British Pacific Properties Ltd. v. Minister of Highways and Public Works, [1980] 2 SCR 283

Supreme Court of Canada

British Pacific Properties Ltd. v. Minister of Highways and Public Works, [1980] 2 S.C.R. 283

Date: 1980-06-27

British Pacific Properties Ltd. (Respondent) Appellant;

and

The Minister of Highways and Public Works (Petitioner) Respondent.

1980: June 12; 1980: June 27.

Present: Laskin C.J. and Beetz, Estey, McIntyre and Lamer JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA

Interest—Expropriation—Whether interest awarded by arbitrators subject to s. 3 of Interest Act—Interest Act, R.S.C. 1970, c. I-18, s. 3—Highway Act, R.S.B.C. 1960, c. 172, s. 16—Department of Highways Act, R.S.B.C. 1960, c. 103—Arbitration Act, R.S.B.C. 1960, c. 14—Ontario Judicature Act, R.S.O. 1897, c. 51, s. 113—B.N.A. Act, s. 92(3).

The appellant is an expropriated owner whose land was taken for highway purposes by the respondent. As agreement on compensation was not reached, an arbitration was invoked, and provided by s. 16(2) of the Highway Act. The arbitrators fixed the compensation and awarded interest in an amount “equal to the prevailing rates for 90 day finance company paper”. The result of that formula was the compounding of the interest over successive 90‑day periods. The respondent contended that s. 3 of the Interest Act applied to fix the rate of interest at five per cent and that the interest could not be compounded. On a petition to remit the award for amendment, the Supreme Court of British Columbia held that s. 3 of the Interest Act applied to limit the rate of interest to five per cent but that it should be compounded at 90-day intervals. The Court of Appeal, by a majority, affirmed the application of the Interest Act but varied the judgment below by directing that simple interest only be paid.

Held: The appeal should be allowed.

Under s. 3 of the Interest Act, “whenever any interest is payable by the agreement of parties or by law, and no rate is fixed by such agreement or by law, the rate of interest shall be five per cent per annum”. As there is no agreement in this case, the application of the; Act depends upon the concurrence of two factors, namely, that interest be payable by law and that no rate of interest is fixed by law. In the present case, it was conceded that interest was payable by law. With respect to the issue of whether the rate of interest is here fixed

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by law, the words “fixed by law” should be given a liberal construction so as to embrace the establishment of a rate of interest by virtue of a statute or under its provisions when the resulting rate is a binding one upon those affected by it, whether the award be made by a trial judge acting under statutory authority or by arbitrators in fixing compensation for expropriated land pursuant to statutory authority. Whether a statute under which interest is payable itself prescribes the rate or remits the award and the rate to a judge or to an adjudicator or adjudicative agency or provides a rate formula, the rate arises under law and is, accordingly, fixed by law. Section 3 of the Interest Act does not, therefore, apply to the present case and there is no error in principle in an award that prescribes compound interest.

The King v. MacKay, [1930] S.C.R. 130; Minister of Highways for British Columbia v. Richland Estates Ltd. (1973), 4 L.C.R. 85; Prince Albert Pulp Co. v. Foundation Company of Canada Ltd., [1977] 1 S.C.R. 200; Saskatoon v. Smith-Roles Ltd., [1978] 2 S.C.R. 1121; Inglewood Pulp and Paper Co. Ltd. v. New Brunswick Electric Power Commission, [1928] A.C. 492; Attorney-General for Saskatchewan v. Attorney-General for Canada, [1949] A.C. 110; Attorney-General of Ontario v. Barfried Enterprises Ltd., [1963] S.C.R. 570; Tomell Investments Ltd. v. East Marstock Lands Ltd., [1978] 1 S.C.R. 974; Lethbridge Northern Irrigation District Trustees v. I.O.F. and the Attorney-General of Canada; The King v. I.O.F. and the Attorney-General of Canada, [1940] A.C. 513, referred to.

APPEAL from a judgment of the Court of Appeal for British Columbia[1], varying a judgment of the Supreme Court of British Columbia. Appeal allowed.

I.G. Nathanson and J.J.L. Hunter, for the appellant.

W. O’Malley Forbes and T.S. Robbins, for the respondent.

T.B. Smith, Q.C., and David Sgayias, for the intervenant the Attorney General of Canada.

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The judgment of the Court was delivered by

THE CHIEF JUSTICE—The appellant is an expropriated owner whose land was taken for highway purposes under the Highway Act, R.S.B.C. 1960, c. 172, and the Department of Highways Act, R.S.B.C. 1960, c. 103. Section 16 of the former Act provides for payment of compensation, in the following terms:

16(1). Compensation shall be paid in respect of lands entered upon and taken possession of under this Part for the following matters only:—

(a) Improvements on the lands so taken, that is to say, everything constructed on or annexed to the soil by the hand of man,…

(b) Lands which were originally granted to some person by the Crown,…

(2) If the amount of compensation payable in any case under subsection (1) is not agreed upon, the amount may be appraised and awarded by arbitration, and for that purpose the provisions of the Department of Highways Act relating to arbitration shall, mutatis mutandis, apply.

