SUPREME
COURT OF CANADA
Citation: Halifax (Regional Municipality) v. Canada (Public Works and
Government Services), 2012 SCC 29, [2012] 2 S.C.R. 108
|
Date: 20120615
Docket: 33876
|
Between:
Halifax
Regional Municipality
Appellant
and
Her
Majesty The Queen in Right of Canada, as represented by the Minister of Public
Works and Government Services
Respondent
-
and -
City
of Toronto, Federation of Canadian Municipalities, Association of Canadian Port
Authorities and City of Québec
Interveners
Coram: McLachlin C.J. and LeBel, Deschamps, Fish, Abella, Rothstein,
Cromwell, Moldaver and Karakatsanis JJ.
Reasons
for Judgment:
(paras. 1 to 59)
|
Cromwell J. (McLachlin C.J. and LeBel,
Deschamps, Fish, Abella, Rothstein, Moldaver and Karakatsanis JJ. concurring)
|
Halifax (Regional Municipality) v. Canada (Public Works and
Government Services), 2012 SCC 29, [2012] 2 S.C.R. 108
Halifax
Regional Municipality Appellant
v.
Her Majesty The Queen in Right of
Canada,
as represented by the Minister of Public
Works and
Government Services Respondent
and
City of Toronto,
Federation of Canadian Municipalities,
Association of Canadian Port Authorities
and
City of Québec
Interveners
Indexed as: Halifax (Regional Municipality) v. Canada
(Public Works and Government Services)
2012 SCC 29
File No.: 33876.
2011: December 12; 2012: June 15.
Present: McLachlin C.J. and LeBel, Deschamps, Fish, Abella,
Rothstein, Cromwell, Moldaver and Karakatsanis JJ.
on appeal from the federal court of appeal
Crown law ― Real property
and immovables ― Taxation ― Payments in lieu of taxes ―
Minister’s valuation of Halifax Citadel National Historic Site millions of
dollars lower than value determined by local assessment authority ― What
is the scope of Minister’s discretion to determine “property value” for
purposes of making payments in lieu of taxes ― What standard of judicial
review applies to determination ― Was Minister’s determination of
property value reasonable? ― Payments in Lieu of Taxes Act, R.S.C. 1985,
c. M‑13, ss. 2(1) , 4(1) ― Assessment Act, R.S.N.S. 1989,
c. 23, s. 42(1).
Under the Payments in Lieu of
Taxes Act (the “Act ”), the Minister of Public Works and Government Services
may make payments in lieu of taxes (“PILTs”) with respect to federally owned
property, which is constitutionally exempt from provincial and municipal
property taxation. The Minister made PILTs to Halifax with respect to the
Halifax Citadel National Historic Site on the basis of a valuation of the site
with which Halifax disagreed. Halifax and the Minister were able to agree on
the value of the eligible improvements on the site, but not on the value of the
structures called casemates and demi-casemates or of the land on the Citadel
site. The matter was referred to a dispute advisory panel, which advised the
Minister that the land beneath the casemates and demi‑casemates should be
valued at $1,550,000 while the 42 acres of land beneath a grassy slope called
the glacis should be valued at a nominal $10. It also provided a valuation for
the casemates and demi‑casemates. The Minister accepted the Panel’s
advice and made further PILTs in accordance with it. Halifax applied for
judicial review in the Federal Court, saying the valuation of the land and of
the casemates and demi‑casemates was unreasonable and the court agreed. This
decision was reversed with respect to the land by a majority of the Federal
Court of Appeal. The present appeal relates only to the valuation of the land.
Held: The appeal should be allowed and the
matter remitted to the Minister for redetermination.
The Minister’s role under the Act
is not to review the assessment authority’s assessment; the Minister’s function
with respect to the value of federal property is to reach an opinion about the
value that would be attributed by an assessment authority if the property were
taxable. This is done in the context of exercising the discretion to make a
PILT that must not exceed the product of the effective rate of tax and the
property value as per the Act . While the view of an assessment authority is an
important reference point for the Minister, in reaching his or her opinion the
Minister is entitled to make an independent determination of the value that
would be attributed to the federal property by a local assessment authority.
The Minister’s opinion must be
informed by the tax system that would apply to the federal property in issue if
it were taxable. Provided that the Minister applies the correct legal test,
his or her exercise of discretion is judicially reviewed for reasonableness.
The Minister’s decision in this
case is unreasonable. It is unreasonable, first, because the manner in which the
Minister formulated his opinion was inconsistent with his obligation to form an
opinion about the value that would be established by an assessment authority. The
Minister attributed nominal value to the land under the glacis solely on the
basis of the impossibility of developing it. Not only did the Minister not
adopt the approach which the relevant assessment authority actually would apply
to value the property, but he also had evidence before him, apparently not
contradicted, that other Canadian assessment authorities would not attribute
nominal value to land on the basis of use restrictions resulting from a national
historic site designation. And there was no evidence that any assessment
authority would do so. The Minister cannot base his valuation on a fictitious
tax system that he himself has created, but that is exactly what happened in
this case.
The Minister’s opinion is also
unreasonable on a second ground: in coming to his decision the Minister
frustrated the purposes and policies of the Act . The Minister adopted a
categorical approach to valuation under which federal property is valueless if
its status as a national historic site prevents its development or commercial
use. In doing so he defeated Parliament’s purpose in including national
historic sites within the PILT scheme. The Minister’s approach had the effect
of frustrating the very legislative scheme under which the power is conferred.
The Minister’s position is also at
odds with the broader policy of the Act , which is to treat municipalities
fairly. It can hardly be thought either fair or equitable to conclude that 42
acres in the middle of a major metropolitan centre has no value for assessment
purposes.
