Barrick Gold Corporation et al. v. Her Majesty the Queen in Right of Ontario as represented by the Minister of Municipal Affairs and Housing et al. [Indexed as: Barrick Gold Corp. v. Ontario (Minister of Municipal Affairs and Housing)]

51 O.R. (3d) 194

[2000] O.J. No. 4426

Docket No. C33550

Court of Appeal for Ontario

Finlayson, Doherty and Borins JJ.A.

November 21, 2000

Municipal law -- Restructuring -- Double majority -- Neighbouring municipalities developing restructuring proposals involving annexation of small piece of land and annexation of number of unincorporated townships by one of municipalities -- Result of proposals being that it was unnecessary to obtain consent of majority of electors in townships to restructuring -- By-law and resolution for restructuring illegal and beyond authority of municipality -- By-law and resolution quashed -- Municipal Act, R.S.O. 1990, c. M.45, ss. 25.2, 136.

Municipal law -- By-laws -- Resolutions -- Validity -- Restructuring -- Double majority -- Neighbouring municipalities developing restructuring proposals involving annexation of small piece of land and annexation of number of unincorporated townships by one of municipalities -- Result of proposals being that it was unnecessary to obtain consent of majority of electors in townships to restructuring -- By-law offending policy underlying enabling statute and beyond powers of municipality -- By-law and resolution for restructuring proposal illegal and beyond authority of municipality -- By-law and resolution quashed -- Municipal Act, R.S.O. 1990, c. M.45, ss. 25.2, 136.

In 1996, the Municipal Act was amended to facilitate the restructuring of municipalities to achieve greater efficiency and cost savings. Under the amendments, there are two ways to restructure: (1) under s. 25.2 of the Act by submitting a restructuring report to the Minister of Municipal Affairs and Housing; and (2) under s. 25.3 of the Act by establishing a commission to develop a proposal for restructuring. If a municipality proceeds under s. 25.2, the Act specifies a "prescribed degree of support" of the municipalities and local bodies in the locality. The "prescribed degree of support" involves the concept of a "double majority" as defined by regulation. If a restructuring involves one municipality and one unorganized territory, to satisfy the requirement of a double majority, a majority vote of eligible voters in the unorganized territory is required. If a restructuring involves two municipalities and one unorganized territory, the requirement of a double majority is satisfied if two of the three entities are in favour of the proposal, as long as those two entities include over 50 per cent of the total eligible electors.

In 1996, the Corporation of the Township of Black River- Matheson ("Black River"), a municipality with about 3,000 electors, along with its neighbouring municipality, the Township of Iroquois Falls, a municipality with about 4,400 electors, developed a restructuring proposal in which Black River would annex a small piece of land from Iroquois Falls and would also annex 13 unincorporated townships, which had about 300 electors. By restructuring in this way, it was unnecessary to obtain the consent of a majority of the electors in the townships. The respondents, which were mining companies in the townships and also representatives of cottage owners in the townships, opposed the restructuring and commenced an application seeking, among other things, an order quashing the by-laws and resolutions passed by Black River. This application was granted on the ground that the by-law and resolution were passed in bad faith. Black River appealed.

Held, the appeal should be dismissed with costs.

The by-law and the resolution were invalid, not on grounds of bad faith, but on the ground that they were contrary to the purpose underlying the relevant provisions of the Municipal Act and beyond the lawmaking powers of the township, and were therefore illegal and void. Municipalities are creatures of statute and can exercise only those powers conferred on them by provincial legislation. In determining whether a municipality is empowered to pass a certain by-law, the court must look to the purpose and wording of the provincial enabling legislation. Municipalities must do more than conform with the strict letter of the law to remain within the boundaries of their lawmaking powers. The purpose of the enabling legislation constrains the municipal lawmaking power. Municipalities must bring themselves within both the letter and the spirit of the empowering provincial legislation. A by-law that offends the policy underlying the operative statute is beyond the powers of a municipality and is illegal within the meaning of s. 136 of the Municipal Act, which provides that a court may quash a by- law for illegality. Here Black River avoided the need to consult with the electors in the townships and the annexation of the small piece of Iroquois Falls was a means to circumvent gaining the support of the electors of the townships. The restructuring proposal was inconsistent with and destructive of the policy underlying s. 25.2 of the Act and was nothing more than an attempt to annex the townships unilaterally under the guise of a tripartite restructuring proposal. The by-law and the resolution were beyond the powers of the Black River Town Council.

APPEAL from a judgment quashing a municipal by-law and a resolution of a municipal council.

