There are enough questions on whether actions amount to 'constructive taking'
The Supreme Court of Canada has ruled that the lawsuit of a Nova Scotia developer against the Regional Municipality of Halifax’s moves to prevent the development of a parcel of land it owns should go to trial.
In a 5-4 decision in Annapolis Group Inc. v. Halifax Regional Municipality, the court says there are enough questions to be determined at trial on whether the municipality’s actions amount to de facto expropriation or, in the court’s preferred terminology, “constructive taking.” This action includes its encouragement of the land as a park.
Writing for a majority of the judges of the Supreme Court, Justices Suzanne Côté and Russell Brown found that Annapolis’ claim of constructive taking raises disputed issues that should be settled based on the constructive taking test set out in the 2006 Canadian Pacific Railway Co. v. Vancouver decision.
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“There are genuine issues of material fact arising from [the developer’s] claim to be tried,” the majority state in the ruling. “Annapolis is entitled to adduce evidence at trial to show that, by holding Annapolis’ land out as a public part, Halifax has acquired a beneficial interest therein; and that, because Halifax is unlikely to ever lift zoning restrictions constraining the development of Annapolis’ land, Annapolis has lost all reasonable uses of its property.”
Justices Michael Moldaver, Malcolm Rowe and Chief Justice Richard Wagner concurred with their opinion.
There are two parts to the test for establishing constructive taking, the majority says in its ruling. First, the test must show the government has acquired a “beneficial interest” in the property or flowing from the property. It adds a beneficial interest is an “advantage,” such as when private property is enjoyed as a public resource. Second, the test requires showing the proposed regulatory measures would remove all reasonable uses of private property.
However, the majority decision keeps the constructive taking test intact, developed in Canadian Pacific Railway Co. v Vancouver. That case involved a dispute over land called the Arbutus Greenway. CPR owned the defunct railway running through the area for over a century and wanted to develop it for commercial and residential use. CPR lost the case, and Annapolis has argued this threshold makes it virtually impossible to claim de facto expropriation.
The legal dispute began when Annapolis Group Inc. filed a court action against the municipality, claiming it was blocking attempts to develop the company’s land, located about five kilometres from downtown Halifax. It also promotes the area’s use by the public, with signs indicating trails.
Annapolis Group has owned just under 1,000 acres of land in the Blue Mountain Birch Cove Lakes area outside Halifax dating back to the 1950s. The land sits beside a provincially designated wilderness area. Halifax has been hoping to create a regional park beside this wilderness area, with the proposed park including Annapolis lands.
The land is zoned for future residential development, not a public park. This “urban reserve” classification allows for residential development starting in 2031 unless zoning is amended earlier.
However, Annapolis can’t develop the land until the municipality approves it. It argues that the municipality is dragging its heels and creating roadblocks to the approval process. In 2016, after rezoning requests, the group’s bid to commence the second phase of planning its development was denied, effectively squashing any current development plans.
In 2017, Annapolis launched a $120-million lawsuit against the municipality, arguing that the government has so deprived the company of its ability to use the parcel of land that it has effectively stripped away its title in what amounts to de facto appropriation. De facto expropriation differs from de jure expropriation, where a government, under statute, takes private land for a public purpose and pays the owner. The municipality has not formally valued the land.
As the dispute continues, the land continues to be used as a public park without compensating Annapolis, which it would have to do if the municipality officially created a regional park, as outlined in its plan. As part of efforts to build the park, the city bought 80 hectares of land from another group in 2018 and 130 hectares more in 2019 with help from a federal grant.
In November 2019, a judge denied the municipality’s bid to summarily dismiss the Annapolis lawsuit because it had no chance of success. However, an Appeal Court overturned that decision in 2021, ruling that although Annapolis cannot use the area as it wishes, that does not amount to expropriation.
The Nova Scotia Court of Appeal had interpreted the first part of the test as requiring Annapolis to show that Halifax had taken possession of the lands. It ruled that the city had not acquired a beneficial interest despite Annapolis’ argument that Halifax encouraged the public to use the property as a public park. It also said Annapolis’ reasonable uses of the land had not changed.
