Regal Realty Limited Appellant And: City of St. John's Respondent, 2020 NLSC 156

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Regal Realty Limited v. St. John's (City) , 2020 NLSC 156 Date : December 16, 2020 Docket : 201801G8027 In The Matter of the Assessment Act, 2006 , SNL 2006, c. A-18.1 And In The Matter of the Assessment Review Court - City of St. John's Between: Regal Realty Limited Appellant And: City of St. John's Respondent Before: Justice Valerie L. Marshall Place of Hearing: St. John’s, Newfoundland and Labrador Date of Hearing: November 20, 2020 Appearances:

Michael J. Crosbie, Q.C. and Anna M. Wadden Appearing on behalf of the Appellant Linda S. Bishop, Q.C. Appearing on behalf of the Respondent Authorities Cited: CASES CONSIDERED: Eimskip, USA, Icelandic Steamship Inc. v. The Icelandic Steamship Company Limited, 2015 NLCA 17;Loblaws Properties Limited v. City of Mt. Pearl, 2017 NLCA 6; City of St. John’s v. St. John’s International Airport, 2017 NLCA 21;Island Realty Limited v. Corner Brook (City) (1993), (NL CA), 113 Nfld. & P.E.I.R. 198 (Nfld. C.A.); Salomon v. A.Salomon & Co., [1897] A.C. 22 (H.L.); Oppenheim v. J.J.

Lacey Insurance Limited, 2009 NLTD 148; Kosmopoulos v. ConstitutionInsurance Co., (SCC), [1987] 1 S.C.R. 2; Re, Murphy (1994), (NL SC), 117 Nfld. & P.E.I.R. 243(Nfld. S.C.T.D.); Wabi Iron Steel Corp. v. Ontario (Municipal Property Assessment Corporation, Region No. 29) (2005), (ON SCDC), 250 D.L.R. (4th) 370 (Ont. Sup. Ct. J.). STATUTES CONSIDERED:

Canada Business Corporations Act, R.S.C. 1985, c. C-44; Assessment Act, 2006, SNL 2006, c. A-18.1. TEXTS CONSIDERED: Kevin Patrick McGuinness, The Law and Practice of Canadian Business (Vancouver: Butterworths, 1999). REASONS FOR JUDGMENT Marshall, J.: INTRODUCTION [1] Regal Realty Limited (“Regal”) has appealed the 2018 decision of Commissioner Peckham of the Assessment Review Court,in which he set a value of $5,588,000.00 to Regal’s property, located at 5 Beck’s Cove, in St. John’s.

Commissioner Peckham’s decisionset the assessed value of Regal’s property for the three taxation years 2016, 2017 and 2018. [2] Regal’s property is a unique 170 year old designated national historic four-storey building, known as the Murray Premises. Regal leases approximately 34,000 square feet on the upper floors of the building to Murray Premises Hotel Inc. for its use as a hotelspace (the “hotel space”). Regal leases about 15,000 square feet of the building, primarily on the ground floor, to various other tenantsfor retail, restaurant, office and meeting space (the “retail space”).

Regal and Murray Premises Hotel Inc. are corporations, each havingbeen incorporated under the

Canada Business Corporations Act, R.S.C. 1985, c. C-44. [3] It is not disputed that the income approach is the appropriate methodology of assessment of Regal’s property for tax purposes. The crux of the dispute is the Commissioner’s manner of application of the income approach. Specifically, at the hearing before theCommissioner, Regal submitted that the income approach was to be applied by considering the property as a multi-tenant, mixed-userental property; such that the stream of rental incomes received by Regal would be considered to determine the market value of theproperty.

However, the Commissioner accepted the City’s application of the income approach, which entailed a hybrid approach. TheCity’s valuation was determined by considering the rental income paid to Regal by the tenants of the retail space, and by considering therevenue generated by the hotel space of the building. [4] At the appeal before this Court, Regal submitted that it does not take issue with the Commissioner’s choice of methodology ofassessment, being that of an income approach.

However, Regal does take issue with the manner of application, and use, of the incomeapproach by the Commissioner. [5] More specifically, Regal asserted that the Commissioner erred in law by not abiding by sections 12(1) and 17 of theAssessment Act, 2006, SNL 2006, c. A-18.1 (the “Act”), which require assessment against an owner based upon the market value of theowner’s fee simple interest in real property. Regal further asserted that the Commissioner erred in law by acting without evidence bytreating Regal and its tenant, Murray Premises Hotel Inc., as the same corporation.

In addition, Regal asserted the Commissioner erredby assessing the value contrary to the generally accepted appraisal principles, and by applying a method of assessment wrong inprinciple. Regal also submitted that the Commissioner erred in law by not correctly considering the principle of issue estoppel. [6] Regal’s assessment dispute with the City has a lengthy and protracted history. The factual background is not disputed. However, before reviewing further background, I will refer to the relevant provisions of the Assessment Act.

RELEVANT LEGISLATIVE PROVISIONS [7] The City’s legislative authority to assess and tax real property is pursuant to the Assessment Act. The relevant provisions forthis appeal include sections 2, 12(1) and 17 as follows:

2. In this Act (a) "actual value" means that value being the market value of the fee simple interest in the real property; … (t) "real property" means (

i) land or an interest arising from land, and includes land under water, (ii) land and buildings, structures, improvements, building service systems and storage facilities and fixtures erected or placed upon, in, over or under land or affixed to land, (iii) where a building is erected on land under a lease, licence or permit, that building may, for the purpose of this Act , be treated as real property separate from the land, and (iv) a mobile home; … 12.

(1) Real property shall be assessed against an owner and against a commercial tenant, where there is one. … 17.

(1) An assessor shall assess real property at actual value.

(2) The actual value of the real property under subsection (1) shall be made by determining the actual value of the real property as of the base date.

(3) In forming an assessment for the purpose of subsection (1) an assessor shall have regard to the assessment of other properties in the city or municipality being assessed to ensure that the taxation falls in a uniform manner upon the real property that is subject to taxation in the city or municipality.

