r v. Gander, 2011 NLCA 65

Date: 2011 1004 Docket: 08/61 Citation: Town of Gander v. Gander International Airport Authority Inc. , 2011 NLCA 65 IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR COURT OF APPEAL BETWEEN : TOWN OF GANDER APPELLANT AND : GANDER INTERNATIONAL AIRPORT AUTHORITY INC. RESPONDENT Coram: Green, C.J.N.L., Welsh, Rowe, Barry and White, JJ.A. Court Appealed From: Supreme Court of Newfoundland and Labrador Trial Division (General) 200605T0136 Appeal Heard: May 12, 2011 Judgment Rendered: October 4, 2011 Reasons for Judgment by Welsh, J.A. Concurred in by Rowe and White, JJ.A. Dissenting Reasons by Barry, J.A.

Concurred in by Green, C.J.N.L. Counsel for the Appellant: Jamie M. Smith, Q.C. Counsel for the Respondent: Michael J. Crosbie, Q.C.

Welsh, J.A.: [1] At issue in this appeal is the assessment of the Gander International Airport for municipal taxation purposes. The appealturns on the effect of lease restrictions both on the use of the property and on the ability of the airport to generate revenue, together withits value as a public amenity formerly operated and maintained by the federal government. BACKGROUND [2] In March 2001, by means of a ground lease, the federal government transferred management, operation and maintenance ofthe Gander International Airport to the Gander International Airport Authority, a not-for-profit corporation without share capitalincorporated by Letters Patent under the

Canada Business Corporations Act, RSC 1985, c. C-44 (the “Airport Authority”). For thepurpose of property taxation by the town of Gander, the municipal assessment agency assessed the land and structures of the airportpursuant to the Assessment Act, RSNL 1990, c. A-18. This legislation has since been replaced by the Assessment Act, 2006, SNL 2006,c. A-18.1, which came into force on January 1, 2007.

However, because this appeal relates to assessments for the years 2004 and 2005,with a base date of January 1, 2002, the earlier statute is the relevant legislation. [3] The airport property has a total area of approximately 10,900 acres. Part of this is leased by the Airport Authority to thirdparties that are assessed separately for purposes of taxation.

According to the report completed by Gerard Russell, a commercialassessor with the municipal assessment agency, after adjusting for the third party leases, the total area assessed to the Airport Authorityis 8,774 acres. [4] Before the property was transferred to the Airport Authority, the federal government regularly made a statutorily mandatedpayment in lieu of taxes based on a valuation of the property at about $23,600,000. Under the Assessment Act, the property was initiallyassessed at $24,800,000, but this amount was subsequently revised to $14,754,000.

The Airport Authority appealed this valuation to theassessment review commission which upheld the assessor’s determination.

The commission’s decision was then appealed to the TrialDivision where the appeal was allowed, the commission’s decision was set aside, and the notices of assessment for 2004 and 2005 wereamended with the property being assessed at a value of one dollar. [5] In his decision, the trial judge set out facts regarding the history, development and status of the airport ((2008), 2008 NLTD120 , 277 Nfld. & P.E.I.R. 146): [5] The Airport was built in the late 1930’s and has operated as both a domestic and international airport ever since. The Airport hada significant role during the Second World War.

After the War, it continued to be an important facility for growing commercial aviationbecause of its location in the international air travel routes between North America and Europe. The Airport is operated today from aterminal building constructed in 1959 with a large extension built in 1982. The building contains approximately 150,000 square feet ofspace. There are also ancillary facilities such as a maintenance depot, a fire station and hangars. … [8] Unfortunately, the Airport has over time lost some of its strategic position with regard [to] the technical stops by internationalaircraft.

It has a significant amount of state-owned military air traffic but until recently it has been barred from collecting any landingfees or revenue in lieu of fees. The number of passengers annually passing through the Airport has declined for many years to the pointwhere the average total passenger volume is approximately 100,000 persons per year, yet the infrastructure of the airport is comparableto that of Vancouver Airport where approximately 1.5 million passengers transit through annually.

The Airport is looked upon as “thelife boat of the Atlantic”, because of its strategic position for air traffic control and for landing by international air travel in the case ofemergencies. From an air traffic control perspective, the Airport has maintained an important status as a key point of contact with asignificant amount of international air traffic proceeding to and from North America. … [36] As of the Base Date, the Airport was suffering a major slump in business due to new security protocols that resulted from theSeptember 11, 2001 terrorism attacks in the United States.

More stringent visa requirements decreased the volume of charter flightsfrom eastern European countries passing through Gander. New security restrictions for aircraft travel to the United States, includingcorporate jet travel, also resulted in less technical refueling stops at the Airport. [37] [The Airport Authority] was clearly saddled with a money-losing airport at the time of the transfer in March 2001 and thissituation was deteriorating between September 11, 2001, and the Base Date. [The Airport Authority’s] obvious mandate as a communitybased organization is to ensure the Airport did not close.

The evidence of Gary Vey, Chief Executive Officer of [the Airport Authority]indicates that the operation not only had an annual operating deficit, but it has not been able to accumulate any reserves for capital. [6] The trial judge, having described the circumstances of this airport as unique, rejected the assessment review commission’suse of the cost approach as an appropriate method of assessing the property.

