OLA Press Release – Supreme Court Decision in St. John’s v. Lynch

On November 16, 2023, the Ontario Landowners’ Association (“OLA”) appeared as an intervenor at the Supreme Court of Canada in City of St. John’s v. Wallace Lynch, et al. (“St. John’s v. Lynch”). In this case, the Supreme Court considered how the government should determine the compensation value it owes to a private property owner once a court determines it has constructively expropriated the owner’s property through regulation.

In St. John’s v. Lynch, the Lynches’ private property was rezoned as watershed by St. John’s because it fell within the Broad Cove River Watershed, which feeds the municipal water supply. Watershed zoning permits discretionary uses relating to agriculture, forestry, and public utilities, but St. John’s took the position that the land must be kept unused in its natural state. The Newfoundland and Labrador Court of Appeal held that refusing to permit any development constituted constructive expropriation and remitted the issue of compensation to the Board of Commissioners of Public Utilities. The Board then asked whether compensation should be assessed based on the uses permitted by the existing watershed zoning, or whether the existing zoning should be ignored, and the value determined as if residential development were allowed. The application judge concluded that the compensation assessment should take account of the existing zoning. On subsequent appeal, the Newfoundland and Labrador Court of Appeal held that compensation was to be determined without reference to the existing watershed zoning.

In its submissions before the Court, the OLA argued that in cases such as this one, where the government is found to have constructively expropriated private property through regulation, the government should disregard a regulatory instrument for the purposes of valuation if, without that regulatory instrument, the property owner would not have lost all reasonable uses of the property or the government would not have acquired the benefit that it did. The OLA further argued that in determining compensation value for constructive expropriation cases, the focus should not be upon whether the public authority intended the impugned regulatory instrument to be part of the “expropriation scheme”. Instead, the assessment of compensation should focus upon the effect of the taking on the landowner and the advantages acquired by the public authority.

The Court released its decision on May 10, 2024. The Court held that in determining whether a regulation’s effect on a property value should be ignored for compensation purposes, the key question is whether the enactment was made with a view to the expropriation or, conversely, was an independent enactment. While there must be a connection between the regulation and the expropriation for the effects of the regulation to be excluded, causation does not drive the inquiry and is of limited assistance in determining the scope of the expropriation scheme. When making the required determination, some relevant factors include whether the land use restriction was enacted as part of a city-wide or province-wide policy, whether it targets specific properties, or whether it was enacted by a different public authority than that which expropriated the property, but a government’s knowledge of another level of government’s development plans is not conclusive. Neither bad faith nor a “scheme” in any nefarious connotation need be proved.

Ultimately, the Court restored the application judge’s finding that, because the watershed zoning was an independent enactment and not made with a view to expropriation, the market value assessment for the property must take into account the fact that it is limited to discretionary agriculture, forestry, and public utility uses.  While the enactment of the relevant regulations was a link in the chain of events culminating in the expropriation, they were not enacted at the time with a view to the expropriation. To ignore the watershed zoning would compensate the family for something it never would have had absent the expropriation: unencumbered land to develop residential housing.

Although the Court took a different approach than the one advocated by the OLA, the OLA is pleased that the Court did reject the existence of a bad faith requirement, which is consistent with our submissions on the irrelevance of intent. The OLA was honoured to have been given the opportunity to contribute to the law on this very important topic, where the issues at stake are squarely within the OLA’s mission and mandate, and directly affect private landowners across the country.