Date: 20090626
Docket: T-215-08
Citation: 2009 FC 670
BETWEEN:
HALIFAX
REGIONAL MUNICIPALITY
Applicant
and
HER MAJESTY THE QUEEN, as
represented by
Public Works
and Government Services Canada
Respondent
and
Docket: T-1358-08
BETWEEN:
HALIFAX
REGIONAL MUNICIPALITY
Applicant
and
HER MAJESTY THE QUEEN, in right of Canada,
as represented by
Public Works
and Government Services Canada
Respondent
REASONS FOR JUDGMENT
PHELAN
J.
I. INTRODUCTION
[1]
To
say that the Halifax Citadel is priceless is obvious; to say what its value for
taxes may be is less clear. This judicial review concerns the value of the
Halifax Citadel for purposes of federal payments in lieu of taxes.
[2]
There
are two court files involved, but they were heard together. File No. T-215-08
is the judicial review of the recommendation of the Payment in Lieu of Taxes
Dispute Advisory Panel (Panel) to the Minister of Public Works and Government
Services Canada (Minister) in respect of the assessment value of certain property
at the Halifax Citadel.
File No. T-1358-08
is the judicial review of the decision made by the Minister accepting the
recommendation of the Panel. For reasons to be discussed, this second judicial
review is the operative one; the Panel’s recommendations being essentially
subsumed into the Minister’s decision.
Both
proceedings deal with the provisions of the Payments in Lieu of Taxes Act,
R.C.S. 1985, c. M-13 (‘PILT Act’ or ‘the Act’).
II. BACKGROUND
[3]
The
Applicant has applied to this Court to have the Minister’s decision set aside
and for a declaration that the value of the property is that determined by the
provincial assessment authority. In the alternative, the Applicant requests
that the matter be referred back to the Panel so that it might render a new
recommendation for payment in lieu of real property taxes which is in
conformity with the PILT Act and the Nova Scotia Assessment Act, R.S.N.S.
1989 c. 23.
[4]
The
legislation at issue, the PILT Act, arises from the fact that the federal government
constitutionally is not subject to provincial or local taxation on its lands,
buildings, and certain other assets. In recognition that the loss of this tax
base can be a significant burden on local authorities, the federal government
formerly made grants in lieu of taxes as a matter of policy. That policy is now
enshrined in the PILT Act, which defines the “federal property” it applies to, sets
up a process for determining payments, and provides a means for addressing disputes
regarding what payments may be due.
[5]
The
Halifax Citadel consists of approximately 48.5 acres of land with the
improvements (buildings and related structures), and is zoned as a “Regional
Park”
by the Halifax Regional Municipality (HRM). It is also designated as a National
Historic Site according to the National Parks Act, S.C. 2000, c. 32.
[6]
The
parties agreed that the Citadel’s “highest and best use” is as a national
Historic Site.
[7]
The
parties agreed that the land under the eligible and ineligible improvements
comprising the entire Halifax Citadel was federal property and subject to
payments under the PILT Act. The parties even agreed on the valuation of the “federal
property” consisting of the eligible improvements.
[8]
The
parties were not able to agree on the valuation of the land, whether it was
land under the eligible improvements or land under the ineligible improvements,
for the taxation years from 1997 to 2005 inclusive.
[9]
The
parties were also not able to agree on the valuation of the casemates and
demi-casemates, which are the total or partial shellproof chamber in a fort or
rampart with openings for cannon-fire and the usual place for storage of
ammunition and supplies. However, the parties did agree that the casemates and
demi-casemates were federal property and eligible improvements only for the
years 1997-2000, and that after the year 2000 they were excluded and as a result of an amendment to Schedule II
of the PILT.
[10]
For
situations where the taxing authority (in this case the provincial assessment
authority) disagrees with the department’s assessment (in this case, the property
value), the Governor-in-Council may appoint an advisory panel – the Panel – to
advise the Minister, as was done in this case.
