Revisiting five noteworthy expropriation cases from 2021

John: Welcome to this video summary of Gowling's top cases in expropriation law, 2021, a year in review. This presentation is a video summary of our annual paper, A Year in Review, featuring the top expropriation cases in the past year. This summary presentation will highlight a number of important issues and key takeaways for those involved in the expropriation process. My name is John Doherty and I'm the leader of the Gowling's National Expropriation Law group. Our National Expropriation Law group represents both claimant land owners and government authorities across the country. A group of more than 20 practitioners is a multidisciplinary team of lawyers, land use planners and clerks from across all of our Canadian offices and our UK offices. We are presenting today on five of the most notable cases on both substantive and procedural issues from different jurisdictions across Canada. Our speakers include, first, Kelly Duquette who will be speaking about the Halifax versus Annapolis Group case. Kelly is an associate in the firm's Ottawa office. Kelly practices in the area of municipal law with a focus on land use planning, expropriation and municipal assessment. Her practice also includes Aboriginal business law. Secondly, Jonathan Minnes will be speaking about a Metrolinx case in Ontario. Jonathan is an associate in the firm's Waterloo Region office, practicing in municipal law and civil litigation, with a focus on expropriation, land use planning law, real estate disputes and commercial litigation. Our third speaker is Kevin Dias, who'll be speaking on the Tri-City Management versus Nova Scotia case. Kevin is an associate in the firm's Waterloo Region office where he practices in the area of municipal law and expropriation law. He is a member of the firm's Canadian Expropriation Law group and Municipal Law groups. Our fourth speaker is Mark Giavedoni. Mark will be speaking on the Southwind versus Canada case. Mark is a partner in the firm's Hamilton office. He is a member of the firm's National Expropriation Law group and Municipal Law groups and is a certified specialist in real estate law by the Law Society of Ontario. Our fifth and final speaker will be Emily McCartney. She'll be speaking on the Madison Holdings versus Winnipeg case. Emily is an associate in the Advocacy group in the firm's Calgary office. In addition to expropriation and municipal law cases, Emily practices commercial litigation and professional liability. To start us off, Kelly, please tell us about the interesting case arising from the Nova Scotia Court of Appeal.

Kelly: Our first case takes place in Nova Scotia where the test for what constitutes the de facto expropriation was revisited and applied in the case of Annapolis Group Inc. and Halifax Regional Municipality. By way of background the defendant, Halifax Regional Municipality, had passed a Regional Municipal planning strategy in 2006. It was a guide for land development in the municipality over a 25 year period. It reserved lands belonging to the plaintiff, Annapolis Group Inc., along with other lands for possible future service development, including the use of a portion of the lands for a Regional park. For service development to occur of the Annapolis lands, the council needed to pass a resolution authorizing for the secondary planning process and an amendment to the applicable land use bylaw. The zoning of the Annapolis lands had not changed since 2006. In 2007 Annapolis had requested that the municipality initiate the secondary planning process with respect to its lands, which the municipality ultimately refused by resolution in 2016. In 2017 Annapolis brought an action against the municipality, claiming that the they had de facto expropriated its lands by refusing to proceed with the secondary planning process, preventing service development. Annapolis argued that the municipality was exercising dominion over its lands by encouraging members of the public to utilize the lands as a park and had ulterior motive to refuse the secondary planning process. The municipality filed a motion for summary judgment of the Annapolis claim, arguing that Annapolis retained the same development rights in respect of the development of its lands, which it had had since before the adoption of the 2006 Regional plan. They had the right to request that council consider a plan amendment to initiate secondary planning in accordance with the criteria and the 2014 Regional Plan Policies. The Motions Judge dismissed the motion for summary judgment of Annapolis' claim and the municipality filed a notice of application for a leave to appeal and notice of appeal. The Court of Appeal found that the Motions Judge had erred in his consideration of the law of de facto expropriation and that the municipality's refusal of the secondary plan did not amount to de facto expropriation. In coming to this finding the Court of Appeal reiterated the two well known elements of a de facto expropriation. To be successful in the action Annapolis must have been able to establish that the regulatory action by the statutory authority, the municipality, led to the acquisition by the authority of a beneficial interest in the property or flowing from it, and the removal of all reasonable uses of the property. The Court of Appeal pointed to a number of examples throughout history where de facto expropriations had occurred. It was echoed in Annapolis in reference to the leading de facto expropriation of Nova Scotia from 1999, Manor