ISSUES [7] At issue in this appeal is whether the trial judge erred when he set aside the decision of the assessment review commissionendorsing the assessor’s valuation of the leased Gander Airport property at $14,754,000, and instead determined that the property shouldbe assessed at a nominal value of one dollar. ANALYSIS Standard of Review [8] Property subject to taxation is initially assessed by an assessor designated under the Assessment Act. The assessor’s valuation

may be appealed to the assessment review commission, with a further appeal to a judge of the Trial Division (sections 26 and 44). TheAssessment Act is silent as to the nature of the appeal to the Trial Division; that is, whether the appeal amounts to a new consideration ofthe original assessment or judicial review of the commission’s decision. Section 44(2) simply states that the “practice and procedurerelating to appeals under the Judicature Act, and the Rules of the Supreme Court, apply” to the appeal. By contrast,

section 89 of the St.John’s Assessment Act, RSN 1990, c. S-1 provides: The Trial Division shall inquire into the matter anew and examine those witnesses and take proceedings that are necessary for a fullinvestigation of the matter. [9] This gap in the Assessment Act was discussed in Powell v. Kippens (Town) et al. (1996), (NL SC), 142Nfld. & P.E.I.R. 187 (NLTD), at paragraphs 3 to 8. Roberts J., as he then was, concluded that “the principles in play are the same” underboth statutes, and accepted that an appeal to the Trial Division under the Assessment Act should proceed by way of inquiry into thematter anew.

This procedure, adopted and applied by the trial judge in this case, was not raised as an issue in this appeal. (Withoutcommenting further on the issue, I note that a different provision is contained in the Assessment Act, 2006.) In the result, in the TrialDivision, the onus was on the Airport Authority to establish that the assessor’s valuation, presumed to be correct, was wrong (NewtermLtd. v. St.

John’s (City) (1989), (NL CA), 74 Nfld. & P.E.I.R. 328 (NLCA), at paragraph 22). [10] Because this was not a matter of judicial review of the commission’s decision, the trial judge’s decision that the assessor’sdetermination was wrong is subject to the standard of review ordinarily applied to a Trial Division decision. A comprehensive

summaryof that standard is provided in Courtney v. Cleary, 2010 NLCA 46, (2010), 299 Nfld. & P.E.I.R. 85. Cameron J.A., for the Court on thispoint, wrote: [15] The standards of review applied by this Court were discussed in Ring v. Canada (Attorney General) et al. (2010), 2010 NLCA 20, 297 Nfld. & P.E.I.R. 86; …, at para. 6: “… A pure question of law is reviewed on a standard of correctness and an appellate court is free to replace the opinion of the trial judgewith its own. Findings of fact, on the other hand, cannot be reversed unless the trial judge has made a palpable and overriding error.

Adetermination of whether a legal standard was met involves the application of a legal standard to a set of facts which is a question ofmixed fact and law. A question of mixed fact and law is subject to a standard of palpable and overriding error unless it is clear that thetrial judge made some extricable error in principle with respect to the characterization of the standard or its application, in which case theerror may amount to an error in law and the applicable standard is correctness.

These principles are well established: Housen v.Nikolaisen, 2002 SCC 33 , [2002] 2 S.C.R. 235.” Findings of credibility are part of the fact finding process and are subject to the same standard of review, as are inferences drawn fromthe facts. If inferences drawn by the trial judge are reasonable, an appellate court should not intervene just because other inferencescould also have been reasonably drawn [authorities omitted]. … In H.L. v.

Canada [2005 SCC 25 , [2005] 1 S.C.R. 401],paras. 55-56, Fish J. said: “‘Palpable and overriding error’ is at once an elegant and expressive description of the entrenched and generally applicable standard ofappellate review of the findings of fact at trial. … Both expressions encapsulate the same principle: an appellate court will not interferewith the trial judge’s findings of fact unless it can plainly identify the imputed error, and that error is shown to have affected the result. “In my respectful view, the test is met as well where the trial judge’s findings of fact can properly be characterized as ‘unreasonable’ or‘unsupported by the evidence’.” … Assessment of the Property [11] It is unclear from the evidence and the decision of the trial judge whether the federal Crown obtained control over all therelevant property pursuant to Term 33 of the Terms of Union of Newfoundland with Canada.

The trial judge also placed reliance on atleast one order-in-council in which the provincial Crown transferred administration and control over certain lands to the federal Crownfor purposes of the Gander Airport.

Term 33 provides that property related to the Gander Airport became “the property of Canada”when the Province entered confederation in 1949: The following public works and property of Newfoundland shall become the property of Canada when the service concerned is takenover by Canada, subject to any trusts existing in respect thereof, and to any interest other than that of Newfoundland in the same, namely, … (

b) the Newfoundland Airport at Gander, including buildings and equipment, together with any other property used for the operation ofthe Airport; … Clearly, the federal Crown has fee simple ownership of this property. [12] By order-in-council in 1973 (amended to include defence purposes in (i)), the Province transferred “administration and control”of lands for the airport to the federal Crown, free of charge, subject to the conditions that: (

i) the lands shall be used at all times for the purposes of the Gander Airport; (ii) all minerals, quarry materials, coal, natural gas, oil and salt in or under the said land shall be reserved to Her Majesty the Queen inright of Newfoundland; and

(iii) if, and as soon as the said lands cease to be used for the purposes mentioned in (

i) above, the administration and control thereof shallthereupon be assumed by Her Majesty the Queen in right of Newfoundland. [13] Transfer of administration and control is the process whereby authority over land is transferred between the federal andprovincial governments (The Attorney General of Canada v. Higbie et al., (SCC), [1945] S.C.R. 385, at page 404). Itis unclear which lands are encompassed by this and subsequent orders-in-council. However, for purposes of this appeal, it isunnecessary to ascertain that information. While the trial judge considered the resumption of control by the Crown in right of theProvince under paragraph (iii) as a relevant factor, it does not play a

part in the following analysis. [14] Had the federal Crown retained the property, rather than leasing it to the Airport Authority, the property would not have beensubject to taxation.

