Appeals Court reverses “chilling” decision on class action certification

In its recent unanimous decision in Pearson v. Inco.[1], the Ontario Court of Appeal overturned the decision of Superior Court Justice Ian Nordheimer that refused to certify an environmental class proceeding against Inco Ltd. and made a substantial costs award against the representative plaintiff, Mr. Pearson. Mr. Pearson had sought to have a class proceeding certified for various forms of damage caused to Port Colborne residents by the operation of an Inco nickel refinery for 66 years in their community. The action had sought compensation for, among other things, decreases in property values and various adverse health effects caused by Inco’s deposits of nickel oxide, a known carcinogen, in the area surrounding the refinery.

In legal circles, Nordheimer J.’s decision in Pearson v. Inco Ltd. was probably best known for the $184,000.00 costs awarded against the representative plaintiff – an award widely touted as having a “chilling effect” on future class proceedings. Previously, representative plaintiffs were typically ordered to pay only nominal costs to defendants if they were unsuccessful in having their class proceeding certified. Because representative plaintiffs in class proceedings often have little to personally gain from the action (although the collective damages of all class members might be significant), the prospect of a six-figure costs award could render the risk of an unsuccessful class action far greater than the benefit for many potential representative plaintiffs.

One of the reasons, Nordheimer J. had refused to certify the class proceeding was that it failed to meet the requirement under the Class Proceedings Act (the “CPA”) for an “identifiable class.” He criticized a class limited to persons residing in Port Colborne as having the effect of either excluding or including potential claimants based “simply on where a line is drawn on a map.” To address this point, the plaintiffs narrowed the claim prior to the appeal to seek damages only for the decreases in property values suffered by Port Colborne residents and abandoned their health-related claims. The Court of Appeal found that it was acceptable to narrow the claim and delineate the class in such a fashion.

Nordheimer J. had also found that this class proceeding would not advance another goal of the CPA: that a class action be the “preferable procedure” to resolve the issues. He found that the claims, when viewed individually, were too varied and that a class proceeding would quickly become unmanageable and uneconomical “because it would inevitably disintegrate into the need for thousands of individual trials.” While the Court of Appeal agreed on this point, it went on to find that a class proceeding would be the preferable procedure to deal with the recently narrowed claim seeking only damages for reductions in property values.

The Court of Appeal also disagreed with the final basis given by Nordheimer J. for not certifying the action: that there was no acceptable representative plaintiff. Under the CPA, a representative plaintiff must establish that he/she is an acceptable representative of the class, by showing that there is “fair and adequate representation, a workable litigation plan, and no conflict of interest on the common issues.” The Court of Appeal found that Nordheimer J. had erred in principle by wrongly emphasizing the representative plaintiff’s ability to pay any costs incurred and by requiring that all of the details of the proposed action be within the litigation plan itself. The Court also disagreed with the finding below that the representative plaintiff had a conflict of interest with the other plaintiffs because he claimed that his property value was most affected.

By virtue of all of the foregoing, the Court of Appeal overturned Nordheimer J.’s decision and certified the class proceeding against Inco – albeit in a much narrower form. It also set aside what it called a “significant” costs award against the representative plaintiff. In doing so, however, the Court of Appeal did not expressly disapprove of that costs award or its rationale – that the costs payable by unsuccessful plaintiffs on a certification motion should be calculated in the same manner as those payable by unsuccessful defendants. As such, it remains to be seen whether representative plaintiffs might be subject to such chilling costs awards in the future.

Published January, 2006