A-404-74
The Queen (Appellant) (Defendant)
v.
The Trustee Board of the Presbyterian Church in
Canada (Respondent) (Plaintiff)
Court of Appeal, Pratte, Le Damn JJ. and Hyde
D.J.—Montreal, December 18 and 19, 1975.
Expropriation—Chinese Presbyterian Church, Montreal—
Trial Division awarding $412,000—Reduced to $329,515—
Interest to run from date of offer even when premises
occupied—Expropriation Act, R.S.C. 1970, (1st Supp.) c. 16,
ss. 23(1), 24(4), 33(3),(5), 36(2).
Respondent's church in Montreal's Chinatown was expro
priated, and respondent accepted an offer of $187,000.
Respondent later claimed $597,957; the Trial Division set the
amount at $412,000, but refused to award respondent interest
so long as it continued in occupation. On appeal, appellant
claimed (1) that the Trial Judge erred in using $15 per square
foot, and not $8, the value of the land at the time. Respondent
replied (2) that the only property which could replace the
expropriated land could only be rented, and respondent sought
an amount which would, if invested at 5%, enable it to pay the
rent without using the principal. Respondent also questions (3)
the Trial Judge's estimate of the cost of constructing a similar
building.
Held, respondent is entitled to $329,515. (1) It is not the
market value of the expropriated property that must be deter
mined, but the cost of replacement property. The only evidence
of such cost was the $15 figure. (2) When the real property
right that is to provide a reasonable replacement is one result
ing from an emphyteutic lease, the only entitlement under
section 24(4)(b)(i) is to the cost of the lease which is not equal
to the amount required to provide the rent without touching the
capital. (3) Respondent's contention that the deduction of 15%
in view of depreciation should not have been made, is correct;
the Court's duty was not to value the expropriated building, but
the cost of constructing a replacement. Depreciation does not
enter in. As to the Trial Judge's 30% increase to allow for rising
construction costs, compensation must be set as of the date of
taking, and the Court has no discretion in this regard. Rather
than an additional 15% to cover expenses, etc., only the $5,000
for moving expenses claimed should have been allowed. The
$25,000 deducted for improvement of position is, however,
justified.
As to interest, where it is payable under section 33(3), and
where it is apparent that section 33(5) is not applicable, the
Court has no discretion. Respondent is entitled to interest as of
the date of the Crown's offer under section 14.
The Queen v. Sisters of Charity [1952] Ex.C.R. 113,
distinguished.
APPEAL.
COUNSEL:
J. C. Ruelland and Y. J. Brisson for
appellant.
L. G. McDougall, Q.C., and J. W. Hemens,
Q.C., for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
McDougall, Hemens, Harris, Thomas,
Mason, Schweitzer and Montcalm, Montreal,
for appellant.
The following is the English version of the
reasons for judgment delivered orally by
PRATTE J.: In October 1972, appellant expro
priated a church in Montreal's Chinatown belong
ing to respondent. Shortly afterwards, appellant
offered to pay respondent compensation of $187,-
000. Respondent accepted this amount without
prejudice to its right to claim a larger amount.
Alleging that appellant should have paid it com
pensation of $597,957, respondent instituted pro
ceedings seeking the difference between this
amount and the amount which had been paid. The
Trial Division allowed respondent's claim in part,
setting compensation for the expropriation at
$412,000, and accordingly ordering appellant to
pay the sum of $225,000. It also ordered appellant
to pay costs, but refused to award respondent
interest on the amount of the judgment for as long
as respondent continued to occupy the expropriat
ed immovable. There is an appeal and a cross-
appeal against this judgment.