Section 125 of the Constitution Act, 1867 provides an exemption from taxation for the Crown in right of Canada or aprovince: No Lands or Property belonging to Canada or any Province shall be liable to Taxation. I note that a public corporation acting as a Crown agent may take advantage of this benefit. However, this applies only where thecorporation has been expressly made an agent of the Crown or the Crown exercises the requisite nature and degree of control over the corporation. The issue is discussed in Hogg, Constitutional Law of Canada, 5th edition supplemented, (Toronto: Thomson Reuters), atpoints 10.2 (

a) and (b). Regarding the nature and degree of control, by way of example, Hogg explained: … If the corporation is controlled by a minister (or a cabinet) in much the same way as a government department is controlled, then thecorporation is an agent of the Crown. If, on the other hand, the corporation is largely free of ministerial control, then it is not an agent ofthe Crown. … [15] In the case of the Airport Authority, which is clearly not an agent of the Crown, the

section 125 exemption from taxation doesnot apply. [16] The basis for taxation of the Airport Authority is a combination of sections 112 and 116 of the Municipalities Act, 1999, SNL1999, c. M-24.

Section 112 provides authority for the taxation of property generally:

(1) A council may impose an annual tax, to be known as “the real property tax”, on the owners of real property within the municipality. [17] Section 116(1) of the Municipalities Act provides for taxation of the tenant of real property where the owner is exempt fromtaxation and does not pay a grant in lieu of taxes: Where real property is exempt from the real property tax, a tenant who pays valuable consideration to rent that real property shall pay atax equivalent to the real property tax that would have been payable by the owner of the real property if that property were subject to thattax. [18] The tax payable under the Municipalities Act is based on the assessed value of the property, ascertained by means of theAssessment Act.

Section 12(1) of the Assessment Act specifies: “Property shall be assessed against an owner and against a commercialtenant, where there is one”. Where the Crown has leased property to a tenant,

section 13 of the Assessment Act provides: Notwithstanding subsection 12(1), where rent or other valuable consideration is paid in respect of Crown property or other property notsubject to the real property tax under the Municipalities Act, …, [that] property shall be assessed against the tenant as if the tenant werethe owner of the property. (Emphasis added.) [19]

Section 17 of the Assessment Act specifies that property shall be assessed at fair market value which is described in terms of anopen market sale by a willing seller to a willing buyer:

(1) An assessor shall assess property at its fair market value, that value being the amount which, in the opinion of the assessor, it wouldrealize if sold on the open market by a willing seller to a willing buyer.

(1.1) A determination of fair market value under subsection (1) shall be made by determining the fair market value of the property as ofthe base date. … [20] The difficulty the trial judge saw with applying this provision in what he described as the unique circumstances of this case isthat there is no market or possible alternate use for the airport given the lease restrictions imposed on the Airport Authority, together withthe fact that the airport was not financially or economically viable as of the base date of January 2002. [21] Because the property is to be assessed “as if the tenant were the owner”, fair market value must be determined taking intoaccount the restrictions the lease imposes on the Airport Authority.

Relevant restrictions in place as of the base date included:

(1) The property must be used as a “Major International Airport” and for “uses that are compatible with the management, operation andmaintenance of the [property] as a Major International Airport”, and failure to meet this condition would result in return of the propertyto the Crown (article 8.01 of the ground lease);

(2) As of the base date, the Airport Authority was precluded from charging fees or in any way hindering the right to land, take-off orpark any “civil aircraft owned by and exclusively used in the service of a foreign state or Her Majesty in right of Canada or in right of anyProvince and all military and defence aircraft used in the service of Her Majesty”, resulting in a significant negative impact on the airport

revenues when the airport was a money-losing venture (article 39.01 of the ground lease). [ 22 ] Because of these restrictions, the property could not be compared to a property that could be used for an alternate purpose.

In addition, the restrictions had a negative effect on the economic viability of the airport particularly insofar as the airport must be maintained as a major international airport in circumstances where this “unique international airport” has “limited international use and weak domestic air travel business”, and the tenant is precluded from charging fees as set out in the preceding paragraph (decision of the trial judge, at paragraph 35).

Having considered the evidence of the various assessors, the trial judge concluded: [63] In this case, I find that the evidence given by Jerome Kirkland, a certified appraiser, as well as that of Dr. Michael Tretheway, an aviation economist, is persuasive. They both pointed to the uniqueness of the predicament of the Airport, which they contend was not economically or financially viable and had no market on the Base Date. [ 23 ] In his report, Dr. Tretheway explained, in general: - To my understanding, all of the sales of local and regional airports were for $1 plus an amount for chattels.

