National Capital Commission v. Colegate, [1974] SCR 1096

Supreme Court of Canada

National Capital Commission v. Colegate, [1974] S.C.R. 1096

Date: 1973-05-07

National Capital Commission Appellant;

and

Robert George Colegate and Patricia Cecilia Gauley Respondents.

1973: March 5, 6, 7; 1973: May 7.

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

ON APPEAL FROM THE EXCHEQUER COURT OF CANADA

Expropriation—Compensation—Market value—Agreement for removal of sand deposits—Development value—Highest and best use—Evidence.

In June 1961 the appellant expropriated for the Green Belt 205 acres of land for which $343,000 was offered. The trial judge awarded (a) to the owner $435,000 for the value of the land and $50,000 for loss of future royalties for the removal of gravel, fill and sand deposits (b) to the party entitled to remove the deposits $42,000 for his interest in the land. The subject property had development value for future residential and commercial purposes but could not have been sold for immediate development due to the absence of services.

Held (Spence J., dissenting): The appeal should be allowed.

Per Martland, Judson, Ritchie and Pigeon JJ.: The land was valued without regard to the agreement for the removal of the sand and to this valuation was added the anticipated benefit likely to accrue to both parties from the agreement for the removal of the sand. This method of valuation is unsound and results in the owner being compensated twice for the rights in the sand, gravel and fill. The basis on which compensation is to be assessed is the market value at the date of expropriation. The proper criterion is what a person interested in buying the subject land would have been willing to pay to acquire it, bearing in mind all the advantages and disadvantages as they then existed. Paid cheques did not constitute decisive evidence of the quantity of sand removed as against data derived from aerial photographs.

[Page 1097]

Per Spence J. dissenting: The possible profit to the owner in the years during which the agreement for the removal of the sand was to run after the expropriation date could not be included in the valuation of $435,000, it was not so included by the trial judge and the trial judge was correct in making an allowance in the compensation for that value.

[National Capital Commission v. Hobbs [1970] S.C.R. 337; Marcus v. National Capital Commission [1970] S.C.R. 39; National Capital Commission v. McFarland Construction Co. Ltd., [1974] S.C.R. 1088]

APPEAL from a judgment of the Exchequer Court of Canada. Appeal allowed.

Eileen Mitchell Thomas, Q.C., and G.W. Ainslie, Q.C., for the appellant.

J.J. Robinette, Q.C., and R. Hughes, Q.C., for the respondent.

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

PIGEON J.—This is an appeal from a judgment of the Exchequer Court fixing compensation in an expropriation case. The appellant, the Commission, had offered $343,000 for 205 acres of land taken in June 1961 for the Green Belt. The trial judge valued the land at $435,000 plus $50,000 to the expropriated owner, the respondent Colegate, as the value to him of substantial sand deposits which the other respondent was, by registered agreement, entitled to remove on payment of a royalty up to August 14, 1968. The trial judge also awarded to the other respondent, the Gauley Estate, a sum of $42,000 for its interest in the land under the agreement for the removal of the sand.

Colegate and his late wife had acquired in 1949 as a legacy from the deceased owner, one McMahon, a 400 acre farm in the township of Gloucester (lots 7 and 8, Third Concession, Rideau Front). In 1952, he signed a very informal agreement granting to a friend of his, one G.

[Page 1098]

B. Gauley, a service station operator, “the sole right to all gravel, fill and sand” on his property for the sum of $100. Under this agreement, Gauley took some gravel from lot No. 7, east of the C.P.R. track which runs approximately north-south, bisecting the two lots near the middle. Although the agreement did not mention it, Colegate testified that his bargain with Gauley was for 10 cents a cubic yard for sand, 25 cents a cubic yard for gravel and topsoil, and that payments were made accordingly.

In 1956, Colegate quit farming. He sold the east part of lot 7 and an adjoining portion of lot 8, 103 acres in all, to Bert Dowler and Dr. Kellam for $1,000 an acre, including the farm house and barn. Dowler had a big gravel pit on lot No. 6. Gauley’s foreman, one Godin, told the Court what happened: “We went in there one morning and were told it was sold”. Although the agreement had been registered against that part of lot 7, Gauley just stopped taking any material.

