ONSC 478
DIVISIONAL COURT FILE NO.: DC-13-009-ML
DATE: 2016-01-19
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
CITY OF DRYDEN
Chantelle Bryson, for the Moving Party
Moving Party
- and -
MUNICIPAL PROPERTY ASSESSMENT CORPORATION and DOMTAR INC.
Jack Jamieson, for the Respondent, Municipal Property Assessment Corporation. Kenneth West and Jack Walker, Q.C., for the Respondent, Domtar Inc.
Respondents
HEARD: December 21, 2015, at Thunder Bay, Ontario
Reasons on Application for Leave to Appeal under s. 43.1(1) of the Assessment Act, R.S.O. 1990, c. A. 31, as amended
[1] The City of Dryden (“Dryden”) seeks leave to appeal from the decisions of the Assessment Review Board (“ARB”) regarding the municipal assessment for the tax years 2009 -2012 of a Northern Bleached Softwood Kraft pulp mill (the “Mill”) owned by the Respondent Domtar Pulp and Paper Inc. The ARB issued an interim decision on January 31, 2013, and a final decision on June 14, 2013. The reasons for decision for which leave is sought were contained in the interim decision.
[2] The parties agree the test for leave on applications of this sort is well-settled law. Parties prepared their materials for this matter back in 2013, and the law has not changed regarding the test to date. The test for leave in a matter such as this was most recently articulated by Justice Warkentin in Via Rail Canada Inc. v. Municipal Property Assessment Corporation, 2015 ONSC 7459, where she stated at paragraphs 15 – 17:
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.
Issue 1. Is the correctness of the decision open to very serious debate?
[3] The focus of this leave application are the findings the ARB made with respect to a calculation of Economic Obsolence (“EO”) in regard to the Mill. EO is not defined in the Assessment Act. It is a valuation concept that Justice Warkentin in Via Rail, supra, described at paragraph 8 of her decision:
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)).
[4] The ARB in its decision described EO as follows at paragraph 52:
“External Obsolescence (“E/O”) as it is now generally referred to instead of economic obsolescence, is defined as an impairment of the utility or saleability of a property due to negative influences from outside the property. The appraisal literature confirms that while it may be simple to identify, it is the most difficult form of depreciation to quantify for special-purpose properties, and is largely a matter of subjective judgment of the appraiser.”
[5] At the hearing, Dryden was represented by a licenced paralegal and chose not to put forward any expert valuation evidence. Instead, Dryden supported the position of the Municipal Property Assessment Corporation (MPAC) with regard to the valuation of the Mill.
[6] At the hearing, the ARB had before it two expert opinions of value. Both the expert for MPAC (an assessor) and the expert for Domtar expressed an opinion that the current value of the Mill for the purposes of assessment under the Act should be subject to a deduction from the Replacement Cost New value of the Mill as the result of EO. The MPAC assessor opined a 30% deduction for EO and the Domtar expert testified the EO should be 60%. The ARB found the EO to be 51.7%
[7] Dryden now argues the ARB should have made no deduction to the value of the Mill on the basis of EO. It asserts the ARB erred in law by misinterpreting and hence misapplying the “common law principles of obsolescence” to the facts of the case. Dryden argues the ARB made its decision:
in absence of evidence of requisite permanent locational and/or product obsolescence;
upon irrelevant and inadmissible Domtar expert evidence pertaining to EO;
by ignoring relevant, admissible Domtar direct evidence demonstrating profitability and a market for Northern Softwood Bleached Kraft and specialty paper;
without any quantification of EO in view of a true market comparator; and
without an analysis and reasons allowing for meaningful appellate review.
[8] Domtar counters that Dryden’s application for leave fails to raise a question of law and the correctness of the decision is not open to serious debate.
[9] With regard to Issue 1, I accept the submissions of Domtar. In my view the decision is not open to serious debate. A question of law is not raised by the application at bar. I find this for the following reasons.
[10] I do not accept the submission of Dryden that there are “common law principles of obsolescence, or economic obsolescence”. Instead, there are valuation or appraisal principles related to EO, and there are administrative tribunal decisions and court decisions which recognize the concept, but in my view this does not elevate EO to the status of a “common law principle”. In the decision Ontario (Regional Assessment Commissioner, Region No. 19) v. Dofasco, [1992] O.J. No. 1353 [Dofasco], the Ontario Court of Appeal at paragraph 35 called functional and economic obsolescence a “species of depreciation”. In paragraph 39, the Court of Appeal held that obsolescence should be considered in assessment of industrial buildings and that it is a question of fact.
[11] This is important because to accept the Dryden submission ignores the delineation the Court of Appeal recognizes regarding the concept between its legal aspect and its factual aspect. For the ARB, recognizing or not recognizing the concept of EO is a legal question. Quantifying it is a factual question. In my view, the ARB properly treated the issue in the case before it as one of quantification, and therefore a question of fact. Consequently it did not err in misinterpreting or misapplying the “common law principles of EO” as argued by Dryden because it treated the issue as one of fact as opposed to one of law.
