Sarchuk,
T.C.J.:—This
is
an
appeal
from
a
reassessment
of
income
tax
for
the
appellant’s
1979
taxation
year.
At
issue
is
whether
the
respondent
correctly
determined
the
capital
gain
upon
the
disposition
by
Carl
M.
Allred
(Allred)
of
certain
shares
of
Hi-Way
(52)
Feeders
Limited
(Hi-Way
(52)).
As
at
December
31,
1971,
Allred
owned
80
of
a
total
of
1,163
issued
shares
of
Hi-Way
(52).
Subsequently
as
a
result
of
a
ten
for
one
split
Allred's
interest
increased
to
800
shares.
These
shares
were
sold
in
his
1979
taxation
year.
In
his
income
tax
return
for
that
year
that
disposition
was
reported
and
reflected
an
adjusted
cost
base
determined
on
the
sale
of
800
shares.
To
prevent
confusion
counsel
agreed
that
throughout
this
appeal
any
reference
to
shares
issued
and/or
shares
held
will
reflect
the
numbers
as
at
December
31,
1971.
Counsel
also
agreed
that
the
value
of
Allred’s
80
shares
as
at
December
31,
1971
on
a
per
share
basis
will
be
the
value
of
the
company
as
determined
by
the
Court
divided
by
1,163.
Furthermore,
counsel
for
the
appellant
conceded
that
for
the
purpose
of
calculating
the
appellant’s
capital
gain
the
value
so
determined
is
to
be
subject
to
a
minority
discount.
The
issues
to
be
determined
are
therefore:
1.
What
was
the
value
of
Hi-Way
(52)
as
at
December
31,
1971.
2.
What
is
the
amount
of
the
minority
discount
to
be
applied.
The
incorporation
of
Hi-Way
(52)
in
1967
was
preceded
by
more
than
a
year
of
planning
involving
two
cattlemen,
Allred
and
Ross
Nilsson,
and
Don
Forsythe,
a
veterinarian.
As
a
result
of
their
own
needs
and
the
perceived
needs
of
other
cattle
feeders
in
the
district
they
considered
the
potential
of
a
commercial
cattle
feed
lot
operation.
The
economics
of
such
an
operation
as
opposed
to
feeding
cattle
on
their
individual
farms
was
readily
apparent
and
they
began
to
canvass
a
number
of
other
farmers
who
were
also
feeding
their
own
cattle
to
join
them
in
this
venture.
Concurrently
Nilsson
and
his
associates
began
to
search
for
a
site.
To
accommodate
this
type
of
operation
they
needed
at
least
100
acres
with
proper
drainage,
a
good
source
of
water,
electricity
and
proper
access
roads.
In
the
spring
of
1966
a
property
north
of
Raymond,
Alberta
was
considered
but
eventually
was
rejected
as
being
too
close
to
the
town.
Later
that
year
a
property
located
on
Highway
52
south
of
Stirling,
Alberta
was
brought
to
their
attention.
It
had
excellent
drainage,
was
adjacent
to
an
irrigation
reservoir
and
power
was
readily
available.
This
property
was
purchased
in
1967.
Shortly
thereafter
Hi-Way
(52)
Feeders
Limited
was
incorporated.
Most
of
its
18
founding
members
were
involved
either
directly
or
indirectly
in
the
cattle
business.
Plans
were
immediately
drawn-up;
construction
proceeded
apace
and
by
October
1967
the
feed
lots
were
open
for
business
with
an
initial
capacity
of
3,000
head
of
cattle.
Nilsson
testified
for
the
appellant.
During
the
relevant
period
of
time
he
was
both
the
president
and
general
manager
of
Hi-Way
(52).
It
was
his
recollection
that
the
feed
lots
were
full
to
capacity
almost
from
the
day
Hi-Way
(52)
opened
for
business.
Although
originally
founded
for
the
purpose
of
providing
a
custom
feeding
service
to
its
shareholders
its
reputation
quickly
grew
and
the
demand
for
its
services
in
the
first
six
to
nine
months
of
operation
led
to
a
decision
to
enlarge
the
feed
lots
to
accommodate
outside
customers.
In
1968
the
feed
lot
capacity
was
increased
to
5,000
head
and
then
in
response
to
further
demand,
was
increased
to
10,000
head
by
March
15,
1971.
The
success
of
the
operation
led
the
directors
to
commence
negotiations
to
acquire
an
adjoining
property
comprising
of
55
acres.
