Dominion Metal & Refining Works LTD v. Minister of National Revenue, [1983] CTC 2386, 83 DTC 322

D E Taylor:—This is an appeal heard in Montreal, Quebec, on December 8 and December 13, 1982 against an income tax assessment for the year 1976 in which the Minister of National Revenue added an amount of $58,597.50 as capital gain to the reported income of the appellant. The company (Dominion) was in the metal processing business, situated on the real property relevant to this appeal, municipally known as 870 and 900 Mill Street, in the City of Montreal. The “Statement of Facts” in the notice of appeal sets forth the basic situation as portrayed by the appellant:

1. On July 20, 1948, His Majesty the King, as Lessor entered into a Memorandum of Lease with Bancroft Industries Ltd. (“BANCROFT”) with respect to the lease of 68,472.5 square feet of land. The lease commenced on November 22, 1946 and terminated on November 22, 1951. In addition, paragraph 18 of the lease contained an option permitting BANCROFT to renew the lease for successive periods of twenty-one (21) years each.

2. On December 5, 1952, a Supplemental Agreement was entered into between the Lessor and BANCROFT renewing the lease for a period of twenty-one (21) years until November 22, 1972.

3. On December 22, 1969, BANCROFT assigned all of its right, title and interest in and to part of the lease to the Appellant.

4. On November 27, 1972, a Supplemental Agreement was entered into between the Lessor and the Appellant renewing the lease for a further term of twenty-one

(21) years until November 22, 1993.

5. On October 26, 1976, an Agreement was entered into between the Appellant and OGILVIE MILLS LTD. (Ogilvie) wherein the Appellant assigned all of its right, title and interest in and to the lease of OGILVIE for the price and sum of One Hundred and Eighty-five Thousand Dollars ($185,000.00).

The parties agreed that the sale was a capital transaction, but the appellant contended:

The . . . adjusted cost base of its interest in the lease was not less than its value on Valuation Day which was at least equal to the proceeds of disposition, namely, One Hundred and Eighty-five Thousand Dollars ($185,000.00).

The contention of the respondent was:

d) The value of the said leasehold interest on December 31st, 1971, did not exceed the sum of $67,805.00;

Documents relative to the matter were filed by the parties. For the appellant, Mr André Lamothe, an officer of Ogilvie, testified regarding the interest of Ogilvie in acquiring control of the property; Mr Richard Wise presented his report regarding the V-Day value of the leasehold interest; and Mr Arthur Perlman, President of Dominion, described the arm’s length nature of the transaction and the process by which an agreement on the amount involved was finally reached. For the respondent, testimony and a report were provided by Mr Guy Phoenix, an appraiser with Revenue Canada. Considerable discussion took place by the parties regarding the qualifications, relative experience and background of Messrs Wise and Phoenix. The Board ruled that it would hear the testimony of both, and take the comments of counsel into account as they could be given later in argument. Reference was made by both parties and by the presiding Member to the case of Fambau Limited v MNR, [1982] CTC 2228; 82 DTC 1027, in which that question was much examined.

In summary, the relevant testimony of Mr Lamothe was to the effect that in any expansion, Ogilvie was seriously constrained because of the physical characteristics of its own property adjacent to the subject property, and that the examination of options other than acquiring control of the subject property had shown this option to be the only viable course of action. The witness was unable to produce particular evidence of Ogilvie’s interest in the subject property in 1971, but contended that the question of possible expansion and the difficulties inherent in such expansion were obvious to any observer. His earliest recorded attempt to explore the prospects of acquisition was an internal Ogilvie memorandum dated May 8, 1973. That overture eventually led to the acquisition and, in turn, to this appeal.

In addition to his references to the subject transaction, Mr Perlman stated that his company (Dominion) had, concurrent with the sale of the leasehold interest to Ogilvie acquired the lease for an immediately adjacent property and buildings (also from Bancroft, (supra)), which property was not too dissimilar from the subject property — certainly it was equally suitable for the continuation of his business operations. The price for that property had been $80,000, and it was municipally known as 860 Mill Street, as contrasted with the $185,000 at issue in this appeal.

