Yarmouth (Town) v. Gateway Importers and Exporters Ltd., 2011 NSCA 17

NOVA SCOTIA COURT OF APPEAL Citation: Yarmouth (Town) v. Gateway Importers and Exporters Ltd., 2011 NSCA 17 Date: 20110208 Docket: CA 334765 Registry: Halifax Between: Town of Yarmouth Appellant v. Gateway Importers and Exporters Limited, The Attorney General of Nova Scotia and The Nova Scotia Utility and Review Board Respondents Judge: The Honourable Justice Peter M. S. Bryson Appeal Heard: January 26, 2011 Subject: Administrative Law – Boards and Tribunals – Judicial Review – Expert Evidence – Expropriation – Value of Land – Injurious Affection – Damages

Summary: The Town of Yarmouth appealed an award by the Utility and Review Board for injurious affection. The Town objected that the Board had wrongfully considered “development potential” rather than “market value”. The Town also claimed that the Board erred in accepting expert evidence that did not comply with the Expropriation Act , R.S.N.S. 1989, c. 156, and which contained unproven assumptions. The Town also alleged that the Board erred in deciding that a lease of part of the lands could be terminated early. Issues: Did the Board err: 1.

By including “development potential” in its assessment of “market value”? 2. By determining that a tenant’s lease could be terminated early? 3. By relying on an appraisal with assumptions not proven by other evidence? 4. By relying on expert evidence that did not comply with the Expropriation Act ? Result: Appeal dismissed. The property was prime commercial space whose highest and best use was as a strip mall. In this case, market value required that this potential for development be taken into account. There was evidence that a tenant’s lease over part

of the property could be terminated early, allowing a potential buyer to develop the property immediately. The assumptions in the expert report to which the Town objected were of a generic nature relating to such things as retail rents, management expenses, and construction costs in the local market. The Town’s own expert did not seriously challenge the accuracy of these assumptions. The Expropriation Act did not require an owner’s expert report to comply with “appraisal report” as defined by the Act .

In any event, technical differences between the form of the Town’s expert report and that of the owner were not material to the difference in their opinions. It was for the Board to determine what evidence it would accept. All of the foregoing were reviewable on the standard of reasonableness. Both the Board’s reasoning and conclusions were reasonable. This information sheet does not form part of the court’s judgment. Quotes must be from the judgment, not this cover sheet. The full court judgment consists of 9 pages. NOVA SCOTIA COURT OF APPEAL Citation: Yarmouth (Town) v.

Gateway Importers and Exporters Ltd., 2011 NSCA 17 Date: 20110208 Docket: CA 334765 Registry: Halifax Between: Town of Yarmouth Appellant v. Gateway Importers and Exporters Limited, The Attorney General of Nova Scotia and The Nova Scotia Utility and Review Board Respondents Judge(s): Hamilton, Fichaud and Bryson, JJ.A.

Appeal Heard: January 26, 2011, in Halifax, Nova Scotia Held: Appeal dismissed with costs payable by the appellant to the respondent, Gateway, per reasons for judgment of Bryson, J.A., Hamilton and Fichaud, JJ.A. concurring.

Counsel: Gregory Barro, for the appellant Victor Goldberg with Jack Townsend, Articled Clerk, for the respondent, Gateway Importers and Exporters Limited Edward Gores, Q.C., for the respondent, the Attorney General of Nova Scotia (not appearing) Reasons for judgment : [ 1 ] On August 11, 2006 the Town of Yarmouth (“Town”) expropriated a portion of prime commercial property owned by Gateway Importers and Exporters Limited (“Gateway”) in order to construct a road. The parties agreed on the value of the expropriated land itself.

They also agreed that Gateway’s remaining land was injuriously affected by the expropriation. But they disagreed on quantification of the injurious affection. The Town’s appraiser valued it at $27,000. Gateway’s appraiser valued it at $218,500. The Utility and Review Board (“Board”) largely accepted Gateway’s appraisal and awarded Gateway $215,600. The Town now appeals. ISSUES [ 2 ] Although there are nine grounds of appeal, they can be reduced in substance to six: 1. The Board erred by considering development potential rather than market value; 2.

