City of Toronto v. Simone Group Properties Limited, 2013 ONSC 341

CITATION: City of Toronto v. Simone Group Properties Limited, 2013 ONSC 341 DIVISIONAL COURT FILE NO.: 299/12 DATE: 20130128 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT KITELEY, SWINTON and DUCHARME JJ. B E T W E E N: )) ) CITY OF TORONTO Appellant - and - SIMONE GROUP PROPERTIES LIMITED AND LIBERATA SIMONE Respondents ) ) ) ) ) ) ) ) ) ) ) ) ) ) )) Brendan O’Callaghan and Matthew Longo, for the Appellant Anthony Caldwell and Joel Farber, for the Respondents ) )) HEARD AT TORONTO: December 20, 2012 Swinton J.: Overview

[1] The City of Toronto appeals from a decision of the Ontario Municipal Board (“the Board”) dated May 4, 2012 in which theBoard awarded the respondents compensation under the Expropriations Act, R.S.O. 1990, c. E.26 (“the Act”).

The City takes issue withtwo aspects of the decision: the award of disturbance damages for business loss that occurred prior to the date of expropriation and thefailure to reduce the amount of market value compensation because of environmental contaminants on the property. [2] For the reasons that follow, I would dismiss the appeal, as the Board made no error in law and reached a reasonable decisionbased on the evidence before it. As well, I would dismiss the respondents’ cross-appeal, as the Board did not err in refusing to awardinterest on the disturbance damages.

Factual Background [3] For many years, the respondents owned an industrial property at 405 Dufferin Street in the old City of Toronto. At one point,they carried on a business that produced soft drinks. When the business was sold to Cott Beverages in the late 1980’s, Cott became atenant until March 1998, followed by other tenants. [4] From the early 1980’s, the City considered the elimination of the “Dufferin jog”, which resulted from the termination ofDufferin Street north of Queen Street because of the CP rail corridor.

Southbound traffic on Dufferin was required to turn left onto PeelStreet and then south onto Gladstone Street in order to arrive at Queen Street. Traffic had to then jog west to rejoin Dufferin. Northboundtraffic made the jog in the reverse direction. [5] The Dufferin Jog Elimination Project would consist of the construction of an underpass under the rail corridor at Dufferin Streetto allow a continuous flow of traffic along Dufferin. In June 1992, City Council approved an Environmental Study Report (“the ESR”)for the elimination of the Dufferin jog.

The report recommended taking the respondents’ property at 405 Dufferin Street. The followingmonth, approval was obtained under the Environmental Assessment Act, R.S.O. 1990, c. E.18. [6] Apparently, the City was without funds to carry out the project at that time. According to a chronology found in the Board’sreasons, the City’s engineering department provided a status report in March 1998.

That month, the respondents were contacted by aCity employee who sought a meeting to discuss the purchase of the property. [7] In September 2000, the City sought an addendum to the ESR, because of the time that had elapsed since the first report. Thesummary ESR was presented to City Council in March 2001. In June 2001, a project review report recommended the expropriation ofthe respondents’ property, and this report was adopted by City Council in June 2001. [8] In September 2004, a notice of hearing was given regarding expropriation of the property.

The final authority approving theexpropriation and the registration of a plan of expropriation occurred at a City Council meeting in July 2005. The City registered a planof expropriation on October 14, 2005, thereby expropriating the property and vesting title to it in the City. On November 9, 2005, theCity served a Notice of Expropriation on the respondents, who elected to have market value determined as of that date (“the ValuationDate”). The Board’s Decision [9] The Board gave lengthy and careful reasons for its decision on compensation.

It awarded $3,314,812 for the market value ofthe property and refused to reduce the amount, as sought by the City, because of the presence of environmental contaminants or thecondition of the building. It also awarded significant damages for business loss, having found that the respondents received less thanmarket value rent for a period of approximately seven years because of the City’s delay in carrying out the expropriation. The Boardrefused to award interest on the damages for business loss.