Cases Cited
Applied: Montréal
(City) v. Montreal Port Authority, 2010 SCC 14, [2010] 1 S.C.R. 427; referred
to: Lake v. Canada (Minister of Justice), 2008 SCC 23, [2008] 1
S.C.R. 761; Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; Newfoundland
and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board),
2011 SCC 62, [2011] 3 S.C.R. 708; Notre‑Dame‑de‑l’Île‑Perrot
(Paroisse de) v. Société générale des industries culturelles, [2000] R.J.Q.
345; Québec (Communauté urbaine) v. Fondation Bagatelle Inc., 2001
CanLII 15060, leave to appeal refused, [2002] 3 S.C.R. xii; Gander
International Airport Authority Inc. v. Gander (Town), 2011 NLCA 65, 313
Nfld. & P.E.I.R. 125; Ontario (Public Safety and Security) v. Criminal
Lawyers’ Association, 2010 SCC 23, [2010] 1 S.C.R. 815; Baker v. Canada
(Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817; Oakwood
Development Ltd. v. Rural Municipality of St. François Xavier, [1985] 2
S.C.R. 164; Committee for the Equal Treatment of Asbestos Minority
Shareholders v. Ontario (Securities Commission), 2001 SCC 37, [2001] 2
S.C.R. 132; C.U.P.E. v. Ontario (Minister of Labour), 2003 SCC 29,
[2003] 1 S.C.R. 539.
Statutes and Regulations Cited
Assessment Act, R.S.N.S. 1989,
c. 23, s. 42(1).
Canada National Parks Act, S.C. 2000,
c. 32 .
Constitution Act, 1867, s. 125 .
National Historic Sites of Canada Order,
C.R.C., c. 1112, Sch., s. 1.
Payments in Lieu of Taxes Act, R.S.C.
1985, c. M‑13, ss. 2(1) “effective rate”, “federal property”,
“property value”, (3), 2.1, 3(1)(a), 4(1), 11.1, 15, Sch. II,
s. 4.1 [ad. SOR/2001‑494, s. 23 ].
APPEAL from a judgment of the
Federal Court of Appeal (Blais C.J. and Evans and Sharlow JJ.A.), 2010 FCA 196,
[2012] 1 F.C.R. 304, 405 N.R. 133, 321 D.L.R. (4th) 638, 7 Admin. L.R. (5th)
213, 71 M.P.L.R. (4th) 176, 94 R.P.R. (4th) 15, [2010] F.C.J. No. 950
(QL), 2010 CarswellNat 2417, reversing in part a decision of Phelan J., 2009 FC
670, 346 F.T.R. 264, 61 M.P.L.R. (4th) 187, 85 R.P.R. (4th) 52, [2009] F.C.J. No. 842
(QL), 2009 CarswellNat 2045. The appeal should be allowed and the matter
remitted to the Minister for redetermination.
Daniel M. Campbell, Q.C., and Joseph F. Burke,
for the appellant.
Ginette Gobeil and René LeBlanc, for the
respondent.
Diana W. Dimmer and Angus S. MacKay, for the
intervener the City of Toronto.
Marie‑France
Major, for the intervener the
Federation of Canadian Municipalities.
Harley J. Harris and Michael F. Robson, for the
intervener the Association of Canadian Port Authorities.
Richard Grondin and Éric Boisvert, for the
intervener the City of Québec.
The judgment of the Court was
delivered by
Cromwell J. —
I. Introduction
[1]
The Minister of Public Works and Government
Services has determined that roughly 40 acres of the Halifax Citadel National
Historic Site of Canada has only nominal value for the purposes of municipal
taxation. The main issue on this appeal is whether the Minister’s determination
was reasonable. In my respectful view it was not.
[2]
Property owned by the Federal Crown is
constitutionally exempt from provincial and municipal taxation. However, in
the interest of fairness, Parliament has established a regime of discretionary
payments in lieu of taxes (“PILTs”) to provinces and municipalities: Payments
in Lieu of Taxes Act, R.S.C. 1985, c. M-13 (the “Act ”). The Minister has
discretion to make these payments and as to their amount. However, any payment
must not exceed what, in the Minister’s opinion, would be payable if the
applicable local rate of tax were applied to the property value as determined
by the local assessment authority: ss. 2(1) and 4(1) of the Act .
[3]
The Minister has exercised his discretion to
make PILTs to Halifax in respect of eligible parts of the Citadel; to do so on
the basis of the full value of those aspects of the property that are subject
to the Act ; and to use the rate of taxation identified as the applicable one by
the local assessment authority. What remains contentious between the Minister
and Halifax is the value of the property.
[4]
It follows, therefore, that only one, quite
narrow aspect of the Minister’s discretion is in issue here. This appeal does
not concern the Minister’s exercise of discretion to decide whether to make
PILTs. It does not concern his discretion to decide whether those PILTs should
be for an amount less than the maximum permitted by the Act or his discretion
to determine the rate that would be applied by an assessment authority. The
appeal concerns only the Minister’s determination of “property value”.
[5]
The Minister in this case decided that a national
historic site is effectively valueless if it does not support economically
beneficial uses. He therefore concluded that roughly 40 acres of the Citadel
site are worth $10. This conclusion, in my view, is unreasonable for two
reasons. First, the property value is to be the value which, in the Minister’s
opinion, the local assessment authority would apply to the property: s. 2(1) ,
“property value”. However, in valuing the property, the Minister adopted an
approach which the record discloses no example of a Canadian assessment
authority using, and which significantly differs from the approaches that the
record suggests assessment authorities in provinces across the country do use.
The Minister’s opinion that the value he arrived at “would be attributable by
an assessment authority” has no basis in and is contrary to the evidence.
