DECISION
2016 NSUARB 88
M02295
NOVA SCOTIA UTILITY AND REVIEW BOARD
IN THE MATTER OF THE EXPROPRIATION ACT
IN THE MATTER OF AN APPLICATION by PEV INTERNATIONAL RESEARCH &
DEVELOPMENT INCORPORATED to determine compensation, including legal and
other costs reasonably incurred, to be paid to it by the MUNICIPALITY OF THE
DISTRICT OF GUYSBOROUGH, in respect to the expropriation of land situate at Route
#316, Goldboro, Municipality of the District of Guysborough, Nova Scotia
BEFORE:
Roberta J. Clarke, Q.C., Member
COUNSEL:
PEV INTERNATIONAL RESEARCH & DEVELOPMENT
INCORPORATED
Victor J. Goldberg. LL.B.
Michelle M. Kelly, LL.B.
John Boyle, Articled Clerk
MUNICIPALITY OF THE DISTRICT OF GUYSBOROUGH
Robert G. Grant, Q.C.
Tipper McEwan, LL.B.
Michael Maclsaac, Articled Clerk
HEARING DATES:
October 21-22, 2015
November 12, 13, 16-20, 24-27, 2015
December 10, 2015
DECISION DATE:
May 30, 2016
DECISION:
$149,500 compensation is ordered.
Document: 246581
-2Table of Contents
I
II
III
INTRODUCTION ...................................................................................................... 3
ISSUES .................................................................................................................... 5
EVIDENCE ............................................................................................................... 6
The Main Characters ........................................................................................ 12
The Chronology and Agreements .................................................................... 16
The Appraisals ................................................................................................. 46
a)
Altus Group (Earle) ....................................................................................... 46
b)
MacKay Group ............................................................................................. 47
c)
Ingram Varner .............................................................................................. 48
d)
Turner Drake ................................................................................................ 50
e)
McNally (Telford) .......................................................................................... 51
f)
Altus Group (Hardy) ..................................................................................... 55
The Engineers/Project Feasibility ..................................................................... 68
a)
James P. Lewis ............................................................................................ 69
b)
Phillip Knoll ................................................................................................... 72
IV SUBMISSIONS....................................................................................................... 75
Claimant ........................................................................................................... 75
Respondent ...................................................................................................... 84
V ANALYSIS AND FINDINGS ................................................................................... 90
VI CONCLUSION...................................................................................................... 111
Document: 246581
-3I
INTRODUCTION
[1]
How much is a parcel of land in Goldboro, in relatively remote and rural
Guysborough County, Nova Scotia, worth? This question has received much attention
from the Nova Scotia Utility and Review Board (“Board”) over the past eight years. The
reason for the attention stems from interest in potential industrial development in the area,
and in particular, with respect to natural gas.
[2]
As a result of an expropriation by the Municipality of the District of
Guysborough (“Municipality” or “MODG”), the Board had to consider the value of the
interest of James Irving Warner, the fee simple owner of the parcel, which, after a lengthy
hearing in 2008, it set at $1,340,000 (See Re Warner, [2009] NSUARB 130 (“Warner
decision”).
[3]
The Board’s task did not end there, however, as another claim for
compensation for an interest in the same land was filed on October 1, 2009, by PEV
International Research & Development Incorporated (“PEV”). It claimed in excess of $47
million in compensation for its interests.
Subsequently, PEV withdrew its claim for
business loss and disturbance, and amended its claim to an amount to be quantified by
the Board. At the hearing on the merits, the Board understood $8,986,000 to be the
amount of the claim, together with interest and costs.
[4]
Between the time when PEV filed its claim and the hearing on the merits,
there were a number of preliminary hearings. In particular, a hearing in 2010 addressed
disclosure as well as a recusal motion regarding Wayne D. Cochrane, Q.C., the Board
member who was responsible for the Warner decision. Board Member Cochrane made
a number of findings, some of which will be discussed elsewhere in this Decision. He
refused to recuse himself (See Re PEV International Research & Development
Document: 246581
-4Incorporated, [2010 NSUARB 133]. The hearing on the merits was, however, heard by a
different Board member.
[5]
In 2011 the Municipality asked the Board to determine whether PEV had an
interest in the land which was compensable under the Expropriation Act, R.S.N.S. 1989,
c. 156, as amended (“Act”). The Board found that, as a result of a Consent Order issued
by MacLellan, J., in a Supreme Court proceeding to determine who had “… any right,
estate or interest in the land…” under s.17 of the Act, PEV was an owner of an interest in
the land by virtue of an agreement with Mr. Warner. PEV, therefore, had a compensable
claim (See Re PEV International Research & Development Incorporated, [2012] NSUARB
12). This decision was upheld by the Court of Appeal (see 2012 NSCA 87).
[6]
The Board then proceeded to set a timeline leading to hearing dates in June
2014. These dates were adjourned to December 2014, as PEV attempted to retain new
counsel to represent it. Hearing dates were further adjourned to February 2015, due to
the unavailability of certain witnesses for the Respondent.
The hearing was then
adjourned to May 2015, and further adjourned to November 2015, with arrangements, by
agreement of the parties, to hear the evidence of one witness in October 2015. Ultimately,
PEV’s claim was heard over a period of 16 days.
[7]
In the course of the hearing, PEV was represented by Victor J. Goldberg,
LL.B., Michelle M. Kelly, LL.B., and John Boyle, Articled Clerk. Robert G. Grant, Q.C.,
Tipper McEwan, LL.B., and Michael MacIsaac, Articled Clerk, represented the
Municipality.
[8]
Witnesses for PEV were: Paul E. Vandall, the principal of PEV; his
associate, James L. Ferguson; Seni Dosunmu, a citizen of Nigeria; Paul Crissman, former
President of Statia Terminals Canada (“Statia”); James Lewis, P. Eng., who was qualified
Document: 246581
-5to give opinion evidence on the development, concept refinement, economic analysis,
design, construction, operation, and Code compliance of LNG terminals; and Charles
Hardy, of Altus Group, who was qualified to give opinion evidence regarding real estate
values.
[9]
Evidence on behalf of the MODG was given by Robert Telford, of McNally
Land Services Ltd., a qualified land appraiser; John Ingram, of Ingram Varner and
Associates, who was qualified to provide opinion evidence regarding real estate values;
Phillip R. Knoll, P. Eng., who was qualified to give opinion evidence “on the development
of energy infrastructure, the development of major natural gas projects, and the regulatory
context faced by the development of natural gas projects and qualified to give opinion
evidence on the development of energy infrastructure projects, and the evaluation of the
viability and economic feasibility thereof;” and Gary Cleary, the Deputy Chief
Administrative Officer (“CAO”) of the Municipality.
II
ISSUES
[10]
Under the Act, the Board is tasked to “…determine any compensation
where the parties have not agreed on the amount of compensation” when an
expropriating authority takes an owner’s land (s. 47). Sections 3(1)(i) and (j) of the Act
provide:
(i)
land;
“land” includes any estate, term, easement, right or interest in, to, over or affecting
(j)
“owner” includes a mortgagee, tenant, registered judgment creditor, a person
entitled to a limited estate or interest in land….. [Emphasis added]
[11]
For ease of description, from time to time in this Decision, the Board refers
to the particular land at Goldboro which lies at the heart of PEV’s claim as the “Warner
Document: 246581
-6lands” or the “Warner property”. The Consent Order issued by MacLellan, J. on April 27,
2007, uses the term “the Subject Property” to refer to it:
IT IS ORDERED THAT:
1.
Warner is an owner of lands as defined in Section 3(1) of the Expropriation Act,
specifically, Warner is the owner of a fee simple interest in the Subject Property for the
purposes of entitlement to payment under the Expropriation Act.
2.
PEV and Warner are owners of lands as defined in Section 3(1) of the
Expropriation Act, specifically, PEV and Warner are owners of an interest in the Subject
Property, by virtue of an agreement dated July 18, 2005 between Warner and PEV, for the
purposes of entitlement to payment under the Expropriation Act. [Emphasis added]
[12]
Therefore, the issue which the Board must decide in this matter is the
payment due under the Act to PEV for its interest in the Warner property held by virtue of
the agreement. This requires the Board to make a finding on what PEV’s interest is, and
its value, as of the effective date of the expropriation, i.e., February 6, 2006.
[13]
For the reasons set out in this Decision, the Board finds that the payment
which PEV is entitled to under the Act is $149,500. PEV is entitled to interest and costs,
and the Board reserves jurisdiction to receive submissions on both from the parties, if
they are unable to agree on these elements. Further, the Board notes that the statutory
payment already made by the MODG to PEV is to be set off against the payment and
interest to which it finds PEV is entitled.
III
EVIDENCE
[14]
At this point, the Board considers a description of natural gas and its
components as it understood the evidence, as well as the industry, is appropriate. Mr.
Goldberg explored the characteristics of natural gas with Mr. Vandall at some length:
MR. VANDALL: … So liquid natural gas is a liquid form of natural gas, and it represents
1/600th -- or, in other words, this represents 1 cubic feet of liquid natural gas is equivalent
to 600 cubic feet of natural gas at room temperature.
MR. GOLDBERG: So the natural gas is what’s taken out of the ground?
Document: 246581
-7-
MR. VANDALL: Yes.
MR. GOLDBERG: And it’s -- and the LNG -- because I thought natural gas liquid to begin
with so LNG liquefied natural gas --MR. VANDALL: It comes out of the ground as natural gas -- in vapour form, generally -and it’s compressed, so depending on the pressure it can have different volumes. If this is
-- represents the volume at atmospheric pressure, typically if you have a pipeline, for
instance, like Maritimes Northeast, for instance, the volume -- the equivalent volume in
pipeline might be this sort of size. It’s roughly one-tenth of its volume at atmospheric
pressure.
THE CHAIR: I was just going to say, Mr. Vandall, for the record, of course, your chart is
not visible on the record and so you probably want to describe a little bit more --MR. VANDALL: Okay.
THE CHAIR: --- what it is that...
MR. VANDALL: What I’ve drawn, I’ve drawn a circle representing natural gas at
atmospheric pressure, and I’ve drawn a circle that’s one-tenth the size to represent what
the gas would have as a volume in a pipeline such as the Maritimes Northeast.
MR. GOLDBERG: Just a suggestion, there’s different colour pens, so if you’re going to do
any more drawing you can use different colours. And that way, for the record, it’s --MR. VANDALL: Okay.
MR. GOLDBERG: --- clearer. But you’ve got -- so far you’ve got two circles and a little
dot.
MR. VANDALL: Yeah. So that’s LNG.
MR. GOLDBERG: So you’re now putting the dot in red and that’s -- you’re saying that’s
LNG.
MR. VANDALL: CNG, because it’s kind of generic in a sense because it’s -- CNG just
stands for compressed natural gas. You can compress it to different levels. And I just
gave you an example of the kind of pressures that are in a pipeline that we have
domestically. But you can also -- I mean, when it comes out of the ground it can come out
at different pressures, depending on the pressures that are down in the well, below the sea
floor or before the ground level. And depending on that particular pressure, the volume
could be smaller or larger, depending on the relative pressure.
MR. GOLDBERG: And how do you compress natural gas?
MR. VANDALL: You compress it with a compressor.
MR. GOLDBERG: Okay. And what does that do, exactly.
MR. VANDALL: Well, you pick a pressure that you want to compress this to and you put it
in the system and reduce pressure.
MR. GOLDBERG: Okay.
MR. VANDALL: Or you increase pressure.
Document: 246581
-8-
...
Now, -- so LNG, is that compressed?
MR. VANDALL: LNG is not compressed.
MR. GOLDBERG: It’s liquefied?
MR. VANDALL: It’s liquefied.
MR. GOLDBERG: Well, what’s the difference?
MR. VANDALL: Well, other than the fact that it’s a much smaller volume, 600 times less,
it’s at a temperature of minus 160 degrees centigrade.
MR. GOLDBERG: Okay.
MR. VANDALL: So it’s very cold; extremely cold. You thought the winter was cold in Nova
Scotia, this is a lot colder.
MR. GOLDBERG: Okay. So there’s also some terminology, “Natural gas liquids.”
MR. VANDALL: Okay.
MR. GOLDBERG: How does that relate to liquefied natural gas; is that different?
MR. VANDALL: Yes.
...
MR. VANDALL: In the market, there’s two principal kinds of LNG that you can purchase.
One’s called, “Dry” --MR. GOLDBERG: ... So you’ve now drawn a second circle below your original circle.
...
Is that correct?
MR. VANDALL: That’s correct.
MR. GOLDBERG: Okay, so go ahead.
MR. VANDALL: So there are two kinds of -- principal kinds of LNG. There’s a dry form;
this means there’s no natural gas liquids in the LNG. There’s also a wet form. The wet
form has natural gas liquids in it. And why does it have them in it? It’s because they’re not
removed before the natural gas is liquefied, and the content of the natural gas liquids is
dependent on the characteristics of the particular wells that produce the natural gas.
But, typically, in the market at this particular time, the amount of liquids represented
something like 7 or 8 percent of the total volume of LNG in the market. It varied a little bit
depending on where you came from.
...
Document: 246581
-9MR. GOLDBERG: … So when you say 8 percent, is that -- and, again, if I’m asking
questions that are obviously naïve -- I mean, is that 8 percent of, what, all natural gas had
liquids or 8 percent of wet?
MR. VANDALL: Just 8 percent of the wet LNG.
MR. GOLDBERG: So of the wet LNG, 8 percent was liquids.
MR. VANDALL: That’s correct.
MR. GOLDBERG: Okay.
MR. VANDALL: Liquid natural gas liquids. Liquids.
MR. GOLDBERG: Liquids, okay. And how does that relate to BTUs, or does it?
MR. VANDALL: Okay. The BTU stands for “British Thermal Units” and it’s a measure of
the energy content of the liquid.
Most users of LNG at -- in 2005 were interested in putting regasified -- all that
means is that you raise the temperature of the liquid natural gas from 160, you brought it
back to atmospheric temperature and pressure.
They wanted to regasify it, bringing it back to those temperatures and pressures,
and just put it in a pipeline and send it to a market. So they were interested principally in
having it in this dry form. They didn’t want these liquids. The liquids cause problems with
pipelines. The reason why they cause problems is because the liquids cause acceleration
to the corrosion in pipelines and it causes havoc with people’s units for heating their homes
or their industries or power plants if the natural gas were going to power plants. So you
had to remove most of these liquids -- natural gas liquids from the regasified LNG in order
to meet the pipeline requirements and the demands of customers.
MR. GOLDBERG: So what type of liquids are you referring to?
MR. VANDALL:
condensates.
They consist principally of three things; propanes, butanes, and
Natural gas, the vast majority of it, is methanes. And the natural gas liquids;
propanes, butanes, and condensates, have a market of their own and they can be sold
separately and obviously have value.
MR. GOLDBERG: And so the wet -- and correct me when I’m wrong there; the wet natural
gas produces these liquids.
MR. VANDALL: Yes.
MR. GOLDBERG: Which are not good to go into a pipe because they increase corrosion
and cause other problems. But they themselves have a market.
MR. VANDALL: Absolutely.
MR. GOLDBERG: And what type of market, generally, would those liquids have?
MR. VANDALL: Well, there’s a variety of markets, depending on what product you’re
talking about. Propane can clearly be used on its own for heating. Butanes are usually
used in the refining process for gasoline. So they’re used in other processes, particularly
butanes. Propanes generally are used on their own.
Document: 246581
- 10 -
There’s also ethanes; I forgot to mention that. Ethane’s another natural gas liquid
and ethanes were generally used as feed stock for ethylene plants; these are
petrochemical plants.
MR. GOLDBERG: What do you mean, “feedstock”?
MR. VANDALL: Feedstock just means that’s the input or the raw product that goes into
the plant and it’s processed to create ethylene. A petrochemical or an ethylene plant can
actually use all types of liquids as feedstock but ethane generally was the preferred
feedstock.
MR. GOLDBERG: Okay, thank you. And so regasification is just the technique that takes
it back to...
MR. VANDALL: Brings it back to atmospheric and temperature and pressure. So it’s just
heating it up, essentially.
MR. GOLDBERG: And, again, the BTU; where is that? Is that a relevant factor; BTU?
MR. VANDALL: BTU -- okay. BTU is a relevant factor because you want to match the
constraints of the pipeline with respect to BTUs. In other words, Maritimes Northeast has
a certain BTU constraint and you needed to match that constraint before they would accept
your regasified natural gas.
MR. GOLDBERG: So when you regasify natural gas, can you influence the BTU?
MR. VANDALL: You can modify the BTU content in two or three ways. One, you can strip
out the natural gas liquids by using a demethanizer or a gas plant, or you can inject nitrogen
or oxygen.
MR. GOLDBERG: So by stripping out the liquids, that reduces the BTU?
MR. VANDALL: Yes.
MR. GOLDBERG: So if one’s bringing in, as an example, to the Maritimes Northeast
Pipeline wet LNG, you would normally have to strip that -- the liquids out to allow for the
appropriate BTU.
MR. VANDALL: Yes.
[Transcript, pp. 215-226]
[15]
Mr. Hardy also provided an overview in his report, based on his research:
Overview of LNG
LNG is natural gas in a liquid form, usually temporarily converted for ease of transport.
Natural gas cooled to a temperature of -161 Celsius becomes a clear and odorless liquid
that is 1/600 the volume of its gaseous state. LNG is also non-toxic and non-corrosive.
The LNG supply chain consists of four interdependent elements:
1. The first stage relates to exploration and production where prospective natural gas
resource sites are evaluated and capital is generated to support site acquisition, drilling
and production.
Document: 246581
- 11 2. The next stage, liquefaction, allows the natural gas to meet pipeline specifications by
its transformation into cryogenic liquid.
3. In the third stage, shipping, LNG tankers are employed to transport the LNG within a
special containment system which is specially designed to prevent leakage in an
accident; the tankers also utilize portions of the LNG they are transporting to keep it in
its liquid state.
4. In the last stage, receiving, the LNG is returned to its natural gas form through a
process known as regasification where it is then stored and transported for its intended
use.
...
The LNG Industry as it Was as of the Effective Date
…The LNG industry has been steadily growing since the first LNG flowed from Algeria to
Europe in 1964. The LNG trade grew at an annual rate of about 8% since the late 1970’s.
While the major established markets of Japan and Korea were showing signs of maturity,
new and developing markets in the US and Europe were expected to support continued
demand growth at an annual rate of 6 to 10 percent which would double the size of the
industry by 2010.
Initially, most LNG was produced in Africa and Asia and more recently, the Middle East
and Trinidad and other Asia pacific countries including Australia. In the Atlantic basin, new
projects emerged in Trinidad and Tobago and Nigeria. Significant resources remain in
these countries and multiple new projects had been announced.
[Exhibit P-18, pp. 28-32]
[16]
Mr. Hardy also discussed the changes in market demand for LNG, some of
which were attributable to technological changes or new sources of supply.
[17]
The Board also finds it useful to identify the dramatis personae or main
characters in the story of PEV and its claim, and the Warner lands at Goldboro. Some
are individuals, some of whom were witnesses in the hearing. Some are companies. The
Board considers this information is helpful as the chronology unfolds. A part of the
chronology will involve a description of a number of agreements, memoranda,
presentations and other documents which form part of the evidence before the Board.
Document: 246581
- 12 The Main Characters
[18]
Paul Vandall is the principal of PEV. He began his professional career as
a physical oceanographer, working at the Bedford Institute of Oceanography, and
became increasingly involved in work related to the offshore oil and gas industry in an
advisory capacity. Subsequently, he worked with the federal government in Ottawa in
developing guidelines for offshore drilling activities. After a number of years, he moved
to Vancouver and worked with a physical oceanographic consulting firm designing and
planning drilling programs, and later production, for a number of large oil companies. He
furthered his education by gaining an MBA and began undertaking consulting work while
completing that degree.
Mr. Vandall returned to Halifax in 1989 and formed PEV,
continuing with his consulting work, as well teaching for a period. He worked to get back
into the oil and gas industry and became involved with strategic planning and market
analysis for an oceanographic consulting company. He subsequently undertook work for
the Nova Scotia Petroleum Directorate regarding pipeline and gas plan regulations.
[19]
James Ferguson studied engineering, and was involved with various
elements of shipbuilding through a family-owned business. He was later focussed on an
international career with various corporations, organizations and undertaking marine
engineering and contract administration work related to deep-sea drilling. In 1980, he
returned to Halifax and pursued work regarding safety in the offshore oil and gas industry,
on vessel design, in particular. By 1984, he was one of a small team from Brown & Root
Corporation working on a proposal for what, ultimately, became the Sable Offshore
project. He described it as a pre-feasibility study which was taken to Exxon. Later work
involved pipeline welding and installation, and modular construction. Mr. Ferguson and
Document: 246581
- 13 Mr. Vandall met at a gathering of people interested in the offshore industry.
They
recognized their common interests and began working together on various projects.
[20]
In particular, Mr. Vandall was working on an energy project for Coastal
Corporation (“Coastal”). This company was taken over by El Paso Energy (“El Paso”).
Mr. Vandall and Mr. Ferguson were working on a pipeline project called the “Blue Atlantic
Project” for them, which included getting natural gas liquids to Goldboro. At some point,
around 2003, El Paso decided to concentrate on other aspects of its business and
abandoned the Blue Atlantic Project.
[21]
According to their evidence, Mr. Vandall and Mr. Ferguson were given
permission to apply some of their research, to date, on El Paso’s project to a concept of
their own. They recognized that, among other things, there was insufficient gas to supply
the Maritimes and Northeast (“MNE”) pipeline at Goldboro. They were interested in
developing an LNG facility to take advantage of this in Goldboro, an area which Mr.
Ferguson had become familiar with through previous work. The Board will explore the
significance of Goldboro elsewhere in this Decision. At this stage, all that is necessary to
say is that it was widely considered to be a location for industrial development, most likely
in connection with the development of the oil and gas industry, for a number of reasons.
[22]
While continuing to investigate opportunities for development of natural gas
related industry, based on the research they had undertaken for Coastal and El Paso, Mr.
Ferguson was introduced to Kevin Dunn of Keltic Petrochemicals (“Keltic”). Mr. Dunn,
who died several years before this hearing, was a professional engineer working in
Calgary. He was interested in developing a petrochemical facility in Goldboro, using
natural gas liquids.
Document: 246581
- 14 [23]
As will be seen later in this Decision, Mr. Vandall and Mr. Ferguson thought
there were some synergies between their plans and those of Mr. Dunn. What transpired
between them is discussed below, as are Keltic’s dealings with MODG.
[24]
Mr. Vandall and Mr. Ferguson considered that there were disadvantages,
both monetary and in scheduling, related to a land-based natural gas terminal. Through
a conference presentation, they had become aware of the possibility of using vessels, not
only for shipping natural gas from its source, but for floating storage units (“FSU”) and
floating storage and regasification units (“FSRU”) off-shore, which would, in their view be
considerably less costly. Further, in particular, they were of the view that FSRUs could
be in place much more quickly than the time needed to construct and commission a land
based terminal.
[25]
In order to get more information about FSUs and FSRUs, and how they
might be employed at Goldboro, Mr. Vandall made contact with Golar LNG Limited
(“Golar”), attempting to reach a Mr. Stohle, the person who had made the presentation
that had caught their interest. He was no longer working at Golar. The new contact
person at Golar was Charlie Peile, at Golar Management (UK) Limited. As will be seen
from the chronology which follows, Mr. Vandall and Mr. Ferguson engaged in a series of
communications with Mr. Peile over a period from March 2004 to March 2005 about the
possibility and economic viability of using an FSRU for the development of an offshore
LNG terminal on the coast of North America.
Details of their communication are
discussed more fully later in this Decision.
[26]
One of the necessary elements in PEV’s plans was sourcing a supply of
natural gas (eventually one which would satisfy Keltic’s requirements). Mr. Vandall had
in the past met, or became aware of, Mr. Seni Dosunmu from Nigeria. He understood
Document: 246581
- 15 him to have connections, both business and political, which could be of assistance. He
engaged with him to determine whether Nigeria might prove a source of LNG, and as will
be seen, whether Nigeria LNG Limited (“NLNG”) might become a participant in the project
PEV envisioned. At the hearing, Mr. Dosunmu described his role as a Nigerian agent for
various companies, although it was not entirely clear to the Board if he was an agent for
PEV or NLNG or, possibly, Keltic. His role is discussed later in this Decision.
[27]
Mr. Ferguson was aware that Statia Terminals Canada Inc. (“Statia”)
operated a terminal at Point Tupper, Nova Scotia for the storage of various liquids,
including natural gas liquids. He thought that Statia might be interested in being a terminal
operator for the project PEV envisioned. He made contact with Paul Crissman, then the
manager of Statia and began discussions about Statia becoming involved in the PEV
project.
Mr. Crissman has since left Statia but testified at the hearing about what
occurred, which is discussed below.
[28]
James Irving Warner was the owner of the property in Goldboro and it was
his interest that was the subject of the Warner decision. Mr. Vandall and Mr. Ferguson
learned that he owned the property which they considered essential to the PEV project.
They contacted him and arranged to meet. Eventually they entered into an agreement
which gave certain rights to PEV, and which will be discussed more fully below. It is this
agreement which gave PEV the rights for which it now seeks compensation from the
MODG.
