February 22, 2006, E.C.B. No. 40/97/265

 
REASONS FOR DECISION

1.  APPLICATION

[1]  Al’s Auto Wrecking Ltd. (the "claimant") was the registered owner in fee simple of property located in the City of Surrey, comprising an improved industrial property at 11883 Tannery Road ("Parcel A") and four undeveloped lots ("Lots 1 to 4") at 10674 to 10690 Spruce Road (collectively the "subject"). The properties were contiguous having a total area of 0.485 hectares (1.2 acres) and were zoned I-L (Light Impact Industrial Zone). The properties were designated "Industrial" in the Official Community Plan and "Auto Salvage" in the South Westminster Plan.

[2]  In November 1996 the City of Surrey (the "respondent"), expropriated the subject under the provisions of the Expropriation Act, R.S.B.C. 1996, c. 125 (the "Act"). The taking was made to facilitate the construction of the South Fraser Perimeter Road. The claimant vacated the subject at the end of April 1997.

[3]  An advance payment of $922,000 was delivered to the claimant on December 5, 1996 together with a copy of an appraisal report upon which this amount was based.

[4]  On September 24, 1997, the claimant filed with the board an application for determination of compensation (the "Form A"). The claim was amended and a revised Form A was filed on December 4, 1997. During the hearing several claims were abandoned. The final claim at the conclusion of the hearing was as follows:

There were also claims for interest and costs pursuant to the Act.

[5]  The claim was heard over several weeks in June 2004 and April 2005.

[6]  Ray Berkenbos, a part owner and manager of the claimant and its related companies, testified on behalf of the claimant. Unfortunately, the other owner and manager, Bill Berkenbos, was not able to testify or to participate in the preparation of the claim because of an ongoing illness, which had become worse late in 1999. The claimant also called Elaine Spencer, a partner in the firm of chartered accountants used by the claimant and its related companies; Ken MacKenzie, a previous owner of Lots 1 to 4; Tim Deremo, a realtor who assisted the claimant in its search for a replacement property; Ray Spaxman, a planning consultant; Douglas Mendel, an appraiser and Toby Symes, a chartered accountant and business valuator. The claimant called Ian Mott, a principal of United Auto Group, as a rebuttal witness.

[7]  The respondent called David Mihalech, a manager of realty services employed by the City of Surrey; Ron Weibe, a project engineer employed by Surrey; John Buchan, a professional engineer and development consultant; Neil Latta, a civil engineer; Mario Pavlakovic, a real estate consultant and appraiser who was employed by United Auto Group between 1994 and 1998; Brendan Lally, an employee of ICBC responsible for salvage operations; Jay Wollenberg, a planning consultant;. Dale Hooker, an appraiser; and Richard Crosson, a chartered accountant and business valuator.

2.  BACKGROUND

[8]  The claimant is an auto wrecker. It purchases wrecked cars, principally from ICBC, and removes and sells the serviceable parts from these vehicles. The unserviceable parts and residual hulks are sold for scrap.

[9]  The subject comprised five separate contiguous parcels of land. Parcel A, which fronted on Tannery Road, had a land area of 17,424 square feet and was improved by a building containing a 2,000 square foot office and a 2,352 square foot warehouse with an attached 1,232 square foot lean-to addition. Lots 1 to 4, which had frontage on Spruce Road, each had a site area of 8,712 square feet for a total of 34,848 square feet. These four lots were undeveloped except for fencing, grading and some fill which facilitated their use for storage.

[10]  Parcel A was leased to an unrelated third party on a month to month tenancy.

[11]  Lots 1 to 4 were used by the claimant and its related company, A-Central Used Auto Parts Ltd ("A-Central"), as an overflow facility to store wrecked cars when there was no room for these vehicles at their regular operating sites. Serviceable parts were removed from the vehicles and transferred to the operating sites for sale to customers. No sales were made from Lots 1 to 4.

[12]  The claimant accessed Lots 1 to 4 from Spruce Road which was graded and filled but not constructed as a public road. It was also physically possible to access Lots 1 to 4 from Tannery Road through Parcel A.

[13]  In the amended Form B filed on October 3, 2003, the respondent asserts inter alia, that prior to the expropriation and as of the date of the vesting, the claimant was using Lots 1 to 4 for purposes contrary to the relevant zoning and business license bylaws. As a result, the respondent says that the highest and best use of the subject is curtailed and, in addition, the alleged disturbance damages are not compensable.

[14]  A-Central had no formal ownership interest in the subject and did not pay rent for its use of the property. There is an issue as to whether the profits earned by A-Central from the rent free storage of some of its wrecked cars on Lots 1 to 4 can be properly included in the claim for disturbance damages advanced by the claimant.

[15]  The claimant applied to add A-Central as a claimant in these proceedings. This was opposed by the respondent. The parties agreed that the issue be dealt with in their final argument after all the evidence had been heard.

[16]  The claimant did not, in the end, replace the subject property following the expropriation. The documents show that the claimant knew about the expropriation in February 1995, well in advance of the actual expropriation in November 1996. There was evidence that Bill Berkenbos did seek a replacement property for a period of time and amongst other efforts had discussions with the respondent as to potential sites. There were some discrepancies in the evidence but it appears that Bill Berkenbos was looking for a property during 1995 and continued to make some enquiries for a period of two years or more. Although there were some alternative properties available, the claimant did not purchase any of them and the claimant’s business continued without the overflow storage capacity offered by Lots 1 to 4. The claimant is seeking various expenses or losses it says it incurred relating to the project, as well as a decrease in the profits of the business because of the loss in storage capacity and if it is not feasible to relocate, a sum not exceeding the goodwill attributable to the loss of Lots 1 to 4.

3.  ISSUES

[17]  The issues before the board include:

(a) Whether the claimant’s application to amend the Form A and to include A-Central as a party should be allowed.

(b) The determination of the highest and best use having regard to the zoning of the subject.

(c) The determination of the market value of the subject.

(d) If the claimant’s use of the subject Lots 1 to 4 was unlawful, is it entitled to loss of profits and/or loss of goodwill?

(e) Whether it was feasible for the claimant to relocate?

4.  APPLICATION TO ADD A-CENTRAL AS A CLAIMANT

[18]  The claimant seeks to add A-Central as a claimant in order to recover the full measure of business disturbance damages. As noted, A-Central, along with the claimant, used Lots 1 to 4 to store its overflow of wrecked vehicles. The claimant, Al’s Auto, was the fee simple owner of the subject, including Lots 1 to 4. There was no written agreement between the two companies relating to the use of Lots 1 to 4 by A-Central.

[19]  A letter dated June 6, 2004 from the corporate solicitor of the claimant states that Bill Berkenbos is the sole shareholder of the claimant and that the directors of the claimant are Bill Berkenbos, Cheryl Berkenbos (Bill’s wife) and Ray Berkenbos. In his evidence Ray Berkenbos stated, and the board accepts, that he shares a 50/50 beneficial interest in Al’s Auto despite the shareholding. Bill and Ray also share equal ownership in the shares of A-Central.

[20]  The evidence also establishes that there is little differentiation in the management of the company and that:

(a) all ICBC vehicles are purchased through the claimant, Al’s Auto;

(b) all staff members are employed by the claimant which issues all payroll cheques;

(c) there is one general ledger for the whole business/operation of the claimant and A-Central, and the ledger is broken down between the different divisions of the two companies;

(d) At the end of each fiscal year, the accountants break out the general ledger numbers between the claimant and A-Central and prepare financial statements for each of the two companies;

(e) A-Central has used Lots 1 to 4 to store its vehicles on a regular basis and the claimant has not charged A-Central for this use.

[21]  The board finds that at all relevant times, the claimant and A-Central were jointly owned and controlled by Bill Berkenbos and Ray Berkenbos.

[22]  In order for A-Central to be added as a claimant, it is first necessary to determine that it is an "owner" within the meaning of the Act.

[23]  The relevant provisions of the definition of owner in s. 1 of the Act read:

"Owner", in relation to land, means

(a) a person having an estate, interest, right or title in or to the land including a person who holds a subsisting judgment or builder’s lien, or …

(c ) a person who is in legal possession or occupation of land, other than a person who leases residential premises under an agreement having a term of less than one year.

[24]  The claimant submits that A-Central is an owner because it had in effect, an irrevocable licence, to use the subject.

[25]  In Actton Petroleum Sales Ltd and Actton Super-Save Gas Stations Ltd. v. British Columbia (Minister of Transportation and Highways) (1996), 58 L.C.R. 47 (B.C.E.C.B.), this board was faced with a similar question in determining whether a party met the definition of owner. In Actton, the two claimant corporations were also under joint ownership and control. Actton Gas claimed compensation for disturbance damage for the property owned by Actton Petroleum. There was no written agreement between Actton Gas and Actton Petroleum with respect to the use of the property by Actton Gas for the conduct of its business. The board referred to the expropriation case of DHN Food Distributors Ltd. v. London Borough of Tower Hamlets, [1976] 3 All E.R. 462 (C.A.) where Lord Denning, whose decision was concurred with by all the other members of the Court of Appeal, stated at p. 466:

Now, I am prepared to allow that DHN were licensees of Bronze. Counsel for the local authority suggested that they were bare licensees, but I do not think so. Bronze was a wholly owned subsidiary of DHN. It is plain to me that thereafter Bronze could not determine the license so as to ruin DHN. The directors of Bronze could not turn out themselves as directors of DHN. That would be a breach of their duty to both companies if they did so: see Scottish Cooperative Wholesale Society v. Meyer. In the circumstances I think the license was virtually an irrevocable license. DHN were the parent company holding all the shares in Bronze. In those circumstances, DHN were in a position to carry on their business on these premises unless and until, in their own interests, DHN no longer wished to continue to stay there. It was equivalent to a contract between two companies whereby Bronze granted an irrevocable license to DHN to carry on their business on the premises. In this situation, counsel for the claimants cited to us Binions v. Evans, to which I would add Bannister v. Bannister and Siew Soon Wah alias Siew Pooi Tong v. Yong Tong Hong. These cases show that a contractual license (under which a person has the right to occupy a premises indefinitely) gives rise to a constructive trust, under which the legal owner is not allowed to turn out the licensee. So here. This irrevocable licence gave to DHN a sufficient interest in the land to qualify them for compensation for disturbance.

