FLETCHER CHALLENGE CANADA LIMITED v. ASSESSOR OF AREA 01 - SAANICH/CAPITAL. and

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1 The following version is for informational purposes only, for the official version see: for Stated Cases see also: for PAAB Decisions SC 334 Fletcher Challenge v. AA01 FLETCHER CHALLENGE CANADA LIMITED v. ASSESSOR OF AREA 01 - SAANICH/CAPITAL and ASSESSOR OF AREA 01 - SAANICH/CAPITAL v. FLETCHER CHALLENGE CANADA LIMITED Supreme Court of British Columbia (A922979) Vancouver Registry Before the HONOURABLE MR. JUSTICE SHAW Mr. Peter D. Feldberg for Fletcher Challenge Canada Limited Mr. John E.D. Savage for Assessor of Area 01 - Saanich/Capital Vancouver, November 13, 1992 Classification Class 6 - Business and Other - Industry - Sawmills - Permanent Closure Closure Allowances - Valuation - Improvements - s Interpretation A sawmill was being cannibalized and slated for demolition. The equipment was sold off prior to September 30th of the year in question. The question arose as to the proper classification of the property since it was incapable of use as a sawmill as of the state and condition date. The Board agreed that the proper classification was Class 6, Business and Other, but valued the improvements based on the Major Industry Manual, the Board having no other evidence of value before it. HELD: 1. Where the closure of a property is permanent in character and there is no realistic prospect of it ever reopening it no longer is a plant which "can be used" within the meaning of s. 26.1(i) so as to constitute a major industrial property; 2. It is inappropriate on the facts of this case to value a property which was no longer a major industrial property pursuant to s In other cases a s valuation may be probative of market value and therefore a useful valuation guide. Reasons for Judgment December 21, 1992 This appeal and cross-appeal by way of case stated involve the classification and the valuation of the former Victoria Sawmill. I use the word "former" because the mill was shut down permanently and all its machinery of a production was sold shortly before the assessment date. The building

2 was still in place, but it was evident that it could never again be used as a sawmill. The owners' plans were to demolish the building and re-condition and sell the land. In fact the building was torn down within a few months after the assessment date. The Assessment Appeal Board changed the classification of the property from Class 4 (Major Industry) to Class 6 (Business and Other). Having re-classified the property to Class 6, the Assessment Appeal Board then determined the following values: Land $ 3,800,000 Improvements $ 1,889,069 Total $ 5,689,069 The company on its appeal contends that the Assessment Appeal Board erred in law in its method of valuation of the re-classified improvements, that is, the building that used to house the sawmill. There is no attack on the valuation of the land. Questions 1 and 2 of the Stated Case address the valuation of the building. The Assessor on the cross-appeal contends that the Assessment Appeal Board erred in law in reclassifying the property. Questions 3, 4 and 5 of the Stated Case relate to classification. The assessment and the classification were for the year It is common ground that the 1990 assessment must be based upon the physical condition of the land and improvements on September 30, 1989: s. 26(1) of the Assessment Act, R.S.B.C c. 21. It is convenient to first deal with the Assessor's cross-appeal on classification and then with the company's appeal on valuation. CLASSIFICATION The former classification of the property, Class 4 (Major Industry), is defined in the Prescribed Classes of Property Regulation, B.C. Reg. 438/81 (as amended by B.C. Reg. 99/88) as follows: 4. Class 4 property shall include only the property referred to in section 26.1(2) of the Act, that is to say (a) land used in conjunction with the operation of industrial improvements, and (b) industrial improvements. It will be seen that Class 4 refers to "industrial improvements" in s. 26.1(2) of the Assessment Act. Section 26.1(2) reads: (2) Notwithstanding section 26, there is established a class of properties consisting of (a) land used in conjunction with the operation of industrial improvements, and (b) industrial improvements.

