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The principle of compensation in relation to public interference in the real property market : an interface… Heung, Raymond 1975

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THE PRINCIPLE OF COMPENSATION IN RELATION TO PUBLIC INTERFERENCE IN THE REAL PROPERTY MARKET: AN INTERFACE OF LAW AND ECONOMICS by RAYMOND Y. K. HEUNG B.Com., U n i v e r s i t y of Ottawa, 1969 M.A., U n i v e r s i t y o f B r i t i s h C o l u m b i a , 1972 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN BUSINESS ADMINISTRATION i n the F a c u l t y of Commerce and B u s i n e s s A d m i n i s t r a t i o n We a c c e p t t h i s t h e s i s as c o n f o r m i n g t o t h e r e q u i r e d s t a n d a r d THE UNIVERSITY OF BRITISH COLUMBIA J a n u a r y , 1975 i i I n p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of the r e q u i r e m e n t s f o r an advanced degree a t t h e U n i v e r s i t y o f B r i t i s h C o lumbia, I agree t h a t t h e L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s t u d y . I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g of t h i s t h e s i s f o r s c h o l a r l y p u rposes may be g r a n t e d by t h e Head o f my Department o r by h i s r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n of t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . F a c u l t y of Commerce and B u s i n e s s A d m i n i s t r a t i o n The U n i v e r s i t y o f B r i t i s h Columbia Vancouver 8, Canada J a n u a r y , 1 9 7 5 ABSTRACT The o b j e c t i v e o f t h i s t h e s i s i s t o examine t h e p r i n c i p l e of compensation i n r e l a t i o n t o p u b l i c i n t e r f e r e n c e s i n t he r e a l p r o p e r t y market. P u b l i c a c t i v i t i e s i n the r e a l p r o p e r t y market f r e q u e n t l y have t h e e f f e c t s of i n c u r r i n g l o s s e s t o be s u f f e r e d by some i n d i v i d u a l s i n s o c i e t y and g a i n s t o be e n j o y e d by o t h e r s . One c r u c i a l p roblem i s how we s h o u l d draw t h e l i n e between compensable l o s s e s and non-compensable l o s s e s . I n - o r d e r t o determine t h e c r i t e r i a of c o m p e n s a b i l i t y , we have r e s o r t e d t o economic p r i n c i p l e s as w e l l as l e g a l r u l e s . Economic p r i n c i p l e s a r e r e l e v a n t because t h e l o s s e s ( caused by p u b l i c a c t i v i t i e s ) t h a t we a r e i n t e r e s t e d i n are economic l o s s e s . L e g a l r u l e s a r e a l s o r e l e v a n t because c o u r t s have o f t e n been l e f t w i t h t h e r e s p o n s i b i l i t y o f d e t e r m i n i n g f a i r compensation. As f a r as l e g a l r u l e s a r e concerned, we r e c o g n i z e t h r e e l e g a l r u l e s t h a t have been d e v e l o p e d from j u d i c i a l d e c i s i o n s and l e g a l commentary, and have been deemed t o be c r i t i c a l i n d e t e r m i n i n g t h e c r i t e r i a o f c o m p e n s a b i l i t y . We e v a l u a t e t h e s e t h r e e r u l e s a g a i n s t t h e economic p r i n c i p l e s o f a l l o c a t i v e e f f i c i e n c y and t h e p r i n c i p l e s of j u s t i c e d e v e l o p e d by John Rawls, and we have come t o t h e c o n c l u s i o n t h a t t h e s e t h r e e r u l e s have i n h e r e n t weaknesses i n d e t e r m i n i n g how we s h o u l d draw t h e l i n e between compensable and non-compensable l o s s e s . However, t h e s e t h r e e l e g a l r u l e s have i v considerable influence on j u d i c i a l decisions with respect to the provision of compensation caused by the following three types of public interferences, namely, compulsory a c q u i s i t i o n of land, injurious a f f e c t i o n on land, and planning r e s t r i c t i o n s of land use. Consequently, the provision of compensation under each of the above three occassions f o r compensation have frequently been unsatisfactory and inadequate. We have also examined recent l e g i s l a t i v e reforms in Canada, and we have noted certain welcoming changes i n statutory law and have also pointed out some other areas where further reforms are required. TABLE OF CONTENTS ABSTRACT LIST OF TABLES ACKNOWLEDGMENT INTRODUCTION CHAPTER I . THE POLITICAL ECONOMY OF .THE PRINCIPLE OF . . COMPENSATION A. A l l o c a t i v e E f f i c i e n c y and Compensation 1. The P r o p e r t y R i g h t s Approach: A M o d i f i c a t i o n o f S t a n d a r d M i c r o e c o n o m i c Theory 2. E x t e r n a l i t i e s and Compensation ., 3 . S o c i a l P u r p o s e s , C o l l e c t i v e A c t i o n and C o n s e n s u s — t h e U n a n i m i t y R u l e R e v i s i t e d *h P r i v a t e Ownership and P u b l i c Ownership .. 5 . Summary and C o n c l u s i o n s B. D i s t r i b u t i o n and Compensation 1. C l a s s i c a l U t i l i t a r i a n i s m and D i s t r i b u t i o n 2. J u s t i c e as F a i r n e s s : The R a w l s i a n Model 3 . The Two P r i n c i p l e s o f J u s t i c e 4. The Branches of Government 5. J u s t i c e and Compensation I I . LAW AND THE PRINCIPLE OF COMPENSATION A. The Law o f T o r t s and t h e P r i n c i p l e o f Compensation B. The B a l a n c i n g o f S o c i a l G ains A g a i n s t P r i v a t e L o s s Rule C. The N o x i o u s Use R u l e ( o r t h e P r i v a t e F a u l t and P u b l i c B e n e f i t R u l e ) , D. The P h y s i c a l I n v a s i o n R u l e . . , v i CHAPTER Page E. Summary and C o n c l u s i o n s 4 3 I I I . THE OCCASSIONS OF COMPENSATION 5^ A. The L e g a l S t a t u s o f Compensation and E x p r o p r i a t i o n 46 B. An I n t r o d u c t i o n t o E n g l i s h S t a t u t e s o f E x p r o p r i a t i o n and L e g i s l a t i v e Reforms .... 49 C. An I n t r o d u c t i o n t o C a n a d i a n S t a t u t e s o f E x p r o p r i a t i o n and L e g i s l a t i v e Reforms ..,. 50 1. F e d e r a l Government 50 2. P r o v i n c e o f B r i t i s h C o l u m b i a 51 3. P r o v i n c e o f O n t a r i o . 51 IV. COMPENSATION FOR COMPULSORY ACQUISITION 52 A. J u d i c i a l D e c i s i o n s , „. 52 1. The P r i n c i p l e o f E q u i v a l e n c e ............. 52 2. The ' Va l u e t o t h e Owner' F o r m u l a 54 3. The 'Market V a l u e ' F o r m u l a 58 B. L e g i s l a t i v e Reforms i n Canada , 63 V. COMPENSATION FOR INJURIOUS AFFECTION 68 A. Compensation f o r I n j u r i o u s A f f e c t i o n , w i t h P a r t i a l T a k i n g 70 1. ' J u d i c i a l D e c i s i o n s 70 2. L e g i s l a t i v e Reforms i n Canada 72 B. Compensation f o r I n j u r i o u s A f f e c t i o n w i t h No Land Taken 76 1. J u d i c i a l D e c i s i o n s 76 2. The A c t i o n a b l e R u l e 78 3. The C o n s t r u c t i o n R u l e 82 4. The Na t u r e o f t h e Damage Ru l e 84 5. L e g i s l a t i v e Reforms i n Canada 87 V I . COMPENSATION WITH PLANNING RESTRICTIONS: THE PROBLEM OF COMPENSATION AND BETTERMENT .; 89 A. I n t r o d u c t i o n 4 • 89 B. The Case f o r P l a n n i n g 92 v i i CHAPTER Page C. The Approaches t o P l a n n i n g 9 3 1. Comprehensive Z o n i n g By-Law 9 3 2. Development C o n t r o l . . . 9 5 D. P o l i c e Power v. Power o f T a k i n g : The Noxious Use Rule ( o r P r i v a t e F a u l t and P u b l i c B e n e f i t R u l e ) R e v i s i t e d 9 6 1. M i l l e r et a l . v. Schoene ................ 9 8 2. P l a n n i n g and P u b l i c B e n e f i t 1 0 0 3. Summary and C o n c l u s i o n s ................. 1 0 1 E. Compensation and B e t t e r m e n t : The B r i t i s h E x p e r i e n c e 1 0 3 1. I n t r o d u c t i o n 1 0 3 2. A C o n t i n u i n g S o l u t i o n : The H o u s i n g and Town P l a n n i n g A c t , 1 9 0 9 1 0 ^ 3. An O n c e - a n d - f o r - a l l S o l u t i o n : The Uthwatt Committee and t h e Town and C o u n t r y P l a n n i n g A c t , 1 9^7 1 0 6 An Once-and-f o r - a l l S o l u t i o n by I n s t a l l m e n t s : The Land Commission A c t , 1 9 6 7 1 1 0 F. Compensation and B e t t e r m e n t : Some C a n a d i a n E x p e r i e n c e . 1 1 2 1. I n t r o d u c t i o n 1 1 2 2. Compensation w i t h P l a n n i n g R e s t r i c t i o n s : . Some G e n e r a l Comments , 1 1 3 3. Community P l a n n i n g i n B r i t i s h C o l u m b i a and t h e Land Commission A c t 1 1 5 V I I . CONCLUSIONS FOOTNOTES BIBLIOGRAPHY ......... APPENDIX A: T a b l e I .'. T a b l e I I , T a b l e I I I 1 2 1 1 3 0 1^0 1^6 1^7 l'4-8 v i i i LIST OF TABLES TABLE Page I Compensation f o r Compulsory A c q u i s i t i o n .... 146 I I Compensation on P a r t i a l Taking 1^7 I I I Compensation with No Land Taken 1^8 i x ACKNOWLEDGMENT I w i s h t o acknowledge t h e a s s i s t a n c e o f Dr. S.W. H a m i l t o n , my committee c h a i r m a n , f o r h i s encouragement i n t h i s t a s k . I am a l s o v e r y g r a t e f u l t o P r o f e s s o r E r i c E.C. Todd o f t h e F a c u l t y o f Law f o r t h e co u p l e o f s e s s i o n s I had w i t h him d u r i n g t h e i n i t i a l s t a g e of p r e p a r a t i o n o f t h i s t h e s i s . My g r a t i t i i d e i s extended t o P r o f e s s o r D a v i d B a x t e r f o r h i s most v a l u a b l e comments and c r i t i c i s m s on t h e f i r s t d r a f t o f t h i s t h e s i s , and f o r h i s h e l p f u l s u g g e s t i o n s f o r improvement. L a s t b u t not l e a s t , my deepest a p p r e c i a t i o n goes t o P r o f e s s o r F.G. Pennance f o r h i s e n l i g h t e n i n g i d e a s and f o r h i s a s s i s t a n c e i n c l a r i f y i n g t h e c o n c e p t u a l problems of t h i s t h e s i s . I owe him f o r i n i t i a t i n g me i n t o a f a s c i n a t i n g a r e a o f r e s e a r c h . INTRODUCTION P u b l i c a c t i v i t i e s i n the r e a l property market oft e n a f f e c t p r i v a t e ownership of l a n d . The question of compensation a r i s e s when p r i v a t e l a n d owners have s u f f e r e d c e r t a i n l o s s e s because of such a c t i v i t i e s . In very broad terms, we could i d e n t i f y the f o l l o w i n g three types of p u b l i c a c t i v i t i e s as occassions t h a t may c a l l f o r payment of compensation: 1. Compulsory A c q u i s i t i o n . P u b l i c a u t h o r i t i e s o f t e n e x e r c i s e the s t a t u t o r y power of compulsory a c q u i s i t i o n t o t r a n s f e r landownership from the p r i v a t e s e c t o r t o the p u b l i c s e c t o r . Land may be acquired f o r p u b l i c uses, f o r urban renewal schemes, or f o r the development of New Towns. In these i n s t a n c e s , the problem of compensation assessment emerges. 2. I n j u r i o u s A f f e c t i o n . In many i n s t a n c e s , the qu i e t use and enjoyment of p r i v a t e p r o p e r t y i s i n j u r i o u s l y a f f e c t e d by p u b l i c i n t e r f e r e n c e s . I n j u r i o u s a f f e c t i o n i n c l u d e s , on the one hand, i n s t a n c e s where there i s a p a r t i a l t a k i n g of land w i t h the consequences of severance damages bei n g done to the r e s t of the l a n d , and, on the other hand, instances where no land i s a c t u a l l y b eing taken. The l a t t e r case can be e x e m p l i f i e d by s i t u a t i o n l i k e p u b l i c a u t h o r i t y ' s i n t e r f e r e n c e w i t h the amenity of a secluded r e s i d e n t i a l area by p u t t i n g a freeway r i g h t across i t . Apparently, users of the freeway would g a i n , w h i l e r e s i d e n t i a l landowners would l o s e . 3 . P l a n n i n g R e s t r i c t i o n s . P lanning a u t h o r i t i e s o f t e n r e l a x or r e s t r i c t p o l i c i e s governing land use. Changes i n p l a n n i n g p o l i c y a f f e c t l a n d v a l u e s . T h i s r a i s e s the complicated problem of the r e l a t i o n of the i n d i v i d u a l and the St a t e . In such ways, the State i n t e r f e r s w i t h i n d i v i d u a l landowners. The i s s u e i s : Should i n d i v i d u a l who s u f f e r s because of t h i s be compensated? To what extent should the State be immune from l i a b i l i t y , and where do we draw the l i n e ? And when an i n d i v i d u a l b e n e f i t s , should he compensate the State? How do we handle the gains and l o s s e s thus a r i s e ? How do we t r e a t those who have become b e t t e r - o f f and those v/ho have become worse-off? Government a c t i v i t i e s i n the land market thus o f t e n b r i n g about ' w i n d f a l l ' t o be enjoyed by some, and 'wipeout 1 t o be s u f f e r e d by others. In the case of compulsory a c q u i s i t i o n , ' j u s t compensation' i s e i t h e r guaranteed by c o n s t i t u t i o n (as i n U.S.) or by s t a t u t e s and common law (as i n Canada). However, i n the case of i n j u r i o u s a f f e c t i o n , the requirement of compensation i s not at a l l c l e a r . I t has been suggested thatt 3 One of the gaps i n our e f f e c t i v e l e g a l p r o t e c t i o n i s the s t a t u t o r y e x c l u s i o n from l i a b i l i t y of a number of p u b l i c - s e c t o r a c t i v i t i e s . I n d i v i d u a l s are deprived of t h e i r r i g h t to or d i n a r y l e g a l a c t i o n and, though compensation may be paid' where damage to property occurs, the l o s s of peace r e s u l t i n g from noise at r a i l w a y goods y a r d s a i r p o r t s , p a ssing t r a i n s and a i r c r a f t s does not q u a l i f y f o r compensation. The l e g a l . j u s t i f i c a t i o n f o r such e x c l u s i o n s i s d i f f i c u l t t o f i n d . . . . The dangers of such p r o t e c t i o n are c l e a r : the l o c a t i o n of a i r p o r t s and m a r s h a l l i n g yards and the pl a n n i n g of a i r routes w i t h no l e g a l i n c e n t i v e t o take account of the r e s u l t i n g l o s s of amenity.* Furthermore, when pl a n n i n g a u t h o r i t i e s change l a n d use p o l i c y , attempts have seldom been made i n North American c o u n t r i e s t o recoup the betterment or t o compensate the worsernent i n consequence of such changes. (However, i n c e r t a i n Commonwealth c o u n t r i e s l i k e England and A u s t r a l i a attempts have been made to deal w i t h t h i s type of compensation and betterment problem.) Though the j u d i c i a l process has not produced d i s a s t r o u s r e s u l t s when compensation i s i n v o l v e d , i t has y i e l d e d answers s u r p r i s i n g t o the u n i n i t i a t e d . I t is q u i t e c l e a r though, t h a t there has never been adequate a n a l y s i s and r a t i o n a l i z a t i o n of the •product* of the j u d i c i a l process, and the p r i n c i p l e of compensation—thus l e a v i n g t h i s p r i n c i p l e i n a 'quagmire' of controversy and d i s s e n s i o n . The issue i s fundamental, as a lawyer r e c e n t l y t e s t i f i e s in. w r i t i n g : When a s o c i a l d e c i s i o n t o r e d i r e c t economic resources e n t a i l s p a i n f u l l y obvious opportunity co s t , how s h a l l the c o s t s u l t i m a t e l y be d i s t r i b u t e d among a l l the members c f s o c i e t y ? S h a l l they be permitted t o remain It where they f a l l i n i t i a l l y or s h a l l the government, by paying compensation^ make e x p l i c i t attempts t o d i s t r i b u t e them i n accordance with d e c i s i o n made by whatever process f a s h i o n the tax s t r u c t u r e , or perhaps according t d some other p r i n c i p l e ? ^ Whether a c t u a l compensation should be p a i d , v/hen, t o whom, and how much i t should be p a i d , have important bearings t o the a n a l y s i s of any governmental contemplation of changes i n p o l i c y and of p u b l i c investment. U n t i l the p r i n c i p l e of compensation i s rescued from the 'quagmire 1, j u s t i f i c a t i o n f o r any government i n t e r v e n t i o n i n the market mechanism would stand on loose ground. The purpose of t h i s t h e s i s i s t o examine the p r i n c i p l e of compensation i n r e l a t i o n t o p u b l i c i n t e r f e r e n c e s i n the r e a l property market. In order t o determine the c r i t e r i a of compensability, we have r e s o r t e d t o economic p r i n c i p l e s as w e l l as l e g a l r u l e s . Economic p r i n c i p l e s are r e l e v a n t because the i n d i v i d u a l l o s s e s (caused by p u b l i c a c t i v i t i e s ) t h a t we are i n t e r e s t e d i n are economic l o s s e s . Legal r u l e s are a l s o r e l e v a n t because c o u r t s have o f t e n been l e f t w i t h the r e s p o n s i b i l i t y of determining f a i r compensation. The p r i n c i p l e of compensation i n r e l a t i o n t o economic p r i n c i p l e s i s examined i n Chapter I , whi l e the p r i n c i p l e of compensation i n r e l a t i o n t o l e g a l r u l e s i s examined i n Chapter I I . In Chapter I I I , we w i l l i ntroduce the three occassions f o r compensation t h a t a r i s e as a r e s u l t of three types of p u b l i c a c t i v i t i e s (namely, compulsory a c q u i s i t i o n , i n j u r i o u s a f f e c t i o n and p l a n n i n g r e s t r i c t i o n s ) . The three occassions f o r compensation w i l l be put i n the context of s t a t u t o r y law i n England and Canada. B r i t i s h s t a t u t o r y law w i l l "be examined because of i t s considerable i n f l u e n c e on Canadian s t a t u t e s . T h e r e a f t e r , compensation i n r e l a t i o n to compulsory a c q u i s i t i o n , i n j u r i o u s a f f e c t i o n and p l a n n i n g r e s t r i c t i o n s w i l l be evaluated i n Chapters IV, V and VI r e s p e c t i v e l y . CHAPTER I . THE POLITICAL ECONOMY OF THE PRINCIPLE-OF COMPENSATION In t h i s Chapter, the c r u c i a l question that has to be answered i s : What p r i v a t e l o s s e s should be c l a s s i f i e d as compensable l o s s e s and which others are l e f t t o be non-compensable? Compensability should be responsive t o s o c i e t y ' s purposes. I t seems reasonable t o argue t h a t r a t i o n a l men i n s o c i e t y would pursue the s o c i a l purpose of a l l o c a t i v e e f f i c i e n c y — t h a t i s , the augmentation of gross s o c i a l product ( t a n g i b l e economic goods as w e l l as i n t a n g i b l e goods) t o the extent t h a t s t r e t c h e s the l i m i t s of p o s s i b i l i t i e s . I f a l l o c a t i v e e f f i c i e n c y i s to be accepted as the sol e purpose t h a t s o c i e t y should pursue, u t i l i t a r i a n theory (along the l i n e of Si.dgwick and Pigou) would t r e a t compensation as an h y p o t h e t i c a l element i n the c a l c u l u s of e v a l u a t i n g whether a p u b l i c a c t i v i t y would achieve the greatest net balance of s a t i s f a c t i o n summed over a l l the i n d i v i d u a l s belonging to a p a r t i c u l a r s o c i e t y . The u t i l i t a r i a n , treatment of compensation has been challenged by those (namely, Cease, Buchanan and T u l l o c k ) who have demonstrated that only when compensation i s a c t u a l l y p a i d would the c r i t e r i a of a l l o c a t i v e e f f i c i e n c y be s a t i s f i e d . The d i s c u s s i o n of the p r i n c i p l e of compensation i n r e l a t i o n to a l l o c a t i v e e f f i c i e n c y w i l l be elaborated i n S e c t i o n A. However, a l l o c a t i v e e f f i c i e n c y i s not the only goal of s o c i e t y . I t i s apparent t o a l l t h a t governments have been p r o p e r l y engaged i n c o n t r o l l i n g the d i s t r i b u t i o n of income and wealth among members of s o c i e t y , as w e l l as i n c o n t r o l l i n g resource a l l o c a t i o n so as t o maximize s o c i a l w e l f a r e . How would the que s t i o n of j u s t i c e (however i t i s def i n e d at t h i s stage) or e q u i t a b l e d i s t r i b u t i v e shares a f f e c t the problem of compensability? This q u e s t i o n would be disc u s s e d i n S e c t i o n E. A. A l l o c a t i v e E f f i c i e n c y and Compensation 1. The Property Rights Approach: A M o d i f i c a t i o n of Standard Microeconomic Theory  Property r i g h t s are instrument of s o c i e t y and d e r i v e t h e i r s i g n i f i c a n c e from the f a c t that they help a man form those expectations which he can reasonable h o l d i n h i s d e a l i n g s w i t h others. Those expectations f i n d e x pression i n the laws, customs, and mores of a s o c i e t y , . . . Property r i g h t s s p e c i f y how persons may be b e n e f i t e d and harmed, and t h e r e f o r e , who must pay whom t o modify the a c t i o n s taken by persons.3 Property r i g h t s assignment s p e c i f i e s the norms of behaviour that each i n d i v i d u a l must f o l l o w i n h i s d e a l i n g s w i t h the u t i l i z a t i o n of scarce resources. I n d i f f e r e n t i n s t i t u t i o n a l arrangements, i t i s q u i t e p o s s i b l e t h a t there i s e n t i r e l y d i f f e r e n t s p e c i f i c a t i o n s of property r i g h t s assignmentsT-and such s p e c i f i c a t i o n s f i n d t h e i r expression i n the p r e v a i l i n g system of l e g a l r u l e s . 8 - • \. . In the economic a c t i v i t i e s of exchange, i t i s more accurate t o say that such a c t i v i t i e s i n v o l v e the exchange of 'bundles* of property r i g h t s r a t h e r than the p h y s i c a l exchange of goods and s e r v i c e s . The a l l o c a t i o n of scarce resources under one p a r t i c u l a r i n s t i t u t i o n a l arrangement i s the assignment of the r i g h t t o use scarce resources. I n c o n t r a s t with the t r a d i t i o n a l microeconomic theory of p r i c e determination, the value of goods and s e r v i c e s , under t h i s framework of property, r i g h t s a n a l y s i s , depends on the bundle of property r i g h t s t h a t such goods and s e r v i c e s represent d u r i n g the process of economic t r a n s a c t i o n . Standard microeconomic theory does not deal e x p l i c i t l y w i t h the r o l e of property r i g h t s . However, i m p l i c i t l y t h e r e must be present a set of s o c a i l or i n s t i t u t i o n a l arrangements t h a t d e f i n e ownership. In order t o see wiry we should d e a l e x p l i c i t l y w i t h the r o l e of pro p e r t y r i g h t s (which, perhaps, i s b e i n g i m p l i c i t l y assumed i n the t r a d i t i o n a l approach), c o n s i d e r two economic laws i n r e l a t i o n t o the demand and supply of say, p a r k i n g spacesi 1. That demand curves are n e g a t i v e l y sloped. 2. That proice w i l l tend t o e l i m i n a t e 'queues* i f i t i s allowed t o f l u c t u a t e f r e e l y . The f i r s t law holds true even i f the r i g h t t o buy or s e l l (or the r i g h t of exchange) the s e r v i c e s of p a r k i n g spaces i s not i n c l u d e d i n the s p e c i f i c a t i o n of property r i g h t s . Presumably, the f a r t h e r removed the p a r k i n g spaces are from 9 the busy downtown area* or the more d i f f i c u l t i s the entry t o the p a r k i n g l o t , the l e s s they are expected t o be used. Thus, the f i r s t law i s s a t i s f i e d . However, the second lav; g e n e r a l l y holds t r u e only when the r i g h t of exchange i s i n c l u d e d i n the s p e c i f i c a t i o n of property r i g h t s assignment. To see why t h i s i s so, we can assume i n the f i r s t i n stance t h a t the p a r k i n g spaces are ' p u b l i c ' p a r k i n g spaces so t h a t the p a r k i n g s e r v i c e i s provided f r e e . We would then expect e x c e p t i o n a l l y l o n g queues d u r i n g busy hours of the day. However, i f the r i g h t of s a l e i s i n c l u d e d i n the s p e c i f i c a t i o n of property r i g h t s assignment so t h a t p a r k i n g s e r v i c e i s s e l l i n g at a p r i c e , then as p r i c e tends t o i n c r e a s e , the queues w i l l a l s o tend t o reduce. The a t t e n u a t i o n of p r i v a t e " property r i g h t s i n an as s e t , through the i m p o s i t i o n of r e s t r i c t i v e , measures, a f f e c t s the owner's expectations about the uses t o which he can put the asset, the value of.the asset t o the owner and t o others, and consequently, the terms of t r a d e . ^ Of p a r t i c u l a r i n t e r e s t t o us here, i n the a n a l y s i s of the a c q u i s i t i o n of p r i v a t e property r i g h t s by the S t a t e , i s when the State imposes new r e s t r i c t i v e measures and changes the e x i s t i n g l e g a l s p e c i f i c a t i o n of property r i g h t s . For example, i n the s i t u a t i o n when the State or p u b l i c a u t h o r i t y changes the p l a n n i n g schemes and zoning plans t h a t a f f e c t landowner's •expectations about the uses t o which he can put' the l a n d , t h i s would a l t e r the bundle of property r i g h t s and r e s u l t i n a p r i c e or.value change. In the s i t u a t i o n when p u b l i c works a f f e c t the q u i e t enjoyment of property r i g h t s by landowners 10 (and thus perhaps the value of p r i v a t e r e a l p r o p e r t y ) , the State i s imposing e x t e r n a l e f f e c t s on landowners. Two questions emerge h e r e i 1. To what extent should the State intervene i n the market mechanism? To put i t i n another way, we are a s k i n g t o what extent should p r i v a t e ownership of property r i g h t s be t r a n s f e r r e d t o State ownership f o r p u b l i c purposes. The d i s c u s s i o n of t h i s q u e stion i s l e f t t o a l a t e r p a r t of t h i s S e c t i o n . 2. Should the State a c t u a l l y compensate landowners who have s u f f e r e d l o s s e s or a t t e n u a t i o n of t h e i r bundle of property r i g h t s ? T h i s question leads us t o the concept of e x t e r n a l i t i e s i n r e l a t i o n to p r o p e r t y r i g h t s . 2. E x t e r n a l i t i e s and.Compensation E x t e r n a l e f f e c t s or e x t e r n a l i t i e s are t o be understood here as those e f f e c t s on the u t i l i t y and production f u n c t i o n s of others that are conveyed d i r e c t l y by an a c t i n g p a r t y , i n s t e a d of i n d i r e c t l y v i a r e l a t i v e p r i c e s i n a general interdependent economic system. In the P i g o v i a n approach, the emphasis i s placed on the c r i t e r i a of decision-making by the a c t i n g p a r t y , i n s i t u a t i o n s with a divergence between marginal s o c i a l cost and p r i v a t e cost. A P a r e t i a n d e c i s i o n i s then based on the determination of whether or not there i s a net balance of gain over l o s s , and v i c e v e r s a . If indeed aggregate p o s i t i v e e x t e r n a l e f f e c t s are g r e a t e r than aggregate negative e x t e r n a l e f f e c t s , the d e c i s i o n i s to 11 implement the p o l i c y change. The question of a c t u a l compensation i s disregarded^ Let us examine more c l o s e l y the l i n e of development of t h i s s o - c a l l e d 'new* welfare economies (represented by ideas a s s o c i a t e d w i t h Kaldor and H i c k s ) , born i n response t o the challenge posed by the p o s i t i v i s t r e v o l u t i o n , by t r a c i n g i t back to i t s i n t e l l e c t u a l o r i g i n — P a r e t o . In an attempt t o b r i n g i n s c i e n t i f i c o b j e c t i v i t y i n e v a l u a t i n g s o c i a l optimum, Pareto p r i v i d e d two r u l e s — t h e Unanimity Rule and the O p t i m a l i t y (or E f f i c i e n c y ) Rule. The Unanimity Rule de c l a r e s that s t a t e 'x' i s b e t t e r than s t a t e 'y' i f everyone p r e f e r s i t . The O p t i m a l i t y Rule i n d i c a t e s that a s t a t e i s optimal i f no one can be made b e t t e r - o f f without someone e l s e being made worse c f f . ^ For any s o c i a l change which i s considered t o be d e s i r a b l e , the two Rule imply t h a t the r e s u l t s of the change must ensure that e i t h e r : 1, Everyone being b e t t e r - o f f , or 2„ Someone bei n g b e t t e r - o f f and no one b e i n g worse-o f f than before the change. The above two cases, however, are g e n e r a l l y exceptions r a t h e r than the r u l e : most o f t e n any contemplated s o c i a l change would r e s u l t i n someone bei n g b e t t e r - o f f while others being worse-o f f simultaneously. The apparent r e s t r i c t i v e n e s s of the P a r e t i a n c o n d i t i o n s l e d t o the Kaldor-Hicks refinement and r e f o r m u l a t i o n . The t h r u s t of the Kaldor-Hicks refinement i s t o shelve the Unanimity Rule and t o reformulate the O p t i m a l i t y Rule by i n t r o d u c i n g the compensation p r i n c i p l e . "In simple terms, the Kaldor-Hicks p r i n c i p l e d eclares a s o c i a l s t a t e y • s o c i a l l y p r e f e r a b l e ' t o ah e x i s t i n g s o c i a l s t a t e x i f - t h o s e who gain from the move to y can compensate those who l o s e and s t i l l have some gains l e f t over'."^ The Kaldor-Hicks p r i n c i p l e i s only concerned w i t h h y p o t h e t i c a l compensation. Whether a c t u a l compensation should be p a i d or not, t h i s i s l e f t to c r i t e r i a of e q u i t y and d i s t r i b u t i v e j u s t i c e . Kaldor argued: There i s no need f o r the economist t o prove . . . that as a r e s u l t of the adoption of a c e r t a i n measure nobody i n the community i s going t o s u f f e r . In order t o e s t a b l i s h h i s case, i t i s q u i t e s u f f i c i e n t f o r him to show t h a t even i f a l l those who s u f f e r as a r e s u l t are f u l l y compensated f o r t h e i r l o s s , the r e s t of the community w i l l s t i l l be b e t t e r o f f than before. Whether the l a n d l o r d s , i n the f r e e trade case, should i n f a c t be given compensation or not, i s a p o l i t i c a l q uestion on which the economist, qua economist, could h a r d l y pronounce an opinion.7 H i c k s , i n agreement w i t h K a l d o r , s a i d : I do not contend t h a t there i s any ground f o r saying that compensation ought always t o be given? whether or not. compensation should be given i n any p a r t i c u l a r case i s a question of d i s t r i b u t i o n , upon which there cannot be i d e n t i t y of i n t e r e s t , and so there cannot be any g e n e r a l l y acceptable p r i n c i p l e . " We could .summarize by s a y i n g t h a t the 'new' w e l f a r e economics d i s r e g a r d the q u e s t i o n of a c t u a l compensation and leave t h i s t o be r e s o l v e d by e q u i t y c r i t e r i a . Though S c i t o v s k y d i d p o i n t out the paradox i n v o l v e d i n the Kaldor-Hicks p r i n c i p l e , ^ a re-examination of the p r i n c i p l e of compensation i s l e f t t o the p r o p e r t y r i g h t s approach. .The property r i g h t s approach attempts t o r e p a t r i a t e the c r i t e r i a of detenrdning a c t u a l compensation from the corner of d i s t r i b u t i v e 13 j u s t i c e where i t has been banished. Ronald H. Coase, i n h i s paper "The Problem of S o c i a l C o s t " , * 0 has made an important c o n t r i b u t i o n by p o i n t i n g out the r e c i p r o c a l nature i n a s i n g l e e x t e r n a l i t y s i t u a t i o n . Two p a r t i e s are always i n v o l v e d . He contended t h a t : The t r a d i t i o n a l approach has tended t o obscure the nature of the choice that has t o be made. The question i s commonly thought of as one i n which A i n f l i c t s harm on B and what has to be decided i s : how should we r e s t r a i n A? But t h i s i s wrong. We are d e a l i n g w i t h a problem of a r e c i p r o c a l nature. To avoid the harm to B would I n f l i c t harm on A. The r e a l question that has t o be decided i s : should A be allowed t o harm B or should B be allowed t o harm A The problem i s t o avoid the more s e r i o u s harm.H Coase*s l i n e of reasoning i s based on the concept of property r i g h t s . I f the p r e v a i l i n g s t r u c t u r e of property r i g h t s l e g a l l y permits *A* t o undertake c e r t a i n economic a c t i v i t i e s , and i f such a c t i v i t i e s produce i n c i d e n t a l and u n i n t e n t i o n a l e f f e c t s on others, compensation has to be a c t u a l l y p a i d t o •A* i f the law i s t o be changed i n order t o modify the behaviour of *A'C We have t o recognize the opposing i n t e r e s t s of the two p a r t i e s *A* and 'B*. In a f r e e and democratic s o c i e t y , we have t o take i n t o c o n s i d e r a t i o n the f a c t that t o r e s t r a i n the i n c i d e n t a l and u n i n t e n t i o n a l e x t e r n a l e f f e c t s of *A',. who i s performing l e g i t i m a t e economic a c t i v i t i e s , would i n f l i c t harm on *A*. The j u s t i f i c a t i o n f o r compensation t o A' r e s t , u l t i m a t e l y , on the i d e a t h a t , at any given time, i n d i v i d u a l s can have ' r i g h t s * t o create c e r t a i n types of 'diseconomies*. Thus an i n d i v i d u a l (A) who i s undertaking a l a w f u l a c t i v i t y i n good f a i t h (e.g. generating smoke) must be compensated i f there Ik-is t o be a change i n the law that w i l l r e d e f i n e property r i g h t s and reudce h i s welfare p o s i t i o n . ^ To c a r r y our reasoning one step f u r t h e r , w i t h a change i n law, not only should compensation be p a i d t o those who have become worse-off, but a tax should a l s o be imposed on those who have become b e t t e r - o f f . Gordon T u l l o c k , i n h i s book P r i v a t e Wants. P u b l i c  Means, J gives an example of the smoke damage s u f f e r e d by a housewife through the smoke emission of smoke t o the p o i n t where the p r i v a t e marginal cost t o the owner e x a c t l y equals t o the marginal cost t o the housewife. However, the tax i s not t o be paid t o the housewife f o r compensation. Then, under these circumstances, T u l l o c k argued t h a t : She would s t i l l f i n d t h a t there was a s u b s t a n t i a l smoke nuisance and might decide t o purchase a dryer t h a t she would not otherwise have wanted. T h i s would mean that she would be s u f f e r i n g something i n the way of an excess burden from the smoke emitted by the f a c t o r y and hence s o c i e t y s t i l l be r e c e i v i n g some i n j u r y from the smoke. Only i f the housewife i s s u b s i d i z e d t o compensate her f o r the smoke i n j u r y do we o b t a i n t o t a l optima. 