On October 7, 2011, the Ontario Court of Appeal in Smith v. Inco, overturned the decision of the Ontario Superior Court awarding $36 million dollars to a class of residents in Port Colborne, Ontario for property damages arising from the Inco nickel emissions. The decision provides new clarity regarding damages under private nuisance and strict liability, or Rylands v. Fletcher.
The Appeal Court's stunning reversal arises from the particular facts and evolution of the class action, including through certification and trial. Prior to 1985, Inco Limited (Inco) operated a nickel refinery in Port Colborne, Ontario for 66 years. During this lengthy period, the nickel particles emitted from the smoke stack landed on the claimants' properties, becoming part of the soil. Common sense told everyone that the smoke coming from the stack contained nickel.
The Ministry of the Environment (MOE) tested soils, beginning in the 70s. Significant health concerns with the levels of nickel in the soil around the refinery emerged in 2000 when soil samples taken by the MOE revealed higher nickel levels than previously recorded. This created public concern and controversy about potential adverse health effects. Several of the statements in the press alleging adverse effects were attributed to counsel for the claimants. In 2002, the MOE ordered Inco to remediate 25 properties. Claims for personal injury were ultimately abandoned to facilitate certification of the class action. The claimants proceeded with an action against Inco alleging that the bad publicity had damaged their properties by suppressing property values.
At trial, the claimants were very successful. The trial judge accepted that decreased property values caused by public concern and controversy over the health effects created by nickel in the soil constituted material physical property damage and awarded damages against Inco for private nuisance. Inco was also found strictly liable for damages under the rule of Rylands v. Fletcher. The trial judge held that Inco's refinery was a non-natural use of the land, and that the emissions of nickel into the air constituted an escape that decreased property values, thereby causing property damage. The claimants were awarded a total of $36 million dollars and Inco appealed.
Causes of Action Alleged
The Appeal Court emphasized that the claim was not about an adverse effect to the use or enjoyment of property. From the outset, the claimants could not claim property damages against Inco because the limitation period had long since expired: the claim was brought 17 years after the smoke stopped, and the fact of the nickel deposits while they were ongoing was notorious. The claimants were also prevented from claiming damages for personal injury because no provable injuries existed. In order to overcome these barriers, the claimants advanced a claim based on damages from negative publicity (publicity generated in part by claimants' counsel).
The claimants did not argue that the nickel particles in the soil caused any interference with the use or enjoyment of their property because they could not. Instead, they argued that the presence of the particles caused a "physical injury" by becoming part of the soil, creating potential health concerns thereby adversely affecting the value of their properties. The Court reversed the trial judge's finding that Inco was liable in private nuisance, stating that "[t]o constitute physical harm or damage, a change in the chemical composition must be shown to have had some detrimental effect on the land itself or rights associated with the use of the land." The claimants failed to establish Inco's liability in nuisance because they did not attempt to show that there was actual, substantial, physical ongoing harm to their properties or their use of the properties. Since the claimants hung their hats on the potential health concerns, it was incumbent on them to show actual harm to health, or realistic risk. However, no actual harm was proven. The Court concluded that the tort of nuisance did not extend to concern generated decades after the relevant events respecting the possible effects of the defendant's conduct on the property.
The Court also reversed the trial judge's finding that Inco was strictly liable under Rylands v. Fletcher because the claimants failed to establish that Inco's nickel refinery operation was a non-natural use of its property. The relevant risk arises only if things go wrong and produces an unintended result. Inco "did not create risks beyond those incidental to virtually any industrial operation." Rather, the evidence at trial suggested that Inco's refinery operated in a heavily industrialized part of the city in an ordinary and usual manner.
Finally, the Appeal Court held that the expert evidence did not demonstrate that the claimants' property values were depressed as a consequence of the refinery. The unsuccessful claimants were ordered to pay Inco $100,000 in costs for the appeal. The issue as to trial costs remains outstanding.About BLG
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