1298417 Ontario Ltd. v. Lakeshore (Town), 2014 ONCA 802

• Judge: Feldman, MacFarland and Epstein, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: February 11, 2014
• Jurisdiction: Ontario
• Citations: 2014 ONCA 802;(2014), 326 O.A.C. 322 (CA)

1298417 Ont. v. Lakeshore (2014), 326 O.A.C. 322 (CA)

MLB headnote and full text

Temp. Cite: [2014] O.A.C. TBEd. NO.010

1298417 Ontario Ltd. (plaintiff/respondent) v. The Corporation of the Town of Lakeshore (defendant/appellant)

(C56585; 2014 ONCA 802)

Indexed As: 1298417 Ontario Ltd. v. Lakeshore (Town)

Ontario Court of Appeal

Feldman, MacFarland and Epstein, JJ.A.

November 17, 2014.

Summary:

The Town of Lakeshore and a developer entered into a subdivision agreement in which Lakeshore undertook to provide capacity in its sewage system to the developer's proposed development. Subsequently, the parties entered into a supplementary agreement that provided for an enhancement to the town's sewage system that would increase the capacity available to the developer's proposed development. The supplementary agreement also provided that Lakeshore would not, prior to completion of full development and build out of residential and commercial buildings in the subdivision, grant and/or approve additional capacity in the existing system for lands outside of the subdivision (art. 3.1). When Lakeshore provided another developer access to enhanced sewage capacity prior to the completion of the development, the developer sued Lakeshore for breach of contract and claimed damages from the loss of commercial tenancies to the competing developer.

The Ontario Superior Court, in a decision reported [2013] O.T.C. Uned. 99, found that by providing the other developer access to the sewage system, Lakeshore breached the supplementary agreement. The court awarded the developer damages of $2,423,860, based on the profits that the other developer purportedly realized from certain commercial tenancies. Lakeshore appealed, arguing that the trial judge erred in interpreting the supplementary agreement, specifically art. 3.1, as prohibiting it from allocating sewage capacity to anyone else pending completion of the developer's subdivision. Alternatively, Lakeshore argued that if the trial judge's contractual interpretation was correct, the supplementary agreement was ultra vires. Lakeshore further contended that even if it did breach the supplementary agreement, the trial judge's assessment of damages could not stand.

The Ontario Court of Appeal allowed the appeal and dismissed the action because the damages claimed by the subdivision developer and awarded by the trial judge, were too remote and not compensable for the breach of contract that was alleged. The majority of the court (Feldman and MacFarland, JJ.A.) also held that the trial judge erred in interpreting the contract and finding that Lakeshore breached it. Further, the majority did not agree that the town entered into an ultra vires contract.

Contracts - Topic 3523

Performance or breach - Breach - What constitutes a breach - A municipality and a developer entered into a subdivision agreement - A supplementary agreement provided for an enhancement to the town's sewage system that would increase the capacity available to the developer's proposed development and that the municipality would not, prior to completion of full development and build out of residential and commercial buildings in the subdivision, grant and/or approve additional capacity in the existing system for lands outside of the subdivision (art. 3.1) - When the municipality provided another developer access to the enhanced sewage capacity prior to the completion of the development, the developer sued the municipality for breach of contract and claimed damages from the loss of commercial tenancies to the competing developer - The Ontario Court of Appeal dismissed the developer's action - There was no breach of contract, and in any event, the damages were too remote to be compensable - See paragraphs 1 to 22.

