Date: 20000128
Docket: 98-704-IT-I
BETWEEN:
ROYAL WAYNE MOTEL LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(Delivered Orally from the Bench at Calgary, Alberta on Tuesday, March 30, 1999)
Margeson, J.T.C.C.
[1] The matter before the Court at this time for decision is that of Royal Wayne Motel Ltd. and Her Majesty the Queen, # 98-704(IT)I.
[2] It has been agreed that the only year in issue is the year 1993, the assessment for the year 1993. In the reply, reference is made to the years 1993, 1994 and 1995; but it was consented to by the parties at the opening of the trial that the Court is only concerned with the year 1993. The only issue in the year 1993 is the V-Day valuation of the subject property.
[3] The Minister in the reply to the Notice of Appeal has argued that the proper V-Day valuation was $27,000; and that was the basis on which the Minister assessed the Appellant in this case.
[4] In this case, as in most appraisal cases, we have competing interests. There are competing appraisals. Unfortunately for the Appellant in this particular case the appraisal that he submitted to the Court was admitted with some considerable restrictions.
[5] At the outset, the Appellant indicated that he did not have the appraiser available for cross-examination purposes. It was completed by Mr. Eagleson of Eagleson Property Appraisals Limited. Further, the Appellant had not met the requirement of the rules of the Tax Court of Canada, that is, to file an expert's report within the appropriate period of time and exchange a copy of that report with the other side.
[6] In spite of those shortcomings it was agreed that the report would be allowed into evidence subject to weight and subject to the fact that the appraiser himself was not available to be cross-examined by counsel for the Respondent. In a case like this that is of very great significance.
[7] It is important that the parties who prepared the reports are here so that they can be subject to cross-examination. The appraiser for the Minister, Ben Chow is here to testify and to take the heat so to speak with respect to his report and to try to explain any questions raised about it. Therein lies a significant problem for the Appellant.
[8] What the Court is faced with are two reports which are considerably different in amounts. Mr. Chow has said that the fair market value of the property as of V-Day was $20,000 and Mr. Adderson's report or the report prepared for him by Eagleson Property Appraisals Limited sets the value at $69,000. That is a significant difference.
[9] The Court is faced with deciding what is a proper valuation. There was no evidence before the Court which would allow it to merely take the mean of the two reports. In order to do that the Court would have to have evidence before it from which it could conclude that the report of Mr. Chow is not correct, the report filed on behalf of the Appellant is not correct and somewhere in between at a specific point was the proper evaluation.
[10] That might be so in the event that the Court were satisfied that the Appellant had met the burden of showing on the balance of probabilities that the Minister's assessment was incorrect. That is the very unique burden which rests upon the Appellant in every case.
[11] In argument, Respondent's counsel said that the issue is the valuation of the property on December 31, 1971, V-Day. The question to be asked is, "Has the Appellant deduced evidence to rebut the presumption of the Minister contained in the reply that the valuation of the property was greater than $27,000 which the Minister assessed?"
[12] Today, the Minister's position is that the V-Day valuation was $27,000, even though Mr. Chow's report sets it at $20,000.
[13] The Court is satisfied in this particular case that there has been a proper explanation given as to the difference between the preliminary report which the Minister might have used initially in making the assessment, which was to the benefit of the Appellant by the way, and the appraiser's report which is relied upon here today, that of Mr. Chow, that the V-Day valuation was of $20,000. The Court is satisfied that that has been explained.
[14] The preliminary appraisal was done for the purposes of the Minister making an assessment. It would appear that that appraisal was over generous; but it was not done in detail. It was not done for the purposes of litigation. There was no evidence before the Court that that appraisal was correct and that Mr. Chow's appraisal was incorrect, so as to cast doubt upon Mr. Chow's report.
[15] Counsel for the Respondent argued that the Court should find that the V-Day value was $27,000. Counsel noted that the Court should give very little weight to the Appellant's report that the proper V-Day valuation was much greater than Mr. Chow's $20,000 and much greater than the Minister's assessment of $27,000.
[16] The report of the Appellant was accepted with limitations. The preparer of the report was not present and could not be cross-examined. Mr. Chow, when he was on the stand, was directed specifically to the report upon which the Appellant relies and to a very great extent, as far as the Court is concerned, he was able to point out some factors in the report which would make the report unreliable.
