June 11, 1997, E.C.B. No. 42/94/140 (61 L.C.R. 224)

Between: Hampton Investments Ltd. and
Taylor Ventures Ltd.
Claimants
And: Her Majesty the Queen in Right of the Province of
British Columbia, as represented by the Ministry of
Transportation and Highways and the
Corporation of the City of Nanaimo
Respondents
Before: Julian K. Greenwood, Presiding Member
Michael Grover, AACI, Board Member
Arthur Guthrie, Board Member
Appearances: Clayton W. Caverley
Cora D. Wilson, for the Claimants
 
Alan V. W. Hincks, for the Respondent
Ministry of Transportation and Highways
 
Barry S. Williamson, for the Respondent
City of Nanaimo

 

REASONS FOR DECISION

1. INTRODUCTION

The Ministry of Transportation and Highways (MoTH) constructed a new section of highway through the City of Nanaimo called the Nanaimo Parkway as part of a larger upgrading of the Vancouver island Highway. The subject property was bisected by the Parkway. Before the expropriation it was an approximately rectangular parcel, 75.13 acres in size, in a light industrial zone. The highway expropriation removed 14.85 acres in a diagonal strip across the property, leaving two remaining parcels totalling 60.28 acres. The larger of these was a 39.10 acre parcel north and east of the Parkway, which could still be developed as an industrial park. The other remaining parcel, south and west of the Parkway, was effectively landlocked, in that access could only be made through other properties. The result was that any future development of this 21.18 acre remainder would most likely be a residential subdivision, jointly developed with a neighbouring residential acreage further to the south.

The Claimant Hampton Investments Ltd. ("Hampton") sold the subject property to the Claimant Taylor Ventures Ltd. ("Taylor") in May 1993, at a time when the location of the proposed Parkway and the approximate timing of the construction were well known, but before any actual expropriation had taken place. The property was then still vacant and unsubdivided. Taylor agreed to pay Hampton $3.2 million for the property (including the portion due to be taken by MoTH). Before the sale actually completed, the expected expropriation took place. The vesting notice, placing title to the Parkway strip in the Crown, was registered on January 12, 1994. Because of various extensions, the sale to Taylor did not in fact close until September 1994. Although this situation meant that both Hampton and Taylor were potential claimants for any compensation, in fact they resolved the issue by agreeing that Taylor would conduct the compensation claim and have sole right to any award. The Board was not required to apportion compensation between them.

The principal issue initially before the Board was the valuation of the loss in value of the land as a result of the taking by MoTH. However after nine days of hearing, all issues between the claimants and MoTH were resolved by agreement. This left for resolution a claim against the City of Nanaimo. The basis of this claim was that certain City bylaws required a leave strip on the industrial side of the Parkway, which significantly reduced the developable area of that remainder parcel. The bylaws were argued to produce a de facto or "constructive" expropriation, or alternatively to injuriously affect the remainder of the property.

[Note: between the time that this matter was argued and the issuance of this decision, the 1996 revised statutes of British Columbia have come into effect, with the result that statute numbers and section numbers have changed. For consistency with the documents and arguments, the old numbers have been used in the decision, but the board has appended a concordance at the end of the decision.]

 

2. THE CLAIM AGAINST NANAIMO

Taylor, assisted by its engineers Chatwin Engineering Ltd., obtained approval for an industrial subdivision of 46 lots on the northeast side of the proposed parkway, which it planned to construct in two stages. At the time of the hearing, phase one of this subdivision, comprising 35 lots, had in fact been completed, and the sites were for sale.

One factor affecting the layout, and well understood by Taylor at the time it started the planning for this subdivision, was that the municipality was planning to impose certain design guidelines for properties along the proposed Parkway. Bylaw 3553, first introduced in the summer of 1993, although not finally passed until March 1994, was an amendment to the Official Community Plan. It designated all lands within 200 metres of the Parkway as a Development Permit Area. It also adopted certain guidelines (developed by a consultant) called the "Nanaimo Parkway Development Permit Area Guidelines" ("guidelines"). Among other things, these guidelines described various "character protection zones" (CPZ). The area in which the subject property lay was described by these guidelines as having a "rural - open" character, in which there should be a 20 metre CPZ alongside the Parkway. Within this 20 metre strip no development would be permitted, and certain landscaping requirements would apply. However since the details of any actual development would be the subject of a development permit, Council would make the final decision in any case of what the requirements would be, and could presumably change the width of the CPZ.

