The Corporation of the City of Windsor v. Paciorka Leaseholds Limited et al.

[Indexed as: Windsor (City) v. Paciorka Leaseholds Ltd.]

106 O.R. (3d) 690

2011 ONSC 2876

Ontario Superior Court of Justice,

Divisional Court,

Sachs, Herman and Harvison Young JJ.

May 16, 2011

Expropriation -- Compensation -- City expropriating respondents' land in order to preserve area with significant plant and animal species -- Ontario Municipal Board finding that absent scheme underlying expropriation, it was highly probable that residential community would have developed and that highest and best use of expropriated land was residential -- Board directing City to pay respondents $3,771,384 for market value of expropriated lands and $767,000 for injurious affection to lands remaining in respondents' ownership -- City's appeal dismissed -- Board's findings and conclusions reasonable and supported by evidence -- Board not erring in determining injurious affection by screening out scheme -- Board not erring in awarding interest from date of release of study which effectively froze development on land.

In 2002, the City approved Official Plan Amendment No. 5 ("OPA 5"), which changed the designation of 420 acres of land in the Malden Planning Area, including land owned by the respondents, from "Residential" to "Natural Heritage". The respondents appealed OPA 5 to the Ontario Municipal Board ("OMB"). The OMB approved OPA 5 with modifications, including a provision that the City acquire certain lands. Beginning in 2004, the City expropriated lands owned by the respondents in order to preserve an area with significant plant and animal species. The respondents sought compensation. The OMB found that the scheme underlying the expropriation began in 1983, when the Essex Region Conservation Authority conducted a study in which it identified 115 acres in the Malden Planning Area as an "Environmentally Sensitive Area". It found that, absent the scheme, it was highly probable that a residential community would have developed. It concluded that the highest and best use of the expropriated land was residential. The OMB directed the City to pay the respondents (a) $3,771,384 for the market value of lands expropriated; (b) $767,000 for injurious affection to the lands remaining in the respondents' ownership; and (c) interest on the above awards as of August 11, 1997. The City appealed.

Held, the appeal should be dismissed. [page691]

Per Herman J. (Harvison Young J. concurring): The fact that the land in question had natural features on it did not make it unsuitable for residential purposes until the various governmental authorities stepped in and took steps to protect the land. The Board's findings and conclusions with respect to the scope of the scheme, the highest and best use of the land and the appropriate comparators were reasonable and supported by the evidence. The Board did not err in determining injurious affection by screening out the scheme. Finally, the OMB did not err in awarding interest from the date of the release of a study which became the basis for OPA 5 and which effectively froze development on the land.

Per Sachs J. (dissenting): The OMB unreasonably ignored the impact on the ability of the lands to be developed of provincial policy statements in 1996 and 2005 which provided that natural heritage features and areas would be protected from incompatible development and that development and site alteration would not be permitted in a significant habitat of endangered and threatened species. Those documents existed independently of any "scheme" to expropriate. The Board also unreasonably ignored case law which takes into account whether the natural features of the land would have prevented development. The Board erred in its approach to compensation for injurious affection by applying s. 14(4)(b) of the Expropriations Act, R.S.O. 1990, c. E.26. The Board's unreasonable approach to the determination of market value for the expropriated lands also affected its award of interest.

APPEAL from an order of the Ontario Municipal Board directing respondents to pay compensation for expropriation.

Cases referred toWest Hill Redevelopment Co. v. Ontario (Management Board of Cabinet), [1999] O.J. No. 3035, 67 L.C.R. 252 (Div. Ct.), affg [1998] O.M.B.D. No. 779, 64 L.C.R. 81 (O.M.B.), distd Other cases referred to Antrim Truck Centre Ltd. v. Ontario (Minister of Transportation) (2010), 100 O.R. (3d) 425, [2010] O.J. No. 156, 2010 ONSC 304, 91 R.P.R. (4th) 41, 258 O.A.C. 1, 318 D.L.R. (4th) 229, 188 A.C.W.S. (3d) 718, 100 L.C.R. 32 (Div. Ct.); Base Ninety Developments Ltd. v. Ontario (Chair of the Management Board of Cabinet), [2004] O.M.B.D. No. 119, 83 O.C.R. 144 (O.M.B.); Base Ninety Developments Ltd. v. Ontario (Chair of the Management Board of Cabinet), 2005 39326 (ON SCDC), [2005] O.J. No. 4542, 263 D.L.R. (4th) 178, 203 O.A.C. 208, 38 R.P.R. (4th) 125, 89 L.C.R. 11, 143 A.C.W.S. (3d) 695 (Div. Ct.), affg (2004), 84 L.C.R. 73 (O.M.B.) [Leave to appeal to C.A. refused [2006] O.J. No. 5643, 60 R.P.R. (4th) 169 (C.A.)]; D.D.S. Investments Ltd. v. Toronto (City), [2010] O.J. No. 1229, 2010 ONSC 1393, 261 O.A.C. 12, 263 O.A.C. 383, 100 L.C.R. 236 (Div. Ct.), affg [2006] O.M.B.D. No. 627, 90 L.C.R. 130 (O.M.B.); Dunsmuir v. New Brunswick, [2008] 1 S.C.R. 190, [2008] S.C.J. No. 9, 2008 SCC 9, 329 N.B.R. (2d) 1, 64 C.C.E.L. (3d) 1, 164 A.C.W.S. (3d) 727, EYB 2008-130674, J.E. 2008-547, [2008] CLLC Â220-020, 170 L.A.C. (4th) 1, 372 N.R. 1, 69 Imm. L.R. (3d) 1, 291 D.L.R. (4th) 577, 69 Admin. L.R. (4th) 1, 95 L.C.R. 65, D.T.E. 2008T-223; Frankl v. Ottawa (City), [2007] O.J. No. 3158, 228 O.A.C. 101, 67 Admin. L.R. (4th) 288, 37 M.P.L.R. (4th) 139, 94 L.C.R. 1, 163 A.C.W.S. (3d) 587 (Div. Ct.), affg [2006] O.M.B.D. No. 629, 90 L.C.R. 225 (O.M.B.); Fraser v. Fraserville (City), 1917 449 (UK JCPC), [1917] A.C. 187 (P.C.); Gadzala v. Toronto (City), 2009 30143 (ON SCDC), [2009] O.J. No. 824, 252 O.A.C. 142, 96 L.C.R. 203, 176 A.C.W.S. (3d) 153 (Div. Ct.), affg 2006 12974 (ON SCDC), [2006] O.J. No. 1635, 266 D.L.R. (4th) 52, 211 O.A.C. 29, 21 M.P.L.R. (4th) 106, 43 R.P.R. (4th) 114, 89 L.C.R. 81, 147 A.C.W.S. (3d) 625 (Div. Ct.), varg [2004] O.M.B.D. No. 1014, 84 L.C.R. 176 (O.M.B.); King City Preserve the Village Inc. v. York (Regional Municipality), [2001] O.J. No. 5363, 24 M.P.L.R. (3d) 124 (Div. Ct.) [Leave to appeal to C.A. refused [2002] O.J. No. 491 (C.A.)]; Levine v. Ottawa (City), [1990] O.J. No. 1754, 40 O.A.C. 381, 44 L.C.R. 1, 23 A.C.W.S. (3d) 54 (Div. Ct.); Paciorka Leaseholds Ltd. v. Windsor (City), [2009] O.M.B.D. No. 985, 99 L.R.C. 269 (O.M.B.); Paciorka Leaseholds Ltd. v. Windsor (City), [2009] O.M.B.D. No. 986 (O.M.B.); [page692] Partition Holdings Ltd. v. Ontario (Minister of Transportation and Communications) (1986), 1986 2484 (ON CA), 56 O.R. (2d) 738, [1986] O.J. No. 1032, 31 D.L.R. (4th) 721, 17 O.A.C. 340, 42 R.P.R. 243, 1 A.C.W.S. (3d) 273, 36 L.C.R. 201 (C.A.); Pointe Gourde Quarrying & Transport Co. v. Sub-Intendent of Crown Lands, [1947] A.C. 565 (P.C.); R. v. Jewish Community Centre of Edmonton Trust (1984), 30 L.C.R. 97 (Alta. C.A.), revg (1983), 27 L.C.R. 333 (Alta. L.C.B.); Rattray Park Estates v. Credit Valley Conservation Authority (1977), 13 L.C.R. 140 (Ont. L.C.B.); Salvation Army, Canada East v. Minister of Government Services (1986), 1986 2723 (ON SCDC), 53 O.R. (2d) 704, [1986] O.J. No. 2370, 12 O.A.C. 283, 34 L.C.R. 193, 42 R.P.R. 142, 35 A.C.W.S. (2d) 396 (C.A.), affg (1984), 1984 1884 (ON SC), 48 O.R. (2d) 327, [1984] O.J. No. 3368, 7 O.A.C. 81, 31 L.C.R. 193, 28 M.P.L.R. 68, 28 A.C.W.S. (2d) 206 (Div. Ct.); Thompson v. Alberta (Minister of Environment), [2007] A.J. No. 1400, 2007 ABCA 411, 422 A.R. 102, 94 L.C.R. 22, 164 A.C.W.S. (3d) 643; Torvalley Development Ltd. v. Metropolitan Toronto and Region Conservation Authority (1989), 1989 4320 (ON SC), 69 O.R. (2d) 508, [1989] O.J. No. 1298, 61 D.L.R. (4th) 172, 33 O.A.C. 286, 7 R.P.R. (2d) 165, 16 A.C.W.S. (3d) 431 (Div. Ct.); Vandenbelt v. Ottawa- Carleton (Regional Municipality), [1980] O.J. No. 730, 19 L.C.R. 193 (Div. Ct.); Wilson v. Liverpool City Council, [1971] 1 All E.R. 628, [1971] 1 W.L.R. 302, 22 P. & C.R. 282, 135 J.P. 168, [1971] R.V.R. 45, 217 E.G. 987, [1971] E.G.D. 144 (C.A.) Statutes referred to Expropriations Act, R.S.O. 1990, c. E.26, ss. 1 [as am.], 13, (1), 14, (4)(b), 25(4), 31 [as am.], 33, (1), (4) Planning Act, R.S.O. 1990, c. P.13, s. 3 [as am.], (5) Authorities referred to Provincial Policy Statement (1996, amended in 1997), s. 2.3.1, (a) Ministry of Municipal Affairs and Housing, Provincial Policy Statement, 2005 (Toronto: Queen's Printer for Ontario, 2005), s. 2.1.3(b)

