Supreme Court of Canada
Saint-Laurent (City of) v. Canadair Ltd., [1978] 2 S.C.R. 79
Date: 1977-11-16
City of Saint-Laurent Appellant;
and
Canadair Limited Respondent.
1976: November 2 and 3; 1977: November 16.
Present: Judson, Ritchie, Pigeon, Beetz and de Grandpré JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR QUEBEC
Municipal law—Assessment of land—Real value—Intervention by the courts—Cities and Towns Act, R.S.Q. 1964, c. 193, ss. 485, 510, 511 and 514.
Respondent (Canadair) owns a huge industrial complex located within the boundaries of appellant, the City of Saint-Laurent (the City). At issue is the assessment of the land on which respondent’s plants are located. This covers some 7,635,000 square feet and the City assessed it for 1967, 1968 and 1969 at $6,594,000. This assessment was maintained by the board of revision and by the Provincial Court. The Court of Appeal decided to intervene, however, and by majority decision it accepted the valuation of Canadair’s expert witness rather than that of the City, thereby reducing the assessment to $4,500,000. This Court must decide two questions: was the Court of Appeal justified in intervening, and if so, was it right in adopting the valuation of Canadair’s expert witness?
Held: The appeal should be dismissed.
The expert witnesses for the City and for Canadair both used the comparative method of valuation. On the basis of this method the two expert witnesses produced fairly similar basic calculations that would not have justified intervention by the Court of Appeal. According to Canadair’s expert witness, however, the potential value obtained using the comparative method must be adjusted in order to obtain the real value. This involves taking into account the fact that owing to the unusually large area of the land it is unlikely that a single purchaser will be found. The possibility of selling the land in much smaller lots for purposes of a subdivision must be considered, and this would require land to be set aside for streets, as well as a sales promotion campaign. Using this method, Canadair’s expert witness arrived at a valuation of approximately $4,543,000. He also maintained that consideration must be given to other factors such as the low utilization of the land and the fact that it is occupied by buildings that have depreciated substantially, which means that the land does not have the
[Page 80]
full value of vacant land. This method of valuation is called the “land residual technique” and is basically founded on the capitalization of the net income of immovable property. The results obtained by this method give a value of approximately $4,209,000 for the land.
Even though a Court of Appeal should not interfere lightly with a municipal assessment, such intervention is justified if important factors affecting the value of the immovable were neglected and as a result of this neglect “a real injustice [was] committed”. In the case at bar the intervention was justified since the City’s expert witness assessed Canadair’s land as if it were a medium-sized block of vacant land and therefore likely to be sold for immediate high utilization, and failed to take into account the fact that the land was encumbered with depreciated buildings. The low utilization of the land should have been taken into account by the trial judge since it could affect the real value of the land. Sections 510 and 511 of the Cities and Towns Act, which deal with the powers of intervention of the Provincial Court, apply also to the Court of Appeal hearing an appeal brought under s. 514.
If the Court of Appeal was justified in intervening and dismissing the municipal assessment, was it right in adopting the valuation of Canadair’s expert witness? This Court is of opinion that this was the only valuation remaining and that there was no reason to reject it. Moreover, the Court of Appeal did not reject the comparative method a priori, only the way in which it was used by the City’s expert witness. That Court preferred the adjusted comparative method used by Canadair’s expert witness along with another method, which served the purpose of confirming or weighing the results obtained using the first method. In basing its decision on the results produced by these two valuation methods the Court of Appeal used its own judgment, as it was obliged to do in a field that is essentially a matter of opinion, and it was right to adopt the valuation of Canadair’s expert witness.
City of Montreal v. Sun Life Assurance Co. of Canada, [1952] 2 D.L.R. 81 (P.C.), affirming [1950] S.C.R. 220; Guy Towers Inc. v. The City of Montreal, [1969] S.C.R. 738, affirming [1968] Que. Q.B. 277; In re Withycombe Estate, Attorney General of Alberta v. Royal Trust Company, [1945] S.C.R. 267, applied; La Compagnie du Marché Central Métropolitain Limitée v. La Ville de Montréal, [1976] C.A. 59, leave to appeal refused, [1975] 2 S.C.R. viii, distinguished.
