Metro. Toronto v. Loblaw, [1972] SCR 600

Supreme Court of Canada

Metro. Toronto v. Loblaw, [1972] S.C.R. 600

Date: 1972-06-29

Municipality of Metropolitan Toronto (Contestant) Appellant;

and

Loblaw Groceterias Company Limited (Claimant) Respondent.

1971: March 1, 2, 3, 4, 5; 1971: October 5.

Rehearing 1972: May 29; 1972: June 29.

Present: Martland, Judson, Ritchie, Hall and Spence JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Expropriation—Compensation—Valuation—Vacant land of unique kind—Possible approaches to fixing amount of award—Comparative method and land residual method—Land residual method adopted.

Certain lands of the respondent, comprising 25.45 acres and located in the centre of an older portion of the City of Toronto, were expropriated by the appellant municipality. These properties, the cost of which totalled $374,050, had been acquired by the respondent in a series of purchases which commenced in 1953 and continued until 1955. What had made it possible to acquire roughly 25 acres of vacant land in the said area in 1953 was the fact that a very deep and irregular gully had run through the lands. For many years, the gully had been used as a municipal garbage dump. The dump had been filled and the gully, covered with a little land fill, stood vacant.

The two possible approaches to fixing the amount of the award in the expropriation of vacant land and especially vacant land of a unique kind are the comparative method and the land residual method. The comparative method may be described as the consideration of actual sales of like lands in a like area and a determination from such comparison of the going market value of the lands in question at the date of the expropriation. The land residual method, a much more sophisticated method, takes, as its starting point, the purpose for which the lands were purchased (in this case for “developing a shopping centre of sorts”), determining by a series of very detailed and expert calculations just what sort

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of a shopping centre would be the highest and best use of the land, the estimate of the income which would be obtained were such type of shopping centre permitted on the lands, taking the cost of erecting the shopping centre and taking the difference between the capitalized income from the lands and the cost of erection of the centre as being the residue assignable to the value of the lands.

There was such a variation between the result of the evidence given by the witnesses for the appellant and for the respondent on the land residual basis that the arbitrator was unable to accept that method of ascertaining value. He, therefore, turned to the comparable method and in the result awarded the owner the sum of $635,000. Giving reasons for the Court of Appeal for Ontario, Kelly J.A. felt unable to accept the judgment of the arbitrator based upon the comparable use and came to the conclusion that in the particular circumstances of the subject property, the land residual method alone could give a proper result. The arbitrator’s award was varied by the judgment of the Court of Appeal to increase the amount to $1,300,000. An appeal by the municipality was then brought to this Court.

Held (Judson and Hall JJ. disssenting): The appeal should be allowed in part.

Per Martland, Ritchie and Spence JJ.: The view of the Court of Appeal as to the basis upon which to fix the award was approved. However, on a consideration of Kelly J.A.’s analysis of the said land residual evaluation, the appeal should be allowed to the extent of varying the award from the $1,300,000 figure as reflected in the judgment of the Court of Appeal to $832,300.

Per Judson and Hall JJ., dissenting: No errors in law were discerned in the reasons and conclusions of Kelly J.A. and, therefore, his award should be upheld.

APPEAL from a judgment of the Court of Appeal for Ontario, increasing the amount awarded by Moore CO.Ct.J. in an arbitration

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proceeding arising from the expropriation of certain lands of the respondent. Appeal allowed in part, Judson and Hall JJ. dissenting.

W.J. Anderson, Q.C., J.B. Conlin, Q.C., and R.R. MacDougall, for the contestant, appellant.

W.L.N. Somerville, Q.C., and J.A. Coates, for the claimant, respondent.

The judgment of Martland, Ritchie and Spence JJ. was delivered by

SPENCE J.—This is an appeal from the judgment of the Court of Appeal for Ontario pronounced on March 18, 1970, whereby that Court increased to $1,300,000 the award in favour of Loblaws for the expropriation of 25.45 acres of land taken by the Municipality of Metropolitan Toronto under By-law No. 372 enacted on March 6, 1956, and By-law No. 653 enacted on August 13, 1957.

By its judgment, the Court of Appeal for Ontario had allowed an appeal from the judgment pronounced on October 23, 1968, by His Honour Judge Moore acting as an arbitrator under the provisions of The Municipal Act, R.S.O. 1950, c. 243, and The Municipal Arbitrations Act, R.S.O., 1960, c. 250, whereby he had allowed the claimant, here respondent, $635,000 as compensation for the expropriation of the said lands.

The lands had been acquired by Loblaws in a series of purchases which commenced in 1953 and continued until 1955. The total cost of acquiring the lands which, as I have said, covered 25.45 acres, was $374,050. It would seem to be agreed that the purpose of the assembly of these lands by Loblaws was for the erection of a modern shopping centre. His Honour Judge Moore said:

I am satisfied, upon the evidence, that Loblaws, prior to the expropriation, had every intention of developing a shopping centre of sorts upon the subject land.