Stephen Waqué, Frank Sperduti and Patrick Brode, for appellant. Paul Henry and Robert Lawson, for respondents.

[1] HERMAN J. (HARVISON YOUNG J. concurring): -- The City of Windsor appeals from an order of the Ontario Municipal Board ("OMB") dated December 14, 2009 [[2009] O.M.B.D. No. 986 (O.M.D.)].

[2] The City expropriated land owned by the respondents in order to preserve an area with significant plant and animal species. The respondents sought compensation.

[3] The Board directed the City to pay the respondents (a) $3,771,384 for the market value of lands expropriated; (b) $767,000 for injurious affection to the lands remaining in the respondents' ownership; interest on the above awards as of August 11, 1997; and (c) $26,500 to one respondent as disturbance damages. [page693]

[4] The City appeals all but the last portion of the award, that is, the portion relating to disturbance damages.

[5] The City's position is that the OMB erred in four respects: it failed to take into consideration the natural features of the land when it determined the market value of the lands; it applied the wrong test when it determined injurious affection; it set a date for interest which pre-dated the date of expropriation; and it ordered a higher rate of interest to be paid to one of the respondents. Background

[6] The respondents were owners of land in the Malden Planning Area in the southwest section of Windsor.

[7] The respondents are the children and grandchildren of Phillip and Barbara Frey, who owned lands in the Malden Area since the 1940s. In addition to the land they inherited, several respondents purchased additional lands in the area up until the year 2000. The Paciorka family and their wholly owned company were the largest landowners in the Malden Area other than the City.

[8] In 1978, the City adopted Official Plan Amendment 33 ("OPA 33"). OPA 33 established policies for residential development in the Malden Planning Area. It provided for full urban development: low, medium and high density residences with complementary neighbourhood community services and facilities, schools and roads.

[9] The first phase of the development started in the late 1970s. A second phase was completed in the 1990s.

[10] In 1983, the Essex Region Conservation Authority conducted a study in which it identified 115 acres in the north central part of the Malden Planning Area as an "Environmentally Sensitive Area". The area contained a tall grass prairie habitat with significant plant and animal species, notably the Butler's Garter and Eastern Massasauga Rattlesnakes. The study recommended that the area be preserved.

[11] In 1984, the Ministry of Natural Resources designated 248 acres in the north central part of Malden as an Area of Natural and Scientific Importance ("ANSI").

[12] In 1992, the Conservation Authority expanded the "Environmentally Sensitive Area" to 420 acres. The City of Windsor identified an equivalent area as a Candidate Natural Heritage Site. These designations meant that the area was a candidate for classification as "Environmental Policy Areas". Development was not permitted prior to completion of an Environmental Evaluation Report. [page694]

[13] In 1994, the Ministry expanded the ANSI boundary.

[14] In 1996, the City, the Ministry and the Conservation Authority jointly commissioned an environmental evaluation report. The report was entitled the "Spring Garden Complex".

[15] The Spring Garden Complex Report made various recommendations to ensure the long-term environmental sustainability of the area. It recommended that the area be re- designated with an "Environmental Policy Area 1 designation" in the Official Plan. Such a designation would limit permitted uses to conservation, wildlife and habitat management and public open space.

[16] The firm of Dillon Consulting Limited was retained to examine land use and environmental issues and to recommend amendments to existing development policy for the Malden Area. The Dillon Report was completed and available to the public in 1997. The report included a procurement strategy for 420 of the 700 acres within the Malden Area.

[17] City council adopted the Dillon Report in 2001. The report became the basis for Official Plan Amendment No. 5 ("OPA 5"). OPA 5 changed the designation of 420 acres in the central portion of the Malden Area, now known as the Spring Garden Planning Area, from "Residential" to "Natural Heritage".

[18] OPA 5 provided for a residential community encircling the ANSI, referred to as the Spring Garden Complex. The ANSI would form a visible and centrally located community park, prairie and woodlands area, in which significant biological communities would be protected and perpetuated.

[19] The respondents and others appealed OPA 5 to the OMB. In a decision from a pre-hearing conference, dated September 5, 2002, the Board noted that the respondents were not opposed to the ANSI designation "provided they are fairly compensated either with other lands of equal value or current fair market value in cash".

[20] By decision dated October 29, 2002, the Board approved OPA 5 with modifications. In particular, it provided that the City acquire certain lands.

[21] The City expropriated 267 lots owned by the respondents beginning in 2004.

[22] After the expropriation, the Paciorkas continued to own 181 lots, 172 of which were located within the Spring Garden Planning Area and nine of which were adjacent to the Area; Mrs. Frey owned seven lots within the Spring Garden Planning Area; and the other respondents owned four lots east of the Spring Garden Complex. [page695] Standard of Review

[23] Section 31 of the Expropriations Act, R.S.O. 1990, c. E.26 provides for an appeal to Divisional Court from any decision or order of the Ontario Municipal Board on questions of law, fact or both.

[24] The Divisional Court conducted a review of decisions related to the standard of review for decisions of the Board in Antrim Truck Centre Ltd. v. Ontario (Minister of Transportation) (2010), 2010 ONSC 304, 100 O.R. (3d) 425, [2010] O.J. No. 156 (Div. Ct.). It noted, at para. 14, that the Divisional Court has applied a reasonableness standard to questions of fact or mixed fact and law in cases engaging the expertise of the Board on expropriation matters, particularly where it involves the enunciation of principles that apply to the calculation of damages.

[25] The court concluded, at para. 15, that the standard of reasonableness should apply to the application of principles that fall within the expertise of the Board, while the standard of correctness should apply to the Board's articulation of common law principles outside of its particular expertise.

[26] In this case, the Board was interpreting and applying principles and determining matters that were clearly within its specialized expertise, that is, the determination of compensation arising from expropriation. As such, the standard of review should be reasonableness.

[27] The standard of reasonableness was described by Bastarache and LeBel JJ. in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, [2008] S.C.J. No. 9, at para. 47, as follows:

[R]easonableness is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process. But it is also concerned with whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law. Did the Board Err in Screening Out the Land's Natural Features When It Determined Compensation?

[28] A person whose land is expropriated is entitled to receive market value compensation. In determining market value, the Board is required to exclude any increase or decrease in the value of the land resulting from the scheme for development. It then determines the highest and best use to which the land would have been put absent this scheme. Finally, it determines market value based on the highest and best use.

