De Facto Expropriation in Canada – Lessons from Australia

De Facto Expropriation in Canada – Lessons from Australia By Nachshon Goltz1 and Morgan Jursevskis2

Abstract This paper explores the unique case of de facto expropriation to illustrate the lack of sufficient protection to private property in Canada. The article will review the case law with respect to expropriation in Canada and Australia and conclude that Canada should adopt the Australian attitude in order to afford landowners more protection from unfair practice of the expropriating authority. “The only purpose for which power can be rightfully exercised over any member of a civilised community, against his will, is to prevent harm to others”3 1. Introduction Under Canadian expropriation law, the government has the right to legally take private land from landowners in the name of a greater public use or benefit. This process is called “compulsory acquisition” in Australia. All of the rights to land in Canada initially belonged to the Crown, until large parcels were surveyed and then sold to private parties.4 Despite the creation of private property rights to land, the government maintains the ability to regain control over landowners’ parcels of land in the name of public uses. These public uses may include the expansion of water and other public utility systems, highways, transportation systems, parks, municipal boundaries, etc.5 Canadian expropriation laws provide guidance on navigating the conflicting private property rights and public needs for the same parcel of land.

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PhD (Can.), Osgoode Hall Law School; Editor in Chief, Global-Regulation. JD (Can.), Osgoode Hall Law School. 3 John Stuart Mill, On Liberty (1859) 4 Peter Bowal and Rohan Somers “Expropriating Land: A Balancing Act” July 1, 2013 Retrieved from . 5 Ibid. 2

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Canadian expropriation laws enable the government to acquire land without the owner’s consent and without being subject to the Canadian Charter of Rights and Freedoms. The Charter does not apply to government expropriation because there is no constitutional protection for property. However, the landowner is not left completely vulnerable as the government must follow the guidelines and procedures set out in expropriation laws as to how and what land may be acquired. Procedural safeguards exist within the legislation in order to afford some protection to landowners. The Expropriation Act6 sets out the procedures and guidelines for expropriation by the federal government of Canada. It provides the government with a great deal of discretion in deciding what land is necessary for public purposes. The provincial laws on expropriation are similar and leave a great deal of discretion with the expropriating authority. Alternatively, Australian law concerning land acquisition is grounded in the Australian Constitution under s.51 (xxxi). It might be that this offers additional protection to landowners and their property rights. This paper will outline the Australian legal perspective on expropriation and address concerns over the lack of constitutional protection for landowners in Canadian law. It is suggested that Canadian law should adopt the Australian attitude and afford landowners constitutional protection for what is considered a fundamental right - the right to property.

2. The Australian Constitution and Compulsory Acquisition Section 51(xxxi) of the Constitution of Australia legislates for compulsory acquisition, the taking of private property by a government authority. This section provides that the Commonwealth has the power to make laws with respect to “the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws.”7 This power can be executed federally or by the states, territories and local government agencies.8 McClintock v Commonwealth (1947) stands for the proposition that the acquirer in compulsory acquisition does not necessarily have to be the Commonwealth or its agent. The statutes creating a power bestow that power upon an acquiring authority.9 The land may be acquired by someone else for the purposes of the Commonwealth.10 There is an emphasis on fairness in compulsory acquisition, as the Constitution authorises the Commonwealth Parliament to make laws for the acquisition of land ‘on just terms’.11 However, the states are not directly bound by the just terms guarantee in s.51(xxxi) and have a much wider                                                                                                                         6

Expropriation Act RSC 1985, c.E-21. Douglas Brown, Land Acquisition: An examination of the principles of law governing the compulsory acquisition or resumption of land in Australia and New Zealand, (Sydney Australia: Butterworths, 1983), at 9. 8 Ibid. 9 McClintock v Commonwealth (1947) 75 CLR 1 10 Supra note 7. 11 Supra note 7. 7

