LAND COMPENSATION BOARD FOR THE PROVINCE OF ALBERTA

Transcription

1 LAND COMPENSATION BOARD FOR THE PROVINCE OF ALBERTA ORDER NO. 495 FILE NO. OT May 24, 2012 An Application for an Order fixing interest payable, pursuant to Section 66 of the Expropriation Act, R.S.A. 2000, Chapter E-13, in the matter of a related expropriation. BETWEEN: HOWARD VANCE GIMBEL, JUDITH ANNE GIMBEL, and CARL MANAGEMENT LTD. Claimants -and- HER MAJESTY THE QUEEN IN RIGHT OF ALBERTA AS REPRESENTED BY THE MINISTER OF PUBLIC WORKS, SUPPLY & SERVICES (now INFRASTRUCTURE) Respondent BEFORE: THE LAND COMPENSATION BOARD FOR THE PROVINCE OF ALBERTA (the Board ) SITTING MEMBER: - E. Gordon Chapman, Presiding Member APPEARANCES: For the Claimants: - R. J. Simpson, Q.C. Witnesses: - Howard Vance Gimbel, Claimant - Myrna Marie Belyea, Consultant

2 - Lionel Hershel Zeisler, RBC Dominion Securities, Investment Advisor - Jim Mathieu Kollee, KPMG, Chartered Accountant For the Respondent: - T. C. Mavko, Esq. Witness: - Gordon Gene Smith, Deloitte & Touche, Chartered Accountant PLACE: Held in the City of Calgary in the Province of Alberta on Tuesday, January 11, 2011 and Wednesday, January 12, 2011 at the Calgary Courts Centre. APPLICATION: By Order No. 447 (Gimbel v Alberta (Minister of Public Works, Supply & Services), (2007), 93 LCR 153), the Board fixed the interest rate on certain payments from the Respondent to the Claimants; however, in Gimbel v Alberta (Minister of Public Works, Supply & Services), 2008 ABCA 262, the Alberta Court of Appeal allowed an appeal of that decision and referred the issue back to the Board. This decision is the result of the Board s reconsideration of that issue. BACKGROUND: On August 21, 1995, the Claimants and the Respondent entered into an agreement pursuant to section 30 of the Expropriation Act, RSA 2000, Chapter E-13, as amended (the Act), with respect to certain lands owned by the Claimants which were to be expropriated by the Respondent. Page 2

3 In March 1996, the Claimants commenced proceedings with the Board for a determination of the compensation payable as a result of the expropriation. The Board issued a decision with respect to that question on September 22, 1997, but that decision was overturned by the Alberta Court of Appeal in a decision issued on March 26, The Board reconsidered the question, and issued a new decision on March 8, 2006, awarding the Claimants $2,800, in compensation for market value of the land expropriated and injurious affection. At that time, the Board reserved its decision on interest and costs The Respondent paid the Claimants the final balance owing on that award on April 21, On August 16, 2007, the Board issued a decision which addressed the questions of interest and costs and found that the just rate of interest for each of the Claimants was the average rate of interest paid to an investor in 90 day T-Bills, compounded annually on the sum of $1,550,000.00, which was the outstanding balance owing, from September 1, 1995, to April 21, This decision was appealed to the Court of Appeal, and in a decision issued on July 17, 2008, the Court of Appeal allowed the appeal and referred the question of interest back to the Board. The Court of Appeal determined that the issue before it was: Page 3

