COURT OF APPEAL FOR ONTARIO
DATE: 20211126 DOCKET: C69176
Juriansz, Tulloch and Roberts JJ.A.
BETWEEN
City of Ottawa Applicant (Respondent on Appeal)
and
ClubLink Corporation ULC Respondent (Appellant)
and
Kanata Greenspace Protection Coalition Intervener
Counsel: Matthew P. Gottlieb, James Renihan, Mark R. Flowers and John Carlo Mastrangelo, for the appellant Kirsten Crain, Emma Blanchard, Kara Takagi and Tamara Boro, for the respondent
Heard: June 17, 2021 by video conference
On appeal from the judgment of Justice Marc R. Labrosse of the Superior Court of Justice, dated February 19, 2021, with reasons reported at 2021 ONSC 1298.
L.B. Roberts J.A.:
A. Overview
[1] This appeal involves the application of the rule against perpetuities. At its core, this appeal turns on whether the contractual terms in issue create an interest in land or a mere contractual right to acquire property.
[2] The rule against perpetuities is not controversial. Of ancient origin, the rule arises out of the public policy against the fettering of real property with future interests dependent upon unduly remote contingencies. It applies to extinguish an interest in land if the interest does not vest within 21 years. The rule does not apply to a contractual right that does not create an interest in land. It serves only to invalidate contingent interests in land that vest too remotely. See: Canadian Long Island Petroleums Ltd. et al. v. Irving Industries Ltd., [1975] 2 S.C.R. 715, at pp. 726-27, 732-33; 2123201 Ontario Inc. v. Israel Estate, 2016 ONCA 409, 130 O.R. (3d) 641 at para. 20; London and South Western Railway Co. v. Gomm (1882), 20 CH. D. 562 (C.A.), at pp. 580-82.
[3] In January 1997, the appellant, ClubLink Corporation ULC (“ClubLink”), acquired property subject to various historical land development agreements affecting its use, which were made in 1981, 1985, and 1988 between Campeau Corporation (“Campeau”) and the former City of Kanata (“Kanata”) (“the Agreements”). ClubLink assumed the former owners’ rights and obligations under the Agreements (“the Assumption Agreement”). In issue are the provisions contained in ss. 5(4) and 9 of the agreement entered into on May 26, 1981 (“the 1981 Agreement”) that: Campeau, or its successors and assigns, must operate a golf course on the property in perpetuity (“the golf course lands”), failing which, the golf course lands are to be conveyed at no cost to Kanata, now part of the respondent, the City of Ottawa (“the City”); and, if the golf course lands are conveyed, the City is obliged to continue using the golf course lands for recreation or natural environmental purposes, failing which, they are to be reconveyed to Campeau.
[4] ClubLink has operated the golf course for over 24 years. Due to declining membership, ClubLink started exploring the possibility of developing the golf course lands for residential and open space purposes. To that end, in October 2019, ClubLink submitted planning applications for a zoning by-law amendment and approval of a plan of subdivision and publicly accessible green space on the golf course lands.
[5] The City brought an application for an order requiring ClubLink to withdraw its applications; alternatively, it claimed that ClubLink’s applications triggered its right to demand conveyance of the golf course lands and it sought conveyance of the golf course lands to the City at no cost. The City requested a declaration that ClubLink’s obligations remain valid and enforceable. It also sought a declaration that if the golf course lands were conveyed to the City, the City would not be required to reconvey the golf course lands if it ceased to operate them as a golf course, so long as it used the golf course lands for recreation and natural environmental purposes.
[6] ClubLink resisted the City’s application because the City’s right to call on a conveyance had not vested within the 21 years following the 1981 Agreement. Therefore, ClubLink argues, the provisions requiring the operation of a golf course in perpetuity are void as contrary to the rule against perpetuities.
[7] The application judge interpreted the 1981 Agreement and allowed the City’s application in part. Importantly, he determined that the parties did not intend to create an interest in land because they never intended for the conveyances to materialize. He declared that the 1981 Agreement continues to be a valid and binding contract and that ClubLink’s obligations remain enforceable. ClubLink is therefore required to operate the golf course in perpetuity or convey the golf course lands to the City if it ceases to do so. However, he declared that in the event the golf course lands were conveyed to the City, the City is not required to operate the golf course in perpetuity so long as it uses the lands for recreation and natural environmental purposes. The application judge dismissed the City’s application for an order requiring ClubLink to withdraw its zoning bylaw amendment and plan of subdivision applications or alternatively to offer to convey the golf course lands to the City at no cost.