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constitutional power of eminent domain.12 In PJ Magennis Pty Ltd v Commonwealth (1949), the court held as follows: “[i]f they judge it proper to do so for some reason, may acquire property on any terms which they may choose to provide in a statute, even though the terms are unjust.”13 Though not directly bound, it is possible for a state acquisition to be considered under the just terms guarantee in the Commonwealth Constitution. This is based on the broad reading of the words found in s.51 (xxxi) and the basic principles of constitutional interpretation which encourage a broad interpretation of Commonwealth powers.14 The High Court of Australia has defined the exclusions from section 51(xxxi) and as such this section does not apply to all deprivations of property.15 It must first be shown that a deprivation of property also amounts to an acquisition of property as intended by s. 51(xxxi). This means that the deprivation has to be accompanied by a corresponding acquisition of some benefit or disadvantage, however slight or insubstantial.16 It is important to note that establishing that a particular deprivation of property involved an acquisition as intended by s.51 (xxxi) is not sufficient as not all acquisitions activate the just terms guarantee in s.51(xxxi). A second inquiry must be made into whether the acquisition was an acquisition for the purposes of s.51(xxxi). An acquisition of property may, according to the High Court of Australia, fall outside section 51 (xxxi) for any number of reasons; (1) The acquisition may be effected in terms of a “different head of power” that is explicitly excluded from s.51(xxxi); (2) An acquisition may be excluded because it forms part of the exercise of another power that is not explicitly excluded from s.51(xxxi), but the exercise of which does not permit of compensation or just terms; and (3) An acquisition may be excluded where the acquisition was not the sole or main purpose of the law or action, but was incidental to the taking of reasonable and appropriate measures to promote a different purpose, such as the adjustment or regulation of competing rights, claims and interests of (private) parties in a relationship that requires such regulation as a matter of public interest.17 This third category will only be excluded from the just terms guarantee if and in so far as the acquisition is appropriate to and proportionate with the purpose served by it; otherwise the

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Sean Brennan, “Section 51(xxxi) and the acquisition of property under Commonwealth–state arrangements: the relevance to native title extinguishment on just terms” (2 November 2011), online: Gilbert + Tobin Centre of Public Law . 13 PJ Magennis Pty Ltd v Commonwealth (1949) 80 CLR 382, at 397–8 14 Supra at note 12. 15 Health Insurance Commission v Peverill (1994) 179 CLR 226; Mutual Pools & Staff Pty Ltd v The Commonwealth (1994) 179 CLR 155; Re Director of Public Prosecutions; ex parte Lawler (1994) 179 CLR 270; Georgiadis v Australian and Overseas Broadcasting Corporation (1994) 179 CLR 297. 16 Janet McLean, Property and the Constitution, (Oxford, Oregon: Hart Publishing, 1999) at 131. 17 Ibid at 132.

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authority of the authorising law dissolves and the acquisition is to be scrutinised in terms of the just terms guarantee.18 Section 51(xxxi) serves as both a source of legislative power and a limitation on that power’s exercise.19 It does not provide the Federal Parliament with an express power to legislate for acquisition; this power to legislate for acquisition must be on just terms.20 According to Justice Dixon in Grace Bros Pty Ltd v The Commonwealth (1946), the condition “just terms” was included in order to “prevent arbitrary exercises of power at the expense of a State or a subject.”21 In this case, the Court interpreted this limitation broadly. ‘Fairness’ and ‘just terms’ in relation to s 51(xxxi) considers the interests of all parties affected, as well as the owner whose property has been acquired by the Commonwealth. Minister of State for the Army v Dalziel (1944) seems to suggest that in order for terms to be unjust the “law must be so unreasonable as to terms that it cannot find justification in the minds of reasonable men”.22 This notion of fairness extends to considerations of the purpose of the acquisition. Where an acquiring authority takes land for the purpose which is not authorized by statute, it is said to be acting ultra vires and the taking is voidable when challenged by the landowner.23 Alternatively, where an acquiring authority takes land for a purpose which is authorized by statute but which is in truth motivated by dishonesty or impropriety it is said to have acted in bad faith.24 Werribee Shire Council v Kerr (1928) suggests that the Court is prepared to look behind the stated purpose in order to ascertain the true purpose of the acquisition.25 The case of Prentice v Brisbane City Council (1966) demonstrates that the Court is prepared to examine the true reasons behind the decision to take land where the acquiring authority is a local government body. In that case, the City Council had attempted to expropriate land from the plaintiff in order to provide for a roadway leading to a bridge over a river. A land development company intended to construct the bridge to foster access to land where the company planned a new development. The plaintiff applied for interdict to prevent the expropriation. The Supreme Court held as follows: “The Council had entered into an agreement with the company which in effect made the Council the agent of the company rather than that of the inhabitants in general, when it purported                                                                                                                         18