[29]
MapleLNG Limited (“Maple”), the Canadian affiliate of 4Gas B.V. (“4Gas”),
a company incorporated under the laws of the Netherlands, sought to develop an LNG
terminal at Goldboro starting in early 2006. As will be seen, Keltic and Maple entered into
Document: 246581
- 16 a transaction concerning, in part, the Warner property. Maple entered into agreements
with the MODG on a number of occasions after the effective date of the expropriation.
[30]
The MODG governs the rural municipality of Guysborough County. It is an
expropriating authority under s. 52 of the Municipal Government Act, S.N.S. 1998, c. 18,
as amended, (“MGA”) which provides:
52
(1)
Where the council considers it necessary to acquire real property,
including real property outside the municipality, for a purpose for which it may spend
money, the council may expropriate the real property, but this power to expropriate does
not authorize a municipality to expropriate property of another municipality.
..
(3)
The Expropriation Act applies to expropriation proceedings by a
municipality or a village.
[31]
The MODG is also responsible for zoning property within its boundaries,
and it will become clear that the zoning of the Warner lands at certain relevant times is
important. The MODG also has powers to acquire, own, sell or lease land under the MGA
(s. 50 and s. 51), as well as undertake activities regarding business and industrial
development in the municipality (s. 57). In addition to Mr. Cleary (the Deputy CAO), other
individuals associated with the MODG, including Lloyd Hines, the former Warden, and
Dan MacDougall, the former CAO, had some involvement with the Warner property.
Gordon MacDonald, the Petroleum Officer of the Guysborough Regional Development
Authority, an organization supporting all the municipal units in Guysborough County, also
played a part.
The Chronology and Agreements
[32]
In March 2003, Glenn Earle, of Altus Group, appraised the Warner property
on behalf of the Municipality at a value of $540,000. By early March of 2004, the
Document: 246581
- 17 Municipality had entered into an agreement of purchase and sale with Mr. Warner. The
purchase price was $435,000, and Mr. Warner agreed to make an application for quieting
the title to the property. The Municipality agreed to pay up to $10,000 towards the quieting
of title, conditional upon that application being successful.
[33]
At the same time, PEV contacted Golar, attempting to make contact with
Mr. Stohle to acquire further information about the paper Mr. Vandall had learned about
relating to FSRUs. By March 22, 2004, PEV had a contact at Golar, one Charlie Peile,
as Mr. Stohle was no longer with Golar. PEV sent Mr. Peile some questions, to which
Mr. Peile responded, and by March 25th, Mr. Vandall indicated that they wanted to “…talk
to our partners first.”
[34]
In March 2004, PEV made a presentation (filed as Exhibit P-25) to Mr. Dunn
of Keltic, to whom they had been first introduced in the late summer or fall of 2003.
[35]
The Keltic presentation included a description of the background of the
“PEV Team” claiming “exclusive knowledge” of “all Canadian offshore exploration and
development activities”, “Canadian offshore development constraints” and “the offshore
regulatory environment”. Further, it stated the PEV Team had proprietary analysis and
access to various technologies. It also set out a list of studies undertaken by PEV, and
the key elements of its strategy for the processing, transportation and use of natural gas,
emphasizing the Goldboro location.
[36]
Under the heading “Dry Gas/Offshore Terminal of Offshore Collector
Pipeline Partners”, the presentation listed:





Keltic Petrochemicals Inc.
El Paso
Excelerate Energy Inc.
Golar or Hoegh
Tractebel, El Paso or BG-LNG supplier, gas marketer, terminal developer/operator and
power plan developer/operator
Document: 246581
- 18 
Offshore domestic producers
[Exhibit P-25, p. 16]
[37]
The presentation went on to describe proposed LNG terminals in Canada
and the U.S. northeast and the demand for natural gas and electrical generation. It
included a section on recoverable natural gas liquids quantities, and on the transportation
of LNG, as well as a projected schedule of activities, leading to a commissioning of the
proposed system in 2010. This schedule included selection of an LNG system and
regulatory approval between 2003 and 2004, and the selection of LNG vessels and the
building of a plant by 2005.
[38]
The presentation also discussed the procurement of wet LNG and possible
sources, stating:

An Algerian LNG supplier would be ideal - right BTU, lowest transportation cost and
Algerian government is keen on North American market to reduce European exposure

Keltic could strengthen bargaining power by optimizing the LNG value chain for the
supplier and reducing the overall market risk. Largest market risk is associated with
seasonal variation in the dry LNG demand - need to build storage and/or find
customers with low demand volatility or offsetting volatility (need for marketing strategy
built on fuel switching and sesonal [sic] demand cycle) [Emphasis in original]
[Exhibit P-25, p. 32]
[39]
PEV stated it was working with various entities and had established
relationships which would further its strategy. The presentation outlined the attributes it
could bring to, and how it could benefit, Keltic; it also noted what Keltic could provide, i.e.,
“Equity participation; Risk sharing; On-going support and involvement on a regular
remuneration basis” (Exhibit P-25, p. 38).
[40]
The presentation included an “updated strategy” which substituted wet LNG
for dry LNG and an offshore terminal.
Document: 246581
- 19 [41]
By April 13, 2004, PEV and Keltic had entered into a Memorandum of
Understanding (“Keltic/PEV MOU”), which provided, in part:
WHEREAS the parties to this memorandum agree to work cooperatively on two related
business initiatives. Each of these initiatives, as defined below, require a different business
relationship and structure between the parties in order to implement effectively. The details
of the required relationship and structure will be formalized in separate agreements.
WHEREAS Keltic agrees to exclusively engage PEV to secure a 25 year written
commitment to supply and deliver Nigerian LNG (Liquid Natural Gas) with a minimum BTU
content of 1100, with the following understandings:
a)
b)
c)
d)
Keltic requires the flow of 1.2 Bcf/day of high BTU re-gasified LNG as feedstock for its
proposed Nova Scotia ethylene and polyethylene plants at Goldboro, Nova Scotia;
the source LNG is to be delivered by LNG marine transporter to Keltic's Goldboro site
commencing in the summer of 2009;
PEV will assist Keltic in selling all natural gas that is surplus to Keltic's requirements;
Keltic agrees to remunerate PEV as follows:
i)
ii)
iii)
e)
$200,000 Cdn upon Keltic meeting the terms and conditions outlined in a Letter
of Intent (LOI) for the proposed LNG sales contract from a Nigerian LNG
supplier;
$100,000 Cdn per year from the date of signing of the LNG purchase contract
to the time of first LNG delivery;
$0.00001 US per cubic foot for all Nigerian LNG transported to the site, or piped
through the site, on a monthly basis.
PEV will use its best efforts to conclude the LOI by the end of April, 2004.
WHEREAS the Parties are also interested in jointly pursuing the business opportunities
related to the exclusive use of the Keltic site in Goldboro, Nova Scotia for the purpose of
establishing a natural gas pipe corridor from an offshore or dockside LNGICNG/Natural
Gas Hydrate terminal to any mainline transportation pipeline system going to Canada or
the US, originating on the Keltic site or adjacent to it. The LNG/CNG/Natural Gas Hydrate
supplier will be charged a toll per cubic foot of gas transported through the Keltic pipe
corridor. This revenue will be shared equally by PEV and Keltic, through a new company
that is jointly held by PEV and Keltic, in equal shares. The term of the toll agreement will
be for the life of the offshore or dockside terminal. The toll will be established jointly by
PEV and Keltic. [Emphasis added]
[Exhibit P-19(ii), pp. 228-229]
[42]
A week later, Mr. Vandall sent an email to Seni Dosunmu, in which he refers
to a “…joint venture between our two companies.” Mr. Vandall told Mr. Dosunmu what
PEV needed. PEV was looking for a letter of intent from NLNG.
[43]
On April 21, 2004, Mr. Dosunmu responded, saying he would be honoured
to assist, and Mr. Vandall replied that PEV would be willing to meet with NLNG, but
required confirmation of the availability of natural gas. Mr. Vandall also advised Mr.
Document: 246581
- 20 Dosunmu of Keltic’s involvement. Mr. Dosunmu indicated that he had solid contacts in
both government and the natural gas industry, and Mr. Vandall confirmed he would wait
for further information and advice on how best to proceed.
[44]
On April 26, 2004, Mr. Vandall emailed Mr. Dosunmu asking “How are you
making out?”, and on May 4,, 2004, he sent a further email with questions regarding
NLNG. On May 10, 2004, Mr. Dosunmu responded to Mr. Vandall urging him to “…have
patience.” Ultimately, Mr. Dosunmu responded that he could confirm the volume and the
BTUs of the natural gas available through NLNG.
[45]
By June 4, 2004, Mr. Dosunmu was seeking from Mr. Vandall a letter, to be
signed by Keltic, or its financial backers, to satisfy NLNG of its ability to contract for the
volume of liquid natural gas. Mr. Dosunmu confirmed that he would act as an agent for
Keltic. Mr. Vandall sent an email to Mr. Dunn updating him regarding the PEV/Keltic MOU
and indicating what is required, including:




verification of Keltic’s financial capacity for a 25 year agreement for the LNG
supply;
a copy of Keltic’s marketing plans to allow PEV to meet its marketing commitment
under the MOU (and offering to assist Keltic in developing the plan on a contract
basis);
clarification of Keltic’s rights to land in Goldboro since a title search revealed no
ownership or option;
the letter from Keltic’s financial institution before a meeting with Mr. Dosunmu will
be arranged.
[46]
On June 9, 2004, Mr. Vandall sent an email to Kevin Dunn to confirm a
telephone conversation which they had had, in which he made a number of critical points:
Based on our dialogue, my company must proceed on the understanding that:
1) Keltic will provide the required banking letter, as soon as this can be arranged, as you
have indicated on a number of occasions that this would be no problem. As I indicated to
you, this letter is essential to prepare for dialogue with Seni Dosunmu and Nigeria LNG but
it will also assist us in getting the best deal possible from Petro-Canada, if it wishes to
proceed with us.
Document: 246581
- 21 2) Your remark that, Emera would be the only company in Nova Scotia that could get the
required banking support letter, is precisely the point. You are proposing to buy 9 million
tonnes of LNG annually. This would be one of the largest purchase orders ever in the
Global LNG market. Annually this LNG is worth a little more than a billion US dollars. Unless
you can produce the required banking letter, no one is going to take you seriously. This is
particularly true for Keltic, as it has no fixed assets, no operating history, and no track
record in the LNG or petrochemical industry.
3) Seni Dosunmu needs to see Keltic's capacity to contract for at least $1 Billion US per
year, as per his email message relayed to you June 4.
4) I indicated that a gas marketing plan would be helpful in our dialogue with Petro-Canada.
If Keltic has not formalized its plan, Keltic's position in a deal with Petro-Canada will be
eroded significantly. You will recall that we made a number of overtures to you to assist in
developing a gas marketing plan. My MBA in Finance and our expertise in strategic
planning and natural gas developments would have maximized the value of this plan for
Keltic. It is regrettable that Keltic did not avail itself of our offer.
5) I appreciate your verbal reassurance that the Municipality of the District of Guysborough
has given Keltic Petrochemicals Inc. an option on its two parcels of land (PID#s 35179464
and 35066158) and has optioned the parcel held by James Irving Warner (PID# 35095884)
on Keltic's behalf, but it would be helpful for us to have written confirmation of this. Our
Confidentiality Agreement will clearly protect your interests in this regard.
Unless I hear from you otherwise, in writing, I will assume you understand and agree with
all the items above.
[Exhibit P-19(ii), p. 235]
[47]
By June 14, 2004, Mr. Vandall was again communicating with Mr. Dunn
seeking a copy of the banking letter which Mr. Dosunmu had requested and complaining
about Keltic’s overture to a gas marketer. Some two weeks later, Mr. Vandall was
communicating with a Mr. Miller at Petro Canada regarding the supply of Nigerian LNG,
and emailing Mr. Dunn regarding the Petro Canada contact and following up on the
required banking letter.
[48]
A press release dated July 6, 2004, described the PEV/Keltic partnership.
News of this release appeared in “Ocean Resources Online” on July 8, 2004, as part of
an article which said that LNG terminal pre-engineering has been completed and
regulatory submission is pending.
[49]
The relationship between Keltic and PEV appeared, at this time, to be
deteriorating. As witnessed by an email of July 8, 2004, from Mr. Vandall to Wayne
Rousch of Keltic and copied to Kevin Dunn, two earlier emails were repeated, and then
Document: 246581
- 22 Mr. Vandall went on to outline the work done by PEV since June 4, 2004. He mentions
an unidentified partner and is seeking the bank letter.
He also discusses options
regarding land and sought written assurance from Keltic. Additionally, Mr. Vandall gave
a “warning” regarding other meetings.
[50]
On July 16, 2004, Mr. Vandall emailed Kevin Dunn regarding their
conversation on the previous day. He indicated he would not meet with the potential
financial backers of Keltic at this time.
[51]
On July 26, 2004, Mr. Vandall sent an email to Mr. Dosunmu asking whether
NLNG could be interested in being an equity partner in the Goldboro project.
[52]
On August 13, 2004, Mr. Vandall sent an email to Kevin Dunn, and copied
to other persons, regarding a meeting held that evening with Doug Lutz, solicitor for Keltic,
and West LB Bank. In this communication, Mr. Vandall refers to PEV’s intellectual
property and confidentiality regarding agreements with Keltic and a potential partner with
PEV (Enbridge).
Mr. Vandall directed the latter should not be disclosed to any
government official, including the MODG.
He indicated that he and Mr. Ferguson
considered it “inappropriate to enter into any further dialogue” until confidentiality of all
participants was assured.
[53]
At the end of August 2004, Mr. Vandall sent an email to Enbridge enclosing
an article from earlier in the month regarding Keltic and reassuring Enbridge. The article
mentions Anadarko’s recent purchase of the Access Northeast (Bear Head) site and
Statia’s interest in an LNG terminal. On the same day, the CAO of the Municipality sent
a letter to Mr. Dunn which enclosed a map, which was not provided in the hearing, and
stating that the Municipality was trying to get additional land adjacent to the Industrial
Document: 246581
- 23 Park, consisting of 200 acres through an agreement of purchase and sale, and other
lands which it would either purchase or expropriate.
[54]
In September 2004, Mr. Ferguson was again communicating with Charlie
Peile and provided a confidentiality agreement to him. In an email dated September 9,
2004, he refers to a telephone conversation which they had on the previous day and
describes the work which has been done, and what remains to be done. On the same
day, Mr. Vandall sent an email to Wayne Rousch, with a copy to Kevin Dunn, asking for
information to provide to Enbridge. As well, the confidentiality agreement with Golar
(Exhibit P-19(ii), p. 304) was signed by Mr. Peile and Mr. Vandall and refers to a possible
business arrangement. A presentation made by PEV to Golar was filed by the Claimant
but it is not clear whether it was made before, or after, the confidentiality agreement was
signed, and whether it is the information package sent to Mr. Peile on September 9, 2004.
[55]
The presentation to Golar (Exhibit 19(ii), pp. 252-303) bears some
similarities to the Keltic presentation. However, its intention was to demonstrate how, in
conjunction with PEV, Golar “can participate in the development and operation of a
relatively low cost LNG terminal and associated energy projects” (Exhibit P-19(ii), p. 255).
It describes the Goldboro site as fully developed in 2006 with “early gas,” with power
plants in 2008, and full development in 2010.
[56]
Enbridge.
Golar is envisioned as a co-developer or owner along with PEV and
The attributes of the Goldboro, Canaport and Bear Head projects are
compared. PEV wanted Golar to “buy in” to the project and assist in analysis and
development, and pay royalties.
[57]
By September 14, 2004, Ian Walker of Golar sent an email to PEV with
comments from Mr. Peile. Mr. Peile wrote to Mr. Ferguson giving his initial reaction and
Document: 246581
- 24 asking for more information and detail. Mr. Vandall sent Mr. Peile an article regarding
Anadarko and sought feedback. On September 16, 2004, Mr. Vandall responded to the
questions from Mr. Peile’s September 14th letter, and on September 21st and 23rd, Mr.
Vandall emailed Mr. Peile indicating they were anxious to hear back from him.
[58]
On September 27, 2004, Mr. Walker and Mr. Peile wrote to Mr. Vandall and
suggested that they meet in London. Mr. Vandall’s reply was that they were agreeable
to meeting, but would prefer to do so in Halifax. They would need some financial
assistance if they were to come to London.
[59]
In the meantime, in October 2004, the Municipality gave notice of a public
hearing to rezone the Warner property from R-1 to M-2 to allow for an LNG and
petrochemical facility. Additionally, it granted an easement option to Encana over a
portion of the Warner lands, the consideration for which was $25,315.
[60]
In October 2004, the Municipality also entered into a Memorandum of
Understanding with Keltic to, in part, allow Keltic to acquire the Warner lands and granted
an option to purchase the same, which expired December 31, 2004.
[61]
On October 14, 2004, Mr. Vandall, again, emailed Mr. Dosunmu asking
whether NLNG could be interested in being an equity partner.
[62]
On October 20, 2004, Mr. Vandall emailed Charlie Peile of Golar with
information regarding Enbridge, and Mr. Peile replied indicating that he would “get back
to” Mr. Vandall.
[63]
On October 31, 2004, Mr. Dosunmu replied to Mr. Vandall indicating that it
would be possible to interest NLNG in being an equity partner.
[64]
Although the emails provided by the Claimant regarding communication
with Mr. Dosunmu end on October 31, 2004, Mr. Dosunmu testified he had subsequent
Document: 246581
- 25 contact with PEV and representatives of NLNG. At some point in 2005 he became aware
of trouble with land matters in Goldboro. He also acknowledged some familiarity with
Statia’s parent company, Valero, and with Golar.
[65]
On cross-examination, Mr. Dosunmu agreed he had not “gone into the
economics” of the project and that ultimately NLNG would have to make the final
determination about investing in the project and any responsibilities it would undertake.
He had not provided any documentation to NLNG and had not confirmed any amounts to
be paid by it. He confirmed that he expected to be paid a commission for his work,
although terms had not been finalized. The evidence is clear that no agreement was ever
signed with NLNG.
[66]
In early November 2004, Mr. Vandall and Mr. Ferguson exchanged emails
with Charlie Peile of Golar in an attempt to arrange a meeting. Some of the emails require
clarification on gas pricing and capacity, and it is clear that PEV is anxious to meet with
Golar.
[67]
On November 16, 2004, the CAO of the Municipality sent an email to Mr.
Cleary regarding a meeting on November 22nd to discuss land acquisition. On November
23rd, the Municipality wrote to Mr. Dunn regarding an option agreement. Proposed option
fees to be paid over a period from January 1, 2005, to April 1, 2007, totalling $137,500,
were to be applied to the purchase price. Representatives of the Municipality had met
with Mr. Dunn on November 22, 2004. The letter specifically refers to the purchase price
for the Warner property, as well as other property in Goldboro, and says that $1 million
will be put in trust for the Municipality to use.
[68]
By December 10, 2004, Mr. Ferguson sent an email to Mr. Peile outlining
the key issues and again attempting to plan a meeting. On December 21, 2004, Mr.
Document: 246581
- 26 Walker of Golar responded to PEV regarding calculations they had provided on capital
costs for gas plants and tariffs.
[69]
On January 10, 2005, Alan Hayman, Q.C., then counsel for PEV, prepared
a draft letter to Doug Lutz, Keltic’s lawyer, and provided it to Mr. Vandall for comment.
The letter suggested that, unless agreement could be reached between their respective
clients, PEV intended to talk to the Municipality to make them aware of the PEV/Keltic
MOU.
[70]
On January 11, 2005, Keltic signed the option agreement with the
Municipality, which noted that the Municipality had agreed to purchase the Warner
property. The option agreement outlined the negotiations, the option term, and the
purchase price, and includes provisions regarding confidentiality, as follows:
1.2
Warner Property and Hurricane Island. The Seller agrees to take all reasonable
measures to acquire the parcels comprising Hurricane Island and the Warner Property
during the term of the Option. Upon acquiring Hurricane Island or the Warner Property or
any part thereof, Seller shall notify Purchaser and such additional lands shall become
subject to the Option and shall form part of the Property. The Purchaser agrees that
throughout the term of this Option Agreement, neither the Purchaser nor its agents shall
enter into any negotiations or agreements with the owners of Hurricane Island or the
Warner property which could result in the transfer of any interest in these properties,
without the prior written consent of the Seller.
1.3
Option Term. Subject to Article 3.3 of this Agreement, the term of the Option shall
commence on the Effective Date and shall continue until 5:00 p.m. on March 31, 2005 (the
"Option Term") unless terminated earlier by Purchaser in accordance with the terms of this
Agreement. Purchaser shall have the right to extend the Option Term to 5:00 p.m. on June
30, 2005 by notice in writing to the Seller on or before March 31, 2005 accompanied by
payment to Seller of $10,000.00. The additional payment of $10,000.00 shall be added to
and form part of the Option Payment for all purposes of this Agreement. Purchaser shall
have a further right to extend the Option Term to 5:00 p.m. on September 30, 2005 by
notice in writing to Seller given on or before June 30, 2005 accompanied by payment to
Seller of $25,000.00. This additional payment of $25, 000. 00 shall be added to and form
part of the Option Payment for all purposes of this Agreement. Any further extensions to
the Option Agreement must be agreed upon in writing between the Seller and Purchaser.
...
1.5
Notwithstanding all of the above, the Property included in the Option Agreement
must be utilized by the Purchaser only for the use associated with the development of the
Project consisting of constructing a liquified natural gas facility, a cogeneration facility,
petrochemical facility, and marine terminal in one or more phases. Seller will retain all land
not required for project purposes as determined by final engineering design for the project.
A detailed project description to be included as Schedule "C" to this Agreement for each
Document: 246581
- 27 element of the project shall be provided to the Seller by the Purchaser, outlining the
intended use/facility design, land requirement justification, time frames/ schedule/
milestones, and service and utility requirements, and transportation requirements.
...
3.2
Purchase Price. The purchase price for the Goldboro Property (the "Purchase
Price") shall be the fair market value of the Property at a time up to 180 days before the
Exercise Notice is given, as determined by an appraiser with an·AACI designation
(Accredited Appraiser Canadian Institute) who shall be acceptable to both parties and shall
be registered as a member of the Nova Scotia Real Estate Appraisers Association formed
under the Real Estate Appraisers Act (Nova Scotia). Purchaser may require an appraisal
of the Property at any time during the Option Term, provided that if Purchaser does not
exercise the Option within 180 days of the effective date of the appraisal, the appraisal
shall be updated for any Exercise Notice given thereafter. Purchaser shall be responsible
for the costs of the appraisal. At Closing, Purchaser shall pay to Seller the Purchase Price
less the amount of the Option Payment credited to Purchaser pursuant to Section 3.4,
subject to any adjustments pursuant to Section 3.5. The Purchase Price, as adjusted, shall
be paid by certified cheque or bank draft, solicitor's trust cheque or by wire transfer to an
account designated by Seller.
3.3
Notwithstanding Section 3.2, the Purchase Price for the Warner Property and
Hurricane Island Properties shall be the fair market value of the property determined in
Article 3 .2 above or the actual price paid by Seller for those lands, whichever is greater. If
the Purchaser does not exercise the Option to Purchase within the Option term, Purchaser
shall reimburse the Seller one half (1/2) of the difference between the appraised value
obtained by the Seller for the Hurricane Island and Warner properties and the price actually
paid by the Seller for these lands, if greater than the appraised value. On or before March
1, 2005, Purchaser will provide Five Hundred Thousand ($500,000.00) to Seller, to be held
by Seller in trust and to be available to Seller in the event that the Purchaser does not
exercise the Option to Purchase. If Purchaser fails to exercise the Option to Purchase
within the Option Term, Seller may recover from the Five Hundred Thousand ($500,000.00)
trust account one half (1/2) of the difference between the appraised value of the lands
purchased by the Seller for the Hurricane Island and Warner purchases and the price
actually paid by the Seller for said lands, if greater than the appraised value. The balance,
if any, of the Five Hundred Thousand ($500,000.00) trust fund shall then be returned
without interest to Purchaser after payment of these amounts. For greater clarity, no further
agreement or approval or notice is necessary for Seller to pay out the within amounts if
Purchaser does not exercise the Option to Purchase within the Option Term.
Notwithstanding Article 1.3 and 1.4, the failure of the Purchaser to make the Five Hundred
Thousand ($500,000.00) payment to the Seller by March 1, 2005 shall cause this
Agreement to terminate, and the Seller shall retain all of the Option Payment.
...
12.13 Confidentiality. Except as may be required by Law, Seller shall keep confidential
the Purchase Price, the Option Payment, and other pertinent financial terms and provisions
of this Agreement. If this Agreement is terminated for any reason, Purchaser shall promptly
return to Seller any and all documents or information theretofore delivered to Purchaser by
Seller.
[Exhibit P-13, Tab 2, pp. 2-16]
[71]
On January 13, 2005, Mr. Vandall sent an email to Enbridge regarding a
meeting which they had held on the previous day, in which he had outlined the
Document: 246581
- 28 advantages of Goldboro. He noted a number of questions that they had expected to, but
did not discuss, some of which suggest a “work around” Keltic.
[72]
On January 26, 2005, Mr. Vandall sent an email to Wayne Rousch of Keltic
suggesting a meeting. He said that PEV had concluded that Keltic’s plans were not viable
and that full disclosure was required.
