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see also: http://www.assessmentappeal.bc.ca/ for Property Assessment Appeal Board Decisions

SC 554 AA01 et al v Nav Canada and PAAB Link to Property Assessment Appeal Board Decision

Assessor of Area #01 – Capital, Assessor of Area #15 – Fraser Valley Office, Assessor of Area #17 – Penticton,

Assessor of Area #21 – Nelson/Trail, and District of North Saanich

SUPREME COURT OF BRITISH COLUMBIA (L130098) Vancouver Registry

Before the HONOURABLE MR. JUSTICE BAIRD Date and Place of Hearing: June 16-18, 2014, Vancouver, B.C. P.W. Klassen for the Appellant (Assessor of Areas 1,15,17,21) S.Manhas for the District of North Saanich B. Dell and J. Fraser for the Respondents

Valuation and restrictions on use This appeal involved the valuation of air traffic control towers and associated property within four airports. Two of the properties are owned by the federal Crown; one of the properties is owned by a municipality; and one of the properties is owned by an airport society. In all cases, Nav Canada, a non-profit corporation, leases the properties under terms which restrict the properties’ use to the provision of civil air navigation services. The PAAB assessed these properties at the nominal value of $10 for land and $10 for improvements. The Assessor posed the following questions for determination:

1. Did the Board err in law in determining the market value of the subject properties in the context of the operation of the business carried on at those properties, rather than as stand alone properties which comprise the business of the occupier?

2. Did the Board err in law in misinterpreting and misapplying section 19(3) of the Assessment Act,

by failing to value the unencumbered fee simple interest of the Pitt Meadows property?

3. Did the Board err in law, and breach the rules of natural justice and fair hearing, by finding that there was no market for the business of the Appellant, and therefore no market value for the subject properties, when neither party advanced that valuation methodology and neither party was given the opportunity to call evidence or make submissions on the point?

4. In the alternative, did the Board err in law by misinterpreting or misapplying Section 57(1) of the Assessment Act, and fail to fulfill its statutory obligation and inquisitorial function, when it failed to request from the parties’ evidence on the point of whether there was a market for the Appellant corporation’s operations in their entirety.

HELD: Appeal dismissed.

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The BCSC upheld the PAAB’s conclusions. It was rational and well within the range of acceptable outcomes for the PAAB to conclude that restricted-use properties for which there is no external market have no value. This follows the binding legal principle found in Southam Inc. (Pacific Newspaper Group Inc.) v. British Columbia (Assessor of Area No. 14 – Surrey/White Rock), 2004 BCCA 245. The Board answered all questions in the negative.

. Reasons for Judgment November 5, 2014 (Corrected Judgment: The judgment was corrected at pp. 27-34 on November 6, 2014 and at paragraphs 1, 10, 28, 62 and 75 on November 10, 2014) INTRODUCTION [1] This is an appeal by way of stated case pursuant to section 65 of the Assessment Act, R.S.B.C. 1996, c. 20 from a decision of the Property Assessment Appeal Board (the “Board”). The issue is whether the Board erred in law when it assessed a number of properties occupied by Nav Canada (“Nav Canada” or the “Respondent”) at the nominal value of $10 for land and $10 for improvements.

[2] Nav Canada is a federal corporation with a monopoly on the provision of civil air navigation services in Canada. To provide those services, Nav Canada occupies property at airports across the country. The present case involves properties that Nav Canada occupies on airport lands in North Saanich, Pitt Meadows, Penticton, and Castlegar, British Columbia (the “Property” or “Properties”). The Properties — which comprise air traffic control towers, related office and parking space, as well as areas for storing meteorological and other monitoring equipment — are leased or licensed to Nav Canada, but are owned either by the Federal government, the local municipality, or an airport society.

[3] At issue before the Board was the appropriate valuation of the Properties under the Assessment Act for the purposes of calculating property tax. The property assessors said that the Properties have significant value (up to $1,430,000 for the Property in North Saanich, which is located at the Victoria International Airport), while Nav Canada argued that the Properties should be assessed at a nominal market value. In its decision dated February 20, 2013 and reported as 2013 PAABBC 20120356, the Board decided in favour of nominal value and ordered amendment of the 2011 and 2012 assessment rolls accordingly.

[4] On this appeal, the Assessors of Area #01 – Capital, Area #15 – Fraser Valley Office, Area #17 – Penticton, and Area #21 – Nelson/Trail (the “Assessors”), along with the District of North Saanich (the “District”) (collectively, the “Appellants”), take the position that the Board erred in law in coming to this conclusion. In response, Nav Canada says that the Board’s decision was reasonable and that there is no basis for this Court to interfere.

FINDINGS OF FACT AND STANDARD OF REVIEW

[5] Appeals under section 65 must be decided on the facts found by the Board in its decision as well as the facts set out in the stated case: British Columbia (Assessor of Area No. 6 - Courtenay) v. Quinsam Coal Corp., 2002 BCCA 68, at paras. 37-45, and Vancouver Island Recycling Centres Ltd. v. British Columbia (Assessor of Area No. 4 - Nanaimo/Cowichan), 2002 BCCA 127, at paras. 37-38.