1^" Any change i n the law of r e a l p roperty or new a p p l i c a t i o n of already e x i s t i n g law, with the aim of reducing e x t e r n a l i t i e s , should b r i n g about more b e n e f i t s than i t s c o s t s . Otherwise, the law should not be changed. T h e o r e t i c a l l y , i t f o l l o w s t h a t a f t e r f u l l compensation i s p a i d t o everyone who i s i n j u r e d , a net gain should s t i l l accrue t o s o c i e t y . Thus, i f s o c i e t y puts a high v a l u a t i o n f o r the r e s t r i c t i o n of p r i v a t e development, or f o r the f u l f i l m e n t of p u b l i c purpose th a t r e q u i r e s e x p r o p r i a t i o n of l a n d , then s o c i e t y has t o a c t u a l l y make compensation payments t o a l l those a f f e c t e d . 15 3. S o c i a l Purposes, C o l l e c t i v e A c t i o n and Consensus— the Unanimity Rule R e v i s i t e d  Let us depart from the p r i n c i p l e of compensation f o r a short w h i l e and r e t u r n t o f i r s t p r i n c i p l e s by a s k i n g : What s o c i a l purposes are s o c i e t y pursuing? I s i t ' e f f i c i e n c y ' (however i t may be defined at t h i s stage)? I f ' e f f i c i e n c y ' i s what s o c i e t y intends to augment, then why i s i t necessary f o r compensation t o be p a i d when augmentation of ' e f f i c i e n c y ' i s to be undertaken by c o l l e c t i v e a c t i o n ? J In what manner should c o l l e c t i v e a c t i o n be undertaken? What i s the c r i t e r i o n of e v a l u a t i n g the success or f a i l u r e of c o l l e c t i v e a c t i o n that r e a s s i g n s property r i g h t s , and thus the e f f i c i e n c y of the economic system? 16 I t seems q u i t e reasonable t h a t the i n t e l l i g i b l e goal and purpose of s o c i e t y i s the augmentation of ' e f f i c i e n c y ' — augmentation of the gross s o c i a l product ( t a n g i b l e economic goods as w e l l as i n t a n g i b l e goods) t o the l i m i t s of p o s s i b i l i t i e s . An e f f i c i e n t process i s one which maximizes the t o t a l amount of w e l f a r e and of personal s a t i s f a c t i o n i n s o c i e t y . However, welfare and personal s a t i s f a c t i o n are measurable, c a r d i n a l l y or o r d i n a l l y , only t o the i n d i v i d u a l decision-maker. They are magnitudes q u a n t i f i a b l e only s u b j e c t i v e l y . When an i n d i v i d u a l , a f t e r he has compared two s t a t e s . o f w e l f a r e , says t h a t he i s ' b e t t e r - o f f , we should equate: ' b e t t e r o f w i t h ' i n that p o s i t i o n v o l u n t a r i l y chosen!. I n d i v i d u a l preferences are taken t o i n d i c a t e changes i n i n d i v i d u a l w e l l - b e i n g , and a man i s s a i d t o be b e t t e r o f f when he v o l u n t a r i l y changes h i s p o s i t i o n from A t o B when he could have remained i n A. ^ . . ' W e l f a r e * ( i s defined as t h a t which i s expressed by i n d i v i d u a l preferences as revealed i n behaviour.17 The concept that only an.-:Individual i s n i the best p o s i t i o n t o evaluate h i s preferences and welfare i s important. I t i s important because c o l l e c t i v e a c t i o n , i n n e a r l y a l l circumstances, a f f e c t s i n d i v i d u a l preferences. I f that i s the case, how do we evaluate the success or f a i l u r e of a p o l i c y change (or a contemplated change) undertaken by c o l l e c t i v e a c t i o n ? R e a l i z i n g the d i f f i c u l t i e s i n v o l v e d i n the i n t e r p e r s o n a l comparison of w e l f a r e , Hicks suggests t h a t , i n g e n e r a l , there are three approaches to t a c k l e t h i s problem.^ The f i r s t approach, which H i c k s q u i t e r i g h t l y r e j e c t s , i s t hat the i n v e s t i g a t o r h i m s e l f decides what he thinks, t o be good f o r s o c i e t y , and p r a i s e s or condemns the system he i s s t u d y i n g by t h a t t e s t . The u n s a t i s f a c t o r y aspect of t h i s approach i s , of course, the presemption of omniscience of the ' i n v e s t i g a t o r ' w i t h respect t o i n d i v i d u a l preferences. The i n v e s t i g a t o r , be i t a l e g i s l a t o r or a s o c i a l planner, i s not competent to decide t h a t some change i n resource use would b e n e f i t some people more than i t harms others. The second approach, which H i c k s q u i t e r i g h t l y r e j e c t s as w e l l , i s to a r b i t r a r i l y a s s i g n weights t o i n d i v i d u a l preferences. The e a s i e s t and most popular weighing scheme i s the m a j o r i t a r i a n approach: equal weight f o r each i n d i v i d u a l , and one vote f o r sach i n d i v i d u a l . ' M a j o r i t y r u l e ' would be the c r i t e r i o n of e v a l u a t i n g success or f a i l u r e of c o l l e c t i v e a c t i o n . T h i s appraoch i s q u e s t i o n a b l e , as» 17 t h i s adoption tends to' preclude the p r e s e n t a t i o n of a l t e r n a t i v e hypothesis (of c o l l e c t i v e a c t i o n ) more acceptable to -tile' m i n o r i t y . . M a j o r i t y r u l e , considered as a f i n a l means of making d e c i s i o n s , has the e f f e c t of c l o s i n g o f f d i s c u s s i o n . The t h i r d approach, which Hicks wrongly accepts, i s the use of ' h y p o t h e t i c a l compensation' as a t e s t of the success or f a i l u r e of c o l l e c t i v e a c t i o n . The reason why t h i s approach i s a l s o u n s a t i s f a c t o r y from our po i n t of view, we have already discussed that e a r l i e r . However, i n order to have a deeper a p p r e c i a t i o n of why even the t h i r d approach has t o be r e j e c t e d , we have t o determine the 'optimal* c r i t e r i a of e v a l u a t i n g c o l l e c t i v e a c t i o n . . The Kaldor-Hicks p r i n c i p l e has done the d i s s e r v i c e of pushing the Pareto Unanimity Rule t o the background. True, the Unanimity Rule i s r e s t r i c t i v e . However, i f t h i s Rule i s p r o p e r l y r e f i n e d , t h i s i s the optimal r u l e or set of c r i t e r i a of e v a l u a t i n g c o l l e c t i v e a c t i o n . 'Unanimity' should be i n t e r p r e t e d as unanimous approval or consensus by a l l those i n d i v i d u a l s whose preferences would be a f f e c t e d by the contemplated change undertaken by c o l l e c t i v e a c t i o n . I f the t o t a l amount of compensation r e q u i r e d t o o b t a i n consensus would be too ex o r b i t a n t t o enable the contemplated change to be s u c c e s s f u l , then the s t a t u s quo i s optimal (as no one can be made b e t t e r -o f f without someone e l s e being made worse-off) and there should not be any change. As the * t e s t of the pudding i s i n the e a t i n g * , the t e s t of any c o l l e c t i v e a c t i o n i s i t s a b i l i t y t o o b t a i n consensus before implementation. 18 Since an o u t s i d e r possesses no ominiscience or s p e c i a l i n s i g h t , i t should not be up t o the government or any p u b l i c a u t h o r i t i e s t o a r b i t r a r i l y assess the compensation f o r any l o s s of w e l f a r e . As we have s t r e s s e d e a r l i e r , unless i n d i v i d u a l behaviour i s a n t i - s o c i a l (which i s more of a matter of e n f o r c i n g e x i s t i n g law r a t h e r than a s i t u a t i o n i n which a change i n law i s contemplated), otherwise a l l i n d i v i d u a l preference and behaviour, no matter how i d i o s y n c r a t i c i t i s , must be duly taken i n t o the c a l c u l u s of o b t a i n i n g consensus. How should adequate compensation be determined? From a t h e o r e t i c a l l e v e l , compensation must be defined i n terms of the i n d i v i d u a l choice process, and i t becomes measurable only through an observation of choices made. And f u l l and adequate compensation"is the payment r e q u i r e d t o secure the agreement of a l l p a r t i e s t o the proposed change. k. P r i v a t e Ownership and P u b l i c Ownership We have already discussed the requirement of a c t u a l compensation as a means of s e c u r i n g consensus i n any c o l l e c t i v e a c t i o n t h a t i n e f f e c t r e d e f i n e s property r i g h t s . One b a s i c question looms behind: Who should own these p r o p e r t y r i g h t s , p r i v a t e or p u b l i c ? What are the c r i t e r i a t h a t determine the choice between p r i v a t e ownership and p u b l i c ownership? Harold Demsetz, i n h i s paper "Toward a Theory of Property R i g h t s " , argued t h a t p r i v a t e ownership, w i t h the r e c o g n i t i o n by community of the r i g h t of the owner t o exclude others from e x e r c i s i n g h i s p r i v a t e r i g h t s , 1 9 can. g e n e r a l l y count oh r e a l i z i n g the rewards • as s o c i a t e d w i t h husbanding the game and i n c r e a s i n g the f e r t i l i t y of h i s land. T h i s c o n c e n t r a t i o n of b e n e f i t s and costs i n owners creates i n c e n t i v e s t o u t i l i z e resources more e f f i c i e n t l y . 2 1 The simultaneous determination of co s t s and b e n e f i t s helps t o i n t e r n a l i z e much of the e x t e r n a l i t i e s , and allows owner of p r i v a t e property r i g h t s t o economize on the use of scarce resources, the use of which he has the r i g h t of e x c l u s i o n . However, p r i v a t e ownership of property r i g h t s does not always b r i n g about i n t e r n a l i z a t i o n of a l l e x t e r n a l i t i e s . In c e r t a i n i n s t a n c e s , p u b l i c ownership may be j u s t i f i e d . When there i s j o i n t n e s s of consumption i n c e r t a i n goods ( i . e . p u b l i c goods), when the p r i n c i p l e of e x c l u s i o n i s not a p p l i c a b l e , and when the c o s t s of n e g o t i a t i o n between d i v e r s i f i e d i n t e r e s t s are too h i g h , i n t e r v e n t i o n i n the f r e e market i s f r e q u e n t l y c a l l e d f o r . M u l t i p l i c i t y of ownership i n a slum area has sometimes been i d e n t i f i e d as one of the reasons t h a t h i n d e r s p r i v a t e urban redevelopment. An i n d i v i d u a l owner i n the slum has no i n c e n t i v e t o undertake redevelopment of h i s land alone (as the r e s t of the slum w i l l impose e x t e r n a l diseconomies on h i s contemplated new development)—unless a l l owners f o l l o w s u i t simultaneoualy. I f the co s t s of n e g o t i a t i o n are too high and the process of p r i v a t e b a r g a i n i n g t o b r i n g a l l i n d i v i d u a l owners together does not work, we may have a case f o r the State t o step i n to acquir e a l l lands i n v o l v e d and place them under s i n g l e ownership. S i m i l a r l y , c o s t s of n e g o t i a t i o n may be too 20 p r o h i b i t i v e f o r the market t o provide a freeway or other p u b l i c works. However, one should note that the presence of an e x t e r n a l i t y does not n e c e s s a r i l y j u s t i f y government a c t i o n t o e l i m i n a t e i t , Government p r o v i s i o n has costs and such c o s t s must be set o f f against c o s t s i n market p r o v i s i o n . T u l i o c k pointed out q u i t e r i g h t l y t h a t : What should be c o n t r o l l e d by the s t a t e and what should be c o n t r o l l e d by p r i v a t e i n d i v i d u a l s e i t h e r through c o n t r a c t or by themselves? In gener a l , our method w i l l be to c o n t r a s t the e x t e r n a l i t y cost to,be expected through p r i v a t e a c t i o n w i t h the cost t o be expected from government a c t i o n . We- w i l l seek t h a t combination of government and p r i v a t e a c t i o n t h a t optimizes the f u t u r e discounted income stream of members of society.22 The presence of an e x t e r n a l i t y i s a necessary c o n d i t i o n f o r government i n t e r v e n t i o n , but t h i s i s not a s u f f i c i e n t c o n d i t i o n . There i s not a prima f a c i e case f o r i n t e r v e n t i o n and f o r the m o d i f i c a t i o n of e x i s t i n g s t a t e of a f f a i r s i n a l l s i t u a t i o n s when e x t e r n a l i t y i s seen t o e x i s t . And when government i n t e r v e n e s , as we have discussed a l r e a d y , compensation has to be p a i d . 5. Summary and Conclusions The f o l l o w i n g i s a summary of the previous d i s c u s s i o n of the p r i n c i p l e of compensation i n r e l a t i o n t o a l l o c a t i v e e f f i c i e n c y : 1. ' A l l o c a t i v e e f f i c i e n c y ' i s a s o c i a l purpose of which r a t i o n a l men i n s o c i e t y would pursue. We co u l d i n t e r p r e t the above statement as either, an assumption which i s not unreasonable or a statement of f a c t s based on observations 21 past and present, 2. The achievement of a l l o c a t i v e e f f i c i e n c y r e f e r s to the augmentation of gross s o c i a l product or the maximization of the t o t a l amount of welfare and of personal s a t i s f a c t i o n i n society. 3. Personal welfare or s a t i s f a c t i o n i s that which i s expressed (v o l u n t a r i l y ) by i n d i v i d u a l preferences as revealed i n behaviour. A l l o c a t i v e e f f i c i e n c y i s achievable either through the a c t i v i t i e s of the private sector ( v i a the market system) or through the a c t i v i t i e s of the public sector or a combination of both. 5. Private ownership of property r i g h t s has the b e n e f i c i a l q u a l i t y of simultaneous determination of costs and benefits, so much so that they v/ould help to i n t e r n a l i z e much of the e x t e r n a l i t i e s . This allows owner of private property r i g h t s to economize on the use of scarce resources, the use of which he has the r i g h t of exclusion. 6. However, public intervention i n the market system i s not objectionable as long as i t i s l e s s 'costly* to i n t e r n a l i z e e x t e r n a l i t i e s through the public sector than i t would be i f undertaken i n the private sector. Public intervention i s most l i k e l y to be j u s t i f i e d when there i s jointness of consumption i n c e r t a i n goods ( i . e . public goods), when the p r i n c i p l e of exclusion i s not applicable, and when the costs of negotiation between d i v e r s i f i e d i n t e r e s t s are too high. 7. One of the t e s t s of any c o l l e c t i v e a c t i o n (besides the t e s t of the P a r e t i a n O p t i m a l i t y Rule) i s the a b i l i t y of the p u b l i c a u t h o r i t y t o obta i n consensus t o such a c t i o n before implementation. A c t u a l compensation i s the p r i c e p a i d t o o b t a i n consensus. H y p o t h e t i c a l compensation i s not s u f f i c i e n t . : • • • • \ • B. D i s t r i b u t i o n and Compensation A l l o c a t i v e e f f i c i e n c y i s not the only goal of s o c i e t y . Government f r e q u e n t l y i n t e r v e n e s i n the market system not . p u r e l y and s o l e l y on the grounds of e f f i c i e n c y by i n t e r n a l i z i n g e x t e r n a l i t i e s ; i t i s f r e q u e n t l y motivated by the o b j e c t i v e s of b r i n g i n g about more e q u i t a b l e d i s t r i b u t i v e shares among members of s o c i e t y . The q u e s t i o n of compensability should also.be viewed as a que s t i o n of j u s t i c e , namely, whether i n the name of j u s t i c e s o c i e t y might deny c e r t a i n c laims of compensation r e g a r d l e s s of a l l o c a t i v e e f f i c i e n c y . There are d i f f e r e n t p h i l o s o p h i e s of j u s t i c e . However, the f o l l o w i n g d i s c u s s i o n w i l l be based on the concept of ' j u s t i c e as f a i r n e s s ' as propounded by John Rawls. 1, C l a s s i c a l U t i l i t a r i a n i s m and D i s t r i b u t i o n The c e n t r a l i d e a of C l a s s i c a l U t i l i t a r i a n i s m i s t h a t s o c i e t y i s j u s t , as lon g as the major i n s t i t u t i o n s of s o c i e t y are arranged so as t o achieve the greates net balance of s a t i s f a c t i o n summed over a l l the i n d i v i d u a l s b elonging to: 23 i t . I t i s not the concern of the u t i l i t a r i a n t h e o r i s t s as to how t h i s 'greatest net balance of s a t i s f a c t i o n ' i s d i s t r i b u t e d among i n d i v i d u a l s . Apparently, the d i s t r i b u t i o n that y i e l d s the maximum net s o c i a l product i s the? ' j u s t ' d i s t r i b u t i o n . T h i s u n s a t i s f a c t o r y approach t o the concept of d i s t r i b u t i o n i s questioned by Rawls. He p o i n t s out that? The question i s whether the i m p o s i t i o n of .disadvantages on a few can be outweighed by a gre a t e r sum of advantages enjoyed by others; or whether the weight of j u s t i c e r e q u i r e s an equal l i b e r t y f o r a l l and permits only those economic and s o c i a l i n e q u a l i t i e s which are to each person's i n t e r e s t . I m p l i c i t i n the c o n t r a s t between c l a s s i c a l u t i l i t a r i a n i s m and j u s t i c e as f a i r n e s s i s a d i f f e r e n c e i n the u n d e r l y i n g conception of s o c i e t y . In the one we t h i n k of a weli-ordered s o c i e t y as a scheme of cooperation f o r r e c i p r o c a l advantage r e g u l a t e d by p r i n c i p l e s which persons would choose i n an i n i t i a l s i t u a t i o n that i s f a i r , i n the other as the e f f i c i e n t a d m i n i s t r a t i o n of s o c i a l resources t o maximize the . s a t i s f a c t i o n of the system of de s i r e constructed by the i m p a r t i a l s p e c t a t o r from the many i n d i v i d u a l systems of d e s i r e s accepted as given, 2-5 2. J u s t i c e as F a i r n e s s t The Rawlsian Model Rawls views s o c i e t y as a cooperative venture f o r mutual advantages. There are p o t e n t i a l advantages t h a t could be r e a l i z e d , and such, mutual advantages would accrue t o a l l members of s o c i e t y through a s s o c i a t i o n . A l l members of s o c i e t y are b e t t e r - o f f i f the a c t i v i t i e s of each are co-ordinated with those of the r e s t of s o c i e t y . However, such mutual advantages are marked by c o n f l i c t of i n t e r e s t s as w e l l as i d e n t i t y of i n t e r e s t s . There are i n d e n t i t y of i n t e r e s t s v i s - a - v i s the improvement of a l l o c a t i v e e f f i c i e n c y ; there are a l s o c o n f l i c t of i n t e r e s t v i s - a - v i s the d i s t r i b u t i v e shares of e f f i c i e n c y gains. Thus a set of p r i n c i p l e s are r e q u i r e d , 24 f o r choosing among the Various s o c i a l arrangements which determine the d i v i s i o n of advantages and f o r u n d e r w r i t i n g an agreement on the proper d i s t r i b u t i v e shares. These p r i n c i p l e s are the p r i n c i p l e s of s o c i a l j u s t i c e ; they provide a way of a s s i g n i n g r i g h t s and du t i e s i n the b a s i c i n s t i t u t i o n s ;of s o c i e t y and they define the appropriate d i s t r i b u t i o n of the b e n e f i t s and burdents of s o c i a l c o o p e r a t i o n . 2 6 The goal of any p r i n c i p l e s of j u s t i c e i s t o determine how the b a s i c s t r u c t u r e of s o c i e t y should be organized so t h a t ' b e n e f i t s and burdens of s o c i a l cooperation' could be spread out i n a f a s h i o n acceptable t o a l l . Rawls r e a l i z e s t h a t deep i n e q u a l i t i e s i n the b a s i c s t r u c t u r e of s o c i e t y are i n e v i t a b l e . But such " i n j u s t i c e e x i s t s because b a s i c agreements are made too l a t e . People c l e a r l y know t h e i r s o c i a l p o s i t i o n s and r e l a t i v e s t r e n g t h i n ba r g a i n i n g , t h e i r a b i l i t i e s and preferences* and these contingencies and knowledge of them cummulatively d i s t o r t the 27 s o c i a l system". 1 In order t o remedy t h i s d i f f i c u l t y , Rawls int r o d u c e s a conception of j u s t i c e as a s o c i a l c o n t r a c t which every member of s o c i e t y would r a t i o n a l l y choose i n an o r i g i n a l p o s i t i o n of e q u a l i t y . The s o c i a l c o n t r a c t , which embodies the p r i n c i p l e s of j u s t i c e (the p a r t i c u l a r nature of which w i l l be discussed l a t e r ) , i s v o l u n t a r i l y agreed upon i n the f o l l o w i n g manner. Men are t o decide i n advance the foundation chapter of t h e i r s o c i e t y . Then assume each person i s i n a h y p o t h e t i c a l o r i g i n a l p o s i t i o n of e q u a l i t y so t h a t there i s a symmetry of everyone's r e l a t i o n t o each other. I t i s only when the choice i s made behind a ' v e i l of ignorance* t h a t would ensure th a t no one 25 would be p a r t i c u l a r l y advantaged or disadvantaged by the f i n a l outcome of the choice. Thus any agreement reached i n t h i s way would be f a i r . They then decide together, and unanimously agree on, a s o c i a l c o n t r a c t t h a t w i l l be b i n d i n g . Having done t h a t , they are t o choose a c o n s t i t u t i o n and a l e g i s l a t u r e to enact l a w s — a l l i n accordance w i t h the p r i n c i p l e s of j u s t i c e i n i t i a l l y agreed upon. Rawls b e l i e v e s t h a t the l i k e l y c h a r a c t e r i s t i c s of the p r i n c i p l e s of j u s t i c e thus chosen would be as f o l l o w s : 1. In the absence of st r o n g and l a s t i n g benevolent impulses, a r a t i o n a l man would not accept a b a s i c s t r u c t u r e merely because i t maximizes the a l g e b r a i c sum of advantages i r r e s p e c t i v e of i t s permanent e f f e c t s on h i s own b a s i c r i g h t s and i n t e r e s t s . A conception of j u s t i c e based on u t i l i t a r i a n i s m would be r e j e c t e d . 2. These p r i n c i p l e s r u l e out j u s t i f y i n g i n s t i t u t i o n s on the grounds t h a t the hardships of some are o f f s e t by a gr e a t e r good i n the aggregate. I t may be expedient, but i t i s not j u s t , t h a t some should have.less i n order t h a t others may prosper. 3. The Two P r i n c i p l e s of J u s t i c e The two p r i n c i p l e s of j u s t i c e , which Rawls b e l i e v e s would be chosen unanimously by s o c i e t y i n the o r i g i n a l p o s i t i o n , would be based on the f o l l o w i n g general conception of j u s t i c e : 26 A l l s o c i a l primary g o o d s — l i b e r t y and o p p o r t u n i t y , income and wealthy and the b a s i s of s e l f - r e s p e c t -are t o be d i s t r i b u t e d equally, unless an unequal d i s t r i b u t i o n of any or a l l of these, goods i s to the advantage of the 1 l e a s t f a v o r e d . 2 " The ' s o c i a l primary gobds' are those t h i n g s t h a t every r a t i o n a l . man i s presumed t o want and are d i s t r i b u t e d by the b a s i c s t r u c t u r e of s o c i e t y . The most important s o c i a l primary goods i n c l u d e r i g h t s and l i b e r t i e s , powers and o p p o r t u n i t i e s , income and wealth, and the b a s i s of s e l f - r e s p e c t . On:the b a s i s of the above general conception of j u s t i c e , 20 Rawls s p e c i f i e s the two p r i n c i p l e s of j u s t i c e 7 as f o l l o w s * F i r s t P r i n c i p l e : Each person i s t o have an equal r i g h t t o the most extensive b a s i c l i b e r t y compatible w i t h a s i m i l a r l i b e r t y f o r others. Second P r i n c i p l e : S o c i a l and economic i n e q u a l i t i e s are to be arranged so' t h a t they, are both a. t o the greatest b e n e f i t of the l e a s t advantaged, and b. attached t o o f f i c e s and p o s i t i o n s open to a l l under c o n d i t i o n of f a i r e q u a l i t y of opportunity. Rawls' p r i o r i t y system that arranges the above p r i n c i p l e s i s such t h a t the two p r i n c i p l e s are ranked i n a s e r i a l or l e x i c a l order.^° Thus arranged, i t i s not admissable to trade o f f b a s i c l i b e r t i e s ( F i r s t P r i n c i p l e ) f o r economic and s o c i a l gains (Second P r i n c i p l e ) . The Second P r i n c i p l e i s only t o be maximized subject t o the F i r s t P r i n c i p l e . As f a r as the Second P r i n c i p l e i s concerned, (b) has p r i o r i t y over ( a ) — t h a t i s , o f f i c e s and p o s i t i o n s must be h e l d open under c o n d i t i o n s of f a i r e q u a l i t y of o p p o r t u n i t i e s , and subject t o 2? t h i s c o n s t r a i n t , we are then allowed t o arrange s o c i a l and economic i n e q u a l i t i e s so t h a t everyone ( i n c l u d i n g the l e a s t advantaged) i s b e t t e r - o f f . Let us d e a l w i t h the F i r s t P r i n c i p l e f i r s t . The •extensive b a s i c l i b e r t y ' i n c l u d e s p o l i t i c a l l i b e r t y (such as r i g h t t o vote, freedom of speech and assembly), freedom of thought, r i g h t t o ho l d p r o p e r t i e s and other c i v i l l i b e r t i e s . The F i r s t P r i n c i p l e i s not our major concern here so l o n g as we are aware th a t i t serves as the c o n s t r a i n t i n the maximization of the Second P r i n c i p l e . However, the Second P r i n c i p l e r e q u i r e s f u r t h e r e l a b o r a t i o n . Presumably, however, c e r t a i n s o c i a l and economic i n e q u a l i t i e s e x i s t , and i n d i v i d u a l ' s l i f e - p r o s p e c t s are s i g n i f i c a n t l y a f f e c t e d by t h e i r f a m i l y and c l a s s o r i g i n , by t h e i r n a t u r a l endowments, and by chance conti n g e n c i e s over the course of t h e i r l i v e s . We must ask: In the l i g h t of what p r i n c i p l e can f r e e and equal moral, persons permit t h e i r r e l a t i o n s t o be a f f e c t e d by s o c i a l f o r t u n e and the n a t u r a l l o t t e r y ? Since no one deserves h i s place i n the d i s t r i b u t i o n of t a l e n t s , nor h i s s t a r t i n g place i n s o c i e t y , desert i s not an answer. Yet f r e e and equal persons want the e f f e c t s of chance t o be re g u l a t e d by some p r i n c i p l e , i f a reasonable p r i n c i p l e e x i s t s . 3 1 We can make a d i s t i n c t i o n between two types of i n e q u a l i t i e s : s o c i a l c ontingencies (the i n e q u a l i t y of the e x i s t i n g d i s t r i b u t i o n of income and wealth which i s i n f l u e n c e d t o a l a r g e extent by f a m i l y and c l a s s o r i g i n ) and n a t u r a l contingencies (the i n e q u a l i t y of the e x i s t i n g endowments of n a t u r a l a s s e t s such as t a l e n t and a b i l i t y ) . I f we adhere t o the p r i n c i p l e of a l l o c a t i v e e f f i c i e n c y (thus r e p l a c i n g the Second P r i n c i p l e ) 28 and only subject i t t o the c o n s t r a i n t t h a t p o s i t i o n s are open t o a l l those able and vd 11ing t o s t r i v e f o r them, the r e s u l t would come very c l o s e t o the P a r e t i a n O p t i m a l i t y Rule. The i n j u s t i c e i s t h a t the r e s u l t i n g d i s t r i b u t i v e share w i l l be i n f l u e n c e d t o a l a r g e extent by s o c i a l and n a t u r a l c o n t i n g e n c i e s . However, even i f the P a r e t i a n O p t i m a l i t y Rule i s m o d i f i e d by s u b j e c t i n g the a l l o c a t i v e e f f i c i e n c y p r i n c i p l e t o the c o n s t r a i n t of f a i r e q u a l i t y of o p p o r t u n i t y (as i n Second P r i n c i p l e ( b ) ) , t h i s would only remove the i n e q u a l i t y of s o c i a l c o n t i n g e n c i e s but not n a t u r a l c o n t i n g e n c i e s . The r e s u l t i n g d i s t r i b u t i v e shares are decided by the outcome of ' n a t u r a l l o t t e r y 8 ( i , e , the i n i t i a l endowments of n a t u r a l a s s e t s such as a b i l i t i e s or t a l e n t s ) . What Rawls has proposed i s not t o remove a l l i n e q u a l i t i e s ( n a t u r a l or s o c i a l ) but t o a l l o w such i n e q u a l i t i e s so l o n g as " i n e q u a l i t i e s are t o everyone's advantage and those able t o g a i n from t h e i r good fortune do so i n ways agreeable t o those l e s s f a v o r e d " . ^ 2 T h i s i s what Rawls c a l l s the "maximin c r i t e r i o n of d i s t r i b u t i v e e q u i t y * of the ' d i f f e r e n c e p r i n c i p l e ' as expressed by the Second P r i n c i p l e ( a ) . Rawls e l a b o r a t e s f u r t h e r on t h i s p r i n c i p l e by s a y i n g : What, then, can p o s s i b l y j u s t i f y t h i s k i n d of i n i t i a l i n e q u a l i t y i n l i f e prospects? According t o the d i f f e r e n c e p r i n c i p l e , i t i s j u s t i f i a b l e only i f the d i f f e r e n c e i n e x p e c t a t i o n i s t o the advantage of the representative-man who i s worse o f f , i n t h i s case the r e p r e s e n t a t i v e u n s k i l l e d worker. The i n e q u a l i t y i n e x p e c t a t i o n i s permissable only i f l o w e r i n g i t would make the working c l a s s even more worse off.33 29 With respect t o the d i f f e r e n c e between and s i m i l a r i t i e s w i t h i n a l l o c a t i v e e f f i c i e n c y and the Second P r i n c i p l e of j u s t i c e , Rawls i n d i c a t e s t h a t : i t should be noted t h a t the d i f f e r e n c e p r i n c i p l e i s compatible with the p r i n c i p l e of e f f i c i e n c y . For when the former i s f u l l y s a t i s f i e d , i t i s indeed impossible t o make anyone r e p r e s e n t a t i v e man b e t t e r o f f without making another worse o f f , namely, the l e a s t advantaged r e p r e s e n t a t i v e man whose ex p e c t a t i o n we are t o maximize. Thus j u s t i c e i s defined.so t h a t i t i s c o n s i s t e n t w i t h e f f i c i e n c y , at which when the two p r i n c i p l e s are p e r f e c t l y f u l f i l l e d . 