Class proceedings – Injurious affection where no land taken

On May 13, 2020, the British Columbia Court of Appeal released its decision in Gautam v. South Coast British Columbia Transportation Authority,^[1] the appeal of a British Columbia Supreme Court summary trial decision awarding compensation for injurious affection caused by transit construction in Vancouver between 2005 and 2009 in the context of a class action proceeding.

The Court allowed the appeal, finding errors in the summary trial judge's assessment of two issues: the limitation period set out in s. 42(1) of the Expropriation Act, R.S.B.C. 1996, c. 125 (the "BC Act"); and the test for unreasonable interference with the plaintiffs' property interests. In obiter dicta, the Court also provided a critique of the methodology adopted by the trial judge on the quantification of damages.

Part I: Overview

The Project

A class of 62 property owners and 215 business operators were affected by the construction of the Canada Line, a rapid transit line that forms part of Vancouver's SkyTrain system. The Canada Line, owned by South Coast British Columbia Transportation Authority ("TransLink"), was constructed using the "cut and cover" method. This method involved cutting a substantial trench along the middle of Cambie Street, building concrete tunnels in the trench, and then covering the tunnels and repaving the road when the work was complete (the "Project").^[2] The trench in front of the plaintiffs' locations was under construction between March and December of 2007.^[3] Needless to say, Cambie Street was significantly disrupted during this time.

The class of affected owners and operators brought injurious affection claims against TransLink. Three of the leaseholders who operated businesses along the affected portion of Cambie Street, namely the Cambie General Store, Thai Away Home (a restaurant) and Festival Cinemas, acted as test case plaintiffs (the "Plaintiffs"). All three experienced significant revenue reductions during the construction.

The Applicable Law

The Court of Appeal considered two main legal issues centred on sections 41 and 42 of the BC Act. Section 41 sets out an owner's ability to claim compensation where land was not expropriated, but was instead injuriously affected by the construction of a public work by an expropriating authority:^[4]

The test for injurious affection under section 41, set out in Loiselle v. R. [1962] S.C.R. 624 (S.C.C.), requires that the following conditions be met (the "Loiselle Factors"):^[5]

• the damage must result from an act rendered lawful by the statutory powers of the person performing such act;
• the damage must be such as would have been actionable under the common law, but for the statutory powers;
• the damage must be an injury to the land itself and not a personal injury or an injury to business;
• the damage must be occasioned by the construction of the public work, not by its user.

These conditions are broad enough to apply to a "temporary reduction in the rental value of the land, whether sustained by the tenant or the landlord" but not to "the loss of business or profit"^[6] that has been "caused by the construction of the public work and not by its use."^[7]

Note that there is a significant difference between the legislation and test for injurious affection in British Columbia and Ontario: the Ontario legislation is written such that the third Loiselle Factor does not apply, so personal and business damages are directly compensable. Section 1(1) of Ontario's Expropriations Act, R.S.O. 1990, c. E.26 (the "Ontario Act") defines injurious affection where no land is taken as:^[8]

(i) such reduction in the market value of the land of the owner, and

(ii) such personal and business damages

The Supreme Court of Canada's decision in Antrim Truck Centre Ltd. v. Ontario (Transportation) confirmed that the Ontario test has only the following three factors: "(i) the damage must result from action taken under statutory authority; (ii) the action would give rise to liability but for that statutory authority; and (iii) the damage must result from the construction and not the use of the works."^[9]

Section 42 of the BC Act sets out a statutory limitation, using language that is equivalent to the Ontario Act, requiring that injurious affection claims be brought within one year after the damage was sustained or became known:^[10]

Case History

(a) The Common Issues Trial

On November 10, 2008, the Plaintiffs initiated a class action proceeding claiming damages for nuisance, and their claim was amended in July 2009 to seek damages for injurious affection. The original defendants, which were subsequently replaced by TransLink, plead that the injurious affection claim was statute barred by the limitation period set out in section 42 of the BC Act.^[11]

Note that unlike in Ontario, where injurious affection claims are in the jurisdiction of the Local Planning Appeal Tribunal, section 26 of the BC Act specifies that the Supreme Court of British Columbia has jurisdiction over compensation proceedings under that Act.^[12] As such, claimants in Ontario do not have the same ability to initiate a class proceeding, as such a proceeding is not available under the Local Planning Appeal Tribunal's Rules of Practice and Procedure, and Ontario's Class Proceedings Act, 1992, S.O. 1992, c. 6, does not apply.^[13]

Regardless of this difference, it is interesting that the large number of claimants, all with different degrees of injury which had to be assessed individually, could still proceed by way of class action, and that the potentially large amount of compensation that could be found owing, across the board, did not present a public policy argument against providing due compensation.

