BUSINESS INTERRUPTION CLAIMS: The Municipal Context. 12 th ANNUAL CURRENT ISSUES IN COMMERCIAL LITIGATION SEMINAR

Transcription

1 BUSINESS INTERRUPTION CLAIMS: The Municipal Context 12 th ANNUAL CURRENT ISSUES IN COMMERCIAL LITIGATION SEMINAR Presented by: The Hamilton Law Association February 22, 2017 Prepared by: Brian Duxbury Duxbury Law Professional Corporation King St. West Hamilton ON L8P 1A4 Tel: Fax:

2 2 INTRODUCTION Business interruption claims within the realm of municipal activities and undertakings, and the impact of those undertakings on private ownership and businesses, remains as an area of law that is governed almost exclusively by the Expropriations Act (the Act) 1. Because of the underlying principle of indemnification of a property owner, the Act is largely advantageous and beneficial to the private owner. Unfortunately, the Act is somewhat technical and process-oriented, with its own limitation period requirements and its own regime before the Ontario Municipal Board (the OMB) for dealing with disputes. However, the Act has a coherent flow and logic and in the end, once some procedural and mechanical issues are sorted out, the process is not unlike any other damages calculation process requiring the input of qualified experts to achieve appropriate compensation. This paper focuses on business interruption claims within the context of actions taken by municipalities. The City of Hamilton is moving forward with its light rail transit (LRT) initiative. The impact of these activities on businesses raises a timely discussion, especially when the overall requirements of the Growth Plan for the GTA are actively being implemented and intensification initiatives by municipalities will continue to create pressures for, among other things, an expanded public transit infrastructure for this region. 1 Expropriations Act, R.S.O. 1990, c.e.26

3 3 This paper will also discuss compensation under the Act, including claims for injurious affection a topic which has received recent and noteworthy judicial attention from the Supreme Court of Canada in Antrim Truck Centre Ltd. v. Ontario (Transportation), [2013] 1 S.C.R As in most modern litigation contexts, the need for experts to provide opinions on land use, land value and business losses is highly prevalent in this area of practice. While it is perhaps an over simplification of the issue, most issues relating to recovery of damages for business interruption or business losses within the municipal context are, at base, issues grounded in the details of experts reports, debated and litigated before the Ontario Municipal Board. Finally, this paper will conclude by touching upon a few foundational issues and practical considerations and, more generally, the state of the law regarding economic losses and claims for interference with economic relations. MUNICIPAL TAKING THE EXPROPRIATIONS ACT In large developed and urban municipalities there is, simply put, no more room. Municipalities face the pressure of constantly upgrading and expanding infrastructure for both above and below ground undertakings. The requirement in the GTA to deliver residential intensification within urban cores requires municipalities to provide higher-order transit functions to help reduce vehicle use and traffic congestion. In turn this has spurred the development of increasingly sophisticated transit systems - especially variations of light rail transit (LRT) systems currently

4 4 employed or underway in places like Toronto, Ottawa, the Region of Waterloo and now the City of Hamilton. The effective development and delivery of these types of large infrastructure systems normally requires that they also be placed in the most densely and developed areas of a municipality. The reason for this is obvious, as it facilitates high usership rates and the efficient delivery of such services. A good example of this was the development of the LRT system for the Region of Waterloo, which demanded routes and the acquisition of significant swaths of property or portions of properties by the Region, in the already congested and busy downtown areas of Kitchener and Waterloo. Hamilton s development of an LRT system is, similarly, designed in such a way that it will require the City to acquire or affect properties along streets such as Main, King and Queenston Road - from McMaster University to Eastgate Square. Where the City cannot acquire such properties or rights through negotiations and agreements with landowners, however, the City is likely going to need to employ the power of expropriation law to obtain what it needs to complete the project and obtain the land or portions of land it requires.

