1353837 Ontario Inc. v. The Corporation of the City of Stratford, 2022 ONSC 6347

2022 ONSC 6347

DIVISIONAL COURT FILE NO.: DC-21-00000026-0000

DATE: 20221125

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Sachs, Stewart, and Newton JJ.

BETWEEN:

1353837 ONTARIO INC.

Appellant

– and –

THE CORPORATION OF THE CITY OF STRATFORD

Respondent

John S. Doherty, Roberto D. Aburto and Anne Tardif, for the Appellant

Christopher Williams, Andrea Skinner, Timothy J. Hill and Hansen Wong, for the Respondent

HEARD at London (by videoconference): April 28, 2022

REASONS FOR DECISION

Stewart J.

Nature of the Appeal

[1] The appellant 1353837 Ontario Inc. appeals the decision of the Ontario Land Tribunal (the “Tribunal”) dated October 15, 2021 pursuant to the statutory right of appeal provided in s. 31 of the Expropriations Act, R.S.O. 1990, c. E.26.

[2] The respondent Corporation of the City of Stratford takes the position that the appeal is without merit and should be dismissed.

Background

[3] The appeal arises out of an expropriation in 2009 by the respondent of 11.42 acres of contaminated land in downtown Stratford then owned by the appellant upon which a fire in 2003 had seriously damaged a large derelict building on the property.

[4] The appellant refused to relinquish possession of the property to the respondent, forcing it to bring an application for an order for possession. Before the application could be heard, the dispute settled on the basis that the respondent agreed to pay the balance owing of $4,277,920.84 on the substantial mortgage held by Republic Mortgage owed by the appellant and registered against the property, plus a further $589,208.84 to the appellant. This settlement was made without prejudice to the final determination of fair market value of the property in proceedings before the Tribunal that had been initiated by the appellant. Moreover, the respondent undertook not to seek recovery of these amounts it agreed to pay to the appellant or on its behalf, regardless of the outcome of the proceedings before the Tribunal.

[5] At a hearing before the Tribunal over a period of five weeks, extensive evidence was tendered, including expert opinion evidence from several witnesses for each party on matters of property valuation and the proper calculation of the losses alleged by the appellant. In its decision, the Tribunal accepted the opinion and reasoning of the respondent’s chief expert appraiser and adopted his estimated value of $290,000.00 as being the market value of the expropriated property. It also accepted the losses as calculated by the respondent’s business loss expert.

[6] The evidence before the Tribunal included the reports of several earlier appraisals of the property that were based on estimated values between 1998 and 2008. These appraisals had assessed the uncontaminated value of the property at various times within that time frame at amounts between $2,000,000.00 and $5,750,000.00. The appraisals before the Tribunal also included a valuation conducted by the respondent’s chief expert appraiser who had valued the property as of 2008, if uncontaminated, at $4,300,000.00. An appraiser retained by the appellant had arrived at an appraised 2008 value of the property, if uncontaminated, at $22,700,000.00.

[7] However, it was common ground at the hearing that considerable costly remediation of the environmental contamination of the property would be necessary in order to make it fit for any marketable purpose. The costs of decontamination were significant, and were estimated on the evidence before the Tribunal as ranging from $7,108,750.00 to $16,916,000.00.

[8] The Tribunal determined that the environmental remediation and demolition costs necessary to render the property actually marketable exceeded its fair market value. It accepted the opinion advanced by the respondent’s expert appraiser that a speculative nominal value of $290,000.00 as of its valuation date was a reasonable and fair value to assign to the expropriated property, as opposed to a negative value which might otherwise be postulated and result in a recovery of zero compensation for the appellant.

[9] The appellant submits that the Tribunal misapplied the legal test to determine the value of the expropriated property and therefore erred in its conclusion as to the amount of the compensation to which the appellant was entitled.

[10] The respondent submits that the Tribunal did not err in either fact or law in making its determination of the value of the property, and that the value as determined by the Tribunal is amply supported by the record of evidence, including expert opinion evidence provided at the hearing.

[11] The subject of “wasted costs” owed to the appellant was also in dispute at the hearing. The appellant sought the sum of $314,000.00 under this category, which is to compensate the owner of the expropriated property for wasted costs and expenses incurred during the pre-expropriation period. The respondent argued that only a lower amount of $51,683.00 was owed to the appellant.

