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On January 9, 2020 the British Columbia Supreme Court found in favour of the Purchaser awarding costs against the Seller when an underground storage tank was discovered approximately 2½ years following closing (“Completion Date”). The judge made this finding despite the Purchaser obtaining a UST inspection report prior to closing finding no USTs. In coming to this conclusion, the Judge stated at paragraphs 62 and 63:

There is no language in the Addendum which could be interpreted as limiting the defendants’ obligations only to those USTs that were discovered prior to the Completion Date or to those USTs of which they were aware.

The Addendum does not include any condition language. For example, it does not say that the defendants are to remove and remediate “any oil tank that is discovered prior to the Completion Date” or “any oil tank that they are aware of prior to the Completion Date.”

Overview

In December 2015 Walton and Hill (the “Plaintiffs” or “Purchaser”) entered into an a for the purchase of an older home in British Colombia (“Property”) from the Seller or Defendants (the “Contract”). The Contract was the standard form and incorporated the usual terms and conditions for a general real estate sale in addition to other terms and conditions in several addendums that formed part of the Contract.

The Purchaser’s real estate agent confirmed that many older homes in the area had buried oil tanks. Based on that comment, the Purchaser incorporated an “oil tank” addendum (“UST Addendum”) into the Contract to protect them against the costs of the removal and/or remediation activities associated with the discovery of an underground storage tank (“UST”).

UST Addendum

The UST Addendum set out that a term of the Contract was that the Seller ensure that any UST on the Property be removed by a qualified person and that any contamination from the UST be remediated in accordance with the applicable laws. The UST Addendum also required that the “Seller shall remove the tank before the Completion Date.” 

The Contract also required that the Purchaser obtain and approval an inspection report. The Purchaser’s inspection report recommended that a company be retained to “survey/sweep the property to determine the presence of any buried oil tanks.” The Purchaser completed the recommended survey/sweep that reported no evidence of a UST on the Property. This survey/sweep which was conducted free of charge and no written report was provided. The Contract was completed on February 28, 2016 which was the agreed upon Completion Date.

Approximately 2½ years following the closing (Completion Date) the basement flooded requiring the replacement of the drainage system. During this drainage work on the Property a UST was discovered on the Property. The costs incurred by the Purchaser for the removal of the UST and the associated soil remediation was $44,774.30. The Purchaser brought a claim for this amount against the Seller relying on the UST Addendum to state that the costs were the responsibility of, and agreed to by, the Seller.

Contract interpretation

The primary issue before the Court was the interpretation of the Sellers’ obligations under the UST Addendum. The Judge considered the principles of contractual interpretation relying on the case of Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (“Sattva Capital Corp.”), for the premise that the interpretation of contracts has evolved towards “a practical common-sense approach not dominated by technical rules of construction.[1]” In Sattva Capital Corp. the Supreme Court found that the intent of the parties and the scope of their understanding should be considered and the contract should be read as a whole, giving the words their ordinary and grammatical meaning, consistent with the supporting circumstances known to the parties at the time the contract was formed[2].

The Judge found that the wording of the UST Addendum was not ambiguous and obliged the defendants to remove any oil tank on the Property and to remediate prior to the Completion Date. Further, there was no language in the Addendum that could be interpreted as limiting the defendants’ obligations only to those USTs of which they were aware or had discovered prior to the Completion Date. In interpreting the language of the UST Addendum, the Judge concluded that as it did not include conditional language similar to other sections of the Contract it continued to apply and there was no limitation. The Judge found that the UST Addendum was worded to protect the Purchaser from the “risk and cost associated with the USTs.” The UST Addendum required the Sellers to remove any UST on the property prior to the Completion Date and because they had not done so the Seller’s were in breach of a contractual term. The Purchaser’s right to sue arose on the discovery of the breach of the UST Addendum when the flooding occurred.

Boilerplate Clause

On the issue of the survival of the UST Addendum the Judge found no evidence that the parties intended the UST Addendum to expire and have no effect following the Completion Date. Specifically, the Contract provided for the survival of the terms. In coming to this conclusion, the Judge relied on the “boilerplate” survival clause as evidence of the parties’ intention that the terms and conditions of the UST Addendum were intended to survive closing.

The boilerplate survival clause was not part of the UST Addendum, but a clause found in the real estate association’s standard form of contract of purchase and sale.

Clear contractual language

The case is instructive as it shows the Court’s reluctance to infer any limitation on the responsibility of a party absent clear language in the Contract.


[1] Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para 47. [47] … To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning: “No contracts are made in a vacuum: there is always a setting in which they have to be placed. . . . In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”

[2] In Sattva Capital Court, the Supreme Court recognized contractual interpretation is inherently fact specific and is often limited to the obligations between the parties. Interpretation was recognized as requiring consideration of each term in the contract, surrounding circumstances, the purpose of the agreement, the nature of the relationship, and the ordinary meaning of each word. Therefore, courts have an obligation to consider the “intent of the parties and the scope of their understanding.” However, the Supreme Court cautioned that those considerations cannot “overwhelm the words of [the] agreement.” The parole evidence rule – which precludes evidence of subjective intent – does not prohibit evidence of surrounding circumstances. The words of a contract alone should not determine a case, the context must be considered. more recently, the Alberta Court of Appeal considered the application of Sattva in Vallieres v Vozniak, 2014 ABCA 290, limiting its restrictive application in circumstances involving a standard form contract. Distinguishing Sattva, the Alberta Court of Appeal held that the interpretation of a standard form contract, in this case an agreement to purchase real estate, is a question of law as its interpretation goes beyond the dispute at hand and requires consistency.

In the case of a pro forma standard real estate purchase contract, the court found that it must interpret the intention of the drafting committee that adopted the form, rather than the intention of the individual parties or the surrounding circumstances relevant to the contract’s formation.

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