It is established that the compensation for
expropriation should, in the case at bar, be deter
mined in accordance with the provisions of section
24(4) of the Expropriation Act (R.S.C. 1970, (1st
Supp.), c. 16). This provision reads in part as
follows:
24. (4) Notwithstanding subsection (3), where any parcel of
land to which a notice of confirmation relates had any building
or other structure erected thereon that was specially designed
for use for the purpose of a school, hospital, municipal institu
tion or religious or charitable institution or for any similar
purpose, the use of which building or other structure for that
purpose by the owner has been rendered impracticable as a
result of the expropriation, the value of the expropriated inter
est is, if the expropriated interest was and, but for the expro
priation, would have continued to be used for that purpose and
at the time of its taking there was no general demand or market
therefor for that purpose, the greater of
(a) the market value of the expropriated interest determined
as set forth in subsection (2), or
(b) the aggregate of
(i) the cost of any reasonably alternative interest in land
for that purpose, and
(ii) the cost, expenses and losses arising out of or inciden
tal to moving to and re-establishment on other premises,
but if such cannot practically be estimated or determined,
there may be allowed in lieu thereof a percentage, not
exceeding fifteen, of the cost determined under subpara-
graph (i),
minus the amount by which the owner has improved, or may
reasonably be expected to improve, his position through re-
establishment on other premises;
The Trial Judge viewed this enactment as
merely a codification of previous solutions arrived
at by the courts, in particular Thorson P.'s decision
in The Queen v. The Community of the Sisters of
Charity of Providence ([1952] Ex.C.R. 113). In
this regard, the Trial Judge stated:
The principles governing reinstatement for institutions such
as schools, hospitals or religious institutions have been dealt
with in a number of casts prior to the passing of the said Act
and it is my view that section 24(4)(b) is in the nature of a
codification of this jurisprudence giving legislative sanction to
it. I have in mind the leading case of The Queen v. The
Community of the Sisters of Charity of Providence [1952]
Ex.C.R. 113, in which Thorson P. stated at page 117:
As I see it, this is a case in which the principle of re-instate-
ment should be applied. This means that the defendant
should receive such a sum of money as will enable it to
replace the expropriated property by property which will be
of equal value to it. Vide-Cripps on Compensation, 8th
edition, page 180; London School Board v. South Eastern
Railway Co. ((1887) 3 T.L.R. 710); Metropolitan Railway
Company and Metropolitan District Railway Company v.
Burrow ((1884) The Times, Nov. 22), the text of which
judgment appears in the Appendix to Cripps (supra) at
pages 906-916. The sum to be paid should, therefore„ be
sufficient to cover the realizable money value of the land, the
replacement value of the hospital, being its reconstruction
cost less its depreciation, the value of the other out-buildings
and out-door improvements, all of these values being comput
ed as of the date of the expropriation, the cost of moving to a
new hospital and a sum equal to the increased cost of
constructing a new hospital after the date of expropriation,
the last item being included in the defendant's entitlement on
the assumption that it will build a new hospital. The defend
ant should, therefore, receive the fair market value of the
land, namely, its realizable money value as at the date of the
expropriation, regardless of the fact that it may not have to
buy a new site, together with such sum as would enable it to
build just as valuable a hospital on a new site and move into
it.
This statement is of special significance in that it recognizes
that the realizable money value of the land and the replacement
value being the reconstruction costs of the building less
depreciation would be computed as of the date of the expropria
tion but the cost of moving to a new building and the increased
cost of constructing it would be estimated after the date of the
expropriation at the time when the new building would be built
and moved into.
This case is also important in connection with its finding on
the question of depreciation. The learned President stated at
page 127:
It is now settled that it is fallacious to assume that an asset
can be so well maintained that it will remain in as good as
new condition indefinitely. Depreciation begins from the
moment of its first use and continues notwithstanding main
tenance. The inevitability of depreciation was frankly recog
nized by Mr. Deschamps, as was to be expected from a
person of his eminence. But, on the other hand, it does not
follow that the amount of depreciation can be ascertained
merely from depreciation tables. While well recognized
tables are of great assistance since they are based on record
ed experience they ought not to be used by themselves. It is
always necessary to make a careful examination of the asset
and consider its structural and functional condition so that
consideration may be given not only to the elapsed time of its
expectancy of life according to the tables but also to the
remaining life that may be expected in the light of its actual
condition.