Two years later, in 1958, a new agreement was drawn up, this time by Gauley’s solicitor. The deed is dated August 14, 1958. It is a grant to Gauley of “the sole and exclusive right to purchase all sand, gravel and fill” on Colegate’s lands “for a period of ten (10) years from the date of this agreement at the price of 25¢ per cubic yard”. There is a provision for payment on the 3rd of each month, for material removed until the end of the preceding month, and an undertaking by Colegate to notify any proposed purchaser or other person dealing with the land. There is no provision fixing a minimum quantity, nothing requiring the grantee to protect the land for future use for other purposes.

[Page 1099]

Gauley built a road about half a mile long which was described by Godin as “good enough to handle ten trucks a day on it, hauling all day”. How much sand was removed prior to the expropriation was a moot point at the trial. A chartered accountant retained by the claimants submitted the following figures prepared on the basis of Gauley’s paid cheques:

Royalti	by Gauley to Colegate Gauley records
1958	372 cubic yards	$        93.00
1959	10,000 cubic yards	2,500.00
1960	51,402 cubic yards	12,850.50
1961	NIL
TOTAL	61,774 cubic yards	$ 15,443.50

On the other hand, J.D. Patterson, a mining engineer retained by the Commission, stated in his affidavit:

After a study of aerial photographs taken in 1958 and 1965 of the Colegate property, I was able to calculate fairly accurately the quantity of sand and topsoil removed during the first three years of Gauley’s agreement with Colegate. My figures are as follows:

Sandy topsoil	10,800 cu. yds.
Sand	22,500 cu. yds.

In his deposition, he further said in answer to the following question from the Court:

Is it possible to calculate with any degree of accuracy, the amount of sand removed or other material removed from a quarry with aerial photographs? Is it possible to do that?

THE WITNESS: It is, yes. When I say accurately, you have to plus or minus 10% of the possible area.

[Page 1100]

The claimants had as their expert witness on the question of sand another experienced engineer, one Gordon McRostie. He had examined Paterson’s affidavit which was filed before the trial. No attempt was made to disprove Paterson’s figures although extensive investigation of the sand on the property had been done. He said he had not tried to make an estimate of the quantity removed, and spoke of “some shallow holes a few feet deep”. The trial judge said:

…Without in any way doubting Mr. Paterson’s competence or reliability as a witness, when one is faced by an irreconcilable contradiction of this sort, positive evidence is preferable to negative, and since the plaintiff was unable to offer any explanation as to why Gauley would be making any payments to Colegate if it were not for royalties on sand removal, and since we certainly cannot assume that Gauley would pay more royalties than he was obligated to, we must assume that Mr. Milner’s figures are correct.

In my view, this finding was erroneous. The evidence of the quantity of sand taken from the land, as ascertained by measurement of the excavations, is not negative but positive. Furthermore, it is evidence of a physical fact susceptible of verification and that cannot be falsified. It stood uncontradicted as to its degree of accuracy. On the other hand, the data compiled by the accountant was built upon the sole basis of some paid cheques. He had made no audit and did not submit his figures as verified in an accounting sense. There was such a paucity of records available to him that the source of the material sold could not be traced. There were some sales of sand in 1961 and none subsequently, but there was no royalty payment for that year. We are dealing here with a creditor who kept no books and said he never checked what he was getting. There is no need to enumerate possible reasons for inflating the payments for sand in the year preceding the expropriation which was then known to be coming. With respect, the trial judge erred in considering as uncontrovertible the accountant’s evidence of the sand paid for in 1960 and in disregarding

[Page 1101]

reliable and uncontradicted evidence of the actual quantity of sand removed from the property.

Concerning the value of the land, conflicting views were submitted by expert valuators called on both sides. There was, however, no conflict as to the highest and best use of the property at the time when it was expropriated, namely on June 13, 1961. The opinion was unanimous that this was to hold it for future development, for residential or commercial uses. However, such development could not advantageously be made before water and sewer services would become available and this could not be expected sooner than some time around 1971.

The trial judge quite properly reached the conclusion that the portion of the property east of the C.P.R. track should be valued separately from the larger portion on the west side. On the basis of the price paid by the Commission for adjoining properties on each side, he allowed $2,200 an acre for the westerly 179 acres and $1,600 an acre for the easterly 26 acres, thus reaching a total of $435,000 for the value of the land. I find it unnecessary to review the evidence on this point because this finding is supported by evidence and there is really no good ground for interfering with it.

