| September 20, 2001 ECB Control No.:
73/91/209
| Between: | Bayview
Builders Supply (1972) Ltd.
Claimant | | And: | Her
Majesty the Queen in Right of the Province of British Columbia, as represented
by the Minister of Transportation and Highways
Respondent | | Before: | Sharon
I. Walls Vice Chair
Martin A. Linsley, FCA, FCIP, CBV Board Member
Diane
M. Delves, AACI Board Member | | Appearances: | R.
Brian McDaniel Counsel for the Claimant
Nerys Poole Counsel for the Respondent |
REASONS FOR DECISION
1. INTRODUCTION [1]
This is a rehearing of part of the compensation claim of the claimant, Bayview
Builders Supply (1972) Ltd. ("Bayview"). The reasons for decision following
the initial compensation claim hearing were reported at (1996), 59 L.C.R. 263
(B.C.E.C.B.). The British Columbia Court of Appeal set aside $247,765 of the original
award representing the reduction in market value of Bayview's property as a result
of a partial expropriation. It directed the board to reconsider the applicability
of section [40(1)] of the Expropriation Act, R.S.B.C. 1996, c. 125 ("the
Act") to Bayview's claim. See (1999), 66 L.C.R. 176. In particular, Madam
Justice Newbury speaking for the Court at par 23 directed the board to reconsider
"whether relocation costs should be awarded as business losses that result
from the construction or use of the works for which the land is acquired". [2]
This matter has a long history that is set out in detail in the board's earlier
decision at pp 266 - 274. In essence, Bayview has operated a building supply business
on the site, at the north-east corner of the Trans Canada Highway and Deloume
Road in Mill Bay, British Columbia, since 1972. Sandor Horvath is the principal
of Bayview. Prior to 1995 his wife, Isabella Horvath, was also a principal. In
1989, the respondent, the Minister of Transportation and Highways ("MoTH"),
had plans for the expansion of the Highway through Mill Bay from two lanes to
four lanes. The land required for the Highway was taken from the west side of
the Highway; the eastern boundary of the Highway with the frontage road adjacent
to the Bayview site did not change. As part of these plans MoTH intended to take
150 square metres (1,615 square feet) from the corner of Bayview's property, including
a corner of Bayview's main retail building, to create a rounded corner with three
lanes on Deloume Road - a left turn lane, a through lane and a right turn lane.
MoTH conferred with Bayview over several months about reconfiguring the site as
a result of the intended taking. However, in November 1990, as a result of rising
projected costs of the reconfiguration, MoTH changed its mind and told Bayview
that it intended to construct the intersection without any taking from Bayview's
property. [3] Construction of the Highway and the intersection
with Deloume Road occurred between April 1990 and September 1991. This construction
and changes to the intersection are collectively termed the "Project".
In September 1991, the direct access from the Highway to the Bayview site was
blocked with concrete barriers. Mr. Horvath complained that the blocking of this
access prevented the delivery of larger building supply material from Bayview's
supplier, IRLY Bird, which made deliveries on large trucks consisting of a tractor
unit with two trailers called B-trains. As a result of this complaint, MoTH entered
into a temporary arrangement with Bayview whereby the concrete barriers were replaced
by wooden barriers that could be moved for delivery of material by B-trains. This
temporary arrangement has continued to date. In February 1993, MoTH decided to
acquire just 16 square metres (172 square feet) of the corner of Bayview's site
to better accommodate the right turn lane and the traffic island at the corner
of the Bayview property. This taking was only about 10% of what MoTH had initially
planned to take. [4] In the first compensation hearing,
Bayview sought damages for reconfiguration of the site, as had initially been
discussed with MoTH, as a result of its proposed taking from the property. Although
MoTH had changed its mind about the proposed taking and eventually only took a
small fraction of the land, it was Bayview's position that the only viable long
term solution to the problems arising from the construction and use of the Project
was reconfiguration. The board considered this claim and in the end rejected it.
At p. 283 of the initial decision it concluded: [T]he
reconfiguration of the Bayview buildings although certainly desirable at this
point, was not made necessary solely by the highway construction and works. While
they may have accelerated the date upon which such reconfiguration would be required,
in our view the reconfiguration would have been necessary at some point in any
event. In the alternative, the board awarded
$247,765 for reduction in market value of the remainder as a result of the Project. [5]
After reviewing the board decision and construing section 40(1) of the Act Madam
Justice Newbury, stated at par 20: Because
it interpreted s. [40(1)(b)] to require that the Ministry's conduct be the sole
cause of the necessity to relocate, the Board rejected the claim for any and all
relocation costs out of hand. In so doing, it acted on an incorrect view of the
statutory provision before it. She went on
to say at par 23: In reaching that decision
[as to whether relocation costs should be awarded], the Board should give due
weight to the fact that the "wooden barrier" concession can be discontinued
anytime at will by the Ministry, and should make clear findings of fact concerning
the viability of Bayview's business as presently "configured", pre-and
post-construction. In particular, would overall access to and from the site have
continued to be "sufficiently adequate for some considerable time",
or was the site in fact a "time bomb" in the short to medium term? If
the Board on a correct application of s. [40] concludes that no relocation costs
should be awarded, then it should also consider such other types of future business
losses as are advanced by Bayview, keeping in mind that provided such losses are
proven, the difficulty of quantifying them does not remove the necessity of reaching
some figure. [6] We have been directed to
reconsider the claim for relocation costs. At the second hearing Bayview called
new expert evidence with respect to a proposed reconfiguration and the costs to
carry out the work. Because reconfiguration would result in a brand new building
Bayview conceded that the costs for reconfiguration should be reduced by any betterment
it received. Bayview proposed two methods by which betterment could be accounted
for. First, it called appraisal evidence and relied on a formula provided by counsel
to provide us with an estimate of the betterment. Second, it urged us to adopt
the approach used by the Alberta Board in Bartle & Gibson Co. v. Edmonton
(City) (1992), 48 L.C.R. 1 (Alta L.C.B.); affd (1995), 58 L.C.R. 36 (Alta
C.A.). In addition, Mr. Horvath gave evidence as to certain expenses that Bayview
had incurred in the last five years, that he said would be thrown away if we decide
that the costs of reconfiguration should be awarded. Mr. Horvath also gave evidence
as to further costs that would be incurred by Bayview during the reconfiguration.
While the cost for reconfiguration was estimated at $1,419,727, using the formula
devised by its counsel, Bayview estimated the cost for reconfiguration minus an
estimate for betterment at $798,000 plus additional damages related to the reconfiguration
at $385,000 (including demolition costs, moving and advertising costs, and costs
of repairs and improvements thrown away), for a total of $1,183,000 rounded. Using
an approach similar to that in the Bartle & Gibson case, Bayview estimated
the net cost of reconfiguration to be $1,183,000 plus additional expenses of $550,000,
including the price for an additional lot, for a total price of $1,733,000 rounded.
It is to be remembered that both of these alternate claims are in the alternative
to the sum of $247,765 for reduction in market value of the remainder which award
has been set aside by the Court of Appeal. We note that this $247,765 was paid
to Bayview in October 1996. [7] Bayview also claimed ongoing
business loss claims from 1995 to 2000 in the approximate amount of $390,000.
In the alternative to the claim for relocation, Bayview sought future business
losses. Bayview's position was that if the site was not reconfigured, Bayview's
business was not viable and the future business losses were the costs to liquidate.
Bayview claims $560,000 in the alternative for this claim. [8]
MoTH questioned Bayview's entitlement to reconfiguration and, in addition, criticized
Bayview's estimates. It also called evidence for a very modest reconfiguration
to address delivery of supplies. This reconfiguration involved the removal of
one of the sheds and a ramping system to link the middle and lower yards for a
total cost of approximately $200,000. In the alternative MoTH questioned Bayview's
entitlement to the costs of winding up. It also took the position that the ongoing
business losses between the first hearing and the second hearing could not be
claimed. The claim for business losses had not been appealed and the Court of
Appeal had directed that future business losses should only be considered if the
board concludes that relocation costs should not be awarded. 2. ISSUES [9]
Thus, the main issue in this hearing is whether the costs of reconfiguration of
the Bayview site should be allowed under section 40(1) of the Act. If some type
of reconfiguration is allowed, there is then the question of determining the appropriate
method of estimating the costs of reconfiguration that takes into account the
betterment factor. If the costs to reconfigure are rejected, then we must determine
if there are any future business losses. Irrespective of the costs to reconfigure,
a secondary issue is whether the business loss from 1995 to 2000 can be claimed
in this rehearing. 3. BACKGROUND [10]
In addition to all the evidence at the previous hearing that was part of this
hearing, we did hear some new evidence from a number of witnesses. The following
is a brief summary of the relevant evidence adduced at the prior compensation
hearing together with the new evidence that we heard. 3.1
Current layout of the Site [11] The
current Bayview site is on three levels with retaining walls. The main retail
building is in the south-west corner of the site adjacent to Deloume Road with
a narrow area in front of the store for angled parking. The front door to the
store is from Deloume Road and both the parking area and store are at grade with
Deloume Road. The store is a one storey, with basement, wood frame building, largely
built in the early 1950's. Behind the store to the north is the middle yard, that
used to have access directly to the Highway across the frontage road and now has
only temporary access for B-trains through the wooden barricades. The middle yard
can also be reached by a driveway around the western end of the retail building
although there was evidence that the narrowness of the driveway made access by
some trucks problematic. This driveway is only partially on Bayview property and
vehicles must use the frontage road to access the middle yard. There are open-sided
lumber storage sheds on both the north and east sides of the middle yard. The
lumber storage shed on the north side of the middle yard has its south side open
to the middle yard and its north side open to the upper yard in the north-west
corner of the site. This upper yard is some 1.5 metres (5 feet) higher than the
middle yard and can be accessed from the middle yard by a driveway around the
western end of the lumber storage shed that again uses the frontage road. This
frontage road that lies between the western end of the Bayview site and the Highway
serviced two properties before the Project: Bayview and the residential property
immediately to the north. Now it serves only Bayview. The only access to it is
by Bayview's driveway around the western end of the retail building and the temporary
access through the wooden barriers from the Highway. It now goes nowhere but Bayview's
middle and upper yards Both before and after the Project, Bayview's fence at the
western end of the site encroached some 220 square metres on the frontage road.
This provided it with additional space for the storing of building materials.
The nail shed at the north-west corner of the main retail building also encroaches
onto the frontage road. [12] There is a lower lumber yard
to the east of the retail building that can only be accessed by its own driveway
off Deloume Road. The lower lumber yard is approximately 2.1 metres (7 feet) lower
than the middle yard, with a staircase for pedestrians that links the two yards.
There is a septic field on the lower lumber yard for which no records exist at
the local Public Health Department. 3.2
Changes to the intersection [13] In
1990-91, in addition to the widening of the Highway on the western side, a median
was installed on the Highway adjacent to the Bayview site and a median was installed
on Deloume Road in front of the Bayview retail store. An existing traffic island
at the north-east corner of the intersection was reconfigured so that it was somewhat
smaller. Although there was no taking from Bayview's property initially, MoTH
was able to add one extra lane on westbound Deloume Road for through and right
turn traffic within the existing right of way. This resulted in traffic being
closer to Bayview's property and the retail store than it was before the Project.
Subsequently, in 1993, as indicated above, 16 square metres (172 square feet)
were acquired from the south-west corner of the Bayview property, immediately
to the east of the traffic island, to better accommodate the right turn lane and
the traffic island. However, to date nothing has been constructed on the property
that was taken. [14] In 1998 the traffic pattern on westbound
Deloume Road was changed again. There had been complaints about congestion on
westbound Deloume Road in front of the Bayview retail building. There was evidence
that most of the traffic on westbound Deloume Road was turning right onto the
Highway. A traffic report from the initial hearing by the traffic engineer retained
by MoTH, Paul Bunt, provided some traffic volumes for the intersection for one
hour on each of January 27 and 28, 1995. Of 4,875 vehicles entering the intersection,
1,052 were proceeding west into the intersection from Deloume Road. Of those 1,052
vehicles passing in front of Bayview on Deloume Road heading west, 924 vehicles
were turning right onto the Highway. When the right hand lane was dedicated to
through traffic and right turn traffic, the right turn traffic would get blocked
behind the through traffic waiting to cross the Highway. As a result, some vehicles
would drive on the shoulder of Deloume Road, often trespassing on Bayview property,
in order that they might more quickly turn right onto the Highway. This would
in effect create an unofficial third lane. As part of the changes in 1998, the
use of the right hand lane was changed from through and right turn traffic to
right turn traffic only. Since there were only two lanes on westbound Deloume
Road at the intersection, both through traffic and left turn traffic now use the
left-hand lane. However, westbound Deloume Road on the far side of the Highway
did not line up with the left-hand lane in front of Bayview. As a result, zebra
markings were installed next to the median on Deloume Road in front of the Bayview
retail store. This had the effect of shifting the traffic in the left hand lane
a short distance to the right so through traffic crossing the Highway was more
in line with the appropriate lane of Deloume Road on the far side of the Highway.
