February 10, 2006, E.C.B. No. 09/04/264

 
REASONS FOR DECISION

1.  INTRODUCTION

[1]  The claimant, Talisman Energy Inc. ("Talisman") is seeking to complete the expropriation of a statutory right of way ("SRW") for an existing natural gas pipeline already constructed beneath lands owned by the respondents, Diane and Larry Fay (the "Fays"). Talisman has applied to the Expropriation Compensation Board (the "board") pursuant to the authority vested in the board by the operation of sections 16(1) and (3) of the Pipeline Act, R.S.B.C. 1996, c. 364, and Part 7 of the Railway Act, R.S.B.C. 1996, c. 395, for an order determining the compensation to which the Fays are entitled under the Expropriation Act, R.S.B.C. 1996, c. 125, as a result of the taking.

[2]  On August 22, 2000 the Fays took title to three parcels of ranchland located north of the city of Fort St. John, consisting of the south ½ of Section 8, the southwest 1/4 of Section 9 which adjoins Section 8 on its eastern boundary, and the east ½ of Section 5 which adjoins Section 8 on its southern boundary, all in Township 110 in the Peace River District.

[3]  The lands which are the subject of this application are legally described in the expropriation documents as:

PID 008-907-561,
the Northeast 1/4 of Section 5,
Township 110,
Peace River District, Except Plan PGP38245;

and

PID 014-501-155,
the Southwest 1/4 of Section 9,
Township 110,
Peace River District.
(collectively the "Lands")

[4]  Prior to the purchase of the Lands by the Fays, a predecessor in title to Talisman constructed the subject pipeline and deposited a surveyed plan of the pipeline right of way in the Prince George Land Title Office under no. 21881 (the "SRW plan 21881"). A portion of the pipeline crosses a corner of the southwest 1/4 of Section 9 and a corner of the northeast 1/4 of Section 5 of the Lands. The total area occupied by the statutory right of way through the Lands is 0.49 acres.

[5]  While the pipeline constructed by Talisman also crosses the southeast 1/4 of Section 8, a statutory right of way for the pipeline was registered in 1996 against that land and it is therefore not included in these proceedings.

[6]  As a result of an interlocutory application brought by the Fays, the then Chair of the board determined that the board has jurisdiction to determine compensation for the SRW to be registered against the Lands. See Talisman Energy Inc. v. Diane and Larry Fay (2004), 84 L.C.R. 3 (B.C.E.C.B.) (the 2004 Talisman decision).

[7]  The board has previously set out the statutory framework for expropriation of interests in land for natural gas pipelines and the compensation for such takings. See the 2004 Talisman decision and also B.C. Gas Inc. v. Lansdall (1992), 48 L.C.R. 209 (B.C.E.C.B.) and Home Oil Co. v. Schulte (2003), 80 L.C.R.123 (B.C.E.C.B.).

[8]  The Chair of the board has directed that this application should proceed by way of documentary evidence and written submissions.

[9]  In addition to correspondence on the board file, a number of documents have been filed with the board by the parties, including the following:

• Affidavit of Diane Fay sworn May 28, 2004.
• Affidavit of Marni Alexander, a lawyer employed by Talisman in the capacity of in-house counsel, sworn June 21, 2004.
• Affidavit of W. A. Sandy Ross, BCLS sworn March 25, 2004.
• December 30, 2003 Opinion of Value report of W.W.G. McDonald, A.A.C.I., R.I.(B.C.), FRI., filed by Talisman.
• March 16, 2004 Notice pursuant to s. 50 of the Railway Act, R.S.B.C. 1996, c. 395, including form of SRW instrument to be registered against the Lands.

[10]  The following submissions were received by the panel:

• Written submission of Talisman filed August 30, 2005.
• Written submission of the Fays filed September 20, 2005.
• Reply to submission of the Fays filed by Talisman September 27, 2005.

[11] Despite the earlier decision establishing the jurisdiction of this board to determine compensation, the Fays continue to advance their position that this board should not proceed to determine compensation. The Fays’ submissions are otherwise limited to a repeat request for an oral hearing in Fort St. John and their submission that if the board proceeds, its order should be in the nature of a lease with rent rather than expropriation of a SRW.

2.  PRELIMINARY MATTERS

2.1  Jurisdiction

[12]  In their submissions the Fays continue to question the board’s jurisdiction.

[13]  The jurisdiction of the Expropriation Compensation Board is derived from the Pipeline Act and the Railway Act. In the 2004 Talisman decision the then Chair determined that this board has the statutory jurisdiction to determine compensation where pursuant to provincial legislation a company has exercised its right to expropriate an interest in land for a natural gas pipeline. He also determined that Talisman had complied with the required procedural steps under the Railway Act.