5 5 The expropriation of property is an extraordinary power. It amounts to nothing less than the taking of someone s property, or the impacting of business by the expropriating party, without the property or business owner s consent. It is perhaps for this reason and not surprisingly the case - that expropriations are governed by strict procedures under the Expropriations Act. The underlying principle of expropriation law is that the expropriating authority must pay fair and appropriate compensation for the property taken or the damage that flows from the taking. The Act applies whenever land is expropriated or injurious affection is caused by a statutory authority. The municipality cannot expropriate without the approval of its Council and Council must give notice (called a Notice of Application for Approval to Expropriate Land or Notice of Application ) in accordance with prescribed publication and timeline requirements. Once notified, an affected owner can then request what is called a Hearing of Necessity. This creates an early opportunity in the process to have an inquiry officer review whether the proposed expropriation is fair, sound and reasonably necessary to achieve the objectives of the expropriating authority. At the end of the inquiry, the inquiry officer issues a non-binding report outlining his or her findings. The municipality, however, need only consider the inquiry officers recommendations they are not binding. Once a proposed expropriation has been approved, the municipality is required within three months to register at the land registry a plan of expropriation, signed by the expropriating authority and an Ontario land surveyor. It is at this point that the subject land vests to the municipality.

6 6 Once this plan is registered, and if there has been no agreement as to compensation between the owner and the municipality, the municipality is required to serve the registered owner with a Notice of Expropriation. The owner is then given the opportunity to request that compensation be assessed 1) where there has been an inquiry as of the date the Notice of Hearing was served; 2) as of the date of registration of the plan, or; 3) as of the date on which the owner was served with the Notice of Expropriation. Paying compensation is a strictly prescribed affair and a municipality must pay an owner compensation as determined in accordance with the Act. There are four types of compensation provided in the Act. Subsection 13 (2) provides as follows: (2) Where the land of an owner is expropriated, the compensation payable to the owner shall be based upon, (a) the market value of the land; (b) the damages attributable to disturbance; (c) damages for injurious affection; and (d) any special difficulties in relocation, but where the market value is based upon a use of the land other than the existing use, no compensation shall be paid under clause (b) for damages attributable to disturbance that would have been incurred by the owner in using the land for such other use. The underlying premise in this subsection is that the owner be made whole.

7 7 In determining compensation the traditional approach to valuation applies and is determined by ascertaining what the land might be expected to realize, if sold on the open market by willing parties. 2 An owner can also seek what are called disturbance damages; these can include losses such as relocation expenses, business losses (including loss of income or future profits) or damage caused to a building or structure. Compensation can also be sought where there are special difficulties in relocating, such as, for instance, where a business engages in certain activities which may have been grandfathered into a particular area, and for which now no other reasonable location exists. WHAT IS INJURIOUS AFFECTION? Because municipal undertakings often result in the partial taking of property, or result in significant impact to or interference with businesses, it is important to consider the law of injurious affection. The definition of injurious affection is provided in the Act and means: (a) where a statutory authority acquires part of the land of an owner, (i) the reduction in market value thereby caused to the remaining land of the owner by the acquisition or by the construction of the works thereon or by the use of the works thereon or any combination of them, and 2 Importantly, market value does not take into account the impact caused by the use to which the expropriating authority will put the land.

8 8 (ii) such personal and business damages, resulting from the construction or use, or both, of the works as the statutory authority would be liable for if the construction or use were not under the authority of a statute, (b) where the statutory authority does not acquire part of the land of the owner, (i) (ii) such reduction in the market value of the land of the owner, and such personal and business damages, resulting from the construction and not the use of the works by the statutory authority, as the statutory authority would be liable for if the construction were not under the authority of a statute, and for the purpose of this clause, part of the lands of an owner shall be deemed to have been acquired where the owner from which lands are acquired retains lands contiguous to those acquired or retains lands of which the use is enhanced by unified ownership with those acquired; In a the property owner can recover a sum equal to the reduction in market value of the remaining land caused by the taking or construction of the municipal works, as well as the personal and business damages arising therefrom as if it was not a taking under the authority of a statute. In other words, these resulting damages trigger the application of the law of private nuisance and this is the issue that was canvassed comprehensively by the Supreme Court of Canada in the Antrim Truck decision discussed below. In b, where no land is taken, a claim for reduction in market value of the land and personal and business damages can still be made resulting from the construction but not the use of the works by the statutory authority. It is important to note the Act provides that a claim for compensation for injurious affection shall be made by the person suffering the damage or loss in writing with particulars of the claim

