Executive Summary: Key Legal and Evidentiary Issues

• The appeal concerned whether the Commissioner lawfully treated the Deed price and Bank of Montreal Mortgage as the most reliable evidence of the golf course’s “actual value” (market value) for municipal assessment.

• The Court found a legal error in the Commissioner’s reasons because he did not adequately explain whether there were “special circumstances” affecting the 2023 sale that might mean the Deed price was not the product of ordinary market forces.

• The Court held it was a palpable and overriding error to treat the $7,500,000 Bank of Montreal Mortgage as reliable evidence of value without considering the underlying banking arrangements or whether the mortgage was collateral security.

• The Court confirmed that the choice among valuation approaches (sale of the subject property, comparative sales, income, and cost) is generally a question of fact, but the Commissioner is legally required to provide adequate written reasons under section 37(4) of the Assessment Act 2006 and principles of procedural fairness.

• The Court vacated the Commissioner’s decision and referred the matter back with directions that the Commissioner reconsider the Deed in light of “special circumstances,” treat the Mortgage as not reliable evidence of value on the record, and, if other valuation approaches are used, explain the reasons and assumptions.

• The Court allowed Bally Haly’s appeal and ordered that the Municipal Assessment Agency pay Bally Haly’s costs of the appeal on a Column 3 basis under the Rules of the Supreme Court, 1986, with the Agency—not the Towns—identified as the proper party to bear costs.                                                                     

  ---

Background and facts of the case

The property and municipalities involved
The Bally Haly Golf and Country Club Limited owns what was formerly known as the Clovelly Golf Course. The course covers about 235 acres and lies within three municipalities: the City of St. John’s and the Towns of Logy Bay–Middle Cove–Outer Cove (“Logy Bay”) and Torbay. The course has thirty-six golf holes: twenty-two in Logy Bay, five in Torbay, and nine in St. John’s. The St. John’s assessment was not in issue in this appeal.

The 2023 transactions and financing
On March 24, 2023, Bally Haly bought the course from Clovelly Golf Club Inc. for $9,365,081. At the same time, it mortgaged the course to the Bank of Montreal in the face amount of $7,500,000. It also sold its existing St. John’s golf course, known as Bally Haly, to Clovelly for $4,750,000. The Assessor and Commissioner accepted Bally Haly’s submission that $2,500,000 of the purchase price for the new course should be attributed to personal property (chattels and equipment), not assessable real property. After that deduction, the purchase price for the entire course, including buildings and fixtures, was $6,865,081.

Assessments for Torbay and Logy Bay

Under the Assessment Act 2006, the Municipal Assessment Agency, an independent agency, is responsible for real property assessments for municipal tax purposes and does not take direction from the Towns. The same Assessor assessed the parts of the course within Torbay and Logy Bay.

The Assessor determined that the “actual value” of the Logy Bay portion of the course was $3,300,000 and the Torbay portion $750,000. He said he based this on a “reduced cost basis,” and also observed that the value of the course within the Towns using a cost approach was $9,573,900.

He distributed the value among the three municipalities based on the number of holes in each. St. John’s had previously assessed its part at $525,000 and did not conduct a 2024 reassessment because it uses a two-year reassessment cycle, unlike the Towns’ one-year cycle. As a result, the 2024 value of the entire course including the St. John’s part, on the Commissioner’s decision, was $4,575,000, and if St. John’s were to adopt the Assessor’s approach in a later assessment, the implied value for the entire course would be $5,400,000. The 2023 assessment for the entire course was $2,100,000.

Bally Haly’s position was that the value of the entire course should be $2,400,000, based on its income and comparative sales appraisals. As summarized in the judgment, the 2024 assessment positions were:

• 2023 assessment – actual: $2,100,000 for the full course; $1,575,000 for Torbay and Logy Bay.

• 2024 assessment – Bally Haly position: $2,400,000 for the full course; $1,800,000 (initial table) or $1,650,000 (later table) for Torbay and Logy Bay, based on its methodologies.

• 2024 assessment – Commissioner’s decision: $4,575,000 for the full course; $4,050,000 for Torbay and Logy Bay.

• Assessment if St. John’s adopts the Assessor’s approach: $5,400,000 for the full course; $4,050,000 for Torbay and Logy Bay.

