Court awards $3.6 million for contamination clean-up and $1.115 million for out-of-pocket costs

The Ontario Superior Court of Justice has awarded a property owner $3.6 million to clean-up petroleum hydrocarbon contamination from a neighbouring property, along with more than $1.115 million to cover out-of-pocket costs already expended in connection with the contamination.  Following a 12-day trial in Goderich and London, Justice Lynne Leitch found that underground storage tanks (USTs) at a concrete supply company's property were the source of contamination that had migrated onto a neighbouring commercial property.  She ruled that the defendant landowner was responsible to return the neighbouring landowner to the position it was in prior to the wrong committed.

The plaintiff landowner advanced its claims on the basis of the doctrine in Rylands v. Fletcher/Strict Liability, Nuisance, Negligence and Trespass.  The plaintiff's property was vacant until 1997 when a retail store operation was constructed there, and the evidence was that there had been no other use of the property prior to 1997.  The defendant's property was used for the production and sale of ready-mix concrete product, and the defendant also operated a fuel outlet on the property from the 1950s until 2012.  Original USTs were removed in 1989 and replaced by new USTs.   Justice Leitch noted, "It is fair to say that [the Defendant] used gasoline for many years with questionable UST system monitoring and maintenance practices and poor record keeping."

In 2007, the plaintiff landowner planned to build its own gas bar as part of its retail operation, and investigated the proposed site.  It was then that petroleum hydrocarbon contamination was detected.  From that point forward, the plaintiff undertook interim remediation steps and eventually commenced its action against the defendant landowner to recover the costs of the clean-up of its property.

Expert evidence was called by both parties, with the defendant's expert focusing on an opinion that the source of the contamination was, in fact, the plaintiff's property.  However, there was no evidence of soil contamination in the area where the defendant's expert postulated that a spill had occurred.  Considering all of the evidence, Justice Leitch concluded that the contamination came from the defendant's property: "There is no question that until 1989 leaded gasoline was stored on the "Defendant" Property in single-walled steel tanks, which were susceptible to corrosion and did not have a leak detection system."  She found the defendant liable on the basis of strict liability, nuisance, negligence and trespass.

What I find to be most interesting about the decision is the issue of damages.  Justice Leitch agreed with the plaintiff that it should be awarded $3.6 million, which is the estimated cost of remediation, including soil and groundwater remediation.  In addition, she awarded out-of pocket costs already incurred, bringing the total damages award up to about $4.8 million.  However, I was not able to see any reference in the decision to the actual value of the Plaintiff's property.  Although the Plaintiff did include a claim for loss of property value in its lawsuit, it did not pursue that claim at trial.  In reading the decision, I was expecting to see a discussion of the cost of the proposed remediation in relation to the value of the property as part of an analysis of the reasonableness of the damages award.  Perhaps the value of the property (including the retail operation) was so much greater than the cost of remediation that it was simply taken for granted that the cost of remediation was reasonable.

Read the decision at: Canadian Tire Real Estate Ltd. v. Huron Concrete Supply Ltd.

Ontario Court of Appeal overturns $36 million Inco class action damages award

In July, 2010, I posted about a $36 million award of damages made in favour of residential property owners in the City of Port Colborne.  The owners had sued Inco in a class action over property value losses related to soil contamination.  Now, on appeal from the decision of the trial judge, the Ontario Court of Appeal has overturned the award.  The Court allowed the appeal, ordered that Inco be paid $100,000 for the costs of the appeal, and has asked for submissions on the costs of the trial. 

The issues on appeal were:

 i.                   Did the trial judge err in holding that the discharge of the nickel particles by Inco on to the property of the class members constituted an actionable nuisance?

 ii.                 Did the trial judge err in holding that Inco was liable for the discharge of the nickel particles under the rule established in Rylands v. Fletcher?

iii.            Did the trial judge err in holding that the claimants had established a diminution in value of their properties after September 2000?

iv.            Did the trial judge err in holding that assuming there was a diminution in the value of the properties after September 2000, that diminution was caused by the discharge of nickel particles on to the land?

v.            Did the trial judge err in failing to hold that the claim was time barred under s. 45(1)(g) of the Limitations Act?

