[co-author: Jacob Schroeter]

The Law of Taking was Fishy

If you give a man a fish, you feed him for a day.

If you teach a man to fish, you feed him for a lifetime.

But what if a man has the right to sell fish, and he builds his business and livelihood around that right, and then the government passes a law allowing only the government to sell fish, putting him out of business?

In a nutshell, that's the backdrop for a 1979 Supreme Court of Canada (SCC) decision called Manitoba Fisheries Ltd. v. The Queen¹ [Manitoba Fisheries].

In 1969 parliament passed legislation² which granted a crown corporation a commercial monopoly on the export of fish from the province of Manitoba (Manitoba), but in doing so, allowed that crown corporation the ability to grant licenses to private corporations—corporations like Manitoba Fisheries—to continue operating in the business of exporting fish. However, Manitoba refused to grant Manitoba Fisheries the license to allow it to continue business, and so the legislation eventually put Manitoba Fisheries out of business altogether.

However, the federal legislation had made provision for this, and had a regime for the federal government to pay Manitoba compensation so that it, in turn, could compensate businesses that had been disaffected by the legislation. In this case, however, Manitoba refused to compensate Manitoba Fisheries.

To sum up, the Government of Manitoba was given a monopoly, that monopoly put Manitoba Fisheries out of business, and despite the legislation, the Government of Manitoba refused to pay compensation.

Curiously, this case is one of the seminal SCC decisions informing the law of expropriation, because it sets out some of the essential premises for establishing a case for what is called "a constructive taking", an "effective taking" or a "de jure taking." Put simply, the SCC established that:

1. in obtaining a monopoly, the Government of Manitoba had obtained an advantage and certain benefits that would otherwise have flowed to Manitoba Fisheries; and
2. that the result thereof was that Manitoba Fisheries was deprived of all benefits that it had previously enjoyed on the basis of its goodwill. Its loss of business was, effectively, a taking by the Crown.

The Law of Taking: What's Mine is Mined

In 1985, similar issues were considered in another SCC decision called The Queen in Right of the Province of British Columbia v. Tener³ [Tener]. This case involves the holder of mineral and mining rights on lands.

The Teners were the owners of mineral claims on lands later designated as a public park, and the province of British Columbia (British Columbia) had been imposing increasingly onerous conditions on the exploitation of natural resources, which culminated in legislation being passed by the province (the Park Act), that prevented any new exploration or development on the lands or the balance of the park.⁴

The question was: Was this a taking, and was compensation merited?

Again, the SCC focused on the effect of the legislation and found that the result of the legislation was to deprive the Teners' lands of all reasonable uses. The Teners' lands were restricted to park uses. The result was to secure an advantage for British Columbia—more park space.

In making the lands effectively park-like in quality, British Columbia had not taken away the mineral rights per se (an actual taking) but had deprived the Teners from exercising those rights. In the words of the SCC, it "amounted to" the same thing as an actual taking of title to the mineral rights.⁵ British Columbia did not acquire the right to mine the land, but it still obtained an advantage through the creation of more parkland—again, a "constructive taking".

Constructive Taking: On the Wrong Track.

A third case in this vein was heard by the SCC some 21 years later in 2006. Canadian Pacific Railway Co. v. Vancouver (City)⁶ [CPR], deals with CP Rail proposing to develop a corridor of railway lands for residential and commercial purposes and the by-law designation by the City of Vancouver (Vancouver) of those lands as a public thoroughfare for transportation. What had happened was that the rail lines were no longer needed in the areas where the lands existed, and so as a practical matter they were no longer of any commercial value to CP Rail unless they could find a new commercial use for them, such as some form of development.

So the effect of the by-law passed by Vancouver is not in dispute—it froze the development potential of CP Rail's land and restricted the lands to the existing railway track use.

