Supreme Court of Canada
Woods v.
The King, [1951] S.C.R. 504
Date:
1951-02-26
Woods Manufacturing Company Limited (Defendant) Appellant;
and
His Majesty The King, on the Information of the
Attorney General of Canada (Plaintiff) Respondent.
1950: October 25, 26, 27; 1951: February 26.
Present: Rinfret C.J. and Taschereau, Rand, Estey, Locke,
Cartwright and Fauteux JJ.
ON APPEAL FROM THE EXCHEQUER COURT OF CANADA.
Expropriation by Crown—Principles Applicable in
assessing compensation—Canadian Law same as English Law—Authorities
Reviewed—Expropriation Act, R.S.C. 1927, c. 64.
The principles to be applied in assessing compensation to the
owners of property expropriated by the Crown under the provisions of the Expropriation
Act, R.S.C. 1927, c. 64, and other Canadian statutes conferring powers of
expropriation, are those long since settled by the
[Page 505]
decisions of the Judicial Committee of the Privy Council and
of this Court. The laws of Canada as regards such principles are the same as
the laws of England and the statements of law as enunciated by the Judicial
Committee have been followed consistently in the judgments of this Court. Vide:
Re Lucas and Chesterfield Gas and Water Board [1909] 1 K.B. 16, approved
and applied in Cedars Rapids Manufacturing and Power Co. v. Lacoste [1914]
A.C. 569, followed in Lake Erie & Northern Ry. Co. v. Brantford
Golf and Country Club 53 Can. S.C.R. 416; Montreal Island Power Co. v.
Town of Laval des Rapides [1935] S.C.R. 304 at 307; Jalbert v. The
King [1937] S.C.R. 51 at 71; The King v. Northumberland Ferries [1945]
S.C.R. 458, and Diggon-Hibben v. The King [1949] S.C.R. 712.
The principles enunciated in the above-cited cases should have
been, but were not, applied by the lower court.
Decision of the Exchequer Court [1949] Ex. C.R. 9, reversed.
Definition of "value to the owner", The King v.
Thos. Lawson & Sons Ltd. [1948] Ex. C.R. 44 at p. 80, disapproved.
APPEAL from a judgment of the Exchequer Court of Canada,
Thorson J., President, on an Information by the Crown to have
the amount of compensation money payable to the owner of a property
expropriated for the purpose of a public work of Canada, determined by that
Court.
Gustave Manette K.C., Duncan K. MacTavish K.C. and
J. C. Osborne for the appellant.
J. A. Prud'homme K.C. and J. B. Major K.C.
for the respondent.
The judgment of the Court was delivered by:
The Chief Justice:—The
appellant was the owner of a large property situated in the City of Hull, on
the east side of Laurier Street, and extending to the Ottawa river. The
frontage on Laurier street is 456 feet, and the total area is 6.53 acres, of
which an unopened street constitutes 0.75 acres leaving a net area of 5.68
acres. The appellant is a Canadian corporation with head office in Montreal,
and operates mills at St. Lambert, Toronto, Winnipeg, Calgary, Ogdensburg,
Welland and Hull. At the site expropriated is located the clothing and canvas
division, where for many years prosperous operations have been carried on, the
operating profits before income tax, having been in 1947, $183,435.
[Page 506]
Pursuant to section 9 of the Expropriation Act, the
respondent initiated expropriation proceedings on the 19th of May, 1944, and on
the 7th of May, 1946. The first covered the vacant land having an area of 4
acres situated to the south, and the second affected a piece of land contiguous
to the north, having an area of 1.6 acres, and on which several buildings are
erected.
The action was heard before the Exchequer Court, and on the
23rd of December, 1948, the President fixed the compensation at $45,800 for the
first expropriated property, with interest at the rate of 5 per cent
from the 19th of May, 1944, and at $350,000 for the second expropriated
property without interest. The appellant claims that these amounts are
inadequate. It is contended that a total amount of $726,262.58 should have been
awarded. By the information, a sum of $329,791.73 was offered for total
compensation, including all loss and damage, if any, arising out of the
expropriations.
