On the heels of its recent decision in Annapolis Group Inc. v Halifax Regional Municipality, 2022 SCC 36 clarifying the test for constructive expropriation/constructive taking, the Supreme Court of Canada has granted leave to appeal in Lynch v St. John’s (City), 2022 NLCA 29, positioning itself to provide guidance on the appropriate measure of compensation where such a claim is established.
In Lynch v St. John’s (City), the Court of Appeal of Newfoundland and Labrador (“NLCA”) clarified how to determine the fair market value of the existing use of property before it is expropriated. In particular, Lynch v St. John’s (City) demonstrates how courts should approach cases in which there are a series of land use restrictions put in place by a municipality and how their interconnectedness may impact expropriation compensation values.
As the Supreme Court of Canada’s decision will govern awards of compensation for constructive taking across the country, landowners, municipalities, and their legal counsel would be well-advised to understand the NLCA decision to be prepared for how the Supreme Court’s decision will impact the analysis.
Brief Summary of the Facts and Prior Legal History
The property in Lynch has been in the appellants’ family since 1917 (para 12). At that time, the land was outside the boundaries of the City of St. John (“City”). The land was located on the Broad Cove River (“BCR”) watershed (para 12). The groundwater inside the watershed is now used by the City as a water supply.
Eventually, by enactment of statute, the property in Lynch was added to the City’s control area (para 15). At that point, the “property became subject to the City’s pollution control and expropriation powers, and use and development became restricted. Building, including residential building was not, however, expressly prohibited (para 15).”
In 2013, the City Manager rejected the appellants’ application to develop a ten-lot residential subdivision.
The appellants then brought an action seeking compensation for constructive expropriation. After an initial trial, the trial judge dismissed the claim on the basis that the regulation of ownership rights did not amount to a de facto expropriation transfer of the owner’s interest in land (para 27). On appeal, the NLCA held that the appellants’ property had been constructively expropriated by the City and remitted the issue of compensation to the Board of Commissioners of Public Utilities (the “Board”). Leave to appeal to the Supreme Court of Canada (“SCC”) of this NLCA decision was refused.
For a more fulsome discussion on constructive expropriation and the applicable legal test please see our other blogs, Tackling the Thorny Issue of Constructive Expropriation Claims: Annapolis Group Inc. v Halifax Regional Municipality and An Expanded Understanding of Expropriation: Recent Guidance on Constructive Taking and Disguised Expropriation.
At the Board hearing, the question was whether the appellants’ compensation should be based on the uses permitted by the existing watershed zoning, which were agriculture, forestry and public utility uses, or whether the existing zoning should be “ignored and the value determined as if residential development were permissible (para 4).” The Board held that compensation should be based on the existing watershed zoning and rejected the notion that the watershed-related designation should be disregarded for the purpose of valuing compensation (para 5).
The NLCA’s Decision on Compensation
The appellants appealed the Board’s decision to the NLCA arguing that the Board erred in failing to apply the Pointe Gourde principle with regard to the watershed designation (para 7). The main issue on the appeal was whether the Board erred in determining “the scope of the expropriation scheme to be ignored for purposes of market value assessment of the appellants’ property (para 30)”. To answer this question, the NLCA had to grapple with the application of the so-called “Pointe Gourde principle”.
The basic requirement of the Pointe Gourde principle[1] is that the value of compensation for expropriation shall be assessed on the fair market value on existing use value (para 49). Speculative future uses are not sufficient and the determination of potential uses must be made at the beginning of the expropriation proceedings (paras 49-50). The “beginning” of the expropriation proceedings is not necessarily “the time of the delivery of a formal notice of expropriation nor, in the context of a constructive or de facto expropriation, the date on which the ultimate event crystallizing the expropriation occurs (para 50).” Acts that are part of the expropriation process may increase or decrease the use of the subject land must be disregarded in the valuation process. The purpose of the Pointe Gourde principle is to avoid windfalls for either side (para 53).
In considering the Pointe Gourde principle and valuing compensation as a result of expropriation, it is critical for the courts to differentiate independent enactments that may have a legitimate effect on land use for valuation purposes. In order to assist courts in this assessment, case law has developed several inquiries courts should consider:
- The “state of mind” of the expropriating authorities at the time of imposing land use restrictions (i.e., whether they were then contemplating expropriation);
- Whether the land use restriction was regarded as a “step in the expropriation machinery”;
- Whether there is a “causal connection” between the land use restrictions and the ultimate taking of the land; and,
- Whether the scheme “gives rise” to the expropriation (para 58).
If it can be determined that the land use restrictions exist by virtue of a provision that is not causally connected to the expropriation or the purpose for the land was taken, then the valuation will have to be conducted “on the basis that the land’s value is limited by those restrictions (para 59).”
The NLCA held that the Board erred in assessing compensation on the existing watershed zoning with discretionary uses of agriculture, forestry, and public utility. The NLCA observed that the statute and regulations that caused the property to fall within the control area were intended achieve the same objective of returning the lands in the watershed area to their pristine natural condition (para 120). The statute and regulations “worked in tandem to achieve one ‘combined effect’” (para 116) and the City clearly acted as if it regarded the provisions as interconnected (para 116). Furthermore, the City clearly took the position that the goal of the watershed protection policy, regardless of what provision it operated under, was to “prohibit all activity on the [appellants’] property” (para 119).
As the regulations that impacted the property’s use were part of the expropriation scheme, the NLCA held that the restrictions which limited the use of the land “must be ignored for compensation purposes (para 123)”. The NLCA remitted the quantum of compensation to the Board for reconsideration taking into account other land uses beyond agriculture, forestry, and public utility.
Conclusion
That the Supreme Court of Canada has granted leave to appeal from the NLCA decision to the City is unsurprising in light of the Supreme Court’s recent interest in constructive expropriation cases.[2] The Supreme Court’s decision is expected to provide useful guidance on how to quantify the appropriate compensation where constructive expropriation results from a series of interconnected land use restrictions.
[1] Expropriation Act, RSNL 1990, c E-19, s. 27 [Expropriation Act]; Pointe Gourde Quarrying and Transportation Co Ltd v Sub-Intendent of Crown Lands, (1947) AC 565 (JCPC) [Point Gourde].
[2] Tackling the Thorny Issue of Constructive Expropriation Claims: Annapolis Group Inc. v Halifax Regional Municipality and An Expanded Understanding of Expropriation: Recent Guidance on Constructive Taking and Disguised Expropriation.
