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Environmental Due Diligence Carries on, With Limitations, During the COVID-19 Pandemic

Written by Michael A. NesteroffLane Powell PC

COVID-19 Resource

Banks, borrowers and their supporting professionals, like everyone else, are having to adapt to the rapidly-changing circumstances surrounding COVID-19. With commercial and multi-family real estate, one of the more difficult issues is how to conduct a Phase I Environmental Site Assessment in order to qualify as the “All Appropriate Inquiry” that most lenders require. A full Phase I investigation includes items such as a site visit, interviews with knowledgeable people, and records research, but each of those are constrained during this global pandemic and shelter-in-place or stay-at-home orders. Lenders and environmental professionals, however, are getting creative and flexible in the ways they address this unique situation.

Lender Adaptations

Because banks are considered an essential business service, many lenders are continuing to process loan applications, although they face the same logistical issues that we all are confronting with working from home. Depending on the type of loan involved, banks may be more flexible with the level of environmental due diligence required. For example, a refinance of a loan on a property where there was a recent Phase I, or the property has not changed, may not require any additional environmental review or a desktop review may suffice. Instead of one-size-fits-all approaches to due diligence, banks now are evaluating what’s needed on a property-by-property basis. In some instances, the environmental review may be called a “Limited Site Investigation,” instead of a Phase I, with follow-up site inspections conducted when the crisis abates.

Consultant Approaches

Environmental professionals, while not specifically called out as an essential business service, are considered support for an essential business service, such as a bank. This allows them to conduct the necessary site assessments and fieldwork but, in many cases, they may not be able to do so because the subject property is closed; the people to be interviewed are staying at home, whether because of stay-at-home orders or illness; and the government agencies and offices with relevant property records are not open to the public. Furthermore, the consulting firms are cognizant of the health and safety needs of their employees and don’t want to place them at unnecessary risk.

In some instances, such as hospitals, long-term care facilities, assisted living facilities, nursing homes or senior living communities, environmental consultants simply are not conducting in-person interior inspections. In other cases, multi-family properties for example, the inspections may consist of looking only at vacant units and common areas, but foregoing occupied units. Other workarounds include the site contact walking through the building on FaceTime or having a resident take photographs. One pitfall is that a building occupant or resident may not be as aware of what to look for, or may even want to minimize issues that an environmental consultant would spot. If a site visit is absolutely necessary, some consultants are scheduling visits for weekends or evenings when fewer people are around, having the site contact open all doors, wearing gloves, and maintaining social distancing as much as possible. For larger, open properties, use of a drone may be a helpful substitute.

Communication between the client and the environmental professional is key. If the scope of work may be more limited by current conditions, that should be made clear from the outset and the parties reach consensus on the necessary adjustments. Communication between the consultant and site contact also is important, although privacy issues prevent inquiring about a site contact’s COVID-19 status. Indeed, not everyone is convinced that current measures, such as social distancing, are warranted. In those situations, the consultants are having to communicate in advance their practices and expectations.


About the Author

Mike Nesteroff is a preeminent environmental lawyer with extensive experience representing clients in environmental litigation, agency negotiations, property acquisition and leasing issues, and counseling clients on risk and compliance. During his 31 years at Lane Powell, Mike has represented clients in litigation claims involving hazardous material investigations, cleanups and cost recovery at sites in Washington, Oregon and Alaska. He has obtained a several million-dollar cost recovery judgment on behalf of one client and a defense verdict in another cost recovery case. Mike has also represented clients in litigation involving public records and obtained a favorable court of appeals ruling on a previously-untested exemption in the Washington Public Records Act.

What can the Act of God Defence in Regulatory Offences tell us about Responding to the COVID 19 Crisis

Written by Stanley Berger, Partner, Fogler Rubinoff

In April 2008 water bodies in Alberta were frozen over and as a result, migratory birds were drawn to Syncrude’s open tailings ponds where over 1600 waterfowl died from exposure to bitumen. Syncrude was prosecuted under federal and provincial environmental laws for the adverse impacts of the tailings on migratory birds.

The company defended itself by arguing that that the convergence of record snowfalls and the freezing of the adjacent waters that the waterfowl would naturally use for sustenance during spring migration amounted to an Act of God which could not reasonably be anticipated. The company had a system of deterrents which had worked reasonably well in previous years to prevent the loss of all but a small number of birds drawn to the open tailings, but the record snowfall had interfered with their planned deployment.