This
land
was
finally
purchased
in
July
1971
and
construction
of
additional
pens
began
immediately,
in
due
course
increasing
the
capacity
of
the
operation
to
12,000
head
by
December
31,
1971
and
to
15,000
head
by
the
middle
of
1972.
By
this
time
the
services
provided
were
being
utilized
by
customers
from
Saskatchewan,
British
Columbia
and
Northern
Alberta.
The
main
factors
underlying
the
early
success
of
Hi-Way
(52)
were
the
ready
supply
of
cattle;
the
availability
of
feed
at
reasonable
prices,
due
in
great
part
to
the
fact
that
in
1968
Hi-Way
(52)
built
its
own
mill,
and
its
proximity
to
facilities
with
adequate
capacity
for
the
slaughter
and
marketing
of
the
finished
product.
Expert
opinion
as
to
the
market
value
of
the
shares
was
elicited
on
behalf
of
the
appellant
from
Mr.
Brian
W.
Clark
(Clark)
and
Mr.
R.C.
Jarand
(Ja-
rand).
Clark,
a
member
of
a
firm
of
chartered
accountants
in
Calgary,
is
the
partner
in
change
of
business
valuation,
sales,
mergers
and
acquisitions.
He
has
sound
credentials
and
long
experience
having
been
a
business
valuator
since
1973.
He
is
entitled
to
use
the
professional
designation
C.B.V.
denoting
that
he
is
a
member
of
the
Canadian
Institute
of
Chartered
Business
Valuators.
His
initial
investigations
led
him
to
conclude
that
Hi-Way
(52)
was
a
viable
business,
well
positioned
in
the
industry.
It
had
experienced
significant
growth
as
demonstrated
by
its
increased
sales
and
profits
and
was
expecting
further
growth.
The
capacity
of
its
feed
lots
had
been
gradually
expanded
to
ensure
that
it
would
be
in
a
position
to
take
advantage
of
future
growth
and
continued
demands.
For
these
reasons
Clark
adopted
a
going
concern
approach
in
determining
the
fair
market
value
of
the
shares.
This
approach
assumes
the
existence
of
a
continuing
business
enterprise
with
potential
for
future
maintainable
earnings
at
a
level
which
will
provide
a
reasonable
return
on
an
investment
to
a
purchaser.
To
determine
value
the
method
requires
an
assessment
of
the
maintainable
earnings
of
the
business
at
Valuation
Day
and
multiplying,
or
capitalizing,
those
maintainable
earnings
by
an
appropriate
multiple
reflecting
the
appropriate
return
on
investment.
Clark’s
appraisal
report
(Ex.
A-16)
contains
a
thorough
review
of
the
business.
To
select
an
appropriate
level
of
future
maintainable
earnings
he
considered
not
only
Hi-Way
(52)'s
actual
performance
to
December
31,
1971,
but
also
its
potential
for
increased
volume
and
profits
based
upon
its
capacity
and
the
general
market
environment
at
valuation
date.
He
conducted
an
analysis
of
the
operation
of
Hi-Way
(52)
and
considered
the
fact
that
it
had
completed
the
addition
of
new
pens
which
had
increased
its
feeding
capacity
to
12,000
head
of
cattle
per
day
as
at
December
31,
1971.
Earnings
for
the
fiscal
period
ended
July
31,
1971,
did
not,
in
Clark’s
view,
reflect
the
earning
potential
of
the
added
corrals,
nor
did
they
reflect
the
profitability
of
Hi-
Way
(52)
during
the
period
August
1,
1971
to
December
31,
1971.
Unfortunately
the
management
of
Hi-Way
(52)
had
not
prepared
a
forecast
of
its
operations
for
that
portion
of
the
fiscal
period
following
the
valuation
date.
In
the
absence
of
any
management
projection
as
to
the
likely
effect
of
the
additional
capacity
Clark
felt
that
it
was
reasonable
and
necessary
to
consider
the
normalized
earnings
for
the
whole
of
the
fiscal
period
ended
July
31,
1972
as
demonstrative
of
the
future
maintainable
earnings.
In
his
view
a
purchaser,
as
at
December
31,
1971,
would
have
tangible
evidence
from
which
he
could
make
his
own
reasonable
assessment
of
the
immediate
profit
expectation
of
this
business.
