Bridges Brothers Ltd. v. Minister of National Revenue, [1986] 2 CTC 2149, 86 DTC 1588

Rip, T.C.J.:—In this appeal from an income tax assessment for 1980 Bridges Brothers Ltd., (hereinafter referred to as “Bridges” or the “appellant”), the appellant disputes the Minister's determination of the fair market value of $100 per acre as at December 31, 1971, (“Valuation Day”) of land it disposed of in 1980. The appellant, in filing its income tax return for 1980, was of the view the Valuation Day value was $700 per acre.

The appellant’s determination of value is based on the premise that the highest and best use in 1971 of the subject property was for a mine or development related to a mine, that is, as a disposal site of wastes by mining operations on neighbouring land. The respondent assessed on the basis the highest and best use in 1971 of the subject property was woodland.

The property in question consisted of five parcels of rural land located in Piskihagen in the Parish of St. George, Charlotte County in New Brunswick and is composed of 2,422.19 acres. The property was more or less vacant in 1971 and is located near Mount Pleasant in the southwest corner of New Brunswick, approximately 55 miles north west of St. John and approximately 70 miles south of Fredericton.

The appellant was incorporated in 1964 under the laws of New Brunswick, inter alia, to carry on the business of growing and selling blueberries; the appellant acquired the blueberry business, including the subject land, from Cole V. Bridges in 1964. Mr. Bridges had started the blueberry business in the 1920's and over the years had acquired properties in eastern Main and western New Brunswick for business purposes. Today the appellant grows approximately 45 per cent of all blueberries grown in New Brunswick. The appellant is also in the business of selling pulpwood, the sales of which in at least one year, 1970, exceeded the sales of blueberries.

The parcels comprising the subject property were acquired by Cole V. Bridges in 1943 and 1948 with the intention of making them blueberry land, for which they were ideal, according to Cole Bridges, the son of Cole V. Bridges and vice-president of the appellant. However, in 1954 there was a discovery of a tin deposit on neighbouring property at Mount Pleasant and, because of mineral prospecting taking place, the plans to grow blueberries on the subject property were curtailed. Mr. R. C. Vail, a New Brunswick land surveyor, testified that in 1961, when he and his father, also a land surveyor, were surveying property lines for Mount Pleasant Mines, he observed holes for core samples being dubbed on the small portion of the subject property and throughout Mount Pleasant. In 1961 Mr. Vail was an apprentice surveyor.

The first indication of the presence of minerals at Mount Pleasant was in 1954. Mining claims were staked for Selco Exploration Limited, who was undertaking the survey, and surface exploration was initiated to locate the source of tin anomalies. American Metal Company (“American”) and Ken- necot Copper Corporation (“Kennecot”), as well as numerous junior mining companies, also explored the area. American and Kennecot suspended exploration in 1954.

Dr. J. Riddell, who was actively involved in the initial survey, and his associates subsequently formed Mount Pleasant Mines Ltd. (“Mount Pleasant Mines”) and with funds raised on the stock market and their own funds explored the areas they believed held promise for tin, molybdenum, copper, lead and zinc. Their discovery of some rock samples which assayed moderate to high in tin and base metal sulphites renewed Kennecot's interest in the property; Kennecot drilled several more holes which intersected both tin, tungsten and molybdenum mineralization. An economic deposit at Mount Pleasant could not be delineated at that time. In the meantime some smaller mining companies continued to prospect the region.

During 1961 further exploration was carried out and one major and several smaller tin bearing lodes were delineated in the area by Dr. A.A. Rui- tenberg, a geologist presently serving as regional geologist with the New Brunswick Department of Natural Resources at Sussex, New Brunswick. He described the geology of the area as complex. His investigation was completed in 1964. Dr. Ruitenberg testified Mount Pleasant Mines had very limited financial resources and he was forced to confine his work to the surface of the property, although Mount Pleasant Mines did do “some” deep drilling. During the winter of 1961-1962 a 600-foot adit, a tunnel driven into the ground, was constructed by Mount Pleasant Mines. In 1963, Dr. Ruitenberg determined that metallic minerals found at Mount Pleasant included iron, arsenic, lead, copper, zinc, bismuth, molybdenum, tungsten, titanium and tin as well as many non-metallic minerals.

By 1966, Mount Pleasant Mines had exhausted their exploration funds and ceased activities. Dr. Ruitenberg stated that notwithstanding Mount Pleasant Mines' failure to continue exploration he had great confidence in the potential of the area, and his confidence was confirmed by a paper delivered to the Conference of Canadian Institute of Mining and Metallurgy in Quebec City in 1971 by Messrs. I. S. Parrish and J. V. Tully. (Mr. Parrish testified on behalf of the appellant.) Mr. Clifford Lawrence, a real estate appraiser who was called as an expert witness by the appellant, states in his appraisal report that in March 1967 the Sullivan Mining Group (“Sullivan”), obtained an option on the property through an agreement between Sullico Mines Ltd., Mount Pleasant Mines, and St. George Molybdenite Mines Ltd. Additional exploration was carried out and diamond drilling began again. Reinterpretation of earlier data and deeper drilling in the spring of 1969 outlined very large blocks of ground containing molybdenum, tungsten and bismuth. The option was exercised and in mid-1969 Brunswick Tin Mines Limited was formed to further explore and develop the Mount Pleasant property.

In 1977, Sullivan sold its interest in Mount Pleasant Mines to Billiton Canada Ltd. (sometimes referred to as “Billiton”) who subsequently started mining the tungsten molybdenum deposits. Billiton purchased the subject property from the appellant in 1980 for $2,179,970.

Dr. Ruitenberg described the relationship of the subject property to a future mining operation. The property lies in a broad valley and was the logical site for the mine tailings, the tailings being the waste material which come out of the mine mill; it consists of pulverized rock and some unextracted metallic material. It was estimated about 400 acres of the Bridges property would be required for storing the tailings for subsequent reworking; additional land surrounding the tailings area would also be required because a tailings area does not always work to perfection and may cause pollution.

Mr. Keith D. Phinney, a chemical engineer specializing in industrial waste management, was called as a witness by Bridges. In the 1970's Mr. Phinney was employed by Montreal Engineering Company. Mr. Phinney first attended at Mount Pleasant in 1973 when Sullivan engaged his employer's services in designing a system to prevent hard mine water from entering a brook. In 1974 Mr. Phinney prepared a feasibility report for Sullivan which recommended sources of potential water supply for a mine and a location for disposal of tailings; an environmental study of the consequences of a mill at various sites was also undertaken. The area of the Bridges' property was recommended since it was low lying, closer to the proposed mill site, and therefore would have the advantage of gravity, was more economical to build, and would be least damaging to the environment. A more complete feasibility study, including precise location recommendations, as opposed to the general recommendations, was undertaken for Billiton in 1979 and the general site recommended in 1974 was confirmed; the exact location for the tailings was fixed at the Bridges’ property.

