Frankel Steel Construction v. Metro Toronto, [1970] SCR 726

Supreme Court of Canada

Frankel Steel Construction v. Metro Toronto, [1970] S.C.R. 726

Date: 1970-03-19

Frankel Steel Construction Limited (Claimant) Appellant;

and

The Municipality of Metropolitan Toronto (Contestant) Respondent.

1969: March 12, 13; 1970: March 19.

Present: Cartwright C.J. and Martland, Judson, Ritchie and Spence JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Expropriation—Compensation for leasehold interest—Term certain with right to renew for similar term subject to lessor’s right to cancel on one year’s notice—Whether agreement between parties for payment of fair cost of moving.

The respondent municipality expropriated the lands and premises where the appellant company carried on its structural steel business. At the time of the expropriation, the company held the property under a lease for a term certain, with a right to renew for one term of five years, subject, however, to the lessor being able to cancel during the renewal period on one year’s notice. Both parties had agreed that the business be moved gradually over a period of eighteen months from the premises expropriated to other premises purchased by the appellant to minimize the damages and that a firm of consulting engineers be engaged to plan the procedure for the move, guide the claimant in the preparation of its submission of the costs thereof and to check the same to determine the fair amount thereof.

An arbitrator awarded the claimant $1,600,000, which sum he looked upon as being the fair cost of moving. The Court of Appeal took the fair cost of moving to be $1,825,978, the figure produced by the engineers. The basis of its judgment was that the expropriation merely accelerated the expenditure of this sum by three years, two and one-half months (which was the unexpired term at the date when possession was given) and that the claimant was only entitled to what it would have cost to borrow this sum for this period at six per cent per annum. It therefore declared that the claimant was entitled to the present worth as of October 3, 1967, of interest at six per cent per annum on the stated sum for the stated period, subject to certain adjustments

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to be agreed upon or referred back to an arbitrator. The claimant appealed to this Court from the judgment of the Court of Appeal.

Held (Cartwright C.J. and Spence J. dissenting): The appeal should be dismissed.

Per Martland, Judson and Ritchie JJ.: The proper basis for compensation was the one laid down by the Court of Appeal. Whatever may have been the understanding of the engineers who prepared the figures, or the officers of the claimant company, there was and could be no agreement to pay the cost of moving in the absence of a contract under the corporate seal of the municipality properly authorized by by-law. Nothing in the conduct of the negotiations could be construed as an agreement to pay the full sum. Mackay v. Toronto, [1920] A.C. 208, applied.

Per Cartwright C.J., dissenting: The appeal should be allowed to the extent of adding to the sum fixed by the Court of Appeal an amount calculated on the footing that the lease endured to the end of the renewal period subject to an appropriate reduction for the contingency of its being brought to an end at an earlier date by the lessor. It was not established that the respondent entered into an agreement to pay the cost of moving as compensation, but this case is not governed by the decision in Mackay v. Toronto, supra.

Per Spence J., dissenting: The appeal should be allowed, the judgment of the Court of Appeal set aside and the award of the arbitrator at $1,600,000 restored. The Court of Appeal erred in two particulars: (i) in allowing only interest items rather than the fair cost of moving as the parties had agreed, and (ii) in refusing to allow any compensation to the appellant for any term of the lease beyond three years, two and one-half months.

APPEAL by the claimant from a judgment of the Court of Appeal for Ontario[1], allowing an appeal from an award made by Forsyth Co.Ct.J. as arbitrator. Appeal dismissed, Cartwright C.J. and Spence J. dissenting.

C.L. Dubin, Q.C., J.E. Eberle, Q.C., and H.L. Morphy, for the claimant, appellant.

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G.M. Mace and D.C. Ross, for the contestant, respondent.

THE CHIEF JUSTICE (dissenting)—The course of the proceedings before the learned Arbitrator and in the Court of Appeal is set out in the reasons of my brothers Judson and Spence which I have had the advantage of reading.

I agree with the conclusion of my brother Judson, affirming that of the Court of Appeal, that it was not established that the respondent was bound by an agreement to pay the cost of moving as compensation; but I do not base my agreement on the decision in Mackay and Company v. Corporation of the City of Toronto[2]. In my opinion a municipal corporation can be bound in the same way as any other litigant by the manner in which litigation is conducted on its behalf or by an agreement made by its solicitors and counsel in the course of litigation. This appears to me to be implicit in the unanimous judgment of this Court delivered by my brother Fauteux in City of Verdun v. Sun Oil Co. Ltd.[3], and particularly the following sentence at p. 231:

…The City cannot now adopt, before this Court, a different view on the facts to gain a new ground in law; it is bound by the manner in which it conducted its defence. (The Century Indemnity Company v. Rogers, [1932] S.C.R. 529 at 536. Sullivan v. McGillis and others, [1949] S.C.R. 201 at 215.)

I am, however, unable to say from the record that such an agreement was made in this case.

I differ from the view of the Court of Appeal that nothing should have been allowed to the appellant for the reasonable probability that, but for the expropriation, it would have been allowed to retain possession of the leased premises during the renewal period. On this branch of the matter I agree with the reasons of my brother Spence and wish only to add a reference to the case of Fleming v. District Committee of Middle Ward of County of Lanark[4].

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It follows from this that I would allow the appeal to the extent of adding to the sum fixed by the Court of Appeal an amount calculated on the footing that the lease endured to the end of the renewal period subject to an appropriate reduction for the contingency of its being brought to an end at an earlier date by the lessor. However, as in the opinion of the majority in this Court the appeal fails nothing would be gained by my calculating what that amount should be, or considering what order should be made as to costs.

