Canada v. Piot

Canada v. Piot
Court (s) Database
Federal Court of Appeal Decisions
Date
2019-03-25
Neutral citation
2019 FCA 53
File numbers
A-408-16
Notes
A correction was made on June 7, 2019.
Decision Content
Date: 20190325
Docket: A-408-16
Citation: 2019 FCA 53
CORAM:
PELLETIER J.A.
STRATAS J.A.
DE MONTIGNY J.A.
BETWEEN:
HER MAJESTY THE QUEEN IN RIGHT OF CANADA
Appellant
and
DAVID PIOT ON HIS OWN BEHALF AND AS A REPRESENTATIVE PLAINTIFF
Respondent
and
SAKIMAY FIRST NATION
Intervener
Heard at Regina, Saskatchewan, on November 29, 2017.
Judgment delivered at Ottawa, Ontario, on March 25, 2019.
REASONS FOR JUDGMENT BY:
PELLETIER J.A.
CONCURRED IN BY:
DE MONTIGNY J.A.
DISSENTING REASONS BY:
STRATAS J.A.
Date: 20190325
Docket: A-408-16
Citation: 2019 FCA 53
CORAM:
PELLETIER J.A.
STRATAS J.A.
DE MONTIGNY J.A.
BETWEEN:
HER MAJESTY THE QUEEN IN RIGHT OF CANADA
Appellant
and
DAVID PIOT ON HIS OWN BEHALF AND AS A REPRESENTATIVE PLAINTIFF
Respondent
and
SAKIMAY FIRST NATION
Intervener
REASONS FOR JUDGMENT
PELLETIER J.A.
I. INTRODUCTION
[1] Her Majesty the Queen in Right of Canada appeals from the decision of the Federal Court reported as 2016 FC 1077 (Reasons). In that decision, the Federal Court dealt with a dispute between a number of lessees of land (the lessees) located on the territory of the Sakimay First Nation (Sakimay) and Her Majesty the Queen (the Crown) and Sakimay. The dispute centered on the appropriate rent for the lessees’ recreational property pursuant to a five-year rent review clause in their 20 year lease. While the Federal Court decided a number of issues, this appeal focuses on the appropriate methodology or formula for determining the fair market value of the land under the 1991 lease between January 1, 2010 and December 31, 2014.
[2] The Federal Court heard expert evidence regarding the appropriate valuation methodology from two appraisers: Mr. Thair, who was retained by the lessees, and Mr. Bell, who was retained by the Crown. The Crown alleges several errors in the Federal Court reasons, flowing from the Court’s statement that it is “in no position” to reach its own conclusions on specific valuation factors and that it is to accept “which of two competing views it prefers”: Reasons at para. 93. The lessees rely on the standard of review, arguing that the Federal Court did not err in law nor fall into palpable and overriding error.
[3] For the reasons that follow, I find that the Federal Court did fall into palpable and overriding error in its treatment of some of the evidence, including the expert evidence. As a result, I would quash its judgment and return the matter to it to determine the rents in accordance with the judgment that I would issue.
II. THE FACTS
[4] There are two forms of lease in dispute between lessees of Sakimay’s land and Sakimay: the 1991 lease which is in issue in this appeal and the 1980 lease which is in dispute in the related appeal, Joanne Schnurr on her own behalf and as representative plaintiff v. Her Majesty the Queen, and Sakimay First Nation. The Federal Court’s reasons in that case are cited as Schnurr v. Canada, 2016 FC 1079. This Court’s reasons for that appeal are being released at the same time, as 2019 FCA 54.
[5] The basic facts can be found in the Federal Court’s reasons (at paras. 5-9):
[5] The properties leased by the tenants are individual lots located at or near the shores of Crooked Lake in the Qu’Appelle Valley of southeastern Saskatchewan. The leased lots in issue are located on the northwest side of the lake on Shesheep Indian Reserve No. 74A [the Shesheep Reserve] and the southwest side of the lake on Sakimay Indian Reserve No. 74 [the Sakimay Reserve]. Most land on the north side of Crooked Lake is privately owned, while none of the lots on the south side of the lake are privately owned. Most of the south side of Crooked Lake is uninhabited, with Grenfell Beach being the only development.