(The italicizing is my own.)

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The land was unique. It was located well nigh in the centre of an older portion of the City of Toronto east of the Don River and it had very limited frontage on any street consisting of a narrow access onto Greenwood Avenue on the west and Chatham Avenue to the north. Chatham Avenue is one block south of Danforth Avenue, the main traffic artery through east Toronto running from the Prince of Wales Bridge over the Don River easterly into Scarborough where it joins the Kingston Road, and Greenwood Avenue is a north-south street of medium importance running through the area very roughly from the waterfront to the Don River. The area is made up of middle-class homes many and most of them in the immediate area being over half a century old. Immediately south of the 25.45 acres purchased, the Canadian National Railway right of way ran across east Toronto and it was bordered by industrial sites of a large variety. The lands are about three and a half miles north and east of the central core of the city but are served by excellent transportation to that central core which, prior to the expropriation, consisted of street car and bus lines, the former connecting with the Yonge Street subway at the corner of Yonge and Bloor Streets.

What had made it possible to find roughly 25 acres of vacant land in this area in Toronto in 1953 was the fact that a very deep and irregular gully had run through the lands. For many years, this gully had been used as a municipal garbage dump and there are places where this so-called sanitary land fill was seventy feet deep. The garbage dump had been filled and this gully, covered with a little land fill, stood vacant. Since the last purchase had taken place in 1955 and the first expropriation by-law was enacted in 1956, Loblaws had very little opportunity to proceed with their development of a shopping centre. In fact, although there was considerable evidence of planning of what was to be done with the land, Mr. J.W. Combs, the chief expert witness for

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Loblaws, could only produce, on the arbitration, some very undetailed sketches marked as exs. 42 to 49 which bore various dates from July 20, 1953, to June 13, 1955. Mr. Combs described these sketches as delineating a very uneconomical use of the site and ignored them in his work.

The purpose of the expropriation by the Municpality of Metropolitan Toronto was to provide the Toronto Transit Commission with the yards for the Bloor Street subway which was then under construction and the property now contains the very extensive Greenwood yards of the Commission.

For some years after the expropriation, Loblaws and the Toronto Transit Commission worked very strenuously to evolve a scheme whereby Loblaws could obtain the use of the air rights above the railway yards and develop a shopping centre thereon. All these negotiations were in vain because it proved uneconomical to install the very costly foundations in this filled land which would have been necessary to carry the railway yards and a shopping centre over the top of them. Therefore, the expropriation proceedings did not proceed until Loblaws served its notice of claim dated May 30, 1967.

In a situation such as this, the expropriation of vacant land and especially vacant land of this unique kind, there are two possible approaches to fixing the amount of the award for such expropriation. I need not repeat a reference to the various cases where the valuation has been described but perhaps it has been best said by Rand J. in Diggon-Hibben Ltd. v. the King[1], at page 715:

…the owner at the moment of expropriation is to be deemed as without title, but all else remaining the same, and the question is what would he, as a

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prudent man, at that moment, pay for the property rather than be ejected from it.

The two methods whereby such valuation so defined by Rand J. may be ascertained are, respectively, the comparative method and the land residual method. The comparative method may be briefly described as the consideration of actual sales of like lands in a like area and a determination from such comparison of the going market value of the lands in question at the date of the expropriation. I shall make further comment on this method hereafter.

The second method, the land residual method, is a much more sophisticated process. It takes, as its starting point, the purpose for which the lands were purchased which, to quote again the words of Moore J., were for “developing a shopping centre of sorts”, determining by a series of very detailed and expert calculations just what sort of shopping centre would be the highest and best use of the land, the estimate of the income which would be obtained were such type of shopping centre permitted on the lands, taking the cost of erecting the shopping centre and taking the difference between the capitalized income from the lands and the cost of erection of the centre as being the residue assignable to the value of the lands.

Both methods of finding the value were canvassed before Moore J. in a hearing which lasted many weeks. Moore J., in very lengthy, detailed and careful reasons for judgment, outlined, with some particularlity, the evidence given by witnesses for the claimant and the municipality upon both topics. There was such a variation between the result of the evidence given by the witnesses for the claimant and for the municipality on the land residual basis that Moore J. was unable to accept that method of ascertaining of value.

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The difference was indeed startling. Mr. Combs, giving evidence for the claimant Loblaws, would have assigned a value of $2,655,013 to the lands purchased less than two years previously. Mr. Kelly, another witness for the claimant, arrived at an even higher figure of $3,600,000. Mr. Harris, giving evidence for the contestant, would not have advised purchasing the lands for the purpose of a shopping centre at all, i.e., that they were not worth the $374,050 paid for them. In arriving at this conclusion, he depended for his analysis of the shopping potential upon a report made by Mr. Hatfield, a marketing analyst. Moore J., therefore, turned to the comparable method.