[26]  The board then went on to state:

The present case is not exactly similar to DHN. In DHN, Bronze, a wholly owned subsidiary of DHN, was the fee simple owner of lands on which DHN carried on business. Bronze and DHN had common directors. In this case, both [Actton] Petroleum and [Actton] Gas are owned by one individual, Vanderkerkhove, who is also the sole officer and director of each. [Actton] Gas claims compensation for disturbance damages arising from the expropriation of property owned by [Actton] Petroleum. However, while one claimant is not a subsidiary of the other, their common ownership and control means that, so long as it is in [Actton] Gas’s interest to conduct operations from the property, it will be in a position to do so and need not consider termination of its right to do so by [Actton] Petroleum. As in DHN, the board finds this common ownership and control gave rise to a virtually irrevocable licence, a licence which would continue so long as [Actton] Gas wanted it to. The question which remains is whether this irrevocable licence made [Actton] Gas an owner under the Act.

[27]  The board in Actton concluded that the irrevocable licence did not make [Actton] Gas an owner under s. 1(a) of the Act. However, [Actton] Gas was found to be an owner under s. 1(c) of the Act where the definition is much broader and does not require that a claimant have an estate, interest, right or title in or to the property, only that a claimant be in legal possession or occupation of it. The board stated at page 7:

The board in this case agrees with the analysis of Linear Construction. Possession and occupation need not be exclusive under subparagraph (c) of the definition of owner in s. 1 of the Act. The board agrees with the broader view taken by Houghton L.J.S.C. in Douglas Lake Cattle Co. Ltd. and also agrees with the finding in Linear Construction that interests, other than leasehold interests, may fall under subparagraph (c). This could include contractual interests such as the irrevocable licence which the board has found was held by [Actton] Gas.

[28]  In the present case, the board is satisfied that A-Central’s use of Lots 1 to 4 also gave rise to an irrevocable licence. The common ownership and control of the claimant and A-Central meant that as long as it was in A-Central’s interest to conduct operations from Lots 1 to 4, it would have been in a position to do so without being concerned about termination of its right to do so.

[29]  The board, accordingly, concludes that A-Central is an owner pursuant to s. 1(c) of the Act.

[30]  The claimant also submitted that the corporate veil should be lifted to treat the claimant and A-Central as part of a group enterprise. The board rejects this submission, for the same reasons it was rejected in Actton, where the board stated at p 10:

Here, unlike DHN, there is not a parent subsidiary relationship. Lifting the corporate veil will not lead to Petroleum, it will lead to Vanderkerkhove. To paraphrase from the judgment of Seaton J.A. in B.G. Preeco, no authority has been cited which would permit, through the group enterprise theory, the blending of liabilities or entitlements of these two corporate claimants. Gas and Petroleum are separate legal entities, each is a claimant, and each must stand alone in the determination of its entitlement to compensation under the Act.

[31]  Likewise, in the present case, lifting the corporate veil of A-Central will not lead to Al’s Auto, but to Bill and Ray Berkenbos.

[32]  The board now turns to the issue of whether the limitation period specified in the Act is a bar to adding A-Central as a party. Section. 25 of the Act provides:

If an application is not made to the board to determine compensation within one year after payment is made under section 20, the owner whose land has been expropriated is deemed to have accepted that payment in full settlement of his or her claim for compensation, and proceedings to determine compensation must not be brought by the owner.

[33]  There is no question that the claimant filed its application for compensation within the period stipulated in s. 25. The issue is whether A-Central can be added as a claimant beyond the limitation period where the original application was filed in time.

[34]  Section 4(1) of the Limitation Act, R.S.B.C. 1996, c. 226 provides:

If an action to which this or any other Act applies has been commenced, the lapse of time limited for bringing an action is no bar to

...

(d) adding or substituting a new party as plaintiff or defendant, under any applicable law, with respect to claims relating to or connected with the subject matter of the original action.

[35]  The Limitation Act defines "action" as including "any proceeding in a court and any exercise of a self-help remedy". The board is satisfied that the ambit of s. 4(1) encompasses a proceeding under the Expropriation Act.

[36]  Having found that the expiry of the limitation period is not a bar to adding a party as a claimant under the Act, the board needs to consider whether A-Central should be added as a claimant on the evidence.

[37]  In Hui v. First Avenue Marketplace (1977), 38 B.C.L.R. (3d) 52 (B.C.C.A.) at p. 59, the British Columbia Court of Appeal stated that upon an application for joinder of a party, leave is not refused solely because of voluntary dilatoriness or expiry of a limitation period. Once it is determined that the subject matter is sufficiently interconnected with the subject matter of the action, the interests of contending parties are to be weighed and a conclusion is to be reached as to what is just and convenient.

[38]  The claimant refers to the manner in which the claimant and A-Central were operated, and submits that it was only when the business losses were being reviewed that it became apparent that A-Central was part of that loss as well. The expert reports were provided in 2002. The claimant further submits that the claimant could have redone the financials to show the companies running on an arms length basis, with payments being made by A-Central to the claimant for the benefit provided to A-Central. However, the two companies were and continue to be intertwined and thus the only practical manner to determine the real loss is to do as the experts have done in providing a review of both companies’ transactions. The claimant asserts that the addition of A-Central as a claimant does not change the nature of the claim, catch the respondent unaware, or prejudice the respondent in any manner in the proceeding.

[39]  The respondent submits that adding A-Central as a party would be very prejudicial, as it would significantly increase its exposure to disturbance damages. The respondent notes that 36% of the sales and profits at Lots 1 to 4 represent sales and profits of A-Central.

[40]  The board accepts that the claimant became aware of the need to add A-Central as a claimant fairly late in the day through its counsel and experts who were examining the question of business loss. Given the manner of the operation of the business and the intertwining of the affairs of the two companies, this is not very surprising. It is apparent that the non-availablity of Bill Berkenbos through illness hampered the claimant in preparing its claim for business loss and contributed to the delay. The board agrees with the claimant that the addition of A-Central as a claimant would not change the nature of the claim or add a new claim. The respondent would have anticipated a claim for business loss arising out of the entire business operation conducted on Lots 1 to 4.

[41]  At least since 2002, when the Symes report was provided, the respondent has been fully aware of the issues involving A-Central. While the exclusion of A-Central may reduce the respondent’s exposure to disturbance damages, the respondent would not be prejudiced in the sense of procedural fairness, or in preparing a response for the substantive issues arising out of the claim for business disturbance damages.

[42]  The board is mindful of the lengthy delay in bringing the application to add A-Central as a party. However, in light of all the circumstances, the board is satisfied that it would be in the interests of justice to grant the claimant’s application. The board accordingly orders that A-Central be added as a claimant in this proceeding.

5.  MARKET VALUE

5.1  Highest and Best Use

[43]  Appraisal reports estimating the market value of the subject were prepared by Douglas L. Mendel of Grover, Elliott & Co. Ltd. for the claimant and Dale C. Hooker of Hooker Umlah Craig Lum, for the respondent.

5.1.1  Parcel A

[44]  The highest and best use of Parcel A is not an issue. Mr. Mendel and Mr. Hooker are in agreement that the existing use is the highest and best use.

5.1.2  Lots 1 to 4

5.1.2.1  Claimant’s position

[45]  Mr. Mendel determined that the highest and best use of Lots 1 to 4 was the "continuation of the present use". He noted that this use was not in compliance with the existing I-L zoning and went on to comment:

Very few parcels of land in Surrey carry the I-S Salvage Industrial zoning designation required for auto salvage operations. Any new site not appropriately zoned requires basic services and rezoning to I-S before it can be used for auto salvage, with no assurance that rezoning can be achieved… Lots 1 to 4 are not specifically zoned for auto salvage use but have been so used for a considerable period of time. Rezoning to I-S would require that the lands be connected to the city sewer system. We are advised that the vacuum sewer line on Tannery Road is at capacity and no further connections will be allowed. Thus rezoning cannot be assumed. Given however that Lots 1 to 4 have been used for auto storage continuously for several years and salvage operations is an approved use under the updated South Westminster Plan, the continuation of the present use can be assumed.

[46]  The claimant also called an expert planning consultant, Ray Spaxman. With respect to the zoning Mr. Spaxman said:

It would appear that a number of I-L zoned sites were in use for outdoor auto wreck storage for many years without enforcement by the City. As a consequence it is not surprising that because of the potentially onerous implications of the rezoning procedures, and the knowledge that enforcement was not proceeding, the owners chose not to pursue rezoning with much effort or enthusiasm. Perhaps that situation became accepted over time as the normal circumstances in the area.

He confirmed that the bylaws were quite clear that a rezoning application would have triggered the requirements for connections to services and the construction of all adjoining roads. However, because there were already municipal services for Parcel A on Tannery Road, an owner who was successful in consolidating all five lots might have been able to avoid construction of Spruce Road and additional connections for Lots 1 to 4.

5.1.2.2  Respondent’s position

[47]  Mr. Hooker concluded that the highest and best use was as "[h]olding properties for future industrial use, pending consolidation of Lots 1 to 4 with subject Lot A and/or construction of Spruce Road and the arrival of servicing infrastructure". In reaching this conclusion he noted that:

Clearly the lack of constructed road access and services placed significant limitations on alternative use potential for subject Lots 1 through 4 unless consolidated with subject Lot "A". It may have been physically possible to construct Spruce Road but extension of the existing "vacu-san" sewer on Tannery Road would not be permitted and construction of alternative sewer infrastructure would be very expensive.

[48]  Surrey also called John Buchan, an engineer with Hub Engineering. He estimated the service costs for Lots 1 to 4 as $106,158 for road works, $859,000 for sanitary sewer, $35,250 for water, and $30,500 for storm drainage, for a total of $1,030,908.

