June 13, 1997, E.C.B. No. 21/93/145 (62 L.C.R. 124)

 

Between: Roadmaster Auto Centre Ltd.
Claimant
And: City of Burnaby
Respondent
Before: Robert W. Shorthouse, Chair
Michael R. Grover, AACI, Board Member
Art Guthrie, Board Member
Appearances: J. Bruce Melville, for the Claimant
Robert J. McDonnell, for the Respondent

 

REASONS FOR DECISION

1. INTRODUCTION

Between 1984 and 1992, the claimant company operated an automobile engine rebuilding and general automotive repair business from leased premises located at 7070 Rumble Street in Burnaby, British Columbia. Initially, the company was known as Burnaby Engines West Ltd. but, in February 1987, changed its name to Roadmaster Auto Centre Ltd. ("Roadmaster"). In February 1989, the respondent City of Burnaby ("Burnaby") purchased the land and building from which Roadmaster operated its business. Burnaby's purpose in doing so was to allow construction of certain road improvements referred to as the "Griffiths/19th Street" project. The project envisioned demolition of the building to accommodate road widening and, therefore, the closure of Roadmaster's business at its leased location. There followed more than three years of often acrimonious negotiations and other dealings between the parties, who were then in the positions of landlord and tenant, culminating in Burnaby's expropriation of Roadmaster's leasehold interest in July 1992. Burnaby obtained vacant possession of the leased premises the following month after intervention by the courts.

In June 1993, Roadmaster applied to the Expropriation Compensation Board (the "board") for an order fixing the compensation payable to it by Burnaby as a result of the expropriation. The application was subsequently amended on several occasions including at the commencement of the compensation hearing to add or delete particular claims and to vary the amount sought. One amendment was made in light of a decision of the board which followed a contested interlocutory hearing and in which several claims were struck as being beyond the board's jurisdiction.

Roadmaster claimed compensation for the market value of its leasehold interest, for disturbance damages primarily in the nature of business losses, and for interest and costs. The parties have since been able to reach agreement that the market value of Roadmaster's leasehold interest was $8,000. However, they remain at odds on all of the alleged items of disturbance damage. Roadmaster's primary theory is that, but for the expropriation, the business would have continued to operate from the leased premises indefinitely and that it was not feasible to relocate the business following the taking. Some of the claims advanced for disturbance damage are said to be mutually exclusive or alternative claims, such that the precise amount of compensation sought is not immediately apparent. However, it would appear that the disturbance damage claim is for not less than $176,750 nor more than $348,363.

Burnaby's assessment of the compensation payable to Roadmaster on account of disturbance damages is markedly different. At the time of expropriation, it made an advance payment of $20,000 under what was then section 19 of the Expropriation Act, S.B.C. 1987, c. 23, and is now section 20 of the Expropriation Act, R.S.B.C. 1996, c. 125 (the "Act"). Initially, Burnaby took the position in its pleadings that this amount was all the compensation to which Roadmaster was entitled for both market value and disturbance. Subsequently, Burnaby revised its position somewhat with respect to disturbance, suggesting that the financial losses of the business attributable to the expropriation were no greater than $29,600 and might be far less. Burnaby's theory is that, even in the absence of expropriation, Roadmaster would not have been able to continue at the Rumble Street location beyond the end of the then current term of the lease and that it is doubtful whether Roadmaster would have generated profits to the end of the term. Burnaby says that, upon expropriation, it was feasible to relocate the business but that Roadmaster made no effort to do so and, accordingly, failed to mitigate its damages as it was required to do.

The compensation hearing in this matter was originally scheduled to begin in September 1994 but was adjourned generally at the request of both parties when the panel which convened to hear the claim made certain preliminary rulings with respect to Roadmaster's amended pleadings. The hearing eventually proceeded before a different panel convened in Vancouver over a five-day period between July 23 and 29, 1996. The witnesses for Roadmaster were Mr. Douglas Cockburn, one of the principals of the company, several qualified experts -- Mr. Mick Matheusik, a development and planning consultant, Mr. Jerry Zuk, a business valuer, and Ms. Kathryn Jones, a real estate appraiser -- and three other lay witnesses including Roadmaster's original landlord of the Rumble Street premises. Both witnesses for Burnaby were qualified experts -- Mr. Glen Harry, a business valuer, and Mr. Jay Wollenberg, a professional planner.

Several months after the conclusion of the hearing, while the decision in this matter was still pending, counsel for Burnaby brought to the board's attention a recent judgment of the British Columbia Court of Appeal which he said was relevant to the issue of Roadmaster's entitlement to compensation for its leasehold interest. Counsel for Roadmaster objected, and in due course the panel, after convening a teleconference hearing, decided to reopen the matter and invite written submissions on the appellate case. The last of those submissions was filed with the board on May 15, 1997, although Roadmaster has since purported to withdraw those provided by its counsel. On May 14, 1997, Roadmaster's counsel advised the board that the law firm had ceased to act.

 

2. BACKGROUND

Based upon its assessment of the oral and documentary evidence adduced, the board makes the following background findings in this matter.

2.1 Roadmaster and Its Business

Roadmaster is an incorporated British Columbia company. At the date of expropriation, all of its shares were held by Douglas Cockburn and Suzanne Cockburn. Mr. Cockburn, who was 50 years old at the date of the hearing, was the driving force behind the operation of the business. He testified that he had 20 years' experience employed in the automotive business primarily as a self-taught mechanic prior to making the decision, in 1979, to go into business on his own. He assembled the necessary equipment and for five years operated a small engine rebuilding shop near 49th Avenue and Main Street in Vancouver. In late 1983 or early 1984 he decided to expand the business to include general automotive repairs and searched for suitable premises -- preferably a corner location with good visibility to drive-by traffic, large enough to accommodate future expansion, and not too close to competitors nor too far from his home in Burnaby. He believed he had found such a location at 7070 Rumble Street, which had the additional possible advantage of being situated near a proposed station on the new skytrain rapid transit system about to be constructed.

The company was incorporated to carry on the new business at Rumble Street which, after incurring the cost of various improvements required to adapt the leasehold for auto repair, began operation in September 1984. According to Mr. Cockburn, it quickly attracted customers, aided at first by advertising and later by the opening of the skytrain station since customers could leave their cars for repair and take the skytrain one block away. Over time, he testified, general automotive repair became a more important component of the business than engine rebuilding, accounting for perhaps 80% of the trade. Mr. Cockburn handled the day to day dealings with customers, doing some of the engine rebuilding or auto repair himself. His wife, Suzanne Cockburn, picked up and delivered parts, and took care of the financial end of the business including bookkeeping and banking. Roadmaster employed other trained mechanics from time to time, the number varying with the volume of business. One key employee by the name of Richard Stewart remained with the company for nearly four years until January 1989 and was probably responsible for more of the actual mechanical work than Mr. Cockburn. At very busy times between 1985 and 1989, as many as four mechanics were engaged. After 1989, however, Roadmaster never employed more than one mechanic at any given time and the last employee left in late 1991, roughly half a year prior to the expropriation.

The financial records of the business reflect a growth in total sales for each of the fiscal years 1985, 1986 and 1987, and thereafter a successive decline in each of the fiscal years 1988 through 1992. Nearly all of the years of operation record a modest net loss. However, when the management wages and benefits paid to Mr. and Mrs. Cockburn are excluded as an expense, it becomes clear that Roadmaster was generating some return at least to the principals of the company until its last year of operation. That return averaged about $20,000 annually in the first three fiscal years, rising to about $40,000 annually in fiscal years 1988 and 1989, and falling back closer to $20,000 annually in fiscal years 1990 and 1991. The possible reasons underlying the varied financial performance of the company bear closer scrutiny later in this decision.

2.2 The Leasehold Property and the Lease

The premises from which Roadmaster conducted its business comprised the northerly half of a concrete block automotive and warehouse building, providing to the claimant company approximately 2,405 sq. ft. of automotive space with one bay door and an office area. It was situated on an irregularly shaped parcel of land located at the intersection of Rumble Street and Edmonds Avenue, legally described as PID 002-469-332, Lot D, District Lot 95, Group 1, New Westminster District, Plan 18033. The site was zoned M-2 General Industrial District by the City of Burnaby, appropriate to Roadmaster's use.