Cases referred to Bruce (Township) v. Ontario (Minister of Municipal Affairs and Housing) (1998), 1998 7155 (ON CA), 41 O.R. (3d) 309, 164 D.L.R. (4th) 443, 48 M.P.L.R. (2d) 201 (C.A.); Certain Titles to Land in Ontario (Re), 1973 609 (ON CA), [1973] 2 O.R. 613, 35 D.L.R. (3d) 10 (C.A.); Nanaimo (City) v. Rascal Trucking Ltd., 2000 SCC 13, [2000] 1 S.C.R. 342, 76 B.C.L.R. (3d) 201, 183 D.L.R. (4th) 1, 251 N.R. 42, [2000] 6 W.W.R. 403; Niagara-on-the-Lake (Town) v. Gross Estate (1993), 1993 8509 (ON CA), 12 O.R. (3d) 1, 100 D.L.R. (4th) 39, 13 M.P.L.R. (2d) 11, 28 R.P.R. (2d) 165 (C.A.) [Leave to appeal to S.C.C. refused (1993), 34 R.P.R. (2d) 257n, 18 M.P.L.R. (2d) 100n] (sub nom. Ontario v. Montemurro); Nunziata v. Wong, 2000 16853 (ON CA), [2000] O.J. No. 3407 (C.A.); Ontario (Attorney General) v. Yeotes (1981), 1981 1959 (ON CA), 31 O.R. (2d) 589, 120 D.L.R. (3d) 128, 14 M.P.L.R. 156, 18 R.P.R. 161 (C.A.); Ottawa-Carleton (Regional Municipality) v. Marlborough (Township) (1974), 1974 520 (ON SC), 2 O.R. (2d) 297, 42 D.L.R. (3d) 641 (H.C.), affd (1974), 5 O.R. (2d) 258n, 1974 1378 (ON CA), 50 D.L.R. (3d) 68n (C.A.); R. v. Greenbaum, 1993 166 (SCC), [1993] 1 S.C.R. 674, 100 D.L.R. (4th) 183, 149 N.R. 114, 79 C.C.C. (3d) 158, 19 C.R. (4th) 347, 14 M.P.L.R. (2d) 1 (sub nom. R. v. Sharma); Stadium Corp. of Ontario Ltd. v. Toronto (City) (1993), 1993 8681 (ON CA), 12 O.R. (3d) 646, 101 D.L.R. (4th) 614, 14 M.P.L.R. (2d) 229 (C.A.); TransCanada Pipelines Ltd. v. Beardmore (Township) (2000), 2000 5713 (ON CA), 186 D.L.R. (4th) 403 (Ont. C.A.) Statutes referred to Canadian Charter of Rights and Freedoms, s. 3 Municipal Act, R.S.O. 1990, c. M.45, ss. 25.1 to 25.4 [en. S.O. 1996, c. 1, Sch. M, s. 1], 136 Planning Act, R.S.O. 1970, c. 349 Rules and regulations referred to Restructuring Proposals, O. Reg. 216/96, am. O. Reg. 422/96, s. 3, ss. 1, 2, 3(1), 4(1), (2), 10(1), 11(1)-(3) Authorities referred to Rogers, The Law of Canadian Municipal Corporations, 2d ed., looseleaf (Scarborough: Carswell, 1971), pp. 344, 1021

George Rust-D'Eye and Bruce Engell, for appellant. J. Bradford Nixon and Prakash G. David, for respondents.

The judgment of the court was delivered by

I.

[1] DOHERTY J.A.: -- In the late summer of 1996, the appellant, the Corporation of the Township of Black River- Matheson (Black River), in co-operation with its neighbouring municipality, the Town of Iroquois Falls (Iroquois Falls), developed a restructuring proposal which would result in the annexation by Black River of 13 unincorporated townships located to the east of Black River (the Townships) without first gaining the consent of a majority of the electors in those Townships. The respondents Barrick Gold Corporation and Battle Mountain Canada Ltd. are companies with mining operations in the Townships. The respondents Perry Lake Cottagers Association and Munro Lake Cottagers Association represent persons who own cottages in the Townships. They oppose the annexation.

[2] In November and December 1996, the Black River town council passed a by-law and resolution supporting the restructuring proposal and directing that the proposal be submitted to the Minister of Municipal Affairs and Housing (the Minister) for approval. That proposal provided for the annexation by Black River of a small piece of property formerly in Iroquois Falls and the annexation of the Townships. It had the support of Iroquois Falls.

[3] On December 27, 1996, the Minister issued an order implementing Black River's restructuring proposal with minor changes. The proposal took effect on January 1, 1997 and the Townships became part of Black River.

[4] The Iroquois Falls town council also passed a by-law and resolution supporting a restructuring proposal which provided for the annexation to Iroquois Falls of a small piece of property formerly in Black River and the annexation by Iroquois Falls of certain unincorporated townships to the north of Iroquois Falls. Black River supported Iroquois Falls' proposal. Iroquois Falls did not, however, proceed with its restructuring proposal.

[5] In May 1997, the respondents commenced an application seeking:

-- an order declaring the by-laws and resolutions passed by Black River and Iroquois Falls ultra vires;

-- an order quashing the resolutions and by-laws passed by Black River and Iroquois Falls;

-- an order declaring the order of the Minister ultra vires;

-- an order quashing the order of the Minister.

[6] Subsequent to the launching of the application, an order was made directing that the portion of the application attacking the by-laws and resolutions proceed by way of a trial of an issue. That trial was heard by Meehan J. over five days in October and December 1999. Meehan J. quashed the challenged by-laws and resolutions. He declined to consider the application to declare the order of the Minister invalid and directed that the application should be heard by a full panel of the Divisional Court. That application has been held in abeyance pending the outcome of this appeal brought by Black River.

[7] The Minister did not participate in this appeal. He has taken no position on the merits of the appeal and has not given the parties any indication of his position should the order of Meehan J. stand. The validity of the Minister's order when made, and its status should the order of Meehan J. stand, are not in issue on this appeal.

[8] Iroquois Falls has not appealed from the order of Meehan J. quashing the resolution and by-law passed by Iroquois Falls, presumably because it did not proceed with its restructuring proposal. The validity of the by-law and resolution passed by the Iroquois Falls town council is not in issue on this appeal.

