Expropriation cases are rarely argued at the Supreme Court of Canada.[1] In July of 2012, the Supreme Court of Canada granted leave to appeal to Her Majesty the Queen in right of the Province of British Columbia’s application in Teal Cedar Products Ltd. v. British Columbia (Ministry of Forests) (“Teal Cedar”). This case will likely be heard in 2013.

British Columbia raised two issues at the Court of Appeal, stating that the lower court judge erred:

  1. In ordering that Teal is entitled to compensation for losses incurred during the period between the creation of the park in July 1995 and the reduction in its allowable annual cut in April 1999; and
  2. In failing to quash the award of compound interest.[2]

In addressing the first issue, the B.C. Court of Appeal’s decision focused mainly on whether legislation which does not state the basis for determining compensation is sufficient to rebut the presumption of full compensation for a government taking. More specifically, this issue relates to the scope of damages claimable under the Protected Areas Forest Compensation Act,[3] (the “Compensation Act”) and the Forest Act.[4]

In addressing the second issue, the B.C Court of Appeal considered whether it should quash the award of compound interest by the arbitrator.[5] The Court of Appeal considered Her Majesty’s argument that an award of compound interest as a component of compensation is not provided for in the Compensation Act or the Forest Act and offends the Court Order Interest Act.[6]

While Her Majesty obtained leave to appeal to the Supreme Court only on the second issue, the Court of Appeal’s analysis of the scope of full compensation for a government taking in the first issue is helpful in setting the context for the upcoming argument at the Supreme Court on the compound interest issue.

There are numerous benefits to bringing claims for compensation under each province’s Expropriation Act or equivalent legislation. Such legislation tends to provide additional protections and benefits for claimants including more expansive entitlements to full compensation and cost provisions that are interpreted broadly and liberally. This legislation embodying the indemnity principle represents the traditional approach to expropriation rights (the “traditional approach”).

In addition to the traditional approach, legislation has been enacted in the past several decades relating to quasi or de facto expropriation rights beyond the traditional approach, such as is found in legislation related to natural resources or energy. In Teal Cedar, the Supreme Court of Canada may provide further insight into the scope of compensation owed for a government taking pursuant to these alternative types of statutes.

Background

In Teal Cedar, the claim for compensation is not governed by the compensation scheme set out in the Expropriation Act, R.S.B.C. 1996 c. 125. Rather, it is governed by the Compensation Act and the Forest Act.[7]

The applicant held a forest license entitling it to harvest annually a stipulated volume of timber from a specified area. In 1993, the Ministry of Forests imposed a moratorium on harvesting timber for the purpose of considering the creation of a new provincial park. In 1995, part of the area at issue was used to create a new provincial park and logging became prohibited within the park boundaries. The applicant’s allowable annual cut under its harvesting license was ultimately reduced in 1999.

The applicant’s claim for compensation for partial expropriation as a result of the allowable annual cut reduction was submitted to arbitration under the Forest Act, which resulted in an Arbitration Award dismissing the applicant’s claim for losses suffered prior to 1999 when the allowable annual cut was reduced and awarding compensation after that period totalling $6.35 million plus compound interest and actual reasonable legal costs agreed upon by the parties on an indemnity basis totalling $1.02 million.

The Supreme Court of British Columbia partially allowed the applicant’s application for leave to appeal certain aspects of the Arbitration Awards, ruling that compensation was potentially owed for losses from 1995 to 1999 and dismissing the respondent’s application for leave to appeal on certain of the aspects of the Award.

British Columbia Court of Appeal Decision

The Court of Appeal allowed the respondent’s appeal in part, partially reinstating the arbitrator’s award by denying claims for compensation for losses from 1995 to 1999. The Court of Appeal dismissed British Columbia’s appeals of the denial of leave to appeal the award of compensation relating to compound interest.

Scope of Compensation Under the Forest Act and Compensation Act

Under most Expropriation statutes, the trend is that consequential damages are compensable as disturbance damages as well as the value of the property. The B.C. Court of Appeal cited Professor Todd’s treatise The Law of Expropriation and Compensation in Canada, in which disturbance damages are described as “compensation for the economic loss which would otherwise be suffered by an owner by reason of having to move from the expropriated property.”

The Compensation Act and the Forest Act do not provide for the expansive definition of damages as is compensable under B.C.’s Expropriation Act.

Section 7 of the Compensation Act, relating to compensation owed to the holder of a forest license, provides:

7 (0.1) In this section, “compensation” includes damages.

