted a contract of insurance giving rise to a duty of utmost good faith.
• Limitation period arguments raised by the defendants were rejected on the basis that the cause of action for remediation costs does not accrue until all such costs have been incurred.
• Defendants' application to extend the time to file a counterclaim was dismissed due to the markedly different subject matter, the lack of adequate explanation for a roughly two-year delay, and the prejudice that would result to the plaintiffs, who are in receivership.

Facts of the case

Keltic (Prior) Development Limited Partnership and 1232616 B.C. Ltd. (the plaintiffs) are real estate developers who purchased a contaminated industrial property located at 220 Prior Street in Vancouver, B.C. from Van Renesse Investment Company Ltd. (the corporate defendant), along with its individual directors and shareholders Traute Van Renesse and Jasmin Van Renesse (collectively, the defendants). The defendants had owned the property since 1981, operating a business that imported and sold European specialty foods and household items. In 2019, the defendants sought to sell the property and, prior to listing, obtained an environmental report that identified an underground fuel storage tank but otherwise assessed the risk of contamination as low.

Negotiations between the parties proceeded through legal counsel and the defendants' realtor. The plaintiffs were provided with the defendants' pollution report. An initial offer to purchase was made for $31,650,000, but that offer lapsed. A subsequent agreement was entered into and closed on February 28, 2020, at a reduced purchase price of $25,000,000. The development purpose was to build a medical building next to the future site of St. Paul's Hospital. The plaintiffs also commissioned their own environmental report prior to closing, which disclosed the property was more contaminated than the defendants' report suggested. It is common ground that the plaintiffs did not share their environmental reports with the defendants prior to purchase and remediation.

Contractual provisions at issue

The purchase agreement contained several clauses central to this dispute. Section 4.1 (Environmental) provided that after the closing date, the vendor would remain responsible for any hazardous substance on, in, or within the property arising from any hazardous discharge prior to closing. Under s. 4.1(c), the vendor agreed to indemnify and save harmless the purchaser and its shareholders, directors, officers, employees, advisors, and agents from all claims arising from any hazardous substance on or within the property prior to the closing date, with the indemnity obligation expiring five years after the closing date. Section 4.1 was expressed to survive closing.

Section 6.5, titled "As Is, Where Is" Sale, provided that except as expressly set out in the agreement (including, for greater certainty, s. 4.1), the property was being sold on an "as is, where is" basis, with no representations or warranties of any nature by the vendor as to the physical condition, environmental condition, or soil condition of the property. The purchaser acknowledged it was relying solely on its own due diligence. Section 6.5 also survived closing.

Reasoning and analysis

In preparation for development, the plaintiffs retained an environmental company to conduct further investigations, which disclosed a wide range of pollutants. Because the contamination exceeded the standards set by the Environmental Management Act (EMA), the property was designated a "contaminated site" and the plaintiffs were required to remediate it at a cost of $2,800,000, obtaining a certificate of compliance under the EMA regime on October 10, 2024. In June 2023, the plaintiffs made a formal demand for payment under s. 4.1, but the defendants refused, advising they were unable to pay as the $25,000,000 purchase price had been distributed to shareholders.

The plaintiffs applied to strike numerous paragraphs of the defendants' Amended Response to Civil Claim under SCCR 9-5(1). Associate Judge Nielsen applied the well-established test from R. v. Imperial Tobacco Ltd., 2011 SCC 42: a pleading will only be struck if it is plain and obvious, assuming the facts pleaded are true, that it discloses no reasonable cause of action or defence, or is otherwise vexatious, scandalous, frivolous, unnecessary, or an abuse of process.

With respect to the contra proferentum defence raised in paragraphs 18 to 30 of Part 1, the court agreed with the plaintiffs that this doctrine applies only where parties did not have a meaningful opportunity to negotiate contract terms. Here, both parties were represented by counsel, negotiations were extensive, and the price was ultimately reduced from $31,650,000 to $25,000,000 — the indemnity clause having been part of those negotiations. Those paragraphs were struck pursuant to SCCR 9-5(1)(a) and (c).

Paragraphs 31 to 35 of Part 1 and paragraph 40 of Part 3, which sought to use s. 6.5 (the "as is, where is" clause) to bar both the indemnity and EMA claims, were struck on the basis that s. 6.5 is expressly subject to s. 4.1, and that the defendants cannot contract out of their statutory obligations under the EMA. Paragraph 38 (the "Notice" pleading) was struck for failing to provide any essential factual foundation. Paragraphs 39 to 59 of Part 1 and 25 through 32 of Part 3 — which advanced the theory that the purchase agreement was a contract of insurance giving rise to a duty of utmost good faith under the Insurance Act, R.S.B.C. 2012, c.1 — were struck entirely. The court held that no facts were pleaded that could establish the agreement was an insurance contract, and that an indemnity clause alone could not transform a commercial real estate contract into one of insurance. Paragraphs 60 to 64 (alleging the plaintiffs were required to provide notice of discovered untruths before closing) were struck as establishing no reasonable defence, since the plaintiffs' claims rested on the indemnity clause (s. 4.1) and EMA statutory liability, not on ss. 6.1(n) or 6.1(o). The defendants' limitation period defence — asserting the two-year limitation had expired on August 23, 2021 — was also struck, as the court found the limitation period for remediation costs does not commence until all such costs have been incurred. Paragraphs 65 to 69, concerning "damages and losses," were struck for advancing a theory with no legal basis. Paragraphs 36 to 39 of Part 3, which cited four BC cases under the heading "Equitable set off and counterclaim" without any accompanying explanation, were likewise struck.

The court declined, however, to make an order entirely denying the defendants a further opportunity to amend their response to the civil claim, as no cases were cited and no substantive argument was made on that issue.

Turning to the defendants' application for leave to file a counterclaim out of time, the court applied the two-part framework from Naudi Investments v. 0899809 BC Ltd., 2021 BCSC 1121, and Phaneuf v. 0896459 B.C. Ltd., 2024 BCSC 1343. While the counterclaim and main action involved the same parties and the same purchase agreement, the subject matter of the two proceedings was markedly different: the main action sought to enforce the indemnity and EMA obligations, while the counterclaim sought to characterize the agreement as an insurance contract and effectively set it aside or reset the purchase price. The defendants had been represented by counsel throughout yet waited roughly two years before proposing the counterclaim, attributing the delay to the retention of new counsel with a new theory. The defendants conceded the counterclaim would be time-barred but for s. 22 of the Limitation Act, S.B.C. 2012, c. 13. The court found that allowing the counterclaim would significantly expand the scope of the litigation and be prejudicial to the plaintiffs, who are in receivership.

Ruling and outcome

The plaintiffs succeeded on both applications. The court struck the impugned portions of the defendants' Amended Response to Civil Claim and dismissed the defendants' application to extend time to file a counterclaim. As the successful party on both applications, the plaintiffs were awarded costs of both applications at Scale B. No specific dollar amount for costs was stated in the judgment.