Churchill D. Frith v. Minister of National Revenue, [1991] 2 CTC 2396, 91 DTC 1160

Mogan, T.C.J.: — In 1985, the appellant sold a parcel of land located at 904 Howe Street, Vancouver, British Columbia for a price of $3,500,000. The legal description of the land was:

Lots 1 to 6

Block 72

District Lot 541

Plan 00210

Lots 1 to 6 comprised 18,000 square feet and occupied the northwest corner of Block 72. To put the description in different words: lots 1 to 6 occupied the southeast corner of the intersection of Howe Street and Smithe Street running 150 feet along Howe and 120 feet along Smithe. The land will be referred to herein as “the Property”.

The appellant had owned the Property for many years prior to 1971 and continuously from 1971 to the date of sale in 1985. Under subsection 26(3) of the Income Tax Application Rules, the cost of the Property to the appellant is deemed to be its fair market value on December 31, 1971 (the “V-Day Value"). When filing his 1985 income tax return and reporting the capital gain realized on the sale of the Property, the appellant reported that the V-Day Value of the Property was $775,000. When issuing the assessment under appeal herein, the respondent assumed that the V-Day Value of the Property was $576,000. The only issue in this appeal is the V-Day Value of the Property.

The only witnesses who testified at the hearing were three real estate appraisers each of whom was qualified as an expert permitted to express opinion evidence concerning the V-Day Value of the property. The first two experts testified for the appellant and the third testified for the respondent. The Property is located within the downtown central business district of Vancouver. One of the experts described the central business district ("CBD") as bounded by Thurlow, Nelson and Cambie Streets (west, south and east) with the waterfront of Burrard Inlet as the north boundary. The Property is near the southern limit of the CBD being only one block north of Nelson Street and approximately half way between the western and eastern limits. Also, the Property is two blocks south of Georgia Street which is the principal east/west artery in the CBD. In 1971, almost all of the office buildings in the CBD were north of Georgia Street. Therefore, all three experts were in agreement that the highest and best use of the Property at V-Day was a holding situation pending subsequent development probably as a high-rise office tower. In other words, the Property was "on hold” at V-Day until commercial development moved south to Smithe Street. In 1971, the Property had no buildings or other structures but was used as a parking lot.

All three experts attempted to determine the V-Day Value of the Property by the comparative sales method—analyzing sales of other land around the same time with the same zoning and in the vicinity of the Property. Certain sales regarded by the respondent's expert as comparable were also used by one or both of the appellant's experts as compara le sales. The appellant's experts and the respondent's expert reached different conclusions, however, because of a different emphasis which they placed on particular comparable sales.

Dudley Walter Meakin, the appellant's first witness, has lived in Vancouver all his life except for six years in the RCAF from 1939 to 1945. He began selling real estate in 1945 and began appraising in 1951 when he was a member of the valuation committee of the Vancouver Real Estate Board. He has been a qualified appraiser since 1962. In 1975, the appellant instructed Mr. Meakin to estimate the fair market value of the Property as at December 31, 1971. Mr. Meakin prepared a report dated August 21, 1975 (Exhibit A-2) in which he concluded that the V-Day Value of the Property was $43.07 per square foot rounded to $775,000. In that report, he considered ten comparable sales and selected four as being the best value indicators. For each of his comparable sales, Mr. Meakin converted the selling price to a rate per square foot (dividing the price by the area) and then applied to that rate four possible adjustments identified as follows:

Plottage— A larger land area will generally have a higher value per square foot

than a smaller land area; a comparable sale of only 3,000 square feet would have a positive plottage adjustment to make it more comparable with the subject Property at 18,000 square feet.

Corner— A corner site has greater value than a site in the middle of a block

because a building constructed on a corner site can have more windows; a com pa ran le sale in the middle of a block would have a positive corner adjustment of 15 per cent to make it more comparable with the subject Property.

Location— A particular site will have greater value if it is close to a strong economic

influence like a huge office tower or excellent retail shopping; a comparable sale close to a strong economic influence would have a negative location adjustment to make it more comparable with the subject Property but a comparable sale far from such influence would have a positive location adjustment.

One can easily understand the logic of the above four adjustments but the application of the adjustment for location (in the range of -50 per cent to +125 per cent) appears to be quite subjective. Indeed, there is a subjective element in all of the adjustments.

