Not by choice: Cost recovery and interest pursuant to Ontario’s Expropriations Act

The Expropriations Act: The indemnity principle and costs¹

In Toronto Area Transit Operating Authority v. Dell Holdings Ltd, the Supreme Court of Canada observed that expropriation has a significant impact on the expropriated owner:

• The expropriation of property is one of the ultimate exercises of governmental authority. To take all or part of a person’s property constitutes a severe loss and a very significant interference with a citizen’s private property rights. It follows that the power of an Expropriating Authority should be strictly construed in favour of those whose rights have been affected.²

Cory J., writing for the majority, further noted that the Expropriations Act is a remedial statute, which must be given a broad and liberal interpretation consistent with its purpose. The Supreme Court found indemnity to be the guiding principle:

• It follows that the Expropriations Act should be read in a broad and purposive manner in order to comply with the aim of the Act to fully compensate a land owner whose property has been taken.³

Furthermore, in the event of an ambiguity, it should not be interpreted to deprive common law rights unless that is the plain provision of the statute.⁴ These principles, when applied, create a presumption that whenever land is expropriated, compensation will be paid.⁵

The entitlement of expropriated property owners to recover their reasonable legal, appraisal and other costs is an essential part of the compensatory scheme pursuant to the Expropriations Act. In the Royal Inquiry into Civil Rights Report, which is one of the foundations of Ontario’s Expropriations Act, the Honourable J. C. McRuer enunciated the principle that compensation in expropriation matters includes those costs incurred as a result of expropriations:

• The expenses incurred by an owner for solicitors' and valuators' fees are elements to be considered in determining the basis of compensation where land has been expropriated. This matter has been the subject of a reference to the Ontario Law Reform Commission and has been dealt with in its report.⁶

In Marshall v. Ontario, Vice-Chair Lee confirmed this principle.⁷ Further, some courts have held that the assessment of costs is subject to the costs provisions of the Expropriation Act. As such, it is clear that the general intention of the Expropriations Act is to ensure that the expropriated owner is made whole.⁸

Section 32: Reasonable legal, appraisal and other costs   

Section 32 of Ontario’s Expropriations Act provides the mechanism for costs recovery as follows:

Costs

• (1) Where the amount to which an owner is entitled upon an expropriation or claim for injurious affection is determined by the Board and the amount awarded by the Board is 85 per cent, or more, of the amount offered by the statutory authority, the Board shall make an order directing the statutory authority to pay the reasonable legal, appraisal and other costs actually incurred by the owner for the purposes of determining the compensation payable, and may fix the costs in a lump sum or may order that the determination of the amount of such costs be referred to an assessment officer who shall assess and allow the costs in accordance with this subsection and the tariffs and rules prescribed under clause 44 (d).

• (2) Where the amount to which an owner is entitled upon an expropriation or claim for injurious affection is determined by the Board and the amount awarded by the Board is less than 85 per cent of the amount offered by the statutory authority, the Board may make such order, if any, for the payment of costs as it considers appropriate, and may fix the costs in a lump sum or may order that the determination of the amount of such costs be referred to an assessment officer who shall assess and allow the costs in accordance with the order and the tariffs and rules prescribed under clause 44 (d) in like manner to the assessment of costs awarded on a party and party basis.⁹ [emphasis added]

Dealing specifically with subsection 32(1), Ontario Regulation 364 was enacted pursuant to section 44(d) of the Expropriations Act and provides the following directions:

• (1) The amount of legal, appraisal and other costs shall be in the discretion of the assessment officer to be determined quantum meruit and in assessing, the officer may reduce the amount of, or disallow, any item of cost upon the ground that the same was not reasonable in amount or was not reasonably incurred.
• (2) Subject to subsection (1), legal costs shall be assessed, quantum meruit, by the assessment officer as on an assessment of costs as between a solicitor and his own client.¹⁰

The main distinction between subsections 32(1) and 32(2) is the discretion of the Ontario Municipal Board in the latter, or lack thereof. Pursuant to subsection 32(1), an owner, who is awarded 85% or more of the amount offered by the expropriating authority, is entitled to an order directing the latter to pay for her reasonable legal, appraisal and other costs “actually incurred” for the purposes of determining compensation.¹¹ In those circumstances, the Board has no discretion and it “shall” make an order directing the statutory authority to pay the reasonable costs. However, under subsection 32(2) the Board has the discretion to award or refuse costs where the claimant is awarded less than 85% of the amount offered by the statutory authority.¹²

The “amount offered” refers to the section 25 offer, which must be made within three months after the registration of the expropriation plan.¹³ The OMB has held that it would exclude evidence of any other offer from an expropriating authority, which the authority had served for the purpose of improving its position with regards to costs.¹⁴ Furthermore, where the expropriating authority makes no section 25 offer, the OMB will presume that the amount awarded is above the 85% threshold and will order the authority to pay all reasonable costs.¹⁵ However, where no offer is made and the claimant is unsuccessful in obtaining compensation, courts have held that there is no jurisdiction pursuant to section 32 to award costs.¹⁶

