Class Proceedings – Injurious Affection The place No Land Taken – Litigation, Mediation & Arbitration
Case Commentary: Gautam v. South Coast British Columbia
Transportation Authority
On May 13, 2020, the British Columbia Court of Appeal released
its decision in Gautam v. South Coast British Columbia
Transportation Authority,1 the appeal of a British
Columbia Supreme Court summary trial decision awarding compensation
for injurious affection caused by transit construction in Vancouver
between 2005 and 2009 in the context of a class action
proceeding.
The Court allowed the appeal, finding errors in the summary
trial judge’s assessment of two issues: the limitation period
set out in s. 42(1) of the Expropriation Act, R.S.B.C.
1996, c. 125 (the “BC Act”); and the test for
unreasonable interference with the plaintiffs’ property
interests. In obiter dicta, the Court also provided a
critique of the methodology adopted by the trial judge on the
quantification of damages.
Part I: Overview
The Project
A class of 62 property owners and 215 business operators were
affected by the construction of the Canada Line, a rapid transit
line that forms part of Vancouver’s SkyTrain system. The Canada
Line, owned by South Coast British Columbia Transportation
Authority (“TransLink”), was constructed using the
“cut and cover” method. This method involved cutting a
substantial trench along the middle of Cambie Street, building
concrete tunnels in the trench, and then covering the tunnels and
repaving the road when the work was complete (the
“Project”).2 The trench in front of the
plaintiffs’ locations was under construction between March and
December of 2007.3 Needless to say, Cambie Street was
significantly disrupted during this time.
The class of affected owners and operators brought injurious
affection claims against TransLink. Three of the leaseholders who
operated businesses along the affected portion of Cambie Street,
namely the Cambie General Store, Thai Away Home (a restaurant) and
Festival Cinemas, acted as test case plaintiffs (the
“Plaintiffs”). All three experienced significant revenue
reductions during the construction.
The Applicable Law
The Court of Appeal considered two main legal issues centred on
sections 41 and 42 of the BC Act. Section 41 sets out an
owner’s ability to claim compensation where land was not
expropriated, but was instead injuriously affected by the
construction of a public work by an expropriating authority:4
Injurious affection if no
land taken
41 (1) In this section,
“injurious affection” means injurious affection caused by
an expropriating authority in respect of a work or project for
which the expropriating authority had the power to expropriate
land.
(2) The repeal of the Expropriation
Act, R.S.B.C. 1979, c. 117, and the amendments and repeals in
sections 56 to 128 of the Expropriation Act, S.B.C. 1987, c. 23,
are deemed not to change the law respecting injurious affection if
no land of an owner is expropriated, and an owner whose land is not
taken or acquired is, despite those amendments or repeals, entitled
to compensation to the same extent, if any, that the owner would
have been entitled to had those enactments not been amended or
repealed.
(3) An owner referred to in
subsection (2) who wishes to make a claim for compensation for
injurious affection must make his or her claim by applying to the
court, and the court must hear the claim and determine
(a) whether the claimant is
entitled to compensation, and
(b) if entitled to compensation,
the amount of the compensation.
. . .
The test for injurious affection under section 41, set out in
Loiselle v. R. [1962] S.C.R. 624 (S.C.C.), requires that
the following conditions be met (the “Loiselle
Factors”):5
- the damage must result from an act
rendered lawful by the statutory powers of the person performing
such act; - the damage must be such as would have
been actionable under the common law, but for the statutory
powers; - the damage must be an injury to the
land itself and not a personal injury or an injury to
business; - the damage must be occasioned by the
construction of the public work, not by its user.
