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First Landmark Decision by the Supreme Court of Canada on the Concept of Disguised Expropriation under Quebec Law

Fasken
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Litigation and Dispute Resolution Bulletin

Summary

The duty to act within a reasonable time to contest the validity of a municipal by-law due to disguised expropriation was the issue under debate in the decision Lorraine (Ville de) c. 2646-8926 Québec inc

Holding that disguised expropriation, when effected through use of a zoning by-law, constitutes an abuse of the public body’s regulatory power, the Supreme Court of Canada ruled that an action in nullity of a by-law in such a context must be made within a reasonable time. This duty applies as much to an action of inoperability as to an action in nullity, given that both constitute forms of relief arising from the discretion of the Superior court to remedy where the by-law is abusive.

In this case, the period of sixteen (16) years that had passed starting from the date when the plaintiff was presumed to have had knowledge of the by-law, namely the date the by-law entered into force, was not considered to be a reasonable time.

However, the Supreme Court confirms that an expropriation indemnity can be sought, even if the forms of relief of nullity and inoperability are no longer possible.

In regard to the concept of disguised expropriation, the Supreme Court of Canada proposes a simpler definition than that which it had proposed in common law. In the case of Canadian Pacific Railway Co. v. Vancouver (City)[1], a case originating in British Columbia, the Supreme Court had stated that to make a successful case for disguised expropriation, the expropriated party must prove that the public body has acquired a beneficial interest in the property covered by the disguised expropriation. However, in Ville de Lorraine, the Supreme Court defines disguised expropriation under Quebec law more simply as being the limitation by a municipal administration of the enjoyment of the attributes of the right of ownership over a property to such an extent that the property’s owner is de facto expropriated.

I. Introduction

On July 6, 2018, the Supreme Court of Canada (the “SCC”), in the decision Lorraine (Ville) v. 2646-8926 Québec inc.[2], heard the appeal brought by the appellants Ville de Lorraine (the “Town”) and the Municipalité régionale de comté de Thérèse-de-Blainville [Regional county municipality of Thérèse-de-Blainville] (the “RCM”) of the decision handed down by the Cour d’appel du Québec [Quebec Court of appeal] on November 7, 2016.

The Court of appeal had ruled that the amended zoning by-laws adopted by the Town could not be annulled given the time that had passed between their entry into force and the legal action, but should be declared inoperable against 2646-8926 Québec inc. (the “Owner”), since they constituted a disguised expropriation. The Court of appeal had thus heard the Owner’s appeal of the of the Superior Court’s judgment handed down on July 7, 2015 by the honourable Benoît Emery.

At the trial court, Emery J. dismissed the Owner’s action in nullity with regard to the by-laws, judging that it was not brought within a reasonable time, whether counting from the date the by-law entered into force according to the presumption of legal knowledge (16 years) or the date of the Owner’s actual knowledge of the by-law’s existence (5 years).

The Town’s appeal raised the following question: can a by-law that a party contests for being abusive be declared inoperable if that party did not present its request within a reasonable time?

The SCC was called upon to respond to this question in a context involving the concept of disguised expropriation developed through case law depending on the particular procedural context of the case in question. In the context of its action, the Owner sought a number of forms of relief in order to remedy the Town’s abusive conduct, to wit (i) the nullity or inoperability of the challenged by-law, (ii) the payment of an indemnity and (iii) a refund of taxes paid. Following a request by the parties, Emery J. had agreed to split the proceeding and to first rule on the validity of the municipal by-law. The judgment being appealed only concerns this first part.

II. Facts

On July 7, 1989, the Owner acquired lot 2,322,934 of the official Quebec land register, Terrebonne registry office, in the Town of Lorraine (the “Lot”). The Lot is located in a wooded area. The zoning by-law in force at the time allowed for the construction of residential units. At the time the Lot was purchased, the Owner was planning to establish a housing development over the next fifteen years, which was the time required for the Town’s urban development to grow closer to the area where the Lot was located.

