This is the text of an address given to the Canadian Real Estate
Association on March 26, 2001 in Ottawa. If you wish to reproduce this
click here for copyright info.
I’ve been asked to provide you today with an overview on roughly where the law of property rights stands these days in Canada. Before I started preparing this talk, I thought that would be a fairly simple task. However, when I began doing a little research, I soon realized that it was going to be somewhat akin to giving you an overview of a plate of spaghetti, or worse yet, a can of worms.
In short, the law of property rights is not a simple matter today in Canada. Like spaghetti, it contains a whole bunch of strands that twist and turn, and get all tangled up, but in the end lead nowhere. And as far as palatability is concerned—well, I think the can of worms comparison is better than the spaghetti one. Personally, I have a tough time swallowing a lot of what our courts and our legislatures have been doing in this area.
Milk Quota Example
Let me start by giving you an example of some of the confusion that’s out there. As realtors, you in this audience are primarily concerned about issues relating to land, but a lot of the really interesting cases involve other types of property, so I’ll be referring to them to give you an idea of the principles (or should I say lack of principles?) that are being applied these days.
The first situation I’m going to mention involves milk quota. A number of years ago, a farmer out in B.C. by the name of Ken Sanders decided to retire from dairy farming. But under B.C. law, farmers are allowed to sell only 90% of their quota. They have to surrender the remaining 10% to the Milk Board, who then gives it away to young farmers just getting into the milk business.
Mr. Sanders challenged this law. He said it constituted expropriation of his property, and that he should be paid compensation. He argued that he had paid privately for all of his quota when he started farming, and didn’t see why he should have to give 10% away free to somebody else.
The case went all the way up to the B.C. Court of Appeal, where the court held that even though milk quota is an asset with recognizable market value, even though banks will lend money on the security of milk quota, even though you can write off the cost of quota through depreciation allowance on your income tax return—milk quota is not "property" vis-a-vis the Milk Board. It is merely a licence. Therefore, there had been no expropriation and Milk Board owed no compensation.
One year later, in 1992, another B.C. farmer found himself in court. This gentleman, John Verschuur, was separating from his wife. The judge awarded her 35% of the value of the milk quota that Mr. Verschuur owned—a figure that amounted to about $56,000. Mr. Verschuur protested. He said, "No, you can’t do that because the B.C. Family Relations Act only permits the court to allocate a couple’s "property," and the B.C. Court of Appeal told Mr. Sanders last year that milk quota isn’t property." Well, guess what? The case ended up back in the B.C. Court of Appeal, and guess what they said this time? Anyone want to hazard a guess? You got it—they said milk quota is "property" and Mr. Verschuur had to split it with his wife.
Same court, different judges, 22 months’ difference in time, 180 degrees difference in result. So that just gives you an idea of how things stand out in B.C.
For the record, I’m not suggesting that I think milk quota should be treated as property. My own opinion is that the quota system should never have been started in the first place and should not exist at all. Just as I believe it’s not the role of the government to take people’s property away, I believe it’s also not the role of government to create property out of thin air. But my point here is simply that the same appeal court can’t even be consistent on the question of what is or isn’t property.
Supreme Court cases—Fishing & Mining Rights
Whether milk quota is property or not, the Supreme Court of Canada made it clear 23 years ago, that the principle of compensating people for expropriated property does not apply exclusively to land. The province of Manitoba decided out of the blue to set up a Crown corporation and give it a legal monopoly on exporting fish. (I know, I know, Manitoba is not the first place that comes to mind when you think about the fishing industry, but I assure you I am not making this up.)
Anyhow, it turned out there was already a privately owned company, Manitoba Fisheries Limited, that had been in the fish exporting business for 40 years before the new Crown corporation came along. So all of a sudden, this company was forced out of business, thanks to the law. They sued for compensation, claiming they had been expropriated. The SCC agreed and ordered Manitoba to pay compensation.
A few years later, in 1985, a situation arose in B.C. where a company had been given a Crown grant to the minerals on some land by the province. Then the land became part of a provincial park, and they were prohibited from mining there. They sued the B.C. government for expropriation of their property. The Supreme Court of Canada held that even though they were not the actual titled owners of the land, their mineral exploration rights constituted property that had been taken by the government, so they were entitled to compensation.