During this period, Mr. Vandall was also
communicating with Ian Walker of Golar seeking further information regarding terminal
costs.
[73]
On February 16, 2005, Mr. Ferguson and Mr. Vandall both met with
Paul Crissman of Statia Terminals. PEV made a presentation to Statia, which appears
at Exhibit P-19(ii), pp. 338-379. This presentation was similar to the presentation to Golar,
except for a number of points, including: a statement that PEV is in a joint venture with
Trans Ocean Gas to develop a unique low cost LNG transporter; an indication that Keltic
needs 10 MW of electrical power at Goldboro; no statement of mutual benefits appears.
On February 17, 2005, Mr. Vandall followed up with an email to Mr. Crissman indicating
that more dialogue was needed and that there should be a focus on formalizing their
relationship.
[74]
On March 7, 2005, Keltic and the Municipality amended their option
agreement so that the option amount would be paid in instalments. On the same date,
the Municipality’s lawyer wrote to Mr. Warner’s lawyer regarding an extension of the
agreement of purchase and sale for six months in order to allow completion of the quieting
of title. On March 10, 2005, the CAO of the Municipality wrote to the Province suggesting
a meeting regarding Crown lands.
[75]
On March 11, 2005, Mr. Vandall and Mr. Ferguson met with Kevin Dunn
and Janet Campbell of Keltic. A follow-up email from Mr. Vandall to Mr. Rousch refers to
Document: 246581
- 29 their engagement with Encana. It also mentions the Municipality’s expropriation rights
and the Municipality’s wish to assist companies. The email refers to the PEV/Keltic joint
venture. PEV had wanted Keltic to sign a letter to Encana and Kevin Dunn had refused
to do so. PEV indicated that it wanted the cooperation of Keltic.
[76]
This was followed by a letter from Doug Lutz, solicitor for Keltic, to Mr.
Vandall, in which Mr. Lutz outlined Keltic’s position regarding the Keltic/PEV MOU. In
essence, the letter terminated the relationship and directed Mr. Vandall to make no
representations about any relationship between Keltic and PEV.
[77]
Mr. Vandall subsequently wrote to PEV’s lawyer, Alan Hayman, on March
14, 2005, referring to PEV having “underwritten all time and charges”. Mr. Vandall went
on to state that Keltic had frustrated PEV’s ability to perform the MOU and that it had lost
the deal with NLNG “at its own expense”. Mr. Vandall talked about the ways in which
PEV had proceeded on the basis of the August 13, 2004 letter sent to Mr. Dunn, since no
one had objected. He stated that the MOU was still valid and that PEV wanted payment
from Keltic. Mr. Rousch sent an email on the same date to Mr. Vandall stating that he
was not involved.
[78]
The next day, March 15, 2005, Mr. Vandall communicated with Mr. Hayman,
instructing him to tell Mr. Lutz and Keltic that the MOU is in force and that PEV would
withdraw from it for $5 million. He included a draft letter to Encana to be signed by Mr.
Dunn which noted the rights of PEV.
[79]
On March 18, 2005, Mr. Lutz wrote to Mr. Hayman referring to a meeting
which they had had on the previous day. He indicated Keltic would provide copies of the
option agreement with the MODG, and information on an ongoing basis, provided the
option information was not communicated and PEV stopped any further discussions or
Document: 246581
- 30 communications regarding Keltic’s project. He suggested that communication only be
between counsel and asked Mr. Hayman to advise if he was in agreement. Mr. Hayman
confirmed his agreement in a letter to Mr. Lutz on the same day.
[80]
In the meantime, Mr. Vandall was in communication with Paul Crissman,
with whom he had a meeting on March 18, 2005. In an email dated March 19, 2005, Mr.
Vandall provided suggestions promoting Goldboro for a meeting which Mr. Crissman was
to have with Gordon MacDonald of the Guysborough Regional Development Authority.
[81]
On March 30, 2005, Mr. Ferguson emailed Ian Walker of Golar indicating
that he wanted to speak with Charlie Peile as soon as possible regarding the exclusive
role Golar could play in PEV’s energy initiative.
[82]
On May 5, 2005, Thad Hutcheson, working for Maple, forwarded to the CAO
of the Municipality an email exchange between Keltic and 4Gas, which referenced the
Warner land and suggested that it was an insufficient space for its business.
[83]
In early May 2005, Mr. Ferguson and Mr. Vandall travelled to Sydney in
order to meet with Mr. Warner. They had, by that time, determined that Keltic’s control
over the Warner land was questionable, having had a title search performed. Mr. Warner
was apparently not interested in talking business at that time as it was a Sunday.
[84]
In July 2005, Mr. Vandall and Mr. Ferguson met again with Mr. Warner and
made a presentation to him, which appears as Exhibit P-27, and in Exhibit P-19(ii), at pp.
412-487. This presentation was somewhat similar to the Golar and Statia presentations.
Unlike earlier presentations, it contained numbers for projected gas flow at Goldboro,
projected capital investment amounts, and incorporated the Blue Atlantic pipeline to New
Jersey and an offshore production hub near Sable Island. It also emphasized a linkage
with Port Hawkesbury. The presentation appeared to show 2012 as a full completion
Document: 246581
- 31 date, and listed different partners for the project, which did not include Keltic, but did
include Statia, Marathon/Encana, and other LNG suppliers in addition to NLNG. The
presentation included considerably more graphics and photographs than the earlier
presentations.
[85]
On July 6 and 7, 2005, Mr. Ferguson had an exchange of emails with a Mr.
Hastings of Marathon Oil indicating that he wished to explore a common strategy. In it,
Mr. Ferguson essentially disavows the relationship with Keltic and says that the
Municipality is complicit with Keltic. He further says that they have an agreement with the
landowner, Mr. Warner.
[86]
On July 18, 2005, Mr. Warner and PEV enter into an agreement which, in
part, provides:
WHEREAS the Parties are desirous of entering into a business relationship between the
parties, relating to a project that includes the development of the following initiatives in
Nova Scotia:
(i)
(ii)
(iii)
(iv)
(v)
a liquid natural gas (“LNG”) regasification terminal at Goldboro, Nova Scotia;
a compressed natural gas (“CNG”) terminal;
subsea pipelines originating from the Nova Scotia offshore sector and from the
province of Newfoundland and Labrador (offshore or onshore) and landing at
Goldboro, Nova Scotia;
facilities at or near Goldboro, Nova Scotia required to handle, process, store, or
transmit natural gas, natural gas liquids or any other project related energy asset;
and
one or more electrical power generation plants in the vicinity of Goldboro
(hereinafter referred to as the “Authorized Purpose”);
...
AND WHEREAS PEV holds exclusive rights to tolls on natural gas pipelines situated on
land adjacent to the Warner Land, that is under all option agreements between Keltic
Petrochemicals Inc., of Halifax and the Municipality of the District of Guysborough
(hereinafter referred to as the "PEV Rights";
...
2.
COOPERATION
The Parties agree to work cooperatively and in good faith to maximize the remuneration to
be derived by the Parties from the exclusive combination of the Warner Land and PEV
Rights for the Authorized Purpose, or any part thereof, provided both Parties agree that
the Authorized Purpose, or any part thereof, is economically viable.
Document: 246581
- 32 -
3.
DEVELOPMENT PLANS AND TIMING
The Parties understand that:
a. the various component initiatives that form the Authorized Purpose are
technically and strategically interrelated and consequently will be developed in
a time sequence that maximizes the profit related to the project and the possible
sale of the Warner Land and PEV Rights;
b. the successful implementation of the project requires the participation of third
parties, who have the financial and technical capacity to fully develop the
project, or parts thereof;
c. the development of transaction with third parties and the planning required to
determine the optimal profit and the best sequence of implementation of the
component initiatives necessitates extensive competitive analysis, market
research, project feasibility and viability analysis, and discussions with possible
project partners and regulatory agencies;
d. although discussions with third parties may introduce changes, based upon our
current knowledge, the sequence of initiatives and timing, is as follows:
i) LNG terminal - 20I0;
ii) Subsea pipeline originating from the Nova Scotia offshore (includes
Deep Panuke) - 2012;
ii) CNG terminal - 2012;
iii) Gas separation facility-2012;
iv) Subsea pipeline originating from Newfoundland and Labrador
offshore -2017;
v) Power plant -2012;
e. that third parties will take the lead on these initiatives;
f. the establishment of a new company with the equity held by Warner and PEV
equally would facilitate the Authorized Purpose and will be created, when it is
deemed appropriate. This agreement and the rights thereto will be assigned to
the new company in this event.
g. the parties are desirous of either maximizing the remuneration that can be
generated from the project or maximizing the price obtained for the outright sale
of the Warner Land and PEV Rights;
h. The projected annual profit to be derived from the project initiatives ranges from
approximately $10 to 26 Million US per year.
4.
WARNER DECLARATIONS
a. Warner agrees to share the development rights on the Warner Land exclusively
with PEV for the Authorized Purpose.
b. Warner agrees to grant the following rights to PEV:
i) exclusive rights to all pipe corridors, including all pipe tolls, on the
Warner Land.
ii) first right of refusal on the purchase of the Warner Land, in the event
that Warner wants to sell the Warner Land.
c. Warner agrees to share lease revenue associated with the Warner Land with
PEV.
5.
PEV DECLARATIONS
a. PEV agrees to utilize its right to charge tolls on natural gas pipelines on a
adjacent land parcel under an option agreement held by Keltic Petrochemicals
Inc., of Halifax, to facilitate the anticipated developments
Document: 246581
- 33 -
b. PEV agrees to share any toll revenue it is entitled to from the transmission of
liquid natural gas, compressed natural gas or natural gas hydrate through a
pipeline on the land under option by Keltic Petrochemicals with Warner
c. PEV agrees to the following, at its own expense:
i) Provide the technical and economic assessment analyses that are
required to determine the viability of all the proposed projects,
ii) Assist Warner with the assessment of all development proposals and
lease requests relating to the Warner Land,
iii) Identify and qualify development partners;
iv) Carry out all negotiations with other parties;
v) Prepare a development plan for submission to the Municipality of the
District of Guysborough, in cooperation with other agreed upon
parties, when deemed appropriate.
6.
DECLARATIONS OF BOTH PARTIES
...
c. The parties to this agreement will actively pursue partners to develop the
following initial initiatives:
i) LNG Terminal - a floating offshore terminal that will include floating
storage and regasification, a possible demethanizer, and a subsea
pipeline connection to the Warner Land and the Maritimes Northeast
Pipeline facilities on an adjacent property. The connection to the
Maritimes and Northeast Pipeline will utilize corridor rights held by
PEV on an adjacent land parcel owned by the Municipality of the
District of Guysborough and presently under option to Keltic
Petrochemicals lnc., of Halifax.
ii) CNG Terminal - a floating offshore terminal that will include storage
and gas handling facilities on land in the area and connected to the
Maritimes Northeast Pipeline facilities through the use of pipe
corridors on the Warner Land or the adjacent land parcel owned by
the Municipality of the District of Guysborough and presently under
option to Keltic Petrochemicals Inc., of Halifax.
iii) an Electrical Power Generation Plant - a gas fired power plant, either
on the Warner Land or Land adjacent to the Warner Land at Goldboro.
iv) Two Subsea Pipelines:
(I) One gas transmission pipeline (likely multiphase) that
originates from the Nova Scotia offshore gas fields and
connects to a gas processing plant, situated on the Warner
Land,
(2)One gas transmission pipeline (multiphase or single phase)
that originates from the Newfoundland and Labrador offshore
oil and gas fields and connects to a possible gas processing
plant on the Warner Land,
v) Pipeline Connections from the Warner Land for gas transmission to
any petrochemical facility located in the Goldboro vicinity
...
7.
REMUNERATION FOR THE PARTIES
a. The parties agree that lease revenue associated with the Warner Land will be
allocated on the following basis:
Document: 246581
- 34 i)
ii)
66.667% for Warner
33.333% for PEV
b. The parties agree that in the event of an offer to purchase the Warner Land, the
proceeds of the sale will be allocated as follows:
i)
ii)
If the proceeds of the sale are less than $5 Million Canadian, all
proceeds of the sale would accrue solely to Warner.
lf an offer is between $5 and $10 Million Canadian, the proceeds of
the sale would be divided on the following basis:
(1) $5 million plus 50% of the sales proceeds in excess of $5
million would accrue to Warner
(2) 50% of the sales proceeds in excess of $5 million would
accrue to PEV
iii) If an offer is above$ I0 million Canadian, the proceeds of the sale
above $5 million would be divided on the following basis:
(1) $7.5 million plus 33.333% of the sale proceeds greater than
$10 Million Canadian for Warner and,
(2) $2.5 Million plus 66.667% of the sale proceeds greater than
$10 Million Canadian for PEV.
c. The parties estimate that the present value of the PEV Rights to pipeline tolls
based upon 1.0 Bcf/day and a toll rate of $0.000005 US per cubic foot of gas is
$25.7 Million US (discounted at 5%, for 25 years) and the proceeds of any sale
of the PEV Rights would be shared on the following basis:
i)
ii)
8.
33.333% for Warner
66.667% for PEV.
ASSIGNMENT OF RIGHTS
a. Both parties agree to assign or sell part or all the Warner Land and/or PEV
Rights to other companies, when deemed to be mutually beneficial to both
parties.
b. None of the rights or obligations of the Parties under this Agreement may be
assigned, in whole or in part, by any Party without the prior written consent of
the other Party.
9.
TERMINATION
This agreement remains in effect until one of the following events occur:
a. Warner sells the Warner Land;
b. the Warner Land is expropriated; or
c. the parties establish a new written agreement relating to the Warner Land.
10.
EXPROPRIATION
The parties recognize that there is a possibility that the Warner Land could come
under an order of expropriation by the Municipality of the District of Guysborough
or the Province of Nova Scotia. In this event, the parties have the right to
Document: 246581
- 35 compensation for business loss under the Expropriation Act (Nova Scotia), and as
such the parties will make a compensation claim for a business loss equal to the
present value: of the projected business profit and their business development
expenses, related to the proposed project and Authorized Purpose of this
agreement, from the time this agreement comes into effect, to the time of the
expropriation, if no remuneration, as per clause 7, has been received by the
parties. The fees charged by PEV for this kind of development work amounts to a
$9,300 US per diem over a 5 day week, 50 week year, plus actual travel,
communication and legal costs. [Emphasis added]
[Exhibit P-19(ii), pp. 492-499]
[87]
A little more than one month later, on August 25, 2005, PEV and Statia
entered into an agreement under which they were to work cooperatively to maximize their
remuneration. PEV agreed to assign its rights under the agreement with Mr. Warner, and
Statia was to commit resources and make payments when gas flows. The agreement
also recognized the possibility of expropriation. In particular, the agreement provided:
4.
PEV DECLARATIONS
a. PEV agrees to assign all its rights on the Warner land with respect to pipelines
and pipeline infrastructure exclusively to STATIA, with respect to the handling,
processing, storage and transmission of LNG and CNG, and all the products
they contain in return for a share in the terminal revenue to be derived by
STATIA.
b. PEV agrees to assign all rights on the Warner Land with respect to the owning
and operating of any electrical power generation and transmission facilities,
exclusively to STATIA in return for a share of the revenue to be derived by
STATIA for the sale of the electrical power.
c. PEV retains all development rights to land that is not required by STATIA.
d. PEV retains rights to all pipeline and pipeline infrastructure rights, other than
those required for LNG and CNG, on the Warner Land.
e. PEV agrees to take the lead on negotiations with the LNG FSRU suppliers and
LNG suppliers.
5.
STATIA DECLARATIONS
a. STATIA agrees to commit resources and expertise to handle its portion of the
Authorized Purpose. Specifically STATIA agrees to own and operate the
following at Goldboro:
i. all onshore pipeline infrastructure,
ii. all natural gas liquids handling, processing, storage and transmission
facilities, and
iii. any power plant that is built at Goldboro,
Document: 246581
- 36 b. STATIA agrees to remunerate PEV, the sum of $0.02 US per thousand cubic
feet on a monthly basis, when the LNG, CNG or regasified LNG begins to flow
through the terminals, as a result of the Authorized Purpose.
c. STATIA agrees to relinquish all rights and privileges derived from this
agreement, in the event, it wishes to withdraw from the project and Authorized
Purpose, prior to the establishment of a new operating company. STATIA
agrees to afford PEV a 90 day advance written notice in the event that it wishes
to withdraw.
6.
DECLARATIONS OF BOTH PARTIES
a. Both parties agree to protect the marine access to the Warner Land in order to
preserve the full scope of the business opportunities associated with the
anticipated subsea pipelines that would require a landfall in the Goldboro area.
b. Both parties agree to include Golar LNG Limited as the LNG FSRU and LSU
owner and operator.
c. The parties agree to work cooperatively with the owner and operator of the LNG
FSRU and FSU vessels, with the inclusion of an LNG supplier in the
establishment of a new operating company that would operate the LNG terminal
and related facilities.
d. The parties to this agreement will work on a cooperative basis to develop the
following initial initiatives:
i) LNG Terminal - a terminal will consist of floating FSRU and FSU
vessels, land based gas liquids separation and pipeline infrastructure
connecting the FSRU supply to the Statia pipeline assets and the
Maritimes and Northeast Pipeline facilities.
ii) CNG Terminal - a floating offshore terminal that will include storage
and gas handling facilities on land in the area and connected to the
Maritimes Northeast Pipeline facilities through the use of pipe
corridors on the Warner Land or the adjacent land parcel owned by
the Municipality of the District of Guysborough and presently under
option to Keltic Petrochemicals Inc., of Halifax.
iii) an Electrical Power Generation Plant - a gas fired power plant, either
on the Warner Land or land adjacent to the Warner Land at Goldboro,
iv) Pipeline Connections from the Warner Land for gas transmission to
any petrochemical facility, mainline natural gas transmission facility,
or natural gas liquids pipeline located in the Goldboro vicinity
...
8.
TERMINATION
This agreement remains in effect until one of the following events occur:
a. Warner sells the Warner Land; or
b. the parties establish a new written agreement relating to the Warner Land.
9.
EXPROPRIATION
The parties recognize that there is a possibility that the Warner Land could come
under an order of expropriation by the Municipality of the District of Guysborough
or the Province of Nova Scotia In this event, the parties have the right to
compensation for business loss under the Expropriation Act (Nova Scotia), and as
Document: 246581
- 37 such the parties will make a compensation claim for a business loss equal to the
present value of the projected business profit and their business development
expenses, related to the proposed project and Authorized Purpose of this
agreement, from the time this agreement comes into effect, to the time of the
expropriation, if no remuneration, as per clause 7, has been received by the
parties. [Emphasis added]
[Exhibit P-19(ii), pp. 504-506]
[88]
Mr. Crissman testified he was aware of the PEV/Warner agreement. He
said that Statia had a large property and was interested in the possibility of gas storage
in caverns on the property. When Mr. Ferguson and Mr. Vandall approached him, he
consulted with the business development personnel at Statia’s parent company who were
interested, given his knowledge of the Goldboro area. The PEV plan tied into some
discussions Statia had been engaged in with Consolidated Edison. He saw Statia’s role
mainly as a terminal company to store the natural gas product.
[89]
Mr. Crissman got approval to sign the agreement with PEV. He stated:
MR. CRISSMAN: Well, this was an MoU type of agreement that just kind of bound us
together, said that, you know, to let them know we were interested in the project; we were
committed to the project. They needed to produce the land. We would take it forward as
far as what we could.
We weren’t bringing the producers in, per se, that was still PEV’s domain. But we would,
at some point, start doing our due diligence on this, spending money, doing some
engineering work, and taking a harder look at it. So to any -- all those steps that you’d
have to do to move a project forward.
MS. KELLY: And in terms of timing, did you have any sense of when those steps may be
at play?
MR. CRISSMAN: I can’t say that it would happen immediately, but it -- at that time
everybody’s mindset -- there was kind of an immediacy in everybody’s mindset, everybody
is racing to be the first one in to be the party first. I can’t say that that was necessarily our
view of the world.
We wanted to make sure that we had a project that was solid, but not so much being the
first one in. We weren’t interested in being first. But I do think that to move it forward, you
know, we needed to take steps fairly quickly to move it on. There was other people that
were vying for it.
[Transcript, pp. 1567-1568]
[90]
He acknowledged in cross-examination that Statia had not committed itself
to any expenditures and that it would not do the PEV project “on speculation”. He agreed
Document: 246581
- 38 that there was an exit or “off ramp” provision in the MOU. He also agreed that Statia
would have to undertake due diligence to determine if it had the right partners before any
serious expenditure would be made. Mr. Crissman confirmed that there had been no
agreement to pay any amounts identified in the “Supplemental Project Development
Information” filed by PEV (Exhibit P-19(ii), p. 179)
[91]
On August 30, 2005, the Municipality entered into a new option agreement
with Keltic for a $35,000 option fee for Industrial Park lands and other lands, including the
Warner lands. In this option agreement, the Municipality stated it would use its best efforts
to obtain the Warner property. The option agreement specifically addresses an LNG
terminal. In Article III, the option agreement provides:
3.2
Purchase Price: The purchase price for the Goldboro Property (the "Purchase
Price") shall be the fair market value of the Property at a time up to 180 days before the
Exercise Notice is given, as determined by an appraiser with an-AACI designation
(Accredited Appraiser Canadian Institute) who shall be acceptable to both parties and shall
be registered as a member of the Nova Scotia Real Estate Appraisers Association formed
under the Real Estate Appraisers Act (Nova Scotia). Purchaser may require an appraisal
of the Property at any time during the Option Term, provided that if Purchaser does not
exercise the Option within 180 days of the effective date of the appraisal, the appraisal
shall be updated for any Exercise Notice given thereafter. Purchaser shall be responsible
for the costs of the appraisal. At Closing, Purchaser shall pay to Seller the Purchase Price
less the amount of the Option Payment credited to Purchaser pursuant to Section 3.4,
subject to any adjustments pursuant to Section 3.5. The Purchase Price, as adjusted, shall
be paid by-certified cheque or bank draft, solicitor's trust cheque or by wire transfer to an
account designated by Seller.
3.3
Notwithstanding Section 3.2,·the Purchase Price for the Warner Property and Red
Head Properties and the Irving Lot and the East Coast Lot shall be the fair market value of
the property determined in Article 3.2 above or the-actual price paid by Seller for those
lands, whichever is greater.
[Exhibit P-13, Tab 4, p. 4]
[92]
Mr. Vandall and Mr. Ferguson testified that, once they had the agreements
with Mr. Warner and Statia in place, in September 2005, they prepared a document which
has become known in the proceeding as the “development plan”. It appears at pp. 541803 of Exhibit P-19(ii) (and as Exhibit P-28) and included the agreement with Mr. Warner,
the Statia agreement, a “CV” of PEV, information regarding NLNG, Statia and Golar,
Document: 246581
- 39 various appendices relating to articles of interest regarding natural gas, and regulatory
requirements. After it was completed, they took some time off.
[93]
This development plan differed from the various presentations in a number
of ways:
•
It outlined two business components, i.e., “the operation of a landfall and pipeline
corridor for domestic natural gas originating from offshore Nova Scotia and
Newfoundland (Grand Banks). The terminal will provide the necessary landfall and
right of ways [sic] for the proposed Deep Panuke offshore natural gas project
located near Sable Island” and “the ownership and operation of an LNG terminal.
Two power plants, intimately tied to the LNG terminal will be operated by a
separate company.” (Exhibit P-28, p. 3)
•
It clearly identified PEV’s withdrawal from assisting Keltic in early 2005, while still
asserting rights under their MOU.
•
It stated that PEV had “structured a working relationship with Golar LNG” (Exhibit
P-28, p. 6)
•
It stated it had an LNG terminal development agreement with Statia and that Statia
would own and operate the terminal and any associated power plant.
•
It identified as objectives reaching an agreement with NLNG as a partner and
finalizing a “participation agreement” with Golar.
•
It projected revenues and costs and projected profits, including comparisons to
other terminals.
•
It outlined a corporate structure which included Statia, NLNG and Golar, providing
the capital expenditure and working capital co-requirements with NLNG as shipper,
terminal operator and marketer.
•
It outlined the various legal agreements required “to orchestrate the overall
business conceived for the project.”
•
It identified a project schedule for a 2010 start-up of the terminal, with FSRU
delivery in late 2011.
•
It stated, with respect to project risk:
The development and implementation plan has minimized all the risk factors, except those
due to financing, construction, offtake, and operations. These risks need to be managed
through the partners and their joint or collective management. Furthermore the remaining
risks are deemed to be less than those of any other startup LNG terminal because the
importation of 60% of the LNG is backstopped with marketing agreements with project
Document: 246581
- 40 participants and their associates and the sale of the remaining 40% is virtually guaranteed
given the market growth and concern over the availability of natural gas, as highlighted in
the market section (Section 6).
[Exhibit P-28, p. 61]
•
It estimated regulatory approvals and permits, including environmental and
marine, to be sought by Golar, Statia, and NLNG, and completed within 16-20
months.
[94]
It was the evidence of Mr. Vandall and Mr. Ferguson that this development
plan was intended to be provided to the interested parties at a meeting in December 2005.
[95]
On September 30, 2005, the CAO of the Municipality wrote to Strait
Engineering about the status of the expropriation of the Warner land.