(4) An assessor may assess buildings, structures or portions of them that are in the process of construction, alteration or enlargement at actual value and include the assessment on the next annual assessment roll. [ 8 ] The City and Regal agree that under section 12(1) of the Act , commercial tenants are assessed only when an owner is not subject to taxation, and

section 13 of the Act is being applied. Otherwise, the real property is to be assessed against an owner. [ 9 ]

Part II of the Act authorizes appeals before a commissioner. The City’s counsel explained that the period of time applicable to this appeal encompasses a three year cycle, being 2016 to 2018, with a base date of January 1, 2014. The City issued a notice of assessment to Regal for each year, and Regal had a right of appeal of the assessment for each year of the cycle.

In this matter, the Commissioner conducted one hearing for Regal’s appeals of the assessments for the tax years 2016, 2017 and 2018. [ 10 ] Section 39(1) of the Act provides a statutory right of appeal to this Court by a party “aggrieved by a decision of a commissioner”. Section 39(3) limits the appeals of a commissioner’s decision to questions of law or jurisdiction. As stated, Regal has asserted several errors of law respecting the Commissioner’s 2018 decision. FURTHER BACKGROUND

[ 11 ] Regal is the fee simple owner of the property, having acquired it in 1996 as a mixed-use, multi-tenant building. [ 12 ] Murray Premises Hotel Inc. was incorporated in 2000, and in 2001 it became a tenant under a lease with the landlord Regal. The Murray Premises Hotel is not a branded hotel. The hotel was incorporated into the building with other tenants. [ 13 ] In addition to the proceedings which are the subject of this appeal, Regal had previous appeals heard by the Assessment Review Court in respect of earlier assessments of the property by the City.

There were three prior decisions by Commissioner Peckham, and one by another commissioner. This history is relevant as Regal has raised issue estoppel. The history also provides the necessary background for the current decision being appealed, as Commissioner Peckham referred to his previous decisions. [ 14 ] Regal first appealed the City’s notice of assessment for the property with a base date of January 1, 2005. That appeal was heard in 2008 by Commissioner Peckham, and his written decision was dated August 10, 2008.

According to the Commissioner’s 2008 decision (at page 2), the City assessed the property by “using a combination of a room rate for the Hotel portion of the building and a rental income valuation for the balance of the building and combining both to arrive at a final value of $4,010,000”. [ 15 ] According to the Commissioner’s 2008 decision, the City’s position at the 2008 hearing was that the portion of the building used as a hotel should be valued like any other hotel property in the City.

By contrast, Regal rejected the City’s hybrid approach, which was based on use by one tenant in combination with rental income from other tenants. Regal’s position in 2008 was that the assessment should not engage a hybrid approach. Rather, the assessment should be the same as that adopted for commercial rental properties; being an assessment based on the stream of rental income. [ 16 ] In his 2008 decision, the Commissioner agreed with Regal, and stated at page 2 of his decision as follows: … The hotel does not occupy substantially all of the property, in fact it comprises of only 30% of the total area leased.

I am satisfied that the use two different valuation methodologies to different portions of the property based on its use in one instance and disregarding the use for all other tenants in the same property is not consistent and does not provide the true Market Value of the property. The subject Property should be valued on the basis that it is a rental property and the assessor/appraiser should use an appropriate valuation methodology for such a property.

On the other hand, if the Property were used “substantially” as a hotel and that was determined to be the highest and best use of the property, a valuation methodology suitable to that use might then be appropriate. Therefore, I find that the assessment valuation based on the hotel income is not the appropriate methodology for this property. The Appeal hearing shall continue at a date and time to be determined by the Court to hear argument on the assessed valuation of the property. [ 17 ] A second appeal hearing between the parties subsequently occurred around September of 2013, again before Commissioner Peckham.

This was an appeal by Regal of the City’s assessment of the value of the property as $6,500,000, for the base date of January 1, 2011. The parties initially requested a ruling on methodology of assessment. Again, a hybrid approach for valuation had been proposed by the City’s assessors. That application of the income approach used by the City was described, as follows, at page 2 of the Commissioner’s decision dated October 15, 2013: the net income estimated for the hotel portion and the net income estimated for the retail/office

section Were both capitalized in estimating a value utilizing the income approach, this Was considered to be the correct method as, if the property were sold for market value, that value would be established based on the anticipated net income produced by the current hotel operation and retail/office units; [ 18 ] In his 2013 decision, Commissioner Peckham again rejected the hybrid approach to assessment proposed by the City’s assessors.

At page 3 of his 2013 decision, he stated as follows: Having considered all of the relevant factors I am not satisfied that the assessment methodologies used by the City produces a valid market value for the property. There is no income and expense statement for the hotel to use as a check against the averages applied from hotel industry hotel standards. This is not a standard type hotel property where the other tenants are incidental to the hotel use. In addition the assessor should not try to determine the owner’s intentions regarding the leases for the property without having reviewed the details of the lease.

I believe the market value will be more appropriately estimated by treating the building as a fully leased property and based on the income from these leases. [ 19 ] The Commissioner’s 2013 decision anticipated a separate hearing for final submissions on value based on his ruling respecting methodology. [ 20 ] Before this separate hearing was commenced, a notice of assessment dated March 13, 2014 was provided to Regal for the 2015 tax year. That notice again stated the market value of the property was $6,500,000.

Regal appealed that assessment for the 2015 tax year, and another hearing was held before Commissioner Peckham. Commissioner Peckham subsequently rendered his decision dated December 8, 2014 in which he described the appeal hearing as a “continuation of the appeal hearing for Assessment appeal C130135 held 9 September 2013”. [ 21 ] At pages 1 and 2 of his 2014 decision, Commissioner Peckham described Regal’s position as follows: Regal Realty Limited purchased the property in 1966 (sic) and operated it as a mixed-use, multi tenant building;

In 2001 Murray Premises Hotel Inc. was founded and became one of the tenants at the Murray Premises; Regal Realty continues to have multi tenants at Murray Premises. While Murray Premises Hotel Inc. is a major tenant, it is a separate corporate entity similar to Regal Realty Limited’s other Murray Premises tenants such as Grand Enterprises Ltd., Uzor Enterprises Ltd., Sojourn Fine Luggage Inc., Grand Time Inc., and First Atlantic Financial Limited. Mr. Mahoney challenges the methodology used to complete the assessment value as it is different than what was agreed upon during the last assessment appeal.