3** 4. The Branches of Government The problem t o be r e s o l v e d here i s t o determine how governmental a c t i v i t i e s should be organized so as t o ensure t h a t the two p r i n c i p l e s of j u s t i c e are implemented, assuming t h a t the p r e v a i l i n g s t r u c t u r e of property r i g h t s recognizes p r i v a t e ownership of c a p i t a l and resources. Consider the f o l l o w i n g arrangement, w i t h government being d i v i d e d i n t o 35 the f o l l o w i n g f i v e branchesx J J 1 . The A l l o c a t i o n Branch. The A l l o c a t i o n Branch i s p r i m a r i l y concerned with the microeconomic a c t i v i t i e s of the economy. The c h i e f o b j e c t i v e s of t h i s branch of government would be t o ensure a competitive p r i c e system. Any divergence between s o c i a l c o s t s and s o c i a l b e n e f i t s (becuase of the presence of e x t e r n a l i t i e s ) w i l l be c o r r e c t e d by appropirate measures of taxes and s u b s i d i e s , and readjustment of pro p e r t y r i g h t s . 2. The S t a b i l i z a t i o n Branch. T h i s branch i s p r i m a r i l y concerned w i t h the macroeconomic a c t i v i t i e s of the economy. 30 The chief objective i s to ensure f u l l employment and price s t a b i l i t y . The A l l o c a t i o n 3ranch and the S t a b i l i z a t i o n together are to maintain'the a l l o c a t i v e e f f i c i e n c y of the market economy generally. ""' 3 . The Transfer Branch. The operation of the market economy, which does not n e c e s s a r i l y take into account s o c i a l needs, frequently f a i l s to ensure a c e r t a i n minimum l e v e l of s o c i a l welfare or standard of l i v i n g . Transfer payments from t h i s Branch w i l l ensure that a c e r t a i n s o c i a l minimum i s attained. As to what t h i s minimum l e v e l should be, i t i s a matter of p o l i t i c a l decision. 4. The D i s t r i b u t i o n 3ranch. The objective of t h i s 3ranch i s obviously to implement the Second P r i n c i p l e of j u s t i c e through taxation and readjustment of property r i g h t s . We could make a functional d i s t i n c t i o n between two types of a c t i v i t i e s under t h i s Branch: a. Corrective Function. Through a system of g i f t taxes, inheritance taxes and progressive income taxes, the e x i s t i n g d i s t r i b u t i o n of wealth and income (which being the r e s u l t i n g d i s t r i b u t i o n of the free market economy) i s to be corrected i n accordance with the Second P r i n c i p l e of j u s t i c e . The primary purpose of such l e v i e s i s not to rai s e revenue. b. Revenue-raising Function. In order to provide f o r the Transfer Branch the necessary revenue, and to provide f o r the public goods that the Second P r i n c i p l e (b) requires (such as an educational system that would ensure, f a i r equality of opportunity), revenues have to be raised. Revenues are • 3 i derived from the corrective function of the D i s t r i b u t i o n Branch, as well as from provisions through the general taxation system. The Transfer Branch and the D i s t r i b u t i o n together are to s a t i s f y the two p r i n c i p l e s of-.justice generally. 5. The Exchange Branch. A c t i v i t i e s of the above four branches of government w i l l throw up a configuration of taxes and expenditures, and a ce r t a i n l e g a l d e f i n i t i o n of property r i g h t s that would s a t i s f y the p r i n c i p l e s of j u s t i c e . - The basic structure of society, with i t s concommitant d i s t r i b u t i o n of wealth and income and property r i g h t s assignment, i s assumed to be just at t h i s stage, so long as the above four branches have f u l f i l l e d t h e i r r o l e . However, i t i s not necessary f o r governmental a c t i v i t i e s to stop at t h i s point. Further public expenditures may be required. In p a r t i c u l a r , when there 'is jointness of consumption i n c e r t a i n goods. (i,.e. public goods) and when the p r i n c i p l e of exclusion i n the use of resources i s not applicable, i t i s appropriate f o r government (through the Exchange Branch) to provide them. Since we have assumed e a r l i e r that the e x i s t i n g d i s t r i b u t i o n of wealth and income i s just, the guiding p r i n c i p l e of the Exchange Branch i s not the p r i n c i p l e s of j u s t i c e , but rather the p r i n c i p l e of a l l o c a t i v e e f f i c i e n c y . In order to ensure that there i s simultaneous determination of the costs and benefits of public goods, any public expenditure proposal should be voted upon and unanimously approved by i n d i c a t i n g i n advance the means of carrying the costs ( i . e . the nature and the amount of the taxes required) of each p a r t i c u l a r expenditure. To borrow the * st65k. and flow 1 concept i n economics as an analogy to the a c t i v i t i e s of the f i v e branches of governemtn, we can say that the a c t i v i t i e s of the f i r s t four branches of governement i r e the 'stock* a c t i v i t i e s of government ( a c t i v i t i e s that ensure the basic structure of the p o l i t i c a l economy i s just, i n accordance with the Second P r i n c i p l e of j u s t i c e ) , while those of the f i f t h branch are the 'flow* a c t i v i t i e s of government (the guiding p r i n c i p l e of which i s the p r i n c i p l e of a l l o c a t i v e e f f i c i e n c y ) . 5. Ju s t i c e and Compensation It should be r e c a l l e d here our o r i g i n a l purpose of undertaking an examination of the p r i n c i p l e s of j u s t i c e . 36 The purpose i s , as indicated e a r l i e r , 'whether, i n the name of j u s t i c e , society might deny ce r t a i n claims of compensation regardless of a l l o c a t i v e e f f i c i e n c y " . In order to answer the above question, i t i s appropriate to determine the occassions compensation with respect to the d i f f e r e n t types of governmental a c t i v i t i e s undertaken by the f i v e branches of government. Obviously, payment of compensation i s required to be made to those who have been i n f l i c t e d with losses i n consequence of a c t i v i t i e s conducted by the A l l o c a t i o n Branch. The guiding p r i n c i p l e here i s a l l o c a t i v e e f f i c i e n c y , and the c r i t e r i a f o r compensation should follow those l a i d down i n Section A, A c t i v i t i e s of the S t a b i l i z a t i o n Branch are intended to secure improvement of welfare ( i . e . f u l l employment and pri c e s t a b i l i t y ) , the benefits of which would apparently 33 accrue to the general public. Since s t a b i l i z a t i o n p o l i c i e s are usually general (instead of selective) i n nature, compensation i s not required. Evehthough a p a r t i c u l a r sector of the economy may su f f e r more than the other sector, the long-run benefits of successful s t a b i l i z a t i o n p o l i c i e s w i l l counter-balance the immediate hardship so that everyone w i l l become b e t t e r - o f f . I f the immediate hardship of one sector i s judged to be too excessive, automatic adjustments from the Transfer Branch w i l l help to remove such short-run hardship. As i t has been indicated e a r l i e r that the guiding p r i n c i p l e of the Exchange Branch i s the p r i n c i p l e of a l l o c a t i v e e f f i c i e n c y , the c r i t e r i a f o r actual compensation would also follow those l a i d down i n Section A. However, the Second P r i n c i p l e of j u s t i c e would permit a departure from the uncompromising rule of f u l l compensation as determined by the p r i n c i p l e of a l l o c a t i v e e f f i c i e n c y . Thus, i n the name of the Second P r i n c i p l e of j u s t i c e , society might deny c e r t a i n claims of compensation regardless of a l l o c a t i v e e f f i c i e n c y , i f i t could be shown that the p o l i c i e s of the D i s t r i b u t i o n Branch and the Transfer Branch would be expected to work out best f o r each person i n so f a r as h i s i n t e r e s t s are affected by the s o c i a l undertaking giving r i s e to occassions of compensation. CHAPTER II LAW AND THE PRINCIPLE OF COMPENSATION. Rules may change without a f f e c t i n g principles} p r i n c i p l e s change only i n response to a changing economic or s o c i a l viewpoint or condition. A decision can properly be sustained although i t runs counter to a p r i o r decision i f i t accords with p r i n c i p l e . A decision which v i o l a t e s a p r i n c i p l e can be sustained only i f the p r i n c i p l e . i s no longer adapted to the needs of the community. Having examined the p r i n c i p l e of compensation i n the l i g h t of economics, the focus of t h i s Chapter turns on the p r i n c i p l e of compensation i n the l i g h t of law. We attempt to answer the same question posed i n Chapter I, namely, what private losses should be c l a s s i f i e d as compensable while others are l e f t to be non-compensable. Based on j u d i c i a l 2 decisions and l e g a l commentary, three rules have been developed and have been deemed to be c r i t i c a l i n determining whether an occassion i s compensable or not. These three rule s arei 1. The Balancing of S o c i a l Gains Against Private Loss Rule 2. The Noxious Use Rule (or the Private Fault and Public Benefit Rule) 3. The Physical Invasion Rule The approach i n t h i s Chapter i s to c r i t i c a l l y examine the above three r u l e s and to determine whether those rules have 3^  35 v i o l a t e d p r i n c i p l e s - - i n p a r t i c u l a r , the p r i n c i p l e s that we have developed i n Chapter I. A. The Law of Torts and the P r i n c i p l e  of Compensation The branch of law that concerns most with compensation i s the law of t o r t s . According to C e c i l A. Wright: The study of the law of t o r t s i s . . . a study of the extent to which the law w i l l s h i f t the losses i n modern society from.the person affected to the shoulders of him who caused the l o s s . • ; . . The purpose of the lav/ of t o r t s i s to adjust these losses and to aff o r d compensation f o r i n j u r i e s sustained by one person as the r e s u l t of the conduct of another„ Such a statement of the problem indicated that the law cf t o r t s must constantly be i n a state of f l u x , since i t must be ever ready to recognize and consider new losses a r i s i n g i n novel ways.3 A c t i v i t i e s of persons l i v i n g i n a common (interdependent) society are bound to produce clashes. The ownership of property i n society alone may a f f e c t other's property as we'll as other person i n many d i f f e r e n t kinds of ways-. Consequently, losses and i n j u r i e s may be sustained as a r e s u l t of a c t i v i t i e s of others. With the advent of the i n d u s t r i a l society, the clashes of a c t i v i t i e s (or the external e f f e c t s i n economic terminology) have become not only more abundant but also more novel. That i s why the law of t o r t s , i n the continual search f o r new and appropriate rules of determining ' l o s s - s h i f t i n g ' or 'loss d i s t r i b u t i o n ' , must constantly be i n a 'state of f l u x ' . However, the aim of the law of t o r t s remains the same: which of the many claims f o r losses deserve to be recognized? In the process of solv i n g problems at hand, courts have . '36 . frequently r e l i e d on a sort of balancing t e s t - - a t e s t that weighs s o c i a l gains against private losses. With respect to t h i s balancing t e s t , Wright says: • '• In short, while a l l law has been described as a kind of s o c i a l engineering, i n no department does t h i s become so apparent as i n the lav/ of t o r t s . There, i n bold r e l i e f , v/e see how the law has i n the past struggled, and i s today struggling, to .. reach a f a i r balance between the various claims to compensation on the one hand, and freedom of action on the other. It w i l l not, therefore, be s u r p r i s i n g to f i n d various devices, f i c t i o n s and theories being employed by courts to express the r e s u l t s of that balancing process.^ The balancing process, as described by Wright, i s the t h e o r e c t i c a l o r i g i n of the Balancing of S o c i a l Gains Against Private Loss Rule, of which i t w i l l be examined l a t e r i n t h i s Chapter. The law of t o r t s has always been plagued by a moral connotation and by a tendency to f i n d out who i s to blame before determining who i s l a i b l e and who i s to be compensated. Questions of the following types are frequently asked: Who i s at f a u l t ? Who i s to blame? Is negligence involved? This tendency of the courts to l a b e l c e r t a i n a c t i v i t i e s as morally blameworth i s the o r i g i n of the Noxious Use Rule, v/hich w i l l also be examined l a t e r . There are d i f f e r e n t types of i n t e r e s t which have frequently been protected by the law of t o r t s . At the same time, there are d i f f e r e n t types of conduct causing harm. To serve our purpose here, we would only concern ourselves with i n t e r e s t s i n property and non-negligent conduct. 37 B. The Balancing of Social, Gains Against  Private Loss Rule The idea of the Balancing Rule i s the s t r i k i n g of a balance between a compensation claimant's l o s s and the general public's concommitant gain. I f the claimant's loss i s found to be outweighed by the gain of society, the Rule would recommend that a c e r t a i n c o l l e c t i v e measure i s legitimate or l e g a l l y invoked so that compensation payment would be precluded. It should be recognized here that the underlying philosophy of the Balancing Rule has a great deal of s i m i l a r i t i e s with the Pigovian approach and the type of welfare economics along the l i n e of Kaldor and Hicks discussed i n Chapter 1,^ The emphasis of the Pigovian approach r e s t s on the c r i t e r i a of decision-making. Under t h i s approach, hypothetical compensation payment i s relevant to the extent of a s s i s t i n g choice.between alt e r n a t i v e c o l l e c t i v e actions, while actual compensation payment i s ignored. The unsatisfactory aspects of the Pigovian approach are equally present i n the Balancing Rule. F i r s t , the Balancing Rule may be relevant i n the evaluation as to whether a measure i s proper., ( i n the sense of e f f i c i e n c y ) assuming that hypothetical compensation payments are included, but i t i s i r r e l e v a n t i n the decision as to whether compensation payment should be enforced or not. In other words, the Balancing Rule serves as a sort of e f f i c i e n c y test between al t e r n a t i v e measures of c o l l e c t i v e action. As i t has also been pointed out i n Chapter 1,^ by 38 denying actual compensation i n the process of undertaking the measure that has f u l f i l l e d the Balancing Rule would make that same measure i n e f f i c i e n t . Secondly, the implication of the Balancing Rule i s that the i n t e r e s t s of the losers somehow do not belong to the i n t e r e s t s of society at large. (As a matter of f a c t , a more accurate formulation of the Rule should read: The balancing of other people's—not s o c i e t y ' s — g a i n s against some people's losses.) Michelman, r e a l i s i n g the danger of the Balancing Rule, cautions: A danger which seems to be common to balancing tests i s that they traduce us into imagining that there are persons i n society whose i n t e r e s t can somehow be excluded from, and counterpoised against, 'society's i n t e r e s t ' . . . . But what, aft e r a l l , can i t mean, i n a society professing the respect f o r persons which seems c e n t r a l l y i m p l i c i t i n l i b e r a l democratic i n s t i t u t i o n , to 'weigh i n d i v i d u a l losses against s o c i a l gains'? . . . How can the ' i n d i v i d u a l loss* be extracted from the c a l c u l a t i o n of the ' s o c i a l gain* so as to be 'weighed against* i t ? ? By ignoring actual compensation, the Balancing Rule has c l e a r l y v i o l a t e d the p r i n c i p l e s of a l l o c a t i v e e f f i c i e n c y . By weighing the gains of one sector of society against the losses of another sector of society, the Balancing Rule also does not fare too well with the p r i n c i p l e of j u s t i c e as f a i r n e s s . Rawls also cautions: One i s not allowed to j u s t i f y differences i n income or organisational power on the ground that the disadvantages of those i n one p o s i t i o n are outweighed by the greater advantages of those i n another. Much le s s can infringement of l i b e r t y be counter-balanced i n this. way. 8 3 9 However, the act of balancing (but riot the Balancing Rule as i t i s understood here) could be salvaged i f the denial of compensation i s j u s t i f i e d by the Second P r i n c i p l e of j u s t i c e — t h a t i s , i f . i t , could be shown that uncompensated private losses are counterbalanced by the long-run general well-being of a l l , and i n p a r t i c u l a r , by the greatest benefit of the lea s t advantaged ( i . e . those i n d i v i d u a l s who suffer losses because of a p a r t i c u l a r measure). C. The Noxious Use Rule (or the Private  Fault and Public Benefit Rule) The Noxious Use Rule i s another rule that attempts to p r i v i d e a t e s t i n i s o l a t i n g theses losses that are non-compensable from those that are compensable. The c e n t r a l question i s by asking whether the uses which would be destroyed without compensation are those that are noxious, or wrongful, or harmful i n some sense. The Rule when applied works as follows: i f society r e s t r a i n s uses of property that are considered to be 'harmful*, society w i l l not compensate those who su f f e r losses because of such r e s t r a i n t ; i f society r e s t r a i n s uses of property that are soehow considered to be 'innocent*, society i s enriching i t s e l f at the expense of private property owners, and the l a t t e r should be compensated f o r t h e i r losses. In other words, when public measures (or regulations) that are aimed at harm-prevention are undertaken, i n d i v i d u a l p r i v a t e losses are not compensable. On fche other hand, when public measures that are aimed at benefit - e x t r a c t i o n are undertaken, i n d i v i d u a l private losses are compensable, The type of a c t i v i t i e s that are most l i k e l y to be considered as 'harmful' are those which are generally c l a s s i f i e d as nuisance--and the c l a s s i c example i n economic l i t e r a t u r e i s that of smoke emission. It can r e a d i l y be seen that the Noxious Use Rule i s r e l a t e d to the concept of e x t e r n a l i t y that Coase and Tullock are concerned with i n our discussion i n Chapter I . * 0 Coase has pointed out the r e c i p r o c a l nature i n a single e x t e r n a l i t y s i t u a t i o n . His reasoning can be summarized by quoting from a passage i n Chapter Is I f the p r e v a i l i n g structure of property r i g h t s l e g a l l y permit A to undertake c e r t a i n economic a c t i v i t i e s , and i f such a c t i v i t i e s produce i n c i d e n t a l and unintentional e f f e c t s on others, compensation has to be paid to A i f the law i s to be changed i n order to modify the behaviour of A. We have to recognize the opposing i n t e r e s t s of. the two p a r t i e s A and B. In a free and democratic society, we have to take into consideration the fact that to r e s t r a i n the incidental.and unintentional external e f f e c t s of A, who i s performing legitimate economic a c t i v i t i e s , would i n f l i c t harm on A . l l 12 In the example we r e f e r to i n Chapter.I, where a factory by i t s smoke emission causes nuisance to a housewife, Tullock argues that unless compensation i s a c t u a l l y paid to the housewife, p r i n c i p l e s of a l l o c a t i v e e f f i c i e n c y would remain u n s a t i s f i e d . By denying compensation, society i s making a naked d i s t r i b u t i o n a l decision to the detriment of the housewife. Unless such a r e d i s t r i b u t i o n happens to be an equalizing one (which could only happen by accident) or unless cuh a r e d i s t r i b u t i o n i s deliberate (which then has to f u l f i l the p r i n c i p l e s of j u s t i c e as f a i r n e s s ) , i t w i l l simply be a r b i t r a r y . '• 41 -The unsatisfactory aspect of the Noxious Use Rule i s i t s reliance on c e r t a i n a r b i t r a r i l y determined concept of e t h i c a l value i n order to c l a s s i f y c e r t a i n a c t i v i t i e s as 'harmful' and others as 'innocent'. Sax says: Ac t u a l l y the problem i s not one of noxiousness or harm-creating a c t i v i t y at a l l : rather i t i s a problem of inconsistency between p e r f e c t l y innocent and independently desirable use . * 3 As i t has so often been said that a nuisance may be merely a 'right thing i n the wrong p l a c e — l i k e a p i g i n the p a r l o r instead of the barnyard'. D. Physical Invasion Rule If the Physical Invasion i s followed s t r i c t l y , compensable losses are only those cuased by ph y s i c a l encroachment and occupation of land. I f that i s the case, then private losses otherwise indistinguishable from one another, may be c l a s s i f i e d as non-compensable i f not accompanied by a physical invasion; while purely nominal harms (such as those which accompany street-widenings) are automatically deemed as compensable i f accompanied by physical occupation of private property. This Rule, as a device of drawing the l i n e between compensable and non-compensable losses, produces unsatisfactory and inequitable r e s u l t s . The problem of t h i s Rule i s centered not so much on the necessary d i s t i n c t i o n between physical takeovers and noh-physical takeovers—but rather on the concept of property as implied by the Rule, k2 This Rule views property as a p h y s i c a l 'thing' owned. However, t h i s narrow and l i m i t e d concept of property has not even always been fashionable i n l e g a l c i r c l e s . Anyone who frees himself from the crudest materialism r e a d i l y recognizes that as a l e g a l term property denotes not material things but c e r t a i n r i g h t s . . . . Further r e f l e c t i o n s show that a property right i s not to be i d e n t i f i e d with the fact of p h y s i c a l possession. Whatever t e c h n i c a l d e f i n i t i o n of property we may prefer, we must recognize that a property r i g h t i s a r e l a t i o n not between an owner and a thing, but between the owner and other i n d i v i d u a l s i n reference to t h i n g s . 1 ^ This more refined concept of property, i t should be noted here, coincides with the property r i g h t s approach we have discussed 1 $ i n Chapter I. J To the extent that we accept the concept of property i n a non-physical sense, i t would be easy to see that value of. property can. be destroyed and i n j u r i e s arise by a c t i v i t i e s of others i n a trespassory as well as non-trespassory manner. But the Physical Invasion Rule, casted i n t h i s broader concept of property, would only compensate trespassory i n j u r i e s . The problem i s r e a l l y not one of 'taking* but of •property'. I f we admit that property r e f e r s to intangible i n t e r e s t s , the further question of a physical taking or invasion i s i r r e l e v a n t . The reason i s that there cannot be a physical taking of a non-physical i n t e r e s t . The c r u c i a l step i n analysis i s to keep c l e a r the conceptual d i s t i n c t i o n between property and taking. What the Physical Invasion Rule succeeds i n accomplishing i s to conveniently i d e n t i f y those i n j u r i e s that ^3 are c l e a r l y compensable. However, any further use of t h i s Rule by dismissing a l l those claims at the other end of the spectrum (those that are c l e a r l y non-compensable) i s c e r t a i n l y not j u s t i f i e d . The motive that courts ;have resorted to the Physical Invasion Rule i s perhaps based on the p r a c t i c a l reason that i t would prevent the Imposition of a severe burden on the expropriating a u t h o r i t i e s i f they do not have to pay f o r consequential harm, that i s , harm ;to intangible i n t e r e s t s . Perhaps t h i s would help to reduce settlement costs. Such a motive i s c r i t i c i z e d by Michelman: But t h i s j u s t i f i c a t i o n f o r a physical invasion c r i t e r i o n i s r e a l l y rather weak. The capacity f o r such a c r i t e r i o n t o minimize settlement costs i s beyond question, but" i t s ~ capacity to- d i s t i n g u s i h even crudely, between s i g n i f i c a n t and i n s i g n i f i c a n t losses i s too puny to be taken seriously. A rul e that no loss i s compensable unless accompanied by.• physical invasion would be patently unacceptable. E. Summary and Conclusions We have evaluated the three rules i n the context of the p r i n c i p l e s of a l l o c a t i v e e f f i c i e n c y as well as the p r i n c i p l e s of j u s t i c e as f a i r n e s s , and we have found that they have serious shortcomings i n determining compensability. However, i t can frequently be found that courts have r e l i e d heavily on such rules i n the process of reaching decisions. For example, i n the law of compensation f o r i n j u r i o u s a f f e c t i o n , the inconsistency between the rules f o r compensation with p a r t i a l taking and those with no land taken i s due to a large 44 extent on the reliance of such rules; In the subsequent analysis of compensation f o r compulsory acquistion, compensation f o r i n j u r i o u s a f f e c t i o n arid'".'compensation with planning r e s t r i c t i o n s , i t w i l l be shown to what extent such rules have influenced j u d i c i a l decision. CHAPTER III THE OCCASSIONS OF COMPENSATION Public a c t i v i t i e s i n the land market that c a l l f o r the consideration of compensation are mainly of two t y p e s — those that are r e l a t e d to land expropriation and those that are not. In the former case, we w i l l consider compensation f o r 'compulsory a c q u i s i t i o n ' and compensation f o r 'injurious a f f e c t i o n ' . In the l a t t e r case, our concern w i l l be compensation with planning r e s t r i c t i o n s . •Compulsory, a c q u i s i t i o n ' i s the exercise of statutory power to t r a n s f e r landownership and property r i g h t s from the private sector to the public sector. It i s analogous to a 'contract' f o r the purchase of property. There are two separate instances that c a l l f o r compensation for 'injurious a f f e c t i o n ' : instances where there i s a p a r t i a l taking of land with the consequences of severance damages being done to the rest of the land; and instances where no land i s a c t u a l l y being taken. In the l a t t e r case, we w i l l examine s i t u a t i o n l i k e public authority's interference with the amenity of a secluded r e s i d e n t i a l area by putting a freeway r i g h t across i t . Since injurious a f f e c t i o n i s concerned with the causing of damages to property, i r r e s p e c t i v e of whether property i s taken from owners, i t i s analogous to an injury g i v i n g a *5 Ur6 r i g h t of action f o r damages. In the context of economic terminology, i n j u r i o u s a f f e c t i o n i s c l o s e l y related to the concept of e x t e r n a l i t y . Planning a u t h o r i t i e s often relax and r e s t r i c t land use p o l i c y . Changes i n planning p o l i c y may a l t e r the bundle of property r i g h t s and r e s u l t i n price and value changes. Under t h i s s i t u a t i o n , we w i l l examine how government should compensate those who have become worse-off, and of whether or not those who have become b e t t e r - o f f be required to compensate the State. The d i s t i n g u i s h i n g feature between planning a c t i v i t i e s that may c a l l f o r compensation and expropriating a c t i v i t i e s i s that the former i s not r e l a t e d to any physical takeover of land and of the consequential harm of such takeover. However, the underlying s i m i l a r i t y between these two types of a c t i v i t i e s i s that while planning a c t i v i t i e s are not related to the t r a n s f e r of ownership of property r i g h t s from the private sector to the public sector, they are s i m i l a r to expropriation a c t i v i t i e s i n the sense that they are, part and p a r c e l , public interferences i n the use of private property r i g h t s i n the land market. In the context of economic terminology, planning r e s t r i c t i o n s may be considered as attempts by public a u t h o r i t i e s to i n t e r n a l i z e e x t e r n a l i t i e s i n the land market. A. The Legal Status of Compensation  and Expropriation The r i g h t to the enjoyment of private property has always been subject to the r i g h t of the State to take property required f o r public use, But the r i g h t of taking i s not the same as the r i g h t of c o n f i s c a t i o n , as the' power of taking i s l i m i t e d by basic c i v i l r i g h t s , recognized and recorded as long ago as the Magna Carta. Clause 39 of the Magna Carta proclaimed: No free man s h a l l be . .. dispossessed except by the l e g a l judgement of his peers or by the law of the land. The r i g h t to take property f o r public use i s c a l l e d the 'power of expropriation' i n Canada, the 'power of eminent domain* i n the United States, and the "power of compulsory purchase* i n England, However, the term * compulsory purchase' seems to be more expressive of what r e a l l y happens. The owner of land i s compelled to 'sell'--whether he l i k e s i t or not, and the authority which 'buys' i s obliged to pay a 'purchase !price', which i s usually c a l l e d compensation. The exprojjriating authority does not n e c e s s a r i l y be the various l e v e l s of government. It may be the school board, or a highway authority, or a u t i l i t y company—provided that statutory power of expropriation has been conferred on them. In B r i t i s h Columbia, there are more than 60 statutory provisions that confer the power of expropriation on a u t h o r i t i e s , which range from the Crown i n the Right of the Province, governmental bodies (e.g. m u n i c i p a l i t i e s , school boards, and other l o c a l public bodies) and non-governmental bodies (e.g. railway companies, hydro and power au t h o r i t i e s and others). As an example, the power of expropriation has been conferred on 59k governmental bodies alone.* 4 8 Compensation i n the United States i s guaranteed by-express provision i n the Federal Constitution. The F i f t h Amendment proclaimsJ . . . nor s h a l l private„property be taken f o r public use, without just compensation. while the Fourteenth Amendment proclaims: . . . nor s h a l l any state deprive any person of . . . property, without due process of law. In Canada and i n England, there i s no c o n s t i t u t i o n a l guarantee of compensation. But there has been a presumption by courts that compensation i s to be paid. Statutes have been construed by courts on the premise that i f the l e g i s l a t u r e intends no compensation, i t must expressly so provide. Occassionally, we could f i n d i n statutes phrases l i k e 'due compensation', 'just compensation' or 'reasonable compensation'. Not u n t i l the turn of t h i s century, l e g i s l a t u r e s i n both countries have r a r e l y set down the p r i c i s e items f o r which an owner i s e n t i t l e d to be compensated, and the basis on which compensation i s assessed. The task of achieving equity i n the f i e l d of expropriation has been l e f t , to a large extent, to j u d i c i a l decisions. The functions of the law of expropriation are mainly twofolds: (1) to make provisions of procedural r u l e s , and (2) to make provisions of substantive r u l e s — s u b s t a n t i v e rules that determine the i n t e r e s t i n land which may be acquired... by whom and f o r what purposes; substantive rules that determine the i n t e r e s t f o r which the owner i s e n t i t l e d to compensation; and the substantive rules that determine the c r i t e r i a f o r the assessment of compensation. In our study here, only substantive rules w i l l be dealt with. B. An Introduction to English Statutes of  Expropriation and L e g i s l a t i v e Reforms U n t i l 1 8 4 5 , each expropriation scheme required a private statute. With, the increasing demand f o r railway construction and the a r r i v a l of the I n d u s t r i a l Revolution, there were more needs to acquire land to s a t i s f y public needs. 