[Page 81]
APPEAL from a decision of the Court of Appeal of Quebec[1] allowing the appeal from a judgment of the Provincial Court[2] and varying the decision of the Board of Revision. Appeal dismissed.
Jack Greenstein, Q.C., for the appellant.
Kelvin J. MacDougall, Q.C., for the respondent.
The judgment of the Court was delivered by
BEETZ J.—At issue is the assessment of land for purposes of municipal taxation. The assessment of land belonging to respondent (“Canadair”) made by appellant (“the City”) for the years 1967, 1968 and 1969 was maintained by the board of revision and by the Provincial Court: [1970] R.L. 558. Canadair took the judgment of the Provincial Court to the Court of Appeal, which, in a majority judgment, decided to intervene, accepting the valuation of Canadair’s expert witness rather than that of the City. The City’s appeal, filed as of right pursuant to s. 36 (old) of the Supreme Court Act, impugns the decision of the Court of Appeal and submits to this Court the two questions that must be decided: was the Court of Appeal justified in intervening, and if so, was it right in adopting the valuation of Canadair’s expert witness? The decision of the Court of Appeal is published only in the form of a very short summary: [1974] C.A. 613. I will quote several passages of that decision.
The majority opinion in the Court of Appeal was written by the late Gagnon J.A., who described Canadair’s property and defined the issue as follows:
[TRANSLATION] The land on which Canadair operates has a total area of 7,635,654 square feet. The main block, which is L-shaped, is bounded on the east by the Laurentian Boulevard and on the north by le Chemin du Petit Bois Franc. The Cartierville airport is located in the area enclosed by the L. A second piece of land, rectangular in shape, is located east of the Laurentian Boulevard. A number of buildings are located on the main block, and for purposes of the assessment these were grouped under the names Plant No. 1, Plant No. 2 and Plant No. 4, each including the land around it.
[Page 82]
The parties agreed on the assessment of the buildings, which was fixed at $13,991,608.00. The dispute concerns only the value of the land, which was entered on the roll as $6,594,191.00, but which Canadair considers excessive, requesting that it be reduced to $4,209,920.00.
We are called upon to determine, in accordance with s. 485 of the Cities and Towns Act, the real value of the land.
Two expert witnesses were heard by the Provincial Court, one for the City and one for Canadair.
The City’s expert witness used the method which is most commonly used for purposes of municipal assessment, and which, according to the trial judge, was also used by the City: the so-called comparative method. He analysed approximately twenty sales of vacant land, most of which, like that of Canadair, was intended for industrial or commercial use, and which was located in the vicinity of, or near Canadair’s land. These sales had taken place between 1959 and 1965. He also examined the City’s expropriation in 1965 of part of the land belonging to Canadair. He used a land depth coefficient in his calculations. The values he arrived at were higher than those entered on the roll, which, according to him, were as follows:
|
|
Area |
Municipal assessment |
Unit value per sq. ft. |
| Plant #1 |
4,438,776.4 sq. ft. |
$ 4,459,046 |
$ 1.0045 |
| Plant #2 |
2,078,629 sq. ft. |
$ 1,236,629 |
$ 0.59 |
| Plant #4 |
1,118,125 sq. ft. |
$ 898,528 |
$ 0.80 |
|
|
7,635,530.4 sq. ft. |
$ 6,594,203 |
|
| The average is 86.4¢ a square foot. |
|||
(I note that with regard to the area of the land surrounding each plant these data do not coincide with those accepted by the trial judge, who was not contradicted by the Court of Appeal on this point, the latter being 4,438,800 sq. ft. for plant #1,2,494,129 sq. ft. for plant #2 and 702,725 sq. ft. for plant #4. The total area and total assessment, however, are the same or very close. Counsel for the parties did not mention these differences, which, I believe, do not affect the dispute. I will
[Page 83]
confine myself to the data accepted by the trial judge.)