[12] The Tribunal concluded on the evidence before it that the respondent’s position should prevail and therefore determined that a further amount of $51,683.00 was owed to the appellant for its wasted costs.

[13] The appellant argues that the Tribunal’s decision on the amount of its wasted costs ought to be set aside. In particular, it submits that the Tribunal denied it procedural fairness in dismissing a request made by it on an interlocutory motion seeking an order of production of business records from a third party, Republic Mortgage, which had provided financing to the appellant. This financing was secured by a blanket mortgage registered not only against the expropriated property but also against several other properties owned by the appellant, or by related companies or individuals.

[14] The respondent submits that the appellant was afforded abundant procedural fairness throughout the entire process. In particular, the dismissal of the appellant’s interlocutory motion for production of business records from a third party was appropriate and, in any event, had no bearing on the outcome of the hearing.

Jurisdiction

[15] The Divisional Court has jurisdiction to hear this appeal pursuant to s. 31 of the Expropriations Act, R.S.O. 1990, c. E.26 (the “Act”).

Standard of Review

[16] As this is a statutory appeal from an administrative decision, the parties agree that the standard of review is the appellate standard set out in Housen: Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, [2019] 441 D.L.R. (4th) 1. The standard of review for an appeal of this nature is “correctness” for questions of law and “palpable and overriding error” for questions of fact and mixed fact and law where no discrete legal principle is readily extricable.

[17] With respect to any allegation of procedural unfairness, there is no specific standard of review. The determination of any such allegation will depend on the nature of the alleged breach, the circumstances and the overall context within which it occurred.

Issues:

A. Did the Tribunal err in its determination of the compensation owed to the appellant as a result of the expropriation of its property?

B. Was the appellant denied procedural fairness by the Tribunal?

Compensation for Expropriation of the Property

[18] It is well-established that compensation payable under the Act may fall into four categories: market value, disturbance damages, damages for injurious affection, and business losses (see: Christopher Williams, Andrea Skinner and Matthew Helfand, Expropriation Law in Ontario, 1st ed. (Toronto: LexisNexis 2021)).

[19] In determining market value under the Act, it must be determined what a reasonably informed person would pay for the property based upon the property’s highest and best use (“HBU”) at the time using the knowledge available to the person as at the valuation date of, in this case, June 2009.

[20] The determination of market value of expropriated property is an exercise that commonly will require the assistance of opinions from real estate appraisers and other experts such as environmental consultants. In undertaking this exercise, different appraisers employing different appraisal techniques and various assumptions may arrive at different opinions as to the market value of the property.

[21] To determine the market value of property, the tests of legal permissibility, physical possibility, financial feasibility and maximum profitability are used (see: Williams et al, supra, at p. 42). Each one of these tests must be satisfied, and they must be considered sequentially. For instance, a use for property that may be financially feasible but is not legally permissible cannot be considered to be its HBU.

[22] The appellant submits that the Tribunal made reversible errors by failing to determine the HBU of the property and, as a consequence, failed to determine the fair market value of the property based upon its HBU.

[23] The appellant also submits that the Tribunal erroneously accepted the “speculative value” advanced by the chief expert appraiser for the respondent, Ray Bower.

[24] The appellant argues that these errors resulted in a failure by the Tribunal to determine the fair market value of the property based upon its HBU. This failure thereby led to a failure by the Tribunal to consider other potential HBUs such as institutional use.

[25] The appellant’s core submission is a basic challenge of the clear rejection by the Tribunal of the mixed-use HBU that had been advanced by the appellant’s expert appraiser, John Simmons. The Tribunal preferred the evidence of Mr. Bower on this issue and determined that the cost of remedying the environmental contamination of the property, when deducted from its “as-if-clean” value, would actually yield a negative market value.

[26] In my view, the appellant incorrectly asserts that the Tribunal initially accepted the HBU of the property, but then rejected that HBU once the analysis necessarily yielded a negative market value. The Tribunal did not reject the HBU analysis but accepted the agreement of the appraisers for both parties that the property’s HBU would reflect some form of realistic assessment of some value. It was also agreed that remediation costs for demolition and environmental contamination should be deducted in arriving at an opinion of that value.