 

3. ARGUMENTS FOR THE CLAIMANT TAYLOR

Taylor argued in this hearing that the CPZ reduced the value of the industrial lots along the Parkway, and that it should be compensated by Nanaimo. Three bases for recovery were argued:

  • Section 544 of the Municipal Act, R.S.B.C. 1979, s. 290 requires the council of a municipality to compensate owners of property which is "entered on, taken, expropriated or used by the municipality". The first basis of compensation was that the municipality, by passage of the bylaw, was "using" the property for its public purposes.

  • Alternatively, assuming that the board did not find there had been a taking, entry or use, Taylor claimed compensation for injurious affection to the land in the meaning of s. 40 of the Expropriation Act, R.S.B.C. 1987, c. 23. This section refers to injurious affection (where no land is taken) "caused by an expropriating authority in respect of a work or project for which the expropriating authority had the power to expropriate land". Section 40 (3) gives jurisdiction to the board to determine such claims. Taylor again referred to s. 544 of the Municipal Act as establishing a duty of a municipality to compensate owners of property "injuriously affected by the exercise of any of [the municipality's] powers".

  • Third, Taylor relied on ss. 25 and 29 of the Expropriation Act as authorizing the board to determine compensation when there has been a "constructive" or de facto expropriation, even though the normal expropriation procedures may not have been followed or even attempted.

These three arguments, in more detail, were:

3.1 Use of the property by the municipality

In argument on this point, Taylor's counsel observed that the justification and objectives of Bylaw 3553 were largely aesthetic -- to maintain existing scenic qualities, and ensure "visually attractive" development along the Parkway. The Bylaw attached the guidelines, and mandated their use. The very use of the word "parkway" stressed this aesthetic objective. The creation alongside the parkway of a 20 m. CPZ, in which there should be "no development" (guidelines, s. 3.1.2), effectively sterilized the use of that strip for any industrial purpose, and amounted to a dedication of the strip to a public purpose, namely the preservation of aesthetic qualities for drivers. The effect, he argued, was to impose a linear park on private lands.

Taylor's counsel interpreted the word "development" broadly, arguing that the prohibition of development in the CPZ covered more than buildings. Owners would be unable to establish parking and storage areas, he argued: essentially land in the strip would be restricted to landscaping uses.

He also asked the board to distinguish between the effect of placing the land in a development permit area, and the imposition of the CPZ under the guidelines for that area. This second step, he argued, had a specific damaging effect on the value of lots immediately beside the highway, which would not be felt by other lots or properties within the 200 metre-wide development permit area. He referred to the absence of actual sales of lots affected by the CPZ as evidence of this damage.

The City, by imposing what amounted to a linear park on the thirteen individual lots beside the parkway, was, in the argument of counsel, "using" a 20 m. strip of each lot for public benefit. As such, s. 544 of the Municipal Act gave the owners a right of compensation which could be determined by the board.

As additional statutory authority for the expropriation claim, Taylor's counsel referred to s. 578 of the Municipal Act, which authorizes council to maintain highways and the boulevards beside them, and to take, enter or use private property as necessary for those purposes. If it does so, the board is empowered to determine compensation for loss or damage so caused, even if the municipality's action does not amount to a formal expropriation (s. 578 (3.1)).

3.2 Injurious affection where no land taken

The second theory of liability advanced by Taylor was that the imposition of the CPZ injuriously affected its land, even if none was "taken" or "used". Liability rests on s. 544 of the Municipal Act, and the jurisdiction of the board to determine compensation relies on s. 40 (1) of the Expropriation Act. This latter provision refers to injurious affection "in respect of a work or project for which the expropriating authority had the power to expropriate land".