It would seem that few comparables were cited by witnesses for either the claimant or the defendant. Moore J., in coming to his conclusion, took into account only two of the properties which had been discussed in evidence before him as being properly comparable to the subject property saying:

Of all sales referred to, it is my opinion that the Dufferin and Laidlaw properties are the closest comparables, the former giving a value of $25,000 an acre in 1955 and the latter $50,000 in 1956.

In applying this information to the subject site I would list the following differences or deterrent factors in the development of the subject site. Firstly, it is oversized, considering my conclusion that it had a potential as a neighbourhood shopping centre only. Secondly, the development costs would be high because of the nature of the site. Thirdly, it was an “in-board” site with no frontage on a major thoroughfare. Thus it would generate traffic problems, ingress and egress would be difficult. There were existing uses along the west side of Greenwood such as wreckers’ and lumber yards, which might give a poor site presentation. Fourthly, there would be the problem of disposing of the methane gas generated by the filled land. It would appear from the evidence that mechanical devices could overcome this problem, however. While a zoning amendment would have to be sought, ex. 60 would seem to indicate that such an amendment would be obtained

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with very little difficulty. Finally, there would be the rights of way which if they could not be extinguished would present problems with reference to the placing of buildings on the site.

As plus factors, I would list the lack of competition in this area, or in any event, the lack of effective competition, the population density, and the natural trade barriers that surrounded the area. There would be ample on-site parking.

Discounting for the minus factors and adding to compensate for the plus factors, and considering that the centre would be in operation in 1960 or 1961, I conclude that Loblaws would have paid $635,000 for the subject property rather than be ejected from it in March, 1956, including the land expropriated in August, 1957. This figure represents the worth of the postponed value to the claimant of the subject lands considering the factors referred to above as of the date of taking.

I therefore award the claimant as full compensation for the lands taken the sum of $635,000 with interest at 5 per cent per annum from March 6, 1956. The claimant is to have its costs on the Supreme Court scale on a party and party basis.

The fees of the arbitrator, arbitrator’s clerk and the reporter will be borne one half by the claimant and one half by the contestant, the claimant’s share of such costs to be recoverable from the contestant as part of its costs.

It is difficult to determine how Moore J. used those two comparables, if comparables they were. Certainly, the Dufferin property was an almost exact comparable. As pointed out by various witnesses, it was a property approximately twenty acres in extent which was vacant; it had formerly been a race track, was situated in a like middle-class residential and light industry area about the same distance northwest of the centrol core of the city as the subject property was northeast, was serviced with the same kind of transportation,

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and was in every way a like property except that buildings erected thereon would not incur the very heavy foundation expenses due to the filled in land in the subject site. As I have pointed out, the price paid for that land in 1955 was only $25,000 per acre while the Laidlaw Lumber yard property at the corner of Bloor Street West and Dundas Street, in a somewhat better area, only ten acres in extent and having a very limited frontage on Dundas Street alone, had been purchased in 1956 for $50,000 an acre. It is difficult to make an assessment of the plus and minus factors referred to by Moore J. in the part of his reasons which I have quoted above, and it is difficult to assign any exactness to his result of $635,000.

Giving reasons for the Court of Appeal for Ontario, Kelly J.A. felt unable to accept the judgment of Moore J. based upon the comparable use and came to the conclusion that in the particular circumstances of the subject property, the land residual method alone could give a proper result. With respect, I agree with that view and I turn now to consider Kelly J.A.’s analysis of the said land residual evaluation.

As I have pointed out, the evidence given by the various experts on this topic differed very widely.

Moore J., upon the arbitration, had expressed himself in reference to the witness Combs, giving evidence for the claimant, as follows:

While I do not question Mr. Combs’ veracity as a witness, I do question the weight to be attached to his evidence. He was called as an expert to give his opinion to assist me in determining the value to the owner of this property. It would appear that he has had a long and close association with Loblaws both in a business sense and as an adviser. Mr. Combs gave expert testimony on behalf of this claim-

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ant in a previous hearing to determine compensation (Re Loblaw Groceterias Co. Ltd. and Minister of Highways for Ontario, [1964] 1 O.R. 271). One looks for independence in a witness called to give expert testimony. I do not feel that there was that degree of independence in Mr. Combs that his evidence could be accepted without the closest scrutiny and a consideration of his evidence and any other evidence that might run contrary to it.