The two contrasting valuation reports were discussed in detail by counsel in argument, and certain comments from that argument are quoted later in this decision. However, the following sections from the valuation reports highlight the basic approaches taken by the valuators.

By Mr Wise:

APPROACH TO VALUATION

Where long-term leases are involved, it is of particular importance to select an appropriate discount rate which will have regard to the inherent considerations of the lease for valuation purposes. However, as will be noted below, this does not have relevance in that we have rejected the approach that would be employed by “ordinary” purchasers in the market place and have considered the fact that, at the valuation date, there existed a special purchaser.

Special Purchaser

Since the determination of fair market value as of the valuation date is in the notional marketplace, we assumed an unrestricted market in which an assumed sale would take place between an informed buyer and an informed seller, both prudent and uncompelled to transact.

The concept of the notional market has generally been accepted by the courts in Canada, the United Kingdom and the United States.

Since notional marketplace valuations assume inter alia, (1) a market open to all potential purchasers and (2) a prudent, informed purchaser and vendor, we have made the assumption that the willing vendor — in this case the Company — would seek to obtain the highest possible price the property would fetch from whomever the purchaser might have been.

In attempting to establish the fair market value of the Lease Rights on the valuation date, and in the absence of any actual offer existing at that time, we adopted the following approach:

Using the mid-point of the range discussed between the Company and Ogilvie Mills, ie, $185,000 (being between the $150,000 proposed offer by Ogilvie Mills per

(1) above and the $225,000 sought by the Company per (2) above) — which amount of $185,000 was the figure at which the Lease Rights actually transacted — and discounting such $185,000 back to December 31, 1971, we arrived at $152,500.

Mr Phoenix’ report and testimony were in the French language, but they can be summarized as:

(1) The Municipal valuation of the subject property for the years 1971-72 was

(2) The method of evaluation used was to determine if the lease itself had a specific value to the lessee, distinct from its acknowledged value to the lessor. In addition, the value of buildings themselves should be determined as at December 31, 1971.

(3) A comparison of other leases in the area, and an examination of similar property, indicated that the price of the lease on the subject property at December 31, 1971 (14¢ per sq foot) was standard and property was available for lease at that price.

(4) The particular buildings which had been on the subject property at December 31, 1971, had been demolished by Ogilvie after the transaction at issue in this appeal, and before the evaluation reports were prepared. Nevertheless, Mr Phoenix was satisfied that the buildings included in the sale to Ogilvie were the buildings acquired by Dominion from Bancroft, and were those valued at $64,000 by the municipality on December 31, 1971.

(5) Information from Bancroft to Mr Phoenix was to the effect that in the sale related to 860 Mill Street for $80,000, (supra), Bancroft had only sold the buildings and concurrently transferred its interest in that lease.

(6) It was the final conclusion of Mr Phoenix that the value of the lease to the lessee was nil — all value in any such sale resting in any relevant buildings. In the instant case, he found nothing substantial with which to disagree in the Minister’s assessment valuation of $67,805 as of V-Day for the buildings then on the subject property.

In argument, counsel for the appellant modified his client’s position so that the amount proposed by the appellant for V-Day value was $152,500 in accordance with the report of Mr Wise. Counsel agreed that this was a very narrow issue and one which did not appear to have clear definition in the jurisprudence. Accordingly, the Board will quote extensively from the argument. Counsel for the appellant summarized the case in the following terms:

Basically, the question put to the Board at this time is what is the fair market value as of December 31st, 1971 as required by the Income Tax Application Rules,

I refer to the case of Henderson Estate and Bank of New York v MNR (73 DTC 5471, (1973) CTC 636) where Judge Cattanach says (at pages 5476 and 644 respectively):

“The statute does not define the expression ‘fair market value’, but the expression has been defined in many different ways depending generally on the subject matter which the person seeking to define it had in mind. I do not think it necessary to attempt an exact definition of the expression as used in the statute other than to say that the words must be construed in accordance with the common understanding of them. That common understanding I take to mean the highest price an asset might reasonably be expected to bring if sold by the owner in the normal method applicable to the asset in question in the ordinary couse of business in a market not exposed to any undue stresses and composed of willing buyers and sellers dealing at arm’s length and under no compulsion to buy or sell.”

