Expropriation law 2022: A year in review

22 minute read
03 February 2023

This article summarizes a number of significant expropriation cases of 2022 from across Canada, as selected by Gowling WLG's national Expropriation Law Group. The team highlights a number of important issues and key takeaways for those parties involved in the expropriation process. The court decisions are not listed in rank order.

  1. Supreme Court expands the doctrine of constructive expropriation
  2. Downzoning amounted to constructive expropriation
  3. Decade long downzoning scheme screened out when assessing compensation
  4. Statutory offer of compensation cannot be withdrawn
  5. Sales to an Expropriating Authority are not reliable indicators of value
  6. Illegal use in the context of injurious affection
  7. Surface Rights Acts: Compensation for injurious affection available for works located beyond the right of entry area
  8. Antrim test on injurious affection applicable in Newfoundland and Labrador

1. Supreme Court expands the doctrine of constructive expropriation

Annapolis Group Inc. v. Halifax Regional Municipality, 2022 SCC 36 (Supreme Court of Canada)

Canada's law of constructive (de facto) expropriation has been clarified and broadened by the Supreme Court's recent 5-4 decision in Annapolis Group Inc. v. Halifax Regional Municipality.

Annapolis Group Inc. claimed that Halifax Regional Municipality constructively expropriated its lands by refusing to proceed with a secondary planning process, a mechanism that is required to advance the lands toward serviced development.

The Nova Scotia Court of Appeal found that the municipality's conduct did not amount to constructive expropriation, finding: first, that 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 the land will be used or developed in accordance with its vision; and second, that the motive of an expropriating authority is not a factor in the analysis of a constructive expropriation.

The Supreme Court of Canada disagreed with the Court of Appeal's analysis, concluding: first, that a constructive taking need only have the effect of defeating the landowner's reasonable use of land; and second, that the state's intent may be relevant in assessing whether all reasonable uses of land have been removed.

The Supreme Court held that a constructive taking occurs where: (1) a beneficial interest — understood as an advantage — in respect of private property accrues to the state, which may occur where the use of such property is regulated in a manner that permits its enjoyment as a public resource; and (2) the impugned regulatory measure removes all reasonable uses of the property.

In defining the nature of a beneficial interest, the Supreme Court explained that the concept is "to be broadly understood as an 'advantage'" and that "if the interest acquired by the state can be one which flows from the property, what must be shown by the property owner can fall short of an actual acquisition by the state." The Court found that a broad interpretation, focused essentially on that of an "advantage" accruing to the state, is supported by the Court's previous decisions on constructive expropriation. In other words, beneficial interest means "the effect of a regulatory measure on the landowner, and not with whether a proprietary interest was actually acquired by the government."

While the Supreme Court's decision recognizes a broader scope for potential claims by landowners against state regulation of property, it provides important guidance on matters involving regulatory decisions by public authorities affecting private land.

Read our full article on the Supreme Court's decision

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2. Downzoning amounted to constructive expropriation

Dupras c. Ville de Mascouche, 2022 QCCA 350 (Quebec Court of Appeal)

The Quebec Court of Appeal delivered this constructive expropriation decision before the release of the Supreme Court of Canada's decision in Annapolis Group Inc. v. Halifax Regional Municipality.

In Dupras c. Ville de Mascouche, 70% of a woodlot was zoned to allow for residential use, with the remainder zoned for conservation. In 2006, the City of Mascouche rezoned the property to 100% conservation, fully prohibiting construction on the property. The Quebec Court of Appeal upheld the Quebec Superior Court's decision that a constructive expropriation had occurred, and remitted the case back to the Quebec Superior Court for a determination of compensation.

In its analysis, the Quebec Court of Appeal applied a similar but not identical test to that later set out by the Supreme Court. The Quebec Court of Appeal observed that "a constructive expropriation arises out of an act which results in dispossession of any personal or commercial property or that removes for all practical purposes any possibility of use of that property." Such an act must be "tantamount to an absolute negation of the exercise of a property right or a constructive confiscation of the property." To amount to constructive expropriation, restrictions imposed by a municipality "must have the effect of eliminating any reasonable use of the property."