The property should be valued on the basis that it is a rental property and one valuation methodology should apply as opposed to the hybrid approach used in the current assessment. His position is that the assessment should be consistent and uniform with the manner of generally assessing other commercial rental properties in the City. The income of the property should be used to determine its actual value. Market value should be determined through potential revenue generated through the leases. The specific use by any tenant or a tenant’s income should not be used to determine the market value of the property.

In addition this building is a unique, 160 year old designated historic property; it is not energy efficient with regards to heating and cooling and there is a lack of adequate parking and access. [ 22 ] In his 2014 decision, the Commissioner also referred to the City’s position, which was the same as its position at the 2013 September hearing.

The Commissioner referred to one of the assessor’s comments at page 3 of his decision, as follows: Robert Peddle for the Respondent submitted an outline stating: “we feel if the subject property were to be placed on the open market, or appraised at market value, the income generated from the hotel portion would be considered.

As stated in the earlier appeal, the landlord and tenant are related companies. [ 23 ] In his 2014 decision, the Commissioner again rejected the City’s manner of application of the income approach, and he stated in his conclusion, as follows: I do not agree that the assessors can decide or anticipate how the Hotel portion would be considered for such a property if it were to be sold. As Mr. Mahoney has pointed out the Hotel is a fully separate legal entity from Regal Realty Inc. and should be considered as such in its market valuation.

It would be inconsistent to require the Hotel portion of the premises to be valued using its income and expenses and to use only the rental income to Regal Realty Inc. from the other leased entities in the property. In addition the industry standard figures used by the assessors in calculating the value did not adequately take into consideration the inefficiencies in its operating cost due to the age and layout of the building and other deficiencies and therefore would have produced a higher market value. As the assessors did not wish to provide a valuation based on the income from all the leases in the property.

I only have the estimate provided by the Respondent to consider. I cannot take issue with any of the income and operating costing used by Mr. Mahoney as they are based on the actual costs as provided to the City. The only variable is the Capitalization rate which is different than that used by the assessors. Chris Browne for the Respondent stated that “the method is considered most appropriate as it is uniform with the method applied to other hotels within the City, including those consisting of both a hotel and retail and/or office space.

It is consistent with typical appraisal practices applied in hotel and mixed hotel/commercial properties.” I do not see this the same as the other hotels in the City as most of the other Hotels would have other uses required to support the hotel whereas in the case of Regal Realties most of their other tenants are not there to support the hotel operations. … [ 24 ] In again preferring Regal’s methodology of assessing by considering rental incomes paid, the Commissioner in 2014 proceeded to assess the value of the property at $3,682,000. [ 25 ] Regal’s next appeal emanated from the City’s notice of assessment for the 2016 tax year, which used a base date of January 1 of 2014.

That assessment of the property was for the amount of $6,815,000. This 2016 appeal was heard before a different commissioner, Commissioner Trainor. In contrast with Commissioner Peckham’s 2008, 2013 and 2014 decisions, Commissioner Trainor accepted the City’s approach. The decision, dated October 17, 2016, stated as follows at page 2:

I feel the approach to value of the Income Approach and its results of value are within the scope of the Assessment Act and does nor (sic) put the leasing information of other tenants versus the hotel in jeopardy or create valuation methodology. With actual income and expenses for the hotel and tenants-the economic rent-the current rental of the property is the market-as through the property was available for rent. I do agree with the Appellant that due consideration was nor (sic) given to the Murray Premises regarding:

(1) The building is a unique 170 year old designated National Historic Site.

(2) The building’s heating and cooling systems would not be considered modern or efficient standards.

(3) Their (sic) is a lack of adequate parking and access from the street is challenging because of City restrictions. I will call these items functional and economic obsolescence and allow an adjustment of 5% for these three items Reviewing the Income Approach-Revised Valuation Completed AFTER REVIEW of ACTUAL INCOME and EXPENSES I will give an additional 5% to operating expenses changing the net operating income to $693,259.30 and with a 10% Cap Rate give income Approach Valuation of $6,932,593.00 – Allowing LESS HOTEL FF&E of $962,578.00 for a final estimate of value of $5,970,075.00 ROUNDED to $5,970,000.00.

Accordingly, I confirm the assessed value of $5,970,000.00. [ 26 ] Regal had indicated to the City its intent to appeal Commissioner Trainor’s 2016 decision. In the meantime, Regal received a notice of assessment for 2017, again using the base date of January 1, 2014, which included a market value of $6,815,000. This 2017 assessment was appealed. A supplementary notice of assessment for 2017 was received by Regal indicating a market value of $5,970,000.

Regal also appealed that assessment. [ 27 ] The parties agree that Regal was mistakenly of the view that by appealing the 2017 supplementary assessment, Regal did not need to file an appeal in this Court of the 2016 decision of Commissioner Trainor. However, ultimately the parties agreed that all three years (2016, 2017 and 2018) would be appealed and heard by Commissioner Peckham, who had heard the appeals in past assessment cycles. [ 28 ] In Commissioner Peckham’s 2018 decision, he accepted the City’s manner of application of the income approach.

Commissioner Peckham’s 2018 decision is the subject of the appeal before this Court. THE COMMISSIONER’S 2018 DECISION [ 29 ] At the hearing on September 25, 2018, Regal again submitted to Commissioner Peckham that the market value of the property was less than the assessed value.

Regal submitted that an improper methodology was applied by the City; and that the City was estopped from applying a different methodology, because the methodology had already been determined by previous appeal rulings, and the circumstances had not changed. [ 30 ] With respect to this latter point, Regal argued that Commissioner Trainor did not follow the methodology determined by the Assessment Review Court in the 2008, 2013 and 2014 decisions of Commissioner Peckham; and that Commissioner Trainor was estopped by those previous rulings. [ 31 ] At the 2018 hearing, the City submitted that estoppel did not apply and referred the Commissioner to the case of Eimskip, USA, Icelandic Steamship Inc. v.