Dr. Ernest Hale was called by the appellant as an expert witness. Dr. Hale produced into evidence a report containing his opinion as to the value of the Bridges’ property on Valuation Day. Dr. Hale is not a land appraiser; he is a geologist practising economic and mineral geology. He has worked as a consultant to the United Nations and as a mining consultant. He received a Doctor of Philosophy degree from Queen's University, Kingston, Ontario, in 1953. He has performed economic feasibility analysis of mining properties. Until recently he has advised young mining companies in Nova Scotia on underground and surface mining operations in that province. Dr. Hale qualified as an expert in exploration and mineral geology who is retained by the mining business to determine the economic feasibility of developing ore and the cost of acquisition of surface rights. Dr. Hale admitted he has no knowledge of accepted land valuation methods such as direct sales comparisons, land residual method, abstraction method and development method and the appellant’s counsel conceded Dr. Hale was not a land appraiser. His report deals with a method he says would have been used in 1971 to determine the value of the Bridges’ property; he concluded the subject property had a value of $700 per acre on December 31, 1971. He explained his calculation as follows:

The value of property sold on 1 October, 1980, by Bridges Bros. Ltd., St. Stephen, N.B., to Billiton Canada Ltd. of Toronto, comprising 2422 acres was $900 per acre. An earlier transaction involving the sale of land by Bridges Bros. to Mt. Pleasant Mines Ltd., a predecessor of Billiton, had a calculated value of $252 per acre in 1954 (the calculation is based on “present” worth in 1954 of a rental of $120 per acre for 25 acres beginning that year and continuing for 15 years and an additional cash payment of $10,000 for 75 additional acres made in 1969 for the outright purchase of the total 100 acres).

Plotting the value per acre for these two transactions, (and ignoring a specific case for other specialized land use in which $1200/year for approximately 10 acres was paid from 1969-1974 to Bridges), and interpolating between them for the V-Day Value (31 December, 1971) yields $700 per acre.

He considered the $700 V-Day value “technically realistic considering the mining-milling use for which the property is naturally appropriate”. In cross-examination Dr. Hale admitted that if not for the sale of the land in 1980 he would have had a difficult time valuing the subject property as at December 31, 1971. He also acknowledged that in 1971 the tailings disposal site was not certain.

Dr. Hale stated that once a mining company made a decision to commence mining it would acquire property necessary for wastes, and do so quickly. A mining company would try to avoid expropriation which could take from two to three years to complete. Thus a mining company would pay more for land than its fair market value.

The real estate appraiser called upon to testify as an expert witness for the appellant was Mr. Clifford W. Lawrence, currently president of deStecher, Miller & Associates (1985) Limited, real estate appraisers in Saint John, New Brunswick. Mr. Lawrence is an accredited appraiser of the Appraisal Institute of Canada. Prior to joining the predecessor of his present firm in 1984, he had worked as an appraiser with Canada Mortgage and Housing Corporation.

In Mr. Lawrence's opinion the “market value of the (Bridges') property, as at December 31, 1971 is $1,150,000'', or approximately $475 per acre.

In his appraisal report Mr. Lawrence defines fair market value as “the highest price available in an open and unrestricted market between informed and prudent parties, acting at arm's length and under no compulsion to act, expressed in terms of money or money's worth''; however for purposes of the appraisal, the fair market value must be determined, he explains in his report, in the “notional market", where there may be no contemplation of an open market transaction and open market purchasers may not be identifiable. Mr. Lawrence quotes the Canada Valuation Service, at page 4-20A: “For example, if in 1973, A sold his shares in a closely- held corporation, which he owned on December 31, 1971, he would have to determine the notional fair market value of those shares on December 31, 1971 to measure the extent of his capital gain (or loss) on the transaction. This would be a value determination in the notional market.” Mr. Lawrence uses the term “fair market value” in his report as being synonymous with “intrinsic value”. He refers to Canada Valuation Service at page 4-18 to explain the concept of intrinsic value:

Intrinsic value may be regarded as a modified concept of market value, which comes into play in circumstances where the market value itself cannot be inferred from current price quotations. (See Bonbright, Vol. 1, p. 45: “More properly, it is to be regarded as a hypothetical market value, since it represents the market prices that would prevail under conditions other than those that actually exist.”) Underlying such a concept is the notion that an object of wealth may have both a market price and a possibly different justified, or fair, price, which is assumed to be a value intelligently estimated in the light of all available data. For example, stockbrokers often speak of a security as selling for more or less than its intrinsic value. What they mean is that the current selling price is not justified by the prospect of future yield that is assumed to govern the actions of investors in their purchases and sales. The distinction between the function of a real estate appraiser and a real estate broker may further clarify the term “intrinsic value”. The former's task is to submit an opinion on the price at which the property may reasonably be sold by reference to its investment merits. The latter’s function is simply to sell the property for the highest possible price under prevailing conditions. The real estate appraiser is therefore concerned with intrinsic value and the real estate broker with market value. The intrinsic value of a property represents not what the property presently could be sold for, but rather what, in the appraiser's judgement, the property would sell for if: (1) the market were composed of intelligent individuals; and (2) these individuals were interested in buying and selling the property only with reference to its investment merits. In one sense it may be regarded as a notional (or hypothetical) market value since it represents the market prices that would prevail under conditions other than those that may actually exist.

Mr. Lawrence added that an “open and unrestricted market” includes special interest purchasers who will “invariably pay a higher price than will purchasers without special interests in acquiring”.

The highest and best use of the subject property on Valuation Day, according to Mr. Lawrence, was for a mine or mine related development.

In his report Mr. Lawrence discusses four generally accepted methods of appraising or valuing land: the direct sales comparison method, the abstraction method, the anticipated use or development method and the land residual method. He found the direct sales comparison method, which calls for appraisal by comparing, weighing and relating sales of similar property to the property being appraised, the most relevant method, but where sufficient sales are not available, this method must be supplemented with other methods; this was the problem in valuing the Bridges" property.

The distribution and allocation method involves the allocation of the appraised total value of the property between land and improvements; because this valuation was concerned with vacant land only, this method was not applied. The anticipated use or development method was also found not to be appropriate to the valuation since this method applies to undeveloped land and requires estimating total value as if the land was subdivided and sold and subtracting the development costs, incentive costs and carrying charges.

The method Mr. Lawrence relies on in his report to supplement the direct sales comparison method was the land residual method. This method, wrote Mr. Lawrence, capitalizes into value the residual income imputable to the land as obtained with new improvements to the land which represent the highest and best use of the land. Applying this method, explained Mr. Lawrence, would involve projecting a hypothetical operating income onto the site and estimating the income which could be produced; from the income is deducted the costs of all of the other agents in production (labour, management and capital) to produce a residual income attributable to the land. The income is then capitalized to provide a present value indication for the land. Mr. Lawrence acknowledges in his report that while the method is entirely appropriate to the valuation problem in a theoretical sinse, practical application destroys any credibility of the approach. He adds the sheer magnitude of labour, management and capital inputs for devel- opment of a mine render the raw land input “infinitesimal” by comparison. However, he applied this method to demonstrate a principle of this method’s approach, that is, that surplus income produced by an enterprise, having account for all of the agents in production, is imputable to the land.

In discussing the direct sales comparison approach Mr. Lawrence noted that time comparable sales were not available since the Mount Pleasant mine used the only operable tungsten ore deposit in the province. He considered at least eight sales and for reasons which he considered to be logic, insufficient information and size discarded four of them.

His first sale was the disposition of the subject property in 1980 for $900 per acre, which he considered to be a fair market value for mining purposes in 1980. Mr. Lawrence testified that his conclusion as to value “must be consistent that the sale in 1980 happened”. He stated that the purchase of the subject property in 1980 was no less special than any purchase would have been in 1971. He admitted in cross-examination he could not have been certain in 1971 how much of the subject property would be required for the mine, since some of the land within the perimeter of the subject property is still held by third parties. He also acknowledged he was not aware of the amount of land acquired by Billiton from the government of New Brunswick in 1980, or the price, since he considered the sale not relevant to his valuation.