Real Estate Limited in Nova Scotia, that these cases all went beyond limiting the use or reducing the value of the owner's property but rather they rendered the owner's rights meaningless. The Court further summarized what qualifies as a de facto expropriation and what does not. First, the acquisition must be one that confers a beneficial interest on the authority alleged to have expropriated the land. Land must actually be taken from an owner and acquired by the authority. Second, all reasonable uses to which the property could be put must be removed. The burden of proving all reasonable uses have been removed is on the land owner. The freezing of development and restrictive land use regulation, in and of itself, does not amount to a de facto expropriation. The decrease in the value of land does not amount to a de facto expropriation, and finally, the passing of a development plan does not constitute a taking. It simply allows a municipality to set a vision and course for future development and ensures that the land will be used or developed in accordance with its vision. The Court of Appeal also concluded that the motive of an expropriating authority is not a factor in the analysis of a de facto expropriation. Improper motive does not create an alternative way of proving the claim and cannot compensate for the failure to establish the required elements of a de facto expropriation. Where an authority has acted in an inappropriate manner, the Court noted that parties can more appropriately proceed with a cause of action for abuse of or misfeasance in public office. Annapolis was unable to demonstrate that there were was a deprivation of all reasonable uses of the lands and its allegation of improper motive were not material to the claim. While the municipality's refusal restricted to the ability of Annapolis to develop its lands, the Court of Appeal found that the fell short of a de facto expropriation. Not only did Annapolis have the same rights, with respect to its lands that it had prior to council's resolution in 2016, the zoning had not changed either. On June 24, 2021, leave to appeal was granted to the Supreme Court of Canada and the appeal was heard this February. This is a decision to look out for in the near future. I will now turn it over to Jonathan for the next case review.

Jonathan:        Thank you, Kelly. I will be discussing the Ontario Superior Court of Justice's decision in Metrolinx and 1450638 Ontario Inc. Metrolinx expropriated a property in King City, Ontario, owned by the numbered company in March of 2019. One year later Metrolinx served an offer of compensation of $1.00 accompanied by an appraisal report valuing the property at $2.1 million dollars. Metrolinx provided no explanation for the discrepancy between its offer and the appraised value. The numbered company commenced a court application seeking to delay possession of the expropriated lands by Metrolinx until Metrolinx complied with its obligations of providing an offer of compensation in accordance with section 25 of the Expropriations Act. According to section 25, offers of compensation are to be served within 3 months of the expropriation, although missing this date is not fatal to an expropriation. And, the owner shall be served with an offer for 100%25 of the market value of the land based upon a report appraising the value of the lands being taken. Metrolinx brought a counter-application seeking possession of the property. As part of these applications the numbered company sought production of Metrolinx's communications with its appraiser and the draft appraisal reports that were prepared. Metrolinx refused to produce these reports. They argued that its communications and draft reports were protected by the litigation privilege. Litigation privilege protects documents and communications made for the dominant purpose of actual or contemplated litigation. Third party communications, such as those with experts, are protected by litigation privilege when the dominant purpose is to prepare for litigation. The Ontario Superior Court ordered the production of the requested documents. It found they were not protected by litigation privilege. The dominant purpose of the appraiser's retainer and work was not carried out in contemplation of litigation. The appraisal report was created for the purpose of meeting Metrolinx's statutory obligation under section 25 of the Act. This was an obligation to provide an offer of compensation along with an appraisal report. The Court also determined that questions about Metrolinx's general expropriation policies were relevant. It directed that questions relating to these policies should be answered and that the numbered company was entitled to see these policies, if they were available in written form. So what is the relevance decision? To find that section 25 appraisal report was created for the purpose of meeting its statutory obligation, rather than preparation for litigation, the Court draws an important distinction between section 25 appraisals, and a subsequent appraisal and other expert reports, that are generated for the purpose of preparing for litigation expropriation matters and are therefore protected by privilege. In the Court of Appeals leading decision in ... it directs that draft reports and notes of consultations between the lawyer and the expert are privileged and need not be disclosed. However, in the context of a statutory obligation under section 25, not only is the expropriation authority required to put forth their position on