[96]
On October 17, 2005, Mr. Vandall sent a draft press release to Mr. Warner
seeking his approval and signature. The ultimate press release is dated October 19,
2005, and did not name Mr. Warner, as the draft had done, and did not otherwise refer to
him. A map was attached which showed the Warner property. This press release stated:
HALIFAX, NOVA SCOTIA - Paul E. Vandall Jr., President of PEV International R&D Inc. is
pleased to announce that PEV has established an exclusive energy development
agreement with a land owner at Goldboro, Nova Scotia. Under this agreement, PEV will
create a new company to explore and develop energy projects in the Goldboro area. The
new company will utilize a 200 acre land parcel and the pipeline corridor rights held by
PEV, on adjacent land, to facilitate LNG, CNG, offshore gas, power plant and pipeline
developments in the area. The 740 metre ocean frontage of the land (see attached figure)
and its proximity to the natural gas processing facilities of Sable Offshore Energy Inc., the
Maritimes & Northeast Pipeline and the proposed Keltic Petrochemical facility make it
ideally situated for further energy development, particularly that envisioned for the Deep
Panuke and Annapolis offshore gas fields. These projects will bring significant new
business to the Municipality of the District of Guysborough.
[Exhibit P-19(ii), p. 820]
[97]
Mr. Vandall sent the press release to the Warden of the Municipality, to Mr.
Cleary and to Mr. MacDonald. The evidence shows that the press release was also sent
to Jim Spurr, legal counsel with Encana, on November 15, 2005. It was apparently also
sent by email to various media in October. The evidence discloses an article by Judy
Myrden, a local business reporter, which mentions Keltic and PEV.
Document: 246581
- 41 [98]
On October 26, 2005, Council of the Municipality passed a resolution for the
expropriation of the Warner lands, as well as three other properties. Council had received
a report and recommendation which stated, in part, after outlining that the original
agreement to buy the lands had expired, and noting for expropriation purposes a new
appraisal would be required, which would likely be at a higher value:
RESPONSE OPTIONS:
Option #1: Proceed with expropriation.
Pros:
• Consistent with the Municipality's commitment in the Keltic land option.
• Will finalize this phase of the land assembly for the Goldboro Industrial
Park.
• Cost of land will be paid by Keltic if land option executed.
• If Keltic does not execute option agreement then Municipality will still own
substantial waterfront industrial land.
Cons:
• Significant legal costs.
• Land may cost more than amount agreed to in original purchase/sale and
purchase may not proceed.
Option #2: Do not proceed with land assembly/expropriation for land.
Pros:
• Land assembly costs may be saved.
Cons:
• Legal challenge by Keltic.
• Keltic may not proceed with project.
• Reputation/Perception of Municipality with investment interests may be
negative.
• Lack of ownership of key parcels of land may be roadblocks to future
development.
RECOMMENDED:
Option 1. Perhaps negotiation with Keltic to amend option agreement may be possible to
assist with cost of land acquisition.
[Exhibit P-56, p. 3]
[99]
In the meantime, sometime after the issuing of the press release, Mr.
Vandall had a conversation with Gordon MacDonald, of the Guysborough Regional
Development Authority, regarding their project.
Document: 246581
- 42 [100]
On November 28, 2005, Douglas Caldwell, Q.C., then solicitor for the
Municipality, with respect to the expropriation, wrote to PEV. He stated that negotiations
had been ongoing with Mr. Warner and took the position that PEV had no ownership
interest. On December 1, 2005, Mr. Vandall wrote to Gordon MacDonald regarding the
expropriation of the Warner lands, in response to Mr. Caldwell’s letter, and suggested
that Mr. MacDonald had known from the press release of October 19, 2005, about the
agreement between Mr. Warner and PEV. On December 8, 2005, Mr. Vandall sent a fax
to Mr. Caldwell with similar comments to those in his fax to Mr. MacDonald.
[101]
On February 7, 2006, the notice of expropriation of the Warner property was
filed at the Registry of Deeds, making this the effective date of expropriation.
[102]
On March 3, 2006, Mr. Caldwell wrote to Mr. Warner requesting information
regarding the owners of the property and making an offer of $608,000 for the land which
did not include any business loss, which Mr. Caldwell indicated he did not think existed.
[103]
The evidence discloses, at p. 925 of Exhibit P-19(ii), a document from the
Maple/4Gas website which confirmed the acquisition of the project through an agreement
with Keltic in March 2006, and further confirmed that the option had been assigned and
an application for environmental approval filed.
[104]
On March 30, 2006, the Municipality entered into a further option with Keltic
which had an option fee to be paid in instalments, totalling $100,000.
The option
agreement specifically referenced Maple LNG, providing that it could be assigned to
Maple and included a provision whereby notices under the agreement would also be sent
to Maple. The option agreement covered several parcels of land which included the
Warner property.
Document: 246581
- 43 [105]
In the May 2006 official newsletter of PEV International Research and
Development Incorporated, entitled “Atlantic Energy Report”, there is a reference to the
petrochemical industry in Nova Scotia which mentions Keltic. It said that Keltic does not
have the “experience and deep pockets” for the project at Goldboro which, it said, was
not viable.
[106]
On May 4, 2006, Mr. Vandall wrote to Mr. Warner regarding the
expropriation, expressing his concern that their legitimate commercial interests and loss
of revenues were being threatened.
The letter suggests that there should be
communication with high levels of government. It reiterates that PEV had developed a
plan, that Mr. Warner had agreed to the rezoning, and that their plans were consistent
with the Municipal Planning Strategy. Mr. Vandall went on to say that no one from the
Municipality or the Regional Development Authority had ever expressed an interest in
their plans and favoured Keltic.
Further, Keltic’s plans would prevent any extra
development. Mr. Vandall went on to state that Keltic’s plan could have been modified
but Keltic had refused. He concluded that Keltic does not have the financial or other
capability to do the project and has “…manipulated the Municipality and will profit by
selling the land.”
[107]
On June 6, 2006, the Minister of Municipal Affairs approved the rezoning of
the Warner lands to M-3 Industrial Resource.
[108]
Some months later, in September 2006, the Municipality and Maple entered
into an option agreement for a price of $100,000 regarding certain lands, including the
Warner property, and the acquisition of these for an LNG facility. This option agreement
was also signed by 4Gas B.V. and 4Gas North America Limited.
Document: 246581
- 44 [109]
Almost one year after the effective date of expropriation, Mr. Vandall was
communicating with Gary Smith of Golar and stating that PEV was “…continuing to
advance your FSRU technology for the Goldboro site as per our agreement with C. Peile.”
Mr. Vandall also communicated on January 12, 2007, with Kevin Dunn stating that all
discussions regarding the pipeline need to include both PEV and Mr. Warner as per their
agreement and per the PEV assignment of its agreement with Keltic to Warner. Mr.
Vandall said that they had advised Encana and the Municipality. Three days later, on
January 15th, there was an email exchange between Encana and the CAO of the
Municipality which refers to the PEV communication and provides confirmation from the
CAO that it is not necessary to deal with any party other than the Municipality.
[110]
Over the months of January, February and March, 2007, Mr. Ferguson
continued to exchange emails with Charlie Peile of Golar, and also communicated with a
Mr. Kettlety of Suntera/Sun Energy. In March of 2007, 4Gas confirmed on its website
that environmental approval from the Province was received for Goldboro on that date
and that it will apply in May for a permit to construct. Mr. Ferguson continued his
communications with Golar and Suntera.
[111]
In the background of all of this is the application under s.17 of the Act to the
Supreme Court to determine the owners of the land which resulted in the Consent Order,
dated April 25, 2007, of Justice MacLellan. It provided:
IT IS ORDERED THAT:
1.
Warner is an owner of lands as defined in Section 3(1) of the Expropriation Act,
specifically, Warner is the owner of a fee simple interest in the Subject Property for the
purposes of entitlement to payment under the Expropriation Act.
2.
PEV and Warner are owners of lands as defined in Section 3(1) of the
Expropriation Act, specifically, PEV and Warner are owners of an interest in the Subject
Property, by virtue of an agreement dated July 18, 2005 between Warner and PEV, for the
purposes of entitlement to payment under the Expropriation Act. [Emphasis added]
Document: 246581
- 45 [112]
On June 6, 2007, Keltic announced it had received environmental approval
for the Goldboro development. On July 1, 2007, the option agreement between the
Municipality, Maple, and 4Gas was amended to change the exercise date from June 30,
2007, to November 30, 2007. On July 12, 2007, there was an option agreement between
the Municipality and Keltic for the purchase of lands for a co-generation facility,
petrochemical facility and marine terminal, for three payments of $25,000, each. This
was further amended on November 15, 2007.
[113]
By this time, Mr. Warner was moving ahead with a claim for compensation
for his fee simple interest in the land. Mr. Hayman wrote to the Municipality on December
12, 2007, stating that there were no claims for business disturbances or injurious
affection. He disagreed that the Warner and PEV claims were intricately connected and
said that PEV was not a fee simple owner. His letter stated that PEV’s interest is through
the business agreement and its claim is based in possible damages for business
disturbance and loss of special economic value, noting the claims are distinct and
independent.
[114]
By January 18, 2008, the Board issued an Order in which it is stated that
Counsel for the Municipality had withdrawn a request to have both the Warner and PEV
claims dealt with simultaneously.
[115]
On February 4, 2008, the Municipality and Keltic entered into another option
agreement which had similar terms regarding price to the previous option.
[116]
On July 4, 2008, Mr. Vandall sent a fax to Mr. Warner indicating that, in his
view, the value of the Warner land was about $600,000 and that the tolls were worth
$1,588,582, for a total of $2,188,582, as a minimum value, based on the Maritime
Northeast (“MNE”) tolls projected in 2004.
Document: 246581
- 46 [117]
In August 2008, Daniel O’Halloran of O’Halloran Campbell Consultants
Limited provided an opinion in the Warner proceeding on the attributes of the Warner
property, indicating it was well suited to large industrial projects and with marine terminals.
He described factors combining to add substantial value to land in the area and opined
that “…as a direct consequence of these facts, the value of the Warner property with its
waterfront is very substantially enhanced over what it would otherwise be…” (Exhibit P19(ii), p. 1031).
[118]
Over the months between August 2008 and May 2012, the Municipality
entered into various option agreements and renewals of option agreements, which
included the Warner property. By October 21, 2009, a series of preliminary hearings
ensued, with various correspondence coming from PEV directly to the Board. In a letter
dated April 8, 2013, PEV indicated that Mr. Crissman of Statia had contacted Mr. Hines,
the Warden of the Municipality, in the spring of 2005. The letter further stated that the
Municipality has benefitted from its ownership without paying anything to PEV and
references PEV’s development rights and intellectual property.
The Appraisals
a) Altus Group (Earle)
[119]
The Warner property has been the subject of a number of appraisal reports.
In order to provide some context, the Board sets out particulars of an appraisal report
undertaken by Glenn Earle, of Altus Group, which was included in the Respondent’s
disclosure (Exhibit P-11(a), pp. 279-331).
[120]
This report, dated March 25, 2003, was commissioned by the MODG at a
time when, as Mr. Cleary testified, the Municipality was beginning to create the Goldboro
Document: 246581
- 47 Industrial Park (“Industrial Park”). It had first acquired Crown lands, and then began to
look at private lands in the area, in particular those on the shoreline, which would
eventually have to be zoned industrial. The MODG asked for an appraisal of the Warner
property because it wanted to enter into negotiations with Mr. Warner.
[121]
$540,000.00.
Mr. Earle opined that the market value of the Warner property was
Although he noted that the property was zoned R-1 Residential, he
concluded that the Highest and Best Use of the property “…is for medium to long term
speculative bulk industrial holding lands”. He did so, taking into account “…anticipation
of future development in relation to the gas pipeline and other facilities in the area…” and
the Municipality’s interest in expansion of the industrial park and anticipated growth of the
oil and gas industry in the area. (See Exhibit P-11, p. 293.)
[122]
As noted above, approximately one year later, the MODG and Mr. Warner
entered into a conditional Agreement of Purchase and Sale for the lands for a price of
$435,000.00 together with a contribution of $10,000.00 towards the cost of quieting the
title to the property.
b) MacKay Group
[123]
A subsequent appraisal, dated February 12, 2006, was undertaken by Peter
Constable and Ralph Taylor, of The MacKay Group Ltd., on behalf of the MODG (Exhibit
P-11, pp. 332-380).
Entitled an “Expropriation Valuation”, this report indicated
compensation payable of $608,000.00, and noted the zoning in one part of the report as
M-3, and in another as M-2. Highest and Best Use was indicated to be for “Industrial
Development” or “Industrial”.
Document: 246581
- 48 c) Ingram Varner
[124]
In conjunction with Mr. Warner’s claim for compensation under the Act, the
Municipality engaged John Ingram of Ingram Varner and Associates to provide an
appraisal report. Mr. Ingram’s initial report, dated May 28, 2008, was filed as part of the
MODG documentary disclosure (Exhibit P-11(a), pp. 381-431).
[125]
In that report, Mr. Ingram stated the market value of the land to be
$1,010,000.00. He found no injurious affection to remaining land (of which there was
none), and no amount for disturbance or special economic advantage. Mr. Ingram noted
the zoning as M-3 (Industrial Resource) and indicated that the Highest and Best Use was
“…a holding use in anticipation of development of a large scale heavy industrial use”. Mr.
Ingram further noted:
…Such a use would be expected to be related to the offshore oil and gas industry. This
anticipated use remains somewhat speculative with an element of risk as competitive
pressures from other market locations and government policy decisions as well as
unexpected outcomes from the initial planning and development process could impact on
the marketability of the location.
[Exhibit P-11(a), p. 405]
[126]
As Mr. Ingram testified, he prepared a subsequent report, dated July 15,
2008, (Exhibit P-22, Tab 1), because the earlier report had not taken into account the
impact of past mining activity on the property which he had not known about earlier. He
made no changes in his finding of Highest and Best Use, but concluded the value to be
lower, as a result of the rehabilitation required and the existence of the mine tailings. The
reduced value was $910,000.00.
[127]
Mr. Ingram testified that he had valued the fee simple interest in the land.
His conclusion about the Highest and Best Use of the property was based on the zoning,
the adjacent property uses and the general demand in the area. In reaching a value for
the lands, he used the direct comparison approach and examined a number of vacant
Document: 246581
- 49 land sales, all but two of which (both in Point Tupper) were in the Goldboro area. The
sale on which he placed greatest reliance was a May, 1998, sale to Nova Scotia Power
Incorporated (“NSPI”) for lands immediately adjacent to the Warner property, which he
had adjusted for time. Those lands had been zoned residential at the time of the sale.
[128]
Mr. Ingram acknowledged that option agreements, and in particular, the
December 31, 2004 option between the MODG and Keltic, would be relevant both to the
highest and best use and the market value of the lands. This was also true of the email
to the Province from MODG dated March 10, 2005, inquiring about a meeting with respect
to Crown lands.
[129]
Mr. Ingram also acknowledged that he had no knowledge of PEV until 2015,
when he was asked to review the Altus report authored by Charles Hardy; thus, he had
no discussion with anyone from PEV, nor with Mr. Warner.
[130]
Mr. Ingram stated that the reason he had considered a holding use for the
property’s Highest and Best Use was his view that there was a need for a process of
obtaining various approvals before development could occur on the property.
[131]
The Respondent had asked Mr. Ingram to review and respond to the report
prepared by Mr. Hardy, and his comments were included in Tab 2 of Exhibit P-22. His
main concerns with that appraisal were: Mr. Hardy’s comparable sales were focussed on
lands used or intended for LNG facilities only; he had not taken into account any locational
considerations, particularly with respect to lands in British Columbia; he provided no
evidence of a premium paid for lands for LNG facilities; he had used sales after the
effective date without making adjustments; and he failed to include the New Brunswick
Canaport land assembly in his comparable sales.
Document: 246581
- 50 [132]
The Board notes, as an aside, that there was confusion regarding the value
of the Canaport lands, as it appeared that Mr. Ingram was relying on an Altus report in
another matter and had not included one particular sale.
This impacted what he
concluded was the average land cost per acre for that land assembly.
d) Turner Drake
[133]
Lee Weatherby of Turner Drake & Partners Ltd. had provided an opinion of
value, dated June 26, 2007, on behalf of Mr. Warner, for the purposes of his claim for
compensation (Exhibit P-11(a), pp. 480-530). He concluded the value of the fee simple
interest as $3,755,000.00, and noted that in addition, Mr. Warner and PEV “…are entitled
to pursue a claim for compensation by virtue of their July 2005 agreement…” which his
report had not valued. Mr. Weatherby noted the M-3 zoning. His conclusion on Highest
and Best Use was:
…we consider the Highest and Best Use of the subject property to be for industrial
development consistent with its zoning and its location adjacent to the Goldboro Industrial
Park. The zoning specifically targets energy related industries and that is the most logical
use for the subject property because of its strategic location relative to existing gas
pipelines and gas processing infrastructure. Goldboro is identified as one of only three
potential LNG terminal sites in Atlantic Canada because of its existing infrastructure the
other two being in Saint John, NB (Canaport/Repsol) and Bear Head, NS (Anadarko),
emphasising the strategic importance of Goldboro for this type of facility.
[Exhibit P-11, p. 512]
[134]
The sale to which Mr. Weatherby had given the greatest weight was the
sale of the Bear Head LNG site at Point Tupper in April 2005, by Nova Scotia Business
Inc. (“NSBI”). He ascribed a number of advantages to the Bear Head site, compared to
Goldboro.
[135]
It does not appear that Mr. Weatherby made any adjustment regarding the
past mining activity on the lands as Mr. Ingram had done in July, 2008.
Document: 246581
- 51 e) McNally (Telford)
[136]
With respect to PEV’s claim, the Respondent engaged Robert Telford, of
McNally Land Services Ltd. His report (Exhibit P-8), dated December 12, 2013, stated
“…the estimated maximum compensation attributable” to the Agreement between Mr.
Warner and PEV, is, in his opinion, $47,000.00. Mr. Telford stated that the zoning of the
property was M-2 (Industrial Heavy), and concluded that the property “…would be
considered to be a holding property until there is a demand for industrial development”
(Exhibit P-8, p. 26).
[137]
Mr. Telford took a different approach to other appraisers who opined on the
Warner property. This was, apparently, for two reasons; first, he stated that the fee simple
market value of the property had been determined by the Board in the Warner decision
as $1,340,000.00 which includes all the “bundle of rights” in the property: and second, his
purpose was to estimate the value attributable to the PEV/Warner agreement “…found to
be an interest in land…” which he considered would be included in the bundle of rights.
[138]
Mr. Telford was clear that he was not undertaking a “market value
appraisal”. Mr. Goldberg challenged this approach in the following exchange:
MR. GOLDBERG: …You jumped to the conclusion that the Warner valuation was the fee
simple valuation of this land, didn't you?
MR. TELFORD: I believe I stated -- let me just find that section:
“The market value of the subject property has been determined by the Nova Scotia
Utility Board in that decision.” (As read)
MR. GOLDBERG: Right. So you --MR. TELFORD: So that they have determined the market value of the property. I go on
to look at what I am valuing after that, which is the compensation associated with the
agreement.
MR. GOLDBERG: So a lawyer could have valued that. You’re not -- what -- you’re an
appraiser, a landman. I mean, that’s not what you were hired to do.
That’s not an appraisal. A lawyer could value that. You’ve [sic] making legal assumptions.
Document: 246581
- 52 MR. TELFORD: I am making an estimate of value of a partial interest in the land based on
my interpretation of the valuation aspects of that agreement.
[Transcript, pp. 121-122]
[139]
Mr. Telford concluded that the PEV/Warner agreement identified three
components of remuneration; lease revenue; purchase of the lands; and pipeline tolls.
The figure he reached was based on the initial consideration of the Option agreement
between MODG and Keltic of August/September 2005, which he tied to PEV’s right of
first refusal, and the compensation paid by Encana for a pipeline and valve site
agreement, which he tied to lease agreements. He did not include any amount for pipeline
tolls, noting Encana had paid lump sums to the MODG.
[140]
Mr. Telford concluded that because the value set by the Board for Mr.
Warner’s interest was less than $5 million, PEV would not be entitled to any compensation
under Section 7(b) of the Agreement. Mr. Goldberg explored this further with Mr. Telford
who then said that $47,000 was the maximum compensation in his opinion, and in fact it
might be “zero”, describing a range from $0 to $47,000. Later Mr. Telford acknowledged
that he did not know of the January 2005 Keltic option, which would, using his approach
to valuation, increase the amount by $2,500. He did not agree with Mr. Goldberg that a
$250,000 payment made by Maple LNG on February 10, 2006, should be included
because it was after the expropriation.
In his view, only what was in effect or
“contemplated in process” at the effective date is relevant. He also said that not all of the
option payments made to the MODG related to the Warner property.
[141]
Mr. Telford acknowledged that if the market value of the Warner property
was greater than $5 million, then under the terms of the Warner/PEV agreement, PEV
would be entitled to an amount calculated in accordance with the terms of Section 7(b).
Document: 246581
- 53 He did not agree, however, that PEV would be entitled to the difference between the
amount the Board awarded to Mr. Warner and the market value. He further did not see
that PEV brought any special economic advantage to the property because, in his opinion,
that would require PEV to occupy the property.
[142]
Further, Mr. Telford had not taken into account the per diem remuneration
of US$9,300 referred to in Section 10 of the Warner/PEV agreement as he viewed this
as a business loss. It was his opinion that PEV was not carrying on a business at the
property, and he understood that PEV had withdrawn its claim for business loss.
[143]
On cross-examination, Mr. Telford agreed that this was not a “typical”
appraisal. He had not spoken to any representatives of PEV, nor had he reviewed their
development plan. He did not, however, consider “…the PEV Development Plan and
feasibility plan…” relevant, although he said that the exclusive right to develop an LNG
site could be relevant to highest and best use.
[144]
Mr. Telford was uncertain whether he had seen the press release issued by
PEV on October 19, 2005. He said that this date, and the expropriation decision taken
by the MODG on October 26, 2005 “could be” relevant to determining the highest and
best use of the property. He suggested that the MODG had had an interest in the property
for some time due to a previous agreement of purchase and sale or option.
[145]
Mr. Telford acknowledged that he was mistakenly advised about the zoning
of the property as of the effective date, and while he agreed that the change in zoning
from M-2 to M-3 is a relevant factor in highest and best use, zoning is only one factor in
considering the legally permissible use of a property.
[146]
The Board questioned Mr. Telford about valuing the “rights” of PEV under
the agreement:
Document: 246581
- 54 THE CHAIR: Okay. So knowing what you believe to be the rights that PEV has to this -in this property by virtue of the agreement, is it your opinion that there’s a market for those
rights? In other words, could PEV have gone to Celtic [sic] or one of these other companies
that’s been mentioned and said, “I have these rights; what are you prepared to pay me for
them?”
MR. TELFORD: They could have. That’s more on you’ve got some rights but with those
rights you’d have to look at what those rights are worth, whether the project -- this gets into
the business valuation, whether a project is feasible, what the income is, and you’d had to
come up with something to evaluate those rights. They had a right to develop an LNG
plant on that site exclusively, but whether someone would pay for that, I’m not sure.
THE CHAIR: Okay. So would you use a different approach to valuing that set of rights?
MR. TELFORD: Well, intrinsically, when we look at the rights for that development, you
look at the project of what the possibility and the financing and the market and the
contracts, what that would entail because, in essence, is if someone didn’t like the rights
that PEV had on that property, they could flip over to the next property and buy that property
and develop an LNG facility on that, if that makes sense. They wouldn’t be stuck totally
with LNG or with that one Warner property; they could move over and develop it.
So you’d have to balance those rights with the rights that they could gain from
somebody else next door.
THE CHAIR: And next door is the industrial park.
MR. TELFORD: Yes.
[Transcript, pp. 163-165]
[147]
Mr. Telford acknowledged that whether PEV’s rights or the land itself was
being valued, highest and best use must be considered.
[148]
Mr. Telford was asked by the Respondent to review Mr. Hardy’s report. His
review was filed as Exhibit P-20, and noted a number of issues. In particular, Mr. Telford
noted that Mr. Hardy had made an “extraordinary assumption” which led him to value the
Warner lands “…as if the only use is a LNG plant”. He said that the four criteria for
determining Highest and Best Use had not been specifically discussed, with insufficient
discussion of the probability of success or financial feasibility.
[149]
Further, Mr. Telford said that Mr. Hardy’s review of the development of LNG
up to 2014 should not have been considered in his analysis because it was unavailable
around the time of the effective date of expropriation. He also noted that Mr. Hardy had
Document: 246581
- 55 included information from PEV which was not before the Board in the hearing of Mr.
Warner’s claim.
[150]
Mr. Telford also had similar concerns to those expressed by Mr. Ingram
regarding the comparable sales used by Mr. Hardy, due to their location, their dates (after
the effective date without appropriate adjustment), the wide price range, and the use of
only potential LNG sites.
A significant concern was that Mr. Hardy stated he was
estimating the value of the property rights of PEV, in Mr. Telford’s view “an interest less
than the Fee Simple”, but in fact Mr. Hardy had valued the Fee Simple rights. Mr.
Goldberg explored this with Mr. Telford:
MR. GOLDBERG: In fact, sir, wouldn’t you agree that you really believe that PEV is entitled
to zero? The land was valued at a million 340, was paid to Warner, that’s the fee simple;
that the end of the story.