[29] The City submits that there was no scheme until 2002, when OPA 5 was approved. The scheme was limited to the expropriation of land that was already environmentally sensitive and, [page696] therefore, undevelopable for residential purposes. The City submits that by backdating the scheme to 1983, the Board incorrectly screened out the land's natural and intrinsic features in determining the value of the land.

[30] The City contends that in view of the land's physical features, its development potential was always limited. The Board therefore erred when it based its determination of market value on a comparison with sales in an area that did not have these physical features. The various studies and rezoning did not create the features; they just recognized the natural features that were already there. In the City's submission, the Board should have valued the land on the basis that it was a speculative investment with limited development potential in view of its natural features.

[31] The City also submits that the provincial policy statements would have affected the value of the lands such that the highest and best use of the land would not have been unimpeded residential development. The Policy Statements exist outside of any process involving the City, the Ministry and the Conservation Authority.

[32] The respondents maintain that the scheme that should be disregarded in determining the value of the land is the process that began in 1983 with the Conservation Authority's identification of an environmentally sensitive area and ended in 2004 with the expropriation of the land. They submit that the highest and best use to which the land would have been put absent this scheme is residential development.

The Board's decision

[33] The Board concluded that the scheme underlying the expropriation began in 1983. It also concluded that the highest and best use of the expropriated land was residential.

[34] In reaching its conclusions, the Board heard the following expert opinion evidence from the respondents: (a) land use planners testified on the highest and best use of the land, injurious affection and the development potential of the land; (b) a civil engineer provided evidence on how the lands would have been serviced and the likely timing of such servicing; (c) an economist testified with respect to future demands for new housing in the local market and the demand for service lots in the area, absent the scheme; and [page697] (d) a real estate appraiser provided estimates on market value of the expropriated lands and injurious affection to the remainder of the respondents' lands.

[35] The Board also heard from many of the individual respondents.

[36] David Atlin, the real estate appraiser retained by the respondents, made the following assumptions: the area had undergone considerable consolidation by the late 1990s and the City would have encouraged this trend; the area would have been serviced and substantially developed by the time of the first expropriation in 2004; and residential development taking place in the surrounding area would have extended into the Spring Garden Planning Area. Based on these assumptions, Mr. Atlin gave his opinion that the highest and best use of the land would have been residential development. In determining his valuation of the lands, he looked to sales in neighbouring areas which, in his opinion, would likely have taken place in Spring Garden absent the scheme.

[37] The Board heard the following expert opinion evidence from the City: (a) a land use planner who testified on the marketability of the expropriated lands at the time of the expropriation and the impact on marketability of the remaining lands; and (b) a real estate appraiser who provided evidence on the market value of the expropriated lands.

[38] In addition, the Board heard evidence from the City of Windsor employees and associates.

[39] The City provided Mr. Ray Bower as its witness on market value. In Mr. Bower's opinion, there was a potential for residential development. However, this potential was limited and speculative in nature. He testified that "[i]f the expropriation had not come along, developers would have had to deal with unique characteristics, physical characteristics of the land, in order to proceed with their development" (examination-in-chief, April 15, 2009, p. 79).

[40] Mr. Bower focused his appraisal comparisons on vacant land sales in the immediate area of the ANSI. The comparators he used included a number of properties located within the ANSI boundaries. Mr. Atlin, on the other hand, excluded all sales from the area in his analysis.

[41] Mr. Bower also relied on sales in the Town of LaSalle. The respondents argued before the Board that there were significant [page698] differences in development charges between LaSalle and Windsor, which resulted in lower costs for residential lots in LaSalle.

[42] The Board's first task was to identify the scheme that should be screened out for the purpose of determining value. The Board concluded that the scheme that had to be disregarded in determining compensation was the establishment, preservation and protection of the Spring Garden Complex. The first step in establishing that scheme was taken in 1983, when the Conservation Authority identified 115 acres in the Malden Area as an "Environmentally Sensitive Area". The process continued through to 2002, when OPA 5 was approved.

[43] In identifying the scheme, the Board indicated that [[2009] O.M.B.D. No. 985, 99 L.R.C. 269 (O.M.B.)] "the process was a continuum; the identification and the designation process led to the expropriation. Without that process the City would not have taken the lands" (Reasons, p. 23 [at para. 65]). The Board accepted the evidence that the City, the Ministry and the Conservation Authority had worked together over an extended period of time to establish, preserve and protect the Spring Garden Complex.

[44] The Board found that absent this scheme, it was highly probable that a residential community as envisioned by OPA 33 would have developed. Therefore, the respondents should be compensated on the basis that the highest and best use of the respondents' lands, absent the scheme, would have been residential development. The Board accepted the evidence of Mr. Atlin with respect to market value. Mr. Atlin arrived at his valuations by using comparable sales from areas that were in close proximity and similar to the expropriated lands.

Statutory framework

[45] Section 13 of the Expropriations Act provides that where land is expropriated, the expropriating authority, in this case, the City, shall pay the owner compensation based on the market value of the land; damages attributable to disturbance; damages for injurious affection; and any special difficulties in relocation.

[46] Section 14 sets out how market value is determined:

14(1) The market value of land expropriated is the amount that the land might be expected to realize if sold in the open market by a willing seller to a willing buyer. . . . . .

(4) In determining the market value of land, no account shall be taken of, (a) the use to which the expropriating authority will put the land; [page699] (b) 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 or from any expropriation or imminent prospect of expropriation; or (c) any increase in the value of the land resulting from the land being put to a use that could be restrained by any court or is contrary to law or is detrimental to the health of the occupants of the land or to the public health. (Emphasis added)

[47] The City also referred to two provincial policy statements: Provincial Policy Statement (1996, amended in 1997) and Provincial Policy Statement, 2005 (Toronto: Queen's Printer for Ontario, 2005). A provincial policy statement provides policy direction on matters of provincial interest related to land use planning and development.

[48] Provincial policy statements are made pursuant to s. 3 of the Planning Act, R.S.O. 1990 c. P.13. At the relevant time, s. 3(5) of the Planning Act required that, in exercising any authority that affects a planning matter, a municipality and others "shall have regard" to policy statements. (The provision was subsequently amended to require that planning decisions be consistent with policy statements: S.O. 2006, c. 23, s. 5.)

[49] The Provincial Policy Statement (1996, amended in 1997) provides that natural heritage features and areas will be protected from incompatible development. In particular, it states that development will not be permitted in significant portions of the habit of endangered and threatened species (s. 2.3.1(a)).

[50] The Provincial Policy Statement (2005) came into effect after the expropriation of the respondents' property began. It provides that development and site alteration will not be permitted in a "significant habitat of endangered species and threatened species" (s. 2.1.3(a)). Analysis

[51] The primary difference between the parties' positions relates to the Board's identification of the scheme and its treatment of the land's natural features. The City submits that the scheme did not begin until 2002, when the plan for expropriation was filed. Furthermore, it submits that in determining the highest and best use to which the land would have been put absent the scheme, the Board should have taken the land's natural features into consideration. Had it done so, it would have concluded that, absent the scheme, the potential for residential development was limited. [page700]

[52] Section 14(4)(b) of the Expropriations Act is a codification of what is referred to as the "Pointe Gourde Rule". This rule was articulated by the House of Lords in Pointe Gourde Quarrying & Transport Co. v. Sub-Intendent of Crown Lands, [1947] A.C. 565 (P.C.):

It is well settled that compensation for the compulsory acquisition of land cannot include an increase in value which is entirely due to the scheme underlying the acquisition.

[53] Similarly, compensation should not include a decrease in value that is entirely due to the scheme underlying the expropriation. Thus, in determining compensation, the Board must exclude any increase or decrease in value that is due to the scheme that was the basis for the expropriation of the land.

[54] Lord Denning discussed what was meant by "the scheme" in Wilson v. Liverpool City Council, [1971] 1 W.L.R. 302, [1971] 1 All E.R. 628 (C.A.):

A scheme is a progressive thing. It starts vague and known to few. It becomes more precise and better known as time goes on. Eventually it becomes precise and definite and known to all. Correspondingly, its impact has a progressive effect on values. At first it has little effect because it is so vague and uncertain. As it becomes more precise and better known, so its impact increases until it has an important effect. It is this increase, whether big or small, which is to be disregarded at the time when the value is assessed.