3 The term "industrial improvement" is defined in s. 26.1(1). It reads in relevant part: (1) In this section... "industrial improvement" means an improvement that is part of a plant that is designed, built and can be used for the purpose of one or more of the following:... (f) manufacturing of lumber or other sawmill and planing mill products;... I have emphasized the words "can be used" as they play a determinative role in this dispute. The issue is whether, on the findings of fact of the Assessment Appeal Board, the building of the former Victoria Sawmill on September 30, 1989 was an "industrial improvement" as defined above. Central to this issue is whether the building could have been used at that time for the manufacturing of lumber or other sawmill and planing products. The definition of Class 6 in the Prescribed Classes of Property Regulation reads: 6. Class 6 property shall include all land and improvements not included in Classes 1 to 5 and 7 to 9. Class 6 is only relevant to this appeal in the sense that if the property does not come within Class 4, it is not disputed that it should properly be classified as Class 6. Thus, the real question is whether the Assessment Appeal Board erred in law when it determined that the property was no longer an "industrial improvement" and therefore not within Class 4 (Major Industrial). The findings of fact by the Assessment Appeal Board are critical to the outcome of this appeal. They appear at pp of the Board's decision, and read as follows: The Board takes particular note of the letter dated September 5, 1989 from the Appellant to the Respondent. The body of that letter is again reproduced: RE: Victoria Sawmill Closure Further to your conversation with Janice Miller, Manager, Lands and Properties, this letter confirms the permanent closure of the Victoria Sawmill. Machinery and equipment and various buildings will be auctioned off near the end of September this year. Any remaining structures will be demolished prior to year end. Please direct any further inquiries in respect of this matter to Ms. Miller. This letter provides the Assessor with much more information than is required to meet the provision of B.C. Regulation 378/88 Section 4(1). It states that the "Machinery and equipment and various buildings will be auctioned off near the end of September this year. Any remaining structures will be demolished prior to year end". In other words, the Assessor was informed that there would no longer be improvements which would meet the definition as set out in Section 26.1 of the Assessment Act. There should be a change in classification....

4 The Board finds that the Respondent was made aware not only that a sawmill was being closed down, but also that all the improvements were being removed. The physical characteristics were undergoing change and there no longer existed on the property a going concern that would meet the criteria of the definition set out in Section The Board finds that the Assessor had a duty to complete a Revised Roll. The Respondent argues that on September 30, 1989, the Appellant could have made a decision to put the sawmill back into operation at a future date. This might be possible but is very improbable. The Board finds this proposition to be unreasonable given the evidence before the Board. The undisputed reason for closing the sawmill after a recent $8 million upgrading was the inadequate log supply and inefficient resource utilization within the control of the Appellant. There is no dispute that the sawmill effectively closed and ceased production June 29, From that date onward, every action of the Appellant was consistent with the information supplied to the Respondent that the mill would be removed from the site. It would have taken a major dedication of resources and capital to change the direction indicated to the Assessor in the Appellant's letter of September 5, By September 30, 1989 all the machinery of production had been sold by way of an unreserved auction. Title to the machinery had passed. While some of the pieces of machinery may still have been on the property, that machinery no longer was in the control of the Appellant, and therefore, the Appellant could not at that time make the sawmill operable. Other factors added to the aggregation of reasons to conclude that this sawmill would never again operate: - The disconnecting of the main electrical power. - The preparation of a study and plan for environmental remediation of the site. - The cannibalizing of the control computers. - The disconnecting and preparation for removal of the transformers. - The undertaking to remove the asbestos so that the residual material might be removed. - The holding of an unreserved auction as opposed to a plan to selectively sell the physical assets at a regular market or to sell the facility as a going concern. The Board finds that the Respondent was aware that the sawmill would not be resurrected and that the property, therefore, as of September 30, 1989, would no longer meet the criteria of Class 4 (Major Industry). (the emphasis was done by the Board) Counsel for the Assessor, Mr. Savage, contended that the Board applied the test of whether the mill was a "going concern" and that in doing so the Board erred in law. Mr. Savage submitted that the criterion of "going concern" is not part of the s definition of "industrial improvement". Counsel for the company, Mr. Feldberg, argued that the Board's findings of fact, read as a whole, clearly supported the Board's ruling that as of September 30, 1989 the building of the former Victoria Sawmill was no longer an "industrial improvement". Mr. Feldberg submitted that the Board's finding that the former mill was no longer a "going concern" was simply part of the Board's factual description. I agree with Mr. Feldberg's submission. In my opinion, the expression "going concern" in the Board's decision must be read in the context of all the findings of fact. When they are read together, it becomes clear that the Board was basing its decision upon the criteria in s. 26.1

