CITATION:
Smith v. Inco
          Limited, 2011 ONCA 628

DATE:  20111007

DOCKET: C52491

COURT OF APPEAL FOR ONTARIO

Doherty, MacFarland JJ.A. and Hoy J. (
ad hoc
)

BETWEEN

Ellen Smith

Plaintiff (Respondent)

and

Inco Limited

Defendant (Appellant)

Proceedings
          under the
Class Proceedings Act, 1992

Alan J. Lenczner, Q.C., Larry P. Lowenstein, Laura K. Fric and
          Lauren Tomasich, for the defendant (appellant)

Kirk M. Baert, Celeste Poltak, Eric K. Gillespie, David
          Rosenfeld and Julia Croome, for the plaintiff (respondent)

Heard:  May 9-12, 2011

On appeal from the judgment of
          Justice J.R. Henderson of the Superior Court of Justice dated July 6, 2010, with
          reasons reported at (2010), 76 C.C.L.T. (3d) 92.

By the Court:

I

OVERVIEW

[1]

Inco Limited (Inco) appeals from a judgment rendered after a trial of
    common issues in a class proceeding.  The trial judge found that the soil on
    the properties of the class members (claimants), as represented by the
    plaintiff, Ms. Ellen Smith, contained nickel particles placed in the soil as a
    result of emissions generated by Incos nickel refinery in Port Colborne,
    Ontario over a 66-year period prior to 1985.  The trial judge further held that
    beginning in 2000 concerns about the levels of nickel in the soil caused
    widespread public concern and adversely affected the appreciation in the value
    of the properties after September 2000.  The trial judge held that Inco was
    liable in private nuisance and under strict liability imposed by the rule set
    down in
Rylands v. Fletcher
(1866), L.R. 1 Ex. 265, affd (1868), L.R. 3
    H.L. 330 for that loss.  He fixed damages at $36 million.  He rejected a claim
    for punitive damages and there is no appeal from that part of his disposition.

[2]

Inco appeals, raising the following issues:

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
?

[3]

The appeal must be allowed and the action dismissed.  In our view, the claimants
    failed to establish Incos liability under either private nuisance or the rule
    in
Rylands v. Fletcher
. Alternatively, and assuming the elements of
    either or both causes of action were made out, the claimants failed to
    establish any damages.

[4]

Given our disposition on issues i, ii and iii, we need not address the
    causation issue or the limitation period argument. We will, however, consider
    one aspect of the trial judges analysis of the applicability of the limitation
    period as it has potential application to other class action claims in which
    limitation period defences are raised.

II

THE NICKEL EMISSIONS

[5]

Port Colborne is a small city located on the north shore of Lake Erie in
    southern Ontario.  The Welland Canal linking Lake Erie and Lake Ontario cuts
    through the city.

[6]

Inco opened a nickel refinery in Port Colborne in 1918.  The refinery
    lies to the east of the Welland Canal.  Inco was for many years the major
    employer in the Port Colborne area, employing as many as 2,000 people.  The
    refinery closed in 1984.

[7]

Between 1918 and 1984, Inco emitted waste products including nickel,
    mostly in the form of nickel oxide, into the air from the 500-foot smoke stack
    located on its property.  The vast majority of the nickel emissions occurred before
    1960.  None occurred after the closure of the refinery in 1984.

[8]

Nickel, consisting mostly of nickel oxide, has been found in widely
    varying amounts in the soil on many of the properties located within several
    miles around the Inco refinery.  Inco accepts that its refinery is the source
    of the vast majority of the nickel found in the soil.

[9]

It was not alleged that Inco operated its refinery unlawfully or
    negligently at any time.  To the contrary, the evidence indicated that Inco complied
    with the various environmental and other governmental regulatory schemes
    applicable to its refinery operation.  There was no evidence that the emission
    levels from the refinery contravened any regulations.  Nor did the claimants allege
    at trial that the presence of the nickel in the soil on their properties posed
    any immediate or long-term threat to human health.

[10]

The Ministry of the Environment (MOE) has tested the soil on
    properties in the vicinity of the refinery for nickel and other metals from
    time to time since the 1970s.  The early testing examined the effect of the
    nickel particles on some kinds of plant life.  Many of the tests were conducted
    in response to complaints primarily from farmers about the effects the emissions
    had on certain particularly sensitive crops and trees.  The early samples
    revealed widely varying levels of nickel in the soil.  There was no suggestion
    of any threat to human health.

[11]

By the late 1990s, MOE had adopted a guideline of 200 parts per million
    (ppm) for nickel content in soil.  That guideline, however, had no connection
    to any potential health risk posed by the nickel, and was based on levels at
    which nickel deposits in the soil could possibly adversely affect the most
    sensitive plant life (ecotoxicity).

[12]

In 1997 MOE carried out a Human Health Risk Assessment (HHRA) based on
    soil samples taken in 1991.  The HHRA Report was published in August 1998. The
    test results showed levels up to 9,750 ppm.  MOE reported that it was unlikely
    that the nickel levels posed any risks to human health.

[13]

In January 2000, MOE released the results of a phytotoxicological study
    of soil samples taken from 89 different sites.  The study showed nickel levels
    up to 5,000 ppm.  The study also showed what were described as two hot spots where
    nickel levels were much higher.  One was near the Smith property.  MOE took
    samples from the Smith property and in September 2000, reported that nickel
    levels found on the property ranged from 4,300 ppm to 14,000 ppm.

[14]

The MOE decided that extensive testing should be done in the area immediately
    to the west of the Inco refinery and the east of the Welland Canal (referred to
    as the Rodney Street area (RSA)).

[15]

In the fall of 2000 and the spring of 2001, MOE employees took some
    2,000 samples from about 200 residential properties in the RSA.  They tested
    for a variety of metals including nickel.  In March 2002, MOE released an
    exhaustive and extensively peer reviewed report.  Those test results revealed
    nickel levels that were higher than those reported in earlier testing.  Other
    metals were also found in the soil at higher than anticipated levels.

[16]

Based on the findings in the 2002 report, MOE ordered Inco to remediate the
    25 properties, among the 200 properties sampled, where one or more of the soil samples
    from the property had yielded nickel levels above 8,000 ppm.  Remediation
    involved the removal of soil to a specified level and its replacement with new
    soil.  In its 2002 report, MOE explained the selection of 8,000 ppm as the
    appropriate level for remediation in these words:

In this Human Health Risk Assessment, the Ministry
    considered contaminant exposures from a variety of sources including: indoor
    and outdoor air; soil and dust; food from the supermarket and home gardens;
    and, the municipal drinking water supply.
To protect residents, and
    especially toddlers, the soil nickel intervention level was developed to ensure
    that all of these nickel exposures did not exceed a value that is well below
    any potential health risk.
[Emphasis added.]

[17]

Inco complied with the MOE order and, by the end of 2004, had remediated
    24 of the 25 properties.  Ms. Smith, the owner of the remaining property
    subject to the MOE order, would not allow Inco to remediate her property.   As
    of the date of the trial, she and her family continued to live on the property in
    its unremediated state.

III

THE CLASS AND THE NATURE OF THE CLAIMS

[18]

The class on whose behalf the action is brought consists of all persons
    who have, since September 2000, owned residential property within an area that
    takes up most of the city of Port Colborne.  There are approximately 7,000
    properties, most of which are in the urban part of Port Colborne, but some of
    which are in the rural area east of the Inco property.

[19]

The trial judge divided the class into three subsections based on the
    geographical location of their property:

·

The Rodney Street area (RSA) consisting of some 340 residences
      bordered by the Welland Canal to the west, Rodney Street to the south, Davis Street
      to the east and Durham Street to the north.  The Inco refinery is located
      immediately east of the RSA.  The RSA properties are primarily single unit,
      relatively inexpensive family homes.  The highest concentration of nickel
      particles was found on properties located in the RSA.  Samples from this area precipitated
      the 2000-2001 HHRA.

·

The east side area (ESA) consisting of approximately 1,500
      residences situated east of the Welland Canal, but not included in the RSA.

·

The west side area (WSA) consisting of approximately 5,200
      properties located west of the Welland Canal.

[20]

This lawsuit was commenced in March 2001 shortly after public concerns
    about the nickel levels emerged.  The claims initially advanced on behalf of
    the class included claims for personal injuries and adverse health effects
    based on the emission of a wide variety of pollutants including nickel
    particles. The claims were made against multiple defendants and set out
    numerous causes of action including negligence.  In the months following the
    commencement of the lawsuit, many statements appeared in the press attributed
    to counsel for the claimants asserting that MOE studies had established
    conclusively that the nickel deposits in the soil were carcinogenic and exposed
    local residents to serious health risks, including a risk of cancer at least
    eight and possibly 40 times higher than the standards set by the Ontario
    government.

[21]

By the time the action reached trial, Inco was the only defendant and the
    only claim left related exclusively to property values.  Allegations that the
    nickel deposits were carcinogenic or in any way harmful to the health of the residents
    had been abandoned.

[22]

The claimants alleged that their property values had not increased at
    the same rate as comparable property values in other small cities located
    nearby.  The class contended that the failure to keep up with increases in
    comparable properties was caused by the reasonable, widespread public health
    concerns over the nickel deposits in the soil on their properties.  According
    to the claimants, these concerns became prominent and widespread beginning in the
    fall of 2000 when soil samples taken from properties in the RSA revealed higher
    than expected levels of nickel in the soil.  The claimants alleged that the facts
    gave rise to claims in nuisance, both public and private, trespass and under the
    strict liability doctrine in
Rylands v. Fletcher
.

[23]

The trial judge found against the claimants on the trespass claim and
    the public nuisance claim.  There is no cross-appeal from those findings and we
    need not address those claims in these reasons.

[24]

It is important to emphasize the exact nature of the claim advanced at
    trial.  It was not about contamination in the sense that it was alleged that
    the nickel emissions actually posed any threat to human health or otherwise adversely
    affected the claimants use of their properties.  The emissions had streamed
    from Incos refinery for over 60 years.  Everyone could see the smoke coming
    from the 500-foot stack on a daily basis.  Common sense told everyone that
    nickel in some form must have been among the contaminants in the smoke.  As
    Mrs. Smith testified, common sense would also tell anyone that some of the
    contaminants, including nickel, would eventually find their way into the soil
    of the properties around the refinery.  On the claimants case as it was
    ultimately presented, however, the emissions from the refinery did not give
    rise to any cause of action.  The claims first arose long after the smoke
    stopped blowing from the Inco refinery.

[25]

On the claims as advanced at trial, it was concerns about the possible
    adverse health effects of the nickel in the soil that developed some 15 years
    after the refinery closed that gave rise to several causes of action against
    Inco.  Ironically, those concerns that began with MOEs report of higher than
    previously recorded levels of nickel in the soil, were fuelled in part by the very
    serious, but subsequently abandoned, allegations made by the claimants counsel
    in the months following the commencement of this lawsuit in March 2001.  In
    those allegations, the nickel particles in the soil were said by counsel to
    have been shown by MOE to be carcinogenic and to pose serious health risks to
    the residents.

