On May 10, 2024, the Supreme Court of Canada (the “SCC”) released its unanimous decision in St. John’s (City) v. Lynch,[1] which involved a claim for land that was constructively expropriated. In its decision, the SCC clarified how zoning regulations and land-use restrictions are to be considered in assessing the market value compensation payable to the owners of expropriated property.
Facts and Judicial History
The Lynch family’s (the “respondents”) property is located on the western side of the Broad Cove River watershed (the “Lynch Property”). The property is in its natural state and has consisted primarily of trees and shrubs since 1945.
In 1992, the City of St. John’s (the “City”) boundaries were extended to encompass the Lynch Property. As a result, in addition to being subject to a building prohibition applying to the watershed under the City of St. John’s Act, the Lynch Property also became subject to the City’s zoning regulations. Following the boundary expansion, the 1994 Development Regulations were enacted by the City which included a “Watershed Zone” that encompassed the Lynch Property. There are no “permitted uses” within the Watershed Zone, and the zoning limited the property only to “discretionary” agriculture, forestry, and public uses.
In 1996, the City adopted the Watershed Management Plan that expressed the City’s desire to continue prohibiting development in the watershed and to eventually revert the area back to its natural condition.
The respondents had been considering redeveloping the Lynch Property since the 1990s. In 2011, the respondents inquired with the City about developing the property and eventually submitted a formal application to develop a 10-lot residential subdivision. The City rejected the application in February 2013, citing its authority under the City of St. John’s Act and the Lynch Property’s designation as part of the Watershed Zone under the 1994 Development Regulations.
The respondents sought a declaration that the Lynch Property was constructively expropriated, and in 2016, the Court of Appeal of Newfoundland and Labrador held that the City constructively expropriated the respondents’ property by refusing to permit development on it.[2] Specifically, the Court of Appeal found that the City had “acquired a beneficial interest” in the Lynch Property “consisting of the right to a continuous flow of uncontaminated groundwater downstream to the City’s water facilities” and that the respondents were left with no reasonable uses of the property.[3] This finding was not in dispute before the SCC. The Court of Appeal declared that the respondents had a right to file a claim for compensation under the Expropriation Act is: RSNL 1990, c. E-19, as though a notice of expropriation had been served as of February 1, 2013, and failing agreement with the City, a right to proceed to the Board of Commissioners of Public Utilities (the “Board”) for a hearing to deal with the determination of the compensation claim.[4]
The parties obtained appraisals for the Lynch Property but were unable to agree on compensation. As a result, the City filed an application with the Board.
As a preliminary matter, the Board made a reference to the Supreme Court of Newfoundland and Labrador, posing the following question:
Whether the [respondents’] compensation should be assessed based on the uses permitted by the existing zoning, which are agriculture, forestry and public utility uses, or whether the existing zoning should be ignored and the value determined as if residential development were permissible.
The respondents argued that the Watershed zoning restrictions should be ignored and not constrain the property’s market value. The application judge disagreed and concluded that the zoning regulation was an “independent enactment” and not part of the expropriation scheme. As a result, the judge held that the zoning regulation could influence the market value of the expropriated property and was a relevant consideration for the purposes of determining compensation.[5]
The respondents appealed to the Court of Appeal of Newfoundland and Labrador. The Court of Appeal disagreed with the application judge and concluded that compensation should be determined without reference to the zoning regulation, since there was a causal connection between the adoption of the zoning regulation and the expropriation of the Lynch Property, such that it formed part of the expropriation scheme.[6]
The issue on appeal before the SCC was whether the 1994 Development Regulations form part of the “compulsory acquisition of the land”, which is to be ignored in assessing the respondents’ compensation entitlement.[7]
Findings
The SCC provided an overview of the key principles underlying compensation in expropriation proceedings, noting that:
- compensation is based on the expropriated property’s market value;[8]
- the relevant market value is the “value to the owner” and not the property’s value to the public authority;[9] and
- market value may reflect a higher and better use of the land than its current state – recognizing the land’s development potential.[10]
The Court confirmed that zoning regulations and other land use restrictions bear on a property’s market value, and thus compensation for expropriation.[11] However, it noted that restrictions on land use, on their own, do not constitute an expropriation.[12] It also affirmed its finding in Annapolis Group Inc. v. Halifax Regional Municipality, which sets out the recent articulation of the test for constructive expropriation, confirming that constructive expropriation only occurs when a beneficial interest accrues to the public authority and the regulatory measure removes all reasonable uses of the property.[13]
