Aikman v. The Queen, 2000 DTC 1874 (TCC)

Date: 20000211

Docket: 98-2-EXP-G

BETWEEN:

JOHN R. AIKMAN, MICHEL BEAUREGARD, ANDRÉ BENOÎT, GUY BENOÎT, RENÉ BERGERON, JOSÉE BESNER, DENIS BLANCHETTE, FRANÇOIS BOUCHARD, MARC BOUCHER, NANTEL BRISSET, PIERRE CHARBONNEAU, BRUNO DION, DENIS DUFRESNE, GUY GADOURY, MICHEL GAGNÉ, PAUL GENDRON, ANTHONY HALFACRE, JEAN-ÉRIC HÉROUX, FERNAND LALIBERTÉ, LISE LALONDE, SERGE LANTHIER, SERGE LEBEL, JOCELYNE LESSARD-GENDRON, MONIQUE LORD, ANTHONY MOFFAT, JACQUES OUELLET, CLAUDE PAQUETTE, DENIS PATRY, RÉJEAN PLAMONDON, MICHEL PLOURDE, KENNETH REED, DANIEL ROBERT, JOHN ROMITA, JEAN TOUCHETTE, PIERRE TOUCHETTE, ROBERT TRAUNERO, ROSANNA VENDITTI ET ROBERT ZEDWANE,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Bowman, J.T.C.C.

[1] This appeal was heard over a period of seven days in Ottawa and Montréal. The sole issue is the fair market value on December 22, 1997 of a disassembled prototype (or, more accurately, a proof-of-concept) of a lighter-than-air, heavy-lift vehicle known as the Cyclo-Crane. On that day, Mr. John Aikman, together with a number of other Canadian taxpayers, gave the Cyclo-Crane to the Canadian Museum of Flight and Transportation, in Langley, British Columbia. It was agreed that the appeals of all of the other donors would abide the result of Mr. Aikman's appeal.

[2] The donors estimated the Cyclo-Crane to have a fair market value of $3,075,000 U.S. The Canadian Cultural Property Export Review Board (the "CCPERB" or the "Board") determined that it had a value of $200,000 U.S.

[3] The fair market value of an item of cultural property is relevant to the determination of the tax credit for charitable gifts under section 118.1 of the Income Tax Act.

[4] On December 17, 1991, retroactive to February 21, 1990 the Cultural Property Export and Import Act (the "CPEI Act") and the Income Tax Act were amended to transfer the responsibility of determining the fair market value of certified Cultural Property from the Department of National Revenue to the CCPERB.

[5] The CCPERB's two functions that are relevant to this appeal are (a) the certification of cultural property as meeting the criteria of "outstanding significance and national importance" contained in paragraphs 29(3)(b) and (c) of the CPEI Act and (b) the determination or redetermination of the fair market value of the property disposed of.

[6] The Board has determined that the Cyclo-Crane is of "outstanding significance and national importance", thereby meeting the criteria in paragraphs 29(3)(b) and (c).

[7] This court's jurisdiction is limited to appeals from the CCPERB's redetermination of the fair market value of an object that has been irrevocably disposed of to a designated institution or public authority. The Canadian Museum of Flight and Transportation is a designated institution.

[8] Section 33.1 of the CPEI Act reads:

33.1(1) Any person who has irrevocably disposed of an object, the fair market value of which has been redetermined under subsection 32(5), to a designated institution or public authority may, within ninety days after the day on which a certificate referred to in subsection 33(1) is issued in relation to that object, appeal the redetermination to the Tax Court of Canada.

(2) On an appeal under subsection (1), the Tax Court of Canada may confirm or vary the fair market value and, for the purposes of the Income Tax Act, the value fixed by the Court is deemed to be the fair market value of the object determined by the Review Board in respect of its disposition.

[9] On an appeal to this court from a redetermination of the fair market value of an object of cultural property, the ordinary rules of burden of proof apply. Specifically, the appellant bears the onus of showing that the Board's determination of the fair market value is wrong. While it may be of assistance to show flaws in the Board's reasoning, the ultimate task of an appellant is to establish on a preponderance of evidence that the fair market value of the object is higher than that determined by the Board. The appeal is from the determination, not the reasons for it. Nonetheless, if the reasoning that underlies the determination is clearly insupportable this may well be a first step toward establishing a higher value.

[10] A second point that should be emphasized is that a taxpayer's motive in acquiring an object of cultural property with the intention of donating it to a specified institution is irrelevant. If a taxpayer is successful in obtaining such an object for a price that is less than its fair market value with the intention of obtaining a tax advantage by making a charitable gift this is perfectly acceptable. (See: The Queen v. Friedberg, 92 DTC 6031 (F.C.A.) aff'd on a different issue 93 DTC 5507; Zelinski et al. v. The Queen, 2000 DTC 6001). The intent or expectation of obtaining a tax advantage does not vitiate the charitable gift. Nonetheless an appellant in such circumstances runs a risk that the Board or the court may conclude that the best evidence of fair market value is the price at which the object was bought.

[11] A third preliminary observation has to do with the words in subsection 33.1(2) of the CPEI Act "the value fixed by the Court".

[12] I do not regard these words as requiring the court to do anything more than it does in an ordinary appeal under the Income Tax Act in respect of a valuation of property made by the Minister of National Revenue. Specifically, I do not think it would be appropriate for the court to fix a value lower than that determined by the Board with the result that the tax credit allowed to an appellant on assessing would be reduced. The principle stated by Thurlow J. in Harris v. M.N.R., 64 DTC 5332 (Ex. Ct.), aff'd 66 DTC 5189, that the court may not permit the Minister to appeal from his own assessment, is equally applicable to appeals under the CPEI Act.

[13] The Cyclo-Crane is described in the Cultural Property Income Tax Certificate as "an experimental hybrid aircraft prototype, 178 feet long and 120 feet tall, 2 ton capacity, dual lift systems, designed & built in the early 1980s".

[14] The word "hybrid" is particularly apt. The Cyclo-Crane has elements of a conventional helicopter and of a dirigible or a blimp.

[15] The following is a description of the aircraft taken from the report of one of the Crown's expert witnesses, Mr. Alfred Shortt:

Property Description

4. The aircraft prototype consisted of a large helium filled dacron envelope (aerostat) with four rotating stalks projecting radially from the aerostat, each stalk mounting a variable pitch winglet and blade combination intended to provide lift and propulsion.

5. Power was provided by small aircraft piston engines with three blade propellers. These power plants were mounted on the outer ends of the winglet/blade stalks.

6. A control cabin and the payload were carried on slings under the aircraft, suspended from a horizontal shaft penetrating the length of the aerostat.

