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Cohen Highley LLP

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Is the global reasonableness test dead?
March 9, 2001

A longstanding feature of cost recovery in British Columbia expropriations may have been set aside recently.

In British Columbia, owners are entitled to reimbursement for legal and appraisal costs if they obtain a compensation award that is more than 115% of the authority's advance payment. However, the amount reimbursed does not often match the owner's actual cost for those services.

Under the B.C. Expropriation Act the amount to be reimbursed is determined by the Expropriation Compensation Board when the owner and authority do not agree on what it should be. The Act requires the Board to consider several factors when determining the amount. These include the number and complexity of the issues, the manner in which the case was conducted, the determination of the issues and the difference between the compensation award and the advance payment. This requirement has sometimes been referred to as a "global reasonableness" test because it takes into account the results achieved overall.

The Act does not say what implications should follow from consideration of the global reasonableness test. However, in an early cost decision, Kliman v. School District No. 63 (Saanich), [1992] EXLAW 42, the Board commented that "a compensation scheme where costs that frequently approach or exceed the amount involved is a scheme that will inevitably attract criticism." This comment has been viewed by some as a rule of thumb under which costs should not exceed the net compensation award. The comment has been cited by the Board several times in later cases and the Board has reduced cost awards that were otherwise reasonable simply because the costs were too large relative to the net compensation award. On the other hand, a number of cost awards have exceeded the net compensation award so clearly the Board has not treated the comment in Kliman as a hard and fast rule.

One recent case where Kliman was applied was Ingham v. Creston (Town), [2000] EXLAW 313. That case involved three separate expropriations. At the final cost review conducted in June 1999 there was no dispute over the reasonableness of the lawyer's hourly bill rate or the amount of time recorded. The owners had received more than 115% of the advance payment on compensation so they were entitled to reimbursement for their actual reasonable costs. However, the net awards to each owner ranged from approximately $5,000 to $9,000. The authority took the position that the cost award should not exceed the net awards and cited the comment in Kliman. The Board accepted most of this argument and adjusted the legal costs downwards by approximately 23% to bring the legal costs into line with the net compensation award. The Board's legal cost awards ranged from $7,000 to $11,000 each.

The owners appealed to the B.C. Supreme Court. The appeal decision, cited as [2001] EXLAW 310, was released earlier this week. The Court found that there is nothing in the Act to permit the reduction of costs which are otherwise reasonable so as to reflect the small size of a net compensation award. The court set aside that portion of the Board's cost award and awarded the full amount of the legal costs before the 23% adjustment had been made. The court did not offer any comments that would explain the true purpose of the global reasonableness test.

Reinhard Burke of Chase represented the owners. J. Bruce Melville of Vancouver appeared for the authority.

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