November 25, 2003, E.C.B. No. 42/97/241

REASONS FOR DECISION

1.  INTRODUCTION

[1]  This claim is solely for a business loss arising from a partial expropriation of a property occupied by a lumber and building supply business. All other claims have settled.

[2]  The claimants together own and operate the business at 11016 Bridge Road in the City of Surrey. The claimant, Sam Sangha, is the owner of the subject property and the claimant, Can-Am Building Supply Ltd. ("Can-Am"), operates the business. Can-Am was incorporated in 1970 and Mr. Sangha is presently the sole shareholder, officer and director. Can-Am has operated the business on the subject property since 1972 and pays rent to Mr. Sangha pursuant to an oral lease.

[3]  On October 29, 1996 the respondent, the City of Surrey ("Surrey"), executed an Expropriation Notice pursuant to the Expropriation Act, R.S.B.C. 1996, c. 125 ("the Act"). The taking of 692 square metres of the original subject property was to widen Bridge Road as part of a larger project creating a new highway called the South Fraser Way adjacent to the former end of Bridge Road. An advance payment of $83,956 was accepted by Mr. Sangha for the market value of the land taken and other damages specified in the Notice of Advance Payment. Pursuant to a section 3 agreement between the parties any reasonable disturbance damages including business loss suffered by Can-Am were deemed to be suffered by the owner of the subject property, Mr. Sangha.

[4]  The claimants say that construction in the vicinity of the subject property, including the deposit of preloads of sand on the new section of the road interfered with Can-Am's business and that the claimants suffered a business loss. Toby Symes, an accountant and business valuator operating Symes Valuation Services Ltd., was retained by the claimants to review Can-Am's books and see whether there was a drop in sales during the relevant time frame. He compared the actual sales during the periods that he assumed were affected with the sales during the same months in prior years. On the assumption that the difference or "lost sales" were caused solely by the project he estimated Can-Am's business loss to be in the range of $52,000 to $104,000.

[5]  The respondent denies that the project caused any business loss. Surrey retained Richard Crosson, an accountant and business valuator with Blair Crosson Voyer, to provide expert evidence. Mr. Crosson acknowledged that Can-Am had a decline in sales in certain time frames when compared to sales in prior years. However, he reviewed the sales summaries and invoices in detail and tested different assumptions which led him to conclude that the project was not the main cause of these financial losses. Instead, Mr. Crosson showed that the claimant's decline in sales in a particular period coincided with a significant decline in building activity as evidenced by the reduction in the monthly construction values or dollar amounts recorded on Greater Vancouver Regional District's ("GVRD") Single Family Building Permits. Mr. Crosson concluded that the decline in building activity in the region was a more likely cause of the claimant's decline in sales than the project.

[6]  Thus the main issue for the board to decide is whether the decline in sales experienced by the claimants was due in whole or in part to the project or whether it was due to some other explanation such as a general drop in building activity.

[7]  Evidence was heard over several days in February and June 2003. Submissions from counsel were made in writing and the last of these was received on July 22, 2003.

2.  BACKGROUND

2.1  Can-Am's Business

[8]  Evidence about Can-Am's business was provided by Mr. Sangha, Mr. Symes and Mr. Crosson. Both business valuators were able to provide evidence from their review of the financial records including monthly sales, and with respect to Mr. Crosson, the sales summaries and the invoices.

[9]  Can-Am carried a range of building supply products, but its primary sales were of lumber and plywood. Mr. Sangha explained that he attempted to maintain customer loyalty through supplying good quality lumber rather than cutting his prices, although he kept an eye on the competition's prices. Most of Can-Am's business was derived by word of mouth and Mr. Sangha did not do much advertising. Can-Am had a number of competitors including Home Depot, Dick's Lumber & Building Supplies, Hollyburn Lumber Company, North Coast Forest Products and Revy Home Centres. According to Mr. Symes the main competitors are Home Depot and Dick's Lumber. Some of the competitors such as Dick's Lumber and North Coast are located about five miles from Can-Am, while Home Depot is closer. Some have been there for 15 years or so and some such as Hollyburn have closed.

[10]  Can-Am's monthly sales fell into two categories: sales on credit to small contractors who maintained an account with Can-Am and cash sales to individuals who paid for their purchases by cash or credit card. For the period 1994 through 2001 Mr. Crosson estimated that credit sales accounted for between 75% and 86% of annual sales. Cash sales accounted for the balance of the business during this period. Mr. Symes testified that this provision of credit by Can-Am was also a factor in customer loyalty, although it resulted in large accounts receivable. He also told us that Can-Am's average invoice was about $1,300, with approximately 1% of the invoices being over $10,000.

[11]  Mr. Sangha said that his credit customers came from a number of municipalities in the lower mainland including Burnaby, Surrey, Richmond, Delta, Vancouver and North Vancouver. He described most of his credit customers as small contractors who built two, three or four houses a year with the building materials from Can-Am being about $24,000 per house. This meant that a relatively small number of customers accounted for the majority of the sales. Mr. Crosson stated that for the period 1997 through 1999 the 10 largest customers accounted for 40% of Can-Am's sales, while 20 customers made 60% of the sales and finally 50 customers accounted for 80% of the sales. Mr. Sangha confirmed that larger sales are always on credit and thus these repeat customers that accounted for a considerable portion of Can-Am's business would be credit customers.

[12]  Can-Am provides delivery service for its customers and has two trucks, a five ton truck and a larger truck with a crane, to deliver lumber and building supplies. It also hires additional trucks when necessary. For customers ordering all the materials for a house, there was evidence that suggested between four and ten deliveries of material might be made. Reference was made to Mr. Sangha's evidence on discovery when he said that a credit customer might come in three times out of ten deliveries to inspect the building supplies offered by Can-Am. During the hearing Mr. Sangha testified that when a prospective customer phoned he was invited to attend at Can-Am's premises in order to fill out an application for credit and to inspect the lumber and other materials. He went on to say that for future orders the existing credit account customer might return to Can-Am's premises and inspect the supplies when he placed an order or he might telephone his order and request delivery. We note that a relatively small number of the credit customers accounted for a significant portion of Can-Am's sales. Although the claimants tried to minimize the telephone orders by credit customers, after considering all of Mr. Sangha's evidence we accept that a sizeable number of the total credit account sales were placed by telephone, followed by delivery by Can-Am.