The Court of Appeal found that even if the re-zoning did not eliminate all private use of the land, the potential residual use was so limited that the re-zoning deprived the owner of any reasonable use of the land. This flexible approach aligns with the Supreme Court's direction that determining whether a constructive expropriation has occurred requires a realistic appraisal of matters in the context of the specific case. While the municipality had the power to put the restrictive conservation zoning in place, this did not change the municipality's obligation to compensate the landowner whose rights were significantly affected. Accordingly, the owner was entitled to fair compensation.

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3. Decade long downzoning scheme screened out when assessing compensation

Lynch v. St. John's (City), 2022 NLCA 29 (Newfoundland Court of Appeal)

The Newfoundland Court of Appeal previously determined in Lynch v. St. John's (City), 2016 NLCA 35, that the property of the appellant had been constructively expropriated by the City of St. John's. Following that decision, the issue of compensation was remitted to Newfoundland's Public Utilities Board. The Public Utilities Board sought directions from the Newfoundland Supreme Court as to whether compensation should be assessed based on the uses permitted by the existing zoning (agriculture, forestry, and public utility uses) or whether it should be assessed based on a residential development use. The Newfoundland Supreme Court found that compensation must be based on the existing zoning, and the expropriated landowner appealed.

The expropriated land was located in the Broad Cove River watershed. Since the 1960s, increasingly significant restrictions were placed on the use of the expropriated land, which were generally aimed at preventing pollution of the watershed. This began with development restrictions imposed by the Province, to be administered by the City. The expropriated lands were later brought into the City as part of a large reorganization of the North East Avalon Region in 1992. The City passed zoning regulations in 1994 which zoned the property "Watershed", permitting agriculture, forestry and public utility uses on a discretionary basis. Ultimately, in 2013, the City advised the expropriated landowner that the lands could not be developed and must be maintained in their natural state. In addressing the appeal, the Court of Appeal returned to its earlier decision regarding the constructive expropriation, and determined that the process leading to the constructive expropriation started in 1964, and ended with the City's refusal of all development in 2013.

Market value compensation is based on fair market value and on "existing use value" as per s. 27(1)(a) of the Expropriation Act, RSNL 1990, c. E-19. This section also provides that the determination of potential uses, for existing use value, is to be made at the beginning of the expropriation process. The Court of Appeal explained that an expropriating authority cannot downzone a property, and thereby reduce the compensation payable, in anticipation of the need to acquire the property. In such cases, any downzoning will be ignored in determining compensation. The critical question is whether the provisions were passed with a view to the development for which the land was expropriated or whether there is a causal connection between the imposition of the planned use restriction and the expropriation.

In this case, the Court of Appeal found that the restrictions imposed over the years were all intended to achieve the same objective and were part of one scheme with a view to achieving effective expropriation. Accordingly, the restrictions had to be ignored when assessing compensation. The Court of Appeal remitted the case to the Public Utilities Board to determine what other uses beyond agriculture, forestry and public utility should be taken into account as part of the process of fixing compensation.

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4. Statutory offer of compensation cannot be withdrawn

CHO v. Ontario (Transportation), 2022 CanLII 85613 (Ontario Land Tribunal)

Section 25 of Ontario's Expropriation Act, R.S.O. 1990, c. E.26, provides that expropriating authorities must serve, on a registered land owner, an offer of an amount in full compensation for the registered owner's interest in lands expropriated (provided that no agreement on compensation has been reached). Under s. 25(1)(a), the expropriating authority must make an offer of total compensation for all interests in the land, and under s. 25(1)(b), the expropriating authority must make an offer of immediate payment without prejudice to the expropriated landowner seeking further compensation under the Act.

On May 31, 2011, Ontario's Ministry of Transportation ("MTO") made an offer under s. 25(1)(a) of the Act in the amount of $458,000.00, and an offer under s. 25(1)(b) in the amount of $24,400.00. The expropriated landowner accepted the s. 25(1)(b) offer in 2012, and at no point rejected the s. 25(1)(a) offer. On December 20, 2013, the MTO purported to withdraw and replace the s. 25(1)(a) offer with a new offer of $24,400.00. On December 14, 2021, the expropriated landowner accepted the original s. 25(1)(a) offer, arguing that the MTO could not rescind the original offer, and that it remained open for acceptance once made.