Issues and the Parties’ Positions
[8] ClubLink submits that the application judge made several reversible errors. In my view, ClubLink’s first argument that the application judge erred in finding that ss. 5(4) and 9 of the 1981 Agreement are not void for perpetuities disposes of the appeal. It is therefore not necessary to consider the other issues.
[9] ClubLink submits that in determining whether the parties to the 1981 Agreement intended to create a contingent interest in land, the application judge made extricable errors of law. It argues the application judge erred in three principal ways. First, he did not correctly consider the parties’ intentions as set out in ss. 5(4) and 9 of the 1981 Agreement. Second, he did not interpret the 1981 Agreement in light of the agreement dated December 20, 1988 (“the December 20, 1988 Agreement”), which expressly states that the 1981 Agreement runs with the land. Third, he did not apply binding jurisprudence that suggests control over exercise of the option and the expectation that the contingent interest holder will acquire the land are not determinative of whether the parties intended to create an interest in land.
[10] The City submits that the application judge made no reversible errors in his analysis: he properly focused on the parties’ intentions, considering “control” over the conveyance as only one factor, and correctly determined that the intent of the 1981 Agreement was to ensure that 40% of the parcel of land that the original owner wished to develop would be set aside in perpetuity as open space for recreation and natural environmental purposes (“the 40% principle”). Further, while he referred to subsequent agreements, he correctly identified the limits of using post-contractual conduct in contractual interpretation. As a result, the City argues, the application judge correctly found ss. 5(4) and 9 serve as mere contractual mechanisms for safeguarding the 40% principle and do not create interests in land.
[11] For the reasons that follow, I agree with ClubLink that the application judge erred in his analysis of ss. 5(4) and 9 of the 1981 Agreement. Specifically, the application judge erred in his determination that because the parties never intended the rights to the conveyances to “crystallize”, there was no intention to create an interest in land. In my view, when the correct legal principles are applied, in the context of all the Agreements, the plain language of ss. 5(4) and 9 creates a contingent interest in land. Sections 5(4) and 9 are therefore void and unenforceable as being contrary to the rule against perpetuities because the City’s right to call upon a conveyance of the golf course lands did not vest during the perpetuity period. I would therefore allow the appeal.
B. Analysis
[12] This case is about contractual interpretation and the application of the rule against perpetuities. As such, the application judge was required to consider the factual matrix to “deepen [his] understanding of the mutual and objective intentions of the parties as expressed in the words of the contract”: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 57.
[13] Accordingly, I start my review of the application judge’s decision with a summary of the factual matrix that the application judge considered and that is not in dispute. I shall then analyze the application judge’s decision in light of the determinative issues on this appeal.
(i) The Agreements and Factual Matrix
[14] In 1981, Campeau applied to the then Regional Municipality of Ottawa-Carleton (“the Region”) to amend its Official Plan to permit the development of a property described as the “Marchwood Lakeside Community” in Kanata. Campeau proposed to designate approximately 40% of the development area as recreation and open space.
[15] To that end, Campeau and Kanata entered into the 1981 Agreement, which was registered on title to the property under development. The key provisions respecting the uses that can be made of the property for the purpose of this appeal are contained in ss. 3, 5, and 9.
[16] Section 3 sets out the provisions enshrining the 40% principle and the particular uses that can be made of the open space areas, as follows:
- Campeau hereby confirms the principle stated in its proposal that approximately forty (40%) percent of the total development area of the ‘Marchwood Lakeside Community’ shall be left as open space for recreation and natural environmental purposes which areas consist of the following: (a) the proposed 18-hole golf course (b) the storm water management area (c) the natural environmental areas (d) lands to be dedicated for park purposes. [Emphasis added.]