If it was appropriate to consider development potential in some cases, it was not appropriate in this case; 3. The Board erred by including “development profit” in determining value; 4. Alternatively, there was no evidence supporting the assumptions in Gateway’s appraisal; 5. The Board erred by finding that a lease of part of the expropriated lands could be terminated early; and 6. The Board erred by relying on an appraisal that did not comply with the Expropriation Act . [ 3 ] It will be convenient to address issues 1, 2 and 3 together and 4, 5 and 6 separately.

STANDARD OF REVIEW: [ 4 ] The Utility and Review Board Act , S.N.S. 1992, c. 11 says that findings of fact by the Board are conclusive (s. 26). Appeals to this Court are confined to questions of jurisdiction and law (s. 30(1)). The parties agree that reasonableness is the appropriate standard of review for most of the grounds of appeal. I agree. Where the parties differ will be addressed further below. ISSUES 1, 2 AND 3: DEVELOPMENT POTENTIAL

[ 5 ] The parties agree that these issues are reviewable on a reasonableness standard. [ 6 ] The Town says that the Board considered “development potential” of Gateway’s land, rather than “market value”. The Town complains that the Board was wrong to accept Gateway’s appraisal evidence because it valued a “hypothetical development” of the land. [ 7 ] Section 27(2) of the Expropriation Act , R.S.N.S. 1989, c. 156 defines market value as what a willing buyer will pay a willing seller in an open market. Because the expropriation involved a partial taking, the parties agreed and the Board found that s. 27(5) of the Act applied: 27(5) Where only part of the land of an owner is taken and such

part is of a size, shape or nature for which there is no general demand or market, the market value and the injurious affection caused by the taking may be determined by determining the market value of the whole of the owner’s land and deducting therefrom the market value of the owner’s land after the taking. [ 8 ] Section 27(5) of the Act obliges the appraiser to value all of Gateway’s land both before and after expropriation. The Board found that the Town’s appraiser had not performed a before and after valuation as required by s. 27(5).

Other than a buffer zone, the Town’s appraiser did not appraise Gateway’s unexpropriated land and building. He considered that these unexpropriated lands had the same value both before and after expropriation. The Board held that this contravened s. 27(5). [ 9 ] In contrast, Gateway’s appraiser valued all the property both pre and post expropriation. He determined that the highest and best use of the property was as a strip mall. But the effect of expropriation was to increase building set back requirements from 20 to 60 feet.

Therefore, Gateway’s remaining property would be confined to a much smaller development than could have been built pre expropriation. The loss to Gateway turned on the difference in value of the two developments. The Board accepted this approach. [ 10 ] The Town’s objection that the Gateway appraisal wrongly takes into account “development potential” and describes a “hypothetical” development, misses the point.

Highest and best use necessarily involves valuing a potential use when the existing use is not the highest and best use. “Development potential” and “hypothetical development” are implied in a use other than current use. The evidence before the Board favoured an income approach to value a commercial property. Even the Town’s appraiser agreed to this much.

The following findings of the Board are fatal to the Town’s argument here because they show that Gateway’s appraisal properly captured the development potential of Gateway’s property when determining market value : [142] However, the location of the building itself on the eastern “half” of the lot, with the advantage resulting from its being a non- conforming structure, coupled with the commercial nature of the general area, leads the Board to conclude that a willing buyer would certainly consider the development potential of the land in determining how much he would pay for it.

The Board is satisfied that the willing seller would consider those same factors as well. . . . [145] ...The use of the term “development potential” in Mr. Earle’s [ie., Gateway’s] report is perhaps an unfortunate choice of words; what is clear from the evidence of Mr. Earle, Mr. Hardy and Mr. Weatherby, all experienced appraisers, is that Mr. Earle employed an income approach in his valuations. This approach was, as agreed by Mr. Hardy and Mr.

Weatherby, the most relevant approach to use. [146] The Board considers that in applying the “before and after” approach, it is necessary to examine what a willing buyer would pay for the building with the full parcel of land, and then the building with a smaller parcel of land. A willing buyer will consider the size and utility of the parcel when determining the price he or she is willing to pay. ... [ 11 ] Then the Town says that Gateway’s appraisal includes “development profit” which involves double compensation.

There was evidence that development profit was included in the estimated expenses of development and was deducted from the net value calculated by Gateway’s appraiser (Appeal Book, Vol. 2, p. 191). But that “profit” really refers to the building contractor’s profit.