[11]
The
mandate of the Panel is described in s. 11.1(2) of the Act:
|
11.1 (2) The
advisory panel shall give advice to the Minister in the event that a taxing
authority disagrees with the property value, property dimension or effective
rate applicable to any federal property, or claims that a payment should be
supplemented under subsection 3(1.1).
|
11.1 (2) Le
comité a pour mandat de donner des avis au ministre relativement à une
propriété fédérale en cas de désaccord avec une autorité taxatrice sur la
valeur effective, la dimension effective ou le taux effectif ou sur l’augmentation
ou non d’un paiement au titre du paragraphe 3(1.1).
|
[12]
The
HRM disagreed with the property value which Public Works and Government
Services Canada (the department) officials had determined. Therefore, in this
case, the matter upon which the Panel was to advise the Minister was the value
of the property at the Halifax Citadel.
[13]
The
Panel conducted itself as if it were a property assessment review tribunal
determining the value of the property at issue. Both parties called witnesses,
introduced exhibits, and made written submissions. The hearing was conducted
June 25-29, 2007, and was preceded by a tour of the Halifax Citadel.
[14]
As
will be discussed further, “property value” is defined in the PILT Act as:
“the value that, in the opinion of the
Minister, would be attributable by an assessment authority to federal property
… .”
[15]
The
Panel issued a report (Report) providing its own view of the valuations, the
details of which are also discussed later. The net result is that, while the
HRM viewed the amount to be paid as approximately $15.5 million over the past
10 years and the department concluded that the amount should be $2.2 million,
the Panel determined the amount to be $2.5 million.
[16]
A
striking feature of this case is that, while the Minister accepted the conclusions
of the Panel’s Report, it was not the Report which was before the Minister but
a four-page Memorandum from the Deputy Minister which recommended that the
Minister accept the conclusions of the Panel. The Report itself did not form part
of the certified Tribunal Record submitted in the judicial review of the
Minister’s decision.
[17]
The
Memorandum to the Minister outlined that there was roughly an $11 million
difference between what the department had accepted as payable and what the HRM
viewed as its entitlement. There was a brief explanation of the impact of
changes in the legislation on the valuation, and there was a spreadsheet
showing annually the wide variation between the property valuations.
[18]
The
bulk of the Memorandum to the Minister consisted of a discussion of the first
judicial review against the Panel’s Report, redacted solicitor-client advice, a
discussion of the risk of costly repercussions on other properties if the HRM
were successful, as well as a notation that a communications strategy had to be
prepared before the decision was announced. The Minister signed the Memorandum
indicating that he accepted the Panel’s advice.
[19]
On
July 29, 2008, the Minister, having accepted the recommendation, advised
officials of HRM of this fact, stating that he had given the matter careful
consideration. The letter informing HRM of the decision contained no
information concerning the factors considered or analysis undertaken by either
the Minister or his staff in deciding to accept the Panel’s recommendation.
[20]
Subsequent
to the commencement of the second judicial review, the Applicant demanded the
Tribunal Record, the contents of which are described above. There was no
evidence that either the Minister or his staff conducted any review or analysis
of the basis for the Panel’s advice.
[21]
The
Applicant does not take issue with the sufficiency or paucity of the Tribunal
Record supporting the Minister’s decision, and agreed with the Respondent that
the Panel’s Report formed part of the Minister’s reasons.
[22]
Therefore,
for purposes of this judicial review, the Panel’s Report must be taken (and
indeed was taken) as the reasons for the Minister’s decision.
A. Panel
Report
[23]
The
Panel began by noting the matters the parties had and had not agreed to and
that, as a result of amendments to Schedule II of the PILT Act, the casemates and
demi-casemates were expressly exempted as “federal property” after the year
2000 and became ineligible improvements.