In my opinion, this sale price reflects the fundamental economics of the operation of small airports, a subject which I and my company have examined on many occasions. For example, a recently completed study conducted by Transport Canada indicated that only 13% of Canada’s local and regional airports are currently able to cover both their operating and capital costs. As much as 48% of these airports are not even able to cover their annual operating costs, much less make a contribution to capital costs.

The $1 sale price for these airports reflected the fact that their viability is questionable. - The NAS airports [such as the Gander airport] were leased, rather than sold. This reflected the government’s priority that these 26 airports must continue in operation. By leasing rather than selling the airports, the Federal Government has the ability to immediately step in and continue operations in the event of the failure of one or more of these airports. The lease values differed among the 26 airports. The largest airports are capable of paying sizable annual lease payments.

The Greater Toronto Airports Authority, for example, paid $130 million in lease payments to the Federal Government in 2004. However, the national airports range greatly in size. The smaller NAS airports generally have no lease payments for roughly their first 20 years.

Even those payments may be problematic, and a recent announcement by the Federal Government indicated that it is willing to renegotiate lease payment for the national airports using a formula which may see the smaller NAS airports make little in the way of lease payments, even in later years. … … On May 8, 2005, the Federal Government announced a new program for lease payments by the national airports. The new formula will be based on gross revenues, and for the smallest airports will result in sizeable reductions in payments.

As an example, [Saint] John Airport, with a traffic base of roughly 200,000 passengers per annum, would see its 2020 rent payment reduced from $280,000 to $12,000. … … The conclusion is that there is scant information to provide a basis for looking at airport land transactions as a guide for establishing airport land values. Where transactions have taken place, the values are minimal, in large part reflecting the underlying weak economics of operating airports with low traffic bases. [ 24 ] Regarding the Gander airport specifically, Dr.

Tretheway concluded that, in valuing the property: no alternate use is possible; because of its role in trans-Atlantic transit, the airport maintains and operates “infrastructure well in excess of what would be required to serve the local population” and which “imposes major costs on the [ Airport Authority ] with little revenues from which these costs can be recovered”; the airport is unique given the “large disparity between its infrastructure base and its domestic traffic base” in a situation where airlines “reap great operational and financial benefits because of the existence of [the airport], but [the Airport Authority] is unable to charge for these services as its fees are based on actual use of the airport”; and business plans developed by Transport Canada for the Airport Authority acknowledged that “[e]ven in the best case scenarios, airport viability was marginal, and that scenario was premised on very low property taxes and rent payments”. [ 25 ] Dr.

Tretheway concluded: … A privatized Gander Airport would have had to raise fees significantly, which would have resulted in higher airfares. This in turn would have further driven commercial traffic to alternate airports. A private investor would have considered all this, and in my view would have been unlikely to purchase the Gander Airport if it had to continue to operate [it] as an airport.

In my view, the value of the Gander Airport lands to a potential investor could only be considered realistically in the context of no requirement to operate an airport on the lands. [ 26 ] Jerome Kirkland, an accredited professional appraiser, provided a position paper to the commission with respect to the airport. Regarding the cost approach to valuation of the property, utilized by the assessor and the commission, Mr.

Kirkland wrote in his report: The Cost Approach is most appropriately applied when there is evidence of land value, building costs are available, when market forces are in equilibrium, and when a building is relatively new and functional, having little depreciation. In the case of the subject property, none of these situations exist. There is no proven market for the subject [property], no known relevant land sales are available, the buildings are mostly obsolete structures; therefore, accrued depreciation would be very difficult, if possible to estimate. Therefore, the Cost Approach is not relevant.

As a result, Mr. Kirkland took the position that the valuation of the property should be determined using the income approach. In determining an assessed value of one dollar for the property, he explained: From a public policy point of view, the best use of the subject property may be as an airport, as it is vital for the international and

national airport air transportation system. The airport is also essential for the long term economic viability of the Gander area. TheGander Airport, however, is infrastructure for the region, as much as hospitals, schools, roadways and recreational facilities. As Dr.Tretheway confirms, it does not have economic value in exchange. While it has no value in exchange, it does, however, help to make theregion of Gander to be economically more viable.

The existence of the airport property and its continued operation, like otherinfrastructures in the area, acts to increase the market value of the privately held properties in the region. As assessments are based onmarket value this enables assessed values in the area to remain sustainable and the municipal governments receive a higher amount ofmunicipal taxes. [27] Mr. Russell, the assessor with the municipal assessment agency, used the cost approach to value the property but did not takeaccount of the above restrictions.

He assessed the land “as if vacant” and the buildings on the basis of the estimated reproduction orreplacement costs, taking account of physical, functional and external depreciation. However, the failure to consider the effect of therestrictions imposed on the Airport Authority meant that the first consideration under

section 17 of the Assessment Act, identification ofthe market, was not addressed. In 3163083 Canada Ltd. v. St. John’s (City), 2005 NLTD 32, (2005), 245 Nfld. & P.E.I.R. 1; affirmed onappeal “essentially for the reasons set out by the Trial Division judge”, 2005 NLCA 76, (2005), 252 Nfld. & P.E.I.R. 290, at paragraph9 (the “Labatt decision”), Orsborn J. emphasized the importance of the first step in the analysis: [118] In my view, in the circumstances of this case, Kirkland’s approach is consistent with the objective of the Act.