(1) The compensation payable to the holder of a licence because of

(b) an annual cut reduction affecting the licence, to the extent that it was or is attributable to the establishment of a protected area,

is limited to the amount of compensation determined in relation to that licence under section 60 of the Forest Act as it applies for the purposes of this Act.

Section 60 of the Forest Act is the limiting provision for compensation in the Compensation Act, providing:

60 (1) The minister, in a notice served at least one year in advance on the holder of the licence, may

(d) reduce the allowable annual cut authorized in a forest licence or timber sale licence if Crown land in the timber supply area specified in it is to be used

...

(ii) for a purpose other than referred to in subparagraph (i) and other than timber production.

(4) If the total reductions in the allowable annual cut authorized in a forest licence or timber sale licence made during a deletion period, in consequence of Crown land use

...

(b) for purposes under subsection (1)(d)(ii) exceed 5% of the allowable annual cut authorized for the licence at the beginning of the deletion period,

the government must compensate its holder in respect of the amount of the reduction exceeding 5%, for the unexpired portion of its term. [emphasis added]

The expansive definition of disturbance damages in B.C.’s Expropriation Act is stated in s. 34(1) as follows:

An owner whose land is expropriated is entitled to disturbance damages consisting of the following:

(a) reasonable costs, expenses and financial losses that are directly attributable to the disturbance caused to the owner by the expropriation;

(b) reasonable costs of relocating on other land, including reasonable moving, legal and survey costs that are necessarily incurred in acquiring a similar interest or estate in the other land.[8]

The applicant contended, and the Arbitrator and Supreme Court of British Columbia agreed that the Compensation Act and Forest Act do not provide a complete code of compensation. In assessing this concept, the Court of Appeal analyzed two potentially conflicting concepts in expropriation law, being: (1) the presumption of a right to full compensation and (2) the limits of the common law with respect to rights to compensation.

With respect to the presumption of full compensation, the B.C. Court of Appeal cited the leading expropriation case Toronto Area Transit Operating Authority v. Dell Holdings, 1997 CanLII 400 (SCC), [1997] 1 S.C.R. 32 (“Dell Holdings”):

Justice Cory in Dell Holdings endorsed a presumption of full compensation at para. 22:

... In The Queen in Right of British Columbia v. Tener ... at p. 559, Estey J. writing for the majority, relied on a passage of Lord Atkinson in Attorney-General v. De Keyser's Royal Hotel Ltd. ... at p. 542:

. . . unless the words of the statute clearly so demand, a statute is not to be construed so as to take away the property of a subject without compensation.[9] [emphasis added]

The B.C. Court of Appeal referred to the limits of expropriation statutes, reciting Professor Todd’s statement that:

It has never been suggested that there was a common law right to compensation. On the contrary, as Lord Parmoor stated in Sisters of Charity of Rockingham v. R. [[1922], 2 A.C. 315, 322 (P.C.)] “Compensation claims are statutory provisions. No owner of lands expropriated by statute for public purposes is entitled to compensation, either for the value of the land taken, or for damage, on the ground that his land is ‘injuriously affected’, unless he can establish a statutory right.” However, unless the particular legislation clearly provides for confiscation, either in whole or in part, Canadian courts will apply the principle of statutory interpretation which raises a presumption in favour of the payment of full compensation. [Emphasis added.][10]

In weighing these competing principles, the Court of Appeal stated:

I take from these authorities that the degree of compensation payable on an expropriation is determined by the applicable legislation, with a presumption of full compensation to the degree that this presumption is able to operate within the statutory language.

Although disturbance damages are permitted under the Expropriation Act, s. 7(3) of the Compensation Act, replicated above, expressly excludes the application of that statute in the circumstances of the present case. As a result, we are thrown back to the language of the Compensation Act and the Forest Act. Teal’s entitlement to any compensation must be found within the four corners of these statutes, interpreted in light of the principles and presumptions I have discussed.[11]

In reaching this conclusion, I am mindful of the comments in Dell Holdings that support an award of full compensation including business losses suffered during the lead up period where such losses were caused by the scheme associated with the “taking”. In the present case, however, the compensation scheme before the court does not support the broad entitlement to disturbance damages that served as the foundation for the decision in Dell Holdings. In my view, the language of s. 60(4) of the Forest Act, by itself and in context, expressly excludes the Dell Holdings result. The words of the legislation must govern.[12]

The Court of Appeal denied Teal Cedar’s claims for compensation for the period from the creation of the park to April 1, 1999. This finding promotes a narrower view restricting compensation for purported business losses to the strict reading of the Forest Act.