While the principles to be applied in assessing compensation
to the owner for property expropriated by the Crown under the provisions of the
Expropriation Act, c. 64, R.S.C. 1927, and under various other Canadian
statutes in which powers of expropriation are given, have been long since
settled by decisions of the Judicial Committee and this Court in a manner which
appears to us to be clear, it is perhaps well to restate them. The decision of
the Judicial Committee in Cedars Rapids Manufacturing and Power Co. v. Lacoste
,
where expropriation proceedings were taken under the provisions of The
Railway Act, 1903, determined that the law of Canada as regards the
principles upon which compensation for land taken was to be awarded was the
same as the law of England at that time and the judgment delivered by Lord
Dunedin expressly approved the statement of these principles contained in the
judgments of Vaughan-Williams and Fletcher-Moulton, LL. JJ. in Re Lucas and
Chesterfield Gas and Water Board . The subject-matter of the expropriation
in the Cedars Rapids case consisted of two islands and certain reserved rights
over a point of land in the St. Lawrence River, the principal value of which
lay not in the land itself but in the fact that
[Page 507]
these islands were so situate as to be necessary for the
construction of a water power development on the river. It is in this case that
the expression appears that where the element of value over and above the bare
value of the ground itself consists in adaptability for a certain undertaking,
the value to the owner is to be taken as the price which possible intended
undertakers would give and that that price must be tested by the imaginary
market which would have ruled had the land been exposed for sale before any
undertakers had secured the powers or acquired the other subjects which make
the undertaking as a whole a realized possibility. That decision was followed
in the same year by a second judgment of the Judicial Committee in the case of Pastoral
Finance Association v. The Minister , where Lord Moulton, in
considering a claim for compensation for properties taken by the Government of
New South Wales under the Public Works Act 1900 of that State, said that the
owners were entitled to receive as compensation the value of the land to them
and that probably the most practical form in which the matter could be put was
that they were entitled to that which a prudent man, in their position, would
have been willing to give for the land sooner than fail to obtain it.
These statements of the law have been followed consistently
in the judgments of this Court. In Lake Erie and Northern Railway v. Brantford
Golf and Country Club , in proceedings under the Railway Act,
R.S.C. 1906, c. 37, Duff J. as he then was, in discussing the phrase "the
value of the land to them", after saying that the phrase does not imply
that compensation is to be given for value resting on motives and
considerations that cannot be measured by any economic standard, said in part:
It does not follow, of course, that the owner whose land is
com-pulsorily taken is entitled only to compensation measured by the scale of
the selling price of the land in the open market. He is entitled to that in any
event, but in his hands the land may be capable of being used for the purpose
of some profitable business which he is carrying on or desires to carry on upon
it and, in such circumstances it may well be that the selling price of the land
in the open market would be no adequate compensation to him for the loss of the
opportunity to carry on that business there. In such a case Lord Moulton in Pastoral
Finance Association v. The Minister , has given what he
describes as a practical
[Page 508]
formula, which is that the owner is entitled to that which a
prudent person in his position would be willing to give for the land sooner
than fail to obtain it.
In the same year, in Lake Erie and Northern Railway v.
Schooley , Davies J. quoted the passage from the
judgment of Lord Moulton above referred to and adopted it as stating the true
principle, a statement with which Anglin J. concurred. In Montreal Island
Power Co. v. The Town of Laval , Duff C.J. again referred
to the formula enunciated by Lord Moulton as accurately stating the principle
to be applied where land was compulsorily taken under the authority of an
expropriation act, and in Jalbert v. The King ; The
King v. Northumberland Ferries and in Diggon-Hibben
Ltd. v. The King , the principle so stated was adopted and
applied. The proper manner of the application of the principle so clearly stated
cannot, in our opinion, be more accurately stated than in the judgment of Rand
J. in the last-mentioned case at p. 715.
* * * the owner at the moment of expropriation is to be
deemed as without title, but all else remaining the same, and the question is what
would he, as a prudent man, at that moment, pay for the property rather than be
ejected from it.
We are unable to avoid the conclusion that the learned
President did not apply these principles in the case at bar. In his reasons for
judgment he says:
Where an owner makes a claim for property taken from him
section 47 (i.e. of The Exchequer Court Act) permits compensation
to him only to the extent of the value of such property.
Later, he expresses the following views:
It is only the form of the property that is changed; instead
of the land, the owner has its money equivalent. It is also clear that the
money equivalent referred to is the market value of the land, that is to
say, the amount of money the owner could turn it into if he offered it for
sale.