2 In 1 8 ^ 5 , the. Land Clauses Consolidation Act was passed. This statute consolidated the land clauses contained i n railway statutes and others, and provided a procedure f o r expropriation. The 1 8 ^ 5 Act expressly granted two kinds of compensation, namely, compensation f o r the value of land taken and compensation f o r i n j u r i o u s a f f e c t i o n . The Act provided no d e t a i l s with regard to the basis of compensation assessment. J u d i c i a l decisions, i n i n t e r p r e t i n g the Act, arrived at the common law rule of 'value to the owner'. 3 In I 9 I 7 , Parliament appointed the Scott Committee-' to review the law r e l a t i n g to the a c q u i s i t i o n and valuation of land f o r public purposes. The major recommendation of the Scott Committee was that the 'market value' formula be accepted i n England. In 1919» with the A c q u i s i t i o n of Land (Assessment of Compensation) Act, l e g i s l a t u r e established "market value' as the basis of compensation i n the place of 'value to the owner*, and the adoption of the so-called 'six English r u l e s ' as the basis of compensation assessment. However, claims 50 f o r severance damages and i n j u r i o u s a f f e c t i o n remained to be dealt with according to the rules formulated by the courts i n j u d i c i a l i n t e r p r e t a t i o n of the 1845 Act as amended. In 1961, with the Land Compensation Act,-* the I9I9 Act was repealed. The I96I Act was a consolidation act. It consolidated the provisions of the 1919 Act with other statutes conferring power of expropriation. However, no changes were made with respect to the market value formula and the 'six English rules'. The most recent recommendation f o r l e g i s l a t i v e reforms i n the law of expropriation was the 1972 Report presented to Parliament by the Secretary of State.^ Primarily, the Report dealt with i n j u r i o u s a f f e c t i o n . C• An Introduction to Canadian Statutes of Expropriation and L e g i s l a t i v e Reforms 1, Federal Government The Public Works Act of the Province of Canada i n 1841 was the f i r s t Canadian statute governing expropriation. The Federal Expropriation Act of 1886 consolidated a l l the provisions taken from early public works and railway statutes. The Expropriation Act of 1970 i s the most recent Act, arid i s s t i l l i n force. The Federal Government borrowed f r e e l y and adopted s u b s t a n t i a l l y the ideas advanced by the p r o v i n c i a l l e g i s l a t u r e s (Ontario and B.C. i n p a r t i c u l a r ) when the 1970 Act was being written.' The Federal statute governs expropriation by the Crown i n the Right of Canada only. Each province enacts i t s own expropriation l e g i s l a t i o n . 51 2. Province of B r i t i s h Columbia In B.C., with the English Law Act of 1 8 5 8 , a l l English law at that date was made part of the law of B.C. Thus, the English Land Clauses Consolidation Act of 18^5 was made part of the law of B.C. However, the English 1919 Act was not made part of the law of B.C. In 1963, the Report of the B.C.  Commission on Expropriation was submitted to the B.C. Government. This Report l a t e r became known as the 'Clyne Report* (hereinafter the *Clyne Report*). I t s major recommendations was to implement in. B.C. l e g i s l a t i o n the recommendations of the Scott Committee. In 1971» the Law Reform Commission of B.C. submitted a Report on Expropriation^ (hereinafter the 'B.C. Report') to the Attorney-General f o r B.C. The B.C. Report was a review of the procedural and substantive lav/ of expropriation. As of now, there has not been any l e g i s l a t i v e reform of the lav/ of expropriation i n B.C. Thus, the English Land Clauses Consolidation Act of 18^5» adopted i n 1858,. remains the enabling statute i n 3.C. 3. Province of Ontario The Ontario Law Reform Commission of 1967 looked into the Expropriation Act of Ontario with the aim of bringing substantive law into a new act, and l a t e r submitted the 10 Report on the Basis f o r Compensation on Expropriation (hereinafter the 'Ontario Report'). The Expropriation Act 11 I968-69 accepted nearly a l l the recommendations submitted by the Commission. As of now, t h i s Act i s s t i l l the enabling statute on expropriation i n Ontario. CHAPTER IV COMPENSATION FOR COMPULSORY ACQUISITION Before we enter into the discussion of those j u d i c i a l decisions related to compensation f o r compulsory a c q u i s i t i o n , i t should be noted here that Canadian Courts followed the decisions of the English Courts under the various Land Clauses Acts, and that the decisions of the former were bound by those of the l a t t e r . The Canadian Courts usually applied the English decisions, i n so f a r as they were applicable, i n the construction of Canadian statutes. A. J u d i c i a l Decisions 1. The P r i n c i p l e of Equivalence In order.to achieve equity i n the f i e l d of compulsory a c q u i s i t i o n , the attempt of j u d i c i a l decisions was to approach the so-called ' p r i n c i p l e of equivalence'. The p r i n c i p l e was to t r y "to put the owner, so f a r as money i s able to do i t , i n the same positions as i f h i s land had not been taken from him". The basic ideas was to restore the aggrieved owner, i n a pecuniary sense at l e a s t , to the p o s i t i o n he was i n before the dispossession. In the case In Re Lucas and the C h e s t e r f i e l d Gas & 2 Water Board, Fletcher Moulton L.J. of the Court of Appeal 5 2 53 i n England said: The p r i n c i p l e s unpbn which compensation is-assessed when land i s taken under compulsory powers are well s e t t l e d . The owner receives f o r the lands he giv.es up t h e i r equivalent, i . e . that which they were worth to him i n money. Kis property i s therefore not diminished i n amount, but to that extent i t i s compulsorily changed i n form.3 The p r i n c i p l e of equivalence was also recognized by courts i n Canada. For example, Rand J . i n Irving O i l Company Ltd. v. His Majesty the King said: with the compensation money i n the hands of the owner, he i s i n the equivalent p o s i t i o n of holding h i s land or property instead of money. He i s * therefore, . . . to be made economically whole.-To compensate the loss of property i n one form (land and i t s i n t e r e s t s thereof) by another form (money) did not n e c e s s a r i l f u l f i l the p r i n c i p l e of equivalence. Damages or i n j u r i e s caused by the f o r c i b l e dispossession were also recognized under the p r i n c i p l e of equivalence. Kerwin J. i n the Irving  O i l case said: the p r i n c i p l e i n t h i s class of case i s that the displaced owner should be l e f t as nearly as possible i n the same p o s i t i o n f i n a n c i a l l y as he was p r i o r to the taking, provided that the damage, loss or expense f o r which compensation was claimed was d i r e c t l y a t t r i b u t a b l e to the taking of lands.° The p r i n c i p l e of equivalence was the ce n t r a l guiding p r i n c i p l e upon which 'just compensation' as determined by courts was based. The question was how from such a general p r i n c i p l e d e t a i l e d r u l e s of compensation assessment could be evolved. 3y i n t e r p r e t i n g statutes, courts had developed two sets of formula as the basis of compensation assessment: by i n t e r p r e t i n g the Land Clauses Consolidation Act of 1845 the 'value to the owner' formula was evolved; and by i n t e r p r e t i n g the A c q u i s i t i o n of Land (Assessment of Compensation) Act of 1919 the 'market value' formula was evolved. 2. The 'Value to the Owner' Formula •Value to the owner', as the basis of compensation assessment, included not only the market value of land but also any a d d i t i o n a l value of the s p e c i a l use of the land to the expropriated owner. The practice was to a r r i v e at a lump-sum amount of compensation, without spe c i f y i n g how much was f o r each ,type of claim. In general, an a d d i t i o n a l 10fo would be granted on account of the a c q u i s i t i o n being compulsory. Section 64 of the Land Clauses Consolidation Act of 1845 provided that: In estimating the purchase-money or compensation . . . regard s h a l l be had . . . not only to the  value of the land to be purchased or taken by the promoters of the undertaking, but also by. the damage ( i f any) t c be sustained by the owner of the lands by reason of the severing of the lands taken from the other lands of such owner, or otherwise i n j u r i o u s l y a f f e c t i n g such other lands by the exercise of the powers of t h i s or the s p e c i a l Act, or any Act incorporated therewith. ( I t a l i c s mine.) By i n t e r p r e t i n g 'value of the land to be purchased or taken', English courts arrived at the 'value to the owner' formula. V/hat the courts had made abundantly c l e a r with respect to.the meaning of value to the owner was that i t was not to be construed as meaning 'value to the taker'. Any s p e c i a l value of the land, that was attibutable to the s p e c i a l a d a p t a b i l i t y of the land f o r the use of the taker alone, was • • 55 disregarded. The presence of t h i s type of s p e c i a l value was determined by considering whether there was any competition f o r the s p e c i a l a d a p t a b i l i t y of the land besides that from the taker. I f there was ndt, the value of the s p e c i a l a d a p t a b i l i t y was not compensable; i f there was, the value of the s p e c i a l a d a p t a b i l i t y was compensable. Supposing the land under expropriation was s p e c i a l l y adaptable as the s i t e f o r a r e s e r v o i r , and i f there was no competition f o r i t s use as a r e s e r v o i r except the expropriating authority, then compensation, could not be assessed i n accordance with the enhanced value of the s i t e being used as a re s e r v o i r . Fletcher Moulton L.J. i n In Re Lucas said: where the s p e c i a l value e x i s t s only f o r the p a r t i c u l a r purchaser who has obtained powers of compulsory purchase i t cannot be taken into consideration i n f i x i n g the p r i c e , because to do otherwise would be to allow the existence of the scheme to enhance the value of the lands to be purchased under i t . But when the s p e c i a l value exists also f o r other possible purchasers, so that there i s , so to speak,, a market, r e a l though l i m i t e d , in. which that s p e c i a l value goes towards f i x i n g the market pr i c e , the owner i s e n t i t l e d to have t h i s element of value taken into consideration just as he would be e n t i t l e d to have the f e r t i l i t y or the aspect of a piece of land 7 capable of being used f o r a g r i c u l t u r a l purposes. The necessary c o r o l l a r y of the concept of 'value to the taker' ( i , e , the exclusion of s p e c i a l value due to s p e c i a l a d a p t a b i l i t y a t t r i b u t a b l e to the use of the taker alone) was that i f there was more than one purchaser (the taker included) competing f o r the s p e c i a l a d a p t a b i l i t y , assessment of compensation f o r the value of land had to take i n t o consideration the p o t e n t i a l value of land (instead of the e x i s t i n g use value 56 of l a n d ) . In Cedars Rapids Manufacturing & Power Go. v. 8 Lacoste i t was s a i d t h a t : Where, t h e r e f o r e , the element of value over and above the bare value of the ground i t s e l f (commonly spoken of as the a g r i c u l t u r a l value) c o n s i s t s i n a d a p t a b i l i t y f o r a c e r t a i n undertaking the value i s not a p r o p o r t i o n a l p a r t of the assumed value of the whole undertaking, but i s merely the p r i c e , enhanced above the bare value of the ground which p o s s i b l e i n t e n d i n g undertakers would g i v e . That p r i c e must be t e s t e d by the imaginary market which would have r u l e d had the land been exposed f o r s a l e before any undertakers had secured the powers, or acquired the other s u b j e c t s which made the q undertaking as a whole a r e a l i z e d p o s s i b i l i t y . Another element of v a l u e , recognized under the 'value t o the owner' formula, t h a t had given the c o u r t s the greatest d i f f i c u l t i e s was the ' s p e c i a l value t o the owner*. We might asks Should an i n v a l i d who had lowered h i s k i t c h e n counters f o r h i s own needs be compensated? Or should an i n d i v i d u a l who had i n s t a l l e d a bomb-shelter be compensated? Or should a business owner be compensated f o r the s p e c i a l p r o f i t s and savings which h i s p a r t i c u l a r p a r c e l of land.alone could a l l o w him t o enjoy? I f the answers were i n the a f f i r m a t i v e , we would have the problem of a s s e s s i n g compensation f o r unmarketable improvements and s p e c i a l use of a s i t e which had value t o the owner o n l y — a s value of t h i s nature was u n l i k e l y t o be r e f l e c t e d i n the market. The t e s t of compensability suggested by the courts was vague and u n c e r t a i n . In P a s t o r a l Finance A s s o c i a t i o n 10 L t d . v. The M i n i s t e r , Lord Moulton s a i d : Probably the most p r a c t i c a l form i n which the matter can be put i s t h a t they were e n t i t l e d to t h a t which a prudent man i n t h e i r p o s i t i o n would have been w i l l i n g to give f o r the land sooner than f a i l t o o b t a i n i t . H 57 And i n the Irving; O i l case* Rand J. suggested that« If the land i s such as to have no special value to the owner, then the general market Value, inclu d i n g the present worth of a l l p o s s i b i l i t i e s , i s the measurement of compensation. I f a sp e c i a l value i s a c t u a l l y r e a l i z e d by him, then the compensation must represent the sum which as a prudent man he would be prepared to pay rather than to f a i l to obtain or r e t a i n h i s p r o p e r t y . 1 2 The t e s t that the special value to the owner was that "which a prudent man i n h i s p o s i t i o n would have been w i l l i n g to give fo r the land sooner than f a i l to obtain i t or be ejected from i t " was vague and uncertain. It required a search f o r the mind of a hypothetical c h a r a c t e r — t h e 'prudent owner'. It was d i f f i c u l t to determine the hypothetical r e s u l t reached by the prudent owner's mental process of deciding how much he would pay sooner than f a i l to obtain i t . As i t has been mentioned e a r l i e r that i n order to s a t i s f y the p r i n c i p l e of equivalence, any damages or i n j u r i e s caused by the f o r c i b l e dispossession were compensable—so long as they would not be too remote and were the d i r e c t consequence of the dispossession. The words of Rand J . i n the Irving O i l case quoted above best represented the predominant view as to the meaning of the 'value to the owner' formula. It should be noted here again that the compensation thus determined was a global sum that Included (or excluded) the following elements of compensable (or non-compensable) values 1. Value to the taker was excluded. 2, Market value of land was included. 58 3. Special value due to the s p e c i a l a d a p t a b i l i t y of land, and which was subject to competition besides the taker, was included i n evaluating (2). 4. Special value to the owner was included, 5. Consequential damages or i n j u r i e s due to dispossession were included, 6. An additional 10$ on the global sum determined as of the above was allowed. 3. The 'Market Value' Formula The market value formula i s to be understood here as the six rules f o r assessing compensation i n the A c q u i s i t i o n of Land (Assessment of Compensation) Act of 1919. Lord J u s t i c e Scott, i n the leading case of Horn v. Sunderland 13 Corporation, ^ said: The main object of the Act of 1919 was undoubtedly to mitigate the e v i l of excessive compensation which had grown up out of the theory, evolved by the -Courts, that because the sale was compulsory the s e l l e r must be treated by the assessing t r i b u n a l sympathetically as an u n w i l l i n g s e l l e r s e l l i n g to a w i l l i n g buyer. The word 'compensation' almost of i t s e l f c a r r i e d the c o r o l l a r y that the loss to the s e l l e r must be completely made up to him, on the ground that, unless he received a price that f u l l y equalled h i s pecuniary detriment, the compensation would not be equivalent to the compulsory s a c r i f i c e , 1 4 What the 1919 Act did was to s p e l l out more c l e a r l y the price which an owner was e n t i t l e d to be paid f o r his land, with an inherent objective of l i m i t i n g excessive compensation awards. 59 The major provisions of the 1919 Act were as follows: 1. Rule 1 eliminated the 10% allowance on account of the a c q u i s i t i o n being compulsory. 2. Rule 2 defined the value of the land as 'the amount which the land i f sold i n the open market by a w i l l i n g s e l l e r might be expected to r e a l i z e ' . 3. Rule 5 provided that i f Rule 2 could not be applied ( i . e . that the property was of the nature that there was no general demand or market f o r i t ) , compensation was to be assessed on the basis of the reasonable cost of equivalent reinstatement. 4 . Rule 6 provided that 'the provisions of rule (2) s h a l l not a f f e c t the assessment of compensation f o r disturbance or any other matter not d i r e c t l y based on the value of land'. The 1919 Act, with i t s a b o l i t i o n of the 10$ allowance (Rule 1) and with the use of the market value concept (Rule 2) contributed to check any excessive compensation awards. The reason why the 1919 Act was able to accomplish t h i s was p a r t l y due to the exclusion of the claim of spe c i a l value to the owner (which had been allowed by j u d i c i a l decisions i n t e r p r e t i n g the 1845 Act). Furthermore, the physical reinstatement basis of compensation (Rule 5) was l i m i t e d i n i t s a p p l i c a t i o n to properties l i k e churches and hosp i t a l s . On f i r s t glance, i t would appear that Rule 6 provided a separate head of compensation (as compensation for damages f o r disturbance) i n addition to the market value of land. However, t h i s was disputed i n the Horn's case. S i r W i l f r i d Greene said: 60 the damage suffered by the -owner from disturbance . . . was not a separate head of compensation such as compensation f o r injurious a f f e c t i o n , but merely one of the elements going to b u i l d up the purchase price to which the owner was f a i r l y e n t i t l e d i n a l l the circumstances of the case. . . . Now r . 6 does not confer a r i g h t to claim compensation f o r disturbance. It merely leaves unaffected the r i g h t which the owner would before the Act of 1 9 1 9 have had i n a proper case to claim that the compensation to be paid f o r the land should be increased on the ground that he had been disturbed. '~5 Scott L.J., i n agreement, added: the l e g a l r i g h t to compensation f o r disturbance stands to-day where i t did before the Act of I9I9. In those cases where i t was formerly payable, i t i s s t i l l payable: i n those cases where i t was not payable, i t i s not payable to-day.16 One of the major issues here, worthy of analysis, r e l a t e s to the concept of 'value to the owner* versus the concept of 'market value'. The concept of value to the owner was rejected by the Scott Committee, because i t was charged that owners tended to claim too high a value which l e d to complicated a r b i t r a t i o n s . It was claimed that market value was a more a t t r a c t i v e c r i t e r i o n because of i t s alleged certainty. However, one would wonder whether the element of ce r t a i n t y i n market value i s more i l l u s i o n a r y than r e a l . In de f i n i n g market value, phrases l i k e 'open market', ' w i l l i n g s e l l e r ' and ' w i l l i n g buyer' are frequently used. We have to wonder whether there i s always an open and s u f f i c i e n t l y large market f o r properties which are uniquely located. In a compulsory a c q u i s i t i o n , the s e l l e r , i n the f i r s t place, i s not w i l l i n g ; while, i n the second place, the buyer i s more than w i l l i n g to use the threat of compulsory purchase i n the event the .61 negotiation f a i l s . That the owner would prefer not to s e l l , were i t not because of his property being subject to compulsory purchase, i s an i n d i c a t i o n that he attaches c e r t a i n value to himself which the market does not necessarily r e f l e c t at that point i n time. Perhaps we should consider what economists and appraisers have to say about the degree of determinality of market value. It i s generally accepted that market price i s the most r e l i a b l e i ndicator of market value. R a t c l i f f c a l l s t h i s i n d i c a t i o n of market value as the most probable s e l l i n g p r i c e . The r o l e of an appraiser, as he sees i t , i s : to judge what the subject property would probably s e l l f o r i f exposed i n the market f o r a reasonable  time.. . . Market value i s market-determined. It i s the outcome of the competitive interations of buyers and s e l l e r . 1 ? ( I t a l i c s mine.) The estimation of market value i s a p r e d i c t i o n of an economic event through the process of s t a t i s t i c a l inference with reference to past events ( i . e . comparable sales) from the market. The market price thus a r r r i v e d should be expressed i n p r o b a b i l i s t i c terms with the awareness of the uncertainties involved i n making the p r e d i c t i o n . It i s important to note here the necessary condition of adequate exposure of the subject property to the market. In a s i t u a t i o n of compulsory purchase, t h i s condition i s i n no way being f u l f i l l e d . Turvey, i n The Economics of Real Property, analyses the degree of determinality of market prices and comes to the conclusion that prices are only f a i r l y determinate under the conditions that the property market i s well-informed, a j i d that: 62 there i s a large market and where many of the buyers and s e l l e r s are prepared and able to wait to achieve a purchase of sale.18 Adequate exposure to the market as well as the presence of good substitutes are requirements that- must be f u l f i l l e d , even i f we want to determine a probable s e l l i n g p r i c e . L e g i s l a t i v e reforms i n Canada (which w i l l be discussed l a t e r ) recommending a series of claims under the separate heading of damages fo r disturbance, and the tendency of the courts to interpret damages f o r disturbance l i b e r a l l y , i s recognition, indeed, of the underterminality of market value. Apparently, t h i s tendency represents a more equitable approach to the p r i n c i p l e of equivalence. The underlying theory of the market value formula, introduced by the 1919 Act as the basis of compensation assessment, appeared to be that the dispossessed owner could go out into the market and purchase with the compensation award a comparable property, with any consequential damages being met by proceeds of disturbance claim. This would sometimes create undue hardship, e s p e c i a l l y to home-owners, who might be forced to buy more expensive properties that were beyond h i s means, i f the p r e v a i l i n g market conditions so dictated him to do so. In other words, the f i n a n c i a l reinstatement as provided by the rule s of the 1919 Act might not n e c e s s a r i l y be equivalent to physical reinstatement. And the equivalent reinstatement, as provided by Rule 6, was usually not applicable to such properties. Furthermore, the a b o l i t i o n of compensation f o r s p e c i a l value to the owner (which should be compensable 63 under the p r i n c i p l e of equivalence though, admittedly, was subject to d i f f i c u l t i e s of f a i r assessment) was questionable. The 10fo allowance, which could have sweetened the p i l l (caused p a r t l y by any uncertainty of market value appraisal) the displaced owner was forced to swallow, was also abolished. The I9I9 Act, which was an attempt to correct the excessive compensation that had caused detriment to takers, now had the opposite e f f e c t of swinging the pendulum to the other extreme to the detriment of private landowners. B, L e g i s l a t i v e Reforms i n Canada Table 1 (see Appendix A) summarizes some of the recommendations f o r l e g i s l a t i v e reforms by various Commissions (the Clyne Commission, the Ontario Lav: Reform Commission, and the Law Reform Commission of B.C.) as well as enactments of l e g i s l a t i v e reforms by two governments (through the Ontario Expropriation Act 1968-69 and the Federal Expropriation Act 1970) i n r e l a t i o n to compensation f o r compulsory a c q u i s i t i o n of land. With the exception of the recommendations of the Clyne Commission, the basic approach of the other two Commissions and the two Statutes could be summarized as follows: 1. Acceptance of the concept of market value plus damages f o r disturbance as the basic formula f o r compensation. 2. Acceptance of the p r i n c i p l e of equivalent reinstatement as applied to expropriated land used f o r a p a r t i c u l a r purpose where there i s no market f o r that purpose. 64 3. Special value to owner, not r e f l e c t e d i n the market, i s to be compensated under the heading of damages of disturbance. 4. Provisions f o r other items of damages f o r disturbance that are to be compensable. The above approach has the e f f e c t of removing some of the r e s t r i c t i v e n e s s of the 1919 Act. In p a r t i c u l a r , compensation f o r damages f o r disturbance i s treated as a separate head of compensation ( s i m i l a r to compensation f o r i n j u r i o u s a ffection) with a l l allowable claims of losses under t h i s head c l e a r l y s p e l l e d out. Special value to owner i s taken i n t o consideration, and any l o s s of such value i s also to be compensated under the enumerated head of damages f o r disturbance. The Ontario Report recommends that: i n order that there should be no doubt as to what i s included i n disturbance damages, there should be rule s g i v i n g guidance as to what items may be „g claimed, and, i n c e r t a i n instances', on what b a s i s . x y The approach of the Clyne Commission i s the general acceptance of the recommendations of the Scott Committe and the rule s of the 1919 Act. Eventhough compensation f o r damages f o r disturbance i s recommended as a separate head of compensation, the Clyne Commission f a i l s to s p e l l out what are the items of damages that could be recovered under t h i s head. With the exception of the Clyne Report, l e g i s l a t i v e reforms i n Canada appear to have brought back the pendulum (which has been swung, through the 1919 Act, to one end of 65 the spectrum to the detriment of private landowners) to a middle ground. The wide range of losses ( i n c l u d i n g loss i n spe c i a l value to the owner) that are treated as compensable under damages f o r disturbance i s a clea r i n d i c a t i o n to t h i s e f f e c t . Another measure of r e l i e f to displaced home-owners,. not e x p l i c i t l y dealt with by the various l e g i s l a t i v e reforms i n Canada, i s worthy of consideration. In c e r t a i n circumstances, e s p e c i a l l y with rapid price increases and a high l e v e l of demand i n the home-ownership market, the compensation awarded to home-owners could not neces s a r i l y meet' the ad d i t i o n a l cost of purchasing a l t e r n a t i v e accommodation. In border to meet the problem of the home-owners forced to purchase a more expensive home, perhaps, there should be a provision f o r the acquiring authority to grant an interest-subsidized loan so as to bridge the gap between the compensation award paid f o r the old home and the pri c e paid f o r the new home. For example, 20 i n the 1972 Report by the Secretary of State i n England, i t i s recommended that a lump sum 'Home Loss Payment' with a maximum of 1,500 pounds be given to displaced owners. Financing i s also recommended to enable displaced owners to buy another home. The recommendations by the Ontario Report and the B.C. Report f o r a 57° allowance f o r compulsory taking f o r owner-occupiers of residence i s a measure i n t h i s d i r e c t i o n . However, an interest-subsidized loan would bring about, more f l e x i b i l i t y i n bridging the gap between the value of the old home and the new home, e s p e c i a l l y during periods of rapid p r i c e increases 66 i n the housing market. A f i n a l comment re l a t e s to the e a r l i e r discussion of the concept of 'value to the owner' versus the concept of 'market value'. Admittedly, the wide range of compensable claims under the head of damages f o r disturbance as recommended by various Commissions does help to mitigate the p o t e n t i a l hardship of the 1919 Act. However, d i f f i c u l t i e s s t i l l remain i n the f a i r assessment of compensation f o r the s p e c i a l value to owner (now compensable under damages f o r disturbance). The problem i s that i n the s i t u a t i o n when public a u t h o r i t i e s attempt to expropriate physical property as well as property r i g h t , we would run into the d i f f i c u l t y of the landowner quoting an exorbitant price that he attaches on h i s property at the time of negotiating expropriation. Since the voluntary exchange of e x i s t i n g property r i g h t s i s absent i n a l l expropriating cases, i t i s d i f f i c u l t to obtain the valuation imformation through an observation of choices made. 21 Pennance has suggested an o r i g i n a l concept of self-assessment that may perhaps provide a so l u t i o n to t h i s p r a c t i c a l problem. I f landowners can be induced (or forced) to reveal t h e i r preferences by putting a valuation continually on the land they own, the complicated procedures of determinjng:Tfair compensation' by a r b i t r a t i o n can be by-passed. The s e l f -assessed value can then be used as the c r i t e r i o n f o r compensati i n case of compulsory purchase. The way to force landowners to put up an honest self-assessment i s to allow public a u t h o r i t i e s to acquire t h e i r land i f landowners d e l i b e r a t e l y 67 conceal t h e i r preferences. Pennance suggests that: One way to induce property owners to reveal ( i n advance) t h e i r valuation of an i n t e r e s t v/ould be to i n v i t e them to assess themselves f o r property taxation, c a p i t a l gains tax, or any other tax r e l a t e d to the value of property owned. The understanding would be that, should the occassion a r i s e , the assessment would form the basis f o r any compensation payable, and that a r t i f i c i a l l y low assessments might, as a l a s t resort, i n v i t e 2p compulsory a c q u i s i t i o n by the tax a u t h o r i t i e s . On the t h e o r e t i c a l l e v e l , self-assessment i s a neat approach having i t s foundation i n the economic theory of revealed preference. However, further analysis must be c a r r i e d out i n order to enable t h i s concept to achieve general acceptance and to be implemented i n the administrative l e v e l . CHAPTER V COMPENSATION FOR INJURIOUS AFFECTION Compensation for i n j u r i o u s a f f e c t i o n applies to two instances: 1. Where there i s a p a r t i a l taking of l a n d — t h a t i s , some of the land of an owner has been expropriated and the. remainder i s i n j u r i o u s l y affected by the severance of the land, as well as by the public works established on land taken. 2. Where there i s no taking of land, but the land of an owner i s i n j u r i o u s l y affected by the public works on land expropriated from another person. "The term ' i n j u r i o u s l y affected' i s l e g a l shorthand which describes the reduction i n the value of land caused by public, or indeed, private, a c t i v i t i e s on adjacent land." The 'reduction i n the value of land' i s damnum (or damages) i n f l i c t e d on land. In common law, remedies f o r damages i n land are provided by action of trespass, nuisance and negligence. However, i f the damnum i s caused by the exercise of statutory 2 power, the nature of the remedy depends on statutory provision. Compensation claims are statutory and depend on statutory provisions. An aggrieved property owner has to es t a b l i s h a statutory right f o r compensation. In The King v. Acadia 68 69 3 Sugar Refining Company Limited, Justice Thorson saidj It i s well s e t t l e d that the ov/ner of land expropriated f o r public purposes i s not e n t i t l e d to compensation ei t h e r f o r the value of. the land taken or f o r damage on the ground that his land had been i n j u r i o u s l y affected unless he can show a statutory r i g h t to such compensation.