[27] After careful consideration of the evidence, the Tribunal rejected Mr. Simmons’ opinion as to HBU, which had been based upon an improved, mixed-use commercial and residential development concept, as being unrealistically optimistic while also underestimating the impact of staggering remediation costs. The Tribunal considered that Mr. Simmons’ opinion of value was based upon a proposal that was not feasible from either a land use planning or financial perspective.

[28] Instead, the Tribunal accepted the opinion of Mr. Bower who assessed the HBU of the property as vacant land, acknowledging that it would not be possible to develop a precise financial feasibility plan on such a vacant land scenario as there were too many possible contingencies that might have an impact on redevelopment potential.

[29] The Tribunal also rejected Mr. Simmons’ approach because he used a “price per buildable square foot” analysis not normally used outside of the core downtown areas of major metropolitan cities like Toronto. The Tribunal preferred the approach taken by Mr. Bower who priced the land on a per acre basis and whose reference to more comparable transactions was more reasonable and more closely reflected the market activity at the time in Stratford and similar communities.

[30] After conducting a thorough HBU analysis the Tribunal found that, accounting for the costs of necessary environmental remediation using the lowest cost estimate of the respondent’s environmental engineering expert, a negative market value for the property resulted.

[31] The Tribunal acknowledged that a reasonably informed and prudent purchaser would incur these costs to redevelop the property. Given that such a purchase likely would be a sophisticated developer, and considering the unsteady economic climate following the 2008 financial crisis, the Tribunal held that, notwithstanding the negative market value resulting from the HBU analysis, it would be likely that a developer nevertheless would purchase the property at a speculative value and wait for an improved economic situation while refining its plans as was postulated by the respondent’s expert appraiser. In my view, this finding is a determination of fact based on the evidentiary record before it. As such, it is entitled to deference.

[32] The Tribunal heard and carefully weighed appraisal evidence of market value for the subject property. The evidence before the Tribunal put forward by the respondent’s appraiser was that the property was worth at most $290,000 if a purchaser in the marketplace wanted to make a speculative offer and not fully take into account the depth of environmental remediation costs. As a finding of fact, the Tribunal considered and made a determination that this was the highest value supported by the evidence before the Tribunal which it chose to accept as most reliable.

[33] After finding that the costs of developing the property were prohibitively high, the Tribunal chose to accept the evidence on its speculative value as offered by the respondent’s expert appraiser instead of arriving at a negative value. The Tribunal found that a developer might be willing to purchase the property at such a speculative value with the hope that perhaps future improved economic circumstances might make the development of the property economically feasible.

[34] The Tribunal therefore undertook a fact-specific exercise to determine that the HBU of the property was to leave it vacant and to hope for a situational change. In doing so, the Tribunal reasonably determined that the speculative value assigned by the respondent’s expert appraiser should not be disturbed. The appellant failed to lead evidence of its own regarding the value of the property as a speculative investment, but this is not grounds to overturn the Tribunal’s decision in that regard.

[35] The respondent also points out that all relevant offers from third parties were tendered to the appellant on the reasonable condition that such potential buyer be allowed to review and satisfy itself with the environmental condition of the property and are thereby in line with the valuation of the property of its expert appraiser. Those offers with such conditions support the respondent’s appraiser’s valuations of the property and the Tribunal’s decision to accept them.

[36] Although the appellant criticizes the Tribunal for failing to provide a specific analysis to reconcile why Republic Mortgage would have provided mortgage financing to it using this property for security, the evidence tendered at the hearing disclosed that the $5,000,000.00 mortgage financing was also secured by additional charges registered against several additional properties owned by the appellant’s principal, Lawrence Ryan, or his other family members or related companies.

[37] Finally, the Tribunal’s decision to accept the speculative value offered by the respondent’s expert appraiser, its choice to consider the negative market value of the property when assessing the results of the direct sales comparison approach by the appraisers, and its ultimate decision as to the value of the property are all findings of fact which are deserving of deference (see: Municipal Property Assessment Corp. v. Inmet Mining Corp., 2002 7325; Winnipeg (City) Assessor v. Great-West Life Assurance Co., 2004 MBCA 35). These factual findings made by the Tribunal are amply supported by the evidence in the record which it considered to be more reliable and compelling for the thorough and sound reasons as set out in its decision. I can see no palpable and overriding error in the Tribunal’s reasons that would justify appellant interference with its conclusions.

