Pacific National Investments Ltd. v. Victoria (City), (2004) 327 N.R. 100 (SCC)

• Judge: McLachlin, C.J.C., Major, Bastarache, Binnie, LeBel, Deschamps and Fish, JJ.
• Court: Supreme Court of Canada
• Case Date: June 15, 2004
• Jurisdiction: Canada (Federal)
• Citations: (2004), 327 N.R. 100 (SCC);2004 SCC 75

Pacific Nat. Inv. v. Victoria (City) (2004), 327 N.R. 100 (SCC)

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[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2004] N.R. TBEd. NO.004

Pacific National Investments Ltd. (appellant) v. Corporation of the City of Victoria (respondent)

(29759; 2004 SCC 75; 2004 CSC 75)

Indexed As: Pacific National Investments Ltd. v. Victoria (City)

Supreme Court of Canada

McLachlin, C.J.C., Major, Bastarache, Binnie, LeBel, Deschamps and Fish, JJ.

November 19, 2004.

Summary:

Control of provincial land located around the City of Victoria's inner harbour was transferred to a Crown corporation (BCEC) for redevelopment. Under a Master Agree­ment for redevelopment of the inner harbour, BCEC developed a portion of the lands and sold the remaining 22 acres to a private developer (PNI). PNI agreed to build a new seawall, roads, public parks and walkways (the extra works and improvements). It was a condition precedent to PNI's obligations that the City would approve subdivision into five lots and rezoning the lands to permit, inter alia, construction of three storey struc­tures on two water lots which included residential condominiums. There was an implied undertaking that the zoning would remain in place for a reasonable time to permit the project's completion. In 1993, a new City council down-zoned the water lots to preclude residential development and limit buildings to one storey. PNI argued that the down-zoning rendered development of its water lots uneconomical. PNI sued the City for breach of contract and, alternatively, unjust enrichment for the cost of the extra works and improvements ($1.08 million).

The British Columbia Supreme Court found the City liable for breach of contract, for breaching the implied undertaking. The City appealed.

The British Columbia Court of Appeal, in a decision reported at 112 B.C.A.C. 161; 182 W.A.C. 161, allowed the appeal, set aside the trial judgment, and remitted the matter for trial on the unresolved unjust enrichment claim. PNI appealed the dismissal of its breach of contract claim.

The Supreme Court of Canada, Bastarache, Major and Binnie, JJ., dissenting, in a deci­sion reported at 63 N.R. 1; 144 B.C.A.C. 203; 236 W.A.C. 203, dismissed the appeal, holding that the City lacked the statutory authority to make and be bound by the alleged contractual term. The court remitted the unjust enrichment claim for trial. The City argued that the claim was statute-barred under s. 914 of the Local Government Act (no compensation in relation to adoption of bylaw or issuance of permit).

The British Columbia Supreme Court, in a decision reported at [2002] B.C.T.C. 41, rejected the City's argument.

Subsequently, the British Columbia Su­preme Court, in a decision reported at [2002] B.C.T.C. 1185, held that the City was un­justly enriched by the extra works and im­provements. The court granted PNI judg­ment for $1.08 million. The City appealed.

The British Columbia Court of Appeal, in a decision reported at 180 B.C.A.C. 104; 297 W.A.C. 104, allowed the appeal and dis­missed PNI's action. PNI appealed.

The Supreme Court of Canada allowed the appeal, set aside the Court of Appeal's decision and restored the trial judge's judg­ment requiring the City to pay PNI $1.08 million.