^ If the enabling statute expresses or implies statutory remedy, an aggrieved landowner w i l l have a statutory r i g h t of remedy. If the enabling statute expresses or implies no statutory remedy, he w i l l have no statutory r i g h t f o r compensation. However, " i f the i n f l i c t i o n of the damnum i s not expressly or impliedly authorized by the statute, or r e s u l t s from the negligent exercise of the statutory powers, the property owners* remedy, i f any, must be found i n a common law acti o n " . ^ In what follows, the rules of compensation (as derived from j u d i c i a l decisions) f o r injurious a f f e c t i o n with p a r t i a l taking and with no land taken w i l l be examined. It w i l l be found that the rules of compensation with no land taken are more r e s t r i c t i v e than those with p a r t i a l taking, and that there are c e r t a i n l o g i c a l inconsistencies between the two sets of rule s . It should be noted here that Canadian Courts followed the decisions i n the English Courts under the various Land Clauses Acts, and that the decisions of the former were bound by those of the l a t t e r . Canadian Courts usually applied the English decisions, i n so f a r as they are applicable, i n the construction of Canadian statutes, Recent recommendations f o r l e g i s l a t i v e reforms and actual l e g i s l a t i v e reforms i n the Federal as well as the p r o v i n c i a l l e v e l w i l l be reviewed, compared and evaluated. 70 A. Compensation f o r Injurious A f f e c t i o n with P a r t i a l Taking 1. J u d i c i a l Decisions * The three general rules developed by English courts i n respect of claims f o r in j u r i o u s a f f e c t i o n on p a r t i a l takings are s 1. The lands taken need not be contiguous to those remaining, but they must be owned by the same person and the same u n i f i e d ownership must enhance the value of the lands remaining. 2. I f the remaining property f a l l s i n value by reason of the execution or use of the works, the owner i s e n t i t l e d to compensation regardless of whether the inju r y would have been actionable at common law i f not authorized by statute. 3. The injury (including personal and business injury) must be caused by the construction or user of the works on the lands taken and net on some other lands, The f i r s t rule enunciates the concept of 'severance* as understood by courts. In Kold i t c h v. Canadian Northern Ontario Highway,^ Lord Sumner sa i d : The basis of a claim to compensation f o r lands i n j u r i o u s l y affected by severance must be that the lands taken are so connected with or rela t e d to the lands l e f t that the owner of the l a t t e r i s prejudiced i n hi s a b i l i t y to use or dispose of them to advantage by reason of the severance. The bare fact that before the exercise of the compulsory power to take land he was the common ov/ner of both parcels i s i n s u f f i c i e n t f o r i n such a case taking some of hi s land does no more harm to the rest than would have been done i f the land taken had belonged to his neighbour. Compensation f o r severance therefore turns ultimately on the circumstances of the case.7 Thus, the f i r s t rule has two c o r o l l a r i e s : 1. It i s not necessary f o r an owner to show that the expropriated property and h i s remaining property are i n physical contiguity and that there i s unity i n t h e i r actual use. A l l he needs to show i s that the uhity of ownership conduced to an enhanced value to the property as a whole. In The King v. Consolidated Motors Limited, t h i s c o r o l l a r y of the concept of severance was re-affirmed. 2. The fact that an owner has common ownership of separate l o t s i s not a s u f f i c i e n t condition to q u a l i f y f o r the claim of compensation f o r severance damages. In The King  v. Halin, a developer had subdivided h i s lands into separate l o t s and claimed compensation f o r injurious a f f e c t i o n to h i s remaining l o t s r e s u l t i n g from the operation of the a i r p o r t on the expropriated l o t s . It was held that since each l o t constituted a d i f f e r e n t e n t i t y with no r e l a t i o n with each other, the developer v/as indeed the owner of a l l the b u i l d i n g l o t s but each was independent of the others. Since the single unity of ownership did not add to the value of the l o t s , compensation was denied on the basis of severance damages. The second rule allows the exception to the Actionable Rule, which i s applicable with i n j u r i o u s a f f e c t i o n with no land t a k e n . 1 0 Expropriation with p a r t i a l taking would be a trespass upon private property i f not authorized by statute. It would have been i l l e g a l . Thus, compensation i s i n general based on the common law damages f o r trespass or nuisance, i n so f a r as the •damage must not be too remote and that the claimant i s under the normal obligations to mitigate h i s 11 damage as much as possible". A l l economic losses, i n consequence of the execution and use of the public works, are compensable. 72 One of the l e a d i n g cases on the second r u l e was . > '. ,' ••12 Cowper Essex v. L o c a l Board f o r Acton. There p a r t of the claimant's lands were taken f o r the purpose of sewage works. Evidence was given t h a t the e x i s t e n c e of sewage works, even i f conducted so as not t o create an a c t i o n a b l e nuisance, depreciated the market value of the claimant's other lands f o r b u i l d i n g purposes. I t was h e l d that compensation was i n order, i n s p i t e of the f a c t t h a t the nuisance would not have been a c t i o n a b l e i n common law. Thus, as long as a claimant can prove that he has s u f f e r e d economic l o s s e s ( i n j u r y t o land as allowed -by r u l e two and p e r s o n a l and business i n j u r i e s as allowed by r u l e three) because of severance of h i s lands and the execution or use of p u b l i c works on land e x p r o p r i a t e d , compensation w i l l f o l l o w r e g a r d l e s s of whether such l o s s e s or damages would be a c t i o n a b l e i n common law i f a c t i v i t i e s of the e x p r o p r i a t i n g a u t h o r i t y were not a u t h o r i z e d by s t a t u t e . The q u a l i f i c a t i o n i n r u l e three ('and not on some other l a n d s 8 ) only serves t o d i s t i n g u i s h those claims governed by the r u l e s of compensation wi t h p a r t i a l t a k i n g , from those governed by the r u l e s of compensation w i t h no land taken. 2. L e g i s l a t i v e Reforms i n Canada Table 2 (see Appendix A) summarizes a l l the recommendations f o r l e g i s l a t i v e reforms by v a r i o u s Commission as w e l l as enactments of l e g i s l a t i v e reforms by two l e v e l s of government i n r e l a t i o n t o compensation f o r i n j u r i o u s a f f e c t i o n w i t h p a r t i a l 73 taking of land. The most s t r i k i n g feature, judging from Table 2, i s the consistent pattern of recommendations and statutory provisions with respect to t h i s area of law. A l l of the three Commissions accepted the three general rules of compensation governing injurious a f f e c t i o n with p a r t i a l taking of land. Furthermore, without any exception, the three Commissions recommended and the two Statutes enected the followings: 1. That on p a r t i a l takings of lands, damages f o r injurious a f f e c t i o n should include damages f o r severance. 2. That the 'Before and After' t e s t i s the appropriate method applied i n the computation of compensation payable i n p a r t i a l takings. 3. That any benefit enhanced by the taking should only be set off against the damages f o r in j u r i o u s a f f e c t i o n so that a landowner i s always e n t i t l e d to not l e s s than the market value of land taken. Two concepts remain to be c l a r i f i e d here. They are: (1) the 'Before and A f t e r ' test and (2) the 'set off'' of benefits enhanced by the taking. According to the Ontario Law Reform Commission, the Before and After t e s t i s supposed to Operate i n the following fashion: I n i t i a l l y , the procedure f o r determining compensation i n p a r t i a l taking cases consisted of taking the value of the lands expropriated and then adding to that sum the damages occassioned to the lands retained. However, i t was soon r e a l i s e d that a more accurate method would be to value the whole parcel before expropriation and subtract from that sum the value of the remaining lands, taking into account any benefit or detriment to those remaining lands r e s u l t i n g from the project f o r which the expropriation was made. 74 The l a t t e r method of working out compensation i s referred to as the 'before and after* test and i s now used by the courts i n a l l cases where i t i s p r a c t i c a l to do so.^3: In order to compare the ' t r a d i t i o n a l * .method with 14 the 'before and a f t e r ' method, the following variables w i l l be used i n the subsequent analysis: C : t o t a l compensation payable C : compensation for severance damages S Y^ : market value of t o t a l i n t e r e s t before expropriation V p : market value of expropriated i n t e r e s t V r : market value of remaining inter e s t The following r e l a t i o n s hold:-i . C s : > o i f v t - v e - v r > o i i . C s = 0, i f V t - Y e - V r = 0 i i i . C g < 0 i f Y t - V e - V r < 0 The r e l a t i o n i n ( i i i ) indicates not only that there i s no severance damage involved but that the remainder i s enhanced by the p a r t i a l taking. Assuming f o r the f i r s t instance that C > 0 ( i . e . the p a r t i a l taking has led to severance damages), then the ' t r a d i t i o n a l ' method of computing t o t a l compensation payable (C) would be given by: " C = C + Va (1) s e Since, 75 Therefore, c = ( v t - v e i.- v r ) 4- v e (3) = v t - v e . . . v, + v e G = V t - V r (4) Now, Eq. (3) i s the ' t r a d i t i o n a l ' method of computing C which i s e quivalent t o Eg. (4). But Eq. (4) happens t o be the 'before and a f t e r ' method of computing C. Thus, the two methods would l e a d t o the same amount of compensation payable. However, the 'before and a f t e r ' method has the b e n e f i t of r e q u i r i n g only two v a l u a t i o n s ( i . e . V + and V ) whi l e the ' t r a d i t i o n a l ' method u r r e q u i r e s three v a l u a t i o n s ( i . e . V . , V and V" ) , Assuming now th a t C < 0 ( t h a t i s , the p a r t i a l t a k i n g has l e d t o net b e n e f i t s t o the owner through enhancement of the value of the remainder). Since the t r a d i t i o n a l method would d i s r e g a r d any net b e n e f i t s i n order t h a t an owner i s e n t i t l e d t o r e c e i v e at l e a s t the value of the e x p r o p r i a t e d i n t e r e s t (V ), from Eq. (1)» c = v e v/here C w i l l dror> o f f i f l e a s t than zero, s However, s t r i c t a p p l i c a t i o n of the 'before and a f t e r ' method would a r r i v e at a value of t o t a l compensation (C) l e s s than V i f C p < 0 . From Eq. ( 4 ) , c = v. - y t r which i s equivalent t o r c = ( v t - v r - v e ) + v e 76 Since c = V - v - Y < 0, therefore C < V a e The three Commissions and the two Statutes accept the 'before and a f t e r ' t e s t only to the extent that an owner w i l l be e n t i t l e d to not les s than the market value of land taken, so that benefits w i l l not be set o f f against the o v e r a l l compensation. B. Compensation f o r Injurious A f f e c t i o n with No Land Taken 1. J u d i c i a l Decisions 1' In Horton v. Colwyn Bay and Colwyn D i s t r i c t Council -Lord Alverstone said: For a great many years i t was thought, and eventually i t was held to have been wrongly thought, that i t made no difference as to the extent of a claim f o r compensation f o r i n j u r i o u s l y a f f e c t i n g whether any land of the claimant had or had not been taken . . . and i t must now be taken to have been decided by judgements . . . that a person whose land has been taken i s e n t i t l e d to compensation which he would not have been e n t i t l e d to i f nono of hi s land had been t a k e n . 1 0 Lord Alverstone went on and added: . . .. eithe r the taking of a piece of land or the interference with an easement of property by the construction or works upon the land taken or within the area over which the easement i s enjoyed . . . e n t i t l e s the claimant to a larger amount of compensation than he would have got i f none of his land been, or i f no easement had been, i n t e r f e r r e d with,17 As i t has been pointed out e a r l i e r that the rules governing compensation f o r injurious a f f e c t i o n with no land taken have considerable l o g i c a l inconsistencies with those 77 governing compensation fo r injurious a f f e c t i o n with p a r t i a l t a k i n g — i n general, the former rules are more r e s t r i c t i v e than those of the l a t t e r . In the comparison of these two sets of rules, one would be f r u s t r a t e d i f one i n c l i n e s to look f o r r a t i o n a l a p p l i c a t i o n of p r i n c i p l e s of j u s t i c e . Looking with hindsight, i t could be said that the courts have constructed the rules f o r compensation with no land taken i n a fashion that could e a s i l y be compared to a 'straight jacket of i l l o g i c i t y • - - t h u s complicating an area of law that has been highly vexatious to many already. E r i c Todd pointed out that: the courts, i n i n t e r p r e t i n g the statutes which confer powers on public or quasi-public bodies, have not only r e s t r i c t e d the r i g h t of recovery but also the extent of recovery of compensation for damnum suffered by a landowner, none of whose land has been taken.* 0 19 The three general rules developed by courts i n respect of claims f o r i n j u r i o u s a f f e c t i o n with no land taken are: 1. The Actionable Rule. The damage must be such as would have been actionable under the common law, but f o r the statutory powers. 2. The Construction Rule. The damage must be occassioned by the construction of the public work, not- by i t s user. 3. The Nature of the Damage Rule. The damage must be an i n j u r y to the land i t s e l f and not a personal injury or an i n j u r y to business or trade. 7 8 In order to demonstrate the r e s t r i c t i v e n e s s of two of the r u l e s , namely, the C o n s t r u c t i o n Rule and the Nature of the Damage Rule, an a c t u a l case may be of i n t e r e s t . "The C i t y of Toronto constructed a l a v a t o r y i n f r o n t of the claimant's s t o r e , and, as a r e s u l t of the use of the f a c i l i t y by the p u b l i c , the claimant's customers stopped f r e q u e n t i n g h i s 20 establishment and h i s business s u f f e r e d . " I f we apply the second and t h i r d r u l e s mentioned above, the claimant i s not e n t i t l e d t o compensation f o r i n j u r i o u s a f f e c t i o n , becauset 1. The i n j u r y on h i s business was not an i n j u r y t o the land. 2. The damage was not occassioned by the c o n s t r u c t i o n of the l a v a t o r y , but by the users. In what f o l l o w s , the three r u l e s w i l l be c r i t i c a l l y examined i n d i v i d u a l l y and i n g r e a t e r d e t a i l . 2. The Actionable. Rule S e c t i o n 68 of the E n g l i s h Land Clauses C o n s o l i d a t i o n 21 Act d e a l t w i t h i n j u r i o u s a f f e c t i o n and i t reads I f any P a r t y s h a l l be e n t i t l e d to any compensation i n respect of any lands, or any I n t e r e s t t h e r e i n , which s h a l l have been taken f o r or i n j u r i o u s l y a f f e c t e d by the Execution of the Works, . . . Such P a r t y may have the same s e t t l e d e i t h e r by A r b i t r a t i o n or by the V e r d i c t of a J u r y , as he s h a l l t h i n k f i t . 2 2 However, the above p r o v i s i o n s f o r compensation f o r i n j u r i o u s a f f e c t i o n d i d not s p e c i f y whether the b a s i s of determining the amount of compensation payable or the c o n d i t i o n s under which compensation would be recov e r a b l e . Thus the courts were l e f t 79 with the task of i n t e r p r e t i n g the statutes or the intended purpose of Parliament, One of the rules, arrived at a f t e r a series of j u d i c i a l decisions, was the Actionable Rule, In Metropolitan Board of Wor,ks v, McCarthy 2^ Lord Cairns interpreted the words ' i n j u r i o u s l y affected' i n the Land Clauses Consolidation Act as followsi the test . , . as to the proper meaning of those words as giving a r i g h t to compensation, namely, that the proper t e s t i s to consider whether the act done i n carrying out the v/orks i n question i s an act which would have given r i g h t of action i f the works had not been authorized by Act of Parliament. . . . I accept the test as being the test which has been l a i d down, and which has formed the foundation f o r the decision of so many cases before the present.24 The leading cases which l a i d down the foundation of the Rule and which Lord Cairns referred to were Caledonian Railway v.  Ogilvy D and Ricket v. Metropolitan Railway. As to the Actionable Rule i t s e l f , i f i t was duly applied, i t served as the guiding p r i n c i p l e i n separating compensable from non-compensable claims of damages. The Actionable Rule worked as follows: F i r s t , i t was necessary to determine whether the nature of damages claimed were actionable under common law i f the a c t i v i t i e s of the public body that caused the damages had not been authorized by statutes. (Damages would be actionable i n common law i f they d i f f e r e d i n kind, but not simply i n degree, from those suffered by the community i n general.) I f i t was determined that such damages claimed were actionable, then the statute authorizing such a c t i v i t i e s also implied a statutory remedy of compensation i n s u b s t i t u t i o n 80 for the common law action of damages. In the two leading cases referred to above (the Ogilvy case and the -Ricket case), railway companies i n t e r f e r r e d with access. The interference with access caused Ogilvy personal inconvenience, while i n the case of Ricket, he suffered loss i n business because of such interference. However, i t was held i n both cases that the claimant's damages were not actionable i n common law, as the damages had no difference i n kind (but only difference i n degree) than those suffered by the neighbourhood community. By i n t e r p r e t i n g statutes (and thus the intention of Parliament) English courts contented that Parliament must have intended that the interference with access caused by the railway companies to be borne by members of the public without compensation. . Apparently the motive was "to prevent private caprice or selfishness from i n t e r f e r r i n g with the prosecution of works designed f o r the public b e n e f i t " . 2 ? I f the type of damages suffered by Ogilvy and Ricket were allowed to be recoverable, the courts feared that there would no longer be any boundaries l i m i t i n g indemnification of losses. Now, i n order to specify the boundaries that would l i m i t indemnifacation of losses (or to draw the l i n e between compensable and non-compensable losses) the Actionable Rule was used as a device. There are two serious objections against the Actionable Rule. The underlying philosophy of the courts appears to be based on the type of theory that attempts to balance s o c i a l gains against private losses. It has been discussed e a r l i e r 81 i n Chapter II that the balancing test i s unacceptable.'" Furthermore, the Actionable Rule i s a r t i f i c i a l and i s inconsistent with the rules governing compensation with p a r t i a l taking. It should be r e c a l l e d here'that, under p a r t i a l taking, the claimant i s e n t i t l e d to compensation regardless of whether the injury would have been actionable at common law i f not 29 authorized by statute. 7 In terms of the losses that would be compensated, an aggrieved landowner would be put i n a disadvantageous p o s i t i o n i f no land has been taken from him than the landowner who has part (even a small part) of h i s land taken away from h i m — i n s p i t e of the fact that the losses that incurred to both may be exactly the same i n kind or degree. The views of Lord O'Hagan i n the McCarthy case formed the most notable exception to the underlying philosophy of the Actionable Rule. Speaking of the Land Clauses Consolidation Act, Lord O'Hagan said: The p o l i c y of that Act I apprehend to have been to prevent private caprice or selfishness from i n t e r f e r i n g with the prosecution of works designed for the public benefit; but to do t h i s with s t r i c t regard to i n d i v i d u a l r i g h t s by securing ample compensation i n every case i n which i n d i v i d u a l s a c r i f i c e or inconvenience i s found to be e s s e n t i a l to the general good. It never contemplated that the community should p r o f i t at the expense of a a few ot i t s members, and, as the condition of redress, i t only required proof by the owner of inju r y to his property.3 0 Lord O'Hagan also questioned the way the intention of Parliament had been interpreted by j u d i c i a l decision of the Ogilvy case and the Ricket case: 82 I should have doubted whether i t was within the view of the framers of 'this Act of Parliament to make the p o s s i b i l i t y o f ; b r i n g i n g an action, i f the Act of Parliament had.not existed, a condition of compensation under thet, statute . •.. ,. there r e a l l y i s not i n the statute i t s e l f anything to j u s t i f y the importation of a narrow construction of that description.31 Lord O'Hagan's contention was also i n agreement with E r i c To'dd's conclusion arrived at a f t e r a thorough analysis of l e g i s l a t i v e h i s t o r y i n England. He concluded that: an examination of the l e g i s l a t i v e h i s t o r y of those (Clauses Consolidation) Acts and contemporary views about railway companies gives no credence to the assumption that Parliament intended to l i m i t the l i a b i l i t y of the (railway) companies to that of private landowners . . . l e g i s l a t i o n was intended to confer on a l l landowners, b i g or small, the protection which previously had only been available to the large and i n f l u e n t i a l landowners.32 3. The Construction Rule Under both of the Construction Rule and the rules r e l a t i n g to p a r t i a l taking, a landowner who suffers damages i n consequence of the construction of public works would be idemnified. The c r u c i a l question here i s whether the owner who s u f f e r s a l o s s i n consequence of the use of the public works be compensated. Under the r u l e s governing compensation with p a r t i a l taking, he would be indemnified. 33 In The King v. Acadia Sugar Refining Co. L t d . , ^ Justice Thorson said: It has long been held i n England that a d i s t i n c t i o n must be drawn between the r i g h t s of two classes of owners to claim compensation fo r damages to t h e i r land on the ground that i t has been i n j u r i o u s l y affected by the execution of works or the exercise of other statutory powers on other lands. The owner has no r i g h t to compensation f o r such damage 83 i f i t r e s u l t s only from the a u t h o r i z e d l e g a l user of land taken from some one other than himself? but the case i s otherwise where the i n j u r i o u s a f f e c t i n g of h i s land i s the r e s u l t of the e x e r c i s e of the s t a t u t o r y powers on land t h a t was taken from h i m s e l f and formerly h e l d with h i s remaining land. In such case the owner i s e n t i t l e d t o compensation f o r the i n j u r i o u s a f f e c t i n g of h i s remaining land even when i t r e s u l t s from the l a w f u l user of' the land taken from him. 34 However, i t has been argued t h a t "the c o n s t r u c t i o n r u l e was wrong i n i t s i n c e p t i o n and has never been r e l e v a n t t o claims f o r i n j u r i o u s a f f e c t i o n outside the framework of r a i l w a y l e g i s l a t i o n " . J One of the l e a d i n g cases on the i n t e r p r e t a t i o n of r a i l w a y l e g i s l a t i o n (Railway Clauses C o n s o l i d a t i o n A c t ) - ^ 37 was Hammersmith Railway v. Brand^' v/here i t was h e l d that the word ' c o n s t r u c t i o n ' i n the heading of the Act ("And w i t h respect t o the C o n s t r u c t i o n of the Railway . . . ") excluded oper a t i o n or use of the r a i l w a y , E r i c Todd argued t h a t , furthermore, an e r r o r of law v/as committed i n the i n t e r p r e t a t i o n of s t a t u t e . The reason was that since the s t a t u t e d i d not e x p r e s s l y deny compensation f o r damages caused by use of works, the presumption was t h a t compensation should be p a i d . - ^ In the case of Canada, the C o n s t r u c t i o n Rule d i d not r e c e i v e wide r e c e p t i o n i n c o u r t s . For example, i n The King v. Acadia Sugar R e f i n i n g Co. L t d . , J u s t i c e Thorson s a i d : The words ' i n j u r i o u s l y a f f e c t e d by the c o n s t r u c t i o n of any p u b l i c work' are a l s o found i n a number of s e c t i o n of the E x p r o p r i a t i o n Act. . . . I t would seem at f i r s t s i g h t that the defendant could have no c l a i m f o r compensation . . . since i t could not be shown t h a t any of i t s property had been i n j u r i o u s l y a f f e c t e d by the c o n s t r u c t i o n of any p u b l i c work but at most only that the i n j u r i o u s a f f e c t i n g was the r e s u l t of use of the premises. . . . But the weight 84 of j u d i c i a l opinion.-expressed in.English decisions under the Lands Clauses Consolidation Act, 1845, and t h e i r a p p l i c a b i l i t y i n the Construction of the Canadian l e g i s l a t i o n leads to a wider scope of the defendant's right.39 The d i s t i n c t i o n between damages caused by the construction and by the use of public works i s an a r t i f i c i a l d i s t i n c t i o n . I f the non-physical sense of the concept of property i s 4o recognized, i t can r e a d i l y be seen that value of property r i g h t s could be equally destroyed either by the construction or the use of public works. The d i s t i n c t i o n c e r t a i n l y has the flavour of the Physical Invasion Rule. Apparently, early English j u d i c i a l decisions viewed the constructed public works as something physical and tangible, while the usage and operation of public works were intangible a c t i v i t i e s , and that damages caused by the former were considered to be more serious and thus deserved to be indemnified. 4, The Nature of the Damage Rule The c r u c i a l question here i s whether the Nature of the Damage Rule, which excludes compensation f o r personal and business damage, i s j u s t i f i e d or not. It should be noted here that such damages are recoverable on p a r t i a l taking. Lord Chelmsford, i n the McCarthy case, l a i d down the meaning of the Nature of the Damage Rule as follows: It may be taken to have been f i n a l l y decided that i n order to found a claim to compensation under the Acts there must be an i n j u r y and damage to the house or land i t s e l f i n which the person claiming compensation has an i n t e r e s t . A mere personal obstruction or inconvenience, or a damage occassioned to a man's trade or the goodwill of h i s business, although of such a nature that but. 85 for the Act of Parliament i t might have been the subject of an action f o r damages, w i l l not e n t i t l e the injured party to compensation under i t . ( I t a l i c s mine.)4i What.this decision amounts to ares * 1. Only damages t o . r e a l property are indemnified. 2. Personal or business damages are not indemnified eventhough such damages would have been actionable but f o r the Act of Parliament. However, not simply a l l damages to land were recoverable. Lord Cranworth i n the Ricket case pointed out thats The i n j u r y must be actual i n j u r y to land i t s e l f , as by loosening the foundation of buildings on i t , obstructing i t s l i g h t , or i t s drains, making i t inaccessible by lowering, or r a i s i n g the ground immediately i n from of i t , or by some such physical d e t e r i o r a t i o n . ^ Besides subjecting the 'damage to land*'to the r i d e r of 'of physical nature*, such damage must also be 'special damage'. Lord Penzance, i n the McCarthy case, said: I f , then, land of any owner have a s p e c i a l value by reason of t h e i r proximity to any p a r t i c u l a r highway, surely that owner w i l l s u f f e r s p e c i a l damage i n respect of those lands beyond that suffered by the general public i f the benefits of that proximity are.withdrawn by the highway being obstructed. . . . i n each case the r i g h t to compensation w i l l accrue whenever i t can be established to the s a t i s f a c t i o n of the jury or a r b i t r a t o r that a s p e c i a l value attached to the premises i n question by reason of t h e i r proximity to, or r e l a t i v e p o s i t i o n with, the highways obstructed, and that t h i s s p e c i a l value has been permanently destroyed or abridged by the obstruction. Thus, i n order to be successful i n claiming compensation f o r damages to land under the Nature of the Damage Rule, the following conditions must be f u l f i l l e d : 86 1. The damage to land must be physical i n nature. 2. The land must have special value, which suffered damage permanently. 3. The special damage must be d i f f e r e n t i n kind than those suffered by the community at large. Conditions 2 and 3 are consistent with the Actionable Rule. The condition that damages must be physical (condition 1) was questioned again by the c r i t i c a l view of Lord O'Hagan i n the McCarthy case, and he said: Is not a lessening of value an injury to premises, and an i n j u r y to the owner's intere s t i n them? Why should a mere s t r u c t u r a l injury from infringement on a corner of the premises, or the removal of earth i n contiguity to the walls, e n t i t l e to compensation, whilst an injury, not s t r u c t u r a l , but di r e c t and clear and producing worse r e s u l t s to the unoffending owner—it may be hundredfold or one thousandfold—be wholly remediless?