In its recent decision in Altius Royalty Corporation v. Alberta (Altius), the Court of Appeal of Alberta (Court of Appeal) ruled that the Government of Alberta’s plan to phase out coal-fired electricity generation emissions by 2030 was not a constructive expropriation of the appellants’ royalty interest in an Alberta coal mine. As a result, despite effectively losing their royalty interest, the appellants were not owed compensation. 

Altius demonstrates that private litigants are increasingly relying on property rights and the common law to fight back in the courts against government regulation aimed at addressing climate change. The case also demonstrates, however, that such claims continue to face significant headwinds. 

Readers should also be aware that on Friday, May 10, 2024, the Supreme Court of Canada will deliver its judgment on the appeal of Lynch v. St. John's (City), which is a case that addresses the quantification of a landowner’s compensation upon a finding of constructive expropriation. It will be interesting to see what guidance the Supreme Court provides.   

Background

The appellants own a royalty interest in the Genesee coal mine, which fuels the Genesee power plant and generates electricity for the City of Edmonton. In 2015, the Government of Canada instituted regulations prohibiting coal-fired electricity generation by 2030. As a result, the Government of Alberta entered into off-coal agreements with the owners of various coal-powered plants across Alberta, including the Genesee power plant, to phase out coal-fired electricity generation emissions by 2030. Pursuant to the off-coal agreements, the owners of electricity generation plants agreed to end coal emissions, and Alberta agreed to make transition payments to them. 

The appellants claimed that Canada and Alberta had constructively expropriated their royalty interest in the coal mine and they are owed compensation because they will not receive royalty payments after 2030. At common law, a constructive, or de facto, expropriation occurs where government action amounts to (1) an acquisition of a beneficial interest in property or flowing from it and (2) the removal of all reasonable uses of the property.   

After having their claims dismissed by an applications judge and a chambers judge, the appellants appealed to the Court of Appeal arguing that while the Crown did not acquire a beneficial interest in the coal mine itself, it gained an advantage in the form of avoided health care and environmental expenses by deciding to end coal-generated electricity emissions. 

The Court of Appeal Decision

On appeal, the Court of Appeal considered the Supreme Court of Canada’s decision in Annapolis Group Inc v. Halifax Regional Municipality (Annapolis), which addressed the test for constructive expropriation. In Annapolis, the Supreme Court held that a “beneficial interest” could be more broadly understood as an “advantage” in private property acquired by the Crown. The Supreme Court emphasized that a property owner can succeed in a claim for constructive expropriation even if the Crown acquires something less than a traditional property interest.

In summarizing Annapolis, the Court of Appeal held that for regulatory action to amount to a constructive expropriation, the acquired interest must be proprietary enough to be capable of acquisition and must correspond in some way to the expropriated interest.   

With those principles in mind, the Court of Appeal dismissed the appeal and held that any health and environmental benefits resulting from a reduction of greenhouse gas emissions are benefits to the public, not “an ‘advantage’ flowing to the state.” Anticipated health and environmental benefits cannot be understood as a proprietary advantage that corresponds to the Crown’s acquisition of a royalty interest in coal production. After all, government regulation is always intended to be in the public interest. 

The Court of Appeal went on to find that the appellants’ interpretation of the test for constructive expropriation would unduly broaden the application of the common law in a manner that would intrude on policy decisions made by legislators and risk the financial exposure of public authorities. 

Accordingly, the Court of Appeal held that neither Canada nor Alberta acquired an advantage in respect of private property by deciding to phase out coal-fired electricity generation. 

Discussion

The decision of the Court of Appeal in Altius recognizes that governments have a wide latitude to regulate in the public interest to address the effects of climate change. Altius was a creative attempt by the appellants to invoke the common law to challenge decisions made by Canadian governments that adversely affect proprietary and business interests related to coal-fired electricity generation. However, the Court of Appeal declined to expand the Supreme Court of Canada’s decision in Annapolis and apply an expanded interpretation of constructive expropriation to cases where government regulation impacts royalty interests in the energy sector. Altius provides helpful confirmation that Annapolis did not change the law of constructive expropriation in Canada.