CITATION: Via Rail Canada Inc. v. MPAC, 2015 ONSC 7459
OTTAWA COURT FILE NO.: DC-15-2104
DATE: 2015/11/30
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
IN THE MATTER OF section 43.1 of the Assessment Act, R.S.O. 1990, c.A. 31, as amended;
AND IN THE MATTER OF decisions of the Assessment Review Board with respect to assessment appeals for taxation in 2009, 2010, 2011 and 2012 with regards to the property municipally known as 200 Tremblay Road and 433 Terminal Avenue in Ottawa and identified by roll numbers 06 14 105 605 57000 0000 and 06 14 105 605 57020 0000.
BETWEEN:
VIA RAIL CANADA INC.
Matthew J. Halpin, Norton Rose Fulbright Canada LLP for the Appellant/Moving Party
Appellant
- and -
MUNICIPAL PROPERTY ASSESSMENT CORPORATION (MPAC), REGION 3 and CITY OF OTTAWA
Melissa E. VanBerkum, Conway Davis Gryski for the Respondent MCAP
Matthieu Charron, City of Ottawa- Legal Services for City of Ottawa (appearing but not making submissions)
Respondents
HEARD AT OTTAWA: November 18, 2015
REASONS ON MOTION FOR LEAVE TO APPEAL
MADAM JUSTICE B. R. WARKENTIN
[1] The Applicant, Via Rail Canada Inc. (VIA) seeks leave to appeal to the Divisional Court from the decision of the Assessment Review Board (the Board) dated March 13, 2015. In its decision, the Board determined the value of the Ottawa Passenger Railway Station (the Station) on Tremblay Road in Ottawa, for the purposes of municipal taxation under s. 30(2)(d) of the Assessment Act, R.S.O. 1990, c. A. 31 (the Act).
[2] Only the part of the Station comprised of land designated under s. 30(2)(d) is the subject of this appeal (railway lands in actual use and occupation by VIA and not fitting into the other subcategories of s. 30(2)). Section 30(2)(d) of the Act provides that railway land so designated under that section must be assessed:
…at its actual cash value as it would be appraised upon a sale to another company possessing similar powers, rights and franchises.
[3] There was no dispute that the Station must be assessed in its current use as a passenger rail station. The potential and speculative value of the land if it were used in a more profitable way (for instance, for commercial or residential development) may not be considered by the assessor.
[4] VIA is a federal crown corporation and was incorporated in 1977 after existing rail companies sought to discontinue all of their passenger rail services in Canada. VIA remains the only national intercity passenger railway company in Canada.
[5] Before the Board, VIA argued that the value of the Station for municipal property tax assessment purposes should be the nominal amount of $10.00. In making this submission VIA submitted that there could be no rational buyer acting in an open, competitive market because no other passenger railway companies exist in Canada. Therefore no company (a non-railway company) acting in its own self-interest would ever agree to pay more than a nominal amount for the Station.
[6] Based upon this evidence, which was essentially uncontroverted, VIA argued that the Station’s actual cash value “as it would be appraised upon a sale to another company possessing similar powers, rights and franchises” would never be more than a nominal amount.
[7] VIA also argued that without the subsidies provided by the Federal Government, the national passenger railway system operates at a loss and that there should be a 100% economic obsolescence (EO) applied to the Station’s value.
[8] EO arises from factors external to the property itself, including such examples as the downturn of a particular industry. A property with a factory only capable of producing a single product may suffer from partial economic obsolescence if demand for that product experiences a long-term drop. (Domtar Inc. v. Municipal Property Assessment Corporation, Region No. 30 [2013] O.A.R.B.D. No. 27 (Assessment Review Board)).
[9] The Respondent, the Municipal Property Assessment Corporation (MPAC) argued that the actual cash value of the Station for assessment purposes was $7,705,000.00 for 2009 through 2011 and $7,873,000.00 for 2012.
[10] It was MPAC’s position that s. 30(2)(d) creates a hypothetical market and that VIA itself might be considered a potential purchaser when determining the actual cash value of the Station.
[11] MPAC also argued that the assessor’s role was to value the Station, not the national passenger rail system as a whole.
[12] The Board agreed with MPAC and found that the value for municipal tax assessment purposes was as MPAC had proposed.
[13] The Board dismissed the position of VIA that the Station had a nominal value and applied no EO to the Station’s assessed value for 2009-2012 on the basis that the Station was used for its intended purpose; that there had been millions of dollars spent on renovation and improvements and that if destroyed, the Station would have to be replaced.
ISSUES AND THE LAW
[14] If leave to appeal is granted, the issue before the Divisional Court would be whether or not the Board erred in its interpretation and application of s. 30(2)(d) of the Act.
The Test for Leave to Appeal
[15] Section 43.1(1) of the Act provides that “An appeal lies from the Assessment Review Board to the Divisional Court, with leave of the Divisional Court, on a question of law.”
[16] In granting leave the Court must be satisfied that:
a) There is some reason to doubt the legal correctness of the Board’s decision; and,
b) The appeal involves an important question of law meriting the attention of the Divisional Court. (Mullabrack Inc. v. Ontario Property Assessment Corp., Region No. 16, [2001] O.J. No.1047 (Div.Ct.) para 12 and JUNVIR Investments Ltd. v. Municipal Property Assessment Corp., Region No. 09, 2014 ONSC 5471 (Div. Ct.) para. 4)
[17] To meet the first branch of the test, the party seeking leave to appeal need not show that the Board’s decision was wrong or even probably wrong. This part of the test is satisfied if the correctness of the decision is "open to very serious debate”. Exchange Tower Ltd. v. Municipal Property Assessment Corp., Region No. 9, 2012 ONSC 415 (Div. Ct.) at paras. 14, 17-18.