[13]  Monthly sales showed a high degree of volatility, both between different months in the same year and in the same months in different years. For example in 1996 the highest monthly sales was $279,620 (July) and the lowest was $19,723 (December). This large variation does not appear to be a predictable seasonal variation because July sales in 1994 and 2000 were amongst the lowest for those years being $76,201 and $49,067 respectively, and sales in December 1995 were $260,380, which was the highest monthly total in that year. This volatility may be partly explained by the fact that we were told that a number of sales to a credit customer over a period of months were sometimes accumulated and recorded as a single sale under a single date.

[14]  Can-Am's fiscal year ends on July 31. Annual sales on both a calendar and a fiscal year basis, together with year to year changes, were as follows:

There is a reasonable degree of stability in these annual sales, the highest year over year changes being a 24% increase in calendar year sales in 1997 and a 21% increase in fiscal year sales in 2000.

2.2  Chronology of the Project

[15]  We heard evidence about the project from Brian Snow, the civil engineer from Web Engineering Ltd., who was the project manager. There were also a large number of photographs and various inspection reports from the project that were put into evidence. Mr. Coates, counsel for the claimants, had prepared a detailed chronology based on information in the different types of reports and Mr. Snow had prepared a more general summary of the different stages in the project. Mr. Sangha was asked to comment on various aspects of the chronologies, but not surprisingly, his evidence was quite general. His observations about the effect of the project on Can-Am's business will be dealt with below.

[16]  Can-Am's property is on the east side of Bridge Road some 91 metres (300) feet north of the intersection of Old Yale Road and Bridge Road. Beyond Can-Am the elevated track for Skytrain crosses Bridge Road as well as the Southern Railway. Across Bridge Road was another business, West Coast Cedar. Before the project the south end of Bridge Road ended at Old Yale Road. Part of the project was to create a new highway, South Fraser Way, to the south of Old Yale Road. Bridge Road was widened and realigned to become in effect an extension of South Fraser Way. The new part of Bridge Road was on the east side of the existing Bridge Road, adjacent to Can-Am's property. This new section was built partly on the former right of way on the east side of the existing Bridge Road and partly on the takings from Can-Am and from adjacent property owners. In other words Bridge Road was wider and closer to Can-Am's main building after the project than it was before.

[17]  Mr. Sangha testified that Can-Am's customers came south on Scott Road to Old Yale Road where they turned right (west) and after proceeding a few blocks on Old Yale Road turned right again (north) on Bridge Road for 91 metres (300 feet) to Can-Am's driveway. Very few came south on Bridge Road and thus the significant access for Can-Am was Bridge Road between Old Yale Road and Can-Am's driveway. Can-Am has a large main building and various sheds and piles of lumber in the yard. There is a 9.1 metre (30 foot) sign near the back of their property and a 4.6 metre (15 foot) sign near the front of their property. This 4.6 metre sign had to be relocated closer to the main building as a result of the taking. The corner property at Old Yale Road and Bridge Road was vacant with some shrubs and trees. This meant that for a vehicle driving on Old Yale Road and approaching Bridge Road, a driver looking to the right could glimpse Can-Am's signs and buildings through the vegetation.

[18]  Since the ground in this vicinity contained a lot of peat it was necessary to preload the new area that was to be paved as part of the new Bridge Road with sand. A load of sand sitting on the ground for a number of months would compress the soil so that when paving did occur, any further settlement would be minimal.

[19]  During the hearing there were objections made about the accuracy of the two chronologies and questions were put to Mr. Snow by both counsel. In fact, the two chronologies were relatively similar and having reviewed the inspection reports and heard the evidence of Mr. Snow both in chief and in cross-examination, we accept the following account of the project.

[20]  The first step was clearing the former right of way and the newly acquired properties in the vicinity of the subject property of vegetation and debris. The next step was to construct a haul road on the east side of Bridge Road between the ditch and the new property line so that trucks could bring in the sand to preload the area for the new part of Bridge Road with sand. Before the preload was deposited drainage works for the new road including culverts were installed. The preload of sand was placed between the haul road and Bridge Road, so that it was directly adjacent to the paved portion of Bridge Road. It was applied in three stages of about one metre each, but with settlement the final third stage was applied so that it was 2.4 metres above the final road level. Since the final road level was between 0.3 and 0.6 metres above the original ground level the final preload of sand was about 2.9 metres above the existing ground. The driveway into Can-Am was maintained via a gap in the preload wall of sand framed by concrete blocks 1.5 metres high. Although trucks delivered the sand for the preload using the haul road (rather than Bridge Road), on the days that each preload stage was applied, the traffic on Bridge Road was single lane in alternating directions with a flag person. Otherwise, for most if not all of the time, both lanes of the existing Bridge Road remained open. The three stages of preload were left in place for about six months and then were removed. During this time there was a 2.9 metre wall of sand adjacent to Bridge Road on the east side running from the intersection of Old Yale Road north to the railway tracks beyond Can-Am.

[21]  After the preload was removed, a gravel road base was constructed for the new portion of Bridge Road and then was paved with a base level and a final overlay. The existing Bridge Road was fully open through most of this time, though there were periods of single lane traffic in alternating directions during specific construction activities.

[22]  The project in the vicinity of the subject property commenced in mid June 1997, and was completed by early April 1999. Some of the inspection reports were missing. Mr. Snow listed about 20 more days on which work on the project affected the Can-Am site than were on Mr. Coates' chronology. There were no inspection reports for these extra dates but we accept his evidence that this work occurred. Mr. Coates suggested that there should have been more than the one day recorded of March 23, 1998 for placement of stage 3 preload, since placement of stage 1 occurred over five days and stage 2 occurred over eight days. This question was not put to the engineer, Mr. Snow, who listed this work for placement of stage 3 preload as taking one day. We do not know what was involved in placing the various stages of preload and what other activities may have been done at the same time. In the circumstances we accept two further days of construction activity in March 1998 for the placement of stage 3 preload. Thus, the key dates affecting the 91 metres (300 feet) of Bridge Road between Old Yale Road and the Can-Am site were as follows:

2.3  Dollar value of GVRD single family residential building permits

[23]  Mr Crosson provided details from Statistics Canada of the dollar values recorded on GVRD single family residential building permits for the period January 1993 to December 2001. They showed the following annual totals and percentage year by year changes:

3.  BUSINESS LOSS

3.1  Claimants' position

[24]  Can-Am claims that its business was affected by both the traffic disruption during construction activity and the reduced visibility of its premises due to the height of the preload sand. Mr Sangha said that the preload, particularly the third preload, prevented a person sitting in a vehicle from seeing the company premises and sign. He measured the distance between the pavement and a driver's eye level in a number of trucks and reported the following: in a large semi- trailer truck eye-level was 2.3 metres (90 inches); in a pickup truck it was 2.0 metres (78 inches); and in a smaller panel truck it was 1.8 metres (70 inches). He also reported receiving some telephone calls when customers had questioned whether he was open since the sand and construction activity had led them to think otherwise.