I think this definition does define what we referred to during the evidence as the notional (what the expert witness referred to as the notional market) and it also defines what is fair market value.

Again on the question of fair market value, I’d like to mention the extract I have taken from Mr Angus Allan, Chief Valuator as he was prior to this. He is not chief valuator of Revenue Canada anymore. In his article entitled “Fair Market Value: Review of Canadian Experience”, he defines fair market value as being:

‘The highest price obtainable in an open and unrestricted market, between knowledgeable, prudent, and willing parties, dealing at arm’s length, who are fully informed and not under compulsion to transact, expressed in money or money’s worth.’

Again reference to the highest price as being the fair market value definition.

Now, if we go to the valuation produced by Mr Wise, we see that Mr Wise first rejected a purely mathematical operation and I refer you to pages five (5) and six

(6) where he speaks of special purchaser and since a special purchaser existed we must disregard the other valuation method and use this method.

Mr Wise does define what is a special purchaser at page six (6) of his report. I’d just like to refer to it briefly because I think it exposes quite succinctly the definition we will find in the jurisprudence at a later stage.

In paragraph two (2) at page six (6) of his report:

‘A special purchaser is generally considered as one who, for one or more reasons, such as the ability to achieve through acquisition or combination various synergistic benefits, would be prepared to pay a higher price for the asset being acquired than would other, ie, ‘ordinary’ purchasers — that is, those who more typically look merely to the investment aspects of the property or asset.’

And at the beginning of the fourth paragraph he continues to say:

‘A special purchaser is one who can realize synergies and is prepared to pay more than such other purchasers, ie, a premium over and above the ‘ordinary’ price.’

And I think this is the crux of the litigation.

I’d like to refer to a very good article* [1] by Mr Angus Allan, formerly the Chief Valuator of Revenue Canada where he mentions — this is his first citation:

‘Sometimes the attributes of the property being offered for sale create a special purchaser, and I believe the Courts have recognized this factor in the case of a parcel of realty adjoining a business anxious to expand. The business was recognized as a special purchaser prepared to pay more for the property than it would for a similar property located elsewhere.’

This is a very pertinent citation and again at page 12 of this lecture he mentions:

‘Consider the case of the property owner mentioned earlier whose property adjoined a company anxious to expand. If he had been unaware of the company’s intention he might well have sold too cheaply to a speculator possessed of such knowledge, who could then turn a profit by sale to the company. In other circumstances an arm’s length sale might be made at a sacrifice price, and of course the sale price would not then represent fair market value.’

I think it is very important to go back at this point to the notional market where we said the parties have full knowledge of the circumstances and therefore the fact that the person actually isn't aware of the existence of a special purchaser does not mean that it does not exist and does not mean that for the purpose of defining fair market value it has to be disregarded’ (Italics mine)

... further reference is made to the effect that the market, the notional market contains speculators and that the presence of one special acquirer is sufficient to add some value in assessing the value of the property. All those (other) cases referred to the Board are to that effect even though we do admit that the case of A R Levitt v MNR (76 DTC 1047, (1976) CTC 2307) would seem to imply a different conclusion but I submit that the Board member in rendering that decision may not have had the opportunity of considering all this relevant jurisprudence that the Courts have handled since then.

. . . I submit respectfully that the Courts have recognized the existence of a special purchaser and it has also recognized that it is an evaluation method that has to be referred to whenever possible and if the valuator does not refer to it, he may (be) liable for not assessing the property at its fair market value, its potentiality value.