Canadair’s expert witness used two methods of valuation: the comparative method and a method called “Valuation by land residual technique”, which will be discussed below.
Using the comparative method, Canadair’s expert witness examined some forty sales of vacant industrial land but used only about a dozen of them, some of which had also been used by the City’s expert witness. He arrived at the following results, which he feels represent the potential value of the land:
|
|
Comparative Method |
|
|
|
Potential value |
Unit value per sq. ft. |
| Plant #1 |
$ 4,084,255 |
$ 0.92 |
| Plant #2 |
$ 1,272,973 |
$ 0.51 |
| Plant #4 |
$ 535,437 |
$ 0.76 |
|
|
$ 5,892,665 |
|
| The average is 77.2¢ a square foot. |
||
The difference between these values and those put forward by the City’s expert witness is due in part to the fact that the two expert witnesses did not use the same depth coefficients. The trial judge was also of the opinion that the valuation by Canadair’s expert witness was low, and should actually have produced a unit value of 81.2¢ a square foot. This is a matter of opinion.
If these were the only variances between the two assessments, the Court of Appeal would not have intervened.
The problem lies elsewhere. According to Canadair’s expert witness, the potential value is greater than the real value. Among other things the unusually large area of the land, which makes it unlikely that a single purchaser will be found, must be taken into account and the potential value must be adjusted to arrive at the real value. He gives the following explanation in his report:
We consider that it is important to stress, at the outset, that the total area of land owned by Canadair and subject to these appeals is 7,635,654 square feet.
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This is an unusually large area of developed land to be held in one ownership and the value is subject to special considerations, which would not apply to normal industrial lots of 20,000 square feet to 200,000 square feet.
…it is assumed that the land is vacant and available for industrial development. In view of the large area, 7,635,654 square feet, it is unlikely that any single purchaser could be found for the land and if it was divided into fairly large lots around 200,000 square feet, it would require the disposal of about 40 separate lots, which due to the general state of the industrial land market in the western sector of the Island of Montreal, would in our opinion, take at least 5 years.
We have made a survey of recent sales in St. Laurent of industrial land and details of these sales are set out in Appendix “A”, Schedule of Land Sales.
None of the sales are for areas as large as the subject property and therefore adjustments are necessary in order to value the land owned by Canadair Limited.
…it is necessary to discount the potential value for the average of the estimated period necessary to dispose of the land in a number of separate parcels. In our opinion, a minimum time for disposal would be five years and we have taken an average period of 2½ ears which on the basis of 11%, 8% interest and 3% for taxes, gives a present value discounting factor of .771.
Adjusting the average potential value of the land to obtain the real value would produce a figure of 59.5¢ a square foot.
To check these results, Canadair’s expert witness considers another possibility: sale of the land in much smaller lots for purposes of a subdivision, which, in his view, would mean setting aside land for streets and would require a more costly sales promotion campaign. If the land thus divided were sold for $1.10 a square foot, there would be a loss of thirty per cent for secondary streets, parks and other development costs, and the average value of the land before subdivision would be 59.4¢ a square foot.
By making these adjustments, necessitated by the area of the land, to the valuations obtained by the comparative method, Canadair’s expert witness obtained the following real values:
[Page 85]
|
|
Comparative Method |
|
|
|
Adjusted potential value or real value |
Unit value per sq. ft. |
| Plant #1 |
$ 3,148,960 |
$ 0.709 |
| Plant #2 |
$ 981,462 |
$ 0.394 |
| Plant #4 |
$ 412,822 |
$ 0.587 |
|
|
$ 4,543,244 |
|
| The average is 59.5¢ a square foot. |
||
According to Canadair’s expert witness, however, the area of the land is not the only factor that should be taken into account. The others include the low utilization of the land and the fact that it is occupied by buildings that have depreciated substantially but are still worth a great deal more than the land. Encumbered with these buildings, the land is depreciated and does not have the full value of vacant land:
The Canadair Limited plants are a fairly old established industrial complex; apart from one or two buildings of very early construction, the bulk of the buildings were erected during the war years, 1940-1945 with some subsequent additions.
