Court of Appeal for Ontario

Date: 2018-04-27 Docket: C64257 Judges: Hourigan, Huscroft and Nordheimer JJ.A.

Between

Union Building Corporation of Canada Applicant (Respondent)

and

Markham Woodmills Development Inc. Respondent (Appellant)

Counsel

Benjamin Zarnett and Francy Kussner, for the appellant

Gavin J. Tighe and Bill R. Michelson, for the respondent

Heard: April 19, 2018

On Appeal

On appeal from the judgment of Justice Thomas R. Lederer of the Superior Court of Justice, dated July 25, 2017, with reasons for judgment reported at 2017 ONSC 4514 and reasons for costs reported at 2017 ONSC 6351.

Reasons for Judgment

Nordheimer J.A.:

Introduction

[1] Markham Woodmills Development Inc. appeals from the judgment of Lederer J. that awarded the applicant, Union Building Corporation of Canada, the sum of $407,582, together with interest and costs.

[2] For the reasons that follow, I would allow the appeal and dismiss the application.

Background

[3] By an Agreement of Purchase and Sale made in July 2015 (the "APS"), the appellant agreed to sell to the respondent an undeveloped 3.6 acre parcel of land for a sale price of $3,960,000. The land was zoned agricultural and was part of a larger 19.29 acre parcel of land owned by the appellant in the City of Markham (the "City"). The respondent wished to purchase the land so that it could develop it for its head office.

[4] The APS contained a provision, clause 17, making the sale conditional upon the City consenting to a severance of the land being sold to the respondent from the larger parcel owned by the appellant, pursuant to s. 50 of the Planning Act, R.S.O. 1990, c. P.13. Clause 17 provided that the appellant would seek the severance and satisfy any conditions the City imposed, except for conditions that were "onerous or unreasonable". In the event the City imposed an onerous or unreasonable condition, clause 17 provided that the appellant could give the respondent the opportunity to satisfy such severance condition. If the respondent chose not to do so, then the APS would be null and void. The full text of clause 17 appears in the appendix to these reasons.

[5] The severance was obtained by the appellant but it was made subject to certain conditions. One of the severance conditions that the City imposed was to require the appellant to enter into the Cathedral West Cost Sharing Agreement (the "Cost Sharing Agreement") – a private agreement among other landowners in the area who were developing, or had developed, their lands. The appellant had no intention of developing its property and had not previously entered into the Cost Sharing Agreement. One aspect of entering into the Cost Sharing Agreement was that the appellant would have to fund development related costs in the amount of $407,582.

[6] The appellant took the position that this severance condition was onerous or unreasonable under clause 17. It was not developing the land. It was selling the land. The evidence showed that there was no precedent in the City for a non-developing vendor being forced, as a condition of severance, to enter into a cost sharing agreement among developers – something the City's Official Plan required only of "development proponents".

[7] The appellant invoked its rights under clause 17 and gave the respondent the option to satisfy the severance condition. The respondent disagreed that the severance condition was onerous or unreasonable. It took the position that clause 17 required the appellant to satisfy the condition. However, in order to prevent the APS from floundering on this issue, the respondent agreed to pay the $407,582 necessary to satisfy the severance condition but reserved its rights to seek that amount back from the appellant. On that basis, the purchase of the property closed.

[8] The respondent then brought the underlying application to the Superior Court of Justice for a determination that the appellant was required to pay the $407,582 that the respondent had paid to satisfy the severance condition. As the Notice of Application makes clear, the issue fell to be determined on the meaning of the words in clause 17. Indeed, in the Notice of Application, the respondent sought the following relief:

a declaration that Woodmills is solely responsible for the associated costs of satisfying section 17 of the Purchase Agreement, and more specifically Unifor's $407,582 without prejudice payment/contribution to the City of Markham...

[9] The hearing before the application judge proceeded on this basis. As the Notice of Application also states, the parties had agreed "that the Court should determine the single issue regarding the $407,582 payment".

[10] In reaching his conclusion, however, the application judge took a different route. He decided the application based upon his interpretation of clause 19 of the APS, a provision that dealt with the requirement to get an amendment to the existing agricultural zoning for the property being conveyed. Indeed, the application judge said in his reasons, at para. 26:

The issue in this case is not determined by an understanding of the application of clause 17 of the Agreement of Purchase and Sale. Rather it is the requirement found in clause 19 that the zoning for the intended development of the purchaser be in place and be "in full force and effect" (see para. [20] above) at the time the property was sold.

[11] The application judge observed that clause 19 of the APS required the amended zoning to be in full force and effect at the time of closing. However, the amended zoning, as passed by the City, had a "hold" in place. The "hold" would be lifted once there was compliance with the Cost Sharing Agreement and payment of the accompanying obligations. The application judge concluded that the amended zoning was not "in full force and effect" until that payment was made. Consequently, he found that the appellant was required to bear the costs associated with the Cost Sharing Agreement. He therefore granted the application and ordered the appellant to pay the $407,582 to the respondent.

