Fourth Generation Realty Corp. v. Ottawa (City), 2005 CanLII 16568 (ON CA)

DATE: 20050518

DOCKET: C42201

COURT OF APPEAL FOR ONTARIO

SIMMONS, GILLESE and LaFORME JJ.A.

B E T W E E N:

FOURTH GENERATION REALTY CORPORATION and 914006 ONTARIO LIMITED

Phillip L. Sanford and Sarah Chesworth for the appellants

Applicants(Appellants)

• and -

CITY OF OTTAWA

Michael S. Rankin and Kim Melanson Respondent for the respondent

Heard: March 2, 2005

On appeal from the judgment of Justice George T. Valin of the Superior Court of Justice dated July 6, 2004.

GILLESE J.A.:

1The City of Ottawa passed a by-law that granted tax relief to residential property owners facing large tax increases in 2003. A group of commercial property owners applied to have the by-law declared ultra vires on the basis that the by-law defeated a provincially legislated tax scheme that stipulated set tax ratios as between residential and commercial property owners.

2In a judgment dated July 6, 2004, Valin J. found the by-law valid and dismissed the application. The commercial property owners appeal.

3For the reasons that follow, I would dismiss the appeal.

BACKGROUND

4In 1997 and 1998, the Ontario provincial government enacted legislation that changed the property assessment and taxation system in Ontario. The relevant provisions are contained in Parts VIII to X of the Municipal Act, 2001, S.O. 2001, c. 25 and the Assessment Act, R.S.O. 1990, c. A.31 (“the provincial legislation”).

5The provincial legislation made municipal councils subject to new restrictions in relation to the taxation of property. The restrictions were imposed by means of tax ratios that created upper limits on the tax rates for various property classes. In addition, the provincial legislation stipulated that, beginning in 2001, property tax increases on individual commercial, industrial, and multi-residential properties were limited to 5% of the previous year’s taxes. The 5% cap did not apply to residential property.

6One of the significant changes made by the provincial legislation was to provide for shifts in taxation between property tax classes. Prior to the enactment of the provincial legislation, reassessment occurred within classes, not between classes.

7The purpose of the provincial legislation was to ease the tax burden on commercial property owners. It had the effect of making residential property owners assume a greater share of the municipal tax burden.

8In early 2003, the Ottawa City Council adopted its annual budget. The budget contained no increase in expenditures over the prior year. Property taxes were effectively frozen at 2002 levels.

9However, residential property values in the municipality had substantially increased between June 30, 1999, and June 30, 2001. Because property taxes for 2003 were based upon assessments as at June 30, 2001, it became apparent that most residential property owners would be required to pay substantially increased property taxes for 2003.

10A report by city staff dated April 24, 2003, confirmed this. City Council was informed that the increase in residential property values, in combination with the provincially legislated tax ratios, meant that residential property owners would experience an increase in taxes in excess of $23 million, while the property classes whose taxes had been capped would experience a corresponding decrease. The average tax increase for a homeowner was expected to be 6.5%.

11When the general public learned of the situation, there was a “tax revolt” by residential property owners. In response, Council re-opened budget discussions. It cut municipal expenditures by more than $20 million and adopted, by resolution, a grant program funded by the reduced expenditures to provide relief for non-commercial homeowners affected by the tax increase.

12On June 11, 2003, in order to implement the resolution, Council enacted By-law 2003-280. By-law 2003-280 authorized payment of grants for the year 2003 to non-commercial property owners who experienced an increase in their 2003 property taxes. The by-law stipulated that the amount of any grant would be limited to the lesser of either the 2003 tax change due to the reassessment of property values or 6.5% of the homeowner’s 2002 taxes. It applied only to the taxation year 2003.

13Tax bills were sent out in accordance with the legislated tax ratios. Monies were collected accordingly and the grant scheme was administered.

14Ottawa’s mayor continued to press the provincial government to make changes to the provincial legislation, which he said was unfair to residential property owners. The province then passed a regulation that gave municipalities the ability to avoid tax shifts from businesses to residential property holders.

15Fourth Generation Realty Corporation and 914006 Ontario Ltd., a group of commercial property owners in the City of Ottawa (“the applicants”), brought an application for an order quashing By-law 2003-280 on the grounds that the by-law was ultra vires.

16The application was dismissed.

17The applicants appeal saying that the application judge erred in failing to find that the Ottawa City Council exceeded its jurisdiction in enacting the by-law.

ISSUES

18The central question raised by this appeal is whether By-law 2003-280 is valid. In deciding this question, it is necessary to consider the scope of the powers conferred on the City by the Municipal Act, 2001, whether the by-law is in conflict with the provincial legislation, whether the distributed funds are more properly characterized as grants or rebates, and the purpose of the by-law.