[49]  Jay Wollenberg, a planning consultant with Coriolis Consulting, also provided expert evidence. He found that under the applicable City bylaws in force immediately before the expropriation, the storage of wrecked vehicles on Lots 1 to 4 was allowed subject to several conditions being met. The conditions that needed to be met to comply with the existing zoning included the construction of Spruce Road to provide access to the lots, individual connections for each lot to the water and sewer system, construction of a building on each lot of at least 100 square metres (1,076 square feet) containing washroom facilities, and the storage of all the wrecked cars inside buildings. Since the subject Lots 1 to 4 did not meet these conditions, he concluded that the outdoor storage of wrecked vehicles was not allowed.

[50]  Further, Mr. Wollenberg also concluded that the existing outdoor storage of wrecked cars was not a legally non-conforming use. Aerial photographs in evidence showed that the earliest date at which the outdoor storage of wrecked vehicles at the subject properties could have commenced was March 1978, and the zoning I-L bylaw which did not allow the outdoor storage of wrecked cars was already in place at that time.

5.1.2.3  Analysis

[51]  A highest and best use must be legal. The board must consider the provisions of s. 33(b) of the Expropriation Act, R.S.B.C. 1996, s. 125, which states:

[52]  All of the experts essentially agreed that the use of Lots 1 to 4 as a feeder lot for storage of overflow wrecked vehicles was in contravention of the zoning bylaw and was not a legal non-conforming use. The claimant’s experts were only able to point out that Surrey had not enforced this bylaw against the claimant or similar vehicle salvage yards for a number of years.

[53]  Under the scheme of Surrey’s zoning bylaw, only those uses that are specifically permitted in a zone are lawful. Those that are not specified are not lawful.

[54]  The board finds that the claimant’s use of Lots 1 to 4 was neither a legal use, nor a legal non-conforming use, and was unlawful.

[55]  Section 282 of the Municipal Act as it read on the date of expropriation provides:

[56]  Delay in enforcing the provisions of its bylaws does not generally preclude a municipality from enforcing its bylaws. In Langley (Township) v. Wood (1998) 47 M.P.L.R. (2d) 127, (B.C.S.C.) an owner operated a building as a two family dwelling unit in an area zoned for single family residence. Collver J. granted the application that the owner was in breach of a zoning bylaw and restrained the owner from continued renting of the illegal unit. At para 15 he stated:

However, the Township’s present response to the owner’s use of the property is legitimate, having regard to the owner’s failure to occupy the house and her continued maintenance and rental of the two dwelling units on one lot. Neither delay, nor condonation, nor employees’ implied permission can defeat the Township’s insistence upon compliance with its zoning bylaw.

The owner appealed the decision and the British Columbia Court of Appeal dismissed the appeal. See (1999), 67 B.C.L.R. (3d) 97, (B.C.C.A). Cumming J.A. commented on the public interest aspects of zoning bylaws. At para 12 he states:

As a general rule, municipal rights, duties and powers, including the duty to carry out the provisions of a statute, are of such a public nature that they cannot be waived, lost or vitiated by mere acquiescence, laches or estoppel.

[57]  Cumming J.A. went on to state, at para 17:

The court has no discretion to deny the Township an injunction once a breach is established. In Maple Ridge (District) v. Thornhill Aggregates Ltd. unreported, (June 23, 1995), Vancouver A910317 (B.C.S.C.), the court said at para. 34:

In my view, there is no defence to the claim of Maple Ridge for an injunction, because the public interest is at stake in the enforcement of a zoning by-law. It is the task of Council, not this court, to determine where that public interest lies. If the public interest is engaged and a permanent injunction is being sought, the court’s only role is to determine whether a defendant has breached the by-law the municipality seeks to enforce.

[58]  A municipality is also entitled to selectively enforce the provisions of its bylaws and the failure to prosecute any particular owner does not preclude it from enforcing its bylaws against any other property owner. In Coquitlam (City) v. Aweryn 2000 BCSC 777, a case involving a five plex in a single family residential zone, Morrison J. states at para. 13:

[13] The cases confirm that the failure to prosecute great numbers of owners of illegal suites is irrelevant. In this case, as in the Burnaby case, I find no basis for concluding there was discriminatory prosecution. Reality tells us that no municipality can prosecute and enforce every by-law with respect to every breach, any more than the police can prosecute every speeder on our highways.

[59]  R. v. Hamill and Hal’s Towing, British Columbia Provincial Court, unreported, December 3 , 2001,File 113390, Surrey Registry is of particular note as it involved a property in the same municipality as the subject and had the same zoning and the same use as the subject. The factual situation of Mr. Hamill and Hal’s Towing was remarkably similar to that of the claimant in the present case, as is illustrated in the following extracts from the decision of the Provincial Court:

He describes the business he has been in since 1972 with respect to one of the properties and it is clear that he has been engaged in the towing of vehicles, in the repair of vehicles and most importantly, as it relates to the charges before the Court in my view his admission is that he is also engaged in the salvage of vehicles. He is engaged as he said and has been since 1972 in dismantling some older cars.

At one time he was purchasing vehicles from I.C.B.C. and rebuilding them. Some he repairs and sells. Some he strips down and sells for parts. ...

He described how he sold used parts and used cars, which he rebuilds, that he had to buy vehicles, usually from I.C.B.C.; that when he buys some cars from I.C.B.C. that can be rebuilt and resold he also has to purchase some that are not rebuildable and therefore, he has to dismantle them and resell the parts. He then runs into problems for operating contrary to the by-law. ...

I think that the officer who put in the photographs was pretty clear as to which streets and in which direction the photographs were taken and in his description of these vehicles covering all three properties and it is clear to me from the photographs and from the evidence of Gordon Vanderwoort that all three properties were, in fact, being used for the storage of wrecked vehicles, for salvaging of vehicles, for parts, for selling of vehicles and for the towing of vehicles. ...

There have never been, at least, there is no evidence of any business licences issued with respect to businesses operating at those two addresses, namely 10978 – 124 Street and 12410 – 110 Avenue, both in Surrey, B.C. ...

There is no question as a finding of fact that auto wrecking and salvage uses are being conducted in my opinion on all three properties, without any visible difference among the properties as of the date of the offences, namely February the 11 th of 2000.

Mr. Hamill and Hal’s Towing were convicted in Provincial Court and the Supreme Court of British Columbia subsequently issued injunctions restraining them, inter alia, from breaching the provisions of the zoning bylaw and the business licence bylaw.

5.1.2.4  Conclusion

[60]  In light of the above, having found that the claimant’s use of the Lots 1 to 4 was not a legal, or a legal non-conforming use, the board also finds that the use was capable of being restrained by a court. The board therefore concludes that the existing use as storage of wrecked cars and removal of parts cannot be the highest and best use.

[61]  The board concludes that the only remaining logical use for the subject Lot 1 to 4 is that determined by Mr. Hooker, as "[h]olding properties for future industrial use, pending consolidation with subject Lot A and/or construction of Spruce Road and the arrival of servicing infrastructure."

6.  MARKET VALUE

6.1  Claimant’s Position

[62]  Douglas Mendel utilized three approaches to determine the market value of the subject in accordance with his highest and best use which was "the continuation of the present use". The Cost Approach was used for both Parcel A and Lots 1 to 4, while the Income Approach and the Direct Comparison Approach were used to determine the market value for Parcel A.

6.1.1  Cost Approach

[63]  Mr. Mendel started out with 24 sales and 8 listings as potential comparables for the subject with respect to land value. All of the comparables but one were zoned I-L. Prices ranged from a low of $5.31 to a high of $32.08 per square foot and the sales occurred between September 1991 and August 1997. Mendel concluded that no time adjustment was necessary.

[64]  For Parcel A, Mr. Mendel selected eight comparable sales ranging from a low of $9.09 to a high of $32.08 per square foot and concluded that the value was just above the middle of this abbreviated range at $21.25 per square foot. Moving on to Lots 1 to 4, he chose five comparable sales with sale prices ranging from $13.68 to $21.26 and concluded a value of $18.00 per square foot.

[65]  Using the Marshall Valuation Service and a depreciation rate of 19%, plus a further 25% depreciation for under-utilization of the site, he concluded a depreciated value for the improvements of $283,861.

[66]  Thus his estimate of Market Value using the Cost Approach was

6.1.2  Income Approach

[67]  For the Income Approach for Parcel A Mr. Mendel examined eight warehouse leases and two office leases and concluded rates of $6.00 per square foot for the subject warehouse space, $4.00 per square foot for the subject covered storage and $12.00 per square foot for the subject office space. His only deduction was a 5% allowance for structural maintenance and rent loss due to intermittent vacancy. The sales of seven comparables were analysed to determine an appropriate capitalization rate. The range of rates was from a low of 6.90% to a high of 9.20% and the two comparables closest in size to the subject had rates of 6.90 and 8.00% respectively. Mr. Mendel concluded an overall capitalization rate of 8.00%.

[68]  His estimate of Market Value using the Income Approach was:

6.1.3  Direct Comparison Approach

[69]  Mr. Mendel utilized four comparables sales in Surrey that occurred between December 1994 and December 1995. The range in value was from a low of $11.64 per square foot to a high of $31.79 per square foot inclusive of improvements. He concluded a subject value of $30.00 per square foot of land area, inclusive of improvements.

[70]  His estimate of Market Value using the Direct Comparison Approach was

[71]  Mr. Mendel’s final step was to reconcile his three approaches to value:

He concluded that the Direct Comparison Approach was the most relevant. His final estimate of subject value was $1,200,000.

6.2  Respondent’s Position

[72]  Dale Hooker used the Cost and Income Approaches to determine the market value for Parcel A, using his highest and best use for Parcel A, the continuation of the present use. He also determined the land value in Lots 1 to 4 using his highest and best use, as holding properties for future industrial use, pending consolidation with Parcel A, and/or construction of Spruce Road and the arrival of servicing infrastructure.