Municipal Law - Topic 6263

Actions against municipality - Restrictions - Statutory restrictions - PNI intended to develop 22 acres as part of a city's water­front redevelopment - The city enacted zoning bylaws to permit PNI to construct, inter alia, two three story structures on two water lots - PNI agreed to install $1.08 million in extra works and improvements in exchange for the city's implied under­taking that the zoning would remain in place for a reasonable time to permit the project's completion - A new city council down-zoned the water lots to preclude residential development and limit buildings to one storey, thereby rendering develop­ment of the water lots uneconomical - The city's undertaking was found to be ultra vires and, therefore, unenforceable - PNI sued the city for unjust enrichment - The city argued that s. 914 of the Local Gov­ernment Act provided a juristic reason for any enrichment - Section 914 provided that no compensation was payable for any loss resulting from the adoption of an official community plan or bylaw - The Supreme Court of Canada rejected the argument - PNI's claim was not based on "the adop­tion of an official community plan or [zoning] bylaw" - Its losses flowing from the down-zoning were not in issue - PNI's cause of action for unjust enrichment was complete when it put in place the extra works in the mistaken belief that its con­tract with the city in respect thereto was enforceable - See paragraphs 45 and 46.

Real Property - Topic 8013.1

Title - Registration of instruments, etc. - Land titles system - Registration of re­strictive covenant - Effect of - PNI in­tended to develop 22 acres as part of a city's waterfront redevelopment - A regis­tered restrictive covenant prohibited build­ing until appropriate servicing agreements had been reached and subdivision plans had been approved - The city enacted zoning bylaws to permit PNI to construct, inter alia, two three story structures on two water lots - PNI agreed to install $1.08 million in extra works and improvements in exchange for the city's implied under­taking that the zoning would remain in place for a reasonable time to permit the project's completion - A new city council down-zoned the water lots to preclude residential development and limit buildings to one storey, thereby rendering develop­ment of the water lots uneconomical - The city's undertaking was found to be ultra vires and, therefore, unenforceable - PNI sued the city for unjust enrichment - The city argued that it had a juristic reason for any enrichment - It relied on s. 215(3) of the Land Title Act under which the re­strictive covenant provided bound PNI to do the works "notwithstanding that the instrument ... has not been signed by the covenantee" - The Supreme Court of Canada rejected the argument - See para­graph 47.

Restitution - Topic 64

Unjust enrichment - General - Juristic rea­son for enrichment - The Supreme Court of Canada stated that "The use of the ex­pression 'juristic reason' [in the context of unjust enrichment] emphasizes that 'unjust' is to be addressed as a matter of law and legal reasoning rather than a free-floating conscience that may risk being overly sub­jective ... There are now two stages to the juristic reason inquiry. At the first stage, a claimant ... must show that there is no juris­tic reason within the established cate­gories that would deny it recovery. The es­tablished categories are the existence of a contract, disposition of law, donative in­tent, and "other valid common law, equit­able or statutory obligatio[n]" ... The cate­gories may be added to over time ... On prov­ing that none of these limited categori­cal reasons exist to deny recovery, the plaintiff ... will have made out a prima facie case of unjust enrichment. It will have demonstrated 'a positive reason for reversing the defendant's enrichment' ... At the second stage, the onus shifts to the defendant ..., who must rebut the prima facie case by showing that there is some other valid reason to deny recovery. In the absence of a convincing rebuttal, the trans­fer of wealth will be reversed. ... it is at this stage that the court should have regard to the reasonable expectation of the parties and public policy considerations." - See para­graphs 23 to 25.

Restitution - Topic 64

Unjust enrichment - General - Juristic reason for enrichment - PNI intended to develop 22 acres as part of a city's water­front redevelopment - The city enacted zoning bylaws to permit PNI to construct, inter alia, two three story structures on two water lots - PNI agreed to install $1.08 million in extra works and improvements beyond what the city could lawfully demand under the Municipal Act - In exchange the city gave an implied under­taking that the zoning would remain in place for a reasonable time to permit the project's completion - A new city council down-zoned the water lots to preclude residential development and limit buildings to one storey, thereby rendering develop­ment of the water lots uneconomical - The city's undertaking was found to be ultra vires and, therefore, unenforceable - PNI sued the city for unjust enrichment - The Supreme Court of Canada held that the con­tractual arrangements between the par­ties, which in their relevant parts flowed from the city's ultra vires demand, were not a juristic reason for permitting the city to retain the extras for free - The ultra vires extras could be distinguished from the city's lawful entitlement - Fur­ther, the parties had entered into the con­tractual arrangements respecting the extras based on a common mistake respecting the city's legal authority - See paragraphs 28 to 43.