4 [t]he real issue on this appeal is whether in the exercise of the Board s discretion, it was reasonable to require the appellants to adduce evidence of their borrowing and investment practices in order to illustrate that they were entitled to the cost of borrowing, rather than interest on investments. and found that the Board had erred in not applying the legal test correctly when considering whether the Claimants were entitled to a borrower s rate and finding that the 90 day T-Bill rate was correct without evidence to that effect. Therefore, it is the question of the just interest rate on the $1,550, from September 1, 1995, to April 21, 2006, that is currently before the Board. The Parties filed an Agreed Statement of Facts with the Board on December 29, This agreement indicated that, of the $1,550, owed to the Parties, $995, was payable (and paid) to Carl Management Ltd. ( Carl Management ) and $555, was payable (and paid) to the Gimbels. The Parties also indicated in the Agreed Statement of Facts that Carl Management borrowed $2,000, from the Toronto Dominion Bank through a mortgage agreement dated May 10, 1994, and that this mortgage was discharged on July 24, 2001; that Carl Management entered a new mortgage agreement for $2,200, with Alberta Treasury Branches ( ATB ), and that this debt was discharged on June 5, 2003, when the land was transferred to a new owner. Page 4

5 ISSUES: 1. What is the just interest rate on the $1,550, that was owed to the Claimants from September 1, 1995, to April 21, 2006? 2. What is the correct test and methodology to apply in this matter? 3. Should Howard and Judith Gimbel be treated as a single unit for the purpose of determining interest, or should they be treated separately? POSITION OF THE PARTIES: Method of Analysis The Parties agreed that the leading case on determining a just interest rate in expropriation actions is Mannix v Alberta (1984), 31 LCR 299 ( Mannix ). Stevenson J indicated that an owner should be compensated for such income as he would have received had he followed usual and prudent investment practices, or, if it is illustrated, for the cost of usual and prudent borrowings. This statement was borne out by the Court of Appeal in Gimbel v Alberta (Public Works, Supply and Services), 2008 ABCA 262 (which was the decision that referred this case to this Panel), when it indicated that the default position for the award of interest under section 66 [of the Act] is investment interest, unless the claimant can illustrate that he ought to receive the cost of borrowing. (at paragraph 17). The Claimants asserted at hearing that, since the investor s rate is a default, the borrower s rate should be a fallback position. In other words, the Claimants asserted that if it is impossible to establish an investor s rate, because (for example) insufficient evidence exists to Page 5

6 suggest a party s usual and prudent practices or a party was never in a position to invest, the decision maker should award a borrower s rate. The Respondent, on the other hand, asserted that if the investor s rate is a default, then a decision maker should only depart from that rate when persuaded to do so, in other words when sufficient evidence has been presented to convince the decision maker that a borrower s rate is warranted. At hearing, the Claimants also discussed the meaning of the words usual and prudent investment practices, as used in Mannix. The Claimants argued that to invest means to place money in hopes of receiving an increase in the capital or income of money (Transcript at page 230), and that therefore any outlay of money spent without the intention of producing a capital return is not investment, and should not be considered in the decision maker s analysis. Furthermore, the Claimants argued that an investment that is a one-off or speculative is not usual and prudent, and also should not be included in the decision maker s analysis. The Respondent argued that, even if the Claimants definition of investment was correct, the increase in the capital or income of the money can and should include increases in value such as an increased ability to perform at one s profession. Page 6

7 Facts of the Case Carl Management Ltd. As noted above, the Parties filed an Agreed Statement of Facts with the Board on December 29, In that statement, at paragraph 13, was the assertion that: Prior to the date title to the land was transferred to the Province (September 1, 1995), Carl Management had borrowed money to acquire the neighbouring Greenbrier lands. The Toronto Dominion Bank advanced $2,000,000 through a mortgage dated May 10, 1994 to acquire this land which is at Tab 13 of the Documents of the Claimants. During oral argument, the Claimants acknowledged that Carl Management was not the mortgagor for the $2,000,000 debt until it merged with the International Institute of Eye Sciences Inc. (IIES) in June of The Unity of the Gimbels In their oral argument, the Claimants contended that there was no distinction between Howard Gimbel and Judy Gimbel in terms of how they operate and that they were a family unit which operate together in conjunction with each other. (Transcript at pages ). Therefore, the Claimants contended, any considerations of interest should consider the usual and prudent practices of the couple, rather than each individual in that couple. The Claimants also argued that since the property which was expropriated was jointly owned by the Gimbels, they should be jointly compensated and should therefore have the same interest rate. Page 7

