October 29, 1997, E.C.B. No. 21/94/149 (62 L.C.R. 210)

 

Between: Ronald Baines, Ronald Dowbysh, Blaine Froats And Hans Heringa
Claimants
And: Her Majesty the Queen in Right of the Province of British Columbia
as Represented by the Minister of Transportation and Highways
Respondent
Before: Susan E. Ross, Presiding Member
Sharon I. Walls, Board Member
Art Guthrie, Board Member
Appearances: Robert S. Cosburn, Counsel for the Claimants
Sarah I. Macdonald, Counsel for the Respondent

 

REASONS FOR DECISION ON THE ISSUE OF COSTS

INTRODUCTION

Reasons for decision in this case were released by the board on April 18, 1997. The compensation awarded was $539,400 for the market value of the property. This was approximately 103% of the advance payment of $523,000. Since the compensation awarded was less than 115% of the advance payment, s. 45(5) of the Expropriation Act R.S.B.C. 1996, c. 125 (the "Act") provides:

45(5) If the compensation awarded to an owner is 115% or less of the amount paid by the expropriating authority under section 20(1) and (12) or otherwise, the board may award the owner all or part of his or her costs. (emphasis added)

Pursuant to a request by the Ministry of Transportation and Highways (MoTH) the matter of costs was adjourned pending further submissions from counsel on the ramifications of a settlement letter delivered by MoTH just five clear days before the commencement of the compensation hearing and rejected by the claimants.

 

CLAIMANTS' POSITION

The claimants submit that although the compensation awarded was less than 115% of the advance payments made they should receive their reasonable legal, appraisal, and other costs. They state that in all the circumstances it was reasonable for them to proceed with their claim through a hearing. Their appraiser's market value was $607,000, almost $85,000 more than the advance payment. Their appraiser had also determined a derived value of $781,000 based on the MoTH settlements for neighbouring properties, which value was $258,000 more than the advance payment. Although neither of these valuations was accepted by the board, the claimants state that they were reasonable valuations to advance. They say that their claims were neither inflated nor frivolous. Further, the advance payment did not contain any amount for disturbance damages and these claims only settled for a total of $45,000 after the hearing had commenced. If this sum is added to the compensation awarded by the board, it brings the total received by the claimants to approximately $584,400 or 112% of the advance payments. The claimants also ask the board to note that the initial advance payment was only $149,700 and that it was not until over two years later, on June 7, 1996, less than a month before the hearing, that the advance payment was increased by $373,300 to $523,000, exclusive of interest.

Further, the claimants submit that the delivery of a settlement offer by MoTH should not be considered as a factor affecting the level of costs. The Act provides a mechanism for respondents to increase an advance payment at any time up until 10 days before a hearing. They say that it is inappropriate to permit other procedures from the Rules of Court or litigation case law to affect a claimant's entitlement to costs. In their submission, there is even less rationale for consideration of this settlement offer in respect to the level of costs, when it was delivered on Thursday, June 27, 1996, with the hearing scheduled to commence on the following Wednesday, July 3, 1996.

 

MoTH's POSITION

MoTH submits that the claimants should be denied their costs or, in the alternative, should be denied their costs after June 27, 1996. MoTH acknowledges that the Act provides that claimants in expropriation cases should be reimbursed for expenses necessary to properly assess and assert their claims arising out of the expropriation. However, in this case MoTH alleges that the costs should be denied because the claimants were unreasonable in the claims they continued to assert through a hearing that lasted more than a week. MoTH particularly objected to the claimants' assertion of a value of $781,000 derived from MoTH settlements with neighbouring property owners. The board ultimately rejected this position in accordance with prior board decisions as set out in the compensation decision. This rejection, says MoTH, ought to have been expected by the claimants given these previous decisions.

Further, MoTH points to the alleged unreasonableness of claimants' counsel in submitting a value in final argument of $1,050,095, which value was derived from a single MoTH settlement on a neighbouring property, and was well in excess of their own appraiser's market value as well as the value derived from the MoTH settlements. The claimants were ultimately awarded only $16,400 more than the advance payments, for a total sum that was 103% of the advance payments. According to MoTH, this relative lack of success should be a factor in assessing costs, along with the alleged unreasonableness of the claims.