[17] Under the title, “Methods of Protection”, s. 5 prescribes the use in perpetuity of the land to be provided for the golf course:
- (1) Campeau covenants and agrees that the land to be provided for the golf course shall be determined in a manner mutually satisfactory to the parties and subject to sub-paragraphs 2 and 3 shall be operated by Campeau as a golf course in perpetuity provided that Campeau shall at all times be permitted to assign the management of the golf course without prior approval of Kanata. (2) Notwithstanding sub-paragraph (1), Campeau may sell the golf course (including lands and buildings) provided the new owners enter into an agreement with Kanata providing for the operation of the golf course in perpetuity, upon the same terms and conditions as contained herein. (3) In the event Campeau has received an offer for sale of the golf course it shall give Kanata the right of first refusal on the same terms and conditions as the offer for a period of twenty-one (21) days. (4) In the event that Campeau desires to discontinue the operation of the golf course and it can find no other persons to acquire or operate it, then it shall convey the golf course (including lands and buildings) to Kanata at no cost and if Kanata accepts the conveyance, Kanata shall operate or cause to be operated the land as a golf course subject to the provisions of paragraph 9. (5) In the event Kanata will not accept the conveyance of the golf course as provided for in sub-paragraph (4) above then Campeau shall have the right to apply for development of the golf course lands in accordance with The Planning Act, notwithstanding anything to the contrary contained in this agreement. [Emphasis added.]
[18] Section 9 provides for the circumstances under which Kanata would be required to reconvey the land to Campeau at no cost:
- In the event that any of the land set aside for open space for recreation and natural environmental purposes ceases to be used for recreation and natural environmental purposes by Kanata then the owner of the land, if it is Kanata, shall reconvey it to Campeau at no cost unless the land was conveyed to Kanata as in accordance with Section 33(5)(a) or 35b [sic] of The Planning Act. [Emphasis added.]
[19] Sections 4 and 10 expressly contemplate that further agreements concerning specific open space areas may be required to designate the golf course lands and to implement the agreed upon 40% principle.
[20] Section 12 stipulates that the 1981 Agreement “shall be registered against the lands”.
[21] By agreements dated June 10, 1985 and December 29, 1988, both of which were registered on title, Campeau and Kanata defined the improvements and, in particular, the size, precise location, and required safety measures for the golf course. Both agreements contain provisions providing that the agreement shall extend to, be binding upon and enure to the benefit of Campeau and Kanata and their successors and assigns.
[22] Finally, in the December 20, 1988 Agreement, which was registered on title, Campeau and Kanata amended the 1981 Agreement to provide that the 1981 and December 20, 1988 Agreements would apply only to the “Current Lands” as designated in the Schedules to the December 20, 1988 Agreement, including the golf course lands.
[23] Section 7 of the December 20, 1988 Agreement stipulates that the 1981 and 1988 Agreements “shall enure to the benefit of and be binding upon the respective successors and assigns of Campeau and the City and shall run with and bind the Current Lands for the benefit of the Kanata Marchwood Lakeside Community” (emphasis added).
[24] On March 30, 1989, Campeau transferred the land to Genstar Development Company Eastern Ltd. (“Genstar”). Genstar assumed all of Campeau’s rights and obligations under the Agreements.
[25] Genstar, which later amalgamated with Imasco Enterprises Inc., and ClubLink entered into an asset purchase agreement dated August 6, 1996 by which, among other things, ClubLink agreed to purchase the golf course lands. On January 8, 1997, Imasco transferred the property to ClubLink.
[26] Under s. 3 of the Assumption Agreement, dated November 1, 1996, ClubLink agreed that all of its predecessors’ assumed liabilities and obligations under the Agreements would “apply to and bind [ClubLink] in the same manner and to the same effect as if [ClubLink] had executed the same in the place and stead of Campeau or Imasco.”
[27] Section 11 of the Assumption Agreement stipulates as follows:
The parties to this Agreement acknowledge and agree that nothing in this Agreement alters the manner in which approximately 40% of the total development area of the “Marchwood Lakeside Community” is to be left as open space for recreation and natural environmental purposes (the “Open Space Lands”) as referred to in Section 3 of the 1981 Agreement, so that the calculation of the Open Space Lands will continue to include the area of the Golf Course Lands including, without limitation, any area occupied by any building or other facility ancillary to the golf course and country club located now or in the future on the Golf Course Lands. If the use of the Golf Course Lands as a golf course or otherwise as Open Space Lands is, with the agreement of the City, terminated, then for determining the above 40% requirement, the Golf Course Lands shall be deemed to be and remain Open Space Lands. [Emphasis added.]
[28] On January 1, 2001, by operation of the City of Ottawa Act, 1999, S.O. 1999, c. 14, Sched. E, twelve municipalities, including Kanata and the Region, were dissolved and the City of Ottawa was constituted. As a result, the City stands in the place of Kanata. All of Kanata’s assets and liabilities, including all rights, interests, entitlements, and contractual benefits and obligations under the Agreements and the Assumption Agreement, became the assets and liabilities of the City: City of Ottawa Act, s. 5(3)(b).
