November 30, 2022
Annapolis Group Inc v Halifax Regional Municipality, 2022 SCC 36
Annapolis’ Lands
Annapolis Group Inc. (“Annapolis”) is a Halifax-based property development company. In 2016, the City of Halifax (the “City”) repeatedly refused Annapolis’ plans for development. Annapolis sued, alleging, among other things, constructive taking. Annapolis alleged that the city’s decision deprived it of all reasonable, economic uses of land and essentially created a city park at Annapolis’ expense and to Halifax’s benefit. In other words, Halifax had acquired the lands without compensation to Annapolis.
In response, the City filed an application for summary dismissal of Annapolis’ claim for constructive taking.
The issue before the Courts was whether constructive taking could arise in response to refused development plans.
Preliminaries
Property protections were not enshrined in the Canadian Charter of Rights and Freedoms in 1982, but the absence of property rights does not deny the existence of such rights.[1] The question for the Supreme Court in Annapolis was what can amount to a taking of property.
In 1978, the Supreme Court of Canada adopted a rule of statutory interpretation which states that unless the words of the statute clearly demand, a statute will not be construed as to take away property without compensation.[2] This principle gives property owners a “presumptive right to compensation” - a presumption which can be displaced by clear statutory language - and, apparently, a cause of action in public law that the taking without compensation is ultra vires the legislation. The available remedy appears to be declaratory in nature, although the actual value of compensation (i.e., damages) may be determined by a Court.[3] This is unlike most administrative law remedies, which do not ordinarily attract damages awards.[4]
This decision only speaks to whether Annapolis’ claim should be summarily dismissed and is not definitive as to whether Annapolis’ property rights have or have not been constructively taken. This said, the majority and the dissent go into detail as to what is and is not constructive taking by a public authority.
When does constructive taking occur?
Constructive taking (otherwise referred to as regulatory taking or de facto taking) occurs when the private owner retains title to the property but has no beneficial use of the property due to the public body’s decision. It occurs when the beneficial interest of property transfers from the property owner to a public body, leaving the property owner with no reasonable use of the property. The regulatory conduct must effectively “denude” the property of its reasonably anticipated private uses.[5]
Actual acquisition is not necessary. The majority says that taking of an advantage in respect of the property will suffice. This is consistent with the seminal cases on constructive taking where no actual acquisition of property was obtained.[6]
The Supreme Court has previously provided guidance in Canadian Pacific Railway Co v Vancouver (City) (“CPR”) as to what amounts to constructive taking requiring compensation:
- An acquisition of a beneficial interest in the property or flowing from it, and
- A removal of all reasonable uses of the property.[7]
(the “CPR Test”)
In CPR, the City of Vancouver (“Vancouver”) passed a bylaw to prohibit economic development of CPR lands, but the Supreme Court found that CPR did not satisfy the test.
Annapolis provides further definition and clarity to the first step of the CPR Test. More specifically, on how “beneficial interest” in conjunction with “or flowing from it” should be understood in the analysis of constructive taking.
Previously, constructive taking required government action to take nearly all the bundled rights of property ownership except bare title. Now, the majority says, the test may be satisfied if an “advantage” is lost by government action. “Advantage”, used in this sense, appears to have a future-oriented meaning.
Constructive Taking?
The majority found that regulating the use of property can cause a constructive taking where the regulatory act deprives a claimant of the use and enjoyment of its property in a substantial and unreasonable way, or effectively confiscates the property. This requires the private rights in the property to be virtually abolished, leaving the claimant with no reasonable use of the property.
To determine whether constructive taking has occurred, the Supreme Court reaffirmed the CPR Test which, the majority said, focuses on effects and advantages. The majority went on to provide certain factors to inform whether constructive taking has taken place:
- The nature of government action (i.e., does the act target a specific owner or does it more generally advance an important public policy objective), notice to the owner at the time of acquiring the property, and whether the government measures restrict the uses of the property in a manner that is consistent with the property-owners’ reasonable expectations;
- The nature of the land and its historical or current uses. Where, for example, the land is undeveloped, the prohibition of all potential reasonable uses may amount to a constructive taking but a mere reduction in land value due to land use regulation would not on its own suffice;
- The substance of the alleged advantage, such as a permanent or indefinite denial of access to the property or the government’s occupation of the property, or where government acts deprive the owner of all economic value. It can also include restricting the uses of private land to public purposes such as conservation, recreation, or institutional uses.