[55] There are various cases in which the courts have had to consider how to treat the existing features of the lands. The City points to several cases which it contends support its position that the Board should have taken into consideration the natural features of the Spring Garden Complex lands when it determined their highest and best use and the appropriate comparators. The respondents, however, submit that the determination in each case is fact-specific and the cases in which the court took the lands' features into consideration are distinguishable on their facts.

[56] The decision in Fraser v. Fraserville (City), 1917 449 (UK JCPC), [1917] A.C. 187 (P.C.) involved an appeal from a judgment of the Court of King's Bench for Quebec to the Privy Council. The court considered the value of lands expropriated to establish a hydro-electric facility. Those lands were adjacent to a waterfall. The court concluded that the added utility of the property arising from the possibility of its development for a hydro-electric project properly formed part of the valuation for compensation following expropriation. Lord Buckmaster set out the principle as follows:

[T]he value to be ascertained is the value to the seller of the property in its actual condition at the time of expropriation with all its existing advantages [page701] and with all its possibilities, excluding any advantage due to the carrying out of the scheme for which the property is compulsorily acquired[.]

[57] In Rattray Park Estates v. Credit Valley Conservation Authority (1977), 13 L.C.R. 140 (Ont. L.C.B.), the land in question included a marsh. Although there were no planning or zoning designations that would have prevented residential development, the Land Compensation Board found that, given the evidence of persistent and continuing resistance to development over a long period of time, a large-scale development was not a reasonable use of the land. In the result, the Board found that the highest and best use to which the land could be put was a far more modest residential development than had been proposed.

[58] In Frankl v. Ottawa (City), [2006] O.M.B.D. No. 629, 90 L.C.R. 225 (O.M.B.), affd Ottawa (City) v. Wright, [2007] O.J. No. 3158, 94 L.C.R. 1 (Div. Ct.), the Divisional Court concluded that the Board's finding that the highest and best use of expropriated ravine land was use for storm water management purposes to facilitate urban development was reasonable. It noted that "[t]he Board found it difficult to accept that in the absence of the scheme, the developers would not have pursued a privately-funded SWM [storm water management] scheme" (para. 46).

[59] In D.D.S. Investments Ltd. v. Toronto (City), [2006] O.M.B.D. No. 627, 90 L.C.R. 130 (O.M.B.), affd [2010] O.J. No. 1229, 2010 ONSC 1393 (Div. Ct.), the Board's task was to determine the compensation to be paid by the City in respect of an expropriation to allow access to utility pipes that lay underground. The property owners were aware of the pipes when the land was purchased and there was a history of co-operation prior to the expropriation. The Board concluded that the existence of the pipes and the former licence agreement could not be considered part of the development for which expropriation occurred because a combination of s. 194 of the Municipal Act (which meant that the pipes could not be disturbed), the existence of the agreement and the presence of the pipes in the ground "would all have had a sobering effect on any prospective purchaser properly advised" (p. 138 L.C.R.).

[60] Salvation Army, Canada East v. Minister of Government Services (1984), 1984 1884 (ON SC), 48 O.R. (2d) 327, [1984] O.J. No. 3368 (Div. Ct.), affd (1986), 1986 2723 (ON SCDC), 53 O.R. (2d) 704, [1986] O.J. No. 2370 (C.A.) was an appeal from the Board's determination of compensation for land expropriated for the construction and maintenance of an electrical transmission line. Anderson J., who wrote the majority decision of the Divisional Court, paraphrased the Pointe Gourde principle [at para. 16]: "a landowner whose land is taken should [page702] have neither advantage nor detriment by reason of the scheme for which the taking was effected" (p. 200). The determination of the scheme "is a question of fact" (p. 200).

[61] Anderson J. concluded that the Board had erred in screening out the Parkway Belt West Development Plan when it determined compensation. In his view, the plan was not the "development" which should be screened out because the necessity for a high-voltage facility existed independently of the plan. The development which should be disregarded was that which was directly related to the expropriation, that is, the construction of the transmission line.

[62] Levine v. Ottawa (City), [1990] O.J. No. 1754, 44 L.C.R. 1 (Div. Ct.) involved the City's expropriation of a property that was in a designated heritage conservation district. The owner's position was that the land should be valued as if there were no heritage designation. The court disagreed. It noted that the designation of lands as a heritage district did not show an intention to expropriate; rather, it showed an intention to preserve. The only reason the expropriation occurred was because the owner did not follow the zoning requirements and the purpose of the designation. Thus, the court concluded that there was no decrease in the value of the property resulting from the heritage designation.

[63] In Thompson v. Alberta (Minister of Environment), 2007 ABCA 411, [2007] A.J. No. 1400, 94 L.C.R. 22 (C.A.), the claimant's lands were designated as part of a Transportation and Utility Corridor Right of Way ("TUC"). The claimant submitted that the determination of compensation should be made as if the overall project to which the expropriation related, that is, the TUC, did not exist. However, the claimant had acquired the land knowing it was adjacent to the TUC and knowing that the government wanted to acquire the lands to make them part of the TUC.

[64] The Alberta Court of Appeal concluded, at para. 17, that ignoring the TUC would produce a windfall for the appellant and would be potentially unfair to other parties who had conducted themselves and engaged in development in light of the TUC for the last 25 years. In the result, it was "pragmatic, purposive and equitable" to ignore only that aspect that was created by the recent expropriation.

[65] The decision in Torvalley Development Ltd. v. Metropolitan Toronto and Region Conservation Authority (1989), 1989 4320 (ON SC), 69 O.R. (2d) 508, [1989] O.J. No. 1298 (Div. Ct.) involved an appeal from the Board's award of compensation following expropriation of a brickworks property. The court upheld the Board's decision that the highest and best use of the land was for residential [page703] development. In determining market value, the Board had to consider whether there was a reasonable probability that a residential development would have been carried out. As part of its examination, the Board considered whether various approvals would have been granted for such a development, absent expropriation. The court noted that this was not a situation in which the developer had intended to destroy a natural environment; the natural environment had been destroyed long before. Furthermore, there was evidence that municipal officials were of the opinion that residential development might have been permitted to go ahead.

[66] West Hill Redevelopment Co. v. Ontario (Management Board of Cabinet), [1998] O.M.B.D. No. 779, 64 L.C.R. 81 (O.M.B.), affd [1999] O.J. No. 3035, 67 L.C.R. 252 (Div. Ct.) involved the expropriation of land for Rouge Park, a provincial park. The Board found the park proposal changed the land use potential for the claimant's lands; there was a clear causal connection between the adoption of the Official Plan amendment and the acquisition of the claimant's lands; urban residential development was envisioned prior to the Official Plan amendment; the claimant's lands, in the absence of the park scheme, would have the potential for some form of urban development; and there was a reasonable prospect that the claimant would have succeeded in obtaining development approval but for the scheme.

[67] The situation in West Hill is distinguishable from that in the case at hand. In West Hill, the plan for development that existed prior to the plan for a provincial park had incorporated the land's natural features. Thus, it was envisaged that there would be residential development along with the maintenance and enhancement of the land's natural features, that is, its woodlots and valleys. In determining the value of the land, the Board recognized that the valley lands and woodlots had more limited development potential prior to the existence of the scheme and therefore did not apply the full development rate to them. In the case at hand, however, the plans for development that existed prior to the scheme did not indicate that there were portions of the land that had more limited potential for residential development.

[68] In Gadzala v. Toronto (City), [2004] O.M.B.D. No. 1014, 84 L.C.R. 176 (O.M.B.), appeal allowed in part on other grounds 2006 12974 (ON SCDC), [2006] O.J. No. 1635, 89 L.C.R. 81 (Div. Ct.), affd 2009 30143 (ON SCDC), [2009] O.J. No. 824, 96 L.C.R. 203 (Div. Ct.), the Board determined compensation for injurious affection resulting from the expropriation of properties located on the Toronto waterfront for the creation of a [page704] linear waterfront park. The Board rejected the City's position that no value should be placed on submerged lands, noting that land filling along the shore had been ongoing for a long time, it represented good land use planning and it may not be environmentally harmful given responsible controls.

[69] The determination in each of the cases referred to above is fact-specific. In situations in which the natural features of the land would have affected the highest and best use of the land and its value regardless of the scheme, the Board or court took those features into consideration in determining value. In West Hill, for example, there was a distinction between the development potential of the tablelands and the more limited potential of the valley lands and woodlots. This distinction had been recognized prior to the plan to develop a provincial park.