6.2.1  Cost Approach

[73]  In order to determine the land value Mr. Hooker utilized thirteen comparable sales. Prior to adjustment, on a per square foot basis, sale prices ranged from a low of $5.17 to a high of $16.29. Unlike Mr. Mendel, Mr. Hooker determined that a time adjustment was necessary and he reviewed 12 paired sales to derive his adjustment. He also considered adjustments to the comparable sales for a number of factors including size, access, exposure, services, motivation, zoning and improvements. Following these adjustments, the range for his selected sales for Parcel A was $11.13 to $14.54 per square foot and for Lots 1 to 4, $8.35 to $10.63 per square foot. Mr. Hooker concluded a value for Parcel A at $13.00 per square foot and for Lots 1 to 4 at $10.00 per square foot.

[74]  Using the Marshall Valuation Service and a depreciation rate of 40% he estimated the depreciated cost of the improvements on Parcel A at $200,416. .

[75]  Thus his estimate of Market Value using the Cost Approach was

6.2.2  Income Approach

[76]  Mr. Hooker then valued Parcel A by the Income Approach. He examined lease data on five industrial properties and four office buildings in the Surrey area and concluded a rate of $5.50 per square foot for the subject warehouse space, $4.00 per square foot for the subject covered storage and $10.00 per square foot for the subject office space. He deducted 5% for long term vacancy and collection allowance, plus $435 for non-recoverable expenses and $1,105 for structural maintenance costs. A capitalization rate of 8.75% was derived from the sales of seven comparables with a range between 8.45% and 9.46%.

[77]  His estimate of Market Value for Parcel A using the Income Approach was

6.2.3  Reconciliation

[78]  Mr. Hooker’s final step was to reconcile his approaches to determine a final estimate of value for both Parcel A and Lots 1 to 4. Lots 1 to 4 were valued at $348,500. For Parcel A, Mr. Hooker’s values were $427,000 for the Cost Approach and $391,000 for the Income Approach. He concluded a value for Parcel A lying near the midpoint of his two value indicators at $410,000. His final estimate of market value was:

6.3  Board’s Analysis

6.3.1  Cost Approach

[79]  The two appraisers valued the subject by the Cost Approach as follows:

6.3.1.1  Land Value

[80]  Mr. Mendel did not discuss the matter of time in his appraisal report. In testimony he said that he reviewed ten of his sales that sold twice between July 1991 and December 1996 and found that four decreased in price, four increased in price and two exhibited no change. Based on this evidence he concluded that no time adjustment was necessary.

[81]  Mr. Hooker’s analysis of 12 paired sales yielded an average rate of increase of 0.82% per month. The claimant criticized his inclusion of sales that took place after the expropriation. However, omitting the three paired sales that occurred after the valuation date yielded an average increase that was almost identical at 0.826% per month.

[82]  The board does not agree with Mr. Mendel’s conclusion that no time adjustment was necessary. Based on Mr. Hooker’s evidence the board will apply a positive time adjustment of 0.82% per month from October 1993 to January 6, 1997.

[83]  The two appraisers valued the land in Parcel A as follows:

[84]  The appraisers are in basic agreement that the highest and best use of Parcel A was the existing use. There were three common sales used by both appraisers and the board finds these to be of the most assistance.

[85]  10549 Scott Road sold in November 1995 for $215,000. The parcel size was 15,725 square feet. This parcel was zoned I-S and was located in the area recommended for auto salvage. The sale price per square foot was $13.67. Mr. Mendel made no written adjustments, although he did consider several factors in relation to the subject. In addition to an adjustment for time, Mr. Hooker made downward adjustments of 20% for exposure and 5% for improvements. It was clear that Parcel A was different from the comparable sales regarding several factors. The board prefers Mr. Hooker’s approach and accepts his adjustments. The final adjusted sale price per square foot is $11.38.

[86]  12007 Tannery Road sold in February 1995 for $138,000. The parcel size was 8,494 square feet. This parcel was zoned I-L and was located in the area recommended for auto salvage on the South Westminster Plan. The sale price per square foot was $16.25. Again Mr. Mendel made no written adjustments while Mr. Hooker made downward adjustments of 10% for size, 5% for access, 10% for exposure and 5% for improvements. The board accepts these adjustments and calculates t he final adjusted sale price per square foot at $13.53.

[87]  10814 Timberland Road sold in February 1996 for $90,000. The parcel size was 6,596 square feet. This parcel was zoned I-L and was located in the area recommended for auto salvage. There were two reported sales for this property. Mr. Mendel used the March 1993 sale for $140,000, or $21.26 per square foot. Mr. Hooker used the February 1996 sale for $90,000 or $13.64 per square foot. Mr. Mendel advised he was not aware of the 1996 sale. The board accepts the later sale as providing the best evidence. Mr. Hooker made a downward adjustment of 15% for size, an upward adjustment of 10% for services and a downward adjustment of 5% for improvements and the board accepts these adjustments. The final adjusted price per square foot is $13.39.

[88]  In summary, the board has concluded adjusted sale prices of $11.38, $13.53 and $13.39 per square footfor the three common sales for Parcel A. Mr. Hooker concluded a value of $13.00 per square foot. The board finds his conclusion well supported and agrees with it. There was a slight difference between the appraisers with respect to the size of Parcel A with Mr. Mendel at 17,424 square feet and Mr. Hooker at 17,411 square feet. The board adopts Mr. Mendel’s size at 17,424 square feet. Thus the value of Parcel A is 17,424 square feet x $13.00 per square foot = $226,512 or $226,500 (rounded).

[89]  The two appraisers valued the land in Lots 1 to 4 as follows:

[90]  The significant difference in these two valuations is in large part because of the difference in highest and best use. The board has already accepted Mr. Hooker’s highest and best use of Lots 1 to 4 "as holding properties for future industrial use, pending consolidation with subject Lot "A", and/or construction of Spruce Road and the arrival of servicing infrastructure". Accordingly, the board focuses on Mr. Hooker’s evidence in this section. The board notes that Mr. Hooker’s valuation of these lots is based on the existing condition of the subject lots as of the date of expropriation, including the site grading and gravel.

[91]  Mr. Hooker’s eight selected comparable sales for these lots had an adjusted price that ranged from $8.35 to $10.63 per square foot.He concluded a value for Lots 1 to 4 of $10.00 per square foot. The board has already determined the value of Lot A to be $13.00 per square foot. After duly considering the differences between Parcel A and Lots 1 to 4, the board agrees with Mr. Hooker’s value of $10.00 per square foot for Lots 1 to 4. Thusthe land value of Lots 1 to 4 is 34,848 square feet x $10 per square foot = $348,480 or $348,500 (rounded).

6.3.1.2  of the Improvements

[92]  A comparison of the replacement costs derived by the two appraisers on the three buildings on Parcel A shows them to be relatively close.

[93]  Regarding the office building the two appraisers agree on the size of the building, with very little difference in value. The board finds no reason to favour either appraiser in this regard and we select a value near the midpoint at $162,000.

[94]  The claimant submitted that more weight should be given to the testimony and opinion of Mr. Mendel regarding the improvements on the subject since he was able to inspect them while Mr. Hooker was not. In this instance the board accepts Mr. Mendel’s replacement cost of $174,800 for the warehouse building and $26,155 for the covered storage.

[95]  The final item is the site improvements. These were dealt with differently by the appraisers. With respect to Parcel A, Mr. Mendel used $2.00 per square foot times 11,840 square feet (the size of Parcel A at 17,424 square feet minus the size of the structures at 5,584 square feet) or $23,680. For Lots 1 to 4, Mr. Mendel applied $2.00 per square foot to his lot size of 29,264 square feet to reach a sum of $58,528. To this he added $11,550 for site fencing to reach a total value for the Lots 1 to 4 site improvements of $70,058.

[96]  Mr. Hooker only utilized a depreciated value of $15,000 for site improvements on the subject and for fencing on Lots 1 to 4. In cross examination Hooker advised that he did not know how much of Parcel A was paved, and that he did not observe the quality of the fencing. On the matter of the site grading on Lots 1 to 4 he advised that if one were to determine the land value for Lots 1 to 4, as if vacant, as of the effective date, including the existing lot grading and gravel, to then add an amount for grading and gravel as improvements would be double-counting.

[97]  The board agrees with Mr. Mendel regarding the replacement value of the site improvements on Parcel A and the fencing on Lots 1 to 4. The board agrees with Mr. Hooker that lot grading and gravel for Lots 1 to 4 should be handled in the land valuation for those lots. Accordingly, the board concludes the replacement value for Parcel A site improvements is $23,680 and for Lots 1 to 4 (fencing) is $11,550.

[98]  The next determination is depreciation. Mr. Mendel took two steps. He first utilized a physical depreciation rate of 19%, and deducted that amount from the Replacement Cost New. He then deducted a further 25% for Functional Obsolescence from the reduced amount. The board notes that this is a departure from standard practice of deducting depreciation from all sources in one step from the Replacement Cost New, which was Mr. Hooker’s approach. Mr. Hooker used a total rate of 40% for physical depreciation and functional obsolescence. It is noted that the two calculations yield very similar results. The board favours Mr. Hooker’s more conventional approach and conclude a one step depreciation calculation of 40%.

6.3.1.3  Conclusion

[99]  Thus the board has concluded the following Market Value using the Cost Approach:

6.3.2  Income Approach

[100]  The two appraisers valued the subject by the Income Approach as follows:

6.3.2.1  Income

[101]  The appraisers used the following lease rates for the three buildings:

[102]  The appraisers agree with the lease rate of $4.00 per square foot for the covered storage, so the board will accept that figure. The board accepts Mr. Mendel’s figure of 1,232 square feet for the covered storage.

[103]  In estimating the lease rate for the warehouse space the two appraisers used a total of 12 comparable properties with a range from $4.50 to $7.43 per square foot. Mr. Mendel observed that the free-standing, single tenancy examples closest in size to the subject are two sales at $5.00 and $5.69 per square foot. Mr. Hooker selected one comparable to be most similar to the subject, although it had a superior location and a larger land component. The lease rate for this comparable was $4.75 in June 1996, with an escalation to $4.95 in June 1997. The board considers Mr. Mendel’s comparable at $5.69 per square foot and Mr. Hooker’s comparable at $4.75/$4.95 to be the best warehouse lease comparables. It is noted that only two of Mr. Mendel’s lease comparables contained leases over $5.69, and both of those properties were newer, three year old buildings located in Delta. The board gives more weight to Mr. Hooker’s evidence and concludes a lease rate of $5.50 per square foot for the warehouse area. The board accepts Mr. Mendel’s figure of 2,352 square feet for the warehouse.