These changes in traffic on Deloume Road had the effect of moving the traffic
within the right of way still closer to the Bayview property and the retail building.
According to the MoTH employees, Greg Galpin and Neville Hope who were called
as witnesses, these changes in the lane designations on Deloume Road in 1998 decreased
the problems of congestion and improper right turning vehicles. They indicated
that MoTH had no plans to make any more changes at the intersection.
3.3 Delivery of supplies [15]
Before the Project the large trucks and B-trains that delivered supplies could
directly access the middle yard of the Bayview site from the Highway across the
frontage road owned by MoTH. MoTH has now acknowledged that as soon as the decision
in this matter is released, the temporary access from the Highway through the
wooden barriers that have been in place since the Project will be terminated.
This means that delivery of materials by full B-train trucks onto the middle yard
of Bayview will cease. [16] The evidence with respect to
deliveries was not as clear cut as this account appears to suggest. Bayview is
one of a group of lumber yards that is associated with the "IRLY (Independent
Retail Lumber Yard) Bird" buying co-operative from which
it purchases the majority of its products. We heard evidence that before the Project,
the trucks making deliveries from IRLY Bird were 80-foot B trains bringing supplies
from the lower mainland. They could approach Bayview from either the north or
the south and turn into the middle yard. After unloading their supplies in the
middle yard they would exit the site by backing across both lanes of the Highway
while employees of Bayview stopped the traffic. Because there is no on site link
between the middle yard and the lower lumber yard, the fork lifts from Bayview
would have to deliver products for the lower lumber yard using the driveway around
the retail building and Bayview's parking stalls and the Deloume Road right of
way. In 1995 at the initial hearing there was evidence that the 80-foot B-trains
continued to enter the middle yard through the temporary wooden barriers. However,
because of the Project and the median on the Highway they could now approach Bayview
only from the south. Again, the fork lifts from Bayview would have to carry supplies
for the lower lumber yard via Bayview's driveway and the parking stalls along
with the Deloume Road right of way. If all of the supplies were unloaded in the
middle yard the rear trailer could be "piggy backed" on top of the front
trailer using two of Bayview's fork lifts. This much shorter B-train could then
back onto the frontage road and exit onto the Highway heading north. However,
when the B-train was only partially unloaded piggy-backing could not occur and
sometimes the driver would be unable to piggy-back because he had to pick up supplies
at his next destination. In these situations, the traffic from the south (and
from Deloume Road turning north onto the Highway) had to be stopped while the
full length B-train backed onto the Highway and headed north. There was evidence
in the first hearing from Mr. Horvath that backing up across the Highway occurred
approximately 25% of the time pre-construction, and continued at about this rate
post-construction, although in cross-examination he decreased this percentage
and he decreased it still further during the second hearing. [17]
In recent years the delivery of full B-train trucks from the Highway through the
area where the wooden barriers are located has occurred much less frequently than
it did in the early 1990's. Most of the deliveries from B-trains now occur on
Deloume Road in front of the retail building. The fork lifts unload the material
and deliver it either to the lower lumber yard to the east of the retail building,
with its own access off Deloume Road or around the retail building to the middle
lumber yard. No vehicles can use the parking stalls when the B-train is unloading
on Deloume Road. There was a complaint from one of the contractor customers that
he specifically avoided going to Bayview on Thursday mornings because parking
would be blocked by the IRLY Bird B-train unloading inventory in front of the
store. The length of the B-trains is now greater at 96 feet than the 80-foot length
we heard about during the first hearing. Mr. Horvath testified that he was uncertain
which year during the 1990's the B-trains changed from 80-foot to 96-foot. While
we saw photographic evidence of the 96-foot B-train piggybacking and exiting the
site, it is not clear to us what this increase in length of the B-trains does
to the ability of the full length trucks to exit the middle yard by backing across
the Highway. In any event, most of the deliveries appear to be "milk runs"
with deliveries for other stores after unloading at Bayview so that piggy-backing
of the two trailers cannot occur. Mr. Horvath said that Bayview had now stopped
the practice of having the full length B-trains backing out across the Highway
to exit the site. 3.4 Customer access [18]
Before the Project, customers could access the middle yard directly from either
direction of the Highway by crossing the frontage road. They could access the
ten parking stalls in front of the retail store from either direction of Deloume
Road. After the Project, there was no direct access for customers from the Highway.
As indicated above, the nine parking stalls that remain are now on an angle in
front of the retail building, and are significantly closer to the travelled portion
of Deloume Road. The changes to the two westbound lanes on Deloume Road in 1998
have narrowed this gap between the boundary of the Bayview property and the travelled
portion of the right of way near the intersection to a few inches. Since cars
must back out of the parking stalls directly into the right of way, the shifting
of the traffic closer to the Bayview property presents problems for customers
leaving the site. If traffic on westbound Deloume Road is congested, then accessing
and exiting the parking stalls is more difficult. The customers can access the
middle yard by the driveway on Bayview property around the western end of the
retail store. This driveway has not changed as a result of the Project although
if the traffic island was expanded to include the entire area of the taking then
the driveway would be narrower. There was evidence that a number of contractor
customers complained about access being poor. Some of them reported that they
were not able to turn into the parking stalls from the eastbound lane of Deloume
Road (which was their usual approach to the Bayview site) because of the median.
They either had to make a U turn after they had passed the median or drive to
the end of Deloume Road and turn around. If the B-train was making a delivery
of material on Deloume Road all the parking stalls were blocked. Two contractor
customers said that they did not go to Bayview for small items because of these
frequent difficulties with access. 3.5
Customer sales [19] Bayview enjoyed
its highest sales ever in the year ending January 31, 1995. The sales declined
15% in the following year, January 1996, and then stayed approximately the same
for the year ending January 1997. In January 31, 1998 sales fell 7%, followed
by a 25% drop in January 1999 and a further fall of 8% in January 2000. This represents
a 44.5% drop in sales from 1994 to 2000. 3.6
Population and construction statistics [20]
We heard some evidence with respect to the population and economic factors affecting
the construction trade and building supply sales in the Cowichan Valley. The primary
source of this evidence was Michael Sommers who is a certified marketing consultant
with SMG/Columbia Consulting Group and was retained by MoTH. [21]
The Cowichan Valley has been affected by the poor economy in the last six years.
Cowichan Valley experienced an average annual increase in population of 2,111
between 1990 and 1994. While the population continued to increase between 1994
and 2000, the rate of this increase dropped significantly. Between 1995 and 1997
the average annual increase in population fell approximately 25% to 1,567, while
in 1998, it fell a further 53% to 742, and in 1999, 45% more to 403. This drop
in net migration between 1994 and 1999 amounted to 81%. The number of building
starts and building permits followed these changes in net migration, falling approximately
70% since 1994. (Building permits show somewhat lesser decline than building starts
because some building permits that were issued were not in the end used.) The
dollar values of the building permits issued also declined approximately 65% since
1994. These declines in housing starts are more severe in the Cowichan Valley
than in British Columbia generally. Mr. Sommers predicted that for building supply
businesses with a relatively strong contractor component, sales would drop approximately
30-40% in these circumstances. Those businesses with a higher consumer base would
experience a somewhat smaller drop in sales. Most other lumber yards reported
declines in sales of at least 30% over the period 1997-2000.
3.7 Changes in neighbourhood and traffic [22]
A new shopping centre was built across Deloume Road to the south from the Bayview
site in 1981. It was anchored by a food store and a liquor store and there was
evidence of 30,000 weekly customers by the end of the 1980's. In 1991 a new Thrifty
grocery store replaced the earlier food store. In 1993 a new mall anchored by
the Royal Bank was built in Mill Bay to the east of Bayview as well as a new branch
of the Island Savings Credit Union on the corner of Deloume Road and Mill Bay
Road. Most of the traffic for these new developments comes from the north and
in order to access the various retail establishments the vehicles turn left from
the Highway along eastbound Deloume Road. Returning traffic heads westbound on
Deloume Road, passes in front of the Bayview site, and turns right on the Highway. [23]
In the first hearing, Mr. Bunt, the traffic engineer, provided some evidence about
traffic increasing on Mill Bay Road to the east and south of the intersection.
MoTH measured traffic volumes periodically at a traffic count station on Mill
Bay Road to the east and south of the site for short periods and from this information
projected average daily vehicle counts. The location of this station did not capture
traffic from the north heading to the shopping centre across Deloume Road from
Bayview. During the 1980's these projections for average daily traffic in both
directions on Mill Bay Road rose from approximately 1,800 vehicles in 1981 to
2,500 by 1990. Traffic was projected to continue to grow to approximately 3,500
vehicles by 1993 and to almost 5,000 vehicles by 1996. We find that the increased
population in the 1990's plus the increased services constructed in the vicinity
of Bayview (given the limited traffic routes connecting the new developments and
the new stores and banks) would have resulted in increased local traffic on Deloume
Road and the Highway even if the Project had not been constructed. 4.0 RECONFIGURATION
4.1 Bayview's position
4.1.1 Entitlement [24] Following on the
Court of Appeal's comments, Bayview says that the evidence establishes that the
closing of the Highway access will mean that inventory can no longer be delivered
to the site. With no inventory the site is unworkable and it must be reconfigured.
Alternatively, the business must close. Bayview compared the situation pre- and
post- construction. Before the construction in 1990, the Highway was a rural highway
with one lane in either direction, a slower speed limit, and no median. Similarly
Deloume Road had a single lane in both directions and no median. There were no
problems with either delivery of materials or access by customers. The business
was prospering with increasing sales and no long term debt. After the construction
both roads have increased lanes and a central median. On the Highway the speed
has increased from 60 to 80 km/h and on Deloume Road the travelled portion of
the road in the right of way has shifted several metres closer to Bayview's boundary.
Bayview says that these changes have made customer access more difficult and that
as a result its business never fully recovered after the construction. Although
it does acknowledge a downturn in the local economy in recent years, it says that,
but for the Project, it would have better survived this recession and maintained
its place amongst its competitors. [25] Bayview submitted
that some principles from tort law were helpful in looking at the issue of causation.
In particular, it relied on the Supreme Court of Canada's decision in Athey
v. Leonati, [1996] 3 S.C.R. 458. At p. 467 Mr. Justice Major speaking for
the court stated: [T]he plaintiff [need not]
establish that the defendant's negligence was the sole cause of the injury.
[A]s long as a defendant is part of the cause of an injury, the defendant
is liable even though his act alone was not enough to create the injury. There
is no basis for a reduction of liability because of the existence of other preconditions;
defendants remain liable for all injuries caused or contributed to by their negligence.