Michael R. Grover, the appellant's second witness, has been appraising property since 1957 and he has been a qualified appraiser since 1964. He has held senior offices in the Appraisal Institute and, from 1987 to 1990, was a member of the Expropriation Compensation Board settling the compensation for expropriations in the Province of British Columbia. Mr. Grover was living in Vancouver in 1971. In 1989, he was retained by the appellant to estimate the fair market value of the Property as at December 31, 1971. Mr. Grover's report dated April 25, 1989 was entered as Exhibit A-18 expressing the opinion that the V-Day Value of the Property was $756,000.

For his primary comparable sales, Mr. Grover selected downtown sites that were capable of autonomous development because the Property itself was capable of autonomous development having 18,000 square feet. To find those comparables, he had to go beyond the immediate vicinity of the Property. Five of his eight primary comparable sales were on Dunsmuir Street or Pender Street, one or two blocks north of Georgia Street in the old financial core of Vancouver which he stated was still in 1971 better than the area around the Property. He had concluded that there were few comparable sales of autonomous development sites close to the Property. Mr. Grover preferred sites capable of autonomous development as comparable sales because it reduced the number of adjustments he would otherwise require. In his words:

Appraisers are haunted by the prospect of making adjustments, and the fewer adjustments you have to make the better off you are. The one prime adjustment is you have to measure for time. But if you can avoid making adjustments for corners and plottage and so on then you remove some of the difficulties in the comparison process.

As a secondary reference, Mr. Grover cited ten sales along Granville Street from Robson Street south to Helmcken Street. He regarded these as secondary comparisons because of the character of Granville Street. During the 1960s, the merchants in this area had problems because shoppers were turning to new malls in the suburbs. To attract more retail business downtown, the City expropriated Block 42 and facilitated the development of the Pacific Centre. Unfortunately, the success of the Pacific Centre drew underground the very merchants whom the City was hoping to protect. Mr. Grover described the result as follows:

So, Granville Street went through a very difficult period from the time that Block 42 was demolished, in 1971/72, through to, in fact, through to today. It does not have the same character as Howe and Hornby and Burrard because, in fact, there are no office buildings built on Granville Street except at the extreme north end and except for Scotia Tower which is, in fact, set back on Seymour but could be construed as fronting on Granville. So, I do not use Granville Street properties for direct comparison with the subject in the sense that the subject is an office building site. I didn't then, and I don't now.

Mr. Grover used the Granville Street sales mainly to demonstrate a fall in land values going south from Georgia Street and the annual rate of increase in land values through 1971 and 1972.

Brian D.L. Bain was the expert witness who testified for the respondent. In 1977 he qualified as a member of the Institute of Municipal Assessors in Ontario; in 1984 as a residential appraiser with the Appraisal Institute of Canada; and in 1988 as an accredited appraiser of the Canadian Institute (AACI). His professional experience began in 1975 as a municipal property assessor in Ontario and, since 1981, he has been a real estate appraiser employed by Revenue Canada, Taxation in Vancouver. His report dated June 1, 1989 (Exhibit R-7) appraising the fair market value of the Property as at December 31, 1971, was prepared without any first-hand knowledge of the prevailing market conditions in 1971 but was based on registered documents, the Revenue Canada data bank of real property transactions, and other information. In Mr. Bain's opinion, the V-Day Value or the Property was $573,500.

Mr. Bain selected ten sales in 1971-72 and one sale in 1969 which he regarded as comparable sales to assist in estimating the V-Day Value of the Property. All of his comparable sales were south of Georgia Street between Burrard and Granville. One sale was on the south side of Nelson Street and the others were between Nelson and Robson Streets. There is a similarity between the reports of Mr. Meakin and Mr. Bain because they selected sales in the immediate vicinity of the Property even though many of the lots were much smaller than the 18,000 square feet of the Property. In contrast, Mr. Grover's primary sales were capable of autonomous development even if they were not in the immediate vicinity of the Property. Set out in the table below is the lot area in square feet of the comparable sales used by the three experts.

There were only three sales which were used in common by all three experts. There were three other sales which were used by Messrs. Meakin and Bain. Set out in the table below are those six sales: the number of each sale is taken from the table above.

♦Meakin used only the north parcel of a land assembly comprising 19,500 square feet shown as sales 5, 6 and 7 in the Bain report and as sale 7 in the Grover report.