The judgment of Martland, Judson and Ritchie JJ. was delivered by

JUDSON J.—On June 28, 1962, the Municipality of Metropolitan Toronto expropriated the lands and premises where Frankel Steel Construction Limited carried on its structural steel business. Frankel’s interest in the property was that of a leaseholder. There are two issues in this appeal. The first is the measure of compensation for the expropriation of a leasehold interest. The second is whether there was an agreement between the municipality and the claimant for the payment of the “fair cost of moving”.

The arbitrator awarded Frankel $1,600,000, which sum he looked upon as being the fair cost of moving. The Court of Appeal took the fair cost of moving to be $1,835,978. The basis of its judgment was that the expropriation merely accelerated the expenditure of this sum by three years, two and one-half months (which was the unexpired term at the date when possession was given) and that the claimant was only entitled to what it would have cost to borrow this sum for this period at six per cent per annum. It therefore declared that Frankel was entitled to the present worth as of October 3, 1963, of interest at six per cent per annum on the stated sum for the stated period, subject to certain adjustments to be agreed upon or referred back to an arbitrator. These adjustments have to do with surplus machinery and equipment left in Frankel’s hands after the move was completed. There were also similar adjustments to be treated in the same way for surplus machinery and equipment left behind in the old premises. These adjustments are of no importance for the purpose of these reasons.

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Frankel had formerly owned the freehold in the expropriated land. On January 1, 1961, it sold the freehold to another company and took back a lease for a term of five years commencing January 1, 1961, with a right to renew for one term of five years, subject, however, to the lessor being able to cancel during the renewal period on one year’s notice. This lease, therefore, gave Frankel an indefeasible right to occupy the premises for a term of six years from January 1, 1961. This right came to an end on June 28, 1962, with the expropriating by‑law. On October 30, 1962, Frankel purchased new premises for the purpose of moving. The business was gradually moved from the old premises to the new premises over a period of approximately one and one-half years. This was done to minimize the cost of moving. Both parties had agreed that a firm of consulting engineers should be engaged to examine the procedure for moving, to guide the claimant in the preparation of a submission on the costs, and to check the costs to determine the fair cost of moving. This was done and the figure produced by the engineers totalled $1,835,978. It is admitted that to spread the moving over a period was the only possible way. The cost of a complete closure of the old plant and the starting of a new plant would have been much higher. The possible adjustments mentioned above resulted from duplications that had to be made in the course of the moving.

The arbitrator assumed that the city had promised to pay these determined costs of moving. In this, in my opinion and that of the Court of Appeal, he was mistaken. The proper basis for compensation is the one stated above and laid down by the Court of Appeal. No problem arises in this case of an advantageous lease, that is, a lease calling for less than an economic rental. The rental payable under this lease was a full economic value of the premises.

We were taken through the whole of this record for the purpose of attempting to show that there was an agreement to pay the cost of moving. Whatever may have been the understanding of

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the engineers who prepared the figures, or the officers of the claimant company, there was and could be no such agreement in the absence of a contract under the corporate seal of the municipality properly authorized by by-law. We are concerned here with the sum of $1,835,978. The vague misunderstanding that may have existed cannot be construed against the municipality. The figures prepared by the engineers were only a basis for the calculation of the compensation. Nothing in the conduct of the negotations can be construed as an agreement to pay the full sum. Mackay and Company v. Corporation of the City of Toronto[5] embodies a salutary rule.

I am in complete agreement with the reasons delivered in the Court of Appeal[6] and I would adopt them.

I would dismiss the appeal with costs.

SPENCE J. (dissenting)—This is an appeal by the claimant from the judgment of the Court of Appeal for Ontario[7] pronounced on June 15, 1966. In that judgment, the Court of Appeal for Ontario allowed an appeal from the award made by Forsyth Co.Ct.J. as arbitrator on April 2, 1965.

The contestant, the Municipality of Metropolitan Toronto, enacted on June 28, 1962, by-law No. 1683. By that by-law the contestant expropriated the lands in question and many other additional lands for the purpose of constructing the Duke-Duchess interchange on the Don Valley Parkway. Even prior to the enactment of the by-law there were conferences between the representatives of the claimant and the representatives of the contestant as to the manner in which the possession of the lands would be given to the contestant and the compensation for the taking thereof fixed.

The claimant was a company engaged in steel fabrication and steel construction work. Prior to January 1961, the business had been carried on by Frankel Brothers Limited. From January 1,

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1961 on, the lands were owned by Frankel Properties Limited and were leased to the claimant Frankel Steel Construction Limited under what was described by Kelly J.A., in his reasons in the Court of Appeal for Ontario, as an “arm’s length” transaction. By the lease of the premises from Frankel Properties Limited to the claimant granted under date of January 1, 1961, the claimant had a term of five years from that date with, however, the right to terminate that term on one year’s notice after January 1, 1964, and with also the right to renew the lease for a five-year term but subject to the right of the lessor to cancel the lease during the renewal period upon one year’s notice. The rental during the first five-year period was fixed at $100,000 per year, subject to certain provisions as to escalation by reference to municipal taxation, and during the renewal period at such amount as would be agreed upon or, failing agreement, fixed by arbitration.