These conditions are broad enough to apply to a “temporary
reduction in the rental value of the land, whether sustained by the
tenant or the landlord” but not to “the loss of business
or profit”6 that has been “caused by the
construction of the public work and not by its use.”7
Note that there is a significant difference between the
legislation and test for injurious affection in British Columbia
and Ontario: the Ontario legislation is written such that the third
Loiselle Factor does not apply, so personal and business damages
are directly compensable. Section 1(1) of Ontario’s
Expropriations Act, R.S.O. 1990, c. E.26 (the
“Ontario Act”) defines injurious affection where
no land is taken as:8
(i) such reduction in the market
value of the land of the owner, and
(ii) such personal and business
damages
The Supreme Court of Canada’s decision in Antrim Truck
Centre Ltd. v. Ontario (Transportation) confirmed that the
Ontario test has only the following three factors: “(i) the
damage must result from action taken under statutory authority;
(ii) the action would give rise to liability but for that statutory
authority; and (iii) the damage must result from the construction
and not the use of the works.”9
Section 42 of the BC Act sets out a statutory
limitation, using language that is equivalent to the Ontario
Act, requiring that injurious affection claims be brought
within one year after the damage was sustained or became known:10
Limitation
42 (1) A claim for compensation
under section 41 (3) must be made in writing to the court by the
person suffering the damage, with particulars of the claim, within
one year after the damage
(a) was sustained, or
(b) became known to the
person.
(2) If a claim referred to in
subsection (1) is not made in accordance with that subsection, the
right to compensation is forever barred.
Case History
(a) The Common Issues
Trial
On November 10, 2008, the Plaintiffs initiated a class action
proceeding claiming damages for nuisance, and their claim was
amended in July 2009 to seek damages for injurious affection. The
original defendants, which were subsequently replaced by TransLink,
plead that the injurious affection claim was statute barred by the
limitation period set out in section 42 of the BC Act.11
Note that unlike in Ontario, where injurious affection claims
are in the jurisdiction of the Local Planning Appeal Tribunal,
section 26 of the BC Act specifies that the Supreme Court
of British Columbia has jurisdiction over compensation proceedings
under that Act.12 As such, claimants in Ontario do not
have the same ability to initiate a class proceeding, as such a
proceeding is not available under the Local Planning Appeal
Tribunal’s Rules of Practice and Procedure, and Ontario’s
Class Proceedings Act, 1992, S.O. 1992, c. 6, does not
apply.13
Regardless of this difference, it is interesting that the large
number of claimants, all with different degrees of injury which had
to be assessed individually, could still proceed by way of class
action, and that the potentially large amount of compensation that
could be found owing, across the board, did not present a public
policy argument against providing due compensation.
A common issues trial held in 2014 and 2015 found that: the
Project substantially interfered with the use and enjoyment of the
Plaintiffs’ property; there was statutory authority for the
interference, absolving the defendants of liability for the
resulting economic loss; and the interference resulted in damages
that could be compensable as injurious affection. 14 However,
two important issues were left undecided: 15
- Whether the substantial interference with the plaintiffs’
property interests was unreasonable (and thus whether injurious
affection was established); and - Whether the injurious affection claims were statute barred by
the s. 42 limitation period.
These issues, along with the calculation of compensation for the
Plaintiffs, were addressed during the test case summary trial. The
test case summary trial was expected to set out a methodology that
could be applied to the remaining plaintiffs in the class.16
(b) The Test Case Summary
Trial
The claims of the Plaintiffs, who were all leaseholders and
business operators along Cambie Street, formed the basis of the
test case summary trial:17
- Gary Gautam (“Gautam”), operated the Cambie General
Store under a month-to-month lease that could be terminated or
re-negotiated at any time. He suffered a loss of approximately
$5500.00 in 2006, down from an approximately $13,000.00 profit the
year before. Gautum made a claim in respect of the year 2006; - Dale Dubberley (“Dubberley”), operated the Thai Away
Home restaurant under a three year lease expiring in 2006. He
renewed for one additional year in both 2007 and 2008. In 2007 and
2008, the restaurant’s profit dropped by over $100,000.00.
Dubberley made a claim in respect of the years 2007 and 2008;
and - Festival Cinemas (“Festival”), which held a five year
lease during the construction period, also experienced a drop in
profit of over $100,000.00 during 2007 to 2009. Festival made a
claim in respect of the years 2007, 2008, and 2009.
Since substantial interference had been established at the
common issues trial, the summary trial focused on the issue of
unreasonable interference.18 The trial judge
determined that the Plaintiffs’ property interests were
unreasonably interfered with by virtue of the length and degree of
the construction.19
The trial judge also determined that the claims were not statute
barred, finding that the damage to the Plaintiffs’ property
interests did not end until the unreasonable interference with
those interests ceased at the conclusion of 2008. On this analysis,
the injurious affection claim brought in July of 2009 was within
the one year limitation period.20 Accordingly,
compensation for the loss in value of the leasehold interests for
each of the Plaintiffs was awarded as follows: $7,600 to Gautam;
$44,560 to Dubberley; and $128,880 to Festival.21
Part II: The Court of Appeal’s Analysis
The Court of Appeal disagreed with the trial judge’s
analysis of all three issues.
