The Last Word on Shergar? The Ontario Court of Appeal Upholds the Relevance of Subsequent Settlement Offers in Expropriations

On August 4, 2020,¹ the Ontario Court of Appeal upheld and affirmed the Ontario Divisional Court decision in Shergar Development Inc. v. City of Windsor.² The Court of Appeal decision has significant implications on the law governing cost awards in expropriation proceedings under the Expropriations Act³ for both expropriation claimants and expropriating authorities. The Court of Appeal’s decision also provides further insight into the standard of review applicable to administrative decision makers following the Vavilov⁴ decision.

Background

The Appellant in this case was the claimant in a protracted expropriation process that is appropriately described by Court of Appeal Justice Hourigan as “long and tortuous.”⁵ While the specific details of this matter are described in greater depth in this previous article, the facts, in brief, are as follows. On December 8, 1995, the Appellant acquired certain lands from the Canadian Pacific Railway Company (the “CPR”). The CPR retained a mortgage over the lands. On April 29, 1998, the respondent municipality expropriated the lands for the completion of a waterfront park.

On December 21, 1998, the respondent served a joint offer of compensation on the Appellant and the CPR in the amount of $500,000, in accordance with s. 25(1) of the Expropriations Act (the “Section 25 Offer”). This offer was rejected by the Appellant. Following a series of collateral litigation proceedings, in 2015, the respondent made individual offers of settlement to the CPR and the Appellant. The CPR accepted the offer of $400,000 made to it, while the Appellant rejected an offer of $1,208,155 in compensation for the Appellant’s interest in the land (“2015 Settlement Offer”). The matter proceeded to the Ontario Municipal Board (as it then was) for a hearing to determine compensation.

The Board at first instance determined that the Appellant’s entitlement to compensation was $266,832, and awarded the Appellant its costs of the proceeding. The respondent municipality sought a rehearing on the question of interest and costs. In its decision on the rehearing (the “Rehearing Decision”), the Board held that the 2015 Settlement Offer constituted “the amount offered by the statutory authority” (in accordance with s. 32 of the Expropriations Act) and notably awarded costs against the Appellant for its conduct.

The Rehearing Decision was upheld by the Divisional Court. The Appellants sought and were granted leave to the Ontario Court of Appeal. The Appellant appealed on the following questions:

• Did the Divisional Court err in deciding that the reasonableness standard of review applies?
• Did the Divisional Court err in upholding the following decisions by the Board:

i. The “amount offered by the statutory authority” in s. 32 of the Act refers to any offer made by the respondent, not just an offer made pursuant to s. 25; and

ii. Can costs can be awarded against the Appellant (claimant).

Standard of Review

The Divisional Court decision was decided prior to the Supreme Court of Canada’s decision in Canada (Minister Of Citizenship And Immigration) v. Vavilov,⁶ a decision which significantly altered and clarified the law governing standards of review applicable to administrative decisions. The question of standard of review in Shergar was addressed by the Court of Appeal in a summary fashion.⁷ The Court held that the proper standard of review on the interpretation of the Expropriations Act is correctness. However, the Board’s exercise of discretion is not reviewed on a correctness standard, and is instead to be afforded significant deference.⁸

The Court of Appeal’s ruling on standard of review in Shergar, while short, demonstrates an interesting application of the Vavilov decision. Under the Vavilov framework where a court is considering a statutory appeal involving questions of law, or questions of mixed fact and law that contain an extricable error of law, the standard of correctness will apply. However, where the questions at issue on a statutory appeal include questions of fact, or questions of mixed fact and law that do not amount to an error of law, the standard of review is that of “palpable and overriding error.” The Court of Appeal’s decision in Shergar suggests that an administrative tribunal’s exercise of discretion will fall into the latter category, and discretionary decisions should be reviewed on the more deferential standard of “palpable and overriding error.”

Amount Offered by Statutory Authority

An overriding principle of the Expropriations Act is that of indemnification: a claimant is to be appropriately compensated for any land taken and losses suffered as a result of the expropriation. Accordingly, in an expropriation, a statutory authority is required to make an offer of compensation pursuant to section 25 of the Expropriations Act.

The Expropriations Act also provides a mechanism to determine the payment of costs incurred in the expropriation proceeding. Under the Expropriations Act, an owner is entitled to its reasonable legal, appraisal and other costs actually incurred where it has achieved an award of compensation that is 85% or more of the of the amount offered by the statutory authority.⁹ If the award does not meet the 85% threshold, section 32(2) of the Expropriations Act provides that “the Tribunal may make such order, if any, for the payment of costs as it considers appropriate.” Accordingly, the question of how much is “offered” by the statutory authority is of great importance.

The Court of Appeal Upheld the Divisional Court’s Interpretation of the Offer

The Appellant argued before the Court of Appeal that only the first offer made by an authority, as required by section 25, is relevant. The respondent municipality argued that subsequent offers made pursuant to Rule 49 of the Rules of Civil Procedure are relevant and may be taken into account when determining whether the 85% threshold is met, and therefore whether the Tribunal is permitted to exercise its discretion to award costs, including costs against the claimant.

The Court of Appeal agreed with the municipality’s interpretation that “the amount offered” includes subsequent offers and is not limited to solely the Section 25 Offer. The Court of Appeal noted that: “A responsible expropriating authority should be afforded some measure of costs protection where it makes an increased fair offer, and the claimant refuses to accept same”¹⁰ and that a policy purpose of the Act is “to encourage settlement of claims at as early a stage as possible.”

The Court of Appeal agreed with the Divisional Court that the rejection of the Settlement Offer which far exceeded the claimant’s lawful entitlement to compensation may be taken into account by a Tribunal in the exercise of is discretion to deny full costs. Furthermore, the Board has the authority to exercise its discretion to deny, vary and/or order costs against a claimant.

Policy Objectives of the Act

The Appellant relied in its submissions on the Supreme Court’s commentary in Toronto Area Transit Operating Authority v. Dell Holdings Ltd (“Dell Holdings”) that the Expropriations Act must be given a broad and liberal interpretation consistent with its purpose of adequately compensating those whose lands are taken to serve the public interest. The Court of Appeal clarified that while the policy purpose identified in Dell Holdings continues to be relevant, it is not the only policy objective of the Act. The Court noted that the objective of full and fair compensation cannot be divorced from the objective of efficient resolution of claims, and that those two principles are not incompatible. Dell Holdings does not create a blank cheque for a claimant to act unreasonably. There must be a potential for adverse cost consequences within the Act to prevent unnecessary proceedings and unreasonable behaviour.

Award of Costs Against the Appellant

In addition to the costs award against the claimant in the Board matter, the claimant was also ordered to pay costs of the authority in the amount of $50,000 for the Court of Appeal determination.

Conclusion

In what is likely the last word on the decades-long saga of litigation in the Shergar matter, the Court of Appeal has held that the statutory Section 25 Offer is not the only relevant offer in an expropriation proceeding. The decision clearly provides that subsequent offers are relevant and the Tribunal is entitled to take such offers into account when making cost awards, including awards against a claimant for a portion of the expropriation authority’s costs.