For the first four months of its operation at the Rumble Street location, the claimant company assumed the remaining term of an already existing lease. On September 20, 1984, it entered into a new lease with the landlord, E.A. Stark Applicators Ltd. ("Applicators"), for a term of one year commencing January 1, 1985, with two options to renew for additional terms of three and five years. The lease was never registered in the land title office. Roadmaster exercised both options, which had the effect of extending the term of the lease through December 31, 1993. Monthly rent for the last five years of the lease was set at a level which the parties to these proceedings agree constituted a leasehold advantage to Roadmaster. It is worth noting that, at the time the parties to the lease negotiated the second option in early November 1988, they already recognized the potential impact of Burnaby's road extension plans. An appendix to the lease renewal document states as follows:

It is hereby agreed that should the Edmonds Street Extension and/or the 19th Street/Rumble Street Road Alterations proceed within the duration of this lease extension (1989-1993) dated 11/2/88, and the parking area is reduced to prohibit Burnaby Engines West Ltd. [now Roadmaster] from maintaining a viable business operation, this agreement may be terminated without penalty or bonus for the signatory parties.

Both Mr. Cockburn and Mr. Edward Stark, the principal of Applicators, testified as to the co-operative relationship which they said subsisted between landlord and tenant. Mr. Stark remarked that Mr. Cockburn "couldn't have been a better tenant" and that, if his company had continued to own the property, he would have considered granting as many as three further five-year renewal options to Roadmaster. However, there was no provision for renewal of the lease beyond December 31, 1993, and evidently no such possibility was actually discussed. Instead, Applicators sold its fee simple interest in the property to Burnaby on February 13, 1989, and Burnaby thereby became Roadmaster's landlord under the lease for the duration of the final term until expropriation occurred.

2.3 Pre-Expropriation Negotiations

What passed between Burnaby and Roadmaster as landlord and tenant over roughly the three and a half years prior to the expropriation was the subject of much evidence at this hearing. In its earlier pleadings, Roadmaster claimed that Burnaby's actions during this period constituted a breach of its covenant of quiet enjoyment under the lease and that they interfered with the ability of Roadmaster's employees to concentrate on running the business. The board in its interlocutory decision of September 9, 1994 (reported at 53 L.C.R. 161) held that such a claim, referring as it did to a landlord-tenant dispute, fell outside the board's jurisdiction. However, evidence concerning the dispute remained relevant to the board's need to assess the impact upon Roadmaster's business performance and future plans for the purpose of determining post-expropriation business losses.

It is something of an understatement to say, as did Roadmaster's counsel, that the new landlord-tenant relationship was not a happy one and that the experience left Mr. Cockburn a bitter and angry man. Burnaby acquired the property in furtherance of its proposed road construction project and the continued presence of Roadmaster's business was not compatible with the project. Beginning in January 1989, Burnaby took the position that Roadmaster's lease, because unregistered, was unenforceable and could be terminated at any time on a month's notice. It asked Roadmaster to enter into a new rental agreement and indicated in writing, from time to time, that the tenancy would be terminated whenever it was anticipated that road construction was about to begin. Initially, it suggested that would likely occur in early 1990, then early 1991, and later still at the end of May 1992. On several occasions Burnaby issued eviction notices, once for non-payment of a month's rent, then for failure to execute the new rental agreement, and at other times because the road work was felt to be imminent. Each of these notices was, in effect, waived as the termination date approached. For a time Burnaby declined to recognize Roadmaster's attempt to comply with scheduled rent increases under the lease, returning the increased portion of each rental payment. From March 1991 until February 1992, Burnaby declined to cash Roadmaster's rental cheques at all. Finally, in the months immediately preceding the expropriation, Burnaby through its legal counsel began making offers of free rent and later of cash in exchange for Roadmaster's agreement to surrender the lease.

None of Burnaby's efforts prior to expropriation to dislodge Roadmaster from its leased premises succeeded. Having taken the position that it would agree to vacate only if substantially compensated, Roadmaster dug in its heels when compensation was refused or, latterly, offered in amounts the claimant company considered to be wholly inadequate. In Mr. Cockburn's assessment, Burnaby was simply playing "frivolous games" of intimidation, seeking to obtain vacant possession of the leasehold without having to resort to expropriation and pay fair compensation. Roadmaster retained counsel for advice on its legal position and for communicating its position to Burnaby. Mr. Cockburn also testified that he was forced to devote a significant portion of his otherwise productive working time responding to Burnaby's various initiatives, and perhaps more important, that the ongoing dispute left him "extremely distressed" and increasingly unable to focus on the work at hand. Already by 1990 Roadmaster had almost ceased advertising and by the following year had begun reducing its inventory. In late 1990 Mr. Cockburn made an unsuccessful attempt to sell the business. As the dispute continued, he increasingly shared his anxieties with his customers, advising them that Roadmaster could not offer guarantees on its repair work beyond whatever date its occupancy of the Rumble Street premises ended. At no time throughout this period did he explore the possibility of relocating the business.

2.4 The Expropriation and Its Aftermath

On May 26, 1992, Burnaby served Roadmaster with an expropriation notice and certificate of approval of expropriation in prescribed form with respect to the leasehold interest. On June 23, 1992, it served a notice of advance payment, paying to Roadmaster the sum of $20,000. This amount was broken out under various headings: $6,100 for the leasehold interest, $2,500 for moving costs, $4,000 for loss of business during the move, $2,500 for manager's time spent on dealing with the expropriation, $1,600 for storage costs, $800 for legal fees and $2,500 under the heading "miscellaneous". On July 2, 1992, Burnaby filed its vesting notice in the land title office, and a copy of the notice was delivered to Roadmaster the following day. The parties are agreed that Burnaby complied with the procedural requirements found in Parts 3 and 4 of the Act and that the date of expropriation for the purposes of what is now section 29 of the Act was July 2, 1992.

In the period immediately following the expropriation, a number of legal steps were taken by the parties. These have already been set out in the board's earlier reported decision but bear repetition here for the sake of completing the picture. On July 20, 1992, Roadmaster commenced proceedings in the Supreme Court of British Columbia seeking an order that the expropriation be set aside. Burnaby, on the same date, brought a motion for an order for possession of the leased premises. Roadmaster's petition was dismissed on August 6, 1992, by Mr. Justice Blair who also granted an order requiring Roadmaster to give Burnaby vacant possession. Roadmaster declined to do so. During his testimony at the compensation hearing, Mr. Cockburn stated that he viewed the expropriation as simply another example of Burnaby "playing games again". He said he believed that Burnaby, consistent with the earlier pattern, might not follow through on having the court order executed and might instead come forward with another offer to settle. However, Burnaby did make further application to the court which, on August 11, 1992, issued a writ of possession commanding the sheriff "forthwith to enter the land and cause the Respondent, The Corporation of the District of Burnaby, to have possession of it". The writ was executed on August 13, 1992, by court bailiffs acting on behalf of the Crown, who entered the leased premises and removed Roadmaster's equipment and other chattels into storage nearby. Roadmaster was required to pay the storage costs in order to retrieve them.

Following the expropriation, Roadmaster over time sold off some items of its equipment, but it did not relocate the business. Mr. Melville, Roadmaster's counsel, in his written opening statement to the board, summarized the situation this way:

Mr. Cockburn's grievances against the respondent escalated into an obsession which prevented him from focusing on the question of whether and how to re-establish his career. The claimant frankly states that no effort was made to relocate the business and no claim is advanced for costs associated with efforts to relocate because there were none. The only work which has been done in respect of relocation is for the purpose of this hearing.