He also states:
In the case of In re Lucas and Chesterfield Gas and Water
Board , in which Fletcher-Moulton L.J. stated
that the money equivalent of the land was estimated on the value to the owner,
and not on the value to the purchaser, it was clear that even although the land
had special adaptability for a particular purpose its value to the owner was
confined to its market value. That means that it cannot be more than it would
fetch in the market.
[Page 509]
And finally, referring to his own judgment in Thomas
Lawson & Sons, Limited , he says:
I then expressed the opinion that this definition of
"value to the owner" is essentially the same as that of "fair
market value."
With deference, we are unable to agree with these
state-ments which, in our view, are not the true expression of the law.
With regard to the property first expropriated we think
that, applying the principles laid down by the majority of this Court in Diggon-Hibben
Ltd. v. The King (supra) an allowance of ten per cent
for compulsory taking should be added to the value of the land and buildings
expropriated, but that apart from this the appellant has not made out its claim
that the compensation allowed in respect of such property was inadequate. In
the result the amount allowed should be increased from $45,800 to $48,880.
As to the second expropriation, the learned President valued
the land at $9,000 per acre, because in his view, during the period that
extended between the two expropriations, the land increased in value and, as
the area covers 1.68 acres, he awarded $15,120. He found that the
reconstruction cost of all the buildings was $478,032 less depreciation
amounting to $188,296, leaving a depreciated value of $289,736. To these items
he added $435 for fixtures, making a grand total of $305,291. The appellant
produced a statement showing a loss of $76,920.96 plus an item of $2,550 as the
depreciation in value of certain chattels, making a total claim for loss by
disturbance, amounting to $79,470.96. The learned President was of opinion that
even if it were conceded that the owner of the expropriated property had a
right to compensation for loss by disturbance of his business, the amount of
the appellant's claim under this head was difficult to determine as the
appellant was left in possession and continued its operations for the time
being. He also took the view that, even if the defendant were entitled to
compensation for loss by disturbance, it had no right at the time of the
judgment to receive the full amount of its claim for a loss that will happen
only in the future, if it happens at all. The learned President, while
expressing the opinion that the appellant was not entitled to more
[Page 510]
than the present value of such prospective loss, reached the
conclusion that the evidence supported the claim that the appellant's loss by
reason of disturbance, would amount to $79,470.96.
The learned President concluded that the maximum amounts at
which he would estimate the various items of the appellant's claim on the
second expropriation, if he were required to do so, item by item, would be
$15,120 for the land, $289,736 for the buildings and mechanical equipment, $435
for the fixtures, and $79,470.96 for the loss by disturbance of business,
making a total of $384,761.96. He held, however, that the valuation should not
be made piecemeal, but as a whole, and for the second expropriation he awarded
a lump sum of $350,000. It was his view that this amount would adequately cover
every factor or element of value, including that of loss by disturbance of
business, that could properly be taken into account, and at the same time meet
the tests of value to which he referred in his judgment.
It cannot be determined how the $350,000 awarded is
distributed amongst the items above set out. Assuming that the whole of the
reduction from the total of $384,761.96 was applied to the claim for
disturbance the amount would be made up as follows:
Land………………………………………………………………………………..…... $ 15,120
Depreciated value of the buildings and
mechanical
equipment……………………………………………………………… 289,736
Fixtures…………………………………………………………………………………. 435
Loss by
disturbance…………………………………………………………………… 44,709
$350,000
In determining whether or not the total awarded is adequate
it is necessary to consider the evidence in some detail. The buildings on the
lands secondly expropriated were four in number, a main factory building of
stone and brick construction, a tarpaulin and waterproofing building, a garage
and an auto shelter or shed. The main factory building was construced in 1907.
It was established in evidence that the building was well suited for the type
of manufacturing carried on there and which the company operating also at
Montreal and elsewhere in Canada was
[Page 511]
desirous of continuing. In these premises the company had
carried on operations which realized substantial profits, with the exception of
the year 1938, during the period 1937 to 1945 inclusive. While the
expropriation vesting title in the Crown took place in the spring of the year
1946, the company was permitted to remain in possession and its operations in
that year and the year following resulted also in substantial profits. The site
on Laurier Avenue, in the residential portion of Hull,
possessed for the owner the great advantage of being close to a large and
available supply of labour suitable for employment in the company's operations
and being not far distant from one of the principal bridges across the river
leading to the City of Ottawa. While the company, in anticipation of being
required to yield possession of the premises, had endeavoured to find a
suitable property in Hull for the carrying on of their operations, they had not
been able to find any and, according to Mr. E. S. Sherwood, a real esate broker
having a wide experience in this district, no comparable buildings for an
operation of the magnitude of the Woods Manufacturing Company were available
either in Ottawa or Hull and he considered that it was doubtful that any such
property would become available. The company had purchased land for a site in
Overbrook in the Township of Gloucester, lying to the east of the city of
Ottawa and a distance of six miles from its then location, but upon
consideration had concluded that it was too far from a suitable supply of
labour and had abandoned the idea of building there. Apparently inquiries in
the immediate neighbourhood of Hull had not resulted in the company finding a
suitable site there and, while some were available further down the Ottawa
River, operations there would be faced with difficulty in getting the necessary
help. The company's desire to continue its operations in Hull or its immediate
vicinity was made plain.