[24]
The
Panel set out the issues before it as being: the value of the land of the
Citadel (whether the improvements on the land were eligible or ineligible), and
the value of the casemates and demi-casemates. The values were to be arrived at
for purposes of calculation of the payments in lieu of taxes. By way of
amendment to the Report, the Panel also considered the Cavalier Building
Remainder.
[25]
The
valuation of land was for the 2005 taxation year and the valuation date for
assessment purposes was January 1, 2003, in accordance with the “base date”
prescribed by the Director of Assessment under the Nova Scotia Assessment
Act.
With regard to the casemates and demi-casemates, the valuation was for the 1997
taxation year.
[26]
As
part of the Panel hearing, the Applicant prepared a full appraisal of the
disputed components of the Citadel sites. The Citadel lands were valued at $19,000,000
and the improvements were valued at $20,606,000 (including $7,315,900 for the
casemates and demi-casemates), for a total of $39,606,000.
[27]
The
Respondent addressed specifically the federal property that was both eligible
and in dispute and, through its expert, opined that land under the eligible
improvements should be valued at $286,000, the remainder of the lands at a
notional value of $10 and the improvements in dispute at $2,233,550, for a
total value of approximately $2.5 million.
[28]
In
this hearing the Respondent submitted that the Applicant’s figure included
approximately $18.3 million of ineligible federal property, property that is
not subject to the PILT Act, and approximately 2.7 million of already agreed
upon valuations. Thus, the Respondent submitted that the Applicant’s valuation
could be represented as totalling approximately 18.6 million.
[29]
The
Panel developed its own methodology to arrive at values of $1,550,010 for the
land and $4,761,200 for the improvements in dispute, for a total value for PILT
purposes of approximately $6.3 million (approximately 2.6 million without the
Cavalier Building Remainder).
III. ANALYSIS
A. Decision
to be Reviewed
[30]
In
Court File No. T-215-08, filed on February 6, 2008, the Applicant sought
judicial review of the Panel’s recommendation. Given the uncertainty
surrounding the PILT Act, it was a prudent step. However, the operation of the
Act is much clearer as a result of the Court of Appeal’s decision in Montréal
(City) v. Montréal Port Authority, 2008 FCA 278, which was delivered on
September 19, 2008 – after the filing of the applications but before the
hearings in this matter.
[31]
It
is clear that a panel established under s. 11.1 of the PILT Act is truly
advisory in nature, not determinative. The fact that the Minister may accept a
panel’s advice does not lessen the fact that the decision to accept the advice
and the decision to pay or not, which the Minister is empowered to make
pursuant to s.3(1) of the PILT Act, is the responsibility of the Minister.
[32]
Therefore,
there can be no judicial review of the Panel’s Report per se as it is
neither a “decision, order or … matter”. The judicial review of the Panel’s
Report will be dismissed without costs.
[33]
More
problematic is the Minister’s decision, and most particularly the reasons for
that decision.
[34]
If
the reasons were those contained in the Deputy Minister’s Memorandum, they are
so devoid of analysis of the basis for a refusal that they could not stand
judicial scrutiny. In many cases, the fact that the Minister never saw the
Report would undermine the Minister’s exercise of discretion even if one
accepts that much of the real work on the file and the analysis would be
performed by officials, as must occur in a modern democratic system.
[35]
However,
the parties have taken a different approach to this litigation and agreed that
the real reasons for the Minister’s decision were contained in the Panel’s
Report.
[36]
Therefore,
the Panel’s Report, as forming the reasons for the Minister’s decision, must be
the basis for review, though not the Report standing on its own.
[37]
As
such, the principal issues in this judicial review are the scope of the
Minister’s discretion in determining the property value, and the reasonableness
of the decision made in this instance.
