Damages for stigma awarded in environmental class action

June 28, 2010

In one of the largest-ever environmental class actions in Canada, Vale (formerly Inco Limited) has been ordered to compensate a group of homeowners for the stigma of negative publicity about long-term contamination of their properties.

After a three-month common issues trial, Mr. Justice Henderson of the Superior Court of Justice, in a decision released on July 6, 2010, held that the class in Smith v. Inco had suffered a diminution in the value of their residential properties resulting from elevated levels of nickel in the soil (the action was formerly titled Pearson v. Inco, until the representative plaintiff was changed; Inco Limited was acquired by Vale in 2007). Comprised of over 7,000 homeowners whose properties in Port Colborne, Ontario are close to the Vale refinery, the class was awarded aggregate damages of $36 million. Under the judge's allocation, homeowners closer to the facility are to receive higher individual amounts. Although the emissions of nickel had begun in 1918 and ended when nickel ceased being refined at the facility in 1984, the judge found that the homeowners' claim arose only after the Ontario Ministry of the Environment made certain disclosures about the effects of the contamination on health in the fall of 2000. The action did not include claims for personal injury or adverse effects on health, class certification of those issues having earlier been denied by the court.

While Vale admitted prior to the trial that the refinery was the source of the nickel contamination, the judge found that the discharge of nickel was a private nuisance and that the company was strictly liable to the class for the discharge as a result of a failure to prevent the escape of a dangerous substance, pursuant to the Rylands v. Fletcher doctrine. A claim of public nuisance was dismissed on the basis that there was no allegation that the company's conduct had affected public health, public morals or public conduct, or the use of a public place. A claim of trespass was also dismissed on the basis that the intrusion of the nickel particles onto the class members' properties was indirect, not direct.

The test for a claim under the Rylands v. Fletcher doctrine was made out on the judge's findings that nickel refining was a non-natural use of the land and the escape of the nickel particles from Vale's land had the potential to cause damage to neighbouring properties. It was not relevant that the operation of the facility had been in compliance with all environmental and zoning regulations. The judge also held that the Rylands doctrine applied regardless of whether there had been a single isolated escape or a continuous long-term escape.

The judge held that a private nuisance was established by the occurrence of material physical damage to the class members' properties from nickel emissions. He concluded that he was not required to balance external factors such as the severity of the harm, the utility of the company's conduct, the character of the neighbourhood or the plaintiff's sensitivity. Even if he was required to do so, he concluded that the harm suffered outweighed the public utility of the defendant's business operations. He also found that damages were an essential element of both private nuisance and the Rylands claim. Thus, in order to determine if the defendant's conduct created liability, it was necessary to determine whether the class members had suffered harm. He further found that the claim was not barred nor diminished by the fact that some of the properties had been remediated or that class members had not sold or attempted to sell their properties.

The judge found that prior to 1990, most class members would not have been aware, or ought not to have been aware, of the fact that nickel in the soil could affect their property values, as they had no reason to be concerned about any adverse effects from nickel in the soil. In fact, according the judge, the message to the public as of early 2000 was that everything was fine. The judge found that beginning with the release of an MOE phytotoxicological report in early 2000, the focus of the message to the public changed such that there was after that point a concern for human health due to levels of nickel in the soil. Accordingly, class members would have concluded after that time that the nickel contamination could affect property values.

Vale was not successful in arguing that the claim was barred by the expiry of the relevant limitation period on the basis that it was well known prior to the fall of 2000 that there was a problem with nickel soil contamination in the area. The judge did find that most class members would have been aware, or should have been aware, prior to 1990 of the possibility that nickel particles may have been in the soil on their properties and that those particles came from the refinery. But he went on to conclude that they did not have a cause of action until they knew or ought to have known that they had suffered damages. That occurred only after the message to the public changed in 2000 and was widely publicized. The fact that a small number of people in the class knew or ought to have known about the relevant facts prior to the fall of 2000 was not enough to affect the claim of the entire class, the judge held.

The damages were based on a comparison of property values in Port Colborne and nearby Welland. Even accepting that properties adjacent to a large industrial facility would have reduced values, the judge found that the rate of increase of property values in Port Colborne was lower after the 2000 public disclosures than they otherwise would have been, due to the negative publicity concerning the nickel contamination and its possible affects on human health. In essence, the judge found that a quantifiable stigma in the form of lost value attached to the contaminated properties.

Vale has publicly stated that it sees grounds for an appeal.

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