In addition, on June 27, 1996, MoTH wrote the claimants a settlement offer with a clause reserving the right to bring the offer to the attention of the board with respect to any claim for costs. The settlement proposal offered $575,000 (less advance payments) for the market value, $34,000 for various disturbance damage, statutory interest on these amounts, plus $20,000 in additional interest pursuant to s. 46(4), for a total of $629,000. MoTH submits that, because the claimants were ultimately awarded less than this settlement offer, this letter should be considered by the board in determining the amount of costs under s. 45(5).

 

DISCUSSION

Board Decisions

The principles in awarding costs are different in expropriation matters than in civil litigation. There is some discussion of these principles in previous decisions of this board. In El & El Investments Ltd. v. Board of School Trustees of School District # 36 (Surrey) (1996), 60 L.C.R. 41, at p. 52, the Chair stated:

The principle that costs follow the event is not dominant in expropriation matters in the same way that it is in civil litigation matters. The objective of the compensation scheme under the Act is to make an expropriated owner economically whole, and indemnification for costs is part of that scheme. Under section [45(3)] of the Act, an owner whose interest or estate in land is expropriated is, with certain exceptions designed to discourage inflated or frivolous claims, entitled to be paid the costs which the owner necessarily incurs for the purpose of asserting a claim for compensation. Under section [45(4)], where compensation awarded to the owner is greater than 115% of the amount of the advance payment made by the expropriating authority, there is an absolute entitlement to costs.

In Shah v. Board of School Trustees of School District No. 75 (Mission) (1996), 58 L.C.R. 87, at p. 106, the board stated:

Section [45(5)] does not specify what factors the board should consider in exercising its discretion about awarding the claimant all or part of her costs. Section [45(11)] sets out that on an assessment of costs the chair is required to consider the following factors:

[45(11)] In a determination of costs under subsection (9) or (10), the following considerations shall be taken into account:

(a) the number and complexity of the issues;

(b) the degree of success, taking into account

(i) the determination of the issues; and

(ii) the difference between the amount awarded and the advance payment...

(c) the manner in which the case was prepared and conducted.

In expropriation cases the principle for awarding costs is different from that in ordinary civil litigation. A person whose property is expropriated by the state is not a voluntary litigant and under s. [45(4)] is automatically entitled to actual reasonable legal, appraisal and other costs incurred in seeking professional advice to independently value and advance a claim for compensation, where that claim is successful as measured by being at least 115% of the amount already paid by the authority. If a person recovers less than 115%, the board has sometimes awarded costs, in whole or in part, in any event. E.C.E. Todd, The Law of Expropriation and Compensation in Canada, 2nd ed.(1992), in discussing the costs of experts whose reports have been rejected at a hearing, states at pp. 521-522:

The fact that a board hears and rejects evidence does not in itself justify denying the claimant's costs on the rejected evidence. ... The test for the recovery of costs in such circumstances is whether it was reasonable for the claimant to have retained the expert and whether it was reasonable for the claimant to have assumed the expert's evidence would stand the test at the hearing.

... In exercising its discretion as to costs in this matter, the board has similarly to consider whether there were legal or valuation issues that made it reasonable for the claimant to pursue this claim through the various stages, ultimately to a three-day hearing.

Cases in which the board has awarded full costs even though the compensation has been less than 115% of the advance payment include Surrey Animal Hospital Ltd. v. British Columbia (M.O.T.H.) (1993), 51 L.C.R. 37, where the claimant received all of its costs because of the complexities of the issues and the dearth of jurisprudence on business loss.

Similarly, in Demosten v. British Columbia (M.O.T.H.) (1996), 60 L.C.R. 68, the board awarded full costs although the compensation of $3,075 was only 106% of the advance payment of $2,900. The board said that this was not a case in which any reasonable claimant should have realized that the claim would be unsuccessful. The claimants had presented a novel approach and a credible valuation method.