The Icelandic Steamship Company Limited , 2015 NLCA 17 . The Commissioner agreed with the City’s submission on estoppel, and stated as follows at pages 1 and 2 of his decision dated October 30, 2018: Both parties’ submissions contained the criteria needed for the issue of estoppel to apply as follows: 1. If the same question is being contested as was previously decided; 2. If the decision in the earlier proceedings was a final decision; and 3. If the parties to the earlier decision are the same parties as are involved in the proceeding concerning which the issue estoppel is raised.

In addition, once these conditions are met, the court must proceed to a second stage of the analysis; whether, as a matter of discretion, issue estoppel ought to be applied to prevent re-litigation of an issue. I am satisfied that 2 and 3 above have been met but the question (1) can be said to be different as the portion of the property occupied as a hotel has materially changed. This could affect the decision regarding the final value. [ 32 ] In Commissioner Peckham’s decision, he referred to a letter forwarded on behalf of Regal, which set forth Regal’s position.

He stated, as follows, at pages 2 and 3 of his decision: Mr. Mahoney in his letters to the Commissioner, Assessment Review Court, dated October 5, 2016 and September 25, 2018, stated that “The City has assessed the property using a combination of a value per room for the hotel portion of the building and a rental income valuation for the balance of the building and has combined both to arrive at a value of $6,815,000.

As with previous assessments, the City chose to ignore the rental income under the lease for the hotel (Murray Premises Hotel Inc.) portion and instead applied an assessment value based on $50,000 per door for the hotel’s 69 units. In doing so, the City is mixing methods and ignoring the rental income to the landlord attributable to the space occupied by Murray Premises Hotel Inc.” He further states “Regal Realty Limited and Murray Premises Hotel Inc. are two separate legal entities registered under the Canadian Business Corporations Act.

Regal Realty Limited owns the Murray Premises of which Murray Premises Hotel Inc. is a tenant occupying a portion of the building. There has been lease agreement in full force and effect between the parties since February 2000. The property should be valued on the basis that it is a mixed-use multi-tenant property and one valuation methodology should apply as opposed to a hybrid approach used in the current assessment…” [ 33 ] The Commissioner described the City’s approach to valuation at page 3 of his decision, as follows: The income approach to value was utilized as the primary approach to valuation.

In applying this approach, the total net revenue was determined by the sum of the revenue generated by the hotel operation plus the net rent generated by the office/retail space. This approach is uniform with the method applied to other hotels within the City, including those consisting of both a hotel and retail/office use. Mr. Brown further stated that he did not follow the methodology outlined in previous Assessment Review Board decision. As an assessment based on the current lease would be a valuation of the lease fee interest rather than the fee simple interest. This would not be in compliance with

Section 2 (

a) of the Assessment Act 2006 , which requires assessments to be a valuation on the fee simple interest. [ 34 ] Further, in his 2018 decision at page 3, the Commissioner noted that the City’s legal counsel “stated that Regal Realty Limited owns the building and the hotel.

The property should be looked at as a fee simple encumbered property”. [ 35 ] In his 2018 decision, the Commissioner ultimately ruled in favour of the City’s methodology for assessment, and he stated at pages 3 and 4 of his decision as follows: Previous Commissioner Judgments ruled against the mixed valuation approach for this property as the hotel portion did not occupy a substantial portion of the property. However, the hotel occupancy has increased to become the major occupier of the complex and as such may be a major factor in establishing the fair market value of the property.

Therefore, I am satisfied that the City assessors’ methodology of considering the revenue generated by the hotel portion as a factor in determining its market value is an appropriate methodology . Having said that I have looked at the assessment details and note there is a difference in the rentable area used by the assessor and that shown by the appellant. The appellant has identified 2852 square feet as having less than 5 feet of head room and therefore not considered as rentable area. In addition, there is a difference in the Cap rate utilized by both parties.

The Assessor used 9.5% and the Appellant used 10.5%. I noticed that the assessor increased the cap rate to 10% in his revised assessment and a previous Commissioners Judgement used a 10% rate. The previous Commissioner also allowed a 5% adjustment for functional and economic obsolescence. The 2852 square feet of space with less than 5 feet head space is not an issue as the value applied by the assessor is based on the number of rooms. Mr.

Mahoney noted that the building is a 170-year-old designated National Historic Site; its heating and cooling systems would not be considered modern or efficient by modern standards; there is a lack of adequate parking and access from the street; the hotel is not a branded hotel and does not offer the typical amenities, such as signature restaurants, fitness areas, or large lobbies. While the previous Judgment reduced the market value, I do not feel it has adequately taken into consideration the functional and

economic obsolescence of this 170-year-old building and its location and condition. Accordingly, I have revised the assessed value by increasing the allowable operating expenses to 45% for retail and by an additional 5% for the hotel. In addition, I have allowed a 10% CAP rate. The revised value is $5,588,000 . [ 36 ] The Commissioner’s 2018 decision does indeed indicate a reversal of his previous decisions regarding the method of application of the income approach. As he stated above, his rationale for doing so arose from the hotel having increased its occupancy of the property.

ISSUES [ 37 ] The issues on appeal are as follows: 1. What is the appropriate standard of review? 2. Did the Commissioner err in law by accepting the City Assessor’s methodology? 3. Did the Commissioner err in law by not applying the principle of issue estoppel? ISSUE 1: What is the appropriate standard of review? [ 38 ] The parties do not dispute, and the Court agrees, that the Court of Appeal has determined that for matters related to assessment appeals, the appropriate standard of review is correctness; Loblaws Properties Limited v. City of Mt.

Pearl , 2017 NLCA 6 . [ 39 ] The standard of correctness is to be applied in this appeal. ISSUE 2: Did the Commissioner err in law by accepting the City assessor’s methodology? [ 40 ] The City submitted that the Commissioner did not commit an error of law. Rather, Regal failed to satisfy its onus of establishing to the Commissioner that the City’s methodology of assessment was incorrect. Commissioner Peckham considered the valuation method used by the City’s assessor, as well as the valuation method proposed by Regal.

At page 3 of his judgment he stated: Therefore, I am satisfied that the City assessors’ methodology of considering the revenue generated by the hotel portion as a factor in determining its market value is an appropriate methodology. [ 41 ] The City referred to the decision of City of St. John’s v. St. John’s International Airport, 2017 NLCA 21 in which the Court of Appeal described the Commissioner’s authority to accept or amend an assessment.