Under this heading, Taylor's counsel observed that Nanaimo has the power to expropriate, and specifically to expropriate for a community use such as a park (Municipal Act, s. 679 (1) (a) and s. 680). He urged that the CPZ could be viewed as a plan or scheme which would amount to a "project", and that it was not necessary to find a physical interference with land.

Counsel conceded that to succeed under this theory Taylor had to show that the four rules set out in cases like The Queen v. Loiselle (1962), 35 D.L.R. (2d) 274, [1962] S.C.R. 624 either were satisfied or were not applicable. He argued that the damage resulted from an act that would amount to nuisance, if not authorized under the Municipal Act, and that therefore would have been actionable; and that the damage would show itself in the market value of the land, and hence was an injury to the land itself, not a personal or business loss. He argued that the last of the four "rules" - that damage must result from construction and not from the use of a public work - did not apply to claims under s. 544 of the Municipal Act, since recovery under this section is not limited to injury caused by the construction of a public work. For this proposition he referred to Jesperson's Brake & Muffler Ltd. v. District of Chilliwack (1992), 47 L.C.R. 172 (B.C.E.C.B.), at p. 190. The legal reasoning of the board, (with the exception of its decision on interest), was approved by the Court of Appeal at (1994), 88 B.C.L.R. (2d) 230, and therefore the decision on this particular point appears to be correct.

3.3 Constructive or "de facto" expropriation

The third basis for recovery was that the action of Nanaimo in establishing the CPZ was a constructive expropriation in the meaning of cases such as The Queen v. Tener (1985), 32 L.C.R. 340, 17 D.L.R. (4th) 1 (S.C.C.). In that case, valid government action which had the effect of completely denying the claimant access to its mineral claims in a park was found by the Supreme Court of Canada to amount to an expropriation, for which the claimant should be compensated. Taylor's counsel drew an analogy to the loss of development rights imposed by the City in establishing the CPZ in the present case. Although he recognized that it was a question of degree whether or not there was a sufficient removal of rights to amount to a constructive taking, he argued that there was a taking in this case; it was common sense that the CPZ would diminish the value of the lots over which it lay. Referring to an article by R.J. Bauman, (as he then was) "Exotic Expropriations: Government Action and Compensation" (1994) The Advocate 561, he argued that the line was crossed when there was no economically viable use of the area in question.

According to Taylor's counsel, one should only look at the economic viability of the area within the CPZ, rather than the entire area of the affected properties, to determine whether the line has been crossed, so that there has been a de facto expropriation. On this basis, he argued that the land within the CPZ had essentially no value to a purchaser.

3.4 Measure of the loss

Taylor did not, in final argument, rely on any direct evidence of the loss in value caused by the CPZ, but argued that the Board could simply apply the per-acre values in evidence in the hearing, multiplied by the area of the CPZ as it crossed the subject lands. This is consistent with its argument that the land within the zone had essentially no value to an industrial user.

 

4. ARGUMENT FOR THE CITY OF NANAIMO

4.1 There can be no legal expropriation

The City argued that there can be no legal expropriation arising out of the passage or amendment of an official community plan or land use bylaw. A municipality cannot expropriate without following the statutory procedures. In support of this proposition it cited Purchase v. City of Terrace (1995), 26 M.P.L.R. (2d) 126 (B.C.S.C.) in which it was held, inter alia, that a municipal Council is not empowered under the Municipal Act to expropriate without an appropriate bylaw, and until such a bylaw is passed, it is not an "expropriating authority" in the meaning of the Expropriation Act.

The bylaw in question was an amendment to the official community plan, the content of which is authorized by s. 945 of the Municipal Act. Under s. 945 (4) (e), such a plan can designate areas for the "establishment of objectives and the provision of guidelines for the form and character of commercial, industrial or multi-family residential development". That was the express authority for the guidelines in this case. A related provision is found in s. 976, which prevents subdivision or development in areas designated under s. 945 (4) unless a development permit is obtained. By s. 976 (6), such development permits may include requirements "respecting the character of the development, including landscaping, and the siting ... of buildings and structures". The City's counsel pointed out that none of these relevant provisions authorize the City to expropriate, or even to enter on or use land.