Ontario Landlord Case
Now let’s move forward a few years. In 1991, under the reign of the NDP government here in Ontario, amendments were made to the rent control laws. We’d had rent control for many years here, but the 1991 changes actually had the effect, in some instances, of retroactively repealing rent increases for some landlords that had already been approved under the previous legislation. These landlords figured they had been deprived of something by the legislature, just like the fish exporting company in Manitoba and the mining company in B.C. So they sued. But much to their surprise, the Ontario Court of Appeal, in 1997, said that their case was not the same as the Manitoba fish company or the B.C. miners. The landlords had not been expropriated and were not entitled to compensation. Sure, they had lost something, and that something was worth a lot of money to them, but unlike the other two cases, what the landlords had lost did not end up being owned by the government. A benefit was certainly conferred upon the tenants, but the province of Ontario didn’t end up as the owner of what was taken from the landlords, so this wasn’t an expropriation.
In my view, this reasoning was nothing more than a convenient cop-out by the court. Suppose the law had not just marginally reduced the amount of rent the landlords had charged. Suppose it said, "From this day forward, no landlord can charge any rent for an apartment—and you can’t shut down your apartment building unless all the tenants voluntarily agree to vacate."
I think everyone would probably agree that under these circumstances, a landlord’s property would effectively have been expropriated. But if we apply the Ontario Court of Appeal’s reasoning, then this would not be an expropriation because the benefit of it wouldn’t go to the government, it would go to the tenants. Very unpersuasive, I find.
Summary of the Law
At this point, you’re probably wondering whether there are any unifying themes running through these cases that will somehow tie them together and make sense of the various decisions. I guess the answer to that question is that there hasn’t been a lot of consistency as far as the outcome of the cases is concerned, but the courts have at least developed a set of rules that they pay lip-service to. Unfortunately, when you hear the rules, you’ll understand why the outcomes of the cases have been inconsistent. So here are the rules:
1. First, it is possible that new legislation or regulations governing the use of property can constitute a "taking" of property without actually being an expropriation in the traditional sense (by which I mean where you get a letter in the mail informing you that your farm is being purchased by the government to make way for an airport).
2. Second, it will be a question of "mixed fact and law" in each case to decide whether a regulation has had sufficient impact on a person’s property to constitute a "taking". This means that each case will have to be decided according to its particular facts. In other words, we’re going to see a lot of discretion being exercised by the courts—which means we’ll see a lot of judgments that appear inconsistent on their face.
3. Third, the rule of thumb that the courts will use in exercising this discretion is roughly this: if the person claiming that his property has been taken can’t make any use of it at all after the so-called "taking", then the court will probably agree that it’s an expropriation. However, if the owner still has some use of the property, even though the use is less valuable than before, the court will probably say there has not been a "taking." Some of the terminology the courts have used to express the distinction is that there will be an expropriation if there is a confiscation of "…all reasonable private uses of the lands in question," or if the regulation is "of sufficient severity to remove virtually all of the rights associated with the property holder's interest."
4. Fourth, regardless of the magnitude or severity of what the legislation does to your property value, if the government doesn’t end up owning what it took away from you, it’s not an expropriation.
5. There’s one final step in the analysis, assuming that the court decides you do fall into the category of having been expropriated. That’s the question of whether you’re entitled to compensation. The cases have held that there is a presumption in law that property which is expropriated must be paid for, provided that the statute that causes the expropriation is silent on the subject. This may surprise some of you. I’m sure you’re all aware that Canada has nothing in its constitution or Charter of Rights guaranteeing property rights. However, the courts have incorporated this principle into the common law over the years, and the legislature is presumed to know the law, so if they forget to put something in the statute or regulation regarding compensation, you’re entitled to it.
Distinction Between Common-Law and Constitutional Protection
Now, some of you may feel that you can relax a bit over this property rights stuff because it appears the courts are taking care of things even if property rights are not in the constitution. Well—don’t relax. Keep in mind that there’s a flip side to fourth rule I just explained to you. The flip side is this: if the legislature decides that it wants to take your property and not pay compensation, then there’s nothing to stop it from enacting legislation which explicitly disentitles you to compensation. The courts have said only that compensation must be paid if the statute is silent.
A constitutional property rights guarantee would prevent the legislature from explicitly taking away your right to compensation, but the courts alone haven’t done that and cannot do that.
Why Should Government "Takings" Be Different from Private Theft?
Okay, at this point I’d like to toss out a question for you to ponder: Why should the issue of whether compensation should be paid for property turn on whether the property has been wholly confiscated, or wholly destroyed in value, versus only partially confiscated or partially destroyed in value?
If someone mugs you on the street and takes only half the money in your wallet instead of all of it, that’s still considered a crime, right? If you invest your money with a crooked stockbroker and he steals 25 percent of it but not all of it, that’s still embezzlement and you can still sue him to recover what he took from you.