The Court of Appeal stated at paragraph 26, as follows: 26 The commissioner had authority to accept the City assessor's methodology, provided it fell within generally accepted appraisal principles. He also had authority to amend the assessment based on the evidence he received and to summon witnesses to give evidence or provide documentation as authorized under

section 35 of the Act . In the result, relying on the evidence adduced by the parties, the commissioner concluded that the Airport Authority failed "to prove that the assessment of the City of St. John's is wrong" (paragraph 23, above). [ 42 ] The City further submitted that the methodology used by the City’s assessor fell within the generally accepted appraisal principles, and was uniform with the method applied to similar properties. [ 43 ] By contrast, Regal submitted that the error in law did not arise from the Commissioner’s choice of methodology.

Regal does not dispute that the correct methodology for assessment is the income approach. Rather, Regal submitted that the error in law arises from the manner the methodology was applied by the Commissioner. [ 44 ] According to Regal, the Commissioner’s application of the income approach was inconsistent with a proper

interpretation of the Assessment Act ; particularly sections 12(1) and 17 of the Act . Regal further submitted that the method of assessment adopted by the Commissioner was wrong in principle; and that he proceeded contrary to generally accepted appraisal principles. [ 45 ] To elaborate, and as submitted by Regal, the Commissioner mostly accepted the City assessor’s approach to valuation. The City’s assessor valued the property by using an income approach, but with a hybrid application of the income approach.

Specifically, the assessor applied the income approach by considering the rental income received by Regal from the non-hotel tenants, to value the retail space; and he valued the hotel space by considering hypothetical income generated by allegedly comparable hotel rooms in the City. The Commissioner accepted the City’s hybrid approach to valuation of the property; however, the Commissioner varied the capitalization rate applied by the City assessor. [ 46 ] Regal submitted that the City’s application of the income approach, as approved by the Commissioner, was contrary to section 12(1) of the Assessment Act .

According to section 12(1) (and considering sections 2 (

a) and 17(1)), the value of the fee simple interest is to be assessed against an owner. Regal is the owner, and Regal submitted that only the income of the owner derived from rental income received from all tenants, including the hotel, should be relevant to determine the market value of the property.

Further, because Regal is a separate corporation from Murray Premises Hotel Inc., hypothetical or actual net income of Murray Premises Hotel Inc. is not income of Regal, and therefore not encompassed within Regal’s fee simple interest. [ 47 ] Further on this point, Regal submitted that there was no basis for the Commissioner to pierce or lift the corporate veil, so as to attribute Murray Premises Hotel Inc.’s revenue to Regal.

In other words, the assessor and the Commissioner, in essence, treated Regal and Murray Premises Hotel Inc. as one legal entity, or co-owners of the Property, without any basis in law or evidence. [ 48 ] Regal further submitted that the City’s assessor and the Commissioner contravened

section 17 of the Act , and did not comply with generally accepted appraisal principles; specifically, by applying the principle of uniformity and using the hypothetical hotel income

of a tenant to determine the market value of a portion of a multi-tenant building. Rather, Regal submitted that the actual rent paid by thehotel tenant should have been used for valuation purposes, so as to determine the actual value as required by

section 17 of the Act. [49] Further on this point, Regal submitted that

section 17 of the Act requires that the market value of the fee simple interest in theproperty be first determined; and only after that, the principle of uniformity is considered. Regal suggested the assessor and theCommissioner chose paramountcy for the principle of uniformity. Specifically, in their valuation the assessor and the Commissioner didnot use the actual rent produced by the lease between Regal and Murray Premises Hotel Inc. Rather, as accepted by the Commissioner,the assessor valued the hotel space using hypothetical income generated by allegedly comparable hotel rooms.

Regal submitted that theuse of such comparisons are indeed a potential check for uniformity; but such is the second step in valuation under the Act. [50] Regal further added that, in any event, the income approach to valuation of hotel properties is generally accomplished by thebusiness enterprise income approach. This entails a calculation which leads to a determination of the market value of the land andbuilding, instead of the business enterprise.

Regal explained that in such an approach, the land and building are considered as part of ahotel business enterprise; and the income generated by the non-real property elements is deducted from the business enterprise incomecalculations.

Consequently, the income approach is only applied to the real property, being the land and building, for the purposes ofcalculating the market or actual value of the land and building owned by the hotel business, instead of the value of the businessenterprise itself. [51] In other words, Regal’s view is that it is improper to assess a hotel’s market value by using a revenue per room calculation,rather than by using the business enterprise income approach.

In effect, a revenue per room calculation emphasizes uniformity above theprimary statutory objective of determining market value. [52] Further on this point, Regal’s counsel referred the Court to Island Realty Limited v. Corner Brook (City) (1993), (NL CA), 113 Nfld. & P.E.I.R. 198 (Nfld. C.A.) which affirmed the trial judge’s determination that uniformity is not the primaryconsideration in valuation under the Assessment Act; rather “actual or market value” is.

At paragraph 7 of the decision, the Court ofAppeal referred to the trial judge’s decision and stated, as follows: 7 The trial judge held that it was an error to place uniformity as the primary consideration.

Whether one was performing anassessment under the 1986 legislation or the act applicable prior to that, the first obligation was to ascertain the actual or market value.The trial judge's finding that actual value and market value were the same was not challenged by the parties to this appeal. [53] In any event, with respect to uniformity, Regal further submitted that Murray Premises Hotel Inc. is unique compared to otherhotels. It is on a National Historic Site; and it is not a branded hotel with other amenities in place to support the hotel, such as a signaturerestaurant, fitness area or hotel lobby.

Therefore, if Regal owned the hotel (which it does not), applying a revenue per room calculationwould not be an acceptable application of the principle of uniformity. [54] In addition, Regal rejected the Commissioner’s rationale for changing his view on the City’s hybrid approach to valuation. Regal submitted that the fact that Regal occupies more rental space in the building does not change the fact that the property is notowned by Murray Premises Hotel Inc.