[104]  For the leasing rate for the office space the two appraisers used a total of 17 leases in six buildings. On a triple net basis, the lease rates ranged from $8.75 to $13.00 per square foot. None of the leases stand out as being superior evidence to any of the other leases. Each of the appraisers chose a lease rate at about the midpoint of his range and the board selects a value near the midpoint of the whole range at $11.00 per square foot.

6.3.2.2  Expenses

[105]  The next step is allowances and expenses. The normal approach in this regard is to deduct an allowance for vacancy and collection loss to arrive at an Effective Gross Income, then to deduct any further expenses from that amount to reach a Net Income. Both appraisers used the first part of this approach, but only Mr. Hooker made deductions for further expenses.

[106]  Mr. Mendel’s appraisal report provided the 1996 industrial vacancy rate for Surrey at 4.04% according to Royal LePage statistics. The board finds that the appraisers’ 5% allowance to cover vacancy and collection loss is sufficient. However, the board cannot accept that the owner will not have additional costs. While this is a smaller industrial building, it will require structural maintenance like a larger building, although on a smaller scale. The board accepts Mr. Hooker’s figures of $435 for non-recoverable expenses and $1,105 for structural maintenance to be reasonable and conclude they should be deducted from the Effective Gross Income.

6.3.2.3  Capitalization Rate

[107]  The two appraisers concluded capitalization rates as follows:

[108]  Both Mr. Mendel and Mr. Hooker used seven comparable sales in their selection of an appropriate capitalization rate. Mr. Hooker listed four particular factors in this case that influenced his selection of a capitalization rate. These were:

(a) the existing improvements were 18 years old, with signs of settling under the warehouse’s concrete slab.

(b) the ratio of office to warehouse space is higher than typical for this type of use.

(c) the site coverage was 31.7%. Capitalization rates rise as site coverage increases.

(d) the small subject size places downward pressure on the required rate of return.

[109]  The board finds three of the sales of the most assistance. One sale from Mr. Mendel is a new, 4,200 square foot, strata space in Surrey with a rate of 8.0%. A second from Mr. Hooker is a 4 year old, 8,079 square foot building in North Langley. The capitalization rate was 8.8%. The third sale, also from Mr. Hooker is a 3,035 square foot, 1 year old, building in North Langley with a rate of 8.45%.

[110]  The subject building is older than any of these comparables, at 18 years. The size of 5,584 square feet is larger than two of the selected comparables. After reviewing the evidence, the board finds an appropriate capitalization rate for the subject lies near the middle of the range for these three sales at 8.5%.

6.3.2.4  Conclusion

[111]  Thus the market value for Parcel A using the Income Approach is:

6.3.3  Direct Comparison Approach

[112]  The board does not find Mr. Mendel’s use of this approach to estimate the value of Parcel A of assistance. It agrees with several of the respondent’s criticisms. A value of improved property expressed in per square foot of land area is not very helpful when the buildings are substantial. There was a very wide range of values for the comparables at $11.64 to $31.79. Two of the sales with Floor Area Ratios (FAR’s) of 0.29 and 0.30 respectively were the most similar to the subject, and were improved with newer buildings. Although these two comparables sold for $20.66 and 23.70 per square foot respectively, Mr. Mendel settled on a value of $30.00 for the subject Parcel A. Finally Mr. Mendel had not adjusted for the storage space having a lower rate than the office and warehouse components.

6.4  Conclusion

[113]  Thus the board has made two estimates of Market Value for Parcel A as follows:

[114]  Mr. Hooker noted that the difficulty with the Cost Approach "lies in the accurate measurement of depreciation". He also noted that the difficulty with the Income Approach is that it values Parcel A in isolation from the Lots 1 to 4 to the east. Further, it assumes that the property would be tenanted rather than owner occupied and this is often not the case in the subject neighbourhood. He concluded by selecting a value near the midpoint of these two methods.

[115]  The board concludes that the two approaches should be given equal weight and that selecting a value near the midpoint of the values derived by the Cost and Income approaches would be appropriate, at $443,000.

[116]  Thus the final Market Value of the subject is concluded to be

7.  DISTURBANCE DAMAGES

7.1  Miscellaneous losses

[117]  Section 34(1) of the Act states:

An owner whose land is expropriated is entitled to disturbance damages consisting of the following:

(a) reasonable costs, expenses and financial losses that are directly attributable to the disturbance caused to the owner by the expropriation;

[118]  There are three miscellaneous claims for specific disturbance damages which are premised on losses suffered by the claimant.

7.1.1  Loss due to flooding

[119]  The board heard extensive testimony concerning alleged damages suffered by the claimant as a result of the flooding of Lots 1 to 4 in the months prior to expropriation resulting from the placement of preload sand on Spruce Road. There was no formal quantification of the damage other than a list of losses on vehicle parts totalling $21,825 which is included in the claimant’s closing argument.

[120]  The following issues must be considered in assessing the $21,825 claim for parts lost as a result of water damage:

• Was the alleged flooding of Lots 1 to 4 caused by the preload on Spruce Road?
• What was the extent of the flooding on the Lots 1 to 4? Did it cover 50% of the total area as is alleged by the claimant? Was the water depth sufficient to damage the parts that are claimed to have been lost?
• How many of the motors, transmissions and rearends had already been removed prior to the flooding?
• Does the claim allow for the marginal costs that would have been incurred in removing and selling the lost parts?
• To what extent was the flooding caused by the unusually high rainfall experienced in October 1996?

[121]  Ron Weibe, a project supervisor with the Engineering Department of the respondent, and Neil Latta both testified that drainage piping was installed under the preload to drain the water away from Lots 1 to 4 toward the Burlington Railroad which is on the other side of Spruce Road.

[122]  Mr. MacKenzie testified that Lots 1 to 4 were flooded with depths of about two or three feet and attributed this to the preload. Ray Berkenbos testified that the property was flooded and identified a picture showing water on Lots 1 to 4 which he thought was taken in November 1996. He also said there had been no previous problems with flooding. The rainfall statistics for Vancouver airport show that rain in October 1996 was more than double the average for the years 1971 to 2000.

[123]  More than 80% of the list of losses totalling $21,825 relates to 14 or 15 motors, transmissions and rearends. It appears to be based on the assumptions that there were 110 vehicles on site, that 49% of these major parts are normally saleable, that one half of the major parts had been removed prior to the flooding, leaving approximately 25% of the vehicles on site with good major parts, of which one half were spoiled by water damage. This is generally consistent with the testimony of Ray Berkenbos.

[124]  The board is satisfied that there was water on Lots 1 to 4. It is difficult to determine whether this was due to the preload or unusually high levels of rainfall or some combination thereof. It is not possible to determine the extent or depth of the water from the photographs entered in evidence. The damage calculations appear to be based on rough estimates of the gross sale prices of parts that were given by Ray Berkenbos during the course of his testimony, and do not seem to take account of the incremental costs that would have been incurred in removing and selling those parts in the normal course of business. There is no count of the number of vehicles on site other than the estimate of 91 vehicles which Ray Berkenbos made from an examination of the photographs which is lower than the 110 vehicle figure that appears to have been used in the calculation of damages. However, on a balance of probabilities, the board is satisfied that some level of damage was sustained by the claimant as a result of additional water on Lots 1 to 4 because of the preload and awards $10,000 as compensation for this loss.

7.1.2  Loss due to denial of access

[125]  A claim was also advanced for income loss caused by lack of access. Ray Berkenbos testified that the preloading, which commenced on September 25, 1996, caused chaos on Spruce Road and that the claimant had to stay away from Lots 1 to 4 for two or three weeks. However he was not personally denied access from Spruce Road and was unable to confirm that any of the claimant’s staff were refused access. It is clear that access was always available from Tannery Road. There was no effort by the claimant to particularize any loss. While the preload may have caused inconvenience the claimant has not provided sufficient evidence of any loss. The claim for loss due to blocked access is denied.

7.1.3  Losses for clearing Lots 1 to 4 of cars

[126]  The claimants closing argument also listed an amount of $283.50 "minus any amount for regular scrapping out" for moving cars off the lot when the site was handed over to the respondent. There was no evidence as to why the cost of removing the vehicles from Lots 1 to 4 because of the expropriation would be greater than the cost of removing hulks in the normal course of business. Accordingly the board rejects this claim.

7.2  Loss of Profits and Goodwill

7.2.1  Impact of unlawful use on recovery of loss of profits and goodwill

[127]  The board has determined for reasons set out in the discussion on highest and best use, that the claimant’s use of the property was neither a legal use, nor a legal non-conforming use, and that the unlawful use was capable of being restrained by an injunction. The next issue to be addressed is whether the board can award compensation for damages for loss of profits and/or goodwill based on the unlawful use.

7.2.1.1  ’s Position

[128]  The respondent submits that it would be contrary to public policy for a statutory tribunal to award compensation for business loss arising out of the unlawful use. The public policy argument is recognised in the context of s. 33(b) of the Act which stipulates that in determining the market value of land, account must not be taken of an increase in the value of the land resulting from a use that was capable of being restrained by a court. While there is no similar explicit provision with respect to disturbance damages, s. 34 of the Act requires that an owner is only entitled to disturbance damages that consist of "reasonable costs, expenses and financial losses". The respondent states that the provision that such damages be reasonable recognises the public policy argument against awarding compensation for disturbance damages based on unlawful use. Several cases were cited in support.

7.2.1.2  Claimant’s Position

[129]  The claimant contends that the course of conduct between the claimant, the claimant’s predecessor in title, and the respondent establishes that the claimant’s use was based on "reasonable" assumptions and is therefore compensable. It submits that Ken McKenzie initiated the use of the Lots 1 to 4 for the storage of large machinery and that the use was accommodated by the respondent within the context of the I-L zoning. It says that the respondent mandated certain improvements such as fencing to allow the use in question.