The Court, conceded that the convergence of adverse weather, open tailings, frozen natural water bodies and bird migration was an unavoidable natural event. (2010) ABPC 229 at par. 136) Nevertheless, the Court reasoned that while the exact circumstances or degree of severity may have been unpredictable, the convergence of these critical factors was not remarkable. The company’s response was deficient whether it had been “the second worst snowfall in 65 years that occurred, coupled with a late breakup and quick thaw or, or some lesser but still significant amount of snow or rain. “(at par. 138) On October 22, 2010

Provincial Court Judge Tjosvold imposed fines and orders totaling three million dollars for violations of Alberta’s Environmental Protection and Enhancement Act and Canada’s Migratory Birds Convention Act. see Berger and Myers, Prosecution and Defence of Environmental Offences, Sentencing Service on Thomson and Reuters Proview at https://nextcanada.westlaw.com/.

Lessons Learned: Regulatory Due Diligence During and After COVID  19

Regardless of whether one is religious or not, COVID 19 would certainly fit within the Act of God defence if faced with a charge of non-compliance with a regulatory offence. But the level of sympathy expected to be extended by a court to this defence will ultimately depend upon the magnitude of the harm environmental, health and safety or otherwise and the steps taken by a defendant to plan for a once in a lifetime event. The nuclear industry offers an excellent example. Licensees of nuclear facilities have always been required to deploy minimum complements of workers at all times to ensure that critical activities such as the operation of the nuclear reactor and its cooling systems are maintained. There are always control room operators on hand even during a pandemic though additional precautions are taken to ensure that their health and safety are optimized. Businesses should review their regulatory licenses and approvals and identify which of their operations need to be maintained at all times in order to protect public health and safety and the environment. Once identified, budgets
and schedules should be set for implementation. Particularly, but not exclusively where costs are prohibitive or actions are not feasible, transparent communication with the relevant regulatory authorities should be initiated without delay to ensure that there is a mutual consensus on the expectations of the parties. Finally, those expectations should be reduced to writing and kept on line so that they are readily accessible. Given the magnitude of the current crisis, regulators may not respond to e-mails in a timely fashion, so businesses should ensure that all requests for reviews of compliance plans are sent and kept electronically.

This republished article is intended for general information purposes only and should not be relied upon as legal advice.


About the Author

Stan Berger has practiced regulatory law for 37 years. He represents nuclear operators and suppliers, waste management operators, renewable energy operators, receivers-in-bankruptcy, municipalities and First Nations. He was an Assistant Crown Attorney in Toronto for 8 years, Senior counsel and Deputy Director for Legal Services/Prosecutions at the Ministry of the Environment for 9 years and Assistant General Counsel at Ontario Power Generation Inc for 14 years.  He is the author of a quarterly loose-leaf service published by Thomson Reuters entitled the Prosecution and Defence of Environmental Offences and the editor of an annual review of environmental law.  Mr. Berger was the President of the International Nuclear Law Association (2008-2009) and the founder, and President of the Canadian Nuclear Law Organization.

Environmental Due Diligence And Managing Environmental Risk – Part 1: Overview Of Saskatchewan Environmental Regulatory Landscape

Written by Christopher J. Masich, McKercher LLP

Today environmental due diligence and managing environmental risk are fundamental aspects of most (if not all) commercial transactions. Whether acting for developer, buyer, seller, purchaser, lessor, lessee, or financier, and whether in the context of M&A, real estate, project development or otherwise, some form of environmental due diligence or environmental risk management is necessary. Due diligence leading to the discovery of environmental liability (or even the potential of environmental liability) often causes an instinctive negative reaction. Fortunately, proper environmental risk management may be the difference between closing a transaction with economic success or not. To ensure economic success, it is incumbent upon legal counsel to assist clients in completing environmental due diligence and managing environmental risk.

This Resource Update is the first of a series of updates that will summarize the range of possible environmental issues, the patchwork provincial and federal regulations in Saskatchewan, the differences among Saskatchewan’s key industries, and the nuances of each type of commercial transaction. A prerequisite to any discussion of environmental due diligence and environmental risk management is a strong understanding of environmental regulations and potential liabilities that exist at common law in Saskatchewan. These are discussed in this Resource Update.