The appeal route and parties

Bally Haly appealed the Towns’ 2024 municipal assessments to a Commissioner under section 30 of the Assessment Act 2006. The Commissioner heard from the Assessor and from the appraiser, Jerome Kirkland, on Bally Haly’s behalf. The Commissioner upheld the Assessor’s valuation.

Bally Haly then appealed to the Supreme Court under section 39 of the Act, which permits appeals only on questions of law or jurisdiction. The Municipal Assessment Agency became a party to the appeals under section 39(4). The Towns did not participate in the Supreme Court proceedings; no one appeared on behalf of the Towns of Torbay or Logy Bay–Middle Cove–Outer Cove.

Valuation approaches and evidence before the Commissioner

Approaches recognized by the Court
The Court described five ways by which a true market valuation can be reached, as set out in an earlier decision: a recent free sale of the subject property, recent free sales of identical properties in the same neighbourhood and market, recent free sales of comparable properties, the price derived from revenue-producing possibilities (income), and depreciated replacement cost. It noted that the last three are usually referred to as the market data (comparative sales) approach, the income capitalization approach, and the cost approach. It further noted that sale data for the subject property is only appropriate where it is established, on a balance of probabilities, that the sale is a recent free sale with no special circumstances suggesting the price was not the product of ordinary market forces, and that one should be “very circumspect” in using a sale of the subject where it differs substantially from values obtained by other approaches.

Approaches actually used or considered

In this case, four approaches were discussed before the Commissioner:

• A recent free sale approach, based on the Deed and the Mortgage.

• A comparative sales approach prepared by appraiser Jerome Kirkland for Bally Haly.

• An income approach, also prepared by Kirkland.

• A cost approach prepared by the Assessor using Marshall & Swift (“M&S”) cost data.

Recent free sale approach – the Deed
The Deed from Clovelly to Bally Haly recorded consideration of $9,365,081 for the entire course. After both sides accepted that $2,500,000 of that amount was attributable to personal property, the resultant figure for the real property including buildings and fixtures was $6,865,081. Bally Haly argued that because it had sold its existing course to Clovelly for $4,750,000, this transaction should be considered in evaluating the effective purchase price and that there were “special circumstances” within the meaning of earlier case law that affected the sale.

Recent free sale approach – the Bank of Montreal Mortgage
Both the Assessor and the Commissioner also considered the $7,500,000 Bank of Montreal Mortgage. The Assessor stated, and the Commissioner appeared to accept, that it was “not typical for a bank to lend money on full value suggesting the value is in excess of $7,500,000.” There was no evidence that the Assessor or Commissioner had reviewed any underlying loan or banking documents related to this Mortgage.

Comparative sales approach (Kirkland)
Kirkland compared the new course to four other recent golf course sales in Atlantic Canada. The sales he considered showed prices ranging between $5,667 and $16,507 per acre, and between $47,222 and $108,333 per golf hole. Bally Haly covers 94.909 hectares (234.52 acres) and has thirty-six holes. Applying these comparisons, he concluded that the value of the entire course was $2,400,000, based on $10,000 per acre (rounded) or $66,667 per hole. By contrast, the Assessor’s value implied $23,077 per acre or $150,000 per hole. The Assessor did not adopt Kirkland’s comparative sales conclusions and provided reasons distinguishing them, which the Commissioner recited but did not ultimately rely on as a basis for his decision.

Income approach (Kirkland)
Under the income approach, Kirkland converted expected future income from the course into present value. He used the net operating income after expenses but before mortgage and taxes, and included a rate of return comparable to investors in similar properties. He used income from the old Bally Haly course, with variations to reflect differences between the courses, and reached a value of $2,200,000 for the entire course. The Assessor did not consider an income approach in his own assessment because, as he told the Commissioner, Bally Haly had not provided income statements to support the necessary assumptions at the assessment stage.

Cost approach (Assessor)
The Assessor prepared a cost approach using Marshall & Swift cost data for buildings, land, and improvements. The record before the Court contained only four-page summaries of each cost report. According to the Assessor, the approach:

• Showed an overall cost value of $9,573,900 for the course within the Towns (excluding the St. John’s portion).

• Assumed a land cost of $18,277 per acre.

• Allocated $6,367,200 to buildings and other assessable real property improvements.

The Commissioner noted the Assessor’s view that the cost approach was appropriate and that the Assessor said the property was assessed “on a reduced cost basis.” The Court observed that the Commissioner did not say that he relied on the cost report in reaching his decision.