Second, the Minister’s decision is inconsistent with the Act ’s purpose. The
Act permits payments for national historic sites. To decide that these sites
have no value for taxation purposes except to the extent that they could
support commercial uses negates the very purpose of their inclusion in the PILT
scheme. For these two reasons the Minister’s decision was unreasonable.
II. Brief
Overview of the Proceedings and Issues
[6]
Halifax disagreed with the Minister’s valuation
of parts of the Citadel for PILT purposes. As provided for by the Act , the
matter was referred to the PILT Dispute Advisory Panel, which advised the
Minister that the land beneath fortification structures called casemates and
demi-casemates should be valued at $1,550,000 while the 42 acres of land
beneath a grassy slope called the glacis should be valued at a nominal $10.
This resulted in a total valuation of the land on the site that was millions of
dollars lower than the value arrived at by the local assessment authority.
[7]
The Minister accepted the Panel’s advice.
Halifax applied for judicial review in the Federal Court, saying this was
unreasonable. The court agreed: 2009 FC 670, 346 F.T.R. 264. This decision was
reversed in part by a majority of the Federal Court of Appeal: 2010 FCA 196,
[2012] 1 F.C.R. 304. Halifax now appeals to this Court.
[8]
The appeal raises two issues:
1. What is the scope of the Minister’s discretion to
determine “property value” for the purpose of making PILTs, and what standard
of judicial review applies to his determination?
2. Was the Minister’s determination of the value of the land
on the Halifax Citadel site reasonable?
[9]
It will be helpful first to put these issues in
the context of the statutory framework, the relevant facts and the decisions
leading to this appeal. I will then turn to the standard of judicial review
and how it applies in this case.
III. The Statutory Framework
[10]
Under s. 125 of the Constitution Act, 1867 ,
the Federal Crown is exempt from provincial and municipal taxes. This
constitutional exemption has the potential to cause unfair adverse effects to
municipal revenue — unfairness that Parliament has attempted to mitigate with
the Act . As stated in s. 2.1 , the purpose of the Act “is to provide for the
fair and equitable administration of payments in lieu of taxes”. Paragraph
3(1) (a) of the Act provides that the Minister “may” make payments “in
lieu of a real property tax for a taxation year”. The amount of this payment
shall not exceed the amount determined by multiplying the “property value” by
the applicable “effective rate” of taxation: s. 4(1) . Subsection 2 (1) defines
these two terms as follows:
2. (1) In this Act ,
. . .
“effective rate” means the rate of real property
tax or of frontage or area tax that, in the opinion of the Minister, would be
applicable to any federal property if that property were taxable property;
. . .
“property value” means the value that, in the
opinion of the Minister, would be attributable by an assessment authority to
federal property, without regard to any mineral rights or any ornamental,
decorative or non-functional features thereof, as the basis for computing the
amount of any real property tax that would be applicable to that property if it
were taxable property;
As noted,
the applicable effective rate is not in dispute in this case. What is in
dispute is the value that in the opinion of the Minister would be attributable
by an assessment authority to the property if it were taxable.
[11]
Improvements on federal land as well as federal
land itself are subject to PILTs except where they are rendered ineligible by
s. 2(3) and its associated schedule.
[12]
In this case, the relevant “assessment
authority” at the time was the Nova Scotia Director of Assessment, appointed
under the Assessment Act, R.S.N.S. 1989, c. 23. The statute directs
that property be valued according to market value:
42 (1) All
property shall be assessed at its market value, such value being the amount
which in the opinion of the assessor would be paid if it were sold on a date
prescribed by the Director in the open market by a willing seller to a willing
buyer, but in forming his opinion the assessor shall have regard to the
assessment of other properties in the municipality so as to ensure that,
subject to Section 45A, taxation falls in a uniform manner upon all residential
and resource property and in a uniform manner upon all commercial property in
the municipality.
[13]
In instances in which the Minister and the local
taxing authority disagree on valuation, the Minister can refer the matter to an
advisory panel, which will provide him or her with advice: s. 11.1 of the Act .
As we shall see, that is what occurred here.
IV. Facts
[14]
The Halifax Citadel, a federally owned property,
is an approximately 48-acre site in the middle of downtown Halifax. The site
served military purposes from the time of Halifax’s foundation in 1749 until
the end of the Second World War. Now it is zoned as a “Park and Institutional
Zone” by Halifax and is also designated as a national historic site under National Historic Sites of Canada
Order, C.R.C., c. 1112, Sch., s. 1, passed under the Canada National
Parks Act, S.C. 2000, c. 32 . The parties agree that its highest and best
use is as a national historic site. Operating as such a site, the Citadel is
subject to stringent use and development restrictions.
[15]
Not everything on the site is eligible for PILTs
and what is eligible has changed over time. It is necessary therefore to
describe the site in terms of its various components. There are currently
“eligible improvements” that qualify for PILTs; components that formerly were
but are no longer “eligible improvements”; “ineligible improvements” that are
excluded from the ambit of the Act ; and the land under each of these
components. The components on
the site that are eligible ― that is, the eligible improvements and all
of the land ― fall under the s. 2(1) definition of “federal property”,
which includes “real property
and immovables owned by Her Majesty in right of Canada that are under the
administration of a minister of the Crown”. The improvements that are
ineligible are listed in s. 4.1 of Sch. II of the Act and are thus excluded
from the definition of “federal property” as per s. 2(3) (b) of the Act .
The components of the site are as follows:
1. The eligible improvements: These include the kiosks, the
buildings containing office space, some buildings containing storage space, a
movie theatre and the town clock, which are themselves eligible for valuation
for the purposes of PILTs. The parties have agreed to the value of these
improvements at $2,233,550 for the 2005 taxation year; this value has been
adjusted for other taxation years. The valuation of the eligible improvements
is not an issue before this Court.
