Halifax v. Cunard & Co. Ltd., [1975] 1 SCR 458

Supreme Court of Canada

Halifax v. Cunard & Co. Ltd., [1975] 1 S.C.R. 458

Date: 1974-01-22

The City of Halifax Appellant;

and

S. Cunard & Company Limited Respondent.

1973: November 23, 1974: January 22.

Present: Abbott, Ritchie, Spence, Laskin and Dickson JJ.

ON APPEAL FROM THE SUPREME COURT OF NOVA SCOTIA, APPEAL DIVISION

Expropriation—Compensation—Development value for improbable development—Demolition, renovation and remodelling costs—Disbursements and allowances—Old buildings in current use for business—Halifax City Charter, 1963 (N.S.), c. 53, ss. 408(1), 414.

A commercial and wharf property on Upper Water Street in the City of Halifax having a frontage on Water Street of 87′4″ (including a right of way of 14′) was, together with five buildings, a water lot and an undivided interest in another water lot, expropriated by the appellant for a municipal improvement. There were five buildings consisting of an office building, a main garage, a parking garage and three coal sheds. The coal sheds were in disrepair and did not add to the site value; the other buildings were old but had been adequately maintained and afforded efficient premises for the conduct by the respondent of a fuel business. The arbitration came before Dubinsky J. who was unable to accept the valuation given by one of the expert witnesses of the respondent as “there was no probability or even a possibility that a building such as he envisages would be erected on or near the subject property”, and who concluded of the valuation given by the other expert witness of the respondent that “all of his calculations of value had been based upon assumptions… and many of these assumptions are by their nature required to be simply guesses”. The valuation of the expert witness for the appellant was based on comparable sales adding a value for the buildings and subtracting the “cost of demolition of obsolete buildings, renovations and remodelling to suit a new purchaser’s requirements and space utilization considerations” and was relied upon by the learned arbitrator. The Appeal Division allowed an appeal and varied the award on the basis of a single comparable sale (namely the purchase by the respondent of a replacement site a year and a half after the date of the expropriation of the property the subject of the appeal) and discounting the comparable sale price by twenty per cent.

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Held: The appeal should be allowed.

The comparative approach is in general to be preferred to the “land residual method” as a method of determining value but if there are no comparable properties, the ascertained value of which by recent sales can be cited, and when the lands at the time of the expropriation are devoted to a use much inferior to their highest and best use, the land residual method should be utilized with great care. The finding of Dubinsky J. that the highest and best use of the expropriated property was its use for the fuel business conducted by the respondent rendered the land residual approach useless in this case.

As there was evidence of circumstances which tended strongly to reduce the significance of the single sale (whereby the respondent acquired alternative premises) as a comparable to vary the considered judgment of the arbitrator, who had in mind closer comparables unaffected by any special consideration, for the Appeal Division to depend on that single sale constituted error in principle.

APPPEAL from a judgment of the Supreme Court of Nova Scotia, Appeal Division[1] allowing an appeal from an arbitration award of Dubinsky J. Appeal allowed.

R.N. Pugsley, and H.K. Smith, for the appellant.

A.R. Moreira, Q.C., and D.A. Grant, for the respondent.

The judgment of the Court was delivered by

SPENCE J.—This is an appeal from the judgment of the Appeal Division of the Supreme Court of Nova Scotia pronounced on March 2, 1973. By that judgment, the said Appeal Division allowed an appeal from the judgment of Dubinsky J. pronounced in the Supreme Court of Nova Scotia on June 23, 1970. Dubinsky J. had allowed to the respondent the sum of $162,224.40 plus interest as compensation for the property expropriated.

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The Appeal Division, by its judgment, had increased that amount to $249,196.40.