Per the majority, the public authority’s intention is not an element of the CPR Test, but it is also not irrelevant. The authority’s intentions may be used as evidence to show constructive taking. The question that Courts must answer is whether the state-imposed restrictions on the property conferred an advantage on the state that effectively amounts to a taking.
With respect to Annapolis, the Supreme Court found that once the advantages and effects of Annapolis’ claim were considered, there were genuine issues of material facts to be tried. The Court dismissed the City’s application for summary dismissal and restored Annapolis’ claim, directing it to proceed to trial for determination.
Regulatory acts, which leave the claimant with no reasonable use of their property and have no express intention to avoid paying compensation, are actionable in public law where a claimant can satisfy the CPR Test. Annapolis can now proceed to trial and attempt to satisfy that test.
Dissent
The Court was divided 5:4, where the dissenting Justices affirmed that any taking must be proprietary (not merely an “advantage”) and that it must result in a deprivation to the claimant. The dissenting Justices also found that the public authority’s intention for the taking is irrelevant.
Take Away
This case is about property rights and the entrepreneurial spirit. It rewards people who purchase land with the reasonable expectation of earning a profit. The majority values the risk-taking and entrepreneurial spirit of the property-owner who invests in land and does not think that the value of land prospects should be thwarted by the public good, at least where the entrepreneur’s expectations of profit were reasonable.
The dissent on the other hand, weighs the public interest in land development over a private owner’s expectations and interest in that land.
The majority noted that where there is some reasonable use for the property, or where the statutory instrument shows an intention not to compensate, there is no constructive taking. The tipping point from reasonable use to no reasonable uses is “admittedly hard to locate.”[8]
It is important to remember that “governments may effect takings without paying compensation, so long as the enabling statute clearly expresses that intention.” In other words, the state can trigger a taking of beneficial interests, which is not actionable or compensable, by clearly legislating its intention not to compensate the property-owner.
This said, in the circumstances of Annapolis, there was no clear legislative action that caused the alleged constructive taking. Rather, it was the rejection of development permits which Annapolis claims caused the constructive taking. Therefore, it might be difficult for a government actor to foresee that its administrative decision is about to trigger constructive taking, and explicitly state its intention to do so without paying compensation. Previously it had been noted that:
Regulated land use is commonplace in modern civil society, and most instances of restricted land use (such as municipal zoning) are not typically viewed as triggering a regulatory taking.[9]
The Annapolis decision may cause governments to clearly legislate that there will be no compensation for lands with rejected development permits, to codify this previously held assumption. Indeed, some municipalities may have done so in some way already. For example, Vancouver, the Respondent in CPR, had enabling legislation which noted that no compensation shall be payable by the city in respect of a zoning bylaw.[10]
Laura Warner is a partner at JSS Barristers. Click here for Laura's bio.
Sarah Miller is an associate at JSS Barristers. Click here for Sarah's bio.
[1] The Constitution Act, 1982 Schedule B to the Canada Act 1982 (UK), 1982, c 11, Part I, Canadian Charter of Rights and Freedoms, s 26.
[2] Manitoba Fisheries Ltd v The Queen, [1979] 1 SCR 101 at 118 [Manitoba Fisheries].
[3] Manitoba Fisheries, ibid at 118.
[4] Brake v Canada (Attorney General), 2019 FCA 274 at paras 23-30, 37; see also Paradis Honey Ltd v Canada, 2015 FCA 89 at paras 130-132.
[5] Russel Brown, “Legal incoherence and the Extra-Constitutional Law of Regulatory Takings: The Canadian Experience” (2009) 1:3 Int’l JL Built Env’t 179 at 180.
[6] Manitoba Fisheries, supra note 2; and The Queen in Right of the Province of British Columbia v Tener, [1985] 1 SCR 533 [Tener].
[7] Canadian Pacific Railway Co v Vancouver (City), 2006 SCC 5 at para 30 [CPR].
[8] Brown, supra note 5 at 181.
[9] Brown, ibid at 180.
[10] CPR, supra note 7 at para 19.