To jump to the conclusion, the SCC found that there had not been a constructive taking of the land by Vancouver. In coming to that conclusion, the SCC set out a test (now commonly known as the CPR Test), which has, ever since, been the gold standard test for a constructive, effective or de facto taking giving rise to compensation to the land owner:

1. there must have been an acquisition of a beneficial interest in the property or flowing from it; and
2. there must have been a removal of all reasonable uses of the property.⁷

In the SCC's view, neither component of this test was met. Firstly, Vancouver had not gained a beneficial interest in the land. It had only gained, as the SCC put it, an "assurance that the land will be used or developed in accordance with its vision".⁸ And secondly, the by-law had not removed all reasonable uses of the property. This does not mean the highest and best use, but reasonable uses having regard to the nature of the land and the range of reasonable uses to which it had actually been put.

Let's divert from the case for a moment to focus on the similarities and differences between CPR and the two "Takings" cases considered earlier. The first part of the CPR Test requires that the city have acquired a beneficial interest in the property, or flowing from it. Not the clearest concept. The SCC found that no such beneficial interest (or interest flowing from it) had been acquired by Vancouver by virtue of it refusing to up-zone the lands. Twenty years later (discussed below), the SCC clarified that these words actually mean "did the City get an advantage"⁹ by refusing the up-zoning, which of course makes much more sense, because there is no suggestion that Vancouver benefited in any way by refusing the zoning.

In real estate law, there exists a concept of "beneficial interest" in land, and it is common to distinguish that beneficial interest from the registered interest or nominal interest in land. So, it is not surprising that this first branch of the CPR Test has been interpreted by many courts since 2006 as meaning that, in order for a constructive taking to occur, there must have been some form of actual appropriation of a beneficial interest in the property in the equitable sense typically used in real estate law.

The second portion of the CPR Test actually kept the thread of both the Manitoba Fisheries and the Tener decisions. If you recall, Manitoba Fisheries lost its entire fish exporting business and goodwill related thereto, and the Teners lost all rights to exploit the mineral rights in their lands. In CPR, the test was the same, except CPR was unable to convince the court that the by-law had taken away all of its reasonable uses of its land. The SCC found that it could still use the land for a rail line for example. Cold comfort for the railway company that no longer ran railway lines in those areas.

Constructive Taking: The Law is now Parked

All of this brings us to the most recent SCC case on the law of constructive taking—Annapolis Group Inc. v Halifax Regional Municipality¹⁰ [Annapolis]—decided in October, 2022. Curiously enough, this again has to do with a municipality taking legislative action to effectively ensure that private lands are limited to public park purposes.

Firstly, however, it is interesting to note that the majority of the SCC and the minority decision differ on the consequences of this decision. The majority asserts, convincingly, but with some obvious shoe-horning, that it has stuck to, upheld, reinforced and properly applied the CPR Test as previously set out. The minority asserts that the law has, as a consequence of this decision, been changed, and that heretofore all municipalities must beware of much expanded rights to claim for constructive taking.

Another preliminary thought—this discussion is light on the facts, because the SCC was not asked to determine if a constructive taking actually occurred on the facts. It was only asked if there was a triable issue on the facts to be referred back to the trial judge. The magic here is that in determining that the issue should go back to trial, the SCC put a spotlight on how lower courts have been consistently misapplying the CPR Test and getting things wrong.

A little background—Annapolis had, over time, acquired 965 acres of land with the intention of getting those lands zoned for development and reselling them. Originally, the lands were not restricted as to development potential, but in 2006, the City of Halifax (Halifax) adopted a planning strategy whereby it zoned the lands as "Urban Settlement", which meant that the lands could possibly be developed over time but that special city resolutions would be required in order to do so—a sort of secondary planning process.

In the period following this zoning regime coming into force, Annapolis tried a number to times to get a secondary resolution passed, none of which was successful, and eventually Halifax passed a resolution refusing to initiate a secondary planning process altogether.

