On October 7, 2011 the Ontario Court of Appeal released its decision in Smith v. Inco Ltd, granting Inco’s appeal and overturning the trial court’s award of damages under the doctrine of strict liability, referred to as the Rylands v. Fletcher rule, and for nuisance.  As the first environmental class action in a common law province in Canada, this is a significant decision and it is expected that the plaintiff will apply for leave to appeal to the Supreme Court of Canada.

The Trial Decision

The trial court awarded $36 million in damages to thousands of Port Colborne residents who owned homes near a former nickel refinery owned by Inco.  The trial judge found that the particulate matter released by the refinery and landing on the surrounding properties had resulted in decreased property values to the owners and that, as such, Inco was liable for nuisance and violations of the strict liability rule in Rylands v. Fletcher.  Generally, a claim of nuisance is made out where a party has unreasonably interfered with the use and enjoyment of another person’s land or interest in land.  Claims of strict liability involve two broad elements: (1) the non-natural use of the land by the defendant; and (2) an escape from the land of something likely to do mischief.

The Court of Appeal Decision

In respect of the claim of nuisance, the Court of Appeal determined that while Inco may have interfered with the use of property owned by members of the class, its interference had not, in fact, been unreasonable as the plaintiff had not shown that the presence of the particulate matter had resulted in “actual, substantial, physical harm”.  At paragraph 67, the Court states:

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.

This framing of the claim is important as it clarifies that claims of nuisance relating to environmental contamination must be grounded in proof of actual damage to the property or risk to human health, and that simple contamination is not, in and of itself, sufficient.  This challenges some earlier Canadian decisions which had indicated that the simple fact of contamination was likely enough to ground a claim of nuisance as the contamination itself was regarded as a type of physical damage.

On the issue of strict liability, the Court of Appeal observed that the refinery’s activities were not ‘non-natural’ and, as such, the Rylands v. Fletcher rule doesn’t apply.  The Court clarifies the application of this rule, limiting its use to situations where there are unexpected and unintentional outcomes of activities that should not have occurred in a particular location.  The expected and known results of legal business operations, such as the Inco refinery, simply do not qualify according to the Court of Appeal.

Of significance is the fact that this claim related only to decreased property values as a result of the stigma of the contamination.  All properties had been remediated to the standard determined by the Ministry of the Environment’s Community Based Risk Assessment as being safe for human health (except where the property owner refused to permit the cleanup) and there was no evidence of that the residual particulate matter posed any increased risk to human health.  As such, the assessment of damages was also important as it related exclusively to property values.  The Court of Appeal observed that when property data for Port Colborne and comparable municipalities was reviewed in its entirety, there was insufficient evidence to conclude that the residents forming the class had actually suffered decreased property values as a result of the presence of the particulate matter from the Inco refinery.  As such, even if the claims of nuisance and strict liability were upheld, no damages would be awarded.