DIVISIONAL COURT FILE NO.: 114/15 DATE: 20161124
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
DAMBROT, NORDHEIMER and KING JJ.
BETWEEN:
Orangeville Railway Development Corp.
Applicant/Appellant in Appeal
– and –
The Corporation of the City of Mississauga, The Corporation of the City of Brampton, The Corporation of the Town of Caledon, and Municipal Property Assessment Corporation
Respondents
R. Andrew Biggart, for the Applicant/Appellant in Appeal
John L. O’Kane, for the Respondents, the Corporation of the City of Mississauga, the Corporation of the City of Brampton, and the Corporation of the Town of Caledon
Donald G. Mitchell, for the Respondent, Municipal Property Assessment Corporation
HEARD at Toronto: November 24, 2016
DAMBROT J. (orally)
1This is an appeal from the decision of Emery J. dated September 14, 2015, as amended on October 15, 2015, dismissing an application brought by the appellant (“ORDC”) for a declaration that it is exempt from the payment of municipal taxes in relation to certain railway lands in accordance with s.315 of the Municipal Act, 2001, S.O. 2001, c. 25 (the “Municipal Act” and the “Act”), and that it is entitled to a tax refund of municipal taxes already paid to the three respondent Municipalities from the years 2011 onwards.
2ORDC asks that the Order of Emery J. be set aside and replaced with an order:
declaring that no tax is payable on the lands in question;
directing the respondent municipalities to refund taxes paid by ORDC for the years 2011 onwards; and
directing the respondent Municipal Property Assessment Corporation (“MPAC”) to amend its assessment roll for the years 2011 onwards to show that no tax is payable on the lands in question.
BACKGROUND
[3]
Background
Section 315(1) of the Municipal Act creates a special taxation regime for railway lands, by removing them from the general assessment provisions under the Assessment Act and subjecting them to taxation in accordance with regulations under the Municipal Act. However, s.315(1) excludes lands “leased by the railway company to another person for rent or other valuable consideration.” Before the application judge, ORDC argued that the land in question is leased to a third party for valuable consideration and therefore should not be liable to municipal taxation. The application judge interpreted the contracts between ORDC and the third party, found that the land is not leased for rent or other valuable consideration and therefore is not exempt from municipal taxation in accordance with s.315 of the Municipal Act.
THE CONTRACTS
[4]
The Contracts
ORDC was incorporated by the Town of Orangeville as an ownership vehicle for the Orangeville Brampton Railway (“OBRY”), which runs through the municipalities of Caledon, Brampton and Mississauga. ORDС is responsible for the payment of taxes and liability insurance in connection with OBRY, while a group of local companies collectively referred to as the Orangeville Brampton Rail Access Group (“OBRAG”) looks after its operation, maintenance and administration. The shortline operator of the line is Cando Contracting Ltd. (“Cando”).
5The relation between these parties is governed by several contracts:
The Orangeville/Rail Users’ Agreement, entered into by OBRAG and Orangeville in 2000 to enable Orangeville to purchase OBRY from CP Rail: ORDC is not a party to that agreement. Under the agreement, OBRAG is responsible for the costs of operating, maintaining and administering the rail line except for the payment of property taxes and is entitled to all revenues of the shortline operation of the rail line for a period of 10 years. ORDC is entitled to all non-operational revenues from easements, licences and leases for structures located on the rail line.
The 2000 Tripartite Agreement between Orangeville, OBRAG and Cando, governing the use, operation, administration and maintenance of the OBRY: under this agreement, Cando gets the exclusive licence to operate the OBRY as a rail carrier, while ORDC retains the rights and obligations as the property owner, such as the payment of realty taxes against the rail line.
The Extension Agreements: the Tripartite Agreement has been extended three times, the last time – to September 2022. The last extension (“Extension Agreement No. 3”) was signed on July 23, 2014, almost a year after ORDC filed its Application with the Superior Court and after the application was heard on March 2 and May 11, 2014. The Extension, for the first time, states that the relationship between ORDC and OBRAG with respect to OBRY is that of a lessor/lessee, that OBRAG holds exclusive possession of OBRY, and mentions valuable consideration provided by OBRAG.
THE DECISION BELOW
[6]
The Decision Below
On August 8, 2013, ORDC, as the person responsible for the payment of taxes on the OBRY land, brought this application to determine matters relating to the assessment or taxation of OBRY lands by the respondent Municipalities. ORDC did not challenge the actual assessed amounts. Rather, it argued that it is exempt from taxation pursuant to s.315(1) of the Municipal Act because the OBRY land is leased to OBRAG.