Compound Interest

The Court of Appeal denied leave to appeal with respect to the arbitrator’s award of compound interest. The Province asserted that s. 2 of the Court Order Interest Act applies to prohibit compound interest. The Province asserted that the Court Order Interest Act applies through s. 28 of the Commercial Arbitration Act:

For the purposes of the Court Order Interest Act and the Interest Act (Canada), a sum directed to be paid by an award is a pecuniary judgment of the court.[13]

Sections 1 and 2 of the Court Order Interest Act provide:

1(1) Subject to section 2, a court must add to a pecuniary judgment an amount of interest calculated on the amount ordered to be paid ...

2 The court must not award interest under section 1

...

(c) on interest or on costs,[14]

The Court of Appeal extensively analyzed the B.C. Supreme Court’s reliance on its prior 2007 decision of Morriss v. British Columbia, 2007 BCCA 337. In Morriss, the Court held that an award of compound interest as a component of compensation to which the Expropriation Act does not apply, does not offend s. 2 of the Court Order Interest Act.

Morriss involved the creation of a park, but related to mineral rights so that matter was not governed by the Forest Act. The Court of Appeal cited Morriss, which states;

… In my view, where compound interest is required to provide full compensation, an award of compound interest generally should not be discretionary. In that context, the plaintiff is entitled to compound interest as a matter of law. This is particularly so in the calculation of compensation for a compulsory taking.[15] [emphasis added]

The Province contended that Morriss was wrongly decided because;

It is inconsistent with the judgment of the Supreme Court of Canada in British Pacific Properties Ltd. v. Minister of Highways and Public Works;[16]

  1. It is inconsistent with the objects of the Court Order Interest Act as expressed by the Law Reform Commission of British Columbia when it recommended the enactment of the statute in 1973; and
  2. It creates a distinction that unfairly discriminates among classes of litigants.[17]
  3. The Court of Appeal, however, rejected these arguments and denied leave to appeal, stating that Morriss is binding and the issue “is properly caught by the principle of stare decisis…”.[18]

Leave to Appeal to the Supreme Court of Canada

On its argument for leave to the Supreme Court of Canada, the Province’s issue on appeal related to the B.C. Court of Appeal’s decision with respect to denying leave to appeal only on the arbitrator’s award of compound interest:

This case concerns the question of whether and in what circumstances a court may award compound pre-judgment interest on a pecuniary judgment in the face of an express statutory prohibition on such an award. The case arises out of British Columbia, and the provisions of the Court Order Interest Act, R.S.B.C. 1996, c. 79. However, the issue has broad implications beyond the narrow confines of one provincial statute. The availability and scope of pre-judgment interest is an issue that has long vexed the courts at common law and equity, and has been the subject of detailed consideration by various law reform commissions in this country and elsewhere. A variety of legislative responses have been adopted. A critical issue raised in the present case is the jurisdiction of a court at common law to carve out exceptions to the statutory interest rules, particularly where the exceptions are of uncertain origin and scope.[19]

The Province states that Teal Cedar Products Limited frames this as a case of “de facto expropriation.”[20] In its Response to Application for Leave to Appeal, Teal Cedar argues that the formulation of the issue by the Province was inaccurate because;

  • This case does not involve a court awarding interest at all, but rather an arbitrator including compound interest as an element of the award of compensation for a statutory taking;
  • This case does not involve an award of compound interest on a pecuniary judgment, rather an award of compound interest as an element of an award; and
  • There is no statutory prohibition on such an award in the context of compensation for an expropriation.[21]

Teal Cedar argues that the issue in this matter would more accurately be framed as:

Is it open to an arbitrator who is assessing compensation for a statutory taking to include compound interest as an element of the award?[22]

While the B.C. Court of Appeal decision in Teal Cedar reviews narrow issues with respect to the scope of compensation under the Forest Act and Compensation Act and an award of compound interest in an arbitration relating to a government taking in British Columbia, its influence may be much greater. It appears that the Court of Appeal in Morriss and Teal has utilized compound interest where it “is required to provide full compensation” that might otherwise be limited by statutory wording outside the provisions of traditional expropriation statutes. In an ever expanding web of legislation conveying expropriation powers beyond the traditional approach, including B.C.’s Forest Act and Protected Areas Forest Compensation Act, Teal Cedar may greatly impact the breadth of compensation available as a result of government takings.