MR. TELFORD: Is -- and then there’s the subset of the PEV interest in that land and --MR. GOLDBERG: So if Warner got a million 340, and that’s the fee simple, and PEV gets
47, isn’t that impossible? That’s over a million 340. A million 340 for Warner and 47 for
PEV; that’s over the fee simple.
MR. TELFORD: In theory, that should be deducted from the fee simple.
MR. GOLDBERG: But if Warner was paid for the fee simple, by extension, isn’t PEV
entitled to nothing?
MR. TELFORD: PEV’s interest should have been in that but it was determined that PEV
had an interest in the land and that’s to be evaluated separately.
MR. GOLDBERG: But the Municipality knew that when they went ahead with only one
party -- there’s two owners. Two owners.
MR. TELFORD: There’s --MR. GOLDBERG: So you would agree, in fact, that if this Board were to find any money
owing to PEV, that the amount paid would be in excess of a million 340.
MR. TELFORD: That would be correct.
[Transcript, pp. 126-128]
f) Altus Group (Hardy)
[151]
Charles Hardy, also of Altus Group, prepared an appraisal report on behalf
of the Claimant, dated March 31, 2015, and filed as Exhibit P-18. His opinion is “…that
Document: 246581
- 56 the value of the property rights taken from PEV as of the effective date…is: $8,986,000.”
At the conclusion of his extensive report, he arrived at this figure by subtracting the
Board’s determination of the value of Mr. Warner’s interest ($1,340,000) from his opinion
of the market value of the land for an LNG site ($10,326,000).
[152]
Mr. Hardy acknowledged in response to a Board question that the interest
which he was valuing was ‘”quite unique”. He had stated in his report that he had “…not
valued an LNG project prior to this assignment”. However, he confirmed in his testimony
that, over the years of his experience he had moved into “…more strange and difficult
assignments basically with land or complex properties” (Transcript, p. 1813).
[153]
Mr. Hardy confirmed several times throughout his testimony that his
mandate was to value the rights of PEV under the Warner/PEV agreement. He described
this at page 9 of his report:
Property Rights Appraised
The property rights which are to be appraised are those which provide PEV with the
exclusive rights to develop the Warner property comprising of some 187.75 acres (as per
the registered plan on title) with ocean frontage located in Goldboro, Nova Scotia. The
intended development was for a liquid natural gas (LNG) terminal, a compressed natural
gas (CNG) terminal, subsea pipelines, and electrical power generation plants. The
agreement also provides PEV with the right of refusal on the purchase of the Warner lands,
in the event that Warner wanted to sell the Warner land.
This agreement was made on July 18, 2005.
The property rights appraised are therefore considered to be the benefits which will accrue
to PEV over and above the market value of the land for general industrial purposes as part
of the Goldboro Industrial Park, as of the effective date February 7, 2006. [Emphasis
added]
[Exhibit P-18, p. 9]
[154]
In addition to certain contingent and limiting conditions set out in his
appraisal report, Mr. Hardy listed a number of “extraordinary assumptions” he had made
in order to complete his report. While these were the subject of questioning at the hearing,
two in particular bear noting:
Document: 246581
- 57 1.
I have been provided with and relied upon a great deal of information from PEV. I have
verified it with other sources where available and conducted our own independent
research.
...
5.
I have read the PEV Business Plan and various contracts with various proposed
partners which I consider to be valid. I have also read email correspondence with
Golar LNG and Nigeria LNG, the remaining partners required in the group and
consider that there was a good potential that the business plan would have come to
fruition with these parties soon after the effective date had the expropriation not taken
place. [Emphasis added]
[Exhibit P-18, p. 11]
[155]
On cross-examination, Mr. Hardy acknowledged that he did not have data
to support some of the other extraordinary assumptions he had made. He also agreed
that his expertise with respect to LNG, the design of LNG facilities, evaluation of economic
or technical feasibility of LNG facilities, the design and location of wharves or docking
facilities, and design of marine engineering facilities, was limited, mainly, to the research
he had undertaken to complete his report.
[156]
Mr. Hardy reviewed the Ingram and Turner Drake reports, and the sales
relied upon therein, which were before the Board when adjudicating Mr. Warner’s claim,
and also reviewed the Warner decision, concluding:
All of the information could have been clarified by PEV but unfortunately PEV was neither
a party to nor present at the hearing as they had not even been told that the hearing was
taking place. No evidence was given regarding the PEV development plan and no evidence
was given by PEV.
[Exhibit P-18, p. 21]
[157]
Mr. Hardy reviewed the Warner/PEV agreement and stated:
The intention was to assist in the development of the site to maximize profits and even the
possible sale of the Warner lands and PEV rights. The intention was to work with third
parties who had the financial and technical capacity to fully develop the project and build a
team in which a third-party will take the lead on the initiatives.
[Exhibit P-18, p. 23]
[158]
Mr. Hardy went on to include a section in his report entitled “Information
That was Unknown to the URB at the Time of the Warner Hearing” (Exhibit P-18, pp. 37Document: 246581
- 58 48). He stated that PEV “…did not appear, nor were they notified of the Warner hearing”,
and consequently information having a “significant bearing on the value of the land and
PEV’s interest” was not before the Board. Mr. Hardy then continued with a discussion of
the PEV Development plan, including background, and objectives, as well as a discussion
of the “Goldboro Site and Proposed Facilities”. He also listed the activities carried out by
PEV over a three year period by way of analysis and research.
[159]
Mr. Hardy elaborated at the hearing on why he had included this in his
report:
MR. GOLDBERG:
…Could you -- without, again, going into what's there as -because everybody can read it, could you elaborate why you put that in your report and
what it -- what it's meant to contain?
MR. HARDY: It's meant to contain the fact that, at the Warner hearing, PEV were not in
attendance. They weren't asked to be in attendance, and they weren't told about it, so they
had no input whatsoever. And if they'd been able to testify, the -- there would have been
a lot more information given at the Warner hearing.
MR. GOLDBERG: And without getting into specifics, what general types of information are
you referring to?
MR. HARDY: Well, particularly the business plan; the way that LNG sites operate, what a
plan is and how -- how the different participants would work within the plan.
MR. GOLDBERG: Which participants are you referring to?
MR. HARDY: Well, in -- in the plan, the plan had the LNG provider, which was to be Algeria
LNG --MR. GOLDBERG: Algeria?
MR. HARDY: Nigeria.
MR. GOLDBERG: Thank you.
MR. HARDY: Statia Terminals would be the terminal operator. Golar would be the people
who shipped the LNG and also provide the floating storage and degasification -regasification.
MR. GOLDBERG: Okay.
MR. HARDY: Now, the fact that those were the players in the business plan, it may not
have ended up being them, but at least the business plan was there and those players may
have got together and played out the final work, but it's -- it was the plan. And any one of
those people could have been swapped by somebody else with similar interests.
Document: 246581
- 59 It's -- the business plan itself, I found quite compelling. [Emphasis added]
[Transcript, pp. 1839-1840]
[160]
Mr. Hardy concluded that the Highest and Best Use of the property, by
which he meant both the Warner land and the PEV interest, “…is for the use as an LNG
facility either on its own or together with other facilities associated with the use of natural
gas or its bi-products for which there was an immediate demand” (Exhibit P-18, p. 49).
[161]
Just as Mr. Ingram and Mr. Weatherby had done, Mr. Hardy used the Direct
Market Comparison Approach. Because of the specific Highest and Best Use he had
identified, and the relatively small number of transactions to compare, Mr. Hardy decided
to use an approach which saw him compare the Warner property with properties “having
the same Highest and Best Use, same physical advantages for that use with similar
access to supply and demand” rather than use “sales of general industrial land which
have sold in the reasonable vicinity of the subject property” which did not have the same
Highest and Best Use or characteristics (Exhibit P-18, p. 51).
[162]
Mr. Hardy used similar sites in North American markets for a number of
practical reasons, but found that sales were few. The only three Atlantic Canadian sites
considered capable of LNG development were Canaport, at Saint John, New Brunswick;
Bear Head at Point Tupper, Nova Scotia, and the Warner property at Goldboro. Mr.
Hardy’s LNG transaction research led him to investigate sales in the United States and
sales and options in British Columbia, some of which were after the effective date of the
expropriation in order to establish benchmarks. He also considered a trans-shipment and
storage terminal for LNG in Newfoundland which he stated formed the bottom of the range
he established, as well as proposed facilities in Quebec.
Document: 246581
- 60 [163]
The Bear Head transactions and the Canaport transactions received,
perhaps, the greatest attention as comparables in Mr. Hardy’s report, and in the hearing
itself. Bear Head had also received significant attention in the Turner Drake report and
the earlier Board hearing on Mr. Warner’s claim.
[164]
Mr. Hardy’s report described the 2005 Anadarko Bear Head acquisition and
project. It was to be built on a large site at Point Tupper, together with a water lot, and
was envisioned as an LNG import facility with storage and regasification facilities on land.
It would require a lateral pipeline to be built to connect to the MNE pipeline. It was
purchased for in excess of $4.6 million from NSBI. Mr. Hardy understood from NSBI that
the price had been informed by a market value appraisal, but he considered that this was
influenced by industrial park land prices because the LNG market was not well
established then. He considered the cost of the lateral construction to be about $215
million based on his interpretation of notes in Anadarko’s financial statements.
[165]
Mr. Hardy’s report included a description of the activity undertaken by
Anadarko at the Bear Head site:
Anadarko continued to prep the Bear Head site and performed detailed engineering and
substantial site construction including two LNG tank foundations and civil works involving
roads and culverts. Development of the site was halted in 2006-2007 due to changing
market conditions and Anadarko took a $111 million dollar charge against fourth quarter
2006 earnings, writing off its investment in the site…[Emphasis added]
[Exhibit P-18, p. 58]
[166]
The report included an image or photograph of the site works which had
been completed. Mr. Hardy continued with a description of the sale from Anadarko to
Liquefied Natural Gas Limited in 2014 at a per acre price of $47,756 with plans for an
export terminal. Mr. Hardy considered the “upland” (i.e., other than the water lot) per acre
rate to be about $55,714 because of the completed works. Mr. Hardy testified that the
Document: 246581
- 61 “development work” undertaken on the property “would have had some benefit to the
purchaser” (Transcript, p. 1894). This was further explored on cross-examination:
MR. GRANT: You stated earlier that you weren't sure what of the investments that
Anadarko made in the Bear Head facility were of value to the purchaser of the facility in
2014; correct?
MR. HARDY: Yes.
MR. GRANT: Right. You do know that the facility was -- or the Bear Head property at that
time was levelled off, cleared, and prepared for site work.
MR. HARDY: Yes. That's as it is in the photograph.
MR. GRANT: Right. And that site work included the construction of access roads to the
facility.
MR. HARDY: Yes.
MR. GRANT: And that would -- that would have some value to any purchaser of the land.
MR. HARDY: Yes.
MR. GRANT: It also included pre-engineering work.
MR. HARDY: Yes.
MR. GRANT: And that pre-engineering work resulted in some actual construction work
happening on the site.
MR. HARDY: Yes.
MR. GRANT: Foundations for LNG storing -- storage tanks were constructed.
MR. HARDY: Correct.
MR. GRANT: You would agree with me, sir, as well, that any LNG export facility -- for any
LNG export facility at that site, storage tanks would be a positive component of the facility.
MR. HARDY: Yes. Correct.
We spoke with the people at Bear Head, and they told us they could use most of
the -- or a lot of the infrastructure that was there.
MR. GRANT: Right. The Bear Head Project as put forward by Anadarko had also received
a number of environmental approvals and regulatory approvals.
MR. HARDY: Yes.
MR. GRANT: And those -- the exercise of obtaining those approvals is an expensive
undertaking, isn't it?
MR. HARDY: Yes.
Document: 246581
- 62 MR. GRANT: Your clients estimated that the cost for PEV of obtaining environmental and
regulatory approvals would be between 8 and $10 million.
MR. GOLDBERG: He never said it was PEV's costs, Madam Chair.
MR. GRANT: No, for the PEV proposal would be between 8 and $10 million.
MR. HARDY: I believe so.
MR. GRANT: Do you want me to -- does that ring a bell or do you want me to turn it up?
MR. HARDY: It rings a bell, yes.
MR. GRANT: Okay. And you wouldn't take issue with that estimate.
MR. HARDY: No.
MR. GRANT: They also estimated it would take 16 to 20 months to obtain those approvals.
MR. HARDY: Yes.
MR. GRANT: From your reading in the field, that's not out of line, is it?
MR. HARDY: No.
MR. GRANT: It may be a little light. It may take, actually, longer than that timeframe.
MR. HARDY: It could.
MR. GRANT: So the -- to the extent that the purchaser of the shares of the company that
owned the Bear Head LNG property could utilize any pre-existing approvals in order to
accelerate or propel its export facility, that would be additional value.
MR. HARDY: Yes, I was aware of that.
[Transcript, pp. 2011-2014]
[167]
After reviewing the various Bear Head approvals in place, Mr. Grant queried
the status of permits and approvals in place for the Warner property with Mr. Hardy, who
was aware of none.
[168]
The Canaport facility in Saint John was constructed in conjunction with
lands owned by Irving Oil. Irving carried out a land assembly over the period from 2005
to 2007 for what Mr. Hardy described as “buffer lands and future industrial
development/holding purposes” with prices ranging from $200/acre to about
$40,000/acre. Only two of these parcels had waterfrontage.
Document: 246581
- 63 [169]
The transactions which Mr. Hardy examined in British Columbia were for
proposed export facilities and took place between 2011 and 2014. The price per acre of
these various parcels, most of which were large and generally remote, ranged from Mr.
Hardy’s calculated per acre rate of just under $31,000 (BC LNG) to $347,222 (Woodfibre
LNG) according to his narrative, but on his summary chart ranged from $10,297 (BC LNG)
to $235,632 (Kitimat LNG). He did not include the Canaport purchases in his summary
because he considered them buffer land purchases.
[170]
The only United States transaction Mr. Hardy included in his report was
Golden Pass LNG, for which he calculated a price of over $37,000/acre.
[171]
Mr. Hardy concluded a per acre value of $55,000 which he applied to the
Warner lands. Mr. Hardy testified that he did not believe he could apply British Columbia
prices to Atlantic Canada. He described how he had reached this conclusion in his report:
Based on the preceding information and transactions identified none of the sales are
considered directly comparable but provide a good basis for benchmarking purposes and
a general atmosphere for LNG specific uses. Based on our preceding analysis a narrowed
price range of $55,000 to $100,000 is established between the 2nd Bear Head transaction
and the BC LNG land transactions. Due to the unknown differential between LNG
economies on the west coast vs the east coast a value at the bottom end of the range is
considered applicable. Thus, the 2014 Bear Head sale from Anadarko to LNGL is
considered to provide the best evidence of market value for the Goldboro site despite it
being seven year later than the expropriation date but also taking into account the
significant capital costs for pipeline connection.
Exhibit P-18, p. 73]
[172]
This led him to an “LNG Market Value” of the Warner land of $10,326,000
(rounded) from which he deducted Mr. Warner’s award “…which was representative of a
significantly reduced Highest and Best Use” to arrive at $8,986,000 as compensation for
PEV. Mr. Hardy testified about the reason for this conclusion:
MR. GOLDBERG: Okay. And once you did that, just going through what you described
as your methodology earlier, what do you do now to value the Warner -- the PEV interest?
MR. HARDY: The Board had already awarded Warner money for his interest.
MR. GOLDBERG: Okay.
Document: 246581
- 64 -
MR. HARDY: And so all of the work that had been done to the site had been done by PEV
to increase the value, and so I deducted the Warner interest from the LNG market value to
arrive at the PEV compensation.
MR. GOLDBERG: And you don’t seem to have taken into account the allocation in the
Warner agreement on sale where there's a split after five million.
Is there a reason you didn't do that?
MR. HARDY: Yes, there is.
MR. GOLDBERG: And what is that?
MR. HARDY: Well, once expropriation occurs -- there were two interests. There’s the
Warner interest, and there’s the -- and the PEV interest.
Once the expropriation takes place, those interests, they -- those interests have to
be compensated for.
The agreement is no more because there was no -- the agreement contemplated
selling the property or leasing the property once it -- once the value had been reached,
maximum value. There was no intention of selling it prior to that, and the agreement had
also had a safety clause for PEV that if -- should Warner want to sell -- and they both had
to agree to sell. Should Warner want to sell, then they would have a right of first refusal.
So the intention of the agreement had not had time to work itself through.
Warner's -- Warner's interest was that he was going to get rent for the site and he
was going to get tolls, and when it did reach its maximum value and they did sell it, Warner
would receive the first 5 million. And then after the 5 million to the 10 million, they would
receive 50 percent each. And then after that, it was -- I believe it's 33 and 66 percent.
But that -- that had never come to fruition.
Also in the Warner agreement, if everything fell apart, they would have -- PEV
would have nothing and Warner would still have his land.
So it was a very safe agreement for Mr. Warner with PEV having to do all the work,
and PEV hadn't been able to accomplish the LNG centre, purely because the land had
been expropriated. [Emphasis added]
[Transcript, pp. 1858-1860]
[173]
Mr. Hardy acknowledged that he had not made any reduction in the value
of the Warner property for the mining activity that had been identified and accounted for
in the Board’s Warner decision; nor had he made any reduction in value for land which
would be surplus to the requirements for the LNG facility proposed by PEV.
Document: 246581
- 65 [174]
Mr. Hardy did not attempt to value any other revenue referred to in the
Warner/PEV agreement, nor did he try to value PEV’s interest, although he believed to
be marketable.
[175]
In the preparation of his report, Mr. Hardy had reviewed both the July 2008
Ingram report and the Turner Drake report. He took issue with Mr. Ingram’s failure to
speak to PEV’s representatives, his not considering LNG as the highest and best use, his
not considering all the various announcements in newspapers and option agreements
entered into. He observed that Mr. Ingram was valuing Mr. Warner’s interest, not the
interest of PEV, and criticised the comparables he had used, especially the NSPI
purchase, and his treatment of the Bear Head transactions.
[176]
In responding to some of the criticisms of his own report, in particular his
conclusion of highest and best use, Mr. Hardy testified that the use was “in the realm of
probability” because there were a number of people wanting to develop the property,
based on the options he had reviewed. He further testified that based on the PEV
development plan, he considered the use to be “extremely profitable”.
[177]
Mr. Hardy had had the opportunity to review Mr. Telford’s report, and in his
view, Mr. Telford had not taken all factors into account, noting he had not even spoken to
PEV. He also reviewed Mr. Telford’s comments on his report. Mr. Hardy answered Mr.
Telford’s comment that he had not looked at “rights being Fee Simple, Leasehold or some
other variation” by saying that his “…mandate was to arrive at the property rights of PEV”
(Transcript, p. 1924). Mr. Hardy went on to say:
MR. GOLDBERG: Okay. And obviously, the last paragraph on that sentence about the
fee simple ownership, do you have any comment on that?
MR. HARDY: Where is that?
MR. GOLDBERG: On page 5, the last paragraph.
Document: 246581
- 66 MR. HARDY: Yes. Well, the Municipality did expropriate all interests in the property.
They're all expropriated.
I think that interests of an added value which have been put to the site by PEV just hasn't
been taken into account. [Emphasis added]
[Transcript, p. 1924]
[178]
Mr. Hardy was cross-examined on his understanding of fee simple rights:
MR. GRANT: Mr. Hardy, you would agree with me that the fee simple ownership and land
represents the complete bundle of rights that anyone can assert over real property.
MR. HARDY: Yes.
MR. GRANT: And any right in property granted by the fee simple owner of land is in
derogation of those fee simple rights.
MR. HARDY: I'm sure what you mean by "in derogation."
MR. GRANT: Well, it would inhibit or limit the rights of the fee simple owner to the extent
that any property rights are granted by the owner to another individual.
MR. HARDY: Yes.
MR. GRANT: And I think you gave some examples of the grant of such rights. One would
be a lease by the fee simple owner to a lessee.
MR. HARDY: Yes.
MR. GRANT: Another would be a grant of easement to a dominant tenement.
MR. HARDY: Yes.
MR. GRANT: An option to purchase or a right of first refusal would be another perhaps
equitable right which would reduce the rights of the fee simple owner.
MR. HARDY: Yes.
MR. GRANT: A licence to undertake certain activities on the property would also be in
derogation of the rights of the fee simple owner, would it not?
MR. HARDY: Yes.
MR. GRANT: And typically, the granting of such rights reduces the value of the fee simple
owner's interest; correct?
MR. HARDY: I wouldn't say always, but generally. [Emphasis added]
[Transcript, pp. 1926-1928]
[179]
Mr. Hardy viewed the provisions of Section 10 of the Warner/PEV
agreement as relating to business loss, something which he did not attempt to value. He
Document: 246581
- 67 also did not apply any of the calculations in Section 7(b) of the agreement. In his crossexamination, Mr. Grant took Mr. Hardy through the exercise of applying Mr. Hardy’s
market value of $10,326,000 as a notional purchase price to the terms of Section 7(b)
and posited that PEV would receive an amount of $2,715,160, contrasting that to PEV’s
expropriation claim.
[180]
Their exchange continued:
MR. GRANT: And if PEV had participated with Irving Warner in a hearing -- in an
expropriation hearing before the Board and an award of $10,326,000 were made as the
value of the property, under those circumstances, PEV would be entitled to $2,715,160;
correct?
MR. HARDY: I can't speculate on that because it was taken prior to the project reaching
its maximum value.
The project itself was cut off earlier than it should have been. The land was -- the
project was essentially cut off. It would never -- they would never have sold it at this stage.
MR. GRANT: But the question is not whether it was cut off or not. The question is; what's
the compensation that's due under expropriation? That's always a risk, isn't it?
Every property owner in the province can be expropriated.
MR. HARDY: Yes, that's correct.
MR. GRANT: Okay. And so the question becomes what's their entitlement at the date of
expropriation.
MR. HARDY: Well, in my opinion, their entitlement is what I've put in the report.
MR. GRANT: Okay. But --MR. HARDY: That value would have increased significantly once the project had got under
way, and they would all have made a lot more money.
This -- this wasn't --MR. GRANT: But that's not --MR. HARDY: --- this wasn't the intent of the -- of the agreement.
MR. GRANT: But your task -- your task, Mr. Hardy, and I thought you made it patently
clear, was to value PEV's rights as of the date of the expropriation; correct?
MR. HARDY: Correct.
MR. GRANT: So what would have happened after the expropriation is irrelevant to that
exercise, is it not?
Document: 246581
- 68 MR. HARDY: In this case, the Warner interest was done separately, and he was awarded
1.34 million, so if -- if you only -- if you apply the rules as you're suggesting under the
agreement -- I've forgotten what number it was -- it would have been two million and some
--MR. GRANT: Two million, seven hundred and fifteen thousand, one hundred and sixty
(2,715,160).
MR. HARDY: So the total compensation given would be 2 million, 160 plus 1 million, 340.
Who gets the rest?
MR. GRANT: Yeah. Well, your allocation, I would suggest, at page 73 of your report, gives
a windfall to PEV of 6,270,000 and change, more than it would have received if there were
consensual sale of the property to a third party.
MR. HARDY: But I don't think there would have been a consensual sale to a third party.
MR. GRANT: Okay. So what entitles PEV to a 6.27 million windfall?
MR. HARDY: Well, they obviously wouldn't have sold it at that price if they not -- if the first
5 million goes away.
They wouldn't have agreed to sell it. This was taken.
MR. GRANT: But isn't that -- isn't that the very premise of the Warner PEV agreement, the
premise being that for no consideration, no payment of cash, PEV gets to participate in the
development of the project and the proceeds from the sale of the project on the basis that
it may increase the value of the property, on the basis of that contingency. Correct?
MR. HARDY: Yes.
MR. GRANT: Okay. And --MR. HARDY: Although if everything falls apart, which -- which it wouldn't have done, I
don't think, but for the expropriation, Warner would still have had his land worth 1.34 million
when he hadn't -- he hasn’t done a thing.
MR. GRANT: It seems to me, Mr. Hardy, that you are giving PEV the benefits of the Warner
PEV agreement without shouldering any of the burdens of that agreement, which include
the distribution of shares from any proceeds from sale.
How would you comment?
MR. HARDY: My comment is that I haven't dealt with the distribution because the project
was cut short by the expropriation. It wasn't a sale; it was taken. [Emphasis added]
[Transcript, pp. 1936-1940]
The Engineers/Project Feasibility
[181]
Both the Claimant and the Respondent filed expert reports from qualified
engineers regarding the feasibility or viability of the PEV proposed project at Goldboro.
Document: 246581
- 69 a) James P. Lewis
[182]
Mr. Lewis is a professional engineer with a long history of involvement in
the natural gas industry, as well as other energy fields. He prepared a report on behalf
of the Claimant, dated April 1, 2015, and filed as Exhibit P-17. Mr. Lewis also testified at
the hearing when he also responded to the report filed by the Claimant’s expert, Phillip
Knoll, including Mr. Knoll’s critique of his report.