[26]

The claims rested on six assertions:

(1)

The
      refinery emitted nickel particles for 66 years.

(2)

Over
      the 66 years, nickel particles, primarily in the form of nickel oxide, made
      their way into the soil on the claimants properties and became part of that
      soil.  The vast majority of the nickel in the soil came from the refinery.

(3)

Until
      2000, while there were isolated complaints mostly about plant life
      contamination, there were no significant public health concerns associated with
      the nickel levels in the soil on the properties around the refinery.

(4)

Beginning
      in early 2000 and continuing thereafter, as soil samplings revealed higher
      levels of nickel in the soil of many properties than had previously been
      recorded, widespread concerns about the potential health effects of those
      nickel deposits developed in the community and became a matter of widespread
      public concern and controversy.

(5)

Those
      concerns caused a measurable negative effect on the value of properties owned
      by the claimants.  After 2000, property values increased less than they would
      have but for the negative publicity surrounding the potential nickel
      contamination of the properties.

(6)

The
      negative effect on the values of the properties could be quantified by
      comparing the increase in the property values on the claimants properties with
      the larger increases in the values of similar properties in the nearby city of
      Welland during the same time period (1997  2008).

[27]

Inco conceded assertions (1) and (2).

[28]

The trial judge accepted that widespread public concerns about the
    potential adverse health effects associated with the level of nickel particles
    in the soil developed in early 2000 and continued thereafter.  He did so after
    a thorough review of the evidence (paras. 120-220).  He concluded, at para.
    220:

Therefore, in summary, as a result of the many
    aforementioned public disclosures and the consequent negative publicity, I find
    that the message to the public regarding the nickel problems in Port Colborne
    started to change in January 2000.  The public perception of the problems
    gradually changed as more information was disseminated throughout 2000.  As the
    year progressed the public mood changed from tranquility to uncertainty to
    great concern.
By the fall of 2000, because of the public disclosures, I
    find that the public mood was one of extreme concern about nickel levels in the
    soil that could affect everything from vegetation to human health to real
    estate values.
[Emphasis added.]

[29]

We are not persuaded we should interfere with the trial judges findings
    of fact.  On those findings, the reaction to the higher nickel levels by
    various governmental agencies and Inco itself, as extensively reported in the
    media, caused widespread concern in the public about the potential adverse
    health effects of the nickel levels in the soil on their properties.  We take
    assertions (3) and (4) as established for the purposes of the appeal.

[30]

The trial judge next considered whether the aforementioned public
    concerns had an adverse effect on the property values of the claimants
    properties.  He accepted as a common sense inference that proximity to a large
    industrial operation apart from any contamination concerns would inevitably
    have an adverse effect on property values (para. 261).  The trial judge further
    accepted as a matter of common sense that environmental contamination would
    also have an adverse effect on property values (para. 264).  He concluded, at
    para. 278:

On the basis of all of this evidence and the two
    common sense principles,
I find on a balance of probabilities that the
    plaintiff has proved a general causal connection between the negative publicity
    and public disclosures that started in the year 2000 and a negative effect on
    the values of the class members properties.
[Emphasis added.]

[31]

In the above-quoted finding, the trial judge accepted the causation
    argument underlying assertion (5).  He also accepted the approach to the
    quantification of damages advanced by the claimants in assertion (6).  He ultimately
    found that the comparable properties in Welland, Ontario had increased in value
    by 4.35% more than the Port Colborne properties during the ten-year period from
    1999 to 2008.  This difference yielded a loss of $4,514 per property, which
    when multiplied by the number of properties owned by the claimants resulted in
    a damage award of $36 million (paras. 297-298).

[32]

The appellant challenged both the causation finding and the damage
    assessment.  In light of the conclusions we have come to on the substantive
    causes of action and damages, we need not address causation.  We will review
    the evidence relevant to damages when addressing the submission that the
    claimants failed to prove damages.

IV

THE GROUNDS OF APPEAL

(A)

Did the trial judge err in holding Inco liable in nuisance?

(i)

The trial judges analysis

[33]

The trial judge observed, at para. 76, that while private nuisance
    claims can be based on either material physical damage to the claimants
    properties, or interference with the beneficial use of the claimants
    properties, the claimants relied exclusively on the contention that Incos
    actions had caused material physical damage to their properties.  The trial
    judge accepted this submission, at para. 76:

The nickel particles, primarily in the form of
    nickel oxide, have become part of the soil on these properties.  I accept the
    submission that this constitutes physical damage to the class members
    properties.

[34]

The trial judge determined that the physical damage to the properties caused
    by the presence of nickel particles in the soil was permanent and existed
    regardless of the levels of nickel in the soil.  He further held that it was
    irrelevant to the question of physical damage whether the nickel produced any
    adverse effects on the soil or the health of those residing on the properties (paras.
    100-101).

[35]

The trial judge next held that because he had determined that the nickel
    particles in the soil constituted physical damage to the properties he was not
    required to consider other factors such as the character of the neighbourhood
    or the social utility of Incos conduct in determining whether the conduct
    constituted a nuisance (para. 82).  He did, however, indicate that had he been
    required to consider those other factors, he would have reached the same
    conclusion.  He said, at para. 83:

[I]f I am required to consider these external
    factors, I find that in the present case the severity of the damage, the extent
    of the damage, the number of residents affected by the damage, the residential
    character of the surrounding neighbourhood, and the fact that Inco emitted
    nickel particles as by-product of a private, profit oriented business, far
    outweigh the utility to the community of Incos business operations.

[36]

Having found that the presence of the nickel particles in and of itself
    constituted physical damage to the claimants properties, the trial judge
    turned to the further requirement that physical damage must be material,
    meaning significant.  He held, at paras. 88 and 90:

In my opinion, if 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 owners land that causes a loss of property
    value is material.

...

I specifically reject Incos argument that by tying
    the cause of action to the establishment of a loss of property value is
    putting the cart before the horse.  Nuisance claims are based on the effect
    of the defendants conduct, not on the nature of the conduct.
Therefore, if
    the effect of Incos conduct is to damage property so as to negatively affect
    property values, then nuisance is established.
[Emphasis added.]

[37]

As we understand the trial judges reasons, he found that an actionable nuisance
    arose at some point after the fall of 2000 when public concerns about potential
    health risks associated with the nickel levels in the soil began to adversely
    affect the appreciation in the value of the properties.  On his analysis, the actual
    physical damage said to be caused when the nickel particles became part of the
    soil between 1918 and 1984 only became material physical damage more than 15
    years later when public concerns about the potential health risks associated
    with the nickel particles emerged and negatively affected the value of the
    properties.

[38]

Also on the trial judges analysis, the levels of nickel in the soil and
    the actual effects, if any, of that nickel on the property or its occupiers
    were irrelevant to Incos liability.  Any amount of nickel in the soil
    attributable to Incos refinery, even if it posed no risk to the residents and
    did not interfere with the use of their properties, constituted a nuisance if at
    some point in time public concern about the potential harm caused by the nickel
    could be shown to have adversely affected the market values of the properties.

(ii)       Analysis

[39]

People do not live in splendid isolation from one another.  One persons
    lawful and reasonable use of his or her property may indirectly harm the
    property of another or interfere with that persons 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 persons property.  In essence, the
    common law of nuisance decided which partys interest must give way.  That determination
    is made by asking whether in all the circumstances the harm caused or the
    interference done to one persons property by the other persons 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.

[40]

The reasonableness inquiry focuses on the effect of the defendants
    conduct on the property rights of the plaintiff.  Nuisance, unlike negligence,
    does not focus on or characterize the defendants conduct.  The defendants
    conduct may be reasonable and yet result in an unreasonable interference with
    the plaintiffs property rights.  The characterization of the defendants
    conduct is relevant only to the extent that it impacts on the proper
    characterization of the nature of the interference with the plaintiffs
    property rights:
Antrim Truck Centre Ltd. v. Ontario (Ministry of Transportation)
(2011), 106 O.R. (3d) 81 (C.A.), at para. 77; John Murphy,
Street on Torts
,
    12
th
ed. (Oxford: Oxford University Press, 2007), at pp. 420, 431,
    435.

[41]

Scholars and judges agree that the uncertain origins and the protean
    nature of the tort of private nuisance make it difficult to provide an
    exhaustive definition of the tort:
Antrim Truck Centre Ltd.
at paras.
    78-79;
Walker v. McKinnon Industries Ltd.
, [1949] O.R. 549 (H.C.), at pp.
    555-56; affd without reference to this point, [1950] 3 D.L.R. 159 (Ont. C.A.);
    affd without reference to this point, [1951] 3 D.L.R. 577 (P.C.);
Hunter v.
    Canary Wharf Ltd.
, [1997] 2 All E.R. 426 (H.L.), per Lord Cooke at p. 456;
Street
    on Torts
at pp. 419-21; Gregory S. Pun and Margaret I. Hall,
The Law of
    Nuisance in Canada
(Markham, Ontario: LexisNexis Canada, 2010), at pp.
    55-57; F.H. Newark, The Boundaries of Nuisance (1949) 65 Law Q. Rev. 480.

[42]

In
St. Pierre v. Ontario (Minister of Transportation and
    Communication)
, [1987] 1 S.C.R. 906, at para. 10, McIntyre J. for the court,
    accepted as a working definition of private nuisance, the definition found in
    an earlier edition of
Street on Torts
:

A person, then, may be said to have committed the
    tort of private nuisance when
he is held to be responsible for an act
    indirectly causing physical injury to land or substantially interfering with
    the use or enjoyment of land or of an interest in land, where, in the light of
    all the surrounding circumstances, this injury or interference is held to be
    unreasonable.
[Emphasis added.]

[43]

As evident from the definition relied on in
St. Pierre,
while all
    nuisance is a tort against land predicated on an indirect interference with the
    plaintiffs property rights, that interference can take two quite different
    forms.  The interference may be in the nature of physical injury to land or
    it may take the form of substantial interference with the plaintiffs use or
    enjoyment of his or her land.  The latter form of nuisance, sometimes described
    as amenity nuisance is not alleged here:  see
Street on Torts
at p. 429;
The Law of Nuisance in Canada
at pp. 69-71; Conor Gearty, The Place of
    Private Nuisance in a Modern Law of Torts [1989] Cambridge L.J. 214.

[44]

The claimants do not argue that the nickel particles in the soil caused
    any interference with their use or enjoyment of their property.  Instead, they
    claim that the nickel particles caused physical injury to their property.  That
    physical injury was the product of the nickel particles becoming part of the
    soil and the subsequent adverse effect on the value of the property because of
    the public concerns over the potential health consequences of those particles
    being in the soil.

