The Canada Line Cases: Compensation for the Impacts of Public Projects

The British Columbia Supreme Court recently released a decision, Gautam v. Canada Line Rapid Transit Inc., 2018 BCSC 1515 (“Gautam”), awarding compensation to three businesses that were impacted by the construction of the Canada Line on Cambie Street in Vancouver.  This case was a test case as part of a larger class action by Cambie Street businesses.

The Gautam decision is important not only because it sets the framework for the resolution of the claims of other businesses in the class action, but also because it expands the potential for claims by businesses impacted by the construction of other public infrastructure projects.

An earlier decision of the British Columbia Court of Appeal, Susan Heyes Inc. (Hazel & Co.) v. South Coast B.C. Transportation Authority, 2011 BCCA 77 (“Susan Heyes”), also involved a claim by a business for losses suffered as a result of the Canada Line construction.  However, the Court of Appeal held that the plaintiff in Susan Heyes was not entitled to damages.

Why were the plaintiffs in Gautam successful while the plaintiff in Susan Heyes was not?  The reason is that the two cases involved different, but related, causes of action.

The Susan Heyes decision: nuisance and statutory authority

The plaintiff in Susan Heyes based its claim in nuisance.  A nuisance is an unreasonable interference with the use and enjoyment of land.  While the Court accepted that a nuisance had occurred, the defendant, South Coast British Columbia Transportation Authority (known as TransLink) succeeded in establishing the defence of statutory authority.  This defence applies when (Susan Heyes at para. 79):

  1. The act causing the nuisance was expressly or implicitly authorized by statute; and
  2. The nuisance was the inevitable result of the statutorily authorized action.

The Court of Appeal held that the construction caused a nuisance and that Translink had statutory authority for the project.  The case turned on whether the nuisance was the inevitable result of the project.  The question was “whether there was a practically feasible option to cut and cover construction that would not have created a nuisance, given the scientific possibilities, the financial picture, and other relevant circumstances, viewed from a common sense perspective” (Susan Heyes at para. 119).  The Court of Appeal held that the other possible method of construction, bored tunnel construction, was not practically feasible because it required more public funding than was available and had other practical disadvantages.  The Court of Appeal found that Translink established both that cut and cover construction was the only practically feasible method and that it was practically impossible to avoid a nuisance using that method (Susan Heyes at para. 134).  Therefore the nuisance was inevitable and the plaintiff in Susan Heyes was not entitled to compensation.

The Gautam decision: injurious affection and business losses

Rather than nuisance, the plaintiffs in Gautam based their claim on injurious affection, which does not seem to have been raised in Susan Heyes.  Injurious affection is a relatively obscure cause of action that arose out of the construction of railways in 19th century England and was adopted into British Columbia law through the Expropriation Act.  The Court in Gautam described injurious affection as a “consolation prize” that applies when a nuisance claim cannot succeed because of the defence of statutory authority.

The test for injurious affection is:

  1. The damage must result from an act rendered lawful by statutory powers of the person performing such act (in other words, the damage was caused by a project that requires statutory authority and the proponent has that authority);
  2. The damage must be such as would have been actionable under the common law, but for the statutory powers (in other words, the impact would have been a nuisance except that the defence of statutory authority applies);
  3. The damage must be an injury to the land itself and not a personal injury or an injury to business or trade;
  4. The damage must be occasioned by the construction of the public work, not by its user (ongoing use).

In contrast to nuisance, it is not a defence to injurious affection that Translink chose the only practically feasible method of construction and that the nuisance was inevitable.

Under the third part of the test, injurious affection is available only to compensate an injury to the land itself, not a business loss.  The plaintiffs in Gautam are lessees who operated businesses that suffered losses as a result of the Canada Line construction.  If the injurious affection test had been applied in the traditional manner, they probably would not have been entitled to any compensation.

Nevertheless, the plaintiffs were able to successfully argue that they had suffered an injury to land that was compensable.  The logic was that their leasehold interests were worth less during the construction than they otherwise would have been.  As a result, the plaintiffs were overpaying rent during the construction.  The Court held that their damages were the difference between what they actually paid in rent and what market rent should have been during the construction.  The value of market rent during construction was calculated by reducing the rent that the plaintiffs actually paid by the percentage by which the plaintiffs’ profits were reduced during construction, with adjustments for contingencies.

In a circuitous fashion, the plaintiffs in Gautam were effectively awarded compensation that was calculated based on their business losses.  The Court had to recharacterize those losses as an injury to land so that the injurious affection test could be met.

The Gautam decision: limitation period

Another significant aspect of the Gautam decision is the Court’s finding that the plaintiffs’ claims were not barred by the one year limitation period in the Expropriation Act.  Most of the damages suffered by the plaintiffs had occurred more than one year prior to the commencement of the action.

Ordinarily, if a nuisance is ongoing, a new cause of action is considered to arise every day.  A new limitation period begins every day for the damages that were suffered on that day.  Once an action has been commenced, the limitation period works back in time and prevents the plaintiff from recovering for any damages that occurred more than the relevant period before the commencement of the action.  Since nuisance and injurious affection are closely related, it is arguable that the Court in Gautam should have applied this principle.  If so, the plaintiffs in Gautam would have been limited to claiming damages that occurred within one year before they filed their claim.

On the contrary, the Court held that no limitation period began to run until the completion of the construction.  Because the action was commenced within one year of completion, the plaintiffs were entitled to claim damages that arose during the entire course of the construction.  The rationale was that the impact of the construction only became unreasonable (and therefore actionable) because of the length of time over which it occurred.  This result is surprising and may affect the application of limitation periods in future cases involving continuing damages.

Consequences of Gautam

The British Columbia Expropriation Act does not say what kinds of damages are compensable for injurious affection.  This makes it necessary to rely on the common law, which does not allow for compensation for business losses for injurious affection.  However, the Court in Gautam found a way to award compensation that was calculated based on the plaintiffs’ business losses.  This result does not fit easily with the established common law.  The Court’s reasoning is somewhat convoluted and it is unclear how it will be applied in future cases.  It is possible that it will be the subject of an appeal.

By reinterpreting the law of injurious affection, Gautam may expand the potential for claims by businesses that are impacted by the construction of public infrastructure projects.  Both the Susan Heyes and Gautam cases raise the broader public policy question of who should be responsible for the external impacts associated with infrastructure projects.

It is arguable that this question should be decided by the legislature, not the courts.  In Ontario, for instance, the Expropriations Act clearly defines injurious affection and includes compensation for business losses.  Likewise, the British Columbia Expropriation Act could be amended to set out explicitly whether business losses are compensable or not.  This clarity would assist both project proponents and business owners in planning their affairs.  Gautam, on the other hand, confuses the issue.