Written by Thomas P. O’Leary , Kelly Osaka and Daniel Dickey, Dentons Canada LLP
Environmentally-based class action proceedings have been steadily on the rise. Many of these cases are based in tort law and raise difficult issues concerning the appropriateness of class actions and the scope of private law environmental obligations.
The Alberta Court of Appeal recently grappled with these issues in a class action arising from an oil pipeline rupture and spill in Rieger v. Plains Midstream Canada ULC, 2022 ABCA 28 (“Plains Midstream“). This appeal decision is instructive concerning the limits of tort law and class proceedings in environmental claims.
The result also illustrates the value of taking prompt and good faith actions to mitigate and compensate loss when environmental incidents occur. Dentons Canada LLP acted as counsel for the successful Defendant in having class certification vacated.
Background on the class action
The dispute in Plains Midstream arose from a ruptured pipeline near Sundre, Alberta that released crude oil into the Red Deer River. The oil migrated roughly 40 km downstream to a recreational lake where it was contained and removed. Plains took prompt and proactive steps in the weeks immediately after the spill to mitigate environmental damage as well as the damage and inconvenience sustained by landowners in the region. Plains spent roughly $40 million in these respects including reaching settlements with many owners of lands physically impacted by the spill. The lake was reopened for recreational use within 3 weeks. Plains’ proactive approach was such that not a single landowner with lands along the path of the spill brought a claim or came forward with any interest in pursuing recovery as part of the class proceeding.
The Plaintiffs owned two properties near but not adjacent to the lake. Their properties were not physically impacted. They filed a Statement of Claim in the Alberta Court of Queen’s Bench under the Class Proceedings Act against Plains pleading strict liability, negligence, vicarious liability, nuisance, trespass, and breach of the Environmental Protection and Enhancement Act. The proposed class was geographically defined and covered a large area surrounding the footprint of the spill itself. Damages were claimed on behalf of the class for property damage, loss of use of the lake and the river, and decreased property values said to be the result of the spill.
The Chambers Judge certified the proposed class of all persons, corporations, and their estates that as of the spill date resided or owned property within a large area of roughly 1,500 square kilometres surrounding the footprint of the spill. The rationale for this certification was that the Plaintiffs and others beyond the physical footprint of the spill may be entitled to damages for loss of recreational use of the effected lake, and may have sustained a compensable loss of market value for their properties. That different landowners within the class would be impacted differently in these respects was not found to be a barrier to certification nor was the seemingly arbitrary boundary of the class. These issues were left to be considered after certification of the class proceeding.
The Alberta Court of Appeal allowed Plains’ appeal of the certification decision on two grounds
First, it held that the Riegers had no viable cause of action because their claims were confined to pure “relational” economic loss based on their relationship to the damaged property of others. As the Riegers had no recognized legal right in the property that was physically impacted, they could have no claim against Plains.
This reflects the reasoning of the Supreme Court of Canada in the recent case of 1688782 Ontario Inc v Maple Leaf Foods (“Maple Leaf“), which clarifies why pure economic loss is recoverable in some negligence cases but not in others.1 The legal requirement of “proximity” for imposing tort liability is not satisfied unless some legally recognized right in the plaintiff, such as a property right, is violated. No legally recognized right exists in the value of property nor in recreational access to a public lake. The vast majority of the proposed class was, like the Riegers, claiming based on physical impacts to property owned by others and thus had no legally recognized claim. The proposed class proceeding therefore failed to meet the first part of the certification test and certification was vacated.
Second, the Court of Appeal recognized that the proposed class definition was overbroad and arbitrarily defined. A proposed class definition should not include persons with no claim against the defendant and must reflect significant commonality of issues relevant to adjudicating the claim. While it was noted that classes defined on approximate geography may be appropriate in environment pollution cases, some objective criteria and a basis in fact must still be established for such a geographic approximation of impacts. Here, the loss of market value damages alleged had not been correlated in even an approximate way to the geographic area defining the class. It was also clear that, within the geographical area defining the class, a significant commonality of impacts could not be established as different locations and land uses would result in different impacts. Further, many of the landowners directly impacted had already settled with Plains. Based on these factors, a class proceeding would not be the preferable procedure to determine class member claims even if such claims had merit.
The principles applied by the Court of Appeal in Plains Midstream have significant implications for tort based environmental class actions. Until Maple Leaf, certification of economic loss claims could be obtained on the basis that the law was unclear as to whether such claims could be recovered. The perceived uncertainty in the law could have various negative consequences including disincentivizing economically beneficial behavior, giving unfair settlement leverage to plaintiffs and creating unrealistic expectations among class members as to what claims might be viable. The significant clarification of the law concerning recovery for pure economic loss claims, which is reflected in Plains Midstream, should have the effect of addressing these negative consequences in the environmental tort context by restricting classes to those persons with lands that are directly impacted by environmental events. This should in turn foster improved management of class actions in the future, promoting efficiency and fairness for all parties.
With reference to our recent comments on Environmental, Social, and Governance (“ESG”) related litigation risks and while future developments are always uncertain, we consider that the types of broad class actions brought against private companies in New York, Colorado, and other jurisdictions seeking redress for climate change impacts could be challenged in Canada by the application of the principles applied in Plains Midstream. Similarly, public interest climate change based litigation, like the recently dismissed legal challenge to Alaska’s natural resources policies brought by a group of youths, and similar class actions by Canadian youths against the Canadian federal government and several provincial governments, could also run into difficulty. Plains Midstream suggests that a certifiable class would need to be based on physical harm to a person or property (including loss of use and enjoyment of property). This may prove a difficult hurdle for plaintiffs and may indirectly buttress other arguments that legislatures, not courts administering tort law, are the proper forum to resolve the broad societal issues involved with climate change causation, prevention, and mitigation.
1 2020 SCC 35.
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