On June 23, 1991, the Town adopted a by-law according to which approximately 60% of the Lot’s surface area is designated as a conservation zone and where the only permitted uses are public recreational and leisure activities such as hiking, horse riding, skiing or biking trails (the “By-law”). However, the Owner did not learn of the By-law’s existence until near the end of the year 2001, at the earliest. During this period, the Owner’s majority shareholder had also realized that the Town had developed infrastructures for hiking on the Lot, including culverts, stairs, fences and public benches.

In 2003, the Owner tasked an urban planning firm with convincing the Town to amend the By-law in order to allow a residential development. In 2004, the Town informed the Owner that it did not intend to amend the By-law.

The Owner finally brought its legal action on November 2, 2007. Initially, the Owner requested that the By-law be annulled and that the infrastructures put in place by the Town be removed, but did not include a request for indemnity.

In 2010, the RCM adopted a by-law to protect the conservation zone established by the Town.

On October 3, 2012, the Owner modified its action to add a claim for payment of an expropriation indemnity due to disguised expropriation.

A.    The trial court’s judgment

In his judgment, Emery J. stated that an action in nullity of a by-law must be brought within a reasonable time period and that any person is presumed to have known of the existence of a by-law from the moment it is adopted, citing in this regard the decisions Wendover & Simpson v. Filion[3], Fabi v. Rock Forest (Municipalité de)[4] and Ville de Rimouski c. Les Développements Vaillancourt inc.[5]

He considered the time period of sixteen (16) years that had passed between the By-law’s adoption and the initiation of the action and that of five (5) years since the Owner first had actual knowledge of the By-law’s existence. He also took into account the fact that the Owner had never visited the premises at the time of the Lot’s purchase, had never attempted to learn the intentions of the Town with regard to urban development, nor attempted to seek information about past and future amendments to zoning by-laws.

In light of the evidence presented, Emery J. found that the Owner had not brought its action in nullity within a reasonable time, and thus had denied the request.

B.     The decision of the Court of Appeal

The Court of Appeal, in a unanimous decision handed down by Julie Dutil, Mark Shrager and Étienne Parent JJ.A.[6], accepted the appeal of the Owner, which raised the two following questions, namely:

  • Did the trial court judge err in deciding that the action in nullity was not brought within a reasonable period of time?
  • Were the contested by-laws so unreasonable as to be considered ultra vires of the Town’s jurisdiction, in which case, according to the Owner, their nullity could be invoked at any time?

As for the first question, the Court of appeal had ruled that the trial court judge had not erred as to the fact that an action in nullity should have been brought within a reasonable time period starting from the date of adoption, and that the Owner was presumed to have had knowledge of the By-law as of its adoption.

As for the second question, the Court of appeal, citing the decision in Montréal (Ville de) v. Benjamin[7] (the “Benjamin” decision) where the circumstances were very similar, found that the Town had exercised its power to adopt zoning by-laws in an abusive manner, having as an effect the removal of all commercial value from the Owner's Lot, and that such an injustice could not be tolerated.

The Court of Appeal decided that it was not proper to overturn the by-laws, given [translation:] “the passage of time and the interests of preserving the stability of the laws for the benefit of the citizens who may have acted accordingly with the effects of these by-laws”[8], and that it was therefore more appropriate to declare them inoperable against the Owner.

C.    The decision of the Supreme Court

From the outset, the SCC recalls that “[b]ecause of the importance attached to private property in liberal democracies, the exercise of the power to expropriate is strictly regulated to ensure that property is expropriated for a legitimate public purpose and in return for a just indemnity”[9]. In Quebec, this power is regulated by the Expropriation Act, CQLR, c. E-24.

It then discusses the two forms of relief available to an Owner who is the victim of a disguised expropriation, namely an action in nullity or inoperability of the by-law and a request for payment of an indemnity corresponding to the value of the property expropriated as per section 952 of the Quebec Civil Code (“C.C.Q.”)[10].

Given that an action in nullity for reasons of abuse of power relies on the Superior court’s general control and supervisory power with respect to administrative actions, including those of municipalities[11], such an action must be brought within a reasonable time[12]. The duty to act within a reasonable time does not apply to cases where the action in nullity is brought due to an absence or excess of jurisdiction, in accordance with the SCC's previous reasoning in the decision Immeubles Port Louis Ltée v. Lafontaine (Village)[13]. However, the SCC notes that a disguised expropriation  “insofar as it occurs in the guise of a zoning by-law”, constitutes an abuse of the power of regulation, as opposed to an absence or an excess of jurisdiction. Consequently, the Owner who intends to challenge a by-law that places him in a situation of disguised expropriation must bring his claim within a reasonable time. Following this reasoning, the Court of appeal erred in relying on the Benjamin decision to find that the abuse of power committed by the Town was such that it exempted the Owner from the duty to act within a reasonable time[14].