19The City raises, as a preliminary question, whether the appeal is moot.

MOOTNESS

20Mootness was not raised by the parties in the proceedings below. The application judge raised it after hearing submissions in which the applicants informed the court that if successful, they would seek only a declaration that the by-law was illegal.

21After receiving brief submissions on mootness, the application judge reviewed the applicable legal principles and concluded that there was no live issue between the parties. He noted that the passage of time had rendered the by-law obsolete and that the applicants did not seek damages or an order requiring the City to collect the grants they say were illegally paid out. In those circumstances, he was of the view that the matter was academic, particularly in light of the new regulation that changed the taxation regime for 2004. The application judge also noted that it was hypothetical to consider the validity of possible future by-laws that might be similar in nature, as the applicants had asked him to do.

22Despite concluding that the matter was academic, the application judge chose to exercise his discretion and decide the matter. He stated that, in the absence of full submissions on mootness and in light of having fully heard the application on its merits, it was “in the best interests of all concerned” that he rule on the merits.

23I agree with the application judge, and for the reasons he gave, that the matter has become academic. As the Supreme Court of Canada stated in Borowski v. Canada (Attorney General), 1989 123 (SCC), [1989] 1 S.C.R. 342 at 353, a court may decline to hear a case on the basis of mootness where the case raises a hypothetical issue and a decision by the court would not have the effect of resolving some controversy that affects the rights of the parties. In the case at hand, the by-law’s force is exhausted, as it applied only to the 2003 tax year. And, the applicants seek only a declaration of the by-law’s validity. Therefore, in my view, the resolution of this matter will have no practical effect on the rights of the parties.

24However, like the application judge, I would exercise my discretion and decide the matter. There have been no changes to the factual context or the governing legal principles since the matter was decided below. The City opposed the notion of mootness before the application judge and obtained a favourable result on the application; it does not now lie in the mouth of the City to argue that the appeal ought not to be decided on its merits.

THE VALIDITY OF BY-LAW 2003-280

25The applicants attack the validity of the by-law on a number of grounds. First, they argue that the City was not entitled to use its general powers to pass a by-law that defeated the specific, mandatory tax regime created by the provincial legislation. In a closely related argument, the applicants argue that the by-law is invalid because it conflicts with the provincial legislation. The applicants’ third argument is that the by-law authorized the giving of rebates, not grants, and s. 107(1) of the Municipal Act, 2001 does not authorize the City to give rebates. Finally, the applicants submit that even if the by-law did authorize the giving of grants, s. 107(1) was used for the improper purpose of evading the provincial legislation and the by-law is invalid for that reason.

26As the following analysis explains, I do not accept these arguments. In my view, By-law 2003 - 280 is valid and the City acted within its powers in passing it.

Did the City Have the Power to Pass the By-law?

27The City relied on s. 107(1) of the Municipal Act, 2001, when it passed By-law 2003-280. Section 107(1) reads as follows:

107.(1) Despite any provision of this or any other Act relating to the giving of grants or aid by a municipality, subject to section 106, a municipality may make grants, on such terms as to security and otherwise as the council considers appropriate, to any person, group or body, including a fund, within or outside the boundaries of the municipality for any purpose that council considers to be in the interests of the municipality [emphasis added].

28The applicants submit that the City was not entitled to use s. 107(1) to enact the by-law, which they say is incompatible with the provincial legislation.

29In addressing this submissions, the application judge began by noting that traditionally, the courts adopted a strict approach to interpreting municipal powers. He observed that, as a result of the downloading of services on municipalities by the federal and provincial governments, modern municipalities have greatly enhanced functions, obligations and responsibilities. The application judge then considered the applicable jurisprudence from the Supreme Court of Canada, which has mandated a new approach to the interpretation of a municipality’s powers. He summarized that approach, saying, “[T]he Supreme Court of Canada has made it abundantly clear that courts must adopt a deferential approach to municipal governments and apply a liberal and benevolent interpretation of their powers.” He concluded that the City had the authority to pass the by-law pursuant to s. 107(1) of the Act.

30In my view, the application judge correctly decided this issue.

31The Municipal Act, 2001 gives municipalities broad authority over generally defined matters. It is meant to provide municipalities with a broader, more flexible framework within which to work. The language of s. 107(1) of the Municipal Act, 2001 itself is very broad, giving the City the power to make grants “for any purpose that council considers to be in the interests of the municipality.”