His second sale comparison was the sale on March 31, 1969, by Bridges of 100 acres contiguous to the subject property to Mount Pleasant Mines for $10,000 or $100 per acre. However, Mr. Lawrence did not consider this as a fair market value since Bridges had been receiving annual rent of $120 per acre ($3,000 in all) since 1954. As well Mount Pleasant Mines paid a Mr. Frank Kinney $1,032 per acre for 38.75 acres of land adjacent to the 100 acres in March 1969. Therefore, like Dr. Hale, Mr. Lawrence added $45,000 of the rent payments to what he described as the “final instalment” of $10,000 for a sale price of $55,000 or $550 per acre for the 100 acres.

Mr. Lawrence replied to counsel for the respondent that although the rent paid to Bridges was for the use of 25 acres, the mining company occupied 100 acres; he did not know where he got this information but believed it originated “from various discussions”. He considered the $45,000 as a balance of sale but did not see the actual deed or search title to verify if the lease was registered.

Still applying the annual rent of $3,000 for 25 acres leased by Mount Pleasant Mines from Bridges (but assuming the occupation of 100 acres), Mr. Lawrence, in his report, capitalized the land rent at eight per cent, which he determined to be “equivalent to a purchase at $37,500”, or $375 per acre for 100 acres, as at 1954. Mr. Lawrence acknowledged that if the annual rent for only 25 acres was capitalized at eight per cent, the result would be $1,500 per acre.

A group of sales he also considered relevant was the assembly of lands totalling 2,461 acres in 1963 for the Belledure smelter site in New Brunswick for an aggregate price of $312,690 or $127.06 per acre. Mr. Lawrence considered this a rare example in New Brunswick of a mine related purchase of strategically located lands from private owners, as opposed to the Crown on whose lands most discoveries have been made and which, in his view, “could not be considered free market transactions”.

Mr. Lawrence finally considered a sale in 1973 to Shell Natural Reserves of 302 acres in Nova Scotia for $203,400 or $674 per acre; this property was adjacent to a tin mine. The information regarding this sale was provided to Mr. Lawrence by a Mr. Goodwin, a real estate appraiser in New Brunswick and the brother-in-law of the vice-president of Bridges. Mr. Lawrence had not contacted the vendors to confirm the price.

Mr. Lawrence then applied his findings of land values of $550 per acre, $375 per acre, $127.06 per acre and $674 per acre and, ignoring initially all factors except time, made an arithmetic interpolation of these values to V-Day and found V-Day values of $633 per acre, $724 per acre, $494 per acre and $628 per acre. He did not find any significant dissimilarities amongst the properties and the subject property to warrant any adjustment. As far as size was concerned, he was of the view there were insufficient sales data available on which to have a size adjustment per se. Thus he placed most reliance on the Belledure smelter site acquisition because it was “nearly identical in size to the subject”, and rounded off the $494 value to $500 per acre for an aggregate value of $1,211,500.

Mr. Lawrence also addressed himself to the land residual approach of valuing property which, as previously stated, he said is based on the principle of surplus producitivity: the surplus of an enterprise is imputable to the land and, he reasoned, the value of the land increases in a direct proportion with the increase in value of the enterprise as a whole. Thus, based on the 1980 sale of the subject property for $900 per acre, Mr. Lawrence attempted to deduce the fair market value of the property on December 31, 1971. He made four analyses in his report:

a) the total annual dollar value of mineral production in New Brunswick in millions of dollars for the years 1964 through 1983 was plotted on a graph. His values for 1971 and 1980 were $107,232,496 and $374,129,479 respectively. He determined the relationship of these two amounts to be 28.7 per cent. He concluded that given a value of $900 per acre for the subject land in 1980, a comparative land value for 1971 is:

$900 x 0.287 = $258 per acre

In order to “smooth out” annual fluctuations Mr. Lawrence computed a linear regression of the figures on the graph and found the calculated values for 1971 and 1980 were $159,810,000 and $361,770,000 respectively or a relationship of 44.2 per cent. The product of $900, being the value per acre of the land in 1980, and .4472 per cent, according to Mr. Lawrence, yields a value of $399 per acre in 1971;

b) the annual dollar value of metals in mineral production in New Brunswick in millions of dollars for the years 1964 through 1983 was also plotted on a graph and relationships similar to that described in the analysis of the value of mineral production were determined. Mr. Lawrence found a value of $271 per acre for the land on the actual values and $389 per acre on a linear regression.

Mr. Lawrence appears to have averaged the mineral production value at $265 per acre for actual prices and $394 per acre on a linear regression;

c) the world tungsten prices per short tin unit of tungsten trioxide concentrate for the years 1964 to 1984 inclusive were also plotted to arrive at values of $273 per acre on actual prices and $481 per acre applying a linear regression;

d) similarly the consumer price indices for the years 1964 through 1984 were plotted with a result of $439 per acre on actual increases in the index and $525 per acre applying the linear regression to the increases.

Mr. Lawrence wrote in his report that:

The linear regression technique is preferred since it tends to eliminate year to year fluctuations. It is considered to more properly reflect the definition of “intrinsic value” and the “notional market” since both suggest a stable and inherent condition, not entirely subject to specific conditions from day to day. However, it cannot be ignored that indications from actual 1971 and 1980 indices are consistently lower, by 15% and 40%.

The consumer price index is the preferred indicator since it shows the most consistency and is the most widely accepted measurement of overall price inflation. Again, however, it cannot be ignored that the other two indices suggest lower values.

It is concluded by this approach that the value of the subject lands lies in the range of $258 to $525 per acre. Whereas a single value consideration is required, a rate of $425 per acre is selected for the subject property: 2423 Acres @ $425 = $1,029,775.

Mr. Lawrence had determined a value of $523 per acre for the 2,423 acres of the subject property, based on the lease of 10 acres of land from Bridges to Brunswick Tin Mines Ltd. at an annual rental of $1,200. He capitalized the annual rent at eight per cent, which indicates a capital value of $1,500 per acre. Then, assuming not all the acreage land had identical value, he calculated a logarithmic curve passing through various values per acre, from $105 to $1,500. However he stated that because of the paucity of sales he did not give much weight to this approach of valuing the land.

Mr. Lawrence based his valuation on the basis of the land having a notional value. Again he referred to Canada Valuation Service:

Since a notional valuation problem is one where no open market, arm's length sale is (or is likely to be) consummated . . . it is desirable that notional value determinations are expressed in value ranges. Since notional valuation conclusions are normally reached for a specific purpose, a value range by itself will only set parameters on the final value determination. The final fair market value will normally be stated as a specific figure referable to the purpose for which the notional valuation opinion was requested.

In a question from counsel for the respondent as to whether mining is speculative or stable, Mr. Lawrence replied that speculation is present in mining at any time, but he did not believe the speculation in 1971 was any different from 1980.

Mr. Lawrence states in his report “a reconciliation must be made between the two value indications, $1,211,500 ($500/acre) by the Direct Sales Comparison Approach and $1,029,775 ($425/acre) by the Land Residual Approach”; each of these two conclusions results from a range of value indications. The value ranges in the direct sales comparison approach are from $500 to $718 per acre; he selected a value at the low end of this range, $500 per acre, because the sales indicating higher values are least comparable in size to the subject property. The weakness of this approach, he writes, is that abundant sales data were not available. In respect of the land residual approach, Mr. Lawrence says in his report various measurements were assessed to gauge changes in general economic conditions which would impact on the mining industry. He states that “the premise of the method is that the value of land will increase as the overall value of the mining enterprise increases”. The values ranged from $265 to $525 per acre from which he concluded a value of $425 per acre was appropriate. He admits the weakness of this approach is that the costs of labour, capital and management have not been examined.