It was realized by all parties that the expropriation of the lands leased to the claimant and the eviction of the claimant therefrom would, due to the type of business carried on by the claimant, cause a very considerable loss and, therefore, give rise to a very large claim for disruption of business. To avoid this claim, the representatives of the contestant and the officers of the claimant agreed that there should be worked out a scheme for the gradual shifting of the business carried on by the claimant from the expropriated site to another place and that this relocation should be carried out under a carefully detailed plan with accurate calculation of costs entailed in each step of the plan’s execution. For such purpose, the contestant, with the approval of the claimant, retained a firm of consulting engineers, Morrison, Hershfield, Millman and Huggins Limited. On January 14, 1963, the Commissioner of Property of the contestant wrote to the said consulting engineers in these terms:

Reference is made to our conversation in the above connection and I shall be obliged if you would prepared [sic] a joint report as outlined at our meeting. For your information, I am enclosing a copy of the lease covering the subject property.

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The claimant attempted to find other leasehold property in which it could relocate its business and, failing to do so, purchased the vacant plant formerly occupied by the Dominion Bridge Company on Shaw Street in Toronto. The plan for the relocation was drafted to cover the move of the claimant’s enterprise from the Don Roadway to these Shaw Street premises.

On April 8, 1963, the consulting engineers outlined this plan in very considerable detail in a letter to the Property Department of the contestant. That outline was produced at trial and marked as an exhibit. For the purpose of the decision of this appeal, certain paragraphs are of paramount importance. They are paras. 2, 3, 4 and 5:

2. Our opinion is that it would be advisable at this time to define the problem in broad terms to guide Frankel Steel Construction Limited, (Frankel) in the preparation of its submission and also to clarify our terms of reference in connection with this problem. Our purpose in writing this letter is to outline below such a definition, hoping that we may discuss this further with you and obtain your views on this approach before proceeding with more detailed considerations.

3. Basically, at the start of the exercise, we may consider Frankel to be operating at a certain level of production in Plant A on Eastern Avenue between East Don Roadway and Broadview. For reasons beyond its control, namely to permit construction of the Duke-Duchess Interchange, it is required that Frankel vacate Plant A. At the end of the exercise Frankel will be occupying Plant B and will be operating at presumably the same level of production as formerly. The problem resolves itself into the determination of the “fair cost of moving” from Plant A to Plant B. Many factors must be considered in making this determination, some of these factors are discussed briefly in the following paragraphs.

4. There were a number of ways in which Frankel might have effected its move from Plant A to some new location. The company elected to purchase a plant at another location, Plant B, to start operations there, to gradually increase these operations while reducing operations at Plant A, and to continue this procedure until the change-over was complete.

5. We presume that this method was selected after due consideration of the available alternatives and

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their respective overall costs, that it is acceptable to all parties concerned and that it is the basis on which the claim for compensation is to be prepared.

I also quote paras. 19 and 20:

VIII. Summary and Proposals

19. In summary we propose the following:

(1) That you review the above outline and approve or revise as you consider proper.

(2) That the approved outline then be presented to Frankel and discussed with representatives of that company, revising it if necessary to achieve mutual agreement as to the method of procedure.

(3) That Frankel then proceed with the detailed preparation of its submission within the agreed-upon framework. It is probable that the submission will be presented in several separate parts so that some of the parts may be prepared, reviewed, perhaps revised, and approved before the move is completed. On the other hand, it will not be possible to complete some of the parts until all of the aspects of the exercise have been completed.

(4) We believe that the submission delineating the proposed “fair cost of moving” should be prepared by Frankel. This would be the most efficient procedure because the required detailed information is most readily available to them.

(5) Our understanding is that we are being retained by you to advise on the items of cost that, in our opinion, should be considered as being attributable to the move and on the form in which the claim for compensation should be submitted, to review the claim, and to report to you on it.

* * *

20. With a problem of this type it is most important that the method of establishing costs and the criteria against which their admissibility as part of the claim is to be judged should be clearly outlined and agreed to by all parties. This preliminary phase is worth the expenditure of considerable effort.

This report was considered by the contestant’s officials and then at a conference on May 6, 1963, considered jointly by the officials of both the claimant and the contestant. Evidence as to that conference was given by Mr. William J.H. Disher, the executive assistant to the president of the claimant company, and by Carson F. Morrison and Joseph M. Millman, two of the officers of the aforesaid consulting engineering

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firm. No evidence with reference to the conference was given by any officer of the contestant. Further reference will be made to this hereafter.

Mr. Disher, in examination-in-chief, was asked:

Q. Well, they had already been hired. Did both parties accept this method of arriving at the compensation?

A. They accepted the method; the only condition was that the figures would not be binding.

MR. ROSS (counsel for the contestant) Your Honour, my friend led Mr. Disher in that remark, in asking him if the parties accepted this method of arriving at the compensation. I think, more properly stated it might be: Did the parties agree that the method of arriving at the amount to be claimed was agreed upon.

MR. GOODMAN: I agree with my friend; I apologize; it is quite all right.

Q. Would you answer the question as worded by friend: Did both parties agree that the method outlined in the letter was the method to be used in arriving at the claim?

A. Right, yes.

Mr. Morrison testified:

My understanding was that compensation would be paid on the basis of what was set forth in our letter of April 8th. I appreciate that there were a lot of complications in connection with this particular problem; and that is why we took pains to set forth, in writing, as is done in our letter of April 8th how we thought the problem should be attacked.