[6] On the north side of Crooked Lake, most of the lots are leased and there are very few privately owned fee simple lots that are undeveloped. The Defendant as landlord (through Sakimay) has 265 lots available for rent on the north side, of which 194 lots have been rented since 1951. Of the lots rented, 165 are in the form of the 1991 Lease. These lots are located on Shesheep Indian Reserve No. 74A and sometimes referred to as “Indian Point”. For approximately 37 years, the cottage owners have been represented by an unincorporated association known as the Shesheep Cottage Owners Association [SCOA].
[7] There are 285 lots that have been subdivided and are available for lease on the south side, of which 129 have been rented by the Defendant to tenants over the past 65 years. Of these 129 lots, 124 are subject to the 1991 Lease form. These lots located on Sakimay Indian Reserve No. 74A are referred to by the cottage owners as “Grenfell Beach”. The tenants on the south side have been represented for approximately 29 years by an unincorporated association known as the Grenfell Beach Association or Grenfell Beach Cottage Owners Association [GBCA]. Only one of these tenants has opted out of these proceedings.
[8] Beginning in 1951, Sakimay surrendered portions of Sakimay Indian Reserve No. 74 and Shesheep Indian Reserve No. 74A to Her Majesty the Queen in Right of Canada [Canada] for leasing purposes. The existing surrenders/designations are to expire in or about 2024.
[9] While the leases have been administered by the Defendant, in and about 1995 the Defendant delegated certain administrative responsibilities to Sakimay. These aspects of the administration of the leases were then operated by Sakimay through the Sakimay Land Authority.
For all intents and purposes, and from the Plaintiff’s perspective, Sakimay is the “landlord” subject to little, if any, supervision by Canada.
[6] The distribution of lessees as between Sakimay’s two reserves and the two forms of lease in issue is shown in the following table:
[BLANK]
1980
Lease
1991
Lease
Total
Shesheep
Indian Point
29
165
194
Sakimay
Grenfell Beach
5
124
129
Total
34
289
323
[7] As can be seen, there are 323 leases in issue in the two appeals: 289 leases are the 1991 leases that are the subject of this appeal and 34 leases are the subject of the Schnurr appeal.
[8] The leases are for a term of 20 years. However, the rent is fixed for five-year periods. Clause 2.01 of the 1991 lease deals with the setting of the rent at the conclusion of each five-year period:
2.01 …The annual rent shall be reviewed at five (5) year intervals. The rent for each succeeding five (5) year period hereof shall be as determined by the parties hereto in consultation with the Sakimay Band Council at least thirty (30) days prior to January first of the five (5) year period in question to determine the rent for that five (5) year period. The Tenant shall be advised in writing by registered mail of the determination. The rent shall be based on the fair market value of the land. In the event the parties hereto fail to reach agreement on the amount of the rent for any given year, the Minister shall set the rent payable for that year subject to final determination by the Federal court [sic] under due process of law. Upon determination by the Federal court [sic] any adjustment in rent shall be by way of an additional payment or rebate.
[9] The operative statement in this clause is “The rent shall be based on the fair market value of the land.” As a result, the setting of the rent for a given five-year period is founded upon an appraisal of the leased lands.
[10] In 2009, Sakimay retained B.R. Gaffney and Associates to do an appraisal for the 2010-2014 renewal period. That appraisal recommended very significant increases in lease rates, in the range of 625% for lakefront lots and 545% for back lots: see the table at para. 28 of the Reasons. Sakimay adopted the recommended rates by way of a band council resolution and advised the lessees.
[11] Predictably, rent increases of this magnitude provoked a reaction on the part of the lessees. On December 12, 2009, they issued their statement of claim. Mr. Thair, Mr. Bell, and others were retained for the purposes of the litigation. No one from B.R. Gaffney and Associates was called at trial to testify regarding its appraisal report.
III. THE DECISION UNDER APPEAL
[12] The matter came before the Federal Court as a class action in which a number of common issues were certified. The Federal Court dealt with a number of those issues at paragraphs 33-90 of its Reasons. These determinations are not the subject of appeal. The only issues on appeal have to do with the appropriate methodology for determining the rent for the relevant period and its application to the facts of this case.
[13] The Federal Court noted at paragraph 102 of its Reasons that the parties generally agreed on the broad outlines of the methodology but disagreed on the application of that methodology.
[14] The Federal Court began its analysis by noting that the determination of the appropriate methodology turned largely on the appraisal report the Court adopted. It observed that the Crown had invited it to “address the detail in each report and…to adopt its expert’s view or substitute its own opinion”: Reasons at para. 92. But the Court held that it should not interfere to that level because it did not have the necessary expertise. It concluded, as noted earlier, that its findings of fact would depend entirely upon which of the competing experts’ views it accepted: Reasons at paras. 92-93, 101.