[9] The sole question for this court is whether Meehan J. erred in quashing the by-law and resolution passed by the town council of Black River.

[10] In their application challenging the by-law and resolution, the respondents advanced several grounds, including the claim that the instruments were ultra vires and contrary to the provisions of the Municipal Act, R.S.O. 1990, c. M.45, as am. by the Savings and Restructuring Act, 1996, S.O. 1996, c. 1, Sch. M, s. 1. Meehan J., in reasons reported at (1999), 7 M.P.L.R. (3d) 148, concluded that the by-law and resolution enacted by Black River were passed in "bad faith". In reaching that conclusion, he placed some emphasis on the importance of what he described as a citizen's right to a "meaningful vote as part of the democratic process". Meehan J. made reference to s. 3 of the Canadian Charter of Rights and Freedoms which guarantees the right to vote. He said, at p. 162:

In my view a democracy requires that legislators take into account the interests of majorities and minorities alike, all of whom will be affected by the decisions they make.

. . . The Courts cannot sanction the efforts of a municipality or indeed two municipalities to deprive people of their vote by a trick.

[11] I agree with Meehan J.'s conclusion that the by-law and resolution are invalid. I do not, however, characterize this as a case involving "bad faith", nor do I rely on the constitutional right to vote. That right has no application here: Nunziata v. Wong, 2000 16853 (ON CA), [2000] O.J. No. 3407 at paras. 10-12 (C.A.).

[12] I take the view that the by-law and resolution are contrary to the purpose underlying the relevant provisions of the Municipal Act, are beyond the lawmaking powers of the town, and are therefore illegal and void.

II.

[13] Before turning to the relevant events, the findings of fact made by Meehan J. and the applicable law, it is necessary to outline the statutory framework governing the restructuring of municipalities under the Municipal Act.

[14] In 1995, the provincial government made it clear to local governments that they could expect significant decreases in provincial funding and would be required to assume a larger share of the fiscal responsibility for services provided by them. Local governments were encouraged to structure their operations so as to provide services in a more cost-efficient manner. To assist in achieving this goal, the province proposed amendments to the Municipal Act which would facilitate the restructuring of municipalities and other local entities so as to achieve greater efficiency and cost savings. Prior to these amendments, restructuring was a cumbersome and difficult process. The amendments, enacted in 1996, became s. 25.1 to s. 25.4 of the Municipal Act.

[15] Under the amendments, restructuring includes the annexing of part of a municipality to another municipality, and the annexing of a locality that does not form part of a municipality to a municipality (s. 25.2). The restructuring proposal made by Black River involved both kinds of annexation.

[16] The purposes of the restructuring amendments are set out in s. 25.1:

25.1 The purposes of sections 25.2 to 25.4 are,

(a) to provide for a process which allows municipal restructuring to proceed in a timely and efficient manner;

(b) to facilitate municipal restructuring over large geographic areas involving counties or groups of counties, local municipalities in counties and in territorial districts and unorganized territory; and

(c) to facilitate municipal restructuring of a significant nature which may include elimination of a level of municipal government, transfer of municipal powers and responsibilities and changes to municipal representation systems.

[17] Section 25.2 and s. 25.3 describe the two ways in which restructuring may be achieved under the Municipal Act. Section 25.2 provides that a municipality may make a restructuring proposal to the Minister by submitting a restructuring report containing the details required by s. 25.2(2) of the Act. If the restructuring proposal and report meet the requirements of the section, the Minister shall implement the restructuring proposal in accordance with regulations made under the Municipal Act (s. 25.2(4)). The regulation-making power of the Minister under s. 25.2 is set out in s. 25.2(9) and includes regulations:

-- providing for the degree of support required to support a restructuring proposal with respect to each type of restructuring (s. 25.2(9)(b)(iii));

-- providing for the manner of determining the support (s. 25.2(9)(b)(iv));

-- providing for criteria which must be met by the municipalities and local bodies supporting a restructuring proposal (s. 25.2(9)(b)(v)).

[18] Section 25.3 sets out the alternative means by which a municipality may restructure. Under that section, the Minister, at the request of a municipality, may establish a commission the purpose of which is to develop a proposal for restructuring (s. 25.3(1)). The section outlines the process which the commission must follow in developing a restructuring proposal and further provides that the commission may make orders to implement a restructuring proposal (s. 25.3(13)).

[19] The essential difference between the restructuring envisioned by s. 25.2 and that contemplated by s. 25.3 rests in the process by which restructuring is achieved. Restructuring under s. 25.2 is the product of a decision made by those affected by the restructuring or their elected municipal representatives. Restructuring under s. 25.3 is the product of a decision made by an appointed commission after the consultive process outlined in s. 25.3.

[20] The Town chose to proceed under s. 25.2. In doing so, it was obliged to conform to s. 25.2(2):

25.2(2) A municipality or local body in a locality may, subject to subsection (3), make a restructuring proposal to restructure municipalities and unorganized territory in the locality by submitting to the Minister a restructuring report containing,

(a) a description of the restructuring proposal in a form and in such detail as the Minister may require; and

(b) proof in a form satisfactory to the Minister that,

(i) the restructuring proposal has the prescribed degree of support of the prescribed municipalities and local bodies in the locality,

(ii) the support was determined in the prescribed manner,

(iii) the municipalities and local bodies which support the restructuring proposal meet the prescribed criteria, and

(iv) the municipality consulted the public in the required manner.