B. Standard
of Review
[38]
With
respect to the issue of the authority of the Minister to determine the property
value differently from the value determined by an assessment authority, the
standard of review is correctness. The question of the Minister’s jurisdiction
in this regards stems from the interpretation of the phrase “in the opinion of
the Minister” found in the definition of property value at s. 2(1) of the PILT
Act. In the present case, the determination of the Minister’s power hinges on
the interpretation of a phrase of general use in conferring powers of
discretion (see Montreal (City), above, at paragraph 38), and is of such
legal importance that it reaches beyond the scope of this particular dispute
and relates to other aspects of the operation of the Act (Dunsmuir v. New
Brunswick,
2008 SCC 9 at paragraph 60). As such, it is a question of law which attracts a
standard of review of correctness.
[39]
However,
with respect to the decision and reasons for coming to a different value determination
than that of the Nova Scotia Director of Assessment, the Court of Appeal has in
Montréal (City) pronounced on the standard, and concluded that it is
reasonableness. While the element being varied in this case (property value)
differs from the element being varied in Montreal (City), above, (effective
rate), the rationale for the standard of review is sufficiently similar. That
rationale centres on the fact that an opinion is to be formed and therefore, in
so far as the Panel’s reasons are those of the Minister, the appropriate
standard is reasonableness.
C. Ministerial
Discretion
[40]
The
essential issue between the parties was the determination made by the Panel as
to the “property value” to be used for the calculation of payments.
[41]
“Property
value” has a specific meaning and defined parameters which impact on the
Minister’s discretion. It is defined, at subsection 2(1) of the PILT Act, as
follows:
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"property value" means
the value that, in the opinion of the Minister, would be attributable by an
assessment authority to federal property, without regard to any mineral
rights or any ornamental, decorative or non-functional features thereof, as
the basis for computing the amount of any real property tax that would be
applicable to that property if it were taxable property;
|
« valeur
effective » Valeur que, selon le ministre, une autorité évaluatrice
déterminerait, compte non tenu des droits miniers et des éléments décoratifs
ou non fonctionnels, comme base du calcul de l’impôt foncier qui serait applicable
à une propriété fédérale si celle-ci était une propriété imposable.
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[42]
The
Applicant argues that the Minister’s discretion or opinion is so circumscribed
by the statute that he/she is bound to accept the Director of Assessment’s
conclusion on property value. HRM contends that such a limitation on the
Minister’s discretion is consistent with the definition of “property value” and
consistent with the purpose of the legislation and the recognition given to the
“assessment authority” in the definition section and throughout the legislation.
The Applicant argues that the Court of Appeal’s decision in Montréal (City),
above, which determined that the Minister is able to vary the assessment
authorities’ determination, dealt with both different facts, a different
provision relating to tax rates rather than property value, and that comments
on the general scheme of the legislation were obiter.
[43]
I
cannot accept the Applicant’s argument. To accept such a position is to render
the Minister’s “opinion”, referred to in the definition of “property value”,
meaningless. Such a conclusion has been rejected, albeit in different
circumstances, by the Court of Appeal. While aspects of the Montréal (City)
decision, above, are obiter, the comments or conclusions on the standard
of review, the statutory scheme, and the exercise of Ministerial discretion are
particularly germane to this judicial review and ought to be followed.
[44]
The
Respondent, on the other hand, takes the position that the words “would be” in
the phrase “would be attributable by an assessment authority to federal
property” must be read as “should be”. The purport is that the Minister would
have complete discretion to impose his view of the applicable property value,
without regard for the assessment authority’s view.
[45]
To
accept the Respondent’s position is to substitute words and to ignore
Parliament’s intention that the assessment authority have a role in the
calculation of the property value. It bears mentioning that the determination
of the property value is not determinative of whether or not the Minister makes
payment in lieu of taxes. Pursuant to s. 3(1) of the PILT Act, the Minister has
the discretion to not make payments in lieu of taxes. However, the Minister’s
discretion is narrower when it comes to determining the “property value” as
defined in the PILT Act.