[38] The same conclusion pertains to the Tribunal’s assessment of the expert evidence and its decision regarding the claim for wasted development costs advanced by the appellant. A business loss expert, Glenn Tautrims, who was called by the respondent to give evidence at the hearing undertook a painstaking analysis of the appellant’s claimed wasted costs and the extent to which any such expenses could be verified or supported by documents to prove that the expenses were actually incurred. His conclusion that the amount of wasted costs that was verifiable following such review was $51,683.00, a figure that was accepted by the Tribunal as reasonable and accurate.

[39] The decision of the Tribunal with respect to the appellant’s claim for wasted costs is also fundamentally one of fact, and one which is amply supported by the evidence that was before the Tribunal at the hearing. It is deserving of deference and reveals no palpable or overriding error that would justify appellate interference.

[40] I therefore would not give effect to these grounds or aspects of this appeal.

Procedural Fairness

[41] The appellant also argues that the Tribunal denied it the procedural fairness required of administrative decision makers by refusing to grant its interlocutory motion for production of Republic Mortgage’s documentation regarding the financing of the property, and by failing to consider written evidence from the principal of the appellants as to how the funds advanced by Republic Mortgage were spent. The appellant submits that this denial amounts to “procedural unfairness” and significantly frustrated its claim for recover of wasted development costs.

[42] The respondent contends that the Tribunal’s interlocutory decision to deny the motion for production of the Republic Mortgage files during the course of the proceedings was fully justified. The appellant did not pursue any further procedural avenues available at the time such as the bringing of a further motion on better evidence, or requiring the issue of a summons to Republic Mortgage to attend and produce documents at the hearing.

[43] The respondent further asserts that there was no procedural unfairness because the documents were of marginal relevance and the appellant could have continued to pursue them or requested a summons at the hearing requiring their production, which it did not do.

[44] The appellant brought its motion to seek production of documents from a non-party under Rule 30.10, a motion that permits the seeking of production at a pre-hearing discovery stage, as opposed to requiring the party to wait to summons the documents at the hearing stage. The factors, among others, on such a motion include:

i) the importance of the documents in the litigation;

ii) whether production at the discovery stage as opposed to production at the hearing stage is necessary to avoid unfairness; and

iii) the availability of a document or its information from another source that is accessible to the moving party

[45] The appellant’s interlocutory motion was not for the production by Republic Mortgage of any specific documents that would help it to identify its wasted costs, but was an omnibus motion for production of the entirety of Republic Mortgage’s files as they related to this project as well as a host of other matters having little or nothing to do with expenses relating to the expropriate property.

[46] The framing of the motion by the appellant as a broad request for Republic Mortgage’s files placed an onus upon it to satisfy the Tribunal that the documents sought were so important for the litigation that production at the discovery stage (as opposed to at the hearing stage) was necessary to avoid unfairness.

[47] The Tribunal held that the appellant did not satisfy the test for production of the entirety of Republic Mortgage’s files at the discovery stage of the proceeding. The Tribunal addressed this same issue in its ruling on the appellant’s overlapping and companion motion to compel answers to questions refused to be provided on examination for discovery in which it had also sought production of the Republic Mortgage documents. In its decision on that motion the Tribunal stated that the appellant had not satisfied the Tribunal of the relevance of the documents sought, the unavailability of them from other sources, or the necessity for their production. The Tribunal expressed the opinion that if Republic Mortgage’s involvement with the appellant’s project is relevant to a determination of the amount of compensation owing to the appellant under the Act, that information should also be in the appellant’s own productions or in its possession.

[48] In the Tribunal’s view, while Republic Mortgage documents may have been of some relevance to determining the appellant’s claim for disturbance damages, it is questionable whether any relevant information beyond that already provided by the parties would have assisted the Tribunal in its assessment of the appellant’s entitlement under the wasted costs category. Further, even if the documents were relevant, the scope of the request was not proportionate given the time required to answer the questions, the potential for unduly interfering with the orderly progress of the proceeding, the fact that relevant documents are or should be in the possession of the parties, and the likelihood that the request could result in an excessive volume of documents.