However, Justices Côté and Brown wrote in the majority decision that “what must be shown by the property owner can fall short of an actual acquisition by the state.” The majority said the Court of Appeal was also wrong in holding that Halifax’s intention was irrelevant to applying the second part of the test.
In the dissenting decision, Justices Andromache Karakatsanis, Sheilah Martin, Nicholas Kasirer and Mahmud Jamal disagreed with the majority's proposed changes and how the law should apply in the Annapolis case.
“First, we disagree with our colleagues’ view that the first element of the CPR test – which requires ‘an acquisition of a beneficial interest in the property or flowing from it’ – should be replaced with the much broader notion of an ‘advantage,’ whether or not ‘a proprietary interest was actually acquired by the government.’”
The dissenting decision added: “Our colleagues’ reformulation involves an unwarranted departure from CPR and significantly expands the potential liability of public authorities when regulating land use in the public interest. In our view, this Court should retain the CPR test for a de facto [constructive] taking, which insists that a proprietary interest be acquired. Courts across common law Canada have applied this test without difficulty.”
The dissenting judges also disagreed with the majority that a public authority’s “intention” is a material fact in a claim for a de facto taking. “This is also an unwarranted departure from CPR and this Court’s prior jurisprudence. The material facts for a de facto taking claim concern the effects of the public authority’s regulatory activity, not its intention.”
Halifax Regional Municipality spokesperson Ryan Nearing said in a statement, "while disappointed with the court's split decision today, the municipality's position that Annapolis Group has no reasonable likelihood of success at trial has not changed.”
Ecojustice, one of the intervenors, said in a statement it is “extremely disappointed” with the majority’s decision.
“The majority purports to clarify the test for de facto expropriation originally set out in the Canadian Pacific Railway case,” says Ecojustice lawyer Randy Christensen. “But in reality, as argued by the dissent, the majority inappropriately extends CPR’s requirement that the public authority obtain a proprietary interest in the property at issue to encompass any ‘advantage’ accruing to the authority.”
He adds that this “subversion” of the CPR test makes the acquisition element “largely superfluous” as it dramatically expands the potential liability of governments at all levels engaged in land use and environmental regulation. This would likely undermine governments’ “willingness and ability to regulate in the public interest.”
Christensen also points to the dissent decision’s commentary that the majority’s decision risks, among other things, providing “a windfall to developers who speculate at municipal taxpayers’ expense.”
In Ecojustice’s view, the adverse impacts on municipal governments’ zoning powers will be fairly immediate and increase with the expanding definition of advantage.
For example, Christensen says, “it’s certainly conceivable that a court will conclude that a government obtains an advantage when a restriction on a property owner or rights holder allows it to avoid health care costs, meet climate targets, or protect species at risk.”
In fact, Ecojustice says such claims have been brought in the past but didn’t succeed under the previous interpretation of the CPR test. As an example, it points to the Alberta Court of Queen’s Bench’s decision in Altius Royalty Corporation v Her Majesty the Queen in Right of Alberta, where the plaintiffs unsuccessfully claimed that their royalty interest in coal from a coal mine was de facto expropriated by existing regulations prohibiting coal-fired electricity generation by 2030.
Says Christensen: “It’s certainly not inconceivable that such a case could succeed under the majority’s revised test.”
Emma Blanchard, a partner at Borden Ladner & Gervais who deals with real estate and planning issues, says “the implications of this decision can be huge.”
There are all these governments tasked with regulating land use in the public interest, such as conservation, she says, and as they go through the land use planning process, “they may have to factor what compensation may have to be paid in light of their decisions.”
If the definition of what boils down to expropriation gets expanded, “that’s a significant potential liability,” says Blanchard, whose firm acted as a filing agent for a number of intervenors, including the provincial governments of Ontario and B.C.
She adds that the issues are also complicated by the fact that the facts in this particular case have not been tried yet.
As for what it means for municipal and other governments involved in planning issues, Blanchard says, “the first thing they’ll want to do in light of this decision is dust off all their empowering legislation, and make sure they are very clear on what protections they have regarding expropriation issues.”
Then they’ll have to have a “long and hard look” and how Common Law is possibly going to be applied in light of this decision.”