market value in a manner that is not privileged but the expropriated party has a greater scope to ask questions to obtain information regarding how a section 25 offer is generated. This indicates that expropriation authorities are held to a higher standard for their section 25 appraisals and offers. This is consistent with the findings of a 1968 report of the Ontario World Commission inquiry into civil rights. The findings of which form the basis of the revised Expropriations Act we use today. The Commission found that while there is a risk of overpayment when the expropriating authority is required to pay the full amount estimated, this is a risk that should be borne by the expropriating authorities, as a condition precedent to obtain possession. Commission notably observed that expropriating authority which enters into negotiations with an owner is not negotiating in good faith without first having made an honest attempt to decide for itself, on careful examination and appraisal, what is proper compensation for the loss inflicted. It appears that the Court was holding Metrolinx to the standard in its decision. The next speaker is Kevin Dias.

Kevin: Thanks, Jonathan. I'm discussing the Nova Scotia Court of Appeal decision, Tri-City Management Limited and the Nova Scotia Attorney General. This decision involved 5 businesses seeking damages against the Province for injurious affection without a taking of land in the context of highway project. The Court of Appeal addressed two issues. First, did the Nova Scotia Utility Interview Board err in its analysis of when the claimant's limitation period began to run? And, second, did the Review Board err in concluding that the claimants did not establish a claim for IA? In terms of context, prior to 2009, the Trans-Canada Highway passed through the town of Antigonish. In response to safety concerns the Province undertook a 2-phased project that effectively made the Highway bypass the town. The project began in 2009 and was completed in 2016. While the portion of the Highway passing through the town remained unchanged it was rendered to be a trunk highway. The 5 businesses made a claim for IA pursuant to the Province's Expropriation Act. It claimed compensation as a result of the construction of the first portion of the bypass and the resulting physical changes to the pre-existing Highway. They argued the project impaired access to the businesses properties and reduced the market value of the premises. The Province denied these IA claims and argued that they are statute barred. The Review Board issued five unison decisions, one for each of the businesses, and in each the Board rejected the Province's assertion that the businesses claims were statute barred. It based this conclusion on the view that the limitation carried for each claim did not begin to run until the conclusion of the 2-phased project. The Review Board further determined, in applying the Supreme Court's framework in Antrim, that none of the claimants had established a claim for IA. The Review Board concluded that the interference arising from either phase of the project was not substantial. The Board found, in particular, that access to each of the properties had not been significantly impacted. The Board noted that none of the businesses gained access to the properties by virtue of the old Highway. The claimants appealed on IA and the Province cross-appealed on the limitation issue, both of which were dismissed by the Court of Appeal. Now even though the Review Board reached the correct conclusion on the limitation period, the Court of Appeal found that the Review Board's reasoning was flawed. As I noted, the Board concluded the limitation period only began to run once the temporary blockade of the old Highway was removed at the completion of the project. But in the case of a continuing temporary nuisance, the Court of Appeal noted that a limitation period is not triggered by the conclusion of the nuisance, rather there's a new cause of action everyday the nuisance continues. On IA, the businesses did not take issue with the Board's application of Antrim, but the businesses argued that the Board erred in its application of the law to the circumstances before it. That is, the Board erred in its factual findings that led it to conclude that the temporary and partial blockade, the old Highway, was not a substantial interference with rights of access. The businesses also claimed the Board failed to consider the businesses loss of profit as part of the substantial interference analysis. They also challenged the Board's conclusion that any interference, if such existed, was reasonable. The Court of Appeal saw no merit in the complaints by the businesses. Justice Bourgeois explained that, as is clear from Antrim, a reasonableness assessment is not intended to be confined to specific criteria. Rather the analysis is a balancing act of relevant factors. The Court was satisfied that the Board cautioned itself appropriately and had not placed undue weight on the utility of the Province to create the bypass and the resulting improvements of the project. On the appellate standard of review, the Court of Appeal was not prepared to re-weigh the evidence to reach a different conclusion. Given this deference to findings of fact, and after considering the record, the submissions of the parties and the Review Board's reasons, the Court of Appeal was satisfied that the businesses did not identify a clear err of principle in the Review Board's reasoning. Thanks and now over to Mark.

