The recent Ontario Court of Appeal decision in Smith v. Inco Limited has established new, narrower standards for the environmental torts of private nuisance and strict liability (known as the Rylands v. Fletcher rule). Class actions for environmental damage have been widely used in the United States as a mechanism for addressing (often) historical contamination originating with one common source. Canada, however, has been slower to pursue such remedies. As one of the first major environmental class actions in Canada, this is a significant decision and the plaintiffs have applied for leave to appeal to the Supreme Court of Canada.
This class action involves the owners of approximately 7,000 properties near the Inco Limited. (“Inco”) nickel refinery in Port Colborne, which operated between 1918 and 1984. Over this period, nickel particulate was released from the refinery and landed on the surrounding properties. It was never alleged that the level of particulate emissions from the refinery ever exceeded regulatory standards, and Inco accepted responsibility for the presence of nickel particulate on the properties near the refinery.
In 2000, some concern developed over the potential health impacts of the nickel contamination on the properties. In 2002, the Ministry of the Environment ordered Inco to remediate 25 properties where concentrations were particularly high. Inco remediated 24 of these properties. The remaining property belonged to the representative plaintiff, who refused to allow the remediation. As a result of these occurrences, it was originally alleged that the particulate posed a threat to human health. Prior to trial, however, the plaintiffs abandoned this claim and no evidence was led that there were any health risks associated with the nickel. Rather, the only damages claimed resulted from an allegation that the value of the class’ property was less than it would otherwise be because of the stigma associated with the presence of nickel residue, even if it was not harmful. Environmental tort claims of this nature are unusual, as diminution in property value often accompanies claims for other losses, such as the cost of remediating the property or bringing it into compliance with government standards.
The Trial Decision
Although the trial judge rejected the plaintiffs’ claims for trespass (because Inco had not physically entered the property) and public nuisance (because no public right was interfered with), he accepted the claims for strict liability and private nuisance.
A tort claim for private nuisance results from an unreasonable interference with the use and enjoyment of another person’s land or interest in land. The trial decision in Smith v. Inco follows the line of many prior nuisance cases that have considered environmental contamination to constitute physical damage regardless of whether there is specific physical damage to the property. On the question of whether the damage is material, nuisance decisions almost always deemed contamination to be an unreasonable interference. Indeed, the trial court determined that if the contamination had resulted in a decrease in property values, it must be considered material and, as such, the claim for nuisance was made out.
In finding Inco to have violated the rule of strict liability, as adduced in Rylands v. Fletcher,1 the trial court considered the two key elements of such a claim: (1) the non-natural use of the land by the defendant; and (2) an escape from the land of something likely to do mischief.2 In concluding that the rule had been violated, the Court follows established jurisprudence in determining that a ‘non-natural use of the land’ does not require that the use be unreasonable or overtly damaging. Rather, the test for ‘non-natural’ looks at whether there is “some special use bringing with it increased danger to others.”3
At trial, the court found that the operation of Inco’s refinery in industrial Port Colborne constituted a non-natural use as the nickel, which was likely to do mischief if it left the Inco property, was not naturally found on the site and refining it was a special use of the land which proposed increased danger to others.4 In reaching this conclusion, the trial judge focused on the concept of ‘abnormally dangerous activities’ for which the controlling party must accept the risk of any damage caused by their decision to undertake such an activity.
The trail judge concluded that the particulate matter released by the refinery and landing on the surrounding properties had resulted in decreased property values to the owners. As such, the trial court awarded $36 million to the owners of approximately 7,000 properties surrounding the refinery.
The Court of Appeal Decision
On October 7, 2011, the Ontario Court of Appeal granted Inco’s appeal and overturned the trial court’s award of damages under the doctrine of strict liability and nuisance.
The appeal court accepted the trial judge’s finding of fact that there was general public concern about the potential health impacts associated with the nickel residue, despite the absence of medical evidence establishing such an adverse impact.
The Court of Appeal rejected the trial judge’s finding that the contamination alone was enough to constitute the ‘physical damage’ required to ground a claim of nuisance, regardless of whether there were adverse effects on the soil or the health of those interacting with the soil.