Such is not however the situation with respect to the substantial amounts of $50,000 and $42,000 awarded, in addition to the value of the land, as being the value of the Gauley agreement to the owner and to the grantee respectively. In National Capital Commission v. Hobbs[1], this Court said (at p. 339):

…Generally speaking, an owner is entitled to the value of the property to him, calculated on the basis of its highest and best use. This value may be the

[Page 1102]

market value, but it may be more in those cases where, for some reason, the land has a special value to the owner beyond what it would have in similar use by somebody else.

In the present case, the Gauley agreement was clearly a conveyance of an interest in the land. It was not personal to Gauley but it was stipulated to “be binding upon the parties… their heirs, executors, administrators, successors and assigns respectively”. Gauley could freely dispose of his interest. On the other hand, Colegate could not sell the land without the purchaser being bound to allow Gauley or his successors to exercise to the full, if they saw fit, the right to remove all sand, gravel and fill until August 14, 1968. Thus, it cannot be considered that in Colegate’s hands the land had a special value to him beyond what it would have in similar use by somebody else.

Respondent’s case was presented on the basis that, because the land would not be ready for development until some years after the expiration of Gauley’s rights, the land could be valued disregarding the agreement for the sand and then the anticipated benefits on both sides could be estimated and added to the market value of the land. In my view, this involves a fundamental error. It means that on the one hand Colegate would be paid for the land as if he had sold it on the expropriation date at its full value without having severed from the fee the right to the sand etc. but, on the other hand, he would be getting in addition the full monetary equivalent of that right. It is clear from the evidence that no purchaser would have bought on such conditions, that nobody would have paid the full price for the land with Colegate and Gauley retaining all the benefits of their agreement concerning the sand.

The basis on which compensation is to be assessed is the market value at the date of the expropriation. At that time, it is common ground

[Page 1103]

that the subject property could not be sold for immediate development. There was no market for this profitable use because services were not available and would probably not become available before ten years. Therefore, the only market at the date of expropriation was for speculation on future development. This means that the proper criterion for the assessment of compensation was, what a person interested in buying the subject land would have been willing to pay to acquire it, bearing in mind all the advantages and disadvantages as they then existed. This is the test that was applied in Marcus v. National Capital Commission[2]. Would such a person have paid more than the market price of comparable lands on account of the Gauley agreement? The evidence is clear that the answer to this question is no. The agreement could only be a detriment.

There is absolutely no evidence that the presence of sand in considerable quantities on this land made it more valuable than comparable lands in this area. Because the Gauley agreement had obviously been made quite improvidently on behalf of the owner and did not include any safeguards against possible serious detriment, it is clear that in fact a sale would have been practically impossible without the buyer simultaneously making a deal with Gauley. It cannot be assumed that it would have been just as easy to get rid of the 1958 agreement as it had been to terminate the 1952 contract. The onerous terms of the agreement made with Gauley after the expropriation for the division of the compensation money (12 per cent up to a maximum of $60,000) show that this was, to say the least, very unlikely.

It therefore appears to me that in considering how the market value of the land was affected by the existence of the Gauley agreement in June 1961, the only possible answer must be that, because there was no evidence that the value of this particular piece of property was

[Page 1104]

increased above the value of comparable properties by reason of the sand deposits, this market value, the sale price which could have been obtained, was no greater than the market value of the comparable properties. This implies that the value of Gauley’s interest is to be deducted from the market price.

As to the value of Gauley’s interest, it appears to me that it cannot be assessed as claimed, on the basis of an estimate of the realizable profit properly discounted. The most recent case in which this basis was rejected is National Capital Commission v. McFarland Construction Co. Ltd.[3] The proper basis of valuation for this kind of property is the same as for any other capital asset for which there is a market namely: what would a willing buyer pay to a willing vendor? In the present case, the only evidence of the value of Gauley’s interest on that basis is the figure of $10,000 suggested by the witness McMahon: “I would think that somebody might come along and pay Mr. Gauley $10,000 for it”. There is absolutely no evidence of what was the cost of the road that Gauley had built so that it is impossible to make any allowance for that. In the formal judgment, the trial judge did not apportion the payments to be made between the claimants in accordance with their agreement but provided for a joint entitlement. This was not complained of.

For those reasons, I would allow the appeal with costs and vary the judgment of the Exchequer Court by replacing the second and third paragraphs by the following:

It is hereby adjudged that the amount of compensation payable to the Defendant Robert George Colegate is $425,000 and the amount of compensation payable to the Defendant Gerald B. Gauley Estate is $10,000 in respect of the expropriation of the aforesaid lands.