7. The complete vehicle was braced and stabilized by a network of steel and kevlar cables. Directional stability was provided by an annular ring tail. The helium filled aerostat provided neutral buoyancy for the vehicle in the static state with no payload. Application of power caused the complete aerostat-winglet/blade assembly to rotate around the central horizontal shaft. Cyclic control of the winglet/blade units provided lift to handle the payload and provided forward propulsion.

8. According to the documentation filed with the certification application, the Cyclo-Crane prototype was 178 ft. in length, 120 ft. in height, the 68 ft. diameter envelope contained 330,000 cu. ft. of helium. Aircraft weight without payload was 17,000lbs.

[16] This is a reasonably accurate description of it. Appendix A is a schematic view of the Cyclo-Crane.

[17] The development of the concept goes back to at least 1972. Mr. Aikman, a consultant in the field of venture capital and new technology development, was approached by two entrepreneurs from California who wanted to talk to him about the development of a lighter-than-air hybrid aircraft to which they had rights.

[18] The Canadian aerospace company, Canadair, was approached and a preliminary design study was done of a concept known as an aerocrane, with particular application in the forest industry. Canadair joined forces with the Forest Engineering Research Institute of Canada ("FERIC"). If the concept of a lighter-than-air flying crane were to prove economically and practically feasible it would obviously be greatly superior to conventional methods of removing timber, which are expensive and environmentally destructive where logging roads are built and prohibitively expensive where helicopters are used.

[19] The initial feasibility study confirmed these advantages. The original concept of an aerocrane had a round balloon but even at the preliminary stage of the feasibility study it was recognized that the forward speed of a spherical configuration was limited by the high drag of the spinning sphere.

[20] Therefore a more aerodynamic configuration had to be developed and this was the genesis of the proof-of-concept Cyclo-Crane that is the subject of this appeal. A proof-of-concept, the term used by Mr. Aikman, is essentially the full size model built to demonstrate that the conceptual technology is effective. According to Mr. Aikman, the building of a prototype is the next step after the building of a proof-of-concept. Frequently in the evidence the Cyclo-Crane is however described as a prototype.

[21] The most obvious difference between the aerocrane and the Cyclo-Crane is that the former is spherical whereas the latter is sausage-shaped.

[22] It was therefore decided to build and test a Cyclo-Crane. Money was raised from private investors and from the Federal Business Development Bank.

[23] A company, Aerocranes of Canada Limited ("ACL"), was formed with a view to exploiting the Cyclo-Crane, which had been invented by two Americans, Arthur G. Crimmins and Donald B. Doolittle. By an agreement dated June 18, 1979 between Crimmins, Doolittle and ACL, ACL was to proceed with the design, construction and testing of a model envelope and propulsion system. A syndicate of four forestry companies was to contribute up to $200,000 Cdn.

[24] In the following excerpt from a report to the shareholders of ACL by the president, Mr. Aikman summarizes the progress in the development of the Cyclo-Crane up to November of 1979:

A PROJECT DESCRIPTION

1. History of Development

Aerocranes of Canada Limited (ACL) was incorporated under the laws of Canada in 1975 to acquire license rights in Canada, Brazil and Australia to a hybrid (aerodynamic/aerostatic) aircraft capable of ultra-heavy lift in operations analogous to those of helicopters but in a sling-load range beyond the present or foreseen capacity of such aircraft, i.e. 15-500 tons.

This patented concept, known as the Aerocrane, has been subjected to a number of technical assessments and model flight tests in the U.S. and Canada by such entities as the Aerospace Corporation under contract to the U.S. Forest Service; Princeton University (Department of Aerospace and Mechanical Engineering), under contract to the U.S. Navy; and Canadair Limited. Canadair completed an internally financed $ 100,000 technical feasibility study in 1978. All such work confirmed the Aerocrane's feasibility and economic justification.

In 1978, ACL's licensors developed a new version of the aircraft, the Cyclo-Crane, that appears to have overcome the major limitations of the Aerocrane, in particular its relatively low forward speed. In so doing they have expanded the potential for such a vehicle to include markets currently served by commercial helicopters, notably west coast logging markets. Studies by the Forest Engineering Research Institute of Canada (FERIC) have indicated major cost savings for the logging industry from use of the Cyclo-Crane.

As of June 18, 1979, agreement was reached with four major west coast logging companies to commence funding of an estimated $800,000 program to design, fabricate and test under field conditions a 2-ton sling-load Cyclo-Crane. Parties to the agreement are:

MacMillan Bloedel Limited

British Columbia Forest Products Limited

Pacific Logging Company Limited (Canadian Pacific

Tahsis Company Ltd. (Canadian International Paper)

The program has been divided into two phases, the first of which (Exhibit B) consists of preliminary investigation and design of aerostatic elements with ILC Dover (International Latex) and aerodynamic components with Princeton University as well as basic design of control systems and selection of the propulsion system. The Phase I $200,000 contract calls for a report from ACL by December 1, 1979, complete with detailed cost estimates relating to construction and testing of 2-ton (certified) 16-ton models as well as operating costs of the latter vehicle.

[25] Throughout this period FERIC continued to be involved and produced two reports in 1977 and 1984 on various methods of logging, including the use of helicopters, stationary balloons, which performed somewhat the same function as spar trees, and heavy lift aircraft such as the Cyclo-Crane. A further report was commissioned by NASA, the National Aeronautics and Space Administration, on the market potential for heavy-lift aircraft and a report was prepared by Booz-Allen Applied Research of Maryland.

[26] Canadair as well continued to be interested in working with FERIC in the development of such aircraft.

[27] In a report prepared by ACL, the cost of producing a Cyclo-Crane was estimated at $2,275,000.

[28] In 1982, an article appeared in Discover (a science magazine) about the Cyclo-Crane. Enthusiasm, optimism and interest were high.

[29] On November 24, 1981, ACL, the logging companies, the inventors and Aerolift, Inc., and a group of other people, entered into an agreement which essentially put all of the rights that ACL had with respect to the Cyclo-Crane into Aerolift, Inc. ACL owned about 60% of the shares of Aerolift, Inc., and the logging companies owned about 40%. By this point, the logging companies had invested about $3,000,000 in the project.

[30] In 1982, the logging companies stopped funding the project. On October 22, 1982, the two ton test Cyclo-Crane broke away from its mooring mast in a storm and was severely damaged. It was reconstructed, with some modifications, with insurance proceeds of $1,400,000 and a $850,000 grant from the United States Forest Service.

[31] In November, 1983, Aerolift, Inc. merged with a small public company and its shares began trading on the Vancouver Stock Exchange.