It focuses on themarket in which the statutory willing buyer and willing seller may be found. By contrast, as developed in this case, the replacement costapproach bears no relationship to the hypothetical market. As put forward here, the depreciated (replacement) cost starts from thepremise that there is no market, a premise which ignores the dictates of the legislation. Replacement cost may indeed be an acceptedmethod of determining market value, perhaps only in limited circumstances, but it is not correct, in my view, to substitute replacementcost for the market.

The market must first be defined, even if hypothetically; the valuation in that market then follows, whether by wayof direct comparison, income capitalization, replacement cost or otherwise. (Emphasis added.) [28] Orsborn J. explained: [113] … But if the evidence is, as here and as in Southam [2004 BCCA 245; 2004 BCCA 245 , 238 D.L.R. (4th) 640], thatthere is no market – no willing seller and buyer – for the property in its present use, then there can be no market value derived from thatpresent use.

The task of the appraiser is then to determine that highest and best use for which there is a market, and to select that usewhich will attract the highest price. [114] Generally, the more specialized the features of the property, the fewer hypothetical buyers there will be. In a number of the casesreviewed, there was no market for the special purpose property. But it does not follow that because there is no market for the specialpurpose property that, without more, the replacement cost should immediately be utilized to determine market value.

A market must befound, the use for which there is a market must be found, and the valuation proceed accordingly. Once the market (and highest and bestuse) are determined, then, and only then, does the question arise of which valuation method should be employed. If there are sales ofcomparable properties with a similar use, then the direct comparison approach may be appropriate; lacking such comparable sales, thenreplacement cost may be considered as a guide to market value. But the analysis remains, fundamentally, a search for the market.

Oncethe (hypothetical) market is determined and defined, an appropriate method of pricing for that market may be selected. (Emphasis added.) It follows from the Labatt decision that, in appropriate circumstances, the owner may be considered to be a possible purchaser. Alternatively, valuation of the land may properly be based on a possible alternate use. [29] In Montreal v.

Sun Life Assurance Co. of Canada, (UK JCPC), [1952] 2 D.L.R. 81 (P.C.), at page 90, LordPorter identified the purpose in assessing property to be to ascertain its exchange value and, as well, accepted the proposition that theowner may be regarded as a possible purchaser: Their Lordships would agree that where no sale is contemplated and indeed any sale would be difficult what has been called the higglingof the market is not an element of much if any consequence, but nevertheless, the ultimate aim is to find the exchange value of theproperty, i.e., the price at which the property is salable.

In reaching their result the appointed Tribunal must take into account not onlythe amount which a buyer would give but also the sum at which the owner would sell. What that sum would be is, as the authoritieshave pointed out, best ascertained either by regarding him as one of the possible purchasers or by estimating what he would be willing toexpend on a building to replace that which is being valued.

But the owner must be regarded like any other purchaser and the price hewould give calculated not upon any subjective value to him but upon ordinary principles, i.e., what he would be prepared to pay, if hewas entering the market, for a building to meet his requirements, or would be willing to expend in erecting a building in place of thatwhich is being assessed. (Emphasis added.) [30] The approach of ascertaining the exchange value of the property, being a sum at which a purchaser would buy and a vendorwould sell, by regarding the owner as a possible purchaser may, depending on the circumstances, fit comfortably with the assessment ofcommercial property of the type considered, for example, in Sun Life, a large office building, or in Labatt, a brewery.

However,regarding the owner as a potential purchaser where the “owner” is a not-for-profit Authority operating and maintaining a public amenityunder strict restrictions imposed by government is of a different character. [31] It is clear from the restrictions in the Airport Authority’s lease that the airport is of significant value from a public policyperspective. It must be maintained and operated as a major international airport because of its strategic location. However, as of thebase date, it was a money-losing enterprise with restrictions on its ability to generate revenue.

It cannot be compared to other majorinternational airports such as are located in Toronto and Vancouver because it lacks a large passenger base to generate revenue. It alsocannot be compared to smaller regional airports that have appropriate facilities for serving a smaller passenger base because the Gander

airport has the infrastructure of, and must be operated as, a major international airport. [32] Public amenities are frequently, but not always, exempt from taxation. This reflects their social utility and the limited basis onwhich revenue may be generated. These considerations, and particularly any lease restrictions, must be taken into account whendetermining the hypothetical market for the enterprise. In the case before this Court, the assessor did not identify the market, but rather,proceeded to consider the three valuation methods: direct comparison, replacement cost and income.

The trial judge described thesemethods and commented on the assessor’s approach: [18] The assessor noted that there are three traditional approaches to valuation – the income, market comparison and costapproaches. The cost approach is described as the current cost of reproducing or replacing the improvements minus the loss of valuefrom depreciation and the site value. Income approach is the value of the property’s earning power based on the capitalization of itsincome.

Market comparison approach is the value indicated by recent sales, listings or offerings to purchase comparable properties inthe market. [19] The assessor concluded that for his assessment of the Airport the cost approach to valuation was the correct approach to use. Hejustified this position on the basis that this was the valuation approach that had been used in the past for the purpose of determiningpayments in lieu of taxes by the Federal Government to the Town under federal legislation entitled the Payment in Lieu of Taxes Act,R.S.C. 1985, c. M-13.

He testified that representatives from the assessments audit division of the Federal Government had neverquestioned the valuation approach used by the Agency. Implicitly, he also determined that the income and market comparisonapproaches should not apply. [33] It was an error for the assessor to proceed on the assumption that the federal government and the Airport Authority were incomparable positions and should be treated the same for purposes of the assessment.