(emphasis in original) The court emphasized
in Athey that the disc herniation was a single indivisible injury caused
or contributed to by the accidents. This was distinguished from a number of other
situations where apportionment of damages was appropriate. One of these situations
was where the plaintiff had a pre-existing condition that the evidence established
would have continued to cause debilitating effects even if the accident had not
occurred. The defendant in these circumstances is only partially liable. See
Pryor v. Bains (1986), 69 B.C.L.R. 395 (C.A.) where the court allocated a
proportion of the overall loss to the pre-existing condition and a proportion
to the defendant's negligence. Bayview says that it is entitled to either 100%
of its damages following the principles in Athey or a proportion of its
damages under Pryor. Bayview submits that these principles of causation
in tort law ought to apply to expropriations where the primary principle of compensation
is to make the owner economically whole. [26] Before the
construction Bayview says that it was a healthy business with no overt symptoms
of a pre-existing condition. Following the construction it is no longer making
a profit, and without reconfiguration is essentially non-viable. Under the principle
of Athey it says it is entitled to the net costs of reconfiguration as
a reasonable business loss under section 40. In the alternative, if we decide
that there was a pre-existing condition separate from the construction and use
of the work, following Pryor, it is entitled to a proportion of the costs
of the reconfiguration. [27] Bayview also relies on
Bartle & Gibson Co. v. Edmonton (City), a case where the respondent took
the claimant's business premises. The claimant purchased a superior replacement
property and built an additional warehouse. It claimed the entire cost of the
replacement property and the new premises as disturbance damages but the Alberta
Board refused this claim on the grounds that the property and premises were larger,
newer, and better than what had been taken. Instead it awarded the depreciated
costs of constructing a hypothetical warehouse, based on the size, age, and general
construction of the buildings that were being replaced. 4.1.2
Bayview's proposed reconfiguration [28]
Bayview retained Doug Hornung of Nicon Developments Limited to provide an estimate
of costs for the reconfiguration of the Bayview site based upon a plan prepared
by Bill Derby of Herold Engineering Limited ("Herold"). The Herold plan
calls for the excavation of the north and west portions of the site and the construction
of a retaining wall to produce a more functional site that is level instead of
the current site that is on three levels with an overall grade change of approximately
six metres (20 feet). This levelling of the site is a substantial component of
the overall reconfiguration costs at $250,000. The main retail building is to
be demolished and rebuilt in the north-east corner of the site, at the back of
the property with a parking lot in front and storage sheds and lumber yard to
the west. The plan incorporates an additional property, Lot 2, which is adjacent
to the Bayview site to the east. Mr. Horvath stated that it was necessary to acquire
Lot 2 in order to accommodate the reconfigured plan with the increased number
of parking stalls and land for a new septic system. Lot 2 was purchased by Mr.
Horvath in 1991 for $175,000 which included a building that has been leased out
since the purchase. [29] Mr. Horvath said that the Herold
plans were prepared on the basis of the current square footage of the store and
storage sheds. However, the proposed plans show greater areas for both the store
and the storage sheds over the buildings in place at the date of valuation in
November 2, 1993. The existing store has a main floor of 353 square metres (3,800
square feet) with an office and washroom area of 434 square feet, and a low-ceilinged
basement storage area of 297 square metres (3,200 square feet) in which some slow-moving
items are displayed. The proposed new building, on the other hand, has 641 square
metres (6,900 square feet) of retail space, all on one level. The projected office
area is 660 square feet on a mezzanine. Mr. Derby testified that the current building
code results in some differences. In particular, two public handicapped accessible
washrooms plus one staff washroom are now required instead of the single washroom
in the existing Bayview building. He further stated that the storage sheds were
slightly larger than what was strictly required to replace the existing structures
due to functional requirements. Bayview has also expanded its existing storage
sheds since November 1993 and this increase was incorporated into the Herold plan.
There are other differences in the proposed buildings including concrete floors
in all the storage sheds and an alarm system. Parking has increased from the current
nine stalls to 43, three short of the 46 stalls required by the Cowichan Valley
Regional District bylaws. A three metre buffer of landscaping is proposed along
the Deloume Road boundary, although the bylaw specifies six metres.
4.1.3 Betterment [30]
The Court of Appeal, in directing the board to reconsider the possibility of the
need for the relocation of Bayview's business, recognized the betterment issue.
At par 20 Madam Justice Newbury stated: Relocation
costs include the construction of new premises and moving expenses and would be
adjusted to exclude the net improvement inherent in the new premises as compared
with the old. (In this case, such an adjustment would ensure that due consideration
is given to the fact that "eventually", Bayview would have had to reconfigure
its premises.) [31] Counsel for the claimant
devised an equation to address the betterment factor inherent in the proposed
relocation. The appraiser for the claimant, Mario Pavlakovic of Interwest Property
Services (1991) Ltd., used the formula in calculating his estimate of damages.
The formula is set out in his report as A = B - (D - C) where:
A = Damages
B = Cost of Reconfiguration
C = Value
of Land and Buildings before reconfiguration
D = Value of Land and Buildings
after reconfiguration [32] To calculate the
cost of reconfiguration (B), Mr. Pavlakovic used the estimate for the Herold plan
of $1,419,727, including GST, and added the purchase price of Lot 2, $175,000
for a total of $1,595,000. [33] For the value of the land
and buildings before reconfiguration (C), Mr. Pavlakovic relied upon the board
decision from the first hearing. The board concluded that the land value before
the taking was $440,000 and the replacement cost for the buildings was $538,550,
with depreciation for the buildings being 50%. Mr. Pavlakovic adjusted the value
for the improvements for inflation so that the costs from 1993 could be compared
with the 2000 prices used in the cost to reconfigure. He used a multiplier from
Marshall Swift that gave him a replacement cost new of $710,000 and judging current
depreciation at 69%, he concluded that the buildings now had a residual value
of $220,000. Finally, he added the $175,000 cost for purchasing Lot 2. This yielded
an amount for the value of the land and buildings before reconfiguration (C) of
$835,000. [34] To calculate the value of the land and buildings
after reconfiguration (D), Mr. Pavlakovic took the board's land value after the
taking ($352,000) of $8.05 per square foot and multiplied the new site size, 57,352
square feet, by that rate to obtain a new land value of $462,000. The value of
the buildings is basically the cost of the reconfiguration, $1,419,727. However,
Mr. Pavlakovic deducted $250,000 for the cost of the excavation work to level
the site since he thought that this component would not be reflected in the market
value. This yielded a total market value for land and buildings after reconfiguration
of $1,632,000. [35] Mr. Pavlakovic then used the formula
to calculate the damages for reconfiguration after taking betterment into account
at $798,000. 4.2 MoTH's position
4.2.1 Entitlement [36] MoTH denies that
the problems with access are directly attributable to the taking or result from
the construction and use of the works. It says that the difficulties encountered
with access from both the Highway and Deloume Road are a result of an increase
in the population, a corresponding increase in traffic, and other factors unrelated
to the various changes in the intersection. MoTH points out that Mr. Horvath's
testimony about the delivery of inventory was contradictory. However, it says
that the evidence as a whole establishes that most of the deliveries now take
place in front of the store in the narrow parking area adjacent to Deloume Road.
This appears to be at least partially attributable to the increase in size of
the B-train trucks and the related increase in "milk-run" deliveries.
Very few deliveries are made directly to the middle yard after removing the temporary
barriers. Thus, MoTH questions the effect that the permanent closure of the access
from the Highway to the middle yard would have on Bayview's business at the present
time. [37] With respect to Deloume Road MoTH says that
the problem of congestion on westbound Deloume is caused by the gradual increase
in population since 1990 and the resultant increase in traffic. This increase
in the number of cars heading westbound on Deloume would have occurred irrespective
of any changes in the traffic pattern on Deloume Road. Although the traffic is
now closer to Bayview's boundary, it is all within the right of way and the recent
changes in 1998 in particular have nothing to do with the construction and use
of the work. Bayview was at risk from MoTH's increased use of its right of way
separate and apart from the construction and use of the work. Furthermore, the
inadequate parking area in front of the store was made worse by Bayview's having
expanded its store in about 1980 with a 20-foot addition along its southern face,
an expansion for which it obtained no building permit. MoTH concedes that the
median on Deloume Road results in some minor inconvenience for customers. However,
it says that the real problem for customers is that even before the Project there
were relatively few parking stalls and that the location of these parking stalls
has always required vehicles to back up directly into the right of way. [38]
MoTH says that on a detailed analysis of the evidence the construction and use
of the work does not entitle the claimant to reconfiguration. It refers us to
Patterson v. British Columbia (Ministry of Transportation and Highways)
(1997), 62 L.C.R. 89 (B.C.C.A.) where the Court of Appeal upheld this board's
refusal to award relocation costs in a partial taking on the basis that the claimants
were not effectively ousted from their residence as a result of the partial taking
or as a result of the construction and use of the work. [39]
In the alternative, if the claimant is entitled to reconfiguration, MoTH denies
that the complete reconfiguration presented by the claimant deals with the primary
problem of access to the site by B-trains. In any event, MoTH submits that under
the Act Bayview is not entitled to equivalent reinstatement, and that any improvements
to its premises as a result of reconfiguration have to be taken into account,
as well as the fact that eventually Bayview would have had to reconfigure its
site even if the Project had not occurred. MoTH is also critical of various aspects
of the claimant's proposed configuration. 4.2.2
MoTH's proposed reconfiguration [40] In
the further alternative, MoTH says that reconfiguration to deal with some of the
alleged problems posed by the Project might be done more cheaply without a relocation
of the main retail building. MoTH provided evidence of a partial reconfiguration
of the site that it said would permit deliveries by B-train trucks. It retained
Rick Jones of Urban Design Architects Ltd. ("Urban") to provide this
revised site plan, and a cost estimate was provided by James K. Mah, a structural
engineer, of London Mah and Associates Ltd. [41] The Urban
plan proposes that the main retail store remains in place and a ramp be constructed
connecting the middle yard to the lower yard. A 45-foot truck could circulate
around the site delivering materials to the three yards. B-trains would back into
the lower yard and the rear trailer would be disengaged. Existing storage sheds
would have to be demolished and rebuilt. Because the ramp would reduce the amount
of storage available in the yards, the Urban plan calls for the construction of
steel racking within the lower yard in order to store more material in a stacked
configuration. A consultant, Richard Willander, provided evidence with respect
to the steel racking. The total cost estimated for the Urban plan, including the
racking system, is $199,810 excluding GST. [42] Finally,
MoTH submits that the claimant has refused to mitigate its damages and consider
any other reconfigurations short of a complete reconfiguration and relocation
of the main retail building. 4.3 Discussion
4.3.1 Statutory framework [43] Section
30 of the Act provides that an owner of land that is expropriated is entitled
to compensation, "to be determined in accordance with this Act." It
is a central principle of expropriation law that compensation must be based on
a statutory provision. See, for example, par 27 of the Court of Appeal decision
in Patterson. [44] Section 40 of the Act now provides:
| 40
(1) | Subject to section 44,
if part of the land of an owner is expropriated, he or she is entitled to compensation
for | |
(a) | the market value of the owner's estate
or interest in the expropriated land, and | |
(b) | the following if and to the extent they
are directly attributable to the taking or result from the construction or use
of the works for which the land is acquired: | | | (i)
the reduction in the market value of the remaining land; | | | (ii)
reasonable personal and business losses. | Section
40 was amended subsequent to both the earlier board decision as well as the reasons
of the Court of Appeal, but in our view the change in wording does not substantively
affect the treatment of the issues in this case. Madam Justice Newbury pointed
out at par 18 that the board in its earlier decision did not consider the second
branch of section 40(1)(b): namely, whether or not the reconfiguration of the
site is a reasonable business loss that "result[s] from the construction
or use of the works". She also pointed out that this phrase, "result[s]
from", "implies [that] the Legislature intended a broader view of causation
than the "directly attributable to" wording of the first branch". [45]
Another relevant section is section 34:
| 34 (1) |
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; | | |
(b) | reasonable costs of relocating on other
land, including reasonable moving, legal and survey costs that are necessarily
incurred in acquiring a similar interest or estate in the other land. |
With respect to the interrelation between
section 34 and 40 and compensation for relocation costs Madam Justice Prowse states
at par 34 of Patterson that "it is significant that the B.C. Legislature
specifically provided for relocation costs in section [34] of the Act but did
not specifically provide for it under section [40] in the event of a partial taking".
At par 35 of Patterson she went on to observe that the board left open
the issue as to whether "such relocation costs could be claimed in the event
of a partial taking if the effect of the taking were to effectively oust the owners
from their home." [46] It is clear that section 35
of the Act does not apply. This section provides for the reasonable cost of equivalent
reinstatement instead of the market value, but it is limited to only those cases
where the expropriated property has a use for which there is no general demand
or market such as a church, a hospital, or a school. 4.3.2
Consideration of legal authorities [47]
We agree with the comments by Kenneth J. Boyd in Expropriation in Canada -
A Practitioner's Guide, (Canada Law Book, Toronto: 1988) at p. 27 quoted in
Bartle & Gibson: the primary purpose of compensation is to place the
owner whose land has been taken in the same position financially as he was prior
to the taking. The owner should not receive a windfall as a result of the taking,
nor should he be required to shoulder an economic loss that arises from the taking
for the general public benefit. [48] Bayview submits that
with respect to apportionment of causation between different factors, the principle
enunciated in Athey applies in this case. In Athey the plaintiff
suffered from back problems and was injured in two accidents and a number of months
later he developed a herniated disc. At issue was whether the accidents caused
the herniated disc or whether it was attributable in whole or in part to his pre-existing
back problems. At trial the judge attributed 25% of the damages for the herniated
disc to the two accidents. The Supreme Court of Canada allowed the appeal and
awarded the plaintiff 100% of his damages. At p. 460 Mr. Justice Major said that
the herniated disc was found to be a product of the accidents; as a single indivisible
injury, allocation of the damages between different causal factors was inappropriate.