 

3. ELEMENTS OF THE CLAIM

At the compensation hearing, Roadmaster set forth its various claims against Burnaby in respect of the expropriation and quantified some of them as follows:

(1) Market value of the leasehold interest, pursuant to what is now section 31   $   8,000.00
(2) Disturbance damages pursuant to what are now sections 34 and 39:
  (a) financial losses from date of expropriation to December 31, 1993 88,593.00
  (b) financial losses from January 1, 1994 to December 31, 2008 183,020.00
  (c) loss of use of leasehold improvements 3,750.00
  (d) moving out costs 8,000.00
  (e) storage costs 14,000.00
  (f) executive time 5,500.00
  (g) termination allowance 100,000.00
  (h) costs to acquire new premises and set up shop 2,500.00
  (i) moving in costs 8,000.00
  (j) loss of income during start up period 35,000.00
(3) Costs pursuant to what is now section 45
(4) Interest pursuant to what is now section 46
(5) Double interest pursuant to what is now section 47.

On its face, the disturbance damage claim totals $456,363. However, some of the foregoing elements, such as the termination allowance, assume a cessation of the business on the basis that it was not feasible to relocate whereas others, such as the cost to acquire new premises, move in and start up, assume in the alternative that relocation was feasible. The financial losses claimed also vary depending upon the prospect of lease renewal beyond December 31, 1993.

 

4. ISSUES

Because the parties have agreed on the market value of the leasehold interest, what primarily remains to be determined by the board is Roadmaster's entitlement to each of the elements of disturbance damage claimed and the quantum of any such damage. Subsumed within this general issue are a number of discrete questions, including: (1) whether, but for the expropriation, there was a reasonable prospect of renewal of Roadmaster's lease beyond December 31, 1993; (2) if so, for what period of time following the expropriation the claimant company's financial losses ought to be calculated; (3) whether in determining maintainable earnings so to project future loss, it is appropriate to ignore Roadmaster's declining financial performance during the period from 1989 to 1992, when the parties were engaged in pre-expropriation negotiations; (4) whether upon expropriation it was feasible to relocate the business; (5) if not, whether Roadmaster is entitled to a termination allowance; (6) the parties having already agreed that moving out costs amounted to some $8,000, whether Roadmaster is actually entitled to those costs in the circumstances; and (7) whether Roadmaster's storage costs are reasonable in the circumstances.

 

5. THE CASE FOR ROADMASTER

Roadmaster's case for compensation for financial loss rests on the initial proposition that, but for the expropriation, its tenure at the Rumble Street location would have remained secure into the indefinite future even though the enforceable term of the lease expired at the end of the year 1993. It points to the evidence of both Mr. Cockburn and Mr. Stark that the relationship between landlord and tenant was cordial and co-operative in the period between 1984 and early 1989, and Mr. Stark's hindsight testimony that he would have entertained as many as three additional five-year renewals of the lease because he viewed a long-term tenancy as attractive. The effect would have been to extend the term to December 31, 2008 and, in Roadmaster's submission, would have put the claimant company in the same position with respect to disturbance damages as if it were the fee simple owner. Although Burnaby replaced Applicators as landlord of the leased premises in early 1989, with the intention of obtaining vacant possession rather than renewing the lease, Roadmaster says that the board should not take Burnaby's road construction plans into account when deciding on the prospect of lease renewal.

Roadmaster retained Mr. Jerry Zuk, C.A., C.B.V., of the chartered accounting firm of Arthur Andersen & Co., who was qualified at the hearing as an expert in the estimation of business financial loss and testified concerning the three reports he had prepared. In the first report dated June 22, 1993, he estimated financial losses both to Roadmaster and to Mr. and Mrs. Cockburn during the period from April 10, 1989, shortly after negotiations between the parties began, to December 31, 1993, when the lease term expired, on the basis of three key assumptions with which he was provided. The first assumption was that any losses incurred both before and after the expropriation were entirely attributable to the actions of Burnaby. The second was that the fiscal 1988 earnings of the business (subject to adjustment for inflation) would otherwise have been maintainable to the end of the lease. The third assumption was that Roadmaster would, but for the expropriation, have continued in business to the end of the lease. Based on these assumptions and his analysis, Mr. Zuk opined that the financial loss for the approximate 57 month period amounted to $181,000. In light of the board's earlier interlocutory decision that a pre-expropriation business loss claim was not available in the circumstances of this matter, Roadmaster has tailored its claim by asserting a financial loss beginning from the date of expropriation. From that date to the end of the lease term on December 31, 1993, the loss is said to be $88,593.

In his second report dated August 19, 1994, Mr. Zuk estimated the "annual maintainable income" both of Roadmaster and the Cockburns subsequent to December 31, 1993, using the same key assumptions as in his first report except that now it was assumed that the lease would have been renewed. He concluded that the annual maintainable income was $56,000.

Mr. Zuk prepared a third report dated June 21, 1996, in order to calculate the "present value" as at December 31, 1993, of future annual incomes of $56,000 based on the assumption that Roadmaster would have renewed its lease of the Rumble Street premises for periods of, alternatively, five years, 10 years or 15 years had Burnaby not acquired the property. He was instructed by Roadmaster to assume applicable discount rates of 30% and 48%. Roadmaster's claim for future financial losses beyond December 31, 1993, in the amount of $183,020 accords with Mr. Zuk's calculations based on the most aggressive of the assumptions, that is, a lease extended for 15 years to December 31, 2008, at a 30% discount rate.

Roadmaster has acknowledged that, faced with expropriation, it made no effort to relocate the business within its former trade area. However, it also says that any such effort would have been a waste of time because in fact no such opportunity existed. Citing several case authorities, Roadmaster argues that the feasibility of relocation goes beyond the mere question of whether it is possible to move elsewhere and involves a consideration of the degree of disruption to the business. The decisions, it says, illustrate that feasibility of relocation is to be determined on the particular facts of each case A proposed new location must raise the probability of continued success in the business operation, and success in turn depends on the market area and nature of the business. Where on the facts it is determined that it was infeasible to relocate, the cases say, according to Roadmaster, that lack of intention or effort to relocate is irrelevant.

Roadmaster's case in this regard rests primarily on the evidence of Mr. Mick Matheusik of Thomas Consultants Inc., who was qualified at the hearing as an expert on commercial site assessment. Mr. Matheusik was engaged to do a relocation analysis and determine "if there was a reasonable opportunity to relocate the Roadmaster operation to a site which offered truly comparable locational attributes to those of its former location". His report dated August 25, 1994, first defined what he considered Roadmaster's trading area by review of the claimant company's customer invoices and by interviews with the representatives of other nearby auto repair businesses. The report next considered what were described as "essential locational characteristics" for auto repair operations within this particular trading area. These included having a free standing and corner location, good visibility, high traffic volume, adequate parking, a local residential base from which to draw customers, little local competition, reasonably close proximity to the skytrain station, to suppliers and to the operator's residence, and an attractive rent level. The report concluded that Roadmaster enjoyed "excellent locational attributes" at the Rumble Street premises.

Mr. Matheusik identified 12 potential sites for relocation of Roadmaster's business which, after an initial assessment, he reduced to four in number. After carrying out what he described as a thorough examination of those four sites, he concluded that they all possessed major shortcomings with respect to their ability to recreate the Roadmaster operation and its corresponding level of performance prior to the expropriation. He concluded, at p. iii of the report:

Therefore, it is our expert opinion that a reasonable opportunity was not available to Roadmaster Auto Centre to relocate its operation to a site which offered truly comparable locational and operational attributes to those of its former location.

Mr. Matheusik's conclusions were supported to a degree by other evidence presented at the hearing. Ms. Kathryn Jones, AACI, RI(BC), of Collingwood Appraisals Ltd., in her report dated July 7, 1992, considered eight comparable leases of automotive repair businesses for the purpose of estimating a reasonable economic rent for the Roadmaster site, but also went on to state at p. 26 of the report that "there are very few available spaces suitable for automotive use with traffic exposure comparable to Rumble Street". Ms. Jones prepared a second report dated August 17, 1994, in response to Roadmaster's request that she search for available automotive shops by reference to her earlier appraisal field notes and to the real estate multiple listing service catalogues published around the time of expropriation. She reported that she found "no automotive spaces available in the immediate vicinity of the subject property".

