Ontario Court Upholds Precedent-Setting Decision Relating to Expropriation Hearing Costs

In 2016, the Ontario Municipal Board (now known as the Local Planning Appeal Tribunal, referred to herein as “LPAT”) released a decision on costs relating to an expropriation hearing that deviated from the norm, in that the costs were awarded in favour of the expropriating authority, rather than the claimant.

Generally, the expropriating authority will shoulder the reasonable legal, appraisal and other costs associated with determining the appropriate compensation payable to a claimant (that is, the landowner who has been expropriated). In this case, LPAT found that the claimant had been the cause of substantial delay and had refused a reasonable settlement offer from the expropriating authority. A three-judge panel of the Divisional Court of the Ontario Superior Court of Justice recently affirmed LPAT’s decision as to costs.

Cost Rules under the Expropriations Act

Under section 32 of the Expropriations Act, LPAT must order the expropriating authority to pay the reasonable costs incurred by the claimant if the ultimate compensation award is at least 85% of the amount offered by the expropriating authority.  This is commonly referred to as the “85% Rule”. Where the awarded amount is less than 85% of the offered amount, LPAT is nevertheless entitled to exercise discretion as to the award of costs.

Under section 25 of the Expropriations Act, the expropriating authority is required to make an offer to the registered owner of the expropriated lands of an amount in full compensation for that owner’s interest before it can take possession of the expropriated lands (the “Section 25 Offer”).  Traditionally there has been some uncertainty in the law about which “offer” mattered for the purposes of the 85% Rule.  Although it was common for subsequent offers of compensation to be made during the course of compensation proceedings, LPAT (and the OMB before it) generally held that the only offer that mattered for the purposes of the 85% Rule was the Section 25 Offer.    

This approach differed from the approach under Rule 49 of the Rules of Civil Procedure, which is applied by the Courts in civil disputes, whereby any offer made in writing at least seven days before the commencement of a hearing can trigger adverse cost consequences for a party that refuses to accept the offer and then obtains a worse outcome after the hearing (called a “Rule 49 Offer”).  Some cases treated Rule 49 Offers as the relevant offer for the purposes of the 85% Rule, but this was not done uniformly.

Background of the Case

In 1995, Shergar Development Inc. (“Shergar”) purchased a 5.7-hectare plot of land from the Canadian Pacific Railway Company in the City of Windsor (the “Property”). In 1998, the City expropriated the Property from Shergar in order to complete a long-planned riverfront park. The City’s Section 25 Offer was $500,000, to be allocated between Shergar and the Canadian Pacific Railway Company, which held a mortgage against the Property. Shergar unsuccessfully contested the legality of the expropriation in a series of hearings that lasted for nearly ten years. In the process of determining the compensation payable for the expropriation, Shergar disputed the City’s compensation position on the market value of the Property, and asserted that the Property was worth in the neighbourhood of $3.9-5.1 million.

In 2015, the City made a subsequent written offer to Shergar to settle the compensation proceeding (the “2015 Offer”).  The 2015 Offer was somewhat complex but was found to have a cash value of approximately $1.3 million, which was more than double the Section 25 Offer initially made by the City.  Shergar did not accept the 2015 Offer.

After a lengthy hearing, LPAT determined that the value of the Property was just $710,000 and, since the Canadian Pacific Railway Company held a mortgage in the amount of $500,000, Shergar was only entitled to $266,832.32, plus interest. Accordingly, the compensation awarded by LPAT exceeded 85% of the City’s Section 25 Offer but was less than 85% of the 2015 Offer, which required LPAT to determine whether it is appropriate to treat a Rule 49 Offer as the relevant offer for the purposes of the 85% Rule.

LPAT held that an offer that meets the requirements of Rule 49 of the Rules of Civil Procedure can in fact be the relevant offer for the purposes of the 85% Rule.  Accordingly, Shergar was not entitled to its costs by default, and the costs of the hearing were left to the discretion of LPAT. Given the nearly two decades of delay and the fact that Shergar had refused a reasonable settlement offer from the City, LPAT not only declined to award any amount on account of costs to Shergar, it also ordered Shergar to pay the City’s costs.

Not surprisingly, Shergar appealed this decision to the Divisional Court, which upheld LPAT’s costs decision, noting that doing so reflects a balance between the equally important objectives of full compensation to a claimant and the just determination of compensation in an expeditious and cost-effective manner.

Takeaways

While courts and tribunals have traditionally been more likely to award costs to the claimant in expropriation matters, this decision makes clear that this will not always be the case.  A claimant cannot advance spurious compensation claims, simply because it is confident that it will obtain at least 85% of the initial Section 25 Offer made by the expropriating authority.  Any claimant that does not re-evaluate its position in the face of a new Rule 49 Offer will be putting itself at risk of not only having to bear its own costs but also of having to pay the expropriating authority’s costs.  Given the number of experts involved in complex expropriation matters, these costs are often significant.

Expropriating authorities have always been well-advised to consider making subsequent offers to settle as cases develop, particularly given their potential exposure to costs under the Expropriations Act. The Shergar case exposes claimants to a risk that may cause some claimants to become more reasonable in negotiations and provides an expropriating authority with some protection against costs in cases where a claimant refuses to accept a settlement offer that is eminently reasonable.

Advice about Expropriation & Your Legal Rights

At Duncan Linton LLP, our municipal and planning lawyers regularly handle expropriation matters on behalf of commercial and residential landowners. We can provide timely advice about your rights, and help you determine the scope of a fair compensation package. If necessary, we also assist with hearings at the Local Planning Appeal Tribunal—the successor to the Ontario Municipal Board.

To discuss a potential expropriation matter, or any other municipal or planning law questions, contact us online or call 519-886-3340 to make an appointment with one of our experienced lawyers.