Analysis

[12] In a normal situation, an application judge's interpretation of a non-standard form contract is entitled to deference. This is because the interpretation of such a contract involves a question of mixed fact and law: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 50. As such, on an appeal from a judicial decision, the interpretation of a non-standard form contract is normally reviewable only for palpable and overriding error unless there is an extricable question of law: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 36.

[13] There are, however, situations where a broader principle involving natural justice overtakes questions of contractual interpretation. One of the instances where that broader principle is invoked is where a judge decides a proceeding on a basis that was not "anchored in the pleadings, evidence, positions or submissions of any of the parties": Labatt Brewing Co. v. NHL Enterprises Canada L.P., 2011 ONCA 511, 106 O.R. (3d) 677, at para. 5. When that occurs, the judge commits an error of law: Moore v. Sweet, 2017 ONCA 182, 134 O.R. (3d) 721, at para. 30 (leave to appeal to S.C.C. allowed [2017] S.C.C.A. No. 156 with judgment reserved on February 8, 2018). That error results from the procedural unfairness that is visited upon the parties which, by itself, warrants appellate intervention: Rodaro v. Royal Bank of Canada, 59 O.R. (3d) 74 (C.A.), at para. 62.

[14] In this case, the parties proceeded before the application judge for a determination of their respective rights based on the interpretation of clause 17 of the APS. More specifically, the parties sought a determination as to whether the payment required under the Cost Sharing Agreement, as a condition of the severance, was onerous or unreasonable under Clause 17. Clause 19 was not part of the dispute between the parties. In fact, the respondent never took the position that there was any failure by the appellant to comply with its obligations in respect of the property's zoning or the requirements of clause 19. There is also not a single mention of clause 19 in the Notice of Application nor is there any mention of the zoning issue generally. Further, this court was told that there was no mention of clause 19 during the course of the application hearing, save for a passing reference in the respondent's reply. While counsel for the respondent hedged on this issue at the appeal hearing, any doubt on this point is removed by the contents of the application judge's reasons on costs. In those reasons, he said, at paras. 5-6:

Time was spent examining the requirement of severance, and how it should be applied in the particular context. As it is, the decision made reflects not on that question but on zoning and the responsibility to have the rezoning of the property "in full force and effect" at the time of sale.

This understanding did not arise from the submissions made but from the separate consideration by the court. My concern for the award of costs does not stem from the failure of the applicant to establish bad faith or the unnecessary reliance of the respondent on what members of the municipal staff or others might have anticipated independent of the words of the agreement but on the fact that for all the effort made the answer lay in a place the parties, for whatever reason, did not identify.

[Emphasis added.]

[15] As the authorities make clear, the application judge's decision to dispose of the application on a basis that was not advanced by the parties amounts to a denial of procedural fairness. That reality mandates that the decision must be set aside. The issue then becomes whether the matter must be remitted back to the Superior Court of Justice for a fresh determination, or whether the issue can be determined by this court on the basis of the existing record and the arguments that were made by the parties on the interpretation of clause 17.

[16] In my view, the record and arguments allow this court to make its own determination pursuant to s. 134(1)(a) of the Courts of Justice Act, R.S.O. 1990, c. C.43.

[17] Clause 17 permits the appellant to refuse to comply with a condition of severance that is onerous or unreasonable. The application judge made brief reference at the tail end of his reasons to the fact that, while the $407,582 that had to be paid under the Cost Sharing Agreement was approximately 10.3% of the $3,960,000 sale price, there was no evidence as to the percentage that the $407,582 represented in terms of the profit the appellant would make on the sale of the property. This led the application judge to say, at para. 32, "in the absence of context it is not possible to assess whether $407,582 is 'onerous'."

[18] In my view, that is not the appropriate test to be applied in determining whether the amount to be paid under the Cost Sharing Agreement was onerous or unreasonable under clause 17. In fact, it is not the onerous exception that applies to the payment, it is the unreasonable exception. What renders the payment unreasonable, in these circumstances, is the fact that the appellant never had any intention of developing this property. It was selling the property. It was the respondent that wished to develop the property. I share the position of the appellant that it would be unreasonable for it to have to pay what is undeniably a cost of development from the price that it negotiated for the sale of an undeveloped property.

[19] In this regard, reasonableness must be interpreted objectively. There was ample objective evidence demonstrating that a reasonable person would not consider the requirement, that a vendor of undeveloped land pay the costs associated with the future development of the land, to be a reasonable interpretation of the APS. As noted earlier, there was no precedent in the City for a non-developing vendor being forced, as a condition of severance, to enter into a cost sharing agreement among developers. This conclusion is reinforced by the application judge's finding, at para. 30 of his reasons, that the appellant was "surprised" to find that it would be required to enter into the Cost Sharing Agreement, which related entirely to developers, in order to sever the property so that it could sell it.

