COURT FILE NO.: 298/03

DATE: 20040622

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

O’DRISCOLL, MCCOMBS AND WILSON JJ.

B E T W E E N: )

BERNARD HOMES LTD and ) Peter C. Williams for the School Board

CRESTVALLEY HOMES LTD. )

Claimants )

(Respondent in Appeal )

and Cross-Appellants))

• and – )

THE YORK CATHOLIC DISTRICT SCHOOL ) Michael Melling for Bernard

BOARD ) and Crestvalley

Respondent )

(Appellant and Respondent on Cross-Appeal) )

) HEARD: February 25, 2004

THE COURT:

Nature of Proceedings

[1] The York Catholic District School Board (School Board) appeals and Bernard Homes Ltd. and Crestvalley Homes Ltd. (collectively Bernard) cross-appeal to this Court under the provisions of s. 31(1) of the Expropriation Act, R.S.O. 1990, c. E. 26 (the Act) regarding four (4) decisions of the Ontario Municipal Board (OMB), dated June 15, 2000, May 30, 2002, April 11, 2003 and May 21, 2003.

[2] The decisions of the OMB relate to expropriation of land by the School Board from the developers (Bernard). The expropriated land (the School Block) is located in the Town of Richmond Hill and is intended to be used by the School Board as the site of a school.

[3] The Act provides:

s. 31(1) An appeal lies to the Divisional Court from any decision or order of the Board in accordance with the rules of court, except that the appeal may be taken at any time within six weeks from the day the decision or order was served on the parties, and the period of any vacation of the court shall not be reckoned in computing such six weeks.

(2) An appeal under subsection (1) may be made on questions of law or fact or both and the Divisional Court,

(a) may refer any matter back to the Board; or

(b) may make any decision or order that the Board has power to make.

[4] Under the June 15, 2000 decision, the OMB, pursuant to s. 18(1) of the Act:

(1) Awarded Bernard damages of $164,000 for financial loss arising out of delay in its ability to reinvest builders’ profits, and

(2) Rejected a claim for damages by Bernard arising out of a decline in the market value of the expropriated lands (School Block) between 1990 and 1998, and

(3) Awarded Bernard damages arising out of expenditures thrown away by Bernard as a result of the expropriation.

[5] Under the May 30, 2002 decision, the OMB:

(1) Rejected a claim by Bernard for damages for recovery of “lost, developers’ profits”, and

(2) Rejected an alternative claim by Bernard for financial loss arising out of a delay in Bernard’s ability to reinvest its developers’ profit.

[6] Under the April 11, 2003 decision, the OMB:

(1) Found that the market value of the expropriated land was $2.5 million, and,

(2) Awarded Bernard its costs, to be assessed on a party/party basis pursuant to s. 32(2) of the Act.

[7] Under the May 21, 2003 decision, the OMB, under s. 43 of the Ontario Municipal Board Act, R.S.O. 1990, c. O. 28, at the request of Bernard, re-heard the third decision (April 11, 2003), “corrected” an error and awarded Bernard its costs to be assessed on a quantum merit basis as between a solicitor/client pursuant to s. 32(1) and s. 44(d) of the Act and s. 1(2) of Ontario Regulation 364, R.R.O. 1990, made under the Act.

[8] On appeal, the School Board seeks an order:

1. Reversing the June 15, 2001 order and the May 30, 2002 order, and

2. Directing the Assessment Officer to take into account only those costs properly assessable with respect to proceedings before the OMB and not with respect to the settlement concerning the market value of the school block because that settlement was made prior to the commencement of the hearing before the OMB.

[9] On its cross-appeal, Bernard seeks:

1. An order awarding it an additional $38,000 for disturbance damages for delayed opportunity to reinvest developers’ profits, and

2. An order awarding it an additional $350,000 for disturbance damages on account of the change in the market value of the expropriated land between 1990 and 1998, and

3. An order awarding it $21,000 in disturbance damages on account of the executive time thrown away by Bernard as a result of the expropriation taking place some time after the expiration of the “option agreement”.