With respect, I agree with Kelly J.A.’s comments in reference to this comment on Mr. Combs’ evidence. Mr. Combs was giving evidence on behalf of a claimant and one could only expect this evidence would be as favourable to the case of the claimant as he could in conscience make it. It is the duty of any tribunal to consider the evidence and once the credibility of the witness has been accepted, as it was in the case of Combs by Moore J., then to weigh that evidence and give it the probative value which the tribunal thinks appropriate. Kelly J.A. proceeded to address himself to evidence of not only Combs but the other expert witnesses called on behalf of both the claimant and the contestant, and particularly to attempt an analysis of the very great difference between the results of the evidence given by the two groups. The issue between these two groups, of course, was the gross income which could be expected from a shopping centre which would have been built on the said lands.

Combs estimated that the sales potential of the shopping centre to be erected was $57,000,000 per year, while Messrs. Harris and Hatfield had estimated that that sales potential per year varied from $5,530,000, if one scheme had been used, to $10,990,000, if another scheme had been used. In coming to his conclusion that the much lower sales potential would be realized, Mr. Hatfield had made a calculation of the total gross income of persons resident in the trade area by means of family income and had assimilated into a simulated family all persons residing within the trade

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area whether or not in fact they belonged to à family. Mr. Combs, on the other hand, had based his calculation on household income.

Kelly J.A. found, after a detailed analysis of census returns, that the latter approach was the more accurate, and as a result found that the aggregate gross income of those within the trade area of the proposed shopping centre was $382,916,000 per year.

Mr. Combs, in his analysis, had divided the trading area into three, designating them as the primary trading area, the secondary trading area, and the tertiary trading area. In reaching his estimate of the gross income for the proposed shopping centre at $57,000,000 he had assigned $43,000,000 of that to the primary trading area, $10,000,000 to the secondary trading area, and $4,000,000 to the tertiary trading area.

Kelly J.A. said, “It seems unlikely that a shopping centre on the subject site would have attracted any substantial number of outside customers. For this reason, I would not accept Combs figure of $57,005,000.” Kelly J.A. took the figure of gross income, as I have said, at $382,916,000 and assessed that 44 per cent of that amount would be expended in the purchase of what Kelly J.A. characterized as category goods, i.e., such goods as would be sold in the proposed shopping centre. This amount would be expended by the residents of the primary trading area for the purchase of such category goods in one year both in the primary area and elsewhere. The resulting figure was $168,483,000. I am ready to accept that analysis as being the most accurate calculation which could be made.

The central core of the City of Toronto houses very few residents as it is almost wholly occupied by business and commercial sites, both retail and wholesale outlets and office space. However, the evidence adduced showed that 15.9 per cent of all the sales of category goods made in the Metro-

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politan Toronto area were made in that central core. Kelly J.A., therefore, reduced the figure of $168,483,000 by 15 per cent to $141,694,300, and concluded that that latter figure would then represent the sale of category goods to the residents of the primary trading area for the proposed shopping centre in a year. The statistics produced showed that, in fact, in that primary trading area the sale of such category goods at the time of the arbitration was only $134,106,300, so Kelly J.A. averaged those two figures to accept $137,900,300 as “a very reasonably accurate projection of the expenditures in category goods made by trade area residents in the trade area”. With respect, I have very considerable doubt as to the accuracy of such a calculation. It implies that the residents of this particular trading area would purchase the same percentage of goods in the downtown area as the residents of every other area including many suburban areas, very large in extent, and housing many persons of a much higher income bracket than those in the primary trading area.

I do not know whether statistics could be developed to show percentage of goods purchased in the central core by North York residents as compared to East Toronto residents but, apart from such statistics, I am of the opinion that the application of the 15.9 per cent generally to each area in the City of Toronto can be, at the best, only a rough estimation.

Even accepting the figure of $137,900,300, with respect, I cannot accept Kelly J.A.’s next step. Having found that the total purchases of the category goods by residents of the primary trading area would, in that trading area, be that amount, he then assigned two-thirds of it to other competing outlets in that trading area and one-third of it to the proposed shopping centre giving to the proposed shopping centre an annual sales

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potential of $45,966,800. Mr. Combs, in giving evidence for the contestant, had assigned 75 per cent of the purchases of category goods in the area to other competing outlets and only 25 per cent to the proposed shopping area. In doing so, Mr. Combs was envisaging a shopping centre of the prime type. In trade practices there are three types of shopping centres: firstly, the regional shopping centre; secondly, a community shopping centre; and thirdly, a neighbourhood shopping centre. The regional shopping centre must contain as an essential drawing card at least one full-range department store. Mr. Combs seems to have envisaged this shopping centre as containing two of them, one perhaps of a limited range. The community shopping centre need contain as a trading area only one limited range department store, while a neighbourhood shopping centre need not contain any such outlet or perhaps only a variety store.