Mr. Millman testified:

Q. Yes. Well, following that letter there was I believe, a meeting on May 6th. Were you present at that meeting?

A. Yes, I was.

Q. Did you hear Mr. Disher’s evidence as to it?

A. Professor Morrison.

Q. Is your recollection the same, or any different?

A. No, I have no disagreement.

Q. No disagreement with what they said. As a result of that meeting, who was to prepare the claim? Was it to be you, or to be the Frankel Steel Company?

A. It was to be prepared by the Frankel Steel Company.

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Q. And on what basis was it to be prepared?

A. Generally within the framework outlined in this letter of April 8th. I should mention that this framework outlined in our letter of April 8th was not completely detailed. It could not be completely detailed at the time because we didn’t have sufficient knowledge to do so. Obviously, I think that some of the detailed parts within that framework would have to be worked out as the problem progressed, and this was done but…

Q. That was done as the development of the actual figures took place over subsequent months?

A. And as the move took place and certain items became apparent which might not have been apparent at the beginning.

The relocation of the claimant’s business was carried out exactly in accordance with the plan outlined in the document dated April 8, 1963, to which I have referred, and the claimant submitted its claim in very considerable detail. This claim as so submitted totalled $1,881,206. The claim was submitted to the consulting engineers and those consulting engineers made a report thereon to the Property Department of the contestant in November 1963. This report was produced on the arbitration and marked as an exhibit. The summary at the conclusion of such report varies from the total in the original claim by adding thereto $350. In that report, the consulting engineers said, in part:

We are in agreement with the thinking behind the development of Parts I, II and III of the claim. We are in general agreement with the figures used and, as previously noted herein, any modifications we have had to suggest have been incorporated in the claim…

The conclusions reached under the paragraph above apply equally to Part IV of the claim.

In summary of all the above it is our opinion that, depending only on the final legal interpretation noted in paragraph (b) above, the claim, as we understand it is to be presented, is fair to both parties and we recommend its acceptance by the Commissioner.

The legal interpretation referred to was a determination of the length of term to which the

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claimant was entitled under the provisions of the lease to which I have referred.

The claimants have conceded that the sum of $1,821,565 as set out in the said report by the consulting engineers as the total amount of the claim is subject to certain deductions and that with these deductions the true total of the claim is $1,807,526.

Throughout the whole of the relocation and of the assembly and preparation of the costs statements in reference thereto, the consulting engineers worked with the officers of the claimant and mutual decisions were made between the two groups as to what machines would be moved, when they would be moved, and other matters in reference to the move, so that the claim as presented was in fact a claim which had been approved in detail as the work progressed by the engineers retained by the contestant for such purpose. The relocation was completed on October 3, 1963. The contestant having refused to accept the claim as presented by the claimant and as recommended by the consulting engineers, the claimant proceeded to arbitration, by a notice under the provisions of The Municipal Act, R.S.O. 1960, c. 249, The Municipality of Metropolitan Toronto Act, R.S.O. 1960, c. 260, and The Municipal Arbitrations Act, R.S.O. 1960, c. 250. That notice of claim was dated September 15, 1964. The arbitration came on before Forsyth, Sr. Co.Ct.J. I have referred to certain of the evidence given on behalf of the claimants. At the close of the claimant’s case, counsel for the contestant addressed the Court as follows:

MR. ROSS: Your Honour, I will just be calling one witness, Mr. Pettit, and he perhaps might explain why, in a case such as this, we are only calling one witness. I think the reason perhaps is obvious, but the basic work has been done prior to the arbitration, really by Mr. Disher and Mr. Millman and the other witnesses that you have heard this morning.

I suppose, technically speaking, Mr. Millman was a witness for the Municipality. However, very kindly, my friend called my witness for me so I have no need to call him.

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The evidence on which we are relying is basically the same evidence as the claimant’s. The difference, of course, lies in our interpretation of what the compensation should be based on this evidence.

The witness, Mr. Pettit, that I will be calling, is an accountant; and the reason for calling him will be to give a few brief remarks on the financial statements of the Company and to explain not what I would call a formula, but an interpretation of what we allege the amount of compensation should be on the basis of the figures that Your Honour has before you at the present time.

The learned senior County Court judge, as arbitrator, concluded:

I think the claim as presented is fair and is prepared according to the agreed method set forth in Exhibit 14. I think, however, some deduction should be made in respect of the following items:

These items, in my opinion, reduce the amount of compensation to $1,600,000.00, and I accordingly award that amount.

The contestant appealed to the Court of Appeal for Ontario and the reasons for judgment of that Court are given by Kelly J.A. who considered the damages which should be awarded to the claimant under two headings:

Firstly, the market value of the leasehold interest which the learned justice in appeal defined as being the present value for the balance of the term of the annual difference between the rental stipulated under the lease and the economic rent of the premises. It was agreed by all parties that the rental stipulated under the lease equalled the economic rent of the premises and it may certainly be presumed that any rental agreed upon or fixed by arbitration for the period of renewal would be in accord with the economic rental, therefore, there could be no claim for compensation based on this first classification.

Kelly J.A. outlined the second classification as the special value to the claimant of the right to continue in occupation for the balance of the term. It was that special value which the learned senior County Court judge, as arbitrator, had found to be $1,600,000.

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Kelly J.A. adopted the formula stated by Rand J. in Diggon-Hibben, Limited v. The King[8], at p. 715:

…the question is what would he, as a prudent man, at that moment, pay for the property rather than be ejected from it.