[45]

The courts have taken a somewhat different approach to nuisance claims
    predicated on physical damage to property and those claims based on amenity or
    non-physical nuisance.  Where amenity nuisance is alleged, the reasonableness
    of the interference with the plaintiffs property is measured by balancing
    certain competing factors, including the nature of the interference and the character
    of the locale in which that interference occurred.  Where the nuisance is said
    to have produced physical damage to land, that damage is taken as an
    unreasonable interference without the balancing of competing factors.  The distinction
    first appeared some 150 years ago in
St. Helens Smelting Co. v. Tipping
(1865), 11 H.L.C. 642, at pp. 650-51:

My Lords, in matters of this description it appears
    to me that it is a very desirable thing to mark the difference between an
    action brought for a nuisance upon the ground that the alleged nuisance
    produces material injury to the property, and an action brought for a nuisance
    on the ground that the thing alleged to be a nuisance is productive of sensible
    personal discomfort.
With regard to the latter, namely, the personal
    inconvenience and interference with ones enjoyment, ones quiet, ones
    personal freedom, anything that discomposes or injuriously affects the senses
    or the nerves, whether that may or may not be denominated a nuisance, must
    undoubtedly depend greatly on the circumstances of the place where the thing
    complained of actually occurs.
If a man lives in a town, it is necessary
    that he should subject himself to the consequences of those operations of trade
    which may be carried on in his immediate locality, which are actually necessary
    for trade and commerce, and also for the enjoyment of property, and for the
    benefit of the inhabitants of the town and of the public at large.  If a man
    lives in a street where there are numerous shops, and a shop is opened next
    door to him, which is carried on in a fair and reasonable way, he has no ground
    for complaint, because to himself individually there may arise much discomfort
    from the trade carried on in that shop.
But when an occupation is carried
    on by one person in a neighbourhood of another, and the result of that trade,
    or occupation, or business, is a material injury to property, then there
    unquestionably arises a very different consideration.  I think, my Lords, that
    in a case of that description, the submission which is required from persons
    living in society to that amount of discomfort which may be necessary for the
    legitimate and free exercise of the trade of their neighbours, would not apply
    to circumstances the immediate result of which is sensible injury to the value
    of the property.
[Emphasis added.]

[46]

The distinction drawn in
St. Helens Smelting Co.
perhaps
    reflects the real property origins of the tort of nuisance and the priority and
    status attached by the common law to land ownership and ones right to physical
    dominion over ones land:  see John Murphy, The Merits of
Rylands v.
    Fletcher
 (2004) 24 Oxford J. Legal Stud. 643, at p. 649.  The give and
    take required between neighbours called for the balancing of potentially competing
    factors where the actions of one interfered with anothers enjoyment of his or
    her property.  The spirit of give and take could not, however, go so far as to
    require one to countenance actual and material physical harm to his or her
    property.

[47]

The distinction between physical damage nuisance and amenity nuisance
    described in the passage from
St. Helens Smelting Co.
quoted above has
    been repeatedly applied by courts in this province: see
Walker v. McKinnon
    Industries Ltd.
at pp. 556-57;
Russell Transport Limited v. Ontario
    Malleable Iron Co. Ltd.
, [1952] O.R. 621 (H.C.), at pp. 628-29;
Walker
    v. Pioneer Construction Co. (1967) Ltd.
(1975), 8 O.R. (2d) 35 (H.C.), at p.
    38;
Schenck v. The Queen in Right of Ontario
(1981), 34 O.R. (2d) 595 (H.C.),
    at p. 604, affd (1984), 49 O.R. (2d) 556 (C.A.), affd [1987] 2 S.C.R. 289.
    See also
Kent v. Dominion Steel and Coal Corp. Ltd.
(1964), 49 D.L.R.
    (2d) 241 (Nfld. C.A.), at p. 248;
Hunter v. Canary Wharf Ltd.,
per Lord
    Hoffmann at pp. 450-51;
The Law of Nuisance in Canada
at p. 71, fn. 55;
    Maria Lee, What is Private Nuisance (2003) 119 Law Q. Rev. 298, at p. 311.

[48]

There is, however, relatively recent
dicta
suggesting that there
    may be some role for the balancing of competing factors even where the nuisance
    takes the form of actual physical damage to land:  see
Tock v. St. Johns
    Metropolitan Area Board
, [1989] 2 S.C.R. 1181, at p. 1192;
Royal Anne
    Hotel Co. Ltd.
at p. 761.  The difficulty that sometimes arises in distinguishing
    between what constitutes amenity nuisance and nuisance based on physical damage
    to land suggests that a uniform approach to nuisance claims allowing a court to
    balance competing factors, although perhaps weighing them differently depending
    on the nature of the interference alleged, may be preferable.  We need not
    decide that issue.  We approach this ground of appeal on the basis that the
    claimants are correct in contending that competing factors cannot be balanced where
    the nuisance involves actual physical damage to the claimants lands.

[49]

In
St. Helens Smelting Co.
, the Lord Chancellor used different
    phrases to describe the kind of harm to land that would suffice to establish
    nuisance.  He referred to material injury to the property and to
    circumstances the immediate result of which is sensible injury to the value of
    the property.  Subsequent cases have used somewhat different terminology, some
    of which now seems outdated and inappropriate:
e.g.
see
Salvin v.
    North Brancepeth Coal Company
(1874), L.R. 9 Ch. App. 705, at p. 709.  In
    our view, the requirement of material injury to property referred to in
St.
    Helens Smelting Co.
is satisfied where the actions of the defendant
    indirectly cause damage to the plaintiffs land that can be properly characterized
    as material, actual and readily ascertainable.

[50]

Material damage refers to damage that is substantial in the sense that
    it is more than trivial:
St. Lawrence Cement Inc. v. Barrette
, [2008] 3
    S.C.R. 392, at para. 77.  Actual damage refers to damage that has occurred and
    is not merely potential damage that may or may not occur at some future point:
Walker v. McKinnon Industries Ltd.
at pp. 558-59.  Damage that is
    readily ascertainable refers to damage that can be observed or measured and is
    not so minimal or incremental as to be unnoticeable as it occurs.  We do agree,
    however, with counsel for the claimants that the damage may be readily
    ascertainable even if it is not visible to the naked eye and does not produce
    some visibly noticeable change in the property.  In our view, a change in the
    chemical composition of the soil measurable through established scientific techniques
    would constitute a readily ascertainable change in the soil:  see
Gaunt v.
    Fynney
(1872), L.R. 8 Ch. App. 8.  For the reasons we will develop below,
    the claimants problem is not with the ascertainability of the change caused by
    the nickel particles, but with the characterization of that change as damage or
    harm to the property.

[51]

Mr. Lenczner, with his usual force and clarity, submits that there was
    no damage caused to the claimants land by the nickel particles, much less
    substantial damage that was both actual and readily ascertainable.  He argues
    that the trial judge wrongly equated any physical change in the land with
    physical damage to the land.  In his submission, to describe nickel particles
    that blended harmlessly into the soil without any adverse impact on the
    property as physical damage is to denude the phrase of its most obvious
    requirement that the land somehow be harmed by the change that is said to constitute
    the nuisance.

[52]

Mr. Lenczner next takes issue with the trial judges finding that he
    could look to the diminution of property values some 15 years after the emissions
    from the refinery had ceased to conclude that those emissions caused material physical
    damage to the claimants land.  He submits that the trial judges reasoning
    confuses the requirement that the claimants establish actual, substantial, physical
    harm to their land as a constituent element of private nuisance with the potential
    measure of damages available to the claimants had they been able to establish that
    they suffered actual, substantial, physical damage to their land.  Mr. Lenczner
    acknowledges that had the claimants been able to show actual, substantial,
    physical damage to their land, a subsequent negative impact on the value of that
    property caused by concerns relating to that actual physical damage may have
    been compensable under the generally applicable rules governing damage
    assessments in tort actions:  see
Hunter v. Canary Wharf Ltd.
, per Lord
    Hoffmann at pp. 451-52.  Counsel maintains, however, that the question of
    whether Incos conduct caused actual substantial physical damage to the claimants
    land must be answered by asking the question  what did the nickel particles do
    to the soil?  And not by asking  what did someone some 15 years after the
    refinery was closed think that the nickel particles might or might not have
    done to the soil?

[53]

Mr. Baert, for the claimants, in his able and helpful submissions,
    adopts the analysis of the trial judge.  He submits that when the nickel
    particles landed on the claimants properties and became part of the soil,
    those particles interfered with the claimants properties and thereby caused physical
    damage to those properties.  He relies on
Russell Transport Limited
at pp.
    625-26 to support this contention.

[54]

Mr. Baert accepts that physical damage to property must be tangible and
    substantial.  He submits, however, that the trial judge was entitled to look at
    all of the adverse effects flowing from the nickel particles in the soil,
    including diminished property values some 15 years later, in determining
    whether the physical damage was substantial.  He relies on
Tridan
    Developments Ltd. v. Shell Canada Products Ltd.
(2002), 57 O.R. (3d) 503
    (C.A.).

[55]

With respect to the trial judges reasons and Mr. Baerts submissions,
    we think the trial judge erred in finding that the nickel particles in the soil
    caused actual, substantial, physical damage to the claimants lands.  In our
    view, a mere chemical alteration in the content of soil, without more, does not
    amount to physical harm or damage to the property.  For instance, many farmers
    add fertilizer to their soil each year for the purpose of changing, and
    enhancing, the chemical composition of the soil. To constitute physical harm or
    damage, a change in the chemical composition must be shown to have had some detrimental
    effect on the land itself or rights associated with the use of the land.  For
    example, in
Russell Transport Limited
, the authority relied on by the
    claimants, it was not the mere emission of the iron oxide particles onto the
    plaintiffs property that constituted the nuisance.  McRuer C.J.H.C. said, at
    pp. 625-26:

The irresistible conclusion on the evidence is, and
I
    so find, that the defendant emits from its plant particles of iron and iron
    oxide together with other matters which settle on the plaintiffs lands,
    rendering the plaintiffs property unfit for the purpose for which it was
    purchased and developed.
The plaintiffs have therefore suffered and will
    continue to suffer material and substantial damage to their property unless the
    emission of injurious substances is abated.  [Emphasis added.]

[56]

The Chief Justices finding that the particles rendered the plaintiffs
    property unfit for the purpose for which it was purchased and developed
    clearly distinguishes
Russell Transport

Limited
from this case.
    The claimants cannot show, and indeed did not attempt to show, that the nickel
    particles in the soil had any impact on their ability to use their properties
    for any purpose.