2. The formerly eligible improvements referred to as the
casemates and demi-casemates: These are structures built into the fortress
ramparts which were used originally for storage. It is common ground that they
were “eligible improvements” subject to valuation for the purposes of PILTs
from 1997 to 2000, at which time they ceased being eligible improvements
because of the addition (SOR/2001-494, s. 23) of s. 4.1 to Sch. II of the Act .
The valuation of these structures, therefore, only has any effect on the PILTs
for 1997 to 2000. Both the Federal Court and the Federal Court of Appeal
concluded that the Minister’s assessment of their value was unreasonable and
that finding is not challenged in this Court.
3. The glacis: This is the land sloping down from the
fortification. It served to expose enemy troops to fire as they approached the
fortress, or at least would have done had the Citadel ever come under attack.
The glacis itself, like most of the fortifications, is an ineligible
improvement by virtue of its inclusion in s. 4.1 of Sch. II to the Act .
4. The land beneath the eligible improvements: This land
takes up approximately 19,000 square feet.
5. The land beneath the formerly eligible improvements (the
casemates and demi-casemates): This land takes up approximately 60,000 square
feet.
6. The land beneath the glacis: This is, like the land
beneath the eligible improvements and the land beneath the casemates and
demi-casemates, subject to valuation for the purposes of PILTs. This land
takes up approximately 42 acres. Although this appeal concerns the valuation
of all the land on the site, it is the land under the glacis that is at the
heart of the matter.
[16]
The local assessment authority valued the entire
site at between $36,000,000 and $40,280,100 between 1997 to 2007. The Minister
made PILTs in respect of these years, however, on the basis of values ranging
between $5,250,000 and $5,330,000. Halifax objected to this. Halifax and the
Minister were able to agree on the value of the eligible improvements, but not
on the value of the casemates, the demi-casemates or the land on the Citadel
site. The Minister referred the matter to the Panel. The Panel was requested
to value the casemates and demi-casemates for the purposes of the 1997 taxation
year, and the land for the 2005 taxation year. If the Minister accepted the
Panel’s figures for these two years, he would use them to arrive at values for
the other relevant years. The Panel heard witnesses and considered expert
reports. The reports are in the record before this Court, but no transcript of
the testimony at the hearing was made.
[17]
It is common ground that the Panel’s decision
should be treated as the Minister’s decision for the purposes of judicial
review.
[18]
The Panel had before it two very different
approaches to valuation, one advanced by Halifax and the other by Canada. At
the risk of over-generalization, the main difference between the approaches was
this. Halifax used as the basis of its appraisal the market value of
surrounding property with various adjustments, but gave little weight to the
use restrictions inherent in the historic site designation. Canada, for its
part, took as its starting point that the use restrictions rendered the
property effectively valueless except to the extent that it could actually
support commercial uses. It appears that the Panel basically adopted the latter
view. However, because the reasons given by the Panel are quite unsatisfactory
in important respects and, on the critical point, non-existent, it is necessary
to give a summary of the two positions which were advanced before it.
[19]
Halifax’s principal expert witness was Kathy
Barss, who worked with the Assessment Services Division of Service Nova Scotia
and Municipal Relations, effectively the “assessment authority” in this case.
She came to her valuation of the land on the basis of a direct comparison
approach, by reference to the sale price of 22 Halifax sites which she
considered comparable, that is, which were close to the Citadel site and were
either vacant or intended to be developed. This approach accorded, in her
opinion, with the requirements of s. 42(1) of the Assessment Act. She
took the view that neither the site’s municipal zoning nor its designation as a
national historic site should have any effect on valuation. She examined
various historic sites from across the country to see whether local assessment
authorities had discounted their values to account for use restrictions arising
from their status as historic sites. She concluded that this had happened only
in New Brunswick. She also noted various sales in Nova Scotia of properties
that were intended to be preserved for public purposes, but for which the sale
price was comparable to other properties bought without such restricted uses in
mind.
[20]
In order to value the land she divided the site
into two zones. She valued the first zone, 8.18 acres closest to the downtown
business district of the city, at $19.25 per square foot. She valued the second
zone, the remaining 39.86 acres, at $7.00 per square foot. Using these values
she came to a total of $19,000,000 for the entirety of the land on the site.
[21]
A second witness testified on Halifax’s behalf
on the valuation of the casemates and demi-casemates. He took the view that
they should be valued in accordance with their replacement value less
depreciation, and that there should be no devaluation to account for functional
obsolescence. Such devaluation would be inappropriate since the casemates and
demi-casemates were serving the function of a living history museum. He came
to a valuation of $7,315,900.
[22]
Canada’s expert considered the Citadel site’s
highest and best use to be relevant to the site’s valuation, and relied on a
document he had written on the “Best Practices” for the valuation of historic
sites. Both Halifax’s principal expert and Halifax’s Director of Legal
Services and Risk Management testified that neither Halifax nor Nova Scotia
accepted or used the approach embodied in this document. Canada’s expert
testified, though, that his appraisal was also consistent with more traditional
methods of valuation, and he purported in his report to use a market comparison
approach.
[23]
His selection of appropriate comparator sales
depended heavily on the Citadel site’s use restrictions and development
potential. The only land to which he attributed significant value was the
approximately 19,000 square feet of land under the eligible improvements. He
valued this land by comparison with other plots of land with similar uses, and
came to a value of $286,000. He valued the land under the ineligible
improvements, including under the glacis and under the casemates and
demi-casemates, at a nominal $10 to account for the severe restrictions on that
land’s use. In coming to this nominal value he relied in part on the
comparator examples of four transfers of historic sites in Nova Scotia between
the federal and provincial governments. He did not provide an estimate of the
value of the casemates or demi-casemates.