(Emphasis added)

[21] The references in s. 25.2(2) to "the prescribed degree of support" and "prescribed manner" of determining that support takes one to O. Reg. 216/96 and the concept of a double majority as defined in that regulation. The pertinent parts of that regulation are set out below: [See Note 1 at end of document]

1(1) In this Regulation,

"double majority" has the meaning given to that phrase under subsections (2), (3), (4) and (5);

"part" in relation to a county, means part of the county for municipal purposes.

(2) A double majority of local municipalities is a majority of the local municipalities with more than half of the electors in all the local municipalities.

(3) A double majority of a group consisting of local municipalities and local bodies for unorganized territories is a majority of the group with more than half of the electors in all the local municipalities and local bodies in the group.

(4) A double majority of counties is a majority of the counties with more than half of the electors in all the counties.

(5) For the purposes of subsections (2), (3) and (4), the number of electors in a local municipality, unorganized territory or a county, in relation to a restructuring proposal, shall be determined as follows:

1. In local municipalities, counties and unorganized territory where a school board has jurisdiction, the number of electors is the number of persons whose names appear on the polling list, as amended up until the close of polls for the most recent regular election under the Municipal Elections Act preceding the submission of a restructuring proposal to the Minister under subsection 25.2(2) of the Act.

2. In unorganized territory where a school board does not have jurisdiction, the number of electors is the number of individuals whose names are registered, as owners or tenants in the unorganized territory, in the provincial land tax register kept under the Provincial Land Tax Act. The register used shall be the register for the 31st day of December following the date for the close of polls for the most recent regular election under the Municipal Elections Act. If the register for that date is not yet available at the time the restructuring proposal is submitted to the Minister the register used shall be the register for the 31st day of December preceding that date.

2(1) If unorganized territory would, as a result of a restructuring proposal, become part of a local municipality all the following persons who are Canadian citizens and at least 18 years old form a local body for the purposes of section 25.2 of the Act:

1. Permanent residents of the unorganized territory.

2. Owners and tenants of property in the unorganized territory.

3. The spouses of owners and tenants of property in the unorganized territory.

(2) There shall be a single local body under subsection (1) for all the unorganized territory that would, as a result of a restructuring proposal, become part of the same local municipality.

3(1) The following types of restructuring are established as types of restructuring for the purposes of subsection 25.2(2) of the Act:

1. Amalgamating local municipalities or annexing to a local municipality, a part of a local municipality or unorganized territory.

4(1) This section applies with respect to a restructuring proposal that would result in a local municipality resulting from,

(a) an amalgamation of local municipalities;

(b) an annexation to the local municipality; or

(c) a combination of such amalgamations or annexations.

(2) The following support is necessary for the aspect of the restructuring proposal described in subsection (1):

1. The support of a double majority of the group consisting of,

i. the local municipalities, any part of which would be part of the local municipality resulting from the amalgamation or annexation or combination of them, and

ii. if any unorganized territory would be part of the local municipality resulting from the amalgamation or annexation or combination of them, the local body for the unorganized territory.

2. If the local municipality resulting from the amalgamation or annexation or combination of them would be part of,

i. a county resulting from an amalgamation of counties, the support of a double majority of the counties that would be amalgamated, or

ii. a county that exists before the restructuring proposal, but that would not be amalgamated, the support of the county.

3. If any part of a separated municipality would be part of the local municipality resulting from the amalgamation or annexation or combination of them, the support of the separated municipality.

10(1) A local municipality or county may support a restructuring proposal by by-law or resolution.

11(1) Whether or not the local body for an unorganized territory supports a restructuring proposal shall be determined by a majority vote at a meeting called in accordance with the procedure in subsection (3).

(2) A person is eligible to vote if he or she is a Canadian citizen, at least 18 years old and either,

(a) a permanent resident of the unorganized territory;

(b) an owner or tenant of property in the unorganized territory; or

(c) the spouse of an owner or tenant of property in the unorganized territory.

(3) The following is the procedure for a meeting to determine if the local body for an unorganized territory supports a proposal:

1. A person who is eligible to vote may call a meeting if he or she is appointed for that purpose in writing, by at least nine other persons who are eligible to vote.

2. The meeting must be held in the unorganized territory or in an adjacent local municipality.

3. To call a meeting the person must give at least 14 days notice of the meeting,

i. by publication in a newspaper that, in the opinion of the person, is of general circulation throughout the unorganized territory, or

ii. if the person is of the opinion that there is no such newspaper, by any other means which, in the opinion of the person, will give the persons who are eligible to vote adequate notice of the meeting.

4. The notice of the meeting must set out,

i. the purpose of the meeting,

ii. where and when the meeting will be held,

iii. a description of who may vote at the meeting,

iv. where and when a copy of the restructuring proposal is available for inspection as required under paragraph 5.

5. The person calling a meeting shall ensure that a copy of the restructuring proposal is available for inspection within the unorganized territory or an adjacent local municipality at a place and at times that, in the opinion of the person, are reasonable.

6. The meeting shall be chaired by a person who is eligible to vote elected by the persons attending the meeting who are eligible to vote.

7. The chair of the meeting shall conduct a vote by the persons who attend the meeting to determine if the restructuring proposal is supported. The chair may determine how to conduct the vote. The chair shall record the results of the vote and the number of votes cast supporting the proposal and the number of votes cast not supporting the proposal.