The owner of the property is Regal, and the rental income analysis still has to be applied whenusing the income approach to value the property, as the property is a multi-tenant, multi-use commercial property. ANALYSIS – ISSUE 2 [55] As stated, in 2018 the Commissioner chose to accept the City assessor’s hybrid application of the income approach; he valuedthe hotel space by considering hypothetical revenue generated by the hotel, and he valued the retail space by considering the rentalincome received by the remaining tenants.

I agree with Regal’s submission that in so doing, the Commissioner has treated Regal andMurray Premises Hotel Inc. as one entity, or as co-owners of the property. However, the record before the Commissioner did not providesufficient evidence to support treating Regal and the Murray Premises Hotel Inc. as one entity, or co-owners. On the contrary, the recordbefore the Commissioner indicates that Regal and the Murray Premises Hotel Inc. are two separate corporations. [56] In his decision, Commissioner Peckham did say that the City’s counsel “stated that Regal Realty Limited owns the building andthe hotel”.

In my view, by accepting the City’s hybrid application of the income approach, the Commissioner’s decision suggests that heaccepted this proposition that Regal owns the hotel. In other words, although not expressly making a finding that the corporate veilshould be pierced, the Commissioner did so by accepting a valuation which in effect attributed to Regal the revenue of the hotelenterprise. [57] To elaborate, the decision of Salomon v. A. Salomon & Co., [1897] A.C. 22 (H.L.) is the leading case cited for the principlethat a corporation is a legal entity onto itself; separate and distinct from its shareholders.

There are, however, limited circumstanceswhen the “corporate veil” may be lifted, or pierced. [58] These limited circumstances were canvassed by Justice Hall in Oppenheim v. J.J. Lacey Insurance Limited, 2009 NLTD 148. At paragraph 23 of Oppenheim, he referred to the Supreme Court of Canada’s decision in Kosmopoulos v. Constitution Insurance Co., (SCC), [1987] 1 S.C.R. 2 in which Justice Wilson stated at paragraphs 12 and 13, as follows: 12 As a general rule a corporation is a legal entity distinct from its shareholders: Salomon v.

Salomon & Co., [1897] A.C. 22 (H.L.).The law on when a Court may disregard this principle by "lifting the corporate veil" and regarding the company as a mere "agent" or"puppet" of its controlling shareholder or parent corporation follows no consistent principle. The best that can be said is that the"separate entities" principle is not enforced when it would yield a result "too flagrantly opposed to justice, convenience or the interests ofthe Revenue": L.C.B. Gower, Modern Company Law (4th ed., 1979) at p. 112.

I have no doubt that theoretically the veil could be liftedin this case to do justice, as was done in American Indemnity Co. v. Southern Missionary College supra, cited by the Court of Appeal ofOntario. But a number of factors lead me to think it would be unwise to do so.

13 There is a persuasive argument that "those who have chosen the benefits of incorporation must bear the corresponding burdens, so that if the veil is to be lifted at all that should only be done in the interests of third parties who would otherwise suffer as a result of that choice": Gower, supra, at p. 138. Mr. Kosmopoulos was advised by a competent solicitor to incorporate his business in order to protect his personal assets and there is nothing in the evidence to indicate that his decision to secure the benefits of incorporation was not a genuine one.

Having chosen to receive the benefits of incorporation, he should not be allowed to escape its burdens. He should not be permitted to "blow hot and cold" at the same time. [ 59 ] Further, at paragraph 26 of Oppenheim , Justice Hall referred to Kevin Patrick McGuinness, The Law and Practice of Canada Business (Vancouver: Butterworth, 1999), and he stated: 26 In The Law and Practice of Canadian Business (Vancouver: Butterworths, 1999) the author Kevin Patrick McGuinness, commencing at page 28, deals with piercing or lifting the corporate veil.

At paragraphs 1.47 and 1.48 he states as follows: 1.47 Thus the courts are generally unwilling to pierce the corporate veil and will normally do so only where required to do so by statute or where extraordinary circumstances exist. Cases falling within the latter category are confined within a narrow compass. Taking advantage of the limited liability of a corporation per se is not improper. If a person chooses to deal with a corporation, then he or she is limited in recourse to whatever assets the corporation may itself own.

The occasional judgment suggests that courts are particularly unwilling to pierce the corporate veil where the corporation concerned has been in business for a considerable period of time, it is solvent, and there is no evidence of dishonesty relating to the conduct of its business or affairs. The courts are also unwilling to lift the corporate veil where to do so would contravene the express terms of a contract entered into by the party who is seeking to have it lifted.

However, the weight of these facts and the circumstances when they will apply are not at all clear. 1.48 Indeed, it is difficult to discern any general principle that the courts have followed in the handling of such cases. The situations in which a court will pierce the veil are based on no principle of universal application, save perhaps the one unifying thread that the separate personality of a corporation will not be respected where the corporation is being used as a cover for deliberate wrong-doing.

In addition, the courts will ignore the separate personality of a company in the following situations: (1) where it is expressly authorized to do so by statute — many such situations are specified under tax legislation, but some are found in the corporate context, as where the company fails to describe itself as a "limited" company; (2) where the company may correctly be characterized as having acted as an agent; (3) where it is necessary to determine the residence of the company; (4) where the company has been used as a cloak for fraud or manifestly improper conduct — although in such cases there is no need to lift the corporate veil in order to affix liability on the shareholder who perpetrated the fraud, as the shareholder will be personally liable for the fraud as a co-party; (5) where there is a trust relationship; (6) where the company is involved in criminal activity directed by its shareholders; (7) in the interest of defence or national security; (8) where to recognize the veil would be contrary to public policy. [ 60 ] Considering the above-described circumstances (from paragraphs 23 and 26 of Oppenheim ) which allow consideration of whether to pierce the corporate veil, I conclude that there was insufficient evidence to permit the Commissioner to do so.

Granted, in the record filed there is a suggestion that the President and CEO of Regal is an owner of Regal, and also a minority shareholder in Murray Premises Hotel Inc.; but that evidence did not justify piercing the corporate veil. There was no evidence of deliberate wrong-doing; and there was no evidence that Murray Premises Hotel Inc. was an agent of Regal. In my view, there was nothing before the Commissioner which would suggest that lifting the corporate veil was necessary “to do justice” ( Kosmopoulos v. Constitution Insurance Co. , at paragraph 12 ).