Factually, at around the same time, Halifax was erecting signs on and around Annapolis' lands that effectively treated and advertised Annapolis' lands as being part of the adjacent municipal park.

Annapolis sued Halifax for compensation on the basis of constructive taking.

As you would expect, the two part CPR Test was front and centre. For reference, the following is the CPR Test set out again:

1. there must have been an acquisition of a beneficial interest in the property or flowing from it; and
2. there must have been a removal of all reasonable uses of the property.¹¹

One level down, the Nova Scotia Court of Appeal in Annapolis had said that Annapolis could not possibly succeed on the first part of the test because Halifax had not acquired the beneficial interest in the lands.

The SCC, however, observed that this is where everyone has been getting the law of constructive taking wrong, noting that the words "beneficial interest in the property" do not actually mean the beneficial interest in the property, at least not in the sense that the law of equity uses the term.¹² What is meant by the words "beneficial interest in the property or flowing from it", is an "advantage".¹³

Furthermore, constructive taking is fundamentally different than de jure taking or what you might call formal expropriation, precisely because it does NOT include the action of taking title to the property. If there is an actual taking of the property, then it is not, by definition, constructive.

As it turns out, all of the decisions after CPR that read beneficial interest in the property as being, strictly interpreted, a beneficial ownership interest in the property were, in all likelihood, wrongly interpreting the CPR Test.

Notwithstanding that the majority of the SCC in Annapolis had to "two step" a little to get to this interpretation of the CPR Test, they are not wrong. They simply had some unfortunate wording in the CPR Test to contend with to realign the case law. In fact they have clarified the continuity of the CPR Test with the Manitoba Fisheries and Tener SCC decisions. Recall that in Tener, the Crown deprived the Teners of their ability to exercise their mineral rights; it did not actually acquire the beneficial ownership of those mineral rights.

As for the second component of the CPR Test, the SCC in Annapolis was satisfied that the facts of the case supported a triable issue. Halifax was treating Annapolis' lands as a park, encouraging the public to do likewise, had passed a law that prevented up-zoning without a secondary zoning process, then refused to undertake that process. Arguably, Annapolis' land was effectively and constructively, deprived of any commercial value.

This is in line with the older cases. Manitoba Fisheries was deprived of its entire export business and the Teners were deprived entirely of their ability to mine their mining lands. CP Rail however, could not meet the test because it could still (at least in theory), operate a rail line on its lands. In fact, in referring the matter back to the trial judge, the SCC noted that Annapolis may fail at trial if Halifax can point to even one reasonable purpose that Annapolis has been left with, with respect to the use of its lands.

So what does all this mean?

According to the dissenting decision in Annapolis, "it dramatically expands the potential liability of municipalities engaged in land use regulation in the public interest and throws into question the settled law that a refusal to up-zone is not a de facto taking."¹⁴

With deference, while one hears the scurried feet of Chicken Little, don't expect to see any sky falling.

In a nutshell, what it really means is that, while the law has not changed, it has certainly been clarified in a manner that will surprise many lower courts. It means that the Law of Takings has really two focuses: effects and advantages. The advantage that the governmental authority obtains in a constructive taking need not be the same as, or commensurate with, the loss suffered by the individual—and it certainly need not be the acquisition of an equitable beneficial ownership interest in the property. This clarification may encourage more private entities to at least consider a claim for constructive taking where a governmental authority deprives them of the ability to realize a commercial use of their property and there is a resulting benefit to the governmental authority.

The SCC in Annapolis was keenly aware of this. It noted that "in most cases, a public authority will not benefit from a refusal to up-zone vacant land".¹⁵

The sky is not falling for municipalities, as the second part of the test for constructive taking remains very difficult to satisfy. One has to prove that the government action has removed "all reasonable uses of the private property at issue".¹⁶ All reasonable uses. Even where the governmental authority can establish one reasonable use, as it did in CPR, the claim for constructive taking is at serious risk of being defeated.

Not fishy at all.