9 9 within one year after the damage was sustained or after it became known to the person 3. This is a special limitation period, the passing of which should be preceded by the giving of a notice which provides some degree of particularity regarding what losses and damages are alleged to have occurred. ANTRIM TRUCK CENTRE LTD. V. ONTARIO WHERE NO LAND IS TAKEN It is not unusual that municipal works have an impact on surrounding properties or businesses. A common example is the placement of curbing or medians which discourage access to certain properties or businesses. In the case of Antrim Truck Centre Ltd., Antrim owned and operated a truck stop. The Ministry of Transportation constructed a new highway thereby rerouting traffic away from the older road and Antrim s truck stop. No land was expropriated from Antrim but the lack of access to the truck stop effectively put Antrim out of business. Antrim brought an action against the province for injurious affection before the Ontario Municipal Board and claimed that both the reduced traffic and forced relocation of the truck stop precipitated its significant business losses and closing. The OMB awarded damages of $335, for loss of market value of land and $58, for business losses. The decision was upheld by the Divisional Court but then set aside by the Court of Appeal. The Supreme Court of Canada granted leave and Justice Cromwell, writing for a unanimous Supreme Court, determined that Antrim was entitled to damages for injurious affection. 3 Section 22

10 10 As stated by Justice Cromwell, although the Court of Appeal had concluded that the province s interference with Antrim s land was not unreasonable, in effect, the Court of Appeal found that it was reasonable for the appellant to suffer permanent interference with the use of its land that caused significant diminution of its market value in order to serve the greater public good. Justice Cromwell, in his introduction to the Antrim decision, stated the following: The answer, as I see it, is that the reasonableness of the interference must be determined by balancing the competing interests, as it is in all other cases of private nuisance. The balance is appropriately struck by answering the question whether, in all of the circumstances, the individual claimant has shouldered a greater share of the burden of construction than it would be reasonable to expect individuals to bear without compensation. Here, the interference with the appellant s land caused by the construction of the new highway inflicted significant and permanent loss on the appellant; in the circumstances of this case, it was not unreasonable for the Board to conclude that an individual should not be expected to bear such a loss for the greater public good without compensation. As the Supreme Court noted, one must consider whether the three requirements for claiming injurious affection are satisfied: 1) did the damage result from action taken pursuant to statutory authority? 2) did the action give rise to liability which would be answered but for that the fact the action was taken pursuant to statutory authority? and 3), did the damage result from the construction of (but not the use of) the works undertaken by the expropriating authority? The focus of the Court was on the second part of this test, as to whether liability would arise but for the statutory authority. In considering this, the Supreme Court reviewed the law of private nuisance. The test for nuisance requires that: a) there must be substantial interference ; and b) the interference must be unreasonable.

11 11 The Court strongly asserted that there is no fixed list of factors for balancing, although factors, in assessing whether there is substantial interference, include the severity of the interference, the character of the neighbourhood, and the sensitivity of the plaintiff. The frequency and duration of interference may also be relevant factors, in some cases. Importantly, the Court stated that the focus in nuisance is on whether the interference suffered by the claimant is unreasonable - not on whether the nature of the defendant s conduct is unreasonable. The nature of the defendant s conduct is not completely irrelevant however, where the conduct is either malicious or careless. The importance of the activity or the utility of the defendant s conduct must still be considered in light of other factors and is not, by itself, an answer to the reasonableness inquiry. Indeed, the severity of the harm and the public utility of the impeded activity are not equally weighted considerations. As the Court noted, if they were, an important public purpose would always override even very significant harm caused by carrying it out. On the balancing exercise, Justice Cromwell concluded as follows: To sum up on this point, my view is that in considering the reasonableness of an interference that arises from an activity that furthers the public good, the question is whether, in light of all of the circumstances; it is unreasonable to expect the claimant to bear the interference without compensation.