[15] The Court preferred the evidence of Mr. Thair to that of Mr. Bell, “on the basis of [Thair’s] strength, persuasiveness, consistency, logic and knowledge of the subject properties”: Reasons at para. 98. The Court referred to other factors to justify its preference for Mr. Thair’s evidence, including Mr. Bell’s poor performance under cross-examination, Mr. Thair’s greater familiarity with the Saskatchewan real estate market, and Mr. Thair’s multiple visits to both the properties in issue and the “comparables”: Reasons at paras. 98-100,114.
[16] The Court described with approval Mr. Thair’s statement of the methodology for determining the rent (at para. 102):
● Estimate the value of the subject lots (on a hypothetical fee simple basis) by way of comparison of off-Reserve fee simple land sales;
● Apply adjustments to reflect the on-Reserve factors affecting the subject lots in comparison to the off-Reserve fee simple lots; and
● Apply and conclude a Rate of Return … to the on-Reserve lot values to determine annual rental rates.
[17] The Court noted that the parties agreed that this approach was in line with that established by the Supreme Court in Musqueam Indian Band v. Glass, 2000 SCC 52, [2000] 2 S.C.R. 633 (Musqueam) and applied in a series of cases since then.
[18] Like the lease in issue in Musqueam, Clause 2.01 of the 1991 lease requires rent to be set on the basis of the fair market value of the land. The Federal Court observed that in Musqueam, the Supreme Court held that “land” in the lease did not refer to off-reserve land but rather to the “hypothetical fee simple” in on-reserve lots. However, since there is no fee simple in reserve land qua reserve land, there is no direct market data as to the price that a willing buyer would pay a willing seller for a bare lot located on Sakimay’s land.
[19] The Court then set out guidelines drawn from Musqueam which were advanced by the lessees in their memorandum of law, and which it adopted in its analysis: Reasons at para.112.
[20] Accepting the general methodology for rent determination put forward by the parties, the Court analyzed three main elements: the value of the hypothetical fee simple, the reserve factor, and the rate of return. In each case, the Court did not examine the particulars of Mr. Thair’s analysis. Rather, the Court justified its preference for Mr. Thair’s conclusions on the basis of his characteristics and credibility or on the basis of weaknesses in Mr. Bell’s evidence.
[21] Dealing first with the value of the hypothetical fee simple, the Court observed that Mr. Thair and Mr. Bell had both come to very similar values. Mr. Thair concluded that the relevant value was $1,800 per frontage foot for lakefront lots while Mr. Bell came to a value of $1,890, a difference of 5%. The Court then discussed the frailties of Mr. Bell’s evidence on this issue, including the fact that there was an inconsistency between the reasoning in his report and his testimony on cross-examination. In the end, the Court accepted Mr. Thair’s estimate of the value of a hypothetical fee simple of the lots in question.
[22] The Court then addressed the adjustment for the reserve factor. Mr. Thair calculated the reserve factor using two methods. In the first, Method A, he compared lease rates at four on-reserve recreational properties, including Indian Point and Grenfell Beach, to lease rates at two off-reserve properties. This comparison showed a 21% difference in the lease rates between on-reserve and off-reserve recreational properties.
[23] Using a second method, Method B, Mr. Thair derived rates of return for off-reserve lands which yielded an off-reserve rate of return of 1.6%. He then did a similar calculation for a number of on-reserve lands which produced an on-reserve rate of return of 0.9%. The difference between these two rates (1.6 - 0.9 = 0.7) is approximately 43% of the off-reserve rate of return (0.7/1.6 x 100), which is the reserve factor generated by Method B.
[24] The reserve factor which Mr. Thair settled upon was 32%, which is the average of the reserve factors produced by Method A and Method B.
[25] At trial, the Crown criticized Mr. Thair’s selection of properties for analysis, his failure to perform a time-trend analysis and his use of provincial park rates of return, which the Crown alleged were unduly depressed due to political considerations. The Court rejected the criticism and found that Mr. Thair knew the strengths and weaknesses of the data points he selected, and applied his professional judgment to them. The Court was satisfied that Mr. Thair had “cogent and compelling reasons for relying on the data”: Reasons at para. 135.