[70] However, the Board did not take the features into consideration where they would not have affected value but for the scheme. In Gadzala, for example, the fact that part of the lands was submerged did not affect the value because there was evidence that the lands would likely have been filled in but for the scheme.

[71] Turning to the case at hand, there was evidence that the land in question was a wildlife habitat. Furthermore, the Provincial Policy Statement (1996, amended 1977) refers to limits on development in such areas.

[72] At the same time, there was evidence before the Board that, but for the various studies and designations of the land by the City, the Ministry and the Conservation Authority, the land would have been developed for residential purposes. OPA 33, adopted by the City in 1978, established policies for residential development in the area. The Board accepted the evidence of Mr. Atlin that, absent the scheme, the area would have been serviced and substantially developed by the time of the first expropriation in 2004. The Board was satisfied "that on the balance of probabilities, but for the 'scheme', the claimants' lands would have been serviced and would have achieved a form of development contemplated by OPA 33" (Reasons, p. 43 [at para. 152]).

[73] The fact that the land had natural features on it did not make it unsuitable for residential purposes until the various governmental authorities stepped in and took steps to protect the land. It was not a situation, such as the West Hill case, where certain portions of the land had been recognized as unsuitable for residential development prior to the existence of the scheme. It was also not a case, such as in Rattray Park Estates, where there had been a history of resistance to development. Rather, it was an area that had been identified under the Official Plan as an area for residential development. [page705]

[74] The Board made findings of fact with respect to the scope of the scheme, the highest and best use of the land and the appropriate comparators. These are all matters within its specialized expertise. There was evidence to support its findings and conclusions. In our opinion, these conclusions are reasonable and are owed deference by this court. Did the Board Err in its Interpretation, Application and Quantification of Injurious Affection?

[75] The respondents sought compensation for injurious affection as it related to the lands they owned that were outside the expropriated area. They claimed that, as a result of the expropriation, the remaining lands were in isolated neighbourhoods without services and schools, and with inefficient road patterns. These factors meant that development was more costly and the property values were less.

[76] The City submits that the Board erred when it determined the value of injurious affection in the same way that it determined market value, that is, by screening out the scheme. Rather, the correct approach is to assess the impact, if any, of the public acquisition of the land. If the Board had applied this approach, it would not have found a causal connection between the expropriation scheme and any diminution in the value of the remaining lots. Indeed, in the City's submission, the existence of a natural park-like setting actually enhanced property values.

The Board's decision

[77] The Board found that the respondents had held the remaining lands together with the expropriated lots. There was a unity of ownership in the way in which the blocks of land were created and in the respondents' long-term plans. There was, therefore, a partial taking of the respondents' lands.

[78] The Board found that the advantages that were available to the respondents before the expropriation were now lost. The shift from residential development created a very different area for development purposes. The policies in OPA 5 required a form of development that reduced the development potential of the remaining lands: there were increased risks and inefficiencies, and development was more restricted and costly. There was uncontradicted evidence that, as a result of the expropriation, there would be additional costs for storm sewer extension and roadway construction if the remaining lands were to be [page706] developed. The expropriation therefore resulted in a reduction in market value in the remaining lands.

[79] Mr. Atlin assessed the impact of "being almost embedded within the ANSI" as a reduction in value of approximately 50 per cent. The Board accepted Mr. Atlin's opinion.

[80] The City's appraiser, Mr. Bowen, did not provide any estimates or analysis of injurious affection. However, he expressed his opinion that there was no injurious affection on the remaining lands.

[81] The City had also argued that there was an advantage to abutting owners in being next to the Spring Garden Complex. However, the Board found that if there were such a benefit, the benefit would also accrue to owners whose lands had not been expropriated. As a result, the Board did not deduct anything from the damages for injurious affection.

Analysis

[82] Did the Board err in determining injurious affection in the same manner in which it determined compensation for expropriation, that is, by screening out the scheme?

[83] Section 13(1) of the Expropriations Act provides for the payment of damages for injurious affection to the owner of expropriated land.

[84] The relevant part of the definition of injurious affection in s. 1 of the Act is [as follows]:

"injurious affection" 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 (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,

and for the purposes of this clause, part of the lands of an owner shall be deemed to have been acquired where the owner from whom lands are acquired retains lands contiguous to those acquired or retains lands of which the use is enhanced by unified ownership with those acquired.

[85] The Divisional Court discussed the meaning of injurious affection in Salvation Army, Canada East v. Minister of Government Services. It noted that the principle articulated in s. 14(4)(b), which requires the screening out of the scheme, applies only to the determination of market value; it does not [page707] apply to the determination of injurious affection. The court indicated that the Board in Salvation Army had inappropriately included in the award for injurious affection an element of value caused solely by the inclusion of the land in question within the area of the Parkway Belt West Plan.

[86] The Court of Appeal [in Salvation Army] agreed with the Divisional Court's approach to injurious affection. As noted by Grange J.A., at p. 198: "Injurious affection cannot be taken to include any diminution in value totally unrelated to the expropriation and caused by down-zoning."

[87] In Base Ninety Developments Ltd. v. Ontario (Chair of the Management Board of Cabinet), 2005 39326 (ON SCDC), [2005] O.J. No. 4542, 89 L.C.R. 11 (Div. Ct.), leave to appeal refused [2006] O.J. No. 5643, 60 R.P.R. (4th) 169 (C.A.), the Divisional Court dismissed appeals from two decisions of the Board ([2004] O.M.B.D. No. 119, 83 O.C.R. 144 (O.M.B.) and (2004), 84 L.C.R. 73 (O.M.B.)). Lane J. indicated that the evidence supported the Board's conclusions that there was a significant probability that, in the absence of the actual construction and operation of the highway, the lands in question would have been developed for urban uses. The Board had properly compensated the claimants for the loss of this opportunity, not for the historical down-zoning of the land.

[88] Turning to the case at hand, the task of the Board, in determining injurious affection, was to determine the reduction in market value of the respondents' remaining lands caused by the expropriation. Therefore, the Board was required to determine any loss in value resulting from the expropriation of the lands, not the loss in value resulting from the scheme as a whole.

[89] There was some blurring in the reasons of the distinction between the diminution in value as a result of the scheme and the diminution in value as a result of the expropriation. However, the Board referred to evidence that the development and servicing of the remaining lands would be more costly as a direct result of the expropriation and the value of those lands would therefore be less. The Board referred, in particular, to the additional costs that would be required for storm sewer extension and roadway construction in order to develop the remaining lands. There was, therefore, a causal connection between the expropriation and the decrease in value of the lands.

[90] I would add that the City had instructed its appraiser, Mr. Bower, to limit his assessment to the market value of the expropriated lands. The City took the position that there was no injurious affection. In the result, the only evidence on the extent of the reduction in value due to the expropriation came from the respondents' witnesses. [page708]

[91] I conclude that there was evidence before the Board that supported its determination that there had been injurious affection as a result of the expropriation and evidence that supported the value it placed on the injurious affection. Its findings and conclusions were reasonable. Did the Board Err when it Determined that the Respondents Should Receive Interest from August 1997?

[92] The Board found that the respondents lost productive use of their lands when the Dillon study was released in August 1997 and that this, therefore, was the appropriate date at which interest should begin.

[93] In arriving at this date, the Board noted that the Dillon study had identified the boundary for the ANSI and outlined procurement strategies. It was the opinion of the Board that it was at this point that the residential development potential of the respondents' lands was frozen.

[94] The City's position is that the appropriate date for interest is 2004, the date when expropriation began. It submits that the respondents held the land as speculative holdings for future development. As a result, they did not lose anything until their lands were expropriated.

[95] The respondents maintain that they were unable to make productive use of their land once the Dillon study was released in 1997. While there were no applications for development outstanding at the time of expropriation, they submit that there was, nonetheless, evidence of their interest in developing the lands.

Analysis

[96] Section 33(1) of the Act provides that the owner of expropriated lands is entitled to an annual rate of interest of 6 per cent "from the date the owner ceases to reside on or make productive use of the lands".