Standard of Review

[10] The Court of Appeal for Ontario concluded in London (City) v Ayerswood Development Corp, [2002] O.J. No. 4859 that the proper standard of review for an OMB decision was one of either correctness or reasonableness, depending upon the nature of the particular question in issue. Questions of law that engage the expertise of the OMB, such as the interpretation of its own statute, attract a standard of reasonableness. Questions of law of a more general application for which the OMB can claim no special expertise are to be reviewed on a standard of correctness. Decisions of the OMB are protected by a privative clause found in s. 96(4) of the Ontario Municipal Board Act; however, the privative clause applies only to judicial review and has no application in an appeal. This interpretation of the standard of review was adopted in Tri-Lag Corp. v. York Region District School Board, (2003), 169 O.A.C. 217 (Div.Ct). See also Toronto Area Transit Operating Authority v. Dell Holdings Ltd., [1997] 1 S.C.R. 32 which confirms that the test with respect to a question of law is that of correctness.

[11] Whether the standard of correctness or reasonableness is applied to a particular decision of the OMB depends upon the degree to which the subject matter of the decision engages the OMB’s particular expertise.

Governing legislation

[12] The Act establishes a statutory framework to compensate those whose land is expropriated for a public purpose. Section 13 of the Act defines the allowable statutory heads of compensation:

13.(1) Where land is expropriated, the expropriating authority shall pay the owner such compensation as is determined in accordance with this Act.

(2) Where the land of an owner is expropriated, the compensation payable to the owner shall be based upon,

(a) the market value of the land;

(b) the damages attributable to disturbance;

(c) damages for injurious affection; and

(d) any special difficulties in relocation.

but, where the market value is based upon a use of the land other than the existing use, no compensation shall be paid under clause (b) for damages attributable to disturbance that would have been incurred by the owner in using the land for such other use.

[13] Section 18(1) of the Act confirms that the ambit of disturbance damages referred to in s. 13(2)(b) (above) includes the "reasonable costs" that are the "natural and reasonable consequences of the expropriation":

18.(1) The expropriating authority shall pay to an owner other than a tenant, in respect of disturbance, such reasonable costs as are the natural and reasonable consequences of the expropriation….

Brief Background Facts

[14] Bernard is experienced in building and development throughout the Greater Toronto Area. The Libfelt family, the principals of Bernard, own approximately 185 companies involved in the development of residential, commercial and industrial properties.

[15] Bernard developed, for residential and commercial purposes, a 61 hectare parcel in the Town of Richmond Hill, which includes the School Block. The building of the residential development occurred from 1989 to 1995.

[16] A condition of approval of Bernard's plan of subdivision, imposed by the OMB at the School Board's request in a prior and entirely separate hearing under the Planning Act, R.S.O. 1990, c. P.13, required that Bernard's subdivision agreement contain a provision that the School Block was to be reserved for the School Board for a period of seven years. During that period, the School Board and Bernard "may negotiate a purchase agreement".

[17] In accordance with this provision, Bernard entered into an option agreement for it to sell the School Block to the School Board. The Option Agreement was for a term of seven (7) years: June 22, 1990 to June 22, 1997.

[18] The School Board did not have the financial resources to purchase the School Block during the term of the Option Agreement.

[19] During the currency of the Option Agreement, the School Board attempted, unsuccessfully, to renegotiate the price. The Option Agreement expired, and the School Board received the return of its deposit.

[20] As the Option Agreement was due to expire, Bernard filed planning applications in 1997 and 1998 to develop the School Block for residential use.

[21] In 1998, the School Board indicated a renewed interest in the School Block because the provincial funding model for capital acquisitions had changed. When negotiations on price were unsuccessful, the School Board expropriated the School Block.

[22] When the expropriation proceedings were initiated on July 27, 1998, the School Board tendered a cheque to Bernard in the amount of $1,960,000.00, an amount which represented the valuation of School Block, according to the School Board’s first appraisal.

[23] At the Examination for Discovery, the component of the claim with respect to the fair market value of the School Block was resolved between counsel for the sum of $2.5 million.

[24] The additional sum of $540,000.00 was paid with interest, at the agreed rate of 6% per annum, from the date of the expropriation to the date of payment.

[25] Subsequently, a dispute arose before the OMB (at the third hearing on April 11, 2003) as to whether the $2.5 million figure included costs, or whether costs for this component of the claim were outstanding.