[6] The Board’s factual findings may be interfered with only where the Board has taken a view of the facts that “cannot be reasonably entertained.” This arises where a finding has been made “without evidentiary

basis,” “contrary to indisputable evidence,” “without rational basis,” where a finding is “perverse or inexplicable,” or would not have been arrived at by a “reasonable person, acting judicially and properly instructed as to the relevant law:” British Columbia (Assessor of Area No. 12 - TriCities/Fraser Valley) v. Johansen, 2004 BCSC 135 at paras. 16-23, and British Columbia (Assessor Area No. 9 - Vancouver) v. Cadillac Fairview Corp., 2004 BCCA 35 at paras. 22-23.

[7] The parties agree that the relevant standard of review is reasonableness, as befits an administrative tribunal interpreting and applying its home statute: Weyerhaeuser Company Ltd. v. British Columbia (Assessor of Area No. 4 - Nanaimo Cowichan), 2010 BCCA 46 at para. 47. The Supreme Court of Canada set out the test for reasonableness in Law Society of New Brunswick v. Ryan, 2003 SCC 20:

[55] A decision will be unreasonable only if there is no line of analysis within the given reasons that could reasonably lead the tribunal from the evidence before it to the conclusion at which it arrived. If any of the reasons that are sufficient to support the conclusion are tenable in the sense that they can stand up to a somewhat probing examination, then the decision will not be unreasonable and a reviewing court must not interfere … This means that a decision may satisfy the reasonableness standard if it is supported by a tenable explanation even if this explanation is not one that the reviewing court finds compelling …

[56] This does not mean that every element of the reasoning given must independently pass a test for reasonableness. The question is rather whether the reasons, taken as a whole, are tenable as support for the decision. At all times, a court applying a standard of reasonableness must assess the basic adequacy of a reasoned decision remembering that the issue under review does not compel one specific result. Moreover, a reviewing court should not seize on one or more mistakes or elements of the decision which do not affect the decision as a whole.

[8] In Canada (Citizenship and Immigration) v. Khosa, 2009 SCC 12, the Court described the reasonableness standard in the following terms:

[59] Reasonableness is a single standard that takes its colour from the context …. Where the reasonableness standard applies, it requires deference. Reviewing courts cannot substitute their own appreciation of the appropriate solution, but rather must determine if the outcome falls within “a range of possible, acceptable outcomes which are defensible in respect of the facts and law” … There might be more than one reasonable outcome. However, as long as the process and the outcome fit comfortably with the principles of justification, transparency and intelligibility, it is not open to a reviewing court to substitute its own view of a preferable outcome.

[9] I have kept this call for deference firmly in mind while considering this appeal. For the reasons below, the Appellants have not persuaded me that the Board’s decision was unreasonable. The appeal is accordingly dismissed.

BACKGROUND

[10] The following facts are drawn from the Board’s decision and the stated case, which is attached to this judgment as Appendix A.

Nav Canada and the National Airports Policy

[11] By means of the 1994 National Airports Policy (the “NAP”), the Federal government transferred 150 airports from federal control under the authority of Transport Canada to control by airport authorities or local governments. Under the NAP, the Federal government also relinquished responsibility for the

provision of civil air navigation services. Pursuant to the Civil Air Navigation Services Commercialization Act, S.C. 1996, c. 20 (“CANSCA”), the Federal government transferred the operation of those services to the Respondent in exchange for $1.5 billion. The Federal government retained responsibility for aviation safety, and maintains regulatory and legislative control over Nav Canada through the Aeronautics Act, R.S.C. 1985, c. A-2 and CANSCA.

[12] Nav Canada was incorporated on May 26, 1995 and derives its responsibilities from CANSCA, which states that Nav Canada must provide all users with civil air navigation services (s. 9). Air navigation services are defined under section 2(1) of CANSCA as:

a) aeronautical communication services,

b) aeronautical information services,

c) aeronautical radio navigation services,

d) air traffic control services,

e) aviation weather services,

f) emergency assistance services, and

g) flight information services.

“Air traffic control services” are defined as “preventing collisions between … aircraft … and expediting and maintaining an orderly flow of traffic.”

[13] The objects of the Respondent are set out in its letters patent, including an instruction to “acquire, own, manage, operate and develop the Canadian air navigation system services in and over Canada.” Nav Canada’s purchase of a monopoly over civil air navigation services in Canada was financed entirely by debt. There was no allocation of value in the purchase price for the Properties.

[14] While Nav Canada charges users a fee for the provision of air navigation services, it is a not-for-profit corporation. Its letters patent require that the corporation carry on operations “without pecuniary gain to its members.” Any profits generated by the Respondent must be used solely to promote its objects. Though its profits are not distributed, the Board noted in its decision that the Respondent’s operating income exceeded its expenses throughout the time period under consideration.

The Properties [15] The ownership of the fee simple interest in the Properties varies. For the Victoria International Airport in North Saanich, the Crown assigned its rights and obligations to the airport operator, the Victoria Airport Authority, but retained ownership of the fee simple. In Penticton, there has been no assignment; the fee remains with the Crown, and Transport Canada operates the airport. For Castlegar Airport, the Crown assigned its rights and obligations to the airport operator, the City of Castlegar, which is also the owner of the fee simple interest. For the Pitt Meadows Airport, the Crown assigned its rights and obligations to the airport operator, Pitt Meadows Airport Society, which is also the owner of the fee simple interest.

[16] The Properties are not stand-alone parcels but are undivided areas within larger lands upon which the airports conduct their operations. Nav Canada has no fee simple interest in any of the Properties, which in any event could not be sold separately from the airports. The Appellants have conceded in argument that Nav Canada has no transferable interest in any of the Properties.