What I’d like someone to explain to me is why the government should be held to a different standard—why the government can take part of your property with impunity, so long as it doesn’t take the whole thing?
This state of affairs leaves the door wide open for government to do all sorts of things that reduce the values of people’s property. Some of these things don’t sound like expropriation, when you first hear about them. But if they happen to you, you won’t feel much better than you would if you got a letter in the mail saying they’re taking your house for a new highway. Let me give you a few examples of some of these things.
Human Rights Code Violates Property Rights
The first example arises from the workings of the provincial Human Rights Codes. As you probably know, these are laws intended to protect people from discrimination on the basis of race, sex, religion, age, colour and so on. Another category of protection is disability. We are prohibited from discriminating against people on the basis of physical or mental disability. How does this affect property rights?
Well, here’s an example. In London, Ontario a few years ago, there was a disabled woman who was confined to a wheelchair. She wanted to go to a chiropractor. She made an appointment with someone, but when she got to his office, she found that the building was not wheelchair-accessible. There was a set of stairs leading from the front entrance to the examining rooms.
There was no ramp or elevator. She went home and phoned the chiropractor. He was quite sympathetic, and offered her three choices: she could come back to the clinic, and he and another doctor would carry her up the stairs; or he would borrow an office from another chiropractor friend of his who had wheelchair access, and treat her there; or if she preferred, he’d come to her home and treat her there.
But the disabled woman wasn’t satisfied with any of these options. She complained to the Human Rights Commission that she had been discriminated against. They hauled the chiropractor before a Human Rights tribunal, and eventually, after 7 years of negotiation and a trial, he was ordered to install a wheelchair ramp from the parking lot up to the floor where the examining rooms were.
This was no small task. A construction expert had testified at the trial that the cost would be about $20,000. It would also result in the loss of one parking space in the lot, and the loss of one examining room, upstairs, which would become too narrow to be of any use. Furthermore, it would violate an existing zoning by-law, so the city of London would have to be petitioned for permission, which would mean further expense.
And of course the truly bizarre part of this is that it took 7 years from the time the woman first made her complaint until the time that the tribunal handed down its decision. That’s one heck of a long wait just to see a chiropractor. One really has to question the woman’s motives through all this.
Did the Human Rights Code constitute an expropriation of the chiropractor’s building? He never tried to make a case for that. But my guess is that if he had tried, the court would have thrown him out on his ear. "You’ve still got your building," they would say to him, "Nobody took it away. And it’s certainly not the government who got any benefit out of it."
But when you think about it, what he now had was a less valuable building. While his building can now accommodate the rare patient in a wheelchair, it can accommodate only a fraction of the previous number of patients in total, due to the loss of one examining room. Since the potential number of walking patients vastly outnumbers the potential number of wheelchair-bound patients, he was left with a significantly less productive asset.
You may be aware that there has been a lot of discussion lately about bringing in further disability legislation. The people who advocate this want the law changed so that every property owner will have a duty to make their buildings wheelchair-accessible, effective as soon as the legislation is passed, without a complaint having to be made to the human rights commission. This means that every commercial two-, three- or four-storey walk-up building in every nook and cranny of the province would have to install an elevator. My law firm is located in a 3-storey building in Belleville. Our main office is on the second floor. When we renovated the building about 14 years ago, we looked into installing an elevator. It would have increased the cost of the building by about $80,000, if I recall correctly. That was way out of proportion to the value of the building, so we had to settle for retaining a small portion of the ground floor as spare office space where we can see people who can’t use the stairs.
But this is just one example of a type of law which can impose massive costs on property owners, yet there’s nothing to prevent this type of interference with property rights.
Smoking By-Laws Violate Property Rights
Another example is
smoking by-laws. Ordinarily, we don’t think of these as examples of
expropriation, but the impact on property values for the people affected
can be quite severe.
Pending Legislation—Species At Risk Act
There are a few other laws on the horizon that will affect property rights. One is a proposed federal law, the other a proposed provincial law in Ontario.
The federal law, as I’m sure many of you know, is the Species at Risk Act. I’m not going to discuss this because I was told that the other speaker today would be covering it. The only good news on that front is that the bill does provide for compensation to be paid to a property owner if the use of his or her property becomes restricted in order to preserve wildlife habitat.
Ontario Bill 155—Civil Asset Forfeiture
I’m more concerned about an Ontario law that will probably be passed soon. It’s Bill 155, known formally as the Remedies for Organized Crime and Other Unlawful Activities Act. I think this bill sets a very dangerous precedent. If Ontario passes it, all the other provinces will rush to do likewise. And once Ontario starts to put this law into practice, it will realize that there’s big money involved here for the provincial treasury, and I think it will start looking for ways to expand its powers even further.