The federal government as owner with completeauthority over the property cannot be compared to the Airport Authority as tenant subject to strict conditions imposed by the owneraffecting, among other things, its revenue generating capability and the use to which the property must be put. [34] Further, by failing to identify the market and to take account of the restrictions on the Airport Authority, the assessor erred inthe valuation analysis.

He valued the land as “vacant land”, comparing the runway lands to nearby industrial lands, even though therunways, an integral part of the airport operation, could not be used for an alternate purpose. The fact that the presence of the airportmay positively affect the value of nearby industrial property does not lead to the conclusion that the land used for the airport would havea comparable value. This consideration is discussed in C.N.R. et al. v. Vancouver, (BC CA), [1950] 4 D.L.R. 807(BCCA).

O’Halloran J.A., for the majority on this point, wrote, at pages 812 to 814: Economically speaking, land solely as land has little value; it derives value from its attributes. For example, farming land, speakinggenerally, derives its value from fertility, suitability for certain crops and proximity to marketing facilities; urban land, speakinggenerally, derives its value from its location in a city (varying of course with the commercial importance of the city) its suitability andsize for varying commercial uses, and if not vacant, the type of building upon it.

But the lands here, compulsorily restricted to railwayterminal purposes, cannot owe their value to competitive exchange or sale conditions. Their restrictive opportunities for use deny it.

Theevidence later examined establishes that because of their restricted opportunity for use, their assessment value is necessarily less than thatof adjacent industrial sites. … … … If land by statute, agreement with the City (as here) or otherwise, is restricted to the special use to which it is put, then the assessmentrationally must be related to its value in that use, even though the land would be properly assessable at a much higher figure if it could beput to some other use.

Hence it is reasoned that the lands here must be regarded as assessable in the light of their use for railwayterminal purposes, and are not assessable as industrial sites, a use that is prohibited to them. … [35] Similarly, in Calgary (City) v. Alberta (Municipal Government Board), 2004 ABCA 10, (2004), 339 A.R. 393, the Court, percuriam, wrote, regarding the value of land in a ravine adjacent to a residential development: [15] At the hearing of the appeal, the City argued that the ravine had value because it enhanced the value of the surrounding lands.

We accept that a ravine (whoever owns it) could enhance the value of the surrounding acreage. A purchaser might be willing to paymore for an acre of developed property beside, or backing onto, a ravine than for an acre of land backing onto another developedproperty. But this fact does not give market value to the ravine.

It merely increases the market value of the surrounding land … . [36] In the case before this Court, in conducting the valuation, the assessor separated the land into seven categories which he valuedby comparison to land zoned in the town as commercial, vacant or remote industrial, unserviced, raw land, and bog land with limitedpotential for development. If any of the land not used for the airport operation was leased, presumably it would be assessed separatelyfor taxation purposes, as is the case with land that has in the past been leased by the Airport Authority.

The land over which the AirportAuthority maintains control must be treated for purposes of assessment as one parcel since there is no market for separate parcels exceptthose areas that, being leased from the Airport Authority, would, as a result, be assessed separately. [37] In the circumstances, where an alternate use is not possible, it could not be said that, if sold on the open market, a willing buyerwould offer more than a nominal amount, determined by the assessors here to be one dollar.

Assessment in future years may, of course,change should the airport become financially viable or freed from the restrictions that applied as of the base date with the result that amarket with more than a nominal value could be identified under

section 17 of the Assessment Act. [38] It follows that the trial judge did not err in concluding that, other than the property which has been leased to third parties and issubject to separate assessment, the property leased to the Airport Authority is properly assessed for 2004 and 2005 at a value of onedollar.

SUMMARY AND DISPOSITION

[ 39 ] In considering the appeal regarding the assessed value of the property at $14,754,000, I have adopted a somewhat different analytical approach from that of the trial judge, focusing on the restrictions in the ground lease and their effect for purposes of the application of

section 17 of the Assessment Act . Nonetheless, the application of

section 17 on the facts of this case leads to the conclusion that the trial judge did not err in determining that the property assessed against the Airport Authority for purposes of taxation for 2004 and 2005 is properly valued at one dollar. [ 40 ] Accordingly, the appeal is dismissed. As requested, the parties have leave to make submissions as to costs. _________________________________ B. G. Welsh, J.A. I Concur: ____________________________ M. H. Rowe, J.A. I Concur: ____________________________ C. W. White, J.A.

Dissenting Reasons by Barry, J.A. [ 41 ] I have read the reasons of Welsh J.A. and agree with most of her statements of the applicable law though differing in their application to the unique facts of this case. First, I will specify the points of agreement. Then I will explain my reasons for arriving at a different result. Standard of Review [ 42 ] I agree with the conclusion of Welsh J.A. that the trial judge’s decision must be reviewed on a standard of correctness for points of law and a standard of palpable and overriding error on the application of the law to the particular facts of this case.

Assessment of the Property [ 43 ] In addition, I agree that s. 17 of the Assessment Act requires assessment at fair market value in terms of an open market sale by a willing seller to a willing buyer. This requires identification of a hypothetical market: Labatt , quoted above at paragraphs 27-28. In appropriate circumstances the current tenant or owner may be considered to be a possible purchaser: Sun Life , quoted above, at paragraph 29.

