The Cost of Prolonging Litigation in Expropriation Proceedings

Introduction

Costs in expropriation proceedings are governed by a claimant‑protective framework reflecting the extraordinary nature of the taking of private property. The Expropriations Act[1] (the “Act”) generally entitles claimants to recover the reasonable costs incurred in determining and advancing their claims for compensation.[2] That entitlement is codified in sections 32 and 33 of the Act, which provide for the recovery of costs and interest on unpaid compensation.

However, that claimant‑protective framework is not absolute. In Shergar Development Inc. v. Windsor (City), the Ontario Court of Appeal noted that, while an innocent party must be fully compensated and receive all of its reasonable costs, this objective cannot be divorced from the need for the efficient resolution of claims.[3] Accordingly, there must be the potential for adverse cost consequences where claimants improperly prolong litigation.

In Shergar, the court addressed whether a claimant could be ordered to pay costs to an expropriating authority where its conduct unnecessarily prolonged the proceedings.[4] The case involved lengthy litigation marked by delay, unsuccessful legal challenges, and the claimant’s rejection of multiple settlement offers, including one that ultimately exceeded the compensation awarded at the hearing.[5] In those circumstances, the court upheld an adverse costs award against the claimant, finding that its conduct was unreasonable and had resulted in wasted time and resources.[6] The court found that, despite the claimant‑protective nature of the Act, that protection does not extend to shielding a claimant from costs consequences where it unreasonably refuses a settlement offer and prolongs the litigation.[7]

In Gabriel Khater Operating as House of Pizza v. Ottawa (City)[8], the Ontario Land Tribunal (the “Tribunal”) considered Shergar in the context of a settlement reached prior to any hearing on compensation. The Tribunal distinguished Shergar and declined to impose adverse cost consequences, reasoning that, in the absence of a hearing or compensation award, it could not make the factual findings necessary to assess whether the claimant had acted unreasonably.[9]

The House of Pizza decision illustrates that the application of Shergar depends on the procedural context in which costs are assessed. While adverse costs consequences may arise where a claimant's conduct can be evaluated against a full evidentiary record following a hearing and a determination of compensation, that analysis is significantly constrained where the underlying compensation dispute is resolved by settlement. In those circumstances, the Tribunal lacks the findings of fact and developed evidentiary record that informed the analysis in Shergar, limiting its ability to impose Shergar-type adverse costs consequences. The Tribunal's reasoning in House of Pizza explains these constraints and frames the analysis that follows.

The House of Pizza Decision

In House of Pizza, the claimant was a commercial tenant operating a pizza restaurant in a plaza that was expropriated by the City of Ottawa (the “City”). The City initially made a zero-sum offer and, shortly thereafter, offered $100,000 on an all-inclusive basis to all tenants of the plaza. Every tenant accepted this offer except for the claimant.[10] Years later, after retaining counsel and experts, the claimant sought $250,000 plus costs and requested mediation, which the City refused.[11]

Between 2023 and 2024, the parties exchanged several settlement offers, with the claimant progressively reducing its settlement demand. Six days before the scheduled Tribunal hearing, the claimant accepted the City's December 2023 offer of $50,000 plus costs, leaving costs to be agreed upon or determined under s. 32 of the Act.[12]

The Costs Motion

The claimant brought a motion to recover the legal, appraisal, disbursement and other costs from the beginning of the expropriation until the settlement was reached. The claimant also sought interest on the claimed amount of $401,387.18, as well as an order for the payment of fees and costs incurred in relation to the motion.[13]

The City sought to reduce the claimant’s alleged entitlement to $249,658.16, while also seeking costs against the claimant on the basis of its acceptance of the offer just six (6) days before the scheduled Tribunal hearing.[14]

The Tribunal’s Analysis

(i)         Costs Adjudication under the Act and Rule 26

The Tribunal began its costs analysis by examining the settlement agreement. The agreement required the City to pay the claimant’s costs but made no provision for any costs payable by the claimant.[15] The Tribunal rejected the City’s argument that such a term should be implied, based on the fact that the agreement was clear on its face and had been drafted by the City, an experienced expropriating authority. Introducing a fundamental term after the fact would be inconsistent with the nature of a binding settlement.[16]

The Tribunal then considered whether the City was entitled to claim costs under the Act. Relying on Shergar, the City argued that expropriation authorities are afforded potential cost protection where a fair offer is made and a claimant unreasonably refuses it, thereby prolonging the proceedings and incurring additional legal costs.[17] The Tribunal rejected this argument.