The City's counsel recognized that there have been cases in which zoning bylaws have been found to be disguised attempts to confiscate land. When that has been found, such bylaws have been found to be ultra vires, and have been struck down. In principle, therefore, there could not be an expropriation giving rise to compensation. The proper remedy, if the bylaw in question was confiscatory, was to have it quashed by a court as ultra vires.

Further support for this proposition was found in the recent board decision McEachern v. B.C. Hydro and Power Authority (1997), 60 L.C.R. 186, in which it was observed that the board did not have the jurisdiction to award compensation for all kinds of legal wrongs. Only if Hydro had exercised its statutory powers to take or interfere with the claimant's land could the board be vested with the jurisdiction to award compensation. In the companion case of McEachern v. City of Nanaimo (1997) 60 L.C.R. 211, the comments of the Supreme Court in Purchase v. Terrace were repeated, to the effect that a municipal council does not become an "expropriating authority" until empowered by a bylaw authorizing expropriation.

4.2 Other grounds for compensation under s. 544, Municipal Act

The City denied that it in any way could be said to be "using" the land in the CPZ for a linear park or any other purpose, or that the bylaw could be said to be a scheme to create such a park. It had merely acted within the valid scope of its legislated authority over the content of official community plans.

The City further argued that whether a claim under s. 544 was expressed to be in respect of a taking, or a use, or an injurious affection, there was always a requirement that there be a "work" in respect of which the City's powers were being exercised. This word implied a physical construction, and could not be read as referring to a legislative or regulatory act. Indeed the City argued that all of the related words "taking", "entry" and "use" which might give rise to compensation under this section referred to direct, physical interference. Further (as explained above), the acts complained of had to be exercises of a valid municipal power to vest jurisdiction in the board. A mere unauthorized use, such as a trespass by the municipality, would not, on the authority of the McEachern cases, be a matter for the board.

With respect to a claim for injurious affection where no land is taken, the City observed that the four rules in R. v. Loiselle could not be satisfied. In particular, regarding the "actionable" rule, which states that the damage must arise from an act that would have been actionable at common law (if not authorized by statute), the City argued that no common law claim could arise from these facts. The only action of the City was to legislate pursuant to a statutory power. Absent such a power, there could be no legislation, and there was no physical interference with property rights as might have raised a common law claim such as nuisance or trespass.

The most decisive argument against a claim based on s. 544 arising out of an official community plan is the presence of s. 972, which reads as follows:

972 (1) Compensation is not payable to any person for any reduction in the value of that person's interest in land, or for any loss or damages that result from the adoption of an official community plan, a rural land use bylaw or a bylaw under this Division or the issue of a permit under Division (5).

(2) Subsection (1) does not apply where the rural land use bylaw or bylaw under this Division restricts the land to a public use.

The City argued that s. 972 (1) was a complete answer to any claim for compensation in the context of this case, no matter how it was theoretically phrased. It also observed that the exception in subsection (2) could not apply, since that subsection (unlike subsection (1)) does not refer to official community plans.

Even if subsection (2) could be said to apply, the City was able to refer to a recent decision of the board, Frobeen v. District of Central Saanich (1996) 58 L.C.R. 267, in which the board considered a municipal bylaw which established a setback from a creek, within which no buildings could be constructed or altered. As in the present case, the Frobeens had argued a right of compensation under s. 544, but the board found such a claim would be barred by s. 972. With respect to the exception under s. 972 (2), the board held that the bylaw did not restrict the land within the setback area "to a public use", since the Frobeens could continue to use their property as a private lot, to the exclusion of others. Until private use is completely foreclosed, the board held that the land was not within the exception.