[24]
In its report the Panel rejected almost all of
Halifax’s expert’s suggested comparator sales because she had not taken into
account differing highest and best uses, differing permitted density of
development or the use restrictions on the Citadel site. In essence, the
Panel’s view was that the use restrictions inherent in the historic site
designation had to be taken into account in determining market value. Despite
expressing some reservations about Canada’s expert’s reliance on his “Best
Practices” document, which had not yet garnered approval in the assessment
community, the Panel saw merit in his focus on development potential, since
this has a strong effect on market value. However, the Panel rejected the
comparator sales that he had selected for the land under the glacis.
[25]
Proceeding on the basis that the restrictions
imposed on the Citadel site were highly relevant to its valuation the Panel
accepted only one of Halifax’s expert’s comparator sales, which related to
similarly zoned land. The Panel used it to value the land under the casemates
and demi-casemates at $21.10 per square foot. To this the Panel added, with no
explanation, $4.56 per square foot in demolition costs, for a total land
valuation of $1,550,000.
[26]
The Panel gave the casemates and demi-casemates
a value of $8,515,500 when new, and subtracted amounts for physical
depreciation and functional obsolescence to account for their current
underuse. This gave them a final value of $2,556,200. As noted, the courts
below have found the Panel’s valuation of these structures to have been
unreasonable, a finding not under appeal to this Court.
[27]
The land, casemates and demi-casemates therefore
came to a total value of $4,106,200.
[28]
In a supplementary report the Panel added $10 to
its figure for the land, with no explanation. The parties agree that this
added amount must have been intended to represent the value of the land under
the glacis, as revealed by its accordance with the figure Canada’s expert gave
for it and by the Panel’s failure to value it in its first report.
[29]
On the basis of a four-page memorandum from the
Deputy Minister, the Minister adopted the report’s conclusions. To the Panel’s
final value the Minister added an amount to account for the value of the
eligible improvements and the value of the 19,050 square feet of land under
them. The latter value was calculated using the per-square-foot value the Panel
had set for the land under the casemates and demi-casemates: July 29, 2008
letters from the Minister to the Mayor of Halifax and the Chief Administrative
Officer of Halifax, A.R., vol. I, at pp. 22-23; Report to the Minister, A.R.,
vol. I, at p. 30. The Minister made additional PILTs for 1997 to 2007 on the
basis of the newly accepted valuation of the site.
V. Judicial
Review
A. The Decision of the Federal Court, 2009 FC 670, 346 F.T.R.
264
[30]
Phelan J. heard Halifax’s application to the
Federal Court for judicial review of the Panel Report and of the Minister’s
adoption of it. He quashed the Minister’s decision and
remitted it to him for redetermination. The reviewing judge took the view that
where an assessment authority has performed an assessment the Minister should
deviate from it only where the assessment authority’s conclusion is
unreasonable or unsupportable: para. 46. In this case the Panel had
erroneously performed its own valuation, rather than inquiring into the
reasonableness of the assessment authority’s: para. 50. Phelan J. also
considered the Panel’s valuation of the land and casemates and demi-casemates
to be unreasonable. The valuation did not find adequate justification in the
Panel’s report and was inconsistent with the site’s highest and best use as a
national historic site: paras. 57-64.
B. The Decision of the Federal
Court of Appeal, 2010 FCA 196, [2012] 1 F.C.R. 304
[31]
The Minister appealed. In the Federal Court of
Appeal, Evans J.A. (Blais C.J. concurring) found that the Minister’s decision
with regard to the value of the land was reasonable, but upheld Phelan J.’s
conclusion that the decision regarding the casemates and demi-casemates was
not. Sharlow J.A. dissented in part and would have upheld Phelan J.’s
conclusion entirely.
[32]
Evans J.A. rejected the submission that the
Minister must accept an assessment authority’s appraisal unless that appraisal
is unreasonable. Rather, the Minister is entitled to make his own independent
determination of value: para. 48. This notwithstanding, the Minister’s
determination must represent his opinion on the value that the relevant
authority would attribute to the property in question. In this instance the
Panel had correctly understood its mandate: paras. 58-59.
[33]
Evans J.A. considered the Panel’s reasons, read
in conjunction with Canada’s expert report, to have adequately explained the
attribution of a higher value to the land under the casemates and
demi-casemates and the attribution of nominal value to the land under the
glacis: paras. 65-73. Canada’s expert had reasoned that the land under the
casemates and demi-casemates had value because of the commercially valuable
uses to which it could be put for office and storage space. However, as the
glacis could not be altered and therefore had no development value, the land
under it had no value either: paras. 66-68.
[34]
Evans J.A. saw no adequate basis in the Panel’s
reasons for reducing the casemates’ and demi-casemates’ value to account for
disuse. He noted that the Panel’s reasons were silent about why it rejected
Halifax’s evidence that underuse was irrelevant in view of the casemates’
representational function in the Citadel and further that Canada’s expert
appeared not to explain why he disagreed with that approach, if he in fact did:
para. 75. Evans J.A. therefore remitted the valuation of the casemates and
demi-casemates to the Minister: paras. 74-77. As noted, the finding that this
aspect of the Panel’s decision was unreasonable is not challenged in this
Court.
[35]
Sharlow J.A. agreed with Evans J.A. on the
applicable standard of review and on the unreasonableness of the Panel’s
valuation of the casemates and demi-casemates. However, she dissented with
regard to the valuation of the land, largely for the reasons of Phelan J.:
paras. 79-81.
