Ontario Court of Appeal overturns trial decision in Smith v Inco

October 2011 Author: D. Michael Brown

Contacts

In Smith v Inco Limited,1 the Ontario Court of Appeal overturned the decision of the trial judge which had awarded $36 million against Inco for damage resulting from emissions from a nickel refinery in Port Colborne, Ontario.  The case was the first trial of an environmental class action in a common law province.  The Court of Appeal concluded that Inco was not liable for the type of harm alleged by the plaintiffs and that, in any event, the class had suffered no harm.

Background and facts

Port Colborne was home to an Inco nickel refinery from 1918 to 1984. Over the 66 years of its operations, the refinery emitted waste products (containing nickel) from a 500-foot smoke stack. There was no allegation that Inco had operated its refinery unlawfully or negligently.

The class action was brought on behalf of all persons who owned property in an area of Port Colborne that covers most of its total territory. The action was commenced in 2001, at a time when public concern about possible health risks related to elevated nickel levels in the area was widespread.  While the claim as originally drafted alleged that personal injuries and adverse health effects had been the result of the higher nickel levels, the claim was eventually narrowed to the allegation that public concern over the nickel levels had led to the slower appreciation of class members’ property values as compared to towns in similarly situated circumstances. At trial the residents claimed damages for the amount of per-property appreciation that they believed would have occurred without the nickel emissions affecting property values.

The trial judge had found in favour of the plaintiffs. He found property values to have appreciated elsewhere 4.35% more than in Port Colborne. He then multiplied that factor by the average price of a home in Port Colborne, and by what he understood to be the number of affected homes, to arrive at a total damages award of $36 million. Inco appealed.

The Ontario Court of Appeal decision

The Court of Appeal unanimously allowed the appeal and dismissed the action.  In doing so, the court concluded that Inco was not liable to the plaintiffs either under nuisance law or under the doctrine of strict liability (as articulated in the seminal case of Rylands v Fletcher).2

With respect to the allegation of nuisance, the nickel discharge was not argued by the plaintiffs to have interfered with their enjoyment of their properties. The only nuisance alleged was that the nickel discharged by Inco produced “material injury” to the properties.  The court concluded that the plaintiffs had failed to demonstrate material injury, noting that physical changes to a property do not, on their own, constitute physical damage. The Court of Appeal held that the claimants must demonstrate “actual, substantial, physical harm” to their properties. A reduction in property values as a result of the public perception of the health risks associated with nickel contamination did not constitute physical damage to property for the purpose of a nuisance claim. Instead, the court held that “[i]t was  incumbent on the claimants to show that the nickel particles caused actual harm to the health of the claimants or at least posed some realistic risk of actual harm to their health and well-being.”

The second key issue related to the application of the doctrine of strict liability, which imposes liability on defendants who, in the “non-natural” use of their land, let materials “escape” from their premises that could cause danger or damage. The trial judge had held that, because Inco brought the nickel to the property, rather than found it there, the presence of the nickel made the use of the property somehow “non-natural.” The Court of Appeal disagreed with this approach, and concluded (1) that there was no evidence that Inco had presented an “abnormal risk” to its neighbours; and (2) that the refinery did not constitute a “non-natural” use of its property.

Lastly, the court found there to have been significant errors in principle in the trial judge’s calculation of damages and that the evidence did not support the trial judge’s finding that Port Colborne property values had been adversely affected.

Though the court allowed the appeal on the above three grounds, it is noteworthy to add that the court also discussed issues raised regarding limitations periods, and in particular, whether the trial judge could make a finding binding all class members.  The trial judge had ruled, despite the argument that the claim was issued some 16 years after the refinery had shut down its operations, that the plaintiffs’ class-wide claim was not barred by the Limitations Act, finding that “most property owners would not have been aware” that the nickel in the soil would or could affect their property values. As a result, the trial judge found that the limitations period would not have commenced until the public became more aware of the possible problem.  The Court of Appeal noted that the trial judge’s finding necessarily implied that some class members would have been aware of the harm of nickel in the soil.  The court pointed out that where the evidence does not establish that all class members were unaware of harm, the application of limitation periods is an individual issue that cannot (and should not) be addressed at a common issues trial.

Conclusion

The decision of Smith v Inco provided the Court of Appeal the opportunity to clarify the causes of action in nuisance and strict liability, which will provide significant guidance to the future litigation of environmental and other property-related claims.

From a class actions perspective, it is worth emphasizing again that, as originally pleaded, the claim against Inco included sweeping claims for damages from the alleged adverse health effects from nickel contamination.  However, the claim was narrowed to remove these allegations – as is often the case in class proceedings – in order to render the action more suitable for certification.  The irony is that the absence of any allegation or finding at trial in relation to the actual adverse health effects or risks associated with nickel contamination was a significant factor in the Court of Appeal’s decision to allow the appeal and dismiss the action.

The decision is available online at http://www.ontariocourts.on.ca/decisions/2011/2011ONCA0628.htm

Footnotes

1 Smith v Inco Limited, 2011 ONCA 628.

2 Rylands v Fletcher, [1868] UKHL 1.

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