Oct. 13 (Bloomberg) -- Vale SA’s Inco Ltd. must compensate residents of an Ontario town for polluting properties near a nickel refinery for decades, a lawyer said at the start of a trial that tests the province’s environmental laws.

The lawsuit, filed in 2001 by a group of residents of Port Colborne, Ontario, was the first in the province to be certified as a class action against a company over long-term environmental damage. The Court of Appeal for Ontario overturned two lower court rulings in 2005 and approved the group suit. The Supreme Court of Canada declined to hear Inco’s appeal.

“A profit-making entity, for commercial purposes, contaminated the properties of its neighbors,” Kirk Baert, a lawyer for the residents, told Superior Court Judge Joseph Henderson today in Welland, Ontario. Under British and American law, “the polluter pays for the problems their contamination caused,” Baert said.

The plaintiffs are seeking C$400 million ($387 million) in compensatory and punitive damages, plus interest. Inco operated the nickel refinery in Port Colborne, 145 kilometers (90 miles) south of Toronto on the shore of Lake Erie, from 1918 to 1984. The refinery spewed tons of nickel oxide into the air, contaminating properties downwind, the provincial Ministry of the Environment said in a report in September 2000.

The contaminants posed a risk to the environment and to the health of some Port Colborne residents, according to the report. Nickel oxide is classified by the Canadian government as a cancer-causing substance.

‘Do Not Enter’

The suing residents are from Port Colborne’s Rodney Street area, where about 1,000 people live mostly in single-story houses. Today, one of the 15 homes on Rodney Street was wrapped with tape marked “Do Not Enter.” The street runs perpendicular to the refinery complex, with the nearest home across the street from the Inco property.

Inco has disputed the residents’ claims in its statement of defense, saying Port Colborne property values didn’t decline after September 2000. Residents knew for decades about elevated nickel levels in the soil, which don’t pose a health risk, the company said.

Inco has always complied with Ontario environmental laws and regulations, the company said. Brazil’s Vale SA acquired Inco in 2007 for $16.7 billion and renamed the unit Vale Inco.

Government standards don’t supplant the residents’ rights, Baert said.

Information ‘Avalanche’

The residents will show, through testimony by real estate agents and residents, that from June 1996 to June 1999 property values in Port Colborne rose 3.4 percent a year, compared with a 1.4 percent annual increase in Welland, about 15 kilometers away, Baert said. From June 1999 to June 2005, property values in Port Colborne rose 29 percent, compared with 32 percent in Welland, according to Inco’s experts, Baert said.

Baert blamed the difference on the Ministry of Environment studies that were published in 2000 and tests that followed. They were widely reported by the media and caused property buyers to shun the area, he said.

It was “pretty close to an avalanche of new information and negative information, much of it very negative,” Baert said.

Alan Lenczner, a lawyer representing Inco, is scheduled to respond with his opening statement tomorrow.

The adversarial system of law means “one side gets to exaggerate” and then the other side “must bring an air of reality” to the proceedings, Lenczner told the judge today.

The case is Between Ellen Smith and Inco Ltd., 12023/01, Ontario Superior Court of Justice (Welland).

To contact the reporter on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net

Last Updated: October 13, 2009 17:32 EDT