After reviewing the rules of precedent which
preceded the present Expropriation Act, the Court
proceeded to estimate the compensation owed to
respondent in accordance with the rules previously
formulated by Thorson P. In doing this, it should
be noted, it estimated compensation using the
same principles suggested by respondent. Its
assessment of compensation for expropriation of
the land was based on the parties' admission that
the land was worth $8 per square foot, and it first
set the value of the land at $27,480; it then made
allowance for the fact that to buy land to construct
a church, respondent would have to buy a larger
parcel of land than before because of city by-laws,
and that this would have a market value of $15. It
accordingly concluded that respondent would have
to pay $121,635 to purchase land for a new
church.
The next question concerned compensation for
the expropriation of the building, and the Court
initially estimated the replacement value as of
October 5, 1972. It was set at $215,880, but since
the building was not new, fifteen per cent of this
was deducted for depreciation. The depreciated
replacement value of the expropriated building
was therefore $183,498. The Court then con
sidered the fact that reconstruction on the church
had not been completed at the time of the hearing,
and that construction costs had risen since the
expropriation date, and allowed respondent addi
tional compensation of $64,764, representing
thirty per cent of the building's undepreciated
replacement value. Total compensation for the
building and land was thereby set at $369,897. In
reliance on section 24(4)(b)(ii), the Court then
added fifteen per cent to this amount to compen
sate for "the costs, expenses and losses arising out
of or incidental to moving to and re-establishment
on other premises." Agreed legal costs of $10,000
and expert costs of $2,000 were added to these
amounts. Finally, from the total compensation so
obtained $25,000 was deducted for the improve
ment in respondent's situation as a result of its
"moving to other premises." Expropriation com
pensation for respondent's church was thus set at
$412,000.
Before proceeding to the arguments submitted
in support of the appeal and the cross-appeal, it
should be observed that although certain provi
sions of the present Expropriation Act were
unquestionably influenced by earlier case law,
compensation for expropriations under present
legislation should be assessed by applying the
provisions of the new Act, and not by reference to
the rules established by earlier precedent. A care
ful reading of section 24(4) will show that the
valuation rules it contains differ in many respects
from those formulated by Thorson P. in the cases
cited by the Trial Judge. The following observa
tions may be made regarding this provision in the
new Act:
1. The principle of re-instatement established
by earlier cases applied only to the valuation of
buildings, and not to parcels of land, which
always have a market value. The rules contained
in section 24(4) clearly apply to the assessment
of compensation for the expropriation of built-
up land.
2. When, as in the case at bar, section 24(4)(b)
is applicable, determination of the replacement
value of the expropriated building is not directly
involved. It is not the value of the expropriated
property which must be determined, but rather
"the cost of any reasonably alternative interest
in land." It should be emphasized that this, in
my view, is because depreciation of the expro
priated immovable cannot enter into the deter
mination of the cost of property to replace
expropriated property.
3. Section 23 states that compensation for an
expropriation should be set having regard to
"the value of an expropriated interest at the
time of its taking." The rules in section 24
apply, in the terms of subsection 24(1), to
"determining the value of an expropriated inter
est." If sections 23(1) and 24 are read together,
therefore, it follows that the rules contained in
the latter section must be applied to determine
the value of an expropriated interest at the time
of its taking. Accordingly, it is this date, in my
view, which must be used in arriving at "the cost
of any reasonably alternative interest in land."
When, as in the case at bar, there is no building
in existence that can adequately replace the
expropriated structure, so that the expropriated
party must acquire property and build on it, it
seems to me that the cost referred to in section
24(4)(b)(î) includes both the cost of the prop
erty at the time of its taking and the cost of
construction, at that time. However, since a
certain length of time is required for construc
tion, the cost of the latter should not be deter
mined as if the building had arisen out of thin
air at the time of taking. I consider that, in such
circumstances, the construction cost should be
set at the amount which the expropriated party
would have had to pay if it had signed a contract
for construction of the building in question on
the day of taking.