(Emphasis added)

[22] The language of the regulation creating the double majority requirement is difficult to understand except in the context of concrete examples. Where a restructuring proposal involves only a municipality and an unorganized territory, the double majority requirement dictates that both the municipality and the unorganized territory vote in favour of the proposal. The municipality votes through its elected representatives, the majority of whom may express their approval for the proposal by way of a by-law or resolution. Those in the unorganized territory express their approval by way of a majority vote of eligible voters at a meeting held for the express purpose of voting on the restructuring proposal. Consequently, had Black River proceeded with a proposal involving only the annexation of the Townships, the proposal would have required the support of a majority of the Black River town council and a majority of the electors in the Townships.

[23] If, however, a restructuring proposal involves two municipalities and an unorganized territory, the double majority requirement is satisfied if two of the three entities vote in favour of the proposal as long as those two entities include over 50 per cent of the total eligible electors. Black River's restructuring proposal involved Black River, Iroquois Falls and the Townships. The combined population of Black River and Iroquois Falls was substantially greater than the population of the Townships. Consequently, when Black River made its restructuring proposal with the support of the Iroquois Falls town council, the support of the electors in the Townships became irrelevant to the approval of the proposal.

[24] Section 25.4 of the Municipal Act allows the Minister to establish restructuring principles to be considered by municipalities and local bodies seeking to develop a restructuring proposal. The Minister issued a guide to municipal restructuring in August 1996. The Minister said:

There are two choices for municipalities when it comes to restructuring. The first choice is for municipalities to develop their own restructuring plan with majority support of those affected. The second choice is to make a request for me to appoint a local restructuring commission to develop and implement a proposal. I feel the first option makes the most sense. Local restructuring should not be left up to an independent third party to decide. These decisions should be made by local governments as they know best the needs of their taxpayers. . . .

(Emphasis added)

[25] In the guide, the Minister stressed the need for consultation and communication with all stakeholders throughout the process of developing a restructuring proposal. He emphasized the need for:

negotiations with the affected parties to achieve the best possible form of local government for the area as a whole.

III.

[26] Bearing in mind the legislation, the regulations and the principles set down by the Minister, I turn now to a detailed examination of the relevant events and the findings of Meehan J.

[27] Black River is located 40 miles east of Timmins. It has about 3,000 electors and occupies about 450 square miles. Iroquois Falls is located immediately north of Black River. Its southern boundary is the northern boundary of Black River. Iroquois Falls has a population of about 4,400 electors and extends over 250 square miles. The Townships consist of 13 unorganized townships running east from the eastern border of Black River to the Quebec border. There are about 300 electors scattered over some 450 square miles in the Townships. There are also a number of unorganized townships to the north of Iroquois Falls. It is unnecessary to describe that area in any detail.

[28] In the summer of 1996, Black River and Iroquois Falls, like other municipalities, were being encouraged by the province to restructure their organizations so as to provide municipal services more effectively and at a lower cost. There was pressure on these municipalities to have restructuring proposals in place before the end of 1996.

[29] Black River had from time to time shown an interest in annexing the Townships. Residents and businesses in the Townships received direct and indirect benefits from the services provided by Black River, but did not pay municipal taxes. From Black River's perspective, annexation made sense in that it could broaden Black River's tax base and also improve the services that Black River could provide to the Townships.

[30] The possibility of Black River and Iroquois Falls working together to prepare restructuring proposals first surfaced at a closed meeting of the town councils of Iroquois Falls and Black River held at a motel in Black River on July 25, 1996. The agenda for the meeting read in part:

The Town of Iroquois Falls has proposed that to facilitate restructuring, the Township of Black River-Matheson turn over to Iroquois Falls the small portion of Walker Township that is on the Black River-Matheson boundary. By swapping a piece of adjoining property, both Iroquois Falls and Black River- Matheson can also pick up very desirable unorganized townships.

(Emphasis added)

[31] The chief administrative officer of Black River, Colin Eaton, and his Iroquois Falls counterpart, John Buchan, were instructed to try to develop an acceptable scheme whereby Black River and Iroquois Falls would "swap" properties and annex the unorganized townships. According to Mr. Buchan, he and Mr. Eaton were aware of the "double majority" requirements in the regulations. When asked why Iroquois Falls and Black River would benefit from working together to prepare restructuring proposals, Mr. Buchan said:

The benefit was the double majority. We had two votes against the unorganized territories.

[32] Later in his examination, Mr. Buchan was asked again about the double majority:

It means that two municipalities can vote in favour of an amalgamation or annexation and that, and the unorganized territories can vote too, but they get one vote, we get two . . .

[33] Mr. Buchan described a "gentlemen's agreement" reached between him and Mr. Eaton, whereby Black River and Iroquois Falls would exchange small properties along their border so that each could proceed with their annexation proposals involving the unorganized townships to the east of Black River and the north of Iroquois Falls. Mr. Buchan acknowledged that ultimately the town council of either Black River or Iroquois Falls could have rejected any proposal agreed upon by himself and Mr. Eaton.

[34] The "gentlemen's agreement" reached by Mr. Buchan and Mr. Eaton called for Black River and Iroquois Falls to submit separate restructuring proposals to the Minister. Under the agreement, Iroquois Falls would submit a plan involving:

-- the annexation by Iroquois Falls of the unincorporated townships north of Iroquois Falls;

-- the annexation by Iroquois Falls of a piece of property formerly part of Black River and located along the border shared by Iroquois Falls and Black River.