In this case, the SCC is of the opinion that Emery J. was justified in dismissing the Owner’s action in nullity for being out of time by taking into account the presumption of legal knowledge, starting from the date of the By-law’s adoption on June 23, 1991. Furthermore, the period of five (5) years that had passed between the date of the Owner’s actual knowledge of the By-law and the initiation of the action could have also justified the action’s dismissal.

The SCC held that the Court of appeal had erred in distinguishing the invalidity of a by-law from its inoperability, holding that these are two forms of relief that fall within the discretion of the Superior court as part of its inherent power to remedy where a by-law is abusive. The duty to act within a reasonable time period thus applies both to an action in nullity and to a request for inoperability[15].

This error was determined to have resulted from an incorrect reading of the Benjamin decision where the Court of appeal had ruled that it was possible for the plaintiff to request an expropriation indemnity notwithstanding the fact that it had not filed an action in nullity, which request would likely have been dismissed for lateness[16]. Finding that the request for indemnity did not put the Superior court's power of review into question, the duty to act within a reasonable time does not apply to such a claim.

Lastly, the SCC emphasizes that, in any event, the Owner’s action in nullity was barred due to the common law statute of limitations provided for by the Civil Code of Quebec (“C.C.Q.”). In accordance with the Civil Code of Lower Canada, the ability to bring an action in nullity lapses after thirty (30) years. Following the entry into force of the Civil Code of Quebec in 1994, such a claim is subject to a statute of limitations of ten (10) years in accordance with section 2922 of the C.C.Q. Since the Owner is deemed to have known of the By-law as of its adoption on June 23, 1991, the Owner's action in nullity was therefore time-barred when it was filed in 2007.

As a result, the Owner’s action in nullity had to be dismissed without consequence as to the findings of the action on which the trial court judge had not yet ruled. Indeed, the SCC reiterated that even if the plaintiff had not satisfied the conditions for opening an appeal for judicial review, “he or she still has the right, in appropriate cases and if the claim is supported by the evidence, to seek payment of an indemnity for disguised expropriation.”[17]

III. Comments

The decision Lorraine (Ville) v. 2646-8926 Québec inc. has clarified a legal ambiguity as to the existence of the duty to act within a reasonable time in order to request that a by-law constituting a disguised expropriation be annulled or declared inoperable. This ambiguity likely arises from the multitude of remedies available in such situations and from an improper reading of the Benjamin decision which only involved a claim for payment of an expropriation indemnity.

We emphasize that this is the first time that the SCC had considered an appeal involving the concept of disguised expropriation under Quebec civil law and the different remedies that are available to a taxpayer who is the victim of such a circumstance, including a claim for the payment of an expropriation indemnity. The SCC has thus provided significant indications that allow us to properly understand the scope of the concept of disguised expropriation under Quebec law.

The concept of disguised expropriation

First, the SCC proposes a simpler definition than the one that it proposed at common law in the decision, Canadian Pacific Railway Co. v. Vancouver (City), 2006 S.C.R. 227 according to which two criteria are necessary to constitute a disguised expropriation, to wit “(1) an acquisition of a beneficial interest in the property or flowing from it, and (2) removal of all reasonable uses of the property.”[18].

The SCC defines disguised expropriation under Quebec law more simply as being the limitation by a municipal administration of the enjoyment of the attributes of the right of ownership over a property to such an extent that the property’s owner is de facto expropriated.

The use of the verb “limit” suggests that the SCC favours the approach according to which a disguised expropriation can derive from an action that has the effect of limiting, reducing or diminishing the enjoyment of the attributes of the right of ownership over one’s property, without requiring that this act necessarily prevent or prohibit any possible enjoyment of the attributes of the right of ownership. In this respect, the SCC’s test is in accordance with the reasoning set forth by the courts in the decisions Développements Vaillancourt v. Rimouski (Ville de)[19] and Boutique de golf Gilles Gareau inc. v. Municipalité de Saint-Colomban[20].

