In 1998, the NEB had approved the Alliance Pipeline, which was to cross Smith's land. In 1999, the pipeline was completed, but Alliance failed to carry out remediation of Smith's property as had been agreed. Smith went ahead and did the work himself and then sought payment from Alliance. Alliance refused to pay and the matter went to arbitration.
At the same, Alliance took Smith to Court and sought an injunction against him. Alliance lost that case, and Smith was awarded his partial indemnity (or party and party) costs. In other words, Smith won but only recovered part of his costs. Therefore, at the arbitration hearing under the National Energy Board Act, Smith claimed the rest of his court costs that hadn't been awarded on the basis that he was supposed to be made whole in the expropriation process. He was entitled to recover all costs he incurred as a result of the expropriation and the construction of the pipeline.
There was another wrench in the works. The first arbitration committee that was appointed to hear Smith's case was dissolved when one of the members became a judge. That meant that a second arbitration had to be commenced. Smith sought his costs of the first arbitration, but Alliance opposed this. The second arbitrator awarded Smith both his costs of the first arbitration and his unpaid costs from the court case. Alliance appealed the decision unsuccessfully to the Federal Court, but later had the arbitrator's decision overturned on appeal to the Federal Court of Appeal.
The Supreme Court has now re-established the decision of the second arbitration committee, finding that the decision was reasonable. The Court found that awards of costs are fact-sensitive and generally discretionary. The second arbitration commitee was right to find that Section 99(1) of the NEB Act, the costs provision that is triggered when a landowner recovers 85% or better of the pipeline company's offer, merited a broad reading in accordance with the intent of the legislation. The intention is clear - landowners are to be fully compensated. This is the intention that lies behind expropriation legislation generally.
On that basis, the Court ruled that Smith was entitled to recover all of his costs which had been reasonably incurred in both arbitrations and in the court case. The case before the Alberta Court of Queen's Bench related to the same single claim for compensation by Smith in respect of the same single expropriation by the same single expropriating party, Alliance Pipelines.
Also of importance, the Court awarded Smith his substantial indemnity costs (solicitor-client) for all of the appeals by Alliance, finding that Smith was to be fully compensated and that he should not be made to bear the costs of what was, for Alliance, at test case.
With respect to the NEB Act and expropriation in general, Justice Fish of the Court wrote:
The goal of complete indemnification first appeared in the NEBA in 1981, when Parliament amended the statute to introduce most of what now constitutes Part V (An Act to amend the National Energy Board Act, S.C. 1980-81-82-83, c. 80). Prior to these amendments, ss. 145 to 184 and 186 of the Railway Act, R.S.C. 1970, c. R-2, were imported directly into the NEBA (R.S.C. 1970, c. N-6, s. 75). Under those provisions, “the costs of the arbitration” were in the discretion of the arbitrator and could be ordered against either party (Railway Act, s. 164(1); see Re Conger Lehigh Coal Co. Ltd. and the City of Toronto,  O.R. 35 (H.C.J.), at pp. 43-44).
The 1981 amendments to the NEBA were inspired by the Law Reform Commission of Canada’s review, in 1975, of expropriation in the federal context in its Working Paper 9, Expropriation. This was expressly acknowledged by the Minister who introduced the amendments. The proposed legislation, he told Parliament, “substantially incorporates all the major recommendations of the Law Reform Commission of Canada expressed in its 1975 working paper” (House of Commons Debates, vol. VII, (1st Sess., 32nd Parl., March 6, 1981, at p. 8006).
One of the Commission’s recommendations was that owners not be precluded from receiving the compensation to which they were entitled by the financial burden of litigation. Ideally, said the Commission, expropriated owners should receive “full indemnity for all such costs” (p. 73). It also found that the Railway Act regime did not provide adequate compensation because “[b]y a quirk in the law, the word ‘costs’ in the Railway Act, as in many other acts, does not mean exactly what it says[; it] does not mean ‘full costs’” (p. 74).
Today, the principle of full indemnification appears explicitly in s. 75 of the NEBA, which provides, as I noted earlier, that a company “shall make full compensation . . . for all damage sustained” by the expropriated owner. Parliament adopted this more comprehensive approach to indemnification by broadening the language of s. 99(1) from “costs of the arbitration” to “all legal, appraisal and other costs determined by the Committee to have been reasonably incurred by that person in asserting that person’s claim for compensation”.
This amendment must be presumed to signify a clear and considered decision by Parliament to allow Arbitration Committees to exercise their full discretion in seeking to make expropriated owners whole (Sullivan, at pp. 579-82), and the historical context validates this presumption.
Moreover, the NEBA operates within the broader context of expropriation law, both federal and provincial. As early as 1949, this Court acknowledged the vulnerable position of expropriated owners. In Diggon-Hibben, Ltd. v. The King, 1949 CanLII 50 (S.C.C.),  S.C.R. 712, at p. 715, Rand J. (Taschereau J. concurring) stated that no one should be “victimized in loss because of the accident that his land [is] required for public purposes”. In the same case, Estey J., citing with approval the earlier reasons of Rand J. in Irving Oil Co. Ltd. v. The King,  S.C.R. 551, affirmed the right of an expropriated person under the relevant clause “to be made economically whole” (p. 717; see K. J. Boyd, Expropriation in Canada: A Practitioner’s Guide, (1988), at pp. 144-45).
More recently, in Toronto Area Transit Operating Authority v. Dell Holdings Inc., 1997 CanLII 400 (S.C.C.),  1 S.C.R. 32, at paras. 20-22, Cory J. (speaking for six of the seven-member panel) reaffirmed the principle of full compensation. Dealing there with Ontario’s Expropriations Act, R.S.O. 1990, c. E.26, Justice Cory held that the Act, a remedial statute, “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” (para. 23).
Like various provincial expropriation statutes, the NEBA is remedial and warrants an equally broad and liberal interpretation. To interpret it narrowly, as the respondent in this case suggests, would in practice transform its purpose of full compensation into an unkept legislative promise.This case will surely have an effect on future arbitration cases under the National Energy Board Act as well as expropriation matters before provincial boards. It confirms the principle of full compensation that must underlie the treatment of landowners in pipeline expropriation contexts. It is not often that the Supreme Court of Canada chooses to examine landowner issues under the National Energy Board Act. When it does, it can't help but have an effect on future cases.
Read the full decision at: Smith v. Alliance Pipelines.