2020 NLSC 92, 2020 NLSC 92

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Board of Commissioners of Public Utilities - Re: Expropriation Act , 2020 NLSC 92 Date : June 30, 20 20 Docket : 201801G7703 In The Matter of Subsection 26(3) of the Expropriation Act , R.S.N.L. 1990 c. E-19 (the " Act ") And In The Matter of a special case stated for the opinion of the court on a question of law arising in the course of the proceedings of the Board of Commissioners of Public Utilities Before: Justice Sandra R. Chaytor Place of Hearing: St. John’s, Newfoundland and Labrador Date of Hearing: November 8, 2019

Summary: The Court of Appeal determined that property owned by the Lynch family had been constructively expropriated by the City of St. John’s. The issue of the compensation to be paid to the Lynches as result of the expropriation was referred to the Board of Commissioners of Public Utilities.

In the course of carrying out its expropriation compensation assessment, the Board asked the Court for its opinion as to whether the compensation should be assessed based on the uses permitted by the existing watershed zoning or whether that zoning should be ignored and the value determined as if residential development were permissible. Held: The Court concluded that the compensation should be assessed based on the existing zoning.

In so holding, the Court rejected the argument of the Lynches that the zoning of the property as watershed was an integral part of the City’s pollution prevention scheme which gave rise to the expropriation and, as such, should be ignored pursuant to the Pointe Gourde principle. The Court found that it was the City’s refusal to allow any development of the property that caused the property to have no reasonable use and thereby be constructively expropriated. The existing zoning would have allowed the potential for development had the City seen fit to permit development within the parameters of the zoning.

Therefore, the zoning of the property as watershed was not sufficiently causally related to the expropriation. The Court further held that the zoning of the property was part of general municipal regulations that applied to all property within the City and as such was an independent enactment and not to be ignored in the valuation of the property. The Court also dismissed an argument that issue estoppel applied and gave leave to the parties to make further submissions regarding costs.

Appearances: Michael J. Crosbie, Q.C. Appearing on behalf of Willis Lynch, Wallace Lynch, Colin Lynch, Winfred Lynch and Reginald Lynch, the Expropriation Compensation Claimants. Ian F. Kelly, Q.C. Appearing on behalf of the City of St. John’s Peter A. O'Flaherty, Q.C. Appearing on behalf of the Board of Commissioners of Public Utilities Authorities Cited: CASES CONSIDERED: Lynch v. St. John’s (City) 2016 NLCA 35; Pointe Gourde Quarrying and Transportation Co. Ltd. v. Sub-Intendent of Crown Lands, [1947] AC 565 (P.C.); Gibson and City of Toronto, Re, (1913) (ON CA), 11 DLR 529, 28O.L.R. 20 (Ont. C.A); Kramer v.

Wascana Centre Authority, (SCC), [1967] S.C.R. 237; Danyluk v. AinsworthTechnologies Inc., 2001 SCC 44; Quinlan v. Newfoundland (Minister of Natural Resources), 2000 NFCA 49; Penner v. NiagaraRegional Police Services Board, 2013 SCC 19; Guardian Insurance Co. of Canada v. Roman Catholic Episcopal Corp. of St. John's,2013 NLCA 62; Canada Post Corp. v. Snook, 2015 NLCA 49; Mariner Real Estate Ltd. v. Nova Scotia (1999) 1999 NSCA 98 ,178 N.S.R. (2d) 294 (C.A.); Cedars Rapids Mfg. and Power Co. v. Lacoste, (UK JCPC), [1914] A.C. 569, 6 W.W.R.62 (Jud. Comm. P. C.); Associated Builders v.

Newfoundland (Minister of Public Works & Services) (1978), 17 L.C.R. 101, 19 Nfld. &P.E.I.R. 371 (Nfld. S.C. (C.A.)); Lasade Enterprises Ltd. v. Newfoundland (1993), (NL CA), 114 Nfld. & P.E.I.R. 19,356 A.P.R. 19 (Nfld. C.A.); Farlinger Developments Ltd. v. East York (Borough) (1975), (ON CA), 8 L.C.R. 112, 61D.L.R. (3d) 193 (Ont. C.A.); Canadian Pacific Railway v. Vancouver (City), 2006 SCC 5; Roberts v. Newfoundland & Labrador(Minister of Transportation & Works), 2005 NLCA 26; Dell Holdings Ltd. v. Toronto Area Transit Operating Authority, (SCC), [1997] 1 S.C.R. 32; Atlantic Shopping Centres Ltd. v. St.

John’s (City) (1985), (NL CA), 56 Nfld. &P.E.I.R. 44, 168 A.P.R. 44 (Nfld. S.C. (C.A.)); Halliday v. Newfoundland Light & Power Co., (1980), 20 L.C.R. 325, 29 Nfld. &P.E.I.R. 212 (Nfld. S.C. (C.A.)); McKee v. Alberta,

(1967) CarswellAlta 86, 16 L.C.R. 35 (Alta. S.C. (T.D.)) STATUTES CONSIDERED: Expropriation Act R.S.N.L.1990 c. E-19, s. 36; City of St. John’s Act, R.S.N.L. 1990, c. C-17; Urban andRural Planning Act S.N.L. 2000, c. U-8. RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D TEXTS CONSIDERED: Eric C.E. Todd, The Law of Expropriation in Canada, 2nd ed. (Ont. Carswell, 1992) REASONS FOR JUDGMENT

Chaytor, J.: INTRODUCTION AND OVERVIEW [1] The Court of Appeal determined that a large parcel of land owned by members of the Lynch family[1] had been constructivelyexpropriated by the City of St. John’s. The issue of the compensation to be paid to the Lynches as result of the expropriation wasreferred to the Board of Commissioners of Public Utilities (the “Board”) to be determined pursuant to its authority under the Expropriation Act, 1990 c.