[36]
Halifax now appeals on the issue of the
valuation of the land on the Citadel site.
VI. Analysis
A.
Standard of Review of the Minister’s Decision
[37]
In this instance the Minister has exercised his
discretion to make PILTs to Halifax, and to base these PILTs on the full
property value of those components of the site that are subject to the Act . It
follows that at issue in this appeal are the scope of the Minister’s discretion
to determine that value, the standard of review applicable to the exercise of
this discretion, and the ultimate merits of the Minister’s valuation of the
land in this case.
(1) The Nature of the Minister’s
Discretion Under the Act
[38]
The reference point for the exercise of the
Minister’s discretion in making a PILT is the local system of property taxation
that would apply to the property if it were taxable. This is evident from the
definitions of “effective rate” and “property value” in s. 2(1) of the Act . The
maximum allowable PILT is calculated by multiplying the “effective rate” of tax
by the “property value”: s. 4(1) . The “effective rate” is the rate of real
property tax that in the opinion of the Minister would be applicable if
the federal property were taxable property: s. 2(1) , “effective rate”. The
rate that would be applicable refers to the applicable provincial or municipal
rate: Montréal (City) v. Montreal Port Authority, 2010 SCC 14, [2010] 1
S.C.R. 427, at para. 40. The “property value” is the value that in the opinion
of the Minister “would be attributable by an assessment authority to federal
property . . . as the basis for computing the amount of any real property tax
that would be applicable to that property if it were taxable property”: s.
2(1) . Again, the value that would be applicable is that which would, in the
Minister’s opinion, be applied by the local assessment authority.
[39]
Halifax submits that where the assessment
authority has determined the value of the property the Minister is bound by
that value unless he or she concludes that the authority’s assessment is
unreasonable. This, Halifax says, flows from the definition of “property value”
which, as noted, refers to the value that would be attributed to the property
by the assessment authority. Phelan J. adopted this position (see FC reasons,
at para. 46), while the Federal Court of Appeal rejected it (see FCA reasons,
at paras. 48 and 79). I respectfully agree with the Federal Court of Appeal on
this point.
[40]
The Minister’s role under the Act is not to
review the assessment authority’s assessment; the Minister’s function with
respect to the value of the property is to reach an opinion about the
value that would be attributed by an assessment authority. This is done
in the context of exercising the discretion to make a PILT that must not exceed
the product of the effective rate and the property value. While the view of an
assessment authority is an important reference point for the Minister, I
nonetheless agree with Evans J.A. that in reaching his or her opinion, the
Minister is entitled to make an independent determination of the value that
would be attributed to the federal property by an assessment authority.
[41]
This conclusion finds support in the functional
and practical considerations which LeBel J. identified in Montreal Port
Authority, at paras. 34-35. The calculation of PILTs is not limited to a
mechanical application of municipal assessments and tax rates. It must be
adaptable to the various locations in which federal properties are situated,
and to those properties’ circumstances. This is especially so in view of the
diverse and sometimes unique nature of federal properties. We need look no
further than the Citadel site, 48 acres of 19th-century fortification sitting
in the middle of a modern city, for an obvious example. Assessment principles
are not self-applying. Legitimate disagreements about how they apply in a
particular case are to be expected. There will often be no one, “right”
answer. Moreover, the Minister is not in the same situation as an ordinary
taxpayer. Where disagreements about an assessment of federal property arise,
the Minister cannot take advantage of the assessment appeals processes that
would be available to taxpayers subject to particular municipal or provincial
regimes. Finally, it makes sense that within this highly discretionary regime
of PILTs — a regime that explicitly preserves the Federal Crown’s
constitutional immunity from provincial and municipal taxation (s. 15) — the
Minister would be armed with ways to protect federal interests against
over-zealous assessment authorities should the need arise.
[42]
This is not to say that the Minister’s
discretion in valuing federal property is unfettered. In exercising his
discretion the Minister must comply with the requirements of the Act : Montreal
Port Authority, at para. 33. As the s. 2(1) definition of “property value”
makes clear, the reference point of the Minister’s opinion on valuation is the
value that “would be attributable by an assessment authority to federal
property”. Just as fairness to the Federal Crown demands that the Minister
retain the discretion to come to his own opinion on property value, fairness to
municipalities demands that the Minister’s opinion be informed by the tax
system that would apply to the federal property in issue if it were taxable.
(2) The Applicable Standard of Review
[43]
The Minister’s decision under the Act is
discretionary within the legal framework provided by the legislation, as
explained in Montreal Port Authority: see paras. 32-38. Provided that
the Minister applies the correct legal test, his or her exercise of discretion
is judicially reviewed for reasonableness: see Montreal Port Authority,
at paras. 33-36; and Lake v. Canada (Minister of Justice), 2008 SCC 23, [2008] 1 S.C.R. 761, at
para. 41. The exercise of discretion must be consistent with the principles
governing the application of the Act and with the Act ’s purposes: Montreal
Port Authority, at para. 47. As LeBel J. said in Lake in the
context of ministerial discretion in relation to extradition, “The Minister’s
conclusion will not be rational or defensible if he has failed to carry out the
proper analysis. If, however, the Minister has identified the proper test, the
conclusion he has reached in applying that test should be upheld by a reviewing
court unless it is unreasonable”: para. 41.
[44]
Reasonableness review is concerned both with the
transparency and intelligibility of the reasons given for a decision and with
the outcome of the decision-making process: Dunsmuir v. New Brunswick,
2008 SCC 9, [2008] 1 S.C.R. 190, at para. 47; Montreal Port Authority, at
para. 38. As Abella J. has recently explained in Newfoundland and Labrador
Nurses’ Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62,
[2011] 3 S.C.R. 708, “the reasons must be read together with the outcome and
serve the purpose of showing whether the result falls within a range of
possible outcomes”: para. 14.
