Facts
The Claimants were real estate developers. In 1988 they purchased acreage in Guelph, Ontario.
Their objective was to develop a multi-phase residential subdivision. However, in 1996 the
Wellington County Board of Education (later known as the Upper Grand District School Board)
expropriated a 7.86 acre parcel for a school site out of the Claimants' land. The expropriation
was carried out pursuant to procedures found in the Ontario
Expropriations Act, R.S.O. 1990, c. E.26.
The claim for compensation was first considered by the Ontario Municipal Board. The O.M.B. awarded $2,478,000 compensation for market value and dismissed claims for injurious affection and lost developer's profit. This decision is reported as [1999] EXLAW 18.
The Claimants appealed the O.M.B. decision to the Divisional Court. This court maintained the award for market value and awarded an additional $437,000 as disturbance damages for lost developer's profit. This decision is reported as [2000] EXLAW 20.
The School Board appealed the Divisional Court award to the Ontario Court of Appeal. This decision, reported as [2001] EXLAW 24, set aside the disturbance damages award and restored the original O.M.B. decision. The Claimants were represented in the Court of Appeal by Marc J. Somerville, Q.C. and John S. Doherty of the law firm, Gowlings. The School Board was represented by Stephen F. Waque and Gabrielle K. Kramer of Borden Ladner Gervais.
Issues
The primary issue on the appeal was whether lost developer's profit was compensable under the Ontario Expropriations Act
Comment
The subject of developer's profit frequently arises in cases where expropriated land is ripe for development at the moment of taking. Whether compensation should be paid to an owner for the profit that would have been earned in such cases has always been controversial and this case was no exception judging by the different treatment at each level. However, until recently, most such claims were dismissed.
In this case, the O.M.B. was satisfied from the evidence that the land was in fact ripe for development. The market value claim was supported by appraisal evidence utilizing the development approach which the O.M.B. accepted. In this approach, the anticipated developer's profit is properly deducted from projected revenues in determining the residual value of the land. However, the claimant also sought to recover that same estimate of profit under the head of disturbance damages.
The appeal court concluded that compensation for market value took into account development efforts expended up to the moment of taking such that awarding the developer's profit as disturbance damages would produce a windfall. In applying this reasoning the court adopted a widely held view that developer's profit should not be compensated in addition to market value because the profit has not yet been earned at the moment of taking. On this theory, a developer claimant should be able to take the market value compensation and purchase a replacement property having similar attributes to which the developer's skills can be applied.
In awarding developer's profit on the first appeal, the Superior Court relied largely on the 1997 Supreme Court of Canada decision in Toronto Area Transit Operating Authority v. Dell Holdings, [1997] EXLAW 217. Dell was an Ontario case which awarded disturbance damages consisting of lost profits incurred pre-taking through delays caused by the expropriation. Dell appeared to expand the availability of disturbance damage awards for business losses in Ontario. However in the present case, the court concluded that Dell had no application. Whether Dell will continue to be distinguished in Ontario remains to be seen.
Whether this case will be applied in other provinces also remains to be seen. It is worth noting that the disturbance damage provisions in the Ontario Expropriations Act are not the same throughout Canada. In the Ontario Act, disturbance damages were defined at the time of this case in s. 18(1) as:
"such reasonable costs as are the natural and reasonable consequences of the expropriation"
Similar language is found in the New Brunswick and Alberta statutes. However the Nova Scotia Act provides in s. 26(b):
"the reasonable costs, expenses and losses arising out of or incidental to the owners disturbance"
and the British Columbia Act provides in s. 34(1)(a):
"reasonable costs, expenses and financial losses that are directly attributable to the disturbance caused to the owner by the expropriation;"
The Nova Scotia and British Columbia definitions expressly provide compensation for financial losses. In this respect they are clearly broader in scope than Ontario, New Brunswick and Alberta. This could easily lead to significantly different outcomes on the same facts where land is ripe for development.
For the moment, it looks like lost developer's profit will not be compensated under the Ontario Act. However, it is unlikely that this decision will end the debate.
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