Agreement on compensation was not reached and arbitration was invoked, as provided by s. 16(2), supra. The arbitrators fixed the compensation and also awarded interest in an amount “equal to the prevailing rates for 90 day finance company paper”. It was conceded that the date of entry coincided with the date of taking and interest would, consequently, be payable from that date to the date on which the compensation was paid. The result of the arbitrators’ interest formula was the compounding of the interest over successive 90-day periods.

The issue in this appeal, which is here by leave of this Court, is whether s. 3 of the Interest Act, R.S.C. 1970, c. I-18, applies to fix the rate of interest at five per cent. If so, it would follow that the interest would not be automatically compounded. There was, however, a separate challenge in any event to the compounding of interest. Section 3 of the Interest Act reads as follows:

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3. Except as to liabilities existing immediately before the 7th day of July 1900, whenever any interest is payable by the agreement of parties or by law, and no rate is fixed by such agreement or by law, the rate of interest shall be five per cent per annum.

On a petition under the Arbitration Act, R.S.B.C. 1960, c. 14, to remit the award for amendment, Macdonald J. held that s. 3 of the Interest Act applied to limit the rate of interest to five per cent but that it should be compounded at 90-day intervals. On appeal to the British Columbia Court of Appeal, a majority of that Court (Taggart and Craig JJ.A.) affirmed the application of the Interest Act but varied the judgment below by directing that simple interest only be paid. Nemetz C.J.B.C., dissenting, rejected the application of the Interest Act and would have restored the award of the arbitrators.

The application of the Interest Act to this case depends upon the concurrence of two factors, namely, that interest be payable by law and that no rate of interest is fixed by law. Although counsel for the appellant, as an alternative submission, suggested that interest was payable here by the “deemed” agreement of the parties (that is, to go to arbitration) and that a rate of interest was also so fixed so as to exclude s. 3 of the Interest Act, this is not a tenable proposition when arbitration is statutorily prescribed. It is unacceptable fiction, despite what was said by Anglin C.J.C. in The King v. MacKay[2], at p. 132.

Counsel for the respondent conceded that interest in this case was payable by law, within the meaning of s. 3 of the Interest Act, accepting in this respect the judgment of the British Columbia Court of Appeal in Minister of Highways for British Columbia v. Richland Estates Ltd.[3], at p. 86, where Farris C.J.B.C. said:

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It will be noted that what is to be determined is not simply the value of the land taken, but compensation. I interpret the word “compensation” in the context of this statute to mean that the owner is to be made “economically whole”. … There is nothing in s. 16 which restricts the elements which are to be considered in determining the compensation for lands taken. … This being so, recognition must be given to all the elements of compensation that will ensure that the owner is made economically whole. Interest is one of those elements.

There the Court upheld an arbitrator’s award of interest at seven per cent but the application of the Interest Act was not put in issue. Respondent’s counsel took, however, a strong position that here there was no rate of interest fixed by law, although it could be said that the rate prescribed by the arbitrators was lawfully fixed. What counsel submitted was that there had to be a statutory prescription of a rate to exclude s. 3 of the Interest Act or, at least, a statutory formula under which a rate could be established.

The result of the submissions of the parties is that the respondent sees himself as fully within the terms of s. 3 of the Interest Act and that the appellant sees itself as half way in and half way out so as to exclude its application. What the appellant contends is that if (as the respondent conceded) interest is payable by law (whether it be by common law or by construction of s. 16 of the Highway Act), it must also follow that the rate is fixed by law when it is established in an arbitration award under a statutory regime. Reliance was placed by the appellant on the following statement of Martland J., speaking for this Court, in Prince Albert Pulp Co. v. Foundation Company of Canada Ltd.[4], at p. 211:

It would appear to me that s. 3 is intended to apply where parties to an agreement have stipulated for the payment of interest, but no rate has been provided for, or where by law it is directed that interest be paid, but no rate has been set. The Toronto Railway case, [1906] A.C. 117, decided that a Court may allow interest where payment of a just debt has been improperly withheld, and it is fair and equitable that the debtor should make compensation by payment of interest, “at such rate as

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the Court may think right”. Where a Court, in its judgment, has awarded interest on this principle, the rate which it fixes is payable by law and the rate is fixed by law. In such a case the section would not be applicable.

It was urged by counsel for the respondent and, indeed, it was the conclusion of Taggart J.A. in his reasons, that this Court in City of Saskatoon v. Smith-Roles Ltd.[5] had, in an expropriation case, held that s. 3 of the Interest Act applied to limit the rate of interest to five per cent. The Court had affirmed the award of compensation which had established the rate of interest at five per cent, Estey J. dissenting. As a member of the Court in the Smith-Roles case, I can say (and I am supported in this by my brother Estey) that the issue of the Interest Act was neither raised nor argued, nor was the Court’s affirmation of the five per cent rate of interest made with any implicit recognition of the application of that Act. The Saskatchewan Court of Appeal did decide that s. 3 of the Interest Act applied in that, although interest was payable by law, no rate was fixed by law and an arbitrator could not establish a higher rate than five per cent. However, Taggart J.A. in the present case overstated the position of this Court in the Smith-Roles case when he attributed to it a recognition of the application of s. 3 of the Interest Act so as to make the rate of interest a rate of five per cent.