It was the strong evidence of Mr. Hatfield, the marketing analyst, that the subject site could never attract a full-range department store. There were, in Toronto, at the relevant time in 1957, only three such department stores: Eatons, Simpsons and Morgans (now Hudson’s Bay Company). At that time, one of the three had branch department stores outside the central core area until you reached the suburban area, i.e., an area where there was a rapidly increasing population of rather well-off families spreading out beyond the shopping centre in which such branch department store was situated. Many such examples could be found in a semi-circle around Metropolitan Toronto but none could be found in the areas next to the central core. A short time later, the T. Eaton Company established a branch department store in an enterprise known as Shoppers World some two and a half miles further east on Danforth than the subject site. In my opinion, the subject site could not be considered as an alternative to the Eaton store in Shoppers World.

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It was, as I said, two and a half miles closer to the central core and it did not have adjoining it the very rapidly growing Scarborough area from which it would draw ever increasing sales for many years. It was this factor which moved Mr. Hatfield to be very strongly of the opinion that no department store would ever locate on the subject site. I find Mr. Hatfield’s evidence on this topic most convincing and I feel, therefore, that the subject site must be considered in the category of one which could efficiently carry a community shopping centre but not a regional shopping centre.

As Kelly J.A. points out, the possibility of the latter could not be wholly rejected and that it had to be assessed as any other potential but in the assessment thereof I would give it very little weight. Therefore, I can see no justification for the increase in the sales potential of the subject site from 25 per cent of the gross amount to be spent within the area for category goods to 33⅓ per cent. I would assign one-quarter of the figure used by Kelly J.A., i.e., $137,900,300, the total category goods sales in the area, as being the annual sales potential of the subject property with a community shopping centre constructed thereon and round out the figure at $34,500,000.

Kelly J.A. took as the appropriate factor for determining the square foot area of the buildings to permit such annual sales volume of category goods to the figure of $70 per square foot. This was an approximate average of the various rates estimated by Messrs. Combs and Harris as appropriate to the years 1957 to 1963 and, with respect, would seem to be a dependable gauge to determine the size of the building required. It must be remembered that both the second scheme of Mr. Harris and Mr. Combs’ scheme envisaged a full-range department store while the scheme

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which I have said I would find appropriate to the site contained no such department store and therefore the $70 per square foot figure would not seem to be more advantageous to the claimant. This would result in buildings containing 492,857 square feet. Kelly J.A. found that the various schemes submitted in the evidence of the experts resulted in the rentable area containing 95 per cent of the total square foot area of the building. Using the same factor, I am of the opinion that the total area of the buildings would be 518,796 square feet.

Kelly J.A. made an analysis of costs from the evidence given by the expert witnesses and divided costs into two elements, firstly, site preparation and land improvement, and secondly, actual cost of erection of the buildings. As to the first element, Kelly J.A. assigned a cost of $1,986,000. Realizing that it was possible that there might be some reduction from that figure, which had been given by Mr. Combs in reference to the buildings which he suggested and which were larger than those suggested by Kelly J.A., he nevertheless retained that figure for the smaller buildings in view of the fact that the development was necessary even for the use of the lands for parking. For the same reason, I am ready to retain the same cost of $1,989,000 for site preparation and land development. I also adopt Kelly J.A.’s buildings costs of $12 per square foot. That building cost, of course, is quite unrealistic today but one must remember that what is envisaged in any scheme is one-storey buildings built in the year 1960.

Kelly J.A. also used a figure for development costs. Mr. Combs had cited a development cost of $755,000 for buildings containing 794,650 square feet. As I have pointed out, the buildings

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which I envisaged would have had a gross area of 518,796 square feet and, therefore, I adopt a percentage of that arriving at a figure of $492,000.

Therefore, apart from land, the total cost of the shopping centre which I envisaged is as follows:

Site preparation and land development......................	$      1,986,000
Construction costs of building (518,796 sq. ft. at $12 per sq. ft.)	6,225,552
Developments costs.....................................................	492,000
Total cost..................................................................	$      8,703,552

The next problem faced by Kelly J.A. and to which I turn is the gross annual income to be obtained by the owner of such shopping centre. Mr. Combs had cited an average net rent on a square foot basis of $1.77. Mr. Harris had fixed a net square foot rent under his scheme #1 of $1.40 and his scheme #2 of $1.33, but both of those figures represented only the minimum rentals and, of course, all rentals of shopping centre space in modern commercial transactions are on a percentage basis and Mr. Harris found that taking into account such percentages the net rental rate for his scheme #1 would be $1.59 and for his scheme #2 $1.50. Therefore, Kelly J.A. adopted a rate of $1.55 per square foot. I am of the opinion that such a rental rate would not result in a fair award to the landlord of such a shopping centre as I envisaged. It must be remembered that Mr. Combs’ scheme covered a building containing a first and second storey and basement space. Mr. Combs found an average per square foot rental for the ground floor of $2.04, for the second floor $1.86 and for the basement 80 cents.

