Vale Vindicated: Ontario Court of Appeal Finds no Liability in Toxic Tort Class Action; Plaintiffs Seek Leave to Appeal to the SCC

Vale Canada Ltd. (formerly Inco Ltd.) was vindicated in a high-profile appeal that clarifies the law of environmental torts. In Smith v. Inco Ltd., (formerly Pearson v. Inco Ltd.), the Ontario Court of Appeal reversed a trial decision awarding $36 million to residents of Port Colborne who had alleged that Vale’s refinery diminished their property values. The Court of Appeal held that the trial judge erred in finding Vale liable in private nuisance and strict liability. In a rare move, the Court of Appeal also found that the plaintiffs had failed to prove any damages. Dissatisfied with this decisive reversal, the plaintiffs filed an application for leave to appeal to the Supreme Court of Canada on December 5, 2011.

Background

This case has taken a series of twists and turns over the course of a decade-long legal battle. The plaintiffs filed their claim in 2001, alleging that nickel emissions from Vale’s Port Colborne refinery had caused damage to the health and property of residents in the surrounding area.

Justice Nordheimer refused to certify a class action, finding that the plaintiffs’ broad claims could not be advanced without a multiplicity of individual trials (see [2002] O.J. No. 3532 (S.C.J.)). On appeal to the Divisional Court, the plaintiffs narrowed the action by discarding their allegations of harm to health and property. As a result of these modifications, the plaintiffs’ claim was limited to damages for the alleged diminution in the value of their properties caused by negative publicity surrounding the emissions from Vale’s refinery.

The Divisional Court upheld Nordheimer J.’s decision to deny certification. However, the Ontario Court of Appeal certified the narrowed claim as a class action. The claim proceeded to trial before Henderson J. in neighbouring Welland. After a lengthy trial, Henderson J. rejected the plaintiffs’ claims in trespass and public nuisance, but found Vale liable in private nuisance and strict liability. He then looked to statistical evidence from Welland to determine how property values in Port Colborne would have fared, had they not been affected by publicity surrounding nickel emissions from Vale’s refinery. This analysis led Henderson J. to award damages in the amount of $36 million to the 7,000-member class.

The Decision of the Court of Appeal

The Ontario Court of Appeal, Doherty, MacFarland JJ.A, and Hoy J. (as she then was, ad hoc) sitting, unanimously reversed the trial decision. On the claim in private nuisance, the Court of Appeal noted that the trial judge had accepted that emissions from Vale’s refinery ceased in 1984, and that there was no evidence these emissions had actually harmed the plaintiffs’ land. Rather, the damage alleged by the plaintiffs was linked to environmental studies released in 2000, which led some to believe that the emissions from Vale’s refinery might be hazardous to health. The Court of Appeal concluded that damages attributable to the post-2000 publicity, if any, were not caused by physical damage to the plaintiffs’ land. The Court of Appeal explained its reasons for denying the claim in private nuisance as follows:

As the trial judge analyzes the claim, a person seeking an injunction prior to 1985 would have no basis upon which to argue that Inco’s actions caused any actual, substantial, physical damage to the land. It is inconsistent with the essential nature of nuisance as an interference with property to hold that Inco was not engaged in any interference with property when it operated the refinery and emitted the particles, but that it was engaged in an actionable nuisance 15 years after it stopped operating the refinery, when concerns were raised from a variety of sources about the potential health effects of the nickel in the soil and the property values were negatively affected as a result of those concerns.

The Court of Appeal also denied the plaintiffs’ claim for damages in strict liability, which had been pleaded on the doctrine of Rylands v. Fletcher (1866), L.R. 1 Ex. 265, aff’d (1868), L.R. 3 H.L. 330. Pursuant to this doctrine, the trial judge had held Vale liable for any injury caused by its unnatural use of the land upon which it had constructed its refinery. The Court of Appeal disagreed, finding that Vale’s refinery was not an unnatural use of land. The refinery had complied with all applicable regulations, and was merely an ordinary use of industrial land.

The Court of Appeal also disagreed that a defendant should be held liable for any damages caused by an unnatural or “ultra-hazardous” use of land. Rather, liability should only attach to damages which result from an accident or mishap that occurred in the course of an unnatural use of land. Thus, even if Vale made an unnatural use of its land, the plaintiffs’ claim failed because, on their own allegations, their purported injuries had been caused by the normal operations of a nickel refinery. The Court of Appeal explained this principle as follows:

It is one thing to impose strict liability for mishaps that occur in the course of the conduct of an unnatural or unusual activity. It is quite another to impose strict liability for the intended consequence of an activity that is carried out in a reasonable manner and in accordance with all applicable rules and regulations.