^" Now, the denial of compensation for personal damages and business damages i s inconsistent with the Actionable Rule. For damages to be compensable, the Actionable Rule only requires that such damages are actionable i n common law, that i s , the damages must d i f f e r i n kind than those suffered by the general community. However, i f the Nature of the Damage Rule i s followed, personal or business damages that are actionable i n common law are not. recoverable. Todd stated that: The denial of compensation for damages to business goodwill or loss of p r o f i t s d i r e c t l y a t t r i b u t a b l e to a public work i s both i r r a t i o n a l and unjust. It i s , of course, true that at common law there i s no absolute actionable r i g h t to continued business p r o f i t s . . . . It i s , however, quite a d i f f e r e n t matter to deny compensation f o r business losses which would have been actionable at common law. 87 The d i s t i n c t i o n made between damage to r e a l t y and personal damage i s both a r t i f i c i a l and unreasonable. Moreover, even i f the d i s t i n c t i o n Were otherwise i t i s u n j u s t i f i a b l e to allow compensation f o r the one kind of loss but to deny i t f o r the other. ^-5 The deficiency of the Nature of the Damage Rule i s s i m i l a r to that of the Construction Rule. By r e s o r t i n g to a narrow and physical view of the concept of property, the Consturction Rule has made an a r t i f i c i a l d i s t i n c t i o n between damages caused by the construction and use of public works. Here, with the same narrow view, another a r t i f i c i a l d i s t i n c t i o n i s made between physical i n j u r y to land and the intangible i n t e r e s t s derived from the ownership of land. It i s submitted here that courts (and the l e g i s l a t i v e arm of government) should steer themselves away from any concept of property a f f l i a t e d with the Physical Invasion Rule. The Construction Rule and the Nature'of the Damage Rule are i n v a l i d , and an aggrieved landowner with no land taken from him should be treated In a l l fours with an aggrieved landowner with part of land taken from him, 5. L e g i s l a t i v e Reforms i n Canada Table 3 (see Appendix A) summarizes a l l recommendations fo r l e g i s l a t i v e reforms by various Commissions, as well as the enactments of l e g i s l a t i v e reforms, i n r e l a t i o n to compensation f o r inj u r i o u s a f f e c t i o n with no land taken. As far as the Actionable Rule i s concerned, i t has been accepted by the three Commissions and the Ontario l e g i s l a t i o n . However, both the Ontario Law Reform Commission and the Law Reform 88 Commission of B.C. have doubts about t h i s Rule, and i t has been accepted only as a temporary solution. The Clyne Commission has accepted the Actionable Rule on the basis that i t " w i l l serve to l i m i t compensation claims to those which 46 are proper and reasonable". But E r i c Todd pointed out that* The report f a i l s to explain how improper and unreasonable claims to injurious a f f e c t i o n are l i m i t e d i n cases where some of the claimant's land i s taken. Anyone with experience i n expropriation cases w i l l t e s t i f y to the fact that improper and unreasonable claims are, to say the lea s t , quite common, though perhaps ^ 7 no more common than s i m i l a r claims i n negligence claims. With respect to the Nature of the Damage Rule, i t has been rejected with the exception of the Clyne Commission. The Clyne Commission recommended that personal injury was not recoverable, while business injury of a permanent nature only was recoverable. Both the Clyne' Commission and the Law Reform Commission of B.C. rejected the Construction. However, the Ontario Law Reform Commission accepted and the Ontario Expropriation Act enacted the Construction Rule. CHAPTER VI COMPENSATION WITH PLANNING RESTRICTIONS.: THE PROBLEM OF COMPENSATION AND BETTERMENT A. Introduction The problem of compensation and betterment arises out of government intervention i n the land market. Government action, i n the way of planning l e g i s l a t i o n and planned developments, ra i s e s the complicated problem of the r e l a t i o n between the i n d i v i d u a l and the State. In some way, the State i n t e r f e r s with i n d i v i d u a l landowners. Changes i n planning provisions a f f e c t land use, and a l t e r the bundle of property r i g h t s and thus may r e s u l t i n price and value changes. The issue are: Should i n d i v i d u a l who suffers because of t h i s be compensated? To what extent should the State be immune from l i a b i l i t y , and where do we draw the l i n e ? And when i n d i v i d u a l benefits, should he compensate the State? How do we handle the gains and losses thus arise? How do we treat those who have become b e t t e r - o f f and those who have become worse-off? One has to ask, before we go any further, what i s the rationale (or the rationale that government claims to be j u s t i f i e d ) behind government intervention i n the market. It has been recognized that land has some d i s t i n c t i v e c h a r a c t e r i s t i c s --that i t i s indestructable, that i t i s impossible to create, 89 90 t h a t i t s t o t a l p h y s i c a l supply i s f i x e d (though land f o r v a r i o u s types of development i s n o t ) , and that each p l o t of l a n d i s unique because of i t s l o c a t i o n . In popular d i s c u s s i o n , i t has been claimed that the market mechanism f a i l s to i n t e r n a l i z e the e x t e r n a l i t i e s created by the land market. I t has been clamied that p r i v a t e ownership i n c e n t r a l urban areas prevent comprehensive p l a n n i n g and development; that the market value of l a n d f o r p u b l i c uses i s too h i g h ; t h a t there should be more a v a i l a b i l i t y of land at lower p r i c e s f o r p r i v a t e use; and t h a t the working of the present system creates c e r t a i n u n d e s i r a b l e d i s t r i b u t i o n of income and wealth. Indeed, we do need some mechanism f o r a l l o c a t i n g i n d i v i d u a l p l o t s of land to the most e f f i c i e n t and most d e s i r a b l e uses. I s the f r e e market the appropriate r e t i o n i n g device? Is more comprehensive pla n n i n g and c o n t r o l the appropriate r a t i o n i n g device? Or, could we see something more appropriate i n between? Compensation and betterment are r u l e s f o r f i n a n c i a l adjustment between government and landowners when p u b l i c i n f l u e n c e depreciates or enhances land and property values. So f a r our a t t e n t i o n has been focussed on 'compensation', and i n order to inform subsequent d i s c u s s i o n s , the meaning of 'betterment' should be defined here. In i t s narrowest sense, betterment a r i s e s w i t h p u b l i c expenditures. Expenditures devoted to widening a road or t o the c o n s t r u c t i o n of a new highway would , i n c e r t a i n i n s t a n c e s , enhance the land values i n the neighbourhood. Any charge t o capture such enhancement i n values can be c a l l e d as a ' l o c a l 91 betterment l e v y ' . In a broader sense, betterment a r i s e s with the o v e r a l l growth of the economy. Any charge to capture t h i s o v e r a l l betterment (or the s o - c a l l e d unearned increment) can be c a l l e d as a 'general betterment levy*--and s i t e value t a x a t i o n has o f t e n been suggested as a device of recovery. Betterment, which i s r e l e v a n t t o the d i s c u s s i o n here, a l s o a r i s e s w i t h the grant of development permission. Any charge to capture the development value can be c a l l e d as a 'development charge', or simply, a 'betterment levey'. To be more p r e c i s e and l e s s confusing, betterment (which i s a gain) should be complemented wi t h worsement (which i s a l o s s ) , w h i l e betterment i charge be complemented with compensation. In t h i s Chapter, the f i r s t i s sue that has t o be s e t t l e d i n the outset r e l a t e s to the economic j u s t i f i c a t i o n of l a n d use p l a n n i n g and the appropriate r o l e of the planner. T h i s i s f o l l o w e d by an examination of the d i f f e r e n t approaches to p l a n n i n g (e.g. the North American approach of p l a n n i n g through comprehensive zoning by-law and the E n g l i s h model of development c o n t r o l ) , and of the ' p o s i t i v e ' and 'negative' aspects of p l a n n i n g and land use c o n t r o l . In the U.S., a l i n e i s drawn between compensable and non-compensable l o s s e s through the d i s t i n c t i o n between power of t a k i n g and p o l i c e power. In Commonwealth c o u n t r i e s , the c l o s e s t counterpart i s the use of the concept of 'good n e i g h b o u r l i n e s s ' . This b r i n g s us back 2 t o a f u r t h e r d i s c u s s i o n on the Noxious Use Rule, We then a r r i v e at c e r t a i n c r i t e r i a t h a t are capable of drawing a l i n e between compensable and non-compensable l o s s e s caused by planning l e g i s l a t i o n s and various devices of land use control. F i n a l l y , the B r i t i s h experience with the compensation and betterment problem w i l l be examined and compared with that of the Canadian experience. B. The Case fo r Planning Where s o c i a l cost exceed private cost, private i n t e r e s t s w i l l sometimes do what i s not i n the s o c i a l i n t e r e s t and there i s a case for r e s t r i c t i v e interference. Where s o c i a l benefit exceeds private benefits, private i n t e r e s t s w i l l sometimes not develop and thus f a i l to do what i s i n the s o c i a l i n t e r e s t . Here there i s a case for interference to encourage development. In other words, there i s a case for c o n t r o l l i n g development where the developer either does not bear a l l the costs of ~ the development or does not receive a l l the benefit. The presence of uncompensated e x t e r n a l i t i e s (either external economies or diseconomies) i s an i n d i c a t i o n that the function of the unrestricted market f a i l s to achieve Pareto optimality. Presence of an external economy w i l l enhance the c a p i t a l value of affected properties, and conversely, presence of an external diseconomy w i l l depreciate the c a p i t a l value of affected properties. If the unrestricted land market f a i l s to i n t e r n a l i z e such e x t e r n a l i t i e s (for reasons discussed i n Chapter I ) , there i s a case f o r planning. Planning measures could be c l a s s i f i e d into the following two typest 1. Negative planning measures that are more or less regulatory i n nature. The most obvious examples are zoning by-laws and other regulatory measures. The use of zoning by-laws (that r e s t r i c t land use, the erection of b u i l d i n g and 93 structures , design and density) and subdivision controls can be regarded as e f f o r t s to eliminate possible external diseconomies i n any given d i s t r i c t . 2. Po s i t i v e planning measures that are aimed at promoting p o t e n t i a l external benefits. These are measures to induce private development of a type which normal market forces f a i l to produce. They are of the following varieties:-' i . By removing non-governmental impediments to development that ex i s t i n the market, i i . By securing the desired benefit with the help of negotiated purchase or compulsory a c q u i s i t i o n of land. i i i . By so r e s t r i c t i n g the alt e r n a t i v e uses available to private landowners that the only remaining p r o f i t i a b l e use i s the development of a type which i s the objective of the plan. C. The Approaches to Planning As i t exists to-day, there are two major approaches to planning and c o n t r o l l i n g of land use.^ They are the North American model of 'comprehensive zoning by-law* and the B r i t i s h model of 'development control'. 1. Comprehensive Zoning By-law & H i s t o r i c a l l y , nuisance abatement has been considered as the antecedent of zoning. 94 P r i o r to the f i r s t world war, land use was controlled, f i r s t of a l l , by the law of nuisancej and, in many cases, by the use of r e s t r i c t i v e covenants and b u i l d i n g schemes in conveyances. From the terms of these schemes, i t i s clear that marly landowners have sought to protect t h e i r own land f a r beyond the protection of the law of nuisance.7 With i n d u s t r i a l growth, population increases and the increasing rate of land development, more elaborate and r e s t r i c t i v e ' regulations of land use were introduced. The North American model of comprehensive zoning by-law encompasses two aspects: the comprehensive or master plan and zoning by-laws. The product of the planning process i s a comprehensive or master plan. The master plan designates the a l l o c a t i o n of land to d i f f e r e n t uses (e.g. c e r t a i n s i t e s reserved f o r parks or f o r open spaces), and sets out the various stages at which development should be c a r r i e d out i n accordance with the objectives of the plan. Zoning by-laws are the instruments through which the objectives of the master plan are c a r r i e d out. On the one hand, zoning c l a s s i f i e s and segregates into p a r t i c u l a r d i s t r i c t s or areas or zones the various use of land and buildings that are permitted by the by-laws, a l l other uses being prohibited. On the other hand, zoning regulates the permitted use i n various degrees. Presumably, the o f f i c i a l master plan i s intended as a guide to those exercising the powers of planning and zoning (e.g. the municipalities) and to those who w i l l be affected by the exercise of such powers ( i . e . private land owners). In t h i s sense, the o f f i c i a l plan may be regarded 9 5 as a "dynamic instrument expressing the manner of growth of the municipality and i n d i r e c t l y the l i m i t a t i o n s the council may be expected to impose, i n the future, on land use". While on the other hand, "a zoning by-law i s a s t a t i c instrument intended to freeze land use as permitted and regulated i n the by-law u n t i l the by-law i s amended".^ In some of the m u n i c i p a l i t i e s i n Canada, the enabling 1 0 acts require that zoning by-laws must conform with the plan. However, i n most m u n i c i p a l i t i e s , planning a c t i v i t i e s are confined to what i s written i n the zoning by-laws and are l e s s 1 1 concerned with the preparation of a master plan. If t h i s i s the case, we may consider t h i s approach of planning as placing most of i t s emphasis on the 'negative* aspects of planning. 2. Development Control The B r i t i s h model of planning through 'development control* i s best exemplified by the Town and Country Planning 1 2 Act of 1 9 ^ 7 . The purpose of the Act was to freeze e x i s t i n g land uses and require a l l those who intended to develop t h e i r land to apply for planning permission. In repealing a l l previous planning l e g i s l a t i o n , the Town and Country Planning Act of 19^7 made a fresh start and thus constituted a major watershed with the past. It divided B r i t a i n into Planning Areas, gave each l o c a l planning authority the r e s p o n s i b i l i t y of preparing a detailed development plan for i t s area based on a physical, s o c i a l and economic survey, and provided f o r quinquennial reviews of development plans. . . . the regulatory powers of the l o c a l planning a u t h o r i t i e s , operating through the requirements for planning permission, were sub s t a n t i a l l y strengthened and indeed became ce n t r a l 96 to the whole system of planning control. Instead of being able to db anything not prevented by a statutory scheme, developers were able to do nothing without planning permission.*3 If the comprehensive zoning by-law model of planning corresponds more c l o s e l y with the negative aspect of planning, then i t could be said that the development control model i s more related to the p o s i t i v e aspect of planning. D. Police Power v. Power of Taking: The Noxious  Use Rule (or Private Fault and Public  Benefit Rule) Revisited It may be r e c a l l e d here that i n our e a r l i e r discussion, we regard negative aspects of planning as those that are aimed at i n t e r n a l i z i n g p o t e n t i a l external diseconomies. And the most obvious examples are zoning by-laws and other regulatory measures. In the U.S., d i s t i n c t i o n between the exercise of police power and of the power of taking has been"- frequently used as the drawing l i n e between non-compensable and compensable 14 losses. In general, police power i s supposed to be employed to protect the health, safety and morals, and to promote the general v/elfare of the community. Examples are those public regulations and r e s t r i c t i v e measures related to garbage disposal, f i r e protection and l i q u o r control. Certain land use controls and zoning ordinances have also been considered as v a l i d 15 exercise of police power. J The important d i s t i n c t i o n between police power and taking power i s that the former can be v a l i d l y invoked ( i n the l e g a l sense) without compensation, 97 while the l a t t e r can only be v a l i d l y invoked subject to the F i f t h and Fourteenth Amendment of the U.S. Constitution ( i . e . the payment of compensation). In Commonwealth countries, the closest counterpart to those regulations exercised under the concept of p o l i c e power are regulations that are undertaken with the objective of promoting * good neighbourliness', For example, with respect to zoning regulations, the Municipal Act of B.C. provides that: In making regulations under t h i s Section the Council s h a l l have due regard to the following considerations: (a) The promotion of health, safety, convenience, and v/elfare of the public.1° And Section 706 (1) further provides that "Property s h a l l be deemed not to be taken or i n j u r i o u s l y affected by reason of the adoption of a zoning by-law under t h i s D i v i s i o n , or by reason of the amendment or repeal of a zoning by-law". As there i s no c o n s t i t u t i o n a l guarantee of compensation i n Canada (as there i s i n U.S.), the l e g i s l a t i v e branch of government has greater f l e x i b i l i t y i n deciding when to compensate. Legislature decides, as a p o l i c y , as to what i s f a i r . I f compensation i s provided by statutes, then there i s compensation; i f not, then there i s not. Thus i n the U.S., the d i s t i n c t i o n between police power and power of taking has that p a r t i c u l a r c o n s t i t u t i o n a l flavour that does not exist i n Commonwealth countries. Relaxing f o r the moment the constraint of the l e g a l i t y and c o n s t i t u t i o n a l i t y argument of regulation that are purported 98 to be the v a l i d exercise of police power, or of i t s related concept of 'good neighbourliness', i t s worthwhile to examine such regulations i n another framework of analysis. The case 17 M i l l e r et a l . v. Schoene ' w i l l be used as an example. The ensuing discussion w i l l bring into a proper perspective the c r i t e r i a f o r compensability, as public authorities attempt to i n t e r n a l i z e e x t e r n a l i t i e s through regulatory (or 'negative') measures. 1. M i l l e r et a l . v. Schoene The facts of the case are as follows: M i l l e r et a l . v. Schoene i s a case which involves red cedar and apple trees and t h e i r respective owners; and cedar rust, a plant disease whose f i r s t phase i s spent while the fungus resides upon i t s host, the c h i e f l y ornamental red cedar tree, which i s not harmed by the cedar rust. The fungus does •have a severely adverse e f f e c t upon the apply tree during a second phase, attacking i t s leaves and f r u i t . The l e g i s l a t u r e of the state of V i r g i n i a i n 19l4 passes a statute which empowered the state -entomologist to.investigate and, i f necessary, condemn and destroy without compensation c e r t a i n red cedar trees within a two-mile radius of an apple orchard.18 The Supreme Court of Appeals of V i r g i n i a upheld the Statute and denied compensation to the cedar grower. In d e l i v e r i n g the judgement of the case, Justice Stone said: It w i l l not do to say that the case i s merely one of a c o n f l i c t of two private i n t e r e s t s and that the misfortune of apple growers may not be s h i f t e d to cedar owners by ordering the destruction of t h e i r property; for i t i s obvious that there may be, and that here there i s , a preponderant public concern in the preservation of the one interest over the other. And where, the public interest i s involved preferment of that interest over the property i n t e r e s t of the i n d i v i d u a l , to the extent even of i t s destruction, i s one of the di s t i n g u i s h i n g c h a r a c t e r i s t i c s of every exercise of the police power which a f f e c t s property.-19 99 The judgement of t h i s case i s based on the same c r i t e r i a as t h e P r i v a t e F a u l t , P u b l i c - B e n e f i t R u l e as w e l l as t h e B a l a n c i n g R u l e . I n C h a p t e r I I , we have found t h a t b o t h of t h e s e R u l e s a r e d e f i c i e n t . In t h e M i l l e r c a s e , t h e c e d a r dust was d e t e r m i n e d as a p u b l i c n u i s a n c e w h i l e a p p l e g r o w i n g was viewed as "one o f t h e p r i n c i p a l a g r i c u l t u r a l 20 p u r s u i t s i n V i r g i n i a " . Thus f o r m u l a t e d by t h e C o u r t , the c e d a r grower was c o n s i d e r e d as i m p o s i n g an e x t e r n a l diseconomy on t h e a p p l e grower--and t h a t t h i s e x t e r n a l diseconomy was t h e o n l y e x t e r n a l i t y p r e s e n t i n t h i s c ase. The power e x e r c i s e d by t h e e n a b l i n g S t a t u t e was a l s o c o n s i d e r e d as p o l i c e power, and t h u s compensation was d e n i e d . However, the V i r g i n i a l e g i s l a t u r e and/or t h e C o u r t f i l e d t o r e c o g n i z e t h a t more t h a n one e x t e r n a l diseconomy was p r e s e n t i n t h e case. As a m a t t e r o f f a c t , t h e r e was a r e c i p r o c a l i m p o s i t i o n o f e x t e r n a l diseconomy between th e c e d a r grower and t h e a p p l e grower. I f t h e c e d a r grower had not been r e s t r i c t e d i n g r o w i n g c e d a r t r e e s ( o r h i s a c t i v i t i e s had n o t been c o n s i d e r e d ' n o x i o u s ' i n any way) b e f o r e the new S t a t u t e was p a s s e d , t h e n w i t h t h e change i n law by t h e S t a t u t e , l e g i s l a t u r e s h o u l d p r o v i d e compensation f o r t h e c e d a r grower. As t h e a p p l i c a t i o n o f - t h e S t a t u t e had t h e e f f e c t of p r o v i d i n g a p u b l i c good ( o r b e n e f i t ) t h r o u g h t h e i n t e r n a l i z a t i o n of the m u t u a l e x t e r n a l d i s e c o n o m i e s , t h e r e q u i r e d compensation become, i n t h i s i n s t a n c e , and under the e x i s t i n g s e t of p r o p e r t y r i g h t s , t h e c o s t o f p r o v i d i n g t h e c o l l e c t i v e o r p u b l i c good, d e f i n e d as the r e d u c t i o n o r e l i m i n a t i o n - o f c e d a r d u s t damage t o t h e a p p l e c r o p s . 2 1 100 R e g u l a t o r y measures, t h a t a r e c o n s i d e r e d t o be l e g i t i m a t e under p o l i c e power ( t h u s d e n y i n g any compensation) and t h a t a re p u r p o r t e d t o be used as p r e v e n t i n g ' u n d e s i r a b l e ' f e a t u r e s o f b u i l d i n g s t r u c t u r e s o r ' h a r m f u l ' uses o f l a n d , may not n e c e s s a r i l y be j u s t i f i e d i n e f f i c i e n c y ( o r economic) grounds. Such measures s h o u l d be e v a l u a t e d more c l o s e l y i n o r d e r t o a v o i d any v i o l e n t l y o f f e n s i v e d e c i s i o n s n o t t o compensate. However, i f an i n c i d e n t i n v o l v e s o n l y one s i n g l e e x t e r n a l diseconomy, d e n i a l o f compensation i s j u s t i f i e d . F o r example, i f A owns a house i n a p l e s a n t n e i g h b o u r h o o d w h i l e B opens a g l u e f a c t o r y n e a r b y , i t i s j u s t i f i e d f o r s o c i e t y t o impose r e g u l a t o r y measure, as an e x e r c i s e of p o l i c e power, a g a i n s t B w i t h o u t compensation. S o c i e t y i s m e r e l y r e t u r n i n g t o A t h e w e l f a r e t h a t . 3 has u n i l a t e r a l l y t r a n s f e r r e d t o h i s own b e n e f i t . F u r t h e r m o r e , r e g u l a t o r y measures t h a t a r e n o t m o t i v a t e d on e f f i c i e n c y grounds ( i . e . f o r t h e p r o m o t i o n of h e a l t h , s a f e t y and m o r a l s ) do not n e c e s s a r i l y be j u s t i f i e d on e f f i c i e n c y grounds. D e n i a l of compensation, under t h i s s i t u a t i o n , i s a l s o j u s t i f i e d . 2. P l a n n i n g and P u b l i c B e n e f i t R e s t r i c t i v e measures c o u l d be used n ot o n l y t o i n t e r n a l i z e e x t e r n a l d i s e c o n o m i e s , but t h e y c o u l d a l s o be used t o i n t e r n a l i z e e x t e r n a l economies so t h a t e x t e r n a l b e n e f i t s r e s u l t s (see S e c t i o n B, i t e m 2 ( i i i ) under p o s i t i v e p l a n n i n g measure). R e s t r i c t i o n s can induce b e n e f i t by c a u s i n g a change i n t h e 101 market (so that there i s a f i n a n c i a l loss to someone) that the permitted and desired use becomes the most economical f o r someone. For example, an owner, who i s being compelled to s e l l his land (through the exercise of the power of compulsory acquisition) f o r the runway of an a i r p o r t , i s furnishing a public benefit. Another owner, who i s being r e s t r i c t e d from b u i l d i n g upon h i s land so that airplanes may approach the runway, i s f u r n i s h i n g a public benefit just as much as the expropriated landowner. In the former case, there i s no question that the landowner w i l l be compensated. However, in the l a t t e r case i t i s not at a l l clear whether the owner w i l l be compensated by h i s g i v i n g up of an easement of f l i g h t . It i s pointed out by Dunham that: The e v i l of the l a t t e r system i s that there i s no approximation of equal sharing of cost or of sharing according to capacity to pay as there i s where a public benefit i s obtained by subsidy or expenditure of public funds. The accident of ownership of a p a r t i c u l a r l o c a t i o n determines the persons' i n the community bearing the cost of increasing the general welfare. A further consequences of an attempt to obtain a benefit by means of a r e s t r i c t i o n i s that the f u l l cost of the public benefit i s thereby concealed from those i n our democratic society who are given the power of 22 deciding whether or not they want to obtain a benefit. 3. Summary and Conclusions 1. The denial of compensation fo r those negative planning measures, that are purported to be the v a l i d exercise of police power (or the enforcement of the concept of 'good neighbourliness'), may be j u s t i f i e d i f they are not motivated to enhance economic e f f i c i e n c y (but to promote health, safety 102 and m o r a l s i n s t e a d ) or i f t h e y a r e aimed a t r e moving a c l e a r l y n o n - r e c i p r o c a l e x t e r n a l diseconomy s i t u a t i o n . The d e n i a l o f compensation may not n e c e s s a r i l y be j u s t i f i e d i f economic e f f i c i e n c y i s i n v o l v e d j as i n t h e M i l l e r , c a s e . 2. F o r t h o s e p o s i t i v e p l a n n i n g measures, t h a t are aimed a t e x t r a c t i n g p u b l i c b e n e f i t from th e p r i v a t e s e c t o r , t h e y open up a f i e l d o f p o t e n t i a l c ompensation c l a i m s . The c r i t e r i a o f c o m p e n s a b i l i t y s h o u l d t h u s be b a s e d on t h o s e i n r e l a t i o n t o a l l o c a t i v e e f f i c i e n c y (as d i s c u s s e d i n C h a p t e r I , S e c t i o n A) and t o d i s t r i b u t i o n (as d i s c u s s e d i n C h a p t e r I , S e c t i o n B ) . 3. To use t h e d i s t i n c t i o n between p o l i c e power and power of t a k i n g as the d r a w i n g l i n e between non-compensable l o s s e s and c o m p e n s a b l e . l o s s e s i s not an adequate t e s t . On t h e one hand, n e g a t i v e p l a n n i n g r e g u l a t i o n s t h a t a r e p u r p o r t e d t o be the v a l i d e x e r c i s e o f p o l i c e power s h o u l d not n e c e s s a r i l y be j u s t i f i e d as non-compensable measures (a s i n d i c a t e d by c o n c l u s i o n 1 a b o v e ) . On t h e o t h e r hand,' t a k i n g o f p r o p e r t y i s n o t t h e o n l y t y p e of p o s i t i v e p l a n n i n g measures t h a t s h o u l d be compensable (as i n d i c a t e d by c o n c l u s i o n .2 a b o v e ) . 4. The use of t h e d i s t i n c t i o n between p r i v a t e f a u l t and p u b l i c b e n e f i t (under t h e N o x i o u s Use R u l e ) as the d r a w i n g l i n e between non-compensable l o s s e s and compensable l o s s e s i s a l s o not s a t i s f a c t o r y (as i n d i c a t e d by e a r l i e r d i s c u s s i o n i n C h a p t e r I I ) . To l a b e l c e r t a i n p l a n n i n g measures as f a u l t p r e v e n t i v e ( i n t h e same manner the V i r g i n i a S t a t u t e was t r e a t e d by t h e C o u r t i n t h e M i l l e r c a s e ) i s o v e r s i m p l i f y i n g t h e a n a l y s i s 1 0 3 of i t s exact nature and impact, and thus f a i l i n g to d e l i n e a t e the nature o f r e c i p r o c i t y i n some e x t e r n a l i t y s i t u a t i o n s . E. Compensation and Betterment;  The B r i t i s h Experience 1 , I n t r o d u c t i o n The l e g i s l a t i o n and l i t e r a t u r e of the B r i t i s h Commonwealth, where there i s no express c o n s t i t u t i o n a l p r o v i s i o n to compel compensation to owners of property, r e f l e c t g r eater awareness of t h i s problem than th'at of the United S t a t e s . The question i s when should an owner be compelled to do something f o r the general welfare without compensation? The Commonwealth s t a t u t e s draw a d i s t i n c t i o n between a r e s t r i c t i o n imposed on the p r i n c i p l e of good n e i g h b o u r l i n e s s and one imposed to o b t a i n a b e n e f i t . The s t a t e need not compensate an owner when i t takes ( r e s t r i c t s ) h i s p r i v i l e g e s of ownership i n order to prevent him from h u r t i n g others, but when the s t a t e r e s t r i c t s h i s p r i v i l e g e s i n order to o b t a i n a b e n e f i t , i t must compensate.23 E a r l i e r i n our d i s c u s s i o n , we have seen that the, d e n i a l of compensation f o r r e s t r i c t i v e measures undertaken f o r 'good n e i g h b o u r l i n e s s ' (or f o r the purpose of e x e r c i s i n g p o l i c e power) i s not always j u s t i f i a b l e . However, i t i s true that the B r i t i s h experience with the problem of compensation and betterment has given considerable evidence of i t s awareness of the n e c e s s i t y of compensation, when the s t a t e r e s t r i c t s p r i v i l e g e s of landowners i n order to o b t a i n a b e n e f i t . On the other hand, the predominant view i n North American c o u n t r i e s i s that property s h a l l not be deemed to be i n j u r i o u s l y a f f e c t e d by zoning by-laws. In England, between 1 9 0 9 and 1 9 6 7 , three ' s o l u t i o n s ' were adopted t o solve the problem of compensation and betterment. 104 1. A Continuing Solution. Gains and losses of development values were dealt with only when they emerged. A betterment levy was used to capture the gains, while compensation was paid to those who suffered losses. The Housing and Town Planning Act of 1909 provided t h i s solution. 2. An Once-and-for-all Solution. A l l gains and losses of development values were s e t t l e d by one scheme (that i s , by the n a t i o n a l i z a t i o n of development rights) on a c e r t a i n date. The problem of compensation and betterment was circumvented. From then on, i t was claimed, there would not be any problem. This solution was exemplified by the recommendations of the 24 Uthwatt Committee and the Town and Country Planning Act of 1947. 3. An Once-and-for-all Solution by Installments. This approach was b a s i c a l l y the same as the second approach, though carried out les s d r a s t i c a l l y . The Land Commission Act of I967 provided t h i s solution. 2. A Continuing Solutions The Housing and Town Planning  Act, 1909 Before 1909, l o c a l betterment levy was applied to c o l l e c t enhancement of value caused by public expenditures i n l o c a l areas. 2^ Also there was a l o t of discussion of using land value taxation to channel unearned increment back to the community. However, i t was not u n t i l 1909, with the Housing and Town Planning Act, that a betterment levy of 5 0 $ was applied to changes i n land values caused by changes i n town planning schemes. Compensation could be claimed by owners of 105 property affected by these changes. With the 1932 Town and Country Planning Act, betterment levy was raised to 7 5 $ . In general, the attempt of the 1909 Act and the 1932 Act was to t r y to balance the compensation paid to aggrieved owners by c o l l e c t i n g a betterment levy from owners who benefitted from changes i n planning schemes. 27 Two f i n a n c i a l problems arose: ' 1 . The S h i f t i n g Value Problem. Some l o c a l a u t h o r i t i e s had encountered d i f f i c u l t i e s i n the c o l l c e t i o n of betterment levy, while, at the same time, they had to pay heavy compensation. For example, one l o c a l authority A prohibited a c e r t a i n type of development—thus, i t had to pay compensation under e x i s t i n g Acts. Another neighbouring l o c a l authority B permitted the same type of development—thus i t could and would impose a betterment levy under e x i s t i n g Acts. Development would ' s h i f t * from A to B. Thus, c o n f l i c t s i n development schemes between two neighbouring l o c a l a u t h o r i t i e s would impose external e f f e c t s on one another. 