The value determined by Mr. Lawrence, he affirms in his report, is most dependent on the direct sales approach, and in particular the sales of land for the Belledure smelter in 1963 and of the subject property in 1980, but he says he recognizes that the land residual approach provides a linear indication. He concludes the fair market value of the subject property on December 31, 1971 was $1,150,925 or $475 per acre.

Mr. Irwin Parrish, an economic geologist, also testified on behalf of the appellant as an expert witness. Mr. Parrish, who at the time of the trial resided in Colorado, studied for his undergraduate degree at Brooklyn College and received his Masters Degree in Geology from Indiana University. He first worked with the United States Geological Survey in Denver and then, starting in 1958, worked in Canada as a mine geologist for Dome Mines in Porcupine, Ontario, Chief Geologist for Contimeau (sic) Copper Mines in Quebec and Campbell Red Lake Mine in Ontario. During the period from 1969 to 1977 he worked for Sullivan at Mount Pleasant as exploration superintendent. As exploration superintendent he devised and ran the exploration and mine development program and the assay office and was in charge of camp maintenance; he was, in effect, in charge of the entire technical and administrative functions for the Mount Pleasant area. Sullivan’s head office and administration office were in Montreal. In 1978 Mr. Parrish left Sullivan and joined Derry, Michener and Booth, which he described as one of Canada’s major engineering consultant firms; Mr. Parrish works at the firm's Denver office.

Mr. Parrish specializes in mineral exploration development, mineral property valuation and general economic geology. As such he has been retained by the Royal Bank of Canada to determine the economic viability of mine properties in Brazil and by the United Nations and the government of India to assist in determining whether old mines in the Colago fields of India may be “revitalized". Mr. Parrish acknowledged he does not claim expertise in valuing surface rights of properties except that as a mine manager or developer he knows what he would pay for adjoining property “as buyer". While Mr. Parrish was qualified to give expert evidence in his field of expertise, his knowledge of the subject property and mining development in the area in 1971 was of assistance to the court.

Sullivan took over the Mount Pleasant Mines in 1967. Sullivan had been actively exploring for copper in Quebec and New Brunswick. Between 1969 and 1974 people had been living year-round on the mine property supporting the exploration. A road which traversed the Bridges' property was kept open during the winter by Sullivan, who had installed culverts and built bridges for the road. During 1971 there was a minimum of 25 people living on the mining property and there were more than 40 persons living on the property when drilling was taking place.

In the years prior to 1971 Sullivan’s main effort at Mount Pleasant Mines, was drilling into the core; the results were good, according to Mr. Parrish, but Sullivan wanted more data to confirm the metal could be extracted from the core. In 1970 an adit was driven to the 750-foot elevation in the west side of the mountain. The purpose of the adit was to extract several hundred tons of material to be sent to Ottawa for testing of minerals in a laboratory. This was done. The result of the tests were favourable, but not definitive because, Mr. Parrish explained, the 750-foot elevation was above the top of the ore body. It was therefore thought material from lower levels would have to be extricated; the material from lower levels had been tested by drill holes and the results showed molybdenum tungsten and bismuth.

Also, during exploration drilling in 1970 excellent values were found in a tin zone near the mountain, Mr. Parrish stated. He and his associates called this “deep tin zone” and in 1970 or 1971 he advised the head office in Montreal not to proceed with very expensive drilling for material from lower levels of the ore body until the deep tin zone was evaluated. Mr. Parrish estimated the cost of drilling to the lower levels of the ore body at a “minimum a thousand and some odd dollars per foot”.

Mr. Parrish testified that “from 1969 on, once the industry in general became aware of the type of material we were intersecting”, many geologists from various mine companies visited the site. These geologists appeared to be satisfied with the preliminary results but asked for quantitative assays. Sullivan also wanted quantitative assays for its own purpose. In 1971 an x-ray fluorescence spectrometer was brought to the site, and a laboratory was set up in St. Stephens, New Brunswick. For the “next couple of years”, according to Mr. Parrish, “we proceeded to . . . assay every sample, every piece of drill core, every chip, every rock that was taken from the different tunnels, we crusted them all, brought them to town, where we pulverized them and assayed them . . ..” In 1973 it was decided that the tin zone was too indefinite to recommend its development and Sullivan decided to go after the molybdenum tungsten. In that year the next decline, at the 400-foot level, was started; this was the main adit. Several thousand tons of ore were taken out of the ore body and were shipped to various laboratories and metallurgical plants.

Unfortunately, according to Mr. Parrish, several major events took place. Sullivan’s main activity was mining for copper; in 1971 the copper market fell and remained low. The reduction in copper prices affected the corporation's earnings which limited the amount of money it could apply to the Mount Pleasant mine. Mr. Parrish explained that the existence of a major ore body at Mount Pleasant had been confirmed and the find would have required a very large capital investment by the company when capital was limited; Mr. Parrish estimated that in 1976 about $60 million would be required to put the mine into production in addition to the $5 million to $7 million spent prior to his arrival at Mount Pleasant and the $15 million invested by Sullivan while he worked at Mount Pleasant. “Sullivan”, he said, “did not have that sort of money.”

Sometime after the 400-foot adit was built in 1973 Sullivan started looking for participants to share its investment at Mount Pleasant. It was hoped to find a participant who would supply capital and know-how. One of the three corporations most interested in participating was “Billiton”, a subsidiary of Royal Dutch Shell. “Billiton” was a metal product fabricator and used tungsten in manufacturing tungsten steel. The location of the Mount Pleasant mine made it ideal for loading and shipping minerals to Europe. Negotiations between Sullivan and the potential investors took place, but no agreement was consummated. In 1977 Sullivan decided to cease operations and, in Mr. Parrish's words, “wait until one of our suitors comes back to us”. Mr. Parrish left Mount Pleasant in 1977. In 1979 Billiton Canada Ltd.* [1] purchased the Mount Pleasant property from Sullivan.

Mr. Parrish continued to testify as to the amount of Billiton’s investment in the property: Billiton decided to go into production and spend over $100 million to extract a maximum of 3.66 million tons of tungsten, according to a report published in 1981 by a Billiton geologist referred to by Mr. Parrish as "Atkinson". Mr. Parrish stated that according to published reports Billiton actually invested $60 million at Mount Pleasant. Mr. Parrish stated that the difference between Billiton’s estimate of reserves of tungsten and his calculation of the reserves in the Mount Pleasant property in 1971 was less than ten per cent. He referred to the paper he presented in 1971, cited by Dr. Ruitenberg, which estimated in excess of 30 million tons of tungsten at Mount Pleasant; however in an internal corporate memorandum he estimated nine million tons of high grade reserve. He stated Sullivan "did not go into production in ’71, because we needed more capital and because we weren't sure if the nine million tons we had located was the best and richest and the most exciting part of the property. It really wasn't finalized." Sullivan realized, according to Mr. Parrish, it owned a viable property: "We felt we could make a profit, if we could produce production, and if there was a profit to be made.”

Mr. Parrish related drilling during the period from 1969 to 1971 took place primarily in the mine owned property but also off the property. Sullivan realized it would have to acquire the surface rights of other properties to continue its drilling program since acquisition of property in the long run, would be less expensive than paying damages to owners of the surface rights. Also, Sullivan had recognized quite early in its exploratory work that the mine would require additional land for tailings and water. The mine water at Mount Pleasant, Mr. Parrish informed the Court, was toxic to vegetation and one of the overriding reasons for the acquisition in 1969 of the 100 acres of land from Bridges was to avoid further damages caused to the Bridges property. Mr. Parrish stated that Sullivan had recognized the two areas for the tailings and water "before Mr. Phinney came onto scene", and one of the areas was the Bridges property. Mr. Parrish estimated that 1,000 acres would have been required for waste disposal and another 100 acres for exploration. Gravel was required for construction and since there was no gravel on the Mount Pleasant property a gravel pit on the Bridges property would have to be acquired. A road right-of-way across the Bridges property was also necessary. The choices in 1971, said Mr. Parrish, were to purchase or expropriate the Bridges property since leasing was too expensive; Sullivan did not want to have the province expropriate since they wanted to remain on good terms with their neighbours.