(ii) Interpretation of the 1981 Agreement
Standard of Review
[29] It is common ground that the application judge’s interpretation of the Agreements attracts a deferential standard of appellate review: Sattva, at paras. 50-52. Contractual interpretation is a question of mixed fact and law requiring the application of principles of contractual interpretation to the words of a contract and its factual matrix: Sattva, at para. 50. Absent an extricable question of law, which courts should be cautious in identifying, or palpable and overriding error, appellate intervention is not warranted: Sattva, at paras. 53-54.
[30] An extricable question of law includes a legal error made in the course of contractual interpretation such as the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor: Sattva, at para. 53.
[31] Respectfully, I am of the view that the application judge made an extricable error of law in his interpretation of ss. 5(4) and 9 of the 1981 Agreement. As I shall explain, it was an extricable error of law to conclude that contracting parties must intend a contingent interest in land to materialize in order to create a contingent interest in land.
The Application Judge’s Interpretation of the 1981 Agreement
[32] According to the application judge, ss. 5(4) and 9 were intended only as “off ramps” that served as “safeguards which preserve the true intent of maintaining the 40% principle”. The “true intent of the 1981 Agreement”, according to the application judge, “does not involve Kanata ever becoming the owner of the Golf Course (lands and buildings).” The application judge explained that, as the parties never expected, nor intended for, the interest in land to “crystallize”, they had no intention to create an interest in land. Sections 5(4) and 9 were mere contractual provisions. The application judge summarized his conclusions at para. 104 of his reasons, as follows:
• Section 5(4) was not intended to allow for Kanata to eventually own and operate the Golf Course. This section created nothing more than an “off-ramp” to ensure that the true intention of the 1981 Agreement – to maintain 40% open space within the Campeau Lands through the use of a golf course – was carried out; • Section 9 also was not intended to create an interest for Campeau to regain possession of the lands no longer used for open space. The intent is to provide an alternative should Kanata no longer use the land for open space. It is to allow for an alternate use of the land should Kanata change the anticipated use. • Both ss. 5(4) and 9 create contractual rights that may or may never crystallize. The question is not when the ownership changes but if the ownership changes; • Support for this conclusion is also found in (a) the absence of any control given to Kanata to trigger the conveyance of the Golf Course Lands, and (b) the absence of any control to Campeau to trigger the reconveyance of open space lands…. [Emphasis in original.]
[33] Respectfully, the application judge erred in using the expectation that a contingency would materialize as a factor to distinguish between an intent to create an interest in land and a contractual right. As earlier noted, the rule against perpetuities applies only to contingent interests in land that vest too remotely. Whether the contingent interest in ss. 5(4) and 9 was intended to materialize is not the question; it is the nature of all contingent interests that they may never materialize. Moreover, the lack of control over the triggering of the conveyances does no more here than emphasize the contingent nature of the interests in issue.
[34] The governing case law establishes that a contingent interest in land can be created without the intention that it will one day “crystallize” and that control over the triggering event is not determinative.
[35] In City of Halifax v. Vaughan Construction Company Ltd. and the Queen, [1961] S.C.R. 715, Weinblatt v. Kitchener (City), [1969] S.C.R. 157, [1] and Jain v. Nepean (City) (1992), 9 O.R. (3d) 11 (C.A.), leave to appeal refused, [1992] S.C.C.A. No. 473, three decisions that are factually similar to the present case, the courts found an interest in land even though there was no expectation that the interest would “crystallize”. Like here, the contractual provisions in issue allowed the municipalities to control development and were not intended to ensure the land would one day be conveyed to the municipalities. In all three cases, the conveyance of the properties to the municipalities was contingent on the owners failing to fulfil their core contractual obligations. As here, the owners’ default, which triggered the right to conveyance, was not in the interest holders’ control. While the rule against perpetuities was not found to be infringed in these cases, they establish that an expectation that the interest will “crystallize” is not required to create an interest in land.