2 . The F l o a t i n g Value Problem. It was also argued that the t o t a l c o l l e c t i o n of betterment levy could never meet the t o t a l compensation demanded by owners denited of development r i g h t s . Development could ' f l o a t ' to any area i n a region. For owners who were being denied the 'manna from heaven', they would tend to over-estimate the prospects of b u i l d i n g taking place on t h e i r land. However, the reasoning i s naive i n the sense that i t i s as naive f o r a holder of a $ 2 . 0 0 sweepstake t i c k e t to over-estimate that the prize w i l l f a l l on him. 1 0 6 With proper discounting f o r the p r o b a b i l i t i e s that he w i l l win the p r i z e , i t i s highly l i k e l y that he w i l l accept a compensatory sum of s l i g h t l y more than $2,00 i n return f o r givi n g up the slim chance of becoming the lucky man. 3. An O n c e - a n d - f o r - a l l S o l u t i o n s The Uthwatt Committee and t h e Town and C o u n t r y P l a n n i n g A c t , 1 Q 4 ? The Uthwatt Committee of 1942 was established to examine the two f i n a n c i a l problems ( i . e . the S h i f t i n g Value Problem and the F l o a t i n g Value Problem) as well as the high value of central area properties that prohibited urban renewal (because of large amounts of compensation involved), and the m u l t i p l i c i t y of ownership i n such areas that delayed compulsory purchase, The solutions recommended by the Uthwatt Committee was simple i n idea, easy to administer, but would have disastrus e f f e c t s on the property market i f adopted. The major solution proposed by the Uthwatt Committee was to change the system of land ownership by un i f y i n g the ex i s i n g r i g h t s i n land. A l l development r i g h t s i n undeveloped land were nationalized or vested in State. Any gains or losses i n development value with changes in planning schemes would accrue to the State. Planning schemes were centr a l i z e d . So, i f there was any s h i f t i n g of development values, i t would s h i f t within the same ownership. In other words, a l l external e f f e c t s between l o c a l areas would be 'internalized* within one national scheme. Compensation would be paid for the l o s t i n development values at the date of enactment, but only at a f a i r value to the State so as to avoid overpayment of compensation due to 107 the F l o a t i n g Value Problem. Since development values belonged to the State, private owners had e x i s t i n g use value (EUV) only. Private owners, i n developed or undeveloped lands, would be compensated with EUV whenever public authority intended to use the power of compulsory purchase to acquire land f o r comprehensive development, urban renewal or public use. I f landowners refused to bring land forward to the market i n f u l f i l m e n t of planning objectives, compulsory purchase would be the rule rather than the exception. No longer would there be any c o n f l i c t between private and public i n t e r e s t that would hinder planning machinery. A general betterment levy of 75$ on unearned increment of developed lands was also suggested. Thus, i n order to account f o r the gains and losses caused by changes i n planning schemes, the Uthwatt Committee suggested that t h i s f i n a n c i a l problem be solved by one stroke —through the n a t i o n a l i z a t i o n of a l l future development values. Any claim of compensation for loss of development values would be freezed as of the date of enactment. From then on, land-owners could only enjoy the e x i s t i n g use value. And i n order to f a c i l i t a t e planning, the Uthwatt Committee suggested the general rule of using the power of compulsory a c q u i s i t i o n to b r i n g land forward so as to s a t i s f y planning objectives. The Town and Country Planning Act of 19^7 did not accept a l l the recommendations of the Uthwatt Committee. However, i t accepted the most basic recommendation—-the p r i n c i p l e 108 of n a t i o n a l i z a t i o n of a l l development r i g h t s . The 1 9 4 7 Act, i n p a r t i c u l a r , d i d not accept the Uthwatt CommitteeVs recommendation of u s i n g the power of compulsory purchase as a general r u l e . I t intended, h o p e f u l l y , to r e l y on p r i v a t e s a l e s to b r i n g land forward i n the market at EUV by a p p l y i n g a development charge to ensure that land would change hands i n EUV. The development charge operated as f o l l o w s : I f a developer wanted to develop, he had to o b t a i n p l a n n i n g permission. I f granted, he would have to pay a 1 0 0 $ development charge on any development value. The development value was t o be determined as the d i f f e r e n c e between the u n r e s t r i c t e d value (or market value without r e s t r i c t i o n of the Act) and the EUV. Thus the development charge was. a betterment l e v y on the • w i n d f a l l ' gain caused by the g r a n t i n g of pl a n n i n g permission. Land would change hand, so i t was claimed, at EUV and there would no longer be any compensation-betterment problem. There were other f i n a n c i a l p r o v i s i o n s . A g l o b a l fund of 3 0 0 m i l l i o n pounds was e s t a b l i s h e d (payable i n government bonds) to compensate owners who f i l e d c l aims f o r l o s s of development value. From then on, compensation f o r compulsory purchase was on e x i s t i n g use value. No compensation would be payable on the i m p o s i t i o n of p l a n n i n g r e s t r i c t i o n s except when the EUV was a f f e c t e d . The 1 9 ^ 7 Act d i d not work as intended. In the f i r s t p l a c e , the 1 0 0 $ development charge caused landowner to refuse to s e l l t h e i r land. Owners would only part with t h e i r land at 1 0 9 p r i c e s higher than EuV. I f a l l development value was taken away from them, the market would break down. . And i t did. In the second place, even i f land did change hands, i t did not change hands at EUV as preducted. The problem was not how much the developer should have paid ( i . e . the EUV as intended), but how much the developer could a f f o r d to pay. Eventhough development charge would not be assessed at a lower figure because a purchase had taken place above the EUV, so lang as the developer would rather take a lower margin of p r o f i t , and so long as he could s h i f t forward to the ultimate user of land the premium above EUV ( i n order to induce owner to s e l l ) or even part of the development c h a r g e — a l l these would constitute a permanent addition to the cost of development. The market was on the verge of collapse. With the 1 9 5 ^ Act, development charge was abolished. However, the s p i r i t of the Uthwatt Committee (that development r i g h t s be vested in State) remained. Serious inequities arose. Owners who sold t h e i r land p r i v a t e l y , with planning permission, retained the development value--as development charge was abolished. Owners who were subject to compulsory a c q u i s i t i o n would be compensated by EUV—as development righ t s s t i l l vested i n State. The 1 9 5 9 Town and Country Act removed the l a t t e r inequity by returning to market value as the basis of compensation assessment i n compulsory a c q u i s i t i o n . Unfortunately, inequity remained. Owners, with planning permission granted, would benefit from the f u l l market v a l u e — a s there was s t i l l no development charge. 1 1 0 Owners, with planning permission rejected, would benefit from the EUV only--as development r i g h t s s t i l l vested i n State. 4. An Once-and-for-all Solution by Installmentst  The Land Commission Act, ,196?^° The Land Commission Act of 1 9 6 7 intended to f u l f i l two objectives: 1. To secure that the r i g h t lands were available at the right time f o r the implementation of planning. 2 . To secure that a substantial part of development value be returned to the community. In order to f u l f i l the f i r s t objective, a Land Commission was established. The Commission could buy land by agreement or by the exercise of the power of compulsory purchase. It could acquire land even i n advance of needs. It had power to manage, to dispose and to develop land. Land would be disposed of i n normal freehold and leasehold to public or private bodies (for any purpose) at market value. ' Land could also be disposed of under a Crownhold arrangement with the r e s t r i c t i o n that future development values was reserved to the Commission. Furthermore, land could be disposed of, at less than market value, under Concessionary Crownhold f o r housing purposes. An i m p l i c i t subsidy was involved under t h i s s i t u a t i o n . In order to f u l f i l the second objective, a betterment levy was introduced to ensure that a substantial part of development value be returned to the community. The Land Commission c o l l e c t e d the levy. If land was acquired with I l l compulsory a c q u i s i t i o n , the l e v y was deducted from the p r i c e p a i d ; otherwise, a l e v y on development value was a p p l i c a b l e whenever development value was r e a l i z e d . Development value was considered r e a l i z e d whenever a chargeable act or event, occurred. And a chargeable event was considered occurred wnenever there was t r a n s a c t i o n i n land or when land was developed. In other words, any t r a n s a c t i o n i n land or development i n land would be subject t o a betterment l e v y . Development value was c a l c u l a t e d as the d i f f e r e n c e between market value or r e a l i z e d value and the base value. The base value was e i t h e r the current-use value or the p r i c e l a s t s o l d , whichever was the higher. I n i t i a l l y a 40$ betterment l e v y was charged against the development value thus determined. ' C r i t i c i s m s c ould be l e v e l l e d against the Land Commission Act on s e v e r a l grounds. One should wonder whether the Land Commission should have such wide power as i t d i d possess, or r a t h e r , more a p p r o p r i a t e l y , i t be only given a r e s i d u a l power of compulsory a c q u i s i t i o n w i t h the so l e purpose of a s s i s t i n g the market mechanism. I t i s a l s o not advi s a b l e f o r the Land Commission to perform two d i f f e r e n t f u n c t i o n s under one h e a d — the a l l o c a t i v e f u n c t i o n of s e c u r i n g the a v a i l a b i l i t y of land on the one hand, and the d i s t r i b u t i v e f u n c t i o n of betterment c o l l e c t i o n . I t i s a l s o not j u s t i f i e d , on economic ground, f o r the Land Commission t o acquire l a n d , w i t h betterment l e v y deducted, or to purchase at market value while given the power of d i s p o s a l at l e s s than market value. I t i s not j u s t i f i e d t o d i s g u i s e opportunity cost. Any i m p l i c i t s u b s i d i e s should be 112 made open and e x p l i c i t . Furthermore, a betterment levy would not necessarily lower the price of land. We should examine the demand and supply e l a s t i c i t i e s f o r various uses of land and to see whether a betterment levy could be s h i f t e d . t o ultimate users of land. The land Commission was abolished i n 1971. A new government was returned which had pledged i t s a b i l i t i o n on the grounds that i t had 'no place i n a. free society' . F. Compensation and Betterments  Some Canadian Experience 1. Introduction In Canada, the implications of changes i n development plan and zoning (where expropriation i s not involved) have i n general been disregarded. The Clyne Report did not approach t h i s issue at a l l . The Ontario Report did show i t s awareness of t h i s problem but came to the conclusion that t h i s problem was not 'within the scope of t h i s report'. The Ontario Report saids It may be argued that: 1. Something should be done fo r the owners who s u f f e r l o s s by the announcement or carrying out of the scheme, but whose lands are not expropriated; and 2. The owners who benefit from the scheme, but whose lands are not expropriated, should pay some sort of compensation, perhaps i n the way of a betterment charge. In theory, t h i s sounds f a i r . In practive, i t would be d i f f i c u l t to administer. These two questions, of course, raise the very complex matter of the treatment of the i n d i v i d u a l who suffers a loss because of state intervention, but where there i s no expropriation. Government regulation, i n the zoning f i e l d , f o r example, may enhance or diminish property values. Whether there should be compensation awarded i n such cases i s not within the scope of t h i s report,29 With respect to ' w i n d f a l l ' that accrued to landowners, the a t t i t u d e of the Ontario Report seemed to l e t c a p i t a l gains tax to take care of i t . However, the Report d i d make the suggestion, i n passing, the p o s s i b i l i t y of s p e c i a l assessment or betterment l e v y on the ' w i n d f a l l ' . With respect to compensation f o r l o s s , t h i s i s s u e was l e f t untouched. The Law Reform Commission of B.C. on E x p r o p r i a t i o n a l s o considered the 30 problem beyond the scope of t h e i r study. 2. Compensation w i t h Planning R e s t r i c t i o n s : Some General  Comments 31 In Re Dimnick and McCall.um, Meredith J.A. considered the p r i m i t i v e zoning by-law of the pre-war p e r i o d and s a i d : The l e g i s l a t i o n i s c o n f i s c a t o r y i n i t s c h a r a c t e r , though, of course, intended t o be put i n f o r c e f o r the general benefit.3 2 The judgement of Meredith J.A. was l a t e r r e - a f f i r m e d i n Regina Auto Court v. Regina (City).33 Here, the C i t y of Regina passed a by-law, which rezoned the p l a i n t i f f ' s land from r e s i d e n t i a l use t o park use. In d e l i v e r i n g the judgement, Graham J . s a i d : I t i s true that any zoning by-law r e s t r i c t s the f u l l and complete uses of any property a f f e c t e d thereby. The r i g h t to continue t o use the property and any b u i l d i n g s thereon f o r purposes f o r which i t was being used p r i o r t o the passing of the by-law i s provided f o r i n the by-law as r e q u i r e d by the Community Planning Act. The p l a i n t i f f i s s t i l l the r e g i s t e r e d owner of the property and of course can dispose of i t but the property could remain subject to the p r o v i s i o n s of the zoning by-law. The f a c t that i t i s to some extent c o n f i s c a t o r y i n nature does not i n my op i n i o n a f f e c t the v a l i d i t y of the by-law or the r i g h t of the c i t y to enact such by-law. 34 C l e a r l y , by r e s t r i c t i n g the use of the p l a i n t i f f ' s land to park use only, the market value of h i s land would be reduced to nothing. In addition to t h i s inequity, Graham J. made a further perplexing observations It i s true, of course, that should the c i t y any time i n the future decide to take over the property f o r public-park purposes i t would be necessary then f o r i t to reach an agreement with the owner for the purchase or exchange of the property or f a i l i n g t h i s to expropriate the property under the appropriate Act.35 " The obvious question l e f t unanswered was whether compensation would be assessed on the basis of land for park use or of some other more valuable p o t e n t i a l uses, i f the C i t y did proceed with expropriation. Graham J.'s judgement seemed to.be based on the notion that since the p l a i n t i f f was s t i l l the 'registered owner of the property* (or since t i t l e did not pass), there was no taking of land, and hence no claim of compensation— insp i t e of the fac t that the actual impact of the zoning regulation did amount to a taking of land. Here again, we could see the Physical Invasion Rule l u r k i n g behind the reasoning of Graham J. This i n j u s t i c e was avoided i n Newfouldland when The Urban and Rural Planning Act-^ was amended.-^ The provisions of the amendment conferred the right of a land owner to compell an authority to purchase his land when planning provisions was refused and the land had 'become incapable of reasonably b e n e f i c i a l use i n i t s e x i s t i n g state* because of the r e s t r i c t i o n s . (It could also be noted here that t h i s notion of 'reasonably b e n e f i c i a l use' comes very close to the concept of 'reasonableness' 1 1 5 used i n American courts i n defining the c o n s t i t u t i o n a l l y created d i s t i n c t i o n between police power and taking power.^) However, i n most Provinces, the predominant view i s that property s h a l l not be deemed to be i n j u r i o u s l y affected by a zoning by-law. The Town Planning Act of Manitoba-^ provides an exception to t h i s general view. Section 1 9 ( 1 ) of the Act reads: Any person whose property i s i n j u r i o u s l y affected by the making of a town planning scheme s h a l l , . . . be e n t i t l e d to obtain compensation i n respect thereof from the responsible authority. But t h i s claim of compensation i s conditioned by Section 2 0 ( 1 ) , which reads: Where property i s alleged to be i n j u r i o u s l y affected by reason of any provisions contained i n a town planning shceme, no compensation s h a l l be paid i n respect thereof, i f or so f a r as the provisions are such as could have been enforced without compensation i f they had been contained i n by-laws made by the l o c a l authority. The provision i n Section 2 0 ( 1 ) would obviously l i m i t the scope of compensable losses caused by planning schemes as provided by Section 1 9 ( 1 ) . Furthermore, a levy on the betterment caused by any planning scheme i s also provided by Section 9 ( 5 ) I Where, by the making of a town planning scheme, property i s increased i n value, the responsible authority s h a l l , . . . be e n t i t l e d to recover from any person whose property i s so increased i n value an amount determined by the scheme, being not more than one-half of the amount of the increase. 3. Community Planning i n B r i t i s h Columbia and the Land  Commission Act 40 Under the B.C. Municipal Act i t i s not compulsory f o r 116 m u n i c i p a l i t i e s t o prepare a comprehensive o f f i c i a l development p l a n , although each may by by-law adopt a p l a n prepared i n d i v i d u a l l y . According to S e c t i o n 696 of the Act: The C o u n c i l may have community plans prepared or r e v i s e d from time t o time . . . ( I t a l i c s mine.) M u n i c i p a l i t i e s a l s o have the power of d e s i g n a t i o n i n the e x e r c i s e of the power of zoning. However, the power of d e s i g n a t i o n i s a l s o non-compulsory. S e c t i o n 702A of the Act reads: (2) The C o u n c i l may, by by-law, amend the zoning by-law to designate areas of land w i t h i n a zone as development areas . . . ( I t a l i c s mine.) Thus, depending on the a d m i n i s t r a t i o n of d i f f e r e n t m u n i c i p a l i t i e s , one m u n i c i p a l i t y may have a very s p e c i f i c development p l a n while another m u n i c i p a l i t y may not; one m u n i c i p a l i t y may e x e r c i s e i t s power of d e s i g n a t i o n f r e q u e n t l y while another may not. Compensation i s s p e c i f i c a l l y precluded even i f there i s any change i n zoning by-laws. S e c t i o n 706 reads as f o l l o w s : (1) Property s h a l l be deemed not be taken or i n j u r i o u s l y a f f e c t e d by reason of the adoption of a zoning by-law under t h i s D i v i s i o n , or by reason of the amendment or r e p e a l of a zoning by-law. Not only i s there no p r o v i s i o n f o r compensation, any betterment l e v y i s a l s o not mentioned. In other words, there i s no f i n a n c i a l p r o v i s i o n with respect to any change i n p l a n n i n g or zoning under the M u n i c i p a l Act. The passage of the Land Commission Act of 1973 has changed the e n t i r e p a t t e r n of land use c o n t r o l i n B.C. The reason why the Act was introduced was due t o : 117 complaints throughout the province regarding the increasing a l i e n a t i o n of farm land and other green spaces to urban uses. Complaints were also voiced at the r e l a t i v e l y disorderly and unplanned patterns of development occurring around urban centres. In response to these concerns, the new government set out to e s t a b l i s h a mechanism by which more orderly development of urban uses of land could be implmented and at the same time to preserve the remaining farmland.4 2 In order to f u l f i l the objectives of preserving 'farm land and other green spaces to urban uses', the Commission has been given the power of preserving four types of lands ( i . e . a g r i c u l t u r a l land, green belt land, land bank land and park land) and of e s t a b l i s h i n g land reserves f o r these types of lands. The power and functions of the Commission are wide. F i r s t , the Commission has power of designating land suitable for farm use as a g r i c u l t u r a l land and of e s t a b l i s h i n g a g r i c u l t u r a l land reserves f o r such land, The Act requires a l l m u n i c i p a l i t i e s to submit t h e i r own a g r i c u l t u r a l land reserve plan. M u n i c i p a l i t i e s no longer have the option (as they had under the Municipal Act) of either to adopt or not to adopt a community pland for a g r i c u l t u r a l land. Section 8(2) of the Land Commission Act reads: The regional board of every regional d i s t r i c t . . . s h a l l . . . by by-law, adopt a land reserve plan prepared i n accordance with the regulations and f i l e the by-law and land reserve plan with the commission. ( I t a l i c s mine.) The Commission could amend any a g r i c u l t u r a l reserve plans submitted. It could also prepare a g r i c u l t u r a l land reserve plans on the behalf of those regional d i s t r i c t s which refuse or f a i l to prepare. The Lieutenant-Governor i n Council has 118 the power of f i n a l approval. Thus, the Act could be used as a v e h i c l e to c e n t r a l i z e a g r i c u l t u r a l land use p l a n n i n g i n the p r o v i n c i a l l e v e l and to recover the power of community planning t h a t has been delegated t o r e g i o n a l d i s t r i c t under the M u n i c i p a l Act. The power of a m u n i c i p a l i t y i s diminished f u r t h e r ass . . . no approving o f f i c e r or Board of Variance under the M u n i c i p a l Act s h a l l a u t horize or permit a g r i c u l t u r a l land i n an a g r i c u l t u r a l land reserve t o be used f o r a purpose other than farm use.^3 Secondly, the Land Commission has power to e s t a b l i s h land reserves by purchase or a c q u i s i t i o n of land. The Commission may purchase land by paying market p r i c e s ; designate them as green b e l t l a n d , land bank land or park la n d ; and then put them i n t o i t s own p a r t i c u l a r category of land reserves. In order to e s t a b l i s h a g r i c u l t u r a l land r e s e r v e , i t i s important to note that the Commission can designate land as a g r i c u l t u r a l land before purchase or a c q u i s i t i o n . In both s i t u a t i o n s , power of e x p r o p r i a t i o n i s denied to the Land Commission. T h i r d l y , the Commission has the power to manage and to dispose of l a n d i n i t s reserves. I t i s given wide and d i s c r e t i o n a r y power wi t h respect t o the manner of land d i s p o s a l ( s a l e or l e a s e ) , subject only t o t ( j ) . . . such terms and c o n d i t i o n s as the commission may determine.44 F o u r t h l y , the Commission i s not r e q u i r e d to pay any compensation. According to S e c t i o n l6s Land s h a l l be deemed not to be taken or i n j u r i o u s l y a f f e c t e d by reason of the d e s i g n a t i o n by the commission of that land as an a g r i c u l t u r a l land reserve. 119 The Land Commission Act could be c r i t i c i z e d on several grounds. By c e n t r a l i z i n g planning i n the p r o v i n c i a l l e v e l , t h i s would bring about greater r i g i d i t y i n planning. One of the reasons why we have l o c a l governments i s that l o c a l governments often respond more r a p i d l y to the changing needs of a community. With the change i n the forces of demand, the Commission has to withdrae, sooner or l a t e r , land from the a g r i c u l t u r a l land reserve. The Commission may dispose of a g r i c u l t u r a l land for other use i f such use i s : considered by the commission to be i n the public i n t e r e s t , subject to such terms and conditions as the commission may determine.45 It i s relevant to question here whether the c e n t r a l i z a t i o n of planning at the p r o v i n c i a l l e v e l and the c o n t r o l l i n g of land reserves through one single body ( i . e . the Commission) i s the appropriate method of determining 'public i n t e r e s t ' and l o c a l needs. The use of the power of designation instead of the power of expropriation for preserving a g r i c u l t u r a l lands i s 'ingenious' --from the point of view of the p r o v i n c i a l government, The reason i s that the power of expropriation i s not necessary. The power of designation i s de facto power of e x p r o p r i a t i o n — and, perhaps, even better, as the Commission can escape from the complicated procedure of a r b i t r a t i o n and the payment of compensation. The Commission could very well designate land suitable for development as a g r i c u l t u r a l land, so that the development value that such land may have w i l l be extinguished, and the Commission can then turn around and acquire those land 1 2 0 i n the e x i s t i n g use value, Land w i l l be bought at a 'cheap* p r i c e . Furthermore, the Commission can dispose of land under 'terms and conditions as the Commission may determine'. Nothing i n the Act disallows the Commission to dispose land with an i m p l i c i t subsidy. What t h i s whole operation of land a c q u i s i t i o n and land disposal by the Commission b o i l s down to i s to allow the Commission to hide opportunity cost without any requirement of bringing opportunity cost to the forefront. One can hardly f i n d any economic j u s t i f i c a t i o n f o r such a c t i v i t i e s . CHAPTER VII , CONCLUSIONS The purpose of t h i s thesis i s to examine the p r i n c i p l e of compensation i n r e l a t i o n to public interferences i n the r e a l property market. Public a c t i v i t i e s i n the r e a l property market frequently have the i n c i d e n t a l e f f e c t s of in c u r r i n g losses to be suffered by some ind i v i d u a l s i n society and gains to be enjoyed by others. The questions that we have t r i e d to answer are: Should a l l those losses be compensated? If not, then where do we draw the l i n e between compensable losses and non-compensable losses? And what are the c r i t e r i a of compensability? . Before undertaking any evaluation of the adequacy or fair n e s s of compensation i n r e l a t i o n to public a c t i v i t i e s g i v i n g r i s e to occassions cf compensation, i t i s necessary to determine at the outset the c r i t e r i a of compensability— or the general p r i n c i p l e of compensation. With t h i s objective i n mind, we have resorted to economic p r i n c i p l e s as well as legal' rules. Economic p r i n c i p l e s are relevant because the losses (caused by public a c t i v i t i e s ) that we are interested i n are economic losses. Legal rules are also relevant because courts have often been l e f t with the r e s p o n s i b i l i t y of determining f a i r compensation, 121 122 In terms of economics, we have evaluated the principle, of compensation i n r e l a t i o n to a l l o c a t i v e e f f i c i e n c y and d i s t r i b u t i v e j u s t i c e . As f a r a s , a l l o c a t i v e e f f i c i e n c y i s concerned, we have made the important d i s t i n c t i o n between hypothetical compensation and actual compensation. We argue that the concept of hypothetical compensation may be of relevance only i n so f a r as i t a s s i s t s public 'authorities i n reaching a costs-and-benefits decision of choice between alt e r n a t i v e public policies., We also argue that the requirement of actual payment of compensation i s not a question to be s e t t l e d by c r i t e r i a of d i s t r i b u t i v e j u s t i c e . : Rather, i t i s a question to be s e t t l e d within the realm of a l l o c a t i v e e f f i c i e n c y . And i n terms of a l l o c a t i v e e f f i c i e n c y , we have shown the conditions under which actual compensation Is necessary. However, when we t a l k about the necessity.of actual compensation when public a c t i v i t i e s have caused c e r t a i n losses and i n j u r i e s to i n d i v i d u a l s , i t i s the same as i f we are t a l k i n g about the horse when i t has already been l e t out of the stable. A f a r more important issue i s whether the horse should have been released from the stable i n the f i r s t place. In other words, we have to fi n d economic j u s t i f i c a t i o n of such public a c t i v i t i e s . As f a r as government intervention i n the market i s concerned, we argue that the presence of e x t e r n a l i t i e s does not est a b l i s h a prima f a c i e case of intervention. The presence of e x t e r n a l i t i e s i s only:a necessary, but not a s u f f i c i e n t , condition of intervention, 1 2 3 In order to f u l f i l the s u f f i c i e n t condition, public authorities have to demonstrate that public i n t e r n a l i z a t i o n of e x t e r n a l i t i e s i s less 'costly* than private i n t e r n a l i z a t i o n . . . . . ,i . • In our treatment of d i s t r i b u t i v e j u s t i c e , along the l i n e of the Rawlsian model 1of j u s t i c e as fairness, we have come to the conclusions that i n accordance with the Second P r i n c i p l e of Justice a departure from the uncompromising rule of f u l l compensation (as determined by the p r i n c i p l e of a l l o c a t i v e e f f i c i e n c y ) may be j u s t i f i e d . Thus, society may deny ce r t a i n claims of compensation regardless <of a l l o c a t i v e e f f i c i e n c y , i f i t could be shown that the p o l i c i e s of the D i s t r i b u t i o n Branch and the Transfer Branch would be expected to work out best f o r each person i n so f a r as h i s i n t e r e s t s are affected by the s o c i a l undertaking giving r i s e to occassions of compensation. F\.irthermore, i n our discussion of the d i s t i n c t i o n between police power and power of taking, we also recognize cer t a i n incidents that would permit a departure from the uncompromising rule of compensation as determined by a l l o c a t i v e e f f i c i e n c y . For example, i f an incident involves only a single external diseconomy, denial of compensation i s j u s t i f i e d . I f regulatory measures that are not motivated on e f f i c i e n c y grounds ( i . e . f o r the promotion of health, safety and morals), they do not nec e s s a r i l y be j u s t i f i e d on e f f i c i e n c y grounds. Denial of compensation, under t h i s s i t u a t i o n , i s also j u s t i f i e d . As f a r as l e g a l rules are concerned, we recognize three rules that have been developed from j u d i c i a l decisions 1?M and l e g a l commentary, and have been deemed to be c r i t i c a l i n determining the c r i t e r i a of compensability. The three rules ares the Physical Invasion Rule, the Balancing Rule and the Noxious Use Rule. We argue that these rules have inherent weaknesses In drawing the l i n e between compensable and non-compensable losses.. Our contention i s that the weaknesses of such rules have not often been properly recognized i n l e g a l c i r c l e s . We could see the influence of the Physical Invasion. Rule.lurking behind j u d i c i a l decisions and l e g i s l a t i v e reforms, i f we recognize the more generous provision.of compensation when public a c t i v i t i e s are related one way or other to physical takeovers of land (e.g. compulsory a c q u i s i t i o n and injurious a f f e c t i o n with p a r t i a l taking of land), but a reluctance to provide f o r compensation when no physical takeover of land i s involved (e,g, i n j u r i o u s ..affection with no land-t£ken and planning r e s t r i c t i o n s ) . The frequent r e l i a n c e on the Physical Invasion Rule i s especially'obvious i n the area of law related to i n j u r i o u s a f f e c t i o n . We have seen that the deficiency of the Nature of the Damage Rule and the Construction Rule ( v i s - a - v i s compensation fo r i n j u r i o u s a f f e c t i o n with no land taken) i s based upon a narrow and physical view of the concept of property. The r e s u l t of such reliance on t h i s Rule i s that the rules of compensation with no land taken are found to be more r e s t r i c t i v e than those with p a r t i a l taking, thus generating l o g i c a l inconsistencies between the two sets, of compensation rules. 