I am of the opinion that the shopping centre which I project in its net rental income would approximate scheme #1 of Mr. Harris after reflecting therein the percentage rentals, as the

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buildings which it would contain and the stores which would be located there may be more properly described as a community shopping centre which I have found would be the highest and best development of the lands. Mr. Harris found that net rental to be $1.59 per square foot. I therefore choose a round figure of $1.60 per square foot to reflect the net rental income. For 492,857 square feet of space this would give a net rental income of $788,571.20.

Kelly J.A. capitalized the net rental income by using a rate of 8 per cent. Mr. Combs had been insistent that an 8.5 per cent rate was proper and, of course, that results in the cost of the building being returned to the owner in twelve years. The twelve-year period is a useful rule of thumb in commercial transactions. Mr. Harris was in favour of using a capitalization figure of 7.5 per cent. With respect, I agree with Kelly J.A.’s using of the intermediate figure of 8 per cent. Using that figure, one arrives at a capitalized worth of the shopping centre of $9,857,140; taking therefrom the costs of $8,703,730, which I have outlined above, one arrives at a land residual value of $1,153,410.

As Kelly J.A. points out, the land would not have been developed for four to five years and one, of course, must take the present value at the date of the expropriation of the land residual value of that four- or five-year period. Kelly J.A. used a factor to express that present value of .7216 and using the same factor I arrive at a present value under the land residual scheme of $832,300.

I would, therefore, allow the appeal to the extent of varying the award from the $1,300,000 figure as reflected in the judgment of the Court of Appeal for Ontario to $832,300. I would not disturb the award of the costs made by the Court

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of Appeal for Ontario but the appellant, the Municipality of Metropolitan Toronto, should have its costs in this Court.

The judgment of Judson and Hall JJ. was delivered by

HALL J. (dissenting)—This is an appeal from the Court of Appeal for Ontario which increased from $635,000 to $1,300,000 the amount awarded by the arbitrator, His Honour G.H.F. Moore, in an arbitration proceeding arising from the expropriation by the appellant of certain properties of respondent located in the City of Toronto.

Beginning in 1953, the respondent began to assemble land at Chatham and Greenwood Avenues in the City of Toronto. By 1955 it had acquired title to 25.452 acres in separate but contiguous parcels at a cost of $374,050 ($14,670 per acre approximately).

This property was acquired and there is no dispute as to this for the purpose of developing and erecting a shopping centre in which one of the units would be a Loblaw Food Supermarket. Shopping centres are of three kinds, namely:

1. Neighbourhood Shopping Centre—a shopping plaza where a food supermarket is the main business generator;

2. Community Shopping Centre—a shopping plaza where the main business generators are a food supermarket and a variety or junior department store; and

3. Regional Shopping Centre—a shopping plaza which includes one or more full-scale department stores as the main business generators.

There was evidence before the learned arbitrator that respondent intended to develop a regional shopping centre. There was a great deal of conflicting evidence on this point, the contention of appellant being that the regional shopping centre was impractical and uneconomic in that

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no major department store such as Eaton’s or Simpson’s was available or would be interested in going into a shopping centre at this location and that the site was suitable only for a community shopping centre described as No. 2 above. The issue had to be determined on the basis of opinions given by various witnesses because respondent’s plans were necessarily preliminary in nature and not developed to the advanced degree that would have enabled a specific finding to be made because shortly after respondent acquired the 25.452-acre site the appellant expropriated the whole of it for the use of Toronto Transit Commission as a marshalling yard for its subway system.

There is no question but that respondent had the expertise, the capacity and the money to develop and build whatever type of shopping centre it decided it wanted at this location. It had developed and built regional shopping centres of comparable size in other cities.

As previously mentioned, the properties in question here were acquired by respondent for $374,050 over a three-year period and so intent was it on having a shopping centre at this location that for several years after the expropriation it spent some $70,000 trying to work out a joint development of the site with Toronto Transit Commission whereby the shopping centre would be constructed on piles and columns in the air space above the marshalling yards. For various reasons, these joint development plans finally proved abortive mainly because some 16.75 acres of the site was filled land which had previously been used as a garbage dump, and in consequence, the ground would not carry the weight of the structures proposed to be carried on piles or columns and the idea was, therefore, abandoned. Respondent, having no other site, was unable to go ahead with any shopping centre project in this part of Toronto.

The section of Toronto surrounding the subject site is a built-up area with a population of from approximately 217,000 in 1957 to 220,000 in 1961 and to illustrate the trade area that such a

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site would serve it was said that in 1961 there were only seven cities in Canada other than Toronto which had populations in excess of 216,000.

