INTERIM LEGAL AND APPRAISAL FEES IN EXPROPRIATION PROCEEDINGS

Introduction
Pursuant to sections 35 and 39 of the Expropriation Act (the “Act”), as revised, landowners are entitled to compensation for legal and appraisal fees relating to an expropriation. Costs under section 35 relate to the land owner initially determining whether to accept the compensation proposed by the expropriating authority. Costs under section 39 relate to determining the compensation payable; presumably after the owner has decided not to accept the compensation offered by the expropriating authority. While the Act makes the obligation to pay for appraisal and legal advice clear, it is silent as to when the payment is due.

In Alberta, expropriating authorities have developed the practice of providing payment for expert fees at the end of proceedings rather than as those fees become payable by the landowner. This causes real hardship for landowners, who are forced to fund significant legal and expert fees for an indeterminate and often protracted period of time. This is particularly difficult in circumstances where the landowner’s business has been interrupted, or even closed.

Expropriating authorities typically have far greater resources than landowners, including financial resources, access to expert advisors, and experience with expropriation. By requiring the authority to reimburse expert fees, the Act attempts to level the playing field for landowners. Otherwise, landowners are at a serious disadvantage in determining the value of their claim for compensation for the expropriated property and either interruption or loss of their business.

The Land Compensation Board has used interim costs awards to level the playing field. However, the general practice of the expropriating authority reimbursing legal and consulting fees only upon final resolution of the matter has lingered. The purpose of this paper is to argue that the time has come for the general practice to change and for landowners to be reimbursed for expert fees as soon as they are payable in normal commercial practice; i.e. within 30 days after presentation.

Interpreting the Act
An expropriation is a forcible taking of private property for the public good. The landowner can dispute the expropriation and thus trigger an inquiry, however even if the expropriation is shown not to be “fair, sound and reasonably necessary”, the authority can still proceed with the taking.

The only substantive protection for landowners is their right to be compensated for what is taken. The Alberta Court of Appeal and the Supreme Court of Canada have confirmed that the purpose of the Act is to ensure that landowners are fairly compensated. This compensation includes not only the expropriated property, but reimbursement of costs incurred as a result of the expropriation, including expert fees.

It is now generally accepted in law that statutes are to be interpreted “purposively”, ie. in such a manner as to achieve their purpose. Therefore any ambiguities in the Act should be resolved to ensure that the purpose of the Act, that landowners are fairly compensated, is achieved.

The Act is ambiguous about when the expropriating authority must reimburse landowners for expert fees: it does not set a deadline. Expropriating authorities in Alberta have taken the position that this ambiguity is resolved by the expropriating authority only paying upon resolution of the entire matter. However, reimbursing landowners as the fees become due is more consistent with the purpose of the Act, as it protects landowners from negative impacts arising from having to fund the costs of the expropriation.

Arguments Supporting the Prevailing Practice
Several arguments have been raised to support the prevailing view in Alberta that expert fees are to be reimbursed only at the end of the matter.

The Determination of Reasonableness
The expropriating authority is only required by the Act to reimburse the landowner for “reasonable” fees. This has led to the argument that fees should be reimbursed at the end, since only then can it be determined whether the services truly advanced the landowner’s claim.

The corollary of this position is that only those steps which led to success with some part or all of the landowner’s claim should be compensated. This would be consistent with the general rule in litigation that the successful party gets costs.

However, expropriation differs considerably from litigation. The expropriating authority is required to pay the landowner’s expert fees – regardless of the outcome. Costs are to be denied only if “ . . . the Board determines that special circumstances exist to justify the reduction or denial of costs.”

Further, the argument that only costs which lead to “success” should be reimbursed gives the expropriating authority the unfair advantage of hindsight. When pursuing a particular avenue, the landowner has no way of knowing in advance whether every avenue explored will ultimately be successful. The reasonableness of any given step should be judged at the time it is taken, not on its outcome. It is neither necessary nor appropriate to wait until the resolution of the matter to determine whether the expert fees incurred were reasonable. In addition, the test is not whether costs incurred were “reasonable.” The statutory test is whether there are “special circumstances” which exist to justify a reduction or denial of costs.

At this stage, it is also appropriate to consider who makes the determination of whether costs are to be reimbursed. Expropriating authorities in Alberta have taken it upon themselves to deem fees reasonable or otherwise, and then offer to pay only the portion of the fees they agree with as part of a settlement proposal. This contradicts the Nova Scotia Court of Appeal, which has pointed out that the determination of reasonableness of fees is to be made through the taxation process or by the Land Compensation Board. The expropriating authority is not the deciding body to determine whether fees are to be reimbursed.

Interest as Compensation for Delay
It has been argued that landowners are entitled to borrow funds to pay expert fees and the interest paid on that loan becomes part of the disturbance damages.

This assumes that landowners will be able to obtain credit to pay expert fees. Credit may or may not be available depending on the landowner and on the state of the economy overall. A landowner’s credit rating should not be allowed to dictate whether the landowner is fairly compensated in an expropriation.

Even if a landowner can borrow money for expert fees, the loan may not be on favorable terms. A private landowner is likely to be subject to a considerably higher interest rate than would be available for an expropriating authority. It seems a careless use of public funds to pay interest on loans with unfavorable terms rather than to simply reimburse the landowner promptly.

