Date: 20001124
Docket: A-532-99
CORAM: LINDEN J.A.
McDONALD J.A.
MALONE J.A.
BETWEEN:
KENNETH EDWIN CROSSON and PHYLLIS EVELYN CROSSON,
WASAGAMING WIGWAM LTD.,
69158 MANITOBA LTD.
KENNETH CHARLES BURR and EDITH MAVIS BURR,
BEA-GREN ENTERPRISES LTD.,
GEORGE EVERETT NEILLY,
DONALD KENNETH HAWKING and CAROL DIANNE HAWKING,
Appellants,
- and -
HER MAJESTY THE QUEEN,
Respondent
Heard at Winnipeg, Manitoba, on Wednesday, November 15, 2000.
Judgment delivered at Ottawa, Ontario, on Friday, November 24, 2000.
REASONS FOR JUDGMENT BY: MALONE J.A.
CONCURRED IN BY: LINDEN J.A.
McDONALD J.A.
Date: 20001124
Docket: A-532-99
CORAM: LINDEN J.A.
McDONALD J.A.
MALONE J.A.
BETWEEN:
KENNETH EDWIN CROSSON and PHYLLIS EVELYN CROSSON,
WASAGAMING WIGWAM LTD.,
69158 MANITOBA LTD.
KENNETH CHARLES BURR and EDITH MAVIS BURR,
BEA-GREN ENTERPRISES LTD.,
GEORGE EVERETT NEILLY,
DONALD KENNETH HAWKING and CAROL DIANNE HAWKING,
Appellants,
- and -
HER MAJESTY THE QUEEN,
Respondent
REASONS FOR JUDGMENT
MALONE J.A.
This is an appeal from a judgment of the Trial Division rendered on June 8, 1999. Judgment was granted in favour of the Respondent, determining that the rents fixed by the Minister for the various properties which are the subject of this appeal were fair and reasonable. Pre-judgment interest and costs were also awarded against the Appellants.
Central to the disposition of this appeal is the issue as to whether the trial judge committed any errors of fact or law in accepting the methodology and conclusions of the Minister's expert appraiser David Lenych and in according the weight that he gave to his evidence. In accepting the Lenych evaluation in preference to the other evidence offered by the Appellants the trial judge stated as follows:
| 10. In contrast, counsel for the Crown, Mr. Edwards, effectively demolished in cross-examination the evidence given by Mr. Dennis Browaty, the appraiser retained and called as an expert witness by the defendants. So complete was the demolition that Mr. Browaty ended up by agreeing that were it not for some crucial errors in his report, his methodology and calculations would have indicated that many of the 1990 rent increases should probably have been higher than those fixed by the Crown on the basis of Mr. Lenych's report. |
| 11. Not surprisingly, Mr. Booth did not seek to rely on Mr. Browaty's evidence when he made his closing submissions. Instead, he relied heavily on the transcript of the examination for discovery of Mr. James Murray, the principal of one of the defendants, who has owned and operated business in Riding Mountain for more than 20 years. While appraisals may be almost as much art as science, I can attach relatively little weight to the opinion of the value of land given by a person, such as Mr. Murray, who is neither a professionally qualified appraiser, nor disinterested in the value of the property. |
| 75. I found Mr. Lenych a very credible witness. The clarity and cogency of the explanation of his report that he provided in his evidence, and the nuanced and thoughtful answers that he gave in response to Mr. Booth's cross-examination, reflect the more than forty years' experience that Mr. Lenych has had as an appraiser of the value of all kinds of real estate, including recreational properties. |
The standard of review to be exercised by this Court on appeals from trial judges on a question of law is correctness. Findings of fact based on the credibility of the witnesses as determined by a trial judge are not to be interfered with by this Court unless the trial judge has made a palpable and overriding error in law which has effected his assessment of the facts.1
As for the factual issues upon which expert opinions are based, this Court is also not entitled to review the findings of fact and substitute its own assessment of the evidence notwithstanding that we may consider ourselves to be in as good a position as the trial judge to undertake such a task.2 Even if this Court were inclined to draw other inferences from the facts than those drawn by the trial judge, we cannot do so unless persuaded there is a manifest error.3
The first issue on this appeal is whether an error of law was committed when the trial judge accepted as a first step the Lenych appraisal methodology in valuing the leases based on the Crown's fee simple estate, out of which the leases were granted, as opposed to the value of the leasehold interests held by the Appellants.4 The Appellants argument in essence is that to use the "fee simple" approach adapted by the trial judge even as a preliminary step, is inconsistent with the wording in the leases and in particular the term "ground rent" in the renewal leases and "full annual value of the tenement" in the original leases.