Assessment

[17] Where the Crown or a municipality holds the fee in land which is occupied by another party, the land in question is assessable under sections 26 and 28 of the Assessment Act and the occupier may be subject to property tax. The interest of the occupier is to be valued as if the land was owned by the

occupier outright in fee simple, even though the fee is actually held by the Crown or municipality: see Assessment Commissioner v. Ryan, [1979] B.C.J. No. 1966 (S.C.) (QL). This is what counsel for the Appellants sometimes referred to as a “fictitious fee” for which the assessors were statutorily obligated to “find a value.”

[18] A complicating feature of this appeal is that section 19(5) of the Assessment Act, which requires assessors, when determining the actual value of occupied Crown or municipally owned land to consider “any restriction placed on the use of the land and improvements by the owner of the fee”, does not apply to the Pitt Meadows Property because its fee is held by the local Airport Society.

Use and Tenure

[19] Nav Canada’s use of the Properties is restricted to the provision of civil air navigation services. This restriction is included in the Aviation Services and Facilities Agreement (“ASFA”) between Nav Canada and the Federal government respecting each Property. The ASFA also contains the terms of the transfer of air navigation services and assets to Nav Canada as part of the NAP, and stipulates, amongst other things, that in the event of Nav Canada’s dissolution its assets revert to the Federal Crown. The ASFA also grants a license to Nav Canada over each Property for locating, maintaining and operating any licensed civil air navigation service assets on or under any part of the airport. No rent is payable for this license.

[20] Nav Canada occupies the Properties under leases entered into contemporaneously with the ASFA for each Property. For the Victoria Airport Property, the term of the lease is sixty years with provision for renewal, while at the other airports the term is ten years with ongoing renewals so long as the airport is open to the public or the navigation equipment is required for traffic control. Each lease agreement calls for a one-time rental payment of $10 for the entire term. In common with the ASFA terms, the leases restrict the use of the Properties to the provision of civil air navigation services.

THE APPEALS BEFORE THE BOARD

[21] The decisions of the Property Assessment Review Panel respecting the 2011 and 2012 assessments for each of the Properties were appealed by Nav Canada. There were two issues before the Board on the appeal:

1) What was the actual or market value of the Properties as of the valuation dates in 2010 and 2011?

2) Is Nav Canada the assessable occupier of areas containing the meteorological and other monitoring equipment that are held by license by Nav Canada?

[22] The Board answered the second question in the affirmative, and that conclusion is not at issue in the stated case.

[23] In its decision, the Board primarily grappled with determining what impact, if any, the restrictions on the permissible use of the Properties had for the purposes of valuation. The Board began its discussion by noting that the Assessment Act requires evaluation of the actual or market value of the land in question. To determine this value, the Board noted that there must be “a competitive and open market for the property being valued.” The Board concluded that there was no such market in this case: the Properties do not trade in the market as stand-alone properties, and the fee simple could only be sold as part of the larger airport properties. The Board held that “[i]n having to determine a market value for Properties that do not exist and do not trade in the market, the Board is asked to determine an essentially unresolvable question” (para. 41).

[24] This latter conclusion, the Appellants say, indicates that the Board merely threw up its hands and gave up when faced with a difficult task. But this was by no means the extent of the Board’s analysis. The parties had agreed that the highest and best use to which the Properties may be put is their present use, the provision of civil air navigational services and activities related thereto. The Board went further and concluded that this is the only reasonably probable and legally permissible use of the Properties. Although the Board had obvious difficulty with the “fictitious fee” concept, nevertheless its decision makes clear that the salient issue was the determination of the market value “of these hypothetical properties.” In my view, a full and fair reading of the Board’s decision makes it clear that the fair market value of the Properties was determined on a “stand alone” or fee simple basis.

[25] The Board also concluded that there is no reasonable probability of a change in the use of the Properties so long as the airports continue to operate; that, if the Properties are no longer used for civil air navigation services, Nav Canada would be obliged to demolish and remove any improvements from the Properties and return the bare land to the Crown; and, finally, that, due to security issues, interference with flight services and general inconvenience, it would be improbable for Nav Canada to sublet its leased space and delegate its responsibility to provide air navigation services, even if CANSCA could be construed as permitting this.

[26] The Board held that the Pitt Meadows property should be treated in the same way as the other Properties, despite the fact that the airport society owns the fee rather than the Crown or a municipality. In the Board’s view, this approach was justified by the fact that the Pitt Meadows Property is not a stand-alone property for which the fee simple interest could be sold in the market. Furthermore, the Board’s opinion was that the restrictions in use should be considered as a factor affecting value under s. 19(3) of the Assessment Act.

[27] The Board relied on Standard Life Assurance Co. v. British Columbia (Assessor Area No. 01 - Capital) (1997), 34 B.C.L.R. (3d) 346 (C.A.) for the principle that agreements restricting use which are binding on subsequent purchasers may very well affect market value and should be taken into account in valuation. The ASFA and leases would bind any potential purchasers of the airport. This was the conclusion reached in C.N.R. v. Vancouver, [1950] B.C.J. No. 101 (C.A.) (QL), which related to the assessment of lands which by the terms of an agreement with the City of Vancouver were limited to use as a railway terminus. The Court held in that case held (para. 18):

If land by statute, agreement with the City (as here) or otherwise, is restricted to the special use to which it is put, then the assessment rationally must be related to its value in that use, even though the land would be properly assessable at a much higher figure if it could be put to some other use.