[12] The Town relies on Nova Scotia (Attorney General) v. L. E. Powell Property Ltd., 1995 NSCA 101, (1995) (NS CA), 144 N.S.R. (2d) 93, to argue that foregone “development profit” is not compensable. But Powell distinguishes between“development profit” and “development potential”. In Powell, the potential of the land was already included in market value: [59] The potentiality, as well as the adaptability, of the Land, were matters considered by both appraisers in determining marketvalue. The claimants would be doubly compensated if, having accepted Mr.

Weatherby’s estimate of market value for the Land, anadditional sum should be added for engineering costs incurred, or lost profit. [13] During oral argument, the Town objected that the Gateway appraisal really failed to consider the risks of a future development. But those risks are largely reflected in the capitalization rate. There was no dispute between the parties on the choice of capitalizationrate, once an income approach is applied. [14] Alternatively, the Town claims that the Board erred in accepting Gateway’s valuation because it was unsupported byGateway’s existing or contemplated use.

Gateway had built a more modest retail development than envisaged by its appraiser and therewas no evidence that Gateway had the means to develop what its appraiser valued. But this is really a variation of the “developmentpotential” objection. It does not matter what Gateway did, planned or said. The Act requires that market value be determined. What awilling buyer would pay a willing seller in the circumstances of this case inevitably involved the before and after analysis mandated by s.27(5). It is the planned use by the hypothetical willing buyer that matters.

Here, that required an income approach to value, based onhighest and best use – not Gateway’s existing use. [15] Issues 1, 2 and 3 are reviewable on a reasonableness basis. The Board’s reasoning and findings both had a rational foundation. ISSUE 4: NO EVIDENCE SUPPORTING GATEWAY’S APPRAISAL [16] The Town asserts that Gateway’s appraisal contained assumptions not borne out by the evidence. Detailed evidence was notoffered regarding such things as rental and vacancy rates, management expenses, construction costs, and the like.

The Boardacknowledged these criticisms, but was satisfied that the assumptions of Gateway’s appraiser were reliable. The Board noted that theTown’s appraiser did not challenge the reliability of the assumptions of Gateway’s appraiser. Rather, he objected to the limitedexplanation of their provenance: [168] ...Mr. Weatherby’s objections to the figures used by Mr. Earle were not to the figures themselves, but to the lack of explanation inMr. Earle’s report about how they were derived. . . . On cross-examination, he acknowledged that Mr.

Earle’s sources “sounded like”they were reliable. ... [17] The Town cited Johnson (Re), 2005 NSCA 99, to argue that expert opinion could not survive the failure to prove the factualfoundation of that opinion. But Johnson makes plain that uncontroversial information, typically of a statistical character, does notcompromise an expert’s opinion. It is a matter of weight. It is quite different if the opinion depends on information from an interestedparty or other suspect source (Johnson, paras. 82-86).

So land sale information obtained by an appraiser based on interviews withundisclosed owners does not make his opinion inadmissible, (City of Saint John v. Irving Oil Co. Ltd., (SCC), [1966]S.C.R. 581). And reliance on leases not put into evidence did not impair admissibility of expert evidence in Ferguson v. Ranger Oil Ltd.,1997 ABCA 52 , [1997] 3 W.W.R. 487 (C.A.). [18] The factual assumptions in the Gateway appraisal are primarily of a statistical and generic nature. As the Board characterizedit: In the view of the Board, Mr.

Earle used what may be described as standard allowances for vacancy, management expenses, andstructural allowances.

The Town’s appraiser did not seriously question the reliability of those assumptions. They were augmented by oral testimony which theBoard accepted. The one assumption that would have had the largest impact on valuation was the capitalization rate. But Gateway’s caprate was not challenged by the Town or its appraiser. [19]

Section 19 of the Utility and Review Board Act gives the Board broad power to receive evidence: 19 The Board may receive in evidence any statement, document, information or matter that, in the opinion of the Board, may assist it todeal with the matter before the Board whether or not the statement, document, information or matter is given or produced under oath orwould be admissible as evidence in a court of law. 1992, c. 11, s. 19; revision corrected. [20] The failure to provide independent confirmation of suspect hearsay is a matter of weight, perhaps to the vanishing point (R. v.Lavallee, (SCC), [1990] 1 S.C.R. 852, per Sopinka J. at p. 900, referred to by this Court in Johnson).