[97] In Partition Holdings Ltd. v. Ontario (Minister of Transportation and Communications) (1986), 1986 2484 (ON CA), 56 O.R. (2d) 738, [1986] O.J. No. 1032, 36 L.C.R. 201 (C.A.), the Court of Appeal considered whether interest should pre-date the registration of the plan of expropriation. Cory J.A. concluded, at p. 205 L.C.R., that interest should be payable from the date when the land could no longer be used productively. He noted [at para. 16] that it would be "most unfair for an expropriating authority effectively to tie up or prohibit the productive use of vacant land" and to do so without paying any interest was unconscionable. [page709]

[98] The City distinguished Partition Holdings from the case at hand on the basis that, in Partition Holdings, the land was "ripe for development".

[99] There was evidence before the Board to support its determination that the Dillon study effectively froze development when it was released in 1997. In particular, the Board noted that the City had effectively acknowledged that the lands were no longer available for productive use when it imposed "lease arrangements" on the respondents' lands and advised the respondents to stop paying property taxes.

[100] It was therefore not unreasonable for the Board to conclude that the date of release of the Dillon study was the date at which the respondents could no longer make productive use of their lands and therefore the date from which interest should be paid. Did the Board Err when it Awarded a Higher Interest Rate to Elizabeth Frey?

[101] The Board awarded the respondent, Mrs. Elizabeth Frey, interest at 10 per cent, instead of the standard rate of 6 per cent, for the period between July 7, 2004 and July 27, 2006.

[102] In reaching its decision, the Board noted that although Mrs. Frey's lands were expropriated in April 2004, she did not receive an offer supported by an appraisal until July 26, 2006. The Board found that Mrs. Frey, a widow of modest means and advanced in years, was denied the use of her funds because of the City's delay in making her an offer. The Board concluded that the inconvenience to Mrs. Frey caused by the delay warrants a higher rate of interest.

[103] The City submits that the Board erred in the exercise of its discretion. The Act has a penalty provision for making the offer on time: s. 25(4). The Board erred when it relied on another provision in the Act to award higher interest.

[104] Furthermore, in the City's submission, the delay in the determination of compensation by the Board was not because of any delay in the offer to Mrs. Frey. Rather, the delay was due to the time it took to bring forward the claims of all the other respondents.

[105] The respondents contend, however, that in the case of Mrs. Frey, the delay in the offer caused a real hardship. That is because for many individuals, the offer serves as the basis for their payment of appraisers and lawyers.

[106] The respondents also note that s. 25(4) is silent as to the appropriate rate of interest. It does not, therefore, preclude the [page710] Board relying on another provision in the Act to impose a higher interest rate.

Analysis

[107] Section 33(4) provides the Board with the discretion to award interest at a higher rate:

33(4) Where the Board is of the opinion that any delay in determining compensation is attributable in whole or in part to the expropriating authority, the Board may order the expropriating authority to pay to the owner interest under subsection (1) at a rate exceeding 6 per cent a year but not exceeding 12 per cent a year.

[108] Section 25(4) provides that if the offer is not served within the prescribed time limit, interest shall be calculated from the date of registration of the expropriation plan.

[109] The issue of the awarding of a higher rate of interest was before the Divisional Court in Vandenbelt v. Ottawa- Carleton (Regional Municipality), [1980] O.J. No. 730, 19 L.C.R. 193 (Div. Ct.). Henry J. indicated, at p. 200 L.C.R. [at para. 23], that "[a]ny delay whether 'a flagrant violation' or not in determining compensation is sufficient to attract the discretion of the Board to increase the rate of interest." The exercise of the discretion to award a higher rate of interest is "a matter of fairness and equity according to the individual circumstances of the case".

[110] The decision to award a higher interest rate is discretionary. There is nothing in s. 25(4) that limits the discretion to award a higher rate of interest under s. 33(4).

[111] The Board set out the reasons for exercising its discretion to grant a higher rate of interest to Mrs. Frey. The Board's exercise of its discretion was not unreasonable nor was it wrong in principle. Conclusion

[112] The Board's determinations that are the subject matter of this appeal all fall within the Board's specialized expertise and are therefore owed deference. The applicable standard of review is reasonableness.

[113] In my opinion, the Board's conclusions were reasonable. There was evidence to support its findings and conclusions. Its conclusions fall within "a range of possible, acceptable outcomes which are defensible in respect of the facts and law" (Dunsmuir, at para. 47).

[114] The appeal is therefore dismissed. [page711]

[115] I would encourage the parties to come to an agreement with respect to costs. If they are unable to do so, the respondents may submit written cost submissions within 14 days of the release of this decision. The City has a further 14 days within which to provide written cost submissions in response. The cost submissions should be no more than five pages in length, plus a bill of costs.

SACHS J. (dissenting): -- Introduction

[116] I agree with the majority that the standard of review applicable to this appeal is reasonableness. However, I do not agree that the Board's decision [[2009] O.M.B.D. No. 986 (O.M.B.)] meets this standard. The Board arrived at its assessment of fair market value based on an expert opinion that proceeded on the assumption that the natural features of the land did not exist. Thus, it concluded that, absent the expropriation, the lands in question could have been fully developed as a residential development.

[117] To arrive at this conclusion, the Board unreasonably ignored the impact of the provincial policy statements on the ability of the lands to be developed. These documents existed independently of any "scheme" to expropriate. The effect of the Board's decision was to create an unreasonable windfall for some of the claimants -- something that is antithetical to the purpose of the Pointe Gourde Rule.

[118] The Board also unreasonably ignored the principles that have emerged from the case law where compensation for expropriation of land with unique natural features has been determined. That case law takes into account whether the natural features of the land would have prevented development of the land. When compensation has been awarded on the basis that the natural environment would not have prevented development, there has either been evidence that the natural environment had already been destroyed or there has been evidence that, given responsible controls, the development would not be environmentally harmful. No such evidence existed in this case.

[119] Further, the Board erred in its approach to compensation for injurious affection by applying s. 14(4)(b) of the Expropriations Act, R.S.O. 1990, c. E.26 (the "Act"). This approach cannot be justified given the law on this issue.

[120] Finally, the Board's unreasonable approach to the determination of the market value for the expropriated lands also affected its award of interest. [page712] The Natural Features of the Expropriated Lands

[121] The expropriated lands form part of the Ojibway Prairie Remnant, the largest protected tall grass prairie still existing in Ontario. The lands encompass a unique biological community. There are 509 recorded plant species, 36 of which are considered rare in Ontario. Rare mammals such as the Gray Fox and Eastern Chipmunk inhabit the lands. The lands are also inhabited by reptiles such as the Eastern Massasauga Rattlesnake and the Butler's Garter Snake, both of which are threatened species and rare in Ontario.

[122] There is no dispute that a portion of the expropriated lands are a habitat for threatened species, and that the remainder constitute a significant area of natural and scientific interest. The Provincial Policy Statement

[123] The expropriations at issue occurred in three phases. The first plan was registered on April 7, 2004 (89 lots from Paciorka, 21 lots from Frey); the second on December 28, 2005 (64 lots from Paciorka); and the third on January 29, 2008 (13 lots from Paciorka, 80 lots from Pope et al.). These dates are the valuation dates for the purpose of determining compensation in this case.

[124] As of the date of the first two expropriations, s. 3(5) of the Planning Act, R.S.O. 1990, c. P.13 required that any authority, including a municipality, that exercised any authority affecting a planning matter"shall have regard" to the provincial policy statements. By the date of the third expropriation, the Planning Act had been amended to require that all planning decisions "be consistent with" policy statements (S.O. 2006, c. 23, s. 5).

[125] The provincial policy statement that was applicable as of the first valuation date was issued in 1996 and amended in 1997 ("PPS"). It provided that development was not to be permitted on the lands that were a habitat for endangered and threatened species, and that development could be permitted in the remainder of the lands that were "significant areas of natural and scientific interest" if it "has been demonstrated that there will be no negative impacts on the natural features or the ecological functions for which the area is identified": PPS at 2.3.1. The PPS that applied as of the date of the second and third expropriations was essentially the same as the one that applied as of the date of the first expropriation. [page713]

[126] In King City Preserve the Village Inc. v. York (Regional Municipality), [2001] O.J. No. 5363, 24 M.P.L.R. (3d) 124 (Div. Ct.), leave to appeal to C.A. refused [2002] O.J. No. 491 (C.A.), the Divisional Court, at para. 20, had this to say about the phrase "have regard to" as used in s. 3(5) of the Planning Act:

We accept that the provision to "have regard" requires that the approval authority, and the Board, do more than pay lip service to the policies in question. These policies must be carefully considered in the context of the matter at hand.