E-19, s. 36 the “Act”).[2] [2] In the course of carrying out its expropriation compensation assessment, an issue arose that the Board has referred to this courtfor determination as a special case. Subsection 26(3) of the Act provides the Board authority to state in the form of a special case aquestion of law for the opinion of the Court: 26…

(3) The board may at any stage of its proceedings and shall where directed by a judge of the court state in the form of a specialcase for the opinion of the court a question of law arising in the course of the proceedings [3] The question for which the Court’s opinion is sought is as follows: Whether the Lynches’ compensation should be assessed based on the uses permitted by the existing zoning, which are agriculture,forestry and public utility uses, or whether the existing zoning should be ignored and the value determined as if residential developmentwere permissible. [4] The Lynches contend that the highest and best use of their property, upon which the compensation should be based, isresidential development and not the three discretionary uses within the existing zoning.

They rely upon the opinion of appraiser, JeromeKirkland, who completed an appraisal of the property on behalf of the Lynches and determined its market value as of February 1, 2013 tobe $875,000. In completing the appraisal, Mr. Kirkland was asked to assume that the current watershed zoning did not exist and that adevelopment proposed by the Lynches would have been permitted by the City. Based on those assumptions, Mr.

Kirkland concluded thehighest and best use of the property would be infill serviced building lots along Camrose Drive with residential medium density zoning. [Reference: page 14 of Report of Kirkland, Balsom & Associates dated July 11, 2017]. [5] In making this submission, the Lynches rely upon a principle of expropriation compensation that has come to be known as the‘no-scheme rule’ or the Pointe Gourde principle (in reference to the 1947 Privy Council decision of Pointe Gourde Quarrying andTransportation Co. Ltd. v.

Sub-Intendent of Crown Lands, [1947] AC 565 (P.C.), although there are earlier enunciations of the principle,for example, Gibson and City of Toronto, Re, (1913) (ON CA), 11 DLR 529, 28 O.L.R. 20 (Ont. C.A)). The principlewas endorsed, although not applied, by the Supreme Court of Canada in Kramer v. Wascana Centre Authority, (SCC),[1967] S.C.R. 237.

The Pointe Gourde principle stipulates that any change in the value of the property caused by the scheme for whichthe expropriating authority’s compulsory taking powers were exercised, is to be ignored in the computation of the property’s value forexpropriation assessment purposes. The Lynches argue that the expropriation of their property occurred because of the City’s pollutionprevention scheme and that an integral part of that scheme was the zoning of the property as watershed.

Thus, they submit that the entirescheme, including its existing zoning, must be ignored in assessing the compensation they are owed. [6] The City’s position is that the property was zoned watershed in 1994 as part of Development Regulations pursuant to theUrban and Rural Planning Act S.N.L. 2000, c. U-8 (the “URPA”) and its predecessor legislation, (the “Development Regulations”). TheCity submits this was a comprehensive land use zoning for the entire City and as such was an independent enactment.

It argues this wasnot specific to the Lynch property nor was it part of any pollution prevention scheme that ultimately caused the expropriation of theproperty in 2013. The watershed zoning allowed discretionary uses of the property including agriculture, forestry and public utilities. TheCity contends that had it allowed development within the discretionary uses, the property would not have been expropriated, as it wouldnot have been deprived of all reasonable uses.

Therefore, the City submits that the expropriation was not causally related to the zoningbut rather was the result of its decision not to permit any development and to keep the property in its unused natural state. That was theextent of the pollution prevention scheme which deprived the property of all reasonable uses. Therefore, applying the Pointe Gourdeprinciple, the City says it is that decision which should be ignored in assessing the property’s value.

Accordingly the City argues, theassessment is to be based on the property’s condition and zoning without regard to the consequences of the decision which deprived theproperty of all reasonable uses. This would mean it would be valued as watershed zoned property with three discretionary uses. [7] The City retained Glen Power of Provident Valuation & Advisory Services Inc. to appraise the property on the basis of bothscenarios. Mr.

Power concluded that in determining the value based on the existing zoning, consideration was given to the property’shighest and best use as being agricultural and forestry related uses that would be acceptable to the City, and therefore not deleterious towaters within the zone. The property also had potential for passive conservation related use. On this basis, the property was appraised at$105,000. Assuming the highest and best use to be medium density residential subdivision development, Mr.