4.3 Constructive expropriation

In answer to the claim that the establishment of the CPZ was a constructive expropriation, the City replied that such a claim required proof of two main elements, neither of which was met: there must be a substantially complete denial or removal of the property rights of the owner, and there must be a transfer of value to the City, or to an entity the City intends to benefit.

A number of cases were cited in support of these propositions. For the purpose of this decision it is sufficient to quote from the decision of Twaddle J.A. of the Manitoba Court of Appeal in the recent decision of Harvard Investments Limited v. City of Winnipeg [1996] 2 W.W.R. 267. This case, which involved the heritage designation of a historic hotel building, reviewed most of the significant prior cases, including two of the leading Supreme Court of Canada cases: Tener (cited earlier), and Manitoba Fisheries Ltd. v. R. (1978), [1979] 1 S.C.R. 533. At page 277, Twaddle J.A. says, in reference to these cases;

"In the two cases just referred to, the Supreme Court not only approved the rule for construing statutes which authorize a taking, but also offered guidance as to what constitutes a taking. There are two elements to a taking:
(i) the acquisition of an asset by the authority involved or its designate, and
(ii) the complete extinguishment of the asset's value to the owner."

The City argued that it could not be said to have acquired any property rights of value, where its only action was to restrict the development rights of the owner.

The question of whether the owner has suffered a substantially complete loss of value is to be tested, the City argued, by considering the whole of the property affected - not simply the affected portion. Although there is no Canadian law directly addressing this issue, the City's counsel produced a number of American authorities from which this principle emerges. Thus in the present case, the City argued that the property of concern was the whole of the 40.22 acre parcel on the north and east of the parkway. The CPZ, which occupied about 4 acres, could not be said to have eliminated all economic use of the parcel. Indeed the fact that Taylor, with knowledge of this factor, was in the process of creating a 46-lot subdivision on the parcel, establishing 13 lots which would be directly affected by the CPZ, was evidence of substantial remaining value after the taking, as was the appraisal evidence tendered during the hearing.

4.4 Measure of damages or compensation

The City argued that even if the board should find liability against it on one or more of the theories presented by Taylor, nevertheless there should be no recovery because damage or loss was not proven. The claimant's appraiser, it claimed, was severely discredited during his testimony, but in any event he did not present any market evidence or perform any supportable analysis to show what reduction of value to the property, if any, was caused by the CPZ. The appraiser for the respondent MoTH was specifically instructed not to consider the effect of the CPZ, so his report is of even less assistance. Although there was some subjective testimony from Ray Pellerin, a realtor involved in selling the industrial parksites, and from Mr. R.D. Howlett, a Langley realtor and friend of Mr. Taylor who at one point had intended to buy one of the affected lots, this evidence was claimed to be of little weight.

4.5 Alternative argument that claim is premature

Another argument made by the City was that any claim in respect of the CPZ was in any event premature, in that it ignores the true nature of the process. What actually must happen is that any buyer of a potentially affected lot will in due course present a development application for that lot to the City for approval. At that time, there may or may not be a decision by Council to enforce the 20 m. "no development" policy represented by the CPZ. However until that happens, argued the City, there can be no certainty that the CPZ will limit the development of any particular lot, and so there can be no claim at this point for loss of value.

 

5. DECISION

The board has considered all the points raised by both parties, and agrees with the City of Nanaimo that there can be no successful claim for compensation arising out of the facts in this case. The board has the following bases for this conclusion:

  • The board agrees with the City that the legislative act of the City in passing bylaw 3553 could not create a legal expropriation, because such would have been beyond the City's powers under the particular process which was being engaged.

  • The board agrees with the City that the claim for injurious affection where no land is taken must fail. The "actionable rule" discussed in R. v. Loiselle and other cases as being a necessary grounding for such a claim has not been established; indeed the board doubts it could ever be established in a case such as this, where the action complained of is a legislative act of the municipality, rather than some physical interference with property rights.

  • The board finds no constructive or de facto expropriation in the circumstances of this case, both because the creation of the CPZ creates an insufficiently severe interference with the claimant's property interests, and because there has been no transfer of valuable property rights to the City or the City's designate.