Next, the SCC’s reference to the “enjoyment of the attributes of the right of ownership” allows us to confirm that the effect of the act must be analyzed in regard to all of the attributes of the right of ownership, namely the usus (use), the fructus (right to enjoy the fruits derived from that property) and the abusus (right to dispose of the property). More often than not, the determining factor for the owner remains that of being able to at least harvest the fruits (fructus), a factor that must be analyzed in a situation of disguised expropriation according to the SCC.

The third structuring element of the test proposed by the SCC is that a determination of whether property has been de facto expropriated must be made from the point of view of the holder of the attributes of the right of ownership. This method of establishing a test is completely in accordance with the general expropriation principal that it is from the expropriated party’s point of view that an indemnity to which that party has a right must be established (the principle of value to the owner).

Under Quebec law, the question of disguised expropriation must thus be analyzed on a case-by-case basis to determine whether the limitation that the regulatory measure imposes on the owner constitutes “[a limit on] the enjoyment of the attributes of the right of ownership of property to such a degree that the person entitled to enjoy those attributes is de facto expropriated from them.”

The two forms of relief offered to the victim of a disguised expropriation

Two different forms of relief are offered to the aggrieved Owner, namely a request for annulment or inoperability of a by-law or a request for the payment of compensation based on section 952 C.C.Q.

Even if the relief of annulment or inoperability is no longer open, the owner is nevertheless permitted to "claim an indemnity based on the value of the property that has been wrongly taken from them”[21]. The relief of payment of an expropriation indemnity is therefore a separate remedy which remains possible even where the relief of annulment or inoperability is no longer available for one reason or another.

The SCC stipulates that the splitting of the proceeding granted by Emery J. “attests to the fact that the... request for a declaration of nullity was made in the alternative” to the claim for payment of an expropriation indemnity (para. 24).  Consequently, we believe that the SCC confirms in this landmark decision that it is possible to exercise either form of relief, as chosen by the owner who is the victim of a disguised expropriation, which is in accordance with the general principle of civil law that the choice of remedy lies with the creditor, in this case the injured owner[22].

As the SCC emphasizes, an owner who obtains the nullity or inoperability of a contested by-law is not entitled to an expropriation indemnity[23]. However, can an owner be entitled to damages in compensation for the harm caused to him by being prevented from enjoying his property during the time period when the by-law was in force? Even though it was not addressed by the SCC, in our opinion this question remains open.

 


 


 

[1]       2006 S.C.R. 227.

[2]       2018 SCC 35.

[3]       1992 R.D.I. 263 (C.A.).

[4]       [1998] R.J.Q. 1683 (C.A.), p. 1688.

[5]       2009 QCCA 1475 (CanLII).

[6]       2016 QCSC 1803.

[7]       2004 CanLII 44591 (QC CA).

[8]       2016 QCCA 1803 (CanLII), para. 16.

[9]       2018 SCC 35, para. 1.

[10]     Id., para. 2.

[11]     In accordance with section 34 of the Code of civil procedure.

[12]     2018 SCC 35, para. 25.

[13]     [1991] 1 S.C.R. 326, page 342.

[14]     2018 SCC 35, para. 34.

[15]     2018 SCC 35, para. 35-36.

[16]     2018 SCC 35, para. 37.

[17]     Id., para. 46

[18]     Canadian Pacific Railway Co. v. Vancouver (City), 2006 S.C.R. 227, para. 30.

[19]     2008 QCSC 88.

[20]     2017 QCSC 2689.

[21]     2018 SCC 35, para. 2.

[22]     1590 C.C.Q.; Shahmoon v. Kirkland (Ville de), 2013 QCSC 2386, para. 67 to 69; Basil Holding Corp v. Côte St-Luc (Ville de), [1998] R.L. 661, para. 43 to 45; Arcand v. Corporation de la Ville de Victoriaville, J.E. 84-1009 (S.C.), para. 18.

[23]     2018 SCC 35, para. 24.

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