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Tuesday, December 7, 2010

Expropriation: B.C. Supreme Court comments on use of sales to expropriating bodies as evidence of "market value"

In August 1987, the Resort Municipality of Whistler, expropriated approximately 108 acres of land (the “Property”) from Rainbow Country Estates Ltd.  The Property fronts on Alta Lake, a warm water lake that is excellent for swimming. It includes a natural beach along a portion of the waterfront. There are very attractive views from the Property across Alta Lake towards the two main ski hills in Whistler, Whistler Mountain and Blackcomb Mountain. Alta Lake Road runs through the Property, in a north-south direction. A very popular public park, Rainbow Park, is now located along the lakefront.  At the time of the expropriation, Whistler valued the Property at $367,000, and paid that amount. 

Twenty-three years after the expropriation, the B.C. Supreme Court released a decision on the market value of the property.  Rainbow, the plaintiff in the case, relied on the market valuation provided by its appraiser Sandra Cawley and argued that the appropriate range for the market value of the Property as of August 1987 was between $1.7 million and $2 million.  Whistler, on the other hand, relied on the market valuation provided by its appraiser, Larry Dybvig, of $315,000.  If the Court were to accept Mr. Dybvig’s opinion, Rainbow would be entitled to nothing because it received more than this amount in August 1987.

In the end, the Court determined that the market value was $1.3 million in 1987.  In the course of coming to this conclusion, the Court had occasion to comment on the use of purchases by expropriating bodies as "comparables" in determining market value:
Mr. Dybvig’s thirteen comparables also included four where Whistler was the purchaser. The authors of The New Law of Expropriation comment on sales to public bodies having expropriation powers and say (at pp. 5-42 to 5-43):
It is a common practice of some expropriating authorities to acquire the land they require without resorting to formal expropriation. . . . Because of the ever-present power of expropriation, in many cases the owner cannot fit within the statutory definition of “willing seller”, and the transaction fails as evidence of “market value”. . . . While the owner under today’s legislation is closer to a position of equality than he or she was in the past, expropriation is still a harrowing experience. Many owners do not understand the advantages of the reform legislation and will settle for far less than what they might expect to receive after litigation before the tribunal and in the courts. Other owners cannot afford the delay caused by litigation, particularly in Ontario where interest paid on compensation is wholly inadequate. Some owners fear offending an authority which presently or in the future might exercise a discretionary administrative authority which affects or might affect their interests. Others are simply intimidated by the overwhelming power of the authority and its seemingly unlimited resources. Thus, in many cases the rationale behind the early rule is still valid. Other settlements which are made after full appraisals have been completed by each party and both parties have received competent legal advice can, absent other factors, be accepted as a valid expression of the parties’ perception of the market value of the subject property on the valuation date.
The authors comment further (at p. 5-43) that, 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 of a sale from a “willing seller” made in the “open market.” The party seeking to rely on such a sale has the burden to establish the sale was voluntary and unaffected by extraneous factors. However, the circumstances of these four transactions – where Whistler was the purchaser – have been left unexplained by Mr. Dybvig. Without evidence of the circumstances, I have no basis to conclude that the transactions in fact qualify as sales from a willing seller made in the open market.

The presumption that sales to expropriating authorities should be given no weight is also discussed in the text The Law of Expropriation in Canada, 2nd ed. (Scarborough: Thomson Carswell, 1992), at p. 201:

The party seeking to introduce and rely on sales of comparables to an authority must establish to the satisfaction of the tribunal that the “transactions may be regarded as voluntary in character.” In the absence of evidence that the sales were arm’s length transactions they will not be admitted, or, if admitted, given no weight.
The concern (reflected in the learned texts) is that involuntary sales do not reflect a sale in the open market by a willing seller. Non-arm’s length sales may not occur on the open market at all and may be affected by considerations between the non-arm’s length parties. However, Mr. Dybvig’s report did not include relevant information about the parties or indicate that Mr. Dybvig did any investigation of the circumstances of the transaction. As a result, the usefulness of many of Mr. Dybvig’s comparables is diminished, and my confidence that Mr. Dybvig is an impartial expert is further undermined.
One question raised by this decision, I suggest, is whether the "pattern of dealings" approach used in many pipeline expropriation cases is appropriate.  Should the fact that a company has been able to reach an agreement with a number of landowners under the threat of expropriation be determinative of the market value of a particular property? 

Read the B.C. decision at: Rainbow Country Estates Ltd. v. Whistler.

Thank you to one of my readers for bringing this decision to my attention.

2 comments:

  1. I have a SRW on my riverfront property with 2 wells hat serve the community water. They are trying to expropropriate, but are placing leagl pins in and appriasing without formal notice. They have trspass issues to deal with and say they will be resolved by 'aquiring a portion of property' yet we have not agreed to sell them anything. Any advice? There are not too many other 2 acrre parcels of riverfront where I live so finding comparables is going to be a challenge.

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  2. Expropriation legislation often provides expropriating authorities with the right to carry out appraisals and survey work before the expropriation formally occurs. It may be that no trespass has occurred. You also refer to an existing SRW, which may provide access rights for the work that is being carried out. You should consult a lawyer about the situation. As far as the valuation of the property goes, in the absence of useful comparables an appraiser may take a different approach.

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