The Ontario Land Tribunal agreed that the original s. 25(1)(a) offer remained in force and available for acceptance, and that it was indeed accepted by the expropriated landowner in December 2021. An expropriating authority cannot withdraw and substitute a s. 25 offer, and an offer under s. 25(1)(a) is not "spent" when an offer under s. 25(1)(b) is accepted.

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5. Sales to an Expropriating Authority are not reliable indicators of value

Fishcreek Land Corp. v. Alberta, 2022 ABLRT 1282 (CanLII)

The Alberta Land and Property Tribunal clarified the role of property sales made to an expropriating authority as comparables for the purpose of determining the market value of another property. The Tribunal considered competing appraisal reports on market value that had a delta of nearly 50%. The Claimant, Fishcreek Land Corp., argued that some comparables used in the competing appraisal were inadmissible and not reliable indicators of value because they were sales made to an expropriating authority.

The Claimant cited the New Law of Expropriation textbook, which summarizes the issues surrounding the use of sales to expropriating authorities as comparables as follows:

Arbitral tribunals still distrust sales to public bodies having expropriation powers. In the absence of "convincing evidence" that such transactions are at arm's length and completely free from any threat of expropriation, it will be an uphill battle to convince the tribunal that the transaction meets the statutory definition in subsection 14(1) of the Ontario Act of a sale from a "willing seller" made in the "open market".

The Tribunal was satisfied that the comparables at issue were voluntary transactions, since the seller was a sophisticated party in the business of buying and developing land who was represented by legal counsel and who obtained appraisals to help determine the value of the land. Therefore, the transactions were admissible.

However, the Tribunal placed "little to no weight" on those comparables because it was not satisfied the sales were reliable indicators of the land's value. The problem was that the sales were artificial in nature. They were sales from one seller to one vendor, and the seller had no choice but to deal with the vendor. As such, these sales were seen as less reliable than sales that occur on the open market.

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6. Illegal use in the context of injurious affection

Group III Diversified Inc. v. Winnipeg (City of), 2022 MBCA 30 (CanLII)

The Manitoba Court of Appeal ordered a rehearing of an order of the Land Value Appraisal Commission ("LVAC") assessing compensation for injurious affection on a partial taking. The Court of Appeal found the LVAC's decision to be so deficient and replete with errors that it could not conduct its appellate review and required a new hearing in accordance with the guidance provided in its reasons. As such, the Court of Appeal's decision is instructive on the applicable legal principles on injurious affection cases. The Court of Appeal also considers the relationship between section 27(2)(d) of the Expropriation Act, CCSM, c. E190 (the "Act") on the exclusion of illegal uses from compensation and section 30(1) of the Act on injurious affection.

The City of Winnipeg expropriated part of the subject property for the purpose of realigning and extending a roadway. Previously, there was a median cut in the middle of the public road which permitted vehicles, including trucks, to access the subject property. However, the median cut was not directly aligned with the property's driveway, such that left-turns while possible, had to be done illegally. As part of the road construction, the median cut was eliminated and the new road and a new median were built, in part, on the expropriated land. The Claimant advanced an injurious affection claim on the basis that the expropriation and road construction made it less desirable for tenants due to loss of curb appeal, but primarily because the elimination of the median cut significantly reduced truck access to the property.

The Court of Appeal provided an overview on the general purpose of injurious affection claims, which are meant to compensate an owner for a reduction in the value of its lands and for other prescribed damages resulting from the actions of a statutory authority. In the case of a partial expropriation, compensable injurious affection claims are divided into three categories under section 30(1) of the Act:

  1. Compensation for any reduction in market value of the remaining land of the owner caused by the expropriation of the part;
  2. Compensation for the damages sustained by the owner as a result of the existence and the use but not the construction of the works upon the part of the land expropriated; and
  3. Compensation for such other damages sustained by the owner as a result of the existence, but not the construction or use, of the works as the authority would otherwise be responsible for in law if the existence of the works were not under the authority of a statute.

