Business Loss Claims 101

One of the more complex compensations issues dealt with by lawyers in expropriation claims is business loss. There are two main issues involved: proving that the expropriation (or construction of the government’s works) caused the business loss; and, proving the amount of the loss (the compensation payable).

This article will deal with the issue of causation. Our next article will deal with the issue of quantifying damages.

The issue of causation is well known in Canadian law. The same basic legal principles apply to expropriation business loss claims. First, the burden of proof rests with the landowner, that is, it is his or her responsibility to prove that the expropriation caused the business loss. Second, the predominate legal test to be applied is the “but-for” test: Without (or but-for) the expropriation, would the business have suffered the losses that it claims?  These principles seem simple, but present special challenges in an expropriation case.

The first element to prove is that the business suffered a loss at all.  That is quite easily done if the business has accurate financial statements. A simple year-over-year comparison will establish a prima facie loss.

It is a requirement that the landowner be prepared to show that the business loss was not caused by factors other than the expropriation. Such factors could include: a failed expansion attempt; the loss of a key member of management; an ownership change; losses of clients or suppliers; etc. Those are examples of normal business fluctuations that are not related to the expropriation. Eliminating these causes of business loss will strengthen a landowner’s case. Conversely, the authority will seek to lead evidence to establish these causes of loss to weaken the claim.

Another key factor to establish or eliminate a claim for business loss is the timing of the loss. For example, if the business volume began to decline at the same time as the expropriation rerouted traffic away from a retail establishment, fast food restaurant, or hotel, that provides solid evidence that the expropriation had an effect on the business. Conversely, if the losses began some period before the expropriation took place, or, some time after it occurred, that is good evidence that the expropriation did not have an effect on the business.

The examples above are just that examples. Every case is individual and nuances and exceptions occur in every business situation.  It is important to carefully assess the entire business operation and surrounding factors to properly determine if the expropriation or government work caused a compensable loss to a business. Our next article will deal with the issue of quantifying damages.

If you have questions or would like to discuss this topic further, please contact Robert Pineo.

Please note that this article is meant to provide information only and is not intended to confer legal advice or opinion. If you have any further questions please consult a lawyer. Please note as well that many of the statements are general principles which may vary on a case by case basis.