5 Mr. Savage's next contention was that the building was an "industrial improvement" because, he asserted, it could have been used as a sawmill as at the assessment date, September 30, I asked him how this could be so when all the machinery of production had been sold off. He replied that if the company bought back the production machinery it could have used the building as a sawmill. The issue centres upon the proper interpretation of the words "can be used" in the definition of "industrial improvement" in s. 26.1(1) of the Assessment Act. Mr. Feldberg, for the company, relied on Carolin Mines Ltd. v. Assessor of Area 16 - Chilliwack (3 September 1992), Vancouver CA (B.C.C.A.). In Carolin Mines a mill on a mining property had been put in "moth balls" for several years, and because of the lack of profitability of the ore body and inefficiencies of the mill, there was no real prospect of the mill being re-opened in the foreseeable future. In issue was whether the mill was an "industrial improvement" within s of the Assessment Act. The Court of Appeal held that the Assessment Appeal Board erred in its interpretation of s when it found the mill was an "industrial improvement". The court remitted the assessment to the Assessment Appeal Board to reconsider its findings in accordance with the court's opinion. Goldie J.A. for the court said at pp : "The final antecedent requirement is that the plant in question must be capable of functioning ("can be used") for the purpose of treating this particular ore body. The evidence is that the plant is mothballed. While this suggests a state of preservation consistent with future use its past use in respect of the treatment of this particular ore body has never been successful, and as the plant now stands, never will be successful. It took Carolin the better part of 3 years to discover this mill could not perform its intended function. It failed to recover something like 50% of the gold occurring in a low grade ore body and what was recovered was sold at a loss. In my view of the record before us, this is not a plant that "can be used", in the sense those words occur in the definition of "industrial improvement", for the milling of the Carolin ore body." Further at p. 13: "In short, the evidence in the case at bar would support the conclusion the Carolin plant was designed and built to treat an ore body that does not exist at this mine and so cannot be used in any commercial sense to treat the Carolin ore body. Such a conclusion would exclude the plant in question from the definition of "industrial improvement". And at p. 17: "... The words "and can be used" in the definition of "industrial improvement" have, in the case of idle plant, a prospective meaning. If the plant was designed, built and operated with respect to an ore body and ceases operation because the market value of the end product has made operation unprofitable that alone would not, in my view, remove it from the prospective operation of "can be used". The prospective operation of the definition is excluded, however, where there is a factor affecting profitability which is permanent in character. Such appears to be the case here." What I draw from Carolin Mines is that the words "can be used" in the context of s. 26.1(1) connote a sense of commercial reality. Thus, when the closure of a sawmill is permanent in character and there is no realistic prospect of it ever re-opening, then it is no longer a plant that "can be used" for a sawmill. In my opinion the reasoning of the Court of Appeal in Carolin Mines is applicable to the facts of the present case. It is clear on the findings of fact of the Assessment Appeal Board that the