The Saskatchewan Environmental Regulatory Landscape

Environmental regulation in Saskatchewan is a patch-work of provincial and federal legislation administered by several government departments. While the management and protection of the environment in Saskatchewan is principally (but not exclusively) provided for under The Environmental Management and Protection Act, 2010, many environmental matters and industries with environmental impacts may also be regulated under the following Saskatchewan legislation and regulations promulgated under these Acts:

  • The Agricultural Operations Act
  • The Cities Act
  • The Conservation Easements Act
  • The Crown Minerals Act
  • The Dangerous Goods Transportation Act
  • The Ecological Reserves Act
  • The Environmental Assessment Act
  • The Environmental Management and Protection Act, 2010
  • The Fire Safety Act
  • The Fisheries Act (Saskatchewan), 1994
  • The Forest Resources Management Act
  • The Heritage Property Act
  • The Management and Reduction of Greenhouse Gases Act
  • The Mineral Resources Act, 1985
  • The Mineral Industry Environmental Protection Regulations, 1996
  • The Municipalities Act
  • The Natural Resources Act
  • The Oil and Gas Conservation Act
  • The Pest Control Act
  • The Pipelines Act, 1998
  • The Provincial Lands Act, 2016
  • The Sale and Lease of Certain Lands Act
  • The Public Health Act, 1994
  • The Reclaimed Industrial Sites Act
  • The Saskatchewan Employment Act
  • The Water Security Agency Act
  • The Weed Control Act
  • The Wildlife Act, 1998
  • The Wildlife Habitat Protection Act

This list is illustrative only and not exhaustive of all Saskatchewan environmental legislation, and not inclusive of applicable Federal legislation. Once due diligence has been “scoped” based on the particular industry and transaction, legal counsel and environmental consultants will fully review applicable Saskatchewan and Federal legislation.

In addition to Government legislation and regulation, environmental liability may be based on traditional common law tort claims of private and public nuisance, riparian rights, strict liability, trespass, negligence and negligent misrepresentation, deceit and fraudulent misrepresentation, breach of the duty to disclose, breach of the duty to warn, breach of fiduciary duty and waste. The following is a brief summary of each of these common law tort claims.

  • Private Nuisance. Private nuisance provides that a defendant may not cause substantial or unreasonable interference with the plaintiff’s use and enjoyment of its land.
  • Public Nuisance. Public nuisance is broader than private nuisance in that it confers a right of action for damages arising from the defendant’s use of its land even though no rights to the plaintiff’s land have been affected, but is restricted in that a plaintiff can only claim if it has suffered special or particular damage over and above that suffered by the public at large.
  • Riparian Rights. Riparian rights protect a plaintiff’s right to the flow of waters over its property without serious alteration in quantity or quality.
  • Strict Liability (Rylands v. Fletcher). Strict liability is a tort that varies slightly from negligence, nuisance and trespass. It generally requires the use of the land to be ‘non-natural’, followed by an escape, leading to mischief and compensable damages.
  • Trespass. Trespass is any invasion of property however slight and, in the context of environmental trespass, it must be proven that the defendant intentionally caused the contaminant to enter the plaintiff’s land.
  • Negligence and negligent misrepresentation. A successful claim of negligence requires the plaintiff to prove that the defendant breached a duty of care owed to the plaintiff, which caused the plaintiff to suffer damages.
  • Deceit or fraudulent misrepresentation. Fraudulent misrepresentation occurs when a defendant knowingly makes a false representation with the intent to deceive the plaintiff, and the representation induces the plaintiff to act, resulting in damages.
  • Breach of the duty to disclose. Similar to fraudulent misrepresentation, a party may be under a duty to disclose information that would be a benefit to the other party. This duty generally arises under the scope of a fiduciary duty, but may also exist under certain contractual relationships, such as real property transactions and lease transactions.
  • Breach of duty to warn. In certain contexts, there is a specific duty to warn that exists separate and apart from the duty to disclose and fiduciary duty. The duty to warn arises when facts or circumstances exists which may cause another person physical damage or harm. In the context of the environment, this duty may arise in manufacturer product liability cases or with the mishandling of hazardous substances.
  • Breach of fiduciary duty. The fiduciary duty is a special duty of utmost good faith and includes a duty of confidentiality and a duty to make full disclosure.
  • Waste. In lessor and lessee relations, a lessee may not commit waste against the lessor’s reversionary interest. Waste in this sense causes lasting injury to the reversion interest and may be due to a positive act or due to neglect or omission.

Environmental claims are often grounded in contract law. It is not possible to summarize the countless ways a contractual breach may occur but, in the context of the environment, such claims tend to relate to: onsite (historic) contamination, migration of contaminants, misrepresentations, indemnity claims, actions or omissions under lease tenancies and insurance coverage denial.

In Part 2 of our series on Environmental Due Diligence and Managing Environmental Risk, we will discuss early stage planning and scoping due diligence to set parameters and establish the framework for the due diligence process – arguably the single most important task of a transaction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.