Mr. Parrish described the state of public awareness of the Mount Pleasant property in 1971. The mine received “lots of visitors". As a result of Dr. Ruitenberg’s speeches across the province the local population was aware of the activity, and its nature, at Mount Pleasant. In 1972, Canada hosted an international conference of geologists and excursions were made to Mount Pleasant. During 1970 and 1971 trade journals such as “Canadian Mining” considered the project "promisising", according to Mr. Parrish. "The Norther Miner", a weekly newspaper reporting on mining activity to investors, regularly published articles on Mount Pleasant and a story in its March 4, 1971, edition described the exploratory results at Mount Pleasant as "extremely encouraging"; in its November 18, 1971, issue the newspaper reported the "results appear excellent and ought to go well for the future of this potential producer". In Mr. Parrish's view the mineral exploration at Mount Pleasant was viewed by knowledgeable people as an important and significant development.

To the extent stock market prices are relevant, Mr. Parrish reported that in 1967 the main holdings of Mount Pleasant Mines sold for between 11 cents and 27 cents a share; in 1970 the low was 29 cents and the high was 68 cents; in 1971 the low was 21 cents and the high was 45 cents. The shares of Sullivan traded at a high of $9.25 per share; in 1970 the high was $8.20 per share and because of the drop in copper prices the shares fell to $4.70 per share.

Mr. Parrish corroborated evidence by Dr. Hale that as a result of dumping of tungsten by the Chinese world tungsten prices fell and the fall in prices caused Billiton to close the Mount Pleasant Mines in 1981. He also confirmed that a mining company normally would pay three to five times the market value of property for its surface rights. He explained what would transpire:

. . . a mining company will pay above the going rate to avoid the difficulties and the inherent problem in trying to go through expropriation. Not to buy the adjoining ground leaves you open to a damage suit, which is even more quarrelsome. To pay three to five times would be well within the accepted penalty to get something done.

If you got a multi-million dollar project being held up, and once the capital becomes available, it’s costing you money, because of net present value theory. So once the capital becomes available and you decide to go into production, you want to do it as quickly as possible and so it held up production because we did not own the land next to it. We needed . . . mostly for tailings disposal, but mostly for the gravel, also for egress, and also for exploration areas. It would have been a patently foolish decision on the manager's part ... he would have pushed for buying that land and would have paid . .. yes, to answer your question, yes, we would have paid three, four, five times . . . we would’ve paid . . . what we would have done is not gotten a land appraisal. We would have simply found out what blueberry land was going for in the area; what other prospective sellings would take, and we would take . . . we would have found out that they were taking ‘x‘ dollars and would have approached the Bridges’ company and said, ‘We will give you "3x"‘ and they, of course, would say ‘No, we want five, six or ten "x"‘ and we would come back with a second offer. The second offer would either be accepted, or we would go to expropriation. We would not have tried to haggle over what would be, ‘1x‘ or ‘2x‘ or . . . we would have jumped immediately to what we thought felt was a fair price.

Mr. Parrish criticized Dr. Hale’s report saying that as a purchaser of land he does not know the future and could not anticipate in 1971 the eventual sale to Billiton for $900 per acre. He would have taken "recent sales and to project them forward or backward, using a discount of their present value”.

Replying to a question from the bench, Mr. Parrish stated that a mining company:

. . . Will not start buying ground until you have . . . assured yourself you have the capital available to put the .. . you know how much capital you need and you have enough of an ore body to pay for it and that capital is available to you before you go out and take a look at the ground around you.

He also stated that a mining company will want to be satisfied it can earn enough operating profit to pay back its capital cost within a period of no more than five years, and preferably three years, before it decides to enter production and acquire the additional land. Sullivan, he added, never had the necessary capital to acquire the additional land.

Mr. William Harrison Goodwin, testified for the appellant. As indicated previously Mr. Goodwin is a real estate appraiser in New Brunswick; he is married to the sister of Mr. Cole Bridges’ wife. He acknowledged he supplied sales information to Mr. Lawrence and discussed his appraisal with him. Mr. Goodwin had indicated to Mr. Lawrence that in his opinion the highest and best use of the subject land was for its strategic location in relation to the mine. His valuation experience includes the appraisal of surface rights of slate pit and gravel pit operations as well as blueberry lands. He stated that when he performed an appraisal of property for the Lynx and Camflo mining companies in 1974 he was advised it was practice in the industry for a mining company to pay three to five times the value of property it requires. He testified that the subject property was ideal blueberry land since it was on high elevation and within 30 miles of sea water; the typical highest average price, in 1971, for blueberry land not yet in production would have been around $300 per acre, according to Mr. Goodwin.

Mr. Cole Bridges, vice-president of the appellant, testified on the appellant's behalf. He related that his father started the blueberry business soon after World War I and over the course of years acquired properties for the business in eastern Maine and western New Brunswick. In 1941 one of the properties in New Brunswick was expropriated for the army and when the land was returned by the government it was useless for blueberry production because of its use by tanks and other military vehicles; in 1943 and 1948 his father acquired lands constituting the subject land "with the intention of making blueberry land out of it”. However, Mr. Bridges said, "the miners moved in about 1952 or '54 and ... it became more and more apparent over the years that there would be a severe conflict between the mining interests and the blueberry". As the mining exploration progressed during the period 1954 to 1971, according to Mr. Bridges, "it became obvious to us that . . . it didn't make much difference which of the several ore bodies that were discovered were utilized, but probably, sooner or later, one of the two of them would be and that they would need our land to operate on . . . it didn't take too much foresight to know there was an awful lot of activity going on up there .. ." He added: "they were spending a lot of money there and they wouldn't be spending money there unless they were pretty sure that they had found something". Mr. Bridges considered the value of the appellant’s property was rising steadily.

Mr. Bridges said that in 1969 he knew the tailings dump would have to be on the north side of Mount Pleasant, on the appellant’s land.

In reply to a question from counsel for the appellant, Mr. Bridges stated the 25 acres that were leased to Mount Pleasant Mines were scattered lands and in 1969 Mount Pleasant Mines desired to purchase 100 acres “to square the lines”. He said the appellant did not want to sell the 100 acres but was told by Mount Pleasant Mines that its banker would not advance funds unless it owned the 100 acres. Since the mining companies in the area were operating on a shoestring Bridges decided to sell the 100 acres to “encourage development of the mine" since it wished to sell the balance of the land. Mr. Bridges recalled Bridges was being paid $3,000 a year rent for the 25 acres and “we had to chase them" for the rent, he was told Mount Pleasant Mines could afford only $10,000 more but once they got financing they would be able to buy the rest of the land “‘and pay a darn good price for it”.

Mount Pleasant Mines did not obtain the financing. Sullivan then came on the scene and activity on the mountain increased. According to Mr. Bridges, the appellant had a valuable piece of property. “It was just a matter of working until the right financial fellows came along and took it up.” In 1971 he was “thinking in the vicinity of a thousand dollars an acre” for the subject property. In the meantime, Mr. Bridges testified, “we just had to kind of play a waiting game"; the appellant accommodated the mining in- terests by renting property for water supply purposes and selling gravel from their pit.