He
would
have
the
actual
performance
to
December
31,
1971;
he
would
take
into
account
the
fact
that
new
pens
had
just
been
completed;
that
good
market
conditions
existed;
cattle
were
in
good
supply;
there
was
a
significant
increase
in
nearby
slaughter
capacity,
and
the
fact
that
the
business
was
entering
the
busiest
season
of
the
year.
In
addition
the
historical
earnings
disclosed
that
every
time
Hi-Way
(52)
increased
its
capacity
a
corresponding
increase
occurred
in
its
sales
and
profits.
Based
upon
his
analysis
of
the
business,
Clark
concluded
that
$130,000
was
a
reasonable
figure
for
the
amount
of
the
future
maintainable
earnings.
In
selecting
a
capitalization
rate
Clark
considered,
inter
alia,
the
prevailing
economic
and
political
conditions,
the
prevailing
stock
and
money
market
conditions,
and
investment
returns
on
relatively
risk
free
and
highly
liquid
investments
including
conventional
mortgages
and
long-term
government
bonds.
He
also
considered
other
indicators
including
the
fact
that
the
prime
rate
stood
at
six
per
cent
and
the
consumer
price
index
was
at
approximately
three
per
cent.
Taking
these
factors
into
account
he
selected
earnings
multiples
of
five
times
to
six
times,
and
applying
these
multiples
to
the
future
maintainable
earnings
he
concluded
that
the
fair
market
value
of
the
issued
shares
of
Hi-Way
(52)
as
at
December
31,
1971
was
in
the
range
of
$650,000
to
$780,000.
Having
previously
estimated
the
value
of
Hi-Way
(52)'s
underlying
net
tangible
assets
as
being
$355,000
his
selection
of
$650,000
to
$780,000
as
the
range
of
the
“en
bloc”
fair
market
value
for
the
shares
indicated
a
value
for
goodwill
between
$295,000
and
$425,000.
It
was
his
view
that
this
range
was
reasonable
since
a
prudent
purchaser
would
have
recognized
the
advantages
of
acquiring
an
established
operation
with
a
good
reputation;
a
broad
market
area;
the
essential
elements
of
a
successful
custom
feeding
operation
(i.e.
supply,
quality
feed,
water
supply
and
nearby
kill
capacity)
and
an
additional
capacity
which
had
not
yet
been
fully
reflected
in
the
company's
operating
results.
In
addition
Clark
considered
that
an
investor
who
chose
instead
to
startup
a
competing
operation
would
be
faced
with
such
difficulties
as
finding
a
suitable
alternative
location;
the
uncertainty
of
obtaining
a
similar
market
share
as
well
as
the
time
and
cost
required
to
do
so;
the
high
costs
of
creating
facilities
and
equipment
and
the
continuing
competition
which
Hi-Way
(52)'s
existing
operations
would
present.
Mr.
Jarand
is
a
chartered
accountant
practising
in
Calgary,
Alberta.
He
too
is
a
member
of
the
Canadian
Institute
of
Chartered
Business
Valuators
and
of
the
American
Society
of
Appraisers.
Jarand
has
been
involved
in
various
aspects
of
business
valuation
for
approximately
14
years,
the
last
five
on
a
full-time
basis.
His
qualifications
are
not
in
dispute.
Jarand
was
retained
solely
to
express
an
opinion
as
to
the
appropriateness
of
the
appraisal
approach
utilized
by
Clark
to
arrive
at
the
fair
market
value
of
the
shares
and
to
comment
on
the
minority
discount
to
be
applied
to
the
appellant's
interest.
To
do
so
Jarand
reviewed
the
information
upon
which
Clark
based
his
opinion
and
then,
with
his
own
staff,
met
and
reviewed
all
relevant
material
with
the
appellant’s
accountant.
It
was
his
conclusion
that
the
approach
utilized
by
Clark
was
the
most
acceptable
and
commonly
used
for
the
valuation
of
an
on-going
concern
of
this
nature.
He
did
not
consider
the
asset
approach
to
be
as
appropriate
in
this
case.
In
assessing
Jarand’s
evidence
it
must
be
borne
in
mind
that
he
did
not
conduct
an
independent
appraisal
of
the
business
and
is
not
entitled
to
express
an
opinion
as
to
value.
His
evidence
does
no
more
than
confirm
that
another
expert
used
an
appropriate
appraisal
technique.
Such
evidence
is
of
limited
assistance
to
the
Court
and
the
weight
to
be
given
to
it
must
be
carefully
considered.