[26] In their original Statement of Claim, the Bernard sought various heads of disturbance damages totaling $5.8 million. By the time of the hearing before the OMB, the claim for disturbance damages totaled some $1.3 million.

[27] The various claims advanced by Bernard for determination before the OMB included:

1. builders’ lost profits,

2. developers’ lost profits

3. a claim in the amount of $350,000.00 for the reduction in the fair market value of the School Block during the period from the commencement of the Option Agreement in 1990 until the time of the expropriation in 1998.

4. a claim for loss of executive time with respect to redevelopment efforts between the expiry of the Option Agreement and the date of the expropriation.

5. costs

The case-law with respect to the claim for lost builder and developer profits

[28] Counsel for Bernard raised what was referred to by the OMB member as a “novel” claim for damages for “builders’ lost profits”. Such a claim had not been advanced in an expropriation case before. The OMB awarded the sum of $164,000.00 as lost builders’ profits in its first decision of June 15, 2001.

[29] The OMB reserved the issue of “lost developers’ profits”, and the alternate claim for delay damages for lost developers’ profits because the Divisional Court’s decision in 747926 Ontario Ltd. v. Upper Grand District School Board (2000), 51 O.R. (3d) 25, considering the issue of developers’ profits, was before the Court of Appeal.

[30] When the OMB reconsidered the issue in its second decision, it rejected the claim for future anticipated lost developers’ profits, and also rejected the alternate claim for delay damages for lost developers’ profits. The OMB declined to revisit its decision with respect to lost builders’ profits, stating that its previous order was a final, issued order. The OMB stated that “Other avenues of recourse may be open to Mr. Williams [counsel for the School Board].”

[31] In light of the Upper Grand decision, Bernard is not appealing the OMB decision that rejected the primary claim for lost developers’ profits. In the appeal before this Court, Bernard continues to advance its alternative claim for delay damages for lost developers’ profits in the amount of $38,000.00.

[32] Both counsel are in agreement that the principles and rationale applicable to the claim for delay damages for builders’ lost profits are the same as those applying to the claim for delay damages for developers’ lost profits. Both claims must either succeed or fail.

[33] Both parties filed accountants’ reports concerning the issues of lost builders’ profits, and lost developers’ profits. The calculations of notional losses are complicated, and the underlying assumptions used by the accountant for Bernard are questioned by the accountant for the School Board.

[34] The Court of Appeal for Ontario’s decision in 747926 Ontario Ltd. v. Upper Grand District School Board, (supra) p. 113 clarifies the intended scope of disturbance damages. Anticipated future lost developers’ profits are not compensable damages.

[35] The School Board relies on Upper Grand to deny both the claims advanced. Counsel for Bernard takes the view that Upper Grand can be distinguished and that the principles enunciated by the Supreme Court of Canada in Dell Holdings Ltd. v. Toronto Area Operating Transit Authority (supra) govern.

[36] Counsel for Bernard suggests that his client’s calculation of delay damages for lost builders’ profits and the delay damages claim for lost developers’ profits are recoverable as actual damages arising from the expropriation. Its accountants have put forward calculations based upon various hypothetical assumptions that suggest Bernard - both as a builder and as a developer - suffered a financial loss as a consequence of the expropriation arising out of delayed opportunities to realize profits.

[37] Determination of the builders’ and/or developers’ loss of profits claims requires a close analysis of both the Dell Holdings, and the Upper Grand decisions.

[38] Del Holdings confirms that the Act should be interpreted in accordance with its intended purpose, and strictly in favour of those whose land is being expropriated. For the majority, Cory J. stated, in part:

[20] The expropriation of property is one of the ultimate exercises of governmental authority. To take all or part of a person's property constitutes a severe loss and a very significant interference with a citizen's private property rights. It follows that the power of an expropriating authority should be strictly construed in favour of those whose rights have been affected.

[23] It follows that the Expropriations Act should be read in a broad and purposive manner in order to comply with the aim of the Act to fully compensate a land owner whose property has been taken.

[39] Cory J. points out that disturbance damages in s. 13 of the Act are conferred in broad language that includes illustrations, but the term is not defined.