Mark: Thank you, Kevin. I'm speaking today about the Supreme Court of Canada decision in Southwind versus Canada, which was released last year. It relates to the Lac Seul First Nations who I'll refer to as the Nation, who brought a claim against the Government of Canada for breach of fiduciary duty and statutory obligations. In 1929 the Nation's reserve land was flooded to power hydro electricity generation for the City of Winnipeg. The Nation did not provide consent and did not receive any compensation and the project caused considerable damage to the reserve land, subsequently depriving its members of their livelihood, homes and access to natural resources. The Federal Court held that the Government of Canada failed to meet its fiduciary duty. The Trial Judge's evaluation of equitable compensation for the flooded lands were based upon the value at the time the lands were expropriated in 1929. This evaluation did not entitle the Nation to any compensation for the value of the land involved in the hydroelectric project. The Nation challenged the evaluation for compensation, however, a majority of the Federal Court of Appeal dismissed the appeal. The Supreme Court of Canada overturned the Trial Judge's evaluation of equitable compensation, finding that expropriation law failed to consider fiduciary obligations, and a sui generis, or truly unique, interest in reserve land. The Court held that Canada should have attempted to negotiate a surrender in consideration of the value of the land for its anticipated use. In this case, the Nation was entitled to equitable compensation for the lost opportunity to negotiate. The Supreme Court of Canada focused on one central issue to determine equitable compensation, namely what position the beneficiary would be in had the fiduciary fulfilled its obligations? Writing for the majority, Justice Carrik Attanas ultimately disagreed with the Trial Judge's approach finding that equitable compensation in these circumstances should give effect to the unique obligations imposed by fiduciary duty. In particular, Justice Carrik Attanas noted that the Trial Judge improperly focused on what Canada would likely have done as opposed to what Canada ought to have done as a fiduciary. The Court held that the fiduciary duty imposes an obligation of loyalty, good faith, full disclosure and the protection and preservation of First Nations interest from exploitation. This fiduciary duty raises a higher bar than expropriation law because of the sui generis interest in reserve lands. For this reason, expropriation law can serve as a reference point for compensation. It is not, however, an appropriate legal framework to govern breaches of fiduciary duty. I'm pleased to now turn to Emily McCartney.