The
respondent
called
Mr.
J.
W.
Gazzard
(Gazzard).
He
is
a
Certified
General
Accountant
who
has
been
employed
by
Revenue
Canada
as
a
field
auditor,
a
business
auditor
and
for
the
past
11
years
as
a
valuator
assigned
to
the
business
valuation
unit.
Gazzard
has
conducted
a
number
of
business
valuations
for
the
respondent.
He
has
been
qualified
as
an
expert
and
on
a
number
of
occasions
has
testified
in
various
courts
in
that
capacity.
Counsel
for
the
appellant
submitted
that
Gazzard
should
not
be
permitted
to
give
evidence
as
an
expert
witness,
contending
that
he
was
not
a
member
of
the
Canadian
Institute
of
Chartered
Business
Valuators
and
that
he
had
never
undertaken
a
valuation
with
respect
to
a
purchase
or
sale
of
a
business
other
than
for
Revenue
Canada.
It
was
argued
that
Gazzard
did
not
have
the
experience
to
enable
him
to
appreciably
assist
the
Court,
and
the
absence
of
any
professional
accreditation
and
the
lack
of
any
experience
in
the
private
sector
were
sufficient
to
disqualify
Gazzard
from
voicing
an
opinion
as
to
the
value
which
a
vendor
and
a
purchaser
would
attribute
to
the
shares
of
Hi-Way
(52).
I
have
considered
these
objections.
It
is
a
fact
that
Gazzard
has,
on
many
occasions
valued
businesses
ranging
from
small
proprietorships
with
few
assets
to
large
companies
with
assets
in
excess
of
a
million
dollars.
He
estimated
that
in
the
course
of
his
career
he
has
completed
several
hundred
such
valuations,
including
a
number
of
farm
corporations.
I
do
not
agree
that
a
business
valuator
is
disqualified
from
giving
opinion
evidence
simply
because
he
has
never
been
afforded
the
opportunity
of
acting
as
an
advisor
to
vendors
and
purchasers
in
the
private
sector
with
respect
to
similar
transactions.
At
best
that
may
be
a
factor
in
assessing
the
weight
of
the
opinion
expressed.
I
accept
and
will
consider
his
evidence
as
that
of
an
expert
witness.
In
forming
his
opinion
Gazzard
relied
on
the
financial
statements
of
Hi-
Way
(52);
excerpts
from
minutes
of
management
committee
meetings;
general
valuation
principles;
general
economic
conditions
based
on
his
survey
of
markets
and
certain
newspaper
articles.
He
took
the
approach
that
this
was
a
farm-oriented
business
and
as
a
result
decided
to
value
it
on
an
asset
basis
rather
than
on
a
“going
concern”
basis.
In
so
doing
Gazzard
took
the
book
value
of
the
assets
of
Hi-Way
(52)
as
at
July
31,
1971,
which
he
adjusted
by
adding
after
tax
income
for
the
five-month
period
to
December
31,
1971
and
by
reflecting
an
increase
in
value
of
the
fixed
assets.
These
calculations
gave
him
an
adjusted
value
for
the
business
of
$338,486
to
which
he
added
the
sum
of
$10,000
as
“goodwill
at
nominal
value”.
His
conclusion
was
that
the
“en
bloc”
value
of
the
shares
of
Hi-Way
(52)
was
$350,000
(rounded
off).
Gazzard
stated
that
by
definition,
fair
market
value
is
the
highest
price
available
and
that
in
a
going
concern
this
was
usually
the
earnings
value.
The
excess
of
the
earnings
value
over
the
asset
value
is
considered
to
be
the
goodwill
of
the
business.
Goodwill
itself
can
be
the
result
of
one
or
all
of
the
following
factors:
location;
product
or
service
and
whether
either
one
is
so
unique
that
it
cannot
be
readily
duplicated;
the
existence
of
longstanding
supplier
and
customer
contracts;
experienced
and
competent
management
and
a
good
relationship
with
lenders
and
investors.
Gazzard
asserted
that
a
feed
lot
is
a
cattle
boarding
house
and
auction
market
combined,
whose
profits
are
earned
from
the
boarding
costs
and
the
mark-up
charged
on
the
feed
provided.
In
his
view
such
a
business
is
cyclical,
highly
speculative
and
is
affected
by
the
price
of
cattle,
the
availability
and
cost
of
feed
and
fertilizer,
droughts,
supply
and
demand,
interest
rates,
government
control
etc.
