Interim Costs in Expropriation

The basics of expropriation
When a government expropriates, it acquires privately-owned land for its own use and benefit. Expropriations typically occur for very good reasons such as the construction of important infrastructure like public light rail transit or updating and widening highways. A landowner has very little power or influence over whether their interest in land is expropriated. Because of this, the disputes arising from expropriation largely focus on compensation: how much should the expropriating authority pay the landowner to compensate them for the expropriation?

In Alberta, the expropriation process and the rules surrounding it are set out in the Expropriation Act.

Determining compensation: a duty of good faith and fairness
In expropriation proceedings, the expropriating authority owes a duty of good faith and fairness in its dealings with landowners. Although the content of this duty is not entirely certain at this point, parts of it are enshrined in the Expropriation Act, such as the duty to pay for legal and expert costs incurred by the landowner arising from the expropriation. This is set out in section 39 of the Expropriation Act:

39(1) The reasonable legal, appraisal and other costs actually incurred by the owner for the purpose of determining the compensation payable shall be paid by the expropriating authority, unless the Board determines that special circumstances exist to justify the reduction or denial of costs.

The Board referenced in section 39 is the Land Compensation Board, which is the body that is ultimately tasked with determining compensation if the parties cannot agree.

Interim costs and prima facie reasonableness
Expropriation proceedings can be slow-moving and costs can add up along the way. As a result, section 39 has been interpreted by the Board to provide for interim cost payments before the matter is finally settled or determined. Interim section 39 payments serve to keep the landowner on an even playing field to the expropriating authority.

Section 39 costs are always subject to reasonableness and “special circumstances”. Most often, concerns about the reasonableness or existence of special circumstances to deny paying 100% of section 39 costs are not at issue, but occasionally, the authority may take issue with the reasonableness of an interim account. A common way of dealing with such disputes is to agree that the authority will pay interim costs at a discounted rate. For example, it is typical for an expropriating authority to agree to pay 75% of the expropriated party’s interim fees and leave the remaining 25% to be determined at the conclusion of the matter.

If the authority and the landowner cannot agree on what interim payment is appropriate, the landowner may bring an application to the Land Compensation Board to order the authority to pay interim costs. The ability to make such an application is important to ensure that the even playing field is maintained.

Over the last several years in Alberta, lawyers acting for landowners have argued that a critical element of interim costs is that they should be paid quickly; a delay in paying these costs could result in an erosion of the even playing field.

As a result, the position taken by landowners and their lawyers has often been that time consuming assessments of the reasonableness of the interim costs should not provide grounds for an authority to resist making interim payments. Instead, the reasonableness assessment is more appropriate when making a final determination of costs at the conclusion of the matter. At that time, having regard to how the issues and positions of the parties actually played out, it is much easier to address the reasonableness of costs incurred. Further, time is no longer of the essence as there no pressing need to maintain an even playing field.

However, a recent decision of the Land Compensation Board has put this notion into question. In Haluszka v Alberta (Infrastructure), the Land Compensation Board found that it is appropriate to conduct a prima facie reasonableness assessment. That is, the Board affirmed an authority’s right to conduct an assessment that looks at whether, at first blush, the legal and expert fees were reasonably incurred before paying interim costs.

Two parts of the Land Compensation Board’s decision are particularly interesting:

• First, the Board focused on the fact that the word “reasonable” is used in section 39: “The reasonable legal, appraisal and other costs actually incurred by the owner for the purpose of determining the compensation payable shall be paid by the expropriating authority.”
• Second, the Board focused on the complexity of the matter at hand. If a matter is highly complex, then that may bear on an interim costs award. In the matter before it, the Board was not convinced of the matter’s complexity. It concluded that “neither the articulation of multiple grounds in a claim, nor the passage of time, in and of itself, renders a claim complex.”

Ultimately, in the Haluszka decision the Court steeply discounted the landowners’ interim costs claim, awarding them 50% of their interim costs after determining, on a prima facie basis, that some of the costs may not have been reasonable. Of course, the landowner retains the right to argue for the remaining 50% at the conclusion of the matter, but in the meantime, the landowner and their lawyer would need to come to an agreement on how to handle the outstanding 50%.

What does this mean for expropriating authorities and for expropriated landowners?
For expropriating authorities, this decision provides support for reviewing landowners’ legal and expert interim accounts to determine “first-blush” reasonableness and, potentially, resisting payment based on that review. This may lead to expropriating authorities more regularly seeking discounts on interim accounts of more than 75% if their review of the accounts so justifies.

For expropriated landowners, this decision is challenging. It does not give weight to the argument that maintaining an even playing field requires a measure of urgency to ensure that a landowner is not bearing the cost of a process over which they have little control. Depending on the stage of the litigation, it may also be very difficult for a landowner to establish the requisite complexity of a matter without jeopardizing litigation strategy or waiving privilege.

Reviews for reasonableness can be very time consuming when performed by larger expropriating authorities with established bureaucratic protocols that must be followed prior to issuing interim payments. Whether such delays are consistent with expropriating authorities’ duty of good faith was not considered by the Board in Haluszka.

It is likely that this issue will arise again before the Land Compensation Board. As active practitioners for both landowners and expropriation authorities, we will be keeping a keen eye on developments.

Contact Us
If you have any questions or would like advice, reach out to our Expropriation team.

This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.