Subsection 32(1): Mandatory costs recovery

In DDS Investments Ltd v Toronto, Assessment Officer Argyropoulos observed that “[t]he assessment of costs under s. 32(1) of the Expropriations Act is a party-and-party assessment on a solicitor-and client scale. […] it is an assessment on a quantum meruit basis and the tariffs authorized by the Rules of Civil Procedure do not apply”.¹⁷ He then found that the intention of the Act was to afford the successful owner full indemnity for costs, so long as:

• (a) it was reasonable to incur the costs;
• (b) the costs were reasonable in quantum;
• (c) the costs were actually incurred; and
• (d) the costs were incurred for the purpose of determining the compensation payable.¹⁸

The onus rests entirely on the owner to adduce evidence in support of her bill of costs. Furthermore, there is no onus on the expropriating authority to call rebuttal evidence.¹⁹ It is the assessment officer’s function to determine costs based on quantum meruit and she has jurisdiction to reduce or disallow any amounts that are not reasonable or that were not reasonably incurred.²⁰

Compliance with the above elements is determined through a critical examination of dockets and invoices, as per the factors set out by the Court of Appeal in Cohen v. Kealey.²¹   In that case, the Court noted that the learned Assessment Officer had correctly listed the considerations applicable on an assessment:

1. The time expended by the solicitor;
2. The legal complexity of the matters to be dealt with;
3. The degree of responsibility assumed by the solicitor;
4. The monetary value of the matters in issue;
5. The importance of the matter to the client;
6. The degree of skill and competence demonstrated by the solicitor;
7. The results achieved;
8. The ability of the client to pay; and
9. The client’s expectations as to the amount of the fee.²²

Throughout the decision in Rabbani, Assessment Officer Thomas explains how the Cohen v. Kealey factors are applied:

The Court of Appeal and numerous assessment officers throughout the years have conducted a sort of balancing between multiple factors, placing more weight on some than on others to determine a fair and reasonable fee.
…

An assessment officer must give some consideration to the reasonableness of time claimed, always being mindful of the time honoured factor, incumbent upon the solicitor, to find the least expensive method of providing professional services.
…

However, an assessment officer must not second guess the overall appropriateness of time expended on an Expropriations Act case, unless the time appears to be patently unreasonable.
…

An assessment officer with the wisdom of hindsight, should be reluctant to second-guess the professional services rendered by a consultant.²³ 

Reasonable legal costs

In DDS Investments, Assessment Officer Argyropoulos observed that it was not the function of the assessment officer to “assess the solicitor’s bill delivered to the owner as client, but to assess the quantum of the reasonable legal costs actually incurred by the client as an owner whose lands have been expropriated and which the expropriating authority is liable to pay”.²⁴ In order to determine the reasonableness of the costs incurred, Assessment Officer Argyropoulos noted that several factors had to be taken into account:

[T]he amount of money at stake and the degree of success attained: Peloquin v. Junction Creek Conservation Authority (1972), [1973] 1 O.R. 258 (Ont. S.C.) (Assessment Officer). The assessment officer has reduced costs where there was duplication of efforts by solicitors: Nazaret Construction Co. v. Scarborough (Township) (1973), 4 L.C.R. 156 (Ont. Assess. O.), for example where the file was transferred from one lawyer to another within the same firm resulting in increased preparation time; or where the file was so transferred in the course of the hearing; or where the owner obtained unnecessary legal opinions from other counsel; or repeatedly changed lawyers during the course of the proceedings: Disposal Services Ltd. v. Metropolitan Toronto (Municipality) (1981), 22 L.C.R. 265 (Ont. S.C.); or where the result was poor, the matter was of average complexity and the solicitors spent excessive time.

The assessment officer should take into account and I have done so in this matter the amount of compensation awarded by the board, but costs may be assessed in excess of the amount of the compensation: Johnson v. Ontario (Minister of Transportation & Communications) No. 2 (1975), 7 L.C.R. 296 (Ont. Div. Ct.); and see Ridgeport Developments v. Metropolitan Toronto Conservation Authority (No. 2) (1977), 12 L.C.R. 141 (Ont. S.C.). The assessment officer has allowed as part of the reasonable legal costs of the expropriation costs of an examination for discovery that was of no benefit to the owner: Christian & Missionary Alliance v. Metropolitan Toronto (Municipality) (1973), 3 O.R. (2d) 655 (Ont. H.C.).²⁵

In DDS Investments, the claimant was awarded $86,000 in damages out of the over $1.1M claimed as compensation for the expropriation of two subsurface easements. While the City’s position on damages was $36,000, the claimant was still awarded $323,191 in legal fees and over $600,000 in total, which amounted to approximately seven times the amount of compensation allowed by the Board as compensation.²⁶

