Disguised Expropriation: Protecting Oil And Gas Interests

The concept of expropriation concerns the power of a public authority to deprive a property owner of the enjoyment of the attributes of his or her right of ownership.1 As the Supreme Court of Canada recently stated in the case of Lorraine (Ville) v 2646‑8926 Québec Inc., 2018 SCC 35, disguised (also known as de facto) expropriation involves an abuse of power which "occurs where a public body exercises its power of regulation unlawfully, that is, in a manner inconsistent with the purposes the legislature was pursuing in delegating the power ... it is the reasons for the act which must be assessed. The courts will accordingly determine whether the act is fraudulent, discriminatory, unjust or affected by bad faith, in which case it will be treated as an abuse of power".2 This occurs "[w]hen property is expropriated outside [the] legislative framework for an ulterior motive, such as to avoid paying an indemnity".3 In Lorraine, the Supreme Court considered the legitimacy of environmental regulation that impacted private property interests, affirming its previous position that the cause of action for de facto expropriation is a viable cause of action for testing the legitimacy of government action. It is clear that government action undertaken in the pursuit of environmental protection is increasingly being scrutinized as disguised or de facto expropriation, given its impacts on development rights, including those in the construction and oil and gas sectors.

In Lorraine, the plaintiff had purchased a wooded lot in a residential zone in the Town of Lorraine, Quebec, intending to eventually subdivide it for residential construction. A few years later, the Town adopted a by-law which caused more than half of the plaintiff's lot to become part of a conservation zone in which the authorized uses were limited to recreational and leisure activities, preventing the plaintiff's residential construction plans.

As confirmed by the Supreme Court, two remedies are available to persons and corporations whose rights are impacted by government action: (1) they may seek a declaration of invalidation or inoperability of the statutory, regulatory or administrative act which caused the right to be improperly expropriated, or (2) "if this option is no longer open to them",4 they can claim an indemnity proportional to the value of the right that has been wrongly taken away or rendered worthless. The Supreme Court has previously affirmed these two avenues of relief in...