[14]  The panel observes that the issues raised in the Fays’ submission as to jurisdiction have therefore already been determined pursuant to the board’s previous decision in this matter. Therefore the board does have jurisdiction to determine compensation with respect to the SRW to be registered against the Lands.

2.2 Manner of Proceeding

[15]  This matter was scheduled for hearing before a one person panel in Fort St. John. This date was adjourned. It then became necessary for a three person panel of the board to hear the matter and new dates were proposed for an oral hearing in June 2005 in Fort St. John. There was a request that the hearing be moved to July but the board was unable to arrange a three person panel of the board to sit at that time .

[16]  In a June 14, 2005 letter to the parties the Chair of the board, referencing section 27(2) of the Expropriation Act, advised that since the board was not in a position to have the matter heard by a single member panel, it was neither practical nor convenient to conduct the hearing in Fort St. John by a three member panel of the board. The Chair therefore directed that this matter proceed be heard by way of written submissions. In doing so, the Chair noted he was aware that this manner of proceeding had earlier been declined due to the wish of counsel to cross examine certain witnesses. The Chair observed that by scheduling the delivery of submission s for the fall of 2005 there would be an opportunity to depose any desired witnesses and provide transcripts of their evidence with the written submissions.

[17]  In an exchange of correspondence in the latter half of June 2005, counsel for the Fays objected to the Chair’s direction as to the manner of proceeding. The Chair in reply confirmed his earlier decision that the matter would proceed by way of written submissions, noting the need for the board to discharge its responsibilities efficiently and effectively. Alternatively, he advised that pursuant to recent legislative changes any party was at liberty to file a Form 1, Request to Transfer Proceedings to the Supreme Court and to have the matter heard there.

[18]  No request to transfer the matter to the Supreme Court having been made, in a July 5, 2005 letter, the Chair informed the parties that the matter would proceed by means of written submissions and set out a schedule for exchange of submissions commencing October 3, 2005.

[19]  Written submissions were received from the parties in August and September 2005, with no indication that any deposition of witnesses had taken place.

[20]  The written submissions filed on behalf of the Fays maintain the position that the board ought to conduct an oral hearing in Fort St. John. It is submitted that the decision to proceed by way of written submissions amounts to a breach of the rules of natural justice because the request for a hearing has been denied and there has not been an opportunity to cross-examine the Talisman witnesses.

[21]  The panel notes that on the substantive issue of compensation, the only argument raised by the Fays in their pleadings is that the board’s order should be in the nature of a lease with rent rather than compensation based on market value for the expropriation of a statutory right of way. The panel observes that this is a very narrow issue and the panel’s consider ation of this issue is limited in view of the earlier 2004 Talisman decision. Having jurisdiction, it follows that the board must make its award in accordance with the applicable statutory provisions. This is a matter for legal argument and not an evidentiary matter

[22]  The Fays have not provided any competing evidence on value , nor ha ve they challenged the market value evidence adduced by the claimant. That evidence indicates that the amount of compensation with respect to the taking is minimal.

[23]  In all of the circumstances, the panel concludes this matter is capable of being determined on the basis of the documentary evidence previously filed with the board and the written submissions made by the parties. There is no apparent material dispute as to the facts surrounding the taking. The principal issue for the panel’s consideration is limited to the determination of the amount of compensation to be paid in accordance with applicable law with respect to the SRW to be registered against the Lands.

[24]  Further, the panel notes that the Fays, while again objecting to the manner of proceeding, have elected to so proceed by the filing of their written submissions and by failing to avail themselves of the alternative open to them of having the matter transferred to the Supreme Court of British Columbia for hearing. Additionally, they were provided with the opportunity to use discovery and deposition procedures to assist them had they found it necessary but chose not to do so.

[25]  The panel concludes that there is no breach of natural justice in proceeding by means of the documentary evidence filed and the written submissions.

BACKGROUND

[26]  The events preceding the present application to determine compensation under the Expropriation Act are set out in some detail in the 2004 Talisman decision. For the present purposes it is sufficient to note that a corporate predecessor to Talisman obtained the necessary approvals and constructed the pipeline in the mid 1970’s. At that time the pipeline was treated as a flow line and orders were made by the Mediation and Arbitration Board (the "MAB") acting under the Petroleum and Natural Gas Act, 1965, S.B.C. 1965, c. 33, as amended by Petroleum and Natural Gas Act, S.B.C. 1974, c. 61, (now the Petroleum and Natural Gas Act, R.S.B.C. 1996. c. 361) providing for entry on the lands for the purposes of construction and operation of the pipeline and for compensation payable for the occupation or use of the Lands.