[46]
The
use of the phrase “would be attributable” in the definition of “property value”
(s. 2(1) of the PILT Act) covers situations where no assessment may have been
made as well as where an assessment has been made. Where an assessment
authority has made a determination of value, the Minister need not speculate on
that value but must, in reaching his own opinion, determine what is
unreasonable or unsupportable about the assessment authority’s determination.
In that regard, the Minister’s discretion is circumscribed by the
reasonableness of the assessment authority’s determination. In this way there
is a concordance of the discretion of the Minister with the respect or regard
to be shown to assessment authorities.
[47]
Had
Parliament intended the interpretation advanced by the Respondent, there would
have been no reason to refer to a valuation made by an assessment authority.
Given the role accorded to assessment authorities, taxing authorities, and
other provincial entities throughout the Act, the Respondent’s interpretation
is at variance with the recognition of these entities.
[48]
Nothing
in the Court’s interpretation undermines the discretion of the Minister, on
proper grounds and at the end of the process, from denying in whole or in part
a request for a payment in lieu of taxes.
D. Panel
Advice/Reasons - Reasonableness
[49]
As
noted earlier, the role of the advisory panel is truly advisory. It is to give
advice on matters of property value, property dimension, and effective rate in
the event of a disagreement as to the applicable determination. There is
nothing that speaks to the procedures an advisory panel may follow and, given
its nature, there is nothing which implicitly suggests that the panel is
conducting a hearing or engaging in what is tantamount to a litigation or
dispute arbitration process – as was done in this case.
[50]
In
this case, there is nothing in the Record which suggests that the Panel gave
any particular regard to the assessment authority’s value, other than as a
party before it. The Panel embarked on an inquiry as to what it would do in
respect of valuations, rather than truly engaging in an inquiry as to what was
unreasonable about the Director of Assessment’s assessment. Given the nature of
the Minister’s discretion, as discussed above, this is an error. As, given the
particularities of this specific case, the Panel’s Reasons are those of the
Minister; the Minister’s decision suffers from the same infirmity – whether one
classifies it as a legal error or as an unreasonable conclusion.
[51]
As
for the reasonableness of the Panel’s determination of value, the Applicant
disputes the assignment of a nominal value of $10 for all the land under
non-eligible improvements as an unreasonable rejection of accepted appraisal
theory. The Applicant also challenges the Panel’s determination that the
Citadel’s designation as a National Historic lessens the property value.
[52]
However,
on this second matter, the property is also zoned as Regional Park Zone under
HRM’s own land-use by-law and is therefore not comparable property to that of
surrounding areas. A fact which cannot be ignored.
[53]
Further,
it is clear that the Nova Scotia Assessment Act
must inform any PILT evaluation, and that Act would also take into account the
National Historic Site restrictions. The relevant provision of the Nova Scotia Assessment
Act is subsection 42(1), which reads as follows:
42 (1) All property shall be
assessed at its market value, such value being the amount which in the opinion
of the assessor would be paid if it were sold on a date prescribed by the
Director in the open market by a willing seller to a willing buyer, but in
forming his opinion the assessor shall have regard to the assessment of other
properties in the municipality so as to ensure that, subject to Section 45A,
taxation falls in a uniform manner upon all residential and resource property
and in a uniform manner upon all commercial property in the municipality.
[54]
The
provision establishes that the market value of a property shall be informed
principally by the market comparison approach, which is “the value indicated by
recent sales, listings or offerings to purchase comparable properties in the
market” (see Gander International Airport Authority v.
Gander (Town), 2008 NLTD
120).
[55]
While
the Applicant relies on T. Eaton Co. v. Alberta (Assessment Appeal Board)
(1995), 128 D.L.R. (4th) 469 (Alta. C.A.) to argue that the current
owner can be considered as a possible purchaser and that the special value of
the site to Canadians can be used to determine what might be paid for the
property or the value thereof, that reliance is misplaced. The fact that a
property is of significance does not automatically designate someone as a
potential purchaser.
