Business Valuation for Expropriation
Court-Accepted, Case-Law-Backed Business Valuations
Fair Market Value, Expert Duty to the Court, and Valuation Reality in Canada
1. Fair Market Value as the Legal Starting Point
Fair Market Value (FMV) is the central legal standard for business valuation in Canada. It applies in matters involving business sales, shareholder disputes, corporate reorganizations, taxation, estates, and family law.
FMV is generally understood to mean the price, expressed in money, that would be agreed upon in an open and unrestricted market between a willing buyer and a willing seller, both acting prudently, independently, and knowledgeably, and without compulsion to buy or sell.
While FMV remains the governing legal concept, it is a theoretical construct. The law does not require experts to pretend theory equals reality. On the contrary, it requires experts to explain where and why theory diverges from real-world conditions.
2. The Expert’s Overriding Duty to the Court (Canada-Wide)
A valuation expert providing an opinion of FMV does so as an officer of the court, not as an advocate for any party. The expert’s overriding duty is to the court.
This duty is expressly codified across Canada, including:
- Ontario - Rule 53.03
- British Columbia - Rule 11-6
- Alberta - Rule 5.34
- Saskatchewan - Rule 5-46
- Manitoba - Rule 53.03
- Quebec - Code of Civil Procedure, arts. 231–235
- Nova Scotia - Rule 55
- New Brunswick - Rule 52
- Prince Edward Island - Rule 52
- Newfoundland and Labrador - Rule 38A
- Federal Court of Canada / Tax Court of Canada - Rule 52.2
Across all jurisdictions, this duty requires the expert to provide independent, objective, and unbiased assistance, and to disclose assumptions, limitations, and weaknesses that materially affect the court’s understanding of value.
The duty is proactive. Silence where convention misrepresents reality is not neutrality it is omission.
3. Experience as Admissible and Necessary Evidence
Private business valuation occurs in markets that are opaque, negotiated, and non-transparent. Unlike public markets, there is no continuous price discovery, no mandatory disclosure, and no guaranteed liquidity.
As a result, courts necessarily rely on experience-based expert evidence.
Experience has evidentiary value where it is:
- Accumulated over many years
- Based on repeated direct exposure to transactions and valuations
- Consistent across industries and fact patterns
- Logically explained and transparent
This is not “gut instinct.” It is cumulative empirical observation. Canadian courts have consistently accepted that where markets lack transparency, expert experience is not optional it is essential.
4. The “No Compulsion” Assumption and Private Business Reality
The FMV assumption of “no compulsion to buy or sell” rarely reflects private business reality.
In owner-operated and closely held businesses, sellers are commonly influenced by:
- Age, illness, or death
- Divorce or shareholder conflict
- Debt, burnout, or financial pressure
- Franchise restrictions or lease expiries
These conditions materially affect price. There is no public or private database that reliably confirms the absence of compulsion in private business transactions.
Accordingly, any valuation that assumes “no compulsion” without evidence must disclose that limitation clearly to the court.
5. Comparable Sales in Private Business Valuation: A Legal Deficiency
So-called “comparable sales” in private business valuation suffer from a fundamental evidentiary defect.
There is no reliable source that discloses, with sufficient detail:
- Seller motivation or distress
- Financing terms or vendor take-backs
- Earn-outs, concessions, or side agreements
- Post-closing adjustments
Without this information, it is impossible to verify whether a transaction occurred under true FMV conditions.
When private-market prices are presented as objective benchmarks without disclosure of these unknowns, they cease to be evidence and become unsubstantiated assertions. Repetition does not convert unverifiable data into fact.
6. Canadian Case Law: Substance Over Convention
Canadian courts have repeatedly confirmed that expert evidence must assist the court by reflecting economic reality, not professional habit.
- R. v. Mohan, [1994] 2 SCR 9
Expert evidence must be necessary, reliable, and helpful to the trier of fact. - White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23
An expert’s paramount duty is to the court. Independence and impartiality are substantive, not formal, requirements. - Gifford v. Canada, 2004 SCC 15
Valuation evidence must reflect real economic conditions, not artificial assumptions. - Maréchaux v. The Queen, 2010 TCC 452
Valuation models that ignore commercial reality are entitled to little or no weight. - MEGlobal Canada ULC v. The King, 2025 TCC 59
Unsupported assumptions and opaque comparables cannot substitute for rigorous, experience-based analysis.
These authorities confirm that courts are not bound by valuation convention and are entitled to reject opinions that rely on assumptions disconnected from how private markets actually function.
7. Conclusion: Legal Obligation, Not Opinion
Fair Market Value remains the legal standard. However, in private business valuation, FMV cannot be meaningfully assessed without acknowledging:
- The prevalence of seller compulsion
- The absence of transparent, verifiable comparable sales
- The necessity of experience-based analysis
The expert’s duty is not to preserve tradition. It is to inform the court of reality.
That duty is codified, judicially affirmed, and mandatory.