[27]  The MAB compensation orders awarded $320 for the first year and $70 for the second year with respect to the northeast 1/4 of Section 5 and $330 for the first year and $80 for the second year with respect to the southwest 1/4 of Section 9. Beyond the first two years, only the nominal amount of $10 per year (referred to as the "annual rent") was awarded for each parcel. The orders, however, referred to "the right to a re-negotiation of the rental provisions" pursuant to section 12 of the Petroleum and Natural Gas Act.

[28]  Soon after the Fays became the registered owners of the Lands in August 2000, they entered into negotiations with Talisman concerning the annual compensation for the pipeline. After some time, negotiations culminated in the Fays providing to Talisman a notice to lessee dated August 29, 2003 pursuant to what is now section 11 of the Petroleum and Natural Gas Act requiring renegotiation of the "rental provisions" in the MAB compensation orders.

[29]  Talisman in turn raised a jurisdictional objection on the basis that the pipeline no longer appeared to be a flow line and was, in fact, a pipeline transporting petroleum products to a main line for sale. Talisman advised that it would require a SRW over the portions of the Lands affected by the pipeline and compensation would be determinable by the board.

[30]  Talisman then proceeded to institute expropriation proceedings under Part 7 of the Railway Act. The required plan and book of reference had already been deposited in the land title office in 1974 under no. 21881. A profile plan was prepared and deposited under no. BW060331 in February 2004. The required newspaper notice was published on March 5, 2004. A section 50 notice dated March 16, 2004 and the requisite land surveyor’s affidavit sworn March 25, 2004 together with an appraisal of the Lands subject to the proposed statutory right of way and a copy of the proposed SRW instrument were served on the Fays on April 16, 2004. In the section 50 notice Talisman declared its readiness to pay compensation to the Fays for the SRW in the amount of $98 and for miscellaneous damages in the amount of $300.

[31]  On May 11, 2004 Talisman filed its application for determination of compensation with the board. On the same date, the Fays applied to the MAB for arbitration of the rentals payable under the previous MAB compensation orders.

4.  ISSUE

[32]  The principal issue before the panel is the amount of compensation to be paid with respect to the SRW to be registered against the Lands in respect of the existing pipeline.

5.  THE INTEREST TAKEN

[33]  The Affidavit of British Columbia land surveyor, Sandy Ross, with attached exhibits, provides evidence as to the area of the Lands occupied by the proposed SRW. The total area is 0.49 acres, comprised of 0.22 acres within the northeast 1/4 of Section 5 and 0.27 acres within the southwest 1/4 of Section 9. The pipeline lies underground throughout.

[34]  The proposed SRW instrument grants a statutory right of way to Talisman across, under, or through the Lands to construct, operate and maintain a pipeline or pipelines, including ancillary works, but limits the right to construct more than one pipeline to one construction operation. Provision is also made for use of the Lands adjacent either side of the SRW for construction, repair or replacement and ingress and egress and for access across the Lands. Talisman covenants to compensate the landowners for reasonable additional costs incurred in connection with such activities for any permitted agricultural or related use within the SRW. Any above ground works are to be located so as to provide a minimum of inconvenience to the landowners, with compensation for any above ground installations to be separately agreed, or failing agreement, settled by arbitration.

[35]  The proposed SRW instrument provides for the landowners, the Fays, to use and enjoy the SRW for any purpose that will not interfere with the rights granted to Talisman or result in liability to Talisman. Specifically the landowners covenant not to do various things within the SRW area without prior consent, such consent not to be unreasonably withheld. These include refraining from excavating or drilling any pits, holes, trenches, ditches or wells; installing or erecting any pipelines, foundations, pavement, pile of material, building or structure; or any mining, quarrying or similar work or activity. The landowners also covenant that, except for crossing agreements, they will not grant any rights to others without Talisman’s consent.

[36]  As noted in the 2004 Talisman decision, SRW plan 21881 shows that the pipeline crosses a significantly larger portion of the total lands owned by the Fays than the two parcels identified as the Lands for the purposes of this application, with the southeast 1/4 of Section 8 already being subject to a registered SRW in favour of Talisman. A review of SRW plan 21881 shows that with respect to the Lands, the proposed SRW to be registered is located in the extreme northwest corner of the northeast 1/4 of Section 5 occupying 0.22 acres and in the extreme northwest corner of the southwest 1/4 of Section 9 occupying 0.27 acres. The largest area of the Fays’ lands occupied by the pipeline is the southeast 1/4 of Section 8 which lies between the Lands and is essentially bisected diagonally by the pipeline SRW previously registered which covers an area of 4.04 acres.