32In 114957 Canada Ltée. v. Town of Hudson, 2001 SCC 40, [2001] 2 S.C.R. 241, the Supreme Court of Canada held valid a municipal by-law that was allegedly in conflict with provincial legislation. The Court affirmed the test for determining whether an enactment was passed “for a municipal purpose” given by Sopinka J. in Shell Canada Products Ltd. v. Vancouver (City), 1994 115 (SCC), [1994] 1 S.C.R. 231, quoting from I. M. Rogers, The Law of Canadian Municipal Corporations, 2^nd ed. (Toronto: Carswell, 1971):

The provision at hand should be construed with reference to the object of the municipality: to render services to a group of persons in a locality with a view to advancing their health, welfare, safety and good government.

33In other words, for the provision to meet the test, it must have a reasonable connection with the municipality’s permissible objectives.

34The stated purpose of By-law 2003-280, as captured in its preamble, was to provide grants to non-commercial homeowners who faced unexpected and significant property tax increases in 2003. It can scarcely be contested that – in the language of s. 107(1) – counsel considered such a purpose to be “in the interests of the municipality.” The City was facing a tax revolt. It needed to deal fairly, effectively and quickly with an explosive situation that had been created, in large measure, by forces beyond its control.

35For the same reason, the by-law also meets the test enunciated in Hudson as, in my view, the by-law is connected to the municipal objective of advancing “good government”.

36Hudson re-affirms that, in light of the changing role and responsibilities of municipalities, by-laws passed for a legitimate municipal purpose are to be reviewed deferentially. Municipal powers should be accorded a liberal and benevolent interpretation and only in the clearest of cases should a municipal by-law be held to be ultra vires. See also Toronto (City) v. Goldlist Properties Inc. (2003), 2003 50084 (ON CA), 67 O.R. (3d) 441 (C.A.) at para. 57.

37This broad and purposive approach is in keeping with the greater role that municipal governments play in the everyday lives of citizens. As the Supreme Court explained in Hudson, at para. 3, municipal governments are closest to the members of the public that they serve and thus are “most responsive to their needs, to local distinctiveness, and to population diversity.”

38Given the wide scope of s. 107(1) and the appropriate approach to its interpretation, in my view, it is clear that the City had the power to pass By-law 2003-280.

Does the By-law Conflict with the Provincial Legislation?

39The applicants also argue that the by-law is invalid because it conflicts with the provincial legislation.

40It is trite law that different levels of government may regulate the same subject matter. As the Supreme Court of Canada stated at para. 39 of Hudson:

As a general principle, the mere existence of provincial (or federal) legislation in a given field does not oust municipal prerogatives to regulate the subject matter.

41Consequently, there can be no objection per se to the municipality passing a by‑law in respect of property taxes. The question is whether the by-law conflicts with the provincial legislation.

42The test to determine whether two laws conflict is the “impossibility of dual compliance” test established in Multiple Access Ltd. v. McCutcheon, 1982 55 (SCC), [1982] 2 S.C.R. 161. At p. 191 of McCutcheon, Dickson J. (as he then was) wrote:

In principle, there would seem to be no good reasons to speak of paramountcy and preclusion except where there is actual conflict in operation as where one enactment says “yes” and the other says “no”; “the same citizens are being told to do inconsistent things”; compliance with one is defiance of the other.

43The Supreme Court of Canada affirmed the impossibility of dual compliance test in Hudson, supra, and its applicability to an alleged conflict between provincial and municipal laws. In Hudson at para. 41, the Supreme Court reiterates that it is only in cases of actual conflict that the inferior legislation is invalid:

A potential inconsistency is not sufficient to invalidate a by-law; there must be a real conflict.

44Thus, the question is whether By-law 2003-280 actually conflicts with the provincial legislation or whether both laws may apply simultaneously.

45The application judge found that the City complied with the provincial legislation. Far from ignoring the provincial taxation regime, the City fully followed all assessment and collection processes required by it. Then, through the valid exercise of its grant-giving power, the City ameliorated part of the unexpected and difficult consequences created, in part, by that regime.

46By-law 2003-280 did not change or displace the taxation regime created by the provincial legislation. It did not result in Ottawa citizens being told to do inconsistent things. Ottawa properties were assessed in accordance with the provincial legislation and Ottawa citizens were instructed to pay in accordance with that assessment. They were then at liberty to apply for a municipal grant. Compliance with the by-law did not amount to defiance of the provincial legislation.

47Accordingly, in my view, it cannot be said that there is a conflict between the by-law and the provincial legislation.

Grant or Rebate?

48The applicants contend that By-law 2003-280 enabled the City to return a portion of residential taxpayers’ payments and, in so doing, the City made tax rebates, rather than grants. As the tax rebate authorized by the by-law were not among those expressly provided for by the Municipal Act, 2001, so the argument runs, the by-law is invalid.