Two lay witnesses called by Roadmaster also gave evidence relevant to the issue of the feasibility of relocation. Mr. Terry Morgan, the owner of a general automobile repair shop in New Westminster who had sent customers requiring engine rebuilding or overhauling to Roadmaster, testified as to the convenience of Roadmaster's Rumble Street location and suggested that he would have continued to send business provided the new location was also within a reasonable distance of his shop. Mr. David Carruthers, a millwright who was seeking a "wheel-to-wheel" franchise for an automobile repair shop, testified concerning the difficulties he experienced in 1992 in attempting to locate a suitable site either in Burnaby or New Westminster.

Because, in Roadmaster's submission, it was not feasible to relocate the business, the claimant company should be entitled to a "termination allowance" under what is now section 34 (4) of the Act, which provides:

34. (4) If the board determines that it is not feasible for an owner to relocate his or her business, there may be included in the compensation that is otherwise payable, an additional amount not exceeding the value of the goodwill of the business.

Roadmaster acknowledges that, if the management wages and benefits paid to Mr. and Mrs. Cockburn are deducted from the maintainable earnings of the business, there is no goodwill. However, it is the claimant company's position that it is unnecessary and inappropriate to make that deduction in a small family-owned business where the effect of expropriation is to deprive the operators of their livelihood. Roadmaster cites the case of Plouffe v. Ottawa (City) (1973), 4 L.C.R. 37 (Ont. L.C.B.), for that proposition.

Notwithstanding that Roadmaster had to be forcibly ejected from its leased premises following the expropriation, the claimant company says that it is entitled to reasonable moving and storage costs. Because it takes the position that its lease, but for the expropriation, would have been renewed far into the future, Roadmaster argues for full compensation of moving costs rather than a reduced amount reflecting merely the accelerated costs of having to vacate the premises earlier than the end of the lease term. On the assumption that it were not feasible to relocate the business, Roadmaster asserts a claim for $8,000 for moving its chattels from the premises into storage, and a further claim for $14,400 as the storage costs incurred for a reasonable time thereafter, said to be two years. On the alternative assumption that relocation were feasible, Roadmaster asserts two separate claims of $8,000 each for the costs of moving out and moving in respectively, as well as other relocation expenses including temporary storage, start-up costs estimated to be $2,500, and start-up business losses of $35,000.

 

6. THE CASE FOR BURNABY

In its initial negotiations with Roadmaster, Burnaby took the position that the lease was unenforceable and that Roadmaster enjoyed no greater interest in the leased premises than a monthly tenancy. However, by the time matters reached the compensation hearing stage, Burnaby acknowledged that Roadmaster held a leasehold interest in the property which was expropriated and, by agreeing upon the value of that leasehold, also in effect acknowledged that Roadmaster was entitled to compensation for any financial losses to the end of the lease term on December 31, 1993.

Burnaby rejects Roadmaster's argument that, but for expropriation, the lease would likely have been renewed for as long as an additional 15 years beyond the end of 1993. It says the evidence for lease renewal is far too speculative and is contradicted both by the conduct of Mr. Stark of Applicators, the original landlord, and of Mr. Cockburn himself. What Mr. Stark in hindsight may have been prepared to consider by way of future renewals is really irrelevant, says Burnaby, because Applicators had long ceased to be the landlord by the time of expropriation in 1992. Furthermore, the fact is that when Applicators owned the property, it did not grant any further options of renewal at any time subsequent to the granting of the lease nor were any further renewals proposed or discussed. Even in 1988, when the parties renewed the lease, they took into consideration the possibility that proposed road construction might result in early termination. Also, Mr. Stark testified as to his inability to lease the adjoining space on the property, precipitating his decision to sell and indicating, in Burnaby's submission, that the premises were not in any way a superior location.

Even more telling, according to Burnaby, was the evidence concerning Roadmaster's business performance and decisions prior to expropriation. Already, some three and a half years before the taking, Roadmaster had lost its key employee Richard Stewart, had started reducing inventory and had greatly reduced its advertising costs. The claimant company faced the near prospect of a large capital outlay of perhaps $40,000 to $50,000 to purchase diagnostic computer equipment increasingly necessary in the automotive repair business. If the expropriation had not occurred, it might be reasonable to assume that Roadmaster would have continued in business for some period after the actual date of its dispossession on August 13, 1992. However, Burnaby argues, the board must judge the continuance of the business under circumstances pertaining immediately before the time of the taking which showed a steady winding-up; Roadmaster by then had insufficient work to justify hiring employees and had altogether ceased advertising and buying inventory. In Burnaby's submission, these circumstances do not raise any reasonable prospect of continuing in business beyond December 31, 1993, when the lease expired.

In further recent submissions, Burnaby also referred to the decision of the British Columbia Court of Appeal in International Paper Industries Ltd. v. Topline Industries Inc., [1997] 7 W.W.R. 179. There, the court determined that a lease of an undivided parcel of land for a term exceeding three years contravened section 73 (1) of the Land Title Act, R.S.B.C. 1979, c. 219, and accordingly was unenforceable. Burnaby says the decision applies to the Roadmaster lease and that its relevance goes to the issue of future renewals in the context of determining compensation for disturbance damages and business loss well into the future. According to Burnaby, the International Paper decision provides a legal basis to its earlier submission that future renewals would be very unlikely given that the lease, at law, is unenforceable and that no disturbance damages could therefore arise after December 31, 1993. This point was supplemental to its argument that, in light of the winding down of the business at the time of taking, Roadmaster may have suffered no disturbance damages at all.

Burnaby argues that it was not the pre-expropriation negotiations which caused the reduction in revenues experienced by Roadmaster after 1988 but, rather, the claimant company's independent business decisions. It points to substantial periods of time between 1989 and the time of taking when it says there were no communications between the parties concerning the status of the lease which could be said to have interfered with the operation of the business. It also refers to Mr. Cockburn's evidence that only in hindsight did he come to view the decline in Roadmaster's revenues as being Burnaby's fault, and suggests that this was simply a reconstruction of what actually occurred for the purposes of the hearing. Burnaby says it should not be liable to compensate Roadmaster on the basis simply of its best financial year, 1988, some four years prior to the taking. For the board to require Burnaby to compensate for the declining revenues thereafter, it contends, would be tantamount to finding that Burnaby breached the lease and awarding damages as if Burnaby had caused the decline.

Burnaby retained Mr. Glen Harry, C.A., C.B.V., a partner in the chartered accounting firm of Doane Raymond, who was qualified at the hearing as an expert in estimating business losses and goodwill values, and who testified concerning the two reports he prepared. Mr. Harry was asked to assume, among other things, that no losses occurred as a result of the expropriation prior to May 26, 1992 (the date when Roadmaster was served with the expropriation notice and certificate of approval of expropriation), that it was not feasible for Roadmaster to relocate its business either at the date of expropriation or the end of the lease, and that the claimant company would not, absent expropriation, have been able to operate out of the Rumble Street location after December 31, 1993.

In his first report dated July 6, 1994, Mr. Harry estimated the quantum of damages suffered by Roadmaster as a result of the expropriation to be $29,600, assuming that it was not feasible to relocate. He made provision for an upward adjustment in the event it was determined that the Cockburns could not reasonably find alternative employment following the expropriation. He added that, if relocation were feasible, Roadmaster's loss would then be limited to the interest expense incurred on its moving costs, since those costs would have been incurred approximately 17 months earlier than if it had been able to stay in its premises until the end of the lease. Unlike Roadmaster's business valuer, Mr. Harry took into consideration the claimant company's financial performance in the years immediately preceding the expropriation. He concluded from his analysis that Roadmaster had no saleable goodwill. However, like Mr. Zuk, he did not deduct market wages and benefits for the Cockburns when determining the level of damages suffered by Roadmaster. In that respect, he implicitly adopted the approach which has come to be known in expropriation law as the "Plouffe exception".