[49] If the appellant had reviewed its own available records and brought a motion seeking production of specific communications with Republic Mortgage relating to the appellant’s expenditures, and presented evidence that it did not have its own records or communications related to those expenditures, the appellant may have satisfied the test under Rule 30.10. Instead, the appellant chose to bring an overly-broad motion for the entirety of Republic Mortgage’s files, without any specific evidence to support its request for such extensive production.

[50] Further, the appellant could have requested a review of the Tribunal’s decision or, alternatively could have brought a further motion for production with better evidence to demonstrate its need for specific documents to prove its wasted development costs. Pursuant to s. 35 of the (then in force) Local Planning Appeal Tribunal Act (the “LPAT”), any party may write to the LPAT to seek a review of a Tribunal decision. This would include a request for a review of an interlocutory order. Similarly, no appeal or application for court review of the decision was taken.

[51] Moreover, if the appellant believed that specific documents from Republic Mortgage’s files would be critical to the presentation of its case, it had the right under section 13.1 of the LPAT Rules to request that a summons be issued for the attendance of a representative of Republic Mortgage and for production of specific relevant documents from Republic Mortgage’s files. The appellant did not request such a summons. Had such a summons been denied, the appellant would have had a further opportunity to bring a motion to seek the issuance of such a summons upon evidence to demonstrate the need for such documents. Under section 13.1(d) of the LPAT Rules, if a summons is denied on the basis that the evidence is not necessary, relevant, or admissible, the party seeking the summons may either submit an additional request with more information justifying the summons, or bring a motion for the Tribunal to issue the summons. The appellant failed to pursue any of these avenues for production of what it claims were essential documents.

[52] The appellant’s failure to pursue production of these allegedly relevant and essential documents by means of the various procedural avenues available to it, particularly seeking a summons at the hearing stage, seriously undermines its claim of any procedural unfairness visited upon it by the Tribunal’s ruling.

[53] Ultimately, it is highly unlikely that Republic Mortgage’s documents would have made any material difference in any event. With the exception of the $54,000.00 paid to the appellant, its own expert had sufficient documentary evidence obtained from other available sources to identify where the other monies advanced under the mortgage were expended. With respect to the $54,000.00, it is unlikely that Republic Mortgage would have had documents not already available to the appellant.

[54] On December 8, 2019 Mr. Ryan passed away and his widow and Estate Trustee pursued this claim on behalf of the appellant. Although the appellant may have had some difficulty documenting and presenting its claim for wasted development costs, such difficulty was attributable in large part to its own rather disorganized business records. The evidence before the Tribunal indicated that the appellant had failed to maintain adequate ledger records of income and expenses, had intermingled loan advances purportedly incurred for the development of the expropriated property with the financing of other business activities of Ryan’s family members or related companies, had failed to prepare or maintain financial statements or tax returns, and had frequently failed to pay its own service providers and trade creditors.

[55] Similarly, and with respect to any argument that the Tribunal was unfair in not relying on notes made by Mr. Ryan as to how the mortgage funds were expended for the project, if any communications existed between the appellant and Mr. Ryan that detailed any apportioned expenditures out of the $54,000.00 paid directly into the appellant’s bank account, it would be reasonable to expect that the appellant would have its own copies of any such records.

[56] In summary, I can see no procedural unfairness that was visited upon the appellant by the Tribunal throughout this lengthy effort to obtain increased compensation for its expropriated property.

[57] I therefore would not give effect to this ground of appeal.

Conclusion

[58] For these reasons, the appeal is dismissed.

Costs

[59] The parties have agreed that the successful party on this appeal will receive $20,000.00 all-inclusive by way of costs, payable by the unsuccessful party. Accordingly, the appellant shall pay to the respondent that sum within 60 days.

Stewart J.

I agree _______________________________

Sachs J.

I agree _______________________________

Newton J.

Released: November 25, 2022

2022 ONSC 6347

DIVISIONAL COURT FILE NO.: DC-21-00000026-0000

DATE: 20221125

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Sachs, Stewart, and Newton JJ.

BETWEEN:

1353837 ONTARIO INC.

Appellant

– and –

THE CORPORATION OF THE CITY OF STRATFORD

Respondent

REASONS FOR DECISION

Stewart J.

Released: November 25, 2022