Power derived anappraised value of $670,000. [8] As a preliminary issue, I raised with the parties whether there is a sufficient factual matrix before the Court to determine theissue as there was no agreed statement of facts presented. In particular, the scope of the scheme which is to be ignored, pursuant to thePointe Gourde principle is normally a factual determination by the Board. The parties agreed that the pertinent facts are containedwithin the Expropriation Decision and that any disagreement between them on matters of fact requires an

interpretation by this Court ofthat decision. Such

interpretation, is a question of law. [9] The Lynches also submit that res judicata on the basis of issue estoppel applies in this case. They contend that issue estoppelshould apply to prevent the City from arguing that the property’s value should be based on the discretionary uses it had pursuant to thewatershed zoning. The Lynches submit that as the Court of Appeal determined that the City had not permitted any reasonable use of theproperty including the discretionary uses of agriculture, forestry and public utility, and as such, the City should be estopped from now

arguing that the value should be based on these uses. [ 10 ] The issues I must address are as follows: 1. Does issue estoppel apply? 2. Should compensation be based on the property’s existing zoning or should that zoning be ignored and the value determined as if residential development were permissible? 3. What is an appropriate order for costs? BACKGROUND FACTS [ 11 ] The following

summary of the background facts is largely derived from the Expropriation Decision, in particular paragraphs 4-7 and 18-24: 1. In 1917 David Lynch, a cooper, obtained 15 acres by Crown Grant to harvest trees for barrel-making and firewood. He also cleared an area to grow vegetables for personal use and for sale. His son, Chesley Lynch, built a house on the 15 acres in 1930. Around 1945, the house was moved from the land. 2. At present, approximately 11 acres of the original 15 acres are located in the Broad Cove River (”BCR”) Watershed, still in their natural state of trees and shrubs.

The other 4 acres are located outside the BCR Watershed and are not part of the Lynch property dealt with in this case. Groundwater located inside the BCR Watershed drains towards the Broad Cove River used by the City for water supply. Groundwater that is located outside the BCR Watershed drains to streams and ponds that are not used by the City for water supply. 3. The Lynches own 7.36 acres on the east side of Camrose Drive. Camrose Drive became part of the eastern boundary of the Town of Paradise, when the Town was incorporated in 1973, and part of the western boundary of the City of St. John’s. 4.

The BCR Watershed extends across Camrose Drive. The City and Paradise executed a Watershed agreement in 1997, which permits limited development on the west side of Camrose Drive, within Paradise. But since at least 1964, the City has prohibited building on the 7.36 acre Lynch property on the east side of Camrose Drive. There are 106 other privately owned lots in the BCR watershed affected by the building restrictions. 5. Since at least the 1990’s, the Lynches have been trying to obtain permission to develop their property.

Around 2008, the Lynches sought to have the property transferred into the Town of Paradise so that the property could be developed pursuant to the Watershed in the same manner that lands on the west side of Camrose Drive are being developed. 6. On December 2, 2008 the City refused that boundary change request, noting: There is considerable land within the City’s boundaries located in the Watershed which could be developed but the policy of the City as set out in

Section 104 the City of St. John’s Act strictly prohibits new development. Even serviced development can have a deleterious effect on the Watershed because of pesticide and herbicide use and the loss of a natural buffer. The purpose of this is to maintain the excellent raw water quality of the Windsor Lake and Broad Cove River Watershed which allows the production of potable water of extremely high quality without risk of having the contaminants found in many municipal water supplies caused by intense urban development. 7. The Lynches’ property is located not only in the BCR Watershed.

It is also located in a Watershed zone under the City’s Municipal Plan and Development Regulations . The Watershed zone established by the URPA and its regulations has no “permitted uses” and only three discretionary uses for the Watershed zone - those relating to agriculture, forestry and public utilities. 8. Consequently, today, the practice for a person seeking to develop land located in the BCR Watershed and as well in the Watershed zone under the Development Regulations is, first, to obtain permission under section 104(4)(

d) of the City Act R.S.N.L. 1990, c. C-17 (“the City Act ”) and, second, to obtain discretionary permission from the City to use the land for agriculture, forestry or public utility purposes. Alternatively, that person has to ask the City to exercise its discretionary power under the URPA to permit a zoning change (for example, to permit a change from watershed to residential zoning). The City Act does not expressly set out the criteria or factors to be considered by the City Manager in making recommendations under s. 104(4)(

d) of the City Act , nor does it say how the discretionary uses under the URPA regulations should interact with the City Act .

9. In 2011, the Lynches asked the City about possible residential development or development for agricultural, forestry or public utility purposes. They enquired about possibly building an “eco-friendly” home, carrying on farming or timber cutting, or saw milling, or installing wind turbines or solar panels. The Lynches were verbally informed by the officials that the Lynches would not be allowed to develop the Property in any manner. 10. The City’s position was that the land must be kept “unused in its natural state”. The Lynches decided in 2012 to force the issue by applying to develop a 10-lot subdivision.

This application sought permission to develop pursuant to section 104(4)(d)of the City Act and requested a re-zoning of the property under the URPA . The Lynches say they took this approach after concluding from discussions with City officials that the City was not willing to allow any discretionary uses or to consider any specific environmentally friendly uses.

The Lynches also decided, because the City had permitted properties located in the BCR Watershed on the west side of Camrose Drive to be developed as residential housing, to assert use as residential housing as the highest and best use of the Lynch property comparable with existing development in the area. 11.

On February 1, 2013, the City wrote and advised that the Lynches’ development application was rejected as being contrary to the City Act and the Development Regulations. [ 12 ] Following the rejection of their development application, the Lynches commenced an action seeking a declaration that the property had been constructively expropriated. This led to the Expropriation Decision.