Emily: Thanks, Mark. I'm going to speak on the Manitoba Court of Appeal decision in Madison Holdings and Winnipeg. The City of Winnipeg expropriated a carwash and rust proofing operation owned by Madison Holdings, which was a family business operated by two brothers. Madison acquired nearby vacant land and constructed a newer, larger carwash and rust proofing facility. The Manitoba Land Value Appraisal Commission awarded Madison compensation of just over $3 million dollars which included disturbance damages, approximately $2.6 million dollars, most of which related to the cost of acquiring and constructing the replacement property. The City of Winnipeg then appealed the Commission's decision. The key points on appeal were the assessment of disturbance damages, where a business relocates and constructs a replacement property, and how the principle of betterment should be addressed. Of note is that the original building was an older concrete structure while the new building was a steel framed construction that was approximately twice as big as the old building. However, the steel framed construction was far more cost effective, so at the end of the day the cost of constructing a concrete replica of the old building would only have been about $77 thousand dollars less than the cost of the new double sized steel framed structure. In assessing disturbance damages, the Court first noted that in general compensation for disturbance damages are assessed on the same basis as damages in tort and contract. So namely, they're part and parcel of putting the expropriated land owner in the same financial position they would have been in but for the expropriation. This means that the legal principles of remoteness, negation and reasonableness apply to the assessment of disturbance damages. The City argued that the Commission made an error of law by not calculating Madison's disturbance damages by deducting the market value of the replacement property. The Court of Appeal disagreed with the City noting, first of all, that there is no correct methodology for assessing compensation in relocation cases and no such methodology is provided for in the Expropriation Act. The Court then held that methodology is a question of fact and the Court will not intervene unless the Commission committed a clear error in principle. So there are numerous prior case authorities in which compensation is ordered for both the market value of the land and buildings expropriated plus disturbance damages related to the relocation. The expense of constructing a new replacement property, to the extent that it is not covered by the market value award, has been consistently viewed as a proper disturbance cost when the business has had to build new facilities in order to remain in operation. The fact that the replacement facility is larger does not lead to a denial of compensation. So the Court found that the Commission had made no reviewable error in determining reasonable compensation for the cost of the replacement building, including an appropriate discount for betterment. The Court went on to say that, to accept the City's position in this case would result in a finding that Madison has not suffered any economic loss associated with the cost of acquiring and constructing the replacement property, other than financing costs. This is despite the fact that Madison was required to incur these costs to continue in business as a result of the expropriation. However, the Court did agree with the City that the Commission had double compensated Madison by awarding it the market value of the expropriated property, but failing to then deduct that award of market value from the cost of purchasing a replacement. So in other words, the Commission ordered the City to pay the market value of the original land and building and the entire cost of the replacement property. So even Madison recognized and conceded that this constituted double recovery in the Court of Appeal hearing. So the Court therefore reduced the disturbance damages award by $500,000.00 to account for the market value of the expropriated property and to avoid double recovery and a windfall to Madison. There was then one other ground on which the Court of Appeal held the Commission had erred. The Commission allowed Madison's claim of approximately $32,300.00 for the time spent by the two business owners in dealing with the expropriation. The Court held that this was inappropriate in this case as time spent is not an actual out of pocket loss incurred as a result of the expropriation, or an actual loss that could be readily surmised from the nature of the land owner's business or extraordinary involvement of the land owner in the expropriation process. The Court said that actual loss can be readily established where an expropriated land owner is, for example, an hourly wage earner or a commission worker and can show they have actually lost money on hours or commissions because that is obviously pecuniary loss. In this case the land owners were not hourly wage or commission workers and had somewhat arbitrarily assigned an hourly dollar value to their time spent dealing with the expropriation that could not be considered an actual out of pocket loss. The Court therefore further reduced the overall award by $32,000.00 on this basis. So the key takeaways from the case are, first, in Manitoba there is no precise methodology required to assess disturbance damages and the Commission needs only determine what losses flowed to the land owner from the expropriation. Second, the market value of the expropriated property, once awarded, should be deducted from disturbance damages to the cost of the replacement property. Finally, a land owner is not prima facie entitled to compensation for their time spent dealing with the expropriation and they'll only be entitled to pecuniary losses actually occurred, such as loss of hourly wages or commission, and verifiable out of pocket expenses. Back to you, John.

John: On behalf of my colleagues I wanted to thank you for taking time today to view our summary presentations on five of the top expropriation cases in 2021, from all across Canada. Our speakers have addressed some of the complex issues currently arising in expropriation law. These cases show this area of law intersects with a number of other practice areas, such as land use planning, environmental concerns, Aboriginal law and procedural issues that may impact on the right to, and the extent of, both property compensation and business loss valuation. If we can assist you in future with any of these issues, please be sure to contact any one of us. Enjoy the rest of your day.