[40] The Court confirms at para. [28] that “if damages are to be awarded they must be the natural and reasonable consequences of the expropriation”. There should be recovery, but not double recovery. Cory J. said:

[26] I agree with the view expressed by K.J. Boyd in Expropriation in Canada (Aurora, Ont.: Canada Law Book, 1988), at p. 109, that the objective of these provisions is to ensure "that on the one hand double recovery does not occur, and on the other hand that no legitimate item of claim is overlooked".

[41] In Dell (supra), the majority of the Supreme Court describes expropriation as a process; if in the process of taking the property losses occur, damages should be paid. The key to a right to damages is that of causation.

[37] The courts have long determined that the actual act of expropriation of any property is part of a continuing process. In McAnulty Realty, supra, at p. 283, Duff J. noted that the term "expropriation" is not used in the restrictive sense of signifying merely the transfer of title but in the sense of the process of taking the property for the purpose for which it is required. Thus whether the events that affected the value of the expropriated land were part of the expropriation cases, or in other words, a step in the acquisition of the lands, is a significant factor for consideration in many expropriation cases. See Tener, supra, at pp. 557-59. Here there can be no doubt that Dell's land would have come on stream for sale as developed lands in 1981 rather than 1984 but for the process of expropriation. Damages should therefore be awarded for the losses occasioned as a result of the process of expropriation.

[38]…The approach to damages flowing from expropriation should not be a temporal one; rather it should be based upon causation. It is not uncommon that damages which occurred before the expropriation can in fact be caused by that very expropriation. The causal approach to damages under the Expropriations Act was endorsed by the majority of this Court in Imperial Oil, supra.

[42] The principles of Dell Holdings confirm that actual damages caused by the expropriation process are compensable. What constitutes disturbance damages must be interpreted broadly in light of the intended purpose of the legislation to compensate the land owner for actual losses sustained.

[43] The Court of Appeal for Ontario confirms in Upper Grand (supra) that fair market value of the expropriated land is to be determined in accordance with s. 14(1) of the Act and does not include prospective lost developers’ profits. As well, a claim for lost developers’ profits cannot be claimed as disturbance damage.

[44] The Court of Appeal cites, with approval, the reasons of the OMB in Upper Grand (1999), 68 L.C.R. 109. The OMB confirms the conventional formula that in arriving at the fair market value of the expropriated property, lost developers’ profits are to be deducted. The OMB said at p. 119:

The Board agrees with what it regards as the conventional approach to valuation and to compensation for loss of value. It is appropriate to reduce the retail value of the land to arrive at its "raw value" by deducting the profit that would have been made, since the land was not developed and no profit is to be justifiably realized where no development has taken place. The Board can see no convincing basis to restore anticipated profit on development that does not take place, even if the fact that it does not take place is the result of the taking. Nor is this a disturbance damage in the sense in which it is used in the Expropriation Act.

[45] The Court of Appeal confirms at para. [20] of Upper Grand that in calculating the market value of the land, the status of the land with respect to development is taken into account in establishing value. The closer the land is to sub-division, the higher the fair market value of the land.

Market value does not include damages. It is defined in s. 14(1) [of the Expropriations Act] as follows:

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.

[21] This definition makes no reference to any concept of profit because the market adjusts for the potential of the land for future development.

…The market pays more for land that is close to subdivision.

[46] The Court of Appeal in Upper Grand also commented on the intended limits of the Dell Holdings decision. A claimant is entitled to be compensated for actual damages sustained as a result of delays inherent in the expropriation process. These are recoverable, as compared to a claim for future loss of profits, which is not. The Court of Appeal stated:

[24] From the reasons I have developed above, it follows that the Divisional Court was in error in adding the lost developer's profit back into the compensation award as disturbance damages. The court below seemed to approach this case as if it was presented with a personal injury matter, where the injured party is entitled to be made as whole as a money judgment can achieve. The Divisional Court circumvented the statutory framework of compensation set out in the Act by extracting lost developers’ profit from a methodology directed to the market valuation of expropriated land and characterizing this lost developers’ profit as disturbance damages.

[25] Disturbance damages are not intended to supplement the market value that s. 14(1) of the Act proscribes: they are directed to damages that are a consequence of the expropriation and are not addressed by the compensation for market value as described in s. 14(1). Relocation expense is a classic example of disturbance damages. Business disruption is another: see Blatchford Feeds Ltd., v. Board of Education for the City of Toronto (1974), 6 L.C.R. 355 (Ont. L.C.B.) and LaFleche v. Ontario (Ministry of Transportation and Communications), supra. ……

[emphasis added]

[47] By receiving the market value of the school site, Bernard could replace their lost inventory by purchasing land elsewhere at market value.