The Lynches were not successful in their action at trial; however, the Court of Appeal overturned the trial decision and determined that the Lynches’ property had been constructively expropriated by the City as of February 1, 2013, the date they were advised that their development application had been rejected. analysis Issue 1: Does issue estoppel apply? [ 13 ] For the reasons that follow, I find that issue estoppel does not apply in this case. [ 14 ] The Lynches contend that in the Expropriation Decision, the Court of Appeal determined that the property was taken by the City for pollution prevention purposes and that as no reasonable uses, including the discretionary uses of agriculture, forestry and public utility, had been permitted by the City, the property had been constructively expropriated.

To the extent that the City is now seeking to re-litigate these findings, the Lynches submit that the City, to paraphrase Binnie J. in Danyluk v. Ainsworth Technologies Inc. , 2001 SCC 44 , at paragraph 18 , is seeking a second ‘bite at the cherry’ and should be barred from doing so. [ 15 ] In oral submissions, counsel for the Lynches clarified the argument. The City had refused to exercise its discretion to allow any uses and consequently the Court of Appeal determined that the property had no reasonable use and had been constructively expropriated.

The City is now taking the position that the property should be valued on the discretionary uses it had at the time of the expropriation and therefore it should be estopped from doing so. [ 16 ] The policy reasons underlying res judicata are well known and are directed at promoting finality of litigation and preventing duplicative or fragmented proceedings which bears the risk of inconsistent results and unnecessary costs. [ Danyluk per Binnie J. at paragraph 18; Quinlan v. Newfoundland (Minister of Natural Resources) , 2000 NFCA 49 , per Green J.A. at paragraph 6; Penner v.

Niagara Regional Police Services Board , 2013 SCC 19 , at paragraph 28] . [ 17 ] There are two species of res judicata which are commonly referred to as cause of action estoppel and issue estoppel. The Lynches assert issue estoppel. The Court of Appeal has frequently articulated the test to be met to establish issue estoppel. The issue must have been fundamental to, and decided in, previous litigation between the same parties. This is the case even if the causes of action in the two proceedings were not identical [ Quinlan , at paragraph 7 ; Guardian Insurance Co. of Canada v.

Roman Catholic Episcopal Corp. of St. John's , 2013 NLCA 62 , at paragraph 43 ; Canada Post Corp. v.

Snook , 2015 NLCA 49 , at paragraph 31] . [ 18 ] In Guardian , at paragraph 44, Green, C.J., as he then was, cited Danyluk , per Binnie, J., in further noting that where issue estoppel is established, the party seeking to re-litigate will, subject to limited exceptions, be barred from challenging the “material facts and the conclusions of law or of mixed fact and law ... that were necessarily (even if not explicitly) determined in the earlier proceedings.” [ 19 ] The City accepts that the Court of Appeal determined that because the City had refused to allow any development whatsoever, the property was left with no reasonable uses.

This resulted in the “deprivation of the reality of proprietorship” [as per Cromwell J.A. in Mariner Real Estate Ltd. v. Nova Scotia (Attorney General) , 1999 NSCA 98 , at paragraph 48] , and hence the expropriation. The City argues that, in assessing the value of the property it is the decision of the City to keep the land unused and in its natural state which must be ignored pursuant to the Pointe Gourde principle as that is what caused the expropriation – not the zoning of the property as watershed.

Therefore, the City contends that the property should be valued based on the zoning existing at the time of the expropriation which would have included the three discretionary uses – agriculture, forestry and public utility. [ 20 ] In my view, the finding by the Court of Appeal in terms of the lack of any reasonable use of the property was made in the context of whether the test had been met for constructive expropriation – that was the issue before the Court of Appeal. It did not deal with the basis upon which expropriation compensation should be assessed.

Having found that the property was constructively expropriated, the Court of Appeal ordered that the Lynches’ compensation claim be determined by the Board in accordance with the provisions of the Act . [ 21 ] The question I am being asked to answer – whether compensation should be based upon the property’s existing zoning or whether that zoning should be ignored and the value determined as if residential development were permissible, was not determined in the earlier proceeding. That is the question fundamental to the disposition of the case before me. It has not been previously adjudicated.

Therefore, the Lynches have not met the test to establish that issue estoppel applies. Issue 2: Should compensation be based on the property’s existing zoning or should that zoning be ignored and the value determined

as if residential development were permissible? [22] The answer to the question is that compensation should be based on the property’s existing zoning with three discretionary uses:agriculture, forestry and public utility. I will explain my reasoning. Principles of Expropriation Compensation [23] Expropriation compensation is to be assessed by the Board in accordance with the rules set out in subsection 27(1) of the Act. Subsections 27(1)(a), (

b) and (

c) are of particular relevance in this case: 27.

(1) In fixing the amount of compensation to be paid under this Act the board shall act in accordance with the following rules: (

a) the compensation shall be an amount based on the fair market value of the land and on existing use value at the time of the beginningof expropriation proceedings and no account shall be taken of the compulsory acquisition of the land, the disturbance of the owner oroccupier, or other detrimental effect; (

b) the fair market value of the land shall be taken to be the amount that the land, if sold in the open market by a willing seller, might beexpected to realize but the board is entitled to consider all returns and assessments of capital value for taxation made or acquiesced in bythe owner of the land; (

c) the special suitability or adaptability of the land for a purpose shall not be taken into account where that purpose is one to which theland could be applied only as a result of the authority of

an Act or one for which there is not a market apart from the special needs of aparticular purchaser or the requirements for which the land is expropriated,… [24] In Cedars Rapids Mfg. and Power Co. v. Lacoste, (UK JCPC), [1914] A.C. 569, 6 W.W.R. 62 (Jud. Comm. P.C.), at paragraph 13, Lord Dunedin articulated two key principles which continue today as pillars of expropriation compensation: 1. The value to be paid for is the value to the owner as it existed at the date of the taking, not the value to the take; 2.