6 building's life as a sawmill was ended and that this occurred before September 30, The mill was closed, its production machinery was sold off, its employees let go and the building was slated to be destroyed by the end of just to name a few of the indicators that the mill was permanently finished. Accordingly, I find that the Assessment Appeal Board was correct in holding that the classification of the property should be changed from Class 4 (Major Industry) to Class 6 (Business and Other). The questions posed on the classification issue were: 3. Did the Assessment Appeal Board err in law in its determination that the property did not meet the criteria of Class 4 Major Industry? 4. Did the Assessment Appeal Board err in law in finding that there should be a change in classification based on the Assessor being informed that the assessable structures would be demolished by year end? 5. Was the Board's conclusion that the property subject to the appeal no longer fell within the meaning of industrial improvements as set out in Section 26.1 of the Assessment Act a conclusion which could reasonably be entertained on the evidence in this appeal? My answers are: 3. No. 4. This question need not be answered because the Board's decision was more broadly based than the one fact set out in this question. 5. Yes. VALUATION The Assessment Appeal Board set the "actual value" of the building at $1,889,069. The reasons given by the Board in its decision were quite short. The Board said: The Board, however, finds that the buildings were not removed by September 30, They were on the property, written down in value, and had that value as of September 30, It was argued that they had no value. The Board noted that purchasers of major items had until November 10, 1989 to remove those items. The buildings, therefore, had some utility at September 30, There are two points I should dispose of before I address what is really in issue. The Board's decision says that there was some utility remaining in the building for the short space of time (41 days) between September 30, 1989 and the date by which the purchasers were required to remove the equipment they had purchased. The inference is that the building had utility as a storage place for the sold equipment until its removal. There was no evidence to suggest that this kind of utility was worth $1,889,069, or any amount of substance. The Board's decision further stated that the company had "written down" the building's value and that it "had that value" on September 30, Counsel for the company submitted that there was no evidence to support this finding, and counsel for the Assessor did not suggest otherwise. I searched the transcript and found no such evidence. In my opinion, the Board erred in law in making these findings without supporting evidence.

7 How the Board actually arrived at its assessment of the building is revealed in the Stated Case, rather than the Board's decision. In the Stated Case, the following appears: The Board found that the improvements had some utility at September 30th, 1989 and directed that the 1990 Assessment Roll be amended as follows: Land $3,800,000 (Class 6) Improvements $1,889,069 (Class 6) Total $5,689,069 The Board, having no other value presented to it, accepted the value for improvements recommended by the Assessor which had been calculated by determining the cost of the "industrial improvements" pursuant to the Major Industrial Properties manual prescribed pursuant to s of the Assessment Act less depreciation of 90% of that cost pursuant to s. 4 of the B.C. Regulation 379/88. It is apparent from the foregoing that the Board based its valuation upon an assessment made by the Assessor under s of the Assessment Act and B.C. Regulation 379/88 which was promulgated under s The Board's use of this method of assessment gives rise to the issues I will now address. Counsel for the company, Mr. Feldberg, contended that the Board erred by adopting the valuation method authorized by s of the Act rather than that mandated by s. 26. He submitted that there is an important difference between s. 26 and s. 26.1, that difference being that s. 26 has as its objective the assessment of market value, whereas s does not. The Assessor's position is that both s. 26 and s authorize assessments by the replacement cost approach and because that was the method used for the subject building, the Board made no error of law. I would observe initially that for the reasons I have given on the classification issue, the building was not an "industrial improvement" within s and therefore s was not the proper source of statutory authority for the assessment in this case. Rather, the assessment should have been made under s. 26. However, in view of the Assessor's submission that there was no error of law because both s. 26 and s authorize replacement cost valuations, it is necessary to examine the assessment schemes under s. 26 and s to see if there is validity to the Assessor's contention. I will first consider s. 26. The relevant subsections of s. 26 read: 26. (2) The assessor shall determine the actual value of land and improvements and shall enter the actual value of the land and improvements in the assessment roll. (3) In determining actual value, the assessor may, except where this Act has a different requirement, give consideration to present use, location, original cost, replacement cost, revenue or rental value, market value of the land and improvements and comparable land and improvements, economic and functional obsolescence and any other circumstances affecting the value of the land and improvements.