[26] The Federal Court then criticized Mr. Bell’s analysis which resulted in a reserve factor of 6.25%. It noted Mr. Bell’s concession that his methodology was not based on market data. Mr. Bell considered factors such as mortgage issues, political concerns and taxation and servicing, which he had considered in another case in which he testified and in which his opinion was accepted: Morin v. Canada, 2002 FCT 1312, 226 F.T.R. 188 (Morin FC). He assigned a percentage discount to each of those factors and then aggregated the discounts to arrive at a reserve factor. The Court found that Mr. Bell’s approach injected an unwarranted degree of subjectivity into the analysis. The Court concluded that Mr. Thair’s report presented a more compelling assessment which was both factually and legally consistent: Reasons at paras. 138-140.
[27] The last issue that the Federal Court considered was the rate of return: the rate to be applied to the fair market value of the hypothetical fee simple to determine the appropriate rent. The higher the rate of return selected, the higher the rent. Mr. Bell proposed a historical rate of 4.5%; Mr. Thair proposed 1.6%.
[28] The Federal Court rejected the 4.5% rate because it was not based on market data and was apparently established at a time of significantly higher interest rates. The Court preferred instead the method of determining the market-determined rate adopted by Mr. Thair and another expert, Mr. Dybvig. That method consists of dividing the rental rate by the value of the asset. Mr. Thair invoked this methodology in adopting the rate of return in provincial parks and in calculating the rate of return at a privately owned resort at Marean Lake, Saskatchewan.
[29] Mr. Thair considered the rate of return at provincial parks of 1.92% to be a market rate because provincial parks represent 50% of the resort market; indeed, the Sakimay properties compete with those in provincial parks. Mr. Thair dismissed the argument that the provincial park rate was politically dictated, observing that it was the market rate no matter how it came about: Reasons at paras. 153-154. As for Marean Lake, Mr. Thair calculated that the rate of return was 1.2%. Mr. Thair’s conclusion on the rate of return was the average of these two rates. The Court commented that Mr. Thair understood the differences between Crooked Lake and Marean Lake. Thus, the Court found that “Thair had cogent and compelling reasons for his conclusions based on facts which he understood”: Reasons at para. 156.
[30] As a result, the Federal Court decided that the appropriate methodology or formula for determining the rent for the relevant period was the method used by Mr. Thair.
IV. STATEMENT OF ISSUES
[31] In its Memorandum of Fact and Law, the Crown raises seven issues. Upon closer examination, these fall into three categories.
[32] First, the Crown alleges that the Federal Court erred in its treatment of the expert evidence of the appraisers when it decided that its role was to choose between the two appraisers, as opposed to examining the evidence of both and coming to its own conclusions of fact. Second, the Crown raises a number of issues related to determining the reserve factor. Finally, it raises another group of issues related to determining the rate of return.
V. STANDARD OF REVIEW
[33] The decision under appeal is a decision of the Federal Court rendered after a trial. The standards of review are those set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 (Housen): correctness for questions of law and extricable questions of law and palpable and overriding error for questions of fact or mixed fact and law.
[34] The Crown argues that this case comes within the principle laid out in Ledcor Construction Ltd. v. Northridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, namely, that the correctness standard applies to the interpretation of contracts of adhesion. This is a shift from the Supreme Court’s finding in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at paras. 49-55, [2014] 2 S.C.R. 633, in which it was held that the interpretation of contracts was a question of mixed fact and law to which deference is owed unless an extricable question of law can be found.
[35] This issue arises primarily in the construction of the rent review clause in each of the leases. In this case, the issue is largely resolved by Musqueam where the lease used language which is substantially the same as the language used in this lease. The issue is more significant in the Schnurr appeal and will be discussed in more detail in the reasons in that appeal.
VI. ANALYSIS OF THE GROUNDS OF APPEAL
A. Treatment of expert evidence
[36] The Crown alleges the following error:
● The trial judge erred by concluding that he was required to choose and rely solely on one of the expert opinions rather than exercising his own independent judgment to determine the appropriate methodology.
[37] The Federal Court’s stated reasons for preferring and accepting Mr. Thair’s conclusions appear to be based on factors other than the Court’s own assessment of his reasoning and the soundness of his conclusions. The factors upon which the Court relied were set out earlier in these reasons, at paragraph 15. This calls for an examination of a trial court’s role with respect to expert evidence.
