Supreme Court of Canada
Golden Eagle Canada Ltd. v. Municipal Corporation of St-Romuald d’Etchemin,  2 S.C.R. 1090
Golden Eagle Canada Limited Appellant;
The Municipal Corporation of the City of St-Romuald d’Etchemin Respondent.
1976: May 20; 1976: October 5.
Present: Judson, Ritchie, Pigeon, Beetz and de Grandpré JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR QUEBEC
Municipal law—Assessment—Real value of tanks under construction—Replacement value—Absence of palpable error—Cities and Towns Act, R.S.Q. 1964, c. 193, ss. 485, 486—Charter of the City of Montreal, 1960, 1959-60 (Qué.), c. 102 as amended, ss. 818, 827—Real Estate Assessment Act, 1971 (Qué.), c. 50, ss. 1(q),8, 10.
Appellant disputes the assessment of its property as homologated by respondent and affirmed by the Provincial Court and the Court of Appeal.
The municipal assessor had made an assessment of five tanks under construction and various works attached to them which were completed; he assessed them at about eighty per cent of the replacement cost at the time of his visit. Appellant agreed with the replacement cost but argued that it was unrelated to the real value of the half-completed tanks; it contended that the real value was nil as long as construction was not completed and in operation. It contended that the assessor did not recognize the existence of an internal functional depreciation of one hundred per cent, which exists when a building does not meet the needs for which it was constructed.
The Court of Appeal held that these buildings, although not completed, were identifiable with the function they were to perform, and that their real value was proportional to their partial completion.
Held: The appeal should be dismissed.
Appellant relied on s. 827 of the Charter of the City of Montreal in support of its argument which it says underlies all Quebec municipal law. However, this section applies only to the territory of the city of Montreal and its existence implies that an improvement under construction in principle could have a real value greater than zero; on the other hand, one may ask whether this section of the 1970 enactment does not concern a specific case of failure to enter on the roll at the time of the
annual assessment a building which should have appeared there.
Section 10 of the Real Estate Assessment Act is not applicable here because this Act, which came into force on January 1, 1972, has no retroactive effect.
In all cases of construction for special purposes, the assessor must calculate the replacement value, and in determining the theoretical market value must consider the owner as a possible purchaser; the price which he would offer must then be calculated not on a subjective value, but on an objective value, according to the ordinary principles of a property replacing the one to be valued.
Appellant contended, in the event that its fundamental proposition was not accepted, that the assessor should have recognized an internal functional depreciation not of one hundred per cent, but of a figure to be determined; the Court will not intervene on this question of fact since the record reveals no palpable error.
Montreal v. Sun Life Assurance Company of Canada,  2 D.L.R. 81, applied; Guy Towers Inc. v. City of Montreal,  S.C.R. 738, referred to.
APPEAL from a decision of the Court of Appeal of Quebec affirming a judgment of the Provincial Court. Appeal dismissed.
A.J. Campbell, Q.C., for the appellant.
Pierre Delisle, for the respondent.
The judgment of the Court was delivered by
DE GRANDPRÉ J.—Appellant disputes the real estate assessment made of its property, homologated by respondent and affirmed by the Quebec courts.
In 1970, Golden Eagle had a refinery under construction. During the month of May the municipal assessor visited the premises, in accordance with the provisions of the Cities and Towns Act, R.S.Q. 1964, c. 193. In light of his observations and information received from appellant, he made his own calculations to determine the value of what he saw, since the large-scale works under construction were not completed. He assigned a value of $432,280, which is not disputed, to the land and the completed improvements, that is the enclosures, warehouses, office and residence.
The appeal is against the assessment of $1,979,620 for five tanks under construction and various works attached to them which were completed, such as the foundations, pipes and decks. (I shall refer to these together as “tanks under construction”.) According to the assessor’s testimony, these figures represented about eighty per cent of the replacement cost of the tanks under construction at the time of his visit; he preferred not to assess the tanks under construction at one hundred per cent of the replacement cost, for reasons which he gave in his testimony:
[TRANSLATION] …to keep a certain safety margin, and also to take into account the fact that it is very difficult to determine the exact value of a building under construction.