[57]

Where the nuisance is said to flow from the physical harm to land caused
    by the contamination of that land, the claimants must show that the alleged contaminant
    in the soil had some detrimental effect on the land or its use by its owners.
    In this case, potential health concerns were the only basis upon which it could
    be said that the nickel particles harmed the land of the claimants.  It was
    incumbent on the claimants to show that the nickel particles caused actual harm
    to the health of the claimants or at least posed some realistic risk of actual
    harm to their health and wellbeing.  The authors of
The Law of Nuisance in
    Canada
, at p. 85, although in a somewhat different context, aptly describe
    the nature of the harm the claimants had to prove:

It is true that private nuisance is predicated on
    harm to the plaintiffs property rights; but surely
one of those rights must
    be the right to occupy the property without harm to ones health or even at the
    risk of ones life.
This is particularly necessary for residential
    property, where the heart of the property interest stems from the desire to
    live on the property.
Private nuisance vindicates the bundle of rights
    associated with ones property, and the right to live on ones land without
    risk to life or health must be a right in that bundle.
Additionally, the
    health aspect of the bundle of rights that are protected by nuisance law has
    been noted in several cases.  [Emphasis added.]

[58]

Had the claimants shown that the nickel levels in the properties posed a
    risk to health, they would have established that those particles caused actual,
    substantial, physical damage to their properties.  However, the claims as
    advanced and as accepted by the trial judge were not predicated on any actual
    risk to health or wellbeing arising from the particles in the soil.  The result
    at trial would presumably have been the same had it been established beyond
    peradventure that nickel particles at any level had no possible effect on human
    health.

[59]

The approach followed by the trial judge effectively removes any need to
    show that Incos operation of its refinery caused any harm of any kind to the
    claimants land.  It extends the tort of private nuisance beyond claims based
    on substantial actual injury to anothers land to claims based on concerns, no
    matter when they develop and no matter how valid, that there may have been
    substantial actual injury caused to anothers land.  On this approach, nuisance
    operates as an inchoate tort hanging over a property to become actionable, not
    by virtue of anything done to the property by the defendant, but because of public
    concerns generated many years after the relevant events about the possible effect
    of the defendants conduct on the property.

[60]

In holding that actual, substantial, physical damage to the claimants
    land required proof that the nickel particles posed at least some risk to the
    claimants health and wellbeing, we do not mean that the trial judge was
    obliged to accept the MOE finding as to the level of nickel in the soil that
    required remediation as the applicable standard.  The trial judge said, at
    para. 86:

MOE did not set a standard for civil liability when
    it set the intervention level for nickel in the soil at 8,000 ppm.

[61]

We agree with this observation:  see
Tridan Developments Ltd.
at
    paras. 10-12. However, the claimants had to show either that nickel at any
    level posed a risk, or that the nickel levels present in the soil were above
    levels at which there was a risk to human health and wellbeing.  The MOE
    standard of 8,000 ppm said by MOE to be well below any potential health risk
    was the only post-2000 standard offered in the evidence.

[62]

The claimants did not join issue on the level at which nickel particles
    could be said to pose a risk to human health and wellbeing, but instead argued
    that concerns about potential risks were in and of themselves sufficient to
    make Incos conduct an actionable nuisance if those concerns affected property
    values.  This strategy no doubt reflected the reality that the level of nickel
    particles in the soil of the vast majority of the 7,000 properties covered by
    the class action were well below anything that could possibly be regarded as
    posing a health risk.

[63]

The extent to which the trial judge divorced actual, substantial, physical
    damage to the land from liability for nuisance is evident by considering a
    variation in the facts as actually found at trial.  On the trial judges
    analysis, even if the concerns which arose after 2000 were totally unfounded
    and were ultimately shown to be based on junk science, Inco would still be
    liable in nuisance assuming those totally unfounded public concerns generated
    the same impact on property values.

[64]

The trial judges analysis of nuisance raises a further anomaly.  The primary
raison d
être
of nuisance is to equip a party who is suffering
    damage to his land or interference with his use of the land with a means of
    forcing the party causing that damage to stop doing so.  However, on the trial
    judges reasoning, the claimants would have had no basis upon which to gain any
    injunctive relief against Inco when it was operating the refinery up to 1985.  As
    the trial judge analyzes the claim, a person seeking an injunction prior to
    1985 would have no basis upon which to argue that Incos actions caused any
    actual, substantial, physical damage to the land.  It is inconsistent with the
    essential nature of nuisance as an interference with property to hold that Inco
    was not engaged in any interference with property when it operated the refinery
    and emitted the particles, but that it was engaged in an actionable nuisance 15
    years after it stopped operating the refinery, when concerns were raised from a
    variety of sources about the potential health effects of the nickel in the soil
    and the property values were negatively affected as a result of those concerns.

[65]

This conceptual anomaly cannot be explained by reference to
    discoverability principles.  The trial judge did not find that the nuisance
    occurred when the particles were deposited in the soil, but was only discovered
    when the claimants learned of the levels of nickel particles in the soil in
    2000:
e.g.
see
Cambridge Water Co. v. Eastern Counties Leather Plc.
,
    [1994] 2 A.C. 264 (H.L.), at pp. 291-94.  As outlined above, the levels of
    nickel deposits in the soil had nothing to do with the trial judges finding that
    Inco was liable in nuisance.  The trial judge made it clear that the significant
    damage to the claimants properties relied on by him to establish the cause of
    action in nuisance did not occur until after 2000, and occurred then because of
    the public concerns about potential health issues that arose and not because of
    the actual levels of nickel in the soil.  Discovery principles had nothing to
    do with the trial judges finding that the claimants could rely on public
    concerns generated in 2000 and beyond to render substantial the physical damage
    to the property said to have occurred 15 years earlier when the particles
    worked their way into the claimants lands.  On his analysis, the material physical
    damage to the land was not merely discovered after 2000.  It occurred after
    2000.

[66]

Tridan Developments Ltd.
does not assist the claimants.  In
Tridan
,
    the defendants admitted liability for nuisance when a gas spill on their
    property contaminated the property of the neighbour.
Tridan
was about
    the quantification of the damages suffered by the plaintiff.  Nothing in
Tridan
lends support to the trial judges holding that public concerns about the
    potential harm done to the properties affecting the value of the properties
    could constitute substantial physical harm to the land for the purposes of a
    nuisance claim.

[67]

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.

(B)

Did the trial judge err in holding Inco liable under
Rylands v.
    Fletcher
?

(i)

Introduction

[68]

The rule in
Rylands v. Fletcher
imposes strict liability for
    damages caused to a plaintiffs property (and probably, in Canada, for personal
    damages) by the escape from the defendants 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.

[69]

The language used by Mr. Justice Blackburn in
Rylands v. Fletcher
at pp. 279-80 (Ex. Ch.) suggested a broad basis for the imposition of strict
    liability.  His Lordship spoke of strict liability for any damages caused as a
    result of the escape from the defendants land of something brought on to that
    land by the defendant, for his or her own purposes, that was likely to do
    damage if it escaped from the defendants property:  see also the comments of
    Lord Cranworth at p. 340 (H.L.).  Subsequent descriptions of the scope of the strict
    liability rule described in
Rylands v. Fletcher
, including that provided
    by Lord Cairns in
Rylands v. Fletcher
at p. 339 (H.L.), describe a narrower
    basis for the imposition of strict liability.  Lord Cairns introduced the
    concept of non-natural use of property as a precondition to the imposition of
    strict liability.  Later cases used words like special, unusual or
    extraordinary to describe the use of the property:  see
Transco plc v.
    Stockport Metropolitan Borough Council
, per Lord Bingham at para. 11, per
    Lord Hoffmann at paras. 44-45, per Lord Scott at paras. 81-85;
Rickards v.
    Lothian
, [1913] A.C. 263 (H.L.), at p. 280; Andrew Waite, Deconstructing
    the Rule in
Rylands v. Fletcher
 (2006) 18 J. Envtl. L. 423.

[70]

The meaning of non-natural use of property has vexed lawyers and
    judges since the phrase was penned by Lord Cairns.  Its uncertainty and
    vagueness led the High Court of Australia to abandon the rule entirely in
    favour of a negligence standard that took into account the dangerous nature of
    the activity in issue:
Burnie Port Authority v. General Jones Pty. Ltd.
at p. 540.  In Canada, apart from some description of the non-natural use
    requirement found in
Tock
, appellate courts have paid no attention to
    the details of the rule much less the more fundamental question of the need for
    its continued existence.  Inco does not suggest that the rule should be
    abrogated.  It does, however, argue that it was misapplied in this case.

[71]

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 plaintiffs property as a result of the
      escape.

(ii)  The trial judges reasons

[72]

The trial judge addressed the application of
Rylands v. Fletcher
in some detail (paras. 43-69).  He began by considering whether Incos
    operation of the refinery was a non-natural use of the property.  He
    reasoned, at para. 53, that since the nickel had been brought on to the land by
    Inco and was not naturally found on the land, the refining of the nickel
    constituted a non-natural use of the land.  He held:

[T]he refining of nickel was not an ordinary use of
    the land; it was a special use bringing with it increased danger to others.

[73]

The trial judge next held that Inco, in bringing nickel on to the
    property and refining that nickel on the property, had brought something on to
    its property that was likely to cause mischief if it escaped.  He said, at
    para. 54:

The nickel and the nickel particles are not
    dangerous
per se
, but an escape of these elements from the Inco lands
    has the potential to cause damage to neighbouring properties.

[74]

The trial judge was also satisfied that the emissions from the Inco
    refinery amounted to an escape of the nickel particles from Incos property
    on to the claimants properties.  While the trial judge recognized that some
    authorities limited the application of
Rylands v. Fletcher
to a single
    escape, he concluded that it would be absurd to impose liability for damages
    caused by a single escape, but to hold the defendant harmless for damages
    caused by repeated escapes (paras. 55-67).  In finding that the nickel particle
    emissions escaped from the Inco refinery, the trial judge did not refer to
    the fact that the emissions were an integral part of Incos refinery operation
    and were released by Inco intentionally on a daily basis for 60 odd years.

(iii)  Strict liability for ultra hazardous
    activities

[75]

The trial judges assessment of the
Rylands v. Fletcher
claim was
    driven by his understanding that strict liability under
Rylands v. Fletcher
was premised on the rationale that an entity who chooses to engage in
    potentially hazardous activity assumes the risk of any damages caused by that
    activity.  The trial judge said, at para. 60:

[H]e who creates an abnormal risk of harm to his
    neighbour will be responsible for any harm that actually occurs as a
    consequence of that risk.

[76]

The trial judge, at para. 65, also adopted a portion of the following
    passage from Allen M. Linden and Bruce Feldthusen,
Canadian Tort Law
, 8
th
ed. (Markham, Ont.: LexisNexis Butterworths, 2006), at pp. 540-41:

Occasionally, language appears in a
Rylands v.
    Fletcher
decision that furnishes a glimpse of a
new basis of strict
    liability, free of the historic restraints of non-natural use, escape and
    mischief.
This emerging theory can be termed strict liability for
    abnormally dangerous activities.
Pursuant to this principle, there are a limited
    number of activities so fraught with abnormal risk for the community that the
    negligence standard is felt to provide insufficient protection against them.
Consequently,
    these abnormally risky or extra- hazardous activities should be governed by a
    stricter form of liability that insists on compensation for all losses they
    generate, even when they are conducted with reasonable care.  ...