[38] In R. v. J.-L.J., 2000 SCC 51 at para. 56, [2000] 2 S.C.R. 600, the Supreme Court summarized the purpose of expert evidence as follows:
The purpose of expert evidence is thus to assist the trier of fact by providing special knowledge that the ordinary person would not know. Its purpose is not to substitute the expert for the trier of fact. What is asked of the trier of fact is an act of informed judgment, not an act of faith.
[39] More recently, in White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23 at para. 18, [2015] 2 S.C.R. 182 (White Burgess), the Supreme Court pointed out the risk inherent in the use of expert evidence and the objective which must be kept in mind:
The point is to preserve trial by judge and jury, not devolve to trial by expert. There is a risk that the jury “will be unable to make an effective and critical assessment of the evidenceˮ (citations omitted). The trier of fact must be able to use its “informed judgment”, not simply decide on the basis of an “act of faith” in the expert’s opinion (citations omitted). The risk of “attornment to the opinion of the expertˮ is also exacerbated by the fact that expert evidence is resistant to effective cross-examination by counsel who are not experts in that field: (citations omitted).
[40] In the case of a trial by judge alone, the trier of fact is the trial judge and so, it is the trial judge who must undertake “an effective and critical assessment of the evidence.”
[41] As early as 1994, the Supreme Court sounded a warning which is particularly relevant to this case:
There is also a concern inherent in the application of this criterion that experts not be permitted to usurp the functions of the trier of fact. Too liberal an approach could result in a trial's becoming nothing more than a contest of experts with the trier of fact acting as referee in deciding which expert to accept.
R. v. Mohan, [1994] 2 S.C.R. 9 at p. 24, 114 D.L.R. (4th) 419 (Mohan).
[42] The passage from Mohan is relevant because of what the Federal Court wrote at paragraphs 92-93 of its reasons:
This issue largely turns on which appraisal expert's report should be adopted by the Court. The Defendant has, in a substantial part of its argument, invited the Court to address the detail in each report and, at times and if necessary, to adopt its expert's view or substitute its own opinion on specific issues.
This is not an instance where the Court should, or could, interfere to that level. The Court is in no position, in part because it does not have the expertise, to conclude on specific valuation factor - what, for example, the Reserve Factor should be.
These matters are subject to expert reports and result in a finding of fact, once the Court has accepted which of two competing views it prefers.
[43] On the basis of this passage and others in the Federal Court’s reasons, the Crown argues that the latter fell into the error of deferring to the experts and “acting as referee in deciding which expert to accept.” This is the very error which the Supreme Court identified in Mohan.
[44] On the other hand, Mr. Piot argues that it is not unusual in appraisal cases for the Court to adopt the methodology of one expert over that of the other as the basis for its conclusions. In support of his submission, Mr. Piot points to cases such as Southpark Estates Inc. v. Canada [sub. nom. Villa Beliveau v. Canada], 2006 FCA 153, 348 N.R. 122, Crosson v. Canada, 2000 CanLII 16565 (FCA), 265 N.R. 112, and Morin v. Canada, 2005 FCA 52, 332 N.R. 109 (Morin FCA). In each of these cases, however, the trial judge examined in detail the elements supporting the appraiser’s choice of methodology: see Villa Beliveau Inc. v. R., 2004 TCC 701 at paras. 2-5, 7-28, 43-55, [2004] T.C.J. No. 558, R. v. Crosson, 169 F.T.R. 218, [1999] F.C.J. No. 889 at paras. 72-99 and Morin FC at paras. 74-94.
[45] The examples cited by Mr. Piot do not persuade me that that the assessment of appraisal evidence is an all-or-nothing proposition, as he suggested. This Court said the opposite as long ago as 1979 in Connor v. R., [1979] 79 D.T.C. 5256 (FCA) (Connor) at para. 4 of its reasons:
It is trite to say that the Trial Judge is the trier of fact and he is thus entitled to accept or reject, in whole or in part, any of the evidence adduced before him. In this case he accepted some of the evidence but he rejected in all cases the methods, at least in part, whereby the experts arrived at their valuations. He was entitled to do so […] (my emphasis)
[46] The Federal Court’s statement of its role in relation to the expert evidence was an error of law. When considering opinion evidence, trial judges remain the triers of fact and must come to their own conclusions based upon their own assessment of the evidence. They cannot simply defer to the experts on the ground that they lack the expertise to decide the factual question in issue.