[130]  The claimant also notes that prior to the filing of the amended Form B on October 3, 2003, the issue of the actual use of Lots 1 to 4 was not raised by the respondent.

[131]  The claimant submits that the respondent should be estopped from asserting that the claimants cannot claim for business loss because of their particular use of Lots 1 to 4. The claimant notes that there is no express provision in the Act barring recovery of business losses based on unlawful use. It relies on Toronto Area Transit Operating Authority v. Dell Holdings Ltd., [1997] 1.S.C.R. 32, a decision of the Supreme Court of Canada, as authority for the principle that the Expropriation Act should be read in a broad and purposive manner to fully compensate an owner whose property has been taken.

7.2.1.3  Analysis

[132]  The board found several authorities of assistance. In Keystone Bingo Centre Inc. v. Manitoba Lotteries Foundation (1990), 76 D.L.R. (4 th) 423 (Man. C.A), the appellant Keystone, operated a commercial bingo hall as a lessor and operator for an incorporated group of charities which had banded together for the purpose. The individual charities obtained licences from the provincial licensing authority to conduct bingos at the appellant’s hall. It was assumed that this arrangement permitted the operation of the bingo hall under the Criminal Code. A Manitoba government policy was then introduced which had the effect of terminating the appellant’s business. Keystone maintained that what had occurred was a statutory taking which gave rise to a right to compensation for loss of goodwill. The Court states at p. 430:

… Keystone’s business was based on a scheme calculated to circumvent the provisions of the Criminal Code. Its actions were injurious to the public interests. When the government put Keystone’s illegal operation out of business, the government was not required to pay compensation. Such a requirement would be contrary to public policy.

[133]  The expropriation case of Trace et al v. Minister of Highways of British Columbia (1976), 14 L.C.R. 87 is of particular note. At p. 88 the aribitrators described the unlawful use and the issue arising as to compensation for disturbance damage in these circumstances:

... It is generally conceded that the subject properties were zoned for residential use and have been at all material times. The claimant acknowledges that in the ordinary course of events he could not expect compensation for any illegal use to which the lands have been put. The evidence is clear that there has been an illegal use for many years in that the claimant has conducted a commercial and manufacturing operation on the subject lands. The position of the Minister of Highways is, of course, that the claimant cannot be compensated for the illegal use. ....

And at p. 94:

Similarly, we find that the failure of the authorities to prosecute or take steps to stop Mr. Trace from his activities on the property does not give rise to an estoppel.

We hold that there is no legal obligation on the part of "the authorities" (and we use this in its widest sense to include the Department of Highways, the Department of Municipal Affairs, and the Capital Regional District) to prosecute. We further hold that such failure to prosecute, or to seek any other appropriate remedy to cease the activities on the property, cannot be said to be an unambiguous representation to Mr. Trace that he could legally carry out his manufacturing and commercial operation on the property.

Having rejected the estoppel argument, it follows that we do not propose to award compensation for the manufacturing or commercial activities carried on by Mr. Trace on the subject lands.

[135]  Re Martell and City of Halifax (1969), 9 D.L.R. (3d) 163, (N.S.C.A.) is another expropriation case where loss of profit related to unlawful use was denied. A club liquor licence had been granted to a trade union, but the club was in fact being operated by an individual pursuant to an arrangement with the union under which the individual paid for the use of the union’s name, the members of the union were members of the club, and the profits from the business went entirely to the individual. It was held that the individual was not the holder of a licence under the Liquor Control Act for the purposes of paying compensation upon expropriation of the premises. Furthermore, because the individual was thus selling liquor without a licence and hence contravening the Liquor Control Act, he was not entitled to compensation for an allowance for special value or for loss of profits.

[136]  Cooper J.A. stated at page 173:

It is in my view not a sufficient answer to say, as was urged upon us by counsel for the respondent, that Mr. Aston suspected that there were clubs operated for pecuniary gain and that he must have known the true situation because of his inspections of the premises. Lack of investigation or suspicion on his part even if there was such lack or such suspicion does not alter what was actually being done by the respondent, namely, operating the social club without being the holder of a licence and for pecuniary gain. I agree with the submission of counsel for the appellant that a man should not be compensated under one statute for the loss of something he was enjoying by the breach of another statute in the same jurisdiction.

The claimant was denied compensation for loss of profits but was awarded compensation for a specific loss that had already occurred; namely, loss of inventory.

[137]  While the facts in Keystone involve a breach of the Criminal Code rather than a zoning bylaw, taken together these cases stand for the proposition that loss of profits and similar disturbance damages are not compensable where they are founded on unlawful use.

[138]  The claimant has asserted that the respondent is estopped from asserting illegality. The board found several cases of assistance.

[139]  In Ville de Montreal v. Chapdelaine, ( April 29, 2003), J.Q. no. 4363 No: 500-09-010211 -001 (500-05-055497-000),the Quebec Court of Appeal canvassed the issue of estoppel in municipal zoning cases and quoted from the following authority at paragraph 50:

To summarize, in order for a court to invoke municipal estoppel, the aggrieved party must establish that: (1) an authorized agent of the municipality had done or said something calculated or intended to induce the party to believe that certain facts existed and to act on that belief; (2) the party had exercised due diligence to ascertain the truth and not only lacked knowledge of the true state of things, but also had no convenient means of acquiring that knowledge; (3) the party had changed its position in reliance on those facts; and (4) the party would be subjected to a substantial loss if the municipality were permitted to negate the acts of its agents. See Zotta v. Burns, 8 Conn. App. 169, 175-76, 511 A.2d 373 (1986)...

[140]  The municipality was found to be estopped from enforcing its bylaw in Harwood Industries and Bible Fellowship Housing Society v. Corporation of the District of Surrey (1991), 6 M.P.L.R. (2d) 228 (B.C.S.C.). In Harwood the petitioners had sought to construct 90 senior citizens’ homes on a 52 acre property. The property was acquired after the Surrey Council had indicated that it was suitable for the intended use. Amendments to a Surrey official community plan and bylaws and a zoning bylaw were necessary to allow the development to proceed. Following the third reading of the bylaws, the head of the engineering department of Surrey indicated to the petitioners that the fourth reading by the Council was a "formality if the petitioners meet Surrey’s requirements and agree to the servicing agreement".

[141]  The petitioners complied with all the requirements and expended over $600,000 in total in the process. The bylaws were not adopted by Council.

[142]  Braidwood J. stated at para. 44:

I am of the opinion that the inducement and promises above described to the certain knowledge of council and its officers encouraged these petitioners to act to their detriment and it would be unconscionable for them now to raise the defence of the notional bias of Mr. Hunt to preclude the operation of the statute.

In the course of his judgment, he referred to the following passage from Biggs v. Township of Egremont (1974), 49 D.L.R. (3d) 491 (Ont. H.C.) at p. 501:

While I can find no authority in any reported case with similar facts, nevertheless I am of the view that the doctrine of estoppel is applicable on the facts in the action. Rogers’ Law of Canadian Municipal Corporations ( supra ) at p. 374 under the heading "Acquiescence and Estoppel", after stating that as a general rule municipal rights and powers are of such a public nature that they cannot be lost by mere acquiescence, laches or estoppel, concedes that these are statements of a general rule and there is authority to the contrary, that a municipal corporation may be bound by acquiescence just as an individual but that the rule should not be enforced against municipalities as strictly and to the same extent as against corporations and individuals.

[143]  However, in North Vancouver (City) v. Vanneck (1997), 39 M.P.L.R. (2d) 249 (B.C.S.C.) the court granted an injunction to compel compliance with the zoning and building bylaws. The court rejected the respondent’s argument of estoppel. Macaulay J. stated at paragraph 36:

Although I recognize that there may be cases in which a municipality may be bound by operation of doctrines of acquiescence, laches or estoppel, I am unaware of any case where the doctrines have been applied in the absence of some prejudice, unfairness or injustice in permitting the municipality to proceed. There is no evidence before me that the petitioner did anything to encourage the respondents to buy the property. Further, I am satisfied that the respondents were told abut the zoning infraction at the meeting in late 1994.

[144]  The board now considers whether in fact there is merit to the claimant’s submission regarding estoppel in the present case.

[145]  The evidence indicates that the previous owner of Lots 1 to 4, Ken McKenzie, consulted an official of the municipality about his intended use, the storage of heavy equipment such as forklifts, small cabs, and compressors. The official apparently allowed Mr. McKenzie to put the fill on Lots 1 to 4 and to put the fill on Spruce Road to accommodate the use of Lots 1 to 4. The official required that fencing be installed on Lots 1 to 4 and this was done. The works were inspected by officials of the Municipality.

[146]  Mr. McKenzie subsequently sold the Lots 1 to 4 to the claimant.

[147]  The claimant did not make any attempts to hide what it was doing on the site. The respondent was aware of the use of the site and did not advise the claimant of any problems with the use and did not attempt to stop the use.

[148]  In his closing argument, counsel for the claimant suggested that Bill Berkenbos believed that the use was permitted and would have taken steps to bring it into compliance had he been aware it was not a permitted use.

[149]  Regrettably, Bill Berkenbos was not available to testify for health reasons. The evidence, however, does suggest to the board that Bill Berkenbos was aware of the zoning requirements.

[150]  The claimant, in fact, submitted a rezoning application in 1991 and subsequently chose to abandon its application. The rezoning application states that the purpose is to "open auto wrecker in the designated area" (Lots 1 to 4). Ray Berkenbos in cross-examination also appeared to concede that he was aware that rezoning was required.

[151]  The following extract from a letter dated February24, 1995from Bill Berkenbos to Dave Mihalek, Manager of Surrey’s Property Management Section, with respect to another site zoned I-L (the same as the subject), indicates his appreciation of the zoning requirements:

In regards to the acquisition of the latter, I am most interested in the property located at 11607 Grace Road. My primary intention is to use this site for auto salvage. However, if this is not possible, I would be interested in pursuing industrial uses in keeping with the I-L zoning classification.