The complex developed as three separate plants partly due to there being different original occupiers and partly because of the “L” shaped configuration of the land. The general layout of the individual plants and the complex as a whole resulted in a low utilization of the land.
The construction and layout, in our opinion, create a substantial depreciation, for obsolescence, in the buildings, but as the buildings have a reasonable remaining life expectancy, the land also tends also to be reduced in value when considering the present use.
We therefore consider it important to examine the value of the land in relation to the overall value of the property and for this purpose we have made a valuation using the land residual technique.
This second method of valuation, which was used and preferred by Canadair’s expert witness, was described by Gagnon J.A. as follows:
[TRANSLATION] This method began with the potential gross income that could be produced by the buildings, estimated on the basis of a comparison of industrial rents in the area and his (Canadair’s expert witness’) inspection of appellant’s buildings. From this figure he deducted an allowance for vacancy and uncollected rents, administrative costs and actual or estimated operating expenses for this type of property, and so arrived at a net income for the complex as a whole. He then calculated the net income for the buildings alone based
[Page 86]
on their value as agreed upon by the parties and on a cumulative percentage made up of eight per cent interest, three per cent for taxes and a depreciation rate based on the useful life of each of the buildings.
By deducting the net income for the buildings from the net income for the whole complex, he obtained the net income for the land, which he capitalized at eleven per cent (eight per cent for interest and three per cent for taxes) to obtain the residual value of the land. Because of the low utilization of the land, however, he estimated the area of the land necessary to service the buildings, thus obtaining a unit price per square foot, and applied this price to the total area of the land, since the excess land “should be worth at least the same amount as the land which supports the buildings”.
With the exception of estimating the land necessary to service the buildings, this method of valuation appears to be essentially the same as the method used with the replacement value in The City of Montreal v. Sun Life Assurance Co. of Canada[3], a decision of the Judicial Committee of the Privy Council affirming a decision of this Court[4], and in Guy Towers Inc. v. The City of Montreal[5], a decision of the Court of Appeal of Quebec affirmed by this Court[6]. This method is called the “land residual technique” because, after the land and buildings as a whole have been assessed, the value of the land, the only issue in this case, is finally arrived at by subtraction. Basically however, this method is founded on the capitalization of the net income of immovable property. It is described in detail by Rivard J.A., who calls it the “economic” value method, in the decision of the Court of Appeal in Guy Towers Inc. (supra).
The results obtained by this method give the following real values:
| Method based on the capitalization of income |
||
|
|
Real value |
Unit value per sq. ft. |
| Plant #1 |
$ 3,049,455 |
$ 0.687 |
| Plant #2 |
$ 1,032,569 |
$ 0.414 |
| Plant #4 |
$ 127,896 |
$ 0.182 |
|
|
$ 4,209,920 |
|
| The average is 55.1¢ a square foot. |
||
[Page 87]
The Court of Appeal rejected the opinion of the City’s expert witness and fixed the value of Canadair’s land at $4,500,000, roughly in between the two valuations of Canadair’s expert witness.
In my opinion, the Court of Appeal was right to intervene and to reject the City’s assessment, which had been confirmed by the board of revision and by the Provincial Court.
It is important to remember the powers conferred on the Provincial Court by ss. 510 and 511 of the Cities and Towns Act, R.S.Q. 1964, c. 193, which applied at the period in question:
510. The court may, by its judgment, confirm the decision appealed from, annul or amend the same, or render such decision as the council or the board of revision ought to have rendered, or order it to exercise the functions respecting which recourse is had.
511. The decision may be set aside only when a substantial injustice has been committed, and never by reason of any trifling variance or informality.