6.  APPRAISAL EVIDENCE

[37]  The only appraisal report filed is that of W.W.G. McDonald, A.A.C.I. R.I.(B.C.), of True North Realty Appraisals dated December 30, 2003 prepared for Talisman.

[38]  Mr. McDonald uses the direct comparison approach to arrive at the market value of typical farmland in the area, further segregated as to the value of good cultivated farmland and the value of uncultivated farmland in natural bush and used for grazing livestock. The report indicates his scope of work included inspection of the subject property, scrutiny of air photographs, soil maps and land maps. In his report he describes the southwest 1/4 of Section 9 as good cultivated land seeded to hay mixture and the northeast 1/4 of Section 5 as mostly natural bush, pasture land.

[39]  Based on three sales and two listings in the area, and after adjusting for differences between the comparables and the Lands, Mr. McDonald’s opinion of value as at December 30, 2003 is:

• $400 per acre for the southwest 1/4 of Section 9 as cultivated land; and,
• $300 per acre for the northeast 1/4 of Section 5 as uncultivated land.

7.  COMPENSATION

7.1  Talisman’s Submissions

[40]  Talisman submits that the acquisition of a statutory right of way by way of expropriation is the acquisition of an interest in land over the Fays’ property. It is not a rental or lease, nor is it a statutory license as were the previous MAB right of entry orders. As such, compensation in the nature of a rental is not appropriate. The compensation is to be determined by the board as a one time payment as if the interest in land were sold at fair market value.

[41]  On the basis of Mr. McDonald’s appraisal report and assuming all of the affected land is cultivated, Talisman calculates compensation for the acquisition of the proposed SRW to be registered against the Lands to be $98. Talisman arrives at this figure by multiplying the area of the SRW over the Lands (0.49 acres) by the fee simple market value for cultivated land ($400 per acre) and then reducing the result by 50% to reflect the fact that the works are underground and the Fays, as the fee simple owners, have the full use of the surface for all reasonable purposes subject to restrictions on construction of improvements or other activities inconsistent with the rights granted by the SRW instrument to Talisman.

[42]  Because of the location of the pipeline beneath the Lands, Talisman says that there is no injurious affection to the remaining lands.

[43]  Talisman states that it is unaware of any evidence of disturbance damages or personal or business losses incurred by the Fays as a result of the existence of the pipeline or the acquisition of the SRW.

7.2  The Fays’ Submissions

[44]  The Fays submit that if this board "insists on issuing an order on top of the MAB right of entry order purporting to grant rights to Talisman", the terms of the order should be identical to the terms of the MAB order both as to the right of entry and compensation. They argue that the board does not have a good understanding of MAB or petroleum industry matters and should not proceed as urged by Talisman but should echo the existing orders of the MAB.

7.3  Analysis and Conclusion

[45]  Section 50 of the Railway Act provides that the notice to be served under that section must contain a description of the land to be taken as well as a declaration of readiness to pay a certain sum as compensation for the land. The section 50 notice dated March 16, 2004 attaches the proposed SRW instrument to be registered against the Lands and states that Talisman is prepared to pay $98 as compensation for the SRW.

[46]  Pursuant to section 53 of the Railway Act, since the Fays did not accept the sum offered by Talisman within the time frames stipulated in that section following service and publication of the section 50 notice under that Act, the amount of compensation must be determined by this board under the Expropriation Act. The Expropriation Act applies to the determination of the amount of compensation.

[47]  The land to be taken by operation of Part 7 of the Railway Act is a statutory right of way in the form of the documents attached to the section 50 notice served on the Fays. Having considered the Fays’ submissions, the panel concludes the board has no jurisdiction as to the form or content of the SRW documents and that pursuant to section 53 of the Railway Act and section 2(3) of the Expropriation Act its jurisdiction is limited to the determination of the amount of compensation to be awarded to the Fays with respect to the interest in land to be taken upon registration of the SRW documents attached to the section 50 notice.

[48]  Pursuant to sections 31, 34 and 40 of the Expropriation Act, the board must award as compensation to an owner the market value of the owner’s estate or interest in the expropriated land plus reasonable damages for disturbance and, in cases such as this of a partial taking, compensation for the reduction in market value (i.e. injurious affection) to the remaining land, if any.