[47] Trial judges must satisfy themselves as to the aptness of the methods of analysis chosen by experts and on the soundness of the conclusions they reach. The trial judge must be in a position to “accept or reject, in whole or in part, any of the evidence adduced before him”: Connor, quoted above. For an example of this kind of analysis, one need look no further than the Federal Court’s decision in Aird v. Country Park Village Properties (Mainland) Ltd., 2004 FC 551, 251 F.T.R. 161.
[48] Admittedly, this is easier to do in some cases than in others. The greater the degree of complexity, the greater the difficulty of breaking down the components of an expert’s evidence. Nonetheless, trial judges must satisfy themselves that the opinions expressed by the experts are a reliable basis upon which to make their findings: R. v. Gibson, 2008 SCC 16 at para. 58, [2008] 1 S.C.R. 397. While there is no doubt that the preparation of the appraisals tendered in this case required the exercise of skill and judgment, the basic concepts involved are not so difficult that the Court cannot understand them.
[49] An example of the Federal Court’s error appears at paragraph 142 of its Reasons during its discussion of the reserve factor. It declined to make a factual finding itself, preferring instead to adopt one expert’s view of the matter:
While the Reserve Factor at [32%] may appear high and some other number approaching 25% may seem more reasonable, it is not for the inexpert judge who is relying on expert evidence to come up with his or her own Reserve Factor. The judge does not have the data, tools, training or experience to reach a substitute number.
[50] It was the Federal Court’s role to make a reasoned judgment as to what the reserve factor should have been. This passage shows that, for the reasons which it expressed, it declined to do so. The consequences of this approach are manifested in the Court’s treatment of the reserve factor and the rate of return.
B. The determination of the reserve factor
[51] The Crown argues that the Federal Court erred in accepting that the reserve factor exclusively worked to decrease the valuation of reserve lands as opposed to one that could increase or decrease the valuation. As a result, the Crown argues that the Federal Court erred in refusing to accept Mr. Bell’s evidence on the reserve factor. Mr. Bell proposed a downward adjustment to the reserve factor for the absence of taxation of the leased lands. A downward adjustment of the reserve factor would have resulted in an upward adjustment of the value of the leased land. Such an adjustment was accepted in Morin FC (aff’d Morin FCA) and St. Martin v. Canada (Ministry of Indian Affairs and Northern Development), 2001 FCA 205, 273 N.R. 134 (St. Martin).
[52] In both of these cases, the reserve factor is referred to as a discount factor (see Morin FC at paras. 29-32, 47-50, St. Martin at paras. 24-29). To that extent, these cases undermine the Crown’s basic premise that the reserve factor is not always a downward adjustment.
[53] When discussing the 50% discount for reserve lands applied at the trial level (Musqueam Indian Band v. Glass, [1997] F.C.J. No. 1339 (QL), 137 F.T.R. 1) (Musqueam FC), the Supreme Court said that while it would not disturb the trial judge’s conclusion on the amount of the 50% discount (as it was not in dispute by the time the case reached the Supreme Court), it did not follow that any land on any reserve would be subject to that discount. The Supreme Court found that it was a question of fact what, if any, discount should be applied: Musqueam at para. 52.
[54] The point that reserve land is not inherently worth less than non-reserve land is made perhaps even more clearly in Musqueam FC. At the start of its analysis of the value of the Musqueam Park lots, the Federal Court wrote the following (at para. 42):
…I cannot, without analysis of the market evidence, rule out that fee simple off-reserve values cannot be used to help determine current land value in Musqueam Park. If it is demonstrated by market data that the subject land has an actual current value comparable to the value of fee simple land, it would be wrong to ignore fee simple data. If, on the other hand, market evidence reveals that the actual current value of land on the Musqueam Indian Reserve is not comparable to off-reserve fee simple land, it would be artificial and not consistent with the words of the leases to value the Musqueam Park land equivalent to those fee simple values.
[55] In my view, there is no presumption that reserve land is worth less than non-reserve land. If it is the case that any adjustment to the value of reserve lands is strictly a function of market valuation, then one cannot know if there is to be an upward or downward adjustment, or any adjustment at all until one has done a market evaluation. This is why the Supreme Court observed that it will be a question of fact what, if any, discount should be applied to reserve land. It is also why the Federal Court reasoned in Musqueam FC that it could not arrive at a valuation of the Musqueam lands without knowing how the market valued them relative to off-reserve land.