B. Was the Minister’s Decision Reasonable?
[45]
Although this appeal concerns the valuation of
all the land on the Citadel site, the focus here is the Minister’s opinion that
an assessment authority would attribute a value of $10 to the land under the
glacis. The question is whether that opinion is reasonable. The panel gave no
reasons justifying its valuation of the land under the glacis. In fact, it did
not assign it a value in its initial report. It was only in its amended report
that the Panel, without explanation, inserted the nominal amount of $10.
However, Evans J.A. inferred that the Panel accepted Canada’s expert’s reasons
for assigning the land under the glacis this value. Canada’s expert wrote in
his report that because of the applicable use and development restrictions this
land has no economic value to the owner, and so “no value in exchange”: A.R.,
vol. II, at p. 113. He considered the land to be comparable to four pieces of
parkland that had been the subject of transfers at nominal value between Canada
and Nova Scotia.
[46]
Whether the Panel did or did not accept Canada’s
expert’s reasoning is unclear. It is of course to be regretted that such an
important point should be ignored in the Panel’s report. However, even
accepting the view that the Panel should be taken as having adopted the
approach of Canada’s appraiser, my view is that the decision is unreasonable.
[47]
It is unreasonable, first, because the manner in
which the Minister formulated his opinion was inconsistent with his obligation
to form an opinion about the value that would be established by an assessment
authority. Not only did the Minister not adopt the approach which the relevant
assessment authority actually would apply to value the property, but he
also had evidence before him, apparently not contradicted, that other
Canadian assessment authorities would not value the property in the way he
did. And there was no evidence that any assessment authority would do so.
On that record, the Minister’s opinion is in my view unreasonable. The
Minister’s opinion is also unreasonable on a second ground: by adopting the
view that a national historic site is valueless because it cannot be used for
commercial activities, the Minister defeated Parliament’s purpose in including
national historic sites within the PILT scheme. I will address these two
points in turn.
(1) Opinion as
to How an Assessment Authority Would Value the Property
[48]
The Minister’s task with respect to the
valuation of property is to form an opinion on the value that “would be
attributable by an assessment authority” to the property in question. While,
as discussed earlier, the Minister is not bound by the valuation arrived at by
the relevant assessment authority, it must nonetheless be a reference point.
The difficulty here is that by applying the approach proposed by Canada’s
appraiser, the Minister attributed nominal value to the land under the glacis
solely on the basis of the impossibility of developing it. It is clear,
however, that the relevant assessment authority did not take that approach when
coming to its view on the market value to which s. 42(1) of the Assessment
Act refers. Indeed, there was no evidence before the Minister to which we
have been referred that any assessment authority in Canada uses this
approach when valuing sites of this nature. The evidence before the Minister to
which we have been referred was in fact to the opposite effect. Halifax’s
appraiser studied the assessed value of 24 historic sites in 8 provinces. She
concluded that only in one province was there any reduction in the land value
to account for restrictions on use as a result of designation as a national
historic site: A.R., vol. II, at p. 43. Moreover, in the case of the one
province where such reduction was observed, the reduction rates were between 20
percent and 50 percent of the market value of surrounding lands. There is
little detail in the record as to why these assessment approaches were adopted
or why the Minister decided to exercise his discretion as he had in these
particular cases and I am not suggesting that the Minister was bound by these
examples. The important point is that in no case referred to in the evidence,
including in the report of Canada’s expert, did an assessment authority
attribute nominal value to the land on the basis of use restrictions resulting
from the national historic site designation. The most before the Panel that
pointed in the other direction was Canada’s expert’s statement that his
appraisal had been carried out in conformity with the requirements of the Canadian Uniform Standards of
Professional Appraisal Practice. However, this does nothing to suggest
with any specificity that his approach of assigning nominal value to historic
sites that do not support economic uses has gained approval in the assessment
community. In short, there is no evidence before this Court, just as there was
none so far as we can tell before the Panel and the Minister, to suggest that,
with regard to sites of this nature, any assessment authority anywhere
in Canada applies the approach to valuation used by Canada’s appraiser and
relied on by the Minister.
[49]
Montreal Port Authority (at para. 40) made clear that the Minister cannot base his
valuation on a “fictitious tax system” that he himself has created, but that is
exactly what happened in this case. In light of the state of the record, the
approach advocated by Canada’s appraiser cannot be viewed as a reasonable basis
on which the Minister could perform his duty to form an opinion about the value
that “would be attributable by an assessment authority”. Adopting this
approach was unreasonable.
(2) Statutory Purpose
[50]
The Minister’s approach to valuation was inconsistent
with Parliament’s inclusion of historic sites within the ambit of the Act , and
with the purpose behind the existence of the PILT scheme.
[51]
As discussed in more detail earlier, the stated
purpose of the Act is “to provide for the fair and equitable administration of
payments in lieu of taxes”: s. 2.1 . This is accomplished by reconciling the
objective of tax fairness for municipalities with the preservation of
constitutional immunity from taxation: Montreal Port Authority, at
para. 20. The Act requires that property value and tax rates be calculated as
if the federal property were taxable property belonging to a private owner: Montreal
Port Authority, at para. 40. Moreover, the Act and its schedules
contain detailed lists of various types of property that are included in or
excluded from this scheme. The Citadel falls within the definition of “federal
property” in s. 2(1) and, as a national historic site of Canada, it is
specifically removed from the exclusions relating to parks in urban areas under
s. 2(3) (c).