On the interference issue, the board agrees with the City that the severity of the owner's loss must be looked at in the context of the whole of the property over which the CPZ lies. When this is done, it is readily seen that the creation of a 4 acre "setback" on a 40 acre parcel has not eliminated the economic value of the parcel. Indeed the actions of the owner in proceeding with the industrial subdivision in full knowledge of the bylaw speaks to that conclusion, as does all of the appraisal evidence presented in the hearing. Although Taylor's appraiser David Wilson was unconvincing on many points, it is significant that even he ascribed a value for the 40 acre parcel of $1.63 million, after considering the effect of the parkway and the CPZ. Thus on this ground alone the board is unable to find that there has been a sufficient loss of property rights by reason of the CPZ to amount, in law, to a taking. The facts are very different from those in Tener, for example, where there was a complete denial of the owner's right of access to its mineral claims, and therefore a complete loss of the economic value of the claims themselves.

On the transfer issue, the board agrees with the City that it has not "acquired" property rights from the owner, and that for this reason also there has not been a taking in the meaning of the cases cited. Any benefits flowing from the City's regulatory action ensure generally to users of the highway, and they are of a type not generally recognized as property rights -- aesthetic values and views.

  • Aside altogether from the preceding findings, the board finds that s. 972 (1) of the Municipal Act affords the City a complete and unanswerable defence to any compensation claim, no matter how described, which is based on the passage of an amendment to the official community plan. The words of that subsection could hardly be more direct and applicable to the facts at hand. The exception contained in s. 972 (2) does not assist Taylor, both because it does not, on its face, apply to claims in relation to official community plans, and because the bylaw in question, including the imposition of the CPZ, does not "restrict the use of land to a public use". Mere enactment to create a public benefit does not in itself create a public use. The land within the CPZ remains private land. The public acquires no right of access by reason of the CPZ. All that has happened is that the development possibilities of this area could be restricted. The comments of the board in the Frobeen case (cited earlier) are applicable to this case also.

Because the claim of Taylor against Nanaimo fails on more than one of these overlapping grounds, it is unnecessary for the board to speculate on whether and how the CPZ would have been enforced in future development applications by individual lot owners. Equally, it is unnecessary for the board to decide whether the compensation claims are premature, which was an alternative argument of the City.

It is significant, in the board's view, that there is not one case, among the many cited to the board, in which a claim of this nature has been upheld. The weight of authority seems strongly against such claims, and the board has not been presented with any compelling basis for an unusual result in this case. The board therefore dismisses the claim against the City of Nanaimo.

 

6. COSTS

Under section 44 (3) of the Expropriation Act, the costs necessarily incurred by a person seeking compensation for an expropriation are recoverable. However there has been no expropriation in this case. There has been a claim made under s. 40 (3) for injurious affection, and by virtue of s. 44 (6) the costs in such a claim are at the discretion of the board. In view of the fact that the situation is somewhat novel, and that counsel have not yet spoken to costs, the board invites submissions on costs. Written submissions should be received by the board, with a copy to opposing counsel, within two weeks of receipt of these reasons, and each counsel will have a further week to reply to the submission of the other party. If no such submissions are received, the board will make no order as to costs.

 

TABLE OF CONCORDANCE

Municipal Act, R.S.B.C. 1979, c. 290 Municipal Act, R.S.B.C. 1996, c. 323
s. 544 s. 324
s. 578 s. 539-541
s. 578 (3.1) s. 541 (4)
s. 679 (1) (a) s. 610 (1) (a)
s. 680 s. 610 (5)
s. 945 s. 876-880
s. 945 (4) s. 879 (1)
s. 972 s. 914
s. 976 (6) s. 920 (8)
Expropriation Act, S.B.C. 1987, c. 23 Expropriation Act, R.S.B.C. 1996, c. 125
s. 25 s. 26
s. 29 s. 30
s. 32 s. 33
s. 40 s. 41
s. 44 s. 45