Messrs. Meakin and Grover have much more experience as professional real estate appraisers than Mr. Bain. Also, on V-Day they were long-time residents of Vancouver and actively engaged in real estate appraisals at that time. By contrast, Mr. Bain was attending an Ontario high school on V-Day and had never lived in Vancouver until 1981. If this were simply a question of comparing among experts their first-hand knowledge of the Property and its neighbourhood at V-Day and their depth of experience, I would have no choice but to accept the opinions of the appellant's experts. The question, however, is not that simple. The opinions were based on raw information which was available to all three experts and, I assume, to anyone who had the time and patience to assemble it. The value of this expert testimony lies in the way that the expert witness relates the raw information to the subject property and his reasons for so doing.

Messrs. Meakin and Grover both referred to the "Golden Triangle": a concentration of office buildings west of Burrard Street between Georgia and Pender Streets. In the late 1960s, this was a relatively new thrust tending to move commercial development west from the old business district of Hastings and Pender between Seymour and Hornby. As at V-Day, there was only one significant development which indicated that commercial office buildings might move south from the old business district and east from the Golden Triangle to the area of Georgia and Granville Streets. That significant development was the completion of the Pacific Centre with its link under Georgia Street to the new Eaton's store and the new office buildings of the Toronto- Dominion Bank and the Bank of Nova Scotia. Apart from those two bank towers, there were at V-Day no commercial office buildings south of Georgia Street near Granville and Howe. The B.C. Hydro Building at the northeast corner of Burrard and Nelson (Block 70) was a well established office building in 1971 but, at that time, it had virtually no influence on commercial development along Granville and Howe near Smithe.

In 1971, the Provincial Government had announced its intention to construct a 55-storey office tower on Block 61 immediately south of the old court house. Block 61 was bordered by Robson, Smithe, Howe and Hornby Streets. Of particular interest in this appeal, Block 61 is diagonally across (northwest) from the Property. Messrs. Meakin and Grover both stated that the announcement by the Province had a positive and buoyant effect on real estate values in the vicinity of the Property.

Although that announcement in 1971 should have had a positive effect on the market value of the Property and other land close to Block 61, there was no evidence of any sales or resales of land close to Block 61 and soon after the announcement which could prove an increase in market value. In fact, all three experts seemed to think that there was a smooth annual inflation rate through 1971/72 of about 20 per cent for land in the downtown business district. I assume that those persons active in the market for commercial real estate are more sophisticated than land speculators on the outskirts of a city and they recognize the distinction between a declaration of intent easily changed as in this case when a new Provincial government was elected (in 1972) and a signed commitment or the actual turning of the sod for a new building. Also, Mr. Meakin, stated in evidence (Transcript page 33) that "there was quite a lot of lobbying going on to prevent the government" from building its tower on Block 61 because it could have moved the business centre of Vancouver from the Golden Triangle and away from the waterfront area.

Having in mind the above summary of commercial development in the central business district at the time of V-Day, I will review the comparable sales. As stated above, Mr. Grover selected as primary sales only downtown sites that were capable of autonomous development. In my view, the first five of his eight sites are not helpful in determining the V-Day Value of the Property because they are north of Georgia Street between the Golden Triangle and the old business district bordered by Hastings, Pender, Seymour and Hornby. In other words, those five sites are located in a small area of two or three blocks between two concentrations of office buildings which were well established in 1971. The selling prices of those five sites as comparable sales would be influenced in 1971/72 by their proximity to existing commercial development and their availability for immediate development whereas, at V-Day, there was no concentration of office buildings south of Georgia Street which could have any impact on the value of the Property at that time.

The best that can be said of the Property in December 1971 with respect to existing commercial development is that it was only two blocks south of the new bank towers (Toronto-Dominion and Scotiabank) on Georgia Street at Howe and Granville, and only two blocks east of the B.C. Hydro Building on Burrard Street. Also, the Province had announced its intention to construct the 55-storey office tower on Block 61 referred to above. I assume that it was the absence of any prospect for immediate development that induced all three experts to conclude that the highest and best use of the Property at V-Day was a holding situation pending subsequent development. A site of comparable size adjoining the Golden Triangle or the old business district would be capable of immediate development and would not be a "holding" situation. I therefor set aside Mr. Grover's first five sites.