For the purposes of its pleadings appellant admitted from the outset the accuracy of the assessor’s calculations of the replacement cost, but contended forcefully that this cost is unrelated to the real value of the half-completed tanks. Appellant pointed out that it is the real value that the assessor must find, under s. 485 of the Cities and Towns Act.
The notice of appeal to the Provincial Court expresses appellant’s grounds of appeal as follows:
[TRANSLATION] The assessment was made without taking into account the functional and internal depreciation of the said property, which had no commercial use at the time of the said assessment.
The expression “functional and internal depreciation” is certainly a typographical error, and the word “and” should be deleted. What is undoubtedly meant is the internal functional depreciation which exists, according to the evidence, when a “building does not meet the needs for which it was constructed”, does not suit its intended purpose. In the case at bar, there could be no question of the two other types of depreciation mentioned by the witnesses, that is, physical depreciation resulting from the use of the buildings, which certainly did not exist here, and external functional depreciation resulting from economic factors such as market loss, which no one suggests existed here.
Appellant’s complaint is therefore that Mr. Bergevin, the assessor, did not recognize the exist-
ence of internal functional depreciation. The reason for his refusal is found in his testimony:
[TRANSLATION] …I could not see how Golden Eagle could construct buildings which did not meet the needs for which it had built them.
Golden Eagle finds in this an error in law. In its submission, a real estate improvement of a unique nature such as a refinery has no value if it is not completed and in operation, since each petroleum company has its own techniques and procedures. Until that time, it does not meet the needs for which it was begun, and internal functional depreciation of one hundred per cent must be set off against the replacement cost, so that the real value of the tanks under construction should have been recorded as zero.
The Provincial Court rejected this contention:
[TRANSLATION] To reduce the value to nothing, for scrap iron, is not the appropriate conclusion, and the Court has not found it in the cases.
Bélanger J.A., speaking for the Court of Appeal, after citing this sentence and the surrounding paragraphs, wrote:
[TRANSLATION] The assessment should be made according to the real value of appellant’s property. There were buildings erected on its land; although they were not completed, they were identifiable at that time with the function they were to perform. There were parts of tanks and of pipe and communication systems which had a real value proportional to their partial completion.
Golden Eagle sees in this an error which must be corrected.
Appellant recognizes that no part of the Cities and Towns Act expressly supports its proposition. However, it sees in the Charter of the City of Montreal a statement of principle that it relies on, and which it says underlies all Quebec municipal law. It refers this Court to s. 827 of the Charter, from which the following extracts are taken:
The assessor shall fix the real value:
(b) of any building the valuation of which does not appear on the rolls and of any enlarged or altered building.
He shall amend such valuation rolls accordingly and indicate as the date of imposition based on the new valuation the date of the first of the following:
(1) that when the works were reasonably completed;
(2) that when the occupancy of the building or of the altered part thereof commences;
(3) that of the last day of the period of twenty-four months computed from the first day on which the execution of the works commences.
I do not see how this text supports Golden Eagle’s proposition in the least. First, this provision, which obviously applies only to the territory of the city of Montreal, would not be necessary if an improvement under construction in principle could not have a real value greater than zero. Second, one may ask, though I shall not answer this question, whether s. 827 of the 1970 enactment does not concern a specific case, that is the failure to enter on the roll at the time of the annual assessment (s. 818 of the Charter) a building which should have appeared there; this omission could apply to several years, since under the last paragraph the taxpayer may be required to pay property taxes on his property not only for the current fiscal year, but also for the two preceding fiscal years. This would be the equivalent for Montreal of the rule in s. 486 of the Cities and Towns Act, which provides, in the event of an omission from the roll, for retroactive entry for three years. The only difference between the Cities and Towns Act and the Charter of the City of Montreal would be that the latter sets a starting point for the case of a building under construction at the time of the assessment, which the Act does not do. In this interpretation, s. 827 of the Charter does not go further and make the rule that the assessor could not assign a value to improvements then under construction, when he is preparing the valuation roll each year.