[17] The Court places a great deal of reliance upon the study of Mr. Chow considering the detailed way in which he prepared it and the comparative values which he used. The Court is satisfied that the methodology that he used was correct in these circumstances. The Court cannot find that his report was flawed.
[18] The Court is prepared to accept some of the evidence of Mr. Chow when he questioned the report of Mr. Eagleson. For instance, on page 14, that certain physical factors which were described by Mr. Eagleson, in his comparables were not the same as in the subject property. The comparable properties had better physical factors than those possessed by the subject property.
[19] Mr. Chow was unable to confirm the sales that were reported in the comparables listed by the Appellant's appraiser. He said that there were no acceptable procedures which the appraiser used which could justify the conclusion that the subject property was worth $69,000. This figure was only a median or average. The appraiser did not take into account some of the other necessary adjustments which had to be made. It was based upon flawed presumptions. Too high a density was adopted by Mr. Eagleson with respect to the subject property. It was a lower density property.
[20] The sales figures in the comparables adopted by the Appellant's appraiser in his report were not sales that took place after V-day and these sales would as of needs be normally higher than they were at V-Day due to a rising real estate market. Therefore, the sales comparables that he used were not proper comparables.
[21] Mr. Chow could not tell which of the comparables were after 1971 because of the nature of the descriptions and the fact that he could not confirm the sales and the amounts or their dates.
[22] Mr. Chow indicated that the Appellant's appraiser obviously concluded that multiple-family dwellings were permissible on this lot and his evidence was that they were not. They were not legal.
[23] Further, he said that there was no demand in 1978 for the property which would make the figures used reasonable or that a purchase of the property would be considered feasible at that price. It must be feasible. It must be physically feasible. It is possible to develop any site, but in order for it to be feasible it is not enough that it might be developed but it must be feasible to develop a site. The subject site in 1971 was not feasible. The Appellant's appraiser used only three of the criteria that were normally used in determining the valuation of a property. The Appellant's appraiser did not deal with the last three factors which are listed in Mr. Chow's report on page 21.
[24] He used flawed and erroneous assumptions. It was not reasonable to come up with the figure that he used. Mr. Chow's figure was a reasonable one. He admitted that Revenue Canada had used a figure of $27,000 and explained why that was so.
[25] The Court has already found that that was not a factor of considerable weight here. Mr. chow explained that less time would have been spent on the preliminary appraisal as it was not prepared for use in Court and when he prepared his report he was preparing for Court. He knew that he would be cross-examined. He knew the type of questions that would be involved and consequently, he prepared in detail.
[26] He was adequately cross-examined by the agent on behalf of the Appellant here, there is no question about that. He showed quite a bit of expertise in moving to the heart of some of the matters in issue. The Court is satisfied that he was able to bring out information which was of considerable significance.
[27] Mr. Chow was a very straight forward witness, a very experienced witness, a witness who had command of what he was talking about. He was a person who gave the impression to the Court that he had committed himself to this task in a very serious way and had used every means at his disposal to consider properly the information upon which he based his appraisal.
[28] The Court asks itself if the evidence had the effect of satisfying the Court on the balance of probabilities that the Appellant has dislodged the burden which is upon it of showing that the Minister's assessment of $27,000 was incorrect? That is the question that the Court has before it.
[29] The Court looks at the two appraisals that are before it. Looking at the appraisal presented on behalf of the Appellant with the restrictions that it has, considering also the cross-examination of Mr. Chow and the rather destructive indications that he gave with respect to the appraisal presented on behalf of the Appellant, the Court has no doubt in concluding that the Appellant has not met the burden upon it.
[30] The Court is satisfied beyond any doubt that the appraisal of Mr. Chow is a valid appraisal. In any event, and more importantly, the Court is not satisfied that the Appellant has shown that the Minister's assessment of $27,000 was not correct. Consequently, the Court will have to dismiss the appeal and confirm the Minister's assessment.
Signed at Ottawa, Canada, this 28th day of January 2000.
"T.E. Margeson"
J.T.C.C.