On October 21, 2022, the Supreme Court of Canada (the "SCC") released its decision in Annapolis Group Inc. v Halifax Regional Municipality, 2022 SCC 36 ("Annapolis"), affirming and clarifying the test for constructive taking, or de facto expropriation, set out in Canadian Pacific Railway Co. v Vancouver (City), 2006 SCC 5 ("CPR").
Expropriation (or "taking") is referred to as constructive or de facto in contrast to de jure taking. The latter occurs when a government authority expressly takes legal title of land from a landowner. Compensation for de jure takings is codified across Canada in provincial and territorial legislation, such as Nova Scotia's Expropriation Act, RSNS 1989, c 156, which states that "where land is expropriated, the statutory authority shall pay the owner compensation as is determined in accordance with this Act".
Constructive taking covers situations where a government authority has not taken legal title from the landowner but has otherwise regulated the property to such an extent that the landowner has effectively lost the property. Notably, there is nothing to prevent the government authority from doing so; extensive land use regulation in the public interest is the norm in Canada, and there is no protection of property rights in the Canadian Charter of Rights and Freedoms. However, where a constructive taking occurs absent express statutory language permitting the government authority to take property without paying compensation, the government authority is required at common law to compensate the property owner.
In CPR, the SCC held that a constructive taking of private property occurs when two requirements are met (the "CPR test"):
- the government authority must acquire a beneficial interest in the property or flowing from it; and
- the property owner must lose all reasonable uses of the property.
Thus, where these requirements are met (and in the absence of express statutory language permitting uncompensated taking, as in CPR), the property owner is entitled to compensation from the government.
In Annapolis, the SCC majority held that the first prong of the CPR test should be interpreted broadly such that the acquisition of "a beneficial interest in the property or flowing from it" means the accrual of an "advantage" to the government actor. The majority also held that the public authority's motive, while not an element of the test, can be used as supporting evidence in making out a claim for constructive taking.
Annapolis Group Inc. ("Annapolis"), a property developer, owns undeveloped lands within the Halifax Regional Municipality ("Halifax") which Annapolis claims were constructively taken by Halifax.
In 2006, Halifax included Annapolis' lands in a plan for a proposed Regional Park. Despite this, Annapolis' lands were not zoned as parkland and were instead zoned for "future serviced residential development" which required Annapolis to apply for a secondary planning process before any development could occur. In 2007, Annapolis requested that Halifax initiate the secondary planning process, which request Halifax eventually refused in 2016. In the meantime, Halifax put up signs on Annapolis' lands that appeared to encourage members of the public to use the lands as if they were a public park.
Annapolis commenced legal proceedings, asserting that Halifax had constructively taken its lands. Halifax moved for summary dismissal of Annapolis' constructive taking claim. Although Annapolis was successful in defending Halifax's motion for summary dismissal at the lower court, the Nova Scotia Court of Appeal (the "NSCA"), applying the CPR test, found that there was no basis for a finding of constructive taking and dismissed Annapolis' action.
In particular, the NSCA determined that Annapolis had no reasonable chance of establishing that Halifax had acquired a beneficial interest in or flowing from Annapolis' lands to satisfy the first prong of the CPR test. The NSCA viewed this prong of the test as requiring that land "actually be taken", which had not occurred. The NSCA also held that Halifax's alleged motive of preserving Annapolis' lands for a public park was irrelevant to the constructive takings analysis.
In a 5-4 ruling, the SCC overturned the NSCA's decision, finding that there were genuine issues of material fact to be tried and therefore ordering that the matter be allowed to proceed to trial. In doing so, the SCC upheld the CPR test for constructive taking while clarifying how it should be applied.
The Majority Decision
Contrary to the NSCA, the majority of the SCC held that the CPR test does not require land to be taken from an owner and acquired by the state. Instead, "beneficial interest" should be understood more broadly as an "advantage" accruing to the state. For example, in this case, preserving a park in its natural state could be such an advantage.
The majority came to this conclusion for two reasons:
- to require an actual acquisition by the public authority would collapse the distinction between constructive and de jure takings; and
- interpreting "beneficial interest" as including an advantage to the public authority accords with the CPR test's reference to "a beneficial interest in the property or flowing from it". It also accords with prior case law relied on in CPR, such as Manitoba Fisheries Ltd. v The Queen,  1 SCR 101 ("Manitoba Fisheries") and British Columbia v Tener,  1 SCR 533 ("Tener"). In Manitoba Fisheries, the Court held that the government had acquired an advantage through the acquisition of a statutory monopoly that entitled it to benefits that would have otherwise flowed to the company. In Tener, the Court held that the government's regulation had the effect of securing an advantage by confining all reasonable uses of the property to the government's preferred use as a provincial park.
The majority offered further guidance to courts applying the CPR test, indicating that courts should consider the context of the alleged taking, including:
- the nature of the government action, notice to the owner of the restrictions at the time the property was acquired, and whether the government measures restrict the uses of the property in a manner consistent with the owner's reasonable expectations;
- the nature of the land and its historical or current uses; and
- the substance of the alleged advantage.
The majority gave examples of scenarios that would satisfy the test for constructive taking, specifically highlighting the following:
- permanent or indefinite denial of access to property or permanent or indefinite occupation of the property by the government;
- regulations that leave a rights holder with only notional use of their land, deprived of all economic value; and
- confining the uses of private land to public purposes, such as conservation, recreation, or institutional uses such as parks, schools, or municipal buildings.
Lastly, the majority clarified the role of a government authority's motive in the constructive taking analysis. The majority held that while motive is not an element of the constructive taking test, claimants are permitted to provide evidence of the government authority's motive where such evidence supports that a landowner has lost all reasonable uses of their land.
The Dissenting Opinion
The dissent disagreed with the majority's recharacterization of the CPR test, finding that the beneficial interest prong of the test requires the interest to be proprietary in nature, and not merely an advantage. The dissent noted that the majority's broader interpretation "dramatically expands" the potential liability of municipalities engaged in land use regulation in the public interest.
The SCC confirmed that not all land regulation undertaken by a government authority will result in constructive taking. Governments can and do regulate land in the public interest. However, where regulation results in the landowner being deprived of all reasonable uses of their property, they may be entitled to compensation - unless an existing applicable statute expressly allows for taking without compensation.
Importantly, this ruling clarifies the CPR test for constructive taking and reinforces the distinction between constructive and de jure takings by confirming that a claimant need not establish the transfer of a property interest to prove a constructive taking claim; instead, an advantage flowing to the government authority is sufficient.
This approach usefully places the focus of the inquiry on the substance rather than the form of the government action. In other words, the analysis considers the effects on the landowner rather than the strict nature of the acquisition by the government authority. This substantive approach is augmented by the contextual considerations identified by the SCC, including the landowner's reasonable expectations, the nature of the land and its historical and current uses, and the substance of the alleged advantage.
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