In his second report dated September 15, 1994, Mr. Harry reconsidered that approach in forming his conclusions. If the Plouffe exception is not accepted by the board, he stated, then the level of damages suffered by Roadmaster would be nil because, if market salaries for the Cockburns are deducted, the resulting maintainable cash flow for the business would be negative. Under cross-examination at the hearing, Mr. Harry maintained that the Cockburns were not receiving economic wages for their efforts, let alone any return on their investment in Roadmaster. He was aware of the notion of "buying a job" or "buying a lifestyle" and he had observed this phenomenon. However, he testified that in his experience, most businesses get a return on the investment over and above market wages for the owner-operators' contributions.

Although Mr. Harry's calculations are largely founded on the assumption that it was not feasible for Roadmaster to relocate its business, Burnaby's counsel at the hearing took the position that the claimant company had failed to prove this. Burnaby tendered at the hearing a report prepared by Mr. Jay Wollenberg, a professional planner with Coriolis Consulting Corporation, which critically reviewed the methodology employed and conclusions reached by Mr. Matheusik, Roadmaster's planning expert. Roadmaster's counsel objected to the admissibility of the report on the basis that it provided no independent research or opinion on the question of the feasibility of relocation and was simply argument in the guise of opinion. After hearing submissions from both parties on the issue, the panel ruled that the report was largely argumentative and, as such, inadmissible in these proceedings. However, Mr. Wollenberg was qualified as an expert and gave his opinion by way of rebuttal on site selection methodology and the analysis of comparable sites.

Burnaby submits that Mr. Matheusik's report provides an inadequate basis on which to make the determination that it was not feasible for Roadmaster to relocate. According to Burnaby, the report inaccurately assesses what it says were positive attributes of the Rumble Street location such as traffic volume, visibility, access, parking, the number of service bays, and the level of rent in relation to the market. Also, Burnaby asserts, Mr. Matheusik too narrowly defines Roadmaster's so-called trade area so as to exclude relocation possibilities further away, selects for relocation analysis only those sites which contain existing auto repair businesses rather than all available leaseholds of comparable size and quality, and ignores three specialty automotive businesses which operated near to Roadmaster's premises and which successfully relocated elsewhere in 1991. That evidence of relocation, says Burnaby, is highly probative of the view that it was feasible and practical for Roadmaster to relocate.

In Burnaby's submission, because it was feasible to relocate but there was admittedly no effort on the part of Roadmaster to do so, its claim for disturbance damages in the nature of future lost profits must be assessed in light of the law pertaining to mitigation of damages. Burnaby cites the principles set out in E.C.E. Todd, The Law of Expropriation and Compensation in Canada, 2nd ed. (Carswell, Toronto, 1992) at p. 318, that compensation for disturbance damage is assessed on the same bases as damages in tort and contract, is subject to the "duty" to minimize the damage, and a claimant cannot recover for avoidable damage. It says there was a "total failure" by Roadmaster to mitigate any disturbance damages in this instance.

Although the parties are agreed that the moving out costs amount to $8,000, Burnaby says that Roadmaster is not entitled to recover anything like the actual cost of the move. In its submission, the lease would have expired at the end of 1993, would not have been renewed, and Roadmaster would have had to vacate at that point. Therefore, Burnaby contends, Roadmaster is entitled as a result of the expropriation only to the interest cost of accelerating the expense of a move out by some 18 months. Burnaby cites the decision of the Supreme Court of Canada in Frankel Steel Construction Ltd. v. Municipality of Metropolitan Toronto (1970), 11 D.L.R. 195, in support of the proposition that, when dealing with a leasehold interest, the proper measure of compensation for moving expenses is related to the acceleration of the expense rather than the expense itself.

Given that Roadmaster had no intention to relocate its business after the expropriation, Burnaby says that it was uneconomic for the claimant company to keep its inventory and chattels in storage for more than perhaps a one month period without disposing of them by sale or otherwise, and that this period should be the measure of compensable disturbance damages on this account. In Burnaby's submission, the principle of mitigation again applies.

 

7. THE BOARD'S ANALYSIS AND DETERMINATION

Before determining the particular claims for compensation in this matter, the board considers that it must first dispose of the issues of lease renewal and relocation, since both bear heavily upon the quantum of compensation which reasonably can be awarded.

7.1 The Prospect of Lease Renewal

It was an agreed fact that Roadmaster's lease at the Rumble Street premises contained no renewal clause which might have permitted the claimant company to continue its tenure there beyond December 31, 1993. In order to find a reasonable prospect of renewal which, Roadmaster says, would have extended the term through the year 2008, the board would be required to disregard the fact that Burnaby had become Roadmaster's landlord at the leased premises with the intention of terminating the lease at the earliest opportunity. It would also have to give weight to Mr. Stark's hindsight observation that, if he had remained the landlord, he would have been amenable to extending the lease term for another 15 years although discussions to such effect never actually took place. Finally, the board would need to discount all the evidence which strongly suggests that Mr. Cockburn, well before the expropriation occurred, had effectively lost interest in continuing to operate the business and renewing the lease with Burnaby or any other party as landlord.

The board finds no basis under the Act for ignoring Burnaby's presence as landlord in order hypothetically to construct a situation in which the lease might otherwise have been extended. Beyond that, the board finds that, whether or not Burnaby was the landlord, a reasonable prospect of renewal simply is not in evidence. Accordingly, the board's assessment of disturbance damages must be founded on the initial conclusion that, but for the expropriation, Roadmaster's leasehold interest in the Rumble Street premises would have expired on December 31, 1993.

Because the board is unable to find on the evidence that there was a reasonable prospect of renewal of the lease, it is unnecessary to decide whether the International Paper case which formed the subject of later written submissions from the parties applies in this instance.

7.2 The Feasibility of Relocation

The importance of the relocation issue is that if Roadmaster could have relocated its existing business as of the date of expropriation, it would not be reasonable to award compensation for financial losses beyond that date, except perhaps during the start up period at the new site. If relocation were infeasible, then Roadmaster might be entitled to some additional amount of compensation. However, the claimant company would in that case have had to terminate its operation at the lease expiry date of December 31, 1993, since the board has determined that there was no reasonable prospect of renewal.

The law is clear that the onus of proof that it was infeasible to relocate is on the claimant: see Oakland Freight Terminals Ltd. v. Ministry of Tranportation and Communications (1976), 10 L.C.R. 199 (Ont. L.C.B.) at p. 205. In this instance the infeasibility of relocation is speculative at best since Mr. Cockburn testified that he made no efforts to find alternative sites and, in fact, had no intention to relocate.

The board has weighed Roadmaster's evidence on this issue, consisting mainly of Mr. Matheusik's report and his testimony concerning it. It considers that there is some force to the methodological and other criticisms levelled at the report by Burnaby and its expert in rebuttal, Mr. Wollenberg. Also, because of its retrospective nature, Mr. Matheusik's report necessarily contains certain deficiencies. First, to determine what he called the "locational attributes" of the Roadmaster site, he had to rely on photographic and other anecdotal evidence, since the building was demolished and the new road constructed in 1992. Second, he was unable to uncover details as to what sites were available for lease in July 1992. He consulted the Fraser Valley Real Estate Board multiple listing manuals for March and July of that year, but the listings extracted were for the purchase of a business or a property, not offers of sites for lease. Third, the board considers that his analysis of some of the factors he identified was highly subjective.

While Roadmaster's evidence is far from overwhelming, the fact is that it is the only real evidence before the board on this matter. Burnaby criticized Mr. Matheusik's methodology and analysis but did not supply evidence of its own on available sites to contradict the opinions either of Mr. Matheusik or Ms. Jones, Roadmaster's appraisal expert, that reasonable alternatives for relocation were not present at the expropriation date. The three nearby businesses which Burnaby pointed out had, in fact, relocated were shown on closer examination to be specialty rather than general automotive repair shops. The board accepts the evidence adduced that Roadmaster's business by the date of taking had become a general repair shop and that site selection is more critical to a general business than to a specialty business. Inferentially, at least, Burnaby also seems to have accepted the infeasibility of relocation by agreeing to compensate for proven financial losses to the lease termination at the end of 1993. Again, if relocation were feasible, then such compensation would be inappropriate. The board therefore concludes, on the balance of probabilities, that it was not feasible for Roadmaster to relocate its business at the date of expropriation.