[61] As stated, and as submitted by Regal, the evidence before the Commissioner was that Regal and Murray Premises Hotel Inc.are separate legal entities. There was insufficient evidence to conclude otherwise. It bears repeating that there was insufficient evidenceto pierce the corporate veil, and to therefore attribute the hotel’s revenues to Regal. The evidence was that Regal uses the property toobtain rental income from its tenants, including rental income from its tenant the Murray Premises Hotel Inc.

Further, and as submittedby Regal, if the property was to be sold, then a buyer would obtain the right to collect the rent paid by Murray Premises Hotel Inc., andpaid by the other tenants; the buyer would not obtain the right to receive the income of the hotel. The Commissioner failed to explainhow the revenues of the hotel could impact the value of the property when the owner of the property is Regal, not the hotel. [62] The City suggested that often with branded hotels, the owner of the property is a numbered company, separate from thecompany owning the hotel enterprise.

However, in my view this assertion does not resolve this matter in favour of the City. In such acircumstance, when assessing the property owned by the numbered company, it would be necessary to examine the relationship betweenthe hotel enterprise and the owner of the property. If the hotel enterprise would be sold with and when the land and building were to besold, then the appropriate methodology for assessment of hotel enterprises would likely be applicable.

However, there was no evidencebefore the Commissioner that Regal could sell the hotel business enterprise, along with the building and land. [63] The Commissioner rationalized his change of view from previous assessments based on his finding that the hotel now occupieda “substantial portion of the property”. This, in turn, he opined “may be a major factor in establishing the fair market value of theproperty”. Implicit in this finding is that by occupying more space, it is more likely that Regal has the authority to sell the hotelenterprise along with the land and building.

However, again there was no suggestion in the evidence before the Commissioner that ifRegal sold the property, then the hotel enterprise would be sold to the buyer as part of the sale. Similarly, there was no suggestion in theevidence that if the hotel enterprise was to be sold, then the land and building would be part of the sale of the hotel enterprise. [64] As will be discussed in the analysis of issue 3, this increase in the hotel’s occupancy of the property may warrant a fresh look atthe relationship between the hotel and Regal.

Nevertheless, the increase in the hotel’s occupancy did not change the fact that theevidence before the Commissioner was that the relationship remained the same, as Regal and the hotel continued as separate legalentities. [65] I add that there was a suggestion at the 2018 hearing that the City’s position was that the lease arrangement between Regal andthe hotel was not an arm’s length arrangement (page 9 of transcript of hearing). However, there was no evidence, or case law, to supportthe assertion.

If there had been, then such may also have warranted taking a closer look at the relationship between Regal and the hotel;or to re-consider whether the actual rent should be used to calculate market value. [66] Further on this point, the City suggested that to assess the hotel using actual rents paid values the leased fee interest, asopposed to the fee simple interest. However, I agree with Regal’s submission that it is not appropriate to ignore the actual rents beingpaid. As submitted by Regal,

section 2(

a) of the Act refers to the “fee simple interest”, not the “fee simple unencumbered”. Further,market value pertains to what would be realized for the property if it was sold in the open market by a willing seller to a willing buyer; Re, Murphy (1994), (NL SC), 117 Nfld. & P.E.I.R. 243 (Nfld. S.C.T.D.), at paragraphs 17 and 40. Leases areencumbrances, and sellers can only sell subject to existing leases. [67] Therefore, and as submitted by Regal, actual rents which become binding upon a willing purchaser should be used forvaluation, rather than hypothetical rents that do not exist.

It stands to reason that what a tenant pays to a landlord is the best evidence ofthe market value of the fee simple interest; unless the lease is a non-arm’s length arrangement, and therefore not reflective of the marketvalue. Evidence of a non-arms’ length lease arrangement was not before the Commissioner. [68] Finally, I add that if there had been sufficient evidence that would have justified the Commissioner attributing the hotel’srevenue to Regal, then the Commissioner still erred in law by giving paramountcy to the principle of uniformity when determiningmarket value.

As submitted by Regal (and in accordance with the decision in Island Realty Limited v. Corner Brook (City)), theAssessment Act does not elevate uniformity above market value; and uniformity should not be used to justify a higher assessed marketvalue of real property. Rather, as submitted by Regal, comparing hotel revenue per room of allegedly comparable hotels is a check foruniformity; and the second step in a valuation, not the first.

Further, such comparison is questionable when considering the uniquenature of the hotel space in the property. [69] After considering all the submissions, the record and the case law, I find that the Commissioner erred in law in applying theincome approach in a manner contrary to sections 12(1) and 17 of the Assessment Act. To summarize, he did this by, in effect, attributingthe hotel’s purported income to Regal for the purpose of assessing market value; and by treating Regal and the hotel as one entity, or co-owners.

The Commissioner did this without a sufficient evidentiary basis for attributing the hotel’s income to Regal. Rather, theevidence before him was that Regal and the Murray Premises Hotel Inc. are separate corporations. He therefore applied a method ofassessment wrong in principle; and assessed the value of the property contrary to generally accepted appraisal principles. [70] Based on the evidence before the Commissioner, the correct manner of assessment would be to apply the income approach as itis applied when assessing commercial rental properties; and in the manner suggested by Regal.

In other words, the correct manner ofassessment required consideration of the rental income under the hotel’s lease with Regal for the taxation years 2016, 2017 and 2018;along with the rental income from the non-hotel tenants. ISSUE 3: Did the Commissioner err in law by not applying the principle of issue estoppel? [71] In his 2008, 2013 and 2014 decisions, the Commissioner had rejected the City’s hybrid approach to valuing the property. Onthis basis, Regal argued issue estoppel before the Commissioner.