[183]
Mr. Lewis opined that PEV’s development plan “…is a comprehensive plan
for the development of an LNG import terminal at Goldboro that was economically viable
and easily executed” (Exhibit P-17, p. 8). His report expanded on his approach to his
retainer:
Even though the underlying fundamental feasibility may exist, the success of a project
depends on competent execution of the project which, in turn, depends on the correct
assessment of the technical content (engineering), LNG sources, and ultimate market of
users, the distribution mechanisms (such as pipelines) and the regulatory and approval
processes for the project.
Fortunately the planned project and the analysis of project execution requirements and the
means of fulfilling these requirements were documented in a PEV document "Development
of a Floating LNG terminal at Goldboro, Nova Scotia, Canada (A Development Plan),"
dated September 2005. This document is excellent and provides a very detailed description
of the then current development progress, the physical aspects of the terminal and the
interface with third party participants, e.g., LNG supply, transportation, distribution and the
gas markets…
The loss of the Goldboro site was serious, and probably fatal to the PEV planned project
and the value of the project to the developers, which was much greater than the "fair market
value" of the property for other uses…
[Exhibit P-17, p. 1]
[184]
Mr. Lewis used numbered subsections in his report, which he said were the
same as those used in the PEV development plan. As it appeared in his responses on
cross-examination, the subsections related to appendices to the development plan and
not the plan itself. Mr. Lewis considered the agreements between PEV and Mr. Warner
and third parties to be comprehensive.
The agreement with Statia Terminals was
important; on cross-examination, he commented on their involvement:
Document: 246581
- 70 MR. GRANT: Right. But you’d agree with me that the agreement does not commit Statia
to do anything other than to cooperate and study the project.
MR. LEWIS: Yes, and I don’t think, at this point, the project was at the point where you
could ask them to commit a large amount of money. At this stage, what you need is
cooperation.
MR. GRANT: Right. And Statia could allow -- could, at any point, on 90 days’ notice,
withdraw at that point in time.
MR. LEWIS: I think an exit clause is appropriate in -- at this stage of an agreement.
[Transcript, pp. 1761-1762]
[185]
Mr. Lewis viewed “…the selection of PEV as the leading project
proponent...”, the selection of Nigeria LNG as the LNG source and Golar for ships and
transportation as good choices. Mr. Lewis elaborated on PEV’s role in his testimony:
MR. GRANT: Now, Mr. Lewis, you then comment in subsection 3 that the selection of PEV
as the leading project Proponent was an excellent choice.
MR. LEWIS: I used the word “Proponent” in a different way than our group today is using
it, and I would say that my definition of “Proponent” in the way that I used it is, yeah, they
think it’s a good idea and it ought to be pursued, ought to be executed.
And it’s not in what I’ve heard earlier that a Proponent is the guy that funds it.
MR. GRANT: Okay. And you say the selection. There’s no selection involved, was there?
PEV is the driving party in this proposed project.
MR. LEWIS: I would characterize them as the flagbearer for the project, and not as the
infantrymen or the artillery or anything like that. They’re the flagbearer for this concept.
[Emphasis added]
[Transcript, p. 1762]
[186]
Mr. Lewis opined that Nigeria LNG would be interested in participating in
the project, and indicated he was aware of a Memorandum of Understanding (“MOU”)
with that company.
He said, however, that evidence of financial terms would be
“premature at this stage”. He also confirmed that he had no evidence of the terms of the
relationship between PEV and Golar.
Document: 246581
- 71 [187]
Mr. Lewis further confirmed he had not undertaken any investigation of any
power purchase agreements for the proposed power plants, or the electricity regulatory
regime in Nova Scotia.
[188]
Mr. Lewis found the “identification and analysis of potential gas markets in
Nova Scotia and for LNG imports in Nova Scotia…extensive and detailed”.
[189]
Mr. Lewis stated that the choice of FSRUs would accelerate the project
schedule. On cross-examination, he said that FSRUs were well-known in the industry,
and he had been aware of them since 1995. Although he noted some caution about gas
quality, he believed the requirement could be met without difficulty.
[190]
In Mr. Lewis’ view, contrary to what Mr. Knoll had suggested in his criticisms,
the capital structure and expertise were present in the PEV project. He noted that
regulatory agencies have approved similar projects elsewhere. He considered PEV
would be successful because the project was near the MNE pipeline which was to be
expanded, and located in an uncongested area of population, where jobs are needed.
[191]
Mr. Lewis believed that PEV was, in fact, being overly cautious in a number
of aspects of its development plan. However, he agreed that the degree of public
acceptability of the development would not be known until there had been completion of
the necessary consultation and environmental assessment.
[192]
Mr. Lewis said that he had not seen any of the presentations which PEV
had made to Keltic, Statia, Golar, or Mr. Warner. He had never met Mr. Warner. He
agreed that being first to market would be important, and in his view, it was not
unreasonable for PEV to suggest in its presentation to Mr. Warner in July, 2005, that the
Goldboro project would be able to start up in the fall of 2006. This was mainly due to the
use of FSRUs for LNG storage. He went on to say:
Document: 246581
- 72 MR. LEWIS: It would mean that you’d have to get hustling, and it would mean that the
regulatory delays could not be too difficult, but with those two conditions, that start-up date
is feasible. And the -- but on the regulatory delays, if this project has delays, they probably
have delays with similar regulatory problems with the other two terminals.
So I would say that’s pretty realistic.
[Transcript, pp. 1796-1797]
b)
[193]
Phillip Knoll
Phillip Knoll prepared an expert report on behalf of the Respondent, dated
July 8, 2015, and filed as Exhibit P-21. He stated that his task was to review the Lewis
report, together with the PEV development plan, and provide his opinion on the viability
of the Plan.
[194]
Mr. Knoll is a former President of Maritimes and Northeast Pipeline and has
worked for many years in the energy sector, including for a considerable time in Nova
Scotia.
[195]
In the introduction to his report, Mr. Knoll expressed the opinion that the “…
[PEV] project had no chance of succeeding”. He considered the development plan was
not comprehensive, did not demonstrate the viability of the PEV concept which he said
was “unsubstantiated” and not credible. He did not believe that the development plan
addressed the many hurdles that such a project would face. It lacked commitments of
capital and partner participation.
[196]
Mr. Knoll saw no evidence of PEV having secured a long term supply of
LNG which meant that it could not obtain financing or the necessary agreements with
pipeline companies. Such a commitment was fundamental in his view.
On cross-
examination by Ms. Kelly, Mr. Knoll acknowledged he had not investigated Nigeria LNG
or its capacity to supply LNG.
He had not spoken to Mr. Dosunmu or to PEV’s
representatives to discuss their respective relationships to Nigeria LNG, but relied on their
Document: 246581
- 73 email exchanges in forming his opinion. He did not agree that Mr. Dosunmu as an agent
committed Nigeria LNG to participation in the gas supply or any other aspect of the project
as contemplated in the structure illustrated in the development plan.
[197]
Mr. Knoll stressed the importance of being “first to market” and said that
PEV was far behind the Canaport and Bear Head projects. This would mean competition
for the natural gas market. In order to obtain regulatory approvals, he said that proof of
a market is “essential”, just as it is to obtain financing. Additionally, arrangements for
pipeline transportation to market is complex, and requires evidence of financial capability.
Mr. Knoll saw no evidence that PEV had had any discussions with MNE about obtaining
capacity on the pipeline at Goldboro, and considered them to be “significantly behind” the
Canaport and Bear Head projects on this point.
[198]
Mr. Knoll agreed that a project of this type develops on a continuum, starting
with a concept. In response to Ms. Kelly’s questions about PEV’s awareness of the
necessity of dealing with MNE, the following exchange occurred:
MS. KELLY: So I understand your comments, and I think if you look at the PEV
Development Plan, they recognize the need to get capacity on the Maritimes & Northeast
Pipeline.
MR. KNOLL: M'hm.
MS. KELLY: But with the right partners, with the right financial backing, this would not be
a problem, would it?
MR. KNOLL: Well, let's put that in context. Discussions wouldn't be a problem. What it
would require -- because PEV didn't have the wherewithal, I don't think; maybe they were
going to gain it sometime in the future -- is a plan that would service a market need that
wasn't there once Repsol -- in my opinion, once Repsol built their facilities. And so once - at the time of where PEV was at the point of expropriation, they still haven't fully formed
their concept, as far as I can see.
Document: 246581
- 74 They hadn't put their partnership together in any solid form, as far as I can see, at
least that wasn't presented to the pipeline company. And they were way behind the other
two Proponents, so I don't know how they were ever going to catch up. [Emphasis added]
[Transcript, pp. 2501-2502]
[199]
This was further addressed on re-direct examination:
MR. GRANT: Okay. Mr. Knoll, my friend asked you to acknowledge, and you did, for an
LNG project with the right plan and the right partner, Maritimes & Northeast Pipeline would
have an obligation to explore additional capacity to accommodate the project, right?
MR. KNOLL: Yes.
MR. GRANT: From what you've seen of the PEV Development Plan, would it constitute
the right plan with the right partner?
MR. KNOLL: No, not at all. From what I've seen here, this would not constitute or appear
viable at that time to Maritime -- Maritimes & Northeast at all, particularly with everything
that was on the go at that time, nor would it appear to me to be viable any time through the
continuum from then till now for them.
[Transcript, pp. 2511-2512]
[200]
Mr. Knoll’s report also discussed the numerous regulatory approvals and
permits required for a project such as the one proposed by PEV. In his opinion, obtaining
them is complex and can take several years and significant capital. He did not consider
that the development plan had taken all of the requirements into account.
[201]
Further, Mr. Knoll said that he saw no evidence of a “proper economic
feasibility analysis” in the development plan. He referred to some of the communication
between PEV and Golar, and PEV and Statia, which appeared to acknowledge the need
for such analysis. In his view, assumptions used in what was included in the plan were
unsupported, with insufficient detail.
[202]
Mr. Knoll expressed doubt about PEV’s capacity to carry out the concept,
saying he had seen no evidence of its resources, expertise or experience; no evidence
of specific agreements with the necessary counter-parties; and, no evidence that risk
capital was available to them, either internally or from third parties.
Document: 246581
Mr. Knoll
- 75 acknowledged, however, that Statia did have the capability to perform part of the
requirements, if it were viable. He also recalled that there had been some “introductory”
contact by Keltic with MNE during his presidency, although not with him personally.
[203]
Even if PEV had all of the necessary elements in place, Mr. Knoll concluded
that a comparison with the status of the Canaport and Bear Head projects revealed that
the PEV concept was more than four years behind Canaport. The Canaport project was
“first to market” and therefore had the competitive advantage, according to Mr. Knoll. In
his view, the Bear Head project was unable to overcome that advantage, even though
they had constructed terminal facilities and expended significant amounts of capital. Mr.
Knoll concluded that this “…indicates the insurmountable disadvantage that the PEV
concept faced in 2006”.
[204]
According to Mr. Knoll, Mr. Lewis’s report was seriously flawed by not taking
the regulatory environment into account. He also considered Mr. Lewis’s statement that
the loss of the Goldboro site was probably fatal to PEV’s plans to be unsupported, since
there were many other hurdles which had not been addressed. As well, Mr. Knoll did not
share Mr. Lewis’s opinions on the various agreements which PEV had entered into,
considering them, for the most part, general, and lacking any indication of financing.
IV
SUBMISSIONS
Claimant
[205]
In closing submissions, Mr. Goldberg described the basis of PEV’s claim.
He confirmed that PEV is not seeking compensation for business losses, nor is it making
any claim for disturbance. Mr. Goldberg said:
PEV’s right to compensation, exclusive of costs and interest, we would argue,
flows from three possible streams.
Document: 246581
- 76 -
First, the value of Warner’s land as of the date of taking, we would submit, was
$10,326,000, as per Charles Hardy’s appraisal. And when you subtract from that the
Warner award, one comes to 8 million 986.
Alternatively, and as a second stream, we would maintain that Warner received a
million 340 based on the industrial use as the highest and best use of this property but
because of PEV’s involvement through their exclusive right to develop, they managed to
cause the value to increase and therefore PEV is entitled to the difference, being the same
8 million 986 as the, “Special economic advantage” that PEV brought to the land.
Now, really, those are -- first and second are two ways of saying the same thing;
one’s not trying to double up, but they are two ways of getting to the same conclusion.
But we have a third submission and a third stream that is independent of the first
two, and that is PEV’s agreement with Warner was, in itself, marketable, and can and
should be valued based on all of the evidence and surrounding facts. [Emphasis added]
[Transcript, pp. 2734-2735]
[206]
Mr. Goldberg described the work PEV had done for Coastal, and
subsequently, El Paso, noting that when El Paso was unable to proceed, PEV was
permitted to use information it had gathered and was paid some amount for its work. Mr.
Goldberg said that PEV “…had no clients but had built up significant know-how and
needed to find another client to advance this LNG importation concept that they had
developed.” (Transcript, p. 2743). Mr. Goldberg acknowledged that the information was
not exclusive to PEV, but submitted it was fundamental to the concept PEV was
developing. He described the period after PEV’s involvement with El Paso ended until
the September 2005 development plan as a period of research and study, which evolved
into the concept. He submitted that the evidence shows that Goldboro, and in particular
the Warner property, was uniquely situated and bore the attributes of a natural gas
gateway, including:
•
•
•
•
being adjacent to the start of the MNE pipeline and the Sable Offshore plant;
zoning and environmental approval for natural gas processing;
no environmental constraints or competing commercial shipping;
“the only economical available landing point for subsea pipelines from the
offshore”;
Document: 246581
- 77 •
•
•
•
sufficient size of the site to accommodate facilities;
sufficient water depth, ship turning circle and clearance;
being the end of the “shortest navigation route between a North American LNG
terminal and African LNG sources”;
exemption for gas consumers in the Industrial Park from pipeline tolls due to their
location; and
municipal encouragement of natural gas businesses in the Industrial Park.
[207]
Mr. Goldberg disagreed with Mr. Grant’s submission that there were other
•
suitable sites and suggested there was no evidence to support this.
[208]
Mr. Goldberg described how PEV came into contact with Mr. Dunn of Keltic,
submitting that: “…Keltic’s plans, on the face of it, fit in perfectly with PEV’s knowledge at
the time, experience, and situation, where they had no client.” (Transcript, p. 2754). This
culminated in an MOU, which Mr. Goldberg said was the only written agreement between
Keltic and PEV. He did, however, submit that PEV had undertaken more than it was
required to do under the MOU. He described how Mr. Vandall communicated with Mr.
Dosunmu to act as an agent for dealings with Nigeria LNG. He described the involvement
with Mr. Dosunmu as the best way to engage Nigeria LNG and submitted that he clearly
had the connections with “the corridors of political power”, as well as the corporate entity
Nigeria LNG, which had large Nigerian government holdings either directly or through
other Nigerian companies.
[209]
Mr. Goldberg submitted that Nigeria LNG had the capacity, both in natural
gas resources and financially, to participate in the proposed PEV project. It also had
subsidiaries which could supply ships to transport LNG. Mr. Goldberg said that Nigeria
LNG would not proceed without a serious commitment of financial strength for the LNG
buyer, and since Keltic was unable to provide this, PEV queried whether Nigeria LNG
would become involved as one of the parties in the project. He submitted that Mr.
Document: 246581
- 78 Dosunmu’s evidence clearly demonstrated that Nigeria LNG could be interested in
investing in the terminal.
[210]
Mr. Goldberg also went on to discuss the communications which Mr.
Ferguson had with Golar while Mr. Vandall was communicating with Mr. Dosunmu. Just
as PEV had made a presentation to Keltic, a presentation was made to Golar, this time
by email, and Mr. Ferguson engaged in communication over a period of months with
Golar. It was Mr. Goldberg’s position that Golar had the financial resources to participate,
contrary to what the Respondent had suggested.
[211]
Mr. Goldberg described the fact that, while Mr. Vandall and Mr. Ferguson
were in communication with Nigeria LNG and Golar, their relationship with Keltic was
deteriorating. It became clear that Keltic was intending to proceed in a different direction,
and further, that its plans for an LNG terminal on land would make the proposal
uneconomic. It was as a result of this that Mr. Vandall and Mr. Ferguson realized they
needed to secure the Warner property (which they learned Keltic had not done) and seek
an alternate terminal participant. This led to Mr. Ferguson’s contact with Paul Crissman
of Statia. Mr. Goldberg submitted that Statia, according to Mr. Crissman’s testimony, was
interested in getting into the natural gas business and was receptive to a presentation
from PEV. This resulted in an agreement between PEV and Statia. It was about the time
of Statia’s agreement that PEV learned that Keltic was attempting to terminate the
arrangement between it and PEV, which caused PEV to directly approach Mr. Warner.
At this point, Mr. Goldberg submitted, Statia was “extremely interested” and Nigeria LNG
and Golar were “on tap”.
[212]
Mr. Goldberg described the initial meeting between Mr. Vandall, Mr.
Ferguson and Mr. Warner in May 2005, and the subsequent presentation made to Mr.
Document: 246581
- 79 Warner in July 2005. He said that “Warner wasn’t keen on selling his land but they
showed him how they could increase its value dramatically and derive very significant
revenues for Warner and for PEV.” (Transcript, p. 2776). He noted that Mr. Warner did
not tell PEV about any other agreements or options regarding his land. PEV and Mr.
Warner entered into an agreement setting out their business relationship, the purpose of
which, Mr. Goldberg submitted, “was clear…to develop initiatives that maximize a profit.”
(Transcript, p. 2778). He said that the agreement contemplated the involvement of third
parties and discussed what would happen if the property were sold. This agreement
represented benefits to both parties as Mr. Goldberg suggested:
…Both parties are getting what they want. Warner is getting a free ride to make a -- to hit
the jackpot and not really do anything. PEV has the vital cog to its Development Plan and
they can now go and bring this concept to fruition and get the parties in.
[Transcript, p. 2780]
[213]
It was Mr. Goldberg’s submission that the right of first refusal included in the
agreement was evidence of the control that PEV had over the Warner property. However,
he said, PEV was not able to exercise the right of first refusal because of the
expropriation.
[214]
In reply to Mr. Grant’s submission about the reference to the 2006 date in
the presentation to Mr. Warner, which Mr. Vandall had acknowledged was misleading,
Mr. Goldberg said that Mr. Vandall had previously acknowledged similar dates in another
presentation had inadvertently not been changed from a previous report. Further, he said
the PEV/Warner agreement specifically refers to 2010.
[215]
Mr. Goldberg submitted that reaching the agreement with Mr. Warner
allowed PEV to finalize arrangements with Statia, which was signed just over a month
Document: 246581
- 80 after the agreement with Mr. Warner.
According to Mr. Crissman’s testimony, Mr.
Goldberg said, Statia was committed to proceeding at this point.
[216]
Mr. Goldberg submitted that, with the Warner and Statia agreements in
hand, PEV was able to begin to finalize its development plan, which is dated September
2005, and took about one month to prepare. When questioned by the Board, Mr.
Goldberg said that what PEV should be compensated for was “…not the loss of use of
the intellectual property; it’s the market value of the concept.” (Transcript, p. 2793).
[217]
It was the intention of PEV to provide the development plan to Statia, Golar,
Nigeria LNG and Mr. Warner, and PEV intended it to promote discussion, and ultimately,
a meeting and execution of agreements. However, Mr. Goldberg pointed out that the
development plan was never sent to these parties. He said that on October 19, 2005,
PEV issued a press release and subsequently, the Municipality moved to expropriate the
Warner property.
[218]
Mr. Goldberg reviewed a number of option agreements between the
Municipality and Keltic, focussing on several points, including confidentiality of the option
agreement. This, he said, was because the Municipality did not want Keltic discussing
anything with Mr. Warner without its consent. He also focussed on the price which would
be paid under the option agreements, and the change in zoning. As well, Mr. Goldberg
suggested that the Municipality was concerned about a legal challenge from Keltic. It
was his position that the Municipality was either “aligned with” (Transcript, p. 2800), or “in
cahoots or in bed with Keltic” (Transcript, p. 2807). He went on to describe the various
option agreements and amending agreements, as well as subsequent announcements of
approvals for Maple LNG.
Document: 246581
- 81 [219]
In reply to Mr. Grant’s submissions regarding the various option
agreements, including those after expropriation, Mr. Goldberg submitted that PEV should
receive credit for all of them in the same way that Mr. Telford had done for the August
30th option.
[220]
With respect to the events surrounding PEV once the notice of expropriation
had been filed, Mr. Goldberg noted that both Mr. Vandall and Mr. Ferguson had testified
they were unaware of the hearing by the Board regarding Mr. Warner’s claim, although
he acknowledged that in a previous decision the Board had found they had constructive
notice. Mr. Goldberg said that the Municipality was aware of PEV’s interest in the land,
but had consented to having Mr. Warner’s claim adjudicated first. He submitted that PEV
should not be punished for its lack of participation in the Warner hearing, but submitted
that, in the Warner hearing, the Board did not have “…vital information as to the history
of the project and PEV’s development plan in its potential project.” (Transcript, p. 2816)
[221]
Mr. Goldberg emphasized Mr. Hardy’s long experience and reputation in
the appraisal industry, noting that he had determined the highest and best use for the
Warner property was for an LNG facility, either alone or together with other facilities. In
Mr. Goldberg’s submission, only Mr. Hardy’s evidence is reliable, since Mr. Ingram’s
appraisal was, in his view, of limited value. He noted that Mr. Ingram had not spoken to
anyone with PEV and had not spoken to Mr. Warner. He also said that Mr. Ingram had
agreed, on cross-examination, that the information from the August 30th option agreement
between the Municipality and Keltic would be relevant to his concept of market value. Mr.
Goldberg suggested that there was no evidence of research done by Mr. Ingram to
support his conclusions that the projects were speculative. Finding the use as a holding
use was, he said, contrary to the evidence of the various option agreements, as well as
Document: 246581
- 82 Mr. Cleary’s testimony that the Municipality was not contemplating any land banking. Mr.
Ingram had not reviewed the PEV documents and had testified that he was unaware of
PEV when he had done the appraisal.
[222]
Mr. Goldberg submitted that Mr. Telford had used an M-2 zoning which was
incorrect, and noted various other errors in Mr. Telford’s report. He said that Mr. Telford
had not spoken with PEV, had not reviewed its development plan, and was unaware of
the assignment of the Keltic option to Maple in March 2006. In his submission, Mr. Telford
did not, in fact, prepare an appraisal, but had accepted the Board’s finding of value in the
Warner decision rather than giving his own opinion of value.
[223]
Mr. Goldberg submitted that the Board should consider whether an LNG
project would amount to the highest and best use of the property rather than assessing
this on the basis of the PEV development plan. In his view, it is not necessary for PEV to
prove the feasibility of its plan, but merely the feasibility of an LNG development.
[224]
This brought Mr. Goldberg to submissions regarding the respective reports
of Mr. Lewis and Mr. Knoll. Mr. Goldberg suggested that it was wrong to ask whether
PEV’s development plan was final and whether it had all due diligence completed, and
partners and financing in place.
In Mr. Goldberg’s submission, Mr. Knoll was
“…completely biased and closed-minded...” (Transcript, p. 2836-2837), and had failed to
understand the stage which the PEV development plan had reached. Further, while Mr.
Knoll said he had seen no evidence of access to capital or the capability to finance on the
part of PEV, this was inconsistent with the evidence of Mr. Crissman and the proposed
participation of Nigeria LNG and Golar.
[225]
Mr. Goldberg went on to say:
Madam Chair, we would submit that but for the expropriation, PEV would have
proceeded as projected on pages 596 to 601 of their Development Plan. And, ultimately,
Document: 246581
- 83 it would be the terminal partners who conducted due diligence, approached MNE, Sable,
NSP; they were going to be credible and known partners. And they would use external
and internal counsel where necessary to advance all regulatory hurdles. But as can be
seen, nothing is, on the face, insurmountable and everyone, especially the Municipality,
was supportive of these projects proceeding, particularly since it was good for Nova Scotia,
and above all, good for the Municipality which was suffering and continues to suffer from
very significant financial and demographic issues.
And, Madam Chair, how can the same Municipality that, we would submit, by its
expropriation nullified PEV’s project, now attempt to thwart fair remuneration?
[Transcript, pp. 2841-2842]
[226]
In reply submissions, Mr. Goldberg said:
So it may have been prefeasibility but I would submit a pipedream it wasn’t.
Now, Madam Chair, a lot has been said about the supplemental Development
Plans, these old pleadings, these spreadsheets. You know, with the greatest of respect, I
think you have to give, you know, Mr. Vandall and Mr. Lewis a bit of a break. They were
involved -- sorry; and Mr. Ferguson a bit of a break. They were doing self-rep. Some of
these documents were produced to give to some of the experts. It was clear that they
weren’t evidence of agreements at the time. It was their view of what they would have
expected to agree. Even Mr. Vandall testified that it was all negotiable.
So when my friend raised the fact, well, none of this had been heard of, it wasn’t
PEV’s contention that these items had been pre-agreed.
And, Madam Chair, this whole concept about ripeness is irrelevant. Ripeness
applied when one was looking at valuing all of the potential revenue stream that PEV
looked to obtain from the project. That was their idea of what discount should be attributed.
But we’re not even there. Mr. Hardy didn’t value any of it. All that Mr. Hardy valued
is the -- is the interest that they had in the land.
Now, that leads me back to, again, all of my friend’s submissions; PEV didn’t have
this, they didn’t have that. You know, it was concept, even pure speculation. Speculative.