The value to the owner consists in all advantages which the land possesses, present or future, but it is the present value alone ofsuch advantages that falls to be determined. [25] In Associated Builders v. Newfoundland (Minister of Public Works & Services) (1978), 17 L.C.R. 101, 19 Nfld. & P.E.I.R. 371(Nfld. S.C. (C.A.)), at paragraph 7, the court noted there has been much judicial pronouncement on the meaning of “fair market value”and the concept of this as meaning value to the owner rather than the taker.

The court continued by noting that the second principleenunciated by Lord Dunedin ties in with subsection 27(1)(

c) of the Act: “…[I]f an expropriated property has special potential over andabove its use at the time of expropriation, this should be considered by a board in assessing compensation so long as it does not conflictwith the limitation expressed in the subsection.” This means that regardless of the actual use of the property at the time of expropriation,fair market value may be determined on some other higher and better use. [26] In Lasade Enterprises Ltd. v.

Newfoundland (1993), (NL CA), 114 Nfld. & P.E.I.R. 19, 356 A.P.R. 19 (Nfld.C.A.), at paragraph. 27, the Court of Appeal elucidated that highest and best use is to be assessed on the basis of what is a reasonableexpectation of use for the property at the time of expropriation. Speculative or unrealistic expectations cannot ground compensation for ause which is higher than the current one. [27] Where the highest and best use would necessitate rezoning, “the highest and best use must be based on something more than apossibility of rezoning.

There must be a probability or a reasonable expectation that such rezoning will take place. It is not enough thatthe lands have the capability of rezoning… probability connotes something higher than a 50% possibility.” [Farlinger Developments Ltd.v. East York (Borough) (1975), (ON CA), 8 L.C.R. 112, 61 D.L.R. (3d) 193 (Ont. C.A.), at paragraph 43]. [28] The application of the two principles referenced in Cedar Rapids, gave rise to a third principle of expropriation compensation - the Pointe Gourde principle [Eric C.E. Todd, The Law of Expropriation in Canada, 2nd ed. (Ont. Carswell, 1992), at page 158].

Thisprinciple is of key relevance in this case. As previously noted, pursuant to the Pointe Gourde principle, compensation for thecompulsory acquisition of property cannot include any change in its value which was entirely due to the scheme underlying itsacquisition. In this case, for the Lynch property to be assessed based on residential zoning as being the highest and best use, as proposedby the Lynches, the Board would have to ignore its current zoning as watershed. For this to happen, there must be a finding that thezoning of the property was part of the scheme for which it was expropriated.

The Causal Connection [29] In concluding that the Lynch property had been constructively expropriated by the City, the Court of Appeal applied the two-point test set out in Canadian Pacific Railway v.

Vancouver (City), 2006 SCC 5, at paragraph 30, which requires: (1) an acquisition of a beneficial interest in the property or flowing from it; and (2) removal of all reasonable uses of the property [30] The court found that the City had acquired the beneficial interest in the groundwater of the property and that all reasonable usesof the property had been removed when the City refused to exercise its discretion to permit any use of the property. [31] It is clear that the Court of Appeal determined that the purpose for which the expropriation occurred was pollution prevention ofthe City’s water supply.

In deciding that there was authority for compensation for the expropriation, the court noted at paragraph 66 ofthe Expropriation Decision, “The evidence establishes that the restrictions on building and other activity on the Lynch property wereimposed to prevent pollution of the waters of Little Pond, from which water is pumped on an intermittent basis to supplement the

Windsor Lake water supply.” In fact, compensation was deemed payable by the Court of Appeal pursuant to

section 105 of the City of St.John’s Act, R.S.N.L. 1990, c. C-17 (City Act) which gives the City power to expropriate private property to prevent pollution of thewaters of lakes and ponds. [32] A key question then arises as to whether the pollution prevention scheme, for which purpose the Court of Appeal deemed theproperty to be constructively expropriated, included the zoning of the property as watershed as contended by the Lynches. [33] Roberts v.

Newfoundland & Labrador (Minister of Transportation & Works), 2005 NLCA 26 is of assistance in theinterpretation and application of the Pointe Gourde principle with respect to (1) the scope to be given to the scheme; and (2) the extent ofthe connection required between the expropriation and the scheme. [34] In Roberts, the Court of Appeal, at paragraph 27, noted that a difficulty with the application of the Pointe Gourde principle isdetermining the breadth of the scheme or the development as it is that which determines what is to be ignored.

The court concluded thatthe scheme pursuant to which a property is expropriated should be given a broad

interpretation. The Lynches rely on this for support oftheir argument that the scope of the pollution prevention scheme should be broadly construed to include the zoning of the property aswatershed. This is also consistent with the well established principles of expropriation compensation that expropriation legislation is tobe read in a broad and purposive manner to achieve the aim of fully compensating land owners whose property has been taken [DellHoldings Ltd. v.