A common issues trial held in 2014 and 2015 found that: the Project substantially interfered with the use and enjoyment of the Plaintiffs' property; there was statutory authority for the interference, absolving the defendants of liability for the resulting economic loss; and the interference resulted in damages that could be compensable as injurious affection. ^[14] However, two important issues were left undecided: ^[15]

• Whether the substantial interference with the plaintiffs' property interests was unreasonable (and thus whether injurious affection was established); and
• Whether the injurious affection claims were statute barred by the s. 42 limitation period.

These issues, along with the calculation of compensation for the Plaintiffs, were addressed during the test case summary trial. The test case summary trial was expected to set out a methodology that could be applied to the remaining plaintiffs in the class.^[16]

(b) The Test Case Summary Trial

The claims of the Plaintiffs, who were all leaseholders and business operators along Cambie Street, formed the basis of the test case summary trial:^[17]

• Gary Gautam ("Gautam"), operated the Cambie General Store under a month-to-month lease that could be terminated or re-negotiated at any time. He suffered a loss of approximately $5500.00 in 2006, down from an approximately $13,000.00 profit the year before. Gautum made a claim in respect of the year 2006;
• Dale Dubberley ("Dubberley"), operated the Thai Away Home restaurant under a three year lease expiring in 2006. He renewed for one additional year in both 2007 and 2008. In 2007 and 2008, the restaurant's profit dropped by over $100,000.00. Dubberley made a claim in respect of the years 2007 and 2008; and
• Festival Cinemas ("Festival"), which held a five year lease during the construction period, also experienced a drop in profit of over $100,000.00 during 2007 to 2009. Festival made a claim in respect of the years 2007, 2008, and 2009.

Since substantial interference had been established at the common issues trial, the summary trial focused on the issue of unreasonable interference.^[18] The trial judge determined that the Plaintiffs' property interests were unreasonably interfered with by virtue of the length and degree of the construction.^[19]

The trial judge also determined that the claims were not statute barred, finding that the damage to the Plaintiffs' property interests did not end until the unreasonable interference with those interests ceased at the conclusion of 2008. On this analysis, the injurious affection claim brought in July of 2009 was within the one year limitation period.^[20] Accordingly, compensation for the loss in value of the leasehold interests for each of the Plaintiffs was awarded as follows: $7,600 to Gautam; $44,560 to Dubberley; and $128,880 to Festival.^[21]

Part II: The Court of Appeal's Analysis

The Court of Appeal disagreed with the trial judge's analysis of all three issues.

Application of the Limitation Period

i. Continuing damage

The Court of Appeal recognized that the challenge of applying a statutory limitation in this case arose from the fact that the damage was of a continuing nature.^[22] The value of the Plaintiffs' leasehold interests in land were temporarily diminished due to construction activities that took place over an extended period of time.

The Court addressed this problem by drawing from existing case law on the application of limitation periods to civil wrongs of a continuing nature, likening injurious affection to torts that cause damage on a continuing basis, including: nuisance, trespasses, and wrongful imprisonments. The Court determined that the proper approach in these circumstances is to treat each day on which a civil wrong continues, as the starting point for a limitation period applying to the damages suffered on that day.^[23] This reasoning adopts a middle ground between positions commonly adopted by defendants, arguing that the limitation period should be measured from the day the civil wrong commenced, and plaintiffs, arguing that the limitation period should be measured from the day the civil wrong ceased to be committed.

The BC Act states, in language that is functionally identical to Ontario's Expropriations Act, that a claim for compensation for injurious of affection where no land is taken, "must be made in writing to the court by the person suffering the damage, with particulars of the claim, within one year after the damage (a) was sustained, or (b) became known to the person."^[24] In the case of continuing damage, an original cause of action arises each day the injurious affection continues unabated, such that only "fresh damage" suffered within the limitation period is recoverable. On this basis, the Court held that the plaintiffs were entitled to claim damages only where those damages were actually suffered within one year of the filing of the claim.

This is an important reminder that claims for injurious affection should be made promptly once damage is suffered or discoverable. The ongoing nature of a construction project will not postpone the commencement of the limitation period. As soon as an injury to the land becomes evident, the clock will begin to run on the damage suffered at that time.

ii. Parallel civil claims do not stop the clock

The Court rejected the argument that the nuisance claim originally filed by the plaintiffs, at an earlier date, should be treated as sufficient to meet the requirements of section 42(1) of the BC Act. The BC Act requires that a claim be made specifically under section 41(3) on injurious affection where no land is taken. A related civil suit will not stop the limitation period from running.

iii. Discoverability

The dissenting judgment raises the issue of discoverability, and would have remitted the question of statutory limitation to the trial judge because the parties had not tendered evidence directed at determining the date on which the plaintiffs knew that all the elements of a claim of injurious affection existed.

