October 7th, 2010
In a judgment released last July in Smith v. Inco. the Ontario Superior Court recently decided Ontario’s first-ever environmental tort class action judgment by awarding an estimated $36 million to approximately 7,000 homeowners in the Port Colborne area of Ontario. The defendant, Inco, was sued for the loss of property values suffered by class members as a result of nickel contamination of their land. Specifically, the Court found Inco strictly liable for the contamination, and liable in nuisance.
Inco operated a nickel refinery plant in Port Colborne from 1918 to 1984. During the period the refinery was in operation, nickel particles were emitted into the air along with other waste products. These particles eventually settled in the soil of the neighbouring properties, contaminating the land. The extent of the contamination was brought to light in January, 2000, though the publication of a soil toxicity study done by the Ministry of Environment. Twenty-five properties had to be remediated because the levels of nickel exceeded 8,00 ppm, which was set as the level warranting intervention on account of health concerns. As the extent of the nickel contamination became more clear, the story attracted significant media attention, resulting in considerable negative publicity. The heart of the Plaintiff’s claim was that, as a result of the negative publicity stemming from the contaminated lands, the property values of the class members’ residences did not increase the same way they should have in the absence of the negative attention.
Inco argued that the Plaintiff should be barred from bringing forth its claim because the action was commenced in 2001, after the expiry of the six year limitation period. Inco argued that it had stopped refining nickel (and therefore stopped emitting the damage causing nickel particles) in 1984, which is almost 17 years prior to the date the action was commenced.
In response, the Plaintiff relied on the principle of discoverability and argued that the material fact on which the action was based (the presence of nickel in the soil which negatively affects property values) was not discovered until the Ministry of Environment released the phytoxicological study in early 2000. It was only then that the community, homeowners and real estate agents became aware of the severity of the nickel accumulation. Furthermore, it was this study that served as the catalyst for the onslaught of subsequent negative media attention, including national coverage of issue, which caused the property values to further diminish.
Nuisance or Trespass?
In granting judgment, Justice Henderson relied on the analogy set out in Salmond and Heuston on the Law of Torts to distinguish this claim as one of nuisance rather than trespass. Trespass is to directly place material objects upon another’s land, such as throwing stones onto a neighbour’s land, while nuisance is allowing an act that consequentially results in the entry of such objects, for example, allowing stones from ruinous chimney to fall upon those premises. Justice Henderson likened the situation of nickel particles being emitted and deposited on the neighbouring properties as more closely resembling the latter scenario.
The Court held that Inco’s conduct amounted to private nuisance because the emitted nickel particles and subsequent soil contamination caused a material physical damage to the class members’ properties. The nickel has accumulated on the class members’ properties to such an extent so as to negatively affect the value of their homes. That loss of property value constitutes material damage.
In addition to claiming nuisance, the Plaintiff also argued that Inco should be liable under the doctrine of strict liability as set out in Rylands v. Fletcher. This was a big issue for both parties because a finding of liability under the Rylands doctrine would mean that the Plaintiff need only prove the essential elements of the claim and Inco would then be liable for the consequences, whether or not it intended its conduct or exercised due diligence in trying to avoid the tort from occurring.
Justice Henderson restated the two broad elements of a Rylands claim: the non natural use of the land and the escape from the land of something likely to do mischief. With respect to the first element, Inco claimed that its use of the land was natural; Port Colborne was an industrial city and the operation of a refinery is not inconsistent with the use of other neighbouring lands. Furthermore, Inco argued that it complied with all environmental standards and zoning regulations.
Yet the court found that Inco was confusing natural use of land with the reasonable use of land. Justice Henderson clarified that while operating a refinery in an industrial area may in fact be reasonable, it is not natural, as defined in Rylands as “bringing something onto [his] property that it is not naturally there.” Justice Henderson reasoned that the nickel particles were not naturally in the air nor were they in soil, and thus refining nickel was not a natural use of the land.
Justice Henderson determined that the second element of the Rylands doctrine was also satisfied; while the nickel particles were not dangerous per se, the escape of those particles had the potential to cause damage (or mischief) to neighbouring properties.
Finally, Inco argued that that in order for the doctrine in Rylands to apply, the tortious act needed to be a single, isolated event. Justice Henderson admitted that there was some textbook and caselaw support for the notion that a single, isolated escape is a prerequisite to a Rylands claim, but he also referenced texts and cases that suggest the opposite. To resolve the issue, Justice Henderson relied on first principles. He reasoned that the rationale behind the Rylands doctrine is that “he who creates an abnormal risk of harm to his neighbour will be responsible for any harm that actually occurs.” Therefore, it would be illogical and absurd to restrict the doctrine for circumstances of a single isolated escape, because a defendant who permits multiple escapes of a dangerous substance is more culpable than one who permits a single escape.
In order to succeed in their claim, the class members needed to establish causation – that the negative publicity surrounding the soil contamination caused them to suffer a loss of their property values. Justice Henderson based his analysis of the issue of causation on two common sense principles. The first principle is that any property that is located near an industrial unit will have a reduced property value, which is referred to as the “baked in discount.” The effect of this “baked in” discount is the recognition that property values neighbouring the Inco refinery will have lower property values simply by virtue of their location, even in the absence of any nickel contamination.
The second principle is that any environmental contamination in a community will negatively affect the property values in the area affected by the contamination. These properties will be considered riskier investments; potential buyers will have uncertainty with respect to the potential health risks and the effect of the contamination on the future value of the property.
In light of these principles, the Court evaluated the value of the class members’ properties both before and after the negatively publicity began. Justice Henderson was convinced that all class members’ properties were affected negatively by the publicity, though to varying degrees.
Justice Henderson awarded $36 million to the class members as compensation for the lack of increase in value that their properties should have accrued were it not for the nickel contamination and subsequent negative publicity. Justice Henderson allocated the damages on pro-rated basis; the class members received compensation which reflected the degree to which their property values were affected. The class members were denied their claim for punitive damages.
Inco announced publicly on September 16th, 2010 that they have filed an appeal.