[28] It is well established, however, that leasehold agreements that impose limits on property value that are “personal” to the owner ought not to be considered in assessing market value. This is the main ratio of Standard Life, which involved uneconomic leases entered into voluntarily by the owner of a commercial property and one of its major tenants. The Court found that C.N.R. v. Vancouver had no application because the lease arrangements did not place restraints on use. I would also refer, on this point, to British Columbia (Assessor of Area No. 10 - Burnaby/New Westminster) v. Central Park Citizen Society, [1993] B.C.J. No. 2260 (S.C.) (QL), which involved the terms of a mortgage financing agreement that prevented the property owner from charging market rents in a seniors’ housing complex. This was held to be an agreement personal to the owner by which the market value of the land was unaffected because, of course, the financing could be repaid anytime and the agreement was not binding on any subsequent purchaser.

[29] In the present case, the Board summarized its decision as follows:

[54] In summary, we are asked to determine a market value for Properties that are not only special purpose properties, but entirely unique with no identifiable market and used by a monopoly for a restricted use. A determination of assessed value in these unique

circumstances begs for a legislated solution that does not require forcing appraisal principles and market concepts on properties that do not trade in the market. However, for the purposes of this appeal, we are required to determine market value for assessment purposes. Based on the evidence before us and our findings above, we find the market value, and assessed value, of the Properties should be nominal.

[30] I note that the Board rejected the valuation methods advanced by both parties. The Assessors had relied on the “cost approach,” a method of valuation that relies on the depreciated replacement cost for the property to determine value, while Nav Canada relied on the sales of allegedly comparable properties. Those sales were transactions involving airport lands sold in the late 1990s for nominal consideration.

[31] The Board held that both approaches were flawed, saying that each party had relied on market evidence that was “not truly derived from a market and that is not comparable to the unique, completely hypothetical circumstances surrounding the Properties.” They also held that the Assessors’ approach was a determination of value in use or value to owner, rather than market value or value in exchange, as the Assessment Act requires.

[32] The Board also rejected Nav Canada’s contention that its non-profit status was a factor that should influence valuation of the Properties. The Board held that Nav Canada’s financial status as a non-profit was simply not a determinative factor in assessing exchange value.

Parties’ Positions

The Assessors

[33] The Assessors have posed the following questions of law for determination on this stated case:

(1) Did the Board err in law in determining the market value of the subject properties in the context of the operation of the business carried on at those properties, rather than as stand alone properties which comprise the business of the occupier?

(2) Did the Board err in law in misinterpreting and misapplying section 19(3) of the Assessment Act, by failing to value the unencumbered fee simple interest of the Pitt Meadows property?

(3) Did the Board err in law, and breach the rules of natural justice and fair hearing, by finding that there was no market for the business of the Appellant, and therefore no market value for the subject properties, when neither party advanced that valuation methodology and neither party was given the opportunity to call evidence or make submissions on the point?

(4) In the alternative, did the Board err in law by misinterpreting or misapplying Section 57(1) of the Assessment Act, and fail to fulfill its statutory obligation and inquisitorial function, when it failed to request from the parties’ evidence on the point of whether there was a market for the Appellant corporation’s operations in their entirety.

[34] Distilled to their essence, the Assessors’ questions raise three issues when considered in conjunction with their submissions at the oral hearing. First, they say that Nav Canada generates significant revenue and that its use of the Properties has substantial value. The Properties are “profitable,” in other words, but restrictions on their use limit marketabililty. In such circumstances, the only viable method of valuation is to ask what Nav Canada would pay to be able to occupy the property for its present use. In other words, they say that the Board erred because it did not apply the replacement cost approach to valuation of the Properties.

[35] Second, the Assessors say that the Board breached the rules of natural justice when it adopted a valuation methodology that neither party advanced, as neither party was accorded the opportunity to call evidence or make submissions on the point.

[36] Third, and relatedly, the Assessors say that the Board erred in failing to request further submissions on whether the Properties had value as part of the business conducted by Nav Canada. They argue that, as proceedings before the Board are inquisitorial, where the Board determines that the evidence presented is insufficient to determine the issues, it has a duty to make inquiries to seek the requisite evidence for a proper ruling, and the Board unreasonably failed to do this

The District

[37] The District of North Saanich asks the following questions:

(1) Did the Board err in law by misinterpreting or misapplying Section 19(5) of the Assessment Act, R.S.B.C. 1996, c. 20 by its reliance on the Civil Air Navigation Services Commercialization Act, SC 1996, c. 20; the Aviation Services and Facility Agreement; and the Leases for Land and Space as a restriction on use affecting the value of the Victoria airport properties?

(2) Did the Board err in law by acting upon a view of the facts which could not reasonably be entertained by finding that the subject properties were rendered valueless by virtue of the Civil Air Navigation Services Commercial Act, SC 1996, c. 20; the Aviation Services and Facility Agreement; and the Leases for Land and Space as they affect the Victoria airport properties?

(3) Did the Board err in law in determining the market value of the Victoria airport properties in the context of the operation of the business carried on at those properties, rather than as stand alone properties which comprise the business of the occupier?