He
stated
that
although
by
December
31,
1971,
some
improvement
had
been
shown
in
the
agriculture
industry
the
period
of
apparent
recovery
was
too
short
to
make
any
accurate
predictions
of
future
prospects.
He
agreed
that
although
a
prospective
purchaser
would
look
at
the
profitability
of
the
enterprise
and
would
refer
to
past
profits
as
an
indication
of
its
future
earning
capacity,
such
a
purchaser
would
also
consider
the
ease
of
entry
into
the
industry.
It
was
Gazzard’s
contention
that
there
was
no
reason
“why
an
individual
or
company
could
not
start
from
scratch
and
build
a
profitable
business”,
conceding
only
“that
it
would
be
simpler
and
less
trouble
to
take
over
an
existing
operation
providing
the
premium
for
convenience
is
not
excessive”.
These
factors
led
him
to
conclude
that
a
prudent
purchaser
would
base
his
offer
for
the
business
of
Hi-Way
(52)
on
the
value
of
its
real
estate
and
other
assets
plus
a
nominal
amount
for
the
going
concern
value
or
goodwill.
He
explained
the
manner
in
which
he
chose
the
sum
of
$10,000
in
this
manner:
Goodwill
might
be
a
misnomer.
A
nominal
amount
that
I
thought
was
reasonable,
as
far
as
if
a
person
did
buy
the
business,
he
would
be
willing
to
pay
a
little
extra
to
accept
it
as
it
is,
rather
than
starting
up
his
own,
and
this
only
makes
sense
if
the
business
is
going.
It
is
going
to
cost
him
the
same
amount
to
start
it
up
as
far
as
assets
and
so
forth
are
concerned.
He
would
pay
a
premium
for
it.
I
can’t
say
how
I
arrived
at
$10,000
—
it
is
just
an
amount
which
I
considered
to
be
a
nominal
reasonable
value
at
the
time.
The
Court's
consideration
comes
down
to
a
decision
as
to
which
of
the
two
valuator’s
opinions
I
find
most
appropriate.
An
appraisal
is
as
sound
as
the
facts
underlying
it.
I
am
not
satisfied
that
Gazzard's
investigations
were
thorough
enough
to
provide
him
with
the
necessary
basis
for
his
conclusions.
While
failure
to
visit
the
business
premises
is
not
by
itself
fatal
it
is
demonstrative
of
the
superficiality
of
Gazzard’s
inquiries.
Of
greater
import
are
the
following
omissions:
he
did
not
know
that
Hi-Way
(52)
had
acquired
55
acres
in
June
1971
and
that
its
feed
lot
capacity
had
been
expanded
by
more
than
50
per
cent
by
the
fall
of
that
year.
He
did
not
know
that
since
1968
Hi-Way
(52)
had
milled
its
own
feed
and
that
the
resulting
lower
costs
were
passed
on
to
its
customers
thereby
further
enhancing
the
already
sound
reputation
of
the
business.
Furthermore,
to
establish
the
market
value
of
the
fixed
assets
Gazzard
used
figures
provided
by
another
Revenue
Canada
employee
who,
it
was
asserted,
was
a
qualified
real
estate
appraiser.
This
individual
did
not
testify;
there
was
no
evidence
before
the
Court
as
to
his
qualifications
and
the
validity
of
his
figures
could
not
be
tested.
Gazzard
tested
his
conclusions
by
performing
an
“earnings
valuation’.
For
that
purpose
he
took
the
pre-tax
earnings
of
Hi-Way
(52)
for
the
fiscal
years
ending
July
31,
1969,
1970
and
1971
and
averaged
them,
unweighted,
and
with
no
adjustment
for
pattern
or
growth
trends.
Both
Clark
and
Jarand
took
exception
to
this
process
and
in
my
view
rightly
so.
Clark
stated:
I
think
it
is
inappropriate
and
differs
from
good
valuation
practice
to
average
years
that
are
non-comparable,
that
don’t
compare
on
themselves,
and
certainly
don’t
compare
with
the
reasonable
prospect
the
business
had
as
at
the
valuation
day.
He
went
on
to
say:
The
second
exception,
even
if
you
did
take
it
on
that
basis,
it
has
no
weighting
to
suggest
that
the
more
recent
years
ought
to
be
given
more
advantage,
.
.