Existence of a Hypothetical Market [ 44 ] I disagree with the statement of Welsh J.A., at paragraph 37, that “it could not be said that, if sold on the open market, a willing buyer would offer more than a nominal amount”. This disagreement arises because of my conclusion that the property of the Airport Authority , although overbuilt and functionally obsolescent, had considerable value to any entity mandated to operate a major international airport at Gander and this value could be determined through calculating replacement cost and adjusting for obsolescence and depreciation.

Let me explain. [ 45 ] This Court must keep in mind the mandatory directions provided to an assessor by s. 17 of the Assessment Act in force in 2004 and 2005: 17(1) An assessor shall assess property at its fair market value, that value being the amount which, in the opinion of the assessor, it would realize if sold on the open market by a willing seller to a willing buyer.

Also, section 7(2) of the Act required the assessor to proceed so as to ensure that taxation “falls in a uniform manner upon all the taxable property in the community”. [ 46 ] This “hypothetical sale price” definition of “market value”, treated as synonymous with “exchange value”, is a concept created by law, rather than arising from economists or popular usage. See, James C. Bonbright, The Valuation of Property : A Treatise on the Appraisal of Property for Different Legal Purposes (1937, 1st ed. McGraw-Hill Book Company, New York), at pp. 40-62, discussed, at p. 3ff, in John H.

Shevchuk, “Special Purpose and Market Value: A Legal Perspective”, a paper presented to the Appraisal Institute of Canada National Conference, June 7-9, 2007, and published by Lex Pacifica Law Corporation. The focus must be upon whether, assuming a willing seller, a willing buyer might be found. If there is evidence that no willing buyer exists, then there is no market and no possible fair market value. See, Orsborn J. in Labatt , at paras. 115, 117 and 118. As noted by Orsborn J., whether or not there is a market for the property in its present use or an alternative use comes down to a question of evidence.

The market is a hypothetical one when, as here, the property in question is not actually being sold and may not even be offered for sale. [ 47 ] One significant circumstance, which bears upon the question of whether a market existed in 2002 (the base date) and 2004 and 2005 for Gander Airport, is the fact that on the evidence an international airport would have continued in operation for those years,

whether under the control of the Authority or some other entity.

Section 8.01.01 of the 60-year ground lease between the Government ofCanada and the Authority, dated March 1, 2001, authorized by Order in Council No. 200-1548, requires the Authority to use the demisedpremises as an international airport.

Section 20.01 entitles the Government to take possession of the premises in the event of default. [48] It is a reasonable, indeed inescapable, inference that, had the Authority defaulted on its covenant to use the property as aninternational airport, the government of Canada would have repossessed the Airport land and facilities and they would have been madeavailable to a new entity for use as an international airport.

In those hypothetical circumstances, the buildings, land and other facilities inquestion would have considerable value, specifically to the entity assuming responsibility for the operation of an international airport atGander. That entity would have to construct new facilities to operate an airport if the Authority’s property were not made available to it. It is appropriate, therefore, to accept the cost of constructing appropriate new facilities as the value of the Authority property.

Thiswould represent not just the value to the owner but the value in exchange, since any new entity mandated to operate the Airport would bebidding for the property, should the Authority itself decide it would no longer operate at Gander. The new entity would be the willingpurchaser creating the market. [49] The Authority property has value even assuming no alternate use is possible and even though the Airport operations might notresult in a profit. Acquisition of the Authority property by any entity planning to operate the Airport would avoid the cost ofconstructing new facilities.

If nothing else this would mean a reduction in losses incurred. A reduction in loss would have had to be ofvalue to the entity involved in the non-profitable operation. If the Airport was to be operated regardless of profit, reducing the cost ofgetting up and running was something for which an operator would pay. [50] This obligation to continue operation as an airport distinguishes the present case from Southam and Labatt and from the “publicamenity” cases cited. In Southam, the owner of the printing plant was the only party for which the improvements and then present usehad value.

Also, the parties agreed that the market value of the property for any use other than printing the owner’s newspapers was$25,000,000. The assessor had determined the fair market value of the land to be $4,054,000 and the actual cost of the improvementsless depreciation as $36,481,000, for a total assessed value of $40,535,000.

In upholding the chambers judge’s finding that the valuationof $25,000,000 should be accepted rather than the $40,535,000, in the excerpt noted above, Levine J.A. for the Court of Appealconcluded there was no market as a printing plant because there was no potential purchaser other than the owners. In the present casehypothetically there were other potential purchasers, namely those entities who would have been called upon to operate an internationalairport at Gander had the Authority ceased operation.

Accordingly, there was a hypothetical market, though a limited one. [51] In Labatt, this Court accepted the reasons of Orsborn J., who followed Southam in concluding there had to be a market for theproperty in its present use or there can be no market value derived from that present use. He found there was no willing buyer for theproperty in its then present use as a brewery but there was a market for the property in “general industrial use” and accepted a valuationbased upon comparable sales of properties with such uses.

Again, Labatt may be distinguished from the present case because, as notedabove, there was a hypothetical market for the Airport property in its present use. In Labatt no other entity would purchase to operate asa brewery and the owner had no obligation to continue brewing operations. [52] As noted by the Trial Judge, Gander Airport fell within the National Airports Policy of the Government of Canada and thatGovernment had decided an international airport should continue to be operated there. This is sufficient to distinguish Labatt and thepublic amenity cases cited by the Authority.