8 The Respondent, conversely, argued that Dr. Gimbel and Mrs. Gimbel were separately listed Claimants in this action, and therefore need to be considered as separate individuals for the purpose of determining the interest rate. Interest Rate Carl Management The Claimants began their argument by considering the period from September of 1995 to June of They asserted that during this period, Carl Management had no significant investments because it did not have any money. The Claimants went on to argue that, since there were no investment practices on which the Panel could rely, it would have to fall back on a borrower s rate. However, the Claimants acknowledged that Carl Management had no significant debt during that time and argued that both Carl Management and the IIES were owned by Dr. Gimbel, and if Carl Management had received the money in question in 1995, he would have transferred it to the IIES to pay off its mortgage debt. Since the IIES mortgage debt had an annual interest rate of prime plus 1 percent, the (borrower s) rate is the correct interest rate for the money owed to Carl Management from September of 1995 to its merger with the IIES in June of The Claimants argued the mortgage debt rate was also the correct rate for Carl Management from June of 1997 (when it merged with the IIES and thereby assumed the IIES debt) and June of 2003, when the mortgage debt was paid. Page 8

9 After June of 2003, Carl Management kept its money in a savings account, and therefore the proper rate of interest for June of 2003 to April of 2006 is the rate given by that savings account. The Respondent argued that the borrower s rate is not a fallback position, and should only be given if it is illustrated. Therefore, the fact that Carl Management did not have a usual investment practice should not mean that it is awarded a borrower s rate but rather that the Panel should rely on the evidence before it of what the usual and prudent practice of a company like Carl Management would do if it did have money. The Respondent contended that the evidence illustrated that the usual and prudent practice of a company like Carl Management, when it does have money, is to put that money in the bank, and that therefore the correct interest rate to award to Carl Management for the period in question would be the bank rate. The Respondent did not present an argument explicitly addressing the correct rate of interest for the period from Carl Management s merger with the IIES to April of Dr. Howard Gimbel The Claimants argued that Dr. and Mrs. Gimbel acted as a financial unit and therefore the same interest rate should be awarded to both. Dr. and Mrs. Gimbel s usual and prudent investment practice was to invest in RBC Dominion Securities, since this is where the majority of the couples money was invested. Page 9

10 The Claimants addressed the argument that certain other economic activities in which Dr. Gimbel engaged were also investment practices, by contending that all those activities were either not investments or were not usual and prudent practices. Specifically, although they admitted that Dr. Gimbel purchased land, spent money on his medical practice, and invested in Gimbel Vision International, they contended that none of these were representative of his usual and prudent investment practices. The Claimants first addressed Dr. Gimbel s purchase of land, arguing that the land was not purchased in order to realise a financial return, but rather for emotional reasons, and therefore it was not an investment. Next, they addressed his investment in his practise, which they contended was also not an investment, because it was not intended to give him a direct capital increase, but rather to allow him to work more effectively. Finally, the Claimants argued that Dr. Gimbel s investment in Gimbel Vision International was not usual and prudent since it was a one-time investment. The Respondent argued (as mentioned above) that Dr. and Mrs. Gimbel are separate legal entities, and that the just interest rate for each should be considered separately. They also contend that Dr. Gimbel s spending on his practice and the related companies was, in fact, his usual and prudent investment practice. Consequently, the Respondent argued, the only rate which can reasonably be awarded to Dr. Gimbel is the return on his investments in his practice. Page 10