Mr. Bridges recounted his negotiations with Billiton for the subject property; a consultant with Billiton first approached Mr. Bridges in 1979 offering $26,000 for 100 acres. "I told them he was crazy.” Serious negotiations took place in 1980. Mr. Bridges stated that he wanted $2,000 an acre and that Billiton "realized they were talking to somebody that knew what they were talking about and we’re not just farmers ... we know the minerals are there and they had to have our property to develop it." The appellant and Billiton finally agreed to a purchase price of $900 per acre, Billiton’s initial offer in 1980, said Mr. Bridges. He agreed to this amount only because he had been pressured by the Minister of Natural Resources of New Brunswick to "play or else the land would be expropriated. He thought he could have sold the property for about $1,500 per acre if not for government pressure. Billiton also agreed to lease approximately 500 acres to the appellant for one dollar a year for fifty years and to permit the appellant to keep the wood in the subject property.

It should be noted that by letter dated April 23, 1980, Mr. Bridges wrote to the Honourable J.W. Bird, Minister of Natural Resources of New Brunswick advising him that in order "to proceed with the $80 million investment in a mine and smelter at Mt. Pleasant they need to obtain 350 acres of land we own” and that Billiton made an "acceptable" proposal. He advised the Minister that the appellant was in the process of clearing land for blueberry development. Notwithstanding the "fair offer"" by Billiton, Mr. Bridges feared taxes on the sale of the 350 acres would make governments the principle beneficiaries of the transaction; accordingly he concluded the longterm financial benefits to the appellant ‘‘are better if we proceed with our original intention"" to develop the land for blueberry production. His letter then went on to address several complaints the appellant had with the provincial authorities and his own difficulties in obtaining a new hunting licence to replace a licence that had been cancelled.

The appellant, in filing its 1980 income tax return, calculated the capital gain on the disposition of the subject land on the basis its adjusted cost base was $700 per acre.

Mr. Bridges also testified as to the value of blueberry land in 1971. The appellant, he said, had paid "anywhere from $50 an acre and up through to $1,500 an acre for land"", but the appellant paid $1,500 an acre for a particular piece of land because "we needed it to complete the development"". He estimated that in his view, were it not for the mining activity, the value of the subject land in 1971 as blueberry land would have been $300 an acre.

The appellant"s income tax returns for 1970, 1971 and 1974 were shown to him. The balance sheet of the appellant, as at December 31, 1970, attached to its 1970 income tax return, reflected the value of the appellant’s lands at $244,976. The appellant’s balance sheet, as at December 31, 1971, included with its 1971 income tax return, shows an aggregate land value of $778,283.40. The balance sheet of the appellant as at December 31, 1974, being part of its 1974 income tax return, shows land valued at $757,042. Note 1 to the appellant’s financial statements for the fiscal period ending December 31, 1974, states as follows:

1. Land has been reported in the financial statements as its appraised value less depletion. The appraisal was conducted by Mr. Cole V. Bridges in 1971. An analysis follows:

Land, at appraised value (less depletion)	$757,042
Land, at cost (less depletion)	236,253
Excess of appraised value of land over cost	$520,789

The income tax returns of the appellant for 1970 and 1971 include depletion schedules for the wood lots. The subject land is included in the schedules.

In Bridges Brothers Ltd. v. Forest Protection Ltd., 72 D.L.R. (3d) 335 at 337; 14 N.B.R. (2d) 91 at 100, the New Brunswick Supreme Court, Queen's Bench Division, per Stevenson, J., found that the appellant’s "landholdings (both freehold and leasehold) in southern New Brunswick aggregate some 8,000 acres", of which half to two-thirds was under cultivation. Questioned by the respondent's counsel, Mr. Bridges first stated he did not disagree with the description of the land and subsequently stated the appellant "possibly" owns 8,000 acres of land. When counsel for the respondent suggested to him the respondent's Valuation Day value of $100 an acre for the subject land could be determined, in part, by dividing the appraised value of all the land, $757,052 by 8,000, the number of acres, Mr. Bridges explained the only "operating" blueberry land was then appraised and did not include the subject property.

Mr. Bridges explained that the purpose of the appraisal of the lands was to obtain a loan from the appellant’s banker for its blueberry operations; the bank wanted the blueberry land as collateral security for the loan. I find it unusual that a bank would rely on an appraisal of land prepared by an officer of a proposed borrower of funds as evidence of value of the security to be given to the bank for the loan. Although nothing sinister ought to have been inferred from the respondent counsel's suggestion that the appraisals were made for capital gain purposes, Mr. Bridges vehemently and categorically denied that was the reason for the appraisals.

Mr. David Stilwell testified on behalf of the respondent and was qualified as an expert. Mr. Stilwell was first employed in 1970 by the respondent as a clerk and in 1973 started working in real estate matters. In 1975 he commenced courses in real estate appraisal toward creditation to the Appraisal Institute of Canada, which he obtained in 1983. He is presently employed by the respondent.

In Mr. Stilwell’s view the highest and best use of the subject property on December 31, 1971 was as woodland property and in his view the fair market value of the property on Valuation Day was $121,110, or $50 per acre.

Mr. Stilwell described the subject properties as being located “‘quite a distance" from any populated areas and the area of the property had nothing but “miles and miles of woodland with the only development to speak of being in Mount Pleasant area”. His report states:

It was a known fact that around 1952-1954 there were some mineral deposits located in the Mount Pleasant area and that numerous testing and geological surveys were carried out over the years near the subject area. However, after an intensive investigation it was discovered that as a result of all these surveys and tests, it was still unclear as to how much or where this ore was located. Thus, there were no plans for any development in the Mount Pleasant area as of December 31, 1971 except for a continuation of exploration, the same as what had been going on since 1952.

Mr. Stilwell testified that he looked at the probability in 1971 of a mine at Mount Pleasant being fully operable but did not see any such probability, and therefore did not consider the subject property as mining property.

In preparing his report Mr. Stilwell reviewed documents, including maps, at the Land Registry of New Brunswick, interviewed various vendors and purchasers of properties and discussed mining activity in the Mount Pleasant area in 1971 with officials of the New Brunswick Department of Natural Resources. He also visited the site.

He found that there were land owners near the mine in 1971 who were still owners of the land at the time he was preparing the report in 1985. He was informed mining could be done underground without disturbing neighboring lands. He testified he was not convinced a mining company would require the surface rights to 2,400 acres for the mine site at Mount Pleasant.

Mr. Stilwell considered the following methods of valuing real estate: direct sales comparison, abstraction, development and land residual. He rejected the abstraction method for the subject property because there were no improvements on the property, the development method because the land was not development land and the land residual method because he could not find evidence the land would be developed or would earn significant rental income. He did not consider the notional market value of the subject property since he first learned of it when reviewing Mr. Lawrence's report.

Eight sales of properties having characteristics similar to the subject property, in the view of Mr. Stilwell, were analyzed by him. Only one sale was in the area of the subject property, the other sales were in areas similar to that of the subject property. He treated the sale in 1969 of 100 acres by Bridges to Mount Pleasant Mines as land purchased for mining purposes. He considered the sale as a "straight sale” and did not consider the previous rental payments in the sale price. He did not give much weight to this sale because “the property had been used as a digging and testing site for a number of years by mining people" and the subject land was not affected by the diggings or surveys.

The sales Mr. Stilwell considered ranged in size from 65 acres to 500 acres with prices ranging between $18 and $100 per acre, the majority being in the $50 per acre range. These were woodland properties, four of which were in rural areas, as was the subject property, and the others in more populated areas.