[36] In Halifax, the Supreme Court interpreted an agreement between the City of Halifax and the Maritime Telegraph and Telephone Company. The latter made certain covenants, which were later assumed by Vaughan Construction Company Limited upon purchasing the property, to either build within a reasonable time or reconvey the property for a specific sum if it decided not to build. The deed provided that the covenant would run with the lands until the construction of the building. The court affirmed that the City of Halifax held an equitable interest even though it was not the holder of an option that it could exercise at any time. Importantly, the court held that Vaughan had no uncontrolled right to determine whether it would reconvey; unless it complied with the building covenants within a reasonable time, the City of Halifax could have enforced a reconveyance. Therefore, the City of Halifax had an interest in the land because the construction company could not prevent the exercise of the City of Halifax’s right under the covenant by doing nothing; they had to build the building or reconvey the property.
[37] Similarly, in Weinblatt, the parties entered into an agreement that provided for the reconveyance of property to the City of Kitchener for the purchase price if the purchaser failed to commence construction of a seven-story building within a specified period. The builder applied to construct a two-story building instead but was refused. Weinblatt then purchased the property from the builder but his proposal to erect a building was also not in conformity with the agreement and was likewise rejected. The City of Kitchener’s claim for reconveyance of the property was successful. The court held that the City of Kitchener had a contingent interest in property that ran with the land because the covenant provided that Weinblatt had to meet the building conditions under the agreement or reconvey the property.
[38] Finally, this court’s decision in Jain is apposite. In issue was the interpretation of a contract that contained a condition, which was included in the deed, designed to ensure development: the City of Nepean would be entitled to repurchase the property for a particular amount if Jain did not start constructing a building of a specific size within 12 months of registration of the transfer. The court found the City of Nepean had an equitable interest in the land that always existed even though the right of reconveyance was contingent on the default of the development conditions. In this case, the mortgagee took its interest with notice of the City’s equitable interest in the property.
[39] The application judge adverted to Halifax, Weinblatt, and Jain in his review of relevant case law but only as examples of “[t]he more traditional circumstances where a right to repurchase has been found to create a contingent interest in land”. These decisions, in which the circumstances are almost identical to those of the present case, found an interest in land arose notwithstanding the absence of an expectation that the right to the reconveyance would crystallize and the lack of the municipalities’ control over triggering the reconveyance. The trial judge’s conclusion that there was no contingent interest in land because there was no expectation the right to the reconveyance would crystallize constitutes an error of law: Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2016 ONCA 246, 130 O.R. (3d) 418, at para. 41, aff’d 2017 ONCA 293, 135 O.R. (3d) 241, leave to appeal to refused, [2016] S.C.C.A. No. 249.
[40] The City submits that Halifax, Weinblatt, and Jain are distinguishable from the present appeal because all three cases involve provisions for a re-conveyance of property to the original vendor. The argument follows that since Kanata never owned the golf course lands, this is not the case of a landowner who is controlling the use of their land after they have sold it. I disagree that this factual difference distinguishes these cases. Whether the municipalities were the original vendors does not change the nature of the right: the municipalities were able to control development of the land through a covenant that ran with the land. The contingent interest fettered the land by controlling development, regardless of whether the interest holder was a former owner.
[41] The application judge applied the Superior Court decision in Loyalist (Township) v. The Fairfield-Gutzeit Society, 2019 ONSC 2203, relied on by the City, for the proposition that no interest in land arises where there is no expectation that the right to repurchase will crystallize. He determined that the court in Loyalist (Township) used this factor to distinguish this court’s decision in 2123201, put forward by ClubLink. In 2123201, this court concluded that an option to repurchase was an equitable interest in land; the court in Loyalist (Township) characterized the right to repurchase as a contractual right. The application judge explained at para. 72 of his reasons that in 2123201, “there was an expectation that the option to repurchase would crystallize at some point (i.e., once the gravel was removed)”; whereas, in Loyalist (Township), there was no such expectation: “the right to repurchase arose only if the Society wished to dispose of its interest to an organization that had different objectives from those of the Society … [t]hus, there was no expectation that the right to repurchase would crystallize”. As a result, the application judge reasoned that the 1981 Agreement was similar to the agreement in Loyalist (Township) and distinguishable from the agreement in 2123201 because Kanata did not expect its right to call for a conveyance of the golf course lands would “crystallize”.