Conclusions with respect to delay damages for lost builder and developer profits

[48] The premise underpinning these claims advanced by Bernard is that, but for the expropriation of the School Block, profits would have been realized by Bernard as both builder and developer. The calculation of these projected profits is very much in dispute between the accountants because the calculations involve many assumptions. The projected profits, whatever they were determined to be, would have been available to Bernard to either pay down existing debt, or to purchase another property for development. As these profits were not available, Bernard claims that they suffered actual damages caused by the expropriation.

[49] We conclude that the claim advanced for delay damages for lost profits is not permissible in light of the clear direction from the Court of Appeal in Upper Grand. If builders’ and developers’ profits are not permissible within the framework of the Act, then secondary alleged losses as a result of not receiving these profits cannot be allowable claims under the head of disturbance damages.

[50] Upper Grand as well as Dell Holdings make it clear that disturbance damages must be damages actually incurred and caused by the process of expropriation.

[51] Bernard received the agreed upon fair market value of $2.5 million for the School Block in accordance with their own appraisal. As Upper Grand confirms, the fair market value does not take into account the notion of profit because the market value reflects the potential of the land for future development. More is paid for land close to subdivision.

[52] Bernard received payment in two installments. The first installment of $1,960,000.00 was paid to Bernard by the School Board upon the initiation of the expropriation proceedings. This payment reflected the appraised value of the land in accordance with the first appraisal received by the School Board.

[53] When the component of the claim with respect to the fair market value of the School Block was settled, a further payment of $540,000.00 was received by Bernard together with an agreement that interest was to be paid at 6% per annum retroactive to the date of expropriation.

[54] Section 33 of the Act provides for interest fluctuating from 6% to 12% per annum. If there has been unnecessary delay, the Board has jurisdiction to award a higher rate of interest to compensate for the delay. Section 33(1) and (4) of the Act provide:

33.--(1) Subject to subsection 25 (4), the owner of lands expropriated is entitled to be paid interest on the portion of the market value of the owner's interest in the land and on the portion of any allowance for injurious affection to which the owner is entitled, outstanding from time to time, at the rate of 6 per cent a year calculated from the date the owner ceases to reside on or make productive use of the lands.

(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.

[55] It is of note that Bernard was content to receive interest at 6%, and did not seek additional compensation due to delay.

[56] For these reasons, Bernard’s claim for delay damages for lost builders’ and developers’ profits is not allowed. The OMB’s decision, dated June 15, 2001, granting lost builders’ profit damages in the amount of $164,000.00 is set aside. The OMB decision, dated May 30, 2002, dismissing the claim for lost developers’ profits, is affirmed.

The claim for the reduction in the fair market value of the School Block

[57] Bernard asserts a claim in the amount of $350,000.00 for the reduction in the fair market value of the School Block during the term of the Option Agreement (1990 to 1997) and up to the date of the expropriation.

[58] The OMB rejected Bernard’s assertion that the decline in value of the School Block between 1990 and 1998 was a recoverable head of disturbance damages.

[59] We agree with the OMB’s decision.

[60] Firstly, the OMB concluded that the School Block did not lose value. The OMB concluded that the best evidence available as to the fair market value in June 1990 is reflected in the Option Agreement. The value placed upon the School Block when the parties entered into the Option Agreement in 1990 was $2.1 million. Bernard called expert evidence at the hearing before the OMB in June 2001 that the value of the School Block in 1990 was $2.85 million. The OMB did not accept the appraisal evidence. We find that the OMB’s conclusion was reasonable, and supported by the evidence.

[61] Secondly, the OMB concluded that even if there had been a decline in the value of the School Block, that loss was a result of the parties voluntarily entering into the Option Agreement, not as a result of delays attributable to the process of expropriation. We agree with the OMB’s conclusion that Dell Holdings did not apply to the facts of this case.

[62] Bernard’s claim for disturbance damages for a reduction in value of the School Block is, therefore, dismissed.

The claim for loss of executive time.

