Friday, October 16, 2020

No Free Ride on Expropriation Costs


In the oft-cited case of Toronto Area Transit Operating Authority v. Dell Holdings Ltd. from 1997, Justice Cory of the Supreme Court of Canada wrote of expropriation:

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.  This principle has been stressed by eminent writers and emphasized in decisions of this Court.

The presumption is that there will be no expropriation without compensation, and expropriation statues such as Ontario’s Expropriations Act are to be read, as noted by Justice Cory, “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.”

Full compensation is normally understood to include reimbursement of the reasonable costs incurred by a landowner incurred in the determination of the amount owing for the expropriation.  The landowner will not be “made whole” if he or she is left out of pocket for legal, appraisal and other costs expended in disputing the amount of compensation offered by an expropriating authority.  Section 32 of the Expropriations Act requires the Local Planning Appeal Tribunal (the statutory tribunal that arbitrates expropriation compensation, formerly the Ontario Municipal Board or “OMB”) to order payment of a landowner’s reasonable legal, appraisal and costs “actually incurred by the owner for the purposes of determining the compensation payable” where the compensation amount recovered by the landowner is “85 per cent, or more, of the amount offered by the statutory authority”.  If the amount recovered is less than 85 percent of what was offered in compensation by the authority, the Tribunal has discretion to award costs as it sees fit.

The 85 percent rule, which is a common one across Canadian jurisdictions, means that the landowner does not need to accept the compensation offered by the authority solely out of fear of the costs of arbitrating the compensation.  The landowner will still be entitled to recover his or her reasonable costs even if the Tribunal determines that the compensation payable is up to 15 percent less than what was offered by the expropriating authority.  Only where a landowner turns down an offer by the expropriating authority that ends up to be more than 15 percent higher than the actual compensation payable (as found by the Tribunal) does the landowner risk not recovering his or her own costs and perhaps having to pay costs to the expropriating authority.

Where land is taken by an expropriating authority, Section 25 the Expropriations Act requires that the expropriating authority serve on the registered owner of the land “an offer of an amount in full compensation for the registered owner’s interest”.  In a recent decision, the Court of Appeal for Ontario confirmed that this mandatory offer is not the only offer that may be relevant to the determination of costs under Section 32 of the Act.  It is open to the expropriating authority to make subsequent offers to settle the issue of compensation, and a landowner will have to consider those offers reasonably on an ongoing basis.   The landowner cannot sit back and reject an updated offer that ends up being more than 15 percent higher than the actual compensation awarded on the assumption that his or her entitlement to costs is safe because the initial offer was too low.  At least not without putting that entitlement to costs at risk.

Writing for the Court of Appeal, Justice Hourigan explained that, “the objective of full and fair compensation cannot be divorced from the objective of the efficient resolution of claims.”  He rejected the landowner’s position in the case on appeal that only the Section 25 offer counted.  In Justice Hourigan’s view, the landowner’s proposed interpretation:

… would permit the prospect of an unreasonable claimant delaying proceedings, running up legal costs, and wasting the [former] OMB’s resources, all the while safe in the knowledge that unreasonable refusals of subsequent offers cannot adversely affect its entitlement to legal costs.

Put another way, “the statutory protection provided by the Act is not a blank cheque that permits a claimant to act unreasonably.”

And it must be remembered that unreasonable conduct by a landowner does not only put the landowner’s entitlement to costs at risk, but also exposes the landowner to possible liability to the expropriating authority for its costs.  In the case before the Court of Appeal, the landowner was appealing a decision by the OMB (upheld on appeal by the Divisional Court) that awarded the expropriating authority its partial indemnity costs incurred after the date of its offer to the landowner that ended up being far more than 15 percent higher than the expropriation compensation awarded.

Landowners facing expropriation can take comfort in knowing that the costs recovery rules are designed to afford them a fair chance to dispute the compensation amount offered by the expropriating authority.  However, the trade-off is that landowners must conduct themselves reasonably throughout the full course of the dispute.

Read the Court of Appeal's decision at:  2020 ONCA 490.

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