This methodology issue was clearly addressed by a Crown witness, Peter Nichol. Mr. Nichol gave evidence as an expert in financial analysis. He testified that if the land rent is set at a market place rate, the landowner will recapture the whole of the annual value of his fee simple interest. Put another way, an assessment must first be made of the value of the owner's interest which is being leased, following which an appropriate capitalization rate may be applied to calculate the market rent. If the valuation of the owner's interest and the capitalization rate are in step with the marketplace, the resulting rent will recapture the full annual value of the owner's interest in the land leaving no residual value, or leasehold interest, in the hands of the lessee. The lessor's interest is the rent received, which when capitalized would equal his ownership interest.5
The Appellants argued that the "leasehold interest" should be given a value. However, any such valuation can only be determined after first determining whether or not the rent being paid is below or above the market rent. If the rent is below market the lessee will have a residual interest in the lease, which will have a value in the marketplace. If the rent is above market the lessor will have an interest in excess of his ownership interest. As a result, it is impossible to determine the value of any "leasehold interest" without first knowing the rent contracted for, which was the very issue to be determined in these proceedings. The evidence of Mr. Nichol on the manner in which rents are set in the market place, and appropriate capitalization rates, was unchallenged by any contrary expert testimony and was quite properly adopted by the trial judge.6 In addition, the fee simple methodology as directed by the Minister, adopted by the appraiser and accepted by the trial judge is consistent with that applied in similar rent review cases across Canada.7
The Appellants relied on the recent Supreme Court of Canada decision in Musqueam Indian Band v. Glass8 but in my view the majority reasons do not support their argument. At paragraph 37 Justice Gonthier wrote as follows:
| Market value generally is the exchange value of land, rather than its use value to the lessee. This distinction was articulated in Bullock's, Inc. v. Security-First National Bank of Los Angeles, 325 P.2d 185 (Cal. dist. Ct. App. 1958) at p. 188, where the lease "calls for a determination of the value of the land, not the value of the use of the land for any particular purpose". Land is valued without regard to the tenant's interest in it, for it does not reduce the land's exchange value if the tenant chooses not to use the land for its highest use. This case has been cited in Canada (e.g., Revenue Properties, supra) and the principle is part of Canadian law. Most recently, in No 100 Sail View Ventures Ltd. v. Janwest Equities Ltd (1993), 84 B.C.L.R. (2d) 273, leave to appeal refused [1994] 2 S.C.R. viii, the majority of the British Columbia Court of Appeal held at p. 281 that the specific terms of a lease were not relevant when determining "fair market of the Leased Premises as bare land" for a rent review. |
The meaning of the word "tenement" used in the leases was also in issue. The definition of "tenement" as concluded by both the trial judge and illustrated in the definitions put forward by the Appellants, can include both land and houses or buildings depending on the context in which it is used. In the renewal leases "tenement" referred to improvements, and in the original leases the term referred to land only. In my view, the argument of the Appellants on this point is redundant in any event because the parties agreed at the outset of the proceedings that for the purposes of all of the leases in issue that the Crown was only able to assess rents based on the land value, and not the structures.9
The Appellants also questioned the fairness of the Trial Judge's decision where in he endorsed the right of the Minister to allow one rate of seasonal rent reduction to residential lessees while commercial lessees were not to be granted a comparable rate. I can see no error in the Trial Judge's analysis as Mr. Lenych did consider seasonal restrictions in his overall assessment of land values. He assumed that the seasonal restrictions would apply irrespective of what use the Crown was to make of the land and applied a twenty percent reduction when comparing commercial leases in the national park to properties outside its boundaries.10
A fourth issue raised was whether the tendering of the complete discovery transcript of the Appellant, James Murray, amounted to an adoption by the Minister of the entirety of Mr. Murray's evidence. The Trial Judge, in my view, correctly concluded that it did not. It is merely evidence that must be weighed with the rest of the testimony.11
Finally, an allegation of bias on the part of the Trial Judge, raised for the first time on appeal, is to be rejected in my opinion, being both without evidenciary foundation or merit.
Based on all of the evidence, I can find no palpable and overriding errors in the Trial Judge's assessment of the facts. Nor am I persuaded that any errors of law were committed relative to the Lenych appraisal methodology. Rather the words "ground rent" and "the full annual value of the tenement" were properly interpreted to refer to the annual value, or income, produced by the fee simple interest, as if the lands had not been leased.
I would dismiss the appeal with costs in both Divisions of this Court.
(B. Malone)
J.A.
I agree
A.M. Linden
J.A.
I agree
F.J. McDonald
J.A.
__________________
1. R. v. N.T.C. Smokehouse Ltd. [1996] 2 S.C.R. 672; Geffen v. Goodman Estate [1991] 2 S.C.R. 353.
2. N.V. Bocimar, S.A. v. Century Ins. Co. of Canada [1987] 1 S.C.R. 1247
3. Clark v. Kona Winds Yacht Charters Ltd. (1995), 184 N.R. 355 (Fed.C.A.)
4.. The portions of the leases in question are the rent review clauses, five of which are in identical wording, being those found in renewal leases, and two of which are in the wording of the original leases. The renewal lease wording is as follows:
" . . . that a determination be made by a Judge of the Federal Court of Canada, such yearly rent to be calculated all together as ground rent of a parcel of land situated as the said premises shall be situated and the value of any buildings, tenements, houses or erections placed thereon by the lessee shall not be taken into account in fixing such rent . . .".
The original lease wording is as follows:
". . . as may be determined by a Judge of the Exchequer Court to be the full annual value of the tenement at the time of such determination . . .".
5. Reasons for Judgment, paragraphs 18-21; Appeal Book, at pages 555-557.
6. Reasons for Judgment, paragraphs 19 and 20;
7. Roywood Investments Ltd. v. London Life Insurance Co. (1972) 24 D.L.R. (3d) 249 (Ont. C.A.); Standard Life Assurance Co. v. Parc-IX Ltd. (1991) 82 D.L.R. (4th) 721 (Ont. Gen. Div.); No. 100 Sail View Ventures Ltd. v. Janwest Equities Ltd. (1994) 2 W.W.R. 396 (B.C.C.A.)
8. 2000 SCC 52.
9. Reasons for Judgment, paragraph 16.
10. Appeal Book, Tab 57, page 42.
11. Reti et al v. Fox et al (1977), 2 C.P.C. 62 (Ont. C.A.); Carter v. Rungay (1984) 31 Man. R. (2d) 29 (C.A.).