The Court allowed the appeal on the basis that the property owners failed to establish Inco's liability under either private nuisance or the rule in Rylands v. Fletcher (which is basically that a landowner cannot allow a harmful substance to flow from his or her property onto a neighbouring property).  Alternatively, if liability had been found, the Court of Appeal would still have found that the property owners failed to prove that they suffered any damages. 

Here is some of what the Court said about the tort of nuisance:

People do not live in splendid isolation from one another.  One person’s lawful and reasonable use of his or her property may indirectly harm the property of another or interfere with that person’s ability to fully use and enjoy his or her property.  The common law of nuisance developed as a means by which those competing interests could be addressed, and one given legal priority over the other.  Under the common law of nuisance, sometimes the person whose property suffered the adverse effects is expected to tolerate those effects as the price of membership in the larger community.  Sometimes, however, the party causing the adverse effect can be compelled, even if his or her conduct is lawful and reasonable, to desist from engaging in that conduct and to compensate the other party for any harm caused to that person’s property.  In essence, the common law of nuisance decided which party’s interest must give way.  That determination is made by asking whether in all the circumstances the harm caused or the interference done to one person’s property by the other person’s use of his or her property is unreasonable:  Royal Anne Hotel Co. Ltd. v. Village of Ashcroft (1979), 95 D.L.R. (3d) 756 (B.C.C.A.), at pp. 760-61. 

[...]

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.

On the rule in Rylands v. Fletcher, the Court wrote:

The rule in Rylands v. Fletcher imposes strict liability for damages caused to a plaintiff’s property (and probably, in Canada, for personal damages) by the escape from the defendant’s property of a substance “likely to cause mischief”.  The exact reach of the rule and the justification for its continued existence as a basis of liability apart from negligence, private nuisance and statutory liability have been matters of controversy in some jurisdictions:   see Transco plc v. Stockport Metropolitan Borough Council, [2004] 2 A.C. 1 (H.L.); Burnie Port Authority v. General Jones Pty. Ltd. (1994), 179 C.L.R. 520 (Aust. H.C.); Murphy, “The Merits of Rylands v. Fletcher”.  In Canada, Rylands v. Fletcher has gone largely unnoticed in appellate courts in recent years.  However, in 1989 in Tock, the Supreme Court of Canada unanimously recognized Rylands v. Fletcher as continuing to provide a basis for liability distinct from liability for private nuisance or negligence.  

[...]

There are various formulations of the rule found in the case law and the academic commentary.  The authors of The Law of Nuisance in Canada suggest different potential formulations, including one, at p. 113, that requires four prerequisites to the operation of the rule:

•        the defendant made a “non-natural” or “special” use of his land;

•        the defendant brought on to his land something that was likely to do mischief if it escaped;

•        the substance in question in fact escaped; and

•        damage was caused to the plaintiff’s property as a result of the escape.

The Court of Appeal found that there was no liability under this doctrine because Inco's use of its property was not a "non-natural use".

Finally, although the Court of Appeal did not have to address the limitation period issue in order to make its decision, it did provide a brief commentary on the issue because of its potential effect on future cases.  The Court cautioned that discoverability is often an individual issue requiring individual adjudication after common issues (such as liability and damages, in this case) have been decided.  The trial judge in this proceeding had made a ruling on a limitation period defence on the basis that "most property owners" would not have been aware of the potential effect of nickel contamination as of a certain date.  The Court of Appeal ruled that the limitation issue could not be decided in that way in the trial of common issues:

If, as the trial judge found in this case, the evidence does not establish that all class members were not aware of and ought not to have been aware of the material facts, then the application of the Limitations Act to the claims is an individual and not a common issue. 

Read the full decision at: http://canlii.ca/s/6lhbs.