Supreme Court – Making Landowners “Whole”

Federal and provincial statutes governing the construction and operation of energy pipelines generally require that landowners be compensated for damages resulting from the pipeline company’s operations.  Pipeline companies have argued that their statutory liability should be limited only to financial loss suffered by landowners directly resulting from their operations but should not include indirect costs landowners may incur in attempting to protect their interests.  Canada’s highest court, the Supreme Court of Canada, has now clearly rejected this proposition.

In recently released reasons for judgment, the Supreme Court of Canada has overruled the Federal Court of Appeal and determined that a landowner whose lands are subject to a federally regulated pipeline is entitled to full indemnification for financial loss suffered as a result of the pipeline company’s operations.  Such recovery includes not only remedial costs incurred by the landowner but extends to all costs incurred by the landowner in pursuing his claim against the pipeline company.

In the case under consideration, the landowner had entered into an easement agreement with a nationally regulated pipeline company providing for the construction and operation of the pipeline.  Upon the pipeline company’s failure to restore the lands in accordance with its contractual obligation, the landowner incurred the remediation costs himself and brought arbitration proceedings under the NEB Act against the pipeline company to recover these remediation costs.  While this arbitration was pending, the company sought off-easement access to the landowner’s property.  When the landowner demanded advance compensation in respect of such entry, the pipeline company commenced court proceedings against the landowner seeking injunctive relief determining both that the arbitration was precluded by a release signed by the landowner for construction damages and granting the pipeline company access to the easement.  The injunction proceeding, and eventually the court action itself, was dismissed with a partial award of costs to the landowner.

The landowner proceeded with the statutory arbitration for compensation and was eventually awarded not only the remediation costs but also the arbitration costs and the balance of the costs incurred with respect to the court action.  This award was upheld on appeal to the Federal Court (Trial Division).  However, upon further appeal by the pipeline company, the Federal Court of Appeal denied the landowner a portion of the arbitration costs and the unrecovered balance of costs of the court proceedings.   The landowner appealed to the Supreme Court of Canada.

In allowing the appeal, the Supreme Court of Canada referenced Section 75 and 99 of the National Energy Board Act and commented:

“Today, the principle of full indemnification appears explicitly in Section 75 of the NEBA, which provides as I noted earlier, that a company ‘shall make full compensation … for all damage sustained’ by the expropriated owner.  Parliament adopted this more comprehensive approach to indemnification by broadening the language of Section 99 (1) from ‘costs of the arbitration’ to ‘all legal, appraisal, and other costs determined by the committee to have been reasonably incurred by that person in asserting that person’s claim for compensation’.

“This amendment must be presumed to signify a clear and considered decision by Parliament to allow arbitration committees to exercise their full discretion in seeking to make expropriated owners whole, and the historical context validates this presumption …

“Like various provincial expropriation statutes, the NEBA is remedial and warrants an equally broad and liberal interpretation.  To interpret it narrowly, as the respondent in this case suggests, would in practice transform its purpose of full compensation into an unkept legislative promise.

“Parliament has provided for a comprehensive compensatory scheme.  The remedial principles of expropriation law … govern the operation of the statute.”

The Supreme Court of Canada restored the arbitration committee’s award of remediation costs, arbitration costs and the balance of the court costs to the landowner.  In addition, the court awarded to the landowner the full costs of all of the court proceedings to determine this issue.  The court concluded:

“The seeds of this dispute were sown in a thin layer of manure spread by the appellant on a strip of his land that the respondent was obliged to reclaim.

Pursuant to an expropriation agreement, the respondent had obtained a right-of-way over the land in question.  The respondent failed to reclaim the land in a timely manner, as required by the agreement, and refused to fully compensate the appellant for having done so in its stead.  The appellant turned to statutorily mandated arbitration for what was meant to assure an expeditious resolution of the dispute.

What ensued was anything but:  Two arbitration committee hearings, one Court of Queens Bench action, one judicial review, one appellate review proceeding, and thousands of dollars later, the appellant has only now reached the end of what should have been a short road to full compensation … “

“… [t]his is a case in which ‘justice can only be done by a complete indemnification for costs’…  Only this type of award can indemnify (the landowner) as best one can for the inordinate amount of money – to say nothing of time – he has had to invest in what should have been an expeditious process.”

Pipeline companies have a statutory obligation to compensate landowners for financial losses resulting from pipeline construction and operations.  The Supreme Court of Canada has  now clearly determined that the company’s statutory obligation is to indemnify landowners for all such direct and indirect costs so that they are economically whole.

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