[20] I conclude that the condition imposed by the City, that the Cost Sharing Agreement be entered into, with the requisite $407,582 payment in order to obtain the severance, was an unreasonable one for the appellant to bear. It therefore fell to the respondent, under clause 17, to either bear that cost or terminate the APS. The respondent chose the former.

Conclusion

[21] I would allow the appeal, set aside the judgment below, and dismiss the application.

[22] In accordance with the agreement of the parties, the appellant is entitled to its costs of the appeal in the amount of $25,000, inclusive of disbursements and HST. The parties also agreed that, in the event that the appeal was successful, the appellant would be entitled to the costs of the application in the amount of $68,407.68, plus HST, as fixed by the application judge.

Released: April 27, 2018

"I.V.B. Nordheimer J.A."

"I agree. C.W. Hourigan J.A."

"I agree. Grant Huscroft J.A."

Appendix

Clause 17: Severance

This Agreement is subject to the express condition that this Agreement is effective only if the provisions of Section 50 of the Planning Act (Ontario), as amended from time to time, have been complied with. Forthwith following the date the size and configuration of the Property has been determined, the Vendor, at the Vendor's sole expense, shall make application for the consent of the Committee of Adjustment for the City of Markham in order to permit the conveyance of the Property to the Purchaser in accordance with the subdivision control provisions of the Planning Act and shall proceed diligently using all reasonable efforts to successfully complete this application.

All conditions imposed in the severance consent shall have been complied with on or before the Closing Date. The Vendor shall satisfy all conditions imposed in connection with the severance consent at its sole expense provided that such conditions are not onerous or unreasonable. In the event that the conditions of consent are onerous or unreasonable and as a result the Vendor is not prepared to satisfy the conditions imposed in the severance consent, the Purchaser at the Vendor's sole and unfettered discretion shall have the option of satisfying the conditions imposed in the severance consent at the cost of the Purchaser. If by October 30, 2016 (the "Severance Date") the necessary consent is not given, or if approval is given but conditions are attached which the Vendor is not prepared to satisfy for the reasons stated herein (and the Purchaser does not elect to satisfy, upon having been given the option to do so) or if approval is given but is appealed and the Vendor is not prepared to defend such appeal, this Agreement shall be null and void, the Deposit and any accrued interest thereon shall be returned to the Purchaser and neither party shall have any future obligations to the other respecting this Agreement.

The Vendor shall prepare the reference plan(s) required in order to effect the severance consent at its sole cost and expense, which reference plan shall be subject to the Purchaser's written approval, acting reasonably.

Prior to submitting any materials to the Committee of Adjustment for the City of Markham in respect of the severance consent, the Vendor shall first deliver same to the Purchaser for the Purchaser's written approval, such approval not to be unreasonably delayed or withheld. The Vendor shall keep the Purchaser informed of all matters in connection with the severance process and shall provide the Purchaser with copies of all materials in respect thereof.

Clause 19: Zoning

The Purchaser acknowledges that the Property is currently zoned "Agricultural" and is designated as Business Park Corridor by the Official Plan of Markham. The Purchaser intends to construct a three storey office building of approximately 65,000 square feet with approximately 300 surface parking stalls ("Purchaser's Intended Development"). This Agreement shall be conditional until August 1, 2016 upon the Vendor obtaining Zoning in the Final Form required for the Purchaser's Intended Development of the Property. For the purposes of this Agreement, Zoning in Final Form shall mean an Official Plan amendment and/or rezoning of the Property re-designating and rezoning the Property to permit the Purchaser's Intended Development and such redesignation and rezoning being in full force and effect, with all appeal periods having expired without appeals, or all appeals having been determined to the satisfaction of the Purchaser without any further right of appeal. The required zoning change is to be undertaken at the sole cost and responsibility of the Vendor. Such rezoning may be completed prior to the Closing Date, but in the event that such rezoning is not completed, the Vendor or at its sole discretion may extend the Closing Date to such a time when the rezoning has been completed and is in force and effect. In such case, the Vendor shall notify the Purchaser in writing of the successor rezoning, and the Closing Date shall be amended to reflect thirty (30) days from such event. In the event that that Vendor is unable to obtain the necessary rezoning by December 1, 2016 then this agreement shall become null and void and the Vendor shall return all Deposits to the Purchaser with interest and without penalty.

Footnotes

[1] I would observe, in passing, that this conclusion appears to be inconsistent with this court's decision in Disera v. Liberty Development Corp., 2008 ONCA 34, 63 R.P.R. (4th) 197.

[2] I note that this case does not involve an application for judicial review or an appeal from an administrative tribunal where this court's jurisdiction to substitute its own decision may be more limited.