[56] It follows from this that, if the value of on-reserve land is to be determined by market data, it is an error to make adjustments to values of reserve land which are not attributable to market data. Even though the Federal Court’s decision in Musqueam FC contained a detailed discussion of factors which were thought to affect the value of reserve land, when it came time to assign a value to the land, only market values were used. The factors referred to at paragraphs 44, 51, 52, 54 and 55 of Musqueam FC were explanatory only; they were not intended to predict the value of the land. The 50% reduction which was arrived at in Musqueam FC was arrived at by comparing the difference between the sale prices of comparable long-term leases of on-reserve land and fee simple sales of off-reserve land and subtracting the difference ($305,000) from the value of the Court’s choice of the hypothetical fee simple ($607,000) which gave a 50% (more or less) discount. No discount value was assigned to individual factors which were thought to have contributed to the diminished valuation of reserve lands.
[57] One must not read too much into the Supreme Court’s comment at paragraph 53 of its reasons in Musqueam that the trial judge accepted the evidence of professional appraisers “that uncertainty lowered the market price of the Musqueam lands.” Both the appraisers and the Supreme Court knew that the market valued the reserve lands at less than the surrounding lands. Whether the difference was caused by uncertainty of one kind or another, while reasonable on its face, was not verifiable. The fact that there was a difference in market value certainly was verifiable and it is on that basis that the Supreme Court decided as it did.
[58] I recognize that appraisers routinely make adjustments to market data to account for differences between comparable properties to arrive at an opinion of value of the subject property. The distinction between those adjustments and the adjustments being proposed here is that subjective adjustments to the reserve factor are inherently problematic. A reserve factor is open to the challenge, as it was in Musqueam FC and as it is here, that it is discriminatory. As a result, care must be taken to reduce subjective elements in the quantification of the reserve factor. The best way to do that is to proceed on the basis of market data.
[59] As a result, I agree with the Crown that the reserve factor does not invariably result in a downward adjustment of the value of reserve land. On the other hand, I disagree with the Crown’s submission that the reserve factor should be determined on the basis of a subjective opinion rather than on market data (i.e. how on-reserve lands fare in the market compared to off-reserve lands). To that extent, this ground of appeal fails.
[60] The Crown raises two other issues concerning the reserve factor:
● The trial judge erred by accepting new 2008-2009 leases on the Sakimay reserve as an appropriate comparable despite the evidence that Sakimay intentionally kept new leases at the 2004 lease rate.
● The trial judge erred by confusing and conflating two different time-trend adjustments and, as a result, accepting the method adopted by Mr. Thair.
[61] These grounds of appeal relate to the choice of comparables in the reserve factor analysis. Appraisers undertake a time-trend analysis when comparing transactions occurring at different times to account for changes in the market during the interval between transactions. In this case, the Crown alleges that Mr. Thair did not do a time trend analysis of the lease rates which he used in his calculation of the reserve factor. In particular, the Crown alleges that the use of lease rates from leases concluded in the 2008-2009 period at Indian Point/Grenfell Beach was an error because those lease rates were deliberately set at 2004 levels. Without a time-trend analysis to bring those lease rates up to 2009 levels, their use understated on-reserve lease rates.
[62] For the reasons that follow, I find that Mr. Thair did not do a time-trend analysis for the on-reserve lease rates so that his use of the 2008-2009 Indian Point/Grenfell Beach lease rates without adjustment resulted in a systematic understatement of on-reserve values which, in turn, led to an overstatement of the reserve factor.
[63] Mr. Thair’s discussion of on-reserve lease rates occurs at p. 144 of his report (Appeal Book at p. 900 – corrected version at p. 1173). In it, he compares lease rates from five on-reserve resorts: Grenfell Beach, Indian Point, Kinookimaw, Chamakese and White Bear. The Crown argues Mr. Thair’s reserve factor calculation is fatally flawed because both of his calculations rest on the assumption that the Indian Point/Grenfell Beach 2008-2009 lease rates are current rates, in the sense that they represent the best rate Sakimay could obtain in those years. Carol Sangwais, Sakimay’s Environment Lands and Resources Manager, testified that leases of Sakimay land concluded between 2008 and 2009 were at the 2004 lease rate so as to keep all lease renewals on the same schedule: Appeal Book at pp. 3201-3202. This evidence was not challenged.