. . . we must conclude that a prudent vendor and again I am referring to the notional market, or a speculator would realize the potential value that the piece of property had because of the existing circumstances, ie, the fact that a neighbour had no other option, no other efficient option or any other option than to expand in the easterly direction, ie, on the subject land and that would have a value in excess to solely mathematical value as fixed by the assessor, Mr Phoenix for the Minister.

. . . I submit to you . . . that the valuation, after you have done it, must make sense and I submit to you . .. that Mr Phoenix’ valuation does not make any sense. As I said, I am sure his principles that he has applied in a theoretical context are complete. I believe that they are correct but I also believe, based on his testimony, that Mr Phoenix has no business experience. He has been theoretically trained. He has gone to school. He has articled with the Tax Department and he continues to work for the Tax Department. . . . There is a real world where there are purchasers and vendors, and not everything can fall into its neat compartment as taught to you in school. There are people who are willing to pay more, vendors that are willing to pay less. What Mr Phoenix has not done is he has not made a logical conclusion. He has made a theoretical conclusion of the valuation of this particular leasehold interest at V-day . . . Let him make a valuation of the leasehold interest at $10,000.00, $1,000.00, $100.00, $1.00, 1¢, something, and then we have a question of the difference in valuations, but don’t tell me that that lease is worth nothing, not a cent, not a penny, nothing. It just doesn't make sense.

He (Mr Phoenix) refused to look at the subsequent sale for $185,000.00 because he was mandated to do a V-day approach and only a V-day. . . . How, looking at it from the point of view of a symmetrical valuation, how can it be possible that a lease would suddenly acquire a value . ..

The evidence before the Board was to the effect that the circumstances had not changed in the intervening period. How could the lease be worth nothing, nil, nil at 12 o’clock one day, and suddenly the next morning it wakes up to be reborn at $185,000.00.

. . .It is our opinion .. . that we have proved the special purchaser. It is our opinion that the jurisprudence as quoted to you ... establishes that one can take into account a special purchaser. Mr Phoenix ignores it.

On the other hand, it’s submitted that Mr Wise’s valuation does have the symmetry that I am looking for. It does have logic. It makes sense.

The question of whether or not a special purchaser existed at the time and using a subsequent transaction to confirm his hypothesis makes sense. It gathers together all of the evidence ... I think the taxpayer has taken a much more logical ap- proach to the valuation, Mr Chairman. The taxpayer was a businessman. He sold the lease. Came time for the taxpayer to file his income tax return. He took the position that the value of the lease, since nothing had changed, was the same on V-day as it was when he sold it at $185,000.00. He filed his income tax return claiming no capital gain, no capital loss.

... our expert witness has come with a valuation that we feel represents fair market value of the leasehold interest as of December 31st, 1971. Therefore, we submit that the burden has shifted from the appellant to the respondent’s shoulders.

... I Submit to you that Mr Phoenix’ valuation report, although probably very skilled in its theoretical concept, is just not a practical valuation report and for the purpose of this appeal should be disregarded.

Counsel for the respondent contended:

... the issue boils down to the question of whether the appellant’s position should be maintained that the leasehold interest was worth $185,000.00 on V-day. They have now taken the position that it was worth $152,000.00 shall we say, and the Department, of course, has taken the position in its valuation report that the value of the leasehold was nil on V-day. .. . the assessment was issued on the basis that it was worth 67 odd thousand dollars.

Now, the real question ... is: Has the value set by the appellant been substantiated, that is, has its initial approach which has been changed now to $152,000.00, well, has that value been substantiated?