In other words, there are two general types of activities
    which are regulated by two different theories of tort liability.  Firstly,
    there are ordinary pursuits that create normal risks, which are controlled by
    negligence law.  Secondly, there are
other

types of conduct which,
    although they cannot be styled wrongful, are either so fraught with danger, or
    so unusual in a given community, that it is felt that the risk of loss should
    be shifted from the person injured to the person who merely by engaging in such
    conduct, created the risk which resulted in harm.
[Emphasis added.]

[77]

The strict liability theory favoured by Linden and Feldthusen (and
    others, for example, see
Restatement of Torts
(2d), ss. 519, 520) is
    considerably broader than the strict liability rule under
Rylands v. Fletcher
.
    Under their theory, it is not necessary that the dangerous substance escape
    from the defendants property or that the use of the defendants land be
    characterized as special or non-natural.  Strict liability flows entirely from
    the nature of the activity conducted by the defendant. Linden and Feldthusen
    acknowledge that the theory of strict liability they present goes beyond
Rylands
    v. Fletcher
.  According to them, support for their theory lies hidden in
    the cases waiting to be openly embraced by Canadian courts:
Canadian Tort
    Law,
9
th
ed. at p. 556.

[78]

We do not accept that strict liability based exclusively on the extra
    hazardous nature of the defendants conduct is or should be part of the common
    law in this province.  Before we explain why we reach that conclusion, we will,
    however, examine Incos liability on the assumption that the trial judge was
    correct in viewing
Rylands v. Fletcher
as imposing strict liability for
    damages caused by extra hazardous activities.  In our view, there is no basis
    in the evidence upon which Incos refinery operations or its emissions of
    nickel particles could properly be described as extra hazardous or fraught
    with danger.

[79]

The trial judge did not explain why he concluded that Incos refinery
    operation fell within the category of extra hazardous activities that should
    attract strict liability.  Nor did he explain why the nickel particle emissions
    posed an abnormal risk of harm to others properties.  The trial judge
    acknowledged that the nickel emissions were not
per se
dangerous (para.
    54).  On the evidence, the emissions posed no health risk to anyone (except
    perhaps in those relatively few instances where there was a small risk of harm
    to health before the soil was remediated).  Nor did the nickel particles cause
    any damage to the soil or have any effect on the claimants ability to use their
    properties.  We see no evidence that Inco, in operating a refinery in
    accordance with the various regulatory regimes, presented an abnormal risk to
    its neighbours.

[80]

It may be that the trial judge inferred that the operation of the
    refinery presented an abnormal risk of harm because, in his view, that
    operation ultimately led to a diminution in property values.  Putting the claimants
    case at its highest, they alleged that the nickel particles placed in the soil
    up to 1984, combined with public health concerns, ultimately not validated, that
    arose in 2000 and beyond, caused a relatively small decrease in the appreciation
    of the value of the claimants properties over a 10-year period beginning in
    2000.  Even if this harm is causally related to the refinery operation and the
    nickel particle emissions, it could not justify describing the refinery operation
    or the emissions as so inherently dangerous as to merit the imposition of strict
    liability based exclusively on the hazardous nature of the operation and the
    abnormal risk presented to others by that operation.

[81]

Even if strict liability for ultra hazardous activities, either as a
    freestanding basis for liability or a modification of
Rylands v. Fletcher,
were part of the law in Ontario, the claimants failed to prove that Incos
    refinery constituted an extra hazardous activity.

[82]

Returning to the merits of the strict liability theory adopted by the
    trial judge, we begin by distinguishing the risk that is targeted by that
    theory from the risk targeted by the rule in
Rylands v. Fletcher
.
    Strict 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.
    The
Rylands v. Fletcher
cases are about floods, gas leaks, chemical
    spills, sewage overflows, fires and the like.  They hold that where the
    defendant engages in certain kinds of activities, the defendant will be held
    strictly liable for damages that flow from mishaps or misadventures that occur
    in the course of that activity.  The escape requirement in
Rylands v.
    Fletcher
connotes something unintended and speaks to the nature of the risk
    to which the strict liability in
Rylands v. Fletcher
attaches:  see
The
    Law of Nuisance in Canada
at pp. 132, 137.

[83]

The extra hazardous risk-based strict liability theory employed by the
    trial judge holds a defendant strictly liable for all damages associated with
    the activity.  The defendant is liable for damages even if they are not the
    product of any accident or misadventure, but are instead the product of the
    intended consequences of the activity.

[84]

The two risks described above are quite different.  The risk addressed
    in
Rylands v. Fletcher
is a more limited one, imposing strict liability
    for things that go wrong and produce unintended consequences that damage the
    property (or perhaps the person) of another.  The trial judge overstated the
    rationale for
Rylands v. Fletcher
strict liability when he described it
    as applicable to damages caused by activities which create an abnormal risk of
    harm.

[85]

There are, of course, policy arguments in favour of the imposition of
    strict liability where activities create extra hazardous risks.  Examples of
    that kind of liability can be found in various statutes, such as the
Environmental
    Protection Act
, R.S.O. 1990, c.E.19, s. 99.  The question is whether the
    courts, through a modification of the common law and in particular the rule in
Rylands
    v. Fletcher
, should impose that strict liability on all activities that are
    found to fit within a necessarily broad and generic description, or leave it to
    the various Legislatures to make that decision through appropriate statutory
    enactments applicable to specific activities.

[86]

The House of Lords has rejected any attempt to judicially extend
Rylands
    v. Fletcher
strict liability to all hazardous activities: see
Read v. J.
    Lyons and Co. Limited
, [1947] A.C. 156 (H.L.), per Lord Macmillan at pp.
    172-73, per Lord Simonds at pp. 181-82;
Transco plc
, per Lord Bingham at
    para. 7; Donal Nolan, The Distinctiveness of
Rylands v. Fletcher

    (2005) 121 Law Q. Rev. 421, at pp. 447-449.

[87]

In
Cambridge Water Co.
at p. 305, Lord Goff offered a compelling
    argument, which we accept, in favour of leaving to Parliament the decision to
    impose strict liability based exclusively on the nature of the activity:

Like the judge in the present case, I incline to the
    opinion that,
as a general rule, it is more appropriate for strict liability
    in respect of operations of high risk to be imposed by Parliament, than by the
    courts
.  If such liability is imposed by statute, the relevant activities
    can be identified, and those concerned can know where they stand.  Furthermore,
    statute can where appropriate lay down precise criteria establishing the
    incidents and scope of such liability.

It is of particular relevance that the present
    case is concerned with environmental pollution.
The protection and
    preservation of the environment is now perceived as being of crucial importance
    to the future of mankind; and public bodies, both national and international,
    are taking significant steps toward the establishment of legislation which will
    promote the protection of the environment and make the polluter pay for damage
    to the environment for which he is responsible  as can be seen from the
    W.H.O., E.E.C. and national regulations to which I have previously referred.
But
    it does not follow from these developments that a common principle, such as the
    rule in Rylands v. Fletcher, should be developed or rendered more strict to
    provide for liability in respect of such pollution.  On the contrary, given
    that so much well-informed and carefully structured legislation is now being put
    in place for this purpose, there is less need for the courts to develop a
    common law principle to achieve the same end, and indeed it may well be
    undesirable that they should do so.
[Emphasis added.]

[88]

More importantly, the expansion of strict liability under the banner of
Rylands
    v. Fletcher
to damages flowing from all hazardous activities is
    inconsistent with the description of the rule in
Rylands v. Fletcher
found in
Tock
.  In
Tock
, a sewage system operated by the
    defendant failed after an exceptionally heavy rainfall.  A large amount of
    water flooded the plaintiffs basement causing extensive damage.  The flooding
    was caused by a blockage in the sewage system.

[89]

La Forest J., speaking for the entire court on this point, found that
    the operation of a sewage system under statutory authority was not a land use that
    could possibly give rise to strict liability for damages under
Rylands v.
    Fletcher
.  Counsel for the claimants correctly point out that the
ratio
of
Tock
is narrow and does not assist Inco.  Inco was not acting under
    any statutory authority.  Nor was Inco engaged in an enterprise intended for
    the general benefit of the community.

[90]

However, Justice La Forests description of the nature of the liability contemplated
    under
Rylands v. Fletcher
does assist Inco in that it forecloses any
    notion of strict liability based exclusively on whether the activity carried
    out by the defendant was abnormally hazardous.  At para. 10 of
Tock,
La Forest
    J. adopted the language of Moulton L.J. in
Rickards v. Lothien
at p. 280:

It is not every use to which land is put that brings
    into play that principle [
Rylands v. Fletcher
].  It must be some special
    use bringing with it increased danger to others and must not merely be the
    ordinary use of the land or such a use as is proper for the general benefit of
    the community.

[91]

La Forest J. viewed the non-natural user component of the
Rylands
    v. Fletcher
rule as providing flexibility that would allow the rule to
    adjust to changing patterns in society.  Those patterns were reflected in
    various levels of government regulation designed to control how and where
    various activities could be conducted:
Tock
at paras. 11-12.
Tock
does not measure the reach of strict liability under
Rylands v. Fletcher
exclusively by reference to the risk presented by the activity.  As La Forest
    J. said, at para. 13:

[T]he touchstone for the application of the rule in
Rylands
    v. Fletcher
is
to be damage occurring from a user inappropriate to the
    place where it is maintained
(Prosser cites the example of the pig in the
    parlour).  [Emphasis added.]

[92]

The judgment in
Tock
forecloses treating strict liability under
Rylands
    v. Fletcher
as referable to all ultra hazardous activities.  As explained
    in
Tock
, the rule is triggered by a user inappropriate to the place.
    The appropriateness of a use depends on factors that include, but are not
    limited to, the risk posed by the use.

[93]

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
    and not judicial fiat.  In declining to take the bold step advocated by Linden
    and Feldthusen, we observe that those who engage in dangerous activities are,
    of course, subject to negligence actions under which the dangerousness of the
    activity would be reflected in the standard of care required, nuisance actions,
    and in ever increasing situations, detailed and sometimes punitive statutory
    regimes.

(iv)  Was the
Rylands v. Fletcher
claim
    made out?

[94]

Having concluded there is no common law rule imposing strict liability
    on those whose activities are said to be ultra hazardous and that even if
    there were, Incos refinery was not shown to be an ultra hazardous activity, we
    turn to a measure of the claim against the specific criteria that have been
    developed in the
Rylands v. Fletcher
case law.