In cross-examination Mr. Stilwell acknowledged he did not consider the subject land’s use for blueberry cultivation notwithstanding Bridges was in the blueberry business; his reason was that in 1971 Bridges’ plans for blueberry production on the subject property were "shelved".

His report states that "by 1971 some material” had been outlined in the area by Sullivan, but he testified he did not know the exact amount, which Mr. Parrish had indicated was 30 million tons. His report also states that since 1952 "there were a lot of geological surveys that were producing no significant results”. He also was not aware that roads described as "seasonal roads" by provincial authorities were kept open by the mining company during the winter or that 25 people were living on mining property, working for the mining interests.

Lastly, in so far as Mr. Stilwell’s report is concerned, much of the material used in the report was adapted from material published by the Appraisal Institute of Canada, although he did not always give credit to the author or the Institute. While I do not interpret the omissions by Mr. Stilwell as an attempt to mislead the reader, when an appraiser quotes from a work of an author he should distinguish clearly between the author's words and his so that there is no confusion as to words of a source and his own words.

Mr. Richard Pother, a geologist and at time of trial Assistant Deputy Minister of Mineral Resources in the New Brunswick Department of Forest, Land and Energy, was called as a witness by the respondent. Mr. Pother has been associated with the mining industry since 1951 and was familiar with the Mount Pleasant mining operations; he visited the site for the first time in the “early 1960's". He was qualified to testify as an expert witness. He explained that mineral rights and surface land rights are two distinct rights and the value of the minerals has nothing to do with the value of the surface. In his experience surface rights do not increase in value as a result of the presence of minerals underneath the ground.

Mr. Pother recalled that in the late 1960's there were some indications of tin and tungsten at Mount Pleasant but "it wasn't until 1974 that the results of (Sullivan’s) initial exploration were such that they decided that they should go underground and have a look and run some further tests" to determine whether it was economically feasible to separate the minerals.

A mining company, Mr. Pother testified, purchases surface rights after it has made a decision to commence production.

Mr. Pothier also testified in 1980 the New Brunswick Department of Natural Resources sold 394 hectares (1018.4 acres) of land to Billiton for $57,000, approximately $57 per acre. The transaction included an easement of 2.4 acres to Billiton to obtain water. This property, however, may revert back to the Crown ten years after Billiton ceases its mining operations.

Mr. George Greer, Director of the Mineral Development Branch of the Mineral Resources Division of the New Brunswick Department of Forest, Mines and Energy also gave evidence. Mr. Greer recalled that in documentation submitted by Billiton for a licence to mine at Mount Pleasant it indicated the amount of land that would be disturbed, as follows: . . roughly . .. the tailings pond area is around 130 hectares . . . for the mill site it was 20 hectares, for the . . . diversion pond 34 hectares, for the tailings pond 130 hectares and for the water supply pipeline 16 hectares, for a total of 200 hectares", or 1,194 acres; Mr. Greer indicated this was an initial reclamation plan and "it could progress over the length of the operation". Replying to a question from counsel for the appellant Mr. Greer admitted he did not know the reason Billiton acquired as much land as it did. He also stated the mine had a pollution problem and would not be surprised to learn of environmental damage.

The last witness was Mr. George K. Hayward, a real estate appraiser and Chief of Real Estate Appraisal with the Saint John District Office of the respondent. He testified that to his knowledge, during 1970 to 1973, blueberry land sold for between $30 and $100 per acre; during the past six to seven years prices have increased to $150 to $250 per acre.

Counsel for the appellant submitted that the facts in this appeal are unique and therefore the appellant’s valuator, Mr. Lawrence, should be allowed some innovation in his approach in order to determine the fair market value of the Bridges’ property as at December 31, 1971. He acknowledged Dr. Hale utilized hindsight "to the extreme" and stated that while Dr. Hale's valuation cannot be used alone "it is helpful" to Mr. Lawrence's appraisal.

Both Mr. Lawrence and Dr. Hale treated the potential development of the subject property as at the end of 1971 with excessive optimism, as did Mr. Parrish. There was no evidence that as at December 31, 1971 the owners of the mine had made a decision to commence production; rather, the evidence was precisely the opposite. Mr. Parrish, who worked for Sullivan at the time, testified his employer was a copper producer and because of falling copper prices its earnings in 1971 were adversely affected. He stated in no uncertain terms that to put a mine at Mount Pleasant into production would require large capital investment and the owner of athe mining rights in 1971 did not have the money available; Sullivan preferred to "sit on the property" rather than lose a substantial share of the deposit to a potential partner.

On the other hand the Minister's appraiser, Mr. Stilwell, did not sufficiently appreciate the activity taking place at Mount Pleasant in 1971. He was ignorant of the fact that in 1971 Mr. Parrish had presented a paper to the industry estimating the deposit at Mount Pleasant held 30 million tons of tungsten. This was not an insignificant result. Mr. Stilwell was not aware that the drill site was inhabited year-round by employees of Sullivan and that roads, although designated "seasonal", were kept open and maintained by Sullivan throughout the year for their exploration activities. In his view the exploration that was taking place in 1971 was no different from that which took place since 1952. In short, Mr. Stilwell considered the production of the mine in 1971 only a mere possibility and accordingly the use of the subject land would be identical to that of contiguous woodland properties.

In Mr. Lawrence's view the fair market value of the Bridges’ property was its intrinsic value, that is, not necessarily the value of the property as may be reflected by what it may have sold for in 1971 but its value with reference to its investment merits in 1971 which may be influenced by market conditions other than those which may have actually existed in 1971. To Mr. Lawrence's mind the intrinsic value of a property was due to the presence of an ore body on neighbouring lands and so long as the ore is present the intrinsic value does not change; the minerals will be extracted when the right price can be realized, that is, when conditions to produce a mine are right. If I understand Mr. Lawrence correctly, his theory is that even if the minerals cannot be extracted for an untold number of years the land has value. The property has potential, so to speak.

Mr. Lawrence's position is that the Bridges' property had what in an expropriation matter is sometimes referred to as “special adaptability". Special adaptability has been defined in Re Schooley and Lake Erie & Nor. Ry. (1915), 25 D.L.R. 537 at 541, as "[. . .] an apparent but future use to which the property may be, but is not now put, and for which it is particularly adapted”. A distinction must be made between special value and special adaptability. Special value depends on the use made by the owner of a land at the time of the valuation; special adaptability refers to the possible or probable use of the land, in the future, other than the use made by the owner at the time of the valuation (vide: G.S. Challies, Quelques problèmes d'expropriation, 21 R. du B. (165 at 173-175).

In Vyricherla v. The Revenue Divisional Officer, [1939] A.C. 302; [1939] 2 All E.R. 317, Lord Romer discussed some difficulties arising with this concept at 312-13 (All E.R. 321-22):

In the case of land, its value in general can also be measured by a consideration of the prices that have been obtained in the past for land of similar quality and in similar positions, and this is what must be meant in general by "the market value" . . . But sometimes it happens that the land to be valued possesses some unusual, and it may be, unique features, as regards its position or its potentialities. In such a case the arbitrator in determining its value will have no market value to guide him, and he will have to ascertain as best he may from the materials before him, what a willing vendor might reasonably expect to obtain from a willing purchaser, for the land in that particular position and with those particular potentialities. For it has been established by numerous authorities that the land is not to be valued merely by reference to the use to which it is being put at the time at which its value has to be determined . .. but also by reference to the uses to which it is reasonably capable of being put in the future. No authority indeed is required for this proposition. It is a self-evident one. No one can suppose in the case of land which is certain, or even likely, to be used in the immediate or reasonably near future for building purposes, but which at the valuation date is waste land or is being used for agricultural purposes, that the owner, however willing a vendor, will be content to sell the land for its value as waste or agricultural land as the case may be. It is plain that, in ascertaining its value, the possibility of its being used for building purpose would have to be taken into account. It is equally plain, however, that the land must not be valued as though it had already been built upon, a proposition that is . . . sometimes expressed by saying that it is the possibilities of the land and not its realized possibilities that must be taken into consideration.

