It’s the Effects that Count: Supreme Court of Canada Clarifies the Test for Constructive Taking of Private Property through Government Regulation
In a 5-4 decision, the Supreme Court of Canada has clarified the test for claimants to establish de facto expropriation of private property through a public authority’s exercise of regulatory powers. Such expropriation is known as a “constructive taking”, as distinct from the “de jure taking” that arises where a public authority formally acquires property (e.g., by taking title in the case of land). Arising out of an appeal of a summary judgment motion decision, the Supreme Court of Canada’s decision in Annapolis Group Inc. v. Halifax Regional Municipality, 2022 SCC 36 (“Annapolis”) holds that when assessing whether a public authority has acquired a “beneficial interest” in a property for the purposes of establishing a constructive taking, there is no requirement for the public authority to actually acquire a proprietary interest in the land. Rather, the fact that an “advantage” has flowed to the state from its regulation of the property will suffice to meet this element of the constructive taking test. Further, the public authority’s intention will play a role in the broader constructive taking analysis.
Annapolis is the latest in a series of Supreme Court cases on expropriation and clarifies the test for establishing a constructive taking originally set out in Canadian Pacific Railway Co. v. Vancouver (City), 2006 SCC 5 (“CPR”). The CPR test requires a claimant to establish both: (1) an acquisition of a beneficial interest in the property or flowing from it; and (2) removal of all reasonable uses of the property. Where this test is established, a claimant will be entitled to recover compensation from the public authority unless legislation clearly provides to the contrary. The Court in Annapolis relied on its previous decisions in Manitoba Fisheries Ltd. v. The Queen,  1 S.C.R. 101 (“Manitoba Fisheries”) and R. v. Tener,  1 S.C.R. 533 (“Tener”) to broaden the traditional understanding of what constitutes a constructive taking under the CPR test.
The appeal arose from a claim which Annapolis brought against the City of Halifax for employing regulatory measures to effectively seize Annapolis’ land for use as a public park without compensation. Annapolis had acquired the vacant land over the course of several decades beginning in the 1950s, and intended to eventually develop the land. In 2006, Halifax implemented a municipal planning strategy that reserved a portion of the Annapolis lands for potential inclusion in a regional park, but also zoned a portion of the lands for future urban development. The effect of these designations was that future residential serviced development could only occur on the lands if Halifax were to authorize a secondary planning process. The lands were regularly used by members of the public to hike, cycle, canoe, camp, and swim. From 2007 to 2016, Annapolis made several attempts to develop the lands in question, but Halifax ultimately passed a resolution in which it refused to initiate the secondary planning process. Annapolis sued in response, arguing that Halifax’s refusal amounted to a constructive taking of its property.
In 2019, Halifax moved for partial summary judgment of Annapolis’ claim, arguing that a constructive taking could not be proven based on the City’s refusal to initiate the planning process. The motion judge dismissed Halifax’s partial summary judgment motion, finding that Annapolis’ claim raised genuine issues of material fact requiring a trial, including the weighing of evidence that suggested the City had intended to reserve the Annapolis land for a park.
The Nova Scotia Court of Appeal reversed the motion judge’s decision, finding that Annapolis’ claim did not have a reasonable chance of establishing that the City had satisfied both elements of the constructive taking test established in CPR. In particular, the Court of Appeal held that the first element of the CPR test − an acquisition of a beneficial interest in the property or flowing from it − required land to actually be taken, which did not occur as a result of Halifax’s refusal to initiate the secondary planning process. In addition, the Court of Appeal held that evidence Halifax intended to secure the use of the lands as a public park was irrelevant to the analysis. Annapolis appealed this decision to the Supreme Court of Canada.
Guidance from Annapolis
The two main questions considered on the appeal were whether: (1) the acquisition of a “beneficial interest” under the first element of the constructive taking test in CPR requires land to actually be taken by the state; and (2) evidence of the state’s intended use for the land in question is relevant to the analysis of a constructive taking claim. In weighing these issues, the Court ultimately allowed Annapolis’ appeal and restored the decision of the motion judge.
Looking to its previous jurisprudence, the Court found that acquisition of a “beneficial interest” does not require the state to actually obtain a proprietary interest in the property, but should be more broadly understood to mean that the state has derived an “advantage” from it. To hold otherwise would collapse the distinction between de facto and de jure takings, which the majority found was explicitly preserved in CPR. The Court indicated that the focus of the CPR analysis must be on the “effect of a regulatory measure on the land owner,” and not on “whether a proprietary interest was actually acquired by the government.” In reaching this conclusion, the Court further emphasized that it was not changing the law on constructive takings or departing from precedent, but rather clarifying this aspect of the CPR test to better cohere with the meaning of “benefits” as understood in Manitoba Fisheries and in Tener.
The Court held that, properly understood, the two-part CPR test for showing a constructive taking requires deciding:
- whether the public authority has acquired a beneficial interest in the property or flowing from it (i.e., an advantage); and
- whether the state action has removed all reasonable uses of the property.
Regarding the relevance of the public authority’s intention to the analysis of constructive taking claims, the Court confirmed that intent is not an element of the CPR test, but clarified that intention may still be relevant for evidentiary purposes. In particular, evidence of a government body’s intent, once proven, may constitute a material fact to support a finding that a landowner has lost all reasonable uses of their land.
Applying this framework to the facts in Annapolis, the Court found that, after a trial on the merits, it could be proven that Halifax had acquired a beneficial interest in Annapolis’ lands, as “[p]reserving a park in its natural state may constitute an advantage accruing to the state”. Moreover, evidence of the City’s intention to treat the Annapolis lands as a public park could potentially support a finding that Annapolis had lost all reasonable uses of its property.
The Supreme Court’s reasons clarify that in seeking to establish a constructive taking, an actual taking of land is not required. Instead, the transfer of an advantage from the private owner to the state is enough to satisfy the first branch of the CPR test. This clarifies the pre-Annapolis case law that interpreted the CPR test as requiring actual acquisition to make out a claim, and will make it easier for property owners to establish constructive taking claims going forward. The decision in Annapolis also establishes that evidence of the state’s intent is relevant in the assessment of a constructive taking claim. As a result, parties bringing such claims should consider developing evidence that the public authority intended to effectively seize their land, in order to assist in making broader arguments under the CPR test.
McCarthy Tétrault acted for the intervener, Ontario Landowners Association, in the Supreme Court of Canada, and regularly represents claimants in expropriation proceedings. If you have questions about appellate litigation or expropriation, please contact Brandon Kain in our Appellate Litigation group or Phillip L. Sanford in our Municipal Planning group.
Annapolis Group Inc. v. Halifax Regional Municipality, 2022 SCC 36
Date of Decision: October 21, 2022