[32] Mr. Aikman testified that by November 1983, the date of the merger, about $4,000,000 had been invested in development costs by the syndicate of logging companies, and about $2,000,000 by private investors. Although his evidence was not supported by any accounting records and is necessarily extremely approximate, I accept it as demonstrating the degree of interest in the project and the substantial expenditures on it.

[33] Mr. Aikman also testified that it cost $2.5 million to rebuild the Cyclo-Crane after the accident. Since the helium balloon was salvaged, if the figure of $2.5 million is accurate, the cost of building the aircraft completely would likely be considerably greater than $2.5 million. Moreover, the tail assembly, and the control system were substantially re-designed and rebuilt.

[34] In May 1984, in a report prepared by FERIC, the Cyclo-Crane is compared favourably with helicopters. In the conclusion to the report, the authors state:

In our example, we have assumed that the 12-tonne Cyclo-Crane can be built for $7.1 million, that it can precision hover as well or better than a helicopter, that it can operate at least 1600 hours per year, and that it can be safely moored in a logging environment. Under these conditions, Cyclo-Crane logging would be more economical than helicopter logging; it would also be cost competitive with conventional systems in the most expensive cable logging areas. In addition to the areas that are presently cable logged at high costs, an HLA like the Cyclo-Crane can also log areas classified as inaccessible. It is estimated that 10 to 15 percent of B.C.'s Coastal inventory (or 340 to 500 million cubic metres) is inaccessible by conventional systems for economic or environmental reasons. Included in the inaccessible inventory are large volumes of high value timber. An HLA like the Cyclo-Crane could be used to log these areas at reduced costs compared to helicopters.

[35] In April of 1985, the Forest Service of the U.S. Department of Agriculture issued a preliminary evaluation of the Cyclo-Crane. It was guardedly optimistic and stated that the development of a second generation 25 ton Cyclo-Crane would be desirable.

[36] On November 7, 1985, Mr. Wellburn, a Vice President of FERIC, reported in a letter to the logging companies on the successful testing of the Cyclo-Crane on November 6, 1985 at Tillamook, Oregon. He stated:

I am very encouraged about the future of the Cyclo-Crane concept. For the first time, specialists in aircraft, the Military and the U.S. Forest Service can see its potential.

FERIC is still interested in this project because we still see the necessity for a heavy-lift free-flying vehicle for logging. The Cyclo-Crane is still the only concept which will serve our purpose.

[37] On November 1, 1986 Aerolift, Inc. presented to the U.S. Department of Defence Advanced Research Projects Agency ("DARPA") a final report on the testing of the Cyclo-Crane. The conclusions were optimistic and positive. Similarly, the 1986 annual report to the shareholders of Aerolift, Inc. was upbeat.

[38] In 1987, the U.S. military continued to be interested in the military application of the Cyclo-Crane.

[39] In the 1988 annual report of Aerolift, Inc., and the 10-K report filed with the United States Securities and Exchange Commission, it is stated that research and development expenditures totalled $8.2 million. The 1988 annual report also stated that an additional $9.4 million was provided by the U.S. government, with the result that a total of $17.6 million had been spent to develop the Cyclo-Crane.

[40] The project lost momentum when federal funding came to an end in the late 1980s. The Cyclo-Crane was displayed in a hangar at Tillamook Bay. In a letter dated July 22, 1992 to Mr. Aikman, the Senior Vice President of MacMillan Bloedel Limited, Mr. Otto L. Forgacs, referred to "the demise of the Cyclo-Crane".

[41] The Cyclo-Crane had been stored in a hangar and title to it had been acquired by the Port of Tillamook Bay under a Sheriff's Bill of Sale pursuant to an execution against Aerolift, Inc. for non-payment of rent.

[42] On November 13, 1992, Mr. Aikman offered to purchase the Cyclo-Crane from the Port authority for $50,000 U.S.

[43] The offer contained a number of conditions, as follows:

1. The purchase price is $50,000 (U.S. dollars) payable $10,000 on or before December 31, 1992, $20,000 on or before March 31, 1993, and the balance of $20,000 on or before June 30, 1993. Title to the Cyclo-Crane will be transferred to me, or my nominee, when the full purchase price of $50,000 has been paid.

2. The Cyclo-Crane will be loaned back to the Port free of charge for at least two years, subject to the special condition described in Item 6 below. While on loan the Port will be free to place any part of the property constituting the Cyclo-Crane on display and to reproduce or replicate such property at the Port's cost, provided that no original property is lost, damaged or destroyed.

3. The Port agrees to allow the Cyclo-Crane to remain at its present location, either on display or in storage as the Port may determine, at no additional cost to us for up to two years.

4. Ongoing loan/lease arrangements beyond two years will be subject to negotiation between the Port and ourselves as and when required.

5. If or when the Cyclo-Crane is ever disassembled or removed from the Port premises, whether by order of the Port or at my choice, it will be entirely at my expense and under my supervision, it being understood that at such time the Port will cooperate in such disassembly or removal on my behalf for which the Port will be reimbursed by me for all expenses or labour, equipment and supervision expended by the Port. I agree to allow the Cyclo-Crane to be moved within the hangar provided this is done under my supervision and all expenses of such relocation, including my supervisory expenses, are paid by the Port.

6. Whereas it is my intention to leave the Cyclo-Crane on loan to the Port for at least two years I nevertheless retain the right to remove it from the premises at any time after one year from the date of purchase. If I exercise this right after one year but before the expiration of two years I agree to do so only upon 90 days notice to the Port. At such time I will pay a fee of $25,000 to enable the Port to make alternative arrangements. The Port also has the right after one year to order the removal of the Cyclo-Crane from the hangar upon 90 days notice. If ordered by the Port, no fee is payable.

7. I retain the right at all times to maintain the Cyclo-Crane in a safe and well preserved condition, including the right to repair or refurbish it in a manner consistent with it remaining on display.

[44] On February 4, 1993 the Port of Tillamook Bay transferred to Mr. Aikman title to the Cyclo-Crane. The specific property to which Mr. Aikman obtained title was, under the Bill of Sale, the following:

One Cyclo-Crane ID-N240A together with two (2) engines, S#A877605 and S#A877607 with props; one (1) partial engine S#A877608; two (2) rooms miscellaneous parts (located in Hangar B); Spin test model with test stand; Gondolas – one (1) made from helicopter body, one (1) made from sheet metal and plexiglass; Innovative Data Technology recorder; related AeroLift files and tapes; VW bus body and simulated tank frame; two (2) to three (3) wheeled stalk supports; one (1) to four (4) wheeled stalk support with fuel tank.