In support of its proposition, Golden Eagle relied also on the Real Estate Assessment Act, 1971 (Que.), c. 50, s. 10 of which provides:
No structure which must be entered on the roll shall be entered before it is substantially completed or substan-
tially occupied for the purpose of its initial destination or of a new destination, unless two years have elapsed since the beginning of the work. This section applies to changes, alterations and new construction.
Without dwelling on the fact that this Act is a far-reaching reform of the real estate assessment system, that in s. 8 it adopts the criterion of market value (defined in s. 1(q)), and that in 1973 this criterion was replaced in c. 31 of the Statutes of Quebec by that of the real value, I would point out, along with the Provincial Court, that this Act, which came into force on January 1, 1972, has no retroactive effect. I concur in the opinion of the Quebec courts that it could not even begin to solve the problem.
Pleading an error in law on the part of the assessor, appellant develops its argument as follows:
[TRANSLATION] …the only taxable units were the land and the completed parts. The other parts, unconnected, scattered, barely begun, could have neither a market value not any economic value, because in their condition at the time of the assessment they had no use.
Appellant itself committed the error in law when it forgot that in all cases of construction for special purposes the assessor must necessarily calculate the replacement value in order to determine the real value, and in determining the theoretical market value must consider the owner as a possible purchaser. The Privy Council confirmed and reconfirmed this view in Montreal v. Sun Life Assurance Co. of Canada. To the extract cited by Bélanger J.A., I would add the following:
(at p. 94)
As they have said, the Board accepts the view that the true test is what a willing buyer would give and a willing seller take.
In many, perhaps in most cases, this figure is not difficult to discover—the first three methods mentioned by the Judge of the Superior Court point out the way. But in a limited number of cases none of these sources of information is available and what such a buyer would
give or a seller would take can only be ascertained by indirect means. As has been said those means are to be found by relying upon the replacement value however that term may be interpreted or upon the revenue value, or by a mixture of the two.
(at p. 102)
…It is the objective not the subjective value which has to be determined though, as has been said, the owner is to be regarded as one of a possible number of buyers, and subject to careful criticism and a sufficient qualification of price, the cost which he chose to incur is a relevant factor.
I do not hesitate to adopt the following remarks of Bélanger J.A.:
[TRANSLATION] The legal meaning of the expression “real value” and the principles for determining it have now been clearly established in the case law: when a property is of a type the sale of which is difficult to imagine, the ultimate goal must still be to find the market value of the property; consideration must be given not only to the price which a purchaser would pay, but also to that at which the owner would sell, and from this point of view the owner may be considered as any other possible purchaser, and the price which he would offer may be calculated not on a subjective value, but on an objective value, according to the ordinary principles of a property replacing the one to be valued. The property must be valued in the condition in which it is.
One final point: appellant invited the Court, in the event that we do not agree with its fundamental proposition, to reduce the assessment by finding that the assessor should have recognized internal functional depreciation not of one hundred per cent, but of a figure to be determined. The question would then be one of fact, in which there would be no ground for the Court to intervene unless there was palpable error—Guy Towers Inc. v. City of Montreal, at p. 740. In this regard, the assessor’s competence must be given full weight—Montreal v. Sun Life Assurance Co. of Canada, cited above, at p. 97:
The various considerations applicable and the weight to be applied to each must be left to the judgment of the appropriate bodies, subject to the control of those to whom an appeal is given, always remembering that any interference with the original decision must not be lightly undertaken.
In light of this criterion, the record reveals no error of this nature.
I would dismiss the appeal with costs.
Appeal dismissed with costs.
Solicitors for the appellant: Campbell Pepper & Laffoley, Montreal.
Solicitors for the respondant: Pinsonnault, Pothier, Bégin, Delisle & Veilleux, Québec.