Toronto Area Transit Operating Authority, (SCC), [1997] 1 S.C.R. 32, at paragraph 23]. [35] In Roberts, the court also made it clear, however, that there must be a causal connection between the scheme and theexpropriation. At paragraph 24, Cameron J.A. stated that compensation cannot include [a change] in value which is entirely due to thescheme underlying the acquisition. Further, at paragraph 43, the court articulated that a narrow

interpretation of the scheme would becontrary to the Pointe Gourde principle, the whole purpose of which is to prevent the scheme which gives rise to the expropriation frominflating or deflating the market price of the property. [36] A close examination of the Expropriation Decision leads me to find that the causal connection articulated in Roberts has notbeen established in this case so as to be able to conclude that the pollution prevention scheme which caused the expropriation includedthe watershed zoning. The watershed zoning did not preclude all uses of the property.

This would be necessary to meet the secondcomponent of the Canadian Pacific Railway test. The watershed zoning of the property permitted discretionary uses of agriculture,forestry and public utility. [37]

Section 104 of the City Act allows for some development within the Broad Cove River catchment area upon recommendation ofthe City Manager: 104.

(1) The council shall have possession and control of Windsor Lake, Round Pond, Newfound Pond, George’s Pond, Petty HarbourLong Pond, Handy Pond and all lakes and ponds within the catchment area of the Broad Cove River above an elevation of 91.44 metresover mean sea level at the Harbour of St. John’s and of the Crown lands within the watershed of those lakes and ponds. …

(4) A person shall not erect a building on land within the catchment area of the Broad Cove River above an elevation of 131.92 metresabove mean sea level at the Harbour of St. John’s but the council may permit the erection on the land of … (

d) a building, or extension to an existing building, subject to the written recommendation of the city manager that a permit be issued forthe building or extension. [38] The decision by the City not to exercise the discretionary powers under the City Act and the Development Regulations to permitany use of the property is what led to the test for constructive expropriation having been met. [39] The Court of Appeal determined that the Lynch property had been constructively expropriated because the City refused toexercise its discretionary powers under the City Act and the Development Regulations to permit any use of the property.

The refusal toallow any use was due to the City’s pollution prevention policy to keep the property “unused in its natural state” – not the zoning of theproperty. At paragraph 62, the court stated: 62 The City's Municipal Plan and Development Regulations passed under URPA do not provide for any permitted uses in an areazoned "watershed" and only allow three possible discretionary uses: (

i) agriculture, (ii) forestry, and (iii) public utility. In providing for adiscretion in the City Manager to allow building on BCR Watershed land, the City Act unfortunately does not set out the factors orcriteria to be considered in exercising the discretion. Despite the noted discretionary uses of agriculture, forestry and public utilities, it isclear that the City takes the position that the City Manager is entitled to refuse all applications for building on the land in order to keepthe land "unused in its natural state," with its groundwater uncontaminated.

Despite enquiries from the Lynches about possible farmingactivity, tree harvesting, saw milling and wind turbine or solar panel installations, City officials would not, or could not, identify any usesat all to which the Lynches might be entitled to put the land.

Even though some agricultural, forestry or public utility uses conceivablycould, with proper conditions, be compatible with maintaining a sufficiently pristine flow of groundwater, City officials take the positionthat the best watershed management plan is to prohibit all activity on the Lynch property. [Emphasis added] [40] At paragraph 63, the court found that the key question was whether the City Act and the exercise of the City Manager'sdiscretion resulted in “deprivation of the reality of proprietorship.” The court concluded that it did.

Depleting the Lynches’ propertyrights to merely a right to keep the land “unused in its natural state”, resulted in virtually all of the aggregated incidents of ownershiphaving been taken away. At that point, all reasonable uses of the property were taken away and a compulsory taking or constructiveexpropriation resulted. [41] Further, at paragraph 67 of the Expropriation Decision, the court wrote:

67 …that once the Court determines, as it should, that the regulatory measures adopted in

section 104 amount to de facto or constructiveexpropriation, the conclusion must follow that the City has decided the constructive expropriation is necessary for pollution control. Theunchallenged affidavit evidence from the City makes a case that a buffer zone, where no residential building is permitted, is the bestmanagement approach for ensuring pure and wholesome water as mandated by the City Act. This is an assertion by the City that therestrictions on the Lynch property are necessary for preventing pollution.

Compensation then becomes available through the provisionsof sections 101 and 105. [42] In deciding it was the City, as opposed to the Legislature, that was obliged to compensate the Lynches, the Court of Appeal heldit was the exercise of the discretion of the City Manager under section 104(4)(

d) of the City Act which led to the refusal to approvedevelopment: 68 The Legislature enacted the City Act and approved the City's Municipal Plan and Development Regulations, but the authority toexpropriate is given to City Council by

section 105. It is the exercise of discretion by the City Manager under section 104(4)(

d) of theCity Act which led to the refusal to approve development. This was for the benefit of the City. In these circumstances, it is the Citywhich should pay the compensation. [43] Pollution prevention was the reason for the expropriation as determined by the Court of Appeal. I cannot conclude, however,that the pollution prevention scheme which caused the expropriation included the watershed zoning.