There was a divergence of opinion among the experts as to
the value of the property. For the company, Mr. W. H. Bosley, a real
estate agent with wide experience in valuations and real estate operations
generally, in answer to a question by the learned trial judge, expressed the
opinion that if the owners were desirous of disposing of the property on the
market they could have obtained $280,000
[Page 512]
for it. Having said this, however, he said that if he were
representing a purchaser he would not feel that the property could have been
bought at that figure, assuming the owner wished to continue in business, and
expressed his inability to give an opinion as to what amount a purchaser might
have paid to obtain it, but said that if such a purchaser needed the property
urgently he would advise him to pay ten per cent more than that figure. As to
the position of the owner, however, he said that he would advise the Woods
Manufacturing Company Limited not to accept such a figure since it could not
hope to reinstate itself for that amount. Mr. Sherwood considered that at the
relevant time he could have sold the property on the market for $315,000, but said
that he would have advised the owner, assuming that it was intended to continue
the business, to refuse such an amount "or anything like it". As to a
prospective purchaser, assuming the property suited his requirements, he would
have advised him to pay ten per cent in excess of this amount but would have
advised the appellant to refuse such an offer. Mr. R. B. Moffit, the
Vice-President and Comptroller of the appellant, said that in his opinion,
having regard to the suitability of the plant for the operations and the profit
realized, he would have advised against selling for less than $700,000.
Mr. A. B. Doran, a contractor with some twenty years'
experience in building construction, estimated the cost of replacing the
buildings on the property at $474,873 on the basis of the prices for material
as of the date of the expropriation. The main building had been constructed in
the year 1907 but had been very well maintained and he computed the
depreciation at the sum of $94,631, expressed otherwise, he said that if his
firm had been given the contract to rebuild the plant the new building would be
worth about $95,000 more than the building as it stood in May of 1946.
The evidence for the Crown as to the reconstruction cost of
the main and subsidiary buildings varied but little from that tendered by the
owner. Mr. James Adam, an architect and civil engineer of long experience,
estimated the cost of replacement at $478,032 and this figure was accepted by
the learned President. While declining to estimate the probable future useful
life of the building,
[Page 513]
he considered that since its erection it had deteriorated in
the neighbourhood of thirty-five per cent. Mr. J. A. Coote, an assistant
professor of mechanical engineering at McGill University, and a consultant for
a firm of engineers in Montreal, had examined the buildings at the request of
the Crown. Accepting the reconstruction cost at the amount of the estimate of
Mr. Adam and others employed for the purpose by the Crown, he considered that
the depreciated value of all the buildings was $287,736. Mr. Coote had never
constructed or tendered on the construction of a building and, admittedly, did
not have experience with industrial plants of the kind operated by the company
and his evidence as to the extent of the accumulated depreciation and of the
future useful life of the building appears to have been based upon theories
expressed by others on the subject. When counsel for the Crown directed
questions to him to establish his qualifications as an expert on the question
of depreciation, he said that he had been studying the theory for twenty-five
years, that he had lectured to students in accounting and engineering and had
read widely on the subject and considered that a useful life of sixty years was
the utmost that could be assigned to the main building. He, however, also said
that although the building was practically forty years old in 1946 it was as a
structure in excellent condition, that it was an "extra good
building", well constructed and in general very well maintained, and then
said in part:
The question is: how many more years is it good for? Now
nobody can tell, sir; I want to agree with the sentiment expressed here
yesterday that nobody can tell how long a building is good for.
a statement which he repeated later, saying that
"nobody knows what the useful life of that building is going to be".