The basic purpose of Bill 155 is to allow the provincial government to seize and keep property that is either the proceeds of crime, or that is likely to be used in the commission of crime. Now, the field of criminal law is allocated to the federal government under Canada’s constitution, and has been ever since the British North American Act was passed in 1867. And the Criminal Code already has provisions saying that if a person is convicted of a crime, any property in his possession that constitutes proceeds of the crime can be seized by the government. So if this is already in the Criminal Code, what does Ontario think it’s doing?
Well, Ontario is lowering the bar. Bill 155 sets up a civil asset forfeiture regime, as opposed to the criminal provisions that the feds already have in place. What’s the difference? Simple. Under the existing federal law, the government can’t take someone’s property until it has obtained a criminal conviction against the person. This means the person must be charged with a crime and found guilty beyond a reasonable doubt, with the benefit of the standard presumption of innocence until proven guilty.
Ontario apparently thinks this is too much of a hassle. Ontario wants to get its paws on the proceeds of crime without the inconvenience of waiting for a person to be charged or convicted. So Bill 155 will allow it to do just that. If the government suspects someone of having property that is proceeds of crime or that is likely to be used in a crime, it can apply for a court order to seize the property. If the judge thinks, under a civil standard of proof—which means only on the balance of probabilities, only on a 51% chance, not beyond a reasonable doubt—if the judge thinks the property qualifies, then the province gets to keep it. No-one need ever be convicted of a crime. No-one need even be charged with a crime.
This will be a first for Canada, although the U.S. has had civil asset forfeiture laws in widespread use for about 15 years. What have some of the results been? Well, there have been thousands of cars, boats and homes seized because a little marijuana was found in them. Sometimes property has been seized on even less evidence than that. Roger Pilon, Vice President for Legal Affairs at the Cato Institute (a think-tank in Washington), testified before the U.S. Senate Judiciary Committee in 1999 about the abuses of this law. According to him: "Stories of a home lost when one member of a family made an illegal phone call from it are too numerous to recount."
Ontario says its civil asset forfeiture law won’t be so bad. There’s a provision in it that says if you are what they call a "responsible owner" and your property somehow becomes involved in illegal activity, it won’t be seized. However, being a responsible owner means that you have to do "everything that can reasonably be done" to prevent the property from being used in an illegal activity, including—and this is specifically stated in the legislation—notifying law enforcement officials if you know that the property is being used in some illegal way.
So suppose you’re a landlord and you find out that someone in your apartment building is selling drugs. Suppose you try to get rid of this tenant, but the tenant threatens you with violence. Suppose the tenant says, "If you tell the cops, you and your wife and all your kids will die." If you decide the safer course is to turn a blind eye to the activities of the drug dealer, this means you don’t meet the definition of responsible owner, and your property can be seized on the balance of probabilities.
Or suppose you’re a conscientious parent, but you discover that your 17-year-old son is buying and selling drugs over the telephone from his bedroom in your home. Your house is subject to seizure unless you turn your child over to the police.
Another danger of this law is the breadth of what is defined to be illegal activity. While all the speeches and press releases put out by the Attorney General’s office regarding this bill linked it to serious organized crime, the definition of "unlawful activity" in the bill is anything that constitutes an offence under any federal or provincial law. Well, there’s some pretty minor stuff that constitutes offences under provincial law. Violating the Human Rights Code constitutes an offence. So to go back to the chiropractor example, if this bill had been passed when that was taking place, the chiropractor could have lost his whole building to the province. Or any business person who’s found to have discriminated against an employee or a customer on the basis of sex or age could find his whole business being seized as an "instrument of unlawful activity". Or someone who gets caught repeatedly speeding in his car could find that the car gets seized as an "instrument of unlawful activity."
This bill is truly a nightmare, and what puzzles me is that there has been very little public outcry about it. I’ve had two articles published in the National Post and the Globe and Mail about it, but generally speaking this issue has not captured public attention at all. We will unfortunately all pay the price for that eventually.
Is A Constitutional Amendment the Answer?
When I was invited to speak to you today, Mr. Humphries specifically mentioned that he would like me to address the issue of what this organization can do, if anything, to help preserve or improve property rights in Canada. That was a tough challenge.
