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).

BC Supreme Court rules on dispute between municipality and pipeline company over upgrade costs

The City of Surrey planned to expand the Fraser Highway.  The expansion would necessitate the upgrade of a pipeline owned and operated by FortisBC Energy Inc. (formerly Terasen), and Fortis commenced an action against Surrey in respect of the allocation of cost for the upgrade.  Fortis claimed that it had been assigned rights originally held by the British Columbia Electric Company under a Trunk Line Agreement from 1956.  Under that agreement, Fortas argued, the costs of the pipeline upgrade work were to be allocated by agreement between the parties or, failing agreement, were to be determined by arbitration.

In the alternative, Fortis sought a declaration that the highway project constituted a de facto expropriation of its statutory right-of-way along with directions that would require Surrey to proceed with the expropriation in accordance with applicable legislation.   Finally, in the further alternative, Fortis claimed compensation for the costs it had incurred already to protect its pipeline and to accommodate Surrey's highway project on the basis of quantum meruit or unjust enrichment.

Surrey disputed the validity and the application of the Trunk Line Agreement, saying that it had been superseded by legislation that requires Fortis to pay the full cost of the upgrade work.  In any event, Surrey alleged that Fortis had fundamentally breached and repudiated the Agreement.  Surrey counterclaimed against Fortis including claims for negligence, nuisance, negligent misrepresentation, breach of fiduciary duty and breach of contract.

In reviewing the Trunk Line Agreement, the BC Supreme Court found that provincial pipeline legislation enacted in 1955 was not intended to prohibit, supersede or override agreements such as the Trunk Line Agreement.  The Court then reviewed regulations made pursuant to the legislation and again found that the Agreement was neither superseded nor rendered illegal by the regulations.  However, the Court found that Fortis had repudiated the Agreement by refusing to consent to the dedication of the statutory right-of-way lands at the highway "unless Surrey either agreed to create a fee simple lot over the portion of the highway crossing the Pipeline, were paid all of the cost of the Pipeline upgrade work".  This deprived Surrey of substantially the whole of the commercial benefit of the Trunk Line Agreement and constituted a breach which went to the root of that contract.  The Court found that Fortis repudiated the Agreement, that Surrey accepted the repudiation, and that the agreement was terminated and ceased to bind the parties.

In the absence of the Agreement, the allocation of costs was determined by the Pipeline Regulation.  The Regulation provided that costs must be shared equally by a municipality and a pipeline company where a new highway is built within a municipality by the municipality on an existing right-of-way or on a newly dedicated right-of-way.  The Court found that the application of the Regulation to the pipeline upgrade work did not constitute a de facto expropriation because it would not "constitute a taking of virtually all of the rights of Terasen Gas with respect to the SRW or Pipeline".

Read the decision at: FortisBC Energy Inc. v. Surrey (City).

Alberta Court rules in favour of landowner over crossing agreement

In 1948, CPR and Calgary Power Ltd. reached an agreement providing Calgary Power with the right to place three towers carrying power transmission wires on and over CPR property abutting the north side of 10th Avenue S.E. in the City of Calgary.  The agreement also provided that either party could terminate the agreement by giving three months' notice, and on termination Calgary Power would be obligated to remove the towers and wires and make good any damage caused to the property.  If the removal did not happen within one month of termination, CPR could undertake the work itself at the expense of Calgary Power or take ownership of the towers and wires.  Under the agreement, Calgary Power was to pay to CPR an annual rental of $40.00.

Flash forward to more recent times.  The power transmission facilities on the property have been expanded.  The original agreement and subsequent amending agreements have been assigned by Calgary Power to a company called Enmax.  CPR has sold its lands to a development company called Remington.  Remington wanted to develop the former CPR lands and advised Enmax of the plans.  Enmax told Remington that a 20 metre utility right-of-way would be required and that Remington would need to bear the cost of any changes, including the conversion of the overhead power lines to underground lines. 

Remington's response to Enmax was to provide a notice of termination under the existing agreements.  Enmax was directed to vacate the Remington lands (the former CPR lands) on or before June 30, 2005.   Despite that direction, Enmax has refused to remove the transmission towers and lines from the lands.  Remington says that its development will be severely compromised with the continued presence of high voltage transmission lines.  It believes such a continued presence will acutely influence potential purchasers or tenants in its intended mixed use residential/commercial development.

Remington applied to the Court of Queen's Bench for orders requiring Enmax to vacate the lands.  Enmax argued in response that the agreements between CPR and Calgary Power were personal contracts between a railway company and a utility company and could not be assigned to Remington without the consent of Enmax.  There were also questions raised about whether the agreements actually created true rights-of-way or whether the rights granted were simply a personal licence which could not be assigned or transferred.

The Court found that the agreements did create utility rights-of-way, which through legislation were not subject to all of the Common Law rules surrounding valid easements and rights-of-way.  Further, the Court ruled that if it was wrong about the nature of the agreements, and they did create mere licences, CPR still had the right to assign the agreements to Remington without the consent of Calgary Power or Enmax. 

For those reasons, the Court found that Remington was entitled under the agreements to terminate and require Enmax to remove its facilities.  Of course, that dealt only with the private relationship between the parties.  The transmission facilities are also subject to public regulation by the Alberta Utilities Commission (AUC).  The Court directed Enmax to make an application to the AUC to remove the transmission lines, and ruled that the lines could not be removed or relocated in the absence of an order from the AUC.

