Divisional Court upholds OMB on question of reduction in market value for contamination

The City of Toronto appealed an OMB decision awarding more than $3.3 million for market value on the expropriation of a contaminated property.  The property in question was the former site of a soft drink manufacturing plant; the expropriation was required in order to install an underpass at Dufferin Street in Toronto beneath a rail corridor.  Through testing, a City consultant had identified various contaminants on the property, including vinyl chloride (VC) and tetracholorethylene (TCE).

Although there was no requirement to remediate the property, the City's expert witness at the OMB hearing suggested that remediation might be warranted based on a risk assessment and that the cost of remediation of the TCE would be $355,000.  To deal with the VC, a $40,000 upgrade to basement ventilation would be required.  As a consequence of these findings, the City's appraiser estimated that market value of the property should be subject to a reduction of $580,000.

The OMB accepted the evidence of the landowners that there was no risk to human health or to the environment from the presence of the contaminants and that no remediation was needed.  However, the OMB did deduct $20,000 from the market value for air sampling and $10,000 for the drilling of additional bore holes. 

The City appealed the market value award (as well as an award of business losses) arguing that the OMB should have deducted something for the contamination because the land was not "pristine" and that the OMB erred in relying on 2009 environmental standards when the valuation date for the expropriation was in 2005.  The Divisional Court ruled that it was reasonable for the OMB to reject the City's expert's evidence about a "potential 'ball park' worst case scenario" concerning the contamination.  There was no basis on which to find that the market value should be reduced on account of the contamination present.  Also, the Divisional Court found that the landowners' expert witness testified on the basis of standards that were available in 2005, even if he made reference to the 2009 standards as well.

The Divisional Court dismissed the City's appeal and awarded the landowners' costs of $25,000.

Read the decision at: City of Toronto v. Simone Group Properties Limited.

Nova Scotia Board allows compensation claim for expropriation of contractual rights to proceed

The Nova Scotia Utility and Review Board is allowing PEV International Research & Development Incorporated (PEV) to proceed with a somewhat unusual claim under the Expropriation Act.  PEV claimed compensation arising from the expropriation of land owned by James Irving Warner by the Municipality of the District of Guysborough (for the purpose of its inclusion in an industrial development for the regasification of liquid natural gas).

Warner and PEV had already entered into a business agreement involving the development of an LNG regasification plant and related facilities on the same land.  Warner applied for compensation under the Expropriation Act.  PEV then applied for compensation for the value of its interest in the land (arising from the contract).  PEV withdrew claims for business loss and disturbance.  Guysborough challenged PEV's ability to bring the claim for "market value" of the land, questioning whether PEV was an "owner" pursuant to the Expropriation Act.

In ruling that the claim could proceed, the Board said that it was satisfied that, but for the expropriation, the agreement between PEV and Warner would not have terminated (as it did when the expropriation occurred).  The Board was not persuaded that there was sufficient evidence before it to support a finding that PEV has no claim.  Therefore, the motion for summary judgment failed.  However, the Board made it clear that, in allowing the claim to proceed, it refrained from any consideration of the value of the PEV interest (i.e. an interest that might be valueless).

Read the decision at: PEV International Research & Development Incorporated (Re).

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.

Regina-area farmers upset about expropriation

CBC News - Saskatchewan - Regina-area farmer upset about expropriation

Land banking by the Saskatchewan government for a "Global Transportation Hub" in the Regina area is drawing criticism from local landowners. The province has begun to expropriate land but the issue of compensation for the land remains outstanding. The government has said that landowners are assured to receive fair market value for their land, but whether that is undeveloped agricultural land value or something closer to the development value of the land remains to be seen.

The total project area is to include 1,600 acres and the project is to be completed by 2012. Saskatchewan has also expropriated land to allow for Loblaw Companies Ltd. to build a new warehouse and distribution centre.