[45] No patents or other intangible rights with respect to the Cyclo-Crane were acquired.

[46] Mr. Aikman stated that he believed the price of $50,000 U.S. was a bargain, because before making the offer he had obtained two appraisals in the amount of about $2,500,000 from Mr. Philip A. Nelson and Mr. Richard de Boer. Both Mr. Nelson and Mr. de Boer testified as expert witnesses at the trial.

[47] Mr. Aikman was particularly interested in the Cyclo-Crane, not only because he had been for many years instrumental in its development and promotion, but because he believed its technology could have application to another lighter-than-air aircraft that he was developing, the Buoyant Copter.

[48] Mr. Aikman, in response to a question from his counsel concerning when he first got the idea of donating the Cyclo-Crane stated:

Well, at first I approached investors with a view to selling it for a million dollars (1 M) if I could do that, and I intended to use the million dollars (1 M) to build a proof-of-concept Buoyant Copter. But I wasn't successful at first in doing that, and I met up with Mr. Patry of Planagest, who's an investment counsellor in Montreal, and he showed interest in putting some clients into it on the basis of it being a good commercial venture and with a positive downside that in the event that it, we couldn't put together a commercial venture in Tillamook, that it could either be sold at a profit to an aviation collector, and there are many of them in the United States with a great deal of money, or alternatively, on a worse-case basis, it could be donated to, as cultural property to a museum in Canada.

[49] Mr. Aikman endeavoured to find ways of exploiting the Cyclo-Crane, such, for example, as displaying it along with Howard Hughes' famous experimental plane, the Spruce Goose, or refurbishing the hangar at Tillamook.

[50] Toward the end of 1993, Mr. Aikman sold an 80% interest in the Cyclo-Crane to a group of investors, represented by Mr. Patry and a further 10% to a Mr. Reed. Although the total consideration for the sale to the investors was somewhere in excess of $700,000, the amount was to be refunded proportionately to the investors if a specified value was not accepted by the CCPERB.

[51] On February 3, 1994 the lawyers for the Port of Tillamook Bay gave notice to Mr. Aikman that he had 90 days in which to remove the Cyclo-Crane from the Port's premises. In the fall of 1994, the co-owners decided to give the Cyclo-Crane to a museum in Canada.

[52] In the process of moving the Cyclo-Crane, two of the airfoils were broken and have never been repaired.

[53] Mr. Aikman distributed a number of copies of a pamphlet offering the Cyclo-Crane for sale and put copies up on notice boards at an Experimental Aircraft Association Conference Centre at Oshkosh, Wisconsin but no purchasers came forward. He made attempts to rent it, but to no avail.

[54] Finally, in March 1994, the Cyclo-Crane in its damaged condition was disassembled, the balloon was deflated and it was transferred to the museum at Langley, where it remains. The balloon is folded up and is stored away. The other components are on display in the museum.

[55] On December 31, 1994, the co-owners gave the Cyclo-Crane to the Canadian Museum of Flight and Transportation, subject to a resolutive clause permitting the revocation of the gift if the CCPERB did not determine the value of the gift to be at least 80% of the average of the valuations of the donors' experts.

[56] On December 22, 1997, a new deed of gift was executed without the conditions and the gift was therefore absolute.

[57] The result of the numerous transactions leading up to the gift in 1997 to the museum was that Mr. Aikman bought the Cyclo-Crane for $50,000 U.S., and sold about 90% to Mr. Reed and the other investors for about $840,000. Of this amount, 10% was paid to Mr. Aikman and the balance was held in escrow. It was stated in evidence that if a valuation of less than $2,482,952 was obtained from the CCPERB, the tax credit achieved would be insufficient to make the transaction profitable if the full price for the shares in the Cyclo-Crane were paid. Therefore, Mr. Aikman agreed to a pro rata refund of the price in the event that the requisite level of valuation was not attained.

[58] The appellant's first expert witness was Mr. Philip A. Nelson. Mr. Nelson has had extensive experience in all aspects of the aircraft business and in the buying, selling and appraising of aircraft in Canada and the United States. He has been consulted by the CCPERB and has advised museums about the acquisition and valuation of aircraft. He has also been consulted by Revenue Canada, the U.S. Internal Revenue Service and the United Kingdom tax authorities on the valuation of aircraft.

[59] Mr. Nelson was, for a period of time, the general manager of the War Plane Heritage Museum in Hamilton and was also the past president of the Canada Aeronautical Preservation Association.

[60] In Mr. Nelson's expert report filed with the Court, he testified that in his opinion the Cyclo-Crane in a restored condition had a fair market value of approximately $3.5 million U.S. His original estimate of value which he gave to Mr. Aikman when he was considering buying the Cyclo-Crane was $2.5 million.

[61] Neither of these figures took into account the cost of research and development, which he estimated could range from $10 to $20 million. These latter figures are roughly consistent with the evidence of the cost of research and development that was done in the 1980s with respect to the Cyclo-Crane.

[62] Mr. Nelson also testified that when he was in Beijing and in Singapore at technology conventions, pictures of the Cyclo-Crane evoked considerable interest.

[63] The appellant's other expert, Mr. Richard de Boer, was of the opinion that the Cyclo-Crane had a value of $3 million U.S.

[64] The respondent's two experts, Mr. Alfred Shortt and Mr. Louis S. Casey gave the Cyclo-Crane a value of less than $100,000 and $59,100 U.S. respectively.

[65] Most valuation cases that come before this Court involve properties for which there is a readily identifiable market. Real estate is the most obvious example, where the court must choose between conflicting views of appraisers with respect to the selection and application of comparable sales. See for example, Grove Crest Farms Limited et al. v. The Queen, 96 DTC 1166; Western Securities Limited v. The Queen, 97 DTC 977; Erb et al. v. The Queen, 2000 DTC 1401; Bibby Estate v. The Queen, 83 DTC 5148 at page 5157. Such an approach is difficult to apply in the case of a unique property such as the Cyclo-Crane where there are no sales of comparable properties and, for all practical purposes, no market.

[66] The difference between the experts for the parties is fundamental and goes far beyond a disagreement on which comparable sales are most appropriate.

[67] The definition of fair market value used by Mr. Casey is as follows:

The highest price, expressed in terms of money, that the property would bring in an open and unrestricted market between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent and who are acting independently of each other.

[68] The other experts appear implicitly or explicitly to have substantially adopted this definition.