That formula, of course, has been adopted in many decisions in this and other Courts and it, or some restatement thereof, certainly represents the true test. The application of the test, however, is in some cases extremely difficult.

It was the view of Kelly J.A. that when the claimant is a tenant the measure of his compensation is not the expense he must pay by being forced to move at the date of the expropriation, but what a prudent man would have been prepared to pay rather than have to meet such an expense at the date of the expropriation rather than at the expiration of the leasehold term.

Kelly J.A. found, in his reasons, that this claimant could have been compelled to vacate, apart from the expropriation, at a time three years and two and a half months after the date of the termination of the move, i.e., October 3, 1963, and, therefore, found that the true measure of compensation was the present worth as of October 3, 1963, of interest at 6 per cent per annum for 3 years and 2½ months on the fair cost of moving. The fair cost of moving the learned justice on appeal fixed at $1,835,978 subject to a variation for realization of the surplus machinery to which I shall refer hereafter.

With respect, I am quite ready to agree that in the ordinary course of an expropriation of a tenant’s interest in lands the measure adopted by Kelly J.A., and which formed the judgment of the Court of Appeal for Ontario, is the proper measure. I am, however, of the opinion that in the present case the parties, by their conduct and by their agreement, substituted a different measure. Throughout the course of this litigation, there never has been an issue that the agreement between the parties was not carried out in

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accordance with the legal requirements necessary to bind a municipal corporation. The claim was presented before the arbitrator on the basis that there was an agreement as to a special method of carrying out the relocation of the claimant and a special method for compensating therefor, and counsel for the contestant urged no other basis whatsoever.

Counsel for the contestant confined his argument to the evidence of one chartered accountant and his presentation to a submission that there should be a different method adopted as to calculation of the figures in the claim. It is quite plain from the evidence given on behalf of the claimant, by not only the claimant’s officer but by Messrs. Morrison and Millman of the consulting engineering firm, that what was to be calculated was the amount of the compensation not a figure which could be used as a basis for a present worth calculation at an interest rate. Mr. Disher testified:

A. Well, the agreement that we reached was that the method of moving by the duplication, going out and acquiring another plant, and putting in duplicate equipment, enough to start the production up and running it parallel to the existing plant; and then eventually move to the best of our ability the remaining parts of the plant, and it was agreed that this, by both parties, would be the method and that this concept would be accepted by both the City and ourselves as a method of arriving at the amount of compensation that would be necessary in this move.

The same emphasis on the amount to be claimed was stressed by Mr. Ross, as counsel for the contestant, when he insisted that the question to be put to Mr. Disher was:

Q. Did the parties agree that the method of arriving at the amount to be claimed was agreed upon?

As I have quoted above, it was Mr. Morrison’s evidence that the compensation would be paid on the basis of what was set forth in the letter of April 8th and Mr. Millman stated that he had no disagreement with the evidence given by Mr. Disher or by Professor Morrison.

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It must be remembered that, if the expropriation and consequent relocation had been carried out in the ordinary fashion, the result would have been a very large claim for disruption of business, and reference was made in the evidence of a possible claim for more than $2,000,000 for such damages. It was to avoid this kind of a claim that the parties, after the expropriation by-law had been enacted, agreed upon this very detailed and exact method of relocation and calculation of compensation. I refer to para. 18 of that outline of the plan in the document dated April 8, 1963, which reads:

VII. Disruption of Business

18. Disruption of business is an intangible item that is extremely difficult to evaluate. However, we feel that it SHOULD NOT be included in the consideration of this problem because one of the principal reasons for having both Plant A and Plant B in operation during the move was to minimize the disruption of business during the move.

I am, therefore, of the opinion that the task which faced the arbitrator was not the assessment of the compensation which would be due to a tenant who was evicted from the premises, which he held under lease, by expropriation, but rather the fixing of a compensation the method of calculation of which had been agreed on between the contestant and the claimant after the expropriation by-law had been enacted, in order to lessen the impact of the expropriation upon the claimant and lessen the claimant’s consequent damages, thereby reducing its claim. I am of the opinion that the claimant did establish a claim for $1,807,526 subject to two question only: Firstly, whether the claim was calculated in accordance with the outline of April 8, 1963, and, secondly, the length of the term upon which the claimant was entitled to have his claim calculated.

The first of these problems concerns the surplus machinery which was left in the premises expropriated after the move had been completed, and the surplus of the machinery which had been obtained for use in the new premises on Shaw Street while the move was in progress and which was no longer required when the move was

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completed. Kelly J.A. was of the view that both of those groups of machinery should have been sold by the claimant and the claimant should have given credit for the proceeds from such items in ascertaining the fair cost of moving. It would appear that such an interpretation was in accordance with the document of April 8, 1963. I quote from that document:

II. Purchase or Sale of Equipment

11. To build up production in Plant B while still maintaining production in Plant A, it is necessary for Frankel to purchase equipment and machines and to install these in Plant B. When full production in Plant B has been achieved the equipment and machines remaining in Plant A may be sold. It should be understood that this buying and selling must be undertaken prudently and with proper regard to the value of the equipment being replaced. If any of the machines or pieces of equipment ending up in Plant B is markedly superior or inferior to its counterpart in Plant A, allowance should be made for this differential. When this is taken into account, part of the “fair cost of moving” will be the total cost of purchase and installation of machines and equipment in Plant B less the amount realized from the sale of equipment from Plant A.