More recently in Roadmaster Auto Centre Ltd v. Burnaby, unreported, E.C.B. No. 21/93/145, July 31, 1997, the board also awarded the claimant all of its costs under s. 45(5). The board commented on the tenuousness of several of the claims, a number of which were unsuccessful, but noted that these were issues rarely addressed by the board in the past. Although the compensation awarded of $49,166 fell far short of the amount claimed, it was significantly more than the amount advanced of $20,000.

There are a number of cases in which this board has awarded less than 100% costs under s. 45(5). In Patterson v. British Columbia (M.O.T.H.) (1994), 53 L.C.R. 88; aff'd, unreported, B.C.C.A., July 8, 1997, the board awarded the claimants approximately $35,400 out of a $216,678 claim. The amount of the advance payment is not clear from the decision but it appears that the claimants achieved a small increase over the advance payment. One of the claims advanced was a somewhat unusual one for relocation costs, even though the actual expropriation was for only a small sliver of property. The board denied this claim and some of the other disturbance damages but, because it was reasonable for the claimants to have put certain of their arguments before the board, it awarded the claimants 75% of their costs.

In Kliman v. Board of School Trustees of District No. 63 (Saanich) (1994), 54 L.C.R. 242; aff'd 60 L.C.R. 246 (B.C.C.A.), the board awarded the Klimans $1,292,000 in compensation, which was $42,100 (103%) more than the advance payment of $1,249,900. This award was significantly below the compensation claimed by the Klimans of $1,488,000. This case was complicated by the fact that the Klimans had entered into a binding interim agreement shortly before the expropriation and both the Klimans and the purchaser sought compensation from the authority at the hearing. In addition to the unusual legal issue on entitlement to compensation, there were complex issues in the valuation of the property. The board acknowledged that the legal issues and valuation issues were particularly complex and were a factor in the matter having been pursued through a lengthy hearing. Nonetheless, the board awarded the Klimans only 80% of their costs after the second advance payment and 100% of their costs up until that time, in part because of the Klimans' relative lack of success at the hearing. In this same case the purchaser, Phoenix Estates Ltd., was awarded 90% of its costs throughout even though in the end it was not successful in obtaining any monies.

In Husband v. Langley (1996), 59 L.C.R. 221, the claimants were awarded only $35,204 which was less than the advance payment of $44,000. The board commented on problems with both appraisal reports including confusion created by the authority's appraiser which had perhaps led to a misapprehension as to the value for one of the claims for disturbance damages. It awarded the claimants 75% of their costs throughout.

In Shah v. School District No. 75 (Mission) (above), the claimant was awarded the same sum as the advance payment. The complication in this case was that there were environmental hazards which significantly impaired the development potential and thus the market value of the property. However, these hazards were not fully appreciated by the regional district in the early stages of negotiation prior to the expropriation. The board awarded the claimant all of her legal costs until a date approximately one year and four months after expropriation and 50% of her legal and appraisal costs thereafter. The board held that by at least the date specified, over a year after the expropriation, it should have become clear to the claimant and her advisors that the environmental information available to a prudent purchaser at the time of expropriation made it unreasonable to continue to rely on her appraiser's valuation.

Similarly, in Apland v. British Columbia (M.O.T.H.) (1996), 60 L.C.R. 107, the claimants were not awarded any further monies as a result of the hearing. The board not only denied the claim for disturbance damages that was the primary focus of the hearing but, in addition, noted that the claimants had already been overcompensated in the approximate amount of $1,000 for various disturbance damages. Since the claimants' position on market value was only recognized with a third advance payment shortly before the hearing, the board awarded the claimants all of their costs until one week after the date of this third advance payment, and 25% of their costs after that date. The board specifically considered counsel's submissions against penalizing claimants who raised novel and innovative arguments, even if these arguments were in the end rejected by the board. The board stated at p. 123:

[that although the claimants'] argument was novel ... it must have been evident from any informed review of the language of the Act and the decided cases interpreting it that the argument was fraught with difficulty and highly unlikely to succeed.