[63] The out of pocket expenses paid to third parties by Bernard, in anticipation of development during the interval prior to expropriation but after the expiry of the Option Agreement, are reasonable costs flowing from the expropriation. Bernard has been paid the amounts actually incurred.

[64] In addition, Bernard asserts a claim for $21,000.00 for the value of time lost by the principals of Bernard with respect to their redevelopment efforts between the expiry of the Option Agreement in 1997 and the expropriation in July 1998.

[65] The OMB rejected this claim. In our view, the OMB was correct.

[66] The OMB concluded that there was no proof by way of dockets of the time lost.

[67] How to place a value upon an individual’s time, even if dockets were presented, is highly subjective and speculative.

[68] Dell Holdings confirms that the Act must be construed broadly and in a purposive manner in favour of the person or entity having land expropriated. However, Dell Holdings cannot be construed as an invitation to embellish disturbance damage claims. Actual losses caused by the expropriation process are compensable. A broad purposive reading should not embark into the subjective, and the speculative. The test for disturbance damages contained in s. 18 of Act includes the reasonable costs that are the natural and reasonable consequences of the expropriation. Executive compensation of the principals of Bernard is not recoverable under this section.

[69] The OMB’s decision is upheld and this ground of appeal is dismissed.

The appeal with respect to costs

[70] The School Board appeals from the OMB’s decision with respect to costs.

[71] The Act contains provisions to encourage the expropriating body to make a fair offer of compensation for the fair market value of the land. Failure to do so will trigger an award of solicitor client costs.

[72] With respect to the issue of costs, the Act provides in s. 32(1) that if the amount that the OMB orders to be paid is 85% or more of the amount that was offered by the expropriating authority, the claimant shall be entitled to reasonable legal costs and disbursements actually incurred. This section is equivalent to an entitlement of reasonable solicitor-client costs.

[73] Section 32(2) of the Act provides that if the amount ordered by the OMB is less than 85% of the amount that was offered, the OMB may, in its discretion, order costs and be guided by that section.

[74] The cost provisions are not particularly apt, when, as in this case, the fair market value of the land was agreed upon, and the hearing before the OMB was limited to what constituted disturbance damages.

[75] Sections 32(1) and (2) of the Act provide:

32.(1) Where the amount to which an owner is entitled upon an expropriation or claim for injurious affection is determined by the Board and the amount awarded by the Board is 85 per cent, or more, of the amount offered by the statutory authority, the Board shall make an order directing the statutory authority to pay the reasonable legal, appraisal and other costs actually incurred by the owner for the purposes of determining the compensation payable, and may fix the costs in a lump sum or may order that the determination of the amount of such costs be referred to the assessment officer who shall assess and allow the costs in accordance with this subsection and the tariffs and rules prescribed under clause 44(d).

(2) Where the amount to which an owner is entitled upon an expropriation or claim for injurious affection is determined by the Board and the amount awarded by the Board is less than 85 per cent of the amount offered by the statutory authority, the Board may make such order, if any, for the payment of costs as it considers appropriate, and may fix the costs in a lump sum or may order that the determination of the amount of such costs be referred to an assessment officer who shall assess and allow the costs in accordance with the order and the tariffs and rules prescribed under clause 44(d) in like manner to the assessment of costs awarded on a party and party basis.

[76] The OMB concluded that although the claim with respect to the fair market value of the land had been settled between the parties, that for the purposes of s. 32 of the Act, (the governing 85% formula), the OMB “determined” the issue of value, and that the $2.5 million figure should be included in the equation. The result of that inclusion is that Bernard is entitled, pursuant to s. 32(1) of the Act, to reasonable solicitor-client costs throughout.

[77] It is the position of the School Board, that the settlement reached included a component for costs. Although they concede that Bernard is entitled to party and party costs of the proceeding before the OMB, the School Board disputes that Bernard is entitled to costs with respect to determination of the fair market value of the School Block.

[78] Bernard takes the position that costs were not included in the $2.5 million figure, and that there was a misunderstanding between counsel on this issue.

[79] The OMB in its initial reasons of June 15, 2001, confirms at p. 4 that “Counsel for Bernard Homes Limited advised the Board on May 8, 2000 that the market value component had been settled and as a result the components of the claim that require adjudication are related to disturbance damages, interest and costs”.