(4) Did the Board err in law, and breach the rules of natural justice and procedural fairness, by finding that there was no market for the business of the Appellant, and therefore no market value for the subject properties, when neither party advanced that valuation methodology and neither party was given the opportunity to call evidence or make submissions on the point?

(5) Did the Board err in law by misinterpreting or misapplying Section 57(1) of the Assessment Act, RSBC 1996, c. 20, and fail to fulfill its statutory mandate and inquisitorial function, when it failed to request from the parties’ evidence on the point of whether there was a market for the Appellant corporation’s operations in their entirety?

[38] Like the Assessors, the District argued that the Board erred in finding that the Properties, in particular the North Saanich property, could not be valued on the replacement cost approach. Indeed, they say that this approach is the only appropriate valuation method in the circumstances.

[39] The District says that the Board unreasonably failed to follow case law in which special use properties with limited or no immediate sales prospects have been valued using the cost approach. The District says that the absence of a readily discernable market does not render a property valueless. The District concedes that the application of the “willing buyer and willing seller” principle of market value is difficult “where the property to be assessed is of a unique or exceptional kind, and is not very suitable for sale or letting.” However, the law requires this difficult task to be performed, and the District says that the Board failed to do it.

[40] The District also argues that the Board erred in finding that Nav Canada has a monopoly on the provision of civil air navigation services in this country. This argument is grounded in section 10 of CANSCA, which establishes that third parties may provide civil air navigation services with Nav Canada’s written consent. That being so, the District says, there is no monopoly, and any such third party is a “potential purchaser of the property” on a cost approach analysis. The District submits that potential third party involvement in providing the navigation services referred to in CANSCA creates a notional market for the Properties, albeit one with no available market evidence.

[41] The District repeated the final two questions posed by the Assessors and made similar arguments on both of the “natural justice” points.

Nav Canada

[42] While Nav Canada relied on a different valuation methodology before the Board, its position on this appeal is that the Board’s methodology and decision were correct.

[43] The Respondent says that recent authorities establish that while the cost approach may remain a viable method for assessing the value of special use properties where there is an external market beyond the current owner, it cannot be used to assess properties where the current use is the highest and best use and there is no market beyond the current owner for the property when restricted to that use. Doing so, they say, would assess the Properties at their value in use rather than their value in exchange, contrary to the jurisprudence and the Assessment Act.

[44] Nav Canada also submits that the Board discharged its statutory obligation to find the actual value of the Properties in accordance with s. 19 of the Assessment Act. This was not a question of “throwing up its hands” and failing to find any value, as the Appellants allege, but a considered and reasonable conclusion that the Properties’ value in exchange was nominal.

[45] Nav Canada argues furthermore that the Board conducted the hearing fairly and had no obligation to invite further evidence beyond that which was introduced by the parties. In addition, they say that the Board could not have invited evidence as to the value of Nav Canada’s operations as a business, as this would only have provided evidence of value in use, not value in exchange.

DISCUSSION

Approach to Valuation

[46] Section 19(2) of the Assessment Act requires the assessor to determine the actual value of the land and improvements. Actual value is defined as the “market value of the fee simple interest in land and improvements” (s. 19(1)). Market value is generally defined as the “most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and the seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus”: Southam Inc. (Pacific Newspaper Group Inc.) v. British Columbia (Assessor of Area No. 14 - Surrey/White Rock), 2003 BCSC 676 at para. 18 (“Southam S.C.”).

[47] In determining value, the assessor may consider a number of factors —present use, economic and functional obsolescence, original cost, revenue or rental value, and any other circumstances affecting the value of the land and improvements (s. 19(3)).

[48] The Crown is exempt from property taxation, so where the Crown owns the fee of a property there is generally no need to assess its value. However, Nav Canada is taxable as the occupier of the Victoria Airport and Penticton Airport Properties pursuant to section 26 of the Assessment Act, and as the occupier of the Castlegar Airport Property under section 28, which applies where the fee is held by a

municipality. Accordingly, those properties are subject to assessment, but section 19(5) of the Assessment Act contains a special rule applicable in such circumstances: “the assessor must include in the factors that he or she considers under subsection (3), any restriction placed on the use of the land and improvements by the owner of the fee.” As previously noted, this provision does not apply to the Pitt Meadows Property, in which the fee simple interest is owned by the local airport authority and not the Crown or a municipality.

[49] Specialized, unique, or restricted use properties are sometimes difficult to assess for market value. As noted in Southam S.C., this dilemma has sometimes prompted legislative changes as in the case of mines, sawmills, churches, and ski hills, which now have their value prescribed by statute or regulation. In my view, the Properties in this case are of that ilk, but are not yet the subject of any legislative solution. I note that the Board in its decision suggested that a legislative amendment might well be called for in this case.

The Replacement Cost Approach

[50] The Appellants rely on a line of case authority beginning with The City of Montreal v. Sun Life Assurance Co. of Canada, [1951] UKPC 28 (“Sun Life”) in support of their argument that the replacement cost approach is the best and often only way to value this type of property. In that case, the Judicial Committee of the Privy Council identified five methods of arriving at an accurate determination of the market property value, defined as what a willing buyer would give and a willing seller would take for the property (pp. 5-6). Those methods are:

(1) a recent free sale of the property itself where neither the conditions of the property nor the market have since changed;

(2) recent free sales of identical properties in the same neighbourhood and market;

(3) recent free sales of comparable properties;

(4) the price that the revenue producing possibilities of the property will command; and

(5) the depreciated replacement cost.