[25]  Mr. Symes, the business valuator, was retained by Can-Am to see whether Can-Am had suffered a business loss as a result of the project. Based on early information from the respondent as to the general chronology of the project he chose two periods during which some construction activity occurred as possible affected periods:

June 1, 1997 - February 28, 1998 and July 1, 1998 - April 30, 1999 (19 months)

Because Can-Am's sales did not return to pretaking levels until 2000 Mr. Symes chose an alternative affected period, assuming that the taking continued to affect business for some months after construction had completed:

June 1, 1997 - July 31, 2000 (38 months)

[26]  Mr. Symes' methodology was to calculate the sales lost during these two alternative affected periods by comparing the actual sales of that period with the sales of the same period in the year preceding the project, (year ending May 31, 1997) and with the average of the sales of the same period in the two years preceding the project (average of year ending May 31, 1996 and May 31, 1997). Based on the representation made to him by Can-Am that there were no factors other than the project which could have caused a decline in sales during the affected period, he assumed that any reduction of sales from his chosen yardsticks were caused by the project. Mr. Symes estimated the profit on those lost sales by applying a contribution margin of 12%, which he calculated by an analysis of the actual recorded operating results in Can-Am's 1992 to 1996 fiscal years. He excluded the operating results from 1997 although the project would have had a minimal impact because it commenced less than two months before the end of that year. However the 1997 gross margin is so low compared with any other year that in our opinion it is reasonable to exclude 1997 from the calculation. From his estimate of the lost sales and the contribution margin, Mr. Symes estimated Can-Am's business loss in the range of $52,000 to $104,000. This range in loss was attributable to the two alternative estimates of the length of the affected period, and whether the yardstick used to calculate lost sales was the sales of the year prior to the project, or the average of the two prior years. Not surprisingly, the lower range of loss was for the assumed affected periods totalling 19 months while the higher loss was on the assumption that the affected period was 38 months.

3.2  Respondent's position

[27]  At the outset of Mr. Crosson's evidence there was a lengthy submission by the claimants attacking his impartiality. After listening to cross-examination on this issue and reviewing both Mr. Crosson's report and the cases to which we were referred the board ruled that it found no grounds to support exclusion of his report.

[28]  Mr. Crosson had the advantage of a much more detailed chronology of the project when he prepared his report than was available to Mr. Symes. Mr. Snow had provided the total number of days of construction activity during different periods of the construction between June 19, 1997 and April 7, 1999. Mr. Crosson provided a table of these figures as follows:

[29]  Mr. Crosson did not dispute Mr. Symes' finding that Can-Am's total sales declined during some of the time when construction activity for the project had occurred in comparison to sales in prior years. However, he did question Mr. Symes' assumption that there were no other factors to explain this decline but the project.

[30]  Mr. Crosson started with the hypothesis that if construction activity and lack of visibility did affect Can-Am's sales, he would expect cash sales to be more significantly affected than credit sales. This was because his analysis of the sales summaries and invoices showed that a relatively few number of credit customers accounted for a significant proportion of the sales and that they were repeat customers. More of the cash customers were one time or occasional purchasers. He reasoned that repeat customers were less likely to be deterred by the construction activity and the reduced visibility than a non-repeat customer. In addition, he assumed that a significant proportion of the orders by repeat credit customers were made by telephone and were delivered to the customer's building site by Can-Am. Mr. Crosson divided Can-Am's sales into cash sales and credit sales for the period August 1993 to December 2001 and the calendar year cash sales were as follows:

[31]  Mr. Crosson examined cash sales in three different ways to test his hypothesis:

i To see whether the disruption of construction activity caused a decline in cash sales he isolated the cash sales in those three months that showed the highest number of days of construction in the vicinity of Can-Am. These were December, 1997; January 1998 and October 1998. He compared the cash sales for those three months with the cash sales for the same three months in the prior year and in the average of the two prior years. (Mr. Crosson used the yardstick of prior year rather than the pre-project year for his comparison with actual sales.) He found that cash sales in two out of three of these affected months were higher than the same months in prior years.

ii To see whether the reduced visibility of Can-Am's site caused a decline in cash sales he isolated the cash sales during those months from February through October, 1998 when stage 2 or stage 3 preload were in place. He compared the cash sales during this nine month period for the same period in the prior year and in the average of the two prior years. He found that the cash sales were higher than the same months in prior years.

iii To see whether there was a downward sales trend beginning with the construction activity in June 1997 he graphed the cash sales from June 1994 through December 2001. Because there was a dramatic variation in monthly cash sales, he graphed the moving average of the previous twelve months cash sales. This graph showed that the average monthly cash sales fell steadily from more than $30,000 in April 1995 to approximately $15,000 in February 1997, were then generally flat at that level until April 1998 when they began to increase peaking at just under $30,000 in June 2000. In other words the cash sales began to fall two years before work on the project started.

These analyses showed that Can-Am's cash sales remained stable or increased during the project. Mr. Crosson stated that they did not support a conclusion that cash sales were negatively impacted by either construction activity or reduced visibility or the project in general.

[32]  Mr. Crosson repeated the comparisons for Can-Am's total sales. In a similar fashion to the cash sales the total sales for December 1997, January 1998 and October 1998 were higher than for all those months in the prior year and for two of those months in the average of the two prior years. However, the total sales for the period February through October 1998 were significantly lower than for the same period in the prior year or in the average of the two prior years. When the overall trend was examined, as indicated above, Mr. Crosson found that Can-Am's total sales declined in 1998.