The premises in question, which had been expropriated by the City of Halifax in order to construct a municipal improvement known as Harbour Drive, were a commercial and wharf property on Upper Water Street in the City of Halifax all having a frontage on Water Street of 87′4″ (which included a right of way of 14′) together with buildings thereon, a water lot, and an undivided interest in another water lot. The buildings were five in number consisting of an office building, a main garage, a parking garage, and three coal sheds. The said coal sheds had not been used for many years and were in such state of disrepair that they added no value to the site. The other buildings, although of wood frame construction and very old, had been adequately maintained and properly improved and afforded efficient premises for the conduct by the respondent of a fuel business. The square footage of the lands and water lots were as follows:

The arbitration came before Dubinsky J. by virtue of s. 408(1) and s. 414 of the Halifax City Charter, 1963 (N.S.), c. 53, and provided as follows:

408. (1) The City shall make due compensation to the owners or occupiers of, or other persons interested in, any land taken by the City in the exercise of any of the powers conferred by this Act, and shall pay damages for any land or interest therein injuriously affected by the exercise of such powers, and the amount of such damages shall be such as necessarily result from the exercise of such powers beyond

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any advantage that the claimant may derive from the contemplated work.

(2) Any claim for such compensation or damages, if not mutually agreed upon, shall be determined as provided by Section 414.

414. (1) If within ninety days from receipt of the notice the owner notifies the Clerk in writing that he deems such compensation insufficient, the amount of such compensation shall thereupon be determined by the Judge of the County Court for District Number One or by a Judge of the Supreme Court and there shall be an appeal to the Supreme Court in banc, and upon any such appeal the Court may review any findings of fact or estimate of value and make such order as it deems just.

(2) If the amount of compensation finally awarded exceeds the amount as set out in the resolution of expropriation, the costs, computed on the party and party scale of the Supreme Court, shall be paid by the City, and if the same does not exceed the amount as set out in the resolution of expropriation, the costs shall be paid by the owner.

Dubinsky J. heard many witnesses and in an exhaustive and very carefully reasoned judgment, assessed the weight he would give to those various witnesses and chose to rely upon the evidence of one Arthur Speed called by the appellant, the City of Halifax.

The respondent, S. Cunard & Company Limited, had adduced the evidence of an experienced and highly successful property developer, a solicitor in the City of Halifax, Mr. Ralph Medjuck, and the evidence of the manager of the appraisal department of a firm of appraisers, Mr. Philip G. Smith.

Dealing with the evidence of Mr. Medjuck, after having carefully considered that evidence in his reasons, the learned trial judge said:

I cannot accept his valuation. From his evidence, as well as that of others, I find as a fact that in March, 1968, there was no probability or even a possibility that a building such as he envisages would be erected on or near the subject property.

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Then Dubinsky J. cited extensively from the evidence of Mr. Smith and concluded with this note:

I found Mr. Smith to be a very sincere witness, quite convinced of the correctness of his figures and obviously desirous of assisting the Court in reaching a proper market value. I am fully satisfied that not for an instant did he intend to mislead the Court. I am equally satisfied that he had greviously misled himself. Therefore, I find that I cannot accept his appraisal. I concur in the words of my brother Hart J., in the Ralph Connor Company Limited case (supra) when he said of him:

Mr. Smith has consistently chosen those factors which will end in the highest value, even though he admits that he is not working from a personal knowledge of the real estate and rental market in this area. All of his calculations of value had been based upon assumptions made from the analysis of previous transactions and many of these assumptions are by their nature required to be simply guesses…. Under these circumstances, a man who is working closely with the buyers, sellers and renters of property in this area on a constant basis is in a better position to give a sound opinion on what a property will bring on the market than an appraiser who does not have this advantage.

The learned trial judge further commented on Mr. Smith’s evidence and continued:

I could go on to give other reasons why I must reject Mr. Smith’s various assumptions and ultimate appraisals, but I feel that it is unnecessary for me to do so. I will merely add this final comment. Nothing could more cogently prove the unrealism of his assessment of market conditions and his unfamiliarity with them, than to point out the following: Mr. Smith comes up on the Market Approach with a price of $277,505.00. However, the Western Union property, a stone’s throw from the subject property and one which I find as a fact to be on a better site because it is centrally located and with a better building physically, became available for sale in June, 1966, for $260,000.00 and, despite the publication of a brochure on it and considerable efforts to dispose of it, was not sold until April, 1969, for the sum of $ 120,000.00. The nearby Halifax Fisheries property, larger than the subject property, with a greater frontage,

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with quite a number of buildings and a fairly good wharf, was the subject of an agreement for sale by the executors of the deceased owner on November 7, 1967, for $115,000.00. At that time, the legal entanglements, which later clouded the sale, had not yet come to light. These two transactions are strong arguments against adopting the views of Mr. Smith. The fact that there was no business being conducted on these properties at the time of their sales, whereas the Cunard property housed a thriving fuel business, does not, in my opinion, lessen the significance of these transactions on what constituted the “market” for properties in the area.