The majority objected to the consideration of this issue primarily due to deficiencies in the parties' pleadings which did not raise discoverability. However, the Court was also satisfied on the evidentiary record that the plaintiffs had the requisite awareness, as the damage was occurring, that the value of their leasehold interests were diminished due to the Canada Line construction. The evidence of the Plaintiffs' awareness was described as "overwhelming", and capable of being inferred from contemporaneous pronouncements and financial statements, as well as the negotiation of rent reductions.

The Court further noted that the onus rests on the claimant to demonstrate that a claim for injurious affection was not known or reasonably discoverable. As such, even if there had been an absence of evidence, the issue could not be decided in favour of the Plaintiffs.

Unreasonable Interference

The unreasonable interference analysis asks whether "in light of all of the circumstances, it is unreasonable to expect the claimant to bear the interference without compensation."^[25] This requires the Court to balance the "gravity of the harm against the utility" of the project, considering "the severity of the interference, the character of the neighbourhood and the sensitivity of the plaintiff,"^[26] while remembering that the public utility and the severity of the harm "are not equally weighted considerations" in order to prevent society from inflicting too significant a harm on individuals.^[27] Note that this aspect of the analysis is the same in Ontario and British Columbia.

A common issue approach could not be used for this analysis since the degree of harm experienced by each plaintiff, and whether that harm was unreasonable, requires an analysis of the particular circumstances of each plaintiff, including the "nature and location of each specific business" which would influence the "severity of business losses" incurred and the amount of benefit to the business that would eventually accrue due to the Project.^[28] While business losses are not compensable in British Columbia, they can still be relevant to whether the interference is unreasonable, and thus to whether an injurious affection claim can be sustained.^[29]

The majority judgement determined that the trial judge failed to undertake this detailed, plaintiff specific analysis, instead making a general finding that the Project caused "a significant and prolonged interference for all businesses in the area."^[30] In other words, the reasonableness issue was "converted" into a "common, class-wide issue" when it should have been determined on a plaintiff by plaintiff basis.^[31] There was a complete failure to "assess the unique circumstances of each business" and make "a specific finding on when the unreasonable interference began and ended" for each business.^[32] For example, Gautam's claim related to an injury to the value of his leasehold interest in 2006, although the cut and cover construction in his location did not take place until 2007. There was no explanation in the trial judge's reasoning of how this could be the case. The Court of Appeal determined that this "failure to conduct an individualized" unreasonable interference assessment "for each plaintiff and to determine when such unreasonable interference began and ended" was an error that required a new trial.^[33]

The dissenting judgment disagreed with the majority's above conclusions. This was not due to a divergence of views on the analysis required, but rather on whether the trial judge undertook that analysis and the adequacy of his reasons. The dissent argues that the trial judge went through an appropriate, individualized analysis for each of the Plaintiffs. In particular, the trial judge considered each Plaintiff's decrease in profits, which is a relevant factor in assessing whether the interference was unreasonable, and his reasons demonstrate that he found the interference unreasonable for each of the Plaintiffs given the magnitude of their particular losses and the duration of the construction.^[34] Further, the Project had no potential benefits for the Plaintiffs since they had no "long-term rights to remain in the properties they occupied."^[35]

The Assessment of Compensation

In obiter dicta, the Court of Appeal identified weaknesses in the methodology adopted by the trial judge in assessing compensation. The Court prefaced its comments by recognizing that the chosen methodology may not constitute a reversible error, as judges are often required to make an assessment of damages even if the complexity of a case presents barriers to an accurate assessment. Thus, the Court's commentary was offered only as guidance to assist the parties and trial judge on the new trial of the Plaintiffs' claims.

i. Assessment methodology at trial

Once the claim for injurious affection was established, the trial judge was tasked with considering how the impact on the plaintiffs' leasehold interests was to be determined. The trial judge adopted a hybrid of the competing methodologies that were proposed by the parties at trial:

1. The plaintiffs argued (unsupported by expert evidence), that the percentage reduction in profits should be applied as a corresponding reduction in leasehold value. For example, under this approach, a 60% reduction in profits is taken as evidence of a corresponding 60% reduction in leasehold value.
2. Translink proposed that the impact is equal to the difference between the "profit rent" of the leasehold in a scenario absent the works, and the "profit rent" in a scenario taking the works into account. The term "profit rent" refers to the difference between the value of the leasehold on the open market (market rent) minus the value of the leasehold pursuant to the terms of the lease agreement (contract rent).