The Issues [10] The City argues that the Board made errors of law and reached an unreasonable conclusion with respect to the award of damagesfor business loss and its assessment of the impact of the environmental condition of the property. It also argues that the Board made anumber of factual errors that show its decision to be unreasonable. [11] The respondents brought a cross-appeal because of the Board’s refusal to award interest on the disturbance damages. The Standard of Review [12] The City argues that the Court owes no deference to the Board in the

interpretation of the Expropriations Act, and, therefore, thestandard of review on a question of law is correctness. It relies on Toronto Area Transit Operating Authority v. Dell Holdings Ltd., (SCC), [1997] 1 S.C.R. 32. [13] However, the Court of Appeal in Antrim Truck Centre Ltd. v. Ontario (Minister of Transportation), 2011 ONCA 419 hascautioned that the statements about the standard of review in Dell should be read narrowly, given the more recent jurisprudence of theSupreme Court of Canada in Dunsmuir v. New Brunswick, 2008 SCC 9 , [2008] 1 S.C.R. 190. The Court of Appeal noted thatthe Ontario Municipal Board has expertise in the

interpretation of the Expropriations Act and legal questions closely related to it (at para.61). [14] In my view, the Board must be correct in the legal principles to be applied to the determination of business losses, as this involvesa question of law and the correct application of Dell. [15] However, most of the arguments raised by the City challenge the Board’s application of legal principles to the evidence and itsfindings of fact. To the extent that the questions raised by the City are ones of mixed fact and law or factual, the standard of review isreasonableness. As the Court of Appeal stated in Antrim at para. 65, when dealing with the application of the law of nuisance,

The board is best positioned to appreciate the relevant facts and to apply those facts in deciding whether the interference with theclaimant’s land is substantial and unreasonable. These are clearly questions of mixed fact and law that do not lend themselves toobjectively correct and incorrect answers. I see no reason why they would be reviewed on a standard of correctness… See, also, Toronto and Region Conservation Authority v. Gadzala (2005), (ON SCDC), 266 D.L.R. (4th) 52 (Ont.Div. Ct.) at paras. 52-53.

The Business Loss Issue [16] Before the Board, the respondents claimed disturbance damages for business losses incurred as a result of pre-expropriationdelay. They sought such damages for a period of approximately 10 years. The Board accepted the claim for almost seven years. [17] The Board found that there were no losses in rental income in the period April 6, 1996 to March 31, 1998.

With respect to April1, 1998 to November 30, 1999, the Board found, the diminished rents and the protracted vacancy period for the subject property was the result of the Claimants’ inability to secure a longterm tenant because of uncertainty about the City’s plan to eliminate the “Dufferin jog”.

The Board took note of the March 1998 status report to City Council and the telephone call from the City about possible purchase of theproperty, and accepted the evidence of the respondents’ expert Lawrence Morassutti that “it is reasonable to assume that a long-termtenant would not have opted to occupy the subject property” (Reasons at p. 55). The Board awarded damages based on the differencebetween reasonable market rent and the amount received from a tenant, Baer International.

The Board also took into account therespondents’ duty to mitigate and deducted the rent that would have been earned in two months because of a failure to mitigate. [18] For the period December 1, 1999 to July 31, 2005, the Board found “the threat of expropriation was very much alive” (Reasonsat p. 56).

While a new tenant, CFA Communications, signed a five year lease starting August 1, 2000, the Board found that therespondents suffered a business loss, which it calculated on the basis of the difference between CFA’s rent and the reasonable marketrate. [19] For the period August 1, 2005 to November 1, 2006, the Board assigned a reasonable rental value. The City had agreed tocompensate for the period from July 31, 2005 through to April 30, 2006, when it took possession. [20] The City argues that the Board erred in law by failing to apply the relevant legal principles with respect to pre-expropriationdamages.

More particularly, it did not set out the legislative provision relied on; it erred in finding that the respondents suffered businesslosses because of the expropriation process; it improperly awarded damages for delay caused by the planning and environmentalapproval processes; and it failed to reduce the damages because of the respondents’ failure to mitigate. [21] The City first takes issue with the Board’s failure to specify the

section on which it relied for the award of damages for businessloss. However, it is obvious from the reasons that the Board was applying s. 13(2)(

b) of the Act, which allows it to award compensationfor “the damages attributable to disturbance”. [22] Moreover, the Board set out the correct test to be applied, relying on the decision of the Supreme Court of Canada in Dell, supra. The Board correctly stated, “To be entitled to an award for disturbance damages, the Claimants bear the burden of proving that thedamages claimed are the natural and reasonable consequence of the expropriation” (Reasons, p. 52).