Further, simply borrowing funds to pay expert fees can negatively impact a landowner. There is a finite amount of credit available for each borrower. Expert fees can be substantial, and a large loan will impact the landowner’s debt to equity ratio (one measure of financial health used by banks when considering loan applications). Expropriation already impacts this ratio by calling into question the value of the landowner’s equity in the land and potentially causing interruption to the business. This will be made worse if the debt side of the ratio is required to increase. In addition, if money is borrowed for expropriation purposes, the landowner could experience restrictions in raising capital (in the case of a corporate landowner) and/or missed business or other opportunities due to lack of working capital.

At a more fundamental level, interest is simply not appropriate in this situation. Compensatory interest is used either contractually or when a party is wrongfully delayed in receiving payment to which it is entitled. It is used in litigation when payment obligations can only be determined at the end of the process. Interest in that situation is an attempt to rectify the wrong caused by the delay in payment. In an expropriation, the authority knows from the outset that reimbursement must be made for section 35 and 39 costs. The amount owed can be determined when the expert fees are submitted for payment. If the expropriating authority feels that there are “special circumstances” which should lead to the costs being reduced or denied, then an application can be made to the Land Compensation Board for a determination.

To accept the practice in expropriation that payment of costs be initially withheld and subsequently compensated by interest at the end of the process is to assume that the authority’s role is to wrongfully withhold funds from the landowner. This is contrary to the purpose of expropriation legislation, as well as an inappropriate way for a governing body to treat its citizens.

Decisions Outside Alberta
In British Columbia, the relevant statute directs landowners to submit their invoices for expert fees to the expropriating authority “from time to time”. The authority must promptly either pay the invoice or challenge its reasonableness at the appropriate venue.

It could be argued that Alberta’s legislature would have included a similar clause if it intended that the authority provide prompt payment. However, this issue has come up in Nova Scotia, where the statute is more like Alberta’s than British Columbia’s, and the Nova Scotia Court of Appeal found that the expropriating authority must pay expert fees on a timely basis.

The Nova Scotia Court of Appeal considered two cases about this issue in a fairly short time period. In the first case (“Williams”), the Court found that delaying payment of expert fees until the end of the expropriation process is contrary to the purpose of the legislation and further that delaying payment has no good function.

Following the Williams case came another dealing with this issue (“L.E. Powell”). This time, the Court went further, finding that not only does delaying payment serve no good function, but it creates a real potential for abuse by the expropriating authority. A landowner forced to carry legal and appraisal fees is in a weaker financial position, and might be forced to accept an unreasonable offer in order to obtain cash flow.

Decisions in Alberta: Golfscape
This issue came before the Land Compensation Board in the Golfscape decision. In this case, the expropriation process had been going on for over 5 years (and is still ongoing) and the landowner had been charged over $100,000.00 in legal and appraisal fees. The Land Compensation Board found that the landowner was entitled to interim payment of 100% of expert fees under section 35 of the Act and 75% of the fees under section 39. The s.39 fees were reduced to 75% as the Board did not have enough information before it to effectively tax those accounts at the time. Going forward, although it did not have jurisdiction to rule on fees not yet charged, the Board did encourage the expropriating authority to continue to pay fees on the same basis.

Conclusion
Landowners are entitled to compensation for their losses in an expropriation. This includes not only compensation for the property taken, but reimbursement for expert fees relating to the process. The Act makes this clear, but is silent about when payment by the expropriating authority for expert fees becomes due.

The practice in Alberta has become for the authority to withhold payment until all matters are resolved. This can lead to serious negative impacts from which the landowner may never fully recover, such as lost business opportunities or even loss of their business. This is contrary to the Legislature’s intention behind the Act, the purpose of which is to ensure that landowners are returned to their pre-expropriation position.
The general practice of delaying payment is not only contrary to the direction of the Courts and the Legislature, but it is ultimately a waste of the authority’s resources. A landowner may theoretically borrow money to pay expert fees, in which case the interest on that money can be claimed as disturbance damages. The interest rate available to a private landowner will generally not be as good as that available to an expropriating authority, and therefore the total cost of the expropriation will be higher than it would be otherwise.

Further, addressing this issue on a case by case basis through interim costs awards generates extra Land Compensation Board applications. These applications require expert advice and representation, thus increasing the cost of the expropriation even further and, as well, puts unnecessary demands on the Land Compensation Board or Court’s resources.

Hopefully, the Land Compensation Board decision in Golfscape is a turning point in expropriations in Alberta. It remains to be seen whether this decision will be treated as another isolated and fact dependent case or will be adopted as a general principle.

References

Statutes
1. Expropriation Act, R.S.A. 2000 c. E-13 (Alberta)
2. Expropriation Act, R.S.B.C. 1996, c. 125 (British Columbia)
3. Expropriation Act, R.S.N.S. 1989, c. 156 (Nova Scotia)

Court Decisions
4. Attorney General (Nova Scotia) v. Williams, [1995] N.S.C.A. 114628
5. Nova Scotia (Attorney General) v. L.E. Powell Properties Ltd., [1996] N.S.C.A. 128593
6. Thoreson v. Alberta, [2007] ABCA 272
7. Toronto Area Transit Operating Authority v. Dell Holdings Ltd., [1997] 1 S.C.R. 32

Land Compensation Board Decisions
8. Golfscape International Corporation v. Alberta, LCB Order 470
9. Riebel v. Alberta, (1999) 68 LCR 282

Other Sources
10. The Law of Expropriation and Compensation in Canada, Second Edition, Eric C.E. Todd, Carswell Thomson Professional Publishing, 1992

Posted on January 7, 2016 in Uncategorized

Share the Story

About the Author

Back to Top