Section 514 of the same Act, which states that the decision of the Provincial Court may be appealed to the Court of Appeal, specifies the manner of appeal but not the powers of the Court of Appeal. Sections 510 and 511 concern first of all the judgment to be rendered by the Provincial Court, but they also apply to the court responsible for reviewing this judgment. This is the opinion of the Court of Appeal and I concur. The powers of a first appellate tribunal to intervene in a municipal assessment were spelled out by the Judicial Committee in The City of Montreal v. Sun Life Assurance Co. of Canada (supra), in which the first tribunal to which the decision of the board of revision could be appealed was a judge of the Superior Court, who, in accordance with the Charter of the City of Montreal, studied the record used by the board of revision and heard the parties, but could not hold an inquiry. The Judicial Committee made the following observations regarding the powers of this judge, at p. 98:
…he had at least as wide a power of revision as has a Court of Appeal where a case has been tried by a Judge alone and indeed having regard to the provisions of the
[Page 88]
Charter that he must “proceed with the revision of the valuation submitted to him and with the rendering of such judgment as to law and justice appertain”, …he is to some extent less fettered than an Appellate Court.
These observations apply a fortiori to the Provincial Court in the case at bar, since it did have the power to hold an inquiry pursuant to s. 508 of the Cities and Towns Act and did in fact hear expert witnesses. Its powers of intervention and consequently those of the Court of Appeal are surely no less than those of the Superior Court judge in Sun Life Assurance Co. of Canada (supra).
It is not lightly that a tribunal or a Court of Appeal should interfere with a municipal assessment confirmed by the board of revision. There is one case, however, in which the intervention of the first appellate tribunal, or if this is lacking, of the Court of Appeal, is unquestionably necessary; namely, the case in which those who made the decision neglected important factors affecting the value of the immovable and in which, as a result of this neglect, “a real injustice (was) committed”, to use the words of s. 511 of the Cities and Towns Act, (See also the opinion of Rivard J.A. in Guy Towers Inc. (supra), at pp. 281 and 283.)
In my view the case at bar is such a case. The City’s expert witness assessed Canadair’s land as if it were a medium-sized block of vacant land and therefore likely to be sold for immediate high utilization. He based his comparison on sales of blocks of vacant land ranging in size from 17,500 to 1,952,451 square feet. Only one of the blocks was larger than 1,000,000 square feet and the average was 237,211 square feet, whereas the areas of Canadair’s pieces of land are 702,725 square feet, 2,494,129 square feet and 4,438,800 square feet for a total of 7,635,654 square feet. In addition, as mentioned above, Canadair’s land is not vacant but is encumbered with depreciated buildings. I do not believe that by agreeing with the City on the value of its buildings Canadair agreed to have its land assessed as if it were vacant when in fact it is not.
[Page 89]
Gagnon J.A. made the following observations regarding the size of the land as a factor in the case:
[TRANSLATION] The expert witness Smith (“Canadair’s expert witness”) stressed the unusually large size of Canadair’s land and gave the opinion that it was unlikely that a single purchaser would be found for such a large piece of land. Though this statement is to some extent hypothetical, it is nevertheless based on fact and should be taken into consideration, especially since it was not disputed by Bigras (“the City’s expert witness”), and since the possibility of finding a single purchaser for the entire property is also hypothetical.
Concerning the depreciation of the land because of its low utilization and the fact that it is occupied by rather old buildings, Gagnon J.A. wrote as follows:
[TRANSLATION] Another unusual factor, according to appellant’s appraiser, is the presence on the land of a whole complex of rather ill-assorted buildings situated in such a way that the land is not used as efficiently as it might be.
Appellant’s land quite obviously does not have the unique features that were found in the Sun Life building with its “amenities and luxuries”, “too expensive materials and sumptuous decorations” ([1950] S.C.R. 242 and 243). Neither could it be compared to a golf course for which there is no ready market (The Royal Montreal Golf Club v. Corporation de la Municipalité de la Paroisse de St-Raphaël de l’Île Bizard, [1964] Que. Q.B. 223) or to the parking lot involved in Pigeon Hole Parking (Eastern Canada) Limited v. City of Dorval, [1969] Que. Q.B. 936.