He distinguished the facts in Athey from a number of situations where
apportionment of damages was appropriate. One such circumstance is where there
is more than one injury and some of the injuries have tortious causes and some
have non-tortious causes. A defendant is not liable for those injuries that were
not caused by his negligence. Another is where there is an independent intervening
event, such as a disease or non-tortious accident, that occurs after the plaintiff
is injured. In such cases the plaintiff's damages are reduced to reflect the contribution
from the intervening event unrelated to the tort. A third situation is where at
the time that the negligence occurs the plaintiff suffers from a pre-existing
condition that would have resulted in damages in any event. This situation is
sometimes referred to as the "crumbling skull" rule and is to be distinguished
from the "thin skull" rule where the plaintiff has a pre-existing condition
that predisposes the plaintiff to injury but where the evidence falls short of
establishing that damages would result in any event. A defendant does not need
to place the plaintiff in a better position than it enjoyed before the negligence. [49]
In our opinion, as we set out in the next section, the facts in Bayview are not
analagous to those in Athey. Instead they fall into one of the three situations
set out by Major J. in which apportionment is appropriate. 4.3.3
Does the need for Reconfiguration "result from construction or use of the
works"? [50] In this case we must
decide whether the construction and use of the works effectively ousted Bayview
from its main retail building so that reconfiguration is a reasonable business
loss that results from the Project. Bayview submits that the site worked well
before the construction, and that there were no complaints to MoTH with respect
to any concerns for traffic on the Highway and Deloume Road caused by activities
on the Bayview site. The lack of complaints does not mean that the site was symptom
free. Prior to construction Bayview had an awkward site situated on three levels
without internal driveways connecting the lower yard. In addition, the narrow
parking area was deficient in both the number of stalls and the layout, with no
barrier between the parking and the traffic on Deloume Road, requiring vehicles
to back out directly onto the right of way close to the intersection. If the parking
stalls were occupied, forklifts delivering supplies to the lower lumber yard had
to use the Deloume Road right of way or wait until the parking stalls were free.
When the B-train trucks delivering supplies were unable to completely unload,
they had to leave the site by backing up across the Highway, a manoeuvre that
was described by Mr. Bunt, the traffic engineer for MoTH, as "inherently
unsafe" no matter what the speed of traffic on the Highway. Bayview depended
on the use of the public rights of way in the frontage road outside the middle
yard and on Deloume Road for delivery of supplies, movement of supplies around
the site, and customer access to the supplies. [51] The
primary deficiency of the site after the construction of the Project urged on
us by Bayview was that when the wooden barriers blocking access from the Highway
are replaced by permanent concrete barriers delivery of inventory by the large
B-train trucks to the middle yard will cease. This difficulty also loomed large
in the reasons of the Court of Appeal. At par 17 Madam Justice Newbury says that
"it is arguable that once the Ministry decides to insist on concrete barriers
... the necessity to relocate will be directly attributable to the Ministry's
works" (emphasis in original). At par 23 she went on to urge the board to
"give due weight to the fact that the "wooden barrier" concession
can be discontinued anytime by the Ministry". [52]
We now know that the wooden barrier concession will cease on the release of these
reasons. However, the evidence that we heard satisfies us that Bayview has to
a large degree already stopped using the access through the wooden barriers to
the middle yard. At the hearing Mr. Horvath testified that B-trains have been
unloading an increasing number of their loads on Deloume Road since 1995. Although
he estimated that 20 to 25% of the B-trains continued to access the site through
the wooden barriers, there was also evidence that he was unable to say whether
the wooden barriers had been moved more than five times in the past year. The
complaint from the contractor about the weekly deliveries by the IRLY Bird B-train
blocking access in front of the store is further evidence that most of the deliveries
now take place on Deloume Road. [53] The B-trains deliver
on Deloume Road whenever they are delivering a mixed load for more than one location.
Bayview has voluntarily stopped the practice of having B-trains that are now 96-foot
in length back out across the highway. It is only the small number of B-trains
that contained supplies only for Bayview and where the driver is willing to piggy-back
the rear trailer that have continued to enter the middle yard through the wooden
barriers. Mr. Horvath indicated that the increased percentage of mixed loads and
increased size of the B-trains were as a result of decreased sales and increased
fuel costs. He also indicated that he had no control over whether the load would
be a dedicated load or a mixed load. These factors are not related to the construction
or use of the Project, except in so far as the Project has a relatively minor
contribution to decreased sales. The primary cause for decreased sales is the
significant decline in the local economy that has caused a drop in sales of at
least 30% at other building supply stores in the area. [54]
Both Mr. James, the traffic engineer retained by Bayview, and Mr. Bunt, the traffic
engineer retained by MoTH, agreed that in 1995 the temporary access for B-trains
directly from the Highway through the wooden barriers was inadequate and created
concerns. As indicated above Mr. Bunt said that backing across the Highway was
"an inherently unsafe vehicle manoeuvre" even when the speed limit on
the Highway was lower at 60 km/h before the construction. There was evidence at
the first hearing that backing up across the highway when mixed loads were delivered
continued to occur after the construction approximately 25% of the time. As indicated
above, even though Bayview has formal permission to continue to use the temporary
access, Bayview has now on its own accord stopped backing out across the highway.
This supports Mr. Bunt's opinion that what he described as this "unusual"
truck access from the Highway that existed before construction would become worse
whether the Project had been constructed or not because of the projected increase
in traffic volume. We accept Mr. Bunt's opinion on this point. [55]
The primary deficiency urged on us, the closing of the temporary access through
the wooden barriers, was based on the assumption that it would terminate delivery
of supplies to the Bayview site. We now know that this is not true. More importantly,
we have concluded that, prior to MoTH proceeding with this closure, Bayview has
largely stopped using this access for reasons independent of the Project: namely,
the increase in traffic, the increase in size of B-trains to 96 feet, and the
increase in the percentage of mixed loads. We find that MoTH's actual closing
of the temporary access as part of the Project will have a relatively minor effect
on Bayview's business. [56] We recognize that the unloading
of supplies on Deloume Road is unsatisfactory but most of the problems with that
location (blocking of the parking stalls, slope on Deloume Road, lack of proximity
to the storage areas, use of the right of way for unloading and transporting the
supplies to the middle and lower yards) do not result from the construction and
use of the Project. The one effect of the Project on the unloading of supplies
on Deloume Road is that the travelled portion of Deloume Road in MoTH's right
of way is now closer to the Bayview property than it was prior to construction. [57]
This is a second deficiency urged on us by Bayview: namely, that customers have
difficulty accessing the parking stalls because the travelled portion of Deloume
Road is now closer to the Bayview property. Since cars must back out of the parking
stalls directly into the right of way, the shifting of the traffic closer to the
Bayview property presents problems for customers leaving the site as well as for
motorists using westbound Deloume Road. Particularly when traffic on westbound
Deloume Road is congested, access to and egress from the parking stalls is more
difficult. [58] Bayview says that when MoTH decided not
to proceed with the initial proposed partial taking from the Bayview property
it made a decision not to create the same type of corner as is present on the
other three corners of Deloume Road and the Highway. Thus, MoTH decided not to
create a third lane on westbound Deloume Road for a free right turn, although
this north-east corner of the intersection has the highest number of vehicles
turning right. Bayview says it is this decision not to proceed with the larger
taking that has led to traffic on Deloume Road being shifted closer to the Bayview
boundary. Mr. Hope, Regional Director for MoTH for Vancouver Island, testified
that normally MoTH owned a right of way beyond the curb lane of a road and in
this case the traffic that is close to the intersection is using the right of
way to within a few inches of the property boundary. However, Mr. Hope states
that as of 1998 one of the two lanes on westbound Deloume Road is in fact a free
right turn within the limited space in the existing right of way and that this
change has solved the previous problems of congestion and cars trying to sneak
up the shoulder (and trespassing on Bayview property) to make a right hand turn.
In any event, we have no jurisdiction with respect to policy decisions made by
MoTH. Our jurisdiction is limited to compensating owners for the market value
of the interest that has been taken, the reduction in market value of the remaining
land, and damages that are directly attributable to the taking or result from
the construction and use of the works. [59] MoTH's actual
taking was just 16 square metres at the south-west corner of the Bayview site,
at the intersection of the Highway and Deloume Road. The taking was a triangle-shaped
parcel from the corner, measuring very approximately six metres along the western
boundary and six metres along the southern boundary. This triangle was immediately
to the east of the existing traffic island at the north-east corner of the intersection.
The traffic island was on property that was already part of the Highway right
of way although it appears that there was an encroachment of one corner of the
island onto the triangle of Bayview property that was taken. Although there was
some evidence that this taking would enable MoTH to enlarge the existing traffic
island, there has been no construction to date and there was evidence that MoTH
had no plans to make any changes. The taking had no effect on the travelled portion
of Deloume Road now being closer to the Bayview property. However a vehicle in
the right turn lane at the intersection now has less likelihood of trespassing
on Bayview property if it cuts close to the traffic island. [60]
Richard Harold, a former District Manager for MoTH, now retired, testified that
prior to 1990 there were some complaints related to congestion on westbound Deloume
Road. He said that some of these complaints related to Bayview's activities near
or on the right of way when it was transporting supplies by fork lift around the
retail building from the middle yard through its parking area to the lower yard.
Both the traffic engineers reported that the parking layout in 1995, with no barrier
between the parking and the traffic on Deloume Road, requiring vehicles to back
out directly onto the right of way so close to the intersection, was undesirable,
unacceptable, and even unsafe. They also agreed that the number of parking stalls
for this type of retail business was inadequate. Mr. Bunt, the traffic engineer
retained by MoTH, stated that these parking deficiencies were independent of the
construction of the Project. The underlying problem is the increase in traffic
within the respondent's right of way. [61] We accept that
the problem of the narrow parking lot with only ten parking stalls in front of
Bayview's retail building and Bayview's resultant reliance on the adjacent right
of way predated construction. The configuration of the site pre-construction is
an independent deficiency. While the closeness of the traffic as a result of the
Project exacerbates the problem we find that the increase in traffic is an independent
factor post-construction. Bayview was always at risk in its reliance on MoTH rights
of way for transportation of materials to various parts of the site and access
to parking. [62] The third deficiency advanced by Bayview
is that the median on Deloume Road prevents eastbound customers on Deloume Road
from being able to turn left across the westbound lane into the parking stalls.
The customers must either make a U-turn at the end of the median or drive some
distance down Deloume Road and turn around. We agree that the median impairs access
by eastbound customers. However, Mr. Bunt provided evidence that at the time of
the first hearing the traffic on westbound Deloume in the afternoon peak times
would sometimes have over 13 vehicles waiting to turn right and that this line
of vehicles would extend for a distance of over 70 metres or 30 metres past the
median. Certainly in such conditions it would be very difficult for eastbound
vehicles to turn left through this line of traffic to gain access to the parking
stalls, even if the median had not been built. To some extent then, the underlying
problem of the increase in westbound traffic within the respondent's right of
way is an independent factor post-construction resulting in difficulty of access
for eastbound customers. [63] Thus, a careful review of
each of the deficiencies indicates that although the Project has contributed to
each, a contributing factor was an independent pre-existing condition, the awkwardly
configured site that is independent of the Project. There have also been a number
of independent factors that occurred post-construction that impacted the deficiencies.
These include the increase in traffic, the increase in the size of B-trains to
96 feet and the increase in the proportion of mixed loads. The increase in traffic
was a predictable certainty that taken together with the pre-existing condition,
the awkwardly configured site, have worsened the B-train access from the Highway
and the accessibility of the parking stalls irrespective of the Project. There
has also been a marked decline in the local economy affecting building construction
in the last five years. This is likely relevant to the number of mixed loads and
the lack of customers. [64] As we have already indicated,
we do not think that the circumstances in Bayview are analagous to those in Athey.
