Surface Rights Board; Appeal; Compensation Payable
In this matter, the Court granted an appeal a decision of the Alberta Surface Rights Board (“SRB”) in relation to the compensation payable to the Appellant arising from the presence of two steel tower structures on the Appellant’s lands.
Background
This appeal required the Court to consider the decision of the SRB that determined the surface rights annual compensation payable to the Appellant arising from the presence of two steel tower structures on the Appellant’s lands.
The Court noted that the assessment must be conducted in accordance with the Surface Rights Act, RSA 2000 c S-24 (“the Act”). The assessment will, at least in part, involve a consideration of whether the Appellant’s lands are “improved pasture” lands; whether, on the totality of the evidence, compensation payable in relation to “improved pasture” lands should be the same as, or different from, the surface rights annual compensation payable for “native prairie” lands, and whether, on the totality of the evidence, “improved pasture” lands are the same as, or different from “Cultivated Lands.”
The Right of Way Agreement (“ROW Agreement”) required that ATCO Electric pay annual compensation in the amount of
(a) $1,380.00 for each structure to be placed on “Cultivated Lands,”
(b) $552.00 for each structure to be placed on “Uncultivated Lands”; and
(c) $690.00 for each structure to be placed on “Head Lands.”
ATCO Electric Ltd. (“AE”) proposed that it pay a total of $1,104 ($552 per tower) for the next five years, an amount that was upheld by the SRB.
Standard of Review
In Alberta, the question of how much compensation should be payable by an operator to an owner is “in essence a question of fact or, if valuation principles such as a pattern of dealing and adverse effect can be said to be legal principles, one of mixed fact and law”. As a result, the SRB Decision in relation to the amount of the compensation payable should be reviewed on a standard of palpable and overriding error. Questions involving interpretation of the Act are reviewed on a standard of correctness.
Issues to be Decided
Scope and Nature of this Appeal
The function of the SRB on a compensation review hearing under s 27 is not to determine what compensation should properly have been paid in the past but to determine the appropriate compensation going forward.
Has the Appellant Proven That the Lands Are “Improved Pasture”?
The SRB found that one of the two towers was located on “improved pasture”, and the other was located on “native prairie”. The Court held that the SRB made a palpable and overriding error in reaching this conclusion and found that both towers are located on “improved pasture” based on evidence from the Appellant.
Is it Appropriate to take into Consideration the Terms of the ROW Agreement?
No evidence was tendered to the SRB or during the de novo appeal hearing to explain how AE derived the amount of compensation previously paid to the Appellant. Nor did AE offer any explanation in any of their submissions. Instead, AE had consistently taken the position that this is simply irrelevant.
The Court concluded that this issue is not irrelevant and that the proper amount of the compensation payable under the terms of the ROW Agreement is a relevant factor to be considered in an s 27 analysis. The Court, therefore, found that when the SRB failed to do so, they made a palpable and overriding error.
The Court concluded that the terms of the ROW Agreement are fundamental to the relationship between the parties, and it is a palpable and overriding error to fail to consider the ROW Agreement as the foundation for the rate of compensation review under s 27.
The SRB, when determining compensation, must not consider the factors in s 25(1)(c) and (d) of the Act in isolation (these subsections address the fact that in determining compensation, the SRB may consider the loss of use and adverse effect). Instead, the SRB must also consider the scheme of the Act and the relevant context, which, in this case, includes the agreements between the parties, specifically the ROW Agreement. It is only when the scheme of the Act and the relevant context is considered that the factors in s 25(1)(c) and (d) can be properly assessed.
The legislative scheme places great importance on the integrity of negotiations between the parties and the agreements that are made relating to compensation. This suggests that the intention of the Legislature was to preserve agreements between the parties and to make any alterations to the agreements minimally invasive.
When interpreting and applying the evidence to the factors in s 25(1)(c) and (d) and the pattern of dealings (“PoD”) analysis, the SRB had jurisdiction to increase or decrease the rate of compensation for “Cultivated Lands,” “Head Lands” and “Uncultivated Lands” but it did not have the jurisdiction to amend any other provision or term of the ROW Agreement. It did not have the power to alter the structure of the three categories of use that the parties had agreed to. It did not have jurisdiction to amend the definition of “Cultivated Land” in the ROW Agreement so as to remove “improved pasture” from the definition and to insert it into the definition of “Uncultivated Lands.” This was contrary to the intention and reasonable expectations of the parties.
Thus, as between themselves, the parties had specifically agreed that there was a difference between “improved pasture” and “native prairie.” The SRB made a palpable and overriding error when it found no distinction between “improved pasture” and “native prairie” for the purpose of the s 27 compensation review process.
Does the PoD Evidence Support the SRB Decision?
Determining the amount of compensation payable to an owner of land in accordance with s 27 of the Act is a forward-looking exercise that is designed to identify the amount of the annual compensation that is appropriate in all of the circumstances.
While s 25(1)(c) and (d) identify the factors to be considered, no specific procedure is mandated by the Act for determining the amount of compensation payable. However, at least since 1978, evidence of a PoD has been the preferred approach when conducting the analysis. The PoD serves as a surrogate for the s 25(1)(c) and (d) factors and arises “where there are such a number of deals established so that it may be said that a pattern has been established by negotiations between the landowners and oil companies in a district”. The principle contemplates “comparable” patterns of dealing in terms of the rights granted, the type of land, proximity, date, acreage, and the nature of the parties.
The SRB correctly observed that the practice of the SRB is to base compensation on a PoD unless there are cogent reasons for doing otherwise. The SRB then went on to consider the evidence of the PoD before reaching its conclusion on compensation. The Court found that the evidence did not support the SRB Decision, and in coming to its decision, the SRB’s reasoning process and outcome were infected with palpable and overriding error.
Has the Appellant Met the Onus to Prove a Rate of Compensation Different Than That Determined by the SRB?
After considering the totality of the evidence, the Court was satisfied that the Appellant met the onus to prove a rate of compensation different than that determined by the SRB. The Court concluded that a proper PoD had been established for “Cultivated lands” within the meaning of the ROW Agreement. Since the Appellant’s lands are “improved pasture” and thus “Cultivated lands,” the PoD suggests that the rate of compensation payable to the Appellant should be $1,380.00 per tower.
Having determined that a proper PoD has been established, it was still necessary to consider whether there is any cogent reason to depart from the use of the PoD. The s 27 compensation review process is intended to make the landowner whole. The compensation should not enrich the landowner and should not give rise to a windfall.
AE agreed to include “improved pasture” in the definition of “Cultivated Lands” and thus agreed that “improved pasture” lands would be paid at the same rate as other types of cultivated lands. There were good reasons to have a broad definition of “Cultivated Lands”. There is no unfairness associated with this. AE cannot ignore the terms of its own agreement.
The compensation process is not scientific and cannot readily identify with any precision the actual adverse impact or loss of use that a landowner incurs because of the presence of the towers on the lands. Many of the impacts are subjective and intangible.
If the ROW Agreement is ignored, it is arguable that the AE towers have a greater adverse effect on lands planted with cereal crops than “improved pasture” lands. The ROW agreements contain a very broad definition of “Cultivated Lands”. This necessarily means that some owners will receive more attractive compensation than others. But that is what the parties agreed to.
There is thus no reason to deviate from the PoD in this case.
Conclusion
The SRB Decision was based on palpable and overriding error. The Court, therefore, directed that the SRB compensation order be varied to reflect the compensation payable to the Appellant in the amount of $1,380.00 for each of the two towers.