49In my view, there is no merit to this argument. The Municipal Act, 2001 has a number of provisions that empower a municipality to cancel, refund or reduce taxes, or to make rebates. See sections 357 - 365 of the Act. The legislation does not limit tax relief to that provided for in those sections. Nor does the legislation restrict the right of municipalities to make grants under s. 107(1).

50In that context, it follows that there is nothing improper in the City making such grants even if the grants are akin, in effect, to a tax rebate. Having said that, I am of the view that the proper characterization of the City’s actions in giving money pursuant to the by-law is that of a grant, rather than a rebate. I base that conclusion on the following reasons.

51The Municipal Act, 2001 offers no assistance as to the meaning of the words “grant” and “rebate”. Despite providing for both grants and rebates, neither term is defined in the Act.

52Nor is there jurisprudence that assists in distinguishing grants from rebates. Indeed, in Colony Farm Holding Ltd. v. British Columbia (Racing Commission), [1991] B.C.J. No. 2837 (B.C.S.C.), the application judge speaks of a grant as taking the form of a rebate. In the third paragraph of the reasons, he states:

What is at stake is an incentive grant by the government to a developer for the construction of a new racetrack to replace Exhibition Park when its lease at Hastings Park in Vancouver expires on December 31, 1993. The grant takes the form of a 10-year rebate of a substantial portion of the revenue collected pursuant to the Horse Racing Tax Act, R.S.B.C. 1979, c. 175 [emphasis added].

53“Grant” is defined in Black’s Law Dictionary, 6th ed., (1990) at p. 699 as:

To bestow; to confer upon some one other than the person or entity which makes the grant. To bestow or confer with or without compensation … as of land or money.

54“Rebate” is defined at p. 1266 as:

Discount; deduction or refund of money in consideration of prompt payment….A deduction or drawback from a stipulated payment, charge, or rate…not taken out in advance of payment, but handed back to the payer after has paid the full stipulated sum.

Tax rebate is an amount returned…to the taxpayer after he has made full payment of the tax.

55Based on these definitions, in my view, the distinction to be drawn between a grant and a rebate is this. The essence of a grant is the giving of a benefit, including money, from a fund. The word “rebate”, on the other hand, refers to the return of a portion of money actually paid. In certain circumstances, a rebate can be subsumed within the concept of a grant. In this case, a rebate would involve the return of part of the property taxes actually paid by an individual.

56By-law 2003-280 enabled the City to provide non-commercial property owners with a one-time payment from a fund created from monies garnered by a reduction in municipal expenditures. Residential taxpayers had to pay the full amount of their tax assessments before applying for tax relief pursuant to the by-law. The money given to any individual taxpayer did not come from his or her tax payment; it came from the fund. Based on the foregoing notion of the meaning of the words “grant” and “rebate”, in my view, the money given to residential taxpayers pursuant to the by-law was a grant.

Was the By-law Passed for an Improper Purpose?

57The applicants submit that the by-law ought to be declared invalid because its real purpose was to circumvent the provincial legislation. In my view, there is nothing in the record to support such an inference.

58The express language of the by-law does not bear such an interpretation. Its purpose, as reflected in its preamble, was to offer one-time-only relief to taxpayers who faced unexpected, large tax increases. The preamble recites:

WHEREAS there has been a shift in the property tax burden from the commercial, industrial and multi-residential property classes to the residential property class;

AND WHEREAS non-commercial homeowners in the residential property class are facing significant increases in their property tax bills for 2003 due to this transfer of the tax burden;

AND WHEREAS Section 107 of the Municipal Act 2001, S.O. 2001, c.25, as amended, permits a municipality to give grants to any person or body for any purpose council considers to be in the interests of the municipality;

AND WHEREAS Council has determined that it is in the interest of the municipality to establish a grant program to provide a grant to certain non-commercial homeowners facing significant tax increases.

59And, the actions of the City do not support the view that the by‑law was passed for an improper purpose. The application judge found that the City complied “in every respect” with the assessment and taxation regime established by the provincial legislation. Rather than attempting to evade its duties under the provincial legislation, as the applicants suggest, the City appears to have done everything that was required of it.

60The City, acting within its powers, took reasonable steps to deal with an unexpected and difficult situation. In the circumstances, and on this record, there is nothing to support a finding that the by-law was enacted for the improper purpose of circumventing the provincial legislation.

DISPOSITION

61Accordingly, I would dismiss the appeal with costs to the respondent fixed at $15,000, inclusive of disbursements and GST.

RELEASED: May 18, 2005 (“EEG”)