8 (3.1) Without limiting the application of subsection (1) to (3), where an industrial or commercial undertaking, a business or a public utility enterprise is carried on, the land and improvements used by it shall be valued as the property of a going concern. It is well established that the objective of s. 26 is to arrive at the market value of the property being assessed: Assessor of Area 6 - Courtenay v. Crown Forest Industries (1987), 3 B.C. Stated Cases (210) 1201 at (C.A.); Sun Life v. City of Montreal, [1952] 2 D.L.R. 81 at p. 94 (P.C.). Factors such as economic obsolescence and functional obsolescence are, when applicable, essential elements in the calculation of market value under s. 26. The need to take such obsolescence into account to achieve market value is illustrated by Assessor of Area 6 - Courtenay v. Crown Forest Industries, (supra). In that case the court dealt with a replacement cost valuation under s. 26. Esson, J.A. for the court said at pp and -13: "... The theory underlying replacement cost is the assumption that the facilities are capable of generating an adequate rate of return. That being so, Mr. Wallace submitted, there is no proper basis in the circumstances of this case for inferring that, at the relevant time, replacement cost would reflect the market value of the assets. Standing alone, there is logic in that basis of attack upon the use of the cost approach. It demonstrates why the Board erred in law in refusing to make allowances for external obsolescence and excess operating cost. Those are examples of what Mr. Johnstone, in the answer which I quoted earlier, referred to as a correction which can be made within the cost approach. From the outset, the assessor acknowledged that those corrections should be made. It was the Board, for reasons which seemed good to it, which refused to take them into account. The same course was apparently adopted in other cases with the result that appeals had to be taken. See, for instance, British Columbia Forest Products Limited v. Assessor of Area 03 - Cowichan Valley; Prince George Pulp and Paper Limited v. Assessor of Area 26 - Prince George, Unreported, Van. Reg. Nos. A and A841797, November 2, In that case, Gibbs J. held that the Board had erred in principle and thus in law in refusing to make such allowances in assessing the value of two pulp and paper mills for the 1983 taxation year. After noting that the allowance described as being for external obsolescence is also sometimes called an "economic allowance", Gibbs J. went on to describe it as follows at p. 6:... the Board failed to recognize that depressed market conditions are as much a "negative influence from outside the site" as are zoning regulations or inharmonious uses of adjacent properties. Secondly, it is inconsistent with the realities of the market place to conclude that a prudent purchaser looks only at capacity without regard to the market for the commodity which the capacity can produce. The allowance for excess operating costs differs from the "economic allowance" in that it relates to specific conditions in the mill being assessed. Generally, the excess costs are regarded as "excess" on the basis that the equipment is less efficient than that now available, particularly in requiring a larger number of employees to operate it. The assessor agrees there are such costs at this mill. These allowances can be seen as refinements to the replacement cost approach to allow it to reflect certain economic realities; and thus to remove some of its frailties as a means of arriving at market or exchange value."

9 The market valuation problems described in the above case, and in others that preceded it, were what prompted the amendment of the Assessment Act in 1987 to bring in s It reads in relevant part: 26.1 (1) In this section "cost of industrial improvement" means the cost of replacing an existing industrial improvement with an improvement that (a) has the same area and volume as the existing industrial improvement, (b) serves the same function that the existing industrial improvement was designed for or, where the existing industrial improvement is no longer used for that function, serves the same function that the existing industrial improvement now serves, and (c) is constructed using current, generally accepted construction techniques and materials for the type of improvement being constructed and, for the purposes of determining cost, the Lieutenant Governor in Council may prescribe manuals establishing rates, formulae, rules or principles for the calculation of cost; "industrial improvement" means an improvement that is part of a plant that is designed, built and can be used for the purpose of one or more of the following: (f) manufacturing of lumber or other sawmill and planing mill products; but the Lieutenant Governor in Council may exempt from this definition the industrial improvements in a plant or a class of plant that has less than a prescribed capacity and may prescribe different capacities for various types of plants. (2) Notwithstanding section 26, there is established a class of properties consisting of (a) land used in conjunction with the operation of industrial improvements, and (b) industrial improvements. (3) The actual value of properties to which this section applies is (a) the actual value of the land as determined under section 26, and (b) the cost of industrial improvements less depreciation that is at a rate and applied in a manner prescribed by the Lieutenant Governor in Council, and the Lieutenant Governor in Council may prescribe different rates and different manners of application of depreciation for individual properties or classes or types of properties. Under s there is no requirement that the assessment of industrial improvements be tied to market value. In Carolin Mines supra, Goldie, J.A. said at p. 3:

