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You Zone It, You Buy It: Lessons on “Disguised Expropriation” from Ville de Mascouche v Dupras

11 minute read

The Supreme Court of Canada recently dismissed an application for leave to appeal a Quebec Court of Appeal (“QCCA”) decision, Ville de Mascouche v Dupras. [1]  As a result, the QCCA decision stands as important guidance on the civil law concept of disguised expropriation concerning how it occurs and when disguised expropriation crystalizes for compensation purposes.

Background

The timeline of relevant events can be briefly summarized:

  • In 1973, Ms. Ginette Dupras acquired a large woodlot in the Quebec municipality of Ville de Mascouche. Approximately 70% of the Dupras Land was zoned to allow residential use; the remainder was for conservation.
  • In 1985, Dupras authorized the municipality to build a cross-country ski trail on the Dupras Land.
  • In the early 2000s, the municipality began to create a network of hiking and ski trails adjacent to the Dupras Land.
  • In 2006, the municipality adopted Zoning By-Law 1103, which zoned all of the Dupras Land for conservation and prohibited any construction.
  • After discovering the zoning changes years later, Dupras began lengthy negotiations with the municipality to sell the Dupras Land to the municipality.
  • During the course of negotiations, the municipality authorized the creation of another trail on the Dupras Land without consent.
  • In February 2016, negotiations stopped, and the municipality announced it did not intend to acquire the Dupras Land.
  • Durpras commenced a claim against the municipality seeking compensation for disguised expropriation.

The trial court partially granted Dupras’s claim and ordered the municipality to pay her $436,000.

Unsatisfied with the quantum of compensation ordered, Dupras appealed to the QCCA, arguing the trial judge erred in not awarding compensation in accordance with the value of the Dupras Land at the time of the trial: $4,550,000.

The municipality cross-appealed, arguing that no disguised expropriation occurred.

Ultimately, the QCCA reversed the trial decision in part and dismissed the cross-appeal.

What is Disguised Expropriation?

Disguised expropriation is a civil law doctrine[2] that has conceptual similarities to the common law doctrine of constructive taking.[3]  Specifically, disguised expropriation “results from an act “which has the effect of dispossessing an individual or a business of a good or to remove practically all possibility of use of a good”.[4]  In order to conclude that disguised expropriation has occurred, “[t]he municipality’s action must amount to an ‘absolute denial’ of the exercise of the right of ownership or a ‘true confiscation of the property’, the criterion generally used to assess its existence being that the restriction imposed ‘must have the effect of removing any reasonable use of the property’”.[5]

Since each case has its own specific circumstances, the existence of disguised expropriation is a question of fact or a mixed question of fact and law.[6]  In Dupras, the QCCA stated that disguised expropriation can “result solely from a restrictive by-law or from the combination of such a by-law and physical appropriation.”[7]

Importantly, the QCCA held that the intentions of a municipality do not matter in the disguised expropriation analysis.[8]  Motive does not matter; only the effect should be considered by the court.[9]  While Annapolis, a recent SCC case, held that motive of a municipality may be some evidence of constructive taking and, therefore, could be a material fact,[10] the primary concern remains whether the municipality abused its power to regulate in order to proceed with an expropriation without paying compensation.[11]   In Dupras, the QCCA held that the consequences of zoning for environmental protection purposes, even if within the power of the relevant municipality, cannot be borne by the landowner alone.[12]

When does Disguised Expropriation Crystalize

The QCCA also dealt with the issue of when disguised expropriation crystalizes. Generally, the value of land for purposes of compensation crystalizes at the time of the disguised expropriation. Where disguised expropriation occurs as a result of the combination of restrictive zoning and appropriation, compensation should be awarded for the value of the land as of the latter of the two events.[13]  In Dupras, that date would have been September 5, 2006.

However, the QCCA acknowledged that the circumstances in Dupras regarding compensation were unique and held that a municipality cannot cause the depreciation of the value of real property by “restrictive zoning” and then profit from it by expropriating at a lower cost.[14]

Victims of disguised expropriation must receive full compensation for the loss of the expropriated land.[15]  In considering the value of compensation owed to the deprived party, the courts must use the method of quantification most advantageous to the affected landowner.[16]  Accordingly, the value of the compensation should not be assessed in accordance with the new zoning by-law that may have caused a depreciation of value but in accordance with the highest and best use available prior to the rezoning.[17]

In Dupras, the QCCA acknowledged the fact of the parties’ ongoing negotiations and awarded compensation in the amount of the value of the Dupras Lands as of the date the City pulled out of negotiations.[18]  The negotiations and the municipality’s assertions that it would purchase the property had the effect of temporarily neutralizing the restrictive effect of the regulation, which was adopted in 2006 and postponed the real crystallization of the disguised expropriation until February 2016.

Implications

As the SCC denied an application by the municipality for leave to appeal, the QCCA decision remains as important guidance on disguised expropriation and its common-law cousin – constructive taking. In particular, Dupras articulates a general rule about the crystallization of expropriation and timing for the valuation of compensation owing but provides a more flexible approach that benefits deprived landowners. In doing so, Dupras effectively holds that ongoing negotiations coupled with assertions by a municipality that it will purchase a landowner’s affected property neutralizes the effect of restrictive zoning by-laws and postpones the date of crystallization of disguised expropriation for valuation purposes. With the SCC’s recent decision in Annapolis commenting on the similarities between civil law disguised expropriation and common law constructive taking, the implications of Dupras may well be felt across the rest of Canada.

[1] Ville de Mascouche v Dupras. 2022 QCCA 350 [Dupras].

[2] Pursuant to Article 952 of the Civil Code of Quebec, there is a presumption against “uncompensated expropriation by the state.

[3] Annapolis Group Inc v Halifax Regional Municipality, 2022 SCC 36 at para 46 [Annapolis].

[4] Ville de Mascouche v Dupras. 2022 QCCA 350 at para 27.

[5] Ville de Mascouche v Dupras. 2022 QCCA 350 at para 28.

[6] Ville de Mascouche v Dupras. 2022 QCCA 350 at para 28.

[7] Ville de Mascouche v Dupras. 2022 QCCA 350 at para 28.

[8] Ville de Mascouche v Dupras. 2022 QCCA 350 at para 29.  See also Annapolis Group Inc v Halifax Regional Municipality, 2022 SCC 36 at para 52.

[9] Annapolis Group Inc v Halifax Regional Municipality, 2022 SCC 36at para 52.

[10] Annapolis Group Inc v Halifax Regional Municipality, 2022 SCC 36 at para 53.

[11] Ville de Mascouche v Dupras. 2022 QCCA 350 at para 29.

[12] Ville de Mascouche v Dupras. 2022 QCCA 350 at para 39.

[13] Ville de Mascouche v Dupras. 2022 QCCA 350 at para 52.

[14] Ville de Mascouche v Dupras. 2022 QCCA 350 at para 51.

[15] Ville de Mascouche v Dupras 2022 QCCA 350 at para 51.

[16] Ville de Mascouche v Dupras 2022 QCCA 350 at para 51.

[17] Ville de Mascouche v Dupras. 2022 QCCA 350 at para 51.

[18] Ville de Mascouche v Dupras. 2022 QCCA 350 at para 54.

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