[42] As I earlier explained, a contingent interest in land may never materialize. Moreover, I do not read Loyalist (Township) as standing for the proposition relied upon by the application judge: the expectation that a contingent interest would materialize was simply “[a] distinguishing feature” noted by the court in Loyalist (Township) between that case and 2123201, and not a determining factor in the court’s analysis: at para. 35. Notably, the court in Loyalist (Township) made no reference to Halifax, Weinblatt, and Jain. Moreover, the court’s determination in Loyalist (Township) that the right in question was a contractual right and not an interest in land flowed from the court’s conclusion that the agreement creating the right did not purport “to impose rights that would attach to the land”: at para. 36.
[43] The court’s reasoning in Loyalist (Township) reflects the well-established distinction that a contingent interest in land differs from a mere contractual right insofar as the agreement giving rise to the rights purports to attach the rights to the land, such as the right to call for a conveyance, which affect the landowner’s rights to freely use, manage, develop or dispose of its property: Gomm, at pp. 580-82; Loyalist (Township), at para. 36.; Manchester Ship Canada Company v. Manchester Racecourse Company, [1901] 2 Ch. 37 (C.A.), at pp. 50-51.
[44] A return to the public policy underpinning the rule against perpetuities further assists in distinguishing between a contingent interest in land and a mere contractual interest. The public policy attempts to prevent “the grasp of the dead hand to be kept on the hand of the living” in the form of restrictions on the subsequent landowner’s ability to use or dispose of its property that run with the land: Thomas Edward Scrutton, Land in Fetters, (Cambridge: Cambridge University Press, 1896), at p. 108; Canadian Long Island Petroleums, at pp. 726-27. As stated in Weber v. Texas Co., 83 F.2d 807 (5th Cir. 1936), at p. 808, and affirmed by the Supreme Court in Canadian Long Island Petroleums, at p. 732:
The rule against perpetuities springs from considerations of public policy. The underlying reason for and purpose of the rule is to avoid fettering real property with future interests dependent upon contingencies unduly remote which isolate the property and exclude it from commerce and development for long periods of time, thus working an indirect restraint upon alienation, which is regarded at common law as a public evil.
[45] In consequence, a contingent interest in land “fetters” real property, excluding it from “commerce and development” and working “an indirect restraint upon alienation”. It is this “public evil” that the rule against perpetuities targets by imposing a 21-year limitation. A mere contractual right is “within neither the purpose of nor the reason for the rule” because it does not forestall or “restrain free alienation” and is therefore not objectionable: Weber, at p. 808; Canadian Long Island Petroleums, at pp. 732-733.
[46] As there were extricable errors of law in the application judge’s construction of the contractual provisions of the 1981 Agreement, his decision is not entitled to deference and must be set aside: Sattva, at para. 53.
[47] I shall now consider afresh the contractual provisions in issue.
The parties intended to create contingent interests in land
[48] As I shall explain, I am of the view that the parties intended by ss. 5(4) and 9 of the 1981 Agreement to create contingent interests in the golf course lands.
[49] The dispute centres on the characterization of the provisions for the conveyance of the property, ss. 5(4) and 9, either as creating contingent interests in land or contractual rights. It is common ground that if the conveyance provisions create an interest in land, the rule against perpetuities applies and the provisions are void because the conveyance did not occur within the 21-year perpetuity period. Alternatively, if they give rise to a contractual right, the rule against perpetuities does not apply and, subject to the other issues raised on this appeal, the provisions remain valid and enforceable.
[50] Contractual provisions do not always fit neatly within the common dichotomy, which is found in many of the perpetuity cases, of an option to purchase that creates a contingent interest in land and a right of first refusal that does not. Accordingly, the fact that the language in s. 5(4) (or s. 9) of the 1981 Agreement may not be typical of the language used to define an option to purchase, as the application judge noted, is not determinative.
[51] This classification difficulty was recognized in 2123201. Rather than attempting to impose a rigid classification scheme, this court clarified in 2123201, at paras. 38 to 41, that the issue is one of basic contract interpretation to determine the true intent of the parties at the time the agreement is made. As such, the analysis should focus on whether the parties intended to create an interest in land or a mere contractual right. The indicia of that intention include the purpose and terms of the agreement and the context in which it was made: 2123201, at paras. 38-43.
[52] As the application judge rightly stated, the basic rules of contract interpretation require the determination of the intention of the parties in accordance with the ordinary and grammatical words they have used, in the context of the entire agreement and the factual matrix known to the parties at the time of the formation of the contract, and in a fashion that corresponds with sound commercial principles and good business sense: Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007, 77 B.L.R. (5th) 175, at para. 65, rev’d on other grounds, Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, 444 D.L.R. (4th) 77.