. . . the valuation report (for the appellant) is based solely on the existence of a special purchaser in the marketplace as of V-day, Mr Chairman, and I think this is the crux of the matter here before you today. Since Mr Wise has admitted in cross- examination that his valuation report was based solely on the premise that one special purchaser could be identified in the marketplace as of V-day and since our position is, of course, that no such special purchaser had manifested itself, no special purchaser was identifiable in the marketplace as of V-day and, therefore, Mr Wise’s valuation report does not make sense because its basic premise is nonexistent. . .. even if there was one identifiable special purchaser in the marketplace as of V-day, we will take the position that one special purchaser is not sufficient to increase or cause the fair market value to increase by such a substantial amount.

We are of the opinion . . . that the existence of only one special purchaser will only increase the market value by one tick above (normal for market value).

. . . Mr Wise’s valuation is based on hindsight.

. . . I’d like to quote from the Canada Valuation Service which is, I believe, by Mr Campbell who is a very well-known valuator and I’d like to quote especially from page 5-23. Now, on this question of special purchaser, Mr Campbell has this to say. I’m starting at the very bottom of this page 5-23:

‘However, in the interests of equity, it seems that where a special purchaser price is implied in an actual post-1971 transaction .. .’

which seems to be our case,

‘. .. the determination of a valuation day value should give consideration to such purchasers . . .’

and this is a very important part:

‘. . . If it can be demonstrated that they were in the market as at December 31, 1971. To apply different rules for open and notional market transactions can result in undue hardships on taxpayers . . .’

et cetera.

. . . Mr Wise admitted that for a special purchaser to be considered, there would have to be evidence of the existence of that special purchaser in the marketplace as of V-day, and I included a photocopy of an article published by Mr Wise in the Canadian Tax Journal very recently in the September/October issue of 1981 of the Canadian Tax Journal, and I’d like to quote from page 630 in particular:

‘The special purchaser concept, particularly where V-day valuations are concerned, is not often readily acceptable to the Business Equity Valuation Section of Revenue Canada. In this regard the taxpayer’s valuation must clearly demonstrate that one or more special purchasers did in fact exist in the marketplace at V-day. For example, if in 1981 a sale took place to a party who can be considered a special purchaser — and that such purchaser had also been in the marketplace as a special purchaser at V-Day.’

So, we submit. .. that Ogilvie was not a special purchaser in the marketplace as of December 31st, 1971, and that would be a basic condition for taking the existence of a special purchaser into consideration for valuation purposes.

It is clear indeed that Ogilvie was not a special purchaser for the simple reason that it became a special purchaser when it needed land for that particular project it decided upon and since the expansion decision, the expansion project was only conceived in May of 1973 and decided upon probably in 1974, and it is that special project that made Ogilvie a special purchaser, how could Ogilvie be a special purchaser as of V-Day?

. it is irrelevant for our purposes that Ogilvie did indeed become a special purchaser later on. The question we have to answer is was Ogilvie a special purchaser as of V-Day . . .

. . . no evidence has been adduced to explain what could have happened before 1969, which is the time when Dominion Metal purchased that leasehold interest from Bancroft and the building for $42,000.00. Dominion Metal was of the view at that time that the lease did not have any value whatsoever. They attributed the whole purchase price of $42,500.00 on the building and they took depreciation on that amount, and that was in 1969.

I’d like to refer to Exhibit R-2 which will confirm this, R-2 being the Deed and R-1 being the 1969 Tax return of Dominion Metal.

. .. Nothing indeed had happened; nothing has happened from 1969 to, at the earliest, May 1973 when Ogilvie Mills, through Mr Lamothe, first manifested itself in the marketplace .. .

And I’d like to go back again to the Canada Valuation Service and I’d like to quote this time from page 5-19, proposition A:

‘If there is only one special purchaser for a particular asset, he will pay slightly more than ordinary purchasers would pay to assure that he is the successful bidder.’

. . . the basic premise once again that underlines Mr Wise’s valuation report is that Ogilvie was a special purchaser in 1971 . . . he concluded that Ogilvie was indeed a special purchaser from V-day from facts which became known in 1973 and later.