Settlement Letters

Settlement offers which specifically reserve the right to bring the offer to the attention of the court on the matter of costs are called Calderbank letters. In Calderbank v. Calderbank, [1975] 3 All E.R. 333 (C.A.), the English Court of Appeal held that, although the husband had been successful in a matrimonial property dispute, he was only entitled to his costs up until the date 14 days after his wife had made an offer to settle the dispute. Subsequent to that date the wife was entitled to costs, since her offer to settle had been for a higher sum than the eventual judgement awarded to the husband. Counsel for the wife urged the court to permit a settlement offer to have an impact on costs since payment into court under the rules would be inappropriate in this type of case. The court specified that it would not consider a settlement offer in a "without prejudice" letter unless there was a clause expressly retaining the right to bring the offer forward on the issue of costs.

There is no previous board decision considering a settlement offer with a Calderbank clause reserving the right to bring the offer to the attention of the board with respect to costs after a decision has been made on compensation. The claimants see no role under the Act for "with prejudice" settlement offers. MoTH submits that, although there is provision under the Act to make further advance payments to the claimant, settlement offers are also useful and proper. This is because an advance payment under the Act must be based upon an appraisal report, but the authority may be prepared to pay more to settle a claim in order to avoid the costs of the hearing. If such settlement offers are made in excess of the advance payment, should the board consider the settlement offer with respect to the issue of costs if a Calderbank clause is included?

In order to properly consider the potential role of Calderbank letters in expropriation cases, it is helpful to consider their use in civil litigation in British Columbia as a supplement to formal offers to settle under the rules. There is provision under Rule 37 of the British Columbia Rules of Court for a formal written offer to settle to be made by any party, with penalties in costs to the party receiving the offer if that party rejects the offer and proceeds to trial where it obtains a less favourable result. Penalty costs operate automatically from the date that the offer was received provided that the offer was delivered at least 7 days in advance of the commencement of the trial. If the offer was received less than 7 days before the trial, then the court may consider the offer and the date that it was delivered in exercising its discretion over costs. The purpose of Rule 37 is to encourage settlement and reduce the number of unnecessary trials.

In British Columbia, Calderbank letters have sometimes been accepted in civil litigation actions as if they were formal offers to settle under the Rules, with penalties in costs following automatically. However, this is only when the nature of the case precludes a simple monetary formal offer by a single defendant as contemplated under Rule 37. Where a monetary offer under Rule 37 is feasible, Calderbank letters will not lead to automatic consequences in costs. See Higgs v Fainstein (1992), 72 B.C.L.R. 24 (S.C.). and Delair v Byrnell (1994), 90 B.C.L.R. (2d) 254 (S.C.). In Delair, a personal injury claim in which liability was at issue, Selbie J. refused to treat the Calderbank letter as an offer under Rule 37. At p. 237, he commented on the use of Calderbank letters:

Further, even where a Calderbank letter is appropriate, it should affect the exercise of discretion to award costs only where it is appropriate to punish a party for failing to accept a reasonable offer of settlement. ... The main concern of the court is to discourage unnecessary litigation. Where the party failing to accept a reasonable offer has acted reasonably in rejecting the offer, it is not appropriate to punish that party through a costs award.

Selbie J. went on to find that, although the plaintiff had been awarded much less than the amount offered in the Calderbank letter, she was not unreasonable in rejecting the settlement offer given the difficulties in predicting liability and assessing the soft tissue injury involved. Thus, Selbie J. suggested that, though Calderbank letters are a factor in the exercise of the court's discretion on costs, merely because the judgment obtained is small in comparison to the offer does not necessarily mean that the party was unreasonable in proceeding to trial.

In expropriation cases, as discussed above, the principles for awarding costs are not the same as in civil litigation. Instead of a party having to factor in the risks of costs following the event, and even if successful, only partially recovering his costs on the basis of a tariff, the owner whose property is expropriated by the state is generally entitled to full reimbursement of reasonable expenses in obtaining professional advice and pursuing statutory remedies. On this reasoning, it would be inappropriate for an owner to be subject to the risk of automatic penalties in costs when considering a formal settlement offer under Rule 37 or a Calderbank letter. It would also be inappropriate for the board, in exercising its discretion, to accept the rationale that merely because an owner eventually obtains an award that is less than an offer in a Calderbank letter (or for that matter, less than an advance payment), that the hearing was thereby unnecessary. However, the board does not think that the provision for advance payments in the Act together with various consequences of the relationship between the advance payment and the amount awarded, excludes the board from considering an unprivileged settlement letter with a Calderbank clause in exercising its discretion on costs.