[69] The judicial definition that is frequently accepted by the courts in Canada is that of Cattanach J. inHenderson Estate and Bank of New York v. M.N.R., 73 DTC 5471 at page 5476:

The statute does not define the expression "fair market value", but the expression has been defined in many different ways depending generally on the subject matter which the person seeking to define it had in mind. I do not think it necessary to attempt an exact definition of the expression as used in the statute other than to say that the words must be construed in accordance with the common understanding of them. That common understanding I take to mean the highest price an asset might reasonably be expected to bring if sold by the owner in the normal method applicable to the asset in question in the ordinary course of business in a market not exposed to any undue stresses and composed of willing buyers and sellers dealing at arm's length and under no compulsion to buy or sell. I would add that the foregoing understanding as I have expressed it in a general way includes what I conceive to be the essential element which is an open and unrestricted market in which the price is hammered out between willing and informed buyers and sellers on the anvil of supply and demand. These definitions are equally applicable to "fair market value" and "market value" and it is doubtful if the use of the word "fair" adds anything to the words "market value".

[70] He then refers to the "most useful guide to the meaning of the words 'fair market value'" in the DominionSuccession Duty Act contained in the judgment of Mignault J. in Untermyer Estate v. Attorney General for British Columbia, [1929] S.C.R. 84, where he said at page 91:

We were favoured by counsel with several suggested definitions of the words "fair market value". The dominant word here is evidently "value", in determining which the price that can be secured on the market — if there be a market for the property (and there is a market for shares listed on the stock exchange) — is the best guide.

[71] Mr. Nelson's approach to determining fair market value acknowledges the difficulty of applying conventional criteria such as comparable sales. At page 11 of his report he says:

As in any evaluation process for resale trade or donation purposes, fair market value is deemed to be the amount of money or goods-in-trade value that a willing buyer would pay a willing seller at arms length, under no duress, for an object. Where a history of current sales or exchanges have taken place for an object, the fair market value can be readily determined in relation to similar quality goods.

However, in cases such as this where the object to be valued is unique, then the fair market value must be estimated by research into a variety of categories. These categories include but are not necessarily limited to:

: current physical condition and status

: cost to reproduce, if able to estimate

: history of any similar object sales

: potential marketability and outside interest

: historic or collectible value, if any

: cultural or technological importance, if any

: rights, privileges, licenses, patents available, if any

Having now completed an extensive research into these categories, it is our opinion that the Cyclo-Crane aircraft, and the related engineering and research documentation including any remaining marketing rights and patents, has a very definite value for resale trade or donation purposes. This package would be considered market-worthy to a number of commercial operations, governments (for military or commercial reasons) and museums or collectors, all on an international basis. While in any free market society, an auction to the highest bidder might bring a better selling price than an owner expects, or lower in a depressed market situation, the following opinion suggests a possible current market value if these items were advertised for sale today.

The value of the Aircraft itself has been separated from the documentation and rights package since either item could be sold separately if desired.

THE OPINION

In the opinion of the author of this report, the fair market value of the Cyclo-Crane aircraft, in restored condition should be approximately $3.5 Million U.S. (Three Million, Five Hundred Thousand Dollars). This is based on direct market research by the author as to what willing buyers would likely pay for this vehicle if restored and offered on the open market. In my opinion the cost to duplicate this machine in working condition would exceed 5 Million Dollars. While this estimate reflects the restored fair-market value for the Aero Crane, the Author would expect a 10% reduction in this value were the aircraft to be sold "as-is where-is" since it will likely take that amount or less to bring the Aero Crane up to excellent condition.

[72] Mr. Nelson focussed upon the interest expressed to him by various foreign governments, including China, Singapore, Indonesia and India in heavy-lift lighter-than-air aircraft such as the Cyclo-Crane for both military and domestic applications. He also emphasized the potential utility of such aircraft in logging, drug interdiction, naval and military supply and construction and the likely readiness of purchasers to pay substantial amounts for the prototype or the technology. I mention in passing that Mr. Aikman did not acquire the technology or any other patents, licenses or rights and he did not donate this intellectual property to the museum.

[73] The appellant's second expert was Mr. Richard de Boer. Like Mr. Nelson, he was highly qualified and experienced in the appraisal of aircraft and in vintage aircraft trading and has frequently been consulted by aircraft museums with respect to the valuation of aircraft. I shall not set out his qualifications and experience. His credentials are impressive as indeed are those of all of the experts who testified.

[74] In concluding that there was a market for this Cyclo-Crane, Mr. de Boer pointed to the interest in it evidenced by the substantial investment in its development by the logging companies and by the U.S. government, as described above.

[75] Mr. de Boer estimated that it would cost about $250,000 U.S. to repair the damage to the aircraft.

[76] The essence of his report is contained in the following passage:

Ultimately the purpose of this document is to establish a fair market value for the Cyclo-Crane. Fair market value is defined as the price at which an object changes hands between a willing buyer and a willing seller, acting independently of each other, neither being under any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts.

Where such exchanges occur routinely, fair market value can readily be assigned. In this case, where the Cyclo-Crane is unique in the world, a variety of factors must be investigated and considered. These factors include:

- real market demand (in this case by both public and

private sectors)

- cost to build or currently reproduce

- current condition and status

- history of similar object sales

- technological significance

- historic/cultural significance

- licenses, patents, rights etc.

Since the Cyclo-Crane is unique, there are no instances of one being sold and consequently no direct bench mark for a value. We must therefore look at related sales and other factors which have a direct bearing on its dollar value.

The $14,000,000 investment in the research, development and construction of the Cyclo-Crane must be a factor influencing its current value. More directly relevant is the $7,000,000 cost of construction and the repair bill for the damage it suffered during a storm in 1982. When the rebuild was completed in 1984, the bill totalled $2,500,000 U.S. (including a $1,500,000 U.S. insurance payout).

At the time of the rebuild, new design features such as a 70 ft. diameter ring tail, a new pilot cab and control system were added at an additional cost of $500,000 U.S.

On point, but somewhat frustrating, is the offer for sale of the Thermoplane by the Moscow Aviation Institute. According to FORTUNE Magazine, February 1993, this comparable technology hybrid aircraft, built at a cost of $14 million, attracted two buyers. Our research could not uncover an actual sale price.

Also relevant to its current value is the tremendous amount of ongoing interest by logging industry, attraction operators and a variety of military and policing departments in the development of a heavy lift and long loiter hybrid aircraft.

This interest from the market place (including the Aerial Forest Management Foundation, MacMillan Bloedel Ltd., Forest Research Institute of Canada, etc.) has spurred the successful development of the 21st Century Airships (of Toronto, Ont.) aircraft, as well as considerable financial and technical investment in the Buoyant-Copter and the Cyclocraft in California.