The learned trial judge then turned to the evidence of Mr. Arthur Speed and analyzed and discussed that evidence over many pages of his reasons and concluded by generally accepting Mr. Speed’s expert information.

In the Court of Appeal, Coffin, J.A., giving the reasons for the Court, said:

With deference, it appears to me that the learned trial judge erred in dismissing all the evidence on behalf of the appellant and accepting only that of the respondent witnesses.

Coffin J.A. continued and, in my view, founded his reasons for allowing the respondent Cunard’s appeal by referring to a purchase made by the respondent of property known as the Stairs property. This property had been purchased by such respondent about a year and a half after the date of the expropriation of the property the subject of this appeal and had been purchased as a replacement in order to protect itself from the loss of its business premises. I shall refer hereafter to this factor.

I am of the opinion that Coffin J.A. was not justified in his criticism of Dubinsky J.’s rejection of the evidence of Mr. Medjuck and Mr. Smith. It would seem to me that so far as Mr. Medjuck was concerned, the usefulness of his testimony was simply destroyed by the finding of Dubinsky J. that there was no probability or even a possibility of a building such as Mr.

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Medjuck pictured ever being built on or near the subject site. Mr. Medjuck’s evidence was a very simplified form of the theory of reaching the value of a site by use of a process sometimes called the land residual method. That method consists of picturing the erection on the site in question of a building which will provide the highest and best use of the site. The cost of the erection of such a building is then calculated. The gross income to be derived from the use of the said building again is calculated and thereby the profit from the operation of the building is ascertained. After making proper allowances for costs and for the profits of the operators, the balance remaining is capitalized and that capital is assigned as the value of the site upon which the building is to be erected. As I have said, Mr. Medjuck’s evidence was a much simplified form of that approach but it is subject to all the frailties of the method and entails, to a very large degree, the use of estimation and judgment in the assessment of pretty nearly every factor used in the calculations. If there are no other comparable properties, the ascertained value of which by recent sales can be cited, and when the lands at the time of the expropriation are devoted to a use much inferior to their highest and best use, the approach should be utilized with great care: see Municipality of Metropolitan Toronto v. Loblaw Groceterias Company Limited[2].

As I have said, such an approach would seem to be useless in the present case in view of Dubinsky J.’s finding and also the learned trial judge’s statement in his reasons:

I also find that the use to which the owner itself was putting the land was its highest and best and that, of course, was the fuel business which it was conducting on the land.

The learned trial judge refused to rely on the evidence of Mr. Smith stating, as I have quoted

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above, that although Mr. Smith did nothing to mislead the Court he had misled himself and that on repeated occasions his evidence failed to reflect the realities of the situation. Surely, that is a matter upon which the learned trial judge was qualified to come to a conclusion and his reasons show that that conclusion was based soundly on the evidence.

The Court of Appeal, Coffin J.A. giving judgment for the Court of Appeal, having expressed disapproval of Dubinsky J.’s rejection of the evidence given by the respondent’s appraisers, did not then turn to the evidence of those appraisers and adopt their opinions of value but rather continued:

I don’t see how we can disregard the purchase made of the Stairs property. This took place the year following the expropriation. The reason given by the appellant for the purchase was that it was an effort to protect itself from the loss of its business premises. The price was $6.65 a square foot.

There is evidence that the properties put forward by the respondent as comparable were not in fact as suitable for the appellant’s business as the expropriated property itself. For example, the office building of Cunard’s was well maintained with a good heating system and adequate air conditioning.

The trial judge found that the bare land had a market value of $129,000.00. If we allow $6.65 a square foot, we would reach a market value of $259,350.00 based on 39,000 square feet and allowing nothing for buildings.