11 Mrs. Judith Gimbel The Claimants argued that the majority of Mrs. Gimbel s investments were in RBC Dominion Securities and that this represents her usual and prudent investment practice. The Respondent acknowledged that Mrs. Gimbel did indeed have a usual and prudent practice of investing her money in RBC Dominion Securities, but they contended that she did invest in other ways, particularly in I Care Services Ltd. They argued that she took money out of the account during certain periods and also argued that her interest rate should therefore be reduced to account for some of her investments being unsuccessful. DECISION: 1. The just interest rate on each of the portions of the $1,550, that was owed to the Claimants from September 1, 1995, to April 21, 2006, is set as follows: a. Carl Management Ltd: i. From September 1995 to June 1997, interest at the posted savings account rate as set on the first business day of each month during this period and compounded annually. ii. From June of 1997 to June of 2003, interest at the prime rate plus 1 percent as set on the first business day of each month during this period and compounded annually. iii. From June 2003 to April 2006, interest at the posted savings account rate as set on the first business day of each month during this period and compounded annually. Page 11

12 b. Howard Vance Gimbel i. From September 1995 to April 2006, interest at 3 percent compounded annually c. Judith Gimbel i. From September 1995 to April 2006, interest at 4.5 percent compounded annually. 2. Interest at an investor s rate is the default position and a borrower s rate should only be granted where the Claimant has illustrated that it is entitled to that rate. Specific rates should be supported or illustrated by evidence. 3. Howard and Judith Gimbel should be treated separately for the purpose of determining interest. REASONS: The Memorandum of Judgement from the Court of Appeal of Alberta decision that referred this matter back to the Board was very clear on the task now before the Board. In paragraph 3 the Court states: The appellants, Howard Gimbel, his wife, Judith Gimbel and their company sought an award of interest based on their cost of borrowing from the time the expropriation proceedings began until they were awarded payment for the value of the expropriated lands. Page 12

13 The Court noted the general principles established in Mannix and followed in Alberta (Minister of Infrastructure) v Nilsson, 2002 ABCA 283 ( Nilsson ) should be followed in this matter. In paragraph 15 of the Court of Appeal decision, the Court noted: [t]he real issue on this appeal is whether in the exercise of the Board s discretion, it was reasonable to require the appellants to adduce evidence of their borrowing and investment practices in order to illustrate that they were entitled to the cost of borrowing, rather than interest on investments. The Court noted the following in paragraphs 16 through 21 of its decision (from Mannix and Nilsson ): 1. The general object of modern expropriation legislation is to ensure that an owner is not out of pocket. 2. Evidence is required to establish appropriate interest rates because there are significant variations among those rates. 3. An owner should be compensated for such income as he would have received had he followed usual and prudent investment practices, or, if it is illustrated, for the cost of usual and prudent borrowings. 4. The default position for the award of interest under section 66 is investment interest, unless the Claimant can illustrate that he ought to receive the cost of borrowing. 5. In Nilsson, the court affirmed an award of interest based on the rates actually charged on outstanding loans as demonstrated by evidence. Page 13

14 The Panel recognises that the first two points above are fundamental in expropriation law, and indeed doubts that these principles are seriously contested by anyone. An owner of expropriated property should not be out of pocket due to the expropriation and any claimed losses, including interest rates, ought to be established through evidence. Nilsson further affirmed an award can be based on the rates actually charged on outstanding loans. This proposition derives logically from the previous two. In an expropriation matter, the question of interest rates arises once the parties, the Board, or the Courts have resolved the issue of compensation. At that time, the decision maker should have evidence of the interest loss (whether forgone interest income or cost of borrowing) actually incurred over that time frame. The Panel interprets this test as follows: From the outset, the Claimant is entitled to an investment interest rate, based on its usual and prudent investment practices. This is the default position. Lack of evidence of usual and prudent investment practices does not automatically mean that the Panel should consider a borrower s rate, based on usual and prudent borrowing practices. A borrower s rate should only be considered if the Claimant has illustrated that it is entitled to that rate. Evidence is required to support this borrower s rate. Furthermore, lack of evidence of an appropriate investor s rate of interest, while not entitling the Claimant to a borrower s rate (without Page 14