7.3 Determination of Roadmaster's Claims

The board now turns to consider each of the elements of Roadmaster's claims as set out in its statement of claim filed on July 22, 1996, and summarized earlier in this decision.

7.3.1 Market Value of the Leasehold Interest

Compensation for the value of Roadmaster's leasehold interest has been agreed to by the parties at $8,000. The value evidently arises from the agreed fact that lease rents were less than market rents for the period ending at the lease expiry, December 31, 1993. Irrespective of the issue of whether the lease would have been renewed, no value was ascribed to any renewal beyond that date, presumably on the principle, well established in expropriation law, that any renewal would be deemed to have been at the then prevailing market rental rates.

7.3.2 Financial Losses, July 2, 1992 to December 31, 1993

Relying on the opinion of its business expert, Mr. Zuk, Roadmaster asserted that the financial losses of the business from the date of expropriation to the end of the lease term amounted to $88,593. Relying on its business expert, Mr. Harry, Burnaby countered that the losses incurred in this period were no more than $29,600 and might well be less.

The two experts used similar methods to arrive at their loss estimates. They estimated what the annual before-tax cash flows of the combined entity, consisting of Roadmaster and the Cockburns, would have been if not for the expropriation. They deducted actual annual cash flows to arrive at their loss estimates.

The main reason for the quantum difference in the experts' loss estimates was their differing assumptions regarding the cause of the downward trend in total sales and in cash flows over the years immediately preceding the expropriation. On instructions from Roadmaster, Mr. Zuk assumed that the downward trend beginning in fiscal year 1989 and continuing to the date of expropriation in mid-1992 was entirely attributable to Burnaby's actions. He therefore reasoned that fiscal 1988 earnings, the best that Roadmaster ever achieved, would otherwise have been maintainable through the loss period, subject to adjustment for inflation. In contrast, Mr. Harry on instructions from Burnaby assumed that the downtrend in fiscal 1989 through 1991 was not attributable to Burnaby's actions and that all fiscal 1992 losses occurred after the July 2, 1992 expropriation. He therefore estimated maintainable cash flows by averaging over the five-year period, fiscal 1987 to 1991.

In the board's view, both reports contain flaws in methodology. Mr. Zuk's report cannot be applied directly to determine Roadmaster's compensation for several reasons. First, as noted earlier, Mr. Zuk used May 26, 1992 as the start date for his calculation of post-expropriation financial losses rather than July 2, 1992, the agreed date of expropriation. Second, his use of the 1988 fiscal year alone as the basis for maintainable cash flows is contrary to the common technique of averaging several years' financial performance and is unsupported by analysis. Finally, the factors used to restate maintainable cash flow in light of inflation are not consistent with the Vancouver Area Consumer Price Indices supplied to the board.

Mr. Harry's report cannot be applied directly since, in estimating maintainable earnings, he took little or no account of the impact on the business of the pre-expropriation negotiations between Burnaby and Roadmaster's principal, Mr. Cockburn. For reasons set out below, the board is of the view that this impact needs to be considered. Also, the board does not agree with some of Mr. Harry's "normalizing" adjustments. He took no account of inflation over the loss period. When asked about inflation during his testimony, he indicated that he had completed calculations restating his dollar estimates for inflation and that such restatement changed his loss estimate from $29,600 to approximately $37,000. A final problem with Mr. Harry's report is that the loss was calculated from October 1, 1991, rather than from July 2, 1992.

When determining maintainable earnings through the loss period, it is equally unrealistic, in the board's opinion, to ignore either the impact of pre-expropriation negotiations between the parties or other internal and external factors during the years preceding the taking on Roadmaster's financial performance.

It is clear that Burnaby's actions before expropriation had an adverse effect on Roadmaster's business. For example, Burnaby's attempts to convert the lease to a monthly rental, its issuance of eviction notices, and its manner of dealing with rent payments from time to time -- even though these steps were intermittent rather than continuous -- caused Mr. Cockburn much anxiety and consumed otherwise productive working time. The weight of evidence is that Burnaby did not physically interfere with Roadmaster's operations. However, the board considers that actions directly attributable to Burnaby's ownership of the property and eventual expropriation of Roadmaster's leasehold interest had a two-fold impact: first, Mr. Cockburn devoted considerable time to interactions with Burnaby and, second, he lost the will to carry on the Roadmaster business aggressively.

It also seems clear that other internal and external factors, bearing no apparent relation to Burnaby or the expropriation, account in part for the decline in Roadmaster's business fortunes. For example, Mr. Cockburn acknowledged that the loss of a key employee, Richard Stewart, had a negative impact. His business decision to reduce inventory and advertising as early as 1990, and his reluctance to consider acquiring diagnostic computer equipment and the skills to operate it reflect an attitude of mind which, the board perceives, was not conducive to business growth. By that time, some of Mr. Cockburn's energies were evidently being diverted to his involvement with investment properties elsewhere. There was also evidence of a downturn generally in automobile servicing sales volumes in British Columbia during Roadmaster's fiscal 1990 and 1991.

Doing the best that it can with this somewhat impressionistic evidence, the board is of the view that, in determining maintainable cash flows at the date of expropriation, it would be reasonable and fair to split evenly the adjusted annual downtrend in cash flows between the interactions of Burnaby and Roadmaster, on the one hand, and unrelated internal and external factors and business decisions, on the other.

The cash flows presented by the experts, Mr. Zuk and Mr. Harry, for each of the fiscal years ending September 30th are to be adjusted in light of the foregoing conclusion. The analysis begins in fiscal 1988, the last full year prior to the purchase of the property and subsequent expropriation of the leasehold by Burnaby. Following the experts' method, the wages and benefits to Mr. and Mrs. Cockburn as well as the depreciation charges are added back to the financial statement earnings or losses to result in the before-tax cash flows from the operation to both Roadmaster and the Cockburns.

Mr. Zuk estimated annual capital expenditures, based on the average amount spent in fiscal 1987 and 1988. Mr. Harry estimated $400 per annum for purchase of small tools only on the basis that Mr. Cockburn was winding down the Roadmaster operation. The board concludes that Mr. Zuk's estimate is appropriate up to the year of Burnaby's purchase and that Mr. Harry's is appropriate thereafter.

In addition, Mr. Harry normalized operating expenses over the period of analysis. That is, he decided which expenses seemed abnormal in any fiscal year and adjusted up or down to his estimate of what was normal for that expense. For example, professional fees in fiscal 1991 were $4,854, and Mr. Harry adjusted down to a "normal" level of $1,600. Assuming that the high professional fees were, in part, the result of the interactions between Roadmaster and Burnaby, the board's decision to "share" the impact obviates the need for these kinds of normalizing adjustments.

The following are the estimated actual cash flows which result:

Year ending Sept. 30 1988 1989 1990 1991 1992
Earnings (losses) $(749) $(3,702) $(335) $290  $(1,328)
Management salaries 42,124  40,727  22,156  21,600  ---  
Depreciation 6,659  5,730  3,942  2.981  2,677 
           
Cash flow per financial stmnts. 48,034  42,755  25,763  24,871  1,351 
Est. capital expenditures (1,500) (1,500) (400) (400) (400)
           
Est. actual cash flows $46,534  $41,255  $25,363  $24,471  $951 

Mr. Harry normalized rent and taxes to a 1991-'92 level, since it was agreed that rents paid by Roadmaster were below market levels. This adjustment is appropriate because Roadmaster has been compensated for the loss of the below market rental rates by the agreed $8,000. Mr. Harry estimated economic rent and taxes at $20,500 for the years 1988 to 1991 and his estimate was neither challenged nor confirmed at the hearing. Some evidence introduced by Roadmaster suggests that Mr. Harry's estimate was low. In her appraisal report, Ms. Jones calculated economic rent alone to be $24,050 in the 1992-'93 period. This was the basis of her valuing the leasehold interest at $8,805, an amount which was presumably the foundation for the $8,000 agreed by the parties. On the available evidence, the board cannot calculate with any confidence the proper economic rent and taxes over the 1988 to 1992 period. Accordingly, an accurate normalizing adjustment for rent and taxes cannot be made. Rather, doing the best it can, the board will account for this leasehold advantage when making its final adjustments.

