St. John’s (City) v. Lynch, 2022 NLCA 29, 2024 SCC 17 (40302)

“Several family members own a property in the Broad Cove River watershed. Groundwater within the watershed drains toward the Broad Cove River, which is used by the City of St. John’s for the local water supply. While the property was located in unorganized territory and not subject to any planning authority at the time it was conveyed by Crown grant in 1917, amendments to the City of St. John’s Act in 1959 resulted in the property becoming subject to the City’s pollution control and expropriation powers. In 1964, the legislature enacted a prohibition on the construction of buildings in the watershed, with limited exceptions. In 1978, the building prohibition was amended to empower the City to permit construction, subject to the prior recommendation of the City manager. In 1992, a municipal reorganization extended the City’s boundaries to formally encompass the property. The property remained subject to the statutory building prohibition in the City of St. John’s Act, but was now also subject to the City’s zoning regulations. Following the boundary expansion, a new municipal plan and development regulations were prepared for the entire City. The 1994 Development Regulations included a watershed zone that encompassed the property. There are no permitted uses within the watershed zone, but three discretionary uses are contemplated: agriculture, forestry and public utility. In 1996, the City and the provincial government adopted a watershed management plan, based on a report that observed that the City of St. John’s Act entitled the City to prohibit the erection of buildings within the watershed regions, including the Broad Cove River watershed, and that recommended it should continue to use those powers to do so.

Since at least the 1990s, the family has tried to obtain permission to develop the property. In 2008, the City refused to transfer the property to an adjacent town, and, in 2011, the City indicated informally that the land must be kept unused in its natural state. Then, in 2013, the City rejected a formal application to develop a residential subdivision on the property, citing its authority under the City of St. John’s Act and the property’s designation as part of the watershed zone pursuant to the 1994 Development Regulations. Following that refusal, on application by the family, the Court of Appeal declared that the property had been constructively expropriated and that the family had a right to file a claim for compensation with the City as though a notice of expropriation had been served as of February 1, 2013.

When the City applied to the Board of Commissioners of Public Utilities for a determination of the amount of compensation payable, the Board stated a special case for the opinion of the Supreme Court of Newfoundland and Labrador asking whether the compensation should be assessed based on the uses permitted by the existing zoning — agriculture, forestry and public utility uses — or whether the existing zoning should be ignored and the value determined as if residential development were permissible. The application judge concluded that the compensation assessment should take account of the existing zoning. The Court of Appeal allowed the family’s appeal and ordered the Board to determine compensation without reference to the existing zoning.”

The SCC (7:0) allowed the appeal and restored the application judge’s order.

Justice Martin wrote as follows (at paras. 2-4, 49, 56):

“The starting point for assessing compensation for expropriation is determining the property’s market value. It is well established that land use restrictions impact market value and they are normally taken into account when fixing compensation. The jurisprudence reveals an exception: changes in value resulting from the expropriation scheme itself are to be ignored in the compensation assessment (the “Pointe Gourde principle”; see Pointe Gourde Quarrying and Transport Co. v. Sub-Intendent of Crown Lands, [1947] A.C. 565 (P.C.)). This principle has been incorporated into many jurisdictions’ expropriation statutes, including s. 27(1)(a) of Newfoundland and Labrador’s Expropriation Act, R.S.N.L. 1990, c. E-19, which is at the centre of this case. Determining which enactments form part of the expropriation scheme, and are thus ignored for valuation purposes, is the key factual question that decision makers must grapple with.

In this case, the City of St. John’s (“City”) constructively expropriated the respondents’ property when it refused to permit any development on it. The City deprived the respondents of all reasonable uses of the property and was found to have acquired a beneficial interest in the form of the right to a continuous flow of uncontaminated groundwater downstream to the City’s water facilities. At the time of the expropriation, a zoning regulation limited the property to discretionary agriculture, forestry, and public utility uses — a measure that no doubt diminishes the market value of the property compared to the respondents’ desired residential development use and, therefore, the compensation owed for the expropriation. The application judge concluded that the zoning regulation was an “independent enactment” and not part of the expropriation scheme. This meant that it could operate to influence the market value of the expropriated property and was not to be ignored for the purpose of fixing compensation. The Court of Appeal disagreed, concluding that compensation should be determined without reference to the zoning regulation. As I see no basis to interfere with the application judge’s conclusion, which is entitled to deference…

In the constructive expropriation context, it is not until all reasonable uses of the property have been removed that a de facto taking occurs (Annapolis, at para. 19). In assessing compensation once constructive expropriation is found to have occurred, distinguishing enactments on the basis of both their purposes and effects ensures the property owner receives “fair compensation but not more than fair compensation” (Waters, at para. 61). Ignoring enactments’ purposes and singularly considering effects would present two equally undesirable possibilities. If the Pointe Gourde principle only excluded the regulation that had the effect of removing all reasonable uses of the property (mirroring the requirement from Annapolis for a taking to occur), governments would be permitted to downzone properties or freeze development in anticipation of expropriation to reduce the compensation payable. This idea has been rejected (see, e.g., Tener, at p. 557; Gibson, at p. 536). If, instead, all prior enactments affecting the property’s value — regardless of whether they removed all reasonable uses of the property or were made with a view to expropriation — were excluded from the compensation assessment, compensation would amount to a windfall. This approach would be inconsistent with settled law: “. . . regulation alone will not satisfy the test for a constructive taking . . .” and “compensation does not follow zoning either up or down” (Annapolis, at para. 43; Tener, at p. 557). Neither of these possibilities would achieve proper economic reinstatement, and both would distort the property’s true market value.

Bad faith is not a prerequisite to a finding that an enactment was made with a view to expropriation. No “‘scheme’ in any nefarious connotation need be proved” (Kramer, at pp. 246-47, per Spence J.). Plainly, by-laws that control development in anticipation of eventual expropriation can be firmly rooted in public interest considerations. For example, on the facts of Gibson, there would have been a sound policy reason for the City of Toronto to adopt a by-law preventing building construction on a parcel of land it was intending to later expropriate for road widening. If that was its intent, however, the enactment would be ignored in assessing compensation for the parcel’s expropriation. Gibson illustrates that the existence of an “intimate connection” between the impugned regulatory enactment and the project or development that the expropriation facilitates may signal that the enactment was made with a view to expropriation (p. 538). In short, applying the Pointe Gourde principle requires consideration of whether the enactment was made for the purpose of expropriating rather than regulating.”