[53] Here, to ascertain the parties’ intentions, it is necessary to read all the Agreements. The City submits that the December 20, 1988 Agreement was concluded at a different time and for a different purpose. However, the subsequent agreements were expressly contemplated in the 1981 Agreement and the four agreements, read together, give effect to the parties’ intentions. Moreover, ClubLink assumed the rights and obligations of its predecessors not simply under the 1981 Agreement but under all the Agreements.
[54] As a result, the related contracts principle is also engaged in the interpretative process here. Under the related contracts principle, where more than one contract is entered into as part of an overall transaction, the contracts must be read in light of each other to achieve interpretive accuracy and give effect to the parties’ intentions: 3869130 Canada Inc. v. I.C.B. Distribution Inc., 2008 ONCA 396, 239 O.A.C. 137, at paras. 33-34; Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279, at para. 16; Fuller v. Aphria Inc., 2020 ONCA 403, 4 B.L.R. (6th) 161, at para. 41, 51; Catalyst Capital Group Inc. v. Dundee Kilmer Developments Limited Partnership, 2020 ONCA 272, 150 O.R. (3d) 449, at para. 50.
[55] I start with the overall purpose and nature of the Agreements.
[56] The Agreements formed a development contract that allowed Campeau to develop its own land but subject to certain limits to further the City’s public policies, most notably, the 40% principle.
[57] There is no question that the 40% principle was an important contractual feature that allowed Campeau to advance the development of property and further the City’s public policies. The City wanted to ensure that 40% of the property to be developed would remain as open space to be used in certain ways. One of the ways was the operation in perpetuity of a golf course. That said, the 40% principle, by itself, does not determine the issue of whether the parties intended to give Kanata (and its successors and assigns) an interest in land or a contractual right to protect the 40% principle.
[58] In my opinion, when the Agreements are read and interpreted as a whole, and in the context of the factual matrix, the provisions in ss. 5(4) and 9 were intended to restrict or “fetter” the use that could be made of 40% of the property in order to further the City’s open space development policy. As such, I see the rights created by the Agreements as indistinguishable in substance and effect from the contingent property interests created in Halifax, Weinblatt, and Jain, earlier reviewed, where restrictions were used to control development.
[59] In Halifax, Weinblatt, and Jain, the municipal right holder did not hold an option that it could exercise at any time and the right to the conveyance only arose if the landowner did not develop or use the lands according to the agreements. Once the triggering event occurred, for example development did not commence within the agreed upon time, the landowners were obligated to reconvey the properties to the holder of the right. The juridical nature of this right of conveyance was determined to be an interest in land.
[60] The rights in issue in the present case are indistinguishable. As in Halifax, Weinblatt, and Jain, the Agreements here impose rights that expressly run with the land and were registered on title. The conveyance to the City would occur only if and when Campeau or its successors and assigns ceased to use the land as a golf course and could not find someone to take over its operation. Other than determining whether to use the land as a golf course, Campeau had no discretion over the conveyance. If it chose to stop using it as a golf course and could not find someone to continue this use, then it had to convey the property to the City. The automatic transfer of ownership triggered by the contingency of a future event creates a contingent property interest.
[61] The conveyance provisions under ss. 5(4) and 9 of the 1981 Agreement fall squarely within the public policy purpose of the rule against perpetuities, namely, to prevent contingent property interests from vesting too remotely. The conveyance provisions purport to control in perpetuity the use that can be made of the golf course lands: if the owner ceases to use the golf course lands as a golf course, the lands will be conveyed to the City.
[62] The parties’ intention to create an interest in land also manifests in the plain and explicit language of the Agreements. According to the “cardinal presumption” of contract interpretation, the parties intended what they wrote: Weyerhaeuser, at para. 65. For example:
i. The 1981 Agreement uses clear conveyance language with respect to the contingent interests created under s. 5(4) (“convey” and “conveyance”) and s. 9 (“reconvey” and “conveyed”). I contrast this conveyance language with the contractual “right of first refusal” that appears in s. 5(3). ii. Section 12 of the 1981 Agreement stipulates that the Agreement shall be registered on the title to the entire property, including the golf course lands. All four Agreements were registered on the title to the property. iii. Section 7 of the December 20, 1988 Agreement expressly states that the 1981 and 1988 Agreements “shall enure to the benefit of and be binding upon the respective successors and assigns of Campeau and the City and shall run with and bind the Current Lands for the benefit of the Kanata Marchwood Lakeside Community” (emphasis added).