Application of the Limitation Period
i. Continuing damage
The Court of Appeal recognized that the challenge of applying a
statutory limitation in this case arose from the fact that the
damage was of a continuing nature.22 The value of the
Plaintiffs’ leasehold interests in land were temporarily
diminished due to construction activities that took place over an
extended period of time.
The Court addressed this problem by drawing from existing case
law on the application of limitation periods to civil wrongs of a
continuing nature, likening injurious affection to torts that cause
damage on a continuing basis, including: nuisance, trespasses, and
wrongful imprisonments. The Court determined that the proper
approach in these circumstances is to treat each day on which a
civil wrong continues, as the starting point for a limitation
period applying to the damages suffered on that day.23 This reasoning adopts a middle ground
between positions commonly adopted by defendants, arguing that the
limitation period should be measured from the day the civil wrong
commenced, and plaintiffs, arguing that the limitation period
should be measured from the day the civil wrong ceased to be
committed.
The BC Act states, in language that is functionally
identical to Ontario’s Expropriations Act, that a
claim for compensation for injurious of affection where no land is
taken, “must be made in writing to the court by the person
suffering the damage, with particulars of the claim, within one
year after the damage (a) was sustained, or (b) became known to the
person.”24 In the case of continuing damage, an
original cause of action arises each day the injurious affection
continues unabated, such that only “fresh damage”
suffered within the limitation period is recoverable. On this
basis, the Court held that the plaintiffs were entitled to claim
damages only where those damages were actually suffered within one
year of the filing of the claim.
This is an important reminder that claims for injurious
affection should be made promptly once damage is suffered or
discoverable. The ongoing nature of a construction project will not
postpone the commencement of the limitation period. As soon as an
injury to the land becomes evident, the clock will begin to run on
the damage suffered at that time.
ii. Parallel civil claims do not stop the
clock
The Court rejected the argument that the nuisance claim
originally filed by the plaintiffs, at an earlier date, should be
treated as sufficient to meet the requirements of section 42(1) of
the BC Act. The BC Act requires that a claim be
made specifically under section 41(3) on injurious affection where
no land is taken. A related civil suit will not stop the limitation
period from running.
iii. Discoverability
The dissenting judgment raises the issue of discoverability, and
would have remitted the question of statutory limitation to the
trial judge because the parties had not tendered evidence directed
at determining the date on which the plaintiffs knew that all the
elements of a claim of injurious affection existed.
The majority objected to the consideration of this issue
primarily due to deficiencies in the parties’ pleadings which
did not raise discoverability. However, the Court was also
satisfied on the evidentiary record that the plaintiffs had the
requisite awareness, as the damage was occurring, that the value of
their leasehold interests were diminished due to the Canada Line
construction. The evidence of the Plaintiffs’ awareness was
described as “overwhelming”, and capable of being
inferred from contemporaneous pronouncements and financial
statements, as well as the negotiation of rent reductions.
The Court further noted that the onus rests on the claimant to
demonstrate that a claim for injurious affection was not known or
reasonably discoverable. As such, even if there had been an absence
of evidence, the issue could not be decided in favour of the
Plaintiffs.
Unreasonable Interference
The unreasonable interference analysis asks whether “in
light of all of the circumstances, it is unreasonable to expect the
claimant to bear the interference without compensation.”25 This requires the Court to balance the
“gravity of the harm against the utility” of the project,
considering “the severity of the interference, the character
of the neighbourhood and the sensitivity of the plaintiff,”26 while remembering that the public
utility and the severity of the harm “are not equally weighted
considerations” in order to prevent society from inflicting
too significant a harm on individuals.27 Note
that this aspect of the analysis is the same in Ontario and British
Columbia.