In Hewitt v. Ontario, the expropriating authority made a very low section 25 offer, refused to respond to an earlier offer of settlement made by the owner and delayed in making its own pre-hearing offer to the owner. Assessment Officer Burt found that it was reasonable under these circumstances for the owner to incur costs of proceeding to a hearing even after the arbitrators awarded less than the authority’s pre-hearing offer, which the owner ultimately refused. Assessment Officer Burt also considered the owner’s appraiser’s indication that the owner could expect compensation in excess of the amount offered and the owner’s psychiatric problems, which were fully explored during the hearing.²⁷

In Smith v. Alliance Pipeline Ltd, the Supreme Court of Canada interpreted section 99 of the National Energy Board Act, which employed similar language as the Expropriations Act and which required an expropriating authority to “pay all legal, appraisal and other costs determined […] to have been reasonably incurred […] in asserting [a] claim for compensation”²⁸. The Supreme Court of Canada upheld the decision of a panel of arbitrators who had awarded the claimant his costs of defending related court proceedings commenced by the expropriating authority in addition to his costs of obtaining compensation for the authority’s acquisition of an easement.²⁹ The Supreme Court of Canada provided an excellent overview of how cost provisions in expropriation statutes should be interpreted:

[74] First, in the context of modern expropriation law, where statutes authorize awards of “all legal, appraisal and other costs”, Canadian jurisprudence and doctrine demonstrate that “costs on a solicitor-and-client basis should generally be given” (Bayview Builder’s Supply (1972) Ltd. v. British Columbia (Minister of Transportation & Highways), 1999 BCCA 320 (CanLII), 67 B.C.L.R. (3d) 312, at para. 3, citing Todd, at p. 526; see also Holdom v. British Columbia Transit, 2006 BCCA 488 (CanLII), 58 B.C.L.R. (4th) 207, at para. 11, and Hill v. Nova Scotia (Attorney General) (No. 2) (1997), 155 D.L.R. (4th) 767 (S.C.C.)).

[75] Second, awarding costs on a solicitor-client basis accords well with the object and purpose of the NEBA, as reflected in s. 75.

[76] Third, this is a case in which “justice can only be done by a complete indemnification for costs” (Foulis v. Robinson (1978), 1978 CanLII 1307 (ON CA), 92 D.L.R. (3d) 134 (Ont. C.A.), at p. 142). Only this type of award can indemnify Mr. Smith as best one can for the inordinate amount of money — to say nothing of time — he has had to invest in what should have been an expeditious process.

[77]  Lastly, Mr. Smith should not be made to bear the costs of what is clearly a test case for the respondent. Mr. Justice Gill’s appointment to the bench ended 19 other arbitration proceedings against Alliance before the First Committee. Mr. Smith, on the other hand, has sought nothing more than to resolve a decade-old disagreement over reclamation work worth a few thousand dollars.³⁰

Writing for the majority, Fish J. concluded that the arbitrators’ award accorded with “the plain words of the provision, its legislative [history], its evident purpose, and its statutory context. Moreover, it rests comfortably on the foundational principle of full compensation that animates both the NEBA and expropriation law generally.”³¹

Reasonable appraisal costs

In DDS Investments, Assessment Officer Argyropoulos found that many of the same principles that apply to the question of reasonable legal costs also apply to the issue of reasonable appraisal costs:

The function of the assessment officer is not to assess the appropriate fee to be charged by the appraiser to the owner, but rather to determine the quantum to be paid by the expropriating authority: Stanton v. Scarborough (Borough) Board of Education (1983), 26 L.C.R. 292 (Ont. S.C.).

The basis for assessing experts' fees has been stated in these words: It is not enough that the claimant may have acted reasonably in hiring an expert, but further, the fees of the expert must have been reasonable....having regard to the qualifications and experience of the appraiser, the hours spent and the hourly rate charged by him and quality of the services rendered. All of the foregoing factors must be considered in light of the complexity of the issues and the amount involved in the expropriation: Kolbrich v. Ontario (Minister of Housing) (1982), 137 D.L.R. (3d) 459 (Ont. H.C.), at p. 461, quoting from N.A. McDougall Construction (Manitoulin) Ltd. v. R. (1980), 19 L.C.R. 321 (Ont. Div. Ct.), at p. 323.³²

Costs “actually incurred”

In Peloquin v. Junction Creek Conservation Authority, the Ontario Superior Court gave the words “actually incurred” a broad meaning to include costs for services that have been rendered, even if they are not paid.³³ However, it is a well-established principle that the total fees and disbursements claimed as party and party costs cannot exceed the total solicitor-client costs charged by the solicitor to the claimant.³⁴