[152]  A record of a meeting Mr. Mihalek had with the claimant’s negotiator, Leanne Pitcairn, dated June 17, 1994 reads:

Met with Leanne Pitcairn in the planning department re Grace Road property. She said that even if Berkenbos did not rezone I-L to I-S, a salvage yard use would not be supported by planning due to original reasons cited in her memo. He would have to construct a warehouse to cover all stored vehicles and parts; no auto-wrecking allowed under I-L.

The above notation confirms that as early as 1994, the negotiator dealing with Bill Berkenbos was aware of the I-L provisions and what was permitted.

[153]  A general definition of estoppel appears in Snell’s Principles of Equity 27 ed. (1973) by R. T. McGarry and P.V. Baker at p. 563:

Where by his words or conduct one party to a transaction makes to the other an unambiguous promise or assurance which is intended to affect the legal relations between them (whether contractual or otherwise), and the other party acts upon it; altering his position to his detriment, the party making the promise or assurance will not be able to act inconsistently with it.

[154]  The board finds that the evidence does not support an estoppel argument in this case. The course of dealings between the claimant and the respondent does not indicate a representation that the property was zoned for auto salvage. It is not clear that the claimant has suffered any detriment in reliance on any acts of the respondent. To the extent that any improvements have been made on the site as a result of requirements of the respondent, these have been included in the market value of the subject as determined by the board. The acts, or inaction, of the respondent have allowed the claimant to operate an unlawful business on the subject for a number of years.

[155]  In the view of the board, the claimant has not established estoppel under a general test of estoppel, let alone the much more restrictive test for invoking municipal estoppel as indicated in the authorities.

7.2.1.4  Conclusion

[156]  Having reviewed the authorities, the board is of the view that, as a general rule, loss of profits and similar disturbance damages such as loss of goodwill that are based on unlawful use are not compensable, except in the rare situations where estoppel applies or where it would otherwise be unconscionable to deny recovery. The board sees force in the respondent’s submission that it would be inconsistent, to say the least, to deny a claimant any increase in market value as a result of unlawful use, but to permit recovery of loss of profits based on such use. There are public policy considerations for denying such recovery. While there is no specific provision in the Act with respect to disturbance damages, as is provided for market value in s. 33(d), s. 34 states that an owner is entitled to disturbance damages consisting of "reasonable" costs, expenses and financial losses. The board does not consider the dictum of the Supreme Court of Canada in Toronto Transit Authority v. Dell Holdings with respect to giving the Expropriation Act "a broad and liberal interpretation" to entitle recovery of disturbance damages founded on an unlawful use. The board concludes that the claimant is not entitled to recover loss of profits and loss of goodwill based on unlawful use as such financial losses cannot be considered "reasonable" on the facts of this case. The board distinguishes specific losses that have already been incurred such as damages due to flooding and loss of access discussed above and relies on Re Martell and City of Halifax where compensation was awarded for loss of inventory despite unlawful use.

[157]  The board notes that in addition to the breach of the zoning bylaw leading to unlawful use, the respondent asserts and the board finds, that the claimant’s use of Lots 1 to 4 was in contravention of Surrey’s business bylaw and the highway bylaw. The claimant never had a business license for Lots 1 to 4 and never had an access permit for Spruce Road. There was also evidence that the claimant was in breach of its agreement with ICBC with respect to its failure to have a business license for Lots 1 to 4. The board is of the view that these factors may be taken into consideration in assessing the issue of overall reasonableness of the damages, but, on the facts of this case, do not lead to the conclusion that the claim for such damages is unreasonable.

7.2.2  Feasibility to Relocate

[158]  Section 34(4) of the Act states:

If the board determines that it is not feasible for an owner to relocate his or her business, there may be included in the compensation that is otherwise payable, an additional amount not exceeding the value of the goodwill of the business.

[159]  Had the board found that damages for loss of goodwill attributable to Lots 1 to 4 was recoverable despite the unlawful use, the board would have had to decide whether it was feasible for the claimant to relocate.

[160]  There were several different sources of evidence on this issue. The respondent’s documents include a February 24, 1995 letter from Bill Berkenbos to Mr. Mihalech, the Realty Services Manager for Surrey, referring to their meeting on February 6, 1995. The letter shows that the claimant was aware of the pending expropriation at that time and was seeking to obtain a replacement property from the respondent.

[161]  Ray Berkenbos testified that the claimant commenced looking for a replacement property in the fall of 1996, prior to the expropriation, and stopped looking late in 1999. He agreed that this was at variance from information provided at his examination for discovery when he said the claimant stopped looking in April 1997, and explained that he had no direct involvement since the matter was handled by his brother Bill Berkenbos.

[162]  Tim Deremo, a realtor active in Surrey, testified that he was retained by Bill Berkenbos at the time of the expropriation proceedings to find a site to replace the subject property. He carried out a detailed study over a period of several months to identify suitable targets for purchase. Bill Berkenbos thought that several of the available properties were too small. Mr. Deremo said that despite an extensive search and approaches made to the owners of a number of different properties, the claimant did not manage to purchase a replacement at an acceptable price and that his assignment was ended sometime in 1999 when Bill Berkenbos became unavailable. Ray Berkenbos testified that his brother, Bill, became incapacitated in the latter part of 1999.

[163]  Mr. Mihalech testified that he had numerous discussions with Bill Berkenbos concerning replacement lands for the subject. He said he was approached in 1995 or 1996 by Mario Pavlakovic, at that time the vice-president of real estate development for A-United Auto Wrecking ("A-United"), who told him that company wanted to sell some of its properties. Mr. Mihalech, together with other Surrey staff members, met with Bill Berkenbos on December 8, 1995 and told him that the city’s Tow Yard property would become surplus in 1996 and could be available. He also said Surrey was prepared to explore the possibility of purchasing property owned by A-United and making a portion of it available to the claimant. All of these properties were zoned for auto salvage while the subject was not. These suggestions were repeated in a letter which Mr. Mihalech wrote to counsel for the claimant in April 1996.

[164]  Mr. Mihalech said Bill Berkenbos thought the Tow Yard would be heavily contaminated. However, this ultimately proved to be incorrect because remediation work carried out by Surrey required the removal of only 20 cubic metres of contaminated soil at a cost of $7 a square foot. At the time Surrey offered the Tow Yard to the claimant, the claimant did not check the extent of the contamination on the Tow Yard property nor did it explore the possibility of purchasing the Tow Yard with the condition that Surrey carry out the remediation of contamination.

[165]  There was no explanation given for the claimant’s refusal to take up Surrey’s offer to seek to acquire property from A-United and make it available to them. The board notes that the A-United properties were listed for sale in 1998, and Mr. Pavlakovic testified that some of its property was for sale in or around 1997. While any effort to purchase property from A-United may have been unsuccessful, that is not a sufficient reason for the claimant to prevent Surrey from even trying to make the purchase.

[166]  The respondent’s and claimant’s documents contain correspondence and notes showing that Bill Berkenbos was interested in acquiring a 12 acre property, owned by Surrey, located at 11607 Grace Road. This was much larger than the subject and the zoning did not permit its use for a salvage operation. Surrey would not permit a rezoning to I-S which would be required for a salvage business.

[167]  The claimant made no offers to purchase or lease a replacement property. In our opinion the Tow Yard would have provided a suitable replacement for Lots 1 to 4. It was somewhat larger and had the advantage of being appropriately zoned. It lacked public visibility but this was not an issue for a lot for overflow storage because the public would have little reason to visit the property. Access was comparable to Lots 1 to 4 and the board believes Surrey would have been prepared to remediate any contamination. The Tow Yard property did not have buildings comparable to those present on the Parcel A portion of the subject but this part of the property was not used in the business.

[168]  A property, not suitable for the salvage business, was purchased by the claimant in November 1998 for investment purposes. Mr. Deremo testified that Bill Berkenbos became less available as time went by and that his discussions with him had already become irregular in the period prior to this purchase. He also said that the search for a salvage property had abated by November 1998. The board has determined that it is reasonable to assume the search for property to replace the subject effectively ended with the November 1998 investment property purchase.

[169]  The evidence shows that Bill Berkenbos spent some time looking for a replacement for the subject, although the amount of time he spent gradually tapered off. He was assisted for approximately one half of that time by Mr. Deremo. The board is surprised by the claimant’s refusal to take up Surrey’s offer to attempt to purchase some of the A-United property. The board has determined that the Tow Yard would have been a suitable replacement for Lots 1 to 4, the only portion of the subject used in its operating business. The board is satisfied that relocation was "feasible" in the sense that it was "capable of being done, carried out, or dealt with successfully in any way possible, practicable". Shorter Oxford Dictionary, 3 rd ed. Cited in Becker Milk Co. v. Metropolitan Toronto (Municipality) (1969), 1 L.C.R. 624 (Ont. C.A.).

[170]  The claimant in this case has failed to discharge the onus of proving that relocation was not feasible. If there had been no unlawful use the claimant’s claim for additional compensation not exceeding the value of the goodwill of the business attributable to Lots 1 to 4 would nevertheless have been denied because the board has determined that it was feasible for the claimant to relocate the business that it conducted on Lots 1 to 4.

7.2.3  Loss of Profits

[171]  Had the board ruled that loss of profits flowing from an unlawful use were recoverable by the claimant, it would have assessed them as follows.

[172]  The claimant was required to vacate the subject by April 1, 1997, some four months after the expropriation, but it did not do so until the end of that month. The claimant is seeking loss of profits for a period of between 18 months and two years. The board has determined that the search for a replacement property effectively ended in November 1998 which is 19 months after the claimant vacated the subject.

[173]  In the case of Hertel v. British Columbia (Minister of Transportation and Highways) (1997), 62 L.C.R. 3 (B.C.E.C.B.), this board concluded that it was feasible for the claimant to relocate its business and that, as a result, a termination allowance under s. 34(4) was not available. The board awarded the claimant loss of profits during the period that it continued to operate its fruit stand business prior to determining that highway access would not be restored. While the board rejected any further compensation for loss of profits because the claimant had failed to mitigate its losses by relocating its business, it did award $40,000 for the claimant’s loss of income for one year.