The Cyclocraft, a direct development from the Cyclo-Crane, has already attracted over $1 million U.S. to determine mission requirements, applications and for the building of very small scale test models. (This study determined 15 commercial, military and policing applications for the Cyclocraft).

Our discussions with John Aikman, former chief executive officer of Aerolift, Inc., designers and builders of the Cyclo-Crane, determined that to produce the aerostat (the balloon part of the Cyclo-Crane) alone would approach $2 million U.S., with the full construction cost of the Cyclo-Crane today at $5 million U.S.

A business plan and financing proposal produced by Hovercranes Inc., in 1994 for the Buoyant-Copter, states requirements of $5 million for production of the prototype machine.

Taking into account all of these factors, we would place a current fair market value of $3,000,000 (three million dollars, U.S. funds) on the Cyclo-Crane aircraft.

This figure takes into account the repair and replacement costs for damaged components which we estimated at $250,000 U.S. (Two hundred and fifty thousand dollars, US funds).

Again, we wish to note that this figure includes just the Cyclo-Crane aircraft itself and does not place a value on the engineering documentation, patent values, licensing rights and test models.

[77] The approach taken by both Mr. Nelson and Mr. de Boer is similar. They emphasize a number of factors. Some of the most important are the following:

(a) The international interest in a lighter-than-air heavy lift aircraft;

(b) The substantial amount of money that has gone into the development of the Cyclo-Crane;

(c) The cost of replacing or rebuilding it;

(d) The potential utility and cost effectiveness of such an aircraft;

(e) The historical importance of the object;

(f) The potential commercial value.

[78] The first expert called by the respondent was Mr. Alfred J. Shortt. From 1969 to 1980, he was the Assistant Curator, Aviation and Space Division of the National Museum of Science and Technology in Ottawa. From 1980 to 1990, he was Curator of the National Aviation Museum. From 1990 to 1997, he was Director, Collection and Research at the National Aviation Museum.

[79] In arriving at his valuation of "less than $100,000" for the Cyclo-Crane, he acknowledges the need for a heavy lift vehicle for use in the forestry, oil and construction industries and in gas and oil pipeline construction. His view, however, is that this requirement can only be filled by a "practical, cost effective vehicle." His opinion is that the Cyclo-Crane has not been proved to be such a vehicle. He acknowledges that it flew successfully and demonstrated that it could lift a small payload.

[80] His conclusion was that as a prototype, the Cyclo-Crane would only be of interest to a potential purchaser as a technology demonstrator since it has not been demonstrated to be viable for industrial use. He considered it unlikely that any organization would consider buying it as a technology demonstrator. Therefore, he concludes that there is no market for the Cyclo-Crane prototype.

[81] His view was that the fair market value of the Cyclo-Crane lay exclusively in the components such as the aircraft engines and propellers, which he believed to be no greater than $100,000 Cdn.

[82] He does not believe that the Cyclo-Crane had made a sufficiently significant impact on Canadian aviation history to warrant assigning to it an increased value for historical reasons.

[83] He concluded that as a museum display it had no value because, fully assembled, it is so big that it would not fit into any Canadian hangar.

[84] Mr. Louis S. Casey, the respondent's second expert, was for twenty-three years, until his retirement, the Curator of Aircraft of the National Air and Space Museum, Smithsonian Institution. He is an aviation operations engineer and has a great deal of experience in appraising aircraft. He is the author of a number of books and articles on aircraft.

[85] His appraisal of the Cyclo-Crane's fair market value at $59,100 U.S. is based exclusively on the price of $50,000 U.S. paid by Mr. Aikman to Tillamook Bay in 1992, adjusted upward for inflation. He regards this purchase as the most reliable indication of value.

[86] For substantially the same reasons as those of Mr. Shortt, he rejects the idea of any potential value as a museum exhibit.

[87] At this point it is useful to summarize a number of findings of fact based on the evidence:

1. The Cyclo-Crane was developed to meet a need for a lighter-than-air, heavy-lift aircraft for use in construction, logging and military operations.

2. Its development was funded by the public, the U.S. military and a syndicate of logging companies.

3. The research and development costs associated with the Cyclo-Crane amount to at least $15,000,000 U.S.

4. Apart from the research development costs, the cost of reproducing the Cyclo-Crane could amount to $2.5 to $3 million U.S.

5. It has flown successfully with a one tonne payload, but a larger version which would carry substantially heavier payloads has not been produced. A Cyclo-Crane capable of lifting a 5-7 tonne payload would need to be significantly larger.

6. The proof-of-concept of the Cyclo-Crane was purchased by Mr. Aikman from the Port of Tillamook Bay for $50,000 U.S.

7. It was given to the Canadian Museum of Flight and Transportation in a disassembled and somewhat damaged state.

8. Inflated, the Cyclo-Crane is so large that it could not be displayed in any museum in Canada. There is no evidence of any other museum anywhere in the world that could accommodate it, except perhaps the hangar at Tillamook and they did not want it. Although it is undoubtedly an interesting technological and historical curiosity, the magnitude of the practical and logistical difficulties in displaying it render its potential value as a museum display highly problematic.

9. It is innovative and cost effective. It could potentially be used for a number of commercial or military purposes if its problems could be overcome. Its problems are that it is so big and light that in high winds it is difficult if not impossible to control either in the air or on the ground. Given that one of its most significant potential features is its ability to hover when lifting heavy loads it is difficult to see how, unless something can be done to effect a radical improvement in its airborne stability, it could be commercially viable. A larger Cyclo-Crane capable of lifting 5-7 tonnes, or even up to 45 tonnes would be even more vulnerable to high winds.

10. The Cyclo-Crane that was donated to the museum is a prototype or, more accurately, a proof-of-concept.

11. Although two highly qualified experts are of the view that, in light of its potential utility in logging industrial or military operations, there is a market for it, there is no concrete evidence of the existence of such a market. The existence of a market is a question of fact, not opinion.

[88] What, then, was the fair market value of the Cyclo-Crane proof-of-concept on December 22, 1997?

[89] I have quoted above the definition of that term given by Cattanach J. in Henderson Estate. It is premised upon the existence of a market. Here, there appears to be no market. The value of $200,000 U.S. assigned to the object by the Board appears to be based upon a statement made by a Vice-President of MacMillan Bloedel that it had a value of $200,000 Cdn. It is uncertain why the Board moved from $200,000 Cdn suggested by the Vice-President of MacMillan Bloedel to $200,000 U.S.

[90] Counsel for the appellants argues that since the respondent's own experts do not agree with the figure of $200,000 U.S., which in itself seems to be based upon a somewhat doubtful foundation, the Board's value has been so seriously shaken that the onus moves to the respondent to establish a proper value and since she has not done so, we are left with the appellants' valuations which are not rebutted, and must therefore be accepted.