[12] Dryden also asserts that the decision of the ARB is open to serious debate because of the nature of some of the evidence relied upon by the Board to reach its decision on EO. Dryden asserts that the ARB made its finding without having relevant admissible evidence, by admitting irrelevant evidence and also ignoring or misconstruing relevant, admissible evidence which is asserted to be contradictory to the finding of EO for the Mill.
[13] In reviewing the reasons for decision, it is clear the evidence of both parties before the ARB showed that some deduction for EO should have been applied. The question decided by the ARB was how much.
[14] In my view, it is difficult to accept that the ARB should have engaged in an exercise of weighing the evidence in such a manner so as to discount the entirety of the common position of both parties on the issue of the applicability of EO, without either party making that submission, and while the party which now seeks to make that argument sat silent before the Board. The Board had evidence upon which it could make a determination of EO. It did that. I find that it did not rely on irrelevant or inadmissible evidence to do so.
[15] In my view, what this application is really about is Dryden now taking exception with the quantification of EO. It did not take that position at the ARB. It did not object to the MPAC assessor’s opinion that EO should be applied to the Mill. It did not seek an adjournment of the proceedings to call its own evidence.
[16] Dryden makes this argument by asserting that the ARB erred in law by admitting inadmissible and irrelevant evidence and ignoring other evidence which it does view as relevant. This is a difficult position to assert by a party that participated in a hearing but did not lead any of its own evidence.
[17] In reviewing the reasons for decision, I note the ARB went on at length about the evidence before it in its decision. The weakness in the evidence of the MPAC assessor and the Domtar expert were noted in paragraphs 53 and 57 of the reasons for decision, respectively. The ARB noted at paragraph 53 that the MPAC assessor was not able to report on the rationale for MPAC placing a 40% EO allowance on wood fibre milling facilities. The ARB noted at paragraph 57 that it was not convinced that the EO figure used by the Domtar expert was appropriate.
[18] The ARB noted at paragraphs 65 and 66 that there was sufficient evidence to prefer the evidence of the Domtar expert on the issue of comparing the Mill with a comparator in South Carolina. Dryden argues this South Carolina mill is not a proper comparator as it does not make the same product as the Mill and does not sell to the same customers. Again, it apparently was the opinion of the Domtar expert that it was an appropriate comparator. How the ARB dealt with that evidence in my view raises a determination of a question of fact, not a determination of a question of law.
[19] Dryden also argued that the ARB relied on irrelevant evidence of EO as it had only 2009 as a year when the Mill was not profitable. In all other tax years at issue before the Board, the Mill was profitable. This, Dryden asserts, represents the admission of irrelevant evidence on the basis that one cannot find obsolescence on the results of only one year. I disagree.
[20] What Dryden takes issue with is the conclusion of fact that EO should be applied when only one out of the four years under appeal were unprofitable for the Mill. This finding does not vault the admission of only one aspect of a great deal of the evidence before the Board into the realm of reversible legal error. In my view, it was open to the ARB to make such a factual conclusion.
[21] Dryden also asserts that the ARB failed to provide and analysis and reasons for its determination of EO in a manner that allow for meaningful appellate review. I disagree.
[22] In this regard, I refer to the observation of Doherty J.A. in Law Society v. Neinstein (2010), 2010 ONCA 193, 99 O.R. (3d) 1, at paragraph 4:
[4] I am dubious about the merits of arguments claiming that reasons for judgment are inadequate. Experience teaches that many of those arguments are, in reality, arguments about the merits of the fact-finding made in those reasons. By framing the argument in terms of the adequacy of the reasons, rather than the correctness of the fact finding, an appellant presumably hopes to avoid the stringent standard of review applicable to findings of fact.
[23] In this matter, there is a more narrow aspect to the leave application as it is restricted to questions of law. In my view, the ARB laid out its reasons for decision in a manner that permitted meaningful appellate review. The decision went on for a significant length. It set out the positions of the parties. It commented on how it came to the decision it did on the issue of EO. This aspect of Dryden’s argument was not convincing.
[24] I agree with the submissions of the responding party that Dryden has not been able to point to a plausible question of law that arises from the decision of the ARB. It is not sufficient to simply characterize the decision as representing an error of law. There must be an air of reality to the assertions of the genuine question of law raised by a leave to appeal application, which is then subjected to the two fold inquiry as set out in the settled law.
[25] Dryden has not persuaded me that its application has satisfied the first branch of the test, that of establishing that the decision is open to very serious debate. Its complaints arise from factual determinations made by the ARB, not legal ones. On this basis alone I would dismiss the application for leave to appeal. However, I feel it necessary to comment on my views of the second branch of the test as they apply to this application.
