Awarding Costs in Expropriation
Unprecedented yet Contemplated: Awarding Costs in Expropriation
Shergar Development Inc v Windsor (City), Ontario Court of Appeal, 2020
On August 4, 2020 the Ontario Court of Appeal upheld the Divisional Court’s decision that costs can be awarded to the expropriating statutory authority under section 32 of the Expropriations Act (the “Act”) for settlement offers that were unreasonably rejected. Generally, cost awards are based on the amount of the section 25 offer made by the expropriating authority and are at the Tribunal’s discretion. This decision expands the Tribunal’s ability to apply costs awards.
The Respondent, the City of Windsor (“Windsor”), expropriated the Appellant, Shergar Development Inc.’s (“Shergar”) lands along the Detroit River in Windsor creating two issues for the Ontario Court of Appeal:
- Whether the Divisional Court erred in finding that the reasonableness standard applies; and
- Whether the wording “the amount offered by the statutory authority” in section 32 of the Act refers to an offer made by Windsor that was not made under section 25 of the Act.
The Ontario Court of Appeal upheld the Divisional Court and the Ontario Municipal Board’s decision finding that Shergar’s interpretation is inconsistent with the text, scheme and public policy objectives of the Act. The Court found that the decision was reasonable, and section 32 of the Act does refer to a subsequent offer made by an expropriating authority as well as an offer made under section 25 of the Act.
The case has a history that has spanned 22 years. Shergar acquired the Subject Lands from the Canadian Pacific Railway Company (CPR) in 1995. Windsor expropriated the Lands for completion of a waterfront project in 1998. Shergar caused months of delay by not granting Windsor access to the Lands. Windsor offered compensation to Shergar and CPR jointly, in accordance with section 25(1) of the Act, for $500,000. Even after Shergar’s counsel advised that they would accept the offer, Shergar refused to cooperate causing further delay. This resulted in this section 25 offer being withdrawn.
Shergar then participated in Federal litigation against Windsor and after receiving unfavourable outcomes, commenced an expropriation arbitration in 2013. In 2015, Windsor made another offer to Shergar equivalent in value to $1,208,155 (“the 2015 Offer”), which Shergar did not accept. A proceeding was started under the Ontario Municipal Board to determine the amount of compensation. The Board determined that Shergar’s interest in compensation was only $266,832. However, the Board still awarded Shergar the costs of the proceeding causing Windsor to seek a rehearing on interest and costs. The Board then concluded that the most recent offer constituted the amount offered by the statutory authority and granted costs in favour of Windsor following the date of the 2015 Offer. Shergar appealed this decision to the Divisional Court. The Divisional Court found the Board’s interpretation reasonable. Shergar further appealed to the Ontario Court of Appeal.
The Court of Appeal awarded the Board’s decision significant deference. They dismissed the appeal finding that the Board interpreted the Act correctly. The Court (and the Board before it) focused on determining the legislative intent of section 32 of the Act by looking at the text, the scheme and the public policy objectives.
Text of the Act
First, the wording of section 32 refers to “the amount offered” by the statutory authority. It does not refer explicitly to section 25 as Shergar argued. This is contrasted with other sections of the Act that do refer explicitly to section 25. The Court concludes that if the legislature had intended this narrow application of section 32, they would have done so explicitly as is the case for sections 26 and 33(1).
Second, section 32 applies to both expropriation and injurious affection cases whereas section 25 only refers to “expropriating authority”, defined as a person empowered to expropriate land. This is contrasted with the wording “statutory authority” in section 32 which is defined as a person empowered by statute to expropriate land or cause injurious affection. Because section 32 refers to both expropriation and injurious affection and does not specify that they be treated differently, the Court states that it is illogical to interpret “the amount offered by a statutory authority” in section 32 as referring to section 25 offers only.
Scheme of the Act
Shergar’s interpretation is also inconsistent with the process contemplated by the Act. A section 25 offer must be made within 3 months of registration of a plan under section 9 of the Act and this is often too soon for an expropriating authority to fully understand the property’s market value. The expropriating authority should be afforded some measure of costs protection where it makes an increased, fair offer and the claimant refuses to accept it. The expropriating authority should also be able to be compensated for related damages when the claimant refuses to accept the offer and elects instead to proceed with unnecessary arbitration.
Public Policy Objectives of the Act
Lastly, Shergar uses Dell Holdings to make a public policy argument. The Court agrees that the Act is remedial and should be interpreted broadly and liberally, however, this is not the only policy objective of the Act. The remedial nature of the Act does not in itself rule out cost consequences for refusals of reasonable offers. Another objective of the Act is to encourage settlement of claims as early a stage as possible. These objectives are not incompatible.
The Court emphasizes that an innocent party whose property is taken must be fully compensated and the party will not generally have to bear costs for reasonably disagreeing with the amount offered for that taking, even where the offer exceeds the ultimate award by a considerable margin. However, at the very least, there must be a potential for adverse cost consequences where the claimant forces a wholly unnecessary proceeding or otherwise acts unreasonably.
The objective of full and fair compensation cannot be divorced from the objective of the efficient resolution of claims. Shergar’s interpretation would permit the prospect of an unreasonable claimant delaying proceedings, running up legal costs, and wasting the Board’s resources, safe in the knowledge that unreasonable refusals of subsequent offers cannot adversely affect its entitlement to legal costs.
While Shergar submits that awarding costs against a claimant in an expropriation proceeding is a new and undesirable precedent, it has always been contemplated that a claimant who unreasonably refuses an offer of settlement may be ordered to pay costs to a statutory authority (This is seen 44 years ago, in Rotenberg).
The Court of Appeal found that Shergar inexplicably refused an offer equivalent to $1,208,155 when their interest was limited to $266,832. Shergar also frustrated and delayed the determination of the issue of the appropriate compensation to be awarded to the subject lands. The Court ruled that this conduct is worthy of censure. Shergar’s actions resulted in significant delay and frustration, wasting the Board’s valuable time.