.
and
A
further
exception
would
be
that
even
as
the
numbers
stand,
they
don’t
include
the
period
from
August
1st,
1971
to
December
31st,
1971,
.
.
.
if
those
results
were
considered,
I
think
it
would
be
reasonable
to
extrapolate
that
1971-72
would
have
been
at
least
as
good
a
year
as
1971
had
been.
.
.
.
That
is
July
31st,
’72
.
.
.
It
is
a
principle
of
business
valuation
that
if
a
simple
average
of
earnings
is
adopted
in
selecting
indicated
earnings
levels,
the
nature
of
the
business
must
generally
be
consistent
over
the
period
reviewed.
The
business
in
issue
was
rapidly
expanding
to
accommodate
current
demand
and
some
adjustments
were
warranted.
In
my
view
the
asset
approach
utilized
by
Gazzard
is
not
appropriate.
It
seems
to
me
to
be
incorrect
to
value
this
business
on
the
assumption
that
it
was
something
akin
to
a
farm
business.
Jarand
described
Gazzard’s
ap-
proach
as
“‘the
adjusted
asset
value
approach
to
which
a
nominal
amount
was
added
for
going
concern
and
goodwill”.
He
expressed
the
view
that
this
approach
while
appropriate
for
the
valuation
of
professionally
incorporated
businesses,
or
large
revenue
producing
but
asset-grounded
businesses
such
as
small
to
medium
size
construction
companies
was
not
appropriate
with
respect
to
valuing
the
business
carried
on
by
the
appellant.
I
agree.
I
also
seriously
question
Gazzard's
treatment
for
goodwill
and
I
noted
that
he
was
hard
pressed
to
maintain
his
position
when
cross-examined,
asserting
only
that
in
the
usual
course
there
is
no
goodwill
factor
in
the
sale
of
a
farming
business.
As
I
stated
earlier
I
do
not
believe
that
he
is
correct
in
so
regarding
the
business
of
Hi-Way
(52).
Counsel
for
the
respondent
contended
that
Clark's
appraisal
was
overly
optimistic.
The
fact
that
Hi-Way
(52)
appeared
to
be
a
successful
custom
feeding
operation
in
1971
was
not
in
dispute,
however
that
factor
was
not
exclusive
to
this
business.
According
to
Gazzard
the
appellant
had
not
been
operating
long
enough
to
entitle
or
enable
a
valuator
to
project
future
profits
and
the
increased
earnings
in
the
three
years
prior
to
Valuation
Day
were
not
a
guarantee
that
they
would
necessarily
continue.
Counsel
for
the
respondent
relied
on
Gazzard’s
view
that
the
business
in
issue
was
so
completely
farm
oriented
that
it
was
unsafe
to
predict
future
earnings
based
on
the
short
experience
span.
Counsel
also
urged
the
Court
to
accept
Gazzard's
opinion
that
a
prudent
purchaser
would
not
be
prepared
to
pay
a
premium
particularly
one
as
high
as
suggested
by
Clark,
rather
than
starting
up
a
new
custom
feeding
operation
in
competition
with
Hi-Way
(52).
The
appraisal
technique
used
by
Clark
was,
in
my
opinion,
the
most
practical
and
business-like
method
to
use
in
trying
to
solve
the
problem.
Counsel
for
the
respondent
submitted
that
in
evaluating
shares
it
is
not
proper
to
use
the
corporation's
actual
record
of
earnings
occurring
subsequent
to
a
valuation
date
which
was
not
known
or
expected
on
that
date.
This,
it
was
argued,
is
hindsight
evaluation
and
should
not
be
employed.
That
may
be
so,
but
it
is
equally
wrong
for
an
evaluator
to
ignore
the
potential
of
the
business,
its
plans
and
the
foundation
it
has
laid
for
increased
earnings.
Clark
took
into
account
factors
which
existed
on
the
date
of
valuation
which
he
believed
would
affect
future
earnings.
That
he
chose
to
use
as
well
the
record
of
earnings
to
July
31,
1972,
that
is
information
which
was
not
available
to
a
notional
purchaser
or
vendor
as
at
December
31,
1971
is
a
matter
which
should
be
weighed
carefully.
In
this
context
I
accept
Clark’s
evidence
that
a
buyer
and
seller
who
were
negotiating
the
value
of
the
price
one
would
pay
and
the
other
would
accept
for
Hi-Way
(52)
on
December
31,
1971
would
have,
as
a
minimum,
made
an
estimate
of
future
earnings
and
that
such
estimate
would
have
approximated
the
actual
results.