I realize that this purchase was made after the expropriation but not very long after. If this amount were reduced by slightly more than 20 per cent, the result would be a value of $200,000.00 which, in my view, is not too high an allowance.

In view of the value I am suggesting for the land, I’m not disturbing the value of $6,000.00 reached by the trial judge for improvements. This results in a value for land and buildings of $206,000.00

With respect, I am of the opinion that adopting this course, the learned justice on appeal fell into error. As he himself states, the Stairs property was sold a year and a half after the expro-

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priation of the property the subject of this appeal. I realize that that in itself does not make the evidence as to such sale inadmissible despite earlier expressions of opinion to that effect: See Roberts and Bagwell v. The Queen[3], where Nolan J., at p. 36, speaking for the Court, said:

In my view, evidence of a sale after the enactment can, in the absence of special circumstances, be relevant to the value prior to the enactment. The sale must be shown to be as free in all respects from extraneous factors such as prior sales and made within such time as the evidence shows prices not to have changed materially from those before the critical date. In other words, the mere circumstance of the sale being before or after a particular date cannot nullify the relevance of subsequent sales while the general market conditions have remained the same. The rule should allow the Court to admit evidence of such sales as it finds, in place, time and circumstances, to be logically probative of the fact to be found.

I point out, however, that none of the elements which Nolan J. was of the opinion should be proved in order to give the sale probative value had been so proved. Neither of the appraisers giving evidence for the respondent had advanced the Stairs sale as a comparable. The sale was put to Mr. Speed in his cross-examination by counsel for the respondent as follows:

Q. And you also heard, in fact, that one [sic] company did buy the Stairs property, for which they paid $6.65 a foot?

A. Yes.

Q. And that is without access to the water frontage.

A. But that is in one of the areas along the waterfront, the downtown section.

The Stairs property was on the east side of Water Street near Sackville Street well to the south of the expropriated property and was located directly behind the Bank of Canada building. The vendor had torn down the build-

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ings and offered the site for sale as vacant land. The Stairs property was well south of the line of demarcation which all appraisers, both those called for the respondent and those for the appellant, agreed delineated a marked drop in the property values in the City of Halifax as one proceeded in a northerly direction from the City Hall.

Mr. Smith, for the respondent, would have placed this line along Buckingham Street, which was the street immediately south of the subject property and some distance north of the Stairs property. Mr. Speed would have drawn the line through the Central Victualling Depot, also south of the property, the subject of this appeal and some distance north of the Stairs property, the dividing line.

Mr. Speed, in giving evidence for the appellant, described the sites south of the said Central Victualling Depot, i.e., in the area of the Stairs property, as containing “the head offices of the banks and the financial community, the trust company, the federal and provincial government building, downtown Barrington Street, and all the various activities that you would find in this type of business district”.

It is also to be noted that the Stairs property was purchased by the respondent and that the respondent, deprived of its property by expropriation, would not be the type of purchaser which would be expected to offer only the going market value in replacing its premises. Moreover, the officers of the respondent gave evidence that the company was interested only in having property on Upper Water Street despite the fact that those officers admitted that they could have done business just as efficiently on premises situated elsewhere.

It would seem that these various circumstances would tend strongly to mitigate against the use of this single sale as a comparable to vary the considered judgment of Dubinsky J. who had in mind many comparables much closer to the subject property and where the sales had not been subject to any special con-

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sideration. It is my opinion, with respect, that to depend on the Stairs sale to the respondent constituted an error in principle. This view is not altered by the fact that Coffin J.A. did not allow the full $6.65 rate per square foot, which was the rate at which the Stairs property was purchased, but in arriving at the figure of $200,000 purported to make a reduction of about twenty per cent, that is, to about $5.13 per square foot. Nowhere in the evidence have I found any justification for such a discount or for limiting it to only twenty per cent. On the other hand, Mr. Speed was of the opinion that there had been sales in that central business area at even $13 to $16 per square foot. Such evidence would indicate the Stairs property could not be considered a true comparable for the subject property.