To estimate what cash flows would have been if not for the expropriation, it is necessary to reflect the conclusion that one-half of the downturn resulted from Burnaby-Roadmaster interactions and one-half from Mr. Cockburn's independent business decisions and other internal and external factors. The results are as follows:

Year ending Sept. 30 1988 1989 1990 1991 1992 1993
Est. actual cash flows (from above) $46,534 $41,255 $25,363 $24,471 $951 $0
One-half change from previous adjusted cash flow --- 2,640 9,266 5,079 14,300 7,626
Adjusted cash flows $46,534 $43,895 $34,629 $29,550 $15,251 $7,626

These estimates of adjusted cash flows seem reasonable to the board for the following reasons. Burnaby purchased the property from Applicators approximately at the mid-point (166 days) of Roadmaster's 1989 fiscal year. A small drop in Roadmaster's adjusted cash flows is noted, compared to fiscal 1988. Roadmaster's fiscal 1990 and 1991 adjusted cash flows are well below the previous two years, indicating a reduced level of profitable operations in the period of pre-expropriation negotiation. By the date of expropriation, approximately three quarters (275 days) into fiscal 1992, the adjusted cash flows indicate that Roadmaster's business operations were almost wound down.

Given the evidence of the problems which Mr. Cockburn had concerning the expropriation, it is reasonable, as Mr. Harry did, to ignore the fiscal 1992 year in estimating maintainable earnings at the date of taking. Including the year prior to Burnaby's purchase of the property, the four-year average adjusted annual cash flow for fiscal 1988 to fiscal 1991 is $38,652. Excluding the purchase year, the three-year average for fiscal 1989 to 1991 is $36,025. Because of the board's decision to split the difference, it seems reasonable to take the approximate mid-point of these two averages and estimate maintainable before-tax cash flows for Roadmaster and the Cockburns at the date of expropriation to be $37,339.

The estimated maintainable cash flow at the expropriation date can next be adjusted for inflation, following the method proposed by Mr. Zuk. That is to say, it is fair to assume that the maintainable cash flow at July 2, 1992 would increase in direct proportion to the inflation of the dollar over the loss period. The adjustment is made by reference to the Statistics Canada Vancouver Area Consumer Price Indices provided to the board. For convenience, the average index for each loss period is related to the index at the expropriation date.

Since the loss period under consideration begins at the July 2, 1992 expropriation date and ends at the December 31, 1993 lease termination date, loss calculations taking into account the factor of inflation are detailed as follows:

Periods Inflate Loss
  Factor Amount Prorate Amount
92/07/02 to 92/09/30        
Maint. cash flow $37,339 127.8
127.0
$37,574    
Adjusted cash flow   15,251  90
365
$5,504
    22,323    
92/10/01 to 93/09/30        
Maint. cash flow $37,339 131.0
127.0
$38,515    
Adjusted cash flow   7,626 365
365
$30,889
    30,889    
93/10/01 to 93/12/31        
Maint. cash flow $37,339 133.2
127.0
$39,162    
Adjusted cash flow   0  92
365
$9,871
    39,162    

Neither Mr. Zuk nor Mr. Harry calculated the present value at the expropriation date of their estimates of financial losses in the succeeding 18 months, nor were they questioned on the issue at the compensation hearing. However, Mr. Zuk in his third report did calculate the present value of estimated financial losses beyond December 31, 1993. The board concludes that calculation of the present value of post-expropriation losses is not only logical but necessary since interest accrues on the award following expropriation. Accordingly, the board has calculated the present value of post-expropriation financial losses by adopting as reasonable the 10% discount rate which is found in the report of Roadmaster's expert appraiser, Ms. Jones.

That calculation is as follows:

Loss Period Amount Value at July 2, 1992
92/07/02 to 92/09/30 $5,504 $5,414
92/10/01 to 93/09/30 30,889 28,559
93/10/01 to 93/12/31 9,871 8,573
    Total:   $42,546

The total loss of $42,546 represents the value of lost cash flows at the expropriation date. However, since the cash flows calculated are overstated by the below market rental costs, the total must be reduced by the agreed market value of the rental advantage to Roadmaster of $8,000 at the date of expropriation, so that the balance of $34,546 represents the before-tax net financial loss.

7.3.3 Financial Losses Beyond December 31, 1993

Roadmaster's claim for financial losses extending into the next millenium in the amount of $183,020 is founded on the proposition that, but for the intervening expropriation, the lease at Rumble Street would have been renewed and Roadmaster would have continued in business at that location. Since the board has determined that there was no reasonable prospect of renewal of the lease beyond December 31, 1993, it follows that this claim is untenable. Accordingly, the claim for financial losses under this head is denied.

7.3.4 Loss of Use of Leasehold Improvements

Roadmaster claims the sum of $3,750 in respect of loss of use of the improvements it made to the leased premises at the commencement of the lease. The evidence revealed that these improvements included electrical upgrading, the introduction of air lines, hot water tank enlargement, and exhaust ductwork at a total cost of $7,492. The claim for loss of use was calculated by Ms. Jones in her appraisal report and was based on the nine year duration of the lease from January 1, 1985 through December 31, 1993, plus the prospect of a five year renewal, for a total of 14 years. On that scenario the expropriation of July 2, 1992 meant that approximately one half of the costs could not be recaptured. Burnaby's response was that, since renewal was not an option, the recapture period was really only nine years. Since the board has concluded that there was no reasonable prospect of renewal, it agrees with Burnaby's assessment of the recapture period, and finds that the loss of use is for the one and a half years remaining on the lease. The board therefore awards the sum of $1,250 in respect of this claim.

7.3.5 Moving Costs

The parties having agreed that moving out costs amounted to $8,000, the only issue is whether Roadmaster is entitled to the whole, or only some portion of those costs. Under the terms of the lease, with no reasonable prospect of renewal, Roadmaster would have been required to vacate the leased premises on December 31, 1993. Therefore, the expropriation of July 2, 1992 and subsequent obtaining of possession of the premises by Burnaby on August 13, 1992 only accelerated Roadmaster's moving expense by 505 days. In this respect, the board considers that the principle enunciated in the Frankel Steel decision applies. Accordingly, using Ms. Jones' notional interest rate of 10% as the cost of borrowing the agreed sum of $8,000 for 505 days calculates to recoverable moving costs of approximately $1,100, and this sum is awarded.

7.3.6 Storage Costs

Roadmaster has claimed $14,400 as the cost of storing its equipment and tools following the expropriation and eviction. Although the board was not provided with detailed invoices, the cost is apparently substantiated by reference to copies of the ledger sheets of Maple Leaf Self Storage Inc. for spaces still occupied by Roadmaster at the date of the compensation hearing. During his testimony, Mr. Cockburn stated that he had once advertised for sale and attempted, for the most part unsuccessfully, to sell off the chattels in storage. He also estimated the value of these chattels at between $30,000 and $40,000, an opinion which was neither substantiated nor refuted.

The board recognizes that Mr. Cockburn did not intend to relocate the Roadmaster business, instead carrying on operations until actually evicted, and as a result some storage costs were inevitable. The board agrees in principle with Burnaby that, in these circumstances, only a short storage period would reasonably be necessary before Roadmaster should have liquidated the chattels in order to mitigate losses. It does not agree with Burnaby that a one month period only was reasonable to achieve those ends. Considering all of the circumstances, the board considers that Roadmaster should recover six months' costs incurred for storage at the Maple Leaf Self Storage Inc. facility (excluding late charges). The amount allowed in respect of Space 5-3120 is $1,160.43, and in respect of Space 4-3102 is $3,107.11, for a total of $4,267.54, which the board rounds to an award of $4,270.

7.3.7 Executive Time

Roadmaster claimed the sum of $5,500 for time allegedly spent by Mr. Cockburn away from the business in attending to expropriation-related matters. In his testimony before the board, Mr. Cockburn estimated that he spent 100 hours dealing with Burnaby and that his normal charge-out rate on the job was $55 per hour. Burnaby countered that there was no evidence of time spent by Mr. Cockburn on expropriation matters which resulted in a financial loss to Roadmaster.