Ibid. Peter Anet, Consitutitonal Law Conference: Looking Ahead: The Issues of 2002 and Beyond: Acquisition of Property: Past Cases, Future Directions, online: . 20 The High Court and the Constitution. Leslie Zines pp.578 21 Grace Bros Pty Ltd v The Commonwealth [1946] HCA 11; 72 CLR 269 22 Minister of State for the Army v Dalziel (1944) 69 CLR 261 23 Australian Law Reform Commission, Land Acquisition and Compensation: Report 14 (22 April 1980) at 31. 24 Ibid. 25 Supra note 7 at 31. 19

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to put into operation its powers of resumption [i.e. expropriation] of the plaintiff’s land.” 26 The Court held that the wide power of compulsory acquisition must be exercised in good faith and that the council had acted ultra vires as it had no authority to compulsorily acquire the land of a private person for the purpose of assisting the development plan of a private company.27 Economic development as a purpose for acquisition has received negative treatment from the High Court where the local government itself is not the developer. In R&R Fazzolari Pty Ltd v Parramaatta City Council; Mac’s Pty Ltd v Parramatta City Council, (2009), the Parramatta City Council entered into a Public Private Partnership with private developers for the redevelopment of the Parramatta City Centre. The Council sent proposed acquisition notices to the owners of the land within the redevelopment block in anticipation of the $1.6 billion ‘Civic Place’ development. The acquired land was to be transferred to the developers in return for money and other benefits according to the agreement between the Council and the private developers. Two of the landowners challenged the proposed acquisition of their property. In assessing the existing legislation, the Court found that under the Local Government Act 1993 (NSW) and the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) local councils in NSW have broad powers of compulsory acquisition. A local council is given the power under s. 186(1) of the Local Government Act to acquire land “for the purpose of exercising any of its functions.” However, an important limitation is introduced by s.188 which states that land may not be compulsorily acquired without the owner’s approval “if it is being acquired for the purpose of resale”. The central question in this case was whether the land that was being acquired was, in fact, being acquired for the purpose of re-sale. The High Court of Australia, in a unanimous decision, upheld the rights of the property owners and held that the compulsory acquisition of the land was unlawful. The High Court interpreted the compulsory acquisition powers narrowly and found that the purpose for which the Parramatta City Council was attempting to acquire the land was to re-sell it to private developers, which, under the legislation, they could not do without the approval of the owner. In holding the acquisition to be unlawful the High Court restored the injunctive relief that had originally been granted in the Land and Environment Court.28 This case is notable because it would have been seen as an unequivocal reinforcement and protection of private property rights by the courts.29 However, shortly thereafter the Land Acquisition (Just Terms Compensation) Amendment Bill 2009 (NSW) was introduced into the NSW Parliament on June 17, 2009.30 This legislation effectively allows local councils to avoid                                                                                                                         26

Ibid.  Supra note 7 at 31.   28 Privatizing the ‘Public Purpose Rule’ in compulsory acquisition (24-27 November 2009) online: . 29  Ibid. 30 Supra note 28.   27

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the limitation on the Council’s power of re-sale that was enforced by the High Court in R&R Fazzolari Pty Ltd v Parramaatta City Council; Mac’s Pty Ltd v Parramatta City Council.31 This created a fundamental change in the law and broadened the power of compulsory acquisition, effectively allowing local councils to acquire property compulsorily for the purpose of then transferring it to a private developer.32 Despite this legislative broadening of the power of acquiring authorities, it is still important that the Court was inclined to interpret compulsory acquisition powers narrowly.33 This reinforces the significance of private property rights.