I do not accept the position taken by the Saskatchewan Court of Appeal in the Smith-Roles case. In my view, the principle expressed by Martland J. in the Prince Albert Pulp Co. case, although it was not an expropriation case, is adaptable to the present case. In expressing the principle, Martland J. referred to Toronto Railway Co. v. Toronto, supra, where the Privy Council considered whether interest should be allowed to a creditor from whom payment of a just debt was withheld. The issue arose under s. 113 of the Ontario Judicature Act, R.S.O. 1897, c. 51, which was in the following terms:

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Interest shall be payable in all cases in which it is now payable by law or in which it has been usual for a jury to allow it.

The Privy Council noted that a practice had developed in Ontario of entitlement to interest under the foregoing provision where payment of a just debt had been improperly withheld and it appeared fair and equitable that the party in default should make compensation by payment of interest. It was then incumbent on the Court to allow interest for such time and at such rate as the Court thought right. Although the Master in Ordinary had allowed interest at six per cent, the rate was reduced to four per cent by the Court of Appeal.

The fact that there may be a discretion to award or not to award interest does not alter my view that, where the discretion is exercised affirmatively by a judge under statutory authority, and a rate is fixed by him, the result is to exclude s. 3 of the Interest Act, if otherwise applicable. It seems to me that any discretion in expropriation cases would be a very limited one, going more to the rate than to the right, when the recognized principle is that interest is payable to the expropriated owner in lieu of his right to retain possession until he is fully paid (unless there is a clear indication in the expropriation statute that no interest is to be paid): see Inglewood Pulp and Paper Co. Ltd. v. New Brunswick Electric Power Commission[6]. It is true that in the Toronto Railway Co. case the Privy Council was not concerned with s. 3 of the Interest Act but the relevance of the holding in that case to s. 3 was the subject of Martland J.’s observation above-quoted.

I find no reason to distinguish an award of interest at a specified rate made by a trial judge acting under statutory authority and an award of interest at a specified rate made by arbitrators in fixing compensation for expropriated land pursuant to statutory authority. In both cases, the interest is payable by law and the rate is fixed by law, so as to escape the limited rate prescribed by s. 3 of the Interest Act. Whether a statute under which

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interest is payable (as, for example, upon an award of compensation or in respect of a debt), itself prescribes the rate or remits the award and the rate to a judge or to an adjudicator or adjudicative agency or provides a rate formula, the rate arises under law and is, accordingly, fixed by law. I would apply a liberal construction to the words “fixed by law” so as to embrace the establishment of a rate of interest by virtue of a statute or under its provisions when the resulting rate is a binding one upon those affected by it. I would regard s. 3 of the Interest Act as applicable only when there is no provision made in an applicable statute or in an agreement and no mechanism is provided by which a rate can be fixed.

I agree with Craig J.A. that if s. 3 of the Interest Act was applicable so that the rate of interest was five per cent, there could be no compounding because s. 3 fixes that rate as a rate per annum. In the present case, it is my conclusion that s. 3 does not apply and I see no error in principle here in an award that prescribes compound interest. Nemetz C.J.B.C. dealt with this point and I have nothing to add to his approving reasons.

In the result, it becomes unnecessary to deal with the appellant’s contention that s. 3 of the Interest Act applies only to contractual interest and, in any event, does not apply to questions of interest concerning a provincial government debt. It is enough to say here that s. 3 is not limited to questions of interest arising under federal legislation. Neither the Saskatchewan Farm Security Act case, Attorney-General for Saskatchewan v. Attorney-General for Canada[7], nor Attorney-General of Ontario v. Barfried Enterprises Ltd.[8], support the appellant’s contentions. Although there are observations in the majority judgment in Tomell Investments Ltd. v. East Marstock Lands Ltd.[9], which do lend some support to the appellant’s contention that s. 3 is limited to contractual

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interest, I prefer to leave consideration of them to a case in which they are relevant to its determination. That is not so here. Equally, it is unnecessary in this case to reconsider whether s. 3 of the Interest Act or the federal power in relation to interest embraces provincial government obligations, having regard to s. 92(3) of the British North America Act which reposes exclusive legislative power in each Province in relation to “the borrowing of money on the sole credit of the Province”. At the present time, the judgments of the Privy Council in Lethbridge Northern Irrigation District Trustees v. I.O.F. and the Attorney-General of Canada; The King v. I.O.F. and the Attorney-General of Canada[10] do not recognize any exception from the federal interest power by virtue of s. 92(3).

I would allow the appeal with costs throughout, set aside the judgment of the British Columbia Court of Appeal and restore the award of the arbitrators. There will be no costs to or against the intervenant, the Attorney-General of Canada.

Appeal allowed with costs.

Solicitors for the appellant: Davis & Co., Vancouver.

Solicitors for the respondent: Owen, Bird, Vancouver.