10 "We were told the legislature's purpose was to bring certainty to the assessment of major industrial undertakings. Mr. Justice Finch, in Westar Mining Ltd. v. Assessor of Area 22 - East Kootenay (1990), 4 B.C. Stated Cases (292) 1685 (B.C.S.C.), stated the point succinctly at p. 1691: The "industrial improvement" classification was enacted to provide for a system of evaluation for special purpose industrial plants to eliminate the difficulties associated with valuing those plants on a market basis." In Assessor of Area 08 - North Shore-Squamish Valley v. Saskatchewan Wheat Pool (1990), 4 B.C. Stated Cases (295) 1705 (B.C.S.C.), Parrett J. said at p. 1710: "The scheme presently established by the legislation does not contemplate a determination of market value." An assessment under s consists of first determining replacement cost, which may be calculated by manuals prescribed by regulation, and then deducting depreciation at rates also set by regulation. Depreciation rates are set by B.C. Reg. 379/88 and are 4 percent per annum for sawmills, up to maximum depreciation of 80 percent. The regulation also provides that the depreciation will be 90 percent if the mill is permanently closed. These rates apply no matter what the market forces may be. In this case the 90 percent depreciation was used, but without any attempt to take into account the economic realities of the inadequate log supply, the inefficiency of the mill, the sale of the operating machinery, and the fact that the mill would never again be operable without a major dedication of resources and capital - all facts found by the Board. As I said earlier, counsel for the Assessor took the position that because the Board chose a replacement cost approach to valuation and that method of assessment is authorized by both s. 26 and s. 26.1, the Board did not err in law. This submission is built upon the premise that "replacement cost" in s. 26(3) and "cost of replacing" in s. 26.1(1) are used in the same sense. I do not agree with this premise. Based upon the analysis that I have made of s. 26 and s. 26.1, I find that the replacement cost methods under s. 26 and s (as implemented by B.C. Reg. 379/88) are fundamentally different from each other because one aims at market value and the other does not. It follows, in my view, that it was an error of law to use the s method to achieve a s. 26 assessment on the facts of this case. I emphasize the words "on the facts of this case" because I do not mean to say that a s valuation can never be probative of market value. In certain cases it may well be a useful guide, provided that there is either evidence or fair inference to show that the s method is probative of market value. In the present case there was no such evidence, and, in my opinion, the Board's findings of fact are contradictory of any inference that the s valuation was probative of market value. The findings of fact to which I refer are in the passages in the Board's decision which I set out earlier in this judgment. I also refer to the following facts in the Stated Case: 6. The Board heard evidence from the parties with respect to the operation of the plant and found the following facts: i) the entire plant, which had operated as a sawmill, ceased operating June 29, 1989; ii) the Appellant wrote to the B.C. Assessment Authority (the Respondent) on September 5th, 1989, a letter which contained the following two paragraphs:

11 Further to your conversation with Janice Miller, Manager, Lands and Properties, this letter confirms the permanent closure of the Victoria Sawmill. Machinery and equipment and various buildings will be auctioned off near the end of September this year. Any remaining structures will be demolished prior to year end. iii) By September 30th, 1989 all the machinery of production had been sold by way of an unreserved auction. Title to the machinery had passed. While some of the pieces of machinery may still have been on the property, that machinery no longer was in the control of the Appellant, and therefore, the Appellant could not at that time make the sawmill operable. 7. The Board found the further following facts to support its conclusion that the sawmill would never again operate: - The disconnecting of the main electrical power. - The preparation of a study and plan for environmental remediation of the site. - The cannibalizing of the control computers. - The disconnecting and preparation for removal of the transformers. - The undertaking to remove the asbestos so that the residual material might be removed. - The holding of an unreserved auction as opposed to a plan to selectively sell the physical assets at a regular market or to sell the facility as a going concern. 8. The Board found that the Respondent was aware that the sawmill would not be resurrected and that the property as of September 30th, 1989 would no longer meet the criteria of Class 4 (Major Industry), and the Board found the correct classification should be Business & Other (Class 6).... For the foregoing reasons, I order that the Board's assessment of the former Victoria Sawmill building (the "improvements") be set aside and remitted to the Board for reconsideration in accordance with the opinions expressed in this judgment. With respect to the remission to the Board, I express the opinion that on the facts of this case, no replacement cost valuation at all, not even under s. 26, may be used. Although s. 26(3) gives broad scope for the use of various methods of valuation, including replacement cost, it is fundamental that the method or methods chosen must be rationally probative of market value. In my view, a replacement cost valuation would not be probative of market value in light of the findings of fact the Board has made. The premise which underlies the use of the replacement cost method, whether it be under s. 26 or s. 26.1, is that the building being valued is being used or is capable of being used for the purpose for which it is being valued. In Assessor of Area 6 - Courtenay v. Crown Forest Industries (supra) Esson J.A. said at pp :

12 "... The theory underlying replacement cost is the assumption that the facilities are capable of generating an adequate rate of return." In Carolin Mines (supra) Goldie J.A. said at p. 15: "The selection of reproduction cost new less depreciation for this purpose implicitly assumes the notional replacement is of a plant which now performs or is now capable of performing an economically viable function." And further at p. 16: "To arrive at actual value by determining the cost of replicating what has always been an economically dysfunctional plant would verge on the absurd." The Board's findings of fact indicate that the building was no longer a sawmill in any sense of the word. All the operating equipment was sold off and the building was slated to be demolished by the end of the year. The Board said in the Stated Case that the company "could not at that time [September 30, 1989] make the sawmill operable" and "the sawmill would never again operate". The Board's findings of fact in my opinion conflict with the fundamental premise of the replacement cost method of valuation and therefore preclude that method from being probative of market value. This, in my view, would be an error of law. See Edwards v. Bairstow [1956] A.C. 14 at p. 36 (H.L.). The two questions posed on the appeal on the valuation issue were: 1. Did the Assessment Appeal Board err in law by determining the actual value of the improvements subject to the appeal by reference to the valuation provisions applicable to "industrial improvements" when the Board had concluded that the improvements no longer satisfied the criteria for classification as "industrial improvements"? 2. Was the Board's conclusion that the improvements subject to the appeal had an actual value for the 1990 Assessment of $1,889,069 a conclusion which could reasonably be entertained on the evidence of the appeal? For the reasons set out above my answers to the two questions are: 1. Yes. 2. No. In result the company's appeal is allowed and the improvements assessment is set aside. The assessment of the improvements will be remitted to the Assessment Appeal Board to be dealt with in accordance with these reasons. When the case was before the Board the dominant issue was classification. In the background was the issue of what the valuation should be if the classification was changed to Class 6. Perhaps because of this, no valuer was called to give evidence of the market value, if any, of the building as of September 30, In the circumstances, the parties will be at liberty to tender, and the Board to receive, further evidence on the value of the building, if any. This is subject, of course, to the opinion I have expressed that the valuation method not be based on replacement cost. SUMMARY

13 The appeal of the company is allowed and the cross-appeal of the Assessor is dismissed. The assessment for the year 1990 of the building that was formerly Victoria Sawmill is set aside. It will be remitted to the Assessment Appeal Board to be dealt with in accordance with the opinions set out in these reasons for judgment. The company will have its costs of the appeal and the cross-appeal.