Contracts - Topic 7401

Interpretation - General principles - Intention of parties (incl. reasonable expectations) - A municipality (Lakeshore) and a developer (129) entered into a subdivision agreement - In a supplementary agreement Lakeshore agreed to allocate additional capacity in its sewage system for the development and agreed not to "... prior to completion of full development and build out of residential and commercial buildings in the St. Clair Shores Subdivision, grant and/or approve additional capacity in the Existing System for lands outside of the St. Clair Shores Subdivision" (art 3.1) - The Ontario Court of Appeal interpreted art. 3.1 as meaning that "Lakeshore agreed to grant 129 sufficient sewer capacity to allow for the full development of the St. Clair Shores Subdivision. To that end, Lakeshore also agreed not to grant any of the capacity that 129 needed to fully develop the St. Clair Shores Subdivision to any other development before the St. Clair Shores Subdivision was completed. This interpretation is the result of reading article 3.1 as a whole. It recognizes that the phrases 'additional capacity in the Existing System' and 'additional capacity' are used in the first sentence and consistently and in the same way in the second sentence of article 3.1, and are therefore both modified by the important qualification, 'so as to allow for full development of the St. Clair Shores Subdivision'. This interpretation recognizes the context of the municipality's obligations [to supply water and sewage] under s. 86(1) of the Municipal Act, 2001. It gives full effect to the intent of the parties and fully complies with the applicable principles of contract interpretation" - See paragraph 16.

Contracts - Topic 7401

Interpretation - General principles - Intention of parties (incl. reasonable expectations) - [See Contracts - Topic 7418 ].

Contracts - Topic 7407

Interpretation - General principles - Whole contract to considered - [See Contracts - Topic 7418 ].

Contracts - Topic 7418

Interpretation - General principles - Preference to interpretation rendering contract legal and enforceable - A municipality (Lakeshore) and a developer entered into an agreement supplementary to a subdivision agreement whereby the municipality agreed to allocate additional capacity in its sewage system for the development and agreed not to "... prior to completion of full development and build out of residential and commercial buildings in the St. Clair Shores Subdivision, grant and/or approve additional capacity in the Existing System for lands outside of the St. Clair Shores Subdivision" (art 3.1) - The trial judge interpreted the quoted portion as Lakeshore effectively granting the developer exclusive right or monopoly over sewer capacity until the subdivision was completed - The Ontario Court of Appeal held that the trial judge made extricable legal errors when interpreting article 3.1, most importantly by reading the words that appeared to grant a monopoly in isolation, rather than construing the clause as a whole - The trial judge failed to give effect to the intent of the parties - Also, his interpretation rendered art. 3.1 ultra vires the municipality's powers under the Municipal Act - In failing to recognize that his interpretation made art. 3.1 ultra vires, he failed to prefer an interpretation that rendered art. 3.1 legal and enforceable rather than illegal and unenforceable - See paragraphs 3 to 17.

Damages - Topic 552

Limits of compensatory damages - Remoteness - Contracts - Recoverable damages - [See Contracts - Topic 3523 ].

Municipal Law - Topic 1486

Powers of municipalities - Particular powers - Respecting water supply, drains and sewers - [See first Contracts - Topic 7401 , Contracts - Topic 3523 and Contracts - Topic 7418 ].

Cases Noticed:

Creston Moly Corp. v. Sattva Capital Corp. (2014), 461 N.R. 335; 358 B.C.A.C. 1; 614 W.A.C. 1; 373 D.L.R.(4th) 393, refd to. [paras. 3, 57].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 3].

Ventas Inc. et al. v. Sunrise Senior Living Real Estate Investment Trust et al. (2007), 222 O.A.C. 102; 85 O.R.(3d) 254; 2007 ONCA 205, refd to. [para. 14].

Eli Lilly & Co. et al. v. Novopharm Ltd. et al., [1998] 2 S.C.R. 129; 227 N.R. 201, refd to. [para. 59].

Indian Molybdenum v. R., [1951] 3 D.L.R. 497 (S.C.C.), refd to. [para. 58].

Unique Broadband Systems Inc., Re (2014), 322 O.A.C. 122; 2014 ONCA 538, refd to. [para. 67].

Ontario (Minister of Finance) v. Smith et al. (2014), 457 N.R. 40; 320 O.A.C. 135; 2014 SCC 36, refd to. [para. 75].

John Doe v. Ontario (Minister of Finance) - see Ontario (Minister of Finance) v. Smith et al.

Croplife Canada v. Toronto (City) (2005), 198 O.A.C. 35; 75 O.R.(3d) 357 (C.A.), consd. [para. 76].

St. Lawrence Rendering Co. v. Cornwall (City), [1951] O.R. 669 (S.C.), refd to. [para. 87].

Holmberg et al. v. Public Utilities Commission of Sault Ste. Marie, [1966] 2 O.R. 675 (C.A.), refd to. [para. 87].