3. The Canadian perspective The process of expropriation in Canada is governed by legislation and case law. The legislation sets out specific conditions and guidelines that must be followed by expropriating authorities. Land may not be taken for a political purpose or to punish the landowner, there must be a clear public purpose for which the taking of the land serves. Once a legitimate public purpose has been established, the process shifts to focus mainly on compensation for the landowner.34 The power of expropriation may be delegated to ministries, government agencies, railway or pipeline companies and public utility-type corporations.35 There are specific procedural safeguards in place for landowners in the expropriation process and these include the right to be notified of the expropriation, to be notified of all steps taken by the government in the process, to challenge the expropriation and to be represented by a lawyer in that process.36 The consequence of failing to fulfil these procedural requirements can result in the expropriation being invalidated and the landowner will be able to pursue damages or an injunction against the expropriating authority. Despite these safeguards, the great discretion of the expropriating authority in determining the necessity of expropriation for a public purpose remains undisturbed. Toronto Area Transit Operating Authority v. Dell Holdings Ltd., 1997 CanLII 400 (SCC), suggests that further protection may exist for landowners where uncertainties exist in the legislation with regard to the reach of an expropriating authority’s power to expropriate. According to this case, ambiguities will be construed and settled in favour of the landowner and the burden of proof in the expropriation process is usually on the expropriating authority.37                                                                                                                         31

Supra note 28. Ibid. 33 Supra note 28.   34 Peter Bowal, Expropriating Land: A Balancing Act (1 July 2013) online: http://www.lawnow.org/expropriatingland/. 35 Ibid. 36 Ibid. 37 Ibid. 32

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Although these procedural safeguards may serve to provide landowners with the ability to challenge the expropriation process and an entitlement to compensation, a question arises as to whether these safeguards sufficiently protect landowners so as to make Charter protection unnecessary. Under the current Canadian expropriation legislative scheme, it is possible for extreme interferences with private property rights to occur. In some cases, the taking of land may be indirect. Where a government action effectively results in the taking of property, de facto expropriation is said to have taken place and the landowner should be entitled to compensation. The two requirements for a de facto expropriation were affirmed by Chief Justice McLachlin C.J. (as he then was) in Canadian Pacific Railway Co. v. Vancouver (City) (2006) as an acquisition of beneficial interest in the property or flowing from it and removal of all reasonable uses of the property.38 In Alberta (Minister of Infrastructure) v. Nilsson (2002) the Court confirmed that “when property is taken by statutory authority, unless the governing statute expressly requires otherwise, compensation is payable.”39 In its reasoning, the Court focused on the degree of interference with the owner’s property rights and whether it mandated compensation for the loss of property.40 In Mariner Real Estate Ltd. v. Nova Scotia (Attorney General) (1999), Justice Cromwell identified the question as “whether the regulation is of sufficient severity to remove virtually all of the rights associated with the property holder’s interest.”41 In this case, the respondent had claimed that what was, in form, a designation of their land under the Beaches Act was, in fact, a taking of their land by a statutory authority within the meaning of the Expropriation Act. The Court dismissed the appeal noting that, “The land remains private property although subject to the regulatory regime established by the Beaches Act.”42 This case is notable because the Court reviewed the American and Australian point of views at para. 40: “…The Fifth Amendment to the United States Constitution (which also applies to the States through the Fourteenth Amendment) provides that private property shall not be taken for public use without just compensation. In the Australian Constitution, section 51(xxxi) prohibits the acquisition of property except upon just terms. While these abundant sources of case law may be of assistance in developing the Canadian law of de facto expropriation, it is vital to recognize that the question posed in the constitutional cases is fundamentally different”.43 The Court further contended that, “These U.S. and Australian constitutional cases concern constitutional limits on legislative power in relation to private property. As O'Connor, J. said in the United States Supreme Court case of Eastern Enterprises v. Apfel (1998), the purpose of the                                                                                                                         38

Canadian Pacific Railway Co. v. Vancouver (City), 2006 SCC 5, [2006] 1 SCR 227 at para 30 Alberta (Minister of Infrastructure) v. Nilsson, 2002 ABCA 283 the Court held at para 5 (Alberta). 40 Ibid at para 51. 41 Supra note 33 at para 48. 42 Ibid at para 92. 43  Ibid. 39

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U.S. constitutional provision (referred to as the "takings clause") is to prevent the government from ‘... forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.’ Canadian courts have no similar broad mandate to review and vary legislative judgments about the appropriate distribution of burdens and benefits flowing from environmental or other land use controls. In Canada, the courts' task is to determine whether the regulation in question entitles the respondents to compensation under the Expropriation Act, not to pass judgment on the way the Legislature apportions the burdens flowing from land use regulation”.44 In each of the three Canadian cases which have found compensation payable for de facto expropriations, the result of the governmental action went beyond drastically limiting use or reducing the value of the owner's property. In The Queen in Right of British Columbia v. Tener et al., [1985] 1 S.C.R. 533, the denial of the permit meant that access to the respondents' mineral rights was completely negated and amounted to “total denial of that interest”.45 In Casamiro Resource Corp. v. British Columbia (1991), which closely parallels Tener supra, the private rights had become "meaningless".46 In Manitoba Fisheries v. The Queen, [1979] 1 S.C.R. 101, the court held that the legislation prevented the claimant from conducting its business.47