Finally, the Court of Appeal took the rare step of re-examining the factual basis for the trial judge’s calculation of damages. The Court of Appeal found that the trial judge had erred in his statistical analysis of residential real estate prices in Port Colborne and Welland. Specifically, the trial judge was found to have used an inappropriate data set which included vacant lots in Port Colborne that had been converted from agricultural land to residential land within the class period. This inclusion had the effect of artificially lowering residential real estate prices in Port Colborne. On a proper analysis of the data, the Court of Appeal concluded that there was no evidence that residential real estate prices had risen more slowly in Port Colborne than in Welland. Accordingly, the plaintiffs had suffered no damages:

One cannot simply look to one portion of the data and ignore the rest in order to justify a conclusion. The data clearly shows that while Welland was a little ahead in the early 2000’s, by 2008 Port Colborne had not only caught up, but in fact surpassed Welland in property appreciation rates. Again, the data demonstrates no loss to Port Colborne’s property appreciation rates when considered fully and fairly.

The Leave Application

The plaintiffs’ application for leave to appeal to the Supreme Court of Canada frames their case as a “test case” that fuses property, tort, and environmental law. The plaintiffs argue that “Canadians need a clear answer: what is actionable in the context of chemical depositions on private lands?” The plaintiffs contend that the Court of Appeal set an unacceptably high threshold for actionable nuisance, which would have required proof of harm to health. The plaintiffs also submit that regulatory compliance is no defence to strict liability on the doctrine in Rylands v. Fletcher. Summarizing their case, the plaintiffs ask “[s]hould acknowledged pollution be deemed a reasonable intrusion to be borne by neighbours, the price of membership in the community?”

Discussion

Problematically, the plaintiffs’ leave application fails to engage with the difficulties identified by the Court of Appeal. The Court of Appeal did not hold that proof of harm to health will be required to sustain a claim in private nuisance. Rather, the Court of Appeal held that the plaintiffs were required to prove some injury that resulted from physical harm to their property. In other words, they were obliged to show damages that resulted from the deposition of Vale’s nickel in their soil. It might have been sufficient for the plaintiffs to prove that said deposits materially interfered with their use and enjoyment of their land. It might also have been sufficient for them to show that said deposits intrinsically reduced the value of their land. However, the plaintiffs adduced no evidence on either of these points, relying instead on the effects of negative publicity. Because they also failed to adduce any evidence of harm to their health, their claim in private nuisance was doomed to fail.

On the issue of strict liability, the plaintiffs likewise fall short. Admittedly, they have joined issue on the question of whether an approved use of land may be an unnatural use of land. However, the Court of Appeal’s analysis was more complex on this point, and considered “the place where the use is made, the time when the use is made, and the manner of the use”. Although government regulation is relevant in this analysis, the Court of Appeal cautioned that “compliance with various environmental and zoning regulations is not a defence to a Rylands v. Fletcher claim”. The Court of Appeal explained its broader, contextual analysis as follows:

Any industrial activity, and perhaps even more so a refinery, certainly carries with it the potential to do significant damage to surrounding properties if something goes awry. The claimants did not, however, in our view, demonstrate that Inco’s operation of its refinery for over 60 years presented “an exceptionally dangerous or mischievous thing” or that the circumstances were “extraordinary or unusual”. To the contrary, the evidence suggests that Inco operated a refinery in a heavily industrialized part of the city in a manner that was ordinary and usual and did not create risks beyond those incidental to virtually any industrial operation. In our view, the claimants failed to establish that Inco’s operation of its refinery was a non-natural use of its property.

Moreover, the plaintiffs have entirely failed to engage with the Court of Appeal’s holding that the doctrine of strict liability requires the plaintiffs’ damages to be caused by an accident or mishap. Because of this lacuna in the application for leave, the plaintiffs have proposed an appeal that would not reverse the Court of Appeal’s finding on strict liability.

Potential Significance

One way or another, the final chapter in this winding saga will be written by the Supreme Court of Canada. If the Supreme Court denies leave to appeal, the decision of the Court of Appeal will stand as an important precedent for the restricted scope of environmental actions. On the other hand, if the Supreme Court takes up the case, it will have an opportunity to give an authoritative statement of the law in this area. Only time will tell the outcome, and a decision on leave to appeal is expected in about five months.

Case Information

Smith v. Inco Limited

SCC Docket No.: 34561

certification class actions damages land nickel nuisance Ontario Court of Appeal property real estate refinery strict liability Supreme Court of Canada

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