At the crux of the case was an analysis of the “Pointe Gourde” principle, which provides that “compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the expropriation”.[14] In other words, this principle means that the value of the land expropriated cannot be increased (or decreased) by the underlying scheme pursuant to which the land is being expropriated. Ontario’s Expropriations Act incorporates the Pointe Gourde principle in paragraph 14(4)(b): “any increase in the value of the land resulting from the development or the imminence of the development in respect of which the expropriation is made or from any expropriation or imminent prospect of expropriation” is excluded from consideration.[15] The Court noted that ignoring increases and decreases in market value caused by the expropriation scheme results in neither an economic burden nor a windfall for the owner.[16]
The SCC held that the key question in determining whether a regulation’s effect on a property’s value should be ignored for compensation purposes (the application of the Pointe Gourde principle), is “whether the enactment was made with a view to the expropriation or, conversely, was an independent enactment”.[17] This involves examining the purposes and effects of the enactment, which are ascertained by considering the debates, deliberations, and statements of policy that gave rise to it.[18] Departing from the Court of Appeal’s reasoning, the SCC stated that causation is of limited assistance in determining the scope of the expropriation scheme, and clarified that the analysis does not turn on whether the regulatory enactment was a link in the chain of events leading to the expropriation.[19]
Rather, the SCC affirmed that the Pointe Gourde principle requires consideration of whether the enactment was made for the purpose of expropriating rather than regulating, and offered the following guidance for conducting this assessment:
- If a land use restriction is enacted as part of a city-wide or province-wide policy, or does not target specific properties, that may indicate that the restriction is an independent enactment and is not to be excluded under the Pointe Gourde principle;
- It may also be relevant that the impugned regulation was enacted by a different public authority than that which expropriated the property;
- A government’s knowledge of another level of government’s development plans is not conclusive of an enactment having been made with a view to expropriation; and
- Bad faith is not a prerequisite to a finding that an enactment was made with a view to expropriation.[20]
Application
The SCC held that there was no basis to interfere with the application judge’s conclusion that compensation for expropriation of the Lynch Property should consider the Watershed zoning. As such, the Court allowed the appeal and restored the judge’s order.
The Court found that the application judge was alive to the key question: whether the Watershed zoning in the 1994 Development Regulations was an independent enactment or was made with a view to the expropriation of the Lynch Property.
Given the application judge’s finding that the Watershed zoning was an independent enactment and not made with a view to expropriation, the Court concluded that market value assessment for the Lynch Property must consider the fact that it is limited to discretionary agriculture, forestry, and public utility uses. It noted that to ignore the Watershed zoning would be to award the respondents a significant windfall, and it would compensate them for something they never would have had absent the expropriation: unencumbered land to develop residential housing.[21]
Takeaways
This decision provides valuable guidance for lawyers representing both expropriating authorities and owners of expropriated property.
With the benefit of the Court’s reasons, expropriation lawyers will be better equipped to advise clients on whether a particular land-use restriction or regulation is an independent enactment, such that it must be factored into the determination of market value compensation for an expropriated property. Consequently, they will be able to offer clearer and more precise advice on whether the compensation payable to the owner must consider the land-use restrictions’ effect on the market value of the property.
If you have any questions, please contact one of our expropriation team members – see https://davieshowe.com/expropriation/
[1] St. John’s (City) v. Lynch, 2024 SCC 17 [Lynch SCC].
[2] Lynch v. St. John’s (City), 2016 NLCA 35.
[3] Ibid at paras. 60 and 63.
[4] Ibid at para. 71.
[5] Board of Commissioners of Public Utilities -Re: Expropriation Act, 2020 NLSC 92.
[6] Lynch v. St. John’s (City), 2022 NLCA 29.
[7] Lynch SCC, supra at para. 26.
[8] Ibid at para. 29.
[9] Ibid at para. 31.
[10] Ibid at para. 32.
[11] Ibid at para. 32.
[12] Ibid at para. 33.
[13] Ibid at para. 33, citing Annapolis Group Inc. v. Halifax Regional Municipality, 2022 SCC 36 at para. 4.
[14] Ibid at para. 35, citing Pointe Gourde Quarrying and Transport Co. v. Sub-Intendent of Crown Lands, [1947] A.C. 565 at 572 (P.C.).
[15] Expropriations Act, R.S.O. 1990, c. E.26, ss. 14(4)(b).
[16] Lynch SCC, supra at para. 37.
[17] Ibid at para. 46.
[18] Ibid at para. 48.
[19] Ibid at para. 52.
[20] Ibid at paras. 55-57.
[21] Ibid at para. 66.