A common issue approach could not be used for this analysis
since the degree of harm experienced by each plaintiff, and whether
that harm was unreasonable, requires an analysis of the particular
circumstances of each plaintiff, including the “nature and
location of each specific business” which would influence the
“severity of business losses” incurred and the amount of
benefit to the business that would eventually accrue due to the
Project.28 While business losses are not
compensable in British Columbia, they can still be relevant to
whether the interference is unreasonable, and thus to whether an
injurious affection claim can be sustained.29
The majority judgement determined that the trial judge failed to
undertake this detailed, plaintiff specific analysis, instead
making a general finding that the Project caused “a
significant and prolonged interference for all businesses in the
area.”30 In other words, the reasonableness issue
was “converted” into a “common, class-wide
issue” when it should have been determined on a plaintiff by
plaintiff basis.31 There was a complete failure to
“assess the unique circumstances of each business” and
make “a specific finding on when the unreasonable interference
began and ended” for each business.32 For
example, Gautam’s claim related to an injury to the value of
his leasehold interest in 2006, although the cut and cover
construction in his location did not take place until 2007. There
was no explanation in the trial judge’s reasoning of how this
could be the case. The Court of Appeal determined that this
“failure to conduct an individualized” unreasonable
interference assessment “for each plaintiff and to determine
when such unreasonable interference began and ended” was an
error that required a new trial.33
The dissenting judgment disagreed with the majority’s above
conclusions. This was not due to a divergence of views on the
analysis required, but rather on whether the trial judge undertook
that analysis and the adequacy of his reasons. The dissent argues
that the trial judge went through an appropriate, individualized
analysis for each of the Plaintiffs. In particular, the trial judge
considered each Plaintiff’s decrease in profits, which is a
relevant factor in assessing whether the interference was
unreasonable, and his reasons demonstrate that he found the
interference unreasonable for each of the Plaintiffs given the
magnitude of their particular losses and the duration of the
construction.34 Further, the Project had no potential
benefits for the Plaintiffs since they had no “long-term
rights to remain in the properties they occupied.”35
The Assessment of Compensation
In obiter dicta, the Court of Appeal identified
weaknesses in the methodology adopted by the trial judge in
assessing compensation. The Court prefaced its comments by
recognizing that the chosen methodology may not constitute a
reversible error, as judges are often required to make an
assessment of damages even if the complexity of a case presents
barriers to an accurate assessment. Thus, the Court’s
commentary was offered only as guidance to assist the parties and
trial judge on the new trial of the Plaintiffs’ claims.
i. Assessment methodology at trial
Once the claim for injurious affection was established, the
trial judge was tasked with considering how the impact on the
plaintiffs’ leasehold interests was to be determined. The trial
judge adopted a hybrid of the competing methodologies that were
proposed by the parties at trial:
- The plaintiffs argued (unsupported by expert evidence), that
the percentage reduction in profits should be applied as a
corresponding reduction in leasehold value. For example, under this
approach, a 60% reduction in profits is taken as evidence of a
corresponding 60% reduction in leasehold value. - Translink proposed that the impact is equal to the difference
between the “profit rent” of the leasehold in a scenario
absent the works, and the “profit rent” in a scenario
taking the works into account. The term “profit rent”
refers to the difference between the value of the leasehold on the
open market (market rent) minus the value of the leasehold
pursuant to the terms of the lease agreement (contract
rent).
The trial judge agreed with Translink’s view that the
appropriate way to measure injurious affection is to compare the
market value of the leasehold interest absent the works, with the
market value of the leasehold interest taking the works into
account. However, the trial judge reframed the issue in a slightly
different way, as a matter of what the Plaintiffs were obliged to
pay and what someone else with similar interests would have paid
with full knowledge of the works. As a result, the trial judge went
on to assess only what the plaintiffs actually paid (contract
rent) and the value of the leasehold on the open market taking
the works into account (market rent).
With respect to the calculation of market rent, the trial judge
accepted the plaintiffs’ methodology in part, subject to any
variables unrelated to the works. In particular, that the impact of
the works on the Plaintiffs’ net income is a reasonable measure
of the impact of the works on the market value of their leasehold
interests, in a scenario that takes the works into account.
