Smith v. Inco Limited: $36 Million class action judgment reversed on appeal

Inco Nickel Smelter with its Superstack, Sudbu...

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In a surprising decision, the Court of Appeal for Ontario has reversed a $36 million trial judgment in a certified class action involving nickel contamination of soil.

In Smith v. Inco Limited, 2011 ONCA 628Inco Limited, (“Inco”) appealed from a judgment rendered after a trial of common issues in a class proceeding.  The trial judge, Justice J.R. Henderson of the Superior Court of Justice in a decision reported at (2010), 76 C.C.L.T. (3d) 92, found that over a 66-year period prior to 1985, the soil on the properties of the class members,  as represented by the plaintiff, Ms. Ellen Smith, contained nickel particles placed in the soil as a result of emissions generated by Inco’s nickel refinery in Port Colborne, Ontario.   The trial judge further held that since 2000, concerns about the levels of nickel in the soil caused widespread public concern and adversely affected the value of the properties after September 2000.  The trial judge held that Inco was liable for the loss in private nuisance and under strict liability imposed by the rule set down in Rylands v. Fletcher (1866), L.R. 1 Ex. 265, aff’d (1868), L.R. 3 H.L. 330 and awarded damages of $36 million, but ejected a claim for punitive damages which was not appealed.

Inco’s appeal raised the following issues:

        i.            Did the trial judge err in holding that the discharge of the nickel particles by Inco on to the property of the class members constituted an actionable nuisance?

ii.            Did the trial judge err in holding that Inco was liable for the discharge of the nickel particles under the rule established in Rylands v. Fletcher?

iii.            Did the trial judge err in holding that the claimants had established a diminution in value of their properties after September 2000?

iv.            Did the trial judge err in holding that assuming there was a diminution in the value of the properties after September 2000, that diminution was caused by the discharge of nickel particles on to the land?

v.            Did the trial judge err in failing to hold that the claim was time barred under s. 45(1)(g) of the Limitations Act?

The Court of Appeal held  allowed and dismissed the action.  In the panel’s view, “the claimants failed to establish Inco’s liability under either private nuisance or the rule in Rylands v. Fletcher. Alternatively, and assuming the elements of either or both causes of action were made out, the claimants failed to establish any damages.” Given the Court’s disposition on the first three issues, analysis of the  causation issue or the limitation period argument were rendered moot, but did still “consider one aspect of the trial judge’s analysis of the applicability of the limitation period as it has potential application to other class action claims in which limitation period defences are raised.”

The Court of Appeal writes,

[39]         People do not live in splendid isolation from one another.  One person’s lawful and reasonable use of his or her property may indirectly harm the property of another or interfere with that person’s ability to fully use and enjoy his or her property.  The common law of nuisance developed as a means by which those competing interests could be addressed, and one given legal priority over the other.  Under the common law of nuisance, sometimes the person whose property suffered the adverse effects is expected to tolerate those effects as the price of membership in the larger community.  Sometimes, however, the party causing the adverse effect can be compelled, even if his or her conduct is lawful and reasonable, to desist from engaging in that conduct and to compensate the other party for any harm caused to that person’s property.  In essence, the common law of nuisance decided which party’s interest must give way.  That determination is made by asking whether in all the circumstances the harm caused or the interference done to one person’s property by the other person’s use of his or her property is unreasonable:  Royal Anne Hotel Co. Ltd. v. Village of Ashcroft (1979), 95 D.L.R. (3d) 756 (B.C.C.A.), at pp. 760-61.

[40]         The reasonableness inquiry focuses on the effect of the defendant’s conduct on the property rights of the plaintiff.  Nuisance, unlike negligence, does not focus on or characterize the defendant’s conduct.  The defendant’s conduct may be reasonable and yet result in an unreasonable interference with the plaintiff’s property rights.  The characterization of the defendant’s conduct is relevant only to the extent that it impacts on the proper characterization of the nature of the interference with the plaintiff’s property rights:  Antrim Truck Centre Ltd. v. Ontario (Ministry of Transportation) (2011), 106 O.R. (3d) 81 (C.A.), at para. 77; John Murphy, Street on Torts, 12th ed. (Oxford: Oxford University Press, 2007), at pp. 420, 431, 435.