[56]
Furthermore,
the Alberta Court of Appeal, in T. Eaton Co., above, made it clear that,
while the special value to an owner may be taken into account in circumstances
much like those in the current matter (where there is no existing market for
the property), an assessor cannot directly equate market value to the
subjective value of the property to the present owner. At paragraph 30 of T.
Eaton Co., above, the Alberta Court of Appeal wrote:
In Montreal v. Sun Life Assur. Co. of Canada, [1952] 2 D.L.R. 81, the
Privy Council held
that in determining the market value of a building for municipal tax purposes
the assessor may take into account the present owner as a possible purchaser of
the property and consider what it would be willing to pay for the property if
it were entering the market for property to meet its specific requirements, or
the amount it would be willing to spend to replace the subject land. In his
judgment, Lord Porter made it clear that this did not entitle the assessor to
equate market value to the subjective value of the property to the present
owner. He said at p. 90:
But the owner must be regarded like any other purchaser and the
price he would give calculated not upon any subjective value to him but upon
ordinary principles, i.e., what he would be prepared to pay, if he was entering
the market, for a building to meet his requirements, or would be willing to
expend in erecting a building in place of that which is being assessed.
[Emphasis added]
[57]
However,
the Panel’s own valuation of the land is also unreasonable. Firstly, there is
no justification advanced, under the market value approach, for dividing the
land under the eligible improvement from the land principally comprised of the
glacis (the sloped land surrounding the fortification which provides an open
line of fire). No sound explanation for this differentiation was advanced.
[58]
Secondly,
the Panel rejected as a comparator a sale relied upon by the Applicant’s expert,
citing the Citadel’s presumably unchangeable National Historic Site status as limiting
the value, but then used the sale price from the rejected comparator to
calculate the value of the land under the eligible improvements. The Panel then
added a 4.56/square foot demolition cost to that value; a notion completely inconsistent
with the Panel’s reliance on the site designation and its “highest and best
use” as a citadel.
[59]
Thirdly,
the Panel ascribed a nominal value of $10, in toto, to the land under the
glacis without explaining how the comparable land (land under the eligible
improvements) could have a significantly higher value.
[60]
The
Panel’s reasoning and conclusion is not justified, transparent, or
intelligible. It does not fall “within a range of possible, acceptable outcomes”
(Dunsmuir, above, at paragraph 47). The subject matter of this aspect of
the Panel’s reasons is not trivial, nor can it be disregarded in the context of
the whole of the decision. The notion of dividing the land in this manner for
market purposes, and the conclusions which flow therefrom, is unreasonable.
[61]
In
a somewhat similar manner, the Panel reached an unreasonable conclusion with
respect to the value of the casemates and demi-casemates (the full or partial
bomb proof chambers used for weapons and other storage in a fort or rampart).
The assessment of whether the functional/economic depreciation calculated by
the Panel is reasonable is inherently factual and is dependent on whether the
panel adequately justified its conclusions, as required under Dunsmuir,
above.
[62]
The
Panel concluded that the casemates and demi-casemates were not being used as
shelter and storage (except for short-term). The Panel concluded that a
discount for functional/economic depreciation should be applied, without having
regard for the fact that the Citadel is a historic site and must be maintained
as such.
[63]
The
Panel then applied a 50% discounted value without any precise evidence of
non-use or other relevant evidence. There is no explanation or rationale for
the quantum of discount applied.
[64]
In
view of the above, the Panel’s conclusions cannot withstand a probing
examination, nor is there a proper articulation of the Panel’s rationale, much
less a proper analysis of the unreasonableness of the assessment authority’s
valuation.
IV. CONCLUSION
[65]
For
all these reasons, the Applicant’s judicial review will be granted and the
Minister’s decision is quashed. The matter is to be remitted to the Minister
for a new determination. In the event that the advice of an advisory panel is
sought, it must be a new panel. The Applicant shall have its costs.
“Michael
L. Phelan”
Ottawa,
Ontario
June 26,
2009
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