With respect to the elimination of a left-turn into the subject property, the Court of Appeal agreed with the City that the left-turn through the previous median cut was illegal under the Highway Traffic Act. As such, the next step in the analysis is to determine if it was an illegal use only of the median cut or if the completion of the left-turn into the property resulted in an illegal use of the property as well. The court noted that if it was an illegal use of the property, in a market-value analysis, the ability to make the left turn would be excluded from consideration under section 27(2)(d) of the Act and left the final determination to be made by the LVAC on a rehearing. However, section 27(2)(d) of the Act does not apply to injurious affection claims and the LVAC should have considered the three possible categories of injurious affection under section 30(1) of the Act and whether any applied to the closure of the median cut.

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7. Surface Rights Acts: Compensation for injurious affection available for works located beyond the right of entry area

Sabo v. AltaLink, 2022 ABQB 156 (CanLII)

The Alberta Court of Queen's Bench considered the interpretation of injurious affection in section 25(1)(d) of the Surface Rights Act, RSA 2000, c S-24 (the "Act") in the context of the installation and operation of high voltage transmission lines on towers immediately adjacent to, but not directly located on lands subject to a right of entry order ("ROE Order").

It found that section 25(1)(d) must be interpreted in a way that permits the Board to make an award of compensation for injurious affection even though the steel monopole towers and the transmission lines were located solely within the government road allowance and not within the right of way granted by the ROE Orders. In reaching this conclusion, the court relied on the purpose of the Act, which is to provide a mechanism for fair compensation where lands are partially taken by a ROE Order. The Act is remedial legislation which must be given a fair, large and liberal interpretation.

AltaLink, the operator, advocated for an interpretation of section 25(1)(d) that was consistent with the old common law rule that permits compensation for injurious affection only when the loss arises from the operations of the operator on the area taken. However, that approach was rejected in Landex Investments Ltd. v. Red Deer (City), [1991] 6 W.W.R 275 (ABCA), which found the application of the common law rule would make Alberta's compensation scheme "illogical and unfair".

The court drew the line between those who are subject to a ROE Order and those who are not, rather than whether the transmission towers were situated a few feet within the right of way or a few feet outside of the right of way. The Board had discretion pursuant to section 25(1)(d) to award compensation for injurious affection for the nuisance, inconvenience and noise arising from the installation and operation of the power transmission lines within the government road allowance, even though neither the lines nor the steel monopole towers were installed in the area granted by the ROE Order.

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8. Antrim test on injurious affection applicable in Newfoundland and Labrador

His Majesty the King in Right of Newfoundland and Labrador v. O.D. Holdings Limited and City Sand and Gravel Limited, 2022 NLCA 60 (CanLII)

The Newfoundland Court of Appeal upheld a decision of first instance, reiterating the legal principles applicable to a claim of detrimental affection (or "injurious affection") and related damages. The Respondents' property, on which they operated a quarry, was partially expropriated for the construction of a new road. The Respondents claimed detrimental affection to its quarry operation as a result of the expropriation.

The Newfoundland Court of Appeal confirmed that the Board of Commissioners of Public Utilities did not err in applying the test for detrimental affection as stated in Antrim Truck Centre Ltd. v. Ontario (Transportation), 2013 SCC 13 ("Antrim"). Antrim had not been previously relied upon in the province but nevertheless adopted historic principles that had been applied to constructive expropriation claims in Newfoundland and Labrador. This test required the Respondents to establish that:

  1. The damage must result from action taken under statutory authority;
  2. The action would give rise to liability but for that statutory authority; and
  3. The damage must result from the construction and not the use of the works.

The second element of the Antrim test was explored in further detail. The Court of Appeal affirmed that the impugned interference must be both substantial and unreasonable. This is a question of judgment based on all of the circumstances and the focus of an appeal had to be on whether the Board appropriately carried out the balancing inherent in the law of private nuisance. Further, while the focus of the reasonableness analysis in private nuisance is on the character and extent of the interference with the claimant's land, the nature of the defendant's conduct is not an irrelevant consideration. Conduct that is malicious or careless will be a significant factor in the reasonableness analysis. The Court of Appeal ultimately upheld the Board's finding at first instance and found that it was guided by the correct legal principles.

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