12. Frankel’s submission should itimize all such purchases and sales and should provide sufficient descriptive information that the relative values may be examined together with any plus or minus allowances proposed in this respect.

I am also in agreement that the claim as filed (ex. 4) does not reflect compliance with the paragraphs which I have quoted. That matter was dealt with in evidence. I have cited the testimony of Mr. Millman in which he pointed out that when the document of April 8th was drafted everything could not be completely detailed because the draftsman had not sufficient knowledge at that time and that some of the detailed parts within the framework would have to be worked out as the problem progressed and that that was done. Mr. Millman further testified:

Q. And then, looking at the five divisions on that summary, was it prepared, in your opinion, on the basis as outlined in your letter of April 8th?

A. Generally so, yes. There were, as I mentioned earlier, in our letter of April 8th it was impossible

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to foresee all the problems that would arise in detail; and during the course of the preparation of the claim figures, it was necessary to make several, I would call them minor, modifications in the method of approach. But, generally speaking, those figures are within the framework as we understood it of the letter of April 8th.

Counsel for the contestant, in cross-examining Mr. Disher, made this enlightening statement as to what occurred in reference to the surplus machinery left in the expropriated plant when the claimant vacated:

My understanding is they were sold, not directly, but tenders were called for the demolition of the building and this equipment, and so on, which was on the site; and whoever tendered to demolish the building took into consideration any salvage value that this equipment and machinery might have.

Mr. Disher testified:

Q. Would you expect to sell it over a period of time or would you expect to sell it all as one lot?

A. There are two ways I can do it: I can take it to the second-hand machinery guy in a lump, and let him bid on it; or he will take it on a consignment basis and sell it over a fairly long period of time.

Q. Did you make any attempt in this instance to offer these machines for sale at the conclusion of your move?

A. No.

Q. Why not?

A. Well, because when I moved they didn’t belong to us, I assume.

Q. The reason you say they didn’t belong to you, I assume, is because you say they were expropriated?

A. Well, somebody took possession of the property on the 15th of October, and the machines were there, and everything that was there belonged to the new owner.

Q. Yes, but what was the reason they belonged to the new owner? Because you left them there for the new owner? Did you sell them to the Municipality?

MR. GOODMAN: We thought we did, but we are having a little difficulty getting payment.

[Page 744]

Q. Was that your understanding, Mr. Disher?

A. My understanding was that they were in fact on the 14th or 15th, the 13th, 14th or 15th of October, we were producing out of that plant with these machines and with the overhead cranes. I can name you the jobs and where the material went, and even scrounged part of a day on Saturday morning to move steel to the new Toronto City Hall without double handling it with the same cranes that were left there, and so on; and so I left the machinery on the basis of the method in which we moved, to have no business interruption. And somebody took me over. I just didn’t have the chance to move them, so I assumed that they would be…

I am, therefore, of the opinion that this is an example of one of the details in the relocation and compensation plan which could not be accurately and completely outlined in the document of April 8, 1963. The procedure used by the claimant was one necessitated by his having to give up possession at the very moment when therelocation was completed and the method of calculation adopted by the claimant was approved by the consulting engineers. I therefore conclude that there should be no deduction based on any failure to credit the contestant with a realization on surplus machinery.

The length of the term which should be used in the calculation of the compensation is a most difficult problem. It arises in dealing with Part V in the expropriation claim, i.e., the comparative overhead costs related to the term of lease. The claim was set out there in the amount of $329,339. In the document of April 8, 1963, para. 10 is as follows:

10. Our opinion is that Frankel’s submission should compare Plant B with Plant A both on the basis of purchase price and rental cost using whatever formula they wish to propose, and also on the basis of factors suggested under (i) to (vi) in paragraph 9. This comparison should show any and all advantages or disadvantages of Plant B with respect to Plant A expressed as lump sums to be considered in arriving at the “fair cost of moving”.

[Page 745]

In the report by the consulting engineers made in November 1963, Part V of the claim is dealt with in these words:

Part V of the claim is an attempt to evaluate any advantage or disadvantage which may accrue to Frankel through the occupation of the premises at Shaw Street as against occupation of the premises at East Don Roadway. In developing this part of the claim only specific items have been included such as taxes, insurance, heat, electric power, water, rent and depreciation. No attempt has been made to evaluate or include other, much less tangible, items noted for possible consideration in clause 9 of our letter of April 8, 1963, (Appendix A hereto). The claim does however establish a differential in costs per year and then extend this over a period which might be considered as the “unexpired term” of the lease at East Don Roadway.

and in the conclusions, the engineers state:

(b) Having established a “disadvantage” figure for one year, the claim then extends this over the period considered as the unexpired portion of the lease at East Don Roadway (7 years). This factor is one on which we do not feel qualified to render an opinion since it evolves entirely from a legal interpretation of the lease. This would be beyond our field of professional activity.