The board concludes that a Calderbank letter may be one factor in assessing the reasonableness of the owner in pursuing his claim for compensation, keeping in mind the different cost principles applicable in expropriation cases. The board also notes the delivery date of the Calderbank letter in this case, just five clear days before the commencement of the hearing. It did not meet the time limits of ten days for an advance payment under s. 20(12) of the Act nor the time limit of seven days for an offer to settle under Rule 37. This is another factor in the exercise of the board's discretion.

Analysis

In this case the degree of success experienced by the claimants was characterized differently by the parties. While the board's award was $539,400 or 103% of the advance payments of $523,000, the claimants also settled for an additional $45,000 for disturbance damages on top of the $539,400. Thus they received a total of approximately $584,400 or 112% of the advance payments of $523,000. On the other hand, this sum of $584,400 is only 92% of the $629,000 total offered in the June 27, 1996 Calderbank letter. The settlement letter included additional interest under s. 46(4) which was not ordered at the hearing because the compensation award was too low. MoTH was also particularly concerned about the unreasonableness of claimants' counsel submitting a value of $1,050,095 in final argument, given that this value was so much higher than any appraiser's market value.

In the board's view, the question to be asked is whether it was reasonable for the claimants in all the circumstances to continue on with their claim through the various levels of negotiation and ultimately to the compensation hearing. The issue of reasonableness is to be determined on the evidence of whether the claimants had a reasonable basis for continuing to pursue their claim.

The board agrees with MoTH that the claimants were unrealistic in relying on the value of $781,000 derived from the MoTH settlements. The issue of MoTH settlements had been considered in a number of board decisions and it was clear that under the Act, MoTH settlements could only be used to the extent that they reflected an open and competitive market value. In this case, even the claimants' appraiser conceded that he could not consider the MoTH settlements in estimating market value.

The board agrees with MoTH that this case, unlike Surrey Animal Hospital or Kliman, did not present particularly complex legal or valuation issues. The primary issue was the highest and best use and the degree to which underground mine works affected this use.

MoTH concedes that, at the time that the hearing commenced, the board might reasonably have concluded the market value for the subject property fell somewhere between the market values of the two parties' appraisers - namely, between $523,000 and $607,000. There were also the claims for disturbance damages and, although the claimants were seeking over $80,000 initially, these claims settled for $45,000 in the first two days of the hearing. If this sum is added to the market value then the range of awards foreseeable by the parties was between $568,000 and $652,000. In all the circumstances, and being mindful of the different principles for consideration of settlements and costs in an expropriation claim, the board is unable to say that the claimants' rejection of the offer of $629,000 in the Calderbank letter was unreasonable.

Conclusion

Although the board is unable to find the claimants' rejection of the Calderbank letter unreasonable, the board is of the opinion that it was unreasonable for the claimants to pursue compensation based on the MoTH settlements through to the hearing. While the board is not seeking to discourage parties from making novel arguments, the board finds the observations in Apland appropriate. In the face of the provisions in the Act and previous board decisions, an argument based on MoTH settlements had a very small chance of success. The claimants' appraisal report dealt with MoTH settlements at some length although the appraiser states in his covering letter that this was on counsel's instructions. The board found this section of the appraiser's report somewhat puzzling as there were no calculations or adequate explanations to support the upward adjustments to the actual sums that MoTH had paid for the neighbouring properties.

There was considerable time spent on the MoTH settlements at the hearing, but, in practice, it is difficult to isolate the costs of advancing one argument amongst several. Accordingly, on balance and weighing the actions of both parties, the board finds it fair to award the claimants 100% of their reasonable legal and appraisal costs until June 14, 1996, a week after the date of the second advance payment, and 85% of their reasonable legal, appraisal and other costs thereafter.

 

 

Government of British Columbia