[33]  Mr. Crosson's analyses satisfied him that any reduction in sales during the project (or during portions of the project) was attributable to credit sales to contractors, rather than to cash sales. However, he made the assumption that it was likely that credit sales to small contractors would be affected by the residential real estate market as measured by construction values on residential building permits. He compared the reduction in construction values in the period of reduced visibility from February 1998 through October 1998 when the preload was in place with the same period in the prior year and in the average of the two prior years. He then compared the decline in Can-Am's total sales with the decline in construction values on building permits under both yardsticks. He found the following:

Mr. Crosson concluded that the reduction in sales sustained by Can-Am during the period of reduced visibility because of the preload could be explained by the overall decline in building activity as evidenced by the GVRD statistics.

3.3  Admission of Rebuttal Evidence

[34]  In rebuttal to Mr. Crosson's opinion as a business valuator that the more likely cause of the decline in sales was the decline in construction activity the claimants called a mathematician, Edward Mansfield of Grant Thornton as an expert in statistical analyses. Dr. Mansfield prepared regression analyses comparing the annual calendar year and fiscal year sales of Can-Am with the GRVD statistics for the dollar values listed on building permits. The respondent objected to this expert evidence being admitted because it had received no notice of it. It pointed out that Mr. Crosson's report had been provided to the claimants on or about January 4, 2003, some six weeks prior to the hearing commencing on February 17, 2003 (although it had originally been scheduled to proceed earlier). There had also been a three month delay between Mr. Crosson's examination in chief on February 21, 2003 and his cross-examination, which occurred on June 9, 2003. It was not until Mr. Crosson's cross-examination had been completed on June 9, 2003 and the respondent's case had closed that the claimants provided Dr. Mansfield's report dated June 6, 2003 to the respondent and sought to call Dr. Mansfield in rebuttal. Mr. Capuccinello submitted that without any notice he had no opportunity to prepare to cross-examine a mathematician. The board heard Dr. Mansfield's evidence and reserved its ruling on admissibility.

[35]  We were provided with case law by counsel as to the admissibility of this evidence. Mr. Coates, counsel for the claimants, referred us to Pedersen v. Degelder (1985), 62 B.C.L.R. 253 (S.C.); Kroll v. Eli Lilly Canada (1995), 5 B.C.L.R. (3d) 7 (S.C.); and Kelley v. Kelley (1995), 20 B.C.L.R. (3d) 232 (S.C.). Mr. Capuccinello, counsel for Surrey, referred us to McPhee v. British Columbia (Ministry of Transportation and Highways) 2003 BCSC 781.

[36]  We have reviewed these authorities and note that some of them turn on the issue of Rule 40A of the Rules of Court replacing the provisions in the Evidence Act, R.S.B.C. 1996, c. 124 with respect to notice requirements for expert evidence. We note that the board, unlike the Supreme Court, continues to operate under the Evidence Act and is not governed by Rule 40A. Therefore the discussions on this narrow issue of applicability under Rule 40A are of no relevance to us, although the cases do set out the general principles for rebuttal evidence. Proper rebuttal evidence does not necessarily need to comply with the normal notice requirements for expert evidence. We note further that the board has discretion to abridge any time limits, including those set out in the Evidence Act.

[37]  In Kelley Williamson J. commented on counsel's submission that consideration should be given to the policy reasons for requiring notice of expert evidence which were to prevent parties being taken by surprise and to allow them to make proper preparation. Counsel wanted the judge to order that he be provided with the gist of the rebuttal evidence in advance. At p. 235 Williamson J replied that "where possible counsel should share that sort of information." Nonetheless, he refused to order that this be done. Similarly Saunders J. in Kroll said at p. 9 that "While it will often be desirable that notice of such evidence be provided to a party prior to a commencement of trial … such notice is not required." However, we note that in both of these cases the order to admit rebuttal evidence was being sought in an earlier stage of the hearing and the person from whom rebuttal evidence was sought was already an expert witness at the hearing. The party seeking to adduce this evidence merely wanted their expert to go beyond his report and comment on and rebut the opinion of a similarly qualified expert on the other side. Therefore any problems arising from being taken by surprise were of a lesser degree than in the present case.

[38]  In McPhee Stromberg-Stein J. refused to admit the bulk of the additional expert evidence sought to be entered by the plaintiffs following the close of the both parties' cases. The expert opinions sought to be entered as rebuttal were to do with issues on which the plaintiff had an onus and Stromberg-Stein J. said that they ought to have been part of the plaintiff's case. Further she noted that the two experts had been retained three to six months in advance of the trial. The plaintiff had had the defendant's expert opinion 60 days before the start of the trial and that expert in his testimony had not gone beyond his report in any significant way. Finally, Stromberg-Stein J. commented on the fact that no legal authority had been provided in which admissibility of rebuttal evidence had been sought at this stage of a trial, after both parties had closed their case.

[39]  In this case there is some similarity to the facts in McPhee. Although Dr. Mansfield's report is proper rebuttal evidence in answer to Mr. Crosson's expert opinion, the issue of whether any drop in sales was caused by the construction activity or the reduced visibility is one on which the claimants have to satisfy us on the balance of probabilities. Mr. Crosson's report was provided some considerable time before June 9, 2003 when Dr. Mansfield's report was sought to be admitted and Mr. Crosson's testimony did not go beyond his report to any significant degree. In addition, the claimants sought to adduce the rebuttal evidence after both sides had closed their cases. None of the other cases to which we were referred, and which admitted the rebuttal evidence, dealt with rebuttal evidence after both sides had closed their case.

[40]  On the other hand, Mr. Crosson's report was served late with respect to the original scheduled hearing date (Mr. Coates having agreed to this late service). Further, Mr. Coates had limited ability to seek expert evidence from a different type of expert to rebut Mr. Crosson's report prior to the February hearing as he was seriously ill during most of this time. In the week following the February hearing Mr. Coates had major surgery with a lengthy recovery and therefore continued to be hindered in obtaining expert rebuttal evidence. Dr. Mansfield's report was dated June 6, 2003, which was the Friday before the evidence was concluded on June 9, 2003.