[51] The Privy Council held that the depreciated replacement cost may be useful when the property in question is of a unique or exceptional type and sale would be difficult. In such circumstances, the market value would be “best ascertained either by regarding [the owner] as one of the possible purchasers or by estimating what he would be willing to expend on a building to replace that which is being valued.” It was specified, however, the owner “must be regarded like any other purchaser and the price he would give calculated not upon any subjective value to him but upon ordinary principles: – i.e., what he would be prepared to pay, if he was entering the market, for a building to meet his requirements, or would be willing to expend in erecting a building in place of that which is being assessed” (p. 6).

[52] The Supreme Court of Canada addressed a similar issue in Ontario (Assessment Commissioner York) v. Office Specialty Ltd., [1975] 1 S.C.R. 677 (“Office Specialty”). There, the Court was dealing with the valuation assessment of a building in the Village of Holland Landing in the County of York. The evidence established that the building was suitable for its current use, but that if offered for sale there would likely be no purchasers as it was a large, special use property in a small village.

[53] The Court summarized the circumstances as follows: “[t]his is a modern, standard, one-storey building, badly located for a general purchaser but entirely suitable and satisfactory to its owner. It is not for sale and it is not likely that it will be offered for sale” (p. 682). The Court followed Sun Life and concluded that the assessor was required to regard the owner as a possible purchaser, or to estimate

what he would expend on a building to replace that being valued in ascertaining the actual or market value of the property in question.

[54] The principles from Sun Life and Office Specialty have been applied in British Columbia. In Crown Forest Industries Ltd. v. British Columbia (Assessor of Area No. 6 - Courtenay) (1987), 10 B.C.L.R. (2d) 145 (C.A.) (“Crown Forest”), for example, our Court of Appeal was asked to determine whether the cost approach could be used in assessing the Elk Falls Complex, an industrial establishment comprising a pulp and paper mill, sawmill, and planer mill.

[55] The Court affirmed that the replacement cost approach was an available method of valuation in the circumstances of that case, as “the basic premise that cost equals value has long been accepted as conferring validity upon the replacement cost approach as a means of arriving at actual value” (para. 24). The Court found that “the absence of reliable market evidence … compels resort to replacement cost as a means of arriving at market value.” The Court added that it is only where there is evidence establishing that for a particular building cost does not equal value that the assessment should deviate from replacement cost methodology (para. 28). Finally, the Court concluded that in determining whether the cost approach is appropriate, it must first be determined whether the owner is using the building or improvement for the purposes for which it was built (para. 47).

[56] The replacement cost approach has also been used in valuing airport lands in this province. In Boundary Bay Airport Corp. v. British Columbia (Assessor of Area #11 - Richmond/Delta) 1999] B.C.J. 1751 (S.C.) (“Boundary Bay”), at issue was the appropriate assessment of actual or market value of lands which were held in fee simple by the Crown but occupied by an airport operator and used for airport purposes. The Court concluded that the lands in question were assessable pursuant to section 26 of the Assessment Act, and determined that they were appropriately valued by the cost approach (paras. 36-49). This decision was reversed by the Court of Appeal on an unrelated issue (2001 BCCA 87).

[57] For its part, the Respondent relies upon a trio of more recent decisions that provide fresh guidance on the use of the replacement cost approach in the valuation of unique or exceptional properties.

[58] In Southam Inc. (Pacific Newspaper Group Inc.) v. British Columbia (Assessor of Area No. 14 - Surrey/White Rock), 2004 BCCA 245 (“Southam C.A.”), the Court of Appeal dealt with the appropriate method of valuation for a newspaper printing plant. The owner had no intention of selling the facility, and the cost to replace the plant was in excess of $40 million. There was no market for the printing plant in its current use. However, the Court heard evidence by admission that there was a market for an alternative use, and that if offered for sale on the open market it would fetch approximately $25 million to be put to that use.

[59] The Court of Appeal held that the market value of the printing plant was its value in the alternative use. The Court commented that the property’s value had to be determined on the basis of its highest and best use. The highest and best use could not be its current use as a printing plant, as the evidence showed there was no market for the plant in that capacity. Therefore, the highest and best use was the alternative use in which there was evidence of a competitive market.

[60] At paragraph 15 of the judgment in Southam C.A., the Court commented that the “Board’s finding that the highest and best use was the current use where there was no evidence of a market for that use is contradictory and wrong in law. Highest and best use is the use that produces the highest estimate of market value and cannot be determined without reference to a competitive market.”

[61] The Court proceeded to reject the application of the replacement cost approach to the printing press property on the basis that do so would be to assess the property by reference to the value of the current use to the owner rather than in exchange relative to the market. To properly construe the current owner

as a potential purchaser, there must be at least one other notional purchaser for the current use, in the absence of which the cost approach is inapplicable (para. 22).

[62] Leave to appeal Southam C.A. to the Supreme Court of Canada was denied: see [2004] S.C.C.A. 326. The Respondent submitted, and there would seem to be little doubt, that this decision marks a departure from the principle established in the earlier cases relied upon by the Appellants. In brief terms, this departure can be characterized as a firm limitation on access to the replacement cost method in cases involving special use properties where there is no evidence of a purchaser other than the present owner for the property in its current use. The principle that “cost equals value” was thus modified for properties of this sort to exclude, in the words of the Privy Council in Sun Life, “what the present owner would be willing to expend in erecting a building in place of that which is being assessed.”