1 2 5 The problem with :the Balancing Rule (or the Balancing of S o c i a l Gains Against Private Loss^Rule) i s that i t i s based on the dangerous notion that c e r t a i n private losses can somehow be s a c r i f i c e d without compensation f o r the' good of the public at large, We have seen that courts have applied the Actionable Rule to deny compensation i n order "to prevent private caprice or selfishness from i n t e r f e r i n g with the prosecution of works designed f o r the public.benefit". In the M i l l e r case, we have also seen that the Supreme Court of Appeals of V i r g i n i a ' s a i d that: "And where the public i n t e r e s t i s involved preferment of that i n t e r e s t over the .property i n t e r e s t of the i n d i v i d u a l , to the extent of i t s destruction, i s one of the d i s t i n g u i s h i n g c h a r a c t e r i s t i c s of every exercise of the police power which a f f e c t property".^ With a s i m i l a r a t t i t u d e , a Canadian court upheld a zoning by-law l e g i s l a t i o n by saying that: "The l e g i s l a t i o n i s confiscatory i n i t s character, they, of course, i s intended to be put i n force for the general benefit"." The- above three examples r e f l e c t the reliance on the Balancing Rule, which we have shown to be unsound and improper. Turning now to the Noxious Use Rule, we have seen that t h i s Rule i s s t i l l exerting considerable influence i n the area of law r e l a t e d to compensation with planning r e s t r i c t i o n s . In p a r t i c u l a r , we have seen the reliance of t h i s Rule i n the d i s t i n c t i o n between police power and power of taking. Again we argue that i t i s also inappropriate to apply t h i s Rule i n the context of compensation with planning r e s t r i c t i o n s . 126 We have recognized three occassions of compensation, They are compensation';f,o^;'(.compulsorir-acquisition, i n j u r i o u s a f f e c t i o n and planning r e s t r i c t i o n s . The most d i f f i c u l t problem with compensation f o r compulsory a c q u i s i t i o n i s not so much as to whether the in t e r e s t s expropriated should be compensated, but as to how they should be valued so as to s a t i s f y the p r i n c i p l e of equivalence. We argue that both the. 'Value to the Owner' formula and the 'Market Value' formula have ce r t a i n weaknesses. Since we s t i l l do not have a perfect method of assessing the loss i n value of property i n t e r e s t , i t appears that those l e g i s l a t i v e reforms i n Canada recommending a series of claims under a separate heading of damages for. disturbance i n addition to compensation of land taken i n accordance with market valuation, i s as perfect and as p r a c t i c a l an approach we can get at t h i s stage. In our analysis of compensation for inj u r i o u s a f f e c t i o n , we have pointed out the l o g i c a l inconsistencies between the two sets of rules governing i n j u r i o u s a f f e c t i o n with p a r t i a l taking and. with no land taken. We have also pointed out the unacceptability of the three common law rules applicable under compensation f o r injurious a f f e c t i o n with no land taken, namely, the Actionable Rule, the Construction Rule and the Nature of the Damage Rule. It i s a welcoming sign that l e g i s l a t i v e reforms i n Canada have come to re j e c t the Construction Rule and the Nature of the Damage Rule. As f a r as the Actionable Rule i s concerned, i t has generally been • 12? accepted with reluctance. Both of the Ontario Law Reform Commission and the Law Reform Commission of B.C. have doubts about t h i s Rule, and have accepted t h i s Rule only as a temporary solution. Thus the present status of the Actionable Rule remains unsettled. The reason i s that the Actionable Rule has opened up a f a r more d i f f i c u l t and much wider area of law related to the loss of amenity caused by public works, for example, the noise p o l l u t i o n caused by the operations of an a i r p o r t . It i s an area that urgently awaits further research. What we can do at t h i s stage i s to i d e n t i f y the problem, as i t i s a complex area with no easy solution. I t has been frequently pointed out that one of the gaps i n our e f f e c t i v e l e g a l protection i s the statutory exclusion from l i a b i l i t y . o f a number of public-sector a c t i v i t i e s . However, public authority undertaking a public project (even f o r the needs of the community) that brings along with i t s p i l l o v e r . , effects..., should be. treated i n the same way, under our l e g a l system, as a factory that increases, through continual smoke emission, the laundry b i l l s of housewives i n the neighbourhood. The law should recognise e x p l i c i t l y the economic p r i n c i p l e of a l l o c a t i o n of scarce resources. Privacy and quietness of enjoyment are becoming scarce resources.. There i s no j u s t i f i c a t i o n f o r them to be treated as i f they were free goods—that they were so abundant that a l i t t l e more or a l i t t l e l e s s would not do any harm to anyone. Loss of amenity with injurious a f f e c t i o n i s a s o c i a l cost. It should be 128 included i n the calculus of" costs arid benefits of any proposed public project. Admittedly, with the present state of tec h n i c a l knowledge, there i s not yet available any perfect c r i t e r i a to measure such ir i t e r f erences. However, t h i s should not be the excuse f o r not accepting the p r i n c i p l e of j u s t i c e and the p r i n c i p l e of f i a r compensation, as well as the economic p r i n c i p l e with respect to the a l l o c a t i o n of scarce resources. To avoid paying compensation, with the protection of immunity, i s to j u s t i f y public project on\unsound economic grounds which would only lead to misallocation of resources, Amenity r i g h t s should be recognized, and should therefore be applied to a l l — public and private. In our analysis of the B r i t i s h experience with the compensation and betterment- problem, we have seen the disastrous r e s u l t s ' o f the various solutions adopted—solutions including . those that dealt with gains and losses i n development value only when they emerged, and the more extreme solut i o n of outright n a t i o n a l i z a t i o n of development values. We have seen the varioxis attempts (with various degree) of government intervention i n the land market, including the use of compulsory a c q u i s i t i o n as a rule i n order to bring land to the market (as recommended by the Uthwatt Committee), the use of development charge to force landowners to bring land to the market at e x i s t i n g use Value, and the active p a r t i c i p a t i o n i n the operation of the market through the Land Commission. In the f r a n t i c e f f o r t s of f i n d i n g solutions to the compensation 1 2 9 and betterment problem f the B r i t i s h Government have l o s t sight of the role and contribution of the private market. One should wonder, b y r e s b r t i n g to the horse-and-stable-analogy again, whether i t i s more appropriate that the horse should, have been kept, under lock and key, i n the stable i n the f i r s t place. One f i n a l comment on the p r i n c i p l e of compensation i n general. Hobhouse, the B r i t i s h l i b e r a l philosopher, once said; A r a t i o n a l s o c i a l order does not rest the e s s e n t i a l indispensable condition of the happiness of one man on the unavoidable misery of another, the happiness of f o r t y m i l l i o n s of men on the misery of one.^" The requirement of compensation should be viewed not only i n the context of lav/ and economics, but also i n the context of p o l i t i c s — o r i n the context of the p o l i t i c a l system of our choice. The requirement of compensation should also be viewed as a s o r t : o f protection to the powerless i n d i v i d u a l s from the tyranny of autocracy and the whims of a r b i t r a r y administrative actions.. An adequate and more s a t i s f a c t o r y evaluation of the p r i n c i p l e of compensation shoudl therefore l i e i n a proper interface of law, economics and p o l i t i c s . It i s t h i s f i n a l element on p o l i t i c s that t h i s t h e s i s has not yet been able to deal with'. 130 FOOTNOTES INTRODUCTION 1. P. Burrows, "Nuisance: The Law and Economics," Lloyds  Bank Review 95 (January 1970):37. 2 . F. I. Michelman,_"Property, U t i l i t y , and Fairness: Comments on the E t h i c a l Foundations of 'Just Compensation' Law," Harvard Law Review 80 ( A p r i l 1 9 6 7 ) : l l 6 9 . CHAPTER I 1 . Henry Sidgwick, P r i n c i p l e s of P o l i t i c a l Economy (London, 1 8 8 3 ) : A. C. Pigou, The Economics of Welfare (London: Macmillan & Co., 1920~)T ; 2 . R. H. Coase, "The Problem" of S o c i a l Cost," Journal of  Law and Economics (October i 9 6 0 ) ; James M. Buchanan & Gordon Tullock, The Calculus of Consent (Ann Arbor, Michigan: University of Michigan Press, Ann Arbor Paperbacks, 1 9 6 5 ) . 3 . H. Demsetz, "Towards a Theory of Property Rights," American Economic Review, Paper & Proceedings (Mav 1 9 6 7 ) » p. 3 4 7 . 4 . E. G. Furubotn & S. Pejovich, "Property Rights and Economic Theory: A Survey of Recent L i t e r a t u r e , " Journal of Economic L i t e r a t u r e ( 1 9 7 0 ) , p, 1140. 5 . A. K. Dasgupta & D. W. Pearce, Cost-Benefit Analysis: Theory and Practice (london: Macmillan & Co., 1 9 7 2 ) , pp. 5 ^ - 5 5 . 6 . Ibid., p. 5 7 . 7 . Ibid., p. 5 7 . 8 . N. Kaldor, "Welfare Propositions of Economics and Interpersonal Comparisons of U t i l i t y , " Economic Journal 49 ( 1 9 3 9 ) « 3 8 8 . 9 . J. R. Hicks, "The Foundations of Welfare Economics," Economic Journal 49 (December 1 9 3 9 ) » 7 i'l. 1 0 . Coase, "Problem of So c i a l Cost,". See also J. M. Buchanan & W. C. Stubblebine, "Externality," Economica (November 1 9 6 2 ), which formalizes the Coase argument and arri v e s at the same conclusion. 1 3 1 1 1 , Cease, /'Problem of So c i a l Cost," pp. 1 - 2 . 12, Furubotn & Pejovich, "Property Mights," p. 1143. 1 3 . Gordon Tullock, Public Wants, Private Means (New Yorkj Basic Books, Inc., 1970"). 14. Ibid., pp. 7 4 - 7 5 . 1.5. C o l l e c t i v e action here refe r s to c o l l e c t i v e action In general, i . e . any action c a r r i e d out j o i n t l y by any s o c i a l or p o l i t i c a l group. Later i n Section A, we w i l l examine c o l l e c t i v e action through government i n p a r t i c u l a r . Then, we have to ask: Under what circumstances would i t be j u s t i f i e d f o r government to undertake c o l l e c t i v e action instead of leaving i t open f o r the market to do so? 1 6 . 'Reasonable* i n the sense of universal acceptance. 17. J. M. Buchanan, "Positive Economics, Welfare Economics, and P o l i t i c a l Economy," Journal of Law and Economics 2 (October 1959)=125. 1 8 . Hicks, "Foundations," pp. 699-7OO. 1 9 . Buchanan, "Positive Economics,"p. 1 3 5 . 2 0 . Demsetz, "Towards a Theory,". 2 1 . Ibid., p. 3 5 6 . 2 2 . Tullock, Public Wants, pp.. 5 3 - 5 4 . 2 3 . John Rawls, A Theory of Justice (Cambridge, Mass.: Harvard University Press, Belknap Press, 1971). 24. Ibid., n. 9 , pp. 2 2 - 2 3 . 2 5 . Ibid., p„ 3 3 . 2 6 . Ibid., p. 4 . 2 7 . John Rawls, "Some Reasons for the Maximin C r i t e r i o n , " American Economic Review, Papers & Proceedings (May 1 9 7 4 ) , p. 141. 28. Rawls, A Theory of J u s t i c e , p. 3 4 3 . 2 9 . See i b i d . , pp. 6 0 , 8 3 , 3 0 2 - 3 0 3 . ;i32 3 0 . This i s an order which ,requires Us to s a t i s f y the f i r s t p r i n c i p l e i n the ordering before we can move onto the second, the second before we consider the t h i r d , and so on. . .y . ,. • 3 1 . Rawls, "Some Reasons fo r the Maxiniin C r i t e r i o n , " pp. 144 - 4 5 . 3 2 . Ibid., p. 145. 3 3 . Rawls, A Theory of Ju s t i c e , p. 7 8 . 3 4 . Ibid., p. 7 9 . 3 5 . See also Richard A. Musgrave, The Theory of Public Finance, (New York: McGraw-Hill, 1 9 5 9 ) , ch. 1. 3 6 . See p. 2 2 , supra. CHAPTER II 1. Warren A. Seavey, "P r i n c i p l e s of Torts," Canadian Bar  Review 21 (February 1943):2 6 . 2 . See also Frank I. Miohelman, "Property, U t i l i t y , and Fairness: Comments on the E t h i c a l Foundation of 'Just Compensation' Lav/," Harvard Law Review 80 ( A p r i l 1 9 6 7 ) and Joseph L. Sax, "Takings and the Police Power," Yale Law Journal 74 (November 1 9 6 4 ) . 3. C e c i l A. Wright, Cases on the Law of Torts, 4 ed. (Toronto: Butterworth & Co., 1 9 6 7 ) , p. 1 . 4 . Ibid., p. 6 . 5 . See pp. 11 - 1 3 , supra. 6 . See Ch. I, pp. 13-1^, supra. 7 . Michelman, "Property, U t i l i t y and Fairness," p. 1 1 9 4 . 8. John Rawls, A Theory of Justice (Cambridge, Mass.: Harvard University Press, Belknap Press, 1971), pp. 6*1 9 . See Ch. I, pp. 2 5 - 2 6 , supra. 10. See Ch. I, pp..- 13-14, supra. 11. See Ch. I, pp. 1.3-14,. supra. 1 2 . See Ch. I, p. l 4 , supra. 1 3 3 1 3 . Sax, "Takings and P o l i c e Power," p. 4 9 . 14. M o r r i s R. Cohen, Property and Sovereignty," C o r n e l l  Law Qu a r t e r l y 1 3 (December 1 9 2 ? ) : 1 1 - 1 2 . 1 5 . See Ch. I , pp. 7 - l d , supra. 1 6 . Michelman, "Property; U t i l i t y and F a i r n e s s , " pp. 1 2 2 7 - 2 2 8 . CHAPTER I I I 1. Law Reform Commission of B r i t i s h Columbia, Report on  E x p r o p r i a t i o n , P r o j e c t No. 5 , at pp. ' 2 0 - 3 7 ( 1 9 7 1 ) . 2 . 8 & 9 V i c t . , c. 18 (1845). 3 . The recommendations on e x p r o p r i a t i o n and compensation by the Scott Committee are to be found i n the Second  Report of the Committee De a l i n g with the Law and P r a c t i c e  R e l a t i n g t o the A c q u i s i t i o n and V a l u a t i o n of Land f o r . P u b l i c Purposes. Cmnd. 9229 (1918). 4. See A c q u i s i t i o n of Land (Assessment of Compensation) Act of 1919. 5. 9 & 10 E l i z . 2 , c. 3 3 , Part I I ( I 9 6 1 ) . 6. Development and Compensation—Putting People F i r s t , Report presented t o Parliament by the Secr e t a r y of St a t e , Cmnd. 5124 (October 1 9 7 2 ) . 7 . The E x p r o p r i a t i o n Act 1970 (Can.), c. 4 l . "' 8. Report of the Royal Commission on E x p r o p r i a t i o n , I 9 6 I - 6 3 ttw+r. : 9 . See n. 1.. 10. Report of the Ontario Law Reform Commission on "The  Basis f o r Compensation f o r E x p r o p r i a t i o n " , ( 1 9 6 7 ) . 11 . S.O. -1968069, c. 36. CHAPTER IV 1. V i c t o r Moore, "Reform of the Compensation Code," J o u r n a l of Planning Law and Property (February 1 9 7 1 ) , p. 7 3 . 2. ( 1 9 0 9 ) 1 K.B. 16. 134 3. Id. at 2 9 . 4. ( 1 9 4 6 ) S.C.R. 5 5 1 . 3 . Id. at 5 6 1 . 6. Id. at 5 5 6 . 7. ( 1 9 0 9 ) 1 K.B. 1 6 , 31. 8. ( 1 9 1 4 ) 1 6 D.L.R.. 168. 9. Id. at 171. 1 0 , ( 1 9 1 4 ) A.C. 1 0 8 3 . i i . Id. at 1 0 8 8 . 1 2 . ( 1 9 4 6 ) S.G.R. 5 5 1 , 5 6 1 - 6 2 . 1 3 . ( 1 9 4 1 ) 2 K.B. 26. 14. Id. at 40. 1 5 . Id. at 3 3 - 3 ^ . 16 . Id. at 41. 17. R. U . ' R a t c l i f f , "Is there a 'New School' of Appraisal Theory?" Appraisal Journal (October 1972) t pp. 524-26. 18. Ralph 'Purvey,. The Economics of Real Property (Londom Al l e n and Unwin, 1 9 5 7 ) , p. 20. 19. The Ontario Report, p. 35. 20. Development and Compensation—Putting; People F i r s t , Report presented to Parliament by the Secretary of State, Cmnd. 5 1 2 4 (October 1972), pp. 8-10. 21. See Essay II. in N. H. Jacoby & F. G. Pennance, The  Poll u t e r s ; Industry or Government? (London: I n s t i t u t e of Economic A f f a i r s , 1972). 22. Ibid., pp. 44-45. 135 CHAPTER V 1 . E r i c C.-'E. Todd, "The Mystique of Injurious A f f e c t i o n i n the Law of Expropriation," UBC Law Review, Centennial E d i t i o n ( 1 9 6 7 ) , p. 12?. 2. See J . F . Garner, Administrative Law (London: Butterworth & Co., 1 9 6 3 ) , p. 136^ 3 . ( 1 9 4 ? ) Ex.C.R. 5 k 7 . 4. i d . at 5 5 9 . 5 . Todd, "Mystique," p. 128. 6 . ( 1 9 1 6 ) A.C. 5 3 6 . 7 . Id. at 542. 8 . (1949) Ex.C.R. 2 5 k . 9 . (1944) D.L.R. 625. 1 0 . See the Actionable Rule at p. 7 8 , i n f r a . 1 1 . Todd, "Mystique," p. 129. 1 2 . (I889) 14 A.C. 1 5 3 . See also In re the Stockport, Timperley and Altringham Railway Company, (1864) 33 L.J.Q. 1 3 , 2 5 1 . 1 3 . Report of the. Ontario Law Reform Commission on "The Basis f o r Compensation on Expropriation 1;', p. 45. 14. See also E r i c C. E. Todd, The Federal .Expropriation Act: A Commentary (Toronto: Carswell Co. Ltd., 1 9 7 0 j ^ 1 5 . ( 1 9 0 8 ) 1 K.B. 327. 1 6 . Id. at 324 - 3 5 . 17. Id, at 3 3 5 . 18. Todd, "Mystique," p. 1 3 0 . 1 9 . Such rules could also be found i n Autographic Register  Systems Ltd. v. C.N.R., ( 1 9 3 3 ) Ex.C.R. 1 5 5 . 2 0 . This case i n quoted from the Report of the Ontario Law Reform Commission, pp. 47-48. 21. 8 & 9 V i c t . , c. 18 (1845). 136 22. Id. s. 68. 23. (1874) L.R. 7, H.L. 243. 24. Id. at 252. 25. (1856) 2 Macq. 229 (H.L, Scot.); 26. (I867) L.R. 2 H.L. 175, 27. Lord O'Hagan i n the McCarthy case, (1874) L.R. 7. H.L. 243. 28. See Ch. I I , Section B, pp. 37-39, supra. 2 9 . See rule 2 at p. 7 0 , supra. 3 0 . (1874) L.R. 7 H.L. 243, 265. 31. Id. p. 265. 32. Todd, "Mystique," p. 144. 33. (1947) Ex.C.R. 547. 34. Id. at 5 6 0 - 6 1 . 35. Todd, "Mystique," p. 154. 36. 8. & 9 V i c t . , c. 20, s. 6 (1845). 37. (1869> L.R. 4 H.L. 171. : 38. Todd, "Mystique;" pp. 149-50. 39. (1947) Ex.C.R. 5^ 7, 560. 40. See Ch. II, Section D, pp. 41-43, supra. 41. (1874) L.R. 7 H.L. 243, 256. 42. (I867) L.R. 2 H.L. 175, 198. 43. (1874) L.R. 7 H.L. 243, 263-64. 44. Id. at 267. 45. Todd, "Mystique," p. l 6 l , 46. B.C. Royal Commission on Expropriation, 1961-63, p. 118. 47. Todd, "Mystique," p.*i46. 137 CHAPTER VI 1. See also Ch. IX on 'Compensation and Betterment' i n Ralph 'Purvey, The Economics of Real Property (Londoni A l l e n and Unwin, 1957). 2. See Ch, II, pp. 39*41•• -3. Ralph Turvey, "What i s the Case fo r Planning?'" Journal  of the Town Planning I n s t i t u t e (September-October 1955), p. 270. 4. See Chapter I, Section A ( 2 ) , pp. 10-14. 5. See also A l l i s o n Dunham, "A Legal and Economic Basis f o r C i t y Planning," Columbia. Law Review 58 (May 1958) and "City-Planning: An Analysis"of the Content of the Master Plan," Journal of Law and Economics 1 (October 1958). 6. See J. B. Milner, "An Introduction to Zoning Enabling L e g i s l a t i o n , " Canadian Bar Review 4o (March 1962):46-56, 7. Ibid.., pp. ' 2-3. For a b r i e f h i s t o r i c a l account of zoning i n the U.S., see George B. Foss, J r . "Interested Thi r d Parties i n Zoning," University of F l o r i d a Law Review 12 (1959)»17-22. 8. J. B, Milner, "An Introduction to Master Plan L e g i s l a t i o n , " Canadian Bar Review 35 (December 1957)51170. 9. Ibid. , p. 1170. 10. For example, i n Ontario, the Planning Act, R.S.O., i 9 6 0 , c, 296, s. 15(1). 11. For example, i n B.C., the Municipal Act, R.S.B.C. i 9 6 0 , c .255, ss. 696-697. 12. Town and Country Planning Act, 19^7 (U.K.) 1947. Geo. 6, c. 51. 13..F. G. Pennance, Housing, Town Planning and the Land Commission (London: In s t i t u t e of Economic A f f a i r s , 196?) pp. 12-13. 14. See, for example, Joseph L. Sax, "Takings and the Police Power," Yale Law Journal 74 (November 1964). 15. For a discussion on the l e g a l i t y of using police power to preserve open spaces see Jan. Z. Krasnowiecke and James C. N. Paul, "The Preservation of Open Space i n Metropolitan Areas," 'University of Pennsylvania Law  Review 110 (December 1961) and Note, "Techniques f o r 133 Preserving Open Spaces," Harvard Lav/ Review 75 (June 1962) ,> and on subdivision exactions see Michael Heyman and Thomas,K. Gilhooi, "The C o n s t i t u t i o n a l i t y of Imposing Increased Community Costs on.New Suburban Residents through Subdivision Exactions," Yale Law Journal 73 (June 1 9 6 4 ) ; and on b i l l b o a r d s see A. Dukemmier, "Zoning for Asthetic Objectives," Law and Contemporary Problems 20 ( 1 9 5 5 ) . 1 6 . R.S.B.C. i 9 6 0 , c. 2 5 5 , s. 7 0 2 ( 2 ) . 1 7 . 276 U.S. 272 (1928). 18. The summary of the facts of the case i s quoted from Warren J. Samuels, "Interrelations between Legal and Economic Processes," Journal of Law and Economics 14 ( 1 9 7 1 ) ^ 3 6 . 1 9 . 276 u . s . 272 ( 1 9 2 8 ) 2 7 9 - 8 0 . 2 0 . Ibid., p. 2 7 9 . 21. James M, Buchanan, " P o l i t i c s , Property, and the Laws An Alternative Interpretation of M i l l e r et a l . v. Schoene," Journal of Law and Economics 15 ( 1 9 7 2 )s447. 2 2 . Dunham, "Legal and Economic Basis," p. 6 6 5 . 2 3 . Dunham, "City Planning," pp. I 8 O - 8 I . 24. See Report of the Expert Committee on Compensation and Betterment, Cmnd. 6 3 8 6 , HMSO, 1942. 2 5 . For a discussion of the experience of using recoupment and l o c a l betterment charges to finance street improvements in London see Ralph Turvey, The Economics of Real Property, pp. 1 0 5 - 1 2 2 . 2 6 . For general discussion see P. H. Clarke, "Site Value Rating and the Recovery of Betterment" i n P. H a l l (ed.) Land Values (Londons Sweet and Maxwell, 1 9 6 5 )» PP. 7 3 - 9 6 . 2 7 . For a c r i t i c a l analysis of the s h i f t i n g value problem and the f l o a t i n g value problem see Turvey, Economics  of Real Property, pp. 1 2 2 - 1 3 0 . 2 8 . For a c r i t i c a l analysis of the Land Commission Act see Pennance, Housing. 2 9 . Ontario Report, p. 2 5 . 3 0 . B.C. Report, p. 1 3 2 , ... 139 3 1 . ( 1 9 1 3 ) 11 D.L.R. 5 0 9 . 3 3 . 3 2 . I d . a t p. 5 1 ^ . ( 1 9 5 8 ) 25 W.W.R. (N.S.) 1 6 7 . 34. I d . a t pp. 1 6 8 - 6 9 . 3 5 . I d . a t p. 1 6 9 . 3 6 . Urban and R u r a l P l a n n i n g A c t , 1 9 5 3 , S.N., No. 2 7 , 3 7 . Urban and R u r a l P l a n n i n g (Amendment) A c t , 1954, S.N., No. 6 6 , s. 3. 3 8 . See g e n e r a l l y L e s l i e A. S t e i n , "The M u n i c i p a l Power t o Z o n e ' i n Canada and the U n i t e d S t a t e s : A Comparative Study," Canadian Bar Review 39 (December 1 9 7 1 ) . 3 9 . Town P l a n n i n g A c t , R.S.N. 1 9 5 ^ , c. 2 6 7 . 40. I t s h o u l d be n o t e d here t h a t t h e Land Commission A c t o f 1972 has i n t r o d u c e d i m p o r t a n t measures t h a t a f f e c t t h e M u n i c i p a l A c t , p a r t i c u l a r l y i n community p l a n n i n g . The d i s c u s s i o n here does n o t i n c l u d e t h e s e new measures. The Land Commission A c t w i l l be examined l a t e r . 41. Land Commission A c t (1973), S.B.C., c. 46. 42. P e t e r L. A r c u s , "The Land Commission A c t , " R e a l E s t a t e  T r e n d s , G r e a t e r Vancouver R e a l E s t a t e B o a r d , 1973. 4 3 . Land Commission A c t , S e c t i o n 1 0(4). 44. I b i d . , s. 7 ( 1 ) . 4 5 . I b i d . , s. 1 2(d). CHAPTER V I I 1 . See Ch. V, p.. 8 0 , s u p r a . 2 . See Ch. V i , p. 9 8 , s u p r a . 3 . See Ch. V I , p. 1 1 3 , s u p r a . 4 . L.T. Hobhouse, L i b e r a l i s m (New York: Oxf o r d U n i v e r s i t y P r e s s , 1964) p. 6 8 . 1.40 BIBLIOGRAPHY On Economics and Compensation Bonbright, James C.The Valuation of Property. New York* McGraw-Hill Book Co., 1 9 3 7 . Buchanan, J. M. "Positive Economics, Welfare Economics, and P o l i t i c a l Economy." Journal of Law and Economics 2 (October 1 9 5 9 ) : 124 - 1 3 8 . Buchanan, J. M., and Stubblebine, W. G. "Externality." Economica 29 (November 1962): 3 7 1 - 3 8 4 . Buchanan, J. M., and Tullock, Gordon, The Calculus of Consent. 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Cambridges The Belknab Press of Harvard University Press, 1971. . "Some Reasons f o r the Maximin C r i t e r i o n . " American Economic Review, Papers and Proceedings 64 (May 1974): 141-146. Regan, Donald H. "The Problem of S o c i a l Cost Revisited." Journal of Law and Economics 15 (October 1972): ^27^37. Samuels, Warren J . "Interrelations between Legal and Economic Processes." Journal of Law and Economics 14 (October 1971): 435-450. Scitovsky, Tiber. "A Note on Welfare Propositions i n Economics." Review of Economic Studies 9 (194l): 390-401. S t i g l e r , George. "The P o l i t i c s of P o l i t i c a l Economists." Quarterly Journal of Economics, 63 (November 1959)* 522-532. Tullock, Gordon. Public Wants, Private Means. New York: Basic Books, 1970. Turvey, Ralph. The Economics of Real Property. London: George A l l e n and Unwin, 1957. 143 . On ' Law an d C omp e n s at i on. Cohen, Morris R. "Property and Sovereignty." Cornell Law  Quaterly 13 (December 1 9 2 7 ) : 8 - 3 0 . ~ F r i e d , Charles. "Two Concepts of Interests: Some Reflections on the Supreme Court's Balancing Test." Harvard Law Review 76 (February 1 , 9 6 3 ) : 755-778. Garner, J. F. Administrative Law. London: Butterworth & Co., 1 9 F 3 . Haar, C. M,,, ed. Law and Land. Cambridge: Harvard University Press and M.I.T. Press, I964. Michelman, Frank I. "Property, U t i l i t y , and Fairness: Comments on the E t h i c a l Foundations, of 'Just Compensation 1 Law," Harvard Law Review 80 ( A p r i l .1967): II65-I258. Sax, Joseph L. "Takings and the Police Power." Yale Law  Journal 7^ (November 1964): 3 6 - 7 6 . Seavey, Warren A. " P r i n c i p l e s of Torts." Canadian Bar Review-21 (February 19^3) : 265-289. Wright, C e c i l A, "The.Adequacy of the Law of Torts." Cambridge Law Journal 46 ( A p r i l 1961): 4 4 ~ 6 l . _ . Gases on the Law of Torts. 4th ed. Toronto: Eutterworth & Co. (Canada) Ltd., 1 9 6 7 , 1» On Expropriation and Compensation Burrows, Paul. "Nuisance: The Law and Economics." Lloyds Bank Review 95 (January 1970): 36-46. Ch a l l i e s , George S. "Expropriation and Indemnity f o r Fo r c i b l e Dispossession." Canadian Bar Review 31 (December 1953)« 1116-1130. Cullingworth, J c B. Town and Country Planning i n B r i t a i n , 4 t h ed, London: George A l l e n and Unwin, 1971. Dunham, A l l i s o n . "Griggs v. Allegheny County i n Perspective T h i r t y Years of Supreme Court Expropriation Law." Supreme Court Review (1962): 63-IO6. H a l l , Peter. Land Values. London: Sweet and Maxwell, I965. 144 K r a t o v i l , Robert, and Harrison, Frank J . , J r . "Eminent Domain—Policy and Concept." C a l i f o r n i a Lav/ Review 4 2 (October 1954) i" 5 9 6 - 6 5 2 . L i c h f i e l d , N. "Compensation and Betterment-^What Next?" Reoort o f the Town and Country Planning; Summer School (September 1 9 6 4 ) : 5 5 - 6 8 . Mandelker, Daniel R. "Inverse Condemnation: The Constitutional Limits of Public R e s p o n s i b i l i t y . " Wisconsin Law Review I 9 6 6 (Winter 1 9 6 6 ): 3-57. Moore, V i c t o r . "Reform of the Compensation Code." Planning and Property Law (February 1971)s 73-79. Orgel, Lewis. Valuation Under the Law of Eminent Domain. 2d ed. C h a r l o t t e s v i l l e , Va.: Michie Co., 1 9 5 3 . Tood, E r i c C. E. "The 10% Allowance i n Assessing Compensation Payable f o r Property Expropriated Under Statutory Authority." UBC Legal Notes 11 (March 1 9 5 8 ) : 6 2 3 - 6 5 1 . . "Winds of Change and the Laws of Expropriation." Canadian Bar Review 39 (December 1 9 6 1 ) : 542-576. . "Mystique of Injurious A f f e c t i o n i n the Law of Expropriation." UBC Law Review, Centennial E d i t i o n ( 1 9 6 7 ) 1 1 2 7 - 1 6 9 . ________ The Federal Expropriation A c t — A Commentary. Toronto: Carswell Co. Ltd., 1 9 7 0 . On Planning R e s t r i c t i o n s and Compensation Arcus, P. L. "The Land Commission Act." 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Heymann, Ira Michael, and Gil h o o l , Thomas K. "The C o n s t i t u t i o n a l i t y of Imposing Increased Community Costs on New Suburban Residents through Subdivision Exactions." Yale Law Journal 73 (June 1964): 1119-1157. Krasnowiecki, Jan Z., and Paul, C. N. "The Preservation of Open Space i n Metropolitan Areas." University  of Pennsylvania Law Review 110 (December 1961): 179-217. M e r r i f i e l d , Lewis B., I I I . "The General Welfare, Welfare Economics, and Zoning Variance." Southern C a l i f o r n i a  Law Review 38 (June 1965)» 5^8-593. Milner, J . B. "An Introduction to Master Plan L e g i s l a t i o n . " Canadian Bar Review 35 (December 195?) s. 1125-1175. _. "An Introduction to Zoning Enabling L e g i s l a t i o n . " Canadian Bar Review 4o (March 1962): 1-56. Pennance, F. G. Housing, Town Planning a.nd the Land Commission. London: I n s t i t u t e of Economic A f f a i r s , 1967. Stein, L e s l i e A. "The Municipal Power to Zone i n Canada and the United States: A Comparative Study." Canadian Bar Review 39 (December 1971)» 53^-556. Turvey, Ralph. "What i s the Case f o r Planning?" Journal of the Town Planning I n s t i t u t e (September-October 1955): 269-270. ' ~ Williams, Norman, J r . "Planning Law and Democratic L i v i n g . " Law^ and Contemporary Problems 20 (Spring 1955)» 317-350. 146 APPENDIX A TABLE I COMPENSATION FOR COMPULSORY ACQUISITION Market value plus damage f o r d i s -turbance as the basi c formula f o r compensation Recommended ( R u l e l , p, 91 Rule 6, p. 94) Equivalent Reinstatement 1 land f o r a p a r t i -c u l a r purpose with no market f c r that purpose Recommended (Rule 5, P. 93) Damages f c r Disturbance S p e c i a l value to owner * # allowance f o r compul-sory ta.king Relocation costs Business losses Legal and a p p r a i s a l costs 1. Clyne Report 1961-63 N.A. ** N.A. N.A. t 1 N.A. j N.A. 2. Ontario Report 1967 Recommended (p. 17). Recommended (p. 20). Recommended ( f o r residen-t i a l propert-i e s only) (p. 39) Recommended (5$ f o r owner-occupiers) (p. 36) Recommended (p. 37) J ! Recommended, i Recommended (p. 38) • j (p.- 40) I i 3. Ontario Expro-p r i a t i o n Act 1968-69 Enacted s. 13(2) Enacted s. 14(2) 'Enacted . s. l 6 ( l ) ( a ) ( i i ) Enacted s. I 8 ( l ) ( a ) ( i ) 1 Enacted ! Enacted s. I 8(l)(b) ! s. 19 (c) ; Enacted s. l 8 ( l ) ( c ) ( i i ) 4. Federal Expro-p r i a t i o n Act 1970 Enacted ss. 24(2)(3) Enacted . s. 24(4) Enacted s. 24(3) N.A. Recommended (5fo f o r owner-occupiers) (p. 150) Enacted s.'24(3)(6), s. 6 Recommended (p. 151) 1 N.A. Enacted s. 27 5. B.C. Report 1971 Recommended (p. 124) Recommended (p. 128) Recommended (p. 128) Recommended j (pp. 151-52) i Recommended (p. 153) j as * This includes (1) land with unmarketable improvements and (2) land with p a r t i c u l a r a t t r i b u t e s . ** N.A, means 'non-applicable'. TABLE II COMPENSATION ON PARTIAL TAKING That on p a r t i a l taking, damages f o r injurious a f f e c t i o n should include damages f o r severance. 'Before and After' method of computa-tio n . Set-off of benefits. 1 , Clyne Report 1 9 6 l ~ 6 3 Recommended Recommended • Recommended 2 . Ontario Report 1 9 6 ? Recommended (p.. 46) Recommended (pp. 4 5 - 6 ) Recommended (pp. 4 5 - 6 ) 3 . Ontario Expro-p r i a t i o n Act 1 9 6 8 - 6 9 Enacted s. 1(e) Enacted s. 14(3) Enacted s. 23 4 . Federal Expro-p r i a t i o n Act 1970 Enacted s. 2 5 ( 1 ) Enacted s. 2 5 ( 1 ) Enacted s. 2 5 ( 2 ) 5 . B.C. Report 1971 Recommended (p. 158) Recommended . (p. 1 5 8 - 5 9 ) Recommended (p. 159) TABLE I I I COMPENSATION WITH NO LAND TAKEN Ac t i o n a b l e Rule Clyne Report 1 9 6 1 - 6 3 Ontario Report 1 9 6 7 Ontario Expro-p r i a t i o n Act 1 9 6 8 - 6 9 F e d e r a l Expro-p r i a t i o n Act 1 9 7 0 * B.C. Report 1 9 7 1 Accepted (p. II2*) Accepted as a temporary s o l u t i o n (p. 48) Nattire of Damage Rule Land i n j u r y — a c c e p t e d Personal i n j u r y — r e j e c t e d Business i n j u r y (of a permanent n a t u r e ) — a c c e p t e d Rule p a r t l y r e j e c t e d (p. 1 1 5 ) Land i n j u r y , personal i n j u r y , business i n j u r y — accepted Rule r e j e c t e d (pp. 48-49) Enacted s. 1 ( 1 ) (e) N.A. Land i n j u r y , personal i n j u r y , business i n j u r y — enacted Rule r e j e c t e d s. l ( l ) ( e ) ( i ) & ( i i ) N.A. Accepted as a temporary s o l u t i o n (p. 163) Land i n j u r y , personal i n j u r y , business i n j u r y — accepted Rule r e j e c t e d (p. 164) Co n s t r u c t i o n Rule Rejected (p. 118) Accepted (p. 49) Enacted s. l ( e ) ( i i ) N.. Rejected (p. 1 6 5 ) * The F e d e r a l Act has no p r o v i s i o n f o r t h i s type of compensation. N.A. means 'non-aDtslicable*. 

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