[64] It appears that Mr. Thair may have anticipated an objection to his use of the Indian Point/Grenfell Beach rates without adjusting them for time-trend when he wrote the following at p. 96 of his Report (Appeal Book at p. 852):
There is nothing in the subject leases that obliges the lessor to lease vacant lots at the rate negotiated at the beginning of the lease cycle. Both parties are free to negotiate the lease rate. The leases are at the time of their signing an indication of market rent – a willing seller and a willing buyer each acting prudently in their own self-interest, with normal motivation.
[65] In response to the Crown, Mr. Piot argues that even if the Indian Point/Grenfell Beach 2008-2009 lease rates ought not to have been used (which is not conceded), the rate per front foot for on-reserve leases chosen by Mr. Thair was higher than the rates used at Indian Point/Grenfell Beach so that the error, if any, was not palpable and overriding.
[66] The Federal Court touched upon these issues when it found that Mr. Thair was well aware of the strength and weaknesses of his data points, that he applied his professional judgment to balance “these forces”, and that he had “cogent and compelling reasons for relying on the data”: Reasons at para. 135.
[67] The Crown’s argument can only succeed if the evidence establishes that there was movement in the market in the period between 2004 and 2009. As a result, it is necessary to review what Mr. Thair did and what the evidence shows about changes in the market between 2004 and 2009.
[68] Mr. Thair did a time-trend analysis early in his report when considering the fair market value of the off-reserve vacant land sales at Crooked Lake and other Qu’Appelle Lakes. He wrote that this time-trend analysis “applies to all aspects of this report – leases, fee simple sales, capitalization rates/rates of return”: Thair Report at p. 57 (Appeal Book at p. 813). He concluded, on the basis of this analysis that no time-trend adjustment to fee-simple values was required. Later in his report, Mr. Thair confirmed that no time-trend adjustment to lease rates was required: Thair Report at p. 146 (Appeal Book at p. 902).
[69] Mr. Thair said that his time-trend analysis applied to lease rates. However, the data which he relied on in his time-trend analysis was limited to off-reserve fee simple sales between 2008 and 2010: Thair Report at pp. 57-62 (Appeal Book at pp. 813-818). For the purposes of this case, Mr. Thair did a review of Multiple Listing Service land sales for the period of June 1, 2008 to June 1, 2010. Mr. Thair also referred to a study which he did “previously”, which suggests either a study pursuant to a different assignment or a different study concluded in the course of this assignment. That study was limited to fee simple sales for the period 2009-2010.
[70] The trial judge appears to have accepted Mr. Thair’s time-trend analysis at face value: Reasons at paras. 122-124.
[71] If a comparison of on-reserve lease rates to off-reserve rates is to be used to measure the reserve factor, then the basis of the comparison must be the same on both sides. Mr. Thair’s report reveals that there were time-trend issues with all but one of the comparables which he chose, as can be seen from the review of on-reserve lease rates set out below.
[72] The date as of which the lease rates were to be set was December 1, 2009: 1991 Lease at Article 2.01. As noted, the Indian Point/Grenfell Beach 2008-2009 leases were concluded at 2004 rates. The Kinookimaw rates were set in 2006: Thair Report at pp. 124-125 (Appeal Book at pp. 880-881 – corrected version at p. 1170). Meanwhile, the White Bear rates had apparently not been adjusted for 25 years: Thair Report at pp. 141-142 (Appeal Book at pp. 897-898). The rates at Chamakese were increased from $896 per year at April 1, 2004 to $1,058 per year at April 1, 2009, an 18% increase which the landlord indicated was below fair market value: Thair Report at pp. 128-129 (Appeal Book at pp. 884-885).
[73] The Chamakese rate was set within eight months of December 1, 2009. The other rates were set before that and none of these rates were adjusted to December 1, 2009. Mr. Thair’s time-trend analysis does not cover the 2004-2009 period, which is the period that must be examined to appreciate the effect of setting 2008-2009 lease rates at 2004 levels.
[74] Mr. Thair’s report discloses significant movement of lease rates in the 2004-2009 period. A letter from the Saskatchewan Ministry of Tourism, Parks, Culture and Sport (the Ministry) dated August 3, 2010 to Provincial Park Cottage Owners discussed the rent increases for provincial park recreational leases based on a 2008 reassessment. The letter noted that:
Since the previous assessment base year of 2002, overall land assessments in provincial parks have almost tripled, which is consistent with market increases for recreational property throughout the province, outside of provincial parks.
…
It is important to note that because 2006 market value changes varied widely from park to park, some lessees will have decreases a