Screening out the scheme in expropriation compensation

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE: 

According to the “Pointe Gourde” principle in expropriation law, “compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition.”  If the expropriating authority’s reason for taking the property (the “scheme”) 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 property owner is not entitled to a windfall.  In determining the value of the property taken, the scheme must screened out – “screening out the scheme”.  This common law principle has been codified in Section 14(4)(b) of the Expropriations Act in Ontario, which provides that no account shall be taken of “any increase or decrease in the value of land resulting from the development or the imminence of the development in respect of which the expropriation is made or from any expropriation or imminent prospect of expropriation”.

The Pointe Gourde principle is taken from a 1945 case of the same name heard before the Judicial Committee of the Privy Council in the UK.  The 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 securing a nearby and accessible source of a large quantity of stone (the quarry), but without the plan for the naval base construction this did not increase the market value of the property taken.

The expropriation “scheme” to be screened out in determining value, or “development” as used in the Expropriations Act, refers not only to a specific project or initiative, such as the construction of the naval base in Pointe Gourde, but to the full set of government actions, plans and policies leading to a taking of property in connection with the project or initiative.  This was discussed in a 2025 decision of the Ontario Land Tribunal (“OLT”) arising from the expropriation of land for the new Ontario Line subway line in Toronto.  The OLT was tasked with determining the market value of the land expropriated for the subway line project: “what a reasonably informed person would pay for the property based upon the property’s highest and best use (“HBU”) at the time using the knowledge available to the person as at the valuation date”.  In accordance with Section 14(4)(b) of the Expropriations Act, the OLT was barred from considering any change in value resulting from the planned subway line development itself.  Indeed, the OLT found that it could not consider any change in value resulting even from the provincial government’s announcement of the Ontario Line project several years earlier in 2019.  That announcement was effectively the “scheme” to be screened out of the compensation analysis.

The OLT also clarified that both sides – the expropriating authority and the property owner – share the responsibility of assisting the tribunal in determining how the scheme affected the market value of the property taken.  The owner must show that its proposed valuation is not based on a highest and best use for the property that relies on factors related to the scheme.  If the expropriating authority challenges the proposed valuation because it is influenced by the scheme, the authority bears a “positive obligation” to put forward evidence of how the scheme has affected the proposed valuation.

In the Ontario Line case, the property owner claimed compensation based on highest and best use of its property being a high-density mixed-use high-rise tower including residential and commercial uses.  The expropriating authority argued that the development potential of the property that would allow for the owner’s proposed highest and best use actually depended on the Ontario Line scheme.  In other words, without the proposed transit project (the expropriating authority argued unsuccessfully that the transit project pre-dated the 2019 announcement and that the Ontario Line was part of a scheme stretching back over 20 years), the level of density of development on the property suggested by the owner could not be achieved.  The OLT disagreed, concluding that the owner’s proposed site density (highest and best use) was consistent with approvals for other developments in the area and did not depend on the Ontario Line transit project.  As noted by the OLT, the expropriating authority failed to show what specific increase or decrease in value resulted from the Ontario Line project:

The Tribunal recognizes that the requirements of section 14(4)(b) of the Act are often not easy to apply in expropriation proceedings.   As already noted, the reality is that there may be simply no way for either Party to empirically demonstrate whether there was “increase or decrease in value” resulting from the Expropriation.  The situation might have been quite different if, for example, the Claimant had relied on a particular development approval by the City where the City’s staff had made it clear in writing that their approval was predicated on the impacts of the Scheme – or conversely, where City’s planners had written that the Scheme was not considered at all. However, no such specific evidence exists in this case.

Read the decision at: 2025canlii50810 OLT.

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.