Thought Leadership

Stephen Penney and Megan Kieley¹

The Newfoundland and Labrador Court of Appeal’s recent decision in Index Investments Inc v Paradise (Town)² is a significant decision for municipalities.

The Court of Appeal endorsed the Newfoundland and Labrador Supreme Court’s decision which upheld the Town of Paradise’s rezoning decision as reasonable and dismissed the constructive taking claim of the applicants.³

This decision confirms the concept that real property owners have been living with reasonable and restrictive land use regulations, and should expect to continue to do so. The decision clarified that courts will be deferential to municipal decision-making. The decision also provided insight into how reviewing courts will look to the record when there are no specific written reasons issued by a municipality (which is often the case). The decision also demonstrates that property owners bear the burden to prove a claim for constructive taking, and that substantial evidence is required.

Background

The Appellants owned several properties within the Town. The properties were previously zoned as “Residential Subdivision Area”. RSA zoning is restrictive. That particular zoning effectively prohibits development unless an appropriate and comprehensive development plan is submitted. As well, the property would need to be rezoned in accordance with the development plan, which process includes substantial public consultation. Put simply, under the RSA zoning, Index had no right to develop the property.

The properties were also adjacent to a public walking trail owned by the Province, and a portion of the properties contained steep slopes. The properties had not been developed, and no applications had been made to the Town as of the date of the appeal.

The Town engaged in updating their plan, and adopted new Development Regulations in 2018. In this new plan, some of the Index property was rezoned as “Rural Residential”, thereby permitting low-density residential development. In addition, a significant portion of the property which was highly sloped (more than 20%) was designated as “Conservation”. Conservation areas are meant to provide a natural buffer around ponds, wetlands, and other areas of “known hazard” and include significant restrictions on development. The Town effectively zoned all land which was highly sloped as Conservation, due to issues associated with development on sloped properties such as erosion, water run-off and safety.

The Appellants sought to quash the Town’s rezoning decision through an application for judicial review. They argued that the Town’s decision was an unreasonable exercise of statutory authority. They argued in the alternative that the properties had been constructively expropriated. The Supreme Court ruled in favour of the Town on both issues.

At the Court of Appeal, the Appellants made similar arguments, namely that:

• The Supreme Court did not consider the lack of direct notice to the Appellants of the rezoning;
• There was an improper use of authority;
• There was a lack of reasons; and
• The Supreme Court erred in applying and considering the proper test for constructive taking.

The NLCA agreed with the NLSC

The NLCA dismissed the appeal. The Appellants did not establish that the Town denied them procedural fairness, or acted beyond its statutory authority. The Court of Appeal also upheld the dismissal of the constructive taking claim.

The Town’s zoning change decision was reasonable

With respect to the judicial review of the Town’s zoning decision on appeal, the NLCA considered the justification, transparency and intelligibility of the municipal planning decision.

Generally speaking, reviewing courts afford deference to administrative decision-makers. An assessment of a decision is intended to rely heavily on the decision-makers’ written reasons. However, given the nature of municipalities and their decision-making process, there is often a lack of written reasons available for reviewing courts.

To address this challenge, the NLCA emphasized the importance of examining the record to evaluate a municipality’s reasoning process.⁴ As such, the Town presented a record of communications, notices, reports and other documentation relating to the adoption of its Municipal Plan and Development Regulations.

The Town had commissioned geotechnical assessments and reports of certain properties in the Town which disclosed risks of safety, erosion and general issues with development on sloped areas.⁵ Further, there was nothing in the record to suggest that the Town’s purpose in adopting the Municipal Plan was for any other reason than to set out a comprehensive policy document for managing the growth and development within the municipality, and all properties with this degree of slope were treated the same.

Moreover, the Town’s record showed the NLCA that it properly used its statutory authority to rezone the properties. Additionally, the record demonstrated that the Town exceeded the statutory notice requirements, and that there was no implied obligation to provide direct notice to the property owners.

There was no constructive taking

Further, the Court of Appeal endorsed the Supreme Court’s conclusion that the Appellants had not established a claim for constructive taking. The Court of Appeal noted that it was to be deferential to the lower court decision in constructive taking cases, unless there was some “extricable error” with respect to the application of a legal test, or there were other “palpable or overriding errors”.

The Appellants had to prove that all reasonable uses of the properties had been removed and that the Town had acquired a beneficial interest or advantage in the property flowing from its rezoning decision. This two-part test arose out of the Supreme Court of Canada’s decision in Annapolis Group Inc v Halifax Regional Municipality.⁶ The Court of Appeal confirmed that the Supreme Court was correct in the way they applied this test.

The Court of Appeal also confirmed that the Supreme Court properly considered the evidence in its analysis. This included its consideration of the properties’ prior zoning designation as “Residential Subdivision Area”, which did not permit development. There was also no evidence that the land use restrictions on the properties gave the Town a beneficial interest through enhancing the value of or improving the public walking trail, despite the Appellants speculation.⁷

What does this mean for municipalities and developers?

This is a significant decision for municipalities. In the wake of recent constructive taking cases in Canada, that the burden of proving a claim for constructive taking is incredibly high.

The decision also emphasizes the importance municipal record-keeping when making planning decisions. A comprehensive record which includes efforts for public consultation on zoning decisions, for example, can comfort courts in applications for judicial review.

We encourage municipalities to seek legal advice when conducting any municipal planning or zoning reviews. A lawyer can help ensure the record is sufficiently comprehensive to minimize the potential of having municipal decisions quashed by way of judicial review.

St. John’s Partner, Stephen Penney, successfully argued this appeal on behalf of the Town of Paradise.

This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact the author or a member of our Municipal Group.

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1 At time of publication, Megan Kieley was employed with the Firm as a summer student.
2 Index Investments Inc. v Paradise (Town), 2024 NLCA 25 [Index].
3 Index Investments Inc. v Paradise (Town), 2023 NLSC 112.
4 Index at para 16.
5 Index at paras 36-38.
6 Annapolis Group Inc. v Halifax Regional Municipality, 2022 SCC 36.
7 Index at para 92.