Nevertheless, while taking the circumstances into account, I am of the opinion that the expert witness Smith presented, without contradiction, factors which are likely to affect the market value of the land and which should be taken into consideration…
In my view the first point to be considered is that although the buildings are rather old, their value is much greater than the value of the land. Had the relative value of the buildings been negligible, their encumbering effect would not have had to be considered, and the land could have been valued at the full market value for vacant industrial land. It is inconceivable that Canadair, as a prudent vendor who is not obliged to sell, would be in this situation, or that a prudent buyer would be prepared to purchase the complex at a price including the full value of vacant land…
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Section 485 of the Cities and Towns Act states that the assessors shall assess taxable property according to its real value. In my opinion, a prudent buyer would also consider this particular property belonging to Canadair as a whole, and since the buildings are still the most important part of this property, while the land is secondary, I believe that although we should respect the parties’ agreement regarding the value of the buildings we must, in fairness to the taxpayer who has in his possession not hypothetical land and buildings but rather a complex of specific land and buildings, consider the depreciation of the land as a result of the location of the buildings.
The conclusion reached by Gagnon J.A. is that the case at bar is one in which intervention is justified.
I entirely agree.
One of the reasons for the dissent of Montgomery J.A. in the Court of Appeal was related to the low utilization of the land. He said that after consulting the plans he was not convinced that the land was not fully utilized, and in any case he doubted the existence in practice of an ideal utilization of land for industrial purposes. Nevertheless, it appears to me that the trial judge recognized, at least implicitly, the existence of a low utilization factor for the land, and like the Court of Appeal, accepted the opinion of Canadair’s expert witness. He refused to take this factor into consideration, not because he disputed its existence but for the following reasons:
Furthermore, the Court cannot see why the use which the proprietor makes of his land should affect its basic value. If two adjoining industries occupy similar land, and one makes a less efficient use of its land than the other, it would be immoral to put a premium on this inefficiency by according it a lower tax per square foot, whilst its more efficient neighbour would by comparison be penalized for its greater competence.
In my opinion, the trial judge erred in refusing to consider a factor of which existence he accepted, on the ground that to take it into account would be to put a premium on inefficiency. Municipal taxes do not exist for the purpose of promoting efficiency. They are founded on the real value of immovable property. When this value is affected by the use that is made of the land, for which the
[Page 91]
current owner may or may not be responsible but which a purchaser would take into consideration, the law requires that this circumstance be taken into account like any other circumstance that affects the real value.
It is perhaps unusual to apply a depreciation factor to land rather than buildings, but if the low utilization of a building could be taken into consideration in The City of Montreal v. Sun Life Assurance Co. of Canada (supra), I do not see what principle would prevent us from doing the same for land under the proper circumstances. Otherwise, since the buildings are assessed according to their real value and the land on which they are built is assessed according to the value it would have if it were fully utilized, there is a danger of arriving at a value for the property as a whole that is greater than an expropriation indemnity.
With regard to the unusually large area of the land the trial judge adopted contradictory positions: at the beginning of his judgment he stated that Canadair’s expert witness had convinced him that it would take an average of at least five years to sell such a large block of land, but later he stated that this period appeared to him to be excessive. In any case, he refused in principle to take this factor into account in a case in which the land was developed and had already been subdivided, as he said it was in the case at bar:
The Court can see no reason why the intrinsic value of one square foot of land of the appellant’s property should be worth less than one square foot of the property of its neighbours which is adjacent and subject to the same zoning and economic conditions, merely because the square foot of land on the appellant’s property is part of a much larger parcel which in turn supports a larger enterprise.
I would note only that the point at issue is the real value of particular blocks of land and not the intrinsic value of a square foot of land.
Montgomery J.A. was apparently not opposed in principle to considering the size of a block of land but (and this was another reason for his dissent) in his view the opinion of Canadair’s expert witness
[Page 92]
was based on false premises, namely that Canadair’s property formed a single block:
The largest part of the land is occupied by or used in connection with Plant No. 1. This has a total area of 4,438,800 square feet, but it is divided by the Laurentian Boulevard into two blocks, and that to the East of the Boulevard, having a total area of 1,637,993 square feet, is itself divided into two parts by Poirier Street. The largest single block is that occupied by Plant No. 1 west of the Boulevard, and that has a total area of only 2,800,807 square feet (v. Smith’s report, Exhibit P-5, at page 53).