The question committed to the arbitrator by the Municipal Act was the determination of the compensation to which respondent was entitled by reason of the forcible taking of its land. The arbitrator correctly set out in his award the principles which he proposed to apply in fixing compensation and no error was alleged as to the instructions he gave himself upon the appropriate law. In the Court of Appeal the respondent claimed that the arbitrator had not properly applied those principles to the facts and evidence as developed before him.

The case made both for the appellant as well as the respondent before the arbitrator, to a very large extent, was dependent on the market potential of the site and the market potential was dependent on two factors: (1) population and (2) the dollar value of expenditures on consumer goods within the market area to be served from the site. Almost all of the evidence heard by the learned arbitrator was led to arrive at a value on this basis. In making his award the learned arbitrator did not do so on this basis and did not make any specific findings on the very detailed and intricate evidence that he had heard on this manner of arriving at the proper compensation. Instead he proceeded to fix the value to the respondent by what is called the “comparable method” and in using the comparable method the learned arbitrator arrived at his award by reference to the prices paid for lands purchased elsewhere in the City of Toronto which had been developed for a use generally similar to what he found to be the highest and best use to which the subject lands could be put. Kelly J.A. in his reasons for judgment said in regard to this:

No witness testified that these examples were comparable within the meaning of that term usually applied to land valuation; no witness said that his opinion of the value of the subject land was based upon or influenced by the price paid for the so-called comparable lands. In proceeding as he did, the arbitrator, in my opinion, was not deciding judicially upon expert evidence but was acting as his own valuator and making use of certain parts of the evidence for a purpose beyond that for which

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they were tendered. Since he proceeded to fix the compensation by a personal comparison of transactions involving sites which he himself must have decided to be comparable, which conclusion as to comparability was not supportable solely upon the evidence that was adduced before him, the compensation fixed by the award is not a finding arrived at judicially within the scope of the arbitrator’s terms of reference.

I agree with this conclusion.

Kelly J.A. continued:

Having come to this conclusion, I am of the opinion that the award cannot stand. In the normal course, this conclusion would have called for referring the matter back to the arbitrator for his reconsideration of the evidence, having regard to the proper application of the principles to which I have referred. However in this case, having in mind the inordinate length of the hearing before the arbitrator and the exhaustive and exhausting nature of the examination and cross-examination of the witnesses, it appears inappropriate unnecessarily to postpone further some measure of finality in a proceeding which relates to an expropriation made in March 1956, and to subject the parties to the expense involved in a repetition of what has already taken place before the arbitrator.

As was agreed by counsel for both parties, this Court is empowered itself to fix the compensation; this is unquestionably a case in which the power of the Court so to do should be exercised.

In so proceeding, it is inescapable that this Court must take upon itself the role of arbitrator. Since the findings in the reasons for award are not conclusive with respect to the task upon which we have been asked to engage ourselves, we must therefore make findings upon the evidence.

The parties and their witnesses all agree that the highest and best use to which the subject lands could be put was the development thereon of a shopping centre. The claimant, sometime before expropriation, had the fixed intention of so using the property, had the experience and the financial resources to bring the project to an operable state of development and had taken steps to acquire land to round out its original purchase of the major part of the site.

A review of the general nature of the evidence advanced before the arbitrator leads me to the con-

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clusion that in fixing the compensation this Court must place reliance on the testimony of the witnesses whose evidence related to valuation by the land residual technique.

(a) No suggestion appears in the evidence that any method other than the market data or comparable approach or the land residual method would be appropriate—in fact the impression is left that no other methods were even considered and rejected; from the evidence one is left with the impression that there are no other methods.

(b) There is a preponderance of evidence that the land residual method is more appropriate to the problem presented to the expert witness by this property—vacant land but with an admitted potential for development as a shopping centre or plaza.

(c) Whatever value might have been attached to an opinion based on the comparable approach, no such opinion was before the arbitrator, indeed, it is unlikely that any such opinion could have been available because, as was agreed by the witnesses, there was no market data of transactions involving truly comparable properties.

At the arbitration a great deal of time was taken up by evidence dealing with the question whether a shopping centre on the subject lands could have attracted a major department store, and the arbitrator has stated that he “rejected as being too uncertain, remote and improbable the possibility the site could have attracted a standard department store Canadian or American”; he proceeded to determine the value to the owner upon this footing.

I do not read the evidence, even that of the contestant’s witnesses, as ruling out the possibility that, at that time a major department store would have considered the location—particularly in the light of the fact that T. Eaton Company Ltd. subsequently did locate in Shoppers’ World some short distance to the east of the subject site. The evidence to me indicates that the potentialities of the property at the time of expropriation included the possibility of the location of a major department store. As such, this potentiality could not be wholly rejected—it had to be assessed as any other potentiality.