[41]  McPhee provides some authority for excluding the report. The complete lack of notice meant that the respondent faced some prejudice in its ability to cross-examine. At a minimum it would have been good practice in these proceedings for Mr. Coates to have advised Surrey prior to June 9, 2003 and the closing of the respondent's case that he was seeking rebuttal evidence as to the correlation between Can-Am's sales and construction values from a mathematician. However, after considering all the circumstances, we have decided to admit Dr. Mansfield's expert report. The potential prejudice faced by the respondent is accommodated by other evidence that tests the scope of Dr. Mansfield's opinion. If we are wrong in admitting the report the fact remains that given the other evidence we have accorded it little weight.

[42]  Dr. Mansfield found that the correlation between Can-Am annual sales and annual building permit data over the period 1994 through 2001 was 0.57 or 0.61, depending on whether the analysis was done on fiscal year end or calendar year end. He stated that this low correlation indicated that the two sets of data were not strongly correlated. A regression analysis produced an adjusted R-squared value of 0.22 and 0.27, which was low enough he said to imply little or no relationship between the two data sets.

3.4  Analysis

[43]  We accept Mr. Sangha's evidence that the project caused some inconvenience. There is no dispute that Can-Am's sales declined during certain periods between June 1997 and April 1999. Mr. Symes and Mr. Crosson agreed on the general methodology of estimating "lost sales" and resulting loss in profits by looking at sales in prior years, although they used slightly different yardsticks for their comparison. The issue is how much of the business loss from these "lost sales" is attributable to the construction activity or the reduced visibility during the project.

3.4.1  Construction activity

[44]  The claimants say that one of the causes of reduced sales and resulting business loss was construction activity in the vicinity of Can-Am's site. We largely agree with Mr. Crosson's listing of the number of days of construction activity in different periods of the project. The chronology for the project that we have accepted differs by only one or two days in either direction. We agree that there were relatively few days of actual construction activity during the almost two year project.

[45]  The months we have accepted as having the most road construction activity in descending order were October 1998 (19 days), December 1997 (16 days), January 1998 (6 days), June 1997 (6 days) and November 1998 (5 days). The impact of the road construction on total sales using Mr. Crosson's methodology was as follows:

Total sales for these five months with the most road construction activity were generally much higher than in prior years. The same was true for cash sales. Much of this construction activity occurred on the haul road, on the prospective new portion of Bridge Road, and north of the Can-Am driveway and not on the existing Bridge Road between Old Yale Road and Can-Am driveway. Only one of these five months (October 1998) was one in which stage 2 and 3 preload were present. There were 10 months during the total project period from June 1997 through April 1999 when there was no construction activity in the vicinity of Can-Am and other months had only one or two days of construction. We note that Mr. Sangha told us that access by customers and deliveries to the site were never cut off. While there is some problem with volatility in the monthly sales we are satisfied from the bulk of the evidence that construction activity near Can-Am in itself did not cause a loss in sales.

3.4.2  Reduced visibility

[46]  The claimants also say that one of the reasons for a decline in sales and loss in profits was the reduced visibility of Can-Am's premises as a result of the preload and the perception that the road and/or the business was closed. The second preload was in place near the beginning of February 1998 and the third preload by approximately April 1, 1998. Both were removed by approximately October 31, 1998. Thus for the period February 1 - October 31, 1998 there was a 2 to 3 metre high wall of sand in front of Can-Am's business, running from Old Yale Road to north of Can-Am's driveway. Mr. Sangha told us that the eye levels of truck drivers were between 1.8 and 2.3 metres above ground level depending on how big the truck was. While glimpses of the Can-Am site and the 4.6 and 9.1 metre signs could be seen off to the right by a vehicle driving along Old Yale Road before it got to the intersection with Bridge Road, once the vehicle was at the intersection of Old Yale Road and the original Bridge Road there was a wall of sand to the right of the vehicle that was 2 to 3 metres high and some 20 metres wide at that point. If the driver turned right and drove up Bridge Road he would have a difficult time seeing over the 2 to 3 metre high wall of sand that ran parallel to and alongside Bridge Road, and it was not until he had gone 91 metres (300 feet) along Bridge Road that he would come to the breach in the wall of sand for Can-Am's driveway and be able to see Can-Am's business premises. While Can-Am's 4.6 metre (15 foot) sign and 9.1 metre (30 foot) sign were taller than the preload, the relative location of the driver and the signs did not necessarily mean that the driver could see them and be assisted by them at the relevant place. Can-Am requested an additional sign for its business to assist customers coming to its premises when the preload wall of sand was in place. Can-Am had installed its own home-made sign on a railway bridge but it had been removed (likely by the railway). In answer to Can-Am's request Surrey installed a sign on the west side of Bridge Road opposite Can-Am's driveway.

[47]  Mr. Sangha testified that he remembered receiving some telephone calls enquiring whether Can-Am was open from customers who had encountered the construction site. We were referred to some discovery evidence in which Mr. Sangha said that these calls would have been from cash customers. However, Mr. Sangha also recalled one regular credit customer who telephoned after seeing a Can-Am truck near the Home Depot site one Sunday and enquired whether Can-Am continued to remain open during the construction. Other than this incident, Mr. Sangha was unable to recall any particular conversation or any customer's name.

[48]  After reviewing all of the documents and testimony relating to reduced visibility we conclude that overall, the evidence for loss of potential customers is relatively weak. However, we do accept that it is probable that some potential customers who approached Can-Am's site and arrived at the corner of Old Yale Road and Bridge Road between February and October, 1998 and encountered the wall of sand developed the perception that the road and/or the business was not open and turned around.

3.4.3  Causes of Can-Am's loss of sales and profits

[49]  Mr. Symes assumed that all of the lost profits for his selected affected periods were as a result of the project. As indicated above Mr. Crosson reviewed the sales summaries and the invoices to see whether they were consistent with this explanation.