[63] In Pacific Newspaper Group Inc. v. British Columbia (Assessor of Area No. 14 - Surrey/White Rock), 2008 BCCA 284 (“Pacific Newspaper”), the Court of Appeal built on the conclusions from Southam C.A., in a case involving the same printing facility at issue in Southam C.A. The assessors claimed that there were new facts that distinguished the prior ruling, in that there was evidence of a market via the “sale of the printing facility as part of the sale of the business as a going concern.” The Board accepted that position, which was then subject to an appeal by way of a stated case before N. Smith J. (2006 BCSC 953). Smith J. overturned the decision of the Board, finding that nothing in the Assessment Act permitted market value to be ascertained based on the valuation of a business. The market value of land and improvements is not the same thing as their value to their owner as assets of the owner’s business (para. 17).

[64] On review the Court of Appeal affirmed Smith J.’s ruling, holding that it was an error of law for the Board to conclude that the ability to sell the printing facility as part of the sale of a greater business meant there was a market for the printing facility by itself, or that it made the present use of the property its highest and best use. While there is no doubt that market valuation of land and improvements will be positively influenced if they are part of a solvent concern rather than a defunct or bankrupt one, the Court relied on Southam C.A. in finding that the existence of a market for the “stand-alone” land and improvements is crucial to market value, in the absence of which there can be no market value (para. 37).

[65] Neither Southam C.A. nor Pacific Newspaper expressly deals with the situation presented by this case, where restrictions on the use of property limit its “highest and best use” to one for which it is alleged there is no external market. Whether or not the Court intended to establish that certain properties are bound to be assessed as having a nominal value by virtue of their specialized and restricted use, Southam C.A. and Pacific Newspaper have been applied as authority for that proposition.

[66] For instance, in Gander International Airport Authority Inc. v. Gander (Town), 2008 NLTD 120, the Court applied Southam C.A. and Pacific Newspaper in support of its conclusion that a nominal valuation was appropriate where airport property was subject to restrictions such that it could not be construed as having an alternative use (paras. 57-65). That decision was appealed by the taxing municipality: Gander International Airport Authority Inc. v. Gander (Town), 2011 NLCA 65 (“Gander C.A.”). On review, a majority of the Newfoundland Court of Appeal held that where restrictions on use imposed by a lease from the Crown meant an airport property had no market beyond the current owner, the property could not be assessed using the cost approach. Rather, the majority concluded that in such circumstances, the property could only be assessed at nominal value (para. 37).

[67] The Board has now applied the principles from the Southam C.A., Pacific Newspaper, and Gander C.A. trilogy in two decisions: this one, and in BC Ferry Services Inc. v. British Columbia (Assessor of Area #08 - Vancouver Sea to Sky Region), 2012 PAABBC 20120002. In BC Ferry the Board concluded that a use-restricted property at the BC Ferry terminal at Horseshoe Bay must be assessed at nominal value. The Board emphasized, as it did in the present case, that using the cost approach in such circumstances would be to value the property’s business use or the value to its owner, not its market value. The Board

commented that Southam C.A., Pacific Newspaper and Gander C.A. comprise “very persuasive authority” for the proposition that a special use property with no market is unique for assessment purposes, and its market value is nominal (para. 30).

WAS THE BOARD’S DECISION REASONABLE?

The Main Issue -- Availability of the Cost Approach Method

[68] The availability of the cost approach to valuation of the Properties is at the heart of the dispute between the parties.

[69] Nav Canada says that the trilogy of Southam C.A., Pacific Newspaper, and Gander C.A. precludes the use of the cost approach in the valuation of the Properties. That is because the current use is the highest and best use of the Properties, and there is no market for that use other than the current owner. Given the Board’s findings of fact, Nav Canada says that the Board could not have used the cost approach without falling into the legal error of assessing the subject Properties at their value in use, rather than at their market value.

[70] The Assessors acknowledge that Southam C.A. stands for the proposition that the cost approach is available only when there is more than one prospective purchaser for a property, as otherwise one would be assessing value to owner or in use rather than market value. They also agree that property cannot be assessed by recourse merely to the value of the business conducted upon it. According to the Assessors, this is “unquestionably a conundrum.” They rely on Boundary Bay, a trial court decision rendered some five years before Southam C.A., for authority that properties of the precise nature under consideration in the present case can and should be valued using the cost approach for taxation purposes.

[71] The District says that Southam C.A. is distinguishable from the issue at bar. The District says this is not a situation where there is a market for an alternative use for the Properties that can be established as the highest and best use for the purposes of valuation. In the absence of this factor, the District says that Southam C.A. should be considered inapplicable, and I should rely instead on Sun Life, Crown Forest, Boundary Bay and, in particular, Office Specialty. According to the District, the applicable principle from those decisions is that where the current use of property is the highest and best use and there is no known market, the replacement cost approach is the only appropriate method for valuing the subject property.

[72] I bear in mind, once again, that significant deference must be accorded to an administrative tribunal interpreting and applying the law set out in its home statute, and I may disturb the Board’s decision only if there is no line of analysis that could reasonably have led it from the evidence before it to the conclusion at which it arrived. It is my conclusion that the Board followed a clear and rational path in reaching its determination that the Properties, including Pitt Meadows, ought to be assessed at a nominal exchange value.