The site configuration in 1995, at the time of the first hearing, or in 2000,
at the time of the second hearing, is not the result of a single indivisible injury
caused by the Project. The site configuration pre-construction was a pre-existing
condition that was certain to deteriorate with the increase in traffic. There
were other intervening events that were independent of the Project. MoTH is only
responsible for those injuries that resulted from the Project. It is not required
to place Bayview in a better position than it would have been in, but for the
Project. [65] There is still the question of whether Bayview
has been ousted from its main retail store as a result of the Project. In order
for us to find that Bayview has been ejected from the existing premises the decision
in Patterson makes clear that there must be strong evidence that satisfies
an objective test. We have found that closing the Highway access will not have
the major impact that was urged on us; the use of the temporary Highway access
is already relatively infrequent. As a result we are not satisfied that Bayview
has been effectively ousted from the main retail store. Even if we thought that
access related issues had ousted Bayview from the retail store, the number of
independent factors both pre- and post-construction means that the strong evidence
for the impact of the Project is not present. [66] In any
event, there are various problems associated with awarding damages on the basis
of reconfiguration in this case rather than diminution in value. As the Court
of Appeal recognized, costs for reconfiguration would need to be adjusted to exclude
the net improvement inherent in new premises as well as the fact that Bayview
would have had to eventually reconfigure anyway. Providing for different types
of betterment is a complex issue that various courts have struggled with in different
ways, including sometimes choosing diminution in market value as a measure of
damages where betterment in terms of increased market value as a result of reconstruction
would be significant. See J. Berryman, Betterment Before Canadian Common Law
Courts, [1993] Canadian Bar Review 54. [67] Bayview
tried to take betterment into account in its "simple formula". Unfortunately,
this model is flawed. The market value of the buildings after the taking (D) is
measured principally by the cost to reconfigure (B) with no check on this figure
using actual market data. This means that in the equation A = B - (D - C), the
cost to reconfigure is reflected in both B and D and therefore essentially drops
out of the equation. We also disagreed with some of Mr. Pavlakovic's calculations
within the model, such as deducting $250,000 for the cost of levelling the site
on the grounds that such work would not contribute to market value. In our opinion,
transforming the existing three level site, without an internal driveway, to a
single level site, must lead to an increase in market value. We recognize that
estimating betterment is a difficult task but we conclude that Bayview's model
does not provide us with an appropriate measure of damages. [68]
In this case, there are a number of aspects of inherent improvement in the proposed
reconfiguration. These include a new concrete block retail building all on one
floor, instead of a 50 year old wood frame building with almost half of the retail
space being a low height basement area for slow moving stock. There is a modest
increase in the size of the retail building and the storage sheds, some, but not
all of which, are as a result of new building code requirements. There are some
other components, such as concrete floors in all the storage sheds, and asphalt
paving in all the lumber yards, that are not present in the existing premises.
As described above, the levelling of the site is also a significant improvement.
All of these factors would lead to an increase in market value of the property. [69]
There has been recognition that, as a result of the independent factors both pre-
and post-construction, the Bayview site would have needed reconfiguration at some
point in any event. Bayview would be entitled to receive not the costs for the
reconfiguration (or some portion of them) but the costs of accelerating the date
for reconfiguration, a specific number of years in advance of when the site would
otherwise have been reconfigured. [70] We note that, having
rejected Bayview's model, we were not provided with evidence to assist us in dealing
with either of these two aspects of betterment. Further, unlike the Alberta case
of Bartle & Gibson, the reconfiguration has not yet occurred and may
never occur because the cost to reconfigure the site may be unreasonable for this
business to make. As Mr. Bowie, Bayview's business valuator, pointed out, the
proposed reconfiguration is costly and at this point in time, Bayview is not in
a position to proceed with it. The appraisal evidence that we had on highest and
best use was presented during the first hearing and applied as of 1990 and 1993.
It may be that the highest and best use of this site is no longer the existing
use as a building supply business, given the changes in the market place. Awarding
a portion of the costs or the accelerated costs for a proposed reconfiguration
that may never occur is speculative. We agree with the comments of the Alberta
Land Compensation Board in Hudson's Bay Co. Developments v. City of Calgary
(1978), 16 L.C.R. 296 at p 327 to which reference is made in Bartle &
Gibson: In this context what the claimants
are entitled to under the Act is the market value of the land and premises which
have been taken. The manner in which and the type of land and premises which the
claimants may select to replace those taken are entirely within the purview of
the claimants and, indeed, the claimants may choose not to replace that which
was taken. The expropriating authority has no control over or responsibility for
the course of action which the claimant may elect to follow in replacing the expropriated
land or the consequences which may flow from such action. This
is to be contrasted with the situation for disturbance damages. On page 324 the
Alberta Board states: With respect to disturbance
damages the onus is on the claimant to establish that such damages are compensable
under the Act and to establish by a preponderance of evidence the amount of such
expenses, costs or losses. In the Hudson's
Bay case, the Alberta Board went on to deny a claim for disturbance damages
for various costs associated with constructing a replacement warehouse as not
being compensable under the Alberta Act. In the subject case, Bayview has not
satisfied us that it is entitled to a portion of the costs or the accelerated
costs for the proposed reconfiguration as reasonable business losses that are
directly attributable to the taking or that result from the use and construction
of the works. [71] Awarding damages on the basis of diminution
in value allows us to allocate the deficiencies that result from the Project and
those that are independent of the Project without having to deal with the problems
raised by a proposed reconfiguration. In our opinion, Bayview is entitled to the
reduction in market value awarded in the first decision. This award of $247,765
includes a 20% reduction in the land value as a result of the deficiencies caused
by the Project and an increase in depreciation for the improvements from 50% prior
to construction (40% for physical depreciation and 10% for functional depreciation)
to 80% following the Project. The 30% depreciation applied to the improvements
as a result of the Project was greater than that put forward by either appraiser.
Although the board in the earlier decision recognized the deficiencies that were
independent of the Project, it made clear that in its view the Project had had
a severe effect on the utility of improvements and this was reflected in the depreciation
rates that had been chosen. 4.3.4 Feasibility
of proposed reconfigurations [72] In any
event, even if we had found that Bayview had been ousted from its main retail
building as a result of the construction or use of the Project, the claim for
business losses for reconfiguration would have been doomed because the Herold
plan, proposed by Bayview, does not address the major problem that has been emphasized
by the claimants - the closure of the access from the Highway and the termination
of access for B-trains to the middle yard. Mr. Derby testified that access by
B-trains was not one of the requirements that he had been asked to address in
designing the proposed reconfiguration of the site. He stated that a 96-foot B-train
truck could enter the site but there was not sufficient space for it to exit through
the second driveway (the one closer to the intersection). Either the rear trailer
would have to be piggybacked onto the front trailer, a manoeuvre that could only
occur if all of the supplies were unloaded, or, in the alternative, if there were
no vehicles in the adjacent parking stalls, the B-train would have to run over
the curbs and landscaped area near the second driveway. Mr. Derby suggested that
perhaps some of the proposed landscaping buffer strip could be changed to a hard
surface. However, the planning technician for the Cowichan Valley Regional District,
David Paras, testified that the bylaw with respect to commercial premises in the
District called for six metres of low level landscaping to buffer the property
from the roadway. The Herold plan only provides for three metres of landscaping,
50% of what is required in the bylaw, and the exit for the B-train would require
elimination of the landscaping altogether in the relevant area. Although variances
to the bylaw requirement are possible, in our view, they are not probable.
[73] Mr. Derby also testified that he had not consulted with MoTH about its needs
to approve the access arrangements for the site. There was testimony that MoTH's
concerns in considering approval include the degree of impact that vehicles entering
or leaving the site would have on the existing traffic flow on the roadway. One
of the MoTH employees stated that traffic counts would likely be required. There
is also a concern for safety reasons to minimize the number of points of access
and to locate the access some distance from a major intersection such as this
one. B-train access requires two driveways sufficient distance apart that the
B-train can enter the site, unload on the site, and then turn and exit the site
through the second driveway (the one closest to the intersection). Mr. Derby expected
MoTH may require both driveways to be shifted further east, away from the intersection
with the Highway, and it is uncertain what effect this would have on the potential
for B-train use. Given these concerns about safety and the risk of obtaining both
a by-law variance and an approval before B-trains might be able to exit
the site, we are not persuaded that 96-foot B-trains could be accommodated on
this proposed reconfigured site. This failure to remedy the major deficiency put
forward by Bayview is in our view a serious defect for this claim. [74]
In addition, neither of the proposed reconfiguration plans meets the requirements
of the CVRD zoning bylaw. Both proposals would require variances for setbacks
for new buildings. We note that the Herold plan called for a concrete block building
that is greater than 45 metres (about 150 feet) in length, directly on the property's
northern boundary with zero setback, when the adjoining property was residential.
In both plans one or more of the proposed storage sheds also had insufficient
setbacks from the northern property boundary. The Herold plan also required a
variance for parking (to approve 43 stalls instead of 46) and for landscaping
(to approve a three metre buffer strip instead of six metres - ignoring the B-train
requirement for the elimination of part of the landscaping) while the Urban plan
(proposed by MoTH) would likely require a variance for the proposed steel racking
situated beside Deloume Road. With respect to the Urban plan, Mr. Horvath testified
that delivery trucks would have difficulty in driving around the corner of the
existing retail building. This plan also proposes building the ramp and roadway
over part of the existing septic system, when there was evidence that no parking
or driving over septic fields should occur. Finally, as indicated above the Herold
plan showed two driveways from Deloume Road that are placed relatively close to
the intersection with the Highway for which approval from the respondent MoTH
is required. Given the number of variances that are required, we are not convinced
that there is a probability that either of these proposed reconfigurations would
ever be approved. [75] We recognize that, at least in theory,
a different reconfiguration might be proposed that better addressed B-train access
and some of the other deficiencies of the current site, as well as the various
bylaw requirements. However, it is doubtful that Bayview can fit a 641 square
metre (6,900 square foot) retail building, all on one level, the storage space
needed for building materials, a septic system (with no parking or driving on
top of it), and the additional parking, onto this site. Another constraint is
the need for two access points some distance from the intersection. Even with
the extra lot, we find that an approvable reconfiguration that allows B-trains
to enter and exit this site to be improbable. 4.4
Conclusion [76] We reject the claim
for reconfiguration and instead award $247,765 for the reduction in market value
that was awarded in the first decision. Since we have not accepted the claim for
reconfiguration, the other claims for expenses associated with the reconfiguration
such as demolition expenses, moving expenses, start-up expenses, and upgrade costs
thrown away are also denied. 5. LOSS
OF INCOME from 1995 to 2000 5.1
Bayview's position [77] Bayview refers
us to the finding of the British Columbia Court of Appeal quoted above that if
we conclude that no relocation costs should be awarded then we should consider
such other types of future business losses as are advanced by Bayview. Bayview
says that financial evidence since the construction demonstrates further loss
of income as a result of the Project. Bayview's position is that the business
is no longer economically viable. Expert evidence on this loss of income was provided
by Michael Bowie, a chartered accountant and business valuator with KPMG. [78]
Because the local economy had declined between 1995 and 2000 there had been a
drop in construction activity. In order to take this into account in determining
Bayview's loss of income from the Project, Mr. Bowie used two regression models
to determine the historical relationship between Bayview's sales prior to the
Project and: - The number of new housing starts in the Cowichan Valley
during 1983-1989, [the "starts" model], and
- The dollar value
of residential building permits issued in the Cowichan Valley during 1983-1989,
[the "values" model].
Assuming that Bayview's
historic share of sales would be maintained in the declining market conditions
between 1995 and 2000 he projected what Bayview's sales might have been but for
the Project for each of these years based on the relevant statistics for housing
starts and construction values. Mr. Bowie then compared the average of the projected
sales from these two models with Bayview's actual sales for each year after excluding
sales to one customer, Bob's Plumbing. In an effort to increase his sales following
the Project Mr. Horvath said that he extended credit to a number of customers
that left him with bad debts. The sales to Bob's Plumbing were the only ones that
Mr. Bowie deducted on the basis that the inventory sold to Bob's Plumbing was
outside the normal course of business for Bayview. The amount by which these "normalized"
sales (excluding Bob's Plumbing) fell short of the projected sales was Mr. Bowie's
calculation of lost sales. The total lost sales from February 1, 1995 to January
31, 2000 as estimated by Mr. Bowie was approximately $1,410,000. [79]
The loss of income on the lost sales was calculated as the estimated gross profit
that would have been earned on the lost sales. Mr. Bowie made the assumption that
Bayview's gross margin on lost sales would have corresponded with the actual gross
profit margins reported in each of its fiscal years. The average gross profit
margin was 27.7% and thus the total loss of income was estimated at approximately
$390,000. Mr. Bowie made no deduction for extra operating expenses that might
be incurred with higher sales because he felt that these would be modest given
the relatively small incremental sales and Bayview's historical wage and benefit
costs. 5.2 MoTH's position [80]
MoTH takes the position that there is no basis for Bayview's claim for business
losses for the period between fiscal 1995 and fiscal 2000. The board in its original
decision made a finding for past business losses and this award had not been appealed.