Furthermore, the value arrived at is also based on hindsight in the sense that Mr Wise took 1974 and 1975, took what Ogilvie was prepared to pay in 1975 and he transferred that into 1971 dollars and he said, well, this is what the value of the leasehold interest should have been in 1971.

. .. that value of $152,500.00 is arrived at from a starting point which is three (3) or four (4) or maybe five (5) years beyond the valuation date and I have included cases dealing with the question of hindsight.

. . . He (Mr Phoenix) concluded that the Mill Street lease was not so favourable to the tenant, that is to Dominion, relative to the market, that a prospective sub-lessee would pay anything for it beyond assumption of the tenant’s obligations under it.

He attempted to ensure that the value of the amount of the transaction was attached or could be attributed entirely to the building and, if that was the case, then there was no value or no value left to the lease rights.

So, in order to do that, he verified with Bancroft. He verified the Municipal valuation for the building which, for the years 1971 and 1972, stood at $64,000.00, which would seem to indicate that the amount of the transaction at $42,000.00 a couple of years earlier, would be approximately the value of the building.

And he also checked the books of Dominion Metal and Dominion Metal claimed depreciation or attributed the whole $42,500.00 as the value of the building in its books, and it took depreciation on that amount for buildings where it could have, because in 1969 the leasehold interests were indeed depreciable under the Income Tax Act.”

Findings

I have only quoted from jurisprudence above which appeared to me to be particularly critical. Considerably more was referenced by counsel and, because of the research and detail evident in the preparation for this case on both sides, and the unusual nature of the issue, I do note with gratitude the other jurisprudence cited and the related professional articles provided which touched on the subject of valuation and, in particular, with circumstances in which a “special purchaser” should be considered.

Dealing first with the question of the admissibility of the reports of the two respective evaluators, I would note that the qualifications and experience of Mr Wise in the general field of business appraisals, consulting and financial management advice, are imposing. While I recognize that he may lack a specific qualification as a real estate appraiser and evaluator, I would not reject consideration of his opinion in a matter of this kind. Equally, Mr Phoenix has had a directly relevant background and is a qualified appraiser. His report must be given weight. I refer to the comments in Fambau, (supra) at 1034:

In my view, and certainly in the circumstances of this case, the qualifications and competence of the author of a report to express a reliable opinion may be demonstrated more adequately in the examination of the report itself than in a detailed examination of the author.

I would also refer to Goodwin v MNR, [1982] CTC 2675; 82 DTC 1679, presently under appeal, and I would accept the contention of counsel for the appellant in this case that, if a prima facie case in support of the appellant’s position has been made, the onus should shift to the respondent, and a critical examination of the Minister’s report and evidence would be warranted. In Goodwin, (supra), no valuation information of consequence was presented at the hearing. That situation does not face the Board in this matter.

Before proceeding, I would also quote certain portions from Exhibit A-3 — a document of assignment from Bancroft to Dominion dated December 22, 1969, which was approved by the owner of the land in this appeal, who was obviously also the lessor. The question of ownership, interest or rights to the buildings in the property was not raised at the hearing, and the Board sees no reason to consider that as pertinent to the decision in this matter:

BANCROFT INDUSTRIES LIMITED . . . “THE VENDOR” . . . does . . . sell, convey, make over and assign . . .

UNTO:

DOMINION METAL & REFINING WORKS LTD . . . , “THE PURCHASER”

A) The Vendor’s Leasehold rights under the terms of a deed of Lease . . . number 42752 . . . part of original lot 517 . .. the whole of lot 518, the whole of lot 515 . . . part of lot 520.

B) Included moreover in the said sale are the buildings erected on the said property bearing civic numbers 870 and 900 Mill Street, which the Vendor warrants to belong to it in absolute ownership free and clear of all hypothecsand inscriptions.

I would also note that in Lease 42752, (supra), while there is reference to approvals required before any building or construction on the land, there is no reference to the leasing by the lessor (or any reference at all) to the buildings which were on the property at December 31, 1971, and which were discussed at the hearing.