The weight ofexpert evidence is a matter for the Board (Powell, supra, para. 23). [21] The Town argues that the standard of review is correctness, presumably because it says that there was “no evidence” to supportsome of the assumptions in the Gateway appraisal. That argument has not prevailed. There was some evidence of the reliability of theassumptions in the Gateway appraisal. The weight to be ascribed to that evidence was a matter for the Board. On that question, thestandard is reasonableness. Neither the Board’s reasoning nor its conclusion could be described as “unreasonable”.

ISSUE 5: THE LEASE [22] Part of Gateway’s expropriated property had been leased to a third party. Gateway’s appraisal assumed that vacant possessioncould be promptly secured. The Town says this was wrong because the lease was for a five-year fixed term. The Board agreed withGateway. Both Gateway and its tenant testified that either could terminate the lease on short notice. That this contravened the writtenterms of the lease is irrelevant – it is trite law that parties are free to modify mutual obligations. The Town’s protest that this evidencewas “self-serving” was a matter for the Board to determine.

Moreover, there was evidence that the lease had never been signed by anauthorized Gateway representative. Whether the lease was capable of early termination was a question for the Board, reviewable on areasonableness standard. The Board can be taken to have some expertise with property rights, the value of which the Expropriation Acttasks it with determining, (see Cape Breton-Victoria Regional School Board v. Canadian Union of Public Employees, Local 5050, 2010NSCA 60, at paras. 21 to 23). In light of the evidence of both Gateway and its tenant, the Board’s finding had a rational basis.

ISSUE 6: COMPLIANCE WITH THE EXPROPRIATION ACT? [23] The Town says that the Gateway appraisal did not comply with standards set by the Appraisal Institute of Canada. The Boarddetermined that the Expropriation Act did not require compliance with these standards and, in any event, non compliance was notmaterial. The Town’s own appraiser acknowledged that any non compliance did not have any impact on the fundamental differencebetween the appraisal reports. [24] Section 3(1)(

a) of the Expropriation Act defines an appraisal report as one which complies with standards adopted by theAppraisal Institute of Canada. But as Gateway argues, appraisal reports are only mentioned in ss. 13(3), 13A, 15(2) and 52(8) of the Act,which all refer to obligations of the expropriating authority or costs. The Act says nothing about what a claimant’s expert evidence needlook like.

Another reference to Johnson, supra, is warranted here: [74] As I indicated earlier, nothing in the Act confined the Board to a consideration of real estate appraisals only, nor to appraisalsusing the direct comparison approach only, in determining the market value of expropriated land.

Thus it is open to the Board to acceptevidence or methodologies that, in the particular circumstances of the case then before it, are reliable or appropriate towards establishingmarket value, provided they are directed to the definition of that term and provided they have not been found to be incorrect, as has thevalue to the owner approach. A component value approach in determining the market value of land is not, in and of itself, a flawedassessment. [Emphasis Added] So, even assuming both that s. 3(1)(

a) applied to Gateway and that its appraisal was non compliant, that would not preclude the Board

from considering it. [25] Deference is usually accorded a tribunal’s

interpretation of statutes closely connected to its function, and with which it hasparticular familiarity: Dunsmuir v. New Brunswick, 2008 SCC 9 , [2008] 1 S.C.R. 190, para. 54; Canadian Broadcasting Corp.v. Canada (Labour Relations Board), (SCC), [1995] 1 S.C.R. 157, para. 78; and most recently, Abella J. in CelgeneCorp. v. Canada (Attorney General), 2011 SCC 1, at para. 34. The Board’s particular familiarity with the Expropriation Act has beenacknowledged by this Court (Johnson, para. 41).

Accordingly, the Board is entitled to the deferential standard of reasonableness withrespect to its decision of what appraisal evidence complies with the Act or what evidence it will consider in any event. In this case, theBoard’s decision to rely primarily upon the Gateway appraisal was reasonable. CONCLUSION [26]

Section 52 of the Expropriation Act entitles an owner to reasonable costs necessarily incurred for the purpose of asserting aclaim for compensation. The Town has appealed but Gateway has been completely successful in resisting the appeal. This wasnecessary to assert Gateway’s claim for compensation. I would dismiss the appeal with reasonable costs necessarily incurred byGateway in this proceeding in the Court of Appeal, to be paid by the Town to Gateway. Any dispute regarding calculation of this awardor respecting the effect on this award of any offer to settle, may be determined by the Board. Bryson, J.A. Concurred in: Hamilton, J.A. Fichaud, J.A.