In making its award the board found that the business losses related to the Project
had ceased by 1994. MoTH argues that Bayview has not proved that it has sustained
any business losses as a result of the Project beyond those awarded in the earlier
decision of the Board. [81] In the alternative, if Bayview
is entitled to any business losses for the period between fiscal 1995 and fiscal
2000, MoTH challenges the two assumptions underlying Mr. Bowie's models used to
estimate loss of income, namely: - any shortfall
in Bayview's loss of sales as measured by the average between the starts and values
model is directly attributable to or results from the access problems related
to the Project;
- the sales to Bob's Plumbing that were
excluded would not have been undertaken but for the Project.
MoTH
relies on three experts who disputed various assumptions in the models used by
Mr. Bowie to estimate loss of income. These were Mr. Sommers, the management consultant,
Peter Kiernan, a mathematician, and Richard Crosson, a chartered accountant and
business valuator with Blair Crosson Voyer. [82] The evidence
of Mr. Sommers, the marketing consultant, challenged the first assumption. As
indicated above, he assessed the factors affecting the sales, profitability, and
operations of Bayview during the period 1990 to 2000. While the Project was an
important factor between 1990 and 1994, he stated that the poor state of the marketplace
was the primary reason for Bayview's decreased sales since 1995. He also expressed
the opinion that Bayview has not maintained its competitive position in the marketplace.
He conceded that problems associated with the access to Bayview's site had some
impact on sales since 1995, but felt that the effect was relatively minor. [83]
Dr. Kiernan, the mathematician, expressed the opinion that one of the two regression
models used by Mr. Bowie to project Bayview's sales, the values model, lacked
validity. First, as Mr. Bowie had observed, a model based on the number of residential
building permits issued is not as accurate as a model based on building starts
because many permits do not materialize into actual construction. Dr. Kiernan
pointed out that this drawback would equally apply to a model based on the dollar
values of residential building permits issued. Secondly, the total construction
values on residential building permits in the Cowichan Valley in several of the
fiscal years from 1995 to 2000 were relatively high and outside the range of historical
construction values in the 1980's used to establish the model. Since there is
no basis for assuming a linear relationship between Bayview sales and construction
values over $50 million, Dr. Kiernan's view is that the values model can not be
used and only the starts model is valid. [84] Mr. Crosson,
the accountant and business valuator, criticized both of the underlying assumptions
in Mr. Bowie's report. He also questioned Mr. Bowie's failure to deduct any operating
expenses when calculating the income on lost sales. Mr. Crosson provided alternative
calculations of loss of income if Bob's Plumbing was included, if operating expenses
were deducted and if the starts model only was used. The loss of income dropped
from $390,000 to $165,000 if Bob's Plumbing was included, falling further to $98,000
if Bob's Plumbing was included and operating expenses were deducted and finally
disappeared altogether if Bob's Plumbing was included, operating expenses were
deducted and the starts model only was used. [85] With
respect to Bob's Plumbing, MoTH submits that the decision to extend credit to
Bob's Plumbing is a business risk and blaming this customer on the Project is
too remote and speculative. It refers us to Todd's discussion of causation and
remoteness in The Law of Expropriation and Compensation in Canada.
5.3 Entitlement [86]
The first issue to be decided is whether Bayview can claim any business losses
as a result of the Project between 1995 and 2000. In the earlier hearing an award
was made for past business loss beginning with the construction in May 1990 and
continuing until January 31, 1994. During this initial hearing we had financial
statements from Bayview up until January 31, 1994. This award for past business
loss was not appealed. No award was made for future business loss. Bayview had
presented its claim for future business loss as a claim for the cost of reconfiguring
the site, on the basis that reconfiguration of the site would "cure"
any future business loss. Having concluded that no relocation costs should be
awarded, we are directed by the Court of Appeal to consider other types of future
business loss as advanced by Bayview. At par 22 Madam Justice Newbury says "that
given the passage of time post-construction, it may now be less difficult for
Bayview to prove a negative effect on its revenues due to the highway reconfiguration". [87]
We conclude that Bayview is entitled to claim for any ongoing business losses
that are a result of the Project. 5.4
The Board's analysis of Bayview's model to estimate loss of income [88]
Before we consider the question as to how much of the loss of income is as a result
of the Project, we will review the various aspects of Bayview's model to estimate
the loss of income. 5.4.1 Starts and values
models [89] As indicated above, Mr. Bowie
constructed a model to determine Bayview's projected sales but for the Project
based on the relationship of its sales to both housing starts and to the value
of building permits for the period between fiscal 1984 and fiscal 1990. Mr. Bowie
averaged the projected sales from these two sources for the each fiscal year from
fiscal 1995 through fiscal 2000. Mr. Bowie found these to be as follows:
| | | "Starts"
Model $ |
"Values"
Model $ |
Average of "Starts"
and "Values"
Models $ |
| | Year ended January 31, 1995 | |
1,446,196 |
1,912,592 | 1,679,394 |
| Year ended January 31, 1996 | |
1,096,102 |
1,386,121 | 1,241,112 |
| Year ended January 31, 1997 | |
1,100,250 |
1,463,542 | 1,281,896 |
| Year ended January 31, 1998 | |
1,095,272 |
1,394,524 | 1,244,898 |
| Year ended January 31, 1999 | |
973,320 | 1,195,470 |
1,084,395 | | Year
ended January 31, 2000 | |
922,714 | 1,099,020 |
1,010,867 | | |
| | | |
6,633,854 |
8,451,269 | 7,542,562 |
| |
| [90]
Mr. Bowie's use of the values model was criticized by Dr. Kiernan, the mathematician.
The values model was based on the relationship of Bayview's sales with the total
construction values listed on residential building permits in the 1980's. However,
the construction values for the Cowichan Valley in the calendar years 1983 to
1989 were between $13 million and $48 million while four of the six values for
1994 to 1999 were greater than $50 million. Dr. Kiernan agreed that since the
value of the building permits in the 1998 and 1999 calendar years, at $40 million
and $31 million, were within the parameters of the value of the building permits
in the yardstick period, the values model might be appropriate to use to estimate
Bayview's sales for these two years. [91] One of the factors
affecting both of these models is inflation. Mr. Sommers provided us with inflation
adjustment factors for the years 1983 to 1999. The average increase in inflation
between the yardstick years of 1983 to 1989 and the projection years of 1994 to
1999 was approximately 29%. In our view, this is one of the main factors in Dr.
Kiernan's criticism that several of the construction values between 1994 to 1999
are outside the range established in the earlier years. If inflation is taken
into account the construction values for only one year, 1994, out of a total of
six years is significantly outside the yardstick range and therefore Dr. Kiernan's
objection to the values model is largely overcome. [92]
We note that the construction values are stated in current dollars and therefore
the values model will provide projected sales that take inflation into account.
The starts model, however, is based on the number of housing unit starts and,
accordingly, does not reflect the effects of inflation between the yardstick years
and the periods after January 31 1994. Mr. Bowie agreed that this would result
in an understatement of the projected sales. Accordingly, the starts model underestimates
the projected sales for 1994 to 1999 because it does not take the effect of inflation
into account. [93] Another factor affecting the values
model is that not all the building permits result in construction. No sales from
a building supply store will result when a building permit is not taken up and
used in actual construction. Dr. Kiernan pointed out that the proportion of building
permits that did not proceed has altered in recent years. The ratio of housing
starts to the number of residential building permits issued was 91.5% in the years
1983 to 1989. This ratio declined approximately 11% to 80.5% in the years 1994
to 1999. This means that the percentage of building permits that did not lead
to a housing start has increased. As a result, the values model overestimates
the projected sales for the years 1994 to 1999. [94] In
summary, we find that the starts model used by Mr. Bowie has a tendency to underestimate
the projected sales because of inflation while the values model has a tendency
to overestimate the projected sales because of the greater proportion of inactive
residential building permits after 1994. All models are approximations of reality
and after reviewing the evidence in its entirety we are satisfied that Mr. Bowie's
use of an average of the projected sales derived from these two models provides
a reasonable estimate of the projected sales. 5.4.2
Sales to Bob's Plumbing [95] Mr. Bowie
calculated Bayview's lost sales by deducting the actual sales, other than those
to Bob's Plumbing, from the projected sales. Mr. Bowie explained that Mr. Horvath
had told him that as a result of the Project, he extended credit to a number of
customers that he might not have otherwise dealt with. Some of these customers
did not pay their accounts. As indicated above, one of the assumptions set out
by Mr. Bowie in his report is that the sales identified by Mr. Horvath as unusual
sales would not have been undertaken were it not for the Project. Mr. Bowie deleted
the sales to one of these customers, Bob's Plumbing, because he said that the
sale of plumbing supplies on a large scale was a complete departure from Bayview's
regular business. [96] MoTH's position was that sales to
Bob's Plumbing were made as a reaction to generally adverse business conditions,
and that there was no causal relationship between sales to Bob's Plumbing and
any reduction in sales caused by the actions of MoTH. Mr. Crosson pointed out
that total sales to Bob's Plumbing between fiscal 1995 and fiscal 2000 were significant
at $875,000 or 12.5% of the total actual sales. Eliminating these sales resulted
in "lost sales" increasing 21/2 times from approximately $535,000 to
$1,410,000. Further, when these sales were included there was no shortfall on
projected sales for the fiscal years 1996, 1997, and only a very small shortfall
for 1998. Mr. Crosson suggested that if the Project was in fact the cause of the
lost sales one would expect some consistency in year-to-year sales reductions.
[97] First, we agree with MoTH that Bayview has not established a reason to exclude
Bob's Plumbing because of the Project. Bob's Plumbing first became a significant
customer in fiscal 1996, four years after the construction was completed. Bayview
enjoyed its highest sales ever the year before in fiscal 1995, although it is
true that during fiscal 1996 housing starts and construction values fell approximately
45%. Mr. Horvath agreed that extending credit was a business risk. The causal
link to the Project has not been made. We reject the assumption made by Mr. Bowie
that Bob's Plumbing would not have become a customer but for the Project. [98]
Second, there is the issue of Bob's Plumbing being a different type of customer.
We have reviewed the statistical analyses of Bayview's sales during its 1991 to
2000 fiscal years that were attached to Mr. Sommers' report. Bob's Plumbing was
by far the largest customer Bayview has had in this period with sales over $200,000
in each of three consecutive years (fiscal 1996-1998) including sales over $300,000
in fiscal 1997. Only three other customers show sales of over $100,000 in a year
and only one of these made purchases over $100,000 in each of two years. The information
provided by Mr. Sommers also shows that plumbing sales accounted for between 5.80%
and 8.15% of sales in the fiscal years 1991 to 1995, with an overall average of
7.04%. They jumped to 22.65% in 1996, with the commencement of sales to Bob's
Plumbing, increased again to 31.68% in 1997 reflecting higher sales to Bob's Plumbing,
dropped to 27.90% in 1998 and 12.19% in 1999 with reducing sales to Bob's Plumbing.
They finally dropped back down to 6.96% in 2000 reflecting a termination of Bayview's
business with Bob's Plumbing. [99] Thus Bob's Plumbing
was an unusual customer both in its total volume of sales and its effect on the
percentage of plumbing sales. However, Bayview has always carried plumbing inventory
and plumbing supplies have always made up a certain segment of the sales. There
was a marked increase in plumbing sales when Bob's Plumbing became a customer
because it was such a big customer and plumbing supplies were what it bought.