As
a
general
rule
it
is
not
proper
to
use
hindsight
in
the
evaluation
process.
However,
in
this
case
the
use
of
the
financial
statement
of
Hi-Way
(52)
as
at
July
31,
1972
was
but
one
factor
considered
by
Clark
in
formulating
his
opinion
as
to
the
future
maintainable
earnings
of
the
company.
His
conclusions
were
based
on
the
potential
of
the
company,
the
plans
of
the
company
and
the
fact
that
a
basis
for
increased
earnings
was
in
place
although
not
yet
reflected
in
the
company's
books.
These
facts
existed
on
Valuation
Day;
were
facts
which
favourably
affected
the
company's
projections
of
future
earnings
and
were
properly
taken
into
account
in
arriving
at
fair
market
value.
In
the
final
analysis
I
cannot
accept
the
estimate
of
value
as
determined
by
the
respondent.
It
is
in
my
view
simply
not
realistic.
On
the
other
hand
I
am
satisfied
that
the
appraisal
method
utilized
by
Clark
was
appropriate
in
the
circumstances
of
this
case.
Both
Clark
and
Jarand
were
firm
in
their
view
that
a
prospective
purchaser
would
be
prepared
to
pay
a
premium
to
get
away
from
the
normal
occurrence
of
a
loss
of
income
in
the
period
from
start-up
up
to
the
time
a
new
company
was
in
a
position
to
reach
the
level
of
income
of
the
existing
enterprise.
I
am
mindful
of
the
fact
that
it
is
difficult
for
an
appraiser
to
maintain
a
totally
non-partisan
approach,
and
in
this
case
I
detect
a
degree
of
optimism
as
to
the
value
of
the
goodwill
which
may
not
be
supported
by
the
facts
as
conclusively
as
Clark
asserted.
While
the
Court
may,
if
it
finds
the
evidence
of
an
expert
not
entirely
satisfactory,
form
its
own
opinion
as
to
value
I
do
not
believe
that
would
be
appropriate
in
this
case,
notwithstanding
the
above-noted
concern.
After
considering
all
of
the
evidence
I
reached
the
conclusion
that
the
“en
bloc”
fair
market
value
of
the
shares
of
Hi-Way
(52)
is
the
sum
of
$650,000.
Turning
now
to
the
issue
of
the
minority
discount
to
be
applied.
The
evidence
of
the
three
experts
was
marked
by
a
substantial
degree
of
consistency
particularly
as
to
the
factors
to
be
considered.
These
are:
the
absence
of
controlling
shareholders;
the
absence
of
any
restrictions
with
regard
to
the
disposition
of
shares
by
a
shareholder;
the
fact
that
the
available
market
was
localized
in
the
area
where
the
company
carried
on
its
business;
the
knowledge
that
none
of
the
shareholders
held
a
controlling
interest
and
no
one
group
controlled
the
management
of
the
company;
the
by-laws
limited
the
maximum
number
of
shares
which
could
be
acquired
by
one
shareholder
thereby
eliminating
the
possibility
of
a
purchaser
bent
on
control
paying
a
premium
for
the
shares;
the
prospect
of
dividends
or
capital
appreciation
even
though
the
company
had
not
paid
a
dividend
as
at
Valuation
Day.
Although
the
experts
disagreed
as
to
the
relative
importance
of
these
factors
their
opinions
as
to
the
minority
discount
were
relatively
consistent.
Clark
was
of
the
view
that
the
minority
discount
should
be
in
the
range
of
15
to
25
per
cent
and,
as
he
stated,
“if
asked
to
be
more
specific,
I
would
favour
a
discount
at
the
mid-point
of
this
range."
Jarand
agreed,
but
“was
comfortable"
with
15
per
cent.
Gazzard
opted
for
a
minority
discount
of
25
per
cent.
Taking
all
of
the
evidence
into
consideration
particularly
the
absence
of
an
organized
market
and
any
form
of
shareholder
agreement
I
have
concluded
that
a
minority
discount
of
25
per
cent
is
warranted
in
the
case
at
bar.
The
appeal
is
allowed
and
the
matter
is
referred
back
to
the
Minister
for
reconsideration
and
reassessment
on
the
foregoing
basis.
The
appellant
shall
be
entitled
to
costs.
Appeal
allowed.
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