Class action for long-term environmental harm certified by Ontario Appeal Court despite substantial individual assessment issues

February 3, 2006

On November 18, 2005, the Court of Appeal for Ontario certified a class action against Inco Ltd. in relation to alleged environmental damages caused by long-term emissions from a nickel refinery in the Port Colborne area. It is a watershed decision in that it is the first class action ever to be certified for long-term historic environmental harm in any province other than Quebec (up until now, Canadian common law courts had only been willing to certify environmental class actions arising from a one-time pollution event).

This decision underscores an evolving trend towards a more liberalized approach to certifying environmental class actions. The Court of Appeal was moved to overturn the lower court rulings of the motion judge and the Divisional Court not only because the plaintiff had significantly narrowed his claim to damages for the devaluation of real property occasioned after the Ministry of the Environment confirmed the presence of high levels of contaminants, but also because of the shift in the legal landscape precipitated by the Court's recent decision in Cloud v. A.G. Canada (2004), 247 D.L.R. (4th) 66.

Background

The case arose from the emission of nickel pollutants from Inco's Port Colborne refinery from 1918 to 1984. Although emissions had long ceased, in 2000 it was disclosed that the Ontario Ministry of the Environment had found higher than expected levels of contaminants in the area around the refinery.

The plaintiff attempted to bring a class action proceeding against Inco, initially framing his claim very broadly to span the whole spectrum of potential losses including health effects and reduced property value. The motion judge and the Divisional Court both denied certification for several reasons, basing their findings primarily on the concern that the wide range of personal injuries and damages that would have resulted from the historic nickel emissions negated the advantage of a class action over multiple individual actions. In denying certification, the lower courts were mindful of the decision in Hollick v. Toronto (City) (2001), 205 D.L.R. (4th) 19, in which the Supreme Court of Canada had blocked an attempt to certify a class action over a dump primarily because the common issues were deemed negligible in comparison to the individual issues, and because a fund had been established to recompense the potential class members.

In the Inco case, the plaintiff Wilfred Pearson appealed the denial of certification to the Court of Appeal for Ontario, and in doing so, recast the scope of the class action to claim that the disclosure of the MOE findings had led to an immediate plunge in house values in the area generally, and most noticeably in the Rodney Street area, which was in close proximity to the refinery. Limiting the claim in this manner weighed in his favour, as did the recent Cloud decision, where certification was allowed notwithstanding that many individual issues needed to be resolved in respect of claims involving systematic abuse of students who had attended a government-run residential school.

Certification as a Class Action

For an action to be certified as a class action in Ontario, the plaintiff must be able to demonstrate that: (i) there is a sustainable cause of action, (ii) the cause of action is shared by an identifiable class of claimants, (iii) there are common issues of fact or law to be resolved, (iv) the class action is the preferable procedure for resolution of the common issues, and (v) the proposed representative plaintiff can adequately represent the interests of the class.

In approving certification in Pearson v. Inco, Rosenberg J.A. (writing for the Court of Appeal) canvassed each of these tests in detail, giving guidance on what appears to be an emerging judicial trend to act more liberally in certifying class proceedings, particularly in relation to environmental class proceedings:

1. Proceedings must disclose a cause of action. Inco claimed firstly that the appellant had raised the argument for damages for property devaluation for the first time in the appeal, and secondly, in formulating the causes of action, the appellant had attempted to artificially inflate the number and complexity of the common issues so that the action would appear "ripe" for certification as a class proceeding. While concurring that it would not be appropriate for a plaintiff to broaden the grounds of liability to make a simple case appear complex in an attempt to make it more amenable to class proceedings, the Court of Appeal was clear in finding that certification would only be denied on this basis if the common issues advanced were "relatively unimportant". This was not held to be the case here: devaluation of property was deemed sufficiently serious to be pleaded, and in fact had been raised previously, albeit only as a small aspect of the appellant's original claim.

2. There must be an identifiable class. The original proposed class, which had been defined using geographical and temporal boundaries, had been deemed by the motion judge to be arbitrary as it was over inclusive in some respects (it potentially included claimants who may not have been affected by the nickel contamination), and under inclusive in others (primarily because there was evidence of comparable amounts of contamination outside the defined area, and because the specified time period excluded those who may have suffered harm but who had left the area prior to the benchmark date).

The Court of Appeal, however, determined that this rationale no longer applied since, by limiting the cause of action to a reduction in property value arising at a particular point in time, the frame of reference had been shifted away from the question of actual levels of pollution to the effect the MOE disclosure had on property values within a specified area.