This is not so much larger that the area of some of the pieces of land conveyed by the deeds used by Bigras as a basis of comparison. I cannot agree that a block of land held by a taxpayer should be valued at a reduced rate merely because the taxpayer holds other blocks of land in the vicinity.
The blocks of land owned by Canadair are almost contiguous. Where this is not the case, they are separated only by a boulevard or a street. Counsel for Canadair state in their factum that the areas east and west of the Laurentian Boulevard are joined by a tunnel and this appears to be confirmed by some of the plans found in the record. In any case, all of the land is used by Canadair for its aircraft manufacturing undertaking and it is the immovable property as a whole of this undertaking that is to be assessed, even though the value of the buildings was agreed upon at the beginning of the dispute. In view of these circumstances it seems to me to be inaccurate, and I say this with deference, to maintain that Canadair is asking for what amounts to a reduction in the taxes on one or other of its blocks of land on the pretext that it owns other blocks of land in the vicinity. If the immense area of the land affects its real value, then it must be taken into consideration. The record contains only the uncontested opinion of Canadair’s expert witness on this point, since the City’s expert witness did not discuss this aspect of the question at all.
For these reasons it is my opinion that the Court of Appeal was justified in intervening and dismissing the municipal assessment.
There remains the other question: Was the Court of Appeal right in adopting the valuation of
[Page 93]
Canadair’s expert witness? I believe so. This was the only valuation that remained and there was no reason to reject it.
The trial judge and Montgomery J.A. were especially critical of the use by Canadair’s expert witness of the valuation method based on capitalization of income. They pointed out the great complexity of this method and the variable results that it produces depending on the criteria used, such as the rate of interest for purposes of capitalization, for example. In the opinion of the trial judge use of this method is not justified when it is possible to use the method of comparing sales. In the opinion of Montgomery J.A. the trial judge was not obliged to accept the results produced by the income capitalization method. Finally, both Montgomery J.A. and the trial judge noted the disparity between the two valuations of the land around plant # 4 made by Canadair’s expert witness, depending on whether he used the comparative method or the income capitalization method.
It is important to note that although the Court of Appeal preferred the valuation made by Canadair’s expert witness, it did not reject the comparative method a priori, only the way in which it was used by the City’s expert witness. The Court of Appeal was not choosing between two methods of valuation, but was determining the real value of land on the basis of results obtained by the same expert using two different methods.
Since it was occupied land rather than vacant land or buildings that was being assessed, it would perhaps have been difficult to use the valuation method based on replacement cost, which is not mentioned by either of the expert witnesses. The comparative method, when used without any correctives or adjustments as it was by the City’s expert witness, ignored important factors that affected the value of the land. In addition, it is doubtful that any sales of land comparable to that of Canadair and including similar buildings have taken place in the area. None are mentioned by the two expert witnesses. There remained the comparative method with an adjustment to take into account at least one relevant factor, the unusually large area of the land. Since this was not the only factor to be considered, however, it was not
[Page 94]
improper to use in addition another method, which had as its objective to take all the factors into account and which served the additional purpose of confirming or weighing the results obtained using the first method. In basing its decision on the results produced by two valuation methods the Court of Appeal acted in essentially the same way as this Court and the Judicial Committee did in The City of Montreal v. Sun Life Assurance Co. of Canada (supra). In establishing the valuation itself the Court was exercising a power provided for in s. 510 of the Cities and Towns Act, and in choosing a valuation between the two given by Canadair’s expert witness it was using its own judgment as it was obliged to do in a field that is essentially a matter of opinion.