Although it is clear, as determinedby the Court of Appeal, that the practice adopted by the City to not allow any further development in the watershed areas was for theprotection of the water supply from contamination caused by uses of the land which could have an adverse effect on the quality of thewater in the watershed, that does not mean the watershed zoning itself is causally connected to the expropriation. The Court of Appealenvisioned that development such as agriculture or forestry, with proper conditions, may have been compatible with maintaining apristine flow of groundwater.

Had any of the discretionary uses been allowed, the expropriation would not have occurred. [44] It was the City’s policy position that the best watershed management plan was to prohibit all activity on the Lynch property andkeep it “unused in its natural state” that caused the property to be constructively expropriated. I conclude that was the pollutionprevention scheme which gave rise to the expropriation – not the zoning of the property as watershed. The existing zoning would haveallowed the potential for development had the City seen fit to permit development within the parameters of the zoning.

Zoning Regulations as Independent Enactment [45] It has long been determined that the actual act of expropriation of any property is part of a continuing process. Therefore,whether the events that affected the value of the land were part of the expropriation process, or, in other words, a step in the acquisitionof the lands, is a significant factor for consideration [Dell Holdings Ltd., at paragraph 37].

The Lynches contend that the zoning of theproperty was part of a step in the pollution prevention process that ultimately resulted in the acquisition of their property by the City. [46] It is well accepted that a municipality cannot through the device of zoning, depress the value of property as a prelude tocompulsory taking of the property for a public purpose. When that happens, the effect of the re-zoning or freeze on the property’s valueis to be ignored and its value is to be assessed on the basis of its previous zoning.

However, it is also well established that extensive andrestrictive land use regulation is the norm. Such regulation has, almost without exception, been found not to constitute compensableexpropriation.

The regulation of land use which has the effect of decreasing the value of the land is not tantamount to expropriation.[Mariner at paragraph 42]. [47] As articulated by the Supreme Court of Canada in Kramer, where the zoning by-laws or regulations are independentenactments, and not part of a scheme to facilitate the expropriation at reduced compensation, they will not be ignored in the assessmentof compensation when the property is expropriated. [48] In Kramer, the subject property had been zoned for single detached dwellings pursuant to a general sub-division By-law (A)[3]of the City of Regina.

The property owners had developed other land in the vicinity as residential subdivisions. One of the propertyowners submitted a plan which was approved in principle for a high-density residential development. Subsequently, the City passed By-law (

B) which adopted a Community Planning Scheme restricting the property’s use to parks and public open spaces. The WascanaCentre Act, R.S.S. 1978, c. W-4 was then enacted and gave to the Wascana Centre Authority (of which the City of Regina was amember), the power to expropriate property for its use. Later, general zoning By-law (

C) was enacted which included all property withinthe City. It repealed By-law (

A) and designated the property “public service”. The property was then expropriated by the WascanaCentre Authority. The property owners contended that in considering the highest and best use of the lands, any limitations on thedevelopment of the land as a result of the by-laws should be excluded as they were “mere steps in the expropriation machinery.” Themajority of the Supreme Court of Canada found that although Bylaw (

C) was passed with the knowledge of the Wascana Centre Scheme,the by-laws were independent enactments and not part of the expropriation proceedings. Valuation of the property was to be based onthe public service zoning – being the zoning in place at the time of the expropriation. [49] In Atlantic Shopping Centres Ltd. v. St. John’s (City) (1985), (NL CA), 56 Nfld. & P.E.I.R. 44, 168 A.P.R.44 (Nfld. S.C. (C.A.)), the court applied Kramer and found that the land was subject to the same zoning restrictions as other propertieswithin the City and the zoning was not linked to the expropriation.

In that case, the City expropriated three pieces of land from theAvalon Mall properties for the purpose of widening Columbus Drive. One piece was zoned open space. Atlantic Shopping Centresargued that the open space portion had been so zoned in anticipation of the road widening that all the land should be valued equally onthe basis of commercial zoning. In rejecting this argument, the court wrote, at paragraph 20: 20 What we are dealing with in the present case is land which is subject to the same zoning restrictions and regulations as all otherland in the City of St. John’s.

There is no evidence to support the proposition that the zoning for road widening purposes was done inanticipation of expansion of the Prince Philip-Columbus Drive area and it must further be noted that this land, as with othercommercially-developable areas in other parts of the city, was subject to a statutory open space requirement of 10% on which nodevelopment would be permitted in any event. Neither, as I understand it, has Atlantic been required to comply with that 10% by way ofreplacing it as such with other land.

[ 50 ] In Lasade, a “freeze” had been placed on development of property in an area of a proposed new route for the Trans Canada Highway . Years later, the property was expropriated for the purpose of construction of the highway. The Court reiterated the view expressed in Halliday v. Newfoundland Light & Power Co., (1980), 20 L.C.R. 325, 29 Nfld. & P.E.I.R. 212 (Nfld.

S.C. (C.A.)) that, in the absence of a clear legislative directive to that effect, expropriating authorities will not be permitted to take advantage of restrictions imposed for reasons related to the expropriation, to obtain a better price than would otherwise apply to the property. As there was a causal connection between the imposition of the freeze of the property and its ultimate expropriation, its value was to be determined without reference to the freeze.

