A property owner who challenged a municipal zoning bylaw he considered to be a disguised expropriation waited too long before taking legal action but can nevertheless still ask to be compensated for the loss in property value, ruled the Supreme Court of Canada.

In Ville de Lorraine et al v. 2646-8926 Québec inc., the nation’s highest court recognizes the power of municipalities to adopt bylaws to create conservation zones, underscores the need for plaintiffs contesting by-laws to be diligent and bring action within a reasonable time, confirms that a plaintiff can claim indemnity for disguised expropriation, and seems to suggest that it may simplify criteria for compensation for disguised expropriation under common law, contend municipal law experts.

“While the decision will not have a direct impact on disguised expropriation in common law jurisdictions, we believe that, should a disguised expropriation matter from a common law jurisdiction be considered again by the current judges of the Supreme Court, they may revisit the criteria in the SCC ruling in Canadian Pacific Railway Co. v. Vancouver (City) 2006 SCC 5 in order to simplify it in the direction of the criterion established in Ville de Lorraine,” said Nikolas Blanchette, a partner with Fasken Martineau DuMoulin LLP in Montreal who acted for an intervener in the case, the Quebec Association of Construction and Housing Professionals Inc.

In Vancouver, the SCC wrote that for a “de facto taking requiring compensation at common law,” two requirements must be met: an acquisition of a beneficial interest in the property or flowing from it and removal of all reasonable uses of the property. However in Lorraine, Chief Justice Richard Wagner, writing on behalf of the court, wrote that “where a municipal government limits the enjoyment of the attributes of right of ownership of property to such a degree that the person entitled to enjoy those attributes is de facto expropriated from them, it therefore acts in a manner inconsistent with the purposes being pursued by the legislature in delegating to it the power ‘to specify, for each zone, the structures and uses that are authorized and those that are prohibited.’”

That leads Blanchette to maintain that the focus of the Lorraine ruling lies with the loss of the attributes of the right of ownership as opposed to the acquisition of a beneficial interest in the property on the government’s part.

In 1989, a numbered company bought a wooded property in a residential zone in Lorraine, an affluent off-island suburb of Montreal, in order to eventually build a housing subdivision. But in 1991, the town passed a zoning regulation that included more than half of the property to become part of a conservation zone which limited its authorized use for recreational and leisure activities. The numbered company’s majority shareholder, François Pichette, found out about the zoning changes some ten years later when he visited the land for the first time. Pichette tried to get the town to change the zoning restrictions but to no avail. In 2007, Pichette accused the town of disguised expropriation and brought an action against it seeking damages and to have the bylaw declared to be null.

On July 2015, Quebec Superior Court Justice Benoît Emery ruled in favour of the town because Pichette took too long to file the suit, a decision that was overturned by the Quebec Court of Appeal because it found that the town had abused its power of regulation by carrying out a disguised expropriation.

The Supreme Court in turn overturned the Quebec appeal court’s ruling, holding that the trial judge’s decision to deny the claim was reasonable. The SCC found that the trial judge had exercised his discretion judicially in dismissing the action in nullity for being out of time. The SCC noted that 16 years had elapsed between the adoption of the bylaw and its contestation, and that at least five years had lapsed when Pichette found about the zoning changes. Both delays were unreasonable. It also found that the Court of Appeal erred when it went on to decide an issue that was not before it, namely whether, the lateness of the action in nullity notwithstanding, the bylaw represented a disguised expropriation.

“The alleged abuse of power did not have the effect of relieving the plaintiff of its duty of diligence, that is, the requirement that the plaintiff institute its action within a reasonable time,” wrote Justice Wagner in the 25-page ruling.

The ruling has two key takeaways, said Pierre Paquin, who successfully plead the case. The SCC recognized that municipalities have the power to enact zoning bylaws that create conservation areas, said Paquin of Tandem Avocats Conseil Inc. The ruling also emphasizes that property owners who want to contest the validity of a bylaw due to disguised expropriation must bring an action within a reasonable time frame, regardless of whether they are seeking to have it annulled or inoperable, added Paquin.

But even in cases where a plaintiff does not meet conditions for applying for judicial review, the Supreme Court “clearly stated” that a plaintiff could nevertheless seek payment of an indemnity for disguised expropriation, in appropriate cases and if the claim is supported by the evidence, noted Blanchette.

According to Tommy Tremblay, a partner with Langlois lawyers, LLP in Montreal, the ruling raises yet more questions. The case, points out Tremblay, will continue in Quebec’s Superior Court for the claim for indemnity for disguised expropriation.

“It will be “interesting to see if the notion of prescribed limits will also apply” when the Superior Court will hear the case, said Tremblay. “One thing is certain. It will be very important to stress to our clients over the need to act as rapidly as possible, and for property owners to regularly follow municipal developments that could impact their properties.”

This story was originally published in The Lawyer’s Daily.