The trial judge agreed with Translink's view that the appropriate way to measure injurious affection is to compare the market value of the leasehold interest absent the works, with the market value of the leasehold interest taking the works into account. However, the trial judge reframed the issue in a slightly different way, as a matter of what the Plaintiffs were obliged to pay and what someone else with similar interests would have paid with full knowledge of the works. As a result, the trial judge went on to assess only what the plaintiffs actually paid (contract rent) and the value of the leasehold on the open market taking the works into account (market rent).

With respect to the calculation of market rent, the trial judge accepted the plaintiffs' methodology in part, subject to any variables unrelated to the works. In particular, that the impact of the works on the Plaintiffs' net income is a reasonable measure of the impact of the works on the market value of their leasehold interests, in a scenario that takes the works into account.

The Court of Appeal summarized the trial judge's methodology as follows:

1. Calculate the percentage loss in net income during the works;
2. Assess if any other factors contributed to the loss in net income;
3. If no other factors contributed to the loss in net income, apply the percentage to the full contract rent; and
4. Add back a placeholder value representing the value of holding the lease to maintain an established business premises in the location that was expected to improve once the work was complete.^[36]

ii. Methodological Critiques

First, the Court of Appeal found that the evidentiary record did not support the trial judge's method for calculating the reduction in market rent (i.e. value of the leasehold on the open market taking the works into account). The plaintiffs did not adduce any expert evidence to support their position that the appropriate reduction in market rent should be directly proportionate to the reduction in their business profitability. The case of Wildtree Hotels Ltd. v. Harrow London Borough Council, relied upon by the plaintiffs, stands for the proposition that a reduction in business profitability is likely to result in a reduction in the letting value of the business premises.^[37] However, as noted by the Court:

The cases support the common sense inference that a reduction in business profitability will make the business premises less valuable on the open market. They do not stand for the proposition that one can calculate the reduction in open market letting value by simply applying to the contract rent the percentage reduction in profitability over a certain period of time.^[38]

The Court of Appeal emphasized that the trial judge had been left to assess the reduction in the market value of the leaseholds without an adequate evidentiary record, and the methodology ultimately adopted relied too heavily on loss of business profitability. While the trial judge identified that the Plaintiffs' methodology did not wholly account for the various forces at play in assessing market rent, including a placeholder for the holding value of the leaseholds, there was no evidence to support his conclusion that the holding value of the leases was between 20-25%. The holding value of the leases would necessarily reflect factors such as the length of the lease and the existence of renewal rights, and this analysis was absent from the decision.

Second, the trial judge failed to properly consider the role of lease renewals during the course of the construction. The Court of Appeal opined that when a tenant agrees to renew their lease, or to sign a fresh lease, at a contract rent that is greater than the market value, the losses they incur by doing so are by definition not caused by a reduction in market value of the leasehold interest, but rather a business decision to a pay a premium over the market. This would appear to be a business loss that cannot be properly compensable in injurious affection.

Conclusion

Ultimately, the Court of Appeal dismissed Gautam's claim as statute barred and directed a new trial for the claims of Dubberley and Festival. The key points to take away from the Court of Appeal's decision are as follows:

• The limitation period set out in section 42 of the BC Act operates like the limitation period for other ongoing torts. As such, injurious affection claims should be made promptly, as soon as an injury to the land is evident;
• The unreasonable interference analysis should be done on an individual basis to asses the particular circumstances of each plaintiff including the plaintiff's location, nature, and losses;
• With regards to the methodology for assessing compensation, expert evidence is of high importance. Further, the loss of business profitability does not automatically result in a directly proportionate reduction in market rent. Where holding value plays into the calculation, each lease must be evaluated independently. The assessment should consider the terms of each lease, including its length and renewal options in order to reach a determination on its holding value. Finally, the choice to renew a lease may bar and/or reduce a claim for injurious affection to a leasehold interest; and
• While this point received little analysis from the Court of Appeal, class proceedings appear to be affirmed as a means for proceeding against large infrastructure projects in British Columbia. Despite this, the Court's analysis of the unreasonable interference issue suggests that class proceedings may not be the most appropriate method for all aspects of such cases. Care must be taken to ensure that issues requiring a highly individualized analysis are not dealt with as common issues.

Gautam filed leave to appeal the Court of Appeal's decision to the Supreme Court of Canada on August 18, 2020.^[39] As of the date of writing, the Supreme Court has yet to make a decision regarding leave.