4. Discussion and conclusions Despite the procedural safeguards in Canadian expropriation law, the great discretion of the expropriating authority remains undisturbed. So long as there is a sufficiently necessary public purpose for the taking of land, the threshold for a valid expropriation is met and the focus of the process shifts to compensation for the landowner. Entitlement of the landowner to compensation becomes complicated when the taking of land is indirect, or when there is a de facto expropriation. According to Canadian Pacific Railway Co. supra, a de facto expropriation requires the acquisition of a beneficial interest in the property, or flowing from it, and a removal of all reasonable uses of the property.48 The judiciary determines whether all reasonable uses of property have been removed, and this appears to be the most significant obstacle facing landowners who seek compensation from instances of de facto expropriation. The court confirmed in Nilsson supra that when property is taken by a statutory authority compensation is payable, unless the governing statute expressly requires otherwise.49 However, the court remained focused on the degree of interference with the owner’s property rights and whether it justified compensation in the name of lost property. In Mariner Real Estate Ltd. supra, Justice Cromwell narrowed the definition to regulations of sufficient severity so as to                                                                                                                         44

Supra note 33, at para 92. The Queen in Right of British Columbia v. Tener et al., [1985] 1 S.C.R. 533 at 552 46 Casamiro Resource Corp. v. British Columbia (1991), 80 D.L.R. (4th) 1 (B.C.C.A.) 47 Manitoba Fisheries v. The Queen, [1979] 1 S.C.R. 101 48 Supra note 38. 49 Supra note 39. 45

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remove practically all of the property rights associated with the landowner’s interest.50 Compensation was not awarded in this case because the court found that the land remained private property, even while subject to the regulatory regime established by the Beaches Act. The court took note of the United States and Australian constitutional limits on legislative power in relation to private property and confirmed that Canadian courts have no similar mandate to review and vary legislative judgements about the distribution of burdens and benefits flowing from land controls. This decision demonstrates the limits in the Canadian law concerning expropriation, where the discretion in determining whether a public use of land is necessary lies entirely with the expropriating authority. Furthermore, the court held that it is for the Canadian courts to determine whether the regulation in question entitles the landowner to compensation under the Expropriation Act, not to pass judgement on the fairness of apportioned burdens stemming from land use regulation. In each of the three Canadian cases which have found compensation payable for de facto expropriations, the result of the governmental action went beyond drastically limiting use or reducing the value of the owner's property. This seems to suggest that Canadian land owners must endure unfair burdens in the name of public use without compensation up to the point where the interference becomes extreme. The de facto expropriation jurisprudence has eroded the substance of private property rights and rendered them essentially meaningless in the face of the public good. The notion of fairness in Australian compulsory acquisition considers the purpose of the acquisition and the interests of all parties affected, including the landowner. As discussed above, Canadian courts have no similar responsibility to review and vary legislative judgments about the fair distribution of burdens and benefits flowing from environmental or other land use controls. Werribee Shire Council supra proposes that the Court is prepared to look behind the stated purpose in order to ascertain the true purpose of the acquisition.51 Australian jurisprudence suggests that the Court favours the protection of private property rights. An underlying theme of good faith is tethered to the broad power of compulsory acquisition. Expectedly, Canadian Courts’ lack of constitutional ‘pro-land owners’ discretion in cases of expropriation affects not only the Courts themselves, but also the expropriating authorities. Expropriating authorities stand to gain in borderline cases where it is convenient to breach property rights. The most extreme of these cases is the creature of de facto expropriation. The court’s excessive discretion and the lack of constitutional protection are most prevalent in cases where the land taking is done for purposes that are not necessarily public. Failing to adopt constitutional protection, as exists in Australia, opens the door for takings of land to occur that are unwarranted in a democratic society and which undermine the basis of the protection currently afforded under the Canadian Charter of Rights and Freedoms.                                                                                                                         50

Supra note 33 at para 48.  Supra note 7.

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