Nalin Sahni November 22 2011 Appeal court dismisses C$36 million environmental class action award Dentons | Litigation - Canada Nalin Sahni Litigation IntroductionFactsTrial decisionAppeal decisionPrivate nuisanceRylands v Fletcher strict liabilityDamagesLimitations periodCommentIntroductionIn a three-to-nil decision the Ontario Court of Appeal has reversed a C$36 million trial award to members of an environmental class action. Thousands of Port Colborne, Ontario residents had sued Inco for property devaluation caused by soil contamination that arose from 66 years of nickel refining emissions.Smith v Inco Ltd (formerly Pearson v Inco Ltd) is one of the first environmental class actions to go to a full trial on the common issues. The Ontario Court of Appeal decision makes it more difficult to pursue claims of private nuisance and Rylands v Fletcher strict liability, and also clarifies the application of limitation periods for class actions.The Ontario Court of Appeal found that Inco was not liable either in private nuisance or under the strict liability rule in Rylands v Fletcher. The court found that a mere chemical alteration in the soil was insufficient to make out a claim of nuisance without establishing a risk of harm to the plaintiffs. Strict liability cannot be imposed solely because an activity is extra-hazardous or a non-natural use of land and, in any event, there was no reason to conclude that Inco's refinery met this standard. Further, there was no evidence of damages, as the data relied upon at trial was flawed. The limitation period was not a common issue for all class members and should have been determined on an individual basis.The plaintiffs have indicated that they intend to file an application for leave to appeal to the Supreme Court of Canada. The application is due by December 6 2011 and a decision on the leave application is expected in approximately six months.FactsFrom 1918 to 1984, the Inco nickel refinery in Port Colborne emitted airborne waste products (including nickel oxide) from a 500-foot high smoke stack on a daily basis. Although the overwhelming majority of nickel emissions occurred before 1960, a 2000 Ministry of the Environment study found nickel contamination in widely varying concentrations on properties within several miles of the Inco refinery.In 2001 the claimants launched a class action alleging that widespread public concern over the potential health effects of the nickel contamination had devalued their properties, and that Inco, as the alleged source of the contamination, was liable for the reduction in property values. Although the claim originally included adverse health impacts, this allegation was dropped and the class action was certified on the basis of property devaluation alone.(1) There was no allegation that Inco had been negligent or failed to comply with any applicable laws.Trial decisionAfter a four-month common issues trial, Inco was found liable in private nuisance and under Rylands v Fletcher strict liability for devaluing the class members' property relative to other similarly situated communities (ie, Welland, Ontario). The Ontario Superior Court of Justice awarded C$36 million in damages, or C$4,514 for each property. Inco appealed.Appeal decisionThe Ontario Court of Appeal allowed the appeal and dismissed the action, negating the C$36 million damage award. Justice Doherty, writing for the court, found that the trial judge had erred in finding Inco liable either in private nuisance or under the strict liability rule in Rylands v Fletcher. Even if the claim had been established, the plaintiffs failed to prove any damages. The court also held that it was not appropriate for the limitation period to be treated as a common issue.Private nuisanceThe only nuisance alleged by the plaintiffs was that Inco's nickel emissions had contaminated their soil and thus produced a "material injury". The court of appeal rejected their claim, holding that a "mere chemical alteration in the content of soil did not amount to physical harm or damage to the property without establishment of some detrimental effect". No actual risk of harm to the plaintiffs was established – even though the 2000 Ministry of the Environment risk assessment found that 200 parts per million (ppm) of nickel in soil could adversely affect sensitive plant life, and nickel levels on the property reached up to 14,000 ppm. Potential health concerns were insufficient to establish a nuisance without proof of "actual, substantial, physical harm" or of interference with the normal use of the property.Rylands v Fletcher strict liabilityThe Rylands v Fletcher strict liability rule is based on the rationale that a party that chooses to undertake a potentially dangerous activity is liable for damages caused by that activity. To establish the tort of strict liability in Rylands v Fletcher, a claimant must establish four elements: a non-natural or extra-hazardous use of the defendant's property (eg, the storage of a dangerous substance on the property); escape of a substance that is likely to cause mischief; harm caused by the substance that escaped from the defendant's property; and foreseeability of the harm. The court of appeal held that the trial judge erred in finding Inco liable on the basis of strict liability. The court rejected the view that strict liability could be imposed simply because an activity was extra-hazardous. Even if this were the case, there was no basis to conclude that bringing nickel onto Inco's property to be refined was an extra-hazardous or non-natural use of land. Moreover, the rule from Rylands v Fletcher imposes strict liability only for mishaps, not "for the intended consequence of an activity that is carried out in a reasonable manner and in accordance with all applicable rules and regulations".DamagesAlthough not necessary to the disposition of the appeal, the court also found that the claimants failed to prove any damages and that the data relied upon by the trial judge was flawed and unreliable. When comparable groups of properties in Port Colborne and Welland were assessed, the evidence showed that the claimants did not suffer a loss.Limitations periodThe court of appeal found that the limitation period should not have run from the date on which a majority of the class knew (or ought to have known) that the nickel contamination could affect their property values. For the limitation period to be a common issue, all class members would have to have been unaware of the potential impact of the nickel contamination no more than two years before the commencement of the action. This was an individual issue that would have to be adjudicated on a case-by-case basis.CommentThe Smith v Inco decision limits claims of private nuisance and Rylands v Fletcher strict liability, and clarifies the application of limitation periods for class actions. The plaintiffs' decision to remove adverse health effects from its pleadings eased its certification as a class, but also played a large role in the court of appeal's decision to dismiss the action. Class counsel for the plaintiffs have indicated that they will file an application for leave to appeal to the Supreme Court of Canada – this may not be the last word on this matter.For further information on this topic please contact Nalin Sahni at Fraser Milner Casgrain LLP by telephone (+1 416 863 4511), fax (+1 416 863 4592) or email (email@example.com).Endnotes(1) See Pearson v Inco Ltd, 2005 CanLII 42474 (ONCA).