His three remaining sites (Nos. 6, 7 and 8) were used by Messrs. Bain and Meakin but, on the 19,500 square foot site at Robson and Hornby, Mr. Meakin used only the northern portion of the land assembly. These three sites should be helpful because they are all south of Robson Street; they are all within one block of the Property on a north/south axis; and they are all within two blocks of the Property on an east/west axis. For the southwest corner of Robson and Hornby, the location adjustments were: Meakin 40 per cent; Grover — 36 per cent and Bain 50 per cent. For the southeast corner of Robson and Burrard, both Meakin and Bain made a location adjustment of 50 per cent but Grover's analysis did not require adjustment to this particular site. For the southwest corner of Nelson and Howe, both Meakin and Bain made a location adjustment of +50 per cent but Grover excluded this site along with the southeast corner of Burrard and Dunsmuir as being the "outer limits" of the range of prices among his eight sites.

The site at the southwest corner of Nelson and Howe requires special attention because, among all the comparable sales, it is the one most similar to the Property in size, location and exposure; and it was sold just three months after V-Day. In size, it is 21,000 square feet. In location, it is one block south of the Property on Howe. And in exposure, it is a corner lot with its longer dimension (175 feet) along Howe. In the first paragraph of these reasons, I have described the Property as having 18,000 square feet at the southeast corner of Smithe and Howe (one block north of Nelson) with 150 feet along Howe. At first blush, one would therefore think that the sale of this particular site at Nelson and Howe just three months after V-Day is a very good indication of the V-Day value of the Property. Messrs. Meakin and Bain took this sale seriously and made what they regarded as appropriate adjustments for time and location.

I cannot accept Mr. Grover's decision to link the sale of this critical site at Nelson and Howe with the sale of another corner site at Burrard and Dunsmuir and then to dismiss them from further analysis because they represented the “outer limits" of his eight primary sites (five of which were north of Georgia between the Golden Triangle and the old business district). The corner of Burrard and Dunsmuir is immediately east of the Golden Triangle (i.e., adjoining) and was in 1971 capable of both autonomous and immediate development whereas the Property was not in 1971 in the immediate vicinity of any existing office buildings and was in a holding situation. In fact, the corner of Burrard and Dunsmuir was the upper limit of the "outer limits” because it was ready for immediate development. Mr. Grover's dismissal of the site at Nelson and Howe is a little too facile and underlines what I regard as his uestionable premise in going so far afield (north of Georgia Street) in search of primary sites that were capable of autonomous development. Mr. Grover's analysis of the Granville Street sales (his secondary sites) is useful to demonstrate the decline in land values as one proceeds south from Georgia Street but I find that his analysis of his eight primary sites is not helpful in determining the issue in this appeal. I will therefore rely on the opinions of Messrs. Meakin and Bain.

I have already described the southwest corner of Nelson and Howe (referred to hereafter as the "Nelson Site") as the comparable sale most similar to the Property in size, location and corner exposure. Mr. Meakin described the Nelson Site as improved by substantial one- and two-storey masonry buildings designed for automotive wholesale and vehicle service garages. The Nelson Site of 21,000 square feet was sold in March 1972 for $475,000 or $22.62 per square foot. Because it was a corner lot and only 17 per cent bigger than the Property, it did not require any adjustment for corner or plottage. Therefore, the only relevant adjustments were for time and location. Messrs. Meakin and Bain assumed that land values in this area were increasing through 1971-72 at an annual rate of about 20 per cent and so they made time adjustments of -5 per cent and 6 per cent respectively for a sale three months after V-Day. Also, Messrs. Meakin and Bain were in agreement that the sale of the Nelson Site required a location adjustment of +50 per cent because it was one block south of the Property and, therefore, one block farther away from Georgia Street. To express this location adjustment in other terms, the Nelson Site was regarded as having a value of only 2/3 the value of the Property. The above adjustments for the location made by Messrs. Meakin and Bain produced the following result for the Nelson Site:

*Mr. Meakin stated in evidence that each adjustment was performed in progression but the table on page 5 of his report appears to consolidate all adjustments and then apply the consolidated percentage to the selling price in square feet. I have concluded that applying the adjustments in progression is more accurate.

