Supreme Court talks de facto expropriation again

 AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

The concept of “de facto” expropriation was the focus of another decision of the Supreme Court of Canada in 2024.  In certain cases, government action outside of expropriation legislation may effectively result in a taking of property, which may entitle a property owner to compensation for the taking.  This is known as a “constructive” or “de facto” taking.  There is a presumption that there will be no expropriation without compensation.  If government action (often in the form of regulation) removes all reasonable uses of a property, then the property has been effectively expropriated and compensation may be payable.

Importantly, though, “compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition.”  This “Pointe Gourde principle”, taken from a 1945 case of the same name heard before the Judicial Committee of the Privy Council in the UK, flows from the rule that compensation is to be based on the value of property to the owner, not the value to the taker.  An owner who suffers expropriation, de facto or otherwise, is entitled generally to be compensated for the market value of the property based on its highest and best use before the taking.  If the expropriating authority’s reason for taking the property actually enhances the market value of the property, the property owner does not get to rely on the enhanced value in the calculation of compensation payable.

The Pointe Gourde case involved the expropriation of land in Trinidad for use as a quarry from which stone would be taken to construct a nearby naval base.  The compensation owing to the owners was to reflect the “value of the quarry as a going concern”.  The quarry owners argued that the value of their quarry should include consideration of the higher profits they would make because their stone was to be used for the naval base.  The Judicial Council, which was the highest court for cases from Trinidad (as it was at one time the highest court for Canadian cases), decided against the quarry owners.  The increase in the market value of the property was due entirely to the expropriating authority’s plan to build the naval base.  The expropriating authority benefitted from a nearby and accessible source of a large quantity of stone, but without the plan for the naval base construction this did not increase the value of the quarry to the owners.  Value to the owner, not value to the taker.

The Supreme Court of Canada addressed similar issues in the recent Canadian case, which originated in Newfoundland.  In 1917, a landowner was issued a Crown grant for the purposes of harvesting trees to produce barrels and for firewood.  The grandchildren of the original grantee still own a 7.36-acre portion of the original Crown grant.  This remaining land is in a natural state, covered in trees and shrubs, and is located within a watershed area that drains into a river used by the City of St. John’s for its local water supply.  For decades, the land has been made subject to a series of by-laws and regulations prohibiting development in the watershed area.

Since the 1990s, the grandchildren landowners have attempted to obtain permission to develop their property.  In 2011, they asked the City about the possibility of residential development and also other activities such as tree harvesting, farming, saw milling, and the installation of solar panels and wind turbines.  The City advised that those uses were not permitted and that the land must be kept “unused” in its “natural state”.  The landowners went ahead in spite of this and applied for permission to develop a 10-lot residential subdivision.  Their application was rejected, in part on the basis of the watershed zoning that prohibited most if not all forms of development on the landowners’ property.

The landowners sued the City of St. John’s in court and obtained a declaration (upheld by the Court of Appeal of Newfoundland and Labrador and not contested before the Supreme Court of Canada) that their property had been “constructively expropriated”.  The Court of Appeal ruled that the City had acquired a “beneficial interest” in the land that consisted of “the right to a continuous flow of uncontaminated groundwater downstream to the City’s water facilities”.  While the grandchildren landowners had acquired the land their grandfather had received through the Crown grant, all they had now was a right to keep the land “unused in its natural state”.  The Court of Appeal concluded that this was a taking of “virtually all of the aggregated incidents of ownership” and that the landowners had no remaining reasonable use of the property.

The case that came to the Supreme Court arose from a legal question posed to the lower court in Newfoundland by the Board of Commissioners of Public Utilities, the authority tasked with determining the amount of compensation owing to the landowners.  The landowners were arguing that compensation should be based on land value as if the watershed regulations were not in place and a medium-density residential development were possible.  The City contended that value should be based on a highest and best use of agriculture and forestry that would be acceptable to the City and would not cause adverse impact to the watershed (something possible within the watershed zoning).  The lower court in Newfoundland relied on the Pointe Gourde principle and sided with the City.  The Court of Appeal in Newfoundland reversed this decision. 

The Supreme Court of Canada restored the decision of the lower court on the basis of the factual finding that the watershed zoning “was an independent enactment and not made with a view to expropriation”.  If the City had enacted the zoning specifically for the purpose of reducing the value of the landowners’ land so that it could then take the land for a public use, the value of the land could be determined as if the land were not subject to the zoning and was eligible for subdivision development.  However, as it was found that the zoning was enacted independent of any plan to “take” (constructively) the land, the landowners were only entitled to compensation based on the value of the land with the watershed zoning regulations in place.