Costs were incurred for the purpose of determining compensation

In Pitblado v. Oakville, the OMB held that the claimant could recover the costs incurred to determine the compensation for the market value and for the business losses. The Board found that the contrary would “fly in the face of the direction in Dell to "fully" compensate a landowner, whose property has been taken.”³⁵

In McKean v. Ontario, the expropriating authority discovered an old plan of subdivision that created municipal road allowances after having registered an expropriation plan for the realignment of a provincial highway. It argued that this eliminated the need for expropriating some of the lands covered by the plan. The OMB found that costs incurred for court proceedings to settle legal title and to define what lands need to be expropriated were recoverable as costs incurred for the purposes of determining the compensation.³⁶ This principle of the compensability of costs of related proceedings was reinforced by the Supreme Court of Canada in Smith v. Alliance Pipeline Ltd.³⁷

Injurious affection — no taking

There is limited jurisprudence when dealing with costs where no land has been taken. In cases where there is injurious affection with no taking, it has been argued that the Board should not read the 85% reference as a precondition to the award of s. 32(1) costs. That could create the anomalous and potentially absurd result that the authority could, arguably, by its failure to make any offer of compensation oust the jurisdiction of the OMB to award reasonable costs even to a successful claimant. Such an interpretation is inconsistent with the intent of the indemnity principle underlying the Act as articulated by the Supreme Court of Canada in both Dell Holdings as to the general approach to interpreting the Act, and in Smith v Alliance Pipeline specifically regarding costs in an expropriation.

In cases of injurious affection with no land taken, and wherein a damages award is made to the Claimant, the Board ordered the payment of reasonable legal, accounting and other costs. For example, see Linden v Toronto (City), which was upheld by the Divisional Court.[38]

Interest

Pursuant to section 33 of the Expropriations Act, an expropriated owner is also entitled to receive interest on the portion of the market value of the owner’s interest in the land and on the portion of any allowance for injurious affection. Section 33 provides:

• (1) Subject to subsection 25 (4), the owner of lands expropriated is entitled to be paid interest on the portion of the market value of the owner’s interest in the land and on the portion of any allowance for injurious affection to which the owner is entitled, outstanding from time to time, at the rate of 6 per cent a year calculated from the date the owner ceases to reside on or make productive use of the lands.

Variation of interest

• (2) Subject to subsection (3), where the Board is of the opinion that any delay in determining the compensation is attributable in whole or in part to the owner, it may refuse to allow the owner interest for the whole or any part of the time for which the owner might otherwise be entitled to interest, or may allow interest at such rate less than 6 per cent a year as appears reasonable.

Idem

• (3) The interest to which an owner is entitled under subsection (1) shall not be reduced for the reason only that the owner did not accept the offer made by the expropriating authority, although the compensation as finally determined is less than the offer.
• (4) Where the Board is of the opinion that any delay in determining compensation is attributable in whole or in part to the expropriating authority, the Board may order the expropriating authority to pay to the owner interest under subsection (1) at a rate exceeding 6 per cent a year but not exceeding 12 per cent a year.³⁹

Interest is not applied to a disturbance damage award. This is an important distinction, particularly in the context of mediation and / or settlement negotiations of expropriation claims.

The statutory interest rate of 6% a year is calculated from the date the owner ceases to reside on or make productive use of the lands.⁴⁰ A determination of the point at which the owner ceases to make productive use of the land is frequently a subject of discussion and litigation.

The interest rate may be reduced below 6% if the conduct of the owner resulted in a delay in determining the amount of compensation payable.⁴¹ Conversely, the interest rate may be increased up to 12% if the delay in determining compensation is attributable to the expropriating authority.⁴²

Subsection 25(4) is a specific provision that differs from section 33, providing:

• (4) If any registered owner is not served with the offer required to be served on the owner under subsection (1) within the time limited by subsection (1) or by an order of a judge under subsection (3) or by agreement, the failure does not invalidate the expropriation but interest upon the unpaid portion of any compensation payable to such registered owner shall be calculated from the date of registration of the plan.⁴³

Subsection 25(4) requires that an offer of immediate payment be made within three months after the registration of an expropriation plan. If the expropriating authority fails to make such an offer, interest accrues from the date of registration of the expropriation plan.

Section 33 does not preclude post judgment interest, which may accrue to all heads of damage, including disturbance damages.

Conclusion

There has been little in terms of legislative reform in the expropriation context for several decades. The common law has assisted in providing guidance on how interest and cost provisions in expropriation statutes should be interpreted, and this is consistent with the indemnity principle set out by the Supreme Court of Canada in Dell Holdings. The cost and interest provisions in the Expropriations Act are unique and much different from standard civil litigation as no one chooses to be expropriated. An understanding of these provisions is critical in appreciating their role in settlement discussions, mediation and hearings in the expropriation context.