12 12 There have been a few decisions since Antrim dealing with different aspects of the Antrim decision or factors for consideration for awarding damages for injurious affection. These cases are briefly referenced and summarized in the Appendix to this paper. SOME PRACTICAL CONSIDERATIONS Negotiating a deal and Retaining Experts Typically, a municipality or other expropriating agencies firstly approach owners to attempt to negotiate a settlement. This can vitiate the need for expropriation altogether. In fact, the Act contemplates owners voluntarily entering into agreements for the acquisition of land. These are known as section 30 agreements and they are important because they preserve an owner s rights to the very advantageous provisions of the Expropriations Act in regards to recovery of costs, payment of interest (6%) and other features of the Act which protect the principle of full indemnification of the land owner impacted by the taking. In other words, it is important for owners to get to a point with the expropriation authority to at least have a Section 30 agreement in place as early as possible even if the owner accepts the taking of some or all of their lands. Calculating the market value of lands, however, or the more complex calculations required where only a portion of a property is to be taken, can require the input of experts, particularly real estate and accounting experts, who have experience with expropriations. Similarly, tabulating and presenting - in a coherent fashion - the range of business losses, disturbance damages or special damages that arise from an expropriation or partial taking may require further

13 13 input from accounting experts. For its part, the expropriating authority is required to have qualified appraisers and an owner will therefore need their own appraisers in their corner. Recovering Legal Fees and Experts Fees The Act sets up very advantageous provisions for recovering costs including legal fees and experts fees as well as recovery of interest. In other words, the expropriating authority must pay reasonable costs although there is still a threshold of recovery that must be achieved but, generally speaking, recovery of reasonable legal costs and experts fees is close to a given. Highest and Best Use It is to be noted that in terms of market value and the concept of highest and best use, this is determined on an objective basis. The current use that the owner makes of land may not be indicative for the purpose of determining market value. If a purchaser, acting objectively, would perceive a use that would provide a greater economic reward then the existing use may not be the highest and best use. In addition, no damages can be recovered for disturbance damages for some other use than the use that is actually being made of the property by the owner. Other Interests It is important to note that the definition of owner under the Expropriations Act includes a mortgagee, tenant, execution creditor or a person entitled to a limited estate or interest in the

14 14 land. Accordingly, even tenants, and in particular, commercial tenants, affected by expropriation activity have rights under the Act depending upon the nature of the impact. The Hamilton Context A report was prepared for the City of Hamilton in October, 2016 to update the Mayor and Members of the General Issues Committee in respect to the LRT project. It was noted in that report under the discussion regarding property acquisition that prior to various open houses that were held last September, some 43 property acquisition letters had been sent out to properties identified as required at the time of the project. It was also indicated that numerous one on one meetings with property owners were underway, had been undertaken and that negotiations were currently under way. The project is being undertaken and coordinated with Metrolinx. THE BROADER CONTEXT A BRIEF NOTE ON ECONOMIC LOSS CLAIMS One of the more useful cases in respect to claims for economic loss is a decision by Justice Pomerance in Conestoga Meat Packers Ltd. v. Fehr 4. In that case, the defendant drove his truck into some hydro poles which caused a loss of power for several hours for the local municipality and for the plaintiff s meat packing company. The Court, in that case, provided a good summary in respect to claims for pure economic loss, where there is no direct or physical connection between the damage inflicted and the alleged loss. In rendering its judgment the Court confirmed 4 Conestoga Meat Packers Ltd. v. Fehr, [2007] OJ No. 3150

15 15 that for the recovery of pure economic losses the plaintiff must demonstrate two important things. Firstly, the plaintiff must convince the Court there is a sufficiently close relationship between the parties such that the carelessness of the defendant could have reasonably been foreseen to expose the plaintiff to losses. Secondly, and if the first test is established, the Court will consider whether there is any policy considerations that should negate or limit the scope of the prima face duty of care, the class of persons to which it is owed or the damage to which breach of it might give rise. With respect to policy considerations it is also worth noting that the Court placed significant emphasis on policy issues relating to indeterminate liability. The Court confirmed that there is a proximity test which operates to limit recovery and avoid an unjust burden upon the defendant. 5 The Court concluded by finding against the plaintiff. The interruption of electricity was not restricted to a single business or small group of potential defendants, but, rather a diffuse and widespread loss of power suffered by many. It was not an appropriate case, the Court noted, for the recovery of pure economic losses. 5 The Court quoted from the Supreme Court of Canada s decision in Canadian National Railway v. Norsk Pacific Steam Ship et al [1992] 1 S.C.R stating that to prevent all economic loss relating to a negligent act to be recovered would be to subject potential defendants to a liability which is not only unfair but which may cripple their ability to do business.