The claim for $329,339 is based on the present value of the sum of $77,832 which was the comparative increased cost of operations in the new plant for the first year, and the present value of $56,632 for 6 years 2½ months which was the annual increased cost of operation in the new plant for the period from the end of the first year until what was said to be the termination of the lease. The termination of the lease was taken, in this calculation, to be the end of a five-year renewal following the end of the term of the lease on the first day of January 1966. As I have already pointed out, the lease gave a firm right of renewal to the lessee for a period of five years but during that five-year period the lessor might have terminated the lease upon one year’s notice. It was, therefore, the submission of the

[Page 746]

contestant that the claimant as tenant was only entitled to claim compensation for the increased cost of operation in the new plant for the immediate period during which, apart from expropriation, he could have enforced possession of the old plant and that immediate period was, as found by Kelly J.A. in the Court of Appeal for Ontario, 3 years 2½ months. There has been some considerable question as to whether a contestant might claim compensation, in the case of an expropriation of his lease, for any period beyond the firm term of the lease. Challies J., on The Law of Expropriation, 1963, said at p. 160:

The question remains, in Ontario only, whether anything can be awarded for the probability of renewal of the lease. In Bignall v. Metro Toronto, [1957] O.W.N. 408, an award was made for such probability, although it has been pointed out that the lease was of a type which is ordinarily renewed, namely a service station lease. More recent jurisprudence refuses any allowance for the element of renewal, unless there is an absolute right to renewal: Murray v. Metro Toronto, [1962] O.W.N. 173 (C.A.).

Bignall v. Metro Toronto was a decision of the Court of Appeal for Ontario reported in [1957] O.W.N. 408. It concerned a service station lease which was a mere monthly tenancy. Aylesworth J.A., in giving the judgment of the Court of Appeal, said at p. 410:

It is clear that the only element to be taken into consideration is the value to the owner of the land expropriated. That means in the case of a lessee such as the present respondent, that the value for which he is to receive compensation is the value of the lease to him. The value of the lease to him, in my view, is the difference between what he is called upon to pay as rental and what he would be prepared, as a reasonable man, actually to pay rather than surrender possession of the premises and that, not only for the unexpired term of his actual lease but for a reasonable time thereafter, taking into account the distinct probability, almost certainty, at least, of a short term renewal: Re City of Toronto v. McPhedran (1923), 24 O.W.N. 308.

[Page 747]

and in the result allowed “Present value of lost advantages from renewal of lease… $5,000.00”. That exact statement was quoted with approval by Laidlaw J.A. in the following year in Re The Windsor Macedonian Club et al. and the City of Windsor[9], at p. 204.

Again, in the following year, Re City Parking Ltd. & Toronto[10] was considered in the Court of Appeal for Ontario. There, the Court was not concerned with any question as to a claim for compensation for a renewal period. The lease was for a ten-year period and the expropriation took place in mid term. The Court was concerned with whether any increase in the compensation could be allowed because of a clause in the lease which permitted the tenant to match a bona fide offer to purchase and provided that failing to match such offer the tenant should vacate in ninety days. Porter C.J.O. quoted Aylesworth J.A.’s judgment in Bignall, as I have set it out above, but did not quote the words:

and that, not only for the unexpired term of his actual lease but for a reasonable time thereafter, taking into account the distinct probability, almost certainty, at least, of a short term renewal: Re City of Toronto v. McPhedran (1923), 24 O.W.N. 308.

The case was appealed to this Court and was reported in [1961] S.C.R. 336. Kerwin C.J., at pp. 338-9 quoted Aylesworth J.A. in exactly the abbreviated fashion used by Porter C.J.O., and Cartwright J., as he then was, followed the same course at p. 350. As I have said, the case was not concerned with a question of compensation for a period of possible renewal. Therefore, it was quite appropriate to not include Aylesworth J.A.’s reference in the Bignall case to that element of compensation.

[Page 748]

The matter came up again in the Court of Appeal for Ontario in Sunderland v. Municipal Corporation of Town of Brockville[11], which, again, concerned a lease for one month which, by its terms, automatically renewed itself, unless thirty days’ notice of termination was given by either party. Kelly J.A., giving the judgment of the Court, again quoted Aylesworth J.A. in the Bignall case and again omitted Aylesworth J.A.’s reference to compensation for possible renewal periods. Counsel for the appellant had submitted that his client was entitled to compensation for his probable continued right to occupy the property. Kelly J.A. said:

I cannot accept this argument. It is well-settled law that the lessee’s reasonable expectation of continuing in possession or of having his lease renewed is not an element to be considered in fixing compensation: [quoting inter alia] Re Canada SS. Lines & Toronto Terminals R. Co., [1930] 4 D.L.R. 626 at p. 632, 65 O.L.R. 494 at p. 502;

In Re Canada Steamship Lines Ltd. and Toronto Terminals Railway Co.[12], at p. 502, Grant J.A. said:

However that may be, all the parties must have known that there was no reasonable probability that the lease in question would be renewed, as the continued use of the location would be utterly incompatible with the harbour development. As a matter of fact, there was no probability of any further renewal being granted, even if that could be relied upon as an element in fixing compensation, which, in my opinion, it could not. The mere chance or expectancy of renewal of a lease, without any right in law to insist upon it, is not a ground for compensation…

In Re Murray & Metro Toronto[13], the Court of Appeal for Ontario considered the expropriation of a building partly occupied by the owner and partly occupied by three monthly tenants.

[Page 749]

Schroeder J.A. again quoted the abbreviated statement of Aylesworth J.A. in the Bignall case and at p. 176 said:

He relied upon the judgment of this Court in the Bignall case in which the probability of renewal with respect to a lease for a term certain was held to constitute an element properly to be taken into account by a prudent man in forming a decision as to what he would be willing to pay rather than surrender possession of the leased premises. The facts of that case are unusual; moreover, as to the probability of renewal being an element of compensation, it must now be taken to have been overruled by the later judgment of this Court in Sunderland v. Brockville, [1961] O.R. 660,.

