Supreme Court of Canada Clarifies Test for Constructive Taking of Land by Government

In its recent decision in Annapolis Group Inc. v. Halifax Regional Municipality, 2022 SCC 36 (Annapolis), the Supreme Court of Canada (SCC) clarified the test for constructive taking of private property, or de facto expropriation. The SCC has arguably expanded the circumstances in which municipalities and other governments can be liable to compensate landowners for eliminating the owners’ ability to make profitable use of their land.

In a 2006 decision, Canadian Pacific Railway Co. v. Vancouver (City) (CPR), the SCC had explained the constituent elements of constructive taking were: (1) an acquisition of a beneficial interest in the property or flowing from it, and (2) removal of all reasonable uses of the property. Some lower courts had interpreted the “beneficial interest” element as meaning that the state acquired an actual proprietary interest.

In a 5-4 decision, a majority of the SCC in Annapolis explained that “beneficial interest” should be understood more broadly as “advantage” and does not need to be an actual acquisition. The decision provides much needed clarity regarding the circumstances in which land use regulation amounts to constructive taking requiring compensation.

BACKGROUND

Annapolis Group Inc. was the owner of 965 acres of land in Halifax (the Lands) which it intended to develop. In 2006, Halifax adopted a municipal planning strategy for land development. The planning strategy reserved some of the Lands for possible inclusion in a public park, with the remaining Lands designated for “serviced development”, such as residential neighbourhoods. Serviced development could only occur after Halifax adopted a resolution authorizing a “secondary planning process” and an amendment to its land use bylaw.

Beginning in 2007, the Annapolis Group made several attempts to develop the Lands. Ultimately, by resolution passed in 2016, Halifax refused to initiate the secondary planning process with the Annapolis Group. The Annapolis Group responded by commencing litigation against Halifax, claiming constructive taking of the Lands.

Halifax brought a motion to dismiss the claim as having no chance of success, relying on the CPR case. The Nova Scotia Supreme Court concluded that the claim raised genuine issues for trial. The Nova Scotia Court of Appeal concluded that the Annapolis Group could not prove that Halifax had acquired a beneficial interest in or removed all reasonable uses of the Lands. The Court of Appeal held that limiting the use of land or reducing its value through regulation was insufficient to satisfy the test.

SCC DECISION

The majority of the SCC allowed the Annapolis Group’s appeal and ordered the claim for constructive taking to proceed to trial. The majority explained the test for constructive taking requiring compensation. The claimant must establish that the public authority: (1) acquired a “beneficial interest” in the private property; and (2) removed “all reasonable uses” of the property.

The majority further clarified that “beneficial interest” must be broadly understood as an “advantage” and need not be an actual acquisition of a proprietary interest. The test is contextual, focusing on effects and advantages. The majority directed lower courts to take a “realistic appraisal of matters in the context of the specific case” and consider, among other things:

• 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 uses,

• the substance of the alleged advantage. Here, the majority explained that “regulations that leave a rights holder with only notional use of the land, deprived of all economic value” could constitute an advantage. Likewise, “confining the uses of private land to public purposes” could satisfy this branch of the test.

The decision also addresses whether the intention of a public authority is relevant to the analysis. The majority held that, while intention is not an element of the test for constructive taking, it may affect the outcome. For instance, evidence that the government intended to defeat the landowner’s ability to use the land for any reasonable purpose may support a finding of constructive taking by the government.

SCC DISSENT

Four of the nine SCC justices dissented, reasoning that Halifax’s “refusal to up-zone” could not constitute de facto expropriation in the circumstances. They contended that the majority’s view “dramatically expands the potential liability of municipalities engaged in land use regulation,” although the majority had expressly disavowed this characterization. The majority found that Halifax was alleged to have gone beyond a mere refusal to up-zone by transforming the Lands into a public park, thereby removing “all reasonable uses” of the property by Annapolis Group.

PRACTICAL TAKEAWAYS

• Governments can no longer defend claims of constructive taking solely by arguing they did not acquire an actual proprietary interest in the lands. The Annapolis decision directs lower courts to take a substantive and contextual approach, focused on effects and advantages. What is the effect of the government’s action on the landowner? What advantage has the government obtained through its action?

• Zoning which “effectively preserves private land as a public resource” can constitute a “beneficial interest”. Unless limited by statute, such land use regulation is sufficient to give rise to a constructive taking requiring compensation where it removes all reasonable use of the land.

• The right to compensation may still be limited by statute. The majority in Annapolis recognizes that governments may effect takings without paying compensation, if the enabling statute clearly expresses that intention. In CPR, for example, the relevant legislation immunized the City of Vancouver from claims for compensation based on restrictions on land development and use.

• Evidence of the public authority’s intention may be relevant to the analysis. The underlying objective pursued by a government may provide supporting evidence for a constructive taking claim.

For more information, please contact:

Patrick Palmer              +1-604-631-4228
Roy Millen                     +1-604-631-4220
Michael Cook               +1-416-863-2428
Jonathan Kahn             +1-416-863-3868

or any other member of our Litigation & Dispute Resolution group.