16 16 UNLAWFUL INTERFERENCE WITH ECONOMIC RELATIONS While the tort of unlawful interference with economic relations likely has little nexus with the injurious affection discussion above, it is not unimportant to consider tort-based remedies outside of the statutory framework for recovery. However, the test for satisfying a claim for unlawful interference with economic relations still remains challenging. The elements of the tort are as follows: (a) The existence of a valid business relationship or business expectancy between the Plaintiff and another party; (b) Knowledge by the Defendant of that business relationship or expectancy; (c) Intentional interference which induces or causes a termination of the business relationship or expectancy; (d) The interferences are by way of unlawful means; (e) The interference by the Defendant must be the proximate cause of the termination of the business relationship or expectancy; (f) There is resultant loss to the Plaintiff. 6 The Supreme Court of Canada in A.I. Enterprises Ltd. v. Bram Enterprises Ltd. 7 made it clear that in order for impugned conduct to constitute unlawful means the conduct must give rise to a civil cause of action by a third party or one who would have a cause of action if the third party had suffered the alleged loss. In other words, the focus is on the creation of a cause of action by a third party as a result of the conduct of the defendant and not necessarily the impact upon the plaintiff s relationship with the third party. Demonstrating a separate unlawful means continues to pose a separate challenge (eg. a bribe) and of course one still has to demonstrate a loss. While this tort is perhaps a common averment in a pleading, it still remains as a challenging cause of action to prove all of its constituent elements Ontario Ltd. v. Segaz Industries Canada Inc., 1998, CarswellOnt A.I. Enterprises Ltd. v. Bram Enterprises Ltd. [2007] 1 SCR 177

17 17 CONCLUSION Business interruption claims which arise from the activities of municipalities are claims that are almost wholly governed by the provisions of the Expropriations Act. The Act and the jurisprudence developed under the Act provides primary guidance on how to procedurally seek compensation. However, when the determination of compensation comes to issues such as market value or injurious affection, resort is still needed to common approaches to valuation and utilization of the common law in respect to private nuisance. With the underlying principle that property owners are to be made whole, the Act is advantageous and can result in good and fair recovery of damages, including fees and interest, that are incurred by property owners.

18 APPENDIX SOME RECENT CASES FOLLOWING THE DECISION IN ANTRIM 1. R. Jordan Greenhouses Ltd. v. Grimsby (Town), 2015 CarswellOnt In this case heard before the Ontario Municipal Board, Jordan Greenhouses made a claim for compensation for injurious affection caused by the construction activity by the Town in the spring of 2010 on Main Street West in the Town of Grimsby. The greenhouse facility had recently implemented a new business plan and shifted its business to a retail focus. Its grand opening occurred in March of Shortly after, in April, 2010, the Town commenced construction to install a new sewer main and laterals on the main street in front of Jordan Greenhouses. The Board applied the Supreme Court of Canada s decision in Antrim Truck finding that the works were undertaken under authority of the Town of Grimsby and that the compensation request stemmed from the construction works on the road. The only significant issue for the Board was to determine whether Jordan s would have been able to successfully sue for damages cause by the construction. The Board found that the Town initiated the construction in the spring of the year during Jordan s busiest season and that Jordan s business relied on direct vehicular access. The Board found that there was a substantial interference with the convenience of Jordan in the conduct of their business during their busiest season of the year.