[50]  Mr. Crosson showed that cash sales during the period when stage 2 and 3 preload were in place between February and October 1998 were considerably higher than the same period in the prior year or the average of the two prior years. The cash sales, in comparison to the credit sales, have more of the non-repeat customers and less of the telephone orders followed by Can-Am delivery. Mr. Sangha said that the telephone enquiries would have been from cash customers, although he described at least one from a former credit customer. We agree with Mr. Crosson that it is reasonable to expect that the cash sales with a larger proportion of non-repeat customers and local homeowners would be more likely to show an effect from the reduced visibility and the wall of sand. The fact that the cash sales did not decline, and in fact, significantly increased during this period, supports the likelihood of other factors than the project affecting sales.

[51]  Mr. Crosson looked at particular credit customers and their purchases during the time of the project. He told us that in July 1996, which Mr. Symes used as the yardstick for measuring losses in every subsequent July, $175,000 of the total credit sales of $269,000 were made by just five customers. In July 2000, some 20 months after the preload had been removed and some 15 months after the widened Bridge Road had opened, there were only $20,000 in credit sales and the five largest customers accounted for just $8,000. (July 2000 accounted for the largest monthly loss of about $214,000, in one of Mr. Symes' estimations, although his model said that the project ceased to have an effect the very next month, in August 2000.) Mr. Crosson also told us that in fiscal 1997, Can-Am's largest customer, Marine Roofing, made sales of $112,000, or about 10% of the total credit sales. In fiscal 1999, which would include three of the months during which the preload was in place, Marine Roofing only made purchases totalling $30,000. Marine Roofing made purchases in almost every month throughout the period in which the project was constructed but it purchased less than it had in fiscal 1997. This evidence underscores the effect of Can-Am's relatively small number of credit customers on its overall sales. As noted above Mr. Crosson had calculated that only 10 customers accounted for 40% of Can-Am's sales; while 20 customers accounted for 60%.

[52]  In seeking to explain why Can-Am's credit sales dropped during February through October, 1998 when the preload was in place, Mr. Crosson found a decline in construction values on GVRD building permits during this period that was even greater at between 32% and 36% than the decline in total sales which was between 23% and 28%. As a result he said that the decline in construction values was more than enough to explain the decline in sales and any business loss. Dr. Mansfield, the mathematician, stated that his two statistical analyses showed no relationship between Can-Am's yearly sales and yearly construction values on building permits. Mr. Symes, in rebuttal, confirmed that he would have only attributed a decline in sales to a decline in construction values if the two sets of data had showed a statistically acceptable fit. The claimants said that as a result Mr. Crosson's conclusion was flawed.

[53]  In response to Dr. Mansfield's findings we make a number of points. First we note that Mr. Sangha acknowledged the self evident fact that any retail business such as Can-Am works within a market. Second, Mr. Crosson testified in chief as well as in cross that he would not expect a 100% correlation between construction values and Can-Am's sales. There would be other factors affecting Can-Am's sales, and Mr. Crosson commented in particular on the disproportionate effect on sales by a small number of credit customers, some of whom might not be representative. We note that Can-Am's sales increases with accompanying low gross margins in 1997 and 2000 suggest that changes in pricing and variations in the gross margin could also affect sales. Third, in answer to a question by one of the panel numbers during the hearing Mr. Crosson said that he would expect a lag between construction values and sales since the application for a building permit on which the construction values are recorded is at the beginning of a project and the sales of materials to actually construct the project would usually be spread out over a number of subsequent months. We compared Can-Am's trailing annual credit sales with the trailing annual construction values on GVRD building permits for each of the months between January 31, 1996 and December 31, 2000. This is the same technique used by Mr Crosson to determine a trend in cash sales and it minimizes the volatility found in Can-Am's monthly sales. The resulting graph attached below as Appendix 1 shows a readily discernible similarity between the Can-Am credit sales and the construction values on the building permits after allowing for the delay between issuing of the permit and the purchase of materials for various stages of the construction.

[54]  The trailing annual construction values on the building permits in the GVRD declined steadily during the period June 1997 to March 1998. The rate of decline increased in April 1998 and continued at a higher rate until July 1998 when it began to stabilize, finally reaching bottom in March 1999. Can-Am's trailing annual credit sales remained high relative to their historical levels during the period June 1997 to January 1998, being the first seven months of the project, before stage 2 and 3 of the preload were in place. Can-Am's credit sales then declined steadily from January 1998 until May 1999 when they began rising. The graph shows that both Can-Am's trailing annual credit sales and the GVRD construction values declined at an approximately similar rate during 1998, with Can-Am's decline in credit sales occurring some two to five months behind the construction values on the building permits. The construction values began to rise slowly in March 1999 while Can-Am's credit sales rose at a faster rate beginning in May 1999.

[55]  It is true that the graph shows Can-Am had unusually high credit sales in 1997. However, these high sales may be a reflection of the extremely low gross margin in that year (6.35% compared to 22.11% in 1996 and 21.46% in 1998). Similarly the somewhat higher credit sales in 2000 are also associated with a lower gross margin (12.71% compared to 26.03% in 1999 and 26.44% in 2001). These two periods when the credit sales are not tracking the construction values in the same manner may be because of low prices suggested by the unusually low gross margins at those times.

[56]  In any event, we are satisfied that Can-Am's credit sales are affected by the construction values on GVRD building permits. Construction values on building permits for single family residences throughout Vancouver declined significantly during the time of the project. We acknowledge that there is not an exact correlation between construction values and Can-Am's credit sales for the reasons listed above but nonetheless the construction values for single family residences are one of the main indicators of the market in which Can-Am's credit sales occur. Although credit sales declined more than total sales, we agree with Mr. Crosson that the general decline in construction of single family residences is sufficient to account for most, if not all, of the decline in sales experienced by Can-Am during this period. The observations about Marine Roof's decline in sales and the decline in sales by the top 5 customers are consistent with this conclusion. Surrey is not responsible for the general decline in construction of single family residences.

[57]  We note that Can-Am's trailing cash sales did not exhibit the same pattern as they showed a marked decline beginning in January 1996, some eighteen months earlier than the decline in construction values (and two years in advance of the decline in credit sales). The cash sales were stable throughout most of 1997 and the early phases of the project and rose during 1998 and 1999, when the preload was in place and the project was completed. The fact that cash sales were increasing significantly through this period is inconsistent with the project being the general reason for a significant decline in sales.