The Board repeated, at p. 53 of theReasons: … in discharging its burden, the Claimants must establish, first, that there were losses, and second, these losses were the natural andreasonable consequence of the expropriation. [23] The Supreme Court in Dell made it clear that disturbance damages can be incurred in a period prior to the formal invocation ofthe expropriation process. In that case, the expropriating authority, the Toronto Area Transit Operating Authority, recommendedconstruction of a GO transit station on one of two sites on lands of Dell Holdings Limited.

The lands were being held for the purposesof residential development. However, the municipality refused to provide necessary approvals for the development of the land until theAuthority decided on the actual site for the project. This occurred almost three years later. The parties agreed that Dell had experienceddelay as a result of the expropriation process, and it had suffered financial loss.

The Supreme Court held that the damages resulting fromthe delay in development were the natural and reasonable consequences of the expropriation (at para. 28). [24] The Court also made it clear that damages which occur before the actual expropriation can be caused by the expropriationprocess (at paras. 38 and 42).

The Court concluded that Dell should be compensated for damages to its development business in theperiod while the Authority decided which part of Dell’s lands was needed (at para. 45). [25] This brings me to the City’s second argument: that the Board erred in finding that the respondents suffered business losses as aresult of the expropriation. The City submits that even if the expropriation process can be said to have begun in June 2001, therespondents suffered no business losses because of the expropriation decision, as they had already signed a five year lease with CFA in2000.

Moreover, the City argues that the respondents are not entitled to lost profits as part of disturbance damages. [26] In my view, the City incorrectly relies on 747026 Ontario Ltd. v. Upper Grand District School Board (2001), (ON CA), 56 O.R. (3d) 108 (C.A.) and Bernard Homes Ltd. v. York Catholic District School Board, [2004] O.J. No. 2650 (Div.Ct.) as authority that loss of business profits cannot be compensated as disturbance damages. The Court of Appeal in Upper Grandrejected an argument that future loss of profits could attract an award of compensation for disturbance damages.

The Court distinguishedDell from the case before it, as the claimants in Dell sought compensation for business losses that arose before expropriation. Incontrast, the claimants before the Court of Appeal were developers seeking prospective profits that they would have achieved after thevaluation date as a result of the sale of the expropriated lands (at para. 19). The Court emphasized that disturbance damages are notintended to supplement market value compensation; rather, they “are directed to damages that are a consequence of the expropriation” (at

para. 25). The Divisional Court in Bernard Homes followed Upper Grand (at paras. 46, 48 and 49). [ 27 ] In the present case, the business losses that the respondents sought were losses that they claimed were caused as a result of the delay in the expropriation process. They were not seeking future profits, as in Upper Grand or Bernard Homes. [ 28 ] The City takes issue with the Board’s finding that the threat of expropriation caused the respondents to receive less than a reasonable market rate for rent in the period back to 1998.

However, the Board accepted the evidence of the respondents’ expert Lawrence Morassutti that the respondent experienced diminished rents and protracted vacancy in the property from April 1, 1998. This was the result of their inability to find a secure long term tenant at market rents because of the City’s plan to expropriate the property. That was a reasonable conclusion for the Board to make on the evidence before it. While the City argues that the respondents should have called the tenants as witnesses to discuss the issue of the rents paid, there was no need for them to do so, given the evidence of Mr.

Morassutti about the impact of the contemplated expropriation on the rental income received. [ 29 ] The City has also argued that the Board erred in finding that the business losses were caused by the delay in the expropriation process, rather than by the planning and environmental process. While the City relies on Gadzala , supra , that is a very different case. There, the Board was found to have acted unreasonably in awarding disturbance damages for delay in developing the lands.

The Divisional Court noted that the claimants had not established that they had a business plan pertaining to the subject lands that was delayed by the expropriation (at para. 117). Moreover, the Board had erred in failing to consider the adverse consequences resulting from the complex planning process, as time was required to obtain planning permission for lands in the area of the subject property (at para. 118). [ 30 ] In the present case, the Board found that the City was engaged in the process of expropriating the respondents’ property from sometime before 1998.

That is a factual finding that is deserving of deference from this Court.

