Executive Summary: Key Legal and Evidentiary Issues

• Liability was assessed under nuisance, negligence, and the rule in Rylands v. Fletcher for flooding caused by lack of maintenance of the Kenilworth Avenue Drainage Channel.

• Apportionment of damages and blameworthiness between the City of Hamilton and ArcelorMittal Dofasco Inc. was contested, with the court finding both equally at fault.

• The adequacy of National Steel Car Limited’s mitigation efforts, including the issue of a proposed flood wall, was reviewed and accepted by the court.

• The appropriateness and quantum of punitive damages against both defendants, particularly in light of National’s withholding of tax payments, were challenged and addressed.

• The scope and wording of the mandatory injunction for remediation and maintenance of the Channel were clarified on appeal to avoid an absolute guarantee against future flooding.

• Ownership and responsibility for the Channel, including historical land title evidence and municipal obligations, were central to the findings of liability.

Facts of the case

National Steel Car Limited (“National”) owns a plant in an industrial area of Hamilton, Ontario, south of the harbour, where it manufactures rail cars. For more than 20 years, National’s property has been periodically flooded during heavy rainstorms by wastewater from the adjacent Kenilworth Avenue Drainage Channel (“the Channel”), which runs north along the west side of National’s property and drains into the harbour. The Channel’s ownership is divided: the Corporation of the City of Hamilton (“the City”) owns the southern end, and ArcelorMittal Dofasco Inc. (“AMD”) owns the northern end. During heavy rainstorms, excess stormwater and sewage from the City’s sewer system is diverted into the Channel. Over time, both the City and AMD stopped maintaining their portions of the Channel, resulting in it becoming clogged with sediment and other obstructions. As a result, water and sewage sometimes flowed onto National’s property during storms.

National sued the City, AMD, and the Hamilton Port Authority (“HPA”), seeking damages and injunctive relief. The action against HPA was dismissed. The trial judge found the City and AMD both liable in nuisance, negligence, and under the rule in Rylands v. Fletcher. The court found that the periodic floods forced National to cease operations, damaged its inventory and equipment, and required employees to clean up. The trial judge concluded that the City and AMD’s use and maintenance of their respective lands caused the ongoing substantial and unreasonable interference with National’s property.

The trial judge found that National had demonstrated its loss would not have occurred “but for” the collective negligence of the City and AMD, and that the negligence of either alone would have been sufficient to cause the loss. The court also found that National had made adequate efforts to mitigate its losses, including investigating the possibility of building a flood wall, and rejected the City’s argument that National failed to mitigate damages.

Discussion of legal issues

The court considered the apportionment of damages between the City and AMD. The City argued it was less blameworthy and should be liable for only 20% of the damages, but the trial judge found both parties equally at fault based on their actions and inactions. The trial judge also awarded punitive damages against both defendants: $500,000 against AMD and $400,000 against the City, the latter reduced in recognition of National’s own misconduct in withholding taxes to leverage and punish the City. The trial judge granted a permanent and mandatory injunction requiring the City and AMD to undertake remediation and maintenance of their respective portions of the Channel.

On appeal, the City challenged the apportionment of damages, the finding on mitigation, the award and quantum of punitive damages, and the wording of the injunction. The Court of Appeal allowed the appeal only to the extent of clarifying the injunction’s wording, deleting the phrase that could be interpreted as requiring the City and AMD to guarantee National’s property would never flood. In all other respects, the appeal was dismissed.

Outcome

The Court of Appeal held that National Steel Car Limited and AMD were the more successful parties on appeal. National was awarded compensatory damages of $5,287,325.58, with the City and AMD each liable for half, plus prejudgment interest of $936,094.20, also split equally. Punitive damages were awarded in the amounts of $500,000 against AMD and $400,000 against the City. National and AMD were each awarded $30,000 in costs on a partial indemnity basis.