[127] In its decision, the Board mentions the PPS in its summary of the City's position before it. However, in its analysis, no mention is made of the PPS and no consideration is given to how its existence would have affected the probability of the lands being fully developed as a residential development. Furthermore, in coming to its conclusion as to the market value of the lands, the Board accepted the opinion of the claimants' appraiser, David Atlin. Mr. Atlin made it clear that his opinion proceeded on the assumption that the natural area and the critical habitat for endangered species did not exist.

[128] One of the experts relied on in Mr. Atlin's opinion as to market value was Robert Feldgaier of Altus Group. When Mr. Feldgaier was asked about the prospect of development in a natural heritage area, as well as an identified flood plain, he replied that he had not examined any of these restraints on development. Mr. Atlin also relied on two other experts, Mr. Butler and Mr. Tanner. Both admitted on cross-examination that the PPS would create significant problems for the development of the lands. Furthermore, Mr. Butler affirmed that the PPS would apply to any development application even absent what he defined as the expropriation "scheme".

[129] The Board accepted the claimant's position as to what constituted the "scheme" and found that the City, the Minister of Natural Resources ("MNR") and the Essex Region Conservation Authority ("ERCA") had "worked in concert over an extended period of time, to establish, preserve and protect the Spring Garden Complex": Board's Reasons, at 23 [at para. 66] [2009] O.M.B.D. No. 985, 99 L.C.R. 269 (O.M.B.)]. Further, the Board found that these "scheme" activities started in 1983 and included the designation by the ERCA in 1983 of a large part of the lands as an Environmentally Significant Area; the designation by the MNR in 1984 of approximately the same area as an Area of Natural and Scientific Interest; the designation by the City in 1994 of part of the area as a heritage site; and the 1996 preparation of the Spring Garden Complex Evaluation Report. The recital does not mention the PPS. [page714]

[130] The question then becomes whether the Board's conclusion can be justified on the basis that the PPS was part of the "scheme" and, thus, can whatever it said be ignored for the purpose of determining the market value of the land absent the "scheme". In West Hill Redevelopment Co. v. Ontario (Management Board of Cabinet), [1998] O.M.B.D. No. 779, 64 L.C.R. 81 (O.M.B.), affd [1999] O.J. No. 3035, 67 L.C.R. 252 (Div. Ct.), the Board discusses the question of whether a "land use" instrument passed by one public authority should be taken into account in fixing market value in an expropriation affected by a different public authority. In doing so, the Board, at p. 147 L.C.R., adopts the following principles set out in R. v. Jewish Community Centre of Edmonton Trust (1983), 27 L.C.R. 333 (Alta. L.C.B.), at pp. 360-61 L.C.R., revd on other grounds (1984), 30 L.C.R. 97 (Alta. C.A.):

In the board's opinion the underlying principle established in each of those cases, which is relevant in the present case, is that there must be a causal connection between the imposition of land use restriction and the expropriation which subsequently occurs. That is to say if the "land use by-law, land use classification or analogous enactment" is made for the purpose and "with a view to the development under which the land is expropriated" then pursuant to s. 45(e) it must be ignored in the valuation process. If, on the other hand, the evidence establishes that the "land use by- law, land use classification or analogous enactment" was imposed independently and unconnected with "the development under which the land is expropriated" then such land use or classification must be considered in the valuation process.

[131] The PPS was issued under the authority of the Planning Act to provide "policy direction on matters of provincial interest related to land use planning and development": PPS at Preamble. The PPS applies across the province and was not directed at the expropriated lands. It was passed independently of, and without any connection to, the specific development for which the land was expropriated. The fact that the expropriated lands are covered by the PPS is due to a recognition by the province that province-wide protection is necessary for its natural heritage resources. As put in the Preamble:

The Province's resources -- its agricultural land base, mineral resources, natural heritage resources, water supply and cultural heritage resources -- provide economic, environmental and social benefits. The wise use and protection of these resources over the long term is a key provincial interest. (Emphasis added)

[132] Given the fact that the PPS was not passed with a view to the development for which the land was expropriated, it cannot be considered to be part of the "scheme" that should be disregarded for the purpose of the market value assessment. [page715] Thus, even without the scheme, the expropriated lands, which do contain natural heritage features, would have been subject to the PPS. The Board was required to deal with what effect this would have had on the development potential of the lands in question. However, it did not do so. It ignored both the natural features of the expropriated lands and that land with those features was protected under the PPS, regardless of the "scheme". In taking this approach, the Board arrived at a conclusion as to market value that cannot be justified on the basis of the facts and the law. Windfall Gain

[133] By taking the approach that it did to market value compensation, the Board created a situation where the claimants received a windfall gain. They owned land that was subject to planning restrictions by virtue of the PPS, but they obtained compensation based on the fact that the land did not contain any features that would have restricted its development. Some of this land was purchased after the passage of the PPS. In particular, in July of 1997, Paciorka Leaseholds Limited purchased 33 lots at a price of less than $60 per front foot. The Board awarded them $350 to $475 per front foot as of the valuation dates.

[134] The case law is clear that the Board and the courts will seek to interpret s. 14(4)(b) of the Act in a way that will avoid a windfall gain to either the expropriating authority or an owner. As put by the Alberta Court of Appeal in Thompson v. Alberta (Minister of Environment), 2007 ABCA 411, [2007] A.J. No. 1400, 94 L.C.R. 22 (C.A.), at para. 8:

Applying this principle, the object of the section is to place the owner in the same economic position after the taking as he would have been in had it not occurred. This is to ensure that neither the expropriating authority nor the owner receives a windfall, nor suffers an unfair loss. Interpreting the object that way would retain harmony with the overall context of the Act as well as serving the legislative intent that s. 45 enacted the 'Pointe Gourde Rule' and its converse. [Citations omitted]

[135] In Thompson, the court was dealing with a situation where the expropriated lands were located next to a transportation and utility corridor. The lands were then expropriated to be part of that corridor. The court found that in awarding compensation for the expropriation, it would be wrong to ignore the reality that with or without the expropriation, the lands' development potential would be limited by the fact that they were located next to a transportation and utility corridor. As put by [page716] the court, at para. 16: "That neighbouring TUC may have improved or diminished the value, depending on what the respondent elected to do and was allowed to do by way of development."

[136] Similarly, in D.D.S. Investments Ltd. v. Toronto (City), [2006] O.M.B.D. No. 627, 90 L.C.R. 130 (O.M.B.), affd 2010 ONSC 1393, [2010] O.J. No. 1229, 100 L.C.R. 236 (Div. Ct.), the Board was determining compensation for land that was expropriated by the City for a utility easement. In assessing the market value of the land, the Board refused to ignore the reality that, with or without the expropriation, the land contained underground utility pipes in respect of which the City had a valid licence agreement. As put by the Board, at p. 138 L.C.R., this "would all have had a sobering effect on any prospective purchaser properly advised".

[137] In the case at bar, with or without the expropriation, the claimants would have had to deal with the fact that their land contained natural features that were the subject of a PPS that limited development on land with those features. Any properly advised purchaser would know of these limitations and would have taken them into account in assessing the price that they would have paid for the land. These were the market realities that faced the claimants absent the expropriation. However, by virtue of the award in question, these realities were disregarded and the claimants were able to receive compensation for their land as if the realities never existed. This is to be contrasted with other people in the province with land that contains natural heritage features who have had to develop their land taking into account the requirements of the PPS. This is an unjustifiable and, therefore, unreasonable result. The Case Law

[138] Both parties submitted cases involving expropriation of land with natural features. None of these cases allowed for compensation that ignores either the natural features of the land, or the impediments or advantages that those natural features might present to the value of the land absent the plan for expropriation.

[139] In Fraser v. Fraserville (City), 1917 449 (UK JCPC), [1917] A.C. 187 (P.C.), the City had expropriated lands for a hydro-electric facility. The lands were adjacent to a waterfall. Because of their location so close to the waterfall, they had long been recognized as having the possibility of development for industrial purposes. The House of Lords agreed that this extra value to the land that arose because of it natural features should be taken into account in determining compensation once the land was expropriated. [page717]

[140] Similarly, in Frankl v. Ottawa (City), [2006] O.M.B.D. No. 629, 90 L.C.R. 225 (O.M.B.), affd Ottawa (City) v. Wright, [2007] O.J. No. 3158, 94 L.C.R. 1 (Div. Ct.), the Board increased the compensation paid for ravine land that was expropriated by the City for storm water management purposes. This was done based on a finding that, absent the expropriation, the natural features of the land made it ideal for a storm water management system.