[49]  The only evidence before the board as to market value is that of Mr. McDonald. His opinions of market value pertain to the fee simple value of the Lands as of December 30, 2003 and were not challenged. He did not provide a separate estimate of value for the rights of way.

[50]  The date for assessment of compensation was not addressed in the submissions but requires determination. This has been previously considered by the board in the B.C. Gas Inc. v. Lansdall and Home Oil Co. v. Schulte cases. In the present matter, the profile plan, the last plan required to be filed in the Land Title Office was not filed until February 12, 2004. Since the SRW was not acquired within one year of that date, for the reasons stated in the above cases, the panel concludes the parties should use the date of the filing of the first submissions, August 30, 2005, as the date for assessment, on the basis that such date is analogous to the first hearing day in the situation where an oral hearing takes place and avoids the practical difficulties with providing evidence of valuation at some later date.

[51]  Mr. McDonald’s opinions of value are as of December 30, 2003. His valuation for cultivated land is based on sales occurring in April and July of 2003 and for uncultivated land on sales in July and December of 2003. He makes no adjustment for time in either case and there is no indication in his report that there is much change in the value of this farmland over time. Talisman’s proposed value of the Lands subject to the taking is also enhanced by Talisman’s concession that the total 0.49 acre area subject to the SRW should be valued as cultivated land at the higher value of $400 per acre. Thus the date of the assessment of market value for compensation is of less consequence. The panel therefore finds that the fee simple value of the 0.49 acre area subject to the SRW is $400 per acre both on December 30, 2003 and on the date of this decision.

[52]  We turn next to the consideration of residual value to the owner and therefore the appropriate reduction to be made from the fee simple value of $400 per acre to reflect the reality that the taking is a statutory right of way for an underground pipeline. The panel observes firstly that there is no evidence as to whether the Fays’ specific use of the area of the Lands subject to the SRW is affected. However, on the face of the SRW instrument there is some restriction of use. The panel therefore concludes that there would be some reduction in value in the eyes of a willing purchaser of the fee simple, even though the use of the land as agricultural and rangeland can continue.

[53]  The 50% reduction of compensation from the fee simple value proposed by Talisman was not challenged in the Fays’ submissions. In Home Oil Co. v. Schulte at paragraph 65 the Vice Chair of the board after reviewing various cases involving statutory rights of way for underground utilities concluded that a reduction of 50% of the fee simple value of the farmland involved in that case was appropriate to arrive at the value of the statutory right of way for an underground gas pipeline. Consistent with that decision and in view of Talisman’s proposal, the panel concludes that the fee simple value of $400 per acre is to be reduced by 50% to arrive at a market value of $200 per acre for the value of the interest in land to be taken in the form of the proposed SRW instrument attached to the section 50 notice.

[54]  The amount of compensation for the interest in land to be taken pursuant to the proposed SRW over the Lands is therefore $98 ($200 per acre x 0.49 acres).

[55]  There was no evidence to support any claim for disturbance damages or injurious affection and so no award is made for these items.

8.  COSTS

[56]  Neither party made submissions respecting costs. Given that the amount of money involved in this matter is small, the panel considers it appropriate to deal with costs at this time to avoid further proceedings.

[57]  In B.C. Gas Inc. v. Lansdall and in Home Oil Co. v. Schulte the board found that an owner under the same provisions was entitled to costs. Following those cases, the panel finds the Fays are entitled to their costs pursuant to section 45 of the Expropriation Act and the Tariff of Costs Regulation, B.C. Reg. 189/99. The panel considers the matter as presented to be of less than ordinary difficulty and accordingly costs are awarded at Scale 1.

THEREFORE IT IS ORDERED THAT

1. The claimant Talisman Energy Inc. shall pay the respondents, Diane and Larry Fay, compensation pursuant to section 16 of the Pipeline Act and section 53 of the Railway Act in the amount of $98 for the statutory right of way in the form of the instrument attached to the March 16, 2004 Notice pursuant to section 50 of the Railway Act over the Northeast 1/4 of Section 5, Township 110, Peace River District, Except Plan PGP38245 (PID 008-907-561) and the Southwest 1/4 of Section 9, Township 110, Peace River District (PID 014-501-155) and as set out in the Plan of Pipeline Right of Way deposited in the Prince George Land Title Office on December 24, 1974 under no. 21881.
2. The claimant Talisman Energy Inc. shall pay the respondents, Diane and Larry Fay, their reasonable costs pursuant to section 45 of the Expropriation Act and the Tariff of Costs Regulation, B.C. Reg. 189/99 at Scale 1.