About the Author

Christopher J. Masich is a Partner at McKercher LLP practicing in the Firm’s Saskatoon office where he maintains a commercial transactions and project development practice focusing on Saskatchewan key economic sectors – energy, natural resources and agricultural. Additionally, Christopher provides special counsel on environmental risk management and environmental regulation across all industry sectors.

ERIS Introduces Environmental Data Package for Mexico

In an effort to further expand coverage of North America, ERIS recently announced the launch of The Mexico Package for property due diligence, including: Database Reports, Fire Insurance Maps (FIMs), Aerials and a current Topographic Map.

MEXICO DATABASE REPORT
• Offers the familiar and easy-to-use format of the Canadian version, including an Executive Summary, a Detail Report, a map of the project property and surrounding sites within the search radius (for 1 mile), an Aerial, current Topo Map, and Unplottables.
Hyperlinked Page Numbers (in the Table of Contents and Executive Summary), Map Keys and Data Sources, to quickly access detailed information and/or the Definitions section.
• Searches 11 essential data sources, including gas stations; PCBs; collection, storage, use and disposal of hazardous industrial wastes and emissions to air, water and soil.
• Future enhancements will include Historical Topographic Maps.

MEXICO FIRE INSURANCE MAPS (FIMs)
FIM images are included in The Mexico Package, and where not available, a no records found letter will be provided for your due diligence.

MEXICO AERIALS
ERIS maintains a significant collection of Aerials, from 1991 to present day, covering all of Mexico.

PRICING
The Mexico Package: $300 USD

HOW TO ORDER
Order through your Regional Account Manager.

 

United States: Protect Your Company from Waste Liability

Written by: Viggo C. Fish, McLane Middleton

Question: My company is purchasing real estate, and we are concerned there may be existing environmental contamination on the property. What steps can we take to protect ourselves from liability?

 Answer:  Conducting environmental due diligence correctly is essential to protect purchasers of potentially contaminated commercial properties from possible liability far exceeding the value of the property. Strict hazardous waste regulation exists at the federal, state and, sometimes, even the municipal level.

Under both the U.S. Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as Superfund, and corresponding state law, owners of contaminated properties are liable, without regard to fault, for environmental conditions on the property, whether or not the owner was involved in any way in the initial release of the contamination. There are, however, steps prospective purchasers can take to limit this liability.

Hazardous waste laws allow purchasers of potentially contaminated property to conduct the necessary level of investigation, and, if performed correctly, limit their liability.

For example, the Superfund All Appropriate Inquiry (AAI) rule provides for certain limitations on liability of a so-called “innocent purchaser” if such an investigation is completed before the acquisition.

The innocent purchaser provision allows a purchaser who, under certain circumstances, did not know and “had no reason to know” that the property was contaminated to avoid later Superfund liability. Similar rules apply to state hazardous waste liability. Importantly, to avoid that liability, the purchaser must be able to establish it “carried out all appropriate inquiries … into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices.”

Careful compliance with AAI requirements can be used later to support the “innocent landowner” defense to liability of the new owner. The burden of proof is on the purchaser to establish it is entitled to this and other such landowner liability defenses.

The key element of proof is the Environmental Site Assessment (ESA).  Buyers of commercial property typically conduct a Phase I ESA to evaluate the potential for contamination in accordance with ASTM Standard E1527-13.

Following the ASTM Standard demonstrates compliance with the EPA’s AAI rule, that protects prospective purchasers of property from liability under CERCLA.  This area of the law is unusually complicated, and it is therefore usually necessary to have the advice and assistance of qualified environmental consultants and environmental legal counsel to assure that the legal and financial protections against hazardous waste liability will actually be available, if needed in the future.

This article was first published in Know the Law, a bi-weekly column sponsored by McLane Middleton, Professional Association.  Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation. 

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About the Author

Vigo C. Fish is an Environmental and Energy Associate in the Administrative Law Department where he assists clients with a wide variety of energy and environmental matters.  Viggo received his J.D., cum laude, and Master of Energy Regulation and Law (MERL) degree, magna cum laude, from Vermont Law School (2015), and his B.A. in English from Providence College (2010). While in law school, Viggo worked as a Research Analyst at Vermont Law School’s Institute for Energy and the Environment and as a Clinician in the Energy Clinic. In addition, Viggo worked as a Markets and Policy Intern in the National Renewable Energy Laboratory’s Strategic Energy Analysis Center.