[58]  However, we have accepted that there were some customers who were deterred from attending at Can-Am during the time the preload was in place. While the general decline in construction of single family residences in Greater Vancouver was enough to account for most, if not all, of the decline in Can-Am's sales, Can-Am is entitled to nominal damages for the loss of some potential customers.

3.4.4  Length of the affected period

[59]  Mr. Symes's two alternative affected periods of 19 months (in two separate chunks between June 1997 and April 1999) and 38 months (between June 1997 and July 2000) were based on preliminary information from Surrey that turned out to be too general. The only reason given by Mr. Symes for his longer affected period was that Can-Am sales did not reach pre-taking levels until the fiscal year ending July 2001. In argument, Mr. Coates, on behalf of the claimants, appeared to concede that the latest date for any effect of the project was the date for the opening of the widened Bridge Road in early April 1999. We agree that we were not provided with any evidence to support any effect of the project following April 1999.

[60]  Mr. Capuccinello submitted that the evidence did not support any effect during the early stages of the project before the second preload was in place in February 1998. Can-Am's total sales between June 1997 and January 1998, prior to the stage 2 preload, were about the same as those in prior years. They were slightly higher than the prior year, and slightly lower than the average of the two prior years. Three of the eight months during this period were ones in which we have found the greatest number of days of road construction activity. However, we have already concluded that the evidence does not support road construction activity on its own having an impact on Can-Am's sales. There was no evidence that indicated customers were deterred during this particular phase. The onus is on the claimants to prove any business loss. We conclude that the evidence we were given does not support any loss in sales during the early stage of the project between June 1997 and January 1998.

[61]  This leaves us with the period between February and October 1998 when stage 2 and stage 3 preloads were in place and the period between November 1998 and early April 1999 when the new road was paved. We have found that there was a decline in credit sales throughout both these periods, although there was a steady increase in cash sales. The decline in credit sales followed a few months behind a similar decline in construction values on building permits for single family residences in the GVRD. We have accepted that there were some customers deterred by the wall of sand in front of the premises during the period February through October 1998. Between November 1998 and early April 1999 the new portion of Bridge Road was paved on eleven scattered days during these six months. As indicated above we have previously concluded that the evidence does not support road construction activity on its own having an impact on Can-Am's sales. The widened Bridge Road was opened on April 7, 1999. We find that the primary time frame in which the project may have affected Can-Am's sales is while the preload was in place between February and October 1998. There is less evidence of possible deterrence between November 1998 and April 7, 1999.

3.5  Conclusion of Loss

[62]  Using Mr. Symes' methodology with his yardstick of pre-project sales for comparison, we calculate the "lost profits" for the period February through October 1998 when the preload was in place to be between $31,000 and $49,000 for a midpoint of $40,000. Having concluded that there is no evidence to support a loss of sales to February 1998, and thus applying Mr. Crosson's methodology with his yardstick of prior year sales for comparison, we calculate the "lost profits" for the period to be between $16,000 and $33,000 for a midpoint of $25,000. The large variations in these calculations of "lost profits" are due to the volatility in the monthly sales and the high sales which may be associated with low prices and attendant low gross margins in fiscal 1997.

[63]  The onus is on the claimants not only to estimate an alleged loss but to establish that it is directly attributable to the taking or resulting from the project. After reviewing all the evidence we have concluded that during the relevant time frame there was a significant decline in construction of single family residences throughout greater Vancouver that was sufficient to account for most, if not all, of the decline in Can-Am's sales and alleged business loss. We have rejected the claimants' contention that the only reason for lost sales was the project. Nonetheless we have accepted that some potential customers were deterred by the preload of sand and Can-Am is entitled to nominal damages for the loss of these prospective customers. The claimants were not able to point to any particular customer that was lost. The fact that cash sales during this period were increasing undermines the general deterrent effect of the project. In all the circumstances and doing the best we can to attribute decline in total sales between the project and the decline in construction of single family residences, we conclude the nominal damages for business loss as a result of the project to be $5,000. Pursuant to the section 3 agreement an award in this amount is made to Sam Sangha.

4.  INTEREST

[64]  We have awarded the claimants a total of $5,000 for business losses. This is in addition to the advance payment of $83,956 that was paid in 1996, which the claimants accepted in settlement of the claim for the land taken and other expenses. Under section 46(1)(b) of the Act, we consider that it is reasonable that interest is payable on $5,000 from the approximate midpoint of the business losses, July 1, 1998, until paid. Interest is to be calculated annually at the rates specified in section 46(2) and (3).

[65]  Section 46(4) provides:

If the amount of the payment under section 20(1) or (12) or otherwise is less than 90% of the compensation awarded, excluding interest and business loss, the board must order the expropriating authority to pay additional interest, at an annual rate of 5%, on the amount of the difference, calculated from the date that the payment is made to the date of the determination of compensation.

Under section 46(4) additional interest is payable if the advance payment under section 20(1) or (12) is less than 90% of the compensation awarded, excluding interest and business loss. In this case the compensation awarded is $5,000. As in Chivers v British Columbia (Minister of Transportation) unreported August 12, 2003, ECB # 12/00/240, there are two problems with the applicability of section 46(4) in this case. First, the compensation awarded of $5,000 is for a business loss and section 46(4) purports to exclude business losses. However, in Sequoia Springs West Development Corp. v. British Columbia (Minister of Transportation and Highways) (2000), 71 L.C.R. 153 this board found that business losses excluded under section 45(4) should be construed restrictively to mean business losses following relocation of a business under section 34(3). In our opinion, the business losses that are excluded under section 46(4) should be the same ones as excluded under section 45(4). See Pay Less Gas Co. (1972) Ltd. v. British Columbia (Minister of Transportation and Highways) (2002), 77 LCR 171 (B.C.E.C.B.). The award of $5,000 in this case is not for a business loss that should be excluded under section 34(3).

[66]  Second, it is not clear under the formula set out in the section that additional interest is to be paid. Ninety percent of the compensation awarded of $5,000 is $4,500. The advance payment did not form part of the compensation awarded as it was accepted by the claimants in settlement of the claim for market value of land that were taken. The advance payment of $83,956 is not less than $4,500. Construed strictly no additional interest is payable under section 46(4).