15 evidence) should not mean that the Claimant is entitled to no interest. That would leave the Claimant out of pocket. In the following analysis, the Panel relies on the doctrine, found in Nilsson, that an award of interest may be based on the rates actually charged or achieved. Given the above, this Panel has decided to use the evidenced costs of borrowing and evidenced investment return based on the Parties evidenced usual and prudent practices to determine a just rate of interest for each of the three Parties, based as much as possible on their evidenced actual interest costs, in order to ensure that they are not out of pocket due to this expropriation. The Panel placed less weight on Mr. Smith s presentation on behalf of the Respondent. He presented several scenarios dealing with various ways the Gimbels and Carl Management could have dealt with the proceeds and possible costs incurred but the Panel found them to be theoretical and chose to place more weight on the Claimants evidenced actual costs, losses and demonstrated usual and prudent investment and borrowing practices. Parties. The time frame in this matter is from September 1, 1995, to April 21, 2006, for all three Page 15

16 The evidence of the interest loss (whether forgone interest income or cost of borrowing) actually incurred over that time frame is outlined below, by party. Carl Management Ltd. The Panel finds that there were three different time periods in which Carl Management had three different usual and prudent practices. 1. First, from September 1995 to June 1997, Carl Management had neither any significant debts nor any significant investments. 2. Second, from June 1997 to June 2003, Carl Management owed a significant debt (initially $2,000,000.00), first to the Toronto Dominion Bank, and later to the Alberta Treasury Branches. 3. Finally, in the period from June 2003 to April 2006, Carl Management invested its money in a savings account. For the first period, the Panel was not presented with convincing evidence of Carl Management s investment practices. The Claimants argued that the Panel should award Carl Management the borrower s rate found on the mortgage debt held by the IIES over this period because, had Carl Management received the money in question at that time, it would have given it to the IIES, thus reducing its debt. The Claimants argued that this analysis was valid because Dr. Gimbel owned both companies, and so to move money from one to another is essentially the same as moving money from one pocket to another. Page 16

17 The Panel must disagree. The concept of separate corporate personality has been wellestablished since Salomon v A Salomon & Co. Ltd., [1897] AC 22. It is certainly the case that, in certain extreme circumstances, Canadian courts have been willing to lift the corporate veil and treat a company as if it was identical to its owner, but those circumstances are rare, and only exist when failure to lift the veil would be too flagrantly opposed to justice (see Kosmopoulos v Constitution Ins. Co. of Canada, [1987] 1 SCR 2 and the excellent summation of the law in Parkland Plumbing & Heating Ltd. v Minaki Lodge Resort 2002 Inc., 2009 ONCA 256 at paragraphs 49 and 50). Consequently, the Panel finds itself at an impasse; the evidence presented does not illustrate that a borrower s rate should be awarded, nor has any evidence of an investor s rate for this time period been given. In this case, the Panel is obliged to consider that, for the period from June 2003 to April 2006, Carl Management invested its money in a savings account and conclude that it would have done the same for this period. Therefore, for this period, the Panel awards interest at the posted savings account rate as set on the first business day of each month during this period and compounded annually. The Panel finds that for the period from June of 1997 to June of 2003, Carl Management was a significant debtor, first to the Toronto Dominion Bank, then to the Alberta Treasury Branches. The interest rate on this debt was prime plus 1 percent per annum. The Panel is satisfied that the Claimants have illustrated that Carl Management was entitled to that rate for this period. Page 17

18 The Panel also finds that in June 2003, the land bearing the mortgage security for this debt was sold and the debt repaid. For this period, the Panel awards interest at the prime rate plus 1 percent as set on the first business day of each month during this period and compounded annually. Finally, for the period of June 2003 to April 2006, the Panel finds that Carl Management was investing its money in a savings account. For this period, the Panel awards interest at the posted savings account rate as set on the first business day of each month during this period and compounded annually. Dr. Howard Gimbel The Panel finds that Dr. Gimbel s usual and prudent investment practices for the time period in question included investments in the companies related to his practice and RBC Dominion Securities. The Panel finds that Dr. Gimbel s investments in the companies related to his practice ultimately did not yield interest, while his investments in RBC Dominion Securities yielded an interest rate of approximately 9 percent. The Panel also finds that Dr. Gimbel s usual and prudent practice was to invest a larger portion of his investment capital in his corporations than in RBC Dominion Securities, and so awards Dr. Gimbel an interest rate of 3 percent for the period from September 1995 to April 2006 to better reflect the actual performance of his dual investment track, compounded monthly. Page 18