Some Reason to Doubt the Legal Correctness of the Board’s Decision
[18] The existence of conflicting decisions may give reason to doubt the correctness of the decision. Demonstrating that the legal tests applied or factors considered by the Board are novel and not in accordance with established case law is one way of meeting the threshold of “open to very serious debate” (Exchange Tower at para. 17).
[19] VIA submitted that the Board committed errors of law in reaching its conclusions by confusing two legal concepts known as “use value” and “market value”. VIA also argued that the Board erred when it based its decision on the subjective value of the Station to VIA.
[20] There was no disagreement that s. 30(2)(d) required the appraisal of the Station to be performed based on market value. VIA submitted however that the Board erred by confusing the Station’s use value and then created a hypothetical market and looked at VIA as a potential purchaser.
[21] “Use value” is the value a specific property has for a specific use, focusing on the value the real estate contributes to the enterprise of which it is a part, without regard to the monetary amount that might be realized from the property’s sale. (The Appraisal of Real Estate, Third Canadian Edition (Appraisal Institute of Canada) at 2.12)
[22] MPAC agreed that the Board utilized the hypothetical market and considered VIA as a potential purchaser, but disagreed that the Board’s decision was subjective. It was counsel for MPAC’s position that in determining the value of the Station, the Board utilized the cost approach to assessing value. This approach considers the construction costs of the improvements, less depreciation and a land value as a proxy for a sale value.
[23] It was MPAC’s position that s. 30(2)(d) permits the use of a hypothetical market when determining value for assessment purposes.
[24] In reaching its decision, the Board accepted that the Station has "no value other than the public good.” However, the Board concluded the Station’s value to VIA’s operations nonetheless created a market. The Board at paragraph 36 of its decision stated:
In this case, a market was created by VIA’ s mandated requirement by the Federal Government to provide the public with intercity passenger rail service. As VIA's expert witness in business valuations stated, the “... motivation does not have to be economic and it has no value other than the public good. It has a different criteria than a typical economic business decision ...” The Board agrees with that statement and on that basis, finds that VIA's ultimate goal is to provide intercity passenger rail service; not profits per se…
[25] It was counsel for VIA’s position that the Board also failed to give consideration to a decision of another panel of the Board that was upheld by the Divisional Court as well as decisions from other provinces that it claimed set out the legal principles of general application in the assessment context.
[26] Both counsel for VIA and for MPAC thoroughly reviewed the relevant jurisprudence regarding assessing the value of railway stations for municipal taxation purposes as well as jurisprudence regarding property utilized for other modes of transportation, such as airports.
[27] Section 30 of the Act has not changed significantly since it was introduced in 1904. Since 1904, the leading case regarding the valuation of railway stations for assessment purposes is the Supreme Court of Canada case of Canadian Pacific Railway v. Sudbury (City), 1960 15 (SCC), 1960 CarswellOnt 67 (S.C.C.), [1961] S.C.R. 39.
[28] In 1954, the assessment year at issue in CPR v Sudbury, passenger rail properties presumably had market value because passenger rail was still a private industry operated for profit and there were multiple passenger railway companies that formed a market for passenger rail properties. There was no need to create a hypothetical market in that case.
[29] The other jurisprudence that was referenced by the parties where a nominal value was applied to property consisted of law from other provinces under similar, but different statutes. The jurisprudence in Ontario addresses different issues than those present in this case, although it is helpful. See Canadian Pacific Railway v. Municipal Property Assessment Corp., Region No. 19, 2011 CarswellOnt 9902 (Assessment Review Board) at para. 83-85, aff’d 2012 ONSC 3719 (Div. Ct.)
[30] In reviewing the decision of the Board, I accept the submissions of counsel for VIA that there is some reason to doubt the legal correctness of the Board’s decision. In particular, whether or not the Board was entitled to create a hypothetical scenario where VIA was the prospective purchaser of the Station and if in doing so, the Board confused the Station’s use value with market value.
[31] I also find that the jurisprudence contains conflicting decisions with the result that the correctness of the Board’s decision is open to serious debate.
[32] I find therefore that this branch of the test for granting leave to appeal has been met.
Important Question of Law Meriting the Attention of the Divisional Court
[33] Counsel for VIA also argued that this case should be considered as a test case for determining the value for municipal tax assessment purposes for other railway passenger stations in Ontario and Canada.
[34] In light of the different approaches to valuing railway stations for municipal assessment purposes in other provinces as well as the changes to the manner in which passenger rail service has evolved from private for profit to a crown corporation subsidized by the Federal Government, I agree that this is a case that involves an important question of law that merits the attention of the Divisional Court.
[35] Leave to appeal is therefore granted.
Costs
[36] The parties consented to costs fixed at $5,000.00 payable to the successful party, in this case the Appellant, VIA Rail Canada Inc.
Madam Justice B. R. Warkentin
Released: November 30, 2015
CITATION: Via Rail Canada Inc. v. MCAP, 2015 ONSC 7459
OTTAWA COURT FILE NO.: DC-15-2104
DATE: 2015/11/30
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
VIA RAIL CANADA INC.
Applicant
- and -
MUNICIPAL PROPERTY ASSESSMENT CORPORATION (MPAC), REGION 3
and CITY OF OTTAWA
Respondent
REASONS ON MOTION FOR LEAVE TO APPEAL
Madam Justice B. R. Warkentin
Released: November 30, 2015