Submissions and the Commissioner’s reasons

Submissions by Bally Haly and Kirkland
Kirkland appeared for Bally Haly and prepared a brief. According to the Commissioner’s minute, he:

• Outlined the reasons for appeal and his appraised value.

• Said the Assessor had based the appraisal on recorded land value that included chattels and equipment, which are not assessable.

• Provided a list of chattels and equipment included in the sale, valued at $2,500,000.

• Provided a copy of the Deed of the old course from Bally Haly to Clovelly for $4,750,000.

Kirkland told the Commissioner that the $9,365,081 Deed consideration was not a reliable indicator of actual value and that the sale was not competitive and not representative of an open market. He said there were “special circumstances” surrounding the sale, including:

• Bally Haly was motivated to replace its course to satisfy its membership’s needs, and its old course was adversely affected by neighborhood developments.

• Bally Haly was under “undue stimulus” because it needed a new location for its golf operations.

• Neither property was on the open market.

• The transaction was a swap of properties.

He valued the course at $2,400,000 based on the comparative sales approach and, under the income approach, at $2,200,000.

Submissions by the Assessor

The Assessor’s written brief, as summarized by the Commissioner, stated that:

• He assessed the property “on a reduced cost basis.”

• He understood that income approaches had been used in the past but did not use an income approach this time because he did not receive income information.

• He treated $2,500,000 as the value of chattels and equipment and deducted that from the Deed consideration.

• He believed the limited market for golf course purchasers, and the circumstances of the transaction, supported the view that this was a good sale. He referred to community talk about both parties being interested in a swap and said it was in the best interest of both. One party could continue the golf business without changes to its current course to satisfy neighbours’ concerns, and the other wanted to leave the golf business to focus on potential land development.

• He considered it “not typical” for a bank to lend money without an appraisal, and he believed that lending up to $7,500,000 suggested a value in excess of that figure, although Bally Haly advised they were not aware of an appraisal.

• He valued the land at $18,277 per acre within the Towns, with the balance of $6,367,200 attributed to buildings and other improvements, leading to an overall cost value of $9,573,900.

• He concluded that his assessment of $3,300,000 for Logy Bay and $750,000 for Torbay (and implicitly $5,400,000 for the entire course) was “very conservative and likely an underassessment.”

Commissioner’s reasons

In his written decision, the Commissioner:

• Noted that the information before him included the Deed of conveyance for the subject property at $9,365,081 and a Mortgage for $7,500,000.

• Noted that the Assessor made an allowance for the equipment included in the sale, having considered all the information.

• Stated: “I find that the most reliable evidence of the value is the actual sale document and the subsequent mortgage.”

• Agreed that the value of the full property, including buildings and other assets, contributed to the value of the portions of land in each municipality and was shared proportionally.

• Repeated the Assessor’s statements about the limited market for golf courses, the interests of the parties in swapping properties, and each party’s business motivations.

• Concluded that the values of $3,300,000 for Logy Bay and $750,000 for Torbay were fair.

Standard of review and duty to give reasons

Scope of appeal and standard

Under section 39 of the Assessment Act 2006, Bally Haly could only appeal on questions of law or jurisdiction. The Court noted that, according to earlier authority, a commissioner has authority to accept or reject valuation approaches and that such choices are generally factual determinations not subject to appeal. The Court therefore did not second-guess the Commissioner’s selection among valuation methods or the weight given to each as a matter of fact.

However, the Court explained that this did not relieve the Commissioner of the obligation to provide adequate reasons. It identified the issue on this appeal as whether the Commissioner gave adequate reasons for upholding the assessments, an issue of procedural fairness to be reviewed on a correctness standard. The Court referred to the requirement in section 37(4) of the Assessment Act 2006 that a commissioner “shall provide reasons in writing,” and to jurisprudence describing how the content of the duty of procedural fairness depends on factors such as the nature and importance of the decision and the parties’ legitimate expectations.

Applying these factors, the Court found that the Commissioner’s decision was important to Bally Haly because it determined how its property would be taxed, and that Bally Haly would expect to be told how the Towns would tax its property and why. The Court adopted the view that reasons must be transparent, justifiable, and intelligible so that the parties can understand whether and how the decision-maker decided the issue, and that a reviewing court must consider the reasons in light of the record and context, not against a standard of perfection.