Restitution - Topic 64

Unjust enrichment - General - Juristic reason for enrichment - PNI intended to develop 22 acres as part of a city's water­front redevelopment - The city enacted zon­ing bylaws to permit PNI to construct, inter alia, two three story structures on two water lots - PNI agreed to install $1.08 million in extra works and improvements in exchange for the city's implied under­taking that the zoning would remain in place for a reasonable time to permit the project's completion - A new city council down-zoned the water lots to preclude resi­dential development and limit buildings to one storey, thereby rendering develop­ment of the water lots uneconomical - The city's undertaking was found to be ultra vires and, therefore, unenforceable - PNI sued the city for unjust enrichment - The Court of Appeal held that the juristic rea­son for what the city did was that the Legislature had empowered it to down-zone - The Su­preme Court of Canada disagreed - The claim for unjust enrich­ment did not depend on the down-zoning - It depended on the fact that the city obtained extras at PNI's expense to which, after securing an order declaring that it had no power to do what it purported to under­take to do, the city had no legitimate claim - Requiring the city to pay for the extras would not consti­tute an "indirect fetter" on the exercise of its legislative power - The power to down-zone in the public interest did not immu­nize the city against claims for unjust en­richment - See paragraphs 50 to 52.

Restitution - Topic 64

Unjust enrichment - General - Juristic reason for enrichment - PNI intended to develop 22 acres as part of a city's water­front redevelopment - The city enacted zoning bylaws to permit PNI to construct, inter alia, two three story structures on two water lots - PNI agreed to install $1.08 million in extra works and improvements in exchange for the city's implied under­taking that the zoning would remain in place for a reasonable time to permit the project's completion - A new city council down-zoned the water lots to preclude residential development and limit buildings to one storey, thereby rendering develop­ment of the water lots uneconomical - The city's undertaking was found to be ultra vires and, therefore, unenforceable - PNI sued the city for unjust enrichment - The Supreme Court of Canada held that there was no juristic reason for the enrichment - The city failed to show that allowing the unjust enrichment claim would frustrate the parties' reasonable expectations - The parties did not expect that the extras would be donated - The expectation was that the extras would be paid for out of the profits from the development - The city did not expect to get the extras for nothing, but the agreed form of consideration (guaranteed zoning) turned out to be beyond its powers - The city now owned the works, and it was consistent with the parties' reasonable expectations that PNI be reimbursed - See paragraph 53.

Restitution - Topic 64

Unjust enrichment - General - Juristic rea­son for enrichment - PNI intended to de­velop 22 acres as part of a city's water­front redevelopment - The city enacted zoning bylaws to permit PNI to construct, inter alia, two three story structures on two water lots - PNI agreed to install $1.08 million in extra works and improvements in exchange for the city's implied under­taking that the zoning would remain in place for a reasonable time to permit the project's completion - A new city council down-zoned the water lots to preclude resi­dential development and limit buildings to one storey, thereby rendering develop­ment of the water lots uneconomical - The city's undertaking was found to be ultra vires and, therefore, unenforceable - PNI sued the city for unjust enrichment - The Su­preme Court of Canada held that there was no juristic reason for the enrichment - The court rejected the argument that the grant of an equitable remedy would be bad pub­lic policy - The grant of the equitable remedy would not frustrate the legislative purpose in making such zoning commit­ments unenforceable - It was not suggested that the parties made the agreements for an improper purpose - The court was not per­suaded that it would be good public policy to have municipalities making de­velopment commitments, then attack them as illegal and ultra vires, but allow them to get a windfall at the expense of those who con­tracted with them in good faith - See para­graphs 54 to 58.