[Page 1105]

It is hereby further adjudged that the Defendants, Robert George Colegate and Gerald B. Gauley Estate, upon delivering to the National Capital Commission a valid and sufficient release or releases of all or any claims, liens, charges or encumbrances of any kind or nature whatsoever which may have existed upon the said lands at the time of the said expropriation, are entitled jointly to be paid the sum of $160,000 (being the balance of the total amount of compensation of $435,000 comprising the above amounts of $425,000 and $10,000 less advance payments of $100,000 and $175,000 respectively) with interest at the rate of 5 per cent per annum on the sum of $435,000 from June 13, 1961 to October 21, 1963, on the sum of $335,000 from October 22, 1963 to October 13, 1967, and on the sum of $160,000 from October 14, 1967 to the date of payment.

SPENCE J. (dissenting)—This is an appeal from a judgment of the Exchequer Court of Canada pronounced on July 14, 1970.

I have had the opportunity of reading the reasons of my brother Pigeon and I shall use the statements of facts contained therein with such additions as are necessary for my purpose. However, with respect, I must differ from my brother Pigeon and I have concluded that the appeal should be dismissed.

The learned trial Judge, Walsh J., in very carefully considered and detailed reasons, awarded to the claimants, that is, the defendants in the action and the respondents here, the sum of $435,000 for the value of the land expropriated and, in addition, allowed to the respondent Robert George Colegate personally and as executor of the estate of his late wife the sum of $50,000 being the expected profits of a contract with the late Mr. Gauley and to the respondents Patricia Cecilia Gauley and Rowell Kenneth Laishley, as executors of the estate of the late Gerald B. Gauley, the sum of $42,000 as the late Mr. Gauley’s profit from the performance

[Page 1106]

of that contract had its performance not been interrupted by the expropriation.

The case for the respondents was presented on the basis that because the land would not be ready for development until eight years after the expropriation the land could be valued for the purpose of land speculation and then added thereto the anticipated benefits both to the owner Colegate and to Gauley, the holder of the gravel contract, from the performance of that contract between the date of the expropriation and the date when the approach of the services would have made the land ripe for subdivision. I can see no objection to such an approach and if the learned trial judge did so approach the problem then the values he set are values set in view of that approach and in view of his opinion of the values under such circumstances. I am of the opinion that the learned trial judge did use such approach. Very early in the hearing, he said:

HIS LORDSHIP: I was wondering whether the Court should see it or not because, obviously, when it comes to judgment I will probably award so much for the value of the land and so much for the value of the contract and the two amounts added together as far as the N.C.C. is concerned—they would be paying a large sum.

Moreover, in giving judgment, Walsh J. said:

In the present case, since the owner could not control the sand extraction at least until 1968 because of the Gauley agreement, it is necessary to attempt to determine what might have been paid for the property alone as a speculation for eventual development purposes, and then decide what value, if any, might be added or deducted from this as a result of the Gauley agreement relating to the sand extraction.

Walsh J., after a very careful review of the evidence given by all witnesses as to land values and the value of the sand contract, outlined in detail the property sales which he considered comparable upon which he intended to base his judgment. Careful rereading of these reasons

[Page 1107]

convinces me that Walsh J. relied particularly on two comparable properties, i.e., as to the portion west of the C.P.R. railway line, on the sale of 25 acres on the McCarthy Road at the south-west corner of the respondent’s property from Isabel Manley to the National Capital Commission for $2,800 per acre and, as to the property east of the C.P.R. right of way, on the sale of a property containing 20.11 acres at $1,740 per acre from the Quebec Metallurgical Industries Ltd. to the National Capital Commission. Both of these properties had been cited by the respondent’s expert witness Whelan and it is interesting to note the very close approximation between the valuation given by Mr. Whelan and the learned trial judge’s findings.