Applying the tests set out in Hollick, the appellant was found to have met the identifiable class requirement: the class had been defined by objective criteria (i.e., persons were admitted to the class if they owned property within the specified area within the specified time frame), and, in leading evidence that property values had declined following the MOE disclosure, the appellant had shown that there was a link between the class and the common issues to be tried and that therefore the proposed class was not "unnecessarily broad". In particular, the Court of Appeal was extremely cautious about using under inclusiveness as an argument against certification, particularly in the environmental context, where, by its very nature, the effects of pollution were often "widespread and diffuse". In particular, it seemed illogical to the court that Inco could resist certification by showing that the extent of damage it had caused was greater than that claimed by the appellant.

3. The claims or defences of the class members must raise common issues. As mentioned above, Inco had argued that many of the common issues raised were inconsequential and not of sufficient weight to meet this requirement. But the appeal court disagreed, citing Cloud in noting that the common issue requirement is the "low bar" to certification, and that this requirement could still be met "even if it makes up a very limited aspect of the liability question and even though many individual issues remain to be decided after its resolution".

4. A class proceeding must be the preferable procedure for resolution of the common issues. This question was considered with particular reference to the three accepted goals of a class proceeding: (a) judicial economy, (b) access to justice, and (c) behavioural modification.

(a) Judicial economy: The motion judge had held that a class proceeding would not advance the goal of judicial economy in this case because, notwith¬standing determination of the common issues, it would still be necessary to embark on an individualized analysis of each claimant's particular circumstances. This followed the reasoning in Hollick in which the Supreme Court had found that an environmental claim should not be certified as a class proceeding because the individual issues far outweighed the common issues.

The Court of Appeal agreed in principle, but found that now that the cause of action in this case had been restricted to diminution of property value, the only individualized aspects that would remain outstanding after resolution of the common issue of whether public disclosure of nickel contamination had a detectable impact on house value, was quantification of the impact that the public disclosure had on each property. The Court of Appeal held that determination of that common issue was not negligible, and to that extent, economy of justice would be served if the common issues were addressed in a class proceeding.

(b) Access to Justice: The motion judge found that the plaintiff had not met this test because there were viable alternatives to a class action in the form of (i) a remediation programme Inco had submitted to (known as the CBRA); (ii) joinder; or (iii) test case actions. While noting that the CBRA was a strong alternative, the Court of Appeal was not convinced that remediation alone was sufficient to address the injuries claimed to have occurred (unlike the compensation process in Hollick, the CBRA did not address monetary claims). Further, the Court of Appeal did not view test or joinder actions to be viable alternatives in this context because many of the claimants were old with little means of vigorously pursuing a test or joinder action against Inco.

(c) Behavioural modification: The motion judge did not believe that certifying the action as a class proceeding would serve the goal of behaviour modification since modification of behaviour was already in progress (Inco's activities are already being monitored, and Inco had already agreed to remediation efforts under the banner of the CBRA). The motion judge was concerned that certifying the class action might cause Inco to become less cooperative. The Court of Appeal overturned this decision holding that the prospect of Inco becoming less cooperative should not be a factor in denying a class action.

5. There must be a representative plaintiff. In holding that Mr. Pearson had failed to meet the representative plaintiff test, the motion judge had focused on the uncertainty that Mr. Pearson had the ability to meet the costs that would be incurred in pursuing the class action. Secondly, the motion judge found that the litigation plan was not specific enough, failing to incorporate all of the required elements within the body of the plan itself. Thirdly, he felt that Mr. Pearson would have a conflict with other members of the proposed class in that he was a resident of an area that had been particularly adversely affected, and would likely take a much more aggressive approach than other, less affected, claimants.

The Court of Appeal held that the motion judge had erred in imposing a requirement that Mr. Pearson prove at the outset that he has capacity to bear the costs of the action. Certainly, if large costs are outstanding at the time of the certification motion, this could be taken into consideration, but that was not the case here. The Court of Appeal held that since there is no legislation expressly imposing such a requirement, this should not be imposed by the courts.

In relation to the litigation plan, the Court of Appeal felt that the motion judge had taken an "unreasonably rigid" view by requiring that all of the details for the litigation be within the four corners of the plan itself. The Court of Appeal followed the more generous approach it had taken in Cloud, noting that all of the elements of the litigation plan could be pieced together from the plan itself and supporting affidavits, and that it was not necessary for the litigation plan itself to embody all of the plan in one document.

Finally, the Court of Appeal held that the fact that Mr. Pearson was a member of a group which was more severely impacted than other members does not of itself represent a conflict of interest precluding him from being the representative plaintiff, stating that it "would be an odd result if this appellant's obvious interest in vigorously prosecuting the claim was seen as disqualifying him as the representative plaintiff", and going on to comment that in its view, the court should be more concerned with a "straw man" plaintiff who had no particular interest in the litigation.

(Note: The Court of Appeal released revised reasons in Pearson v. Inco Ltd. on January 19, 2006, replacing the reasons released on November 18, 2005, "to correct certain slips." The result was not changed.)

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