4. Section 24(4)(b)(ii) states that expropriation
compensation should include the costs, expenses
and losses arising out of or incidental to moving
to and re-establishment on other premises, and
adds that
if such cannot practically be estimated or determined,
there may be allowed in lieu thereof a percentage, not
exceeding fifteen, of the cost determined under subpara-
graph (i).
This provision indicates that only in cases where
"such cannot practically be estimated or deter
mined" may costs be replaced by the fifteen per
cent mentioned. In my view, the impossibility
referred to by this provision is not merely the
expropriated party's not having claimed and
proven that it has incurred or shall incur such
costs.
5. To determine the compensation payable
under section 24(4)(b), from the amounts men
tioned in subparagraphs (i) and (ii) must be
subtracted:
the amount by which the owner has improved, or may
reasonably be expected to improve, his position through
re-establishment on other premises.
The improvement of the expropriated party's
situation in this provision is that resulting from
its "re-establishment on other premises." For
example, this improvement may result from its
new location being more suitable for it than the
expropriated premises. However, in my opinion
the provision does not refer to an improvement
in the expropriated party's situation solely due
to the fact that the new premises are more costly
than the old. Strictly speaking, such an improve
ment would not in fact be the result of its having
re-established on other premises, but because it
was given enough compensation to allow it to
move to a more expensive property.
Having said this, I now turn to the argument
raised by the parties with respect to the trial
judgment.
Counsel for the appellant maintained, first, that
in calculating the amount to which respondent was
entitled to enable it to acquire another property,
the Trial Judge had erred in using the unit price of
$15 per square foot, and that this should have been
done using the amount of $8 per square foot,
which the parties admitted was the value of the
land at the time of its expropriation. In my opinion
the answer to this argument is that it is not the
market value of the expropriated property that
must be determined here, but rather the cost of
property to replace it. The only evidence in the
record of the cost of such a property in 1972 is
contained in the testimony of an employee of the
City of Montreal, who stated that two years previ
ously, before his testimony, he had assessed a
property in Montreal's Chinatown, upon which
respondent could have rebuilt the church, at $15
per square foot. Therefore, I do not believe that
the Court erred in maintaining the price at $15 per
square foot.
Respondent's counsel replied that the amount
allowed for the property by the Trial Judge was
insufficient. He claimed that the only property
which could replace the expropriated land—the
land which was valued by the Trial Judge at $15
per square foot—was not for sale. Proof was sub
mitted to the effect that respondent could only rent
this property on an emphyteutic lease of sixty-
three years. Income from the amount awarded by
the Trial Judge would, at eight per cent, be enough
to pay rent to the City without using any of the
capital. Respondent finds this to be insufficient,
and is seeking an amount which would pay the
City's rent if invested at five per cent interest. In
my opinion, this argument cannot be accepted.
When the real property right that is to provide a
reasonable replacement for the expropriated right
is one resulting from an emphyteutic lease, the
expropriated party is only entitled under section
24(4)(b)(i) to the cost of this right (the cost of the
emphyteutic lease). Although there is no evidence
as to how the cost of an emphyteutic lease may be
determined, I am quite sure that this cost is not
equal to the amount required to produce enough of
a return to pay the rent on the lease without using
any of the principal.
The Trial Judge estimated the cost of construc
tion of a building similar to the expropriated one
at $215,880 in October 1972, when the property
was taken. (I should add that he did not have
enough evidence to estimate the cost of the build
ing which they proposed to build on the new site, a
building which may have been different but would
contain the same facilities.) Respondent regards
this amount as insufficient, and would prefer to see
the figure quoted by its own experts used. In this
regard I need only say that the Trial Judge arrived
at his figure by a detailed review of all the evi
dence, and this indicates that he considered all the
elements presented to him. For this reason, I
cannot say in a matter such as this that he was in
error on this point.