We don’t have to prove that PEV’s specific plan was going to work. What we have
to prove is the highest and best use of the property.
If PEV’s plan was so advanced that they had all of these factors, then this would
be a claim for $500 million because all these so-called factors would have taken this from
just a concept to an actual business, to something that was there. And the Municipality,
had they wished to expropriate, would have been looking at a far different claim.
[Transcript, pp. 2968-2970]
[227]
Mr. Goldberg urged the Board to accept the market value established by
Mr. Hardy which, he said, was well supported. Mr. Hardy did not apply the PEV/Warner
agreement formula regarding the allocation of the sale price, since this was not a
Document: 246581
- 84 voluntary disposition of the property. To do so would, in Mr. Goldberg’s reply submission,
result in unjustly enriching the Municipality. The right of first refusal could not have been
exercised.
[228]
On the other hand, it was Mr. Goldberg’s submission that neither Mr. Ingram
nor Mr. Telford had properly valued the interest of PEV. Where each of them was critical
of Mr. Hardy’s report, Mr. Goldberg suggested that Mr. Hardy had appropriate responses
or explanations to the criticisms. He urged the Board to adopt the Hardy report and fix
the market value of the PEV interest at the amount found by Mr. Hardy. Alternatively, he
submitted that the same amount should be awarded as damages for loss of “special
economic advantage”, which he described as “…what [PEV] brought to the land pursuant
to the impact of its Development Plan through the agreement that it had with Warner.”
(Transcript, p. 2853) Mr. Goldberg urged the Board to expand the concept of occupation,
since he acknowledged that PEV was not operating a business on the Warner lands. He
suggested the Board should not limit itself to cases which require possession of a
property.
[229]
Finally, Mr. Goldberg submitted, as a further alternative, that the agreement
which PEV had with Mr. Warner was marketable and could have been sold as of the date
of expropriation, relying on newspaper reports of Keltic’s assignment to Maple LNG. He
also noted Mr. Crissman testified that Statia was “…prepared to buy the concept.”
(Transcript, p. 2855) as evidence that the agreement had value.
Respondent
[230]
Mr. Grant submitted that the Municipality had been dealing in good faith with
Mr. Warner when it entered into the Agreement of Purchase and Sale for the acquisition
Document: 246581
- 85 of his lands. The Municipality expected to be able to purchase the lands, but ultimately
had to expropriate them in order to resolve title issues, as contemplated by that
Agreement. Mr. Grant also submitted that the Municipality was dealing in good faith with
Keltic at the same time. The Municipality knew nothing of the involvement of PEV until
the press release issued in October 2005. The Municipality then, through its solicitor,
endeavoured to learn more about the involvement of PEV with the Warner property.
[231]
Mr. Grant also submitted that the basis of PEV’s claims had changed over
the years, and said that its claim to more than $8 million should fail. In his submission,
the opinion of Mr. Telford that the interest of PEV is worth no more than $47,000 should
be adopted, noting that the onus is on PEV to establish its claim on the balance of
probabilities.
[232]
Mr. Grant submitted that the opinion of Charles Hardy should not be relied
upon by the Board.
He noted that Mr. Hardy had, in his direct comparison sales
methodology, only compared the Warner lands to sales for LNG facilities, including the
2014 Bear Head share sale, which was eight years after the effective date of the
expropriation.
Mr. Grant noted that Mr. Hardy had acknowledged that he had not
undertaken any study to demonstrate that lands to be used as LNG facilities attracted a
premium over other lands used for heavy industrial purposes. Mr. Hardy had rejected the
option to value general industrial lands as irrelevant and had agreed with Mr. Grant that
this meant that he had to assume there were no other properties in Goldboro suitable for
an LNG facility. Mr. Grant then went on to refer to the fact that the PEV proposal did not
contemplate the regasification occurring on land, but rather through the use of FSRUs.
[233]
Mr. Grant also noted that the requirements identified by PEV for its project
could be met by other properties, including the Red Head or Hurricane Island area, as
Document: 246581
- 86 noted in the O’Halloran report, or the lands owned by Nova Scotia Power adjacent to the
Warner property. Further, he indicated the evidence showed that, even in materials used
by PEV in its various presentations, other opportunities for LNG facilities exist in the area.
Further, Mr. Cleary had testified that there is vacant land with the necessary water access
in the Goldboro area which could be suitable.
[234]
Mr. Grant submitted that Mr. Hardy made the assumption that there was no
other land in Goldboro appropriate for an LNG facility, which was not the case. As a
result, the value of general industrial lands, which would mean comparable sales in the
local area, should be used to establish the value of the Warner property, and implicitly,
PEV’s interest. Further, Mr. Grant suggested that Mr. Hardy’s use of the 2014 Bear Head
share sale did not take into account the fact that Bear Head had received most, if not all,
of the required permits and approvals. Additionally, the site had been cleared, an access
road installed, and foundations for storage tanks constructed. Further, Mr. Hardy had not
made any adjustment for inflation or increase in property values over the 8-year period
between the expropriation and the sale.
[235]
Unlike the Bear Head site, there were no applications filed, and no
approvals granted, and no construction or development on the Warner property.
Additionally, Mr. Hardy had not attributed any increase in value to the Bear Head site on
the 2014 sale from the 2004 sale by NSBI to Anadarko’s predecessor to the increase in
the water lot value which would have arisen from the various permits and approvals
granted. In Mr. Grant’s submission, this would result in an overstatement of the fair
market value of the uplands.
[236]
Mr. Grant went on to say that Mr. Hardy’s approach of valuing the land for
an amount in excess of $10 million, deducting the compensation paid to Mr. Warner as a
Document: 246581
- 87 result of the earlier Board decision, and then concluding that PEV’s rights should be
valued at the difference, is “…a very generous reading of the Warner agreement as a
benefit to PEV while ignoring its most significant terms.” (Transcript, p. 2888).
[237]
Mr. Grant said that clause 10 of the Warner/PEV agreement, which
contemplated expropriation, provided that the parties agreed to submit a claim for
business losses. Further, clause 10 provided that the claim would be made “…if no
remuneration as per clause 7 has been received by the parties.” Clause 7, Mr. Grant
submitted, sets out the basic intention of the parties whereby:
…PEV would be rewarded if it managed to increase the value of the Warner land and would
share in the uplift from any increase in value. But the first $5 million of sale value would
accrue entirely to Warner and, it’s only the amounts above $5 million which would be
shared…
[Transcript, pp. 2889-2890]
[238]
Mr. Grant emphasized that the rights of PEV flow from the agreement and
are defined by it, submitting that the Board cannot either “…enlarge or contract those
rights on the basis of reading in something different into the agreement.” (Transcript, p.
2893). Mr. Grant was clear, however, that the Municipality does not agree that PEV is
entitled to anything more than $47,000, which he described as a generous valuation. Mr.
Grant described Mr. Hardy’s conclusion that PEV should receive anything above what
Mr. Warner had already received as a “colossal leap” which emphasizes the unreliability
of his opinion.
[239]
Mr. Grant noted that an element of the claim being made by PEV is for
damages for loss of a special economic advantage. He submitted that s. 27(3) of the Act
clearly requires there be occupation of the land. In this case, Mr. Grant said PEV had
never occupied the land and therefore had no claim for special economic advantage,
relying on the case of Bank of Nova Scotia v. Nova Scotia, 13 L.C.R. 221 (NSCA), which
Document: 246581
- 88 requires actual use of the property. Mr. Grant cautioned the Board against expanding the
concept of occupation, as Mr. Goldberg had invited it to do. Mr. Grant further stated that,
in the Bank of Nova Scotia case, the claimant was also attempting to develop the property,
and the Court’s findings that there be actual occupation and carrying on a commercial or
business operation, is a strong statement.
[240]
With respect to Mr. Goldberg’s third argument that the interest which PEV
had under the agreement had a market value, Mr. Grant noted that Mr. Hardy did not
value any such interest. Further, he submitted, there is no evidence before the Board of
any value of such an interest. Mr. Crissman’s evidence did not support a value, and the
newspaper report where Mr. Dunn stated he had assigned the interest of Keltic to Maple
LNG and 4Gas for “millions of dollars” could not, in any way, be relied upon.
[241]
Mr. Grant said that Mr. Lewis had concluded that the PEV development plan
“…was economically viable and easily executed”. Mr. Hardy acknowledged that he had
based his opinion of highest and best use upon his stated extraordinary assumption
“…that there was a good potential that the business plan would have come to fruition with
these parties [Golar and NLNG] soon after the effective date, had the expropriation not
taken place…”. Mr. Grant submitted that Mr. Knoll’s report challenged these conclusions,
noting additionally that PEV had admitted that it was a prefeasibility study to allow them
to negotiate with their proposed partners.
[242]
Other than email correspondence with Golar, Mr. Grant stated there was no
evidence of a commitment from it to become involved as the development plan
suggested. With respect to NLNG, Mr. Grant noted that there was no evidence from the
company. He did acknowledge Mr. Dosunmu’s evidence, but said it lacked any certainty
that NLNG would commit to the project. In fact, Mr. Grant noted NLNG’s requirement for
Document: 246581
- 89 financial assurances when Keltic was involved as communicated by Mr. Dosunmu, and
which never materialized. While there was an agreement with Statia, Mr. Grant submitted
there was no commitment to do anything more than study the concept, noting Mr.
Crissman’s testimony that Statia would not become involved “on spec”. Further, Mr.
Crissman said there had been no agreement to any payments to be made by Statia as
outlined in PEV’s supplementary development information.
[243]
Mr. Grant stated that the evidence showed that PEV had had no discussions
with Nova Scotia Power regarding any power generated from the proposed gas-fired
power generation facilities, no communications with Sable for either access to the gas
plant to strip out the natural gas liquids or access to the liquids pipeline, and no
discussions for access to the MNE Pipeline. Further, he submitted that no one at PEV
had the experience of building or developing the necessary facilities or managing such a
project. He concluded that the project was “…too remote and speculative to proceed”
(Transcript, p. 2920).
[244]
Mr. Grant, while stating that Mr. Lewis is “a skilled and experienced
witness”, suggested that he was an advocate for PEV, or had completely misunderstood
what was involved in the project and the hurdles to be faced. While Mr. Lewis had opined
that the project could be up and running by the fall of 2006, even Mr. Vandall had
acknowledged that this was “overly optimistic”. On the contrary, Mr. Knoll had testified to
the steps required to get pipeline capacity, the need for firm gas supply, numerous permits
and approvals, and capital to finance such a project. He also testified to the importance
of being “first to market”, a concept which PEV had acknowledged in its various
presentations to its potential partners, including Mr. Warner.
Document: 246581
- 90 [245]
According to Mr. Grant, the best evidence of market value of the Warner
property comes from the report prepared by Mr. Ingram where he used industrial land
sales in the area as his comparables. While Mr. Ingram’s report was largely accepted in
the Warner decision, Mr. Grant did not suggest that the Board was bound by that decision.
Reliance on the Ingram report, he said, eliminates any need to consider sales after the
effective date of the expropriation, in particular the Bear Head sale some eight years later.
[246]
Further, Mr. Grant said that the error made by Mr. Telford in the zoning of
the land, due to his reliance on information from the Municipality, should not impact the
Board’s consideration of his report. This was so particularly since Mr. Cleary’s evidence
was that the M-2 zone would also permit an LNG facility.
[247]
Mr. Grant submitted that PEV had initially submitted its claim on business
losses when it sought in excess of a $130 million, and had never based its claim on the
value of the Warner land. This claim was filed shortly after the Warner decision, and
ultimately the claim for business loss was withdrawn. He concluded that the value found
by Mr. Telford was an appropriate value for PEV’s interest in the land, and that it was not
entitled to any claim for damages for loss of special economic advantage, nor was there
any evidence of the market value of PEV’s agreement.
V
ANALYSIS AND FINDINGS
[248]
It is well recognized that, in order for a person to be compensated for the
taking of that person's property by an expropriating authority, the claim for compensation
must fall within the statutory heads of damage. The governing statute is, of course, the
Expropriation Act.
principles:
Document: 246581
Therefore, the Board turns to the statutory provisions for first
- 91 2 (1) It is the intent and purpose of this Act that every person whose land is expropriated
shall be compensated for such expropriation.
...
3 (h)
"injurious affection" means
(i)
where a statutory authority acquires part of the land of an owner,
(A)
the reduction in market value thereby caused to the remaining
land of the owner by the acquisition or by the construction of the works
thereon or by the use of the works thereon or any combination of them,
and
(B)
such personal and business damages, resulting from the
construction or use, or both, of the works as the statutory authority would
be liable for if the construction or use were not under the authority of a
statute,
(ii)
where the statutory authority does not acquire part of the land of an owner,
(A)
such reduction in the market value of the land of the owner, and
(B)
such personal and business damages, resulting from the
construction and not the use of the works by the statutory authority, as the
statutory authority would be liable for if the construction were not under the
authority of a statute,
and for the purposes of subclause (i), part of the land of an owner shall be deemed to have
been acquired where the owner from whom land is acquired retains land contiguous to that
acquired or retains land of which the use is enhanced by unified ownership with that
acquired;
(i)
land;
"land" includes any estate, term, easement, right or interest in, to, over or affecting
(j)
"owner" includes a mortgagee, tenant, registered judgment creditor, a person
entitled to a limited estate or interest in land, a guardian or trustee of an incompetent person
or of a person incapable of managing his affairs, and a guardian, executor, administrator
or trustee in whom land is vested;
...
8
For the purposes of this Act, "approving authority" means
...
(b)
the municipal council in respect of land expropriated by a municipality;
...
24
Where land is expropriated, the statutory authority shall pay the owner
compensation as is determined in accordance with this Act.
...
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- 92 25 (2) The value of land expropriated shall be the value of that land at the time the
expropriation documents are deposited at the office of the registrar of deeds.
26
The due compensation payable to the owner for lands expropriated shall be the
aggregate of
(a)
the market value of the land or a family home for a family home determined as
hereinafter set forth;
(b)
the reasonable costs, expenses and losses arising out of or incidental to the
owner's disturbance determined as hereinafter set forth;
(c)
damages for injurious affection as hereinafter set forth; and
(d)
the value to the owner of any special economic advantage to him arising out of or
incidental to his actual occupation of the land, to the extent that no other provision is made
therefor in due compensation.
...
27 (2) Subject to this Section, the value of land expropriated is the market value thereof,
that is to say, the amount that would have been paid for the land if, at the time of its taking,
it had been sold in the open market by a willing seller to a willing buyer.
(3)
Where the owner of land expropriated was in occupation of the land at the time the
expropriation document was deposited in the registry of deeds and, as a result of the
expropriation, it has been necessary for him to give up occupation of the land, the value of
the land expropriated is the greater of
(a)
the market value thereof determined as set forth in subsection (2); and
(b)
the aggregate of
(i)
the market value thereof determined on the basis that the use to which the
land expropriated was being put at the time of its taking was its highest and best
use, and
(ii)
the costs, expenses and losses arising out of or incidental to the owner's
disturbance including moving to other premises but if such cannot practically be
estimated or determined, there may be allowed in lieu thereof a percentage, not
exceeding fifteen, of the market value determined as set forth in subclause (i),
plus the value to the owner of any element of special economic advantage to him arising
out of or incidental to his occupation of the land, to the extent that no other provision is
made by this clause for the inclusion thereof in determining the value of the land
expropriated.
...
29 (1) Where a business is located on the land expropriated, the statutory authority shall
pay compensation for business loss resulting from the relocation of the business made
necessary by the expropriation and, unless the owner and the statutory authority otherwise
agree, the business losses shall not be determined until the business has moved and been
in operation for twelve months or until a three-year period has elapsed from the date of the
expropriation, whichever occurs first.
...
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- 93 -
30 (1) A statutory authority shall compensate the owner of land for loss or damage
caused by injurious affection.
...
33
In determining the value of land expropriated, no account shall be taken of
(a)
any anticipated or actual use by the expropriating authority of the land at any time
after the depositing of the expropriation document in the registry of deeds;
(b)
any value established or claimed to be established by or by reference to any
transaction or agreement involving the sale, lease or other disposition of the interest or any
part thereof, where such transaction or agreement was entered into after the deposit of the
expropriation document in the registry of deeds;
(c)
any increase or decrease in the value of the land resulting from the anticipation of
expropriation by the expropriating authority or from any knowledge or expectation, prior to
the expropriation, of the purpose for which the land was expropriated; or
(d)
any increase in the value of the land resulting from its having been put to a use
that was contrary to law.
...
47 (1) The Board shall determine any compensation where the parties have not agreed
on the amount of compensation, and in the absence of agreement, determine any other
matter required by this or any other Act to be determined by the Board. [Emphasis added]
[249]
The Board is mindful of the decision of the Supreme Court of Canada in Dell
Holdings Limited v. Toronto Area Transit Operating Authority, [1997] 1 S.C.R. 32,
regarding the interpretation of an expropriation statute, where Cory, J., writing for the
majority said, at paragraphs 20-23:
20
The expropriation of property is one of the ultimate exercises of governmental
authority. To take all or part of a person’s property constitutes a severe loss and a
very significant interference with a citizen’s private property rights. It follows that the
power of an expropriating authority should be strictly construed in favour of those
whose rights have been affected. This principle has been stressed by eminent writers
and emphasized in decisions of this Court. See P.‑A. Côté, The Interpretation of
Legislation in Canada (2nd ed. 1991), at p. 402; E. Todd, The Law of Expropriation
and Compensation in Canada (2nd ed. 1992), at p. 26; Manitoba Fisheries Ltd. v. The
Queen, 1978 CanLII 22 (SCC), [1979] 1 S.C.R. 101, at pp. 109‑10; Diggon‑Hibben
Ltd. v. The King, 1949 CanLII 50 (SCC), [1949] S.C.R. 712, at p. 715; and Imperial Oil
Ltd. v. The Queen, 1973 CanLII 155 (SCC), [1974] S.C.R. 623.
21
Further, since the Expropriations Act is a remedial statute, it must be given a broad
and liberal interpretation consistent with its purpose. Substance, not form, is the
governing factor. See Pacific Coast Coin Exchange of Canada Ltd. v. Ontario
Securities Commission, 1977 CanLII 37 (SCC), [1978] 2 S.C.R. 112, at p. 127. In
Laidlaw v. Municipality of Metropolitan Toronto, 1978 CanLII 32 (SCC), [1978] 2
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- 94 S.C.R. 736, at p. 748, it was observed that “[a] remedial statute should not be
interpreted, in the event of an ambiguity, to deprive one of common law rights unless
that is the plain provision of the statute”.
22
The application of these principles has resulted in the presumption that whenever
land is expropriated, compensation will be paid. This has been the consistent
approach of this Court. In The Queen in Right of British Columbia v. Tener, 1985
CanLII 76 (SCC), [1985] 1 S.C.R. 533, at p. 559, Estey J. writing for the majority, relied
on a passage of Lord Atkinson in Attorney‑General v. De Keyser’s Royal Hotel Ltd.,
[1920] A.C. 508 (H.L.), at p. 542:
…. unless the words of the statute clearly so demand, a statute is not to be construed so as to
take away the property of a subject without compensation.
Although Wilson J. wrote a separate concurring opinion in Tener, she agreed with the
majority on this point. Writing for herself and Dickson C.J., she stated at p. 547:
Where expropriation or injurious affection is authorized by statute the right to compensation
must be found in the statute….
Where land has been taken the statute will be construed in light of a presumption in favour of
compensation (see Todd, The Law of Expropriation and Compensation in Canada, pp.
32‑33)….
23
It follows that the Expropriations Act should be read in a broad and purposive
manner in order to comply with the aim of the Act to fully compensate a land owner
whose property has been taken. [Emphasis added]
[250]
While Dell Holdings was decided with regard to the Ontario expropriation
legislation, the broad, liberal and purposive approach has been adopted by this Board in
a number of cases under the Nova Scotia Act (See for example Re Gateway Importers
and Exporters Limited, 2010 NSUARB 159; Re Parkview Motel Limited, 2011 NSUARB
195, and Re Dartmouth Crossing Limited, 2015 NSUARB 48). The Court of Appeal has
also followed it in R v. Superior Propane, 2004 NSCA 73, and Re Johnson, 2005 NSCA
99.
[251]
It falls to the claimant, in this case, PEV, to establish to the satisfaction of
the Board what compensation should be paid to it, i.e., to establish the market value of
its interest, including any amount for any special economic advantage it may enjoy. The
Board notes that PEV is not making any claim for disturbance or business loss, and further
that there is no basis for a claim for injurious affection.
Document: 246581
- 95 [252]
The Board observes that, while they differ in their approach and
conclusions, Mr. Hardy and Mr. Telford agree that in order to determine the market value
of PEV's interest, the market value of the land ought to be first determined. Mr. Telford
accepted the value determined by the Board in the Warner decision as the market value
of the fee simple interest, and opined that PEV's interest was a subset of the fee simple.
In his view, the value of that interest could be as low as $0. Mr. Hardy also employed the
value determined by the Board in the Warner decision, but he subtracted it from what he
found to be the fee simple market value, with the difference being the amount he assigned
as the value of the PEV interest. The Board concludes that Mr. Hardy, therefore, valued
PEV's interest as a subset of the fee simple.
[253]
In the various appraisal reports filed in this proceeding, the respective
authors have, in their determination of market value as defined by the Act, first considered
what the highest and best use of the land is. This concept was described by Mr. Hardy,
using the CUSPAP definition:
Highest and best use may be defined as:
“The reasonably probable use of a property, that is physically possible, legally
permissible, financially feasible and maximally productive, and that results in
the highest value.”
The highest and best use of both land as though vacant and property as developed must
meet four criteria. The highest and best use must be:
Physically Possible:
The size, shape, terrain and soil conditions of a parcel of land
affect its physical utility and adaptability.
Legally Permissible:
Depends on public restrictions such as zoning, building codes,
historic preservation regulations, and environmental controls, as
well as the private or contractual restrictions found in deeds and
long-term leases
Financially Feasible:
Uses that should produce returns that exceed the income
required to satisfy operating expenses and debt service (interest
and amortization)
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- 96 Maximum Return:
[254]
Among financially feasible uses, the use that produces the
highest price or value consistent with the rate of return warranted
by the market.
[Exhibit P-18, p. 49]
Generally speaking, this definition was also adopted by the other appraisers
who opined on the value of the Warner property. However, they did not all agree on what
they considered the highest and best use of the Warner property to be. To some extent,
this changed as the zoning of the property changed from residential to, ultimately, M-3,
pertaining to the element of a "Legally Permissible" use.
[255]
Most relevant to the Board's decision are the opinions of Messrs. Hardy,
Ingram and Telford on highest and best use. Mr. Hardy concluded that it is "…for the use
as an LNG facility either on its own or together with other facilities associated with the use
of natural gas or its bi-products…". Mr. Ingram stated that the highest and best use was
“Holding use for heavy industrial development”, while Mr. Telford opined, similarly, that it
was “Investment holding for future Industrial Development.”
[256]
Mr. Goldberg submitted that the change in zoning from M-2 to M-3
recognized that the highest and best use for the property is for an LNG facility, since
under the M-2 zone there had been no specific mention of LNG uses. Mr. Cleary testified
that the change in zoning was due to problems which the MODG had identified concerning
rock quarries as a permitted use under the M-2 zone. He said both the M-2 and M-3
zones would permit LNG development. The Board observes that the zoning of the
property changed twice in a period of three years (from R-1 in Mr. Earle's report in March
2003 to June 2006, when the Minister of Municipal Affairs approved the Municipality's
change to M-3 zoning). The Board is not satisfied, however, that PEV's proposed use of
the Warner property would have been prohibited, or not legally permissible, under the
M-2 zone.
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- 97 [257]
The Board concludes that, as acknowledged by Mr. Hardy on cross-
examination, his finding of highest and best use was informed by his "extraordinary
assumption" that the PEV plan "…would have come to fruition…soon after the effective
date…" Thus, the Board considers that Mr. Hardy's opinion of highest and best use is
too narrow. The Board will discuss this below both in its discussion of market value, and
of PEV's development plan.
[258]
The Board is also concerned that, as a result, Mr. Hardy confined his
examination of comparable properties to LNG sites, rather than industrial properties in
general.
[259]
Mr. Hardy is an experienced and respected professional.
The Board
accepts his evidence that the task he undertook was unique and complex. The interest
of PEV is clearly different from a leasehold interest or a life interest in land, for example.
However, the Board considers that Mr. Hardy's determination of the value of PEV's
interest by subtracting the Warner award from the value he found is a simplistic approach.
If $10,326,00 is the market value of the land, a value which the Board does not adopt,
then it would not be logical to automatically deduct the Warner award without analysing
the value of the interest of PEV as a subset of the fee simple value. Mr. Hardy's
contention was that the difference represents the contribution or increase in value which
PEV brought to the lands.