[95]

Inco operated a refinery on its property.  The nickel emissions were
    part and parcel of that refinery operation and were not in any sense an
    independent use of the property.  The use of the property to which the
Rylands
    v. Fletcher
inquiry must be directed is its use as a refinery.  The nickel
    emissions are a feature or facet of the use of the property as a refinery.  The
    question must be  was the operation of the refinery at the time and place and
    in the manner that it was operated a non-natural use of Incos property?:  see
Gertsen
    v. Municipality of Metropolitan Toronto
(1973), 2 O.R. (2d) 1 (H.C.), at
    pp. 19-20; David W. Williams, Non-Natural Use of Land (1973) 32 Cambridge
    L.J. 310, at pp. 314-21.

[96]

The trial judge found that Incos use of the property was a non-natural
    use because it brought the nickel on to the property.  If the characterization
    of a use as a non-natural one was ever tied solely to whether the substance was
    found naturally on the property, it has long since ceased to depend on the
    answer to that single question.  It may be that something found naturally on
    the property cannot attract liability under
Rylands v. Fletcher
.  It is
    not, however, the law that anything that is not found naturally on the property
    can be subject to strict liability under
Rylands v. Fletcher
if it
    escapes and causes damage.  The disconnect between things found in nature on
    the property and the potential application of
Rylands v. Fletcher
is so
    complete that the House of Lords has abandoned the use of the phrase non-natural
    use as misleading in favour of the phrase ordinary use:
Transco plc
at
    paras. 11-12.

[97]

The emphasis in
Tock
at para. 13 on a user inappropriate to the
    place and, at para. 10, to changing patterns of existence demonstrate that
    the distinction between natural and non-natural use cannot be made exclusively by
    reference to the origin of the substance in issue.  To decide whether a use is a
    non-natural one, the court must have regard to the place where the use is made,
    the time when the use is made, and the manner of the use.  Planning legislation
    and other government regulations controlling where, when and how activities can
    be carried out will be relevant considerations in assessing whether a
    particular use is a non-natural use in the sense that it is a use that is not ordinary.

[98]

The approach to non-natural user taken in
Tock
and in
Cambridge
    Water Co.
restricts those situations in which
Rylands v. Fletcher
applies.  The non-natural use requirement of the
Rylands v. Fletcher
rule serves a similar role to the give and take between neighbours principle
    that is applied when determining whether one persons interference with another
    persons use and enjoyment of his property constitutes an actionable nuisance.
    Like the reasonable user inquiry in cases involving amenity nuisance, the non-natural
    user inquiry seeks to distinguish between those uses of property that the
    community as a whole should accept and tolerate and those uses where the burden
    associated with accidental and unintended consequences of the use should fall
    on the user.  The nature and degree of the risk inherent in the use is
    obviously an important feature of this inquiry, but as
Tock
demonstrates, it is not the entire inquiry:  see
Cambridge Water Co.
at
    pp. 299-300.

[99]

In addition to finding that Incos use of the property was a non-natural
    use because it brought the nickel on to the property, the trial judge described
    the refinery as bringing with it increased danger to others.  He did not
    identify that danger.  Finally, although the trial judge referred to Incos
    argument that it complied with all environmental and zoning regulations, he dismissed
    that argument on the basis that a use could be reasonable and lawful and still
    not constitute a natural use.

[100]

We agree
    that compliance with various environmental and zoning regulations is not a
    defence to a
Rylands v. Fletcher
claim.  In our view, however,
    compliance is an important consideration in light of the approach to
    non-natural user taken in
Tock
.  The trial judge appears to have
    dismissed entirely Incos compliance with the relevant regulations and zoning
    laws once he concluded that Incos compliance was not determinative of the
Rylands
    v. Fletcher
claim in Incos favour.

[101]

The
    claimants bore the onus of showing that the operation of the refinery was a
    non-natural use of the property in the sense that it was not an ordinary or
    usual use.  In
Transco plc
, Lord Bingham, at para. 11, suggests the
    following inquiry:

An occupier of land who can show that another
    occupier of land has brought or kept on his land an exceptionally dangerous or
    mischievous thing in extraordinary or unusual circumstances is in my opinion
    entitled to recover compensation from that occupier for any damage caused to
    his property interest by the escape of that thing subject to defences ...

[102]

Lord
    Binghams inquiry is directed both at the degree of dangerousness posed by the
    activity and the circumstances surrounding the activity.  We think that
    approach is consistent with the user appropriate approach in
Tock
.

[103]

Any
    industrial activity, and perhaps even more so a refinery, certainly carries
    with it the potential to do significant damage to surrounding properties if
    something goes awry.  The claimants did not, however, in our view, demonstrate
    that Incos operation of its refinery for over 60 years presented an
    exceptionally dangerous or mischievous thing or that the circumstances were
    extraordinary or unusual.  To the contrary, the evidence suggests that Inco
    operated a refinery 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.  In our view, the claimants failed to
    establish that Incos operation of its refinery was a non-natural use of its
    property.

[104]

Although
    we have accepted Incos submission that the refinery was not a non-natural use,
    we would not want to be taken as agreeing with its submission that the refinery
    operated for the general benefit of the community and could not, therefore, be
    subject to strict liability under
Rylands v. Fletcher
:  see
Rickards
    v. Lothian
at p. 280.  While Incos refinery no doubt brought significant
    economic benefit to Port Colborne, Inco did not operate its refinery for the
    general benefit of the community.  That phrase refers to entities, usually
    governmental ones, acting under statutory authority and engaged in activities
    that benefit the community or at least a significant segment of the community
    at large.  The incidental benefit to the community flowing from the operation
    of the Inco refinery does not bring it within the phrase for the general
    benefit of the community:  see
Transco plc
, per Lord Bingham at para.
    11.

[105]

Our
    conclusion that the trial judge erred in finding that Incos operation of its
    refinery constituted a non-natural use of its property is sufficient to find in
    Incos favour on this ground of appeal.  We will, however, briefly consider two
    other issues that arise under the
Rylands v. Fletcher
claim.

[106]

The trial
    judge, at para. 58, observed:

In England, unlike Ontario, the courts have added a
    foreseeability element to the rule in
Rylands v. Fletcher
.

[107]

Inco, in
    its factum, asserts, albeit by way of a footnote only, that foreseeability is a
    requirement under
Rylands v. Fletcher
.  Neither the trial judge nor Inco
    explained what they meant by foreseeability in this context.

[108]

The role,
    if any, of foreseeability of damages under the rule in
Rylands v. Fletcher
is an important jurisprudential question.  To our knowledge, neither the
    Supreme Court of Canada nor any provincial appellate court has examined whether
    foreseeability of damages is an element of liability under
Rylands v.
    Fletcher
.  We do not propose to decide the issue in the absence of full
    argument.

[109]

We will,
    however, make two observations that may be of assistance in future cases.
    First, foreseeability can refer to objective foreseeability of the escape from
    the defendants land of the thing that causes damage or it can refer to
    objective foreseeability of the kind of damage said to have been caused.  We
    see no reason to require foreseeability of the escape.  To impose that
    requirement would all but merge the rule in
Rylands v. Fletcher
with
    liability in negligence.

[110]

There are,
    however, compelling reasons to require foreseeability of the kind of damages
    alleged to have been suffered by the plaintiffs.  The arguments in favour of
    requiring foreseeability in that sense are fully articulated by Lord Goff in
Cambridge
    Water Co.
at pp. 301-306.  If Lord Goffs views were applied to this case,
    the foreseeability of a diminution in the appreciation of the value of the
    claimants properties some 15 years after the refinery closed, would be a live issue.

[111]

The second
    issue, which we will address briefly, concerns the escape component of the rule
    in
Rylands v. Fletcher
.  That component raises two questions.  First, we
    agree with the trial judge that
Rylands v. Fletcher
should not be limited
    to a single isolated escape.  In some situations, the danger posed by the
    escape rests in the repeated and cumulative effect of the movement of a
    substance from the defendants property to the property of others.  The escape
    may go on for months or even years and the damage may not be caused until the
    accumulation of the escaping substance reaches certain destinations or
    accumulations.  Assuming the other
Rylands v. Fletcher
requirements are
    established, we see no reason to distinguish between a one-time escape and
    continuous or multiple event escapes which produce the same kind of damages:
    see
Cambridge Water Co.
at p. 306.

[112]

The second
    issue pertaining to the escape requirement arises from the nature of the risk
    to which strict liability under
Rylands v. Fletcher
applies.  As
    explained earlier (see paras. 83-84, 96-97), the
Rylands v. Fletcher
paradigm involves an unnatural use of the defendants property and some kind of
    mishap or accident that results in damage.  The application of
Rylands v.
    Fletcher
to consequences that are the intended result of the activity
    undertaken by the defendant has been doubted:
North York (City) v. Kert
    Chemical Industries Inc.
(1985), 33 C.C.L.T. 184 (Ont. H.C.); Lewis N.
    Klar,
Tort Law,
4
th
ed. (Toronto: Carswell, 2008), at p. 628;
The Law of Nuisance in Canada
at pp. 132, 137.

[113]

We, too,
    doubt its application.  It is one thing to impose strict liability for mishaps
    that occur in the course of the conduct of an unnatural or unusual activity.
    It is quite another to impose strict liability for the intended consequence of
    an activity that is carried out in a reasonable manner and in accordance with
    all applicable rules and regulations.

(C)

Conclusions on liability

[114]

With
    respect to the careful and thoughtful reasons of the trial judge, we hold that
    he erred in finding Inco liable under either private nuisance or the rule in
Rylands
    v. Fletcher
.  In any event, for the reasons we will develop in the next
    part of these reasons, even if either or both causes of action survive, the claimants
    failed to prove damages, an essential component of both causes of action.

(D)

Damages

[115]

The trial judge awarded judgment in favour of the claimants in the
    aggregate amount of $36 million. The award was divided as follows:

·

$9 million aggregate for the RSA (approximately 340 homes);

·

$15 million aggregate for the ESA (approximately 1,500 homes);
      and

·

$12 million aggregate for the WSA (approximately 5,200 homes).

[116]

The alleged harm in this action was not related
    to the levels of nickel in the soil or the actual effects, if any, of that
    nickel on the property or its occupiers.  Rather, as the trial judge stated at
    para. 12, the alleged harm in this action is restricted to the negative
    effect, if any, on property values.  For the claimants to succeed, they had to
    prove that their properties failed to appreciate in value, as they otherwise
    would have, because of adverse publicity generated by MOEs findings and
    reports that nickel from Inco had contaminated the soil on their properties.

[117]

To prove their damages, the claimants relied on
    a market comparison approach.  Incos expert, Dr. Frank Clayton, described this
    technique as follows:

The market comparison approach is a
    well-accepted approach used by economists to examine whether a particular
    incident, such as air, water or land pollution from a polluting industrial
    user, has impacted property values in a particular area over a particular time
    period.  The approach consists of identifying one or more areas that are
    similar to the area with the incident, except they are not impacted by the
    incident.  Based on the comparison of price patterns in the areas covered by
    the relevant time period and allowing for differences in the macro-economic,
    demographic and property market environment, conclusions can be reached about an
    incidents impact on property values.