I, therefore, am of the opinion that the appellant’s appeal, insofar as it deals with compensation for the land taken, should be allowed and I would return to the position taken by Dubinsky J.

I am, however, further of the opinion that Dubinsky J. did not appreciate the exact effect of the evidence given before him and upon which he purported to depend. It is perfectly true, as he has said, that Mr. Speed did give his valuation of the land at $129,150 but, of course, Dubinsky J. was called on to award compensation not for bare vacant land but for land with buildings on it. It is true those buildings were very old and may well have been close to the end of their economic use but they were being used and were being used for the efficient operation of a fuel supply business. Mr. Speed, in his report, which he verified in his evidence, used two different calculations for reaching a valuation “before adjustment for general market factors”. The first of those was simply to multiply 45,352 square feet by a $3.50 rate to get $158,732. Since Mr. Speed had placed the value of the vacant land at only $3 per square foot, it would appear that when considering the buildings and wharf he added 50 cents per square foot. Mr. Speed’s second method of calculation

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was to give the valuations for the buildings, that is, office buildings and the warehouse only, totalling $28,065 and adding that to the wharf valuation which he gave as $11,571, and the vacant land valuation of $129,150 to reach a total of $168,786.

The learned trial judge quoted these figures in his judgment and quoted a statement from p. 21 of Mr. Speed’s report as follows:

Total allowances for cost of demolition of obsolete buildings, renovations and remodelling to suit a new purchaser’s requirements and space utilization considerations, in our opinion, could create a variation of from 10 to 20% in the unadjusted estimates of market value as follows:

	Less 20%	Less 10%	Median
$148,058.00	$118,448.00	$133,253.00	$125,800.00
$168,786.00	$135,029.00	$151,907.00	$143,500.00

His conclusion was that the maximum price which could be realized based upon market conditions would be more in the order of $135,000.00 to $150,000.00 and that the more likely price would be $135,000.00.

It must be noted that the reduction from the figures $148,058 or $168,786 to $135,000 was for “cost of demolition of obsolete buildings, renovations and remodelling to suit a new purchaser’s requirements and space utilization considerations”. Here, I find an error in principle on the part of Dubinsky J. It might well be that a purchaser would carry out renovations and alterations to suit his needs but that would surely be his own responsibility and could not, in effect, be charged back to the vendor. Elsewhere in his reasons for judgment, Dubinsky J. expresses the view, well founded on the evidence, that the demolition of the buildings would cost in excess of $10,000. I think there is a good deal of support for the proposition that a

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purchaser faced with a situation where he would have to demolish at least the coal sheds, which I have said were in utter dilapidation, would insist on a deduction of $10,000 from what would otherwise be the market value of the land, and therefore I am of the opinion that if we were to take Mr. Speed’s minimum figure of $148,058 and his maximum figure of $168,786, we would find a median of $158,422, and allowing a deduction of $10,000 from this amount we would arrive at a value of the expropriated property at $148,422.

I am of the opinion that the appeal should be allowed to replace the figure of $206,000 as found in the Appeal Division with the figure of $148,422.

Argument in this Court also dealt with a large variety of alleged disbursements and allowances against the expropriation. Those allowances were fixed by Dubinsky J. at $27,224.40 and were increased by the judgment of the Appeal Division to $43,196.40. I see no error in principle in the consideration of this matter by the Appeal Division and I am not ready to disturb the assessment of these various claims in that Court.

In the result, I would allow the appeal and reduce the compensation awarded to a total of $148,422 plus $43,196.40, that is, $191,618.40. Interest at the rate of five per cent should be allowed on that amount from March 19, 1968 to December 30, 1968, at which date the City of Halifax paid the amount of $80,850, and then on the remaining sum of $110,768.40 to the date of final payment.

The judgment of the Appeal Division provided that the respondent S. Cunard & Company Limited should have costs on the original hearing and on the appeal before that Court. I would not disturb that finding but in view of the reduction resulting from the appeal to this Court

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of nearly $60,000, I would give to the appellant the costs in this Court.

Appeal allowed with costs.

Solicitor for the appellant: Ronald N. Pugsley, Halifax.

Solicitor for the respondent: Arthur R. Moreira, Halifax.