[260]
The Board notes that Mr. Hardy summarized the attributes of Goldboro in
his report:
Goldboro meets the requirement for a natural gas gateway, as it has the following
attributes:
•
Start of Maritimes & Northeast Pipeline (M&NE)
•
Existing terminus for SOE gas and liquids
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- 98 •
Logical terminus for any new offshore pipeline coming from the Nova Scotia shelf
or Newfoundland offshore
•
Site is adjacent to land already zoned and approved from an environmental
standpoint for any natural gas and natural gas processing
•
No competing commercial shipping and no environmental constraints to shipping
•
The only economically available landing point for subsea pipelines from the
offshore
•
There is capacity on the M&NE pipeline to accommodate early gas and capacity
on the SOE liquids line to handle natural gas liquids
•
Site can handle CNG, LNG and offshore production in a scalable fashion
•
The marine approach to Goldboro has sufficient water depth and can
accommodate the required ship turning circle radius and under keel clearance, in
a sheltered environment;
•
Shortest navigation route between a North American LNG terminal and African
LNG sources
•
Gas consumers located in the Goldboro industrial park are exempt from paying
pipeline tolls on the M&NE pipeline, and
•
The local Municipality is actively encouraging the development of natural gas
related business in the Goldboro Industrial Park with the support of the Provincial
government.
[Exhibit P-18, pp. 41-42]
[261]
Some of these attributes were also recognized in the O'Halloran report filed
in the Warner hearing and included in Exhibit P-19(ii).
[262]
Mr. Goldberg submitted that the Municipality is wrong in its submission that
PEV must prove that its development plan would succeed, and is not merely speculative.
[263]
The Board does not consider that PEV contributed to the value of the lands.
The attributes of Goldboro itself, as identified by Mr. Hardy (and Mr. O'Halloran), and the
characteristics of the Warner property which he described as strengths, all exist without
any effort, assistance or development on the part of PEV.
[264]
PEV's principal, Mr. Vandall, and Mr. Ferguson acknowledged that their
plan was a pre-feasibility study.
It was prepared for ultimate presentation to their
anticipated partners. The Board notes that they had filed estimates of the time they had
Document: 246581
- 99 worked on their plan – 713 working days between January 2003, and February 2006
(Exhibit P-19(iii), or 862 working days, or 13,792 hours, between January 2002, and
February 2006 (Exhibit P-31). However, given that they did not keep logs of their time,
the Board does not ascribe significant weight to these statements.
Although the
PEV/Warner agreement had stated in Clause 10 that the PEV charges were US $9,300
per day, there was no evidence before the Board that it had ever charged anyone this
rate, and despite references in some communications to work having been done at their
own expense, there was no evidence that they had expended any money themselves.
[265]
Despite suggestions that either Keltic or the MODG had benefitted from
PEV’s work, or were somehow unjustly enriched by it, there is no statutory basis for
compensation for such a claim. Similarly, the value of any intellectual property developed
by PEV is, in itself, not compensable by the expropriating authority, particularly where
there is no claim for business loss.
[266]
The Board observes, however, that over a period of at least three years,
both Mr. Vandall and Mr. Ferguson, clearly spent a good deal of time in communicating
with various parties, holding meetings, and drafting various presentations as well as their
development plan. What they ended up with was an MOU with Keltic, which Keltic
ultimately disavowed through Mr. Lutz's correspondence, and Agreements with Statia and
Mr. Warner.
[267]
There was nothing in writing with NLNG or any other natural gas supplier;
nothing with either a terminal operator (other than Statia, in which there was an “exit
ramp”, as Mr. Grant put it) or Golar or any other supplier of FSRUs; nothing with either
Sable Offshore or MNE regarding stripping out natural gas liquids or pipeline capacity;
nothing with NSPI re co-generation or power plants. The Board finds that, in these
Document: 246581
- 100 circumstances, PEV could not, as Mr. Hardy assumed, be said to have a business plan
which would have come to fruition, but for the expropriation. In this regard, the Board
prefers the evidence of Mr. Knoll over that of Mr. Lewis. This was largely due to Mr. Lewis
considering that there was an MOU with NLNG, which is unsupported by the evidence,
as well as his confusion over the Appendices to, and the development plan itself. The
Board is not satisfied on a balance of probabilities that PEV had the elements which Mr.
Knoll described as necessary.
[268]
The Board notes that Mr. Vandall and Mr. Ferguson stated they were not
going to operate the project but it was their intention to hand it over to the various players
and collect toll payments as reward for bringing the players together.
[269]
The Board accepts the submissions of the Respondent that what is
contemplated in the PEV development plan was too remote and speculative to merit
compensation as claimed. Mr. Vandall and Mr. Ferguson had ideas. The evidence
reveals that they continued to attempt to pursue those ideas even after the effective date
of expropriation in their communications with Mr. Dunn and with Golar, in particular. While
the Board agrees that the Act must be given a broad and liberal interpretation, it cannot
be interpreted to grant compensation for those ideas.
[270]
The Board considers that Mr. Hardy should not have confined himself to
comparable sales for LNG sites. The Board accepts that zoning is an important element
in considering the "Legally Permissible" aspect of highest and best use, but agrees with
Mr. Telford that it is not the only element of that aspect.
[271]
The Board also considers that Mr. Hardy's use of British Columbia and even
New Brunswick comparables should not be afforded significant weight.
The Board
accepts Mr. Ingram's comparables, particularly the NSPI land purchase which was close
Document: 246581
- 101 by, as more reliable indicators of the value of the Warner property. Further, the Board
considers that Mr. Hardy did not give sufficient weight to the degree of development which
had been undertaken at the Bear Head property in using the value he attributed to the
second Bear Head transaction and the status of the environmental approval. It is quite
clear to the Board that what had taken place at Bear Head, i.e., the construction of roads,
tank foundations, and obtaining approvals, is the kind of development which would be
expected to occur in conjunction with the development rights granted by Mr. Warner to
PEV - none of which ever occurred.
[272]
The Board considers Mr. Hardy gave undue weight to information from PEV.
His extraordinary assumption that the PEV plan would proceed to fruition and his reliance
on PEV information led him, in the Board's view, to a conclusion of value which is not
supportable. The Board reaches this conclusion because it is persuaded that the plan
was, as acknowledged by Mr. Vandall and Mr. Ferguson, a pre-feasibility study. There
were too many uncertainties and too many hurdles to be met.
[273]
Throughout their testimony, Mr. Vandall and Mr. Ferguson emphasized the
need for confidentiality, which is one of their reasons for not communicating with the
MODG regarding their project. One particular area appeared to surround the use of
FSRUs, which was a key element. However, the Board notes that this technology was,
according to Mr. Lewis, well known in the natural gas industry, at least since 1995.
[274]
Further, given the acknowledgement by PEV of the interest of the MODG in
industrial, particularly oil and gas, development, the Board observes it would have
expected PEV to make its plan known to the MODG at a relatively early stage, and to be
in communication with the Municipality or the Regional Development Authority.
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- 102 [275]
Additionally, the evidence is clear that the attributes of Goldboro were well-
known.
[276]
PEV's interest in the Warner property is derived from the agreement with
Mr. Warner. It is on the basis of the agreement that the Consent Order of Justice
MacLellan concluded that PEV was an owner. Mr. Grant's submission is that it must
therefore be on the basis of the agreement that any compensation should flow.
[277]
What was PEV entitled to under the PEV/Warner agreement? The Board
finds that PEV was granted:
•
•
•
•
•
Exclusive development rights per Clause 4(a)
Exclusive rights to pipeline corridors and Tolls on the Warner land per Clauses
4(b)(i) and 7(c)
Right of first refusal per Clause 4(b)(ii)
A share of lease revenues per Clauses 4(c) and 7(a)
A share of sale proceeds based on a formula per Clause 7(b)
[278]
Further, in Clause 10, it was agreed that Mr. Warner and PEV would co-
operate in a claim for business loss in the event of expropriation. As the Board has
already noted, PEV has withdrawn any claim for business loss in this proceeding.
[279]
There is no evidence before the Board of the value of the exclusive
development rights, pipeline corridors and tolls. Mr. Hardy acknowledged that he did not
value the rights of PEV.
[280]
Mr. Goldberg submitted that, alternatively, the Board ought to recognize that
PEV had a special economic advantage for which it should be compensated in the amount
of the difference between Mr. Hardy's value and the award to Mr. Warner. His position
was that this arose from the unique attributes of the Warner property. As the Board has
already concluded, these attributes existed without any contribution from PEV. The Board
also notes that, as Mr. Grant submitted, the use of FSRUs as contemplated in the PEV
Document: 246581
- 103 development plan, as well as water access from other properties, raise the question of
whether the Warner land was actually required.
[281]
Mr. Goldberg had addressed the concept of special economic advantage in
his pre-hearing brief, citing the decision of the Nova Scotia Court of Appeal in L. E. Powell
Properties v. Nova Scotia (1995), 144 N.S.R. (2d) 93 which, at paragraph 54, identified
three pre-requisites to a claim for special economic advantage:
The advantage must satisfy three pre-requisites. It must be
(a) Special, and
(b) Economic, and
(c) Arise out of use or occupation (Todd, supra, p. 118).
[Claimant’s Pre-Hearing Brief, p. 36]
[282]
In addressing these pre-requisites, Mr. Goldberg submitted that the Warner
property had special advantages that gave it a special value and thus gave special value
to the interest of PEV. He submitted that the value was economic because of access to
both pipelines and water. He acknowledged that, for PEV, the requirement of occupation
was the most difficult element. He submitted:
155. PEV submits they were in “actual occupation” of the Warner Land, despite the fact
that they were not operating a business onsite. They held the exclusive development
rights over the site and were using such exclusive right to enter into further
agreements. They had already signed on with Statia and provided them with
assurances, based on their “occupation” of the Warner Lands in the form of their
exclusive arrangement.
[Claimant’s Pre-Hearing Brief, p. 40]
[283]
The Claimant, in its pre-hearing brief, referred to the decision of the Court
of Appeal in Bank of Nova Scotia v. Nova Scotia (1978), 22 N.S.R. (2d) 568, where the
Court said that "actual occupation" in the words of s. 26(d) of the Act, requires "…the
owner be actually using the property, which I think connotes actual occupation of it…".
This was followed in L.E. Powell. Mr. Goldberg urged the Board to expand the concept
Document: 246581
- 104 of "occupation" in such a way as to benefit PEV, again relying on the broad, liberal and
purposive approach.
[284]
Mr. Grant, however, urged the Board to be cautious in considering this
issue, since the Act clearly requires occupation, and occupation requires actual use.
[285]
The Board is not satisfied that the interest of PEV in its exclusive
development rights under the PEV/Warner agreement satisfies the three pre-requisites.
It fails on the first element: the Board does not consider that PEV's interest is special.
Here the Board notes the decision of the British Columbia Court of Appeal cited by the
Claimant, Apro Developments Ltd. v. British Columbia (1977), 15 L.C.R. 97, which
discussed that special value had to be something over and above market value, and that
the value to the owner had to be more than "…what it would have in similar use by
somebody else". The Board is not persuaded that the value of PEV's interest was more
than it would be "…in similar use by somebody else".
[286]
As for the third element, the Board does not agree with the Claimant that
the concept of occupation should be expanded. PEV says it was "…actively using their
exclusive right to develop in a way that was going to provide them with a significant return
on their investment…" (Claimant's Pre-Hearing Brief, paragraph 160). PEV was carrying
on these activities before it had any agreement with Mr. Warner, and even appears to
have been trying to continue to do so after the effective date. Therefore, in the Board's
view, the efforts expended by PEV cannot reasonably be said to meet the requirement of
actual use and occupation.
[287]
The Board finds support in reaching this conclusion from the decision in
Coldwell v. Nova Scotia (Province of), 1998 NSUARB 87, where the Board found that a
claim under s. 26(d) of the Act would not succeed, stating at paragraph 28:
Document: 246581
- 105 …Section 26(d) provides for compensation for “any special economic advantage to [the
owner] arising out of or incidental to his actual occupation of the land” [emphasis added].
At the time of the expropriation the Claimant had not begun farming the property but was
in the process of clearing the land. In the Board’s opinion the Claimant was not using or
occupying the land at the time of expropriation in a manner that would give rise to any
special economic advantage.
There, the property owner was actually doing something to the land, unlike PEV which
had done nothing to the Warner property.
[288]
Similarly, in Harrison Blueberry Enterprises Ltd. v. Nova Scotia, 2004
NSUARB 121, the Board said at paragraphs 614-617:
[614] As noted above, s. 26 (b) refers to “costs, expenses and losses arising out of or
incidental to the owners disturbance determined as hereinafter set forth,” but provides no
definition of “disturbance.” Section 27(3) provides for compensation for owners
disturbance, in clause (b) (ii), but states, in the view of the Board, a clear precondition for
such compensation in the opening phrase of s. 27(3) “Where the owner of land
expropriated was in occupation of the land at the time the expropriation document was
deposited . . .” In the present case, the Board finds that the claimant was not in occupation
of the land which was expropriated, nor, insofar as it may be relevant, was the claimant in
occupation of any of the lands in Westchester II East (i.e., of any of the lands to the east
of the right-of-way).
[615] The Court of Appeal has provided guidance to the Board with respect to the nature
of the act required to satisfy the condition of being “in occupation of the land.” In Bank of
Nova Scotia et al. v. Province of Nova Scotia (1977), 22 N.S.R. (2d), the Court of Appeal,
referring to s. 26(d), in which the term “actual occupation of the land” appears, said that
land which was vacant, as Portland Estate’s land was, was not property in relation to which
it could be said the claimant was in “actual occupation.” The Court in Powell was exploring
the section from the point of view of special economic advantage. In Powell, the Court of
Appeal said that the preparation of engineering plans for a proposed subdivision did not
amount to use or occupation. No such plans, nor anything analogous to them, of course,
exist in the present proceeding.
[616] The Board notes that s. 26(d), providing compensation for special economic
advantage, refers to the “actual occupation of the land,” while s. 27(3), in the context of
which s. 27(3)(b)(ii) is referenced to “owners disturbance” must be seen, refers merely to
the “occupation of the land,” i.e., the term “actual” does not appear. The Court of Appeal’s
review of occupation in Powell refers to, in paragraph 58, “actual occupation,” while
paragraph 54 of the same decision states that one of the three prerequisites for special
economic advantage is simply “use or occupation.” While a distinction might, perhaps, be
drawn between “actual occupation” and “occupation,” as used in the provisions referred to
above, the Board finds, for purposes of this proceeding, that the claimant was neither in
“actual occupation” nor occupation of the lands which were expropriated, or of its lands in
Westchester II East, to the east of the right-of-way.
[617] Taking into account the Court of Appeal’s guidance in Bank of Nova Scotia and
in Powell, it is the view of the Board that Westchester II East (a property which has only
once been completely traversed by Jim Harrison, the owner of the corporate claimant, with
that visit occurring only three years after the expropriation itself) does not meet the test of
Document: 246581
- 106 being in occupation of the land that is required by s. 27(3).
consistently to an “owner.”
[289]
Section 27(3) refers
The Board’s decision in Harrison Blueberry was affirmed by the Court of
Appeal at 2006 NSCA 26.
[290]
The Board accepts that the Municipality was endeavouring to acquire land
in Goldboro, adjacent to its Industrial Park. This is evidenced by the communication from
the Warden to the Province inquiring about Crown lands. This is also evidenced by
MODG's agreement of purchase and sale in 2004 with Mr. Warner, including its
willingness to contribute the cost of quieting the title to his land. The Board accepts Mr.
Cleary's evidence that the alternative to purchasing the Warner property was
expropriation. Further evidence is found in the provisions of the MOU between the MODG
and Keltic, and the January 2005 Option Agreement, and August 2005 Option Agreement,
for example, which refer to the Municipality’s intended acquisition of the Warner property.
Additionally, the possibility of expropriation was clearly within the contemplation of both
PEV and Mr. Warner since they included Clause 10 in their agreement. The Board also
concludes that Mr. Vandall was aware of the possibility of expropriation based on his
communication with Keltic through Wayne Rousch after the March 11, 2005 meeting with
Mr. Dunn and Ms. Campbell.
[291]
Mr. Grant explored with Mr. Hardy the application of Clause 7(b) of the
PEV/Warner agreement. He agreed that if the value ascribed by the Board to Mr.
Warner's interest was the fee simple value, PEV would be entitled to nothing. If the value
were Mr. Hardy's value of $10,326,000, PEV would be entitled to $2,715,160, significantly
less than the PEV claim. While giving the Act a broad and liberal reading, the Board
agrees with Mr. Grant that it would make little sense to award compensation to PEV in an
Document: 246581
- 107 amount greater than what it would have been entitled to under what the Board views as
a freely negotiated contract. However, the Board understands that the MODG does not
acknowledge that PEV is entitled to anything more than the amount determined by Mr.
Telford, because the MODG does not accept the value opined by Mr. Hardy.
[292]
To that extent, the MODG has adopted the amount awarded to Mr. Warner
as the market value of the fee simple interest in the land. In the Warner decision, the
Board did not specify that it was determining the value of the fee simple interest; rather
at paragraph 531, the Board concluded:
[531] … the Board finds that the market value of the subject property, for the purposes
of the Act, is a net amount of $1,340,000...
[293]
A reading of the Warner decision indicates that the Board was aware of
PEV’s agreement with Mr. Warner; the Board referred to PEV, saying:
[137] On July 18, 2005, Mr. Warner entered into an agreement with PEV, with which
Keltic had entered into an agreement in July of 2004.
...
[143] While the Board is of course aware of the content of the Warner-PEV Agreement,
characterizing whatever legal significance the Agreement may have under the
Expropriation Act (in relation to any ultimate compensation arising from that Agreement by
the expropriating authority) is not the subject of the present proceeding.
[294]
Mr. Hardy makes much of the fact, as did Mr. Goldberg, that PEV did not
participate in the Warner hearing and, according to Mr. Vandall, had no knowledge it was
proceeding. It was their position that the Board would have reached a different conclusion
if it had known about PEV's development plan and particulars of the site. The Board need
not revisit the issue of PEV's awareness, or lack of awareness, of the hearing of the
Warner claim, as it has already been addressed in the decision of Board Member
Cochrane on the recusal motion (2010 NSUARB 133).
[295]
The Board does not consider itself bound by the Warner decision to the
extent that it must accept the value of $1,340,000, or that any part of it would represent
Document: 246581
- 108 PEV’s interest. It has, however, considered the appraisal reports filed in this matter, and
the testimony of the expert witnesses, and on balance, the Board finds Mr. Ingram's report
more persuasive, since he did use industrial sites as comparables. Further, the Board
finds that the Bear Head property was developed to a substantially greater degree which
would have impacted its price.
[296]
The Board was not presented with any evidence supporting a claim for tolls
which PEV would have been entitled to on the basis of its agreement with Mr. Warner. In
addition to being remote and speculative, in the absence of any agreements for the supply
and transportation of natural gas, the Board considers that any such claim would have
formed part of any claim for business loss, which had been withdrawn well in advance of
the hearing.
[297]
The Board considers that the aspect of its interest for which PEV should be
compensated is its right of first refusal contained in Clause 4(b)(ii) of the PEV/Warner
agreement. But for the expropriation, Mr. Warner would not have been able to sell the
property to a third party without first offering PEV the opportunity to purchase it. The
agreement does not, however, contain any terms regarding the purchase price or any
other aspect of such a transaction.
[298]
It is the Board's view that such a right is similar to an option; under an option,
an owner grants the right to acquire a property on specified terms within a specified period
and the holder of the right pays a fee for the privilege.
[299]
Mr. Ingram, Mr. Hardy and Mr. Telford all agreed that options on the Warner
property ought to be a consideration in appraising its value.
Mr. Telford used the
consideration for the August 2005 option and the Encana pipeline and site valve
agreement as the basis for what he concluded would be the maximum amount payable
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- 109 to PEV in compensation. He described this as giving PEV the benefit of the Encana
agreement even though it was after the expropriation.
[300]
However, the evidence discloses that there were a number of options
granted over lands at Goldboro, including the Warner property. A number of them were
granted after the effective date, and thus Mr. Telford did not take them into account.
According to the evidence of the Claimant, over the period from January 2005 to May
2013, the MODG received nearly $1 million in option payments (Exhibit P-19(ii), p. 176).
These options did not all relate exclusively to the Warner lands, but included other
property which the MODG had acquired or already owned.
[301]
Some of the options were apparently assigned. Mr. Goldberg submitted
that the consideration for assignment could guide the Board in determining compensation
for PEV's interest. It would represent what someone would pay for PEV's interest. In
particular, he pointed to Mr. Dunn's statements regarding the assignment of Keltic's option
to Maple LNG. However, the only evidence of this being a newspaper report, quoting
"millions", the Board considers it should be afforded no weight whatsoever. There was
no other evidence of the consideration for any assigned options before the Board.
[302]
The Board considers that the option considerations are the best indicator of
the "market value" of PEV's rights. The Board does not agree that it should confine itself
to those options granted prior to the effective date, however, although it does not accept
Mr. Goldberg’s submission that the consideration paid for all of the options, including
payments up to 2013, should form the basis of compensation.
[303]
The Board has reviewed the various option agreements with Keltic and
Maple and others in Exhibits P-13 and P-14(C). Their dates range over a period from
January 2005 to March 2011. The Board has also reviewed the schedule of payments in
Document: 246581
- 110 Exhibit P-19(ii), at p. 176. The Board notes some inconsistencies in that schedule and
information provided to it by Barry Carroll, CAO of the MODG, in a letter dated May 9,
2014, provided by Mr. Grant. The Board has relied on Mr. Carroll’s letter and the actual
options. The Board further observes that not all the options include the Warner property.
Given the role of the MODG and its pursuit of property ownership at Goldboro, the Board
concludes that a number of the options would reasonably have been in contemplation, or
on the horizon, by the MODG at the effective date and, therefore, should be taken into
account to determine the compensation due to PEV. In doing so, the Board has taken a
liberal approach to calculating the compensation due to PEV. The March 30, 2006 option
was just over a month after the effective date of February 7, 2006. Any options after this
date, in the view of the Board, should not reasonably be taken into account as they are
too remote. The sum of $47,000 (rounded) calculated by Mr. Telford included the August
2005 option payment of $35,000, and what he calculated to be PEV’s share of the amount
paid by Encana under a pipeline and valve site agreement. He agreed that the January
2005 option amount of $2,500 could be added.
The Board accepts Mr. Telford’s
approach, and adds the following to his original calculation:
January 2005 Option (Keltic)
March 2006 Option (Keltic)
[304]
2,500.00
100,000.00
102,500.00
The Board thus finds the total value of compensation to be awarded to PEV
is $149,500.00. The Board notes that the statutory amount paid earlier to PEV should be
set off against this sum.
[305]
The Board reserves the right to adjudicate the claim for interest and costs
in accordance with the provisions of the Act if the parties are unable to agree upon any
amounts to which PEV may be entitled.
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- 111 VI
CONCLUSION
[306]
The MODG expropriated the lands of James Irving Warner at Goldboro,
Nova Scotia. The Claimant, PEV, had an interest in the lands arising from an agreement
with Mr. Warner dated July 18, 2005. In a separate proceeding before the Board, the
MODG was ordered to pay Mr. Warner $1,340,000 for his interest in the land.
[307]
The Claimant, PEV, then filed its claim to be paid for its interest. PEV
proposed the development of a project at Goldboro which would see the importation of
LNG, possibly from Nigeria, floating storage and regasification units which would be
berthed off the property, and pipelines which would carry the regasified natural gas to
various points. The project would involve, variously, natural gas liquids being removed
through the Sable Offshore Energy Plant and, at one point, available for a petrochemical
facility, or, at another point, for storage at Statia Terminals; gas-fired electric generating
facilities at Goldboro, from which some generated electricity would be transmitted into the
electrical grid; and natural gas flowing on the Maritimes and Northeast Pipeline into New
England and/or the northeastern United States.
[308]
PEV had undertaken research, communicated with various persons
regarding a source of LNG, the use of FSRUs, and possible participation in some or all
elements of the project. It had entered into agreements with Keltic, with Statia, and with
Mr. Warner. Once the Warner lands were expropriated, PEV’s project did not proceed.
[309]
Under the agreement between PEV and Mr. Warner, PEV had the following
stated rights:
•
•
•
•
Exclusive development rights per Clause 4(a)
Exclusive rights to pipeline corridors and Tolls on the Warner land per Clauses
4(b)(i) and 7(c)
Right of first refusal per Clause 4(b)(ii)
A share of lease revenues per Clauses 4(c) and 7(a)
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112
-
-
A share of sale proceeds based on a formula per Clause 7(b)
[310]
PEV sought $8,986,000, together with interest and costs from MODG. The
Board is not persuaded, on a balance of probabilities, that PEV should be paid such an
amount for its interest in the lands.
The Board finds that PEV is entitled to be paid
$149,500.00, pursuant to the Expropriation Act.
This award is based on the Board’s
findings that there is no evidence of any value of PEV’s development rights, or toll
revenue, nor did PEV bring any special economic advantage to the lands.
PEV did
nothing to enhance the value of the Warner property or its attributes for LNG
development.
[311]
The Board finds that PEV’s right of first refusal has value, and the Board
has found amounts paid under option agreements with the MODG by Keltic
Petrochemicals before the effective date of the expropriation, and in reasonable
contemplation thereafter in March 2006, and payments received from Encana for a valve
and pipeline agreement to be equivalent to that value.
[312]
Under the provisions of the Expropriation Act, PEV may be entitled to
interest and costs. The Board reserves the right to adjudicate on the quantum of interest
and costs, and will hear submissions from the parties on both issues, if they are unable
to agree on amounts. The Board finds the amount of compensation is $149,500.
[313]
An Order will issue accordingly.
DATED at Halifax, Nova Scotia, this 30th day of May, 2016.
Document: 246581