In Smith v. Inco Limited, a judge of the Ontario Superior Court of Justice held Inco liable in private nuisance and strict liability, awarding class members $36 million in damages for loss of value to their properties as a result of emissions from a nickel refinery operated by Inco (now Vale) in Port Colborne, Ontario. In dismissing the action, the Court of Appeal held that the plaintiffs had not demonstrated that Inco was liable to the class members under the doctrines of strict liability and private nuisance, and found that there were no damages suffered.

The class action had been brought on behalf of approximately 7,000 residential property owners of Port Colborne in respect of Inco's operation of a nickel refinery between 1918 and 1984.   Inco's operations had resulted in the emission of nickel particles, primarily nickel oxide, onto the properties of the class members. It was never alleged that Inco operated the refinery in a negligent manner or that it did not comply with all laws when it operated the refinery. 

At trial, the plaintiffs did not adduce evidence of actual health risks to humans as a result of the nickel oxide emissions or the settlement of nickel oxide into the soil on their properties.  Rather, they argued that widespread public concerns about potential adverse health effects had an adverse effect on property values, which they alleged had not increased at the same rate as comparable property values in other small cities located nearby.

In overturning the trial decision, the Court of Appeal rejected three findings made by the trial judge. Namely, that Inco had caused a private nuisance by dispersing nickel oxide into the air, which in turn had landed on the class members' properties; that Inco was strictly liable for pollution of the residential properties on the basis of strict liability; and that there was an actual decline in the class members' property values.

The Court of Appeal rejected the trial judge's finding that Inco's conduct amounted to a private nuisance.  It held that, for a material physical damage nuisance claim to be successful, there must be actual, substantial physical injury or harm to property. The mere existence of pollutants (in this case, nickel particles) in the soil did not satisfy this requirement.  In particular, the Court held that the chemical alteration of soil, without more, does not amount to physical harm or damage to property. The Court stated that, for a physical damage claim to be made out, there must be evidence of detrimental effect on the land or on its use by the owners.  In this case, that would necessitate showing some risk to the health or wellbeing of the residents of the properties. Concern about potential health risks was held by the Court not to be evidence of actual harm or damage to property.  Since the claimants did not demonstrate any physical harm, the claim in private nuisance failed.

The Court of Appeal also held that the strict liability test enunciated in Rylands v. Fletcher was not applicable in this case.  It held that the refinery was not a non-natural use of the property. Inco operated in a heavily industrialized part of the city in a manner that was "ordinary and usual" and carried out its operations in accordance with all applicable rules and regulations.   The Court held that there is no common law rule imposing strict liability on those whose activities are said to be "ultra hazardous," but that even if there were, the refinery was not shown to be "ultra hazardous."  The Court held that the refinery did not create risks beyond those that are incidental to virtually any industrial operation, and that the imposition of liability based on operations that are considered high risk should be left to the legislature rather than the courts. 

Finally, the Court of Appeal held that the trial judge had incorrectly calculated damages. The Court approved the use of a comparative model between two similar communities, but held that the comparison must take into account other variables that could lead to a lower price.  For example, the existence of 314 undeveloped residential lots in Port Colborne brought down the average residential property value. When these lots were included in the calculations, no decline in the class members' property values could be shown.

In the end, the appeal was allowed, the trial judgment was set aside and costs of $100,000 were awarded against the claimants in respect of the appeal.