[118]

In simple terms, it was the claimants position
    that their homes had failed to appreciate at a rate similar to homes in the
    comparable community of Welland, Ontario.

[119]

The expert witnesses on both sides agreed that
    Welland was the best comparator city and the trial judge accordingly concluded,
    at para. 260, that it was reasonable to use Welland as a comparator city for
    the purposes of analyzing any changes in property values in Port Colborne.

[120]

Three main data sets, each purporting to value a
    large number of individual properties, were put before the trial judge.

1.               The AVM-Teranet data

The Teranet data sets used two methodologies (ASP and
    reavs AVM, described below) to calculate and compare property value changes
    from 1997-2008. These two sets were then combined to create the Teranet ASP
    Hybrid data set.

·

Teranet ASP (Average Sale Price)  This data set
      contained the average sale prices for properties sold from 1997-2002.  Teranet
      supplemented sales data from Ontarios Land Registry Information System (LRS)
      with MLS records to ensure completeness.

·

Teranet reavs AVM (Automated Valuation Model)
      This data set contained property value estimates for the years 2003-2008.  The
      reavs system monitors actual registered sales transactions, and, using what
      Teranet calls relevant and consistent sales, computes a theoretical value
      for each property registered in the LRS as at specific dates. The reavs system
      creates and maintains a database of current values for all properties registered
      in the LRS. The actual mathematic formula used to generate this data was not
      put before the trial judge.

·

Teranet ASP Hybrid  This was a combination of
      the above two methodologies to make up a data set that spanned from 1997-2008.
      The data contains a mixture of MLS sales data, LRS sales data, and AVM data.  All
      sales for the earlier years, and sales selected by the reavs AVM system for the
      later years, were included in this set.

·

The Teranet data sets are described in more detail
      at paras. 229-235 of the trial judges reasons.

2.          The Municipal
    Property Assessment Corporation (MPAC) data

The MPAC data set is an estimate of property values on a mass scale,
    based on data obtained from the LRS.  This data set imputes value not only to
    properties that are sold in any given year, but to all properties in the data
    set.

3.         The Multiple Listing
    Service (MLS) data

The MLS data represents all properties sold at arms length between
    willing buyers and sellers. MLS data does not capture transactions made between
    family members or related parties.

[121]

The trial judge accepted the evidence of Dr.
    Peter Tomlinson that the Teranet ASP and the MPAC data sets were the most
    reliable indicators of property values on a mass scale.  He found the Teranet
    hybrid and Teranet AVM data sets to be less reliable because of the
    inconsistency of the information within these sets and, while not excluding
    them completely, the trial judge was only prepared to treat these data sets as
    rough indicators of general trends.

[122]

We reject
    the Teranet data sets as unreliable, and we find, respectfully, that when the
    trial judge used these data sets to bolster his conclusions on damages, he did
    so in error.  On his own findings, at paras. 236-244, these data sets were
    hopelessly flawed.

[123]

With
    respect to the MLS data set, the trial judge also found it to be less reliable
    because [it] only value[s] properties that are sold in any given year, not the
    entire universe of properties  [and does] not include all sales in any given
    year (para. 224).

[124]

Inco makes
    three main submissions on damages:

1)

The trial judge erred in both fact and law in
      preferring the MPAC data over the MLS data.

2)

The 4.35% differential between property value
      appreciation in Welland versus Port Colborne that the trial judge found on the
      MPAC data disappears entirely when the MPAC data is corrected for 314 vacant
      building lots that were redesignated.

3)

Even accepting the trial judges calculation on
      the MPAC data, and assuming there in fact is a difference of 4.35% in
      appreciation rates over ten years between Welland and Port Colborne, this
      difference is within the range of variance to be expected in comparable but not
      identical communities.

(i)

Analysis

[125]

In
    reviewing damage calculations, appellate courts generally defer to trial judges,
    and, absent an error in principle, are reluctant to interfere. Respectfully, we
    find that the trial judge in this case did make errors in principle in his
    analysis of the damages claim.  For the following reasons, we must reject his
    findings.

1.

Did the trial judge err in preferring the MPAC
    data over the MLS data?

[126]

Inco argues
    that the trial judge erred in fact and in law in preferring the MPAC data over
    the MLS data.  Inco submits that the MLS data is the best evidence as it
    represents true market value  what a willing purchaser will pay a willing
    vendor in an arms length transaction. The MPAC data on the other hand
    represents artificially derived values assigned to all properties in Ontario by
    applying arithmetic forumulae to the value of actual sales in specific areas.
    Further, in the appeal process available to property owners who are
    dissatisfied with their MPAC assessments, the review board first looks to
    available and relevant MLS data with a view to resolving such disputes. This, Inco
    argues, demonstrates that MLS data is the best evidence of property values.

[127]

Inco
    presented MLS data showing that Port Colborne had outperformed or kept pace
    with Welland between the years 1999-2008.

[128]

In our
    view, for the present purposes, it is unnecessary to resolve this dispute.  As
    will be seen, whether one uses the MLS data or the MPAC data, properly
    corrected, the result is the same.  The record conclusively demonstrates that
    the claimants have suffered no loss.

2.
Did the trial judge err in failing to correct the MPAC data?

[129]

The MPAC data that the trial judge relied on in finding that
    the claimants suffered damages contained an anomaly relating to 314 vacant
    building lots on the west side of Port Colborne.  These lots resulted from the
    subdivision of a large farm property into building lots. In 1996, MPAC
    classified these building lots as residential properties, but in 1999 and 2001
    these same lots were classified as agricultural properties. Then, in 2003, 2005
    and 2008 these lots were reclassified as residential properties. As stated by
    the trial judge, at para. 287:

Because the value of a vacant building lot is on
    average lower than the value of other residential properties, these vacant
    building lots lowered the average MPAC residential property assessment in Port
    Colborne in the years in which these lots were classified as residential
    properties.

[130]

The trial
    judge was aware of this problem with the MPAC data.  He noted at para. 255:

The only real issue with the MPAC
    data set in this case relates to the classification of 314 building lots in
    Port Colborne. The classification of these lots changed from residential in the
    1996 MPAC assessment to agricultural in the 1999 and 2001 MPAC assessments, and
    then back to residential in the 2003 MPAC assessment. Therefore, comparisons of
    the value of residential properties over these periods of time need to take
    into account this change in classification. Otherwise, I accept the MPAC data
    set as the most reliable.

[131]

There is
    no question on the evidence that the inclusion of these building lots as
    residential properties had the effect of lowering the average residential
    property value for Port Colborne.  The reason is a simple one - the lots are
    not developed and there were no buildings on the land, so the values were low,
    yet they were counted as residential properties. When the lots are removed from
    the calculation, the average residential property value increases.

[132]

The claimants
    expert Dr. Tomlinson, upon whose evidence the trial judge relied, compared the
    MPAC data for 1999 to the MPAC data for 2008 and concluded that Port Colborne
    property values lagged behind those in Welland by 5.9%.  The difficulty of
    course is that in 1999 the data values recorded did not include the building
    lots, while in 2008 they did.  As Inco put it, this was an apples to oranges
    comparison.  Either the building lots are included or excluded in both data
    sets, or there cannot be a meaningful comparison.

[133]

Exhibit 77
    filed at trial summarized the MPAC data and made comparisons between Welland
    and Port Colborne for various years, beginning in 1996 and ending in 2008.  In
    all of the comparisons save one, Port Colborne either outperforms or almost
    equals Welland in terms of property appreciation  even on apples to oranges
    comparisons.  The first comparison is between 1999 and 2003 data:

P.C.
                                        Welland

June 1999                             $103,
    395                              $104,940

(lots out)

June 2003                             $120,444                               $120,131

(lots in)

Percentage Change             16.5%                                   14.5%

[134]

In June
    1999, the 314 building lots were not included in the calculation of average
    home values for Port Colborne, while in 2003 they were.  The result of
    including the building lots in the calculation is that the average value for a
    Port Colborne property in 2003 was lower.  Even then, Port Colborne
    outperformed Welland by 2%, in terms of property appreciation.

[135]

The next comparison is between the 1999 and 2001 data:

P.C.
                                         Welland

June 1999                             $103,
    395                              $104,940

(lots out)

June 2001                             $110,426                               $112,314

(lots out)

Percentage Change            6.8%                                      7%

[136]

The 314
    building lots were excluded in the residential property valuations for Port
    Colborne for both 1999 and 2001.  Nevertheless, the percentage difference in
    growth is only 0.2%. Moreover, this measurement captures the two most critical
    years  1999, the year prior to any announcement about nickel contamination,
    and 2001, the year immediately following the public announcement on September
    20, 2000, which is the  proposed date from which damages are to be calculated.

[137]

In four
    other comparisons, set out in Exhibit 77, Port Colborne outperformed Welland:

a.

from
      1996 to 2001, where the lots were included for 1996 but  excluded in 2001,
      Port Colborne outperformed Welland by 6.4%;

b.

when
      June 1996 data is compared to June 2003 data, with the residential lots
      included in both years, Port Colborne again outperformed Welland by 9.4%;

c.

comparing
      June 1996 to January 2005, Port Colborne outperformed Welland by
      5.2%, with the building lots included in both years; and

d.

comparing
      June 1996 and January 2008 data, where both years included the building lots,
      Port Colborne outperformed Welland by 3.8%.

[138]

The
only
comparison in which Welland outperformed Port Colborne is between June 1999 and
    January 2008 data. Once again, the building lots were not included in
    calculating the 1999 data, but were included in calculating the 2008 numbers.
    The 2008 numbers are necessarily lower due to the inclusion of the 281
    lower-valued vacant building lots (by 2008, homes had been constructed on 33 of
    the original 314 lots).  The result is that Welland outperformed Port Colborne
    by 5.9%.  The evidence disclosed, however, that if the 2008 assessment for Port
    Colborne is adjusted by the removal of the building lots, the percentage change
    for Port Colborne increases from 59.5% to 65.2%  leaving only a difference of
    .2% between Port Colborne and Welland.

[139]

There was
    disagreement among the expert witnesses as to whether or not it was appropriate
    to remove the building lots from the Port Colborne numbers when comparing the
    two municipalities.

[140]

The trial
    judge appeared to accept that comparisons of the values of residential
    properties needed to take into account the change in classification of the
    building lots.  At para. 287 of his reasons, he noted that the inclusion of the
    building lots lowered the average MPAC residential property assessment in Port
    Colborne in the years in which these lots were classified as residential
    properties. Except for that factor, the trial judge considered the MPAC data
    the most reliable.