The court explained that Lasade differed from the Atlantic Shopping Centres case in that the expropriated land in that case had been subject to the same restrictions and regulations as all other property in the City. On the other hand, the Lasade case was similar to Halliday in that the freeze imposed on the lands was part of the scheme to use the land for a particular purpose related to the expropriation [ Lasade at paragraphs 34 and 36]. [ 51 ] In McKee v. Alberta ,

(1967) CarswellAlta 86, 16 L.C.R. 35 (Alta. S.C. (T.D.)), land on which the property owner resided and held rental properties was expropriated by the province on behalf of the University of Alberta. Approximately a year prior to the expropriation, the Government of Alberta declared the area in which the property was situate to be a public works area, which would eventually be taken over by the public for university purposes. This subjected the property to a freeze from development. The court concluded that the freeze was not independent from the expropriation.

The Pointe Gourde principle was applied so that the value of the property for expropriation compensation purposes was not diminished by the freeze. In McKee , unlike the case before me, there was a clear nexus between the purpose for the freezing of the property and the ultimate expropriation. [ 52 ] The record in the case before me shows that in 1991, the Province engaged in a re-organization of the municipalities on the northeast Avalon. As a result, the City’s boundaries were expanded following which the City went through a new planning process for the entire City.

That process led to the Development Regulations through which the Lynch property was zoned watershed. [ 53 ] As in the cases of Kramer and Atlantic Shopping Centres , the Development Regulations pursuant to which the Lynch property was zoned watershed, applied throughout the City. I conclude these regulations were enacted as part of a comprehensive land use development plan and in that sense were an independent planning process for the City; not specific to the Lynch property.

As such, I find the Development Regulations to be an independent enactment and are not to be ignored in the valuation of the Lynch property. [ 54 ] Although the Lynch property was diminished in value by its zoning as watershed, the Lynches could not have sought compensation for that reduction in value. All property owners are subject to land regulation that can adversely affect the value of their property. It is not compensable unless the regulation is of sufficient severity to remove virtually all of the rights associated with the property holder’s interest [ Mariner at paragraph 48].

The property could have remained zoned watershed and the Lynches allowed to develop it, in accordance with the zoning, if the City had exercised its discretion. It was the pollution prevention scheme implemented by the City to keep the property unused in its natural state which prevented any development and thereby, deprived the Lynches of all reasonable uses of their property including those uses which conceivably could have been consistent with the zoning.

Summary of Issue and Answer to the Question Posed [ 55 ] The Lynches are to receive fair market value for their property. In determining the market value, the Board must eliminate any effect on the value arising from the expropriation.

That involves a determination of the scope of the expropriation scheme, and the highest and best use for the expropriated lands absent the effects of that scheme. [ 56 ] Given that the zoning by-law through which the property was zoned watershed was part of an independent zoning regulation, it cannot be considered to be part of the scheme that is to be disregarded for the purpose of the market value assessment.

On the other hand, the policy of the City to keep the property unused in its natural state constitutes the pollution prevention scheme giving rise to the expropriation and this scheme must be ignored in the valuation of the property. To paraphrase, Cameron, J.A., in Roberts , the value is to be assessed upon a consideration of the state of affairs which would have existed if there had been no scheme. As such, the property is to be valued without regard to the consequences arising from the City’s refusal to allow any development of the property. It was that refusal which left the property with no reasonable use.

Therefore, compensation should be on the basis of the zoning at the time of the expropriation (February 1, 2013) – that is watershed zoning which included the discretionary uses of agriculture, forestry and public utility. [ 57 ] I answer the question as follows: the Lynches’ compensation should be based on the property’s existing zoning with three discretionary uses: agriculture, forestry and public utility. Issue 3: What is an appropriate award for costs? [ 58 ] The Lynches seek solicitor and client costs.

Their argument is that expropriation claimants should be fully indemnified for all costs incurred, including trial costs. They submit this would be in keeping with the object and purpose of the Act to ensure a compensation claimant is fully indemnified for all costs, including legal costs, incurred in seeking compensation for their property that has been compulsory taken by the state. [ 59 ] The City contends that costs in this case should be dealt with in the ordinary course pursuant to Rule 55 of the Rules of the Supreme Court, 1986 , S.N.L. 1986, c. 42, Sch. D .

Costs ordinarily follow the event and that the party advancing the correct legal position should be awarded costs on such basis as the Court determines. [ 60 ] After submitting this stated case to the Court, the Board awarded the Lynches interim compensation based on the lower amount to which they would be entitled.

The Board, however, denied the Lynches’ claim for up front solicitor-client costs and interest. [ 61 ] During oral submissions, the Court was advised that the Lynches have appealed the decision of the Board to deny solicitor- client costs and interest and the parties are awaiting the decision from the Court of Appeal. The argument of the Lynches with respect to the entitlement to solicitor-client costs in this Court relies upon the same principle that has been put before the Court of Appeal. As such, it would be prudent to await the decision of the Court of Appeal before deciding costs of this Application.

[ 62 ] The parties have leave, should either party so desire, to bring the issue of costs back to Court for a more fulsome argument after the Court of Appeal has filed its decision. disposition [ 63 ] For the foregoing reasons, the following are the answers to the issues: 1. Issue estoppel does not apply to this case. 2. It is the Court’s opinion that compensation should be based on the existing watershed zoning with discretionary uses of agriculture, forestry and public utility. 3. The parties have leave to further argue the issue of costs of this application subsequent to the filing of the decision of the Court of Appeal in a related costs application. SANDRA R. CHAYTOR Justice