[52]
The Minister’s conclusion is fundamentally at
odds with this scheme. At the core of his reasoning, it may be inferred, is
the proposition that land which, by virtue of its historic site designation,
has no development value has only nominal value for PILT purposes. Although the
parties agreed that the highest and best use of the property is as a national
historic site, the Minister’s determination in effect is that its actual use
for that purpose has no value. Canada’s appraiser, who according to the
majority of the Federal Court of Appeal supplies the unstated rationale for the
Minister’s opinion, put it this way in his report:
As a National Historic site together with
the restrictions imposed by the Municipal Zoning Bylaws and the Municipal
Development Plan economically beneficial uses of the land have largely been
eliminated, thus rendering the land to be economically idle, effectively
economically valueless. [Emphasis added; A.R., vol. II, at p. 131.]
[53]
This reasoning, in my respectful view, is
inconsistent with the Act ’s inclusion of national historic sites within the
types of federal property eligible for PILTs under the Act , and with the
overall purpose of the Act to deal equitably and fairly with Canadian
municipalities in relation to payments in lieu of property taxation.
[54]
Turning to the first point, Parliament intended
that the land on national historic sites of Canada be included in the PILT
scheme. That being the case, it is inconsistent with this inclusion to reason
in a categorical way, as the Minister did here, that such sites, by virtue
of that status, have no value for assessment purposes and are therefore
ineligible for PILTs under the scheme. I do not suggest
that property subject to the Act can never be given nominal value. It is
possible, for example, that in some instances an assessment authority would
attribute nominal value to the property if it were under its jurisdiction: see,
for example, Notre-Dame-de-l’Île-Perrot (Paroisse de) v. Société générale
des industries culturelles, [2000] R.J.Q. 345 (C.A.); Québec (Communauté
urbaine) v. Fondation Bagatelle Inc., 2001 CanLII 15060 (Que. C.A.), leave
to appeal to SCC refused, [2002] 3 S.C.R. xii; Gander International Airport
Authority Inc. v. Gander (Town), 2011 NLCA 65, 313 Nfld. & P.E.I.R.
125. But implicit in the Minister’s decision in this case is that any land on a
national historic site which, for that reason, cannot be developed or support
economically productive use has no value. A categorical position such as this
fundamentally contradicts Parliament’s purpose in making national historic
sites subject to the Act .
[55]
Discretion conferred by
statute must be exercised consistently with the purposes and policies underlying its grant: Ontario (Public Safety and Security)
v. Criminal Lawyers’ Association, 2010 SCC 23, [2010] 1 S.C.R. 815, at
para. 46; see also Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817, at para. 65; Oakwood
Development Ltd. v. Rural Municipality of St. François Xavier, [1985] 2
S.C.R. 164, at p. 174; Committee for the Equal Treatment of Asbestos
Minority Shareholders v. Ontario (Securities Commission), 2001 SCC 37,
[2001] 2 S.C.R. 132, at paras. 39-45.
[56]
In my respectful view, the
Minister’s exercise of discretion was contrary
to both the purposes and the policy of the Act . Parliament’s
purpose in including national historic sites within the ambit of the Act was to
allow the Minister to make PILTs in respect of such sites, which should be
valued under an approach that is conducive to this purpose. It cannot accord
with the statutory purpose to accept that the Minister can undercut this
inclusion by adopting a method of valuation that renders it meaningless. The Minister’s approach “had the effect of
frustrating the very legislative scheme under which the power is conferred”: C.U.P.E.
v. Ontario (Minister of Labour), 2003 SCC 29, [2003] 1 S.C.R. 539, at para.
174 (internal quotation marks omitted). It was therefore unreasonable.
[57]
The Minister’s position is also, in my view, at
odds with the broader policy of the Act , which is to treat municipalities
fairly. It can hardly be thought either fair or equitable to conclude that 42
acres in the middle of a major metropolitan centre has no value for assessment purposes. While admittedly applying market value assessment principles to an
historic site is a challenging enterprise, the conclusion that an historic site
has no value because it cannot
be developed or used in an economically productive way is “out of sync” with
the equitable purpose of the PILT scheme. Of course, the presence of an
historic site doubtless has spin-off benefits for the community in which it is
located. But the Act is directed to fair and equitable PILTs with reference to
what taxes would be payable if the site were taxable. The Minister’s approach
in my view unreasonably departs from that purpose.
[58]
It is a challenging task to determine the market
value for appraisal purposes of a property whose highest and best use is as a
national historic site. While I have concluded that the Minister’s approach to
this task was unreasonable on the record before him, nothing that I have said
in my reasons is intended to approve or adopt any particular approach to this
appraisal conundrum or to suggest that the Minister, in order to act reasonably
in this case, was obliged to adopt the appraisal method put forward on behalf
of the municipality or was required to ignore the use restrictions inherent in
the property’s highest and best use as a national historic site. What
will constitute a reasonable approach on the part of the Minister depends on
the evidence placed before him in the particular case, viewed through the lens
of his statutory duties under the Act and in light of the reasons which he
gives for the particular exercise of his statutory discretion.
VII. Disposition
[59]
I would allow the appeal and remit this matter
to the Minister for redetermination. Should the Minister refer this matter to
a Panel, it must be differently constituted. Costs are awarded to the
appellant throughout.
Appeal allowed with costs.
Solicitors for the
appellant: Cox & Palmer, Halifax.
Solicitor for the
respondent: Attorney General of Canada, Ottawa.
Solicitor for the intervener the
City of Toronto: City of Toronto, Toronto.
Solicitors for the intervener the
Federation of Canadian Municipalities: McMillan, Ottawa.
Solicitors for the intervener the
Association of Canadian Port Authorities: Owen Bird Law Corporation,
Vancouver.
Solicitors
for the intervener the City of Québec: Giasson et associés, Québec.