[80] The section 32(1) of the Act formula refers to an amount to which an owner is entitled upon an expropriation or claim for injurious affection that “is determined by the Board.” To avoid what appears to be the straight forward application of the statutory section, the OMB purported to determine the question of fair market value on April 11, 2003 in the third OMB decision when costs were considered. The OMB states at page 3 of its reasons:

There is no question that the issue was settled before the hearing commenced and the Board heard no evidence with respect to it and the Board accepted it as representing the fair market value of the property taken.

The claim however was never withdrawn. As a result, by the Order of the Board that will issue with this decision, the Board sets the fair market value of the lands taken at $2.5 million, based upon the parties having settled on that amount. Because proceedings under the Act are by way of arbitration, the Board needed to hear no evidence on the issue and could accept the amount agreed to between the parties. This, however, because the claim was not withdrawn, does not remove the claim from the Board’s file and a Board Order is required to confirm that amount, and the Board does so. This then brings the $2.5 million into the equation for determining whether s. 32(1) or s. 32(2) of the Act applies.

[81] The OMB then misapplied the calculation contemplated in s. 32 of the Act and awarded Bernard party and party costs. The OMB engaged the discretionary aspect of s. 32(2) of the Act to award party and party costs to Bernard. Because the case was a hard fought, but a fairly fought battle, party and party costs to Bernard were warranted.

[82] On May 21, 2003, the OMB reconsidered its April 11, 2003 decision as to costs. The OMB acknowledged that it had miscalculated the Act’s s. 32 formula. Applying the reasoning of April 11, 2003 to the correct formula, the OMB awarded to Bernard, under s. 32(1) of the Act, solicitor/client costs.

[83] In our view, the OMB exceeded its jurisdiction in its interpretation that it could “determine” the question of fair market value when that issue had clearly been settled and had not been determined by the OMB at the time of the arbitration. The OMB purported to retroactively “determine” fair market value on April 11, 2003, nearly two years after the hearing and the issuance of its final order on June 15, 2001.

[84] Section 29 of the Act reads:

29. (1) the Board shall determine any compensation in respect of which a notice of arbitration has been served upon it under section 26 or 27, and, in the absence of agreement, determine any other matter required by this or any other Act to be determined by the Board.

[85] We note that when the School Board urged the OMB to reconsider its decision with respect to the lost builders’ profits after the release of the Court of Appeal for Ontario decision in Upper Grand, the OMB refused to re-open the matter upon hearing submissions from counsel for Bernard. On May 30, 2002, the OMB stated: “Its decision dated June 15, 2001 was a final decision of these matters and the Board’s order has issued”.

[86] For these reasons, we are of the view that the OMB erred in including the $2.5 million in the s. 32 of the Act formula. The amended cost order, dated May 21, 2003, which concluded that s. 32(1) of the Act was engaged, thus justifying solicitor/client costs, is set aside.

[87] This leaves open the question of party and party costs pursuant to s. 32(2) of the Act.

[88] We conclude that the reasons of the OMB given on April 11, 2003, stating that it was appropriate to award party and party costs in the circumstances of the case, regardless of the 85% formula, are reasonable, and should be upheld. The OMB allowed party and party costs for the entire proceeding. We see no reason to interfere with this exercise of discretion.

[89] The directions provided to the assessment officer in the reasons of the OMB, dated April 11, 2003, continue to be applicable.

In the result, the appeal is allowed and the cross-appeal is dismissed.

Costs before this Court

[90] Counsel for Bernard makes the argument that the costs of the proceeding before the Divisional Court are governed by s. 32 of the Act. We disagree. Section 32 of the Act applies to the costs to be awarded by the OMB following arbitration. In our view, the costs before the Divisional Court are governed by s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C. 43 and the Rules of Civil Procedure.

[91] The parties have agreed that if the costs awarded in the Divisional Court are not determined by s. 32 of the Act, then the successful party in the Divisional Court should be entitled to costs fixed at $20,000.00, plus GST plus reasonable assessable disbursements. As the School Board was totally successful on all issues, this amount shall be paid forthwith by Bernard to the School Board.

O’DRISCOLL J.

MCCOMBS J.

WILSON J.

Released: June 22, 2004