Read the decision at: 2024 SCC 17 (CanLII).

Supreme Court of Canada digs up the dirt on the Sale of Goods Act

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

The Supreme Court of Canada issued a decision at the end of May, 2024 in a case about topsoil.  Of course, the case was not only about topsoil.  Topsoil just happened to be the subject matter of the contract at the heart of the dispute between the parties.  The Supreme Court chose to hear the case because it involved important questions about contracts for the sale of goods and the statutory conditions that are implied through legislation to form part of those contracts.

With the exception of Quebec, all Canadian provinces and territories have a statute governing the sale of goods that is modelled on a 19^th-century law from the United Kingdom – the Sale of Goods Act, 1893.  That UK legislation codified common law (judge-made, non-statutory) that had developed in the English courts throughout the 19^th century.  Passed down to Canadian law were three implied obligations that certain sellers of goods can owe to buyers related to the characteristics or properties of the goods sold even though the contract between seller and buyer might not mention the obligations: 1) fitness for purpose (that where the buyer makes known to the seller the particular purpose for which the goods are to be used, the goods will be reasonably fit for the purpose); 2) merchantability (that the goods sold by description will be of “merchantable” or reasonable quality and fit for sale in the usual course of trade); and, 3) correspondence with description (that goods sold by description will match the seller’s description of the goods). 

According to the Supreme Court in its recent decision, those implied obligations were likely imposed by judges to relieve buyers from the harsh effect of the law of “caveat emptor” (buyer beware) that left all of the risk related to the characteristics or properties of the goods on the buyer where the contract was silent on those matters.  In Ontario, the Sale of Goods Act contains the three implied obligations of fitness for purpose, merchantability and correspondence with description and makes them implied “conditions” rather than “warranties”.  Contractual terms are “conditions” where they are fundamental to the contract: breach of a condition would give the buyer the right to reject the goods from the seller.  Contractual terms that are not fundamental to the contract are “warranties”: breach of a warranty would give the buyer a claim for damages but would not entitle the buyer to reject the goods.  Where a condition is breached, the buyer would actually have the option to reject the goods or keep the goods and sue for damages (as if a warranty had been breached).

In the case that went to the Supreme Court, the issue was whether or not the parties to a contract for the supply of topsoil had “contracted out” of the implied condition in the Sale of Goods Act that the goods sold by description correspond with the description.  Parties don’t have to leave the implied conditions in place – they can use express language in their agreement to say that the implied conditions will not apply.

The buyer in the case was engaged by a municipality to remediate flooding in an area, which involved the removal and replacement of topsoil.  The buyer needed topsoil with a specific composition in order to provide the drainage required to solve the flooding problem.  The topsoil was sourced from the seller on the basis of the seller’s description, which included laboratory reports based on topsoil samples taken six weeks prior to the eventual delivery of the soil.  Although the seller warned that updated test results should be obtained, the buyer had missed project deadlines and wanted immediate delivery of the soil to avoid paying damages to the municipality.  The seller and the buyer agreed to go ahead with the transaction and delivery of the soil, but with exclusions of implied conditions.  The buyer would have the right to test and approve the topsoil before it was shipped to the site, but if the buyer waived that right the seller would not be responsible for the quality of the topsoil once it left the seller’s facility.

It turned out that the topsoil delivered had substantially more clay content than indicated by the earlier test results.  The soil didn’t drain the way it was supposed to and ponding developed on the project site, forcing the buyer to remove the topsoil and replace it with new topsoil that would drain properly.  The buyer sued the seller for damages claiming that the seller failed to deliver topsoil that had the composition of the soil shown in the test results that had been provided.

The majority of the members of the Supreme Court (there was one dissenting opinion) sided with the seller, finding that the parties had contracted out of the implied “correspondence with description” condition in the Sale of Goods Act.  Although the exclusion language used by the seller and buyer in their contract referred to “quality”, which is arguably something different than the matching of “identity” between the description of the soil (the test results) and the soil as delivered, the Supreme Court found that the buyer had chosen deliberately to assume the risk of not having further testing carried out on the topsoil before delivery.  The use of the word “quality” in the exclusion clause didn’t allow the buyer to avoid the objective intention of the exclusion clause – that the seller was not to be held liable for any claim relating to the topsoil.

Read the decision at: 2024 SCC 20 (CanLII).