[35] Black River would vote in favour of the Iroquois Falls proposal, thereby assuring the double majority needed under the regulation.

[36] Black River would also submit a restructuring proposal involving:

-- the annexation by Black River of the Townships;

-- the annexation by Black River of a piece of property formerly part of Iroquois Falls and located along the border shared by Iroquois Falls and Black River.

[37] Iroquois Falls would vote in favour of this proposal, thereby assuring the double majority needed under the regulation.

[38] Mr. Buchan and Mr. Eaton understood that under the scheme they devised, the town councils of Iroquois Falls and Black River would constitute a double majority for the purposes of the restructuring proposals submitted by each. The views of the electors in the unorganized territories east of Black River and north of Iroquois Falls would be irrelevant to whether the proposals went ahead.

[39] By September 3, 1996, Mr. Eaton and Mr. Buchan had worked out the details of the "land swap" between the two municipalities. Iroquois Falls would give up half a lot occupying one quarter of a square mile in Clergue Township to Black River as part of Black River's restructuring proposal. There was one resident on that lot. In exchange, Black River would give up two part lots in Walker Township to Iroquois Falls as part of Iroquois Falls' restructuring proposal.

[40] At a closed meeting of the Black River town council on September 11, Mr. Eaton presented a report setting out a restructuring proposal which contemplated the transfer of a portion of Clergue Township to Iroquois Falls and the annexation of the Townships. The town council instructed Mr. Eaton to prepare a proposal for submission to the Minister in accordance with the plan he had outlined at the meeting. By the end of September, that proposal had been drafted and Iroquois Falls had confirmed its willingness to exchange the part lot in Clergue Township for the two part lots in Walker Township. A draft of the Black River restructuring proposal was sent to the Minister on October 11, 1996.

[41] Residents in the Townships and the businesses operating there first learned of the restructuring proposal in early October. Prior to that time, there had been no consultation with those living or working in the Townships and no attempt to elicit their views with respect to the proposed reorganization. A public meeting was held on October 16, 1996 to discuss the proposal. Objections to the proposal were raised by those living and working in the Townships.

[42] On October 28, 1996, a public meeting of the Black River town council was held devoted exclusively to the proposed restructuring. Objections were raised at this meeting to the proposal.

[43] On November 4, 1996, the Black River town council enacted By-law 2021-96 supporting the restructuring proposal in its entirety. As indicated above, that proposal married two totally unrelated annexations, one involving a one-quarter square mile part of a lot in Clergue Township and the other involving 450 square miles in the Townships. The proposal noted:

A double majority has been obtained by having the support of the councils from the town of Black River-Matheson and the town of Iroquois Falls.

[44] At the time Black River submitted the proposal and asserted that it had achieved a double majority, no vote had been held in the unorganized townships. A vote was held on December 1, 1996. The vote was 41 against and 1 for the restructuring proposal.

[45] Representatives of the residents of the unorganized townships wrote to the Minister urging him to reject the proposal, contending that it had been "conceived in secrecy and executed in bad faith". The Minister rejected those submissions, indicating that the proposal met the requirements of the Act. The proposal, with minor changes, was approved by the Minister on December 27, 1996.

[46] Mr. Buchan testified that the agreement between Iroquois Falls and Black River to "swap" properties as part of their restructuring proposals would circumvent the need for a vote on those proposals in the unorganized townships. Mr. Eaton agreed that one of the benefits of the land swap agreement was that Black River would acquire "very desirable, unorganized territory". The following exchange occurred in his cross- examination:

Q. And the benefit of that swap, was that both towns could acquire very desirable unorganized territory, correct?

A. One of the benefits, yes.

Q. Without the need for a vote, by the residents of the unorganized territory getting in the way of the restructuring proposal. Correct?

A. What's your question?

Q. Wasn't one of the benefits of the swap that the approval of the restructuring proposals would not be contingent upon, or require the vote of the residents of the unorganized territory?

A. The legislation was wrote that way, yes. [sic]

Q. And that's what you understood, and the township council understood, correct?

A. Correct.

(Emphasis added)

[47] In his testimony, Mr. Eaton suggested that there were certain service benefits which flowed from Black River's acquisition of part of a lot in Clergue Township. Those benefits related primarily to the responsibility for ploughing a small section of highway. According to Mr. Buchan, the net effect on revenues and expenditures flowing from the exchange of properties between the municipalities was some $600. Mr. Buchan could not recall whether the net gain flowed to Black River or Iroquois Falls. According to him, it did not matter.

[48] In his submissions to this court, counsel for Black River argued that the "land swap" served legitimate municipal purposes. He conceded, however, that the only reasons the "land swap" and the annexation of the Townships were put forward as part of the same restructuring proposal was to allow Black River to satisfy the double majority requirement in the regulation without gaining the approval of a majority of the electors in the Townships.

[49] Counsel for the respondents contended that the "land swap", which he colourfully described as "nothing more than trading an oak tree for part of a farmer's field", had no bona fide municipal purpose, was not a restructuring in any real sense and was done solely to deny the residents of the Townships a say in the annexation of those Townships by Black River.

IV.