That situation, at least for me, seems to clarify the problem to some degree. That the appellant sold the building (to whatever degree the company had an interest in it) and transferred the lease is evident. Any payment received was therefore for the appellant’s interest in one of both of these properties. Stripped of its appendages, the position of the appellant is that the amount paid by Ogilvie in 1976 was for the lease only, with no value attributable to the buildings, and that since nothing physically had changed since 1971, that same approach to a V-Day value should be acceptable. Indeed, in support of this position, it is noted that Ogilvie did demolish the buildings. Having done so, it did seem logical to the appellant that Ogilvie paid $185,000 for only a piece of paper — the lease — giving that company the rights inherent therein. By extension, as I see it, that lays open to question the basic conclusion of the respondent’s witness — that the value to a purchaser of such an amount paid should apply only to the buildings and not to the rights in the land lease. Clearly Ogilvie did exactly the opposite in 1976. But enough said for the moment about the respondent’s position; it is of prime importance to follow the logic of the appellant from the position above in 1976 back to the value ascribed to the lease as at December 31, 1971. That logic, again when stripped of its appendages, is that the acquisition of the leasehold interest — apparently vital to Ogilvie as a purchaser in 1976, was equally vital to that company in 1971. If that is accepted, as I follow the testimony and evidence, then whether or not Dominion was aware of the vital characteristics to Ogilvie of the piece of paper it possessed, that Critical requirement did exist for Dominion as a vendor and should be acceptable as the basis for valuation of a theoretical sale of the vendor’s interest in 1971 had that sale occurred, according to the appellant. I am prepared to accept two points of that proposition: that the acquisition of the leasehold interest was vital to Ogilvie in 1976; and that Dominion had no knowledge of any specific interest by Ogilvie in 1971. I believe the first point above is self-evident and, as for the second point, I believe there are four facts in evidence which support it conclusively. The first is a paragraph in Exhibit A-7 — an internal Ogilvie memorandum written by Mr Lamothe, reciting a very early contract with the agent for the lessor of the land, regarding acquisition. The memorandum contains the following comment:

. . . he relayed to me that during the last few months both Bancroft and Dominion Metals had endeavoured to sell their buildings, and transfer the land leases to a potential buyer. He went on to say there had been a few potential buyers but the negotiations fell through . ..

Clearly, before the date of that memorandum dated May 8th, 1973, Dominion did not know Ogilvie might be interested and, more importantly, Ogilvie did not know that Bancroft or Dominion were interested in such a transaction. The second point also arises from an internal Ogilvie memorandum dated October 12, 1973 (Exhibit A-8) relative to a meeting held by Mr Lamothe with a Mr Lazare, President of Bancroft:

In the course of our conversation Mr Lazare revealed that he had transferred these Seaway land leases to Dominion Metal & Refining Works last year; and had also sold the buildings on those lots to the same party under a separate Deed. (This came a bit as a surprise as it severely contradicts information received from The Royal Trust Company last summer.)

As I see it, as of October 12, 1973, Ogilvie was not aware of the ownership of the lease and, although Ogilvie’s information may have been in error, only during the summer of 1973 had it made any specific attempt to determine that ownership.

The third point is that only two years before V-Day (October 6, 1969) Dominion had acquired from Bancroft the interest in the lease. Unless Ogilvie’s interest in the property dramatically rose between that date and December 31, 1971, it is difficult to conclude that if such an interest existed prior to 1969 (and it is contended that it did), that either the lessee or the lessor prior to October 1969 had any such information. And fourthly, the lease at issue (42752) came up for renewal in 1972. Again had there been such a vital interest by Ogilvie that might have been an appropriate time at which to consider making arrangements for its transfer. The reason that Dominion was unaware of any interest by Ogilvie is because there is no evidence that Ogilvie had such an interest. If it existed, Ogilvie had not articulated it, indicated it or acted on it in any way. It was as much “notional” to Ogilvie as it was to Dominion — it simply did not exist. Considering the acknowledged difficulties of any possible expansion which faced Ogilvie, perhaps it should have, but it is not for the Board to speculate on the reasons that such an interest was not evident before 1973.