Legal error in the Commissioner’s treatment of the Deed

The Court recognized that the Commissioner was entitled to use the Deed’s sale price as an indicator of value and that Bally Haly could not appeal that choice as such. But the Court held that the Commissioner had to consider whether the sale was a recent free sale with no special circumstances, as defined in earlier case law, that would suggest the price was not the product of ordinary market forces.

The Court noted that it knew the Commissioner had rejected Bally Haly’s contention about special circumstances because he found the Deed to be the most reliable evidence. However, when reviewing the record, the Court examined whether it could tell why he had reached that conclusion. The Commissioner’s only reasons on this point were that he adopted the Assessor’s statements about a limited market for golf courses, community talk of a swap in both parties’ best interests, and the parties’ respective goals regarding maintaining or leaving the golf business.

The Court found that it could not determine from those statements whether the Commissioner had concluded that these circumstances were not “special circumstances” affecting the sale. It stated that the Commissioner did not say so and that it did not know whether the Commissioner considered any subjective elements of value or special circumstances that might reduce the “actual value” below what Bally Haly had paid. The Court therefore held that the Commissioner committed a legal error by failing to give adequate reasons on the issue of special circumstances and the use of the Deed as the most reliable evidence of value.

Palpable and overriding error in the Commissioner’s treatment of the Mortgage

The Court next addressed the Commissioner’s reliance on the $7,500,000 Mortgage as part of the “most reliable” evidence of value. It noted that the Commissioner made this finding without referring to any of Bally Haly’s other loan documents and that there was no evidence he or the Assessor had seen them. The Court pointed out that real property mortgages are often “collateral,” securing a borrower’s entire debt and not only the value of the land, and that there may be no correlation between a property’s value and the face value of a collateral mortgage.

Because the Commissioner had concluded that the Mortgage was a reliable indicator of the course’s value without considering or referring to evidence of the underlying banking arrangements, the Court held that this was a palpable and overriding error. The error was apparent from the record and could have affected the outcome, even though the Court could not determine what relative weight the Commissioner gave to the Mortgage as compared to the Deed.

Directions on remittal and other grounds

Directions to the Commissioner

Under section 39(5) of the Assessment Act 2006, the Court had to either confirm or vacate the Commissioner’s decision. Having found legal error, it vacated the decision and referred the matter back to the Commissioner with its opinion on the legal issues. The Court directed that:

• The Commissioner must consider whether Bally Haly has proved, on a balance of probabilities, that the sale was not a free sale because of special circumstances suggesting that the Deed price was not the product of ordinary market forces.

• Based on the evidence in the record, the Mortgage is not reliable evidence of Bally Haly’s value.

• If, because of the Court’s decision, the Commissioner decides to consider another valuation approach, he should give reasons why that is so.

• If the Commissioner concludes that the cost approach is relevant to his reconsideration, he might consider it prudent to explain the approach and its assumptions.

Other grounds of appeal

The Court stated that it did not need to deal with the other two grounds of appeal relating to acceptance of the cost approach and rejection of the income approach. It noted that the Commissioner had mentioned the cost approach and the comparative sales approach but had not clearly relied on them as the basis for his decision; instead, he stated that the most reliable evidence was the Deed and the Mortgage. Because those grounds were subsumed in the main legal error regarding reasons and reliance on the Deed and Mortgage, the Court did not further address them.

Costs and final outcome

Costs order

Bally Haly’s appeal to the Supreme Court succeeded. The Court ordered that the Municipal Assessment Agency pay Bally Haly’s costs on a Column 3 basis under the Rules of the Supreme Court, 1986. It rejected the Agency’s argument that an earlier Court of Appeal decision prevented an award of costs to a taxpayer on a successful appeal under the Assessment Act 2006. The Court noted that in that earlier case, the taxpayer’s appeal had failed, the Court of Appeal made no order for costs on appeal, and it did not vary the costs order from the Trial Division. The Court stated that the earlier case supported the view that the proper party to pay any costs is the Agency and not the towns.

Disposition

In its formal disposition, the Court allowed Bally Haly’s appeal, vacated the Commissioner’s decision, and referred Bally Haly’s appeal back to the Commissioner with the opinions set out in paragraphs [90] to [93] of the judgment. It ordered that the Municipal Assessment Agency pay Bally Haly’s appeal costs on a Column 3 basis. The judgment does not state any specific dollar amount.