[50] The trial judge found Mr. Buchan to be a more credible witness than Mr. Eaton. Where their evidence conflicted, he preferred that of Mr. Buchan. His findings of fact included the following:

-- The two administrators (Eaton and Buchan) adhered to their instructions and found a way of transferring property to utilize the double majority;

-- Black River and Iroquois Falls entered into a "gentlemen's agreement" using the mutual support of each other to ensure a double majority vote in support of the restructuring proposals of each;

-- There was no credible evidence that service issues motivated the proposal that Iroquois Falls and Black River exchange properties;

-- The property exchange was agreed upon only for the purposes of defeating the "democratic process".

[51] My review of the record satisfies me that all of these findings are fully justified and must be accepted in this court.

V.

[52] The respondents rely on s. 136 of the Municipal Act, which provides that a court may quash a by-law "for illegality". Section 136 of the Municipal Act does not mandate a judicial inquiry into the merits, from a policy perspective, of by-laws or resolutions. Although some of the evidence and argument advanced in this court was directed at the soundness of the restructuring proposal advanced by Black River, it is no part of this court's function to determine whether that proposal operated to the advantage or disadvantage of those affected by it. This court has on two occasions refused to entertain arguments aimed at the wisdom of restructuring proposals advanced under s. 25.2 of the Municipal Act or restructuring orders made under s. 25.3: TransCanada Pipelines Ltd. v. Beardmore (Township) (2000), 2000 5713 (ON CA), 186 D.L.R. (4th) 403 at p. 449 (Ont. C.A.), leave to appeal to S.C.C. refused [2000] S.C.C.A. No. 2764; Bruce (Township) v. Ontario (Minister of Municipal Affairs and Housing) (1998), 1998 7155 (ON CA), 41 O.R. (3d) 309 at p. 320, 164 D.L.R. (4th) 443 (C.A.).

[53] The legality of the by-law and resolution passed by Black River turns on whether Black River had the statutory authority to pass the resolution and by-law. Municipalities are creatures of statute. They can exercise only those powers conferred on them by provincial legislation: R. v. Greenbaum, 1993 166 (SCC), [1993] 1 S.C.R. 674 at pp. 687-88, 100 D.L.R. (4th) 183. The principle is described in these terms by I. Rogers, The Law of Canadian Municipal Corporations, 2d ed., looseleaf (Scarborough: Carswell, 1971) at p. 344:

Although it is said that by-laws are similar to statutes, they are still 'inferior' laws and cannot usurp the authority of or be contrary to higher law. Since a by-law is a form of local legislation, it is for this reason that it must not be at variance with provincial legislation. It is a cardinal rule of municipal law that all by-laws are subject to the general law of the realm and are subordinate to it and any by-laws which are repugnant to or inconsistent with general provincial legislation are void and of no effect . . .

[54] A municipality is either empowered to pass a particular by-law or it is not. The standard of review on this question is one of correctness: Nanaimo (City) v. Rascal Trucking Ltd., 2000 SCC 13, [2000] 1 S.C.R. 342 at p. 355, 76 B.C.L.R. (3d) 201. In determining whether a municipality is empowered to pass a certain by-law, the court must "look to the purpose and wording of the provincial enabling legislation": R. v. Greenbaum, supra, at p. 688.

[55] Counsel for Black River submits that the restructuring proposal put forward by Black River complied with the requirements of s. 25.2 of the Municipal Act and relevant regulations, including the double majority requirement. Counsel relies on the fact that the Minister reviewed the proposal and specifically found that it complied with the legislation. Counsel submits that compliance with the letter of the relevant legislation is all that is needed to bring Black River's resolution and by-law within its statutory powers.

[56] There would be considerable force to this last submission if Black River was a private entity seeking to order its affairs so as to take advantage of a "loophole" in legislation.

[57] As Morden J.A. said in Niagara-on-the-Lake (Town) v. Gross Estate (1993), 1993 8509 (ON CA), 12 O.R. (3d) 1 at p. 8, 100 D.L.R. (4th) 39 (C.A.):

It is not evasion to do something contrary to the policy of a statute if the conduct is not prohibited by its terms, express or implied.

[58] The statement made by Morden J.A. was directed to a case in which an individual had developed a complicated scheme to avoid the requirements of registered plans of subdivision. [See Note 2 at end of document]

[59] Municipalities must, however, do more than conform with the strict letter of the law in order to remain within the boundaries of their lawmaking powers. As indicated in R. v. Greenbaum, supra, the purpose of the provincial enabling legislation also constrains the municipal lawmaking power. In Rogers, The Law of Canadian Municipal Corporations, supra, at p. 1021, it is put this way:

A by-law which is ostensibly within the authority of a council to enact may be set aside or declared invalid if its real purpose and attempt is to accomplish by indirect means an object which is beyond its authority. . . . Hence, the court must always 'in examining a by-law, see that it is passed for the purpose allowed by a statute and that such purpose is not resorted to as a pretext to cover an evasion of a clear statutory duty'. [Quoting Scott v. Tilsonburg (Town) (1886), 13 O.A.R. 233 (C.A.) at p. 237]

(Emphasis added)

[60] This proposition finds strong support in Ottawa-Carleton (Regional Municipality) v. Marlborough (Township) (1974), 1974 520 (ON SC), 2 O.R. (2d) 297, 42 D.L.R. (3d) 641 (H.C.), affd (1974), 5 O.R. (2d) 258n, 1974 1378 (ON CA), 50 D.L.R. (3d) 68n (C.A.). The Township of Marlborough had adopted a series of resolutions accepting the dedication of several small strips of land by various private landowners. The stated purpose of the conveyances was to take advantage of a perceived loophole in the Planning Act, R.S.O. 1970, c. 349. The Township wanted to open up the area for development to increase its tax base and chose to do so in a way which avoided the policies underlying provincial legislation. The effect of the resolutions and the conveyances they authorized was to create some 100 building lots without obtaining either the consent of the Land Division Committee or the approval of a plan of subdivision.

