In the age of environmental awareness, it is no wonder that government bodies, lobbied by environmentalist groups, are declaring more and more land as reserved for national park use and to fulfill heritage protection objectives. As a result, corporate undertakings that would make use of such lands for economic purposes, like mining ventures, often suffer the consequences of such reservations. Canada has a long history of providing government agencies with discretionary power to decide when to preserve lands as environmental sanctuaries and when to allow development of lands to promote the nation’s economic wellbeing, two objectives that must be carefully balanced.

So what happens when a mining company has staked mineral claims on lands that are subsequently deemed reserved by government authorities? Undertaking a mining venture can be costly, as resources are expended in staking and reserving mineral claims (including gathering the appropriate government grants or licences to do so), raising funds through investment endeavours and assembling an operational mining site. These initiatives can cost millions of dollars, money that can no longer be recovered through mining profits once lands are deemed reserved. The question becomes whether there is any recourse available to mining companies to recoup costs expended to develop what essentially becomes a “dead” operation.

Constructive expropriation

The answer may lie in the legal concept known as constructive expropriation or de facto expropriation. By way of grant or licence, mineral claim stakeholders acquire rights to extract minerals from specified lands and are granted surface access rights to achieve those goals; however, they do not hold title to the land.

Where government authorities deem those lands to be reserved for purposes of environmental protection objectives, the lands essentially become useless to mining companies that have staked claims on them. So, although expropriation does not occur in a true sense of the term (i.e., the actual taking of lands by government authorities), a mining company can make the claim that the government’s reservation of that land amounts to constructive expropriation, thereby resulting in the “taking” of all of their rights and uses associated with such lands.

The advantage to advancing a constructive expropriation claim is that, if successful, one is eligible to receive compensation under the provincial Expropriations Act or under any other applicable statute dealing with expropriation. Furthermore, there is a presumption at common law of a right to compensation in the case of expropriation.

This presumption states that unless the words of the statute clearly indicate the contrary, a statute is not to be construed so as to take away the property of a subject without compensation.  The same presumption does not hold true in the case of injurious affection. A claim for injurious affection exists where an expropriating authority takes part of the claimant’s land, severs the land or constructs works upon the land, resulting in the remainder of the lands having a reduced market value. Compensation for injurious affection is more limited than expropriation claims as claimants in those cases are still in possession of at least part of their land.

To be successful in advancing a claim on the basis of constructive expropriation, one must meet a threshold where the following three criteria must be established: 1) government action must be more than mere regulation of the land,  amounting to a complete loss of all rights to and uses of the land;  2) there must be a transfer of rights to the expropriating authority;  and 3) the right to compensation must not be explicitly excluded in the governing statute.  It is the first prong that most claimants have trouble establishing as extensive and restrictive land use regulation is common in Canada and such regulation will usually not constitute compensable expropriation. To be successful, mining companies will be required to show the “taking”  of land by government authorities rather than mere regulation of the land. As a result, the threshold to prove a compensable constructive expropriation claim is exacting.

The Queen in right of British Columbia v Tener  is a landmark case for its success in advancing a constructive expropriation claim. Tener owned mineral claims on a piece of land, to which the fee in land including surface rights were vested in the Crown. The province created a designated park area that encompassed the subject lands. The Park Act was introduced and stated that a park use permit was required to continue exploitation of the lands. Although Tener applied for said permit, such application was denied by the province. Tener brought an action against the provincial government for compensation resulting from the loss of its right to extract minerals on the lands to which it held grants. At trial, Tener was denied compensation, but on appeal, the trial decision was
reversed. The Supreme Court of Canada held that Tener was entitled to compensation as the Crown’s actions amounted to a “taking” of the land.

Tener

In Tener, Justice Estey’s analysis centered on the idea of a loss of the right to access minerals which was essential to the use of Tener’s grant. However, Justice Estey was careful to distinguish this case from cases where re-zoning or down-zoning of the lands occurred. He stated that in the case of the re-zoning of lands, it frequently occurs that the rights of the landowners are restricted, but there nevertheless remains some use of the lands; therefore this does not amount to expropriation. In contrast, if the only use for the lands is the exploitation of minerals and if this use is prohibited, then all of the interest in the land is essentially worthless to the mineral claim-holder where lands are reserved for other purposes. The Court also pointed to and expressly supported the common law presumption that a right to compensation must flow in the case of expropriation, unless prescribed otherwise by statute.

In another successful case,  Casamiro Resources and its affiliates held Crown-granted mineral claims on land that was already reserved as park land in British Columbia. By an Order in Council, the park ceased to issue resource use permits under the Park Act for mineral exploration in the park. Casamiro Resources and its affiliates brought an action against the province and sought to be compensated for their loss resulting from the restrictions on the lands. At trial, the judge determined that the mineral claims had been expropriated by the Order in Council. The Court of Appeal upheld the trial judge’s determination and dismissed the appeal.

Casamiro

In Casamiro, the Court of Appeal expressly supported the Supreme Court of Canada’s decision in Tener. Specifically, Chief Justice McEachern stated that if the restriction of land use results in a complete diminution of rights that result in mineral grants that are rendered “meaningless pieces of paper”, this will amount to constructive expropriation. Furthermore, the Court reiterated the common law presumption in Tener, which favours compensation in the instance of expropriation. 

For many cases that have advanced constructive expropriation claims, the challenge has been to meet the threshold established in Tener and the cases that followed. For those cases that have succeeded,  it is clear that the “taking” of land must be so severe as to remove all rights associated with the subject’s interest in the land. While the case law does not clearly define where government action turns from regulation to “taking”, it is on this point that most constructive expropriation claims fail. Case law has revealed that simply showing that government reservation of the lands has resulted in the loss of economic value of those lands will not be sufficient to demonstrate that a “taking” has occurred that amounts to constructive expropriation. 

In the mining world, there have been few contenders that have been willing to bring constructive expropriation claims. For those that have, the courts have had lengthy discussions regarding the similarity of their facts to the facts in cases like Tener and Casamiro. Some cases have been appealed and overturned. The road to compensation has been a rocky one. Overall, however, such cases have been met with some success, as the courts have recognized the worth of mining claims, whether Crown-granted or simply staked and recorded. 

In the case of mining ventures, the “stakes” are high. After having expended millions of dollars on the exploration and development of a mining site, it could all be for naught if government authorities subsequently decide to reserve those lands for other purposes. Although some government bodies may offer some compensation for such actions, the compensation is often minimal and does not adequately reflect either the “sunk costs” of the operation or the present value of resources established by the operations. Advancing a claim for constructive expropriation can have the effect of bringing a mining company within the scope of legislation that provides for compensation in the event of expropriation. But, as the threshold remains high and the road to compensation is uncertain, it is likely that mining industrialists will never truly be compensated for all that is lost.

The content of this article is intended to provide general information to the reader and is not intended as advice or an opinion to be relied upon in relation to any particular circumstance. For specific applications of the law to a particular set of circumstances, the reader should seek professional advice. 

*Jenna Rucas is an Articling Student with McLean & Kerr LLP, a law firm based in Toronto.