7The application judge considered the Tripartite Agreement, the Orangeville/Rail Users’ Agreement and the extensions to those agreements to determine whether the parties intended the relationship to be that of a lessor and lessee and whether one party to that relationship was to pay rent or other valuable consideration. The application judge acknowledged that Extension Agreement No.3 specifically states that the relationship between ORDC and OBRAG is that of a lessor/lessee, but stated that the character of the relationship does not depend on whether the word lease is found in the language used by the parties to the agreement. The application judge stated that to establish a lessor/lessee relationship, an owner must grant an interest in the lands and exclusive possession and control of the land to the lessee as against the world, including the owner, as opposed to merely conferring a privilege to occupy under the owner for some particular purpose.
8Applying this test, the application judge found that the agreements between ORDC and OBRAG lacked the indicia of a lease. First, the court found that ORDC is not even a party to the Orangeville/Rail Users’ Agreement with OBRAG, as one would expect from the owner of the rail line. In addition, it was found that ORDC has a separate contract with Cando to operate a tourist rail line on ORDC railway lands. OBRAG is not a party to that contract, as one would expect from a lessee who has been granted exclusive possession of the land. As a result, the application judge held that the collection of agreements between ORDC, OBRAG and Cando does not grant an interest in and the quiet possession of the lands in question to OBRAG. Therefore, those lands were found not to be leased to OBRAG within the meaning of s.315(1) of the Municipal Act. Instead, the application judge found that the agreements create a business relationship akin to a joint venture between the three parties where each retains or derives interests “that are more operational than proprietary in nature.”
9In addition, the application judge held that ORDC did not receive valuable consideration from OBRAG. The court acknowledged that consideration may take many forms and may consist of the performance of services that profit the lessor. However, the application judge found that contrary to ORDC’s submissions, the increased value of OBRY and the significant infrastructure improvements made by OBRAG that benefited ORDC did not constitute valuable consideration. He held that maintenance and capital improvements performed by OBRAG were done primarily for the benefit of businesses composing the group, who operate the rail line to keep their business operations in Orangeville.
10In light of his conclusion that the rail lands in question were not exempt from municipal taxation, the application judge declined to consider how far back the refund of the taxes would have to go had ORDC prevailed on the application.
THE ISSUES
[11]
The Issues
Although the appellant raises nine issues in its factum, the main issue on this appeal is whether the application judge erred in finding that the railway lands in question were not leased to another person for rent or other valuable consideration for the purposes of s.315 of the Municipal Act.
THE STANDARD OF REVIEW
[12]
The Standard of Review
ORDC argues that the application judge erred in law in his application of the common law tests for what constitutes a lease and valuable consideration and in his interpretation of s.315(1) of the Municipal Act. As a result, ORDC submits that the standard of review is correctness. I do not agree.
13The questions of whether the rail lands were leased to another person and whether valuable consideration was received required the application judge to interpret ORDC’s contracts and agreements. That exercise involves the determination of questions of fact or mixed fact and law. Questions of fact and fact and law are reviewed on a correctness standard only where there is a clear error in principle that can be characterized as an error in law. If the legal principle cannot be readily extricated, the standard of review is that of palpable and overriding error. In my view, the appellant has not raised any readily extricable legal principles that call for review on a standard of correctness. (See MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842 at para. 17.) The standard of review is palpable and overriding error.
ANALYSIS
[14]
Analysis
It is sufficient to resolve this appeal to conclude, as I do, that the application judge made no palpable or overriding error in reaching the conclusion that the agreements between ORDC and OBRAG together do not constitute a lease. I will take a moment to summarize the manner in which he reached this conclusion.
15The application judge began his analysis by identifying the essential difference between a lease and a licence. He said that an agreement that confers an interest in land, namely exclusive possession of the premises as against all the world, including the owner, is a lease, while an agreement that merely confers a privilege to occupy under the owner is a licence. The indicia of a lease are the granting of quiet possession to the lessee and the reserving of a reversionary interest to the lessor. The indicia of a licence, on the other hand, are the granting of permission to use the subject lands while not granting an interest in those lands.