If a customer who bought as much inventory as Bob's Plumbing had been a framer
or an electrical contractor, then we would have expected a corresponding increase
in the percentage of lumber or electrical supplies. We do not accept that selling
plumbing inventory was a completely different enterprise that required totally
new inventory, new procedures, or different types of employees. [100]
Nonetheless, Bob's Plumbing was such an unusually large customer that its sales
distort the total sales in the period fiscal 1996 to fiscal 1998. Bowie's model
is based on the relationship of Bayview's sales to the average of residential
construction starts and residential construction values during the 1980's. The
extraordinary sales to this customer disrupt the model. In our opinion if such
a big purchaser as Bob's Plumbing had not become a customer Bayview would likely
have worked to attract other, more modest, sales in its place. If the sales to
Bob's Plumbing are included, they mask the "lost sales" produced by
the model for the period between fiscal 1996 and fiscal 1998. If they are excluded
they artificially increase the "lost sales". As a result we have adjusted
Mr. Bowie's model to exclude the sales for the period between fiscal 1996 and
fiscal 1998 altogether. We have then averaged the actual sales in the years that
straddle the three year period in which Bob's Plumbing was a major customer: fiscal
1995, 1999 and 2000. We have assumed that the average of the actual sales for
these three years would apply to each of the three fiscal years, 1996 to 1998.
Although this modification is not without its own problems, in our opinion, it
results in a better model than one that includes the sales to Bob's Plumbing or
one that excludes them. 5.4.3 Loss of income
- gross margin and operating expenses [101]
In order to estimate the loss of income Mr. Bowie estimated the gross profit that
would have been earned on the lost sales. He assumed that Bayview's gross margin
on lost sales would have corresponded with the actual gross profit margins reported
in each of its fiscal years. Mr. Crosson pointed out that there were significant
variations in gross margins between individual years, and that it was unlikely
that the gross margin on the lost sales for a particular year would have equalled
the average gross margin for that year. However, Mr. Crosson said there was no
information that would enable him to determine whether Mr. Bowie's assumption
in relation to gross margins would result in an overstatement or understatement
of his loss estimate. In the circumstances we accept Mr. Bowie's assumption used
in calculating the amount of the gross profit on lost sales. We note that the
gross margin on sales for the fiscal year 2000 was 39.6%, the highest of any year
in the entire period between 1984 and 2000. This suggests to us that this figure
might be in error arising perhaps from an overstatement of the inventory at January
31, 2000 or an understatement of the inventory at January 31, 1999 or some combination
of the two. In this connection we also note that the 1999 gross profit is exactly,
to the last dollar, equal to 25% of the sales for that year. This suggests that
the inventory at January 31 1999 was determined by assuming a gross profit of
25% rather than by a physical count. This method of determining inventory will
produce an inaccurate figure if the business achieves a gross margin that is different
from the assumed amount. The 2000 gross profit is not a precise percentage of
the sales of that year which suggests that the inventory at January 31 2000 may
have been determined by physical count. Accordingly we think that an error in
the fiscal 2000 gross profit is more likely the result of an understatement of
the 1999 inventory rather than an overstatement of the inventory at January 31
2000. An understatement of 1999 inventory would reduce the recorded gross profit
of 1999 and increase the recorded gross profit of 2000 by the amount of the understatement,
but would not change the aggregate gross profit of the two years. However, we
have no information that permits us to identify the source of the error or even
state with certainty that there is an error. As a result we accept Bayview's financial
statements as provided and note that any error arising from a misstatement of
the 1999 inventory would not have a material impact on our calculation of total
lost income in the period under review. [102] As indicated
above Mr. Bowie made no deduction for incremental operating expenses on the lost
sales on the grounds that these would likely be modest. Mr. Crosson pointed out
that in the first decision the board accepted that operating expenses should be
deducted in determining loss of income and that from April 1, 1990 to October
31, 1993 these averaged approximately 12.5% of sales. After reviewing the historical
operating statements Mr. Crosson estimated that 12.5% of sales would be a reasonable
measure of Bayview's marginal net operating expenses in the period between fiscal
1995 and fiscal 2000. [103] Our recalculation of the sales
loss in the period between fiscal 1995 and fiscal 2000 inclusive totals $1,065,393.
The actual sales of those years, including sales to Bob's Plumbing, totalled $7,007,534.
Thus the lost sales would have added 15% to Bayview's business over the six years.
We do not think it is reasonable to assume that Bayview could have handled so
large an increase in volume without some increase in expenses. [104]
There are a number of expenses that can be expected to vary with the volume of
sales. Bayview's largest category of expense is wages and benefits. These averaged
10.1% of sales in the period between fiscal 1995 and fiscal 2000. Bayview argued
that wages had averaged 8% in the period between fiscal 1984 and fiscal 1989 and
thus there was room for Bayview to increase its sales without increasing its wages.
However, we note that Mrs. Horvath was an active participant in the office operations
of the business during this period but her remuneration was included in the category
"directors salary" rather than wages. Mrs. Horvath's work is now done
by an employee who is paid wages. If wage costs of a market salary for Mrs. Horvath
were added for the period between fiscal 1984 and fiscal 1989, the percentage
of wages relative to sales would more closely approach the 10% found between fiscal
1995 to 2000. [105] There are a number of other expenses
that can be expected to vary with the volume of sales. Bad debts have customarily
been about 1% of sales. Vehicle expense, office and computer supplies, telephone
and travel are expenses that increase to some degree with increasing levels of
sales. [106] Weighing all of the evidence, we agree with
Mr. Crosson that a sales increase equal to the lost sales would require a concurrent
increase in operating expenses equal to 12.5% of those sales.
5.4.4 Our conclusions on loss of income according to Mr.
Bowie's models: [107] Our recalculation
of the lost sales by omitting the sales for the period between fiscal 1996 and
fiscal 1998 and substituting an average of the sales for fiscal 1995, 1999, and
2000 is: Fiscal
year
| Bayviews's
projected sales
$ | Bayview's
"actual sales"
$ | Lost
sales
$ |
| | 1995 |
1,679,394 |
1,497,778 | 181,616 |
| 1996 |
1,241,112 | 1,079,528 |
161,584 | 1997 |
1,281,896 | 1,079,528 |
202,368 | 1998 |
1,244,898 | 1,079,528 |
165,370 | 1999 |
1,084,395 | 904,715 |
179,680 | 2000 |
1,010,867 | 836,092 |
174,775 | |
|
| | 7,542,562 |
6,477,169 |
1,065,393 | |
|
[108] Our calculation of Bayview's loss of income
is as follows:
| Fiscal year
$
| Lost sales
$ | Gross
Profit
Percentage
% | Lost
gross
profit
$ |
Overhead
at 12.5% of
lost sales
$ |
Lost
income
$ |
| | 1995 |
181,616 |
31.0 | 56,334 |
(22,702) |
33,632 | | 1996 |
161,584 |
36.0 | 58,170 |
(20,198) |
37,972 | | 1997 |
202,368 |
25.0 | 50,592 |
(25,296) |
25,296 | | 1998 |
165,370 |
19.1 | 31,586 |
(20,671) |
10,915 | | 1999 |
179,680 |
25.0 | 44,920 |
(22,460) |
22,460 | | 2000 |
174,775 |
39.6 | 69,199 |
(21,847) |
47,352 | |
| |
| 1,065,393 | |
310,801 | 133,174 |
177,627 | |
| 5.5 How much of the
lost sales and lost income are attributable to the Project? [109]
Having reviewed various aspects of Mr. Bowie's models to estimate the loss of
income and recalculated the loss we turn to examine one of the assumptions underlying
the model - the shortfall between Bayview's projected sales and actual sales between
fiscal 1995 and 2000 is directly attributable to (or results from) the Project. [110]
This assumption that the whole of the loss in sales was attributable to the Project
was disputed by both Mr. Crosson and Mr. Sommers. Mr. Sommers stated that the
decline in the local economy was the primary factor in Bayview's declining sales
in the five years ending January 31, 2000. However, because the two models used
by Mr. Bowie were based on housing starts and construction values on building
permits, they take the poor economy into account. 5.5.1
Competition [111] Mr. Sommers also provided
some detailed information about four direct competitors to Bayview in terms of
size and type of premises, range of products, the contractor/consumer ratio and
competitive strategies. As an indication of the amount of business, three of the
four competitors have significantly cut their number of employees in the last
three years, although the two closest competitors have more staff now than in
1990. The closest competitor 6 km to the north is Beaver Lumber/Pacific Builders
in Cobble Hill. It is a large building materials operation with a lumber yard
that is approximately three times the size of the Bayview site and an interior
sales floor that is also significantly bigger than Bayview's. In the spring of
2000 it employed 27 staff compared to four plus a bookkeeper at Bayview. Its business
has grown since 1990 and between 1997 and 2000 it acquired three other lumber
yards in Duncan and Nanaimo. It has diversified by opening a truss plant, building
pre-hung doors and selling house packages overseas. The next closest competitor
located 18 km away significantly enlarged its store area in 1998. [112]
Mr. Horvath noted that the closing of the Home Hardware store outside Duncan in
early 2000 meant that there was now one fewer competitors than in 1990. Mr. Sommers
reported the closing of a lumber yard in Ladysmith, north of Duncan, in 1999 as
a result of falling profit margins and a chance to sell the site. This site was
not one of the competitors listed by Mr. Sommers as it was located too far away. [113]
In addition there was a Home Depot big box store that opened in Nanaimo (72 km
to the north) in 1997 and another in Langford (30 km to the south) in September
1999. We note that the Langford store only opened five months prior to Bayview's
January 31, 2000 year end, the last year for which we have financial statements.
Mr. Sommers provided evidence that in general, 27% of consumer purchasers of building
supply materials are driven primarily by price while only 6% of contractors are.
Moreover, while the big box stores stock a much wider range of hardware, plumbing
and paint supplies than most lumber yards, their range of lumber and bulk building
materials is more restricted. As a result, the big box stores likely have a greater
draw from consumer customers than from contractors. In any event, all four of
the local competitors identified by Mr. Sommers reported that the opening of the
Home Depot stores had an effect on sales or profit margins or both. While Mr.
Horvath minimized the effect of Home Depot on sales he did concede that he had
to be aware of Home Depot's pricing since it circulated flyers in the Cowichan
Valley. [114] We recognize that Mr. Horvath made efforts
to update Bayview's appearance with new decorative fascia board, awnings, and
illuminated signage. He had also increased the storage area in the cedar shed
and modified the retail store to improve display. There was also evidence of six
contractor customers who gave Bayview high scores for various attributes such
as quality products, service, professional manner, and trustworthiness. Nevertheless,
in a highly competitive marketplace, in a declining economy, the evidence as a
whole indicates that it is likely that Bayview has lost some sales to competitors
for reasons other than access. 5.5.2 Independent
factors affecting access and site configuration [115]
We agree with Mr. Sommers that congestion and access issues had some effect on
sales. Five of the six contractors who were surveyed who still were customers
of Bayview complained about access; in particular, the need to drive eastbound
on Deloume Road until they could turn around and approach the parking stalls in
front of the retail store from the westbound lanes of Deloume Road. Two of the
contractors said that congestion and access problems resulted in them not using
Bayview for small quantities of supplies. Seven contractors were also surveyed
who did not deal with Bayview: three no longer deal with Bayview and four had
never dealt with Bayview. None of these contractors mentioned access as an issue.
Nonetheless, we are satisfied that problems with access caused some loss in sales. [116]
One of the reasons access for customers is now more difficult is the median on
Deloume Road. This is a result of the Project. Another reason is that the travelled
portion of Deloume Road is now closer to the Bayview boundary. However, we have
already concluded that a number of factors independent of the Project have an
effect on the congestion on Deloume Road. These include the awkward site on three
levels, with the resultant dependence on using the parking stalls and the right
of way for delivery of supplies around the site. Another problem is that there
has always been an inadequate number of parking stalls. These were also poorly
located, so that vehicles have always had to back out of the stalls directly into
the public right of way. Since the Project, the significant increase in traffic
on Deloume Road has caused congestion and worsened Bayview's problems with access.
Finally the use of the Deloume Road for the unloading of supplies from the B-trains
in recent years blocks all of the parking stalls. However, the use of 96-foot
B-trains and the increased number of mixed loads for more than one store are factors
that are independent of the Project that have contributed to the use of Deloume
Road as an unloading site. As a result, we conclude that not all the loss of sales
as a result of access problems can be attributed to the Project.