Pacific National Investments Ltd. v. Victoria (City) et al., [2000] 2 S.C.R. 919; 263 N.R. 1; 144 B.C.A.C. 203; 236 W.A.C. 203; 2000 SCC 64, refd to. [para. 88].

Transport North American Express Inc. v. New Solutions Financial Corp., [2004] 1 S.C.R. 249; 316 N.R. 84; 183 O.A.C. 342; 2004 SCC 7, refd to. [para. 110].

KRG Insurance Brokers (Western) Inc. v. Shafron et al. (2009), 383 N.R. 217; 265 B.C.A.C. 1; 446 W.A.C. 1; 2009 SCC 6, refd to. [para. 110].

Miller v. Convergys CMG Canada Limited Partnership et al. (2014), 359 B.C.A.C. 185;   615 W.A.C. 185; 2014 CarswellBC 2260; 2014 BCCA 311, refd to. [para. 113].

Thomson (William E.) Associates Inc. v. Carpenter (1989), 34 O.A.C. 365; 69 O.R.(2d) 545 (C.A.), leave to appeal dismissed (1990), 105 N.R. 397; 37 O.A.C. 398 (S.C.C.), refd to. [para. 116].

Standard Precast Ltd. v. Dwyidag Fab Con Products Ltd. (1989), 56 D.L.R.(4th) 385; 13 A.C.W.S.(3d) 349 (B.C.C.A.), refd to. [para. 130].

McBride v. Johnson, [1962] S.C.R. 202, refd to. [para. 130].

Place Concorde East Limited Partnership et al. v. Shelter Corp. of Canada Ltd. et al. (2006), 211 O.A.C. 141; 270 D.L.R.(4th) 181 (C.A.), refd to. [para. 131].

Hadley v. Baxendale (1854), 9 Exch. 341; 156 E.R. 145, refd to. [para. 135].

RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. et al., [2008] 3 S.C.R. 79; 380 N.R. 166; 260 B.C.A.C. 198; 439 W.A.C. 198; 2008 SCC 54, refd to. [para. 138].

Southcott Estates Inc. v. Toronto Catholic District School Board (2010), 261 O.A.C. 108; 104 O.R.(3d) 784; 2010 ONCA 310, affd. [2012] 2 S.C.R. 675; 435 N.R. 41; 2012 SCC 51, refd to [para. 144].

Statutes Noticed:

Municipal Act, 2001, S.O. 2001, c. 25, sect. 8(1) [para. 77]; sect. 86(1) [paras. 17, 72].

Authors and Works Noticed:

Fridman, Gerald Henry Louis, The Law of Contract in Canada (6th Ed. 2011), pp. 412-413 [para. 114].

Hall, Geoff R., Canadian Contractual Interpretation Law (2nd Ed. 2012), pp. 64, 65, 79 to 81 [para. 59].

Mascarin, John, and Williams, Christopher, J., Ontario Municipal Act and Commentary (2014), pp. 6 to 13 [para. 76]; 33 [para. 98].

McCamus, John D., The Law of Contracts (2005), pp. 510 [para. 114]; 515 to 522 [para. 115].

Rogers, Ian MacF., The Law of Canadian Municipal Corporations (2nd Ed.) (Looseleaf Ed.), p. 1049 [para. 88].

Sullivan, Ruth, Statutory Interpretation (2nd Ed. 2007), pp. 218, 219 [para. 79].

Swan, Angela, and Adamski, Jakub, Canadian Contract Law (3rd Ed. 2012), p. 480 [para. 139].

Counsel:

William V. Sasso, Werner H. Keller and Jaqueline A. Horvat, for the appellant;

Claudio Martini, Myron Shulgan and Maria Marusic, for the respondent.

This appeal was heard on February 11, 2014, before Feldman, MacFarland and Epstein, JJ.A., of the Ontario Court of Appeal. The decision of the court was delivered on November 17, 2014, including the following opinions:

Feldman, J.A. (MacFarland, J.A., concurring) - see paragraphs 1 to 22;

Epstein, J.A. - see paragraphs 23 to 146.