If the expert witnesses had stopped at this point, they could have used the Nelson Site as the best comparable sale and determined the V-Day Value of the Property by applying the average rate of $32.07 per square feet to the Property's 18,000 square feet for a V-Day Value of $577,260 (very close to the respondent's position). Mr. Meakin did not accept the sale of the Nelson Site as a good indicator of market value because he thought that the vendor had made an imprudent sale. He thought that his comparable sales numbers 1, 3 and 4 were better indicators because they were close geographically to the Property and subject to similar influences. This reasoning on page 4 of Mr. Meakin's report supports my decision to reject Mr. Grover's primary sales because most of them were not close geographically to the Property. Mr. Meakin also thought that his sale number 10 had similar retail appeal as the Property.

The summary at page 5 of Mr. Meakin's report starts with the actual price per square foot of each comparable sale and then lists adjustments for time, plottage, corner and location. This summary is puzzling because it is in conflict with his oral testimony. Mr. Meakin stated in evidence (Transcript pages 147-50) that he did his adjustments progressively in a particular order:

"I have been very careful to avoid that pitfall. In my calculations, I've always done my time adjustment first, then my plottage, then my corner, then my location.”

He continued in oral testimony with a particular example to show how he completed his adjustment for time before making any adjustment for plottage, and in like manner for his corner and location adjustments. In fact, however, the summary at page 5 of the Meakin Report consolidates the positive and negative adjustments and applies only one consolidated percentage to the actual price to achieve the final adjusted price. In the table below, I have performed the adjustments in progressive order as Mr. Meakin described in is oral testimony and then, in the last line, I have set out the consolidated adjusted price as it appears in his report. For the purpose of this table, I have used only the four comparable sales which Mr. Meakin regarded as his best indicators of value.

Consolidated Adjustment per Report $45.49 $41.14 $46.35 $43.07

The consolidated adjustment is easily illustrated with comparable sale number one. The positive adjustments are for time (13 per cent) and plottage (5 per cent) and the negative adjustment is for location (40 per cent). This produces a net negative adjustment of 22 per cent. The actual price of $58.33 reduced by 22 per cent is $45.49. The above table demonstrates that the consolidated adjustment per square foot for comparable sale number one is almost $4 greater than the price ($41.53) determined through progressive adjustments; whereas the consolidated adjustment per square foot for comparable sale number ten ($43.07) is almost $3 less than the price ($46) determined through progressive adjustments.

On page 4 of his report, Mr. Meakin concluded that the V-Day Value of the Property was $43.07 per square foot. I cannot determine whether he chose that amount because he regarded sale number 10 as his best indicator or because that amount was the consolidated adjustment price closest to the average of his four preferred indicators or for some other reason. In any event, he was relying (in error according to his own testimony) on prices computed by one consolidated adjustment rather than progressive adjustments. Even if Mr. Meakin had been looking at prices computed by progressive adjustments, I think he would have reached a value close to $43.07 per square foot because the average of the progressive adjusted prices was $42.93. Therefore, I do not discount Mr. Meakin's report because of this apparent discrepancy in his adjustments.

My principal concern with Mr. Meakin's report is his failure to come to terms with the sale of the Nelson Site in March 1972. He dismissed it with the bland statement that he regards it as an imprudent sale by the vendor. That statement is not supported by any documentary evidence. For example, how many times did the Nelson Site change hands in the months and years following March 1972? Mr. Grover's report stated that the Nelson Site was relisted for sale soon after March 1972 at a price of $735,000. If that statement is true, who was the new listing agent? Were any offers received? Was the Nelson Site sold under that new listing? When was the first resale of the Nelson Site after March 1972 and what was that resale price? If in Mr. Meakin's opinion the purchaser of the Nelson Site in March 1972 got a good deal, how did the purchaser use the property and how long did he use it? One of the witnesses said that the improvements to the Nelson Site probably had negative value because they would have to be demolished to make way for any redevelopment.

I raise these questions because Mr. Meakin's report is dated August 21, 1975 and if, in the summer of 1975 he had seriously investigated the sale of the Nelson Site in March 1972 (only three years earlier), people's memories would have been fresh and there might have been documents in the files of the Vancouver Real Estate Board or in the files of a licensed broker which would shed some light on the sale which he regarded as imprudent. In my view, it was necessary for Mr. Meakin to come to terms with that sale and support his opinion that it was an aberration from the norm because it was a truly comparable sale in size, location, corner exposure and time; and he did not want to accept the selling price as a significant factor when determining the V-Day Value of the Property just one block away in location and just three months earlier in time.