This decision is reminiscent of an earlier Alberta Court decision involving a landowner named Randolph Hill.  He purchased land from a railway company and was assigned an agreement that gave him the right to require a pipeline company to remove its pipeline.  The Court agreed that he had that right, but then the company simply went to the National Energy Board and obtained a Right of Entry Order.  The ROE Order now permits the pipeline to remain in place and, further, allows the company to abandon the line in place. 

Hill will no doubt be seeking compensation for this expropriation of his rights under the agreement.  It will be interesting to see how much those rights are worth.  What would someone pay for an agreement that would allow them to free their lands from the encumbrance of a pipeline corridor?  That has to be worth a lot on the open market.  Remington may very well find itself in a similar position.  The AUC may decline to order the removal of the transmission lines, in which case Remington's rights under the CPR agreements will have effectively been expropriated.

Read the decision at: Remington Development Corporation v. Enmax Power Corporation.

When does the taking of rights constitute expropriation?

The Supreme Court of Nova Scotia recently decided a case involving a petition by one landowner in Halifax for a private right of way over the land of a neighbour.  The petition was made to the municipality under the Private Way Act (PWA).  The neighbours asked the Court to find that there was no jurisdiction in the municipality to consider the petition and grant the right of way, as to do so would constitute an expropriation (requiring that steps be taken under the applicable expropriations legislation).

While the Court understood that the PWA may have significant consequences for affected landowners, it noted that there are procedural protections and a means of compensation built into the PWA. Moreover, in spite of those potentially significant consequences, the Court did not conclude that the process under the PWA constitutes “expropriation” as contemplated by the Expropriation Act. Therefore, the Court declared that as a matter of law in Nova Scotia, Part 2 of the PWA is operative legislation, and any Municipal Council petitioned for the “obtaining and laying out of a private way or road” may properly consider the petition as per the provisions of the PWA.

Read the decision at: Cron v. Halifax (Regional Municipality).

Nova Scotia Court upholds cap on dairy quota prices

Some Nova Scotia dairy producers applied to the Supreme Court of Nova Scotia challenging the authority of the Dairy Farmers of Nova Scotia (DFNS) to decrease the price of quota in the province.  DFNS regulations provide mechanisms to adjust a producer’s non saleable and saleable milk quota. They also create a capped price for the exchange of saleable milk quota. The capped price is being phased in over the period commencing in August 2009 through July 2012 and eventually will set a maximum value that is below the value currently being obtained in trading on the quota exchange.

The applicants’ principle challenge was to the purported authority to decrease the quota price. While they maintain support for a supply management system, they favor a quota exchange price that is market driven and not capped. They also seek to ensure that they do not otherwise lose valuable saleable quota already acquired.

At the heart of the dispute was a conflict between some dairy producers who seek to preserve the value of their investment in the dairy industry through unrestricted quota pricing, and those who fear that an unregulated quota price will render the financial structure of the industry unsustainable in the long term.  It is suggested, among other things, that an unrestricted quota price exchange will make it prohibitively expensive for new entrants to the industry.

The Court examined two issues: 1) whether the quota regulation was, prima facie, a proper exercise of the DFNS authority; and, 2) whether the effect of the regulations was to expropriate property without compensation (which can be done, but only where the legislation expressly permits expropriation without compensation) - de facto expropriation.  With respect to these issues, the Court ruled:

• the power to adjust quota has been properly delegated to the DFNS under the Dairy Industry Act (DIA);
• Regulation 21, fixing a price cap, is authorized by section 14(1)(e) of the DIA,  and in particular clause (iii) which authorizes  “...setting the terms and conditions on which the transfer [of quota among producers] may take place”;
• Milk quota is not "property" for the purposes of the de facto expropriation argument;
• Alternatively, if quota is "property", it has not been expropriated because the uses of quota have not been destroyed by the price cap;
• Further in the alternative, if quota is property and has been expropriated, the legislation expressly provides for the price cap without any compensation (i.e. expropriation without compensation).

Read the decision at: Taylor v. Dairy Farmers of Nova Scotia.

De Facto Expropriation claim being advanced in B.C.

What is "de facto" expropriation?  Justice Cromwell (then of the Nova Scotia Court of Appeal, now a member of the Supreme Court of Canada) wrote in Attorney General of Nova Scotia v. Mariner Real Estate Limited et al. (1999) 177 D.L.R. (4th) 727 (N.S.C.A.) that:

While there is no magic formula for determining (or describing) the point at which regulation ends and taking begins … The question is whether the regulation is of 'sufficient severity to remove virtually all of the rights associated with the property holders interest'.

Normally, expropriation of property may only occur in accordance with expropriation legislation.  However, in some cases government action may effectively (or "de facto") result in a taking of property, which may entitle a property owner to compensation for the taking.  Justice Cromwell suggested that the government action must "remove virtually all of the rights of associated" with the owner's interest in the property.

In Morriss v. British Columbia, the plaintiff Morriss is advancing such a claim.  He alleges that he was deprived of mineral rights associated with a mine when the mine became part of a provincial park.  It remains to be seen whether the claim will be supportable either by the facts or the law.  As the B.C. Court of Appeal recently wrote:

In my opinion, there is no maintainable objection to the rest of the numbered paragraphs. I do not see allegations of wrongdoing by the Province in any of them. They are perhaps not as clear and articulate as they might have been, but I see them as doing nothing more than continuing the chronological narrative of facts that Mr. Morriss hopes will ultimately support his claim that there was a de facto expropriation by the Province of the mineral claims that he staked. Whether the factual allegations are supported by the evidence ultimately presented, and whether a claim of de facto expropriation exists in law, or on a proper application of the law in this case, are matters to be determined. [emphasis added]

 Read the Court of Appeal decision at: Morriss v. British Columbia.