Expropriation Loss – Private Rights vs. Public Good

Expropriation of land for a public purpose may impose significant financial loss on neighbouring property owners even where their land is not included in the expropriation. Where the expropriation is for the public good, should such landowners be entitled to recover this financial loss?

The Supreme Court of Canada recently considered the case of an Ontario landowner whose truck stop restaurant and gas bar was effectively put out of business as a result of access restrictions related to nearby highway construction. The landowner’s claim for business loss and diminution in property value totalling approximately $400,000 was initially allowed by lower courts but dismissed by the Ontario Court of Appeal on the basis that the loss imposed on the landowner was reasonable where the interference was necessary for provision of an essential public service. In allowing the appeal and restoring the landowner’s damage award, the Supreme Court of Canada agreed with the lower courts that the landowner should not be expected to bear such a loss for the greater public good without compensation.

The Supreme Court provided the following guidance on the principles to apply to the assessment of individual property rights against public benefit. The court stated:

“The main question on appeal is this: How should we decide whether an interference with the private use and enjoyment of land is unreasonable when it results from construction which serves an important public purpose? The answer, as I see it, is that the reasonableness of the interference must be determined by balancing the competing interests, as it is in all other cases of private nuisance. The balance is appropriately struck by answering the question whether, in all of the circumstances, the individual claimant has shouldered a greater share of the burden of construction than it would be reasonable to expect individuals to bear without compensation.”

In considering the relevant provisions of the Ontario Expropriations Act, the court held:

“Where none of the claimant’s land is expropriated, the Act provides a right to compensation for ‘such reduction in the market value of the land to the owner, and … such personal and business damages, resulting from the construction and not the use of the works by the statutory authority as the statutory authority would be liable for if the construction were not under the authority of a statute’ … Thus, in order to recover under the Act, the claimant has to meet these three statutory requirements, which are often referred to as the requirements of ‘statutory authority’, ‘actionability’ and ‘construction and not the use’.”

With respect to the requirement of “actionability”, the Supreme Court addressed private nuisance which requires an interference with a claimant’s use or enjoyment of land which is both substantial and unreasonable. As to whether an interference with private property rights is unreasonable relative to an important public purpose, the court concluded:

“Generally speaking, the acts of a public authority will be of significant utility. If simply put in the balance with the private interests, public utility will generally outweigh even very significant interferences with the claimant’s land. That sort of simple balancing of public utility against private harm undercuts the purpose of providing compensation for injurious affection. That purpose is to ensure that individual members of the public do not have to bear a disproportionate share of the cost of procuring the public benefit. This purpose is fulfilled, however, if the focus of the reasonable analysis is kept on whether it is reasonable for the individual to bear the interference without compensation, not on whether it was reasonable for the statutory authority to undertake the work. In short, the question is whether the damage flowing from the interference should be properly viewed as a cost of ‘running the system’ and therefore borne by the public generally, or as the type of interference that should properly be accepted by an individual as part of the cost of living in organized society.”

Accordingly, landowners adversely affected by expropriation even where their own land is not included may be entitled to compensation for financial loss. To recover business loss and diminution in property value, such landowners must establish interference with their property rights which is both substantial and unreasonable.