[174]  The claimant in this case made efforts to find a replacement property over an extended period of time. The board is of the opinion that if the claimant was entitled to compensation for loss of profits from the business conducted on Lots 1 to 4, it would be for a reasonable search period to find a replacement property. The board is satisfied on the evidence that by April 30, 1998, relocation was feasible. Accordingly, the board finds that any award for the loss of profits should be limited to a period of one year from April 30, 1997. The board considers this to be a reasonable search period for replacement property in all the circumstances.

[175]  Expert reports dealing with the loss of income and goodwill flowing from the expropriation of Lots 1 to 4 portion of the subject property used for the storage of vehicles were prepared by Toby Symes of Symes Valuation Services Ltd. who was retained by the claimant, and Richard Crosson of Ernst & Young who was retained by the respondent. Both experts prepared two reports, the second reports reflecting the discovery, after the preparation and submission of their initial reports, that Al’s Auto Wrecking purchased vehicles from third parties ("street vehicle purchases") rather than solely from ICBC which was their original understanding. Mr. Symes produced a further revised calculation of the estimated annual loss during the hearing.

[176]  Their final estimates of loss were:

Mr. Crosson did not offer an opinion as to the period of any loss of profits, but left it to the board to decide.

[177]  The methodology applied by Mr. Symes in his second report, and in revised calculations submitted during the course of his testimony, is essentially identical to that employed by Mr. Crosson, the difference in conclusions being attributable to the following:

(a) The number of vehicles on the subject property. Mr. Symes used a range of 110 to 123. Mr. Crosson used a range of 75 to 100.

(b) The average annual turnover rate (the number of vehicles parted out in the year divided by the average number of vehicles in inventory). Mr. Symes used 1.76 to 1.86. Mr. Crosson used 1.60 to 1.80.

(c) The percentage contribution margin (profit expressed as a percentage of sales). Mr. Symes used 61% for the first two years and 38% thereafter. Mr. Crosson calculated a range of 33% to 36% in the 1997 to 1999 fiscal years.

(a) Number of vehicles

[178]  The claimant has no record of the number of vehicles that were on hand at Lots 1 to 4 from time to time. Ray Berkenbos testified that a chalk board or counterman’s day book may have been maintained. However the chalk board entries would be erased to reflect day to day changes, and any day books that may have existed have been thrown out.

[179]  There was extensive and contradictory testimony with respect to the number of vehicles on Lots 1 to 4. Ray Berkenbos estimated it to be between 75 and 100 when he was questioned at his examination for discovery. During cross-examination he said the number of vehicles fluctuated. He did not know the range of fluctuation but thought the number of vehicles would be around 100 because Lots 1 to 4 were always full. The year end financial statements record 110 vehicles at August 31 1996 however there was no evidence that this number was derived from a physical count. Elaine Spencer, a chartered accountant and partner in the claimant’s firm of external accountants, testified that her firm had made no count and she did not know if a count had been made.

[180]  A number of photographs were entered as exhibits and shown to Ray Berkenbos. Ray Berkenbos agreed that photographs taken in June 1994 and May 1996, which were included in appraisal reports prepared by the Property Management Division of the City of Surrey and Hooker Carmichael Property Consultants, showed Lots 1 to 4 to be virtually empty. He also agreed that an aerial photograph taken in May 1995 showed the Lots to be looking empty, and that photographs taken in July 1994, and included in an appraisal report prepared by Nilsen Realty Research, showed significantly less than 75 cars on the Lots. Ray Berkenbos said he had counted 91 vehicles in a photograph taken around November 1996 at the time of the alleged flooding of Lots 1 to 4. Aerial photographs taken in the summers of 1990 and 1992, and in May 1994 are not sufficiently clear to determine the number of vehicles on hand at those times.

[181]  Ken MacKenzie, the former owner of the property, testified that there were 80 to 90 vehicles on the premises all the time. Neil Latta, a civil engineer involved with the preloading of Spruce Road, was present at the property from September 1996 onward and testified that the lot was less than 50% full in the fall of 1996. Dave Mihalech, Manager of Realty Services for the City of Surrey, testified that he visited Lots 1 to 4 many times from 1995 to the date of expropriation. He said that there were not a large number of vehicles on the site and estimated that up to 25% of Lots 1 to 4 were occupied by vehicles and scrap metal. Mr. Mihalech was shown the photographs included with the Hooker Carmichael appraisal which Ray Berkenbos agreed showed Lots 1 to 4 to be virtually empty, and confirmed that they were consistent with his own observations.

[182]  Mr. Symes’ calculation that Lots 1 to 4 accounted for 8.9% of the total vehicle storage area used by the claimant and its associated company was not disputed. Lots 1 to 4 were only used to take any overflow when the other lots were full. Ray Berkenbos testified that the wrecking industry is seasonal with more vehicles being available in the winter months. It is reasonable to assume that Lots 1 to 4 would be used more intensively in the winter months and this may account for the paucity of vehicles shown in the photographs taken in the summer months. Weighing all of the evidence the board has concluded that it is reasonable to assume a year round average of 75 cars on Lots 1 to 4, being the low end of Ray Berkenbos’ original estimate of 75 to 100 vehicles.

(b) Average turnover rate

[183]  The difference between Mr. Symes’ turnover rate of 1.76 to 1.86 and Mr. Crosson’s rate of 1.60 to 1.80 is largely due to Mr. Symes’ inclusion of parts purchases in his calculation of the number of vehicles purchased. This increased his calculation of the number of vehicles purchased and sold and the turnover rate. The board adopts the average annual turnover rate of 1.65 for the 1995 to 1999 fiscal years calculated by Mr. Crosson as being appropriate to determine the number of lost vehicles. This yields an annual loss of 124 vehicles.

(c) Percentage contribution margin

[184]  The marked difference in the contribution margin of the two experts is principally due to the inclusion of 70% of wages as a variable expense by Mr. Crosson. This amount alone accounts for between 26% and 33% of sales.

[185]  Mr. Crosson testified that wages were relatively consistent with sales volume. He said that the handling of vehicles - arrivals, cleaning, storing, removal of parts etc - required direct labour. He examined the company’s wage records and concluded that over 70% of wages were countermen, yardmen and other personnel whose activities would vary with sales. Wages as a percentage of sales dropped steadily from 1993 to 1996, but remained relatively stable in the period after the expropriation albeit with small increases in 1997 and 1998. There was a consistent relationship of wages and sales except in those years where there was an unusual, and presumably unexpected, change in the normal pattern of sales. Accordingly, the board accepts Mr. Crosson’s conclusion that the majority of wages will vary with sales. The board also accepts his assessment that 70% of wages should be considered to be a direct expense and deducted in calculating the contribution margin.

[186]  There is a significant difference in the contribution margins or profit expressed as a percentage of sales used by the two experts. Mr. Symes uses 61% without wages and 38% with wages deducted based on the overall averages achieved in the fiscal years 1990 to 1996, being the years immediately prior to the taking. Mr. Crosson calculated the contribution margins, after deducting wages, for the 1997, 1998 and 1999 fiscal years to be 33%, 34% and 36% respectively.

[187]  The board noted that there are significant variations in the rate of gross profit, being sales less the cost of vehicle purchases, which has ranged from a high of 87.1% in 1994 to a low of 70.1% in 2001. The gross profit percentage is trending downward as evidenced by Mr. Symes’ calculations which show an overall average of 82.1% in the years 1990 to 1995 and 72.7% in the years 1996 to 2001. The board believes Mr. Symes use of a contribution margin based on the results of the 1990 to 1996 fiscal years may be optimistic given the decline in the gross profit percentage which occurred after those years. However the board is troubled by the 33% calculated by Mr. Crosson for the 1997 fiscal year which is low in relation to the historical experience and lower than the next succeeding two years. The board recognizes that the cost of sales in 1997 was unusually high at 27% of sales, and was the principal factor in producing the unusually low contribution margin. Nevertheless the board is concerned that the low margin may be partly attributable to costs associated with the expropriation and, as a matter of judgment will increase the contribution margin for that year to 35% which increases the unit contribution margin from $344 calculated by Mr. Crosson to $368.

[188]  The board has calculated the loss of income for the 12 months from the end of April 1997 to be $21,300 using the following criteria:

• a vehicle contribution margin of $368 for the first four months (in the 1997 fiscal year) and $448 for the next eight months (in the 1998 fiscal year) as calculated by Mr. Crosson;
• an annual turnover of 124 vehicles based on an inventory of 75 vehicles and a 1.65 turnover rate;
• rent and property taxes in the amounts used by both Mr. Symes and Mr. Crosson.

If the board had found that loss of profits flowing from an unlawful use were recoverable, it would have awarded 12 months losses from April 30, 1997 at $21,300.

8.  SUMMARY

[189]  The board has awarded the following compensation:

[190]  Since the advance payment of $922,000 to the claimant is more than the compensation awarded, pursuant to section 30(2) of the Act, the board certifies the difference of $112,000 as a debt due and payable by the claimant to the respondent. This amount may be reduced or set off against the costs owing to the claimant.

9. INTEREST

[191]  The board has awarded $810,000 which is less than the advance payment of $922,000. The claimant is not entitled to interest.

10.  COSTS

[192]  The compensation awarded is only 88% of the advance payment. As a result the board has discretion with respect to awarding the claimant all or part of its costs.

[193]  The claimant has had a very limited measure of success in this matter. However, after due consideration, the board is of the opinion that the claimant should not be denied costs. The legal issues involved in this matter were of sufficient complexity to merit a hearing and determination by the board and it would not have been unreasonable for the claimant to have anticipated greater success. The claimant has prepared and conducted its case in a reasonable and capable manner. The amended Form B which raised significant new issues was not filed by the respondent until October 2003, by which time the claimant would presumably have incurred significant costs.

[194]  Taking into account the considerations set out above, the board awards the claimant its actual legal, appraisal and other costs incurred for the purposes of asserting its claim until June 28, 1999 and after that date its costs under the Tariff of Costs Regulation, B.C. Reg. 189/99 (the Tariff), fixed at Scale 2.