Kelly J.A. then entered upon a detailed analysis of the evidence given by both sides, and having

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considered that evidence, concluded that the opinions of both Combs and Hatfield should be rejected. He then proceeded to see if other appropriate figures could be related to the evidence heard by the learned arbitrator, and having analysed that evidence in detail, concluded by saying:

The learned arbitrator expressed confidence in the testimony of Harris, which had to do with the contestant’s projections based on the site sales potential. I would not question this appraisal of the credibility or reliability of this witness, but as I have already said, Harris accepted as the basis of his calculation and opinion the data supplied to him by Hatfield particularly, the figures on pages 5 and 7 of ex. 66. Since Harris relied on Hatfield’s report for the market analysis resulting in the projection of a site sales potential, Harris’ evidence as to residual land value perpetuates the errors and inaccuracies which I believe are contained in Hatfield’s estimate. Harris’ thesis is but a superstructure built upon a foundation which in my opinion was unsound. In fact, if one adopts the Harris process substituting a site sales potential different from that which Hatfield furnished to him and more nearly that which I view as the correct amount, the results would be so vastly different as to make the result irreconcilable with the land residual value given in his testimony, based as it was on Hatfield’s estimate of site sales potential.

Having reached a conclusion as to site sales potential, Combs by his own processes—Harris by accepting Hatfield’s estimates, the next step followed by the witnesses in their method was to determine in square feet the size of the facilities necessary to accommodate the anticipated volume of business.

Taking the sales potential figures as given by Combs and Harris along with the area in square feet and the volume per square foot, Kelly J.A. arrived at the conclusion that these figures would result in a rentable area of 656,668 square feet which he capitalized as $1.55 per square foot. He also accepted the cost of the whole development at $10,930,400 or $15.80 per square foot gross area and eventually arrived at a residual land value when developed at $1,792,100. He applied a factor for delay of .7216 per cent to reduce that

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figure to $1,293,000 which he rounded out to $1,300,000 which is the amount the Court awarded in lieu of the $635,000 awarded by the arbitrator.

The appellant challenges Kelly J.A.’s final figures and conclusions in three important aspects, namely:

(1) THAT in arriving at the sum of $137,900,300 as a reasonably accurate projection of the expenditures in category goods made by trade area residents in the trade area, he had rejected in his computation Combs’ figure of $57,005,000 as well as Hatfield’s opinion of the site potential.

(2) THAT he failed to make necessary deductions for delay and other contingencies, having in mind that the whole programme would take about four to five years to develop.

(3) THAT he should not have accepted a rental basis of $1.55 and that he should have capitalized the net rent at 8.5 per cent. in lieu of 8 per cent.

I think I can dispose of objection No. 3 by saying that the evidence fully supports the use of the $1.55 figure for rent as well as the 8 per cent figure in capitalizing the rent. As to objection No. 2 above, he applied a factor for delay of .7216 which was based on a discount factor of 8.5 per cent (5.5 per cent interest allowance plus 3 per cent for taxes, risk and holding costs other than costs of money) which reduced the residual land value as of March 1956 when developed from $1,792,100 to $1,293,000 or an allowance of $499,100 to cover the delay factor. Then as to the alleged differential in the estimate of total gross income for the trade area on which objection No. 1 was based, the evidence indicated that Hatfield had underestimated by approximately $45,000,000 per annum the total gross income for the trade area in relation to the amount reported for the same trade area by the Dominion Bureau of Statistics (ex. 73).

I am unable to discern any errors in law in the reasons and conclusions of Kelly J.A., and I

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would, therefore, uphold his award of $1,300,000 and would dismiss the appeal with costs.

Appeal allowed in part with costs, JUDSON and HALL JJ. dissenting.

Solicitors for the contestant, appellant: Gardiner, Roberts, Anderson, Conlin, Fitzpatrick, O’Donohue and White, Toronto.

Solicitors for the claimant, respondent: Borden, Elliott, Kelly and Palmer, Toronto.

On the rehearing of this appeal, the following judgment was delivered by

MARTLAND J.—The Court, by its order of December 20, 1971, gave leave for a rehearing of this appeal in respect to matters raised in the notice of motion for rehearing. Those matters were concerned with three different submissions as to errors in the reasons of the majority of the Court.

The Court had the benefit of a very careful and able reargument in reference to these same matters. The majority of the Court is of the opinion that no material error in its reasons has been established, and its conclusions remain the same as before. The judgment of the Court delivered on October 5, 1971, is therefore confirmed. The respondent upon this application, The Municipality of Metropolitan Toronto, is entitled to the costs of the application for rehearing and of the rehearing.