Counsel for the appellant relied heavily on submissions by Mr. Meakin in 1987 in letters concerning negotiations with Revenue Canada, Taxation; and on Mr. Meakin's involvement with the expropriation in 1972 of lot 38 (Block 71) just across the street from the Property. In that expropriation, the arbitrators appear to have adopted Mr. Meakin's appraised value in the range of $45 per square foot. I do not put much weight on that expropriation proceeding because, firstly, lot 38 was the last hold-out parcel of 3,000 square feet in the assembly of a city block comprising approximately 115,000 square feet; and secondly, it is impossible for me to know all of the factors which influenced the arbitrators in reaching their decision. I prefer to reach a decision in this appeal by relying on the direct evidence of the experts as given at the hearing.

Lastly, I turn to Mr. Bain's report in which his 11 comparable sales are summarized at page 22. Nine of his comparables required a location adjustment of 50 per cent (positive or negative) even though they were all within two or three blocks of the Property. I might have thought that this was unusual except that all of Mr. Meakin's comparables required a location adjustment and six of his ten needed 40 per cent or more (one being 125 per cent) and they were in the same general area. Mr. Bain's two remaining comparables did not require any location adjustment. Mr. Bain attempted to explain in his report (Schedule G) the basis for his location adjustments. In particular, his +50 per cent location adjustment for the Nelson Site was the same as Mr. Meakin's location adjustment for that site.

Mr. Bain's 11 comparables are somewhat misleading because his sales numbers 1 to 4 comprised a single land assembly and his sales numbers 5 to 7 also comprised a single land assembly. In his final analysis, he did not use sales numbers 3 and 4. With adjustments only for time and location, the comparable sales which Mr. Bain used are set out below:

He decided that sale number 9 was not an acceptable comparable because it was too large (111,000 square feet) and he dropped sales 1 and 2 as being at the high end of his range. He was therefore left with four sales in the range between $30.77 and $32.67, and he stated that sale number 11 was similar to the Property because it was on the fringe of existing commercial activity. He concluded that the fair market value of the property was $31.50 per square foot for an aggregate value of $567,000. To that amount, he added a further $6,347 as the depreciated value of certain asphalt paving and lighting equipment, and rounded his overall value to $573,500.

For the six comparable sales which Messrs. Meakin and Bain used in common, their adjusted prices are set out in the table below.

They are very close in their adjusted prices for A and B. For C, Meakin adjusted for plottage (+10 per cent) and location (-40 per cent) for a net negative adjustment of 30 per cent whereas Bain adjusted only for location -50 per cent. They are in the same range for location adjustment but Meakin's adjustment for plottage contributed to a net difference of 20 per cent in favour of their respective clients. For D, Meakin adjusted for time (+13 per cent), plottage ( + 5 per cent) and location (— 40 per cent) for a net negative adjustment of -22 per cent whereas Bain adjusted for time (+12 per cent) and location (-50 per cent) and then proceeded to make progressive adjustments. Here again, they are in the same range for location adjustment but Meakin's adjustment for plottage contributed to a net difference in favour of their respective clients.

For E, Meakin adjusted for time ( + 5 per cent), plottage ( + 5 per cent) and location (+15 per cent) whereas Bain adjusted for time (- 3 per cent). There are two significant discrepancies. Bain made no location adjustment because the properties are in the same block and he thought that the positive effect of Granville Street (a long-established theatre/restaurant/retail street, but in decline) was matched by the potential of Howe Street awaiting commercial development. Meakin thought that Granville Street was the poorer area and needed a positive location adjustment of 15 per cent. The time adjustments differ because Meakin took the date of the sale agreement (September 1971) whereas Bain took the date of the conveyance (March 1972). I think Meakin was correct and that Bain should have adjusted the actual price of $32.50 by +5 per cent to $34.13.