Issue 2. Does the appeal involve an important question of law meriting the attention of the Divisional Court?
[26] Dryden raised the issue of the significant tax impact of the decision on the residents of the City as one of the means to answer the second branch of the test. Domtar vigorously opposed the inclusion of any evidence of actual tax consequences in the record before the Court. I agree with the submissions of Domtar on this point.
[27] The actual tax consequence of any assessment decision is not a matter that the legislature in the Assessment Act gave the ARB jurisdiction to consider in determining issues of current value. The assessment process does not concern itself with the resulting property tax levied against a property per se. Rather, it determines the portion or share of the tax base that any particular property owner must bear on an annual basis. The ARB therefore cannot consider the question of tax consequences in deciding current value, and a decision of the ARB cannot be made referencing those considerations. To do so would represent an error of law.
[28] By my reading of the decision, the ARB did not make its decision having regard to the tax consequences resulting from the current value of the Mill, which it fixed. The evidence of Dryden as to the significant impact the decision may have on the ratepayers of the city was not admissible on this hearing and I did not take any account of it in coming to my decision. The actual tax consequence to a taxpayer or a municipality is not a matter that is to be considered in an assessment appeal. In my view, it is therefore not a proper consideration for this Court on a motion for leave under section 43.1(1) of the Assessment Act.
[29] The jurisprudence of this Court regarding the second branch of the test requires that the appeal must raise a point of law of sufficient importance beyond the immediate interests of the parties that merits the attention of the Court (Kensington Foundation v. Municipal Property Assessment Corp., Region No. 9, 2013 ONSC 1799 at paragraphs 18 and 19). Clearly the particular tax consequences of an ARB decision are felt only by the ratepayers in a municipality. They do not have wider implications per se. The tax implications of an ARB decision, however burdensome on the ratepayers of a municipality, are, in and of themselves not sufficient to satisfy the requirements of the second branch of the test for leave under section 43.1(1) of the Assessment Act.
[30] Dryden also argues that the methodology used by the ARB to assess certain evidence, namely the expert valuation evidence, indicates errors of law that require the attention of the Divisional Court. Dryden argues these evidentiary errors created a denial of natural justice and that the ARB exceeded its jurisdiction. I do not accept these arguments. The ARB focused on the expert evidence before it. It made factual findings based on the evidence. Dryden did not object at the hearing to the admission of the expert evidence. It was represented at the hearing. Under the topic “issue 1” in this judgment, I have set out my reasons concerning the evidence admitted on the hearing.
[31] The fact that resolution of the valuation dispute between MPAC and Domtar may have ultimately turned on the quantification of EO for the Mill was not a novel, new or particularly surprising result. The notice of application asserts that EO has not been considered by this Court or any higher authority. This is not accurate. The question of obsolesce in the context of the Assessment Act was considered by the Court of Appeal in Dofasco, supra, and by the Divisional Court in Massey Combines Corp. (Receiver of) v. Regional Assessment Commissioner, Region No. 20 (Ont. Div. Ct.), [1994] O.J. No. 1907. EO is recognized as a factor that can be taken in to account when setting a current value of property for the purposes of the Assessment Act.
[32] In my view this decision for which leave is sought does not raise legal issues that merit the attention of the Divisional Court.
[33] Accordingly, I find no errors of law for which leave should be granted on the basis of the second branch of the test under section 43.1(1) of the Assessment Act.
[34] At the outset of the hearing I asked counsel for their rough estimate of costs that should be payable by the unsuccessful party. Both counsel gave a consistent range of costs in the amount to $4,000.00 to $5,000.00. In my view, that is an appropriate quantum for partial indemnity costs for the matter at hand.
[35] Given the disposition of this application, I find costs are payable forthwith by the City of Dryden to the respondent Domtar. There shall be no cost consequences for the respondent MPAC. If counsel cannot agree on the quantum of costs they may make an appointment to address the matter in chambers. Counsel may attend this appointment by telephone. If the trial coordinator has not been contacted by either party on or before February 12, 2016, to obtain an appointment, the matter of costs will be considered to have been settled.
[36] For reasons set out above, application for leave to appeal is dismissed with costs on a partial indemnity basis payable by the City of Dryden to Domtar Inc. in an amount to be agreed or set by Fitzpatrick J.
The Hon. Mr. Justice F. Bruce Fitzpatrick
Released: January 19, 2016
ONSC 478
DIVISIONAL COURT FILE NO.: DC-13-009-ML
DATE: 2016-01-19
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
B E T W E E N:
CITY OF DRYDEN
Moving Party
- and -
MUNICIPAL PROPERTY ASSESSMENT CORPORATION and DOMTAR INC.
Reasons on Application for Leave to Appeal under s. 43.1(1) of the Assessment Act, R.S.O. 1990, c. A. 31, as amended
Fitzpatrick J.
Released: January 19, 2016
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