On cross-examination, when asked his opinion as to what condition the building
would be in when it had reached sixty years of age, he said that:
As a structure, I should say it would probably be pretty
fair.
but that the maintenance cost then would be much higher
and that obsolescence would become an increasingly important factor. He did not
say, however, that it would cease to be an effective building for the company's
purposes at that time. In answer to a question by the learned trial judge he
made it clear that his opinion on this point was
[Page 514]
not based upon his own experience, saying that he
wished to emphasize that nobody could tell what conditon the building was going
to be in at age sixty but that:
relying upon recorded experience, the experience of other
people with buildings of that age, I say that I could not honestly give this
building as a piece of productive equipment a life beyond sixty years.
It will be observed that expressed in percentages the
depreciation in the main building in the opinion of Mr. Coote was 43.8 per
cent, in that of Mr. Adam 35 per cent, and in that of Mr. Doran 22.3 per cent.
There appears to be considerable support for the appellant's submission that
the learned President was in error in placing the depreciation at the highest
of these figures, in view of Mr. Coote's admission that his whole calculation
was based on the assumption that the useful life of the building was limited to
sixty years.
For the Crown the evidence, in so far as it related to the
buildings as distinct from the land, was limited to the cost of replacing them.
Replacement cost is, of course, a material factor for consideration in
determining the value to the owner. In some circumstances it may well represent
that value while in others it may greatly exceed it or be materially less. In
the present case we are satisfied upon the evidence that the value of the
property to the owner was in excess of the value of the land, plus the
depreciated value of the buildings. In endeavouring to come to a conclusion as
to what amount the owner, presumably directed by prudent business men, would
have been prepared to pay for the property in May 1946 rather than to be forced
to give up title and possession, the situation in the business world at that
time is to be considered. The second World War had terminated and in consumers'
goods of all kinds there existed what is commonly described as a seller's
market, due to various factors including accumulated shortages during the war.
The Woods Manufacturing Company during the years 1940 to 1945 both inclusive
had made an average annual operating profit before income taxes in their Hull
plant slightly in excess of $213,000. As there were available then no suitable
factory buildings in Ottawa or Hull or the vicinity, and the company, if it was
to continue in business, was faced with the necessity of constructing new
suitable buildings on an appropriate site,
[Page 515]
there can be no doubt in our opinion, that had the buildings
now under consideration then been situated on a site one or two miles down the
Ottawa River and available for purchase at the depreciated value of the
buildings, plus the value of the site, the company would have purchased without
hesitation. To fail to do so under such circumstances would indicate a lack of
ordinary business judgment. A substantial further value to the owner is to be
attributed to being permitted to remain in undisturbed possession of its
property in Hull, with its added advantage of immediate proximity to an
adequate labour supply.
The learned President has allowed only the bare value of the
land, the lowest depreciated value placed upon the building by any witness and
a portion of the proven claim for disturbance. He has declined to consider the
value to the owner as distinguished from the market value or to allow 10 per
cent, or any amount, for compulsory taking. We are all of opinion that on the
evidence the amount awarded is clearly inadequate. The amount to which the
appellant is entitled cannot be determined with mathematical accuracy. Keeping
in mind the principles stated above and after a careful consideration of all
the evidence we are of opinion that the amount of compensation for the property
secondly expropriated inclusive of any allowance for compulsory taking
should be fixed at the sum of $450,000.
There is this to be added. It is fundamental to the due
administration of justice that the authority of decisions be scrupulously respected
by all courts upon which they are binding. Without this uniform and consistent
adherence the administration of justice becomes disordered, the law becomes
uncertain, and the confidence of the public in it undermined. Nothing is more
important than that the law as pronounced, including the interpretation by this
Court of the decisions of the Judicial Committee, should be accepted and
applied as our tradition requires; and even at the risk of that fallibility to
which all judges are liable, we must maintain the complete integrity of
relationship between the courts. If the rules in question are to be accorded
any further examination or review, it must come either from this Court or from
the Judicial Committee.
[Page 516]
The appeal will be allowed with costs. The amount of
compensation for the property first expropriated will be fixed at $48,880 with
interest at the rate of 5 per cent per annum from the 19th of May, 1944. The
amount of compensation for the property secondly expropriated will be fixed at
$450,000 without interest.
Appeal allowed with costs.
Solicitors for the appellant: Gowling, MacTavish,
Watt, Osborne and Henderson.
Solicitor for the respondent: F. P. Varcoe.
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