[63] While each of these examples taken in isolation may not be determinative, I view them, together with the factors that I have just reviewed, as demonstrating the parties’ intention to create contingent interests in land. Similarly, I read the requirement under s. 5(2) that subsequent owners must contractually assume the obligations under the Agreements, as simply a mechanism to ensure compliance. It does not, by itself, derogate from the parties’ intention to create contingent interests in land as provided for in ss. 5(4) and 9 of the 1981 Agreement.
[64] In summary, the parties intended by the clear language and purpose of their Agreements to create contingent interests in the golf course lands under ss. 5(4) and 9 of the 1981 Agreement that ran with and fettered the land: under s. 5(4) of the 1981 Agreement, the City’s interest in the golf course lands was contingent on Campeau (or its successor or assign in title) ceasing to operate the golf course; and under s. 9, the reconveyance was contingent on, first, the conveyance under s. 5(4), and, second, the City ceasing to use the lands as prescribed.
[65] The owners have operated the golf course for more than 21 years. Neither the City’s right to a conveyance nor ClubLink’s right to a reconveyance have vested within the perpetuity period. As a result, these contingent interests in the golf course lands are now void.
Is all or part of the 1981 Agreement void?
[66] ClubLink renews here the argument that if the rule against perpetuities applies, then ss. 5(4) and 9 cannot be severed from the 1981 Agreement and all or part of the 1981 Agreement fails. As noted in para. 146 of his reasons, the application judge did not consider this issue given his conclusion that the 1981 Agreement continues to be valid and enforceable.
[67] ClubLink argues that ss. 5(4) and 9 are integral to the 1981 Agreement and that severing ss. 5(4) and 9 from the balance of the contract fundamentally changes the 1981 Agreement with the result that ClubLink would be saddled with a perpetual obligation to run a golf course (or find a buyer willing to do the same) with no escape mechanism. According to ClubLink, there is no evidence the parties would have agreed to this bargain. ClubLink submits that severance is therefore inappropriate and, as a result, the appropriate remedy is to void the 1981 Agreement in whole, or, alternatively, all the provisions related to the golf course lands.
[68] In my view, this court is not in a position to consider ClubLink’s argument.
[69] First, ClubLink did not identify which provisions of the 1981 Agreement are so interrelated to ss. 5(4) and 9 and the void contingent interests in land that they must necessarily be inoperative. Further, there is no basis to void myriad other provisions in the 1981 Agreement that are unrelated to the golf course and that have already been performed.
[70] Moreover, the focus of the submissions before this court was on the validity and enforceability of ss. 5(4) and 9 of the 1981 Agreement. We do not have the benefit of the application judge’s findings on the larger question raised by ClubLink. And, in my opinion, the determination that ss. 5(4) and 9 of the 1981 Agreement are void and unenforceable may affect provisions of not simply the 1981 Agreement but also the 1985 and 1988 Agreements, as well as the Assumption Agreement. In my view, if the parties cannot agree, this larger question should be remitted to the application judge for determination.
Disposition
[71] Accordingly, I would allow the appeal. Sections 5(4) and 9 of the 1981 Agreement are void and unenforceable.
[72] By letter dated June 22, 2021, the parties advised of their agreement that the successful party is entitled to costs of the appeal in the amount of $59,000, all inclusive. Accordingly, I would award costs of the appeal to ClubLink in this amount.
[73] If the parties cannot agree on the disposition of costs for the application below, I would allow them to make brief written submissions of no more than two pages, plus a costs outline, within five days of the release of these reasons.
Released: “R.G.J.” NOV 26, 2021 “L.B. Roberts J.A.” “I agree. R.G. Juriansz J.A.” “I agree. M. Tulloch J.A.”
[1] Some have argued that there are inconsistencies between Canadian Long Island Petroleums, Halifax, and Weinblatt: Paul M. Perell, “Options, Rights of Repurchase and Rights of First Refusal as Contracts and as Interest in Land” (1991) 70:1 Can. Bar. Rev. 1. However, this court in Jain largely resolved these issues and found that the holdings in Halifax and Weinblatt are still good law despite the reasoning in Canadian Long Island Petroleums: see Jain, at p. 19.