To fully accept the rationale of the appellant on this point, the Board would need to agree that Dominion knew in 1971 that there was a special purchaser — Ogilvie — and acquired the lease, held on to it at least partly for that reason, and finally sold it even though Ogilvie was not aware of its own Critical requirement for the property. That I do not accept. In fact, for the Board to accept that proposition would place the appellant precariously close to engaging in a venture in the nature of trade rather than acquiring and using a capital asset for earning of income. I would refer back to a quotation given by the appellant, from an article by Mr Angus Allan, (supra), and I would point out that there is no evidence that a “special purchaser” was already in the market place, nor was the lease offered for sale even in 1976 by the appellant, with the consequent result that a special purchaser arose. Ogilvie went looking to acquire the lease and a price consistent with the circumstances which obtained in 1976 was agreed upon.

The report of Mr Wise, together with the notes and authorities prepared by counsel for the appellant in argument, present a formidable case in general terms for the consideration of the “special purchaser” concept in valuation proceedings. I can only presume that a “special purchaser” presupposes “special circumstances” which militate to attribute a different than normal value to a particular property or transaction. In more specific terms, however, I am less convinced that the term “special purchaser” is completely synonymous with the term “notional purchaser”. To his credit, Mr Wise restricted his comments to provide for such a distinction, and I quote from page 6 of his report:

The definition of fair market value also contemplates the highest price obtainable; therefore, the existence inclusion of one or more “special purchasers’’ or “special interest purchasers” in the market was considered by us. Based upon the information reviewed, the explanations provided to us, and the results of our enquiries, we have concluded that Ogilvie Mills was a special purchaser in the marketplace on the valuation date.

A special purchaser is generally considered as one who, for one or more reasons, such as the ability to achieve through acquisition or combination various synergistic benefits, would be prepared to pay a higher price for the asset being acquired than would other, ie, “ordinary” purchasers — that is, those who more typically look merely to the investment aspects of the property or asset.

While one may speak of the “notional market place”, I would believe it prudent not to allow a blurring to result which would permit an abstract prospect for a sale (arising out of the idea of a “notional market place”) to assume proportions of a “special purchaser” as that appears to be examined in the jurisprudence and relevant articles. Any V-Day value (except in the most unusual circumstances) is a notional value, and I can quite accept that in reaching that value due consideration should be paid to a “special purchaser”. However, the circumstances must be limited indeed under which one may usefully speculate on what might have occurred if a property had been put on the market place for sale and extrapolate therefrom the emergence of a special purchaser whose own interest in the property had not previously even been evident to him. The method of valuation presented in Mr Wise’s report was aptly described by counsel for the respondent in argument, (Supra): “Mr Wise took what Ogilvie was prepared to pay in 1975 and he transferred that into 1971 dollars . ..”. As I see it, that was a purely mathematical exercise — a procedure specifically rejected as applicable by Mr Wise.

Finally, I come to a rhetorical question posed by counsel for the appellant in argument: How can it be possible that a lease could suddenly acquire value? The Board is not called upon to answer that question, that can only come from Ogilvie; but the evidence is clear that the value of $185,000 attributed to it in 1976 does not provide the basis for considering that it had a value of $152,500 in 1971. I have expressed my reservations about the conclusion of the respondent’s appraiser that the lease had no value simply because, according to him, any ascertainable quantum was more directly associated with the buildings. Nevertheless, there is no evidence before the Board that in 1971 it did have any value to the vendor (more appropriately transferor) who became the appellant in this matter. The proposition of the appellant that Ogilvie, in 1971, was a “special purchaser”, has not been substantiated.

The appeal is dismissed.

Appeal dismissed.