16The application judge then undertook the exercise of ascertaining the intention of the parties from a consideration of the OBRY agreements as a whole. He began by identifying features of the OBRY agreement that he considered to be indicators that the agreements did not constitute a lease. After undertaking this review, he characterized the OBRY agreements, when read as a whole, as setting out an arrangement amongst Orangeville, ORDC, OBRAG, the Rail Users and Cando for the acquisition, operation and maintenance of a shortline railway that resembles a partnership or joint venture. He then concluded that the agreements do not grant quiet possession of the rail lands that run through each of the respondent municipalities to OBRAG. ORDC retains rights that an owner in possession might exercise. Some of those rights involve the use of the rail lands by third parties to the exclusion of OBRAG. As a result, the OBRY agreements do not establish a lessor-lessee relationship despite the language used in the third extension agreement. When read as a whole, they create a business relationship between ORDC, OBRAG and Cando that most resembles a joint venture between them where each retains or derives interests that are more operational than proprietary in nature.
17I see no error in his analysis.
18ORDC submits that the application judge erred in law when he applied traditional indicia of a lease to untraditional property and failed to consider the unique usage and characteristics of rail lines. However ORDC does not specify what unique features the court should have taken into consideration and what effect those unique features should have had on the court’s analysis, and provides no authority for this argument. I would not give effect to it.
19ORDC also argues that the application judge erred when he failed to consider that in the Tripartite Agreement, ORDC explicitly granted a licence to operate the shortline railway to Cando, but did not explicitly grant any licences to OBRAG. In ORDC’s submission, the exclusion of OBRAG from the licensing clause indicates the intention of the parties to create a lessor-lessee relationship between ORDC and OBRAG, rather than that of a licensor-licensee.
20I do not agree. The exclusion of OBRAG from the licensing clause does not demonstrate an intention to create a lease; it is equally plausible that the parties could have intended to create some other type of business arrangements, such as a user agreement or a joint venture agreement.
21ORDC further argues that the application judge erred when he found that the agreements between ORDC, OBRAG and Cando did not grant quiet possession of the rail line to OBRAG. ORDC says that the judge should have adjusted the application of quiet possession to include the unique characteristics of a rail line, such as the fact that it is outdoors, open, unsecured, and accessible to anyone. ORDC also says that the application judge conflated the concept of “quiet possession” with “exclusive possession” when he held that third party uses of the rail line, and specifically the contract between ORDC and Cando allowing the latter to operate a tourist line on OBRY, indicated that OBRAG did not have quiet possession of OBRY.
22Again, I do not agree. I see no error of law on the part of the application judge in his appreciation of the concept of quiet possession, and no palpable and overriding error in his application of the concept to the terms of the agreement.
23ORDC also argues that the application judge erred in ignoring the plain words of Extension Agreement No. 3 which specifically states that the relationship between ORDC and OBRAG was that of a lessor/lessee.
24There is no merit in this argument. Extension Agreement No. 3 was made a year after this litigation commenced. It mentions, for the first time, that there is a lessor/lessee relationship between ORDC and OBRAG. It is enough to say that the reference to a lease in Extension Agreement No. 3 is self-serving, and that the trial judge did not err in giving short shrift to this argument.
25I will not review all of the other arguments advanced by the appellant in support of its position that the application judge erred in his analysis of this issue. There is no merit in any of them.
26Having concluded that the trial judge made no error of law nor any palpable or overriding error of fact or mixed fact and law in coming to the conclusion that the lands in issue were not lands leased by the railway company to another person, it is not necessary to consider any of the other issues raised on this appeal. On that basis alone, the appellant is not entitled to a declaration that it is exempt from the payment of municipal taxes in relation to certain railway lands in accordance with s.315 of the Municipal Act, or to any other relief.
DISPOSITION
[27]
Disposition
The appeal is dismissed.
costs
[28]
Costs
I have endorsed the Appeal Book & Compendium as follows: “This Appeal is dismissed. No costs sought by MPAC, and none are ordered. Costs to the Municipalities fixed at $12,500.00 all-inclusive.”
___________________________ DAMBROT J.
I agree
NORDHEIMER J.
I agree
KING J.
Date of Reasons for Judgment: November 24, 2016
Date of Release: November 25, 2016
CITATION: Orangeville Railway Development Corp. v. The Corporation of the City of Mississauga, 2016 ONSC 7342
DIVISIONAL COURT FILE NO.: 114/15 DATE: 20161124
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
DAMBROT, NORDHEIMER and KING JJ.
BETWEEN:
Orangeville Railway Development Corp.
Applicant/Appellant in Appeal
– and –
The Corporation of the City of Mississauga, The Corporation of the City of Brampton, The Corporation of the Town of Caledon, and Municipal Property Assessment Corporation
Respondents in Appeal
ORAL REASONS FOR JUDGMENT
DAMBROT J.
Date of Reasons for Judgment: November 24, 2016
Date of Release: November 25, 2016