The Commissioner rejected the argument based on the NewfoundlandCourt of Appeal’s decision in Eimskip, USA, Icelandic Steamship Inc. v. The Icelandic Steamship Company Limited. In Eimskip, thethree pre-conditions for issue estoppel were set forth at paragraph 34, as follows: 34 In Danyluk, Binnie J. reiterated the pre-conditions to the operation of the doctrine which had been set out by Dickson J. in Angle:

[25] ... (1) that the same question has been decided; (2) that the judicial decision which is said to create the estoppel was final; and, (3) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel israised or their privies. Justice Binnie went on to explain that even when these pre-conditions are established, a court has a residual discretion not to apply thedoctrine: [33] The rules governing issue estoppel should not be mechanically applied.

The underlying purpose is to balance the public interest inthe finality of litigation with the public interest in ensuring that justice is done on the facts of a particular case. (There are correspondingprivate interests.) The first step is to determine whether the moving party (in this case the respondent) has established the preconditionsto the operation of issue estoppel set out by Dickson J. in Angle, supra. If successful, the court must still determine whether, as a matterof discretion, issue estoppel ought to be applied: British Columbia (Minister of Forests) v.

Bugbusters Pest Management Inc. (1998), (BC CA), 50 B.C.L.R. (3d) 1 (C.A.), at para. 32; Schweneke v. Ontario (2000), (ON CA), 47 O.R.(3d) 97 (C.A.), at paras. 38- 39; Braithwaite v. Nova Scotia Public Service Long Term Disability Plan Trust Fund (1999), 1999 NSCA77 , 176 N.S.R. (2d) 173 (C.A.), at para. 56. [72] In his 2018 decision, the Commissioner determined that issue estoppel did not apply based on the first pre-condition referred toin Eimskip. Specifically, the Commissioner indicated (at page 2 of his decision) that he did not have the same question before him.

Itwas his view that because the portion of the property occupied as a hotel had materially changed, then such could affect the valuation ofthe property. [73] As stated, in his 2018 decision the Commissioner changed his approach to valuation of the property. The Commissioneraccepted the hybrid application of the income approach by the City.

He had rejected that approach in his previous determinations. [74] In his 2018 decision, the Commissioner explained (at page 3) that his previous judgments “ruled against the mixed valuationapproach for this property as the hotel portion did not occupy a substantial portion of the property”. He noted that the occupancy had“increased to become the major occupier of the complex”. [75] Regal acknowledged that the space occupied by the hotel had increased 15% to 20%. However, according to Regal, at least30% is occupied by the other tenants.

Regal submitted that there had been no change in Regal’s fee simple interest in the property at thetime of the 2018 hearing. It was, and remains, a multi-tenant/multi-use commercial property, with Regal as the owner and landlord. Thetenants are separate legal entities; Regal receives their rents, but none of the tenants’ incomes. [76] Regal submitted that there had been no material change from the earlier proceedings, and the same fundamental issue beforethe Commissioner was the methodology to be applied in calculating the actual value of the property.

As such, Regal submitted that thedoctrine of estoppel should have been applied by the Commissioner in his 2018 decision making process. [77] By contrast, the City submitted that if there is no change in the condition or use of a property during an assessment cycle withthe same base date, then the assessed value should be the same. However, when a new cycle is entered with a new base date, then anassessor must examine the property anew to determine the market value.

The City logically submitted that it is not bound to use onevaluation methodology for property for all time if another methodology results in a more accurate assessment. [78] I note that it is not disputed that issue estoppel applies in assessment appeals: Wabi Iron Steel Corp. v. Ontario (MunicipalProperty Assessment Corporation, Region No. 29) (2005), (ON SCDC), 250 D.L.R. (4th) 370 (Ont. Sup. Ct.

J.). [79] After considering the submissions of the parties, the appeal record and the case law, I find that the Commissioner did not err inlaw in determining that issue estoppel did not apply. [80] If we consider that the broad question before the Commissioner at the previous hearings was to determine the correctmethodology, or manner of application of the income approach, then that same question was indeed before the Commissioner in 2018. However, it is more accurate to view that question before the Commissioner in 2018 in the context in which it was decided.

In thecontext of a new assessment cycle, where the portion of the property occupied by the hotel had increased, I accept that such changes incircumstances merited a further, and new, look at the issue of the methodology of assessment. Indeed, implicit in the Commissioner’searlier 2008 decision was that the extent of the property used as a hotel would have to be considered in future assessments. [81] For clarity, I add that the increased occupancy by the hotel reasonably triggered a re-examination of the corporate relationshipbetween Regal and Murray Premises Hotel Inc.

This re-examination would be for the purpose of determining whether circumstanceswith respect to the corporate relationship had changed, and to assess whether it had become appropriate to attribute the hotel’s income toRegal. The fact that the hotel occupied more space did not, in itself, automatically justify attributing the hotel’s income to Regal, therebytreating the two entities as one and the same. As stated, there was insufficient evidence before the Commissioner to justify attributingthe hotel’s income to Regal for the purposes of assessing the value of the property. CONCLUSION

[ 82 ] Based on the foregoing analysis, and having determined that the Commissioner erred in law, Regal is entitled to relief on this appeal. The relief to be granted is in accordance with section 39(5) of the Assessment Act which states: 39.

(5) The court shall either confirm or vacate the decision of the commissioner and where vacated the court shall refer the matter back to the commissioner with the opinion of the court as to the error in law or jurisdiction and the commissioner shall deal with the matter in accordance with that opinion. [ 83 ] Accordingly, the decision of the Commissioner is hereby vacated. The matter shall be referred back to the Commissioner, for reconsideration based on this decision.

It is to be referred back to the Commissioner with the opinion that the Commissioner erred in law in his manner of application of the income approach. Specifically, the Court’s opinion is that the Commissioner’s manner of application of the income approach contravened sections 12(1) and 17 of the Act ; the manner of application was wrong in principle, and he assessed the value of the property contrary to generally accepted appraisal principles.

He erred by applying the income approach in a manner which, in effect, attributed the income of the hotel to Regal; thereby treating the two corporations as one, in the absence of sufficient evidence to support his doing so. Rather, the evidence before the Commissioner supported an application of the income approach consistent with the manner of assessing commercial multi-tenant rental properties, as was suggested by Regal. [ 84 ] Based on the outcome of this appeal, Regal shall be awarded costs, on a Column 3 basis. _____________________________ Valerie L. Marshall Justice