On Tuesday (July 6th) the Ontario Superior Court of Justice released the decision in Smith v. Inco Ltd., the first court decision in Canada deciding a class action based on damages from pollution. The class action was brought on behalf of approximately 7000 property owners who claimed that their property values had been lowered after public disclosures regarding decades worth of nickel deposited on those properties from Inco Ltd.’s nickel refinery in Port Colborne, Ontario between 1918 and 1984. The trial judge, the Honourable Mr. Justice J.R. Henderson agreed and awarded total damages of $36 million.
The case is of great importance not just because it is the first time that a class action based on damages arising from pollution has been decided, but also because of the many legal issues it addresses. Inco Ltd. has already indicated that it will appeal the decision.
Class actions and toxic tort litigation in Canada
In the US there is a well developed body of “toxic tort” litigation – immortalized in such films as Erin Brockovich and A Civil Action. These types of torts are possible because the huge damages awards in play allow affected property owners to bring cases for a “contingency fee” – a promise to be paid a portion of the damages award if the plaintiffs are successful.
In Canada this generally hasn’t been possible because the damages awards from court cases involving toxics have not been large enough to support the cost of bringing the case. There are two main reasons for this.
- First, the Canadian courts are less willing to award massive aggravated and punitive damages against corporations than the American legal system has historically done.
- Second, American lawyers have been able to bring together lots of small claims into one large class action. This means that cases that would never be worth bringing individually can be decided all at once.
Class action legislation is a relatively new innovation in Canadian law, and until recently there has been a lot of doubt about whether pollution-based torts could be brought under different provincial class action statutes. In 2001 the Supreme Court of Canada, in Hollick v. Toronto, rejected a class action brought by 30,000 people living near a landfill that they said caused noise and air pollution. The case highlighted the difficulties in defining “classes” of plaintiffs that were acceptable to the court – since every person in the vicinity was affected a little differently. Without the possibility of class actions, it was difficult to see how it would ever be financially worthwhile for individual property owners to spend hundreds of thousands of dollars on a pollution-based claim.
But in 2005 the Ontario Court of Appeal affirmed the class that was trying to bring this case (then represented by a different individual – Wilfred Pearson), in Pearson v. Inco Ltd. The court said that this class action was different from Hollick in that its focus was limited to the loss in property value – which allowed for more clearly defined classes of affected property owners. The Supreme Court of Canada refused to allow Inco Ltd.’s appeal of this decision.
From a public interest perspective it’s disappointing that issues of health and environmental impacts needed to be abandoned in order to define an acceptable class. However, it’s an important step forward in allowing class actions related to pollution. And as such it may have opened the door to the types of large damages awards that will allow toxic torts to be brought in Canada.
The trial judge made a number of interesting findings for those interested in pollution-related lawsuits.
First, the judge found that Inco was liable on the basis of a esoteric sounding rule – the Rule in Rylands v. Fletcher, also known as strict liability. In the 1868 case of Rylands v. Fletcher the English House of Lords considered the damage caused by water escaping from a reservoir, and adopted as a legal principle that:
[T]he person who for his own purposes brings on his lands and collects and keeps there anything likely to do mischief if it escapes, must keep it in at his peril, and, if he does not do so, is prima facie answerable for all the damage which is the natural consequence of its escape.
There have been a series of cases limiting when this doctrine applies, and in general there is a lot of uncertainty about whether and how it applies to pollution. However, Henderson J. has adopted a broad approach to the doctrine, rejecting outright Inco’s defence that their use of the land was “reasonable”, instead holding that because Inco had brought a dangerous substance which was not naturally on the land onto its property, it was subject to the doctrine, regardless of whether Inco was acting reasonably:
In the present case, Inco brought nickel onto the land for the purpose of refining it. Moreover, once the nickel was brought onto the land, Inco processed or refined it, thereby creating airborne nickel particles. The nickel was not naturally on the land, and the nickel particles were not naturally on the land or in the air over the land. Further, the refining of nickel was not an ordinary use of the land; it was a special use bringing with it increased danger to others. [para. 53]
Moreover, Henderson J. expressly rejected a series of earlier authorities that limited the rule in Rylands v. Fletcher to cases of an accidental, catastrophic release – holding that ongoing release of the dangerous substance gave rise to liability.
[I]t would be an absurdity if single and multiple escapes of a dangerous substance resulted in different findings as to liability. In fact, a defendant who permits multiple escapes of a dangerous substance would seem to be more culpable than one who permits a single escape.[para. 67]
Henderson J.’s approach to the Rule of Rylands v. Fletcher, if not overturned on appeal, has breathed new life into an old common law manifestation of the polluter pays principle.
Damage to property values
Another interesting aspect of the case is the fact that the damages, which are not inconsiderable, are based upon the decrease in property values arising from the public’s realization that these properties were contaminated with nickel.
Inco Ltd. pointed to a series of cases holding that damage to property could only be claimed when the property was sold (and thus the loss was realized). However, Henderson J. ruled that these cases only applied to situations where the defendant’s behaviour caused an inconvenience to those using the property (ie. loud noises or strong odours), but did not apply in cases where there was a physical impact on the property (in this case causing contamination of the properties in question).
[I]f nickel has accumulated on the class members’ properties in such amounts so as to negatively affect the values of the properties, then the physical damage to the properties is material. This is the only sensible conclusion. Objectively, even if the nickel accumulation in the soil does not affect human health, the accumulation of a foreign substance on a property owner’s land that causes a loss of property value is material.[para. 88]
In addition, Henderson J. dismissed as “inconceivable” any legal rule requiring that 7,000 people “sell or attempt to sell their property in order to establish a cause of action.”
Henderson J. is also forced to grapple with the question of how limitations statutes apply to class actions. Most provinces have laws limiting how many years can pass before a lawsuit must be brought. The relevant time period in this case was 6 years, and Inco Ltd. pointed out that they had stopped operating the nickel refinery in 1984.
However, the 6 years does not start running until a plaintiff knows, or should know, that a cause of action exists. How is this rule to be applied to a class of people – in which some people may have known that their property was being contaminated and other people would not have done?
Henderson J. seems to adopt a “reasonable person” test – looking to see at what point most of the plaintiffs should have known that there was contamination and it was affecting their property values:
Even if there were a few class members who knew or ought to have known the material facts upon which this case is based prior to February15, 2000, those class members would constitute only an insignificant minority of all of the members of the class. I find that the overwhelming majority of the class members did not know and ought not to have known the material facts until approximately February 15, 2000. After February 15, 2000, the members of the class rapidly started to discover the material facts or could have discovered those material facts by the exercise of reasonable diligence.
Therefore in the context of this class proceeding, I find that the cause of action arose as of February 15, 2000. [paras. 118-119]
There’s so much in this judgment it’s difficult to know when to stop writing, but this blog post is already too long. Lawyers and law students reading this, please add your own comments on what you see as the significant aspects of the case.
We are not surprised that Inco Ltd. is appealing this decision. There is too much new law developed in this judgment, and too much at stake, for them not to. So we will be hearing more about the residents of Port Colborne and their efforts to win compensation from Inco. Ltd.
[Added July 15, 2010] - Ontario environmental lawyer, Dianne Saxe, suggests that this decision raises the possibility of a class action by people living near Alberta's tarsands]