5.5.3 Conclusion [117]
Notwithstanding that the first decision in this matter implied that the loss in
sales as a result of the Project ended in January 1994, we find that there has
been some ongoing loss of sales attributable to the Project. However, in the relevant
period between fiscal 1995 and 2000, (beginning some two years after construction
of the Project ended) Bayview also lost sales due to factors that are independent
of the Project. We note the comments of Mr. Harder, Bayview's business valuation
expert at the first hearing, who said that a calculation of ongoing business losses
which, at that time, were in the future was speculative since there were numerous
factors impacting on Bayview's business other than the Project. Weighing the effect
of the likely loss of sales to Bayview's competitors and the effect of the likely
loss of sales as a result of access issues that are independent of the Project,
we conclude that about one third of the ongoing loss in sales in Mr. Bowie's model
is due to the Project. Therefore, we award $60,000 for loss in income for the
period from fiscal 1995 to 2000. 6. FUTURE
BUSINESS LOSS 6.1 Bayview's Position [118]
Bayview claims that if we have not awarded damages for reconfiguring the site,
then the business is not viable. It says that an analysis of the financial statements
since the Project show that the business does not generate an economic rate of
return. It claims a total of $560,000 for future business losses to wind up the
business. [119] Mr. Bowie concluded that Bayview is not
viable based on two assumptions: - Bayview would
be unlikely to be able to continue operating when the Highway access is closed,
without a costly reconfiguration costing approximately $1.5 million;
- His
estimate of lost sales of between $200,000 and $300,000 per year between fiscal
1995 and 2000 are due to access related issues resulting from the Project.
[120]
In order to consider whether Bayview would have been viable but for the Project,
Mr. Bowie reviewed the historical normalized operating income for the period from
fiscal 1984 to 2000. He adjusted the reported income for a number of unusual expenses,
as well as for the lost profit for the period between fiscal 1991 and fiscal 1994
awarded in the first decision, and for his estimate of lost income for the period
between fiscal 1995 and 2000. He also adjusted for inflation. He estimated from
this information that, but for the Project, maintainable earnings after notional
rent and depreciation but before interest and taxes (EBIT) were in the range of
$50,000 to $75,000 per year. He reviewed the book value of Bayview's net assets
on January 31, 2000 and assumed an average net asset investment, excluding real
estate, of approximately $400,000. From this information he said that it was reasonable
to conclude that Bayview could have operated as a going concern but for the Project.
The going concern value would be at least equal to the carrying value of the assets
directly related to the operations. [121] Mr. Bowie then
proceeded to estimate the losses that would be sustained on a winding up of Bayview's
business. These may be summarized as follows:
| Shortfall in what can be realized |
| on sale of inventory as
of January 31, 2000 (50%) | $166,000 (approximately) |
| on prepaid expenses |
$ 4,200 (approximately) |
| Improvements to building with no realizable value |
$100,000 | | Buildings
with no realizable value | $108,000 |
| Severance - employees |
$ 50,000 | | Severance - Mr. Horvath |
$130,000 | |
| | Total |
$560,000 (rounded) |
6.2 MoTH's position [122]
MoTH disputes the fact that Bayview is now a non-viable business. In fiscal 2000
Bayview recorded positive earnings. Over the last several years, there were factors
other than the Project that had effected Bayview's loss in sales and gross profit.
Bayview is ignoring these factors and assuming that all its estimated lost sales
are due to the Project. Furthermore there is no consideration of what Bayview's
earnings will be in the future. Bayview has not established that there is no prospect
of future profitability, making it non-viable. [123] Mr.
Crosson concluded that Bayview was a going concern on January 31, 2000. He stated
that he generally agreed with Mr. Bowie's calculation of Bayview's normalized
operating income in recent years but for three items. He recalculated the normalized
operating income for the period from fiscal 1995 to 2000 using Bayview's actual
operations (excluding the effect of any lost income due to the Project) and making
corrections for the three points on which he disagreed. His recalculations show
that there was a net loss for earnings in each of the three fiscal years from
1997 to 1999, but that in fiscal 2000 Bayview's earnings recovered to $95,000
before interest and taxes, despite the continuing poor market conditions. He pointed
out that these historical records for normalized operating income say nothing
about Bayview's viability in the future. There was no evidence to suggest that
the reduced earnings in the three fiscal years 1997 to 1999 would recur in the
future. There was also no consideration of any factors other than the Project
that might impact the level of earnings, including competition from other building
supply outlets and the poor economy. Mr. Crosson concluded that in the absence
of any consideration of these factors, Mr. Bowie's analysis did not support a
finding that Bayview was not viable. 6.3
Discussion [124] Central to Mr. Bowie's
opinion that Bayview is not viable are two assumptions: that it is unlikely to
be able to continue operating when the Highway access is closed, and that it has
ongoing lost sales of $200,000 to $300,000 per year (which translates into lost
profits of $390,000 over six years or $65,000 per year) that are a direct result
of the Project. We have found that the closing of the Highway access will have
only a relatively minor impact on Bayview's business. We have also found that
Bayview's loss in profits as a result of the Project between fiscal 1995 and fiscal
2000 is only $60,000, or an average of $10,000 per year, which is only about 15%
of what was assumed by Mr. Bowie. Thus, we have made findings that undermine both
of Mr. Bowie's underlying assumptions for finding that the Project has made Bayview
non-viable. [125] The historical earnings, as adjusted
by both Mr. Bowie and Mr. Crosson, show that Bayview had negative or very low
operating earnings for the three years from fiscal 1997 to 1999. However, the
earnings have been significantly impacted by the poor economy over the last five
years. This is to be distinguished from the starts and values model for loss of
income for the period between fiscal 1995 and 2000 that factored in the effect
of the economy. Mr. Sommers provided evidence that the economy had caused a drop
in sales to other building supply stores in the area of at least 30% in the period
1997 to 2000. In his opinion, those businesses with a higher contractor base might
experience a drop in sales of up to 40%. In addition, Bayview's earnings have
been affected by the two other factors that we identified in our discussion of
the starts and values model: namely, the likely loss of some sales to competitors
in recent years and the loss of sales to other factors affecting access including
some that were independent of the Project. Thus, we find that a great majority
of the drop in earnings is for reasons that are independent of the Project. [126]
Further, we agree with Mr. Crosson that the historical earnings do not predict
what the earnings will be in the future. We note that Bayview has recorded positive
earnings in fiscal 2000 despite the poor economy, although as previously discussed
we think it possible that these recorded earnings may be overstated. On the other
hand, both appraisers in the first hearing thought that Bayview's buildings had
relatively limited economic life before the Project with even less economic life
afterwards. At the time of the second hearing in 2000, it was ten years since
the commencement of construction and seven years since the taking in 1993. Given
that there are a number of factors affecting the earnings and the uncertainty
associated with such factors as the economy, it is difficult to predict whether
the business will terminate in the short term or not. As we stated above, awarding
a portion of costs for an event that may not occur is speculative. [127]
Neither of Mr. Bowie's assumptions for finding Bayview non-viable as a result
of the Project has been accepted by us. We do not know when the business will
close. Although Bayview's earnings in some of the recent years have been poor,
this is for reasons that are largely independent of the Project. As a result we
deny the claim for business losses for winding up. [128]
Nonetheless, in our opinion, Bayview is entitled to some future business losses.
We have found that the Project caused some modest loss in profit between fiscal
1995 and fiscal 2000, amounting to $60,000. We do not have any further evidence
of Bayview's sales after January 2000 but would expect that some limited loss
in profits as a result of the Project is likely to continue. However, as indicated
above, there is uncertainty as to how long Bayview is likely to stay in business.
We were not provided with evidence to assist us with the determination of the
present value of ongoing losses of income. The Court of Appeal pointed out that
the difficulty of quantifying future business losses does not relieve us from
reaching some figure. In all the circumstances we award a round sum of $30,000
for ongoing future business losses. [129] We also note
that in its earlier decision in this matter the board concluded that the maximum
depreciation rate of 80% should be used for the improvements. We agree with Mr.
Harder, Bayview's business valuation expert in the first hearing, that some aspects
of the continuing long term effect of the taking on business losses are reflected
in this depreciation of the market value of Bayview's property. 7. EXECUTIVE
TIME [130] Bayview has claimed $2,186 for time and
expenses incurred by Mr. Horvath since the last hearing. All of the time detailed
by Mr. Horvath was with respect to dealing with Bayview's claim for compensation,
including meeting with counsel, meeting with expert witnesses, attending discoveries,
and providing documents in support of the claim for continued business loss. However,
as the board stated in the first decision, claims for time spent in preparing
a compensation claim or in attending a hearing to give evidence are not a compensable
disturbance damage. See E.C.E. Todd in The Law of Expropriation and Compensation
in Canada, 2nd ed. (1992), p. 290 and 522-523. Some claims for time and out
of pocket expenses may be able to be submitted for consideration as cost items.
8. SUMMARY [131]
In addition to the $415,533 awarded for business losses in the first hearing,
we have awarded Bayview further compensation as follows:
| Diminution in market value of land and buildings |
$247,765 | | Loss
of income during the period fiscal 1995 to fiscal 2000 |
$ 60,000 | | Loss of future income |
$ 30,000 | |
| | Total |
$337,765 | 9. INTEREST [132]
Bayview was paid the $247,765 following the first hearing together with applicable
interest under section 46 and, following the Court of Appeal decision, penalty
interest under section 47. Therefore there is no further interest to be paid on
this amount. [133] We have awarded $10,000 per year for
business losses resulting from the construction and use of the works from fiscal
1995 to fiscal 2000. Bayview is entitled to interest under section 46(1) on the
loss of income from the end of each year end business loss period between fiscal
1995 and fiscal 2000 to the date that it is paid. No interest is payable for the
future business losses. Sections 46(4) and 47 do not apply. 10. COSTS [134]
Bayview sought its costs at scale 3, but both counsel agreed to adjourn the question
of costs until following the release of this decision. As a result we make no
award for costs at this time. We request that if one or other of the parties wish
to schedule a hearing or make written submissions on the issue of costs, that
they so advise the registrar within 30 days from the issuance of these reasons.
THEREFORE IT IS ORDERED THAT
MoTH shall pay to Bayview Builders Supply (1972) Ltd.:
| 1. |
Compensation in the amount of $247,765 for the diminution
in market value of its fee simple interest in the remaining land of the expropriated
property pursuant to sections 31(1) and 40(1)(b)(i) of the Act. |
| 2. |
Compensation in the amount of $60,000 for past business losses
between fiscal 1995 and fiscal 2000 plus $30,000 for future business losses pursuant
to section 40(1)(b)(ii) of the Act. | |
3. | Interest
on the $60,000 for past business losses pursuant to section 46(1) of the Act as
follows: | |
|
a) | on $10,000 from January 31, 1995 until
paid; | | b) |
on $10,000 from January 31, 1996 until paid; | |
c) | on $10,000 from January 31, 1997 until
paid; | | d) |
on $10,000 from January 31, 1998 until paid; | |
e) | on $10,000 from January 31, 1999 until
paid; | | f) |
on $10,000 from January 31, 2000 until paid; | |
| with
adjustments to take into account moneys paid by the respondent to the claimant
as compensation. Pursuant to section 46(2) of the Act, interest shall be calculated
annually at the following rates:
| 1. |
Eight per cent (8.00%) from January 1, 1995 to June 30, 1995. |
| 2. |
Eight and three-quarters per cent (8.75%) from July 1, 1995
to December 31, 1995. | | 3. |
Seven and one-half per cent (7.5%) from January 1, 1996 to
June 30, 1996. | | 4. |
Six and one-half per cent (6.5%) from July 1, 1996 to December
31, 1996. | | 5. |
Four and three-quarters per cent (4.75%) from January 1,
1997 to June 30, 1997. | | 6. |
Four and three-quarters per cent (4.75%) from July 1, 1997
to December 31, 1997. | | 7. |
Six per cent (6.00%) from January 1, 1998 to June 30, 1998. |
| 8. |
Six and one-half per cent (6.5%) from July 1, 1998 to December
31, 1998. | | 9. |
Six and three-quarters per cent (6.75%) from January 1, 1999
to June 30, 1999. | | 10. |
Six and one-quarter per cent (6.25%) from July 1, 1999 to
December 31, 1999. | | 11. |
Six and one-half per cent (6.5%) from January 1, 2000 to
June 30, 2000. | 12. |
Seven and one-half per cent (7.5%) from July 1, 2000 to December 31, 2000. |
| 13. |
Seven and one-half per cent (7.5%) from January 1, 2001 to
June 30, 2001. | | 14. |
Six and one-quarter per cent (6.25%) from July 1, 2001 to
December 31, 2001. | | EXPROPRIATION
COMPENSATION BOARD
Sharon I. Walls
Vice Chair | | |
Diane M. Delves, AACI
Board Member | |
Martin A. Linsley, FCA, FCIP, CBV
Board Member | |