Mr. Whelan had appraised the land west of the C.P.R. right of way at $2,400 per acre. The learned trial judge had allowed a compensation of $2,200 per acre for those lands. Mr. Whelan had appraised the respondent’s property east of the C.P.R. right of way at $1,740 per acre. The learned trial judge allowed $1,600 per acre. In both of these cases, the learned trial judge explained the reasons for the reduction below the valuation by the respondent’s expert. It is noteworthy that the appraisal was made disregarding the sand deposit on the property. The witness Whelan testified:

Q. In making your appraisal did you take into account the sand deposits located on the expropriated property?

A. No, I did not consider the sand deposits in arriving at my estimate of market value.

Q. What is your view as to whether they add or detract from value of the expropriated property?

A. I would certainly say the sand deposits add to the value of the subject property.

[Page 1108]

The learned trial judge had noted that evidence as he summarized in his reasons Whelan’s evidence as to appraisal in these words:

Whelan—179 acres west of the tracks, $2,400, 26 acres east of the tracks at $1,740, total rounded off value, $475,000 with the Gauley agreement not considered.

I, therefore, am of the view that the learned trial judge when he found the value of the respondent’s lands at $435,000 did so considering them purely for speculation purposes and without regard for the possibility that any profit could be made from the removal of sand. However, the learned trial judge was very conscious of the fact that there would be an interval from 1961, the date of the expropriation, to 1968, the date when services could be expected to approach the expropriated lands, when they could have been used for the purpose of removing for sale the sand deposits thereon.

As is my brother Pigeon, I am satisfied that this finding is supported by evidence and there is really no ground for interfering with it. I differ, however, from my learned brother as I am of the opinion that the possible profit to the owner in the years between 1961 and 1968 cannot be included in that valuation of $435,000. I am of the opinion that it was not so included by the learned trial judge and that the learned trial judge was correct in making an allowance in the compensation for that value.

I turn now to the learned trial judge’s assessment of the value to the owner Colegate from the expected operation of the Gauley contract. The learned trial judge here relied on the evidence of Mr. McRostie who had been for some years the engineer for Gloucester Township in which these lands lay and who had, in addition, a very wide engineering experience and an experience in connection with the removal and use of sand for fill purposes. In the agreed statement of facts, the parties had agreed as to the sand deposits in the immediate neighbourhood, the volume of the sand deposits on the part of it which was suitable for sand cushion

[Page 1109]

specifications by the Ontario Department of Highways and, moreover, the volume of it which was in deposits of five feet or greater in thickness which could have been removed west of the C.P.R. lands and with the lands still left for subdivision. Mr. McRostie had given evidence as to the demand for sand and also the price at which sand sold. The learned trial judge realized that the agreement with the late Mr. Gauley did not require him to remove any minimum quantity of sand per year and it was possible, although highly improbable, that Gauley would simply sit on his contract and not remove any sand at all. The improbability arises of the fact that on the evidence of McRostie, which the learned trial judge accepted, sand was in demand and that therefore Gauley would be expected to make the profit which was available to him under the contract by removing sand.

Mr. McRostie’s evidence had supported the view that the respondent’s lands were as available from the point of view of location to the site where the sand would be deposited under the various works under construction as any of the others. Assigning to these lands a certain proportion of the annual demand for sand during the years 1961 to 1968, the learned trial judge found that the value of the sand which would have been removed under the Gauley contract during the years 1961-68 would, on the June 13, 1961, the date of the expropriation, have been $90,292. Due to the fact that Gauley was not required to remove any amount of sand and that he also had other possible sources of sand, the learned trial judge discounted this amount by one-third allowing only $60,000. I am of the opinion that that was a generous discount.

Upon the same costing calculations, the learned trial judge came to the conclusion that Gauley would have realized a profit of $64,497 and then applied the same one-third discount to bring the potential profit to $42,000, again, I would think, a generous discount.

[Page 1110]

Again, realizing that the Gauley contract did not in express terms require the property to be left in a state fit for subdivision, the learned trial judge discounted the $60,000 profit which he had calculated as discounted to the respondent Colegate by a further sum of $10,000 for the purpose of bulldozing in order to prepare for subdivision ending by allowing to Colegate, the owner of the land, the sum of $50,000 to be added to the value of the lands expropriated considered for speculation only at $435,000 for a total of $485,000 and allowing to the Gauley estate the sum of $42,000 for loss of expected profits on the performance of the contract.

I have come to the conclusion that these are proper allowances. I can see no fault either in principle or in the misapprehension of the evidence and I would dismiss the appeal. The respondents are entitled to their costs throughout.

Appeal allowed with costs, SPENCE J. dissenting.

Solicitor for the appellant: D.S. Maxwell, Ottawa.

Solicitors for the respondents: Hughes, Laishley, Mullen, Touhey & Sigouin, Ottawa.