[73] In my view, the Board was statutorily obliged, not only by the special rule contained in section 19(5) of the Assessment Act, but also by the more general considerations of section 19(3), combined with authorities including C.N.R. v. Vancouver, to consider the restrictions upon the use of the Properties contained in the leases, the ASFA and CANSCA: the provision of civil air navigation services by a monopoly service provider. In those unique circumstances, it was by no means unreasonable for the Board to conclude that there was no external market for these “fictitious fees.”

[74] To the contrary, the Board’s conclusion that the present use of the Properties is not only the highest and best use, but the only reasonably probable and legally permissible use, was entirely reasonable. Consideration of the practical impact of use restrictions on the marketability of the Properties was clearly required in this case, especially as the use in question is statutorily reserved to Nav Can alone. It was

rational and well within the range of acceptable outcomes for the Board to conclude that restricted-use properties for which there is no external market have no value. This is particularly so in light of the binding legal principle from the Southam C.A. line of authorities,

[75] For emphasis, the question is not whether there might be other reasonable conclusions to draw from the evidence taken by the Board. Experts in property valuation might debate the merits of this case at length. It is possible that a differently constituted Board might have come to a different, equally reasonable decision. It is not for this Court to broker between reasonable outcomes, but to accord deference to a reasonable decision within a factually and legally acceptable range of outcomes.

[76] In light of the foregoing, my answer to each of the Assessor’s questions 1 and 2 and the District’s questions 1, 2 and 3 is “no”.

The Natural Justice Issue

[77] Both Appellants asked in identical terms the following question:

Did the Board err in law, and breach the rules of natural justice and fair hearing, by finding that there was no market for the business of the Appellant, and therefore no market value for the subject properties, when neither party advanced that valuation methodology and neither party was given the opportunity to call evidence or make submissions on the point?

[78] I have already dismissed the argument that the Board engaged in the course of reasoning pre-supposed by this question. The Board considered the “fictitious fee” simple interest in the Properties, then highest and best use, then market value. This was perfectly in order and makes clear that the Board assessed the marketability of the Properties, not Nav Can’s business activities thereon.

[79] In my view there was no breach of natural justice or procedural fairness in this procedure. The words of Huddart J.A. in British Columbia (Assessor of Area No. 09 - Vancouver) v. Lord Realty Holdings Ltd. (1996), 82 B.C.A.C. 291 (“Lord Realty”) are apposite:

35 It is for the Board to decide if it needs information to fulfill its duty to find actual value. It is for the Board to decide what factors should be included or excluded in a method of arriving at value. It is for the Board to determine what circumstances affect value. All are questions of fact...

[80] The Appellants put their case forcefully to the Board that the Properties had substantial market value and that the best if not the only method of evaluation was the cost method. The Respondent argued, albeit for different reasons than those accepted by the Board in its decision, that the Properties should be assessed at nominal values.

[81] The “fictitious fee” and restrictions on use were front and centre during the hearing. The Appellants argued the matter fully over a number of days. The Board simply rejected the Appellants’ arguments on the cost approach, and did so for reasons which, as I have explained above, were within the realm of reasonable outcomes in the dispute at bar.

[82] Accordingly the answer to the question is “no.”

The section 57(1) Assessment Act Issue

[83] Both Appellants asked on the stated case:

Did the Board err in law by misinterpreting or misapplying Section 57(1) of the Assessment Act, and fail to fulfill its statutory mandate and inquisitorial function, when it failed to request from the

parties’ evidence on the point of whether there was a market for the Appellant corporation’s operations in their entirety?

[84] As I have already said, the Board reasonably determined that the fair market value of the Properties in question was nominal in light of Nav Canada’s restricted-use monopoly. The decision had nothing (and could have nothing) to do with Nav Can’s overall profitability, which is irrelevant to the Assessment Act and contrary to the principles in Pacific Newspaper, discussed above.

[85] It follows that this question must be answered “no”.

Miscellaneous

[86] For the sake of completeness I will address additional arguments included in the District’s written submissions, though these were not included in the questions asked on the stated case.

[87] The argument that Nav Canada does not exercise a true monopoly over civil air navigation services because of section 10 of CANSCA was not before the Board, and therefore is not properly raised in this stated case. Nevertheless, I cannot say that it was unreasonable for the Board to have concluded that, due to security issues, interference with flight services, and general inconvenience it would be improbable for Nav Canada to sublet its leased space. I would also agree with the Respondent’s submission that “it is precisely Nav Can’s ability to deny third parties the right to provide civil air navigation services in Nav Canada’s stead that gives Nav Canada the practical monopoly which the District suggests Nav Canada does not wield.”

[88] The District also submitted that the unreasonableness of the Board’s decision is revealed by asking the question: if the Victoria Airport Property were expropriated from Nav Canada, would Nav Canada have agreed that the property had a nominal value of $20?” The analogy is inapposite. Assessed value has all to do with the market, while expropriation law has more to do with the value of the property to its owner: see Pacific Newspaper (para. 105).

DISPOSITION

[89] I would answer “no” to each question raised by the Appellants in the stated case.

[90] The appeal is dismissed. Nav Can will have its costs on scale B.

_____________________________ “Baird J.”

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