It is consistent with the determinations in the 1992 ESR report, as well as actions taken by the City in March 1998. [ 31 ] That brings me to the final argument of the City: that the Board erred in failing to reduce the respondents’ damages because of the respondents’ failure to mitigate. [ 32 ] The Board was aware of the need to consider mitigation and, in fact, it reduced the award because of a failure to mitigate between April 1, 1998 and July 1, 1998. [ 33 ] The City argues that the respondents could have avoided the business losses by selling their property to the City at any time after the expropriation was authorized in June

Section 30 of the Act allows a claimant to convey title to the expropriated land without prejudice to the claimant’s right to have the value determined by the Board at a later date. Instead, the respondents challenged the decision to expropriate and requested a Hearing of Necessity pursuant to s. 6(2) of the Act. [ 34 ] There is no merit to this argument. The respondents were actually successful on the Hearing of Necessity, as the report of the Inquiry Officer in July 2005 recommended against the expropriation of all of their land. City Council rejected that recommendation, as it was entitled to do.

However, it was reasonable for the respondents to invoke the process available to them under the Act . Therefore, they should not be denied their losses incurred after the request for the Hearing of Necessity. The City, having decided to expropriate, is responsible for the losses caused by the expropriation process. [ 35 ] In

summary, the decision to award disturbance damages for business loss was based on correct legal principles and was a reasonable one, given the evidence before the Board. The Environmental Contamination Issue [ 36 ] Through testing, a consultant for the City identified the presence of a number of contaminants on the property. Four were found to be in excess of the 2004 standards of the Ontario Ministry of the Environment (“MOE”).

It was not disputed that there was no requirement to remediate the property, and the City’s expert Thomas Guoth did not recommend any remediation for two of the four contaminants. [ 37 ] However, two contaminants were a concern: vinyl chloride (“VC”) and tetracholorethylene (“TCE”). Mr. Guoth estimated $40,000 would be needed to upgrade the basement ventilation system to deal with the VC. He stated that the cost might be warranted based on the results of a risk assessment. With respect to the TCE, Mr.

Guoth gave a “ballpark estimate” that remediation would cost $355,000, if a risk assessment concluded that remediation was warranted. His estimate was based on the assumption that the entire basement slab would be vented. As a consequence of these findings, the City’s appraisal expert Grant Uba estimated that market value should be reduced by $580,000. [ 38 ] The respondents’ environmental consultant Robert Leech undertook a vapour modeling exercise and concluded that the VC presented no human health risk, and no risk assessment or upgrade to the ventilation system was required. In his modeling exercise, Mr.

Leech considered the 2009 MOE standards, which only came into effect in 2011. However, the science upon which the 2009 standards were based was available in 2005. According to Mr. Leech, it represented the best science available, and MOE’s policy was to use the best science available. [ 39 ] The uncontested evidence before the Board from Mr.

Leech was that the TCE presented no risk to human health, and no remediation measures were required. [ 40 ] The Board accepted the respondents’ evidence that there was no risk to human health or the environment from the presence of the contaminants, and no remediation was needed.

However, it did deduct $20,000 for air sampling and $10,000 for the purpose of drilling more bore holes. [ 41 ] The City argues that the Board erred in two ways: it should have made a deduction for the presence of environmental contaminants because the land was not pristine; and it erred in relying on the 2009 MOE standards, as market value was to be determined

as of the valuation date in November, 2005. [42] The City relies on Tridan Developments Ltd. v. Shell Canada Products Ltd. (2002), (ON CA), 57 O.R. (3d)503 (C.A.) for the proposition that market value must be reduced where land is not environmentally pristine. Tridan was a civil actiondealing with contamination resulting from a fuel spill which migrated to neighbouring property. The issue before the Court of Appealwas whether the value of that property was reduced because of stigma, despite a complete remediation of the property.

The Court ofAppeal observed that there was no evidence that there would be a residual reduction in value of a remediated site caused by theknowledge that the land had once been polluted (at paras. 13, 17 and 18). The case does not set out a principle of law that the marketvalue of a site with pollutants must be reduced because of stigma. [43] In the present case, the Board accepted the evidence of the respondents’ expert that there should be no reduction in market valuebecause of the presence of the two contaminants.