[141] In Rattray Park Estates v. Credit Valley Conservation Authority (1977), 13 L.C.R. 140 (Ont. L.C.B.), the land, which included a marsh, was expropriated by the Credit Valley Conservation Authority for conservation purposes. The Official Plan designation for the property was residential. In coming to its conclusion as to the highest and best use of the land, the Board took into account the fact that the land had a marsh and that there was "overwhelming evidence of the public concern and determination over a period of more than 10 years to preserve the natural environment of the Rattray property": at p. 146 L.C.R. Compensation was determined based on a scenario providing for private residential development that would not encroach on the marsh or its adjoining lands. Rattray was decided before the passage of the PPS. The existence of the PPS only strengthens the argument in this case that, given the natural features of the land in question, the development possibilities of the land, absent expropriation, must be assessed in light of the province's expressed commitment to preserving those natural features.

[142] In Torvalley Development Ltd. v. Metropolitan Toronto and Region Conservation Authority (1989), 1989 4320 (ON SC), 69 O.R. (2d) 508, [1989] O.J. No. 1298 (Div. Ct.), the Conservation Authority had expropriated the Toronto Brickworks Property, which included lands that were situated in the flood plain of the Don River. In upholding the Board's decision to award compensation based on the fact that, absent the expropriation, the land could have been sold for residential development, the court stated, at pp. 513-14 O.R.:

. . . this was not a case in which the developer had intended to destroy a natural environment. The natural environment had long ago been destroyed by the operation of the brickworks, in which a promontory extending into the Don Valley from the area of Douglas Crescent had been completely excavated to a depth as much as 30m below the ground water-table and the surrounding grade. This is the now exhausted quarry. Nor is there any element of natural beauty in the industrial buildings formerly used for the manufacture of bricks.

[143] Similarly, in Gadzala v. Toronto (City), [2004] O.M.B.D. No. 1014, 84 L.C.R. 176 (O.M.B.), vard in part on other grounds 2006 12974 (ON SCDC), [2006] O.J. No. 1635, 89 L.C.R. 81 (Div. Ct.), the Board accepted a market valuation of the lands absent the expropriation that [page718] included development based on filling in the shores of Lake Ontario to create dry land. However, it only did so after finding from the evidence that filling along the shores of Lake Ontario had been ongoing for some time and that it "may not be environmentally harmful given responsible controls": at p. 230 L.C.R.

[144] In Torvalley and Gadzala, the Board and the court considered the natural features of the land and found that there was evidence that these natural features had either been destroyed or would not present a barrier to development (because development could proceed in the way contemplated without being environmentally harmful). If, in the case at bar, the Board had found that full residential development was probable on the expropriated lands because, for example, there was evidence before it that, to the extent that the lands were an area of natural and scientific interest, it had been demonstrated that development would have no negative impacts on the natural features or ecological functions of the land, that would be one thing. However, there was no such evidence, nor was there any evidence that there were no natural features that were covered by the PPS or, that if there had been, that those natural features had long ago been destroyed. In fact, all of the evidence was to the contrary.

[145] In West Hill Redevelopment, supra, the Board awarded compensation for land that was expropriated for a park based on a finding that, absent the scheme for expropriation, the land would have had the potential for some form of serviced urban development. However, in doing so, it recognized that development would have had "to deal with the environmental features exhibited on the sites": at p. 150 L.C.R. In other words, in West Hill, unlike in the case at bar, the Board awarded compensation based on the reasonable assumption that the natural features of the land existed and might impact development. Injurious Affection

[146] The Board awarded the respondents $767,000 for injurious affection to the lands remaining in the respondents' ownership. "Injurious affection" is meant to compensate an owner who has had part of his or her lands expropriated for the reduction in market value to his or her remaining lands that was caused by the acquisition of the lands themselves. Section 14(4)(b) of the Act has no role to play in the determination of injurious affection. Thus, unlike the exercise for the determination of market value of the expropriated lands, the determination of injurious affection does not take place after screening out the "scheme": Salvation Army, Canada East v. Minister of Government Services (1984), 1984 1884 (ON SC), 48 O.R. (2d) 327, [1984] O.J. No. 3368, 31 L.C.R. 193 (Div. Ct.), at p. 339-41 O.R., pp. 205-206 L.C.R., affd (1986), 53 O.R. (2d) 704, [1986] O.J. No. 2370, 34 L.C.R. 193 (C.A.); [page719] Base Ninety Developments Ltd. v. Ontario (Chair of the Management Board of Cabinet) (2004), 84 L.C.R. 73 (O.M.B.), at pp. 76-77, 80 L.C.R., affd 2005 39326 (ON SCDC), [2005] O.J. No. 4542, 89 L.C.R. 11 (Div. Ct.), leave to appeal to C.A. refused [2006] O.J. No. 5643, 60 R.P.R. (4th) 169 (C.A.).

[147] On this appeal, the appellants submit that the Board reached a result that was not justifiable on the basis of the facts and the law because it assessed damages for injurious affection by applying s. 14(4)(b) of the Act and focusing on the reduction in the market value of the remaining lands caused by the "scheme", rather than the reduction caused by the actual acquisition itself. I agree.

[148] The Board's focus on the "scheme" is apparent from the following extracts of its decision. At p. 30, the Board [at para. 96] observes: "The scheme has also necessitated isolated residential pockets . . .". The Board continues: "Servicing costs will also increase as services will need to be extended around the ANSI." Further, the Board observes [at para. 97]: "Mr. Atlin concluded that the lots with frontage on Malden Road have not suffered loss in market value from the scheme". At pp. 47 and 48 of its decision, the Board makes it clear that it accepts Mr. Atlin's opinion as to injurious affection and, at p. 48 [at para. 169], summarizes Mr. Atlin's opinion as finding that a large portion of the remaining lands owned by the respondents "have suffered a 20% loss in value because of the 'scheme'".

[149] The acquisition occurred with the approval of OPA 5. Before the acquisition, the remaining lands were surrounding lands that were subject to the PPS and subject to several designations: ANSI, environmentally sensitive area and cultural natural heritage site candidate. The questions that were not addressed by the Board were what effect these facts would have had on the market value of the remaining lands in the "before taking" scenario and whether that was any different than the effect on the market value in the "after taking" scenario. Even on the "before taking" scenario, there might well have been a limited possibility to develop the lands that were taken. The only viable development option for the remaining lands might have been to build a residential community around the lands that were ultimately taken. This is arguably the same position that the remaining lands are now in when it comes to development.

[150] The Board noted that the City called no evidence on the issue of injurious affection, although their appraiser did, on cross-examination, opine that there would be no injurious affection to [page720] the remaining lands. On the scenario outlined in the last sentence of the preceding paragraph, this might well be the case. Interest

[151] Section 33 of the Act provides that the owner of expropriated lands is entitled to be paid interest on the market value of the expropriated lands and on the award for injurious affection from the time that the owner ceased to "make productive use of the lands".

[152] In this case, the Board concluded that productive use of the lands ceased in 1997, when the Dillon study, which identified the boundary for the ANSI, was released. As put by the Board, at p. 49 [at para. 176] of its decision: "With that, the residential development potential of their lands was frozen."

[153] The Board's award of interest flows from its conclusion with respect to the market value of the expropriated lands, namely, that absent the scheme the probable productive use of all the lands was as a residential development. Thus, the interest award is unreasonable for the same reason as the award with respect to market value compensation. It fails to take into account the PPS that would have independently applied to constrain development even before 1997.

[154] The City also appeals the Board's decision to award one of the respondents, Elizabeth Frey, a higher rate of interest. For the reasons given by the majority, I would not give effect to this ground of appeal. Conclusion

[155] For these reasons, I would allow the appeal and order a new hearing before a different panel of the Board, with instructions that (a) it is not to ignore the natural features of the expropriated lands and the existence of the PPS in assessing the compensation payable for market value and interest; and (b) that it is to determine injurious affection, if any, first by not applying s. 14(4)(b) of the Act and second, by considering the impact of the expropriated lands' environmental designations (identified as environmentally sensitive, been designated as an ANSI and candidate for a cultural natural heritage site, and subject to the PPS) on the remaining lands in the "before taking" scenario.

Appeal dismissed.