[67]  However, the Act as a whole is written to encourage settlement. The claimants should not be penalized in meeting the required percentage under section 46(4) as a result of settling part of the claim. In some cases the board has been asked to make an award which includes the amount for which a partial settlement was reached. In other cases we have not been told the amount of the partial settlement. We seek to rationalize this situation in a way which does justice to the parties and accords with the underlying purpose of these provisions. Therefore in this instance if the amount for which the parties have partially settled a claim is not expressly made part of the amount awarded, then the amount of the advance payment related to the settlement should also be excluded. See the discussion on cost entitlement in Payless. This means that the advance payment for business losses was nil and the calculation in section 46(4) results in additional interest being awarded from December 13, 1996 until the date of this decision. This board in Richland Farms Ltd. v. British Columbia (Ministry of Transportation and Highways) (1991), 46 L.C.R. 66 established the basis upon which an award for additional interest is to be made. First, while interest under section 46(1) compounds annually, additional interest under section 46(4) provides for simple interest only. Second, the calculation of additional interest runs on the outstanding difference from the date of each advance payment.

5.  COSTS

[68]  The claimants made a specific submission on the level of costs to which they were entitled. The claimants acknowledge that under the Act and the Tariff of Costs Regulation, B.C. Reg. 189/99 ("the Tariff"), legal costs incurred after June 28, 1999 are to be paid pursuant to the Tariff. However, in this case the parties had entered into a section 3 agreement which provided that the respondent would pay the claimants their actual reasonable legal, appraisal and other costs necessarily incurred by them for the purpose of asserting their claim for compensation or damages. The claimants cite Richland Farms Ltd. v. British Columbia (Ministry of Transportation and Highways) (1991), 46 L.C.R. 66 as authority that in these circumstances they are entitled to rely on the contract for their actual reasonable legal costs. In the alternative the claimants seek costs under the Tariff at Scale 3 as a result of the difficult and complex issues raised in this case.

[69]  Surrey objects to these claims. It points out that the section 3 agreement provides that entitlement to costs shall be governed by sections [48] and [45] of the Act. The Tariff had not been enacted at the time of the section 3 agreement but section 45(7) specifically anticipated the Lieutenant Governor in Council prescribing a tariff in which case the tariff would govern legal costs rather than the provision for actual reasonable legal costs. Richland Farms did not apply. As a result the claimants' costs are governed by the Tariff and the respondent submits that Scale 2 is appropriate.

[70]  Paragraph 2.03 of the section 3 agreement which is dated April 1997 states:

The Authority will pay to the Owner and/or the Occupant their actual reasonable legal, appraisal and other costs necessarily incurred by them for the purpose of asserting their claim for compensation or damages. The Owner's and/ or the Occupant's entitlement to costs shall be governed by sections [48] and [45] of the Act.

We agree with Surrey that when this provision is read as a whole together with section 45 of the Act and the Tariff the claimants' entitlement to legal costs after June 28, 1999 is governed by the Tariff. We do not find Richland Farms of any assistance in these circumstances.

[71]  Section 45(4) and (5) provide

(4) If the compensation awarded to an owner, other than for business losses, is greater than 115% of the amount paid by the expropriating authority under section 20(1) and (12) or otherwise, the authority must pay the owner his or her costs.

(5) If the compensation awarded to an owner is 115% or less of the amount paid by the expropriating authority under section 20(1) and (12) or otherwise, the board may award the owner all or part of his or her costs.

In this case we have awarded the claimants $5,000 for business losses and the advance payment was $83,956. 115% of the advance payment is $96,549. In a similar manner to additional interest under section 46(4) the formula under section 45(5) applies and there is discretion as to costs. However, once more, the settlement has affected the percentage required under section 45(4). Again the amount of the advance payment related to the settlement should be excluded. This construction means that section 45(4) applies and the claimants are entitled to their costs. Under section 45(3) and (7) the claimants are entitled to their actual reasonable legal, appraisal, and other costs until June 28, 1999 and to their legal costs as prescribed in the Tariff of Costs Regulation, B.C. Reg. 189/99 after that date.

[72]  With respect to the relevant Scale we find this matter of ordinary difficulty and complexity. The main question was a narrow one and although there were various secondary issues, they were insufficient to displace the default position for Scale 2 found in section 4(3) of the Tariff.

[73]  Thus Mr. Sangha is awarded his actual reasonable legal, appraisal and other costs until June 28, 1999 and to his legal costs as prescribed in the Tariff of Costs Regulation, B.C. Reg. 189/99 after that date at Scale 2.

THEREFORE IT IS ORDERED THAT the respondent, the City of Surrey, shall pay the claimant, Sam Sangha:

1. Compensation in the amount of $5,000 for disturbance damages or business losses pursuant to section 40 of the Act.

2. Interest on the $5,000 awarded for disturbance damages or business losses pursuant to section 46(1) of the Act from July 1, 1998 until paid. Pursuant to section 46(2) and (3) of the Act, interest shall be calculated annually at the following rates:

a) Six and one-half per cent (6.5%) from July 1, 1998 to December 31, 1998.

b) Six and three-quarters per cent (6.75%) from January 1, 1999 to June 30, 1999.

c) Six and one-quarter per cent (6.25%) from July 1, 1999 to December 31, 1999.

d) Six and one-half per cent (6.5%) from January 1, 2000 to June 30, 2000.

e) Seven and one-half per cent (7.5%) from July 1, 2000 to December 31, 2000.

f) Seven and one-half per cent (7.5%) from January 1, 2001 to June 30, 2001.
g) Six and one-quarter per cent (6.25%) from July 1, 2001 to December 31, 2001.

h) Four per cent (4.00%) from January 1, 2002 to June 30, 2002.

i) Four and one quarter per cent (4.25%) from July 1, 2002 to December 31, 2002.

j) Four and one half per cent (4.5%) from January 1, 2003 to June 30, 2003.

k) Five per cent (5.00%) from July 1, 2003 to December 31, 2003.

3. Additional interest at five per cent (5.0%) pursuant to section 46(4) of the Act on $5,000 from December 6, 1996 until the date of this decision.

4. Pursuant to section 45 of the Act the actual reasonable legal, appraisal and other costs for the purpose of asserting the claims for compensation or damages until June 28, 1999 and to the costs under the Tariff of Costs Regulation, B.C. Reg. 189/99 after that date at Scale 2.