[141]

While the
    claimants expert, Dr. Tomlinson, conceded that if the building lots were
    excluded from the 2008 MPAC numbers for Port Colborne, any difference in
    appreciation rates between Welland and Port Colborne disappeared, he
    nevertheless maintained that it would be inappropriate to simply remove the
    lots from the calculation.

[142]

His
    reasons for taking this position do not bear close scrutiny. The first
    difficulty is that the 1999 figures are calculated without the building lots
    while the 2008 numbers do include the lots. Surely, as a matter of pure logic,
    if the lots are
not
to be removed from the 2008 data they should be
    added into the 1999 data for a proper and fair comparison  apples to apples.

[143]

Dr.
    Tomlinson speculated that there could have been other reclassifications in both
    Port Colborne and Welland that affected the results. The difficulty with this
    position is that it is entirely speculative and without evidentiary foundation.
    There is nothing speculative about the effect of the building lots on the MPAC
    assessment values. None of the claimants experts made any effort to see what
    if anything may have affected the results other than the nickel contamination.
    The second phase of the market comparison approach is a check for differences
    in the macro-economic, demographic and property market environment. The claimants
    expert simply assumed, without more, that the difference in property values was
    the result of alleged nickel contamination.

[144]

Dr.
    Tomlinsons second reason for including the building lots in the 2008
    assessment was that he had based his calculations on the assumptions made by
    Frank Clayton on behalf of Inco.  Clayton did not remove the building lots from
    the 2005 data when he compared it to the 1999 data. As a result, Dr. Tomlinson
    assumed it was appropriate to keep the lots in the 2008 data when it later
    became available. In doing so, Dr. Tomlinson lost sight of the fact that
    his role as an expert witness was to examine the data and come to an
    independent opinion. He should n
He h
ot have
    assumed that where others appeared to have made errors, it was appropriate for
    him to do so as well.

[145]

The role
    of the building lots was crucial to the analysis. The very fact that the
    removal of the building lots from the 2008 data virtually eliminates the 5.9%
    gap between the growth of housing values in Port Colborne and Welland means
    that the building lots cannot be ignored.  When an apples to apples
    comparison is made  with the building lots either included or not included on
    both sides of the comparison  any difference in appreciation rates between the
    two comparator communities disappears, or accrues in Port Colbornes favour.

[146]

Only an
    apples to oranges comparison in the appreciation of housing values, and this
    applies only when comparing the 1999 to 2008 data  results in Welland
    outperforming Port Colborne. On these facts, we must question the cause for the
    difference in values. One cannot attribute the difference to Inco where the
    result is dictated by a policy change on the part of MPAC.

[147]

The trial
    judge did not entirely accept Dr. Tomlinsons evidence.  As he put it, at para.
    293:

In a general way I accept Tomlinsons testimony on
    this point. I find that it is inappropriate to completely remove the vacant
    building lots from the MPAC data for the two reasons enunciated by Tomlinson.
    However, I also find that the inclusion of the building lots in the 2008 MPAC
    data set will require some adjustment or discount to the calculations.

[148]

In our
    view, on this evidence, the trial judge ought to have either left the lots in
    for both years being compared or removed them entirely. Only by doing so could he
    legitimately compare the data for the two communities.

[149]

The common
    issue for the trial judges determination was:

Did the disclosure from and after
    September 2000 of information concerning nickel contamination in the Rodney
    Street area and elsewhere in Port Colborne negatively affect property values in
    the Port Colborne area?

[150]

The
    question required that property values be established as at September 2000 and
    that any depreciation be measured from that point forward to the trial.

[151]

The trial
    judge accepted Dr. Tomlinsons calculations as a good starting point and
    concluded that a 5.9% depreciation in 2008 was the maximum amount of the
    loss.  He then took Claytons measure of a 2.8% depreciation between 1999 to
    2005 (based on uncorrected data) and considered that number to be the minimum
    amount of the loss of property value as at 2008. This conclusion was simply
    wrong. The measure that Clayton performed was based on the uncorrected MPAC
    data and measured only to 2005. It was a palpable error for the trial judge to
    have taken a measure from one period in time and simply applied it to a measure
    from another period in time. The error was further compounded by his failure to
    adjust the numbers for the building lots.

[152]

The trial
    judge then added the two numbers together, Claytons 2.8% and Dr. Tomlinsons
    5.9%, and divided the sum in half to reach his figure of 4.35%.  He concluded
    that this figure was the rate by which the Welland properties outperformed Port
    Colborne over a 10 year period, from 1999 to 2008. This calculation was an
    arbitrary one and was without evidentiary foundation.  None of the expert
    witnesses suggested the calculations could be mix and matched in this manner.

[153]

On the
    basis of his calculations, the trial judge then determined the loss per
    household based on the 1999 average value for residential property of
    $103,395.  He concluded that if Port Colborne had kept pace with Welland, the
    average residential property in Port Colborne as at 2008 should have been
    $169,412 as opposed to $164,898  a loss of $4,514 per property.  He then
    multiplied $4,514 by 7,965, the number of residential properties Dr. Tomlinson
    had included in his study. The evidence, however, was that Dr. Tomlinsons
    numbers included properties
not
defined as part of the class. At
    para. 299 of his reasons, the trial judge noted:

I note that Tomlinsons
    calculations included all of the residential properties in the City of Port
    Colborne, and therefore covered an area larger than the class defined in this
    proceeding. However, there is no evidence that there was any loss in property
    values in the parts of Port Colborne that are not included in the class.
    Therefore, I find that the loss of property values for the entire City, as
    calculated above, is the aggregate loss to the class.

[154]

Respectfully,
    we say that this conclusion is wrong.  Dr. Tomlinsons calculation included all
    residential properties in Port Colborne including those within the class and
    those not within the defined class. The trial judges statement that there was
    no evidence of any loss in property values in the parts of Port Colborne not
    included in the class is reflected in Dr. Tomlinsons evidence, which the trial
    judge accepted. To attribute to the class a loss attributable to the entire
    population is to give the class a windfall to which it is not legally entitled.

[155]

The
    evidence was that there were 6,057 single family residential properties within
    the area defined by the class. Had this number been used, it would have reduced
    the trial judges total loss to $27,341,298 from $35,954,010.

[156]

The trial
    judge proceeded to check his calculations, by referencing the flawed Teranet
    data and Dr. Skaburskis evidence in relation thereto. For reasons given
    earlier, it was inappropriate to rely on the Teranet data for any purpose. It
    was demonstrably flawed in many ways, so as to be of no assistance. Dr.
    Skaburskis evidence, which was based entirely on that data, was necessarily
    equally flawed.

[157]

The trial
    judge next turned to the MLS data to check his calculation, but was selective
    in the years and the data that he used. The MLS data is set out in the chart
    entered as Exhibit 46 at trial.  This chart provides the average sale prices of
    MLS residential properties sold in Port Colborne and Welland for the years
    1997-1998 through to and including 2007-2008. It indicates that the average
    sale prices for homes during the three years before 2000 were $95,470 for Port
    Colborne and $106,856 for Welland. The chart then provides the changes in average
    sale prices and the percentage change over this period for residential homes.

[158]

The trial
    judge focused his attention only on the last block of measurements in this
    chart, which reflected the percent change in sale prices in a given year from
    the average of the three years between September 1997 and August 2000. He
    directed his attention only to the first four years, during which Welland
    slightly outperformed Port Colborne, yet he ignored the last four years, where
    Port Colborne outperformed Welland. When all of the data is considered
    together, it is clear that overall, the houses in Port Colborne appreciated by
    53.9% to Wellands 44.8%, a difference of 9.1% in favour of Port Colborne.

[159]

One cannot
    simply look to one portion of the data and ignore the rest in order to justify
    a conclusion.  The data clearly shows that while Welland was a little ahead in
    the early 2000s, by 2008 Port Colborne had not only caught up, but in fact
    surpassed Welland in property appreciation rates. Again, the data demonstrates
    no loss to Port Colbornes property appreciation rates when considered fully
    and fairly.

3. Did the trial judge err in
    failing to treat Port Colborne and Welland as comparable but not identical
    communities?

[160]

Inco
    argues that even if the trial judge had been correct in finding a 4.35%
    differential over the 10 year period between Port Colborne and Welland  and we
    have found that he was not - this is well within the range of variance in
    comparable but not identical communities over a 10 year period.

[161]

Given our
    conclusion that a 4.35% differential between the two communities is not
    supported by the evidence, we need not address the merits of this submission.

(E)

Limitations Act

[162]

At para. 111, the trial judge said:

Prior to 1990, I find that most
    property owners would not have been aware, and ought not to have been aware, of
    the fact that nickel in the soil could affect the value of their properties.
    Thus, the court must determine when the class knew or ought to have known that
    nickel in the soil could affect the values of their properties.

[163]

Assuming that the trial judge properly framed
    the question for the purpose of the
Limitations Act
analysis, his
    finding that most property owners would not have been aware of the potential
    effect of the nickel implicitly constitutes a finding that some would have been
    aware of the potential effect of the nickel.  Despite this, the trial judge
    went on to find in favour of the claimants as a class on the applicability of
    the
Limitations Act
to their claims.

[164]

A class action is a procedural vehicle.  Its use
    does not have the effect of changing the substantive law applicable to
    individual
actions: see
Bou Malhab v. Diffusion Métromédia CMR inc.,

[2011] 1 S.C.R.
    214, at para. 52;
Hislop v. Canada (Attorney General)
(2009), 95 O.R.
    (3d) 81, at para. 57.  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.  It is an error
    to treat the limitation period as running from the date when a majority, even
    an overwhelming majority, of the class members knew or ought to have known the
    material facts in issue.

[165]

Other
    certification decisions have recognized that discoverability is often an
    individual issue that will require individual adjudication after the common
    issues are determined.  Indeed, when this court certified this action,
    Rosenberg J.A. referred to the possibility of individual limitation defences:
    see
Pearson v. Inco Limited
(2005), 78 O.R. (3d) 641, at para. 63.  On
    the trial judges findings, the applicability of the
Limitations Act
as
    he characterized its applicability was not a common issue.

(F)

Costs

[166]

Counsel agreed that this court should fix costs
    in the amount of $100,000, payable to the successful party on the appeal.  Inco
    is entitled to costs in that amount.  Those costs include disbursements and
    applicable taxes.

[167]

The court was advised in oral argument that were
    it to allow the appeal, there were certain issues that should be addressed
    before the court made any order as to the costs of the trial.  Counsel should
    arrange to speak to the president of the panel to determine how best to
    approach the question of what order, if any, this court should make as to the
    costs of the trial.

(G) Conclusion

[168]

The appeal is allowed.  The judgment is set
    aside.  Inco is entitled to judgment dismissing the action with costs of the
    appeal fixed at $100,000.  Counsel may make further submissions as to the order
    that should be made with respect to the trial costs.

RELEASED:
DD  OCT 07 2011

Doherty J.A.

J. MacFarland J.A.

Alexandra Hoy J.