The Board carefully explained why it rejected the evidence of the City’s expertssupporting a $580,000 reduction. In particular, it rejected the evidence of Mr. Uba, for the City, because Mr. Uba rested his opinion thatthere had been a diminution of the property’s value upon Mr. Guoth’s estimate of the potential “ball park” worst scenario. The Boardrejected Mr. Guoth’s evidence and, consequently, did not accept Mr. Uba’s evidence. It was reasonable for the Board to do so. [44] Finally, the City argues that the Board erred in relying on the 2009 MOE standards. However, Mr.

Leech, the respondents’witness, used the 2009 standards as a reference only. He testified that the science upon which the standards were based was available in2005, and the MOE policy was to use the best science available. That evidence was not contested. Therefore, the Board made no legalerror when it stated (Reasons, p. 37): Mr. Leech used the best information available at the effective date and found no risk to human health or to theenvironment, and no need for remediation or risk management. The Board’s findings are entitled to deference.

Based on the evidence, the Board’s decision not to reduce the market value because ofthe contaminants was within a range of reasonable outcomes. Factual Errors [45] The Board did not err in its use of the 2004 Weir report. In fact, the Board did not base its market value determination on thatreport, although it took note of the report (Reasons, p. 30).

Rather, the Board accepted the expert evidence of the two valuators whotestified on behalf of the respondents and carefully explained why. [46] However, the Board did make an arithmetical error in the calculation of the business losses, as it is clear that the dollar amountset out on p. 58 of the Reasons does not reflect the conclusion on entitlement on p. 56. On p. 58, the Board set out the damage amountfor only one of the years of the CFA lease, which had a five year term.

Instead, it should have added the damage figures in Exhibit 23(c)for each of the years of the lease. [47] The parties are agreed that this Court can make an order correcting the amount. Pursuant to s. 31(2) of the Act, the DivisionalCourt, on an appeal, can make any order or decision that could have been made by the Board. The Cross-Appeal [48] On the cross-appeal, the respondents seek interest on the disturbance damages.

However, the Court of Appeal stated, in an obitercomment in Upper Grand, above, that there is no power to award interest on disturbance damages, given s. 33(1) of the Act (at para.29). [49] The Divisional Court is bound to respect that conclusion, which is fully supported by the language of s. 33(1) of the Act: 33(1) Subject to subsection 25 (4), the owner of lands expropriated is entitled to be paid interest on the portion of the market value ofthe owner’s interest in the land and on the portion of any allowance for injurious affection to which the owner is entitled, outstandingfrom time to time, at the rate of 6 per cent a year calculated from the date the owner ceases to reside on or make productive use of thelands. [50] The fact that the Act contemplates interest payable on certain types of compensation suggests that the Legislature did notcontemplate the award of interest on other types of compensation.

Accordingly, the Board did not err in refusing to award interest on thedisturbance damages. Conclusion [51] The City has not demonstrated that the Board made any legal error. Essentially, it seeks to overturn the Board’s findings of fact. However, the Board’s decision was a reasonable one, well supported by the evidence and justified in the reasons given. [52] The appeal is allowed only to the extent that the business loss figure on p. 58 of the Reasons is to be amended to reflect the actualloss of $281,883.

Otherwise, the appeal is dismissed, as is the cross-appeal. [53] Each party has filed a costs outline with the Court. The respondents seek $41,790.72 on a partial indemnity basis. The City’s billof costs seeks $28,705.00, which is some indication of the reasonable expectations of the losing party with respect to costs of the appeal. Taking that factor into account, as well as the complexity of the record here, the City is ordered to pay the respondents costs of $25,000.00 inclusiveof HST and disbursements.

___________________________ Swinton J. ___________________________ Kiteley J. ___________________________ Ducharme J. Released: January 28, 2013 CITATION: City of Toronto v. Simone Group Properties Limited, 2013 ONSC 341 DIVISIONAL COURT FILE NO.: 299/12 DATE: 20130128 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT kiteley, swinton and ducharme jj. B E T W E E N:

CITY OF TORONTO Appellant - and - SIMONE GROUP PROPERTIES LIMITED AND LIBERATA SIMONE Respondents REASONS FOR JUDGMENT _________________________________________ Swinton J. Released: January 28, 2013