The Court of Appeal summarized the trial judge’s methodology
as follows:
- Calculate the percentage loss in net income during the
works; - Assess if any other factors contributed to the loss in net
income; - If no other factors contributed to the loss in net income,
apply the percentage to the full contract rent; and - Add back a placeholder value representing the value of holding
the lease to maintain an established business premises in the
location that was expected to improve once the work was complete.36
ii. Methodological Critiques
First, the Court of Appeal found that the evidentiary record did
not support the trial judge’s method for calculating the
reduction in market rent (i.e. value of the leasehold on
the open market taking the works into account). The plaintiffs did
not adduce any expert evidence to support their position that the
appropriate reduction in market rent should be directly
proportionate to the reduction in their business profitability. The
case of Wildtree Hotels Ltd. v. Harrow London Borough
Council, relied upon by the plaintiffs, stands for the
proposition that a reduction in business profitability is likely to
result in a reduction in the letting value of the business
premises.37 However, as noted by the Court:
The cases support the common sense
inference that a reduction in business profitability will make the
business premises less valuable on the open market. They do not
stand for the proposition that one can calculate the reduction in
open market letting value by simply applying to the contract rent
the percentage reduction in profitability over a certain period of
time.38
The Court of Appeal emphasized that the trial judge had been
left to assess the reduction in the market value of the leaseholds
without an adequate evidentiary record, and the methodology
ultimately adopted relied too heavily on loss of business
profitability. While the trial judge identified that the
Plaintiffs’ methodology did not wholly account for the various
forces at play in assessing market rent, including a placeholder
for the holding value of the leaseholds, there was no evidence to
support his conclusion that the holding value of the leases was
between 20-25%. The holding value of the leases would necessarily
reflect factors such as the length of the lease and the existence
of renewal rights, and this analysis was absent from the
decision.
Second, the trial judge failed to properly consider the role of
lease renewals during the course of the construction. The Court of
Appeal opined that when a tenant agrees to renew their lease, or to
sign a fresh lease, at a contract rent that is greater than the
market value, the losses they incur by doing so are by definition
not caused by a reduction in market value of the leasehold
interest, but rather a business decision to a pay a premium over
the market. This would appear to be a business loss that cannot be
properly compensable in injurious affection.
Conclusion
Ultimately, the Court of Appeal dismissed Gautam’s claim as
statute barred and directed a new trial for the claims of Dubberley
and Festival. The key points to take away from the Court of
Appeal’s decision are as follows:
- The limitation period set out in section 42 of the BC
Act operates like the limitation period for other ongoing
torts. As such, injurious affection claims should be made promptly,
as soon as an injury to the land is evident; - The unreasonable interference analysis should be done on an
individual basis to asses the particular circumstances of each
plaintiff including the plaintiff’s location, nature, and
losses; - With regards to the methodology for assessing compensation,
expert evidence is of high importance. Further, the loss of
business profitability does not automatically result in a directly
proportionate reduction in market rent. Where holding value plays
into the calculation, each lease must be evaluated independently.
The assessment should consider the terms of each lease, including
its length and renewal options in order to reach a determination on
its holding value. Finally, the choice to renew a lease may bar
and/or reduce a claim for injurious affection to a leasehold
interest; and - While this point received little analysis from the Court of
Appeal, class proceedings appear to be affirmed as a means for
proceeding against large infrastructure projects in British
Columbia. Despite this, the Court’s analysis of the
unreasonable interference issue suggests that class proceedings may
not be the most appropriate method for all aspects of such cases.
Care must be taken to ensure that issues requiring a highly
individualized analysis are not dealt with as common issues.
Gautam filed leave to appeal the Court of Appeal’s decision
to the Supreme Court of Canada on August 18, 2020.39 As of
the date of writing, the Supreme Court has yet to make a decision
regarding leave.
Footnotes
1. Gautam v. South Coast British Columbia
Transportation Authority, 2020 BCCA 135.
2. Ibid at para 5.
3. Ibid at para 6.
4. Section 41 of the Expropriation Act,
R.S.B.C. 1996, c. 125.
5. Supra note 2 at para 17.
6. Ibid at para 18.
7. Ibid at para 19.
8. Section 1(1) of the Expropriations Act,
R.S.O. 1990, c. E.26.
9. Antrim Truck Centre Ltd. v. Ontario
(Transportation), 2013 SCC 13 at para 5
[“Antrim”].
10. Section 42 of the Expropriation Act,
R.S.B.C. 1996, c. 125.
11. Supra note 2 at para 7.
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