One obvious question is whether a campaign should be undertaken to promote an amendment to the Charter of Rights and Freedoms to include property rights. Personally, I would not consider this a top priority. My main reason is that our cousins to the south of us have had property rights protection in their constitution for 200 years, and if you look at their law and ours, you’ll find that there is no significant difference in the treatment afforded to property owners. In fact, it was the U.S. that pioneered the civil asset forfeiture laws that Ontario wants to get into. As I mentioned earlier, they’ve had civil asset forfeiture laws running rampant, despite their constitution, for a good 15 years. Believe it or not, there are literally thousands of asset seizures taking place in the U.S. every week. Yes, I said thousands every week.
And the U.S. is the place where the Americans with Disabilities Act was passed about a decade or so, forcing property owners to make alterations to their property to accommodate the disabled regardless of how much it costs or what it does to the value of the property.
So while entrenching property rights in a constitutional document sounds like a good idea, the U.S. experience has proven that it doesn’t accomplish much. The problem is, once you get a government and courts that have the mindset that the state is essentially all-powerful, and that anything is okay so long as it’s been approved by a democratic vote (which is what Lord Acton referred to as "the tyranny of the majority") then even well-written constitutions don’t stop them. The history of how U.S. courts have gotten around barriers in their constitution to do things that appealed to the political agenda of the moment would curl your hair.
There’s another interesting theory I want to mention on the issue of entrenching property rights. Rainer Knopff, a professor of political science at the University of Calgary, is generally speaking an advocate of free markets and limited government, but he believes that entrenching property rights in the constitution could actually be very harmful. Professor Knopff’s reasoning is that there is such widespread misunderstanding of what is or isn’t a valid property right that if we were to entrench this right, we might end up with all kinds of bad programs and laws that we couldn’t get rid of. What if welfare recipients, for instance, claimed that their welfare entitlement was property, and that it was therefor constitutionally guaranteed and could never be lowered or cut off? Or to go back to the milk quota example I used at the very start of this talk—what if they decided to abolish milk quota and taxpayers had to buy up all the millions of dollars worth that’s out there? While I find it sad that things have come to this pass, I do think Professor Knopff has a valid point.
Preparing the Intellectual Climate
So regrettably, I think that before anyone charges off on a campaign to entrench property rights in the constitution, there’s a lot more spadework that needs to be done. In fact, you could compare a constitutional property rights guarantee to a patch of fertile soil. A lot of things will grow there, and you want to make sure the seeds that get planted are those that will produce useful crops rather than weeds.
So I think what needs to be done first is a lot more philosophical and political weeding. I think the intellectual climate must first be prepared. People have to understand what really is property deserving of protection and what is merely an illegitimate creation of the state implemented by the use or threat of brute force—in effect, stolen property.
How do we prepare the intellectual climate? Well, each of us has to find our own niche. The task I’ve taken on for myself is to give speeches like this one, and to write articles about subjects like this in newspapers and magazines. Not everyone can write well enough to get articles published, but most people can at least write letters to the editor making short, sharp points. Sometimes a letter to the editor need be nothing more than praise and agreement with someone who has written a good article. Even the letters that don’t get published are still noticed by someone at the newspaper office—and a good reader response means the editor will be eager to publish more articles by that writer.
Or if you see an article that is particularly wrong-headed—suppose, for example, you saw one saying that welfare should be considered a property right—you might write a letter objecting to it.
Another idea is simply to clip an article you agree with and place it on the office bulletin board, or send copies of it out to friends and acquaintances. Or send a copy to your member of parliament, with a covering letter attached expressing your agreement.
Now, maybe this sounds a little lame to you. It’s not a grand plan of action, that’s for sure. But as I see it, humanity is perpetually engaged in a battle of ideas, and the sad fact is that ideas spread very, very slowly. But they do spread, and they spread by being talked about. Sometimes even that takes a lot of courage. Believe me, it’s not a very pleasant task to argue against wheelchair access for the disabled. I was once on a radio show with Rick Hansen, the wheelchair athlete who made a trip round the world to publicize the cause of the disabled. He was pushing for some kind of legislation—I forget the details—but it was something like a special tax that would go towards helping the disabled. I was there saying, "No, no, that’s a violation of freedom and property rights." Guess who looked like he was on the side of the angels and guess who looked like Ebenezer Scrooge!
But there are ways of dealing with this. One way is to point out that in societies where property rights don’t exist or aren’t respected, the disabled are actually much worse off, because those societies tend to be very poor.
But first you have to be convinced yourself that a society which respects property rights will on the whole be a more prosperous and pleasant place than one that doesn’t. If you recognize the truth of this statement, then you should also recognize that it applies across the board, not just to certain groups of people. And if you don’t recognize the truth of this statement, then I guess I’ve got a lot of work to do convincing you. But my time’s up, and I’ve done as much as I can for one day. So thanks for having me here today to speak to you.
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