However, if this is not a valid distinction, I respectfully decline to follow Labatt and thosepublic amenity cases and, instead, follow Sun Life and York Assessment Office, Office Specialty Ltd. v. Ontario Regional AssessmentCommissioner, Region No. 14, (SCC), [1975] 1 S.C.R. 677 (S.C.C.), which applied the Sun Life principle that, to findthe exchange value of a property, an assessor must take into account not only the amount which a buyer would give but also the sum atwhich the owner would sell.

What that sum would be is best ascertained by regarding the owner as one of the possible purchasers or byestimating what the owner would be willing to expend on the building to replace that which is being valued, regarding the owner like anyother purchaser and avoiding subjective valuation. [53] These cases are binding on this Court and require that we conclude a market existed, in the circumstances, for Gander Airportand that the best approach for determining fair market value of the improvements on Airport land is the replacement cost approach, withappropriate adjustments to allow for physical deterioration, functional depreciation (obsolescence) and external depreciation (negativeinfluences outside the building).

The assessor correctly took this approach and properly valued the Airport buildings. The Authority’sexperts did not consider the value of the Airport property to an entity mandated to continue operation as a major international airport. They based their opinions upon the incorrect assumption that no market existed, ignoring the fact that any mandated operator would bidfor the property. Because of this incorrect assumption, the expert opinions could not assist the Authority in meeting its onus of provingthe assessor’s valuation was wrong.

In finding otherwise, the Trial Judge made a palpable and overriding error and his decision must beset aside. Valuation of Gander Airport Land [54] I disagree with the conclusion of Welsh J.A. in paragraphs 27 and 33 above that the assessor erred in ignoring the restrictions inthe ground lease and assuming for purposes of assessment that the federal government and the Authority should be treated the same.

Theeffect of s. 13 of the Assessment Act and s. 116(1) of the Municipalities Act is to require valuation, not of the Authority’s interest in theAirport property (as set out in the ground lease with restrictions) but of the federal Crown’s interest, without deduction for thereversionary interest of the provincial Crown.

Valuation without deduction for a reversionary interest follows from s. 15 of theAssessment Act, which reads in part: Property in which there exists a life interest or similar tenancy or estate arising otherwise than by a lease [in this case by Term 33] shallbe assessed to the life tenant or person entitled to possession of it [that is, the federal Crown] as if the life tenant or other person were theowner in fee simple… If the federal Crown is treated as the owner in fee simple, it could make any use it wished of the Airport property.

Accordingly, theAirport should be valued according to its highest and best use. In the present case, that use is determined by the land use plan adoptedby the federal Crown, a plan which establishes that for the years 2004 and 2005 the land would be developed in conjunction with the

requirements of Gander Airport. The assessor properly considered comparable commercial and industrial lands in determining site valueand the trial judge had no reason to interfere with the assessor’s reasonable estimates of value for the land. The Authority’s expertsbased their opinions upon the incorrect assumption that the reversionary interest of the provincial Crown reduced the value of the lands. Because of this error of law, these opinions on land value should have been rejected.

The trial judge erred in accepting the opinions andhis decision must be set aside. [55] Although the legislative framework for the assessment of unique or special purpose properties has been changed in theAssessment Act, 2006, by the decision in this case this Court risks creating doubt regarding the established approach to valuation forassessment purposes, which recognizes that a tenant’s interest must be valued as though the tenant were the owner. See, McMurrayBowling Ltd. v. New Town of Fort McMurray (1979), (AB KB), 20 A.R. 556 (Q.B.), Montréal v.

A.G.Can., (UK JCPC), [1923] A.C. 136, 70 D.L.R. 248 (J.C.P.C.), and Phillips and Taylor v. Sault St. Marie (City), (SCC), [1954] S.C.R. 404, cited with approval by Lamer, C.J. in Reference re Goods and Services Tax, (SCC), [1992] 2S.C.R.

Section 15 of our Assessment Act clearly shows that the purpose of the Act is similar to the purposes of assessmentlegislation in other jurisdictions: to ensure that a parcel of land should be assessed as an objective totality – it is not intended thatparticular legal or equitable estates should be sought out and assessed to their respective owners. See Banner Coal Company Limited v.Gervais, (AB CA), [1922] 3 W.W.R. 564 (Alta.C.A.) and Trizec Manitoba Ltd. v. Winnipeg (City) (1986), (MB CA), 28 D.L.R. (4th) 161 (Man.C.A.), leave to appeal dismissed December 18, 1986.

Assessment based on the valueof the totality of all rights attached to the land ensures that the taxation falls in a uniform manner upon all the taxable property in thecommunity, as required by s. 7(2) of the Assessment Act. Promoting this legislative purpose means that in the present case the Airportland should be valued not as a mere interest under a restrictive ground lease but as an interest in fee simple.

Summary and Disposition [56] In

summary: (

i) A market existed for the Authority property and the Authority has not established that in the circumstances the assessor was wrong toconclude that replacement cost provided a valid approach to valuation of improvements, with an appropriate amount deducted forphysical deterioration, functional depreciation (obsolescence) and external depreciation. (ii) The Airport land should be valued as though the Authority were the owner in fee simple and the Authority has not established thatthe assessor was wrong in his valuation. (iii) I would allow the appeal and confirm the revised assessment of March 28, 2008. ________________________________ L.

D. Barry, J.A. I Concur: ___________________________ J. D. Green, C.J.N.L.