The Court of Appeal establishes that in order for a claim of nuisance to proceed on an allegation of physical damage, such damage must be material, actual and readily ascertainable.5 Under this framework, only actual damage and not any potential future costs are eligible for consideration; a caveat that may prove problematic in claims were future remediation is anticipated but not yet required. Furthermore, the Court clarifies that a change in the property does not necessarily amount to damage to the property and ultimately finds that the presence of the nickel particulate did not cause any physical damage, as it did not interfere with the ability of property owners to use the property for any purpose.6
The Court of Appeal determined that, while Inco may have interfered with the use of property owned by members of the class, its interference had not, in fact, been unreasonable as the plaintiffs had not shown that the presence of the particulate matter had resulted in “actual, substantial, physical harm”. At paragraph 67, the Court states:
In our view, actual, substantial, physical damage to the land in the context of this case refers to nickel levels that at least posed some risk to the health or wellbeing of the residents of those properties. Evidence that the existence of the nickel particles in the soil generated concerns about potential health risks does not, in our view, amount to evidence that the presence of the particles in the soil caused actual, substantial harm or damage to the property. The claimants failed to establish actual, substantial, physical damage to their properties as a result of the nickel particles becoming part of the soil. Without actual, substantial, physical harm, the nuisance claim as framed by the claimants could not succeed.
This approach to nuisance represents a significant departure from past applications to environmental contamination cases. It establishes that claims of nuisance relating to environmental contamination must be grounded in proof of actual damage to the property or risk to human health, and that simple contamination is not, in and of itself, sufficient. This challenges some earlier Canadian decisions which had indicated that the simple fact of contamination was likely enough to ground a claim of nuisance as the mere presence of the contamination itself was regarded as a type of physical damage.
On the issue of strict liability, the Court of Appeal observed that the refinery’s activities were not ‘non-natural’ and, as such, the Rylands v. Fletcher rule does not apply.
In reaching this conclusion, the Court of Appeal rejects the idea that certain abnormally dangerous, or ‘ultra hazardous’, activities are subject to a greater burden of liability under the Rylands v. Fletcher rule. The Court determines that such an approach incorrectly applies the strict liability principle and makes the accused party responsible for any consequence of an activity, even if they have always operated, as Inco did, within the confines of the law. As such, “[s]trict liability under Rylands v. Fletcher aims not at all risks associated with carrying out an activity, but rather with the risk associated with the accidental and unintended consequences of engaging in an activity.”7
The Court of Appeal focuses heavily on the ‘ordinary use’ of a particular property in determining whether a given use is ‘non-natural’. The Court indicates that a user will only be exposed to liability under the strict liability doctrine if they implement a use ‘inappropriate to the place’. This approach places heavy emphasis on the role planning legislation and government regulations, controlling where, when and how activities can be carried out, are to play in determining whether one has put a property to a non-natural use.8 Based on the foregoing, the Court of Appeal concludes that Inco’s refinery, operated 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”, was not a non-natural use.
This decision could establish a strong precedent that the expected and known results of legal business operations simply will not qualify as non-natural uses, despite the impacts on neighbouring properties. The Court of Appeal seems to anticipate potential concerns that this approach to strict liability could act as a bar against any claims naming individuals who have operated businesses’ in accordance with all applicable legal rules, but have nonetheless damaged their neighbour’s property. The Court cautions that “compliance with various environmental and zoning regulations is not a defence to a Rylands v. Fletcher claim”9, although they place heavy emphasis on such compliance as a factor in determining whether a use is non-natural. Further the Court notes that “there are no doubt strong arguments for imposing strict liability on certain inherently dangerous activities. In our view, however, that is fundamentally a policy decision that is best introduced by legislative action”.10
It is significant that this claim related only to decreased property values as a result of the stigma of the contamination. All properties had been remediated to the standard determined by the Ministry of the Environment’s Community Based Risk Assessment as being safe for human health (except where the property owner refused to permit the cleanup) and there was no evidence that the residual particulate matter posed any increased risk to human health. As such, the assessment of damages was particularly important as it related exclusively to property values. The Court of Appeal determined that the trial judge had erred in basing his damages award on inaccurate property valuation information; it observed that when property data for Port Colborne and comparable municipalities was reviewed in its entirety, there was insufficient evidence to conclude that the residents forming the class had actually suffered decreased property values as a result of the presence of the particulate matter from the Inco refinery. As such, even if the claims of nuisance and strict liability were upheld, no damages would be awarded.
The findings on damages are instructive as to how damages will be assessed in environmental contamination matters. It is clear than any claim based only on a decrease in property values is required to present a strong body of evidence to that effect (evidence that may not be particularly easy to collect). Further, the Court’s liability findings represent a strong deviation from the traditional interpretation and application of the torts of strict liability and private nuisance. It remains to be seen how these torts will be addressed by the Supreme Court of Canada, in the event that leave is granted.