The Supreme Court of Canada recently discussed the topic of de facto expropriations in Canada.

In 2017, Annapolis Group Inc. (“Annapolis”) began legal proceedings against the Halifax Regional Municipality (the “HRM”). One of the claims made against the HRM was that it had effectively taken over lands which were owned by Annapolis. In response, the HRM filed a motion asking the Court to dismiss the claim, arguing that there were no facts to support it.

Background

The matter revolves around a parcel of land located northwest of Halifax, Nova Scotia (the “Annapolis lands”). In 2006, HRM Council passed a Regional Municipal Planning Strategy (“RMPS”) which was intended to serve as a guide for land development in the municipality over a time span of 25 years. Included in the RMPS were the subject lands, owned by Annapolis.

Some portions of the Annapolis lands were reserved for possible future serviced development, while others were reserved for the potential creation of a regional park. However, no portions of the land were formally zoned as being for public use. Despite this, Annapolis claimed that the HRM had gone on to place signage on the property encouraging public use. Annapolis also claimed that the HRM financially supported organizations that encourage people to use its lands.

In 2007, Annapolis began seeking approval to develop the land. In 2016, the HRM passed a resolution refusing to begin the approval process. Annapolis commenced an action against the HRM soon thereafter, arguing that the actions of the HRM amounted to what was effectively an expropriation of its land. In response, the HRM filed a motion to dismiss the expropriation claim.

Findings of the Courts

Nova Scotia Supreme Court (2019 NSSC 341)

The motion judge ruled in favour of Annapolis by refusing to dismiss the claim.

Referring to a case known as Canadian Pacific Railroad Co v Vancouver (City), 2006 SCC 5, the motion judge identified two elements which must be established in a claim of de facto expropriation or a “constructive taking”. A claimant must show that a regulatory action by a statutory authority resulted in (1) an acquisition by the authority of a beneficial interest in the property or flowing from it, and (2) the removal of all reasonable uses of the property (the “CPR test”).

Upon review of previous expropriation cases, the motion judge noted that the caselaw provided “creative interpretations” on what may constitute a taking.

Notably, the motion judge appeared open to the notion that a disguised expropriation may equate to a de facto expropriation and, by extension, that motive may be a relevant factor in establishing a de facto expropriation. Citing the Supreme Court of Canada, the motion judge noted that when property is expropriated outside of the legislative framework for an ulterior motive, the expropriation is disguised. The motion judge accepted an argument from Annapolis’ counsel equating disguised expropriation to de facto expropriation and felt that there was enough evidence to “…point to the possibility of an ulterior motive on the part of the HRM.”

Based on these findings, the motion judge held that Annapolis’ claim of de facto expropriation raised issues of material fact requiring a trial.

Nova Scotia Court of Appeal (2021 NSCA 3)

The findings of the motion judge were reversed on appeal. The Court of Appeal voted unanimously to dismiss the expropriation claim.

The Court of Appeal provided a comparatively restrained assessment of the facts presented in the claim. It found that there were no facts which could be remotely considered to establish a taking of the Annapolis lands, nor a deprivation of all reasonable uses of them. It held that, fundamentally, Annapolis maintained the same rights to its lands that it had before the HRM’s 2016 resolution. The Court suggested that the ongoing public use of the land may amount to a trespass, but not to an expropriation.

The Court of Appeal also found that the motion judge erred in treating motive as an element in the test for de facto expropriation. It held that a disguised expropriation does not necessarily equate to a de facto expropriation; the two elements of the CPR test must be shown. In this case, the Court of Appeal determined that neither element of the CPR test could be shown.

Supreme Court of Canada (2022 SCC 36)

The Supreme Court of Canada (narrowly) restored the order of the motion judge allowing the claim to proceed to trial. The majority of the Supreme Court confirmed that the term “constructive taking” is the preferable term for expropriation through regulation. The majority also affirmed the CPR test for showing a constructive taking.

However, the majority determined that the Court of Appeal erred in its interpretation of the first part of the CPR test. The majority clarified that a “beneficial interest” may be broadly understood as an “advantage” which does not necessarily equate to an actual taking of land by the state. Viewed in this light, the majority determined that Annapolis’ constructive taking claim raised issues of material fact which required a trial.

The dissent would have dismissed the appeal in general agreement with the Court of Appeal’s findings.

Impacts of the SCC decision

The Supreme Court’s majority decision provides some clarity to the law of de facto expropriation by re-affirming and elaborating on the CPR test for constructive takings. The majority’s decision suggests that a constructive taking claim may arise when the state regulates or otherwise deals with private property in a manner that provides itself with some sort of “advantage”. Notably, this will include zoning which “effectively preserves private land as a public resource.”

However, not all instances of land use regulation will amount to a constructive taking. The majority clarifies that the line between a valid regulation and a constructive taking will be crossed when the regulation virtually abolishes the claimant landowner’s private rights in the property and leaves the claimant with “no reasonable use” of the property.

The decision also explains that context is key when determining whether a regulatory measure constitutes a constructive taking. Among other things, this includes assessing the nature of the government action, the nature and history of the land at issue, and the substance of the claimed advantage.