For F, Meakin adjusted for time (+15 per cent), plottage (4-3 per cent), corner (4-15 per cent) and location (4-20 per cent) whereas Bain adjusted for time (+15 per cent), location (-50 per cent) and financing (—5 per cent). The big discrepancy is the location adjustments. Meakin makes a positive 20 per cent adjustment going from Burrard and Howe when Bain makes a negative 50 per cent adjustment. Although the Burrard property is located in mid-block and not on a corner, I should think that any property on Burrard near Robson would require in 1971 a negative location adjustment going over to the corner of Howe and Smithe. For Meakin's comparable number 9 (the corner of the same block as his comparable number 10), he makes a negative adjustment of 50 per cent!

Having regard to the six comparable sales which Messrs. Meakin and Bain used in common, I am not led to any conclusion that one report is better than the other. It is apparent that Mr. Meakin with his greater experience and firsthand knowledge felt more comfortable making adjustments for plottage and corner but those are very subjective adjustments; and Mr. Grover said that appraisers are haunted by the prospect of making such adjustments.

The Nelson Site appears as sale number 8 in the Bain Report with an adjusted price of $31.89 per square foot. This price is so close to the price which Mr. Bain finally adopted ($31.50) that he did not have to come to terms with that sale in the same manner that Mr. Meakin did. Mr. Meakin's adjusted price for the Nelson Site ($32.24 per square foot) supports Mr. Bain's opinion of $31.50 per square foot as fair market value. If I were to consider only the comparable sales discussed in the experts' reports, I would dismiss the appeal and hold that the appellant has not discharged the burden of proof by showing that his claimed value of $775,000 is more reasonable than the respondent's value of $576,000. Indeed, if I were obliged to choose between those two values, I would choose the respondent's value as the more reasonable one. I have decided, however, to give some weight to Mr. Meakin's view that the sale of the Nelson Site was imprudent.

The sale of the Nelson Site in March 1972 was the best indication of the V-Day Value of the Property. The Nelson Site was a corner lot only 17 per cent bigger than the Property with similar frontage on Howe Street and only one block to the south. It did not require any adjustment for plottage or corner and the time of the sale was just three months after V-Day. It would be difficult to imagine a better comparable sale given the unique character of each parcel of land. In one of the tables set out above, I have shown from the reports of Messrs. Meakin and Bain that their average adjusted price for the Nelson Site was $32.07 per square foot. In order to give some weight to Mr. Meakin's undocumented view that the sale of the Nelson Site was imprudent, I propose to increase this average adjusted price of $32.07. '

Assuming that the vendor of the Nelson Site was in March 1972 selling under duress or was simply imprudent or impetuous, he probably sold for an amount less than the fair market value of his property; but how much less? In the absence of any direct evidence concerning the details of this sale, I shall assume that his property was listed with a competent licensed broker who would have saved him from selling for as much as one-quarter (25 per cent) below the obtainable price in a fair market. It must be remembered that a listing broker has a vested interest in obtaining a sale at the best possible price. But giving due weight to Mr. Meakin's opinion as to an imprudent sale based on his experience and personal knowledge of this area, and assuming that this was an imprudent sale for whatever reason, I conclude that the vendor sold for an amount one-eighth (12-1/2 per cent) below the price that was otherwise obtainable but for his imprudence. In other words, I conclude that the average adjusted price of $32.07 per square foot referred to in the preceding paragraph was only seven-eighths (87.5 per cent) of the fair market value. Therefore, I would raise that price by one-seventh ($4.58) to $36.65 and apply the resulting increased price of $36.65 to the 18,000 square feet of the Property. In my opinion, the fair market value of the Property on December 31, 1971 was $660,000 (being $659,700 rounded to the nearest thousand).

I have applied the 12.5 per cent increase to the adjusted price (time and location) and not to the actual price of $22.62 per square foot. I considered both alternatives and decided that it was better to use the average adjusted price of Messrs. Meakin and Bain because they are, in effect, in agreement concerning the quantum of adjustment for time and location. In my view, the 12.5 per cent increase in the appellant's favour is generous.