[67]         In our view, actual, substantial, physical damage to the land in the context of this case refers to nickel levels that at least posed some risk to the health or wellbeing of the residents of those properties.  Evidence that the existence of the nickel particles in the soil generated concerns about potential health risks does not, in our view, amount to evidence that the presence of the particles in the soil caused actual, substantial harm or damage to the property.  The claimants failed to establish actual, substantial, physical damage to their properties as a result of the nickel particles becoming part of the soil.  Without actual, substantial, physical harm, the nuisance claim as framed by the claimants could not succeed.

With respect to strict liability for “ultra-hazardous” activities, the Court of Appeal said,

[78]         We do not accept that strict liability based exclusively on the “extra hazardous” nature of the defendant’s conduct is or should be part of the common law in this province.  Before we explain why we reach that conclusion, we will, however, examine Inco’s liability on the assumption that the trial judge was correct in viewing Rylands v. Fletcher as imposing strict liability for damages caused by “extra hazardous” activities.  In our view, there is no basis in the evidence upon which Inco’s refinery operations or its emissions of nickel particles could properly be described as “extra hazardous” or “fraught with danger”.

[93]         There are no doubt strong arguments for imposing strict liability on certain inherently dangerous activities.  In our view, however, that is fundamentally a policy decision that is best introduced by legislative action and not judicial fiat.  In declining to take the bold step advocated by Linden and Feldthusen, we observe that those who engage in dangerous activities are, of course, subject to negligence actions under which the dangerousness of the activity would be reflected in the standard of care required, nuisance actions, and in ever increasing situations, detailed and sometimes punitive statutory regimes.

On the vexing issue of foreseeability, the panel provides the following guidance:

[108]     The role, if any, of foreseeability of damages under the rule in Rylands v. Fletcher is an important jurisprudential question.  To our knowledge, neither the Supreme Court of Canada nor any provincial appellate court has examined whether foreseeability of damages is an element of liability under Rylands v. Fletcher.  We do not propose to decide the issue in the absence of full argument.

[109]     We will, however, make two observations that may be of assistance in future cases.  First, foreseeability can refer to objective foreseeability of the escape from the defendant’s land of the thing that causes damage or it can refer to objective foreseeability of the kind of damage said to have been caused.  We see no reason to require foreseeability of the escape.  To impose that requirement would all but merge the rule in Rylands v. Fletcher with liability in negligence.

[110]     There are, however, compelling reasons to require foreseeability of the kind of damages alleged to have been suffered by the plaintiffs.  The arguments in favour of requiring foreseeability in that sense are fully articulated by Lord Goff in Cambridge Water Co. at pp. 301-306.  If Lord Goff’s views were applied to this case, the foreseeability of a diminution in the appreciation of the value of the claimants’ properties some 15 years after the refinery closed, would be a live issue.

The Court of Appeal also disagreed with the trial judge’s assessment of damages, noting that “whether one uses the MLS data or the MPAC data, properly corrected, the result is the same.  The record conclusively demonstrates that the claimants have suffered no loss.” (at para. 128, et seq.). The panel adds,

[159]     One cannot simply look to one portion of the data and ignore the rest in order to justify a conclusion.  The data clearly shows that while Welland was a little ahead in the early 2000’s, by 2008 Port Colborne had not only caught up, but in fact surpassed Welland in property appreciation rates. Again, the data demonstrates no loss to Port Colborne’s property appreciation rates when considered fully and fairly.

Finally, on the application of the law of limitations in class actions, the Court of Appeal concludes,

[164]     A class action is a procedural vehicle.  Its use does not have the effect of changing the substantive law applicable to individual actions: see Bou Malhab v. Diffusion Métromédia CMR inc., [2011] 1 S.C.R. 214, at para. 52; Hislop v. Canada (Attorney General) (2009), 95 O.R. (3d) 81, at para. 57.  If, as the trial judge found in this case, the evidence does not establish that all class members were not aware of and ought not to have been aware of the material facts, then the application of the Limitations Act to the claims is an individual and not a common issue.  It is an error to treat the limitation period as running from the date when a majority, even an overwhelming majority, of the class members knew or ought to have known the material facts in issue.

[165]     Other certification decisions have recognized that discoverability is often an individual issue that will require individual adjudication after the common issues are determined.  Indeed, when this court certified this action, Rosenberg J.A. referred to the possibility of individual limitation defences: see Pearson v. Inco Limited (2005), 78 O.R. (3d) 641, at para. 63.  On the trial judge’s findings, the applicability of the Limitations Act as he characterized its applicability was not a common issue.

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