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).