With respect, it is difficult to understand any distinction between the circumstances in Bignall and the circumstances in Murray. Bignall was concerned with a gasoline service station held under short term lease from 1936 on, the last lease being one which ran from April 1, 1954, to October 31, 1955. Re Murray & Toronto was concerned with the ordinary case of monthly tenancies. The report does not reveal how long the tenants had been in possession.

Schroeder J.A. continued in Re Murray & Metro Toronto, supra, at p. 176:

…where it was held that the lessee of a service station holding under a renewable monthly lease terminable on 30 days’ notice was not entitled to have his reasonable expectation of continuing in business or of having his lease renewed considered as an element in fixing compensation. The principle therein enunciated is in harmony with earlier authorities in which it was decided that compensation to a lessee must be based on a tenancy which he could enforce at law, and that he was not entitled to be compensated in respect of a mere possibility of renewal as contrasted with an enforceable right of renewal:…

For the purpose of the decision of the present appeal, I am ready to accept that statement of the law. I am, however, in serious doubt as to

[Page 750]

whether the statement made by Kelly J.A. in the Court of Appeal for Ontario in the present case, “The law is well settled that compensation to a lessee must be fixed on the basis of the term of occupancy which the lessee can enforce at law” is a correct outline of the whole of the tenant’s right to compensation. The appellant here sought compensation under the provisions of s. 337(1) of The Municipal Act, R.S.O. 1960, c. 249. Under that section the owner was entitled to “due compensation to the owner for the land expropriated and for any damage resulting from the expropriation of the land”. By the provisions of s. 332(c) “owner” included “a tenant”.

As Kelly J.A. said, the test of the compensation was put by Rand J. in Diggon-Hibben Ltd. v. The King[14], at p. 715:

the question is what would he as a prudent man, at that moment, pay for the property rather than be ejected from it.

At the time of the expropriation of these lands, the tenant, the appellant here, held the lands under a lease for a term certain and had a right of renewal for five years after the end of the term, that is, his interest in the land was that of a tenant holding under a term certain with an enforceable right of renewal. For that interest, the tenant was entitled to the compensation which he, as a prudent man, at the moment of expropriation, would pay for the property rather than be ejected from it. Applying that test of the prudent man, the tenant then, at the moment of expropriation, would consider what he would pay rather than be ejected from the land having reviewed the facts that his tenancy ran for some seven years after the expropriation but that the landlord upon making a sale of the premises could evict him on one year’s notice. Therefore, what he would be willing to pay would not be the increased cost of operating in the new plant for each one of the seven years but something less in order to make allowance for the possibility of his eviction during those last five years. In the present case, on the evidence of the tenant, it was perfectly ready to occupy the premises to

[Page 751]

continue in operation during the whole of the renewal period and on the evidence of the officer of the landlord there was no intention of selling the property and the landlord stood ready to leave the tenant in occupation for that five-year extension. These two facts the prudent man, of course, would take into account when assessing the amount which he would offer for the premises rather than be evicted therefrom.

The learned senior County Court judge, acting as arbitrator, did make allowance for the possibility of the termination of the term by the landlord’s notice during the five-year period of renewal when he said:

I think the claim as presented is fair and is prepared according to the agreed method set forth in Exhibit 14. I think, however, some deduction should be made in respect of the following items:

…

(2) Item V—Comparative Overhead Costs related to term of lease—$329,339

…

These items, in my opinion, reduce the amount of compensation to $1,600,000, and I accordingly award that amount.

Since, according to the reasons given by the learned senior County Court judge, the claimant had finally set its claim in the hearing before him at $1,809,275, this represented a reduction of $209,275. Such reduction covered three items and the portion of it which the learned senior judge assigned to the possibility of the termination of the lease during its renewal period by exercise of the notice of sale clause, is not ascertainable. Since the third factor, which the learned senior judge stated should amount in a deduction, was the probability that the rent would be increased to $140,000 a year during the renewal term, i.e., an increase of $40,000 per year, it would seem that the reduction for that item would have had to have been considerable and it is therefore probable that the reduction for the increased cost in overhead of doing business in the new site would not have been a very considerable portion of the $209,275 by which the

[Page 752]

learned senior judge reduced the claim. I do not think we are required to engage in an attempt to estimate the approximate amount of the reduction, as it was the learned senior judge who heard the witnesses and who assessed the weight that should be given to the evidence in determining what a prudent man would pay for the right to continue in the premises rather than be evicted there from.

Although counsel for the appellant reduced the total claim during his submission to this Court by a further $1,749 to $1,807,526, it is apparent that the award made by the senior judge as arbitrator simply rounded off figures at $1,600,000 and any such minute differences in the amount of the claim as was suggested in the argument in this Court may well be ignored.

Having come to the conclusion, therefore, that the Court of Appeal for Ontario erred in the two particulars, firstly, in allowing only interest items rather than the fair cost of moving as the parties had agreed and, secondly, in refusing to allow any compensation to the appellant for any term of the lease beyond 3 years and 2½ months,I believe that the appeal should be allowed, the judgment of the Court of Appeal set aside and the award of the learned senior County Court judge as arbitrator at $1,600,000 be restored. The appellant is entitled to its costs in the Court of Appeal and in this Court.

Appeal dismissed with costs; Cartwright C.J. and Spence J. dissenting.

Solicitors for the claimant, appellant: Goodman & Goodman, Toronto.

Solicitor for the contestant, respondent: A.P.G. Joy, Toronto.