The Tribunal took issue with the City’s attempt to effectively relitigate matters that had not been adjudicated. The City’s arguments were based on contested factual allegations and its own interpretations of the law, rather than on findings made by the Tribunal. All of the City’s allegations were disputed by the claimant, and accepting them would require the Tribunal to prefer one version of events over the other without the benefit of a hearing, tested evidence, or factual findings. In the absence of a compensation determination, cross-examined evidence, or established facts, it would be inappropriate to opine on what compensation might have been awarded or whether the claimant acted reasonably.[18] The Tribunal distinguished Shergar at this stage, noting that it had involved a full hearing and final award. In contrast, the present matter settled prior to adjudication, leaving no established factual foundation to support an adverse costs award.[19]

The City also relied on subsection 32(2) of the Act; however, the Tribunal found that this provision did not support awarding costs in the City’s favour. The Tribunal held that subsection 32(2) applies only where the Tribunal has determined compensation, which did not occur due to the settlement.[20] In the context of a post-settlement costs motion, the Tribunal’s role is limited to assessing the claimant’s reasonable costs and does not extend to revisiting the merits or treating the settlement as a substitute for a compensation award.[21]

(ii)        Overall Reasonableness of Costs Claimed

The Tribunal then assessed whether the claimant’s actions were reasonable in the circumstances, examining its reasons for settling and the timing of its acceptance. Counsel for the claimant cited several reasons for the delay, including the complexity of relocating the business and concerns about the costs associated with the scheduled hearing.[22] The Tribunal ultimately found it unnecessary to pass judgment on the reasons for, or timing of, the claimant’s acceptance. It noted that inexperienced claimants may reasonably differ in their assessment of litigation risks, the advice received from counsel, and the conduct of the opposing party.[23]

(iii)       City’s Position Based on Critiques of the Claimant’s Underlying Compensation Claims

The Tribunal rejected the City’s argument that the claimant pursued an unreasonable or speculative claim and should therefore have its costs reduced or be required to pay the City’s costs.It held that assessing the merits of the damages claim, or the reasonableness of advancing it, would have required a full hearing, which did not occur, and could not be fairly determined on a costs motion. The Tribunal accepted that pursuing the claim with legal and expert support was reasonable and typical, especially in the face of disputed facts and competing opinions. The fact that the matter settled, or that the City disagreed with the merits, did not justify reducing costs.[24]

Although no official determination was made, the Tribunal did note that the claimant’s conduct seemed reasonable. Retaining experts, advancing a complex damages claim, and proceeding to the eve of the hearing are common in expropriation cases. Competing expert evidence or factual disputes do not render a claim improper,[25] and there was no evidence of misconduct or wasteful behaviour in refusing earlier offers. As a result, there was no basis to reduce the claimant’s costs entitlement.[26]

(iv)       Decision

The Tribunal ultimately held that the claimant had acted reasonably and was not liable for the City's costs. After reviewing the claimant's bill of costs, it awarded substantially all of the claimant's claimed legal, appraisal, and other costs, subject to modest reductions, together with the costs of the motion. The issue of interest was deferred. Although the precise amount was not reported because the final calculation remained outstanding, the award ultimately approached $400,000.

Is House of Pizza Consistent with Shergar?

At first glance, the decision in House of Pizza appears inconsistent with Shergar. In Shergar, the court held that a claimant may be ordered to pay costs to a statutory authority if they unreasonably refuse a settlement offer or otherwise prolong the proceedings. By contrast, in House of Pizza, the Tribunal declined to order the claimant to pay costs despite a late acceptance of a settlement offer more than a year into the proceedings.[27]

On closer examination, however, the decisions are not inconsistent. Rather, they reflect the flexible and context-specific nature of the costs regime under the Act, as well as the varying circumstances of expropriation cases.

No Adjudicated Record

First and most significantly, the key distinction between House of Pizza and Shergar is that, in Shergar, the parties never reached a settlement and instead proceeded to a full hearing before the Tribunal to determine compensation.[28] Contrastly, in House of Pizza, the parties ultimately agreed to a settlement, albeit late in the process, and did not proceed to the scheduled compensation hearing.[29]

For the Tribunal in House of Pizza, this distinction was critical. Because there had been no determination of compensation by an adjudicative body, the Tribunal did not have the benefit of tested evidence, expert findings, or factual conclusions on the merits.[30] As a result, when the City argued that the claimant had acted unreasonably by delaying settlement and pursuing a speculative damages claim, the Tribunal recognized that these assertions were not grounded in an established record and instead reflected contested advocacy positions.[31]

This significantly constrained the Tribunal’s role. To avoid turning the costs motion into a re-litigation of a compensation hearing that never occurred, and given the absence of credibility findings or tested evidence, the Tribunal confined its analysis to neutral and objective facts that were not in dispute.[32] Accordingly, the Tribunal declined to engage in a substantive evaluation of the merits of the claimant’s damages or the reasonableness of its conduct, focusing instead on the reasonableness of the costs claimed as reflected in the bill of costs.[33]

This is distinguishable from Shergar, where a full hearing produced an adjudicated record. In that context, the Court had a reliable factual foundation on which to assess the appellant’s conduct and reasonableness, allowing it to consider those factors in allocating costs rather than limiting its analysis to the reasonableness of the costs themselves.[34]