19 Since Dr. and Mrs. Gimbel were joint owners of the property that was expropriated, and the amount owing to them was $555,000.00, but no evidence was adduced as to how they split the proceeds up between them, the Panel will award this interest rate on half of that amount, $277,500.00, as Dr. Gimbel s portion. Judith Gimbel The Panel finds that it was Mrs. Gimbel s usual and prudent practice to invest her money in RBC Dominion Securities as well as into the couple s several companies (for example I Care International) which did not perform as well. As mentioned above, the Panel finds that the average rate of return for RBC Dominion Securities over the time period in question was 9 percent per annum but, as above, the Panel has determined that it is appropriate to reduce this rate to reflect the dual investment track. The Panel sets the rate at 4.5 percent per annum for the period from September 1995 to April 2006, compounded monthly. Since Dr. and Mrs. Gimbel were joint owners of the property that was expropriated, and the amount owing to them was $555,000.00, the Panel will award this interest rate on half of that amount, $277,500.00, as Mrs. Gimbel s portion. Since the Panel has determined that there is interest due and owing to the Claimants, it is appropriate to award interest on interest in this matter. By compounding the amount owed annually, the Panel is persuaded that the issue of interest on interest is appropriately addressed. Page 19

20 The Panel finds that Howard and Judith Gimbel are to be considered separate individuals for the purpose of the determination of interest rate. Section 66(1) of the Act gives the Board the power to determine a just rate of interest to be paid by the expropriating authority on compensation, severance, and disturbance damages. Section 42(1) indicates that when land is expropriated, the expropriating authority shall pay the owner. Section 1(k) indicates that, among other things, an owner is a person registered in the land titles office as the owner of an estate in fee simple in land. Both Dr. Howard Gimbel and Mrs. Judith Gimbel were registered in the Land Titles Office as owners of an estate in fee simple in land; therefore both were owners as defined in the Act. The question before the Panel is whether they are to be considered a single owner or two separate owners. The definition in section 1(k) of the Act indicates that an owner is a person [ ]. The Panel finds that husbands and wives are indeed separate persons (see for example Edwards v Canada (Attorney General), [1930] AC 124), nor does a married couple, even as joint owners of a property, form a natural corporation which can be treated as a single legal person. Page 20

21 Dr. and Mrs. Gimbel being individual persons, it is incumbent on the Board to treat them as individual financial operators with their own modes of investment. Their different investment practices were addressed in the evidence. They had separate investment accounts and Dr. Gimbel invested a larger percentage of his income in his various businesses than did Mrs. Gimbel. It is appropriate to consider them as separate individuals. LAND COMPENSATION BOARD E. Gordon Chapman, Presiding Member Page 21

22 STATUTES AND REGULATIONS CITED: From the Expropriation Act, RSA 2000, Chapter E-13, as amended: 1 In this Act, (k) owner means (i) a person registered in the land titles office as the owner of an estate in fee simple in land, (ii) a person who is shown by the records of the land titles office as having a particular estate or an interest in or on land, (iii) any other person who is in possession or occupation of the land, (iv) any other person who is known by the expropriating authority to have an interest in the land, or (v) in the case of Crown land, a person shown on the records of the department administering the land as having an estate or interest in the land; 42(1) When land is expropriated, the expropriating authority shall pay the owner the compensation as is determined in accordance with this Act. 66(1) An expropriating authority shall pay interest at a rate the Board considers just (a) with respect to (i) compensation for the land, and (ii) severance damages on a partial taking from the date of acquisition of title until payment in full; (b) on damages for disturbance from the date of the award of the damages until payment in full. Page 22