March 7, 1995, E.C.B. No. 87/91/85 (55 L.C.R. 157)

Between: Country Style Holdings Inc.
Claimant
And: Her Majesty The Queen in Right of the Province of British Columbia
Respondent
Before: Fiona M. St. Clair, Vice-Chair
Lesley Eames, AACI, Board Member
Art Guthrie, Board Member
Appearances: Garry Hook, Director, acting on the Claimant's behalf
Sarah I. Macdonald, Counsel for the Respondent

 

1. THE APPLICATION

The claimant, Country Style Holdings Inc. ("Country Style") has obtained an appraisal report ("the report") from Mr. John T. Crowe, AACI, of the firm Flynn Mirtle Moran. Country Style, on February 3, 1995, applied to the Expropriation Compensation Board ("the board") for an order determining the admissibility of the report. The board had previously agreed to hear that application prior to the date set for the compensation hearing.

Country Style did not call Mr. Crowe as a witness at the application hearing, nor did it file any affidavit material in support of its position that the report should be ruled admissible. We therefore only had the report itself to consider as evidence of Mr. Crowe's qualifications as an expert to give this particular piece of opinion evidence.

 

2. THE PROVINCE'S POSITION

The respondent, Her Majesty the Queen in Right of the Province of British Columbia as represented by the Minister of Transportation and Highways ("the province"), argued that the report was inadmissible for two main reasons:

1. Mr. Crowe is not qualified to perform the type of business valuation set out in the portion of the report headed "Income approach -- Based on Restaurant as a Going Concern" ; and

2. The other two analytical portions of the report, headed "Cost Approach" and "Income Approach -- Based on Rental of Restaurant Premises" are irrelevant, because they value property for which the claimant has already been compensated through a section 3 agreement dated March 27, 1991.

The province also argued in more general terms that because the sale price under a section 3 agreement between the parties and dated March 27, 1991, was specifically stated to include the real property and "any buildings, improvements, fixtures, appurtenances and attachments to the property, as set out in the Interwest appraisal, and as listed in Schedule I to this agreement", the opinion report was inadmissible on the basis of irrelevance to the extent to which it addresses the market value of the property in any part of its analysis or conclusions.

 

3. QUALIFICATIONS AS EXPERT WITNESS

The province did not take issue with Mr. Crowe's qualifications as an expert in the area of real property appraisal, but it did argue that the part of his report headed "Income approach -- Based on Restaurant as a Going Concern" could only be offered in testimony if he were either a Chartered Business Valuator, or if he had similar experience or training to that required to qualify as a Chartered Business Valuator.

Country Style maintained, in very general terms, that Mr. Crowe was well qualified to provide all of the opinions contained in his report.

Experienced property appraisers regularly qualify as experts before the board and submit reports about the market value of real property, both residential and commercial. In order to qualify an individual as an expert in the area of business loss, the board must be satisfied that the individual has the qualifications, experience and requisite skills to assist the board in its determination of the issue of business loss.

It may be that some real estate appraisers possess this kind of expertise in valuing business properties. However, in this instance, the only evidence offered about Mr. Crowe's expertise in this area was a single page summary headed "Qualifications of the Appraiser", attached as an addendum to his report. This summary makes no reference to training or practical experience in the valuation of business properties. Since Mr. Crowe did not attend the application hearing, we were not able to determine whether he might have some special qualifications or experience that would especially qualify him to give the opinion set out in the 'business as a going concern' section of his report.

We are therefore unable to provide Country Style with an order that the report is admissible, based on the evidence available to us at the application hearing. It may be that such evidence would be available at the compensation hearing, but it is not open to us to make any assumptions about that now.

 

4. RELEVANCE

It was clear to us that there is an unresolved issue between the parties as to how the quantum of Country Style's compensation should be calculated, based on the stated exception in paragraph 11 of the section 3 agreement, which is worded as follows:

"The Sale Price constitutes full and final payment for any and all claims arising out of the transfer or dedication of the property to the purchaser which, but for this agreement would give rise to a claim under the Expropriation Act, S.B.C., 1987 and amendments thereto, save and except the business losses relating to the operations of the subject property and specifically excluded from the Interwest appraisal dated Jan. 28/91. (Emphasis added.)

The parties do not agree as to what was included in the Interwest appraisal and what was not. The province argued that because of the exception clause in the section 3 agreement, the report was inadmissible on the basis of irrelevance to the extent to which it addresses the market value of the property. Country Style, on the other hand, argued that the Interwest appraisal only valued the real estate, and excluded the value that the business had to that property. It reasoned that the board therefore needed to have before it a real property appraisal that took into consideration the value of the business as a going concern. It was on this basis that Country Style put forward Mr. Crowe's appraisal report, and it is the final opinion in the report about the value of the business as a going concern that forms the basis of Country Style's business loss claim.

We did not hear argument about the proper construction of paragraph 11 of the section 3 agreement, and the province quite properly pointed out that it would not be appropriate for us to draw any conclusions now about the effect of any of the clauses of that agreement.

We do not find it necessary to make a ruling on the issue of relevance now, because we have already declined to accept Mr. Crowe's opinion report into evidence at this point in the proceedings, due to an insufficiency of evidence about his qualifications and experience. We believe, however, that it might be useful to the parties to know that we do (at least initially, and without the benefit of further argument on this point) find some merit in the province's argument about the report effectively revisiting the property value issue. The province maintained that since the real property value has already been settled, any valuation that takes any different value into account than the one it has already paid under the section 3 agreement, would be inadmissible because of irrelevance.

The "Cost Approach" and "Income Approach -- Based on Rental of Restaurant Premises" portions of the report do appear to value an aspect of the property that is not in issue before the board. In addition, it appears to us that Mr. Crowe's valuation of the business as a going concern may indirectly factor in a different real property value than the one set out in the section 3 agreement. With the valuation method he uses, we do not see how it would be possible to identify an amount referable specifically to the real property and buildings which have already been purchased by the province under the section 3 agreement. While he does subtract the actual purchase price from his final arrived at value to reach an amount claimed, our concern is that a greater sum than the agreed property price may have been factored indirectly into the total from which the purchase price was subtracted.

While we are not ruling on the relevance issue here, we are concerned that the approach taken by Mr. Crowe in this part of the report might well prove quite unhelpful to us in coming to a determination about compensation for business loss in this case. It may be that Mr. Crowe could demonstrate to the board that his methodology in the "going concern" section of the report is not flawed in this respect, but again, in the absence of hearing from him, we are not able to make a determination about that.

 

5. CONCLUSION

On the basis of the evidence that was before us at this application, we must deny Country Style's pre-hearing request for a ruling that the opinion report of Mr. Crowe is admissible for the purpose of the compensation hearing. It is still open to Country Style, however, to argue the admissibility of the report at the compensation hearing, as this decision does not constitute a ruling that the report is inadmissible.

 

 

Government of British Columbia