Distinguishing the Issues: Reasonableness of Conduct vs Costs

In Shergar, the issue before the court was the reasonableness of the claimant’s conduct in rejecting settlement offers and prolonging the proceedings. A full hearing and a resulting compensation award provided the court with a complete adjudicative record, allowing it to evaluate the claimant’s actions against established facts.[35]

By contrast, in House of Pizza, the Tribunal was not in a position to make that type of assessment. In the absence of an adjudicated record, it could not determine whether the claimant’s conduct was unreasonable or whether the claim lacked merit. Instead, the Tribunal’s role was necessarily narrower. It was limited to assessing the reasonableness of the costs claimed, rather than the underlying conduct that gave rise to those costs.[36] These are fundamentally different inquiries.

Unlike in Shergar, where the claimant delayed the proceedings for years and refused a substantially higher offer, the claimant in House of Pizza accepted a settlement within a much shorter timeframe and before any adjudication, making any finding of unreasonable conduct far less clear.[37]

The Role of a Settlement Agreement

The existence of a settlement agreement in House of Pizza, and its absence in Shergar, is another significant distinguishing factor. In House of Pizza, the Tribunal placed considerable weight on the parties’ settlement agreement, which contained no terms addressing any liability of the claimant for the City’s costs, no requirement for the City to submit a bill of costs, and no mechanism for referring the City’s costs to the Tribunal or an assessment officer.[38] 

The Tribunal emphasized that, as a binding contract, the settlement agreement governs the parties’ rights and obligations. There is no basis for adding fundamental terms after the fact, as doing so would be inconsistent with the nature of a binding agreement.[39] The Tribunal found it significant that the City, despite its sophistication, chose not to include a provision addressing the possibility that the claimant might be required to pay its costs. This omission suggested that no such term was intended, and the Tribunal declined to read one into the agreement after it had been finalized.[40]

In Shergar no settlement agreement governed the parties’ rights and obligations. Instead, the compensation claim proceeded to a full hearing, requiring the Tribunal to determine compensation and exercise its statutory discretion under s. 32 of the Act.[41] The court’s analysis in Shergar therefore focused on the scope of that discretion, including the ability to consider subsequent settlement offers and impose costs consequences where a party unreasonably refuses a reasonable offer.[42]

Conclusion

The Tribunal’s decision in House of Pizza illustrates that the approach to costs under section 32 of the Act is inherently context dependent. Where a matter proceeds to a hearing, the Tribunal may assess the parties' conduct against a full evidentiary record and impose adverse costs consequences where warranted. Where a matter settles before adjudication, however, the absence of findings of fact and the terms of the settlement agreement may significantly constrain the Tribunal's ability to do so. Accordingly, both the procedural posture of the proceeding and the wording of any settlement agreement may materially affect the Tribunal's costs analysis.

[1]Expropriations Act, RSO 1990, c E26, ss 32-33.

[2]Shergar Development Inc. v Windsor (City), 2020 ONCA 490 at paras 34-36 [Shergar].

[3]Ibid at para 36.

[4]Ibid at paras 1-13.

[5]Ibid at paras 13-19.

[6]Ibid at paras 31-36, 39-40.

[7]Ibid at paras 39-41.

[8]Gabriel Khater Operating as House of Pizza v Ottawa (City), 2025 CanLII 110387 [House of Pizza].

[9]Ibid at para 43.

[10]Ibid at para 7.

[11]Ibid at para 8.

[12]Ibid at paras 9-10.

[13]Ibid at para 4.

[14]Ibid at paras 5-6.

[15]Ibid at para 11.

[16]Ibid at paras 12-15.

[17]Ibid at para 19.

[18]Ibid at para 20.

[19]Ibid at paras 21-23.

[20]Ibid at paras 27-29.

[21]Ibid at paras 30-33.

[22]Ibid at paras 35-36.

[23]Ibid at para 38.

[24]Ibid at paras 43-44.

[25]Ibid at paras 45-46.

[26]Ibid.

[27]House of Pizza, supra note 2 at paras 46-47.

[28]Shergar, supra note 21 at para14.

[29]House of Pizza, supra note 2 at para 10.

[30]Ibid at paras 23-24.

[31]Ibid at paras 20, 24.

[32]Ibid at paras 20, 25.

[33]Ibid at paras 47.

[34]Shergar, supra note 21 at paras 14-19, 40-41

[35]Ibid at paras 14-19., 40-41.

[36]House of Pizza, supra note 2 at para 47.

[37]Ibid at para 10; Shergar, supra note 21 at para 41.

[38]House of Pizza, supra note 2 at para 11.

[39]Ibid at paras 13-15.

[40]Ibid at paras 11-12.

[41]Ibid at paras 24-25.

[42]Ibid at paras 34-36.