[Emphasis added.]

(See also the reasons for judgment of the Supreme Court in Lamb v. Man. Hydro-Elec. Bd., [1966] S.C.R. 229 at 235; 55 D.L.R. (2d) 654 at 659 and in Fraser v. The Queen, [1963] S.C.R. 455 at 476-77; 40 D.L.R. (2d) 707 at 726).

In the King v. Coleman, [1926] Ex. C.R. 121, the major part of the ground was swamp and on a small part of the land, the owner had constructed a hotel and some cottages. The entire property was expropriated and Coleman sued for indemnity for potential value. He argued that by spending $200,000 to $500,000, he could fill the swampy area and build more cottages. The Court concluded that the owner of the property was not entitled to claim as an element of its market value at the time of expropriation, some prospective value of the property remote in its character and only realizable upon the expenditure of enormous sums of money.

So long as mineral exploration is taking place and no decision has been made by the owner of the mineral rights to enter into production, the highest and best use of the surface rights of contiguous lands, as in the case at bar, cannot be for mine or mine related development as submitted by Mr. Lawrence. For the highest and best use of these lands to be mine or mine related development there must first be a mine in production or at least the owners of the mining rights ought to have decided to begin production. Until the decision is made to enter into mine production there is no probability, let alone certainty, that these contiguous lands will be required for a mine or mine related development. To accept Mr. Lawrence's theory, and extend it, would indicate as yet undiscovered minerals have a profound influence on current market values of property.

Mr. Lawrence concludes his description of fair market value in his report by stating fair market assumes “that the market includes special interest purchasers and that they will invariably pay a higher price than will purchasers without special interest in acquiring". This may be true in circumstances where there is a “special interest purchaser". To Mr. Lawrence, in 1971 Sullivan was a potential special interest purchaser of the Bridges property. The evidence indicates the opposite: Sullivan in 1971 had not indicated it wished to acquire the Bridges' property nor had it decided to enter into mine production; further it did not have the financial means to cause the mine to enter into production even if all of its drilling had been completed and results had been favourable. There is no evidence that Billiton, the eventual purchaser, displayed the slightest interest in 1971 in acquiring the subject property. There was, in short, no special interest purchaser for the Bridges property in 1971. For a review of the case law of special purchaser see the reason for judgment of Joyal, J. in Dominion Metal & Refining Works Ltd. v. The Queen, [1986] 2 C.T.C. 47 at 52-55; 86 D.T.C. 6311 at 6314-16.

I have found the basis of Mr. Lawrence's appraisal to be in error; it would serve no worthwhile purpose at this stage, therefore, to discuss the merits of his appraisal.

There is no evidence to indicate that in 1971 the highest and best use of the Bridges' property was for blueberry production. In his testimony Mr. Bridges emphasized that from 1954 on his father did not want to turn the property to blueberry cultivation because he feared possible damage to the crop if the mine would enter into production. In his letter of April 23, 1980, to the Minister of Natural Resources, Mr. Bridges advised the appellant was in the process of clearing the land for blueberry development: this was the first occasion during the trial that it was even suggested that the appellant still had plans to grow blueberries in the property and goes against all other evidence heard during the trial. There is not a scintilla of evidence that in 1971 Bridges had any intention to devote the property to blueberry production. The overwhelming evidence was that the mere possibility of a producing mine near the subject lands prevented blueberry production from being highest and best use of the lands in 1971.

Mr. Stilwell’s report contains errors of fact which influenced his conclusion. One cannot close one's eyes to facts: exploration activities by mining companies taking place in and around a property, the community's knowledge of these activities and the industry's awareness of a potential major ore body. The presence of these facts usually unleashes optimism, warranted or not, by land owners whose lands may one day be required by the mine, if it comes into production. The mine exploration activity on land contiguous to blueberry land, for example, may lower the value of the blueberry land since a blueberry farmer may fear what a mine may do to his crop. However, it is probable that the values of the subject lands would increase at least marginally as a result of exploration activity. The subject lands had been kept uncultivated waiting for something to happen. They had value as woodland plus an extra value due to their proximity to the potential producing mine and their topography which the owner of the mining rights may one day require. Mr. Stilwell did not consider the extra value.

In tax cases the onus is on the appellant to refute the assessment. Clearly here the appellant has not met this onus. However the appellant has shown errors committed by the valuator for the respondent in making the valuation used by the Minister in establishing the value of the subject property as at December 31, 1971. The Minister's valuator concluded the fair market value of the subject property on December 31, 1971, was $50 per acre. The Minister reassessed on the basis the fair market value of the property was $100 per acre, which would take into account the extra value of the subject property in addition to its highest and best use as woodland. In my view Mr. Stilwell’s errors are not of sufficient weight to compel me to find the subject property had a value on Valuation Day in excess of $100 per acre. Therefore the appeal will be dismissed.

There is one other matter on which I wish to comment. Subsection 19(6) of the New Brunswick Registry Act (R.S. c. R-6) provides that no deed affecting the transfer of real property shall be registered unless accompanied by an affidavit of the transfer by the grantee, his solicitor or agent setting forth the true and actual consideration for which such property was acquired, the names of the parties, the location and description of real property and such other information prescribed by regulation. The registrar of deeds however is not permitted to record the affidavit but is to forward same to the Minister of Municipal Affairs who, if he considers it in the public interest to do so, may furnish the information contained in such affidavit to any Minister of the Crown in right of New Brunswick or of Canada (subsections 19(7) and 19(8)).

Subsequent to the preparation of his report, Mr. Stilwell, as an officer of the Crown in the right of Canada, obtained an affidavit of consideration in respect of a sale of the property in New Brunswick from the New Brunswick Department of Municipal Affairs. Mr. Nicholson, counsel for the appellant, objected to the production of the affidavit on the basis affidavits of consideration are privileged documents which ordinarily the respondent may obtain but which the appellant cannot. In preparing an appraisal report, private appraisers have access to sales but not to the information contained in the affidavits of consideration while their opposite number at Revenue Canada have such access. Because Mr. Stilwell did not rely on the affidavit in preparing his report, I ruled that the affidavit not be admitted in evidence; at the time of my ruling I indicated to counsel I may wish to make certain comments in respect of this matter in my reasons.

An affidavit of consideration sets forth certain information which may be relevant in respect of a valuation matter; the facts contained therein, if revelant, cannot be ignored and the respondent's appraiser is entitled to use the information contained in the affidavit in preparing his report notwithstanding an appraiser preparing an opinion for a taxpayer may not have access to the affidavit.

Subsection 19(9) of the Registry Act provides that upon application of any person a Judge of the Court of Queen's Bench of New Brunswick, if satisfied that the information contained in any such affidavit may be of use to the applicant in the enforcement or protection of any right of the applicant, may order the Minister of Municipal Affairs to furnish the applicant with the information contained in the affidavit.

There does not appear to be any provision in the Registry Act precluding the respondent from making available to the taxpayer the information in the affidavit he relies on in making a reassessment or which may be of benefit to the taxpayer appealing from such a reassessment; where subsection 19(9) of the Registry Act cannot be used I would commend a practice which would encourage this provision of information by the respondent.

Appeal dismissed.