[91] It does not quite work that way. I agree that the $200,000 U.S. value assigned by the CCPERB is higher than that given by either of the respondent's experts and higher than the figure of $200,000 Cdn. suggested by a Vice-President of MacMillan Bloedel. It does not follow, however, that the opinion of the appellants' experts automatically becomes the only evidence on which the court can rely. To put it differently, merely to show that there are flaws in the Board's determination neither shifts the evidential burden to the respondent nor justifies the acceptance of the appellants' position. An appellant who seeks to challenge a determination of value by the Board continues, if he or she is to obtain any type of meaningful relief, to have the primary burden of establishing on a preponderance of evidence a valuation that is higher than that determined by the Board.

[92] Given the fact that there is no market for the Cyclo-Crane either in the damaged condition in which it was donated to the museum or in its restored state, are there any principles that would justify assigning a value to it that exceeds the value of its components? In analyzing this question, I shall start from the proposition that the mere fact that something is difficult to value does not absolve the person who has the responsibility of making the valuation of the obligation of doing so. This is essentially what Viscount Simon said in Gold Coast Selection Trust Ld. v. Humphrey (Inspector of Taxes), [1948] A.C. 459 at page 473.

[93] If a market exists obviously it is to that market that one must go. If no market exists then this is a fact that cannot be ignored. The absence of a market is a factor that must be taken into account.

[94] Both counsel referred to a number of Canadian and foreign authorities. The Canadian authorities are essentially in accord with the Henderson Estate case to which I referred above. The foreign cases are somewhat interesting. In Spencer v. The Commonwealth of Australia, [1907] 5 C.L.R. 418 (H.C.) Griffith C.J. stated at page 431:

There is, no doubt, much land in many places the value of which per acre is as definitely fixed as the price of wheat or sugar. But in the case of a new port, in a new State, where the area of land is limited, and each piece differs in many of its characteristics from the rest, it is impossible to apply any such rule. Bearing in mind that value implies the existence of a willing buyer as well as of a willing seller, some modification of the rule must be made in order to make it applicable to the case of a piece of land which has any unique value. It may be that the land is fit for many purposes, and will in all probability be soon required for some of them, but there may be no one actually willing at the moment to buy it at any price. Still it does not follow that the land has no value. In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by inquiring "What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?" It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural. The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together.

[95] While Griffith C.J. may have believed he was stating a new rule where one is dealing with a unique property, it is really a restatement of the old rule which simply requires that one postulate the existence of a willing and independent buyer and seller and decide what bargain they would strike. In a sense this requires the notional creation in the mind of the valuator of a market that does not in fact exist.

[96] In Bystrom v. Equitable Life Assurance Society, Fla. App., 416 So.2d 1133, the District Court of Appeal of Florida approved the "cost approach" or the "income or economic approach" in determining value. The case is of little assistance because section 193.011 of the relevant Florida statute expressly required that cost as well as a number of other factors be taken into account in arriving at a "just valuation". Our statute imposes no such requirement.

[97] In Orange Beach Water Sewer and Fire Protection Authority v. M/V ALVA, 680 F.2d 1374 (1982), the United States Court of Appeals, Eleventh Circuit in an action or damages to the plaintiff's submarine water pipeline stated, at pages 1383-4:

[14] Where a structure is totally lost in an allision, the measure of damages is the market value at the time of destruction, less salvage value.

...

Where no market value has been established by recent comparable sales,

other evidence is admissible touching value such as the opinion of marine surveyors, engineers, the cost of reproduction, less depreciation, the condition of repair which the [structure] was in, ... and the like.

[98] Although replacement cost less depreciation may be relevant in some types of case – such as an action for damages to determine a plaintiff's true economic loss -- I do not think it is appropriate in a case of this type.

[99] In Blakeley v. Board of Assessors of Boston, 462 N.E. 2d 278 (Mass. 1984), involved an appeal relating to a valuation of an uncompleted building for the purpose of real estate taxes. The Massachusetts court stated that the Board has a discretion to rely on construction costs in determining "fair cash value".

[100] In Daniel v. Canterbury Towers, Inc., 462 So.2d 497 (Fla.App. 2 Dist. 1984), a Florida court applied the same provision (section 193.011 of the Florida Statutes) as was applied in the Bystrom case referred to above which sets out a large number of criteria that may be considered in determining value for the purpose of ad valorem tax. The court said, at page 502:

[4,5] It is because there are so many well recognized approaches and techniques for arriving at an appraisal decision that the property appraiser's decision may be overturned only if there is no reasonable hypothesis to support it. It is well established in the Florida law of ad valorem tax assessment, that where the unique or special purpose nature of the property makes it difficult or impossible to establish a market value for it, as is the case for the property involved in this case, then the valuation process should comprehend and give effect to all of the factors that go to make up the intrinsic value of the property.

[101] I agree that the Cyclo-Crane is unique and that it may be difficult to find a market for it. Nonetheless, to say that there is no market for something, or that it is difficult to find a market, is not the same as saying that it is impossible to determine a fair market value. The United States authorities to which counsel referred, while not binding, are entitled to respect and are illustrative of the way in which U.S. courts, operating under a different statutory regime, have sought to cope with the valuation of unique and in some cases unmarketable properties. One must, however, treat foreign authorities with caution.

[102] Counsel for the respondent referred to a large number of United States authorities. I shall deal with some of them but subject to the same reservation that while the U.S. courts have had to cope with similar problems to those with which we are faced they may have developed solutions that are not necessarily appropriate in Canada.

[103] In Johnson v. C.I.R., 85 T.C. 469, the United States Tax Court concluded that the cost to the petitioner of certain artifacts donated to a charitable organization, adjusted upward for inflation, was the best indicator of the fair market value.

[104] The same conclusion was reached by the United States Court of Appeals, Seventh Circuit, in Tripp v. C.I.R., 337 F.2d 432, where it was held the cost to the donor of jewellery donated to the Oriental Institute was the best evidence of its fair market value.

[105] In Publicker v. C.I.R., 206 F.2d 250, the Untied States Court of Appeals, Third Circuit, held that a purchase in 1946 of diamonds was evidence of their value when given to the petitioner's daughter. At page 253, the court stated:

The fact that a piece of property is unique does not in our view establish that there is no market for that property. The statute, and the regulations, cannot be limited to apply only to fungible goods. Every piece of land and many paintings are unique. Large diamonds may not exist to any appreciable extent in the retail market, but there remains a market, however limited, for any particular large diamond, [**10] and that individual buyers are a part of that market is shown by Mrs. Publicker's purchase of the gifts here involved.