In view of the depreciation of the expropriated
building, the Trial Judge then reduced the above-
mentioned figure of $215,880 by fifteen per cent. I
believe respondent's contention that this deduction
should not have been made is correct. The duty of
the Court was not to value the expropriated build
ing, but the cost of constructing a building to
replace it. Depreciation does not enter into the
setting of this cost.
In determining compensation for the cost of
replacing the building, finally, the Trial Judge
increased by thirty per cent the $215,880 which
represented the estimated cost of building a struc
ture similar to the one which had been expropriat
ed. He appears to have done this to allow for the
rise in construction costs after the expropriation
date, since reconstruction had not yet begun at the
time of the trial. Counsel for the respondent made
the rather halfhearted contention that under these
circumstances, the Trial Judge had a discretion to
increase the amount of compensation which was
legally due. I believe that counsel for the appellant
is correct on this point. Compensation for expro
priation must be set as of the date of taking, and
the Court has no discretion in this regard.
The Trial Judge awarded respondent an addi
tional fifteen per cent to compensate for the costs,
expenses and losses mentioned in section
24(4)(b)(ii). Respondent had claimed only $5,000
for moving expenses, and I consider that counsel
for the appellant was correct in contending that
the lower court should only have allowed this
amount of $5,000. Moreover, counsel for the
respondent raised no major objections to this
contention.
The Trial Judge deducted $25,000 from the
compensation payable to respondent to allow for
the improvement of its position through its re-
establishment on other premises. His reasons for
this were as follows:
A further factor remains to be taken into consideration,
however. The said paragraph (b) of subsection (4) of section 24
contains a concluding paragraph:
minus the amount by which the owner has improved, or may
reasonably be expected to improve, his position through
re-establishment on other premises;
Although plaintiff has at present a building quite adequate for
its purposes and would have been content to remain in undis
turbed enjoyment of same, nevertheless if everything goes as
planned in connection with its re-establishment, it will end up
with a building similar in size and design, but located on a
larger property, having some parking space, and with a more
modern building with better fire protection, ventilation, and
other-safety and convenience advantages which I estimate as
being worth $25,000 reducing the amount of the award to
$400,000.
Respondent's counsel claimed that this deduction
was unjustified, and that the evidence pointed
toward a deterioration rather than an improve
ment in respondent's position through its re-estab
lishment on other premises. My only comment on
this is that the evidence does not support this
contention. I regard the $25,000 deduction made
by the Trial Judge as being justified.
In my opinion, respondent was entitled to
receive the sum of $337,515 under section
24(4)(b)(i), this being the estimated cost of the
property and building. It was further entitled to
compensation of $5,000 for moving expenses and
to an amount of $12,000. In other words, I find
that respondent is entitled to a total compensation
of $329,515, and not the $412,000 estimated by
the Trial Judge.
On the question of interest the Trial Judge, on
the basis of case law prior to the present statute,
would not award respondent interest on the ground
that it still occupied the expropriated premises. At
the hearing, counsel for the appellant agreed that
the Trial Judge had erred on this point. In a case
such as this, where the interest is payable under
section 33(3), and where it is apparent that section
33(5) is not applicable, the Court has no discre
tion. In other words, respondent is entitled to
interest as of the date of the Crown's offer under
section 14. This should be paid as follows:
(a) the basic rate on the sum of $142,515;
(b) five per cent on the sum of $329,515.
Respondent is also entitled to its costs at first
instance and on appeal, and these should be taxed
in accordance with the provisions contained in
section 36(2) of the Expropriation Act. Should
difficulties arise in determining costs under this
section, either party may submit a motion to the
Court in this regard.
• * *
LE DAIN J. concurred.
* * *
HYDE D.J. concurred.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.