The pleadings in this case raise an issue concerning expert evidence which requires comment because it probably affected the respondent's decision as to which of two expert appraisers would testify at the hearing. Prior to the assessment, the respondent had relied on the appraisal of one R.J. Sayer, an employee of Revenue Canada, Taxation. In December 1987, Mr. Sayer participated in negotiations between the appellant and the respondent attempting to reach agreement upon the V-Day Value of the Property. When no agreement was reached, the respondent issued a notice of assessment assuming V-Day Value of the Property was $576,000. Following the appellant's objection and the respondent's confirmation of the assessment, a notice of appeal was filed in this Court. The respondent subsequently informed the appellant's solicitors that the respondent would not be relying on the Sayer appraisal but on an appraisal by Brian Bain; and the appellant's solicitors were provided with a copy of Mr. Bain's report. According to the pleadings, Mr. Sayer had concluded that the V-Day Value of the Property was an amount significantly lower than the value later adopted by Mr. Bain. The appellant filed an amended notice of appeal in which the following statement appears:

Further, or in the further alternative, the Respondent may not rely to any extent on the Sayer Appraisal as the basis for the Reassessment since R.J. Sayer, the author of the Sayer Appraisal, participated in negotiations between the Appellant and the Respondent to arrive at the Valuation Day Value of the Property.

In the course of argument, counsel stated that the above submission is based on the following statements by the late Mr. Cardin, former Chairman of the Tax Review Board in Friedman v. M.N.R., [1978] C.T.C. 2809; 78 D.T.C. 1599 at 2812-13 (D.T.C. 1602):

Negotiations between the Department of National Revenue and the taxpayer in respect of his assessment prior to instituting the appeal procedure is not only a usual procedure, but a commendable one. However, I am not sure that those negotiations should be carried out by someone who is to be presented as an expert evaluator. . . . In the circumstances, should Mr. Lussier be accepted as an expert witness? In my opinion the very fact that he negotiated with the appellants’ accountants as to the value of the property sows in my mind a seed of doubt as to the objectivity and the expertise of the witness's report and his conclusion which should be arrived at only on the basis of accepted evaluation methods. Notwithstanding the witness's knowledge in the field of evaluation, I believe that Mr. Lussier, though undoubtedly acting in good faith, has disqualified himself as an expert witness by admitting to having attempted to negotiate a fair market value of the subject property with the appellants, an activity which, in my opinion, is not consistent with my concept of the role of an expert evaluator or an expert witness.

In my view, the former Chairman had failed to distinguish between the admissibility of evidence and the weight to be attached to evidence which is clearly admissible. When a dispute between the Department of National Revenue and a taxpayer is based on the value of certain property, one would expect the Department to rely on the opinion of a qualified appraiser. And if, through negotiation, there was an opportunity to settle the dispute by reaching some agreement as to value, it is probable that each party would want to bring his own appraiser to the negotiation meeting in the hope that the other side could be persuaded to modify its initial position. The attendance of a qualified appraiser at such a meeting does not, in itself, affect the appraiser's objectivity or expertise and, with great respect, I do not accept the former Chairman's statement in Friedman when he says:

Notwithstanding the witness's knowledge in the field of evaluation, I believe that Mr. Lussier, though undoubtedly acting in good faith, has disqualified himself as an expert witness by admitting to having attempted to negotiate a fair market value of the subject property with the appellants, . . .

The objectivity and expertise of a person who is offered to the Court as an expert witness are matters which can be tested under cross-examination. If a qualified appraiser has, through the negotiation process, permitted himself to become an advocate for his client and has abandoned what should be his professional objectivity, the other party can be expected to bring that out in evidence. A court would not likely attach much weight to the opinion of such an appraiser. In the negotiation process, a qualified appraiser will have a better chance of retaining his objectivity if he attends only as an adviser and not as the principal negotiator for his client. In fairness to the statements by the former Chairman in Friedman, it appears, that the qualified appraiser in that case attempted to negotiate the settlement himself.

Having regard to the costs of litigation, parties should be encouraged to attempt settlement and, when the issue is property valuation, it is difficult to imagine bona fide settlement negotiations which do not involve the qualified appraisers who are advising the respective parties. The attendance and participation of qualified appraisers in the negotiations process does not, in itself, disqualify them from appearing as expert witnesses in the litigation which would result from failed negotiations. To hold otherwise would add significant costs because, if the negotiations did not produce a settlement, then the parties would have to retain fresh experts for the resulting litigation. As I have indicated above, it is not a question of disqualifying a person as an expert witness but a question of what weight the court should attach to his opinion.

The appeal is allowed and the assessment for the 1985. taxation year is referred back to the respondent for reconsideration and reassessment on the basis that the fair market value of the subject Property was $660,000 on December 31, 1971.

Appeal allowed.