Restitution - Topic 64

Unjust enrichment - General - Juristic rea­son for enrichment - [See Municipal Law - Topic 6263 and Real Property - Topic 8013.1 ].

Restitution - Topic 65

Unjust enrichment - General - What consti­tutes enrichment - PNI intended to develop 22 acres as part of a city's waterfront re­development - The city enacted zoning by­laws to permit PNI to construct, inter alia, two three story structures on two water lots - PNI agreed to install $1.08 million in ex­tra works and improvements (parklands, walk­ways, seawall and roads) in exchange for the city's implied under­taking that the zoning would remain in place for a reason­able time to permit the project's comple­tion - A new city council down-zoned the water lots to preclude residential develop­ment and limit buildings to one storey, thereby rendering develop­ment of the water lots uneconomical - The city retained ownership of the works - PNI sued the city for unjust enrichment - The Supreme Court of Canada held that the city was enriched by the extra works and improvements, even though it had to pay for annual up­keep - See paragraphs 15 to 19.

Restitution - Topic 234

Benefit acquired from the plaintiff - Mis­take - Benefit conferred by mistake - Mis­take of law - [See second Restitution - Topic 64 ].

Cases Noticed:

Peel (Regional Municipality) v. Ontario, [1992] 3 S.C.R. 762; 144 N.R. 1; 59 O.A.C. 81, refd to. [para. 13].

Peel (Regional Municipality) v. Canada - see Peel (Regional Municipality) v. Ontario.

Garland v. Consumers' Gas Co., [2004] 1 S.C.R. 629; 319 N.R. 38; 186 O.A.C. 128; 2004 SCC 25, appld. [para. 13].

Rathwell v. Rathwell, [1978] 2 S.C.R. 436; 19 N.R. 91, refd to. [para. 14].

Becker v. Pettkus, [1980] 2 S.C.R. 834; 34 N.R. 384, refd to. [para. 14].

Peter v. Beblow, [1993] 1 S.C.R. 980; 150 N.R. 1; 23 B.C.A.C. 81; 39 W.A.C. 81, refd to. [para. 14].

Burrow v. Scammell (1881), 19 Ch. D. 175, refd to. [para. 39].

Air Canada and Pacific Western Airlines Ltd. v. British Columbia, [1989] 1 S.C.R. 1161; 95 N.R. 1, refd to. [para. 39].

Canadian Pacific Airlines Ltd. and Pacific Western Airlines Ltd. v. British Colum­bia, [1989] 1 S.C.R. 1133; 96 N.R. 1, refd to. [para. 39].

Reference Re Goods and Services Tax, [1992] 2 S.C.R. 445; 138 N.R. 247; 127 A.R. 161; 20 W.A.C. 161, refd to. [para. 44].

Statutes Noticed:

Land Title Act, R.S.B.C. 1979, c. 219, sect. 215(3) [paras. 9, 47].

Local Government Act, R.S.B.C. 1996, c. 323, sect. 914 [paras. 9, 45].

Authors and Works Noticed:

American Law Institute, Restatement of the Law of Restitution: Quasi Contracts and Constructive Trusts as Adopted and Promulgated by the American Law Insti­tute, at Washington, D.C., 1937 (1937), p. 12 [para. 17].

Smith, Lionel, The Mystery of "Juristic Reason" (2000), 12 S.C.L.R.(2d) 211, pp. 219, 244 [para. 23].

Counsel:

L. John Alexander, for the appellant;

Guy E. McDannold, for the respondent.

Solicitors of Record:

Cox, Taylor, Victoria, British Columbia, for the appellant;

Staples McDannold Stewart, Victoria, British Columbia, for the respondent.

This appeal was heard on June 15, 2004, by McLachlin, C.J.C., Major, Bastarache, Binnie, LeBel, Deschamps and Fish, JJ., of the Supreme Court of Canada. Binnie, J., delivered the following judgment in both official languages for the court on November 19, 2004.