19 2 In assessing the reasonableness test, the Board found that there was in fact no urgency with regard to the construction being carried out by the Town and the construction schedule could have been altered. The Board found that there was a substantial and unreasonable interference with Jordan s use and enjoyment of its land: 126. In this case, it is clear that Jordan s was the only business within the construction area, that Jordan s was known by the Town and its officials to be in the construction area, that Jordan s was known as a garden center/nursery, that a lay person would have said that a garden center s peak season would be the Spring, that the Town failed to have anyone meet with Jordan s or take into account the prospective impacts that the Main Street Sewer construction would have on the Jordan s business, that the construction, although temporary in nature, was for 40 construction days, during which it effectively denied all but the hardiest motorist to venture there, and at the critical period of the Jordan s business cycle, such that it caused substantial and unreasonable interference with Jordan s use and enjoyment of its land. The Board concluded that the circumstances of the case fell well outside the normal give and take of life that should be properly accepted as an individual s part of the cost of living in an organized society. The Board ordered damages in the amount of $73, for lost profit/income, $19, for product thrown away and $22, for loss of future income. Because there was no taking of land, the Board made no award for interest. 2. Willies Car & Van Wash Ltd. v. Simcoe (County) 2015 CarswellOnt This is another case heard before the Ontario Municipal Board which has significant similarities to the facts in Antrim Truck. The County re-routed a stretch of road which had previously provided access to the Honda manufacturing plant. The owner s car wash depended on the high

20 3 volume of traffic going to and from the Honda plant. Because of the re-routing, traffic was diverted away from the owner s business so employees travelling to Honda no longer passed by the car wash to access the plant. The owner claimed damages for injurious affection. Once again, the Board relief upon and applied the test in Antrim Truck. On the facts of this case, the Board was not satisfied that the losses which had occurred were the result of the construction of the works nor that the losses were the result of the re-routing of the road. The Court noted other factors including an economic decline and reduced consumer spending and also noted that regular customers would only have to travel a short additional distance to continue to use the car wash facilities. The outcome demonstrates the importance of establishing a causal link between the construction works and the losses alleged by the owner. In addition, the case is a good example of where the Board determined that if there were losses, they related to the use of the works and not the construction of the works because sales had continued to increase after the road was closed and the alleged losses were also alleged to have occurred many months after the construction works were complete. In other words, there appeared to be no causal connection to the construction activities. 3. Erbsville Road Development Inc. v. Waterloo Region District School Board, 2015, ONSC This was a decision of the Ontario Divisional Court from a decision of the Ontario Municipal Board in respect to an expropriation of land by the School Board. At issue in the proceeding was a claim by the owner for interest for a period of time before the land was actually expropriated.

21 4 The issue was significant because the Expropriations Act provides for an interest rate of 6% per year calculated from the date the owner ceases to reside on or make productive use of the lands. The Court agreed with the OMB s reasoning that because the lands had been sterilized for further development once they were designated as a school site, interest should be calculated from the date of the draft approval for the Plan of Subdivision which included the owner s lands. It was determined that the date for calculating interest does not have to run from the date of expropriation but rather can be calculated from the date that it is found that the owner can no longer make productive use of the land or when the Municipality would no longer approve any development because of the approval of the draft Plan of Subdivision. 4. Vincorp Financial Ltd. v. Oxford (County), 2014, ONCA 876. In this case, the Ontario Court of Appeal confirmed that the Expropriations Act provides that, in calculating the fair value to be paid in compensation to an owner, no account can be taken of any increase or decrease in the value of the land resulting from the development or the imminence of the development in respect of which the expropriation is made. In this case, the County of Oxford had expropriated lands from the appellant and then subsequently transferred lands to Toyota to build a car manufacturing plant. Among other claims, the appellant sought a determination that the expropriation was unlawful and that it amounted to an improper bonus under the provisions of the Municipal Act. The Court accepted that the expropriation was for a proper municipal purpose and that the purpose was to promote economic development in the area. The Court determined that if the

22 5 subsequent sale and transfer to Toyota had breached the Municipal Act, the first transaction, being the expropriation of the owner s land, was still a valid expropriation under the Expropriations Act and the appellant was not entitled to any additional damages in respect to any value attributable to the proposed development of the lands by Toyota.

23 BIBLIOGRAPHY 1. Changing Landscapes in Municipal and Planning Law Expropriation: The Land Landscapes since Antrim, Paul B. Scargall and Abbey Sinclair. 2. The Six Minute Municipal Lawyer, 2013 Expropriations A Primer on Injurious Affection Highest and Best Use and Disturbance Damages Stephen Waque. 3. All Aboard: Expropriation and Injurious Affection in the Age of the LRT Michael Polowin and Roberto Aburto. 4. The author would also like to thank his colleague, T. David Marshall, for his assistance in the preparation of this paper.