While it is true that 'value' in the statute is now commonly taken to mean 'fair market value' as mentioned in the regulation, we do not propose to limit the scope of the statute by too strict a view of the [*254] required market for the various kinds of property taxed. The regulation also provides that, 'The value of the property is the price at which such property would change hands between a willing buyer and a willing seller, ***. All relevant facts and elements of value as of the time of the gift should be considered.'

[106] In reaching this conclusion, the court relied upon a United States Supreme Court decision Guggenheim v. Rasquin, (1941), 312 U.S. 254 where Mr. Justice Douglas stated at page 256:

Presumptively the value of these policies at the date of the [*258] gift was the amount which the insured had expended to acquire them. Cost is cogent evidence of value. And here it is the only suggested criterion which reflects the value to the owner of the entire bundle of rights in a single-premium policy -- the right to retain it as well as the right to surrender it. Cost in this situation is not market price in the normal sense of the term. But the absence of market price is no barrier to valuation.

[107] This approach would appear to support Mr. Casey's reliance upon the price paid by Mr. Aikman in 1993 of $50,000 U.S. I agree with the U.S. authorities cited above that the cost to the donor of an object is cogent evidence of value. Other factors may, however, justify a fair market value that differs from the donor's cost.

[108] Counsel for the appellant contends that the purchase by Mr. Aikman from the Port of Tillamook was not evidence of fair market value because the vendor was not knowledgeable. I have difficulty in accepting this proposition. The officials of the Port of Tillamook Bay were at arm's length with Mr. Aikman. They were familiar with the Cyclo-Crane and had in fact been displaying it in the hangar. I should have thought that they were in as good a position as anyone to decide what it was worth and to refuse an offer that they considered unduly low. There is, of course, force to Mr. Mostovac's argument that the $50,000 U.S. paid by Mr. Aikman may be a little unreliable since the Port of Tillamook Bay had no use for the Cyclo-Crane and may have been anxious to get rid of it at any price. Nonetheless, this fact in itself may be some indication of the price at which a willing vendor would be willing to part with it. Moreover, even if I rejected the adjusted cost of $59,100 relied upon by Mr. Casey, I have really no sound footing on which to arrive at a different figure. For reasons given below, I do not regard replacement cost as necessarily a good indication of fair market value. The price paid by the investors of over $800,000 is not indicative of value because it was contingent and refundable.

[109] The "cost" of the object, insofar as it is relevant in the determination of fair market value means, in my view, at least in the circumstances of this case, the price at which the object changed hands in an arm's length situation. It does not encompass the substantial cost of developing and producing the Cyclo-Crane proof-of-concept, either with or without the research and development costs. Some effect must be given to the plain meaning of the words "fair market value" (juste valeur marchande). What it cost historically to produce a prototype, or what it might cost to reproduce it, might have nothing to do with what price the object would command on the open market. It might be much higher or much less. I am sure that the actual cost of reproducing Lindbergh's Spirit of St. Louis, or the plane the Wright brothers flew in would be significantly less than what a wealthy collector or museum would pay for the originals of these aircraft. Conversely, the cost of reproducing an object might well be far in excess of the price it could fetch on the open market. For that reason, I do not regard replacement cost as a reliable guide to fair market value.

[110] Counsel for the respondent referred to a decision of the U.S. Tax Court, Adams v. C.I.R., 50 T.C.M. (CCH) 48, where the court had to deal with the value of an original prototype model of the Norden Bombsight. In discussing the evidence of the petitioner's expert, the court said:

Petitioner's expert, Mr. C.E.O. Walker, appraised the bombsight as of December 29, 1976, at $75,000. Mr. Walker's original expert report was dated April 19, 1977, and demonstrated a comprehensive attempt to determine the bombsight's fair market value. Moreover, Mr. Walker testified at trial and we found him to be a very credible witness. He acknowledged that appraising is not an exact science, especially in the case, such as the case before, us, where the property is unique and there are no comparable sales to establish market price. Because of the uniqueness of the bombsight, Mr. Walker first investigated its historical significance by speaking with museum directors, collectors, dealers, and other knowledgeable persons. After confirming that the Norden Bombsight was authentic and unquestionable of great historical value, Mr. Walker investigated the market for historic items. He noted the prices that various historic items had commanded during 1976, although he admitted that such prices are not indicative of the value of the bombsight. Rather, the items were inserted in his report simply for the purpose of demonstrating that there existed a market demand for collector's [*13] items.

In attempting to value the bombsight without comparable sales, Mr. Walker used the estimated cost method. Under this method, Mr. Walker estimated that it would cost between $65,000 to $97,500 to recreate the original prototype model. It was Mr. Walker's belief that for objects of historic interest, the fair market value tends to approximate its replacement cost, and in this instance, the replacement cost lies within the range of prices paid for historically significant items. After evaluating all the facts and circumstances, Mr. Walker determined that the fair market value of the original model of the Norden Bombsight was $75,000 as of December 29, 1976.

[111] The case is of some interest because it represents an attempt to determine fair market value where there are no comparable sales from which fair market value might be ascertained. I have, however, for the reasons set out above, serious reservations about an attempt to determine fair market value by estimating the cost of recreating the original prototype.

[112] Out of deference to the two highly qualified experts called by the appellants, I should indicate the reason that I cannot accept their valuations. They arrived at their figures in good faith. They were obviously enthusiastic about the Cyclo-Crane and its potential. Nonetheless, they postulated a market that, realistically, does not exist. If such a market did exist it would have to assume that the practical problems of this aircraft had been overcome. On the evidence they have not been. From the assumption of such a market, they postulate figures that might be accurate within a range of indeterminate magnitude but there is simply no evidence to support these figures.

[113] It was also argued that since the Board had determined that the Cyclo-Crane is of outstanding significance and national importance, this in itself should be reflected in its fair market value. At first blush this would appear to be a plausible argument, but on reflection it does not bear close scrutiny. The fact that something is of unique historical interest, or has been accepted by the Board as being of outstanding significance or national importance, really has no particular bearing on what a knowledgeable purchaser would pay for it, nor does it create a market where none exists.

[114] Notwithstanding the fact that the Cyclo-Crane is unique and is of considerable interest in the history of aviation, and, notwithstanding the great skill with which the appellants' case was presented by counsel for the appellants, I do not think the evidence supports a fair market value of the Cyclo-Crane on December 22, 1997 that exceeds $200,000 U.S.

[115] The appeal is dismissed with costs.

Signed at Ottawa, Canada, this 11th day of February 2000.

"D.G.H. Bowman"

J.T.C.C.

Appendix A