[61] Lacourcière J. rejected the contention that the legality of the resolutions turned exclusively on whether they conformed with the letter of the law. He said at pp. 301-02:

The provincial Legislature in enacting the Planning Act, has legislated a comprehensive scheme for the orderly development and subdivision of land in Ontario. It is not for a local authority, which derives its powers from the legislature of the province, to employ these powers in a manner inconsistent with the policy of the Legislature as expressed in provincial legislation.

(Emphasis added)

[62] After reviewing the relevant authorities, Lacourcière J. said, at pp. 304-05:

. . . where the avowed purpose of the resolutions in question is to substitute for the system laid down by the Planning Act for the orderly subdivision of land, a system devised by the Township Council, the Court cannot forebear quashing the resolutions which, in effect, accomplish the subdivision of land in a manner decidedly at variance with the statute of the Province, and without reference to, and in defiance of, the decision of the land division committee, which the Legislature intended should form part of the system.

A by-law must be passed for the purpose allowed by the statute, and council must not seek, in enacting a by-law, to accomplish indirectly that which cannot be directly accomplished in the manner provided by the Legislature.

(Emphasis added)

[63] Lacourcière J. quashed the resolutions. His decision was affirmed without reasons in this court. His reasons also received the imprimatur of this court in Stadium Corp. of Ontario Ltd. v. Toronto (City) (1993), 1993 8681 (ON CA), 12 O.R. (3d) 646 at p. 651, 101 D.L.R. (4th) 614 (C.A.).

[64] While individuals may order their affairs to comply with the letter, if not necessarily the spirit, of legislation, municipalities must bring themselves within both the spirit and the letter of the empowering provincial legislation. A by-law that finds its statutory justification in specific provincial legislation must be consistent with both the policy and the language of that legislation. A by-law that offends the policy underlying the operative statute is beyond the powers of a municipality and is, therefore, illegal within the meaning of s. 136 of the Municipal Act.

[65] Black River purported to advance a restructuring proposal under s. 25.2 of the Municipal Act. That section contemplates proposals which have the support of the entities affected by them (s. 25.2(2)(b)). The regulations and the Minister's guide to municipal restructuring make it abundantly clear that a proposal made under s. 25.2 must be the product of an inclusive, consultive process which engages those affected by the proposal. The proposal must have the support of a majority of both the localities affected by it and the total electors in the localities affected by it. The Minister's guide speaks of "negotiations with the affected parties to achieve the best possible form of local governments for the area as a whole". In the parlance of the corporate world, s. 25.2 contemplates consensus-driven mergers or amalgamations and not hostile takeovers.

[66] Had Black River proceeded with a simple annexation of the Townships, it would have needed the support of a majority of the electors in the Townships. That support would not have been forthcoming. Black River avoided the need to consult with the electors in the Township or to even try and gain their support to the proposal by joining in a single restructuring proposal the proposed annexation of the Townships with a totally unrelated transaction, the "land swap" with Iroquois Falls.

[67] Meehan J.'s conclusion that the "land swap" was nothing more than a means to circumvent gaining the support of the electors in the Townships to the proposed annexation is fully supported by the evidence. By itself, the "land swap" serves none of the purposes of restructuring identified in s. 25.1 of the Act. It does not "facilitate municipal restructuring over large geographic areas" (s. 25.1(b)). Nor does it constitute "municipal restructuring of a significant nature" (s. 25.1(c)). An exchange between municipalities of two small pieces of property involving a net gain to one of the municipalities of some $600 is hardly what the legislature could have had in mind in enacting s. 25.2 of the Municipal Act. The "land swap" was a device used to permit Black River to annex the Townships without seeking the approval of the electors in the Townships.

[68] Even if one could describe the "land swap" as legitimate restructuring, there was no connection between it and the annexation of the 450 square miles encompassed in the Townships. Even on counsel for the appellant's submission, the two transactions were joined in a single proposal solely to allow Black River to annex the Townships without the approval of a majority of the electors in the Townships.

[69] The restructuring proposal reflected in the by-law and resolution of Black River was inconsistent with and destructive of the policy underlying s. 25.2 of the Municipal Act. It was nothing more than an attempt to unilaterally annex the Townships under the guise of a restructuring proposal. In the words of Lacourcière J. in Ottawa-Carleton (Regional Municipality) v. Marlborough (Township), supra, at p. 305, Black River tried:

to accomplish indirectly that which cannot be directly accomplished in the manner provided by the legislature.

[70] The by-law and resolution of Black River supporting the restructuring proposal were beyond the powers of the Black River town council.

VI.

[71] Counsel for Black River also argued that the order of the Minister dated December 27, 1996 made the legality of the by-laws and resolutions irrelevant. He submitted that once the Minister issued his order, the validity of the by-law and resolutions became moot. He also submitted that the respondents had not moved with due diligence to attack the resolution and by-law and consequently should be denied any remedy to which they might otherwise be entitled.

[72] I would reject both submissions. For better or worse, the proceedings referable to the determination of the validity of the Minister's order have been severed from this proceeding. The validity of that order when passed, and the effect of the invalidity of the resolution and by-law passed by Black River on the