The valuation method based on capitalization of income entails a risk of inaccuracy, but it is not heresy to fall back on it when other methods fail or to use it along with other methods that are not fully satisfactory. It was used for buildings in The City of Montreal v. Sun Life Assurance Co. of Canada (supra) and in Guy Towers Inc. (supra). It was also used, however, for the land in In re Withycombe Estate, Attorney General of Alberta v. Royal Trust Company[7], a case involving estate tax in which the value of a piece of land and that of a theatre built on the land were determined separately, using different methods. In a recent decision, La Compagnie du Marche Central Métropolitain Limitée v. The City of Montreal[8], the Court of Appeal, upholding the Provincial Court, decided that the board of revision had been justified in rejecting the method called “Valuation by land residual technique”. Leave to appeal to this Court was denied[9]. One of the reasons for rejecting this method in that case was that the necessary economic data were not available. This is not so in the case at bar. Appellant in La Compagnie du Marché Central Métropolitain Limitée (supra) also proposed to use this method to value the land and another method to value the buildings, which again is not so in the case at bar where the parties are agreed on the value of the
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buildings. In La Compagnie du Marché Central Métropolitain Limitée (supra), the Court of Appeal expressed the opinion that this overall method could not be used to assess the land while other methods were used to assess the buildings. I do not have to decide whether this opinion is compatible with the judgment in Withycombe (supra).
In the case at bar the first valuation method used by Canadair’s expert witness and the results he obtained were not disputed by the City’s expert witness. In my view, the Court of Appeal was justified in considering these results. The City’s expert witness did comment on the second method, however, but without rejecting its principle or any of its actual modalities, save one. He simply pointed out that it entailed a risk of inaccuracy, and expressed the opinion that the interest rate of eight per cent used by Canadair’s expert witness was rather high. He did not, however, dispute any of the other figures chosen by him:
[TRANSLATION] Q. Mr. Bigras, you were present this morning at Mr. Smith’s presentation. Can you tell us what you think of the second method that Mr. Smith says he used, the residual value method?
A. It is a method, Your Lordship, that is advisable in certain circumstances and that is often used, I would say, as a guide where such a guide is felt to be particularly necessary. An example would be the valuation of vacant land in a neighbourhood or geographical area where everything had been built up for a long time, so that there were no comparable sales. Since there is no vacant land, we can’t rely on what has actually happened in the vicinity.
In such a case we may have to look very far afield, and this may produce errors one way or the other in the sales to be compared. The method employed by Mr. Smith this morning is used as a corrective.
I wonder, though, whether it is the best method in the present case. It entails a risk of inaccuracy…
That is why I say that an accurate figure can have a considerable effect on the value of the land. It has its
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value, Your Lordship, but I wonder whether it was the best method under the circumstances, when there were a number of comparable sales.
In these circumstances the Court of Appeal was also justified in considering the results obtained by the second valuation method.
As for the disparity between the two valuations of the land around plant #4 made by Canadair’s expert witness, the witness himself was well aware of it. He explained in his testimony in chief that plant #4 is the only one located at an intersection, which tends to increase the value of the land if it is valued as if it were vacant. The same piece of land, however is also the one with the lowest utilization, which reduces its value according to the second valuation method.
Gagnon J.A. made the following observation on this point:
[TRANSLATION] I have not failed to notice the considerable disparity in Smith’s own figures between the value of the land around Plant No. 4 according to the discount method (58.7¢) and the value obtained by the residual value method (18.2¢). However, even if the corner lot should have been assigned a much higher value, as it was by the trial court, this would not make a significant difference. I do not believe that we are called upon to do all the calculations of the expert witnesses over again or to search for a compromise formula at any cost. Taking into consideration Smith’s opinion as a whole, I think I would be fair to both parties by fixing the valuation of Canadair’s land at $4,500,000…
In my opinion, the Court of Appeal was right to adopt the valuation of Canadair’s expert witness.
I would dismiss the appeal with costs.
Appeal dismissed with costs.
Solicitors for the appellant: Geoffrion, Prud’homme, Chevrier, Cardinal, Marchessault, Mercier & Greenstein, Montreal.
Solicitors for the respondent: Duquet, MacKay, Weldon & Bronstetter, Montreal.