The board considers that this loss category has already been addressed under the post-expropriation financial loss award of $34,546, since the calculation of maintainable cash flows has taken into account the diversion of some of Mr. Cockburn's energies in the period leading up to the expropriation and Roadmaster has been compensated through to December 31, 1993, taking into account management wages and benefits credited to the principals of the claimant company. Accordingly, in the board's view, no award for executive time is appropriate.

7.3.8 Termination Allowance

Roadmaster has claimed a termination allowance in the unsubstantiated sum of $100,000, apparently as an alternative claim in the event that the post-expropriation financial loss claim failed. The board has found that it was not feasible to relocate Roadmaster's business upon expropriation and also that there was no reasonable prospect of lease renewal beyond December 31, 1993. Consequently, the claimant company had no alternative but to terminate its operation.

Any termination allowance under section 34 (4) of the Act is limited by the value of the goodwill of the business. It was agreed that Roadmaster's business had no saleable goodwill if the management wages and benefits of the principals were deducted from maintainable cash flow. However, the board has awarded financial losses to the end of the lease term by including management wages and benefits, accepting in the circumstances of this case the applicability of the Plouffe exception. Accordingly, it considers that no award in the nature of a termination allowance is appropriate, since any such award would constitute double recovery.

7.3.9 Set-up Costs

Roadmaster has claimed $2,500 as the hypothetical cost of setting up the business for operation on an alternative site. The board has found that it was not feasible for Roadmaster to relocate its business. Roadmaster did not do so and clearly incurred no set-up costs. Accordingly, this claim is disallowed.

7.3.10 Income Loss During the Start-up Period

Finally, Roadmaster has claimed an unsubstantiated income loss of $35,000 during its hypothetical start-up period at a new location. The same reasoning which the board applied in disallowing the preceding claim for set-up costs applies here. Parenthetically, it may be observed that, even if Roadmaster had relocated its business, it would only have been entitled to the acceleration of start-up period income losses on an alternative site, not the losses themselves.

7.3.11 Award Summary

In the result, the board has awarded to Roadmaster as a consequence of the expropriation the sum of $8,000 as the agreed market value of its leasehold interest at the Rumble Street location and the sum of $41,166 as disturbance damages for a total of $49,166.

 

8. INTEREST

Pursuant to section 46 (1) of the Act, Roadmaster is entitled to be paid interest at the prescribed rate, compounded annually, on any amount awarded by the board in excess of the amount paid to it in advance by Burnaby pursuant to section 20. The board has awarded compensation in the amount of $49,166, of which $34,546 is for business loss. Burnaby's advance payment totalled $20,000. In the board's view, interest on the unpaid balance should begin to run from the date upon which Roadmaster gave up possession of the leased premises, that is, August 13, 1992.

Section 46 (4) provides for the payment of additional interest where the amount of the advance payment under section 20 is less than 90% of the compensation awarded, excluding interest and business loss. Because the bulk of the award is for business loss, and Burnaby has already advanced more than 90% of the remainder, Roadmaster is not entitled to additional interest.

Roadmaster has advanced a claim for penalty interest under section 47 (b) on the grounds that Burnaby caused unreasonable delay in these proceedings under the Act. Burnaby denies causing unreasonable delay and argues that Roadmaster caused the delays but advances no claim against Roadmaster under section 47 (a). The board has reviewed the adjournments and other delays over the history of this claim and finds no reasonable basis for awarding penalty interest. Accordingly, the board dismisses Roadmaster's claim under section 47 (b).

 

9. COSTS

The parties at the compensation hearing did not speak to the issue of the costs payable under section 45 of the Act. The relevant provisions are as follows:

45. (3) Subject to subsections (4) to (6), a person whose interest or estate in land is expropriated is entitled to be paid costs necessarily incurred by the person for the purpose of asserting his or her claim for compensation or damages.
(4) If the compensation awarded to an owner, other than for business losses, is greater than 115% of the amount paid by the expropriating authority under section 20 (1) and (12) or otherwise, the authority must pay the owner his or her costs.
(5) If the compensation awarded to an owner is 115% or less of the amount paid by the expropriating authority under section 20 (1) and (12) or otherwise, the board may award the owner all or part of his or her costs.

On June 23, 1992, Burnaby made an advance payment to Roadmaster of $20,000, of which $4,000 was stated to be for business loss. The board has awarded compensation to Roadmaster in the amount of $49,166, of which $34,546 is for business loss. Therefore, once the business loss component is subtracted from the total award, it appears that ss. (4) does not apply and the board has discretion over the award of costs.

In the board's opinion, it was reasonable for Roadmaster to have prosecuted its claims for compensation to the hearing stage, even though many of them were founded on the tenuous proposition that the claimant company, but for the expropriation, would have continued in business at its leased premises long into the future. Roadmaster marshalled its evidence as best it could on arguable issues, some of which have rarely been before the board in the past, succeeding on a few issues and failing to persuade on others. Some valuable hearing time was lost through difficulties which Roadmaster encountered in scheduling its witnesses. Although the claims were far in excess of what the board has ultimately awarded, that award is also substantially greater than what Burnaby was prepared to pay in advance.

In all of these circumstances, the board concludes that Roadmaster should be awarded the costs it necessarily incurred for the purpose of asserting its claim for compensation, and the costs payable pursuant to section 45 (7) will be its actual reasonable legal, appraisal and other costs.

 

THEREFORE IT IS ORDERED THAT

(1) Burnaby shall pay $8,000 to Roadmaster for the agreed market value of Roadmaster's interest in the expropriated leasehold, pursuant to section 31 (1) of the Act.
(2) Burnaby shall pay $34,546 to Roadmaster for financial losses incurred during the period from July 2, 1992 to December 31, 1993, pursuant to sections 34 (1) and 39 of the Act.
(3) Burnaby shall pay $1,250 to Roadmaster for loss of use of leasehold improvements, pursuant to sections 34 (1) and 39 of the Act.
(4) Burnaby shall pay $1,100 to Roadmaster on account of its reasonable moving costs, pursuant to sections 34 (1) and 39 of the Act.
(5) Burnaby shall pay $4,270 to Roadmaster for its reasonable storage costs, pursuant to sections 34 (1) and 39 of the Act.
(6) Burnaby shall pay interest to Roadmaster on the amounts in items (1) through (5) from and including August 13, 1992, until paid, after adjustment to take into account moneys paid by Burnaby to Roadmaster. Pursuant to section 46 (2) of the Act, interest shall be calculated at the following rates:
  (a) Seven per centum (7.00%) from August 13, 1992 to December 31, 1992;
  (b) Seven and one-quarter per centum (7.25%) from January 1, 1993 to June 30, 1993;
  (c) Six per centum (6.00%) from July 1, 1993 to December 31, 1993;
  (d) Five and one-half per centum (5.50%) from January 1, 1994 to June 30, 1994;
  (e) Eight per centum (8.00%) from July 1, 1994 to December 31, 1994;
  (f) Eight per centum (8.00%) from January 1, 1995 to June 30, 1995;
  (g) Eight and three-quarters per centum (8.75%) from July 1, 1995 to December 31, 1995;
  (h) Seven and one-half per centum (7.50%) from January 1, 1996 to June 30, 1996;
  (i) Six and one-half per centum (6.50%) from July 1, 1996 to December 31, 1996;
  (j) Four and three-quarters per centum (4.75%) from January 1, 1997 to June 30, 1997;
  (k) Four and three-quarters per centum (4.75%) from July 1, 1997 to December 31, 1997.
(7) Burnaby shall pay to Roadmaster its actual reasonable, legal, appraisal and other costs of, and incidental to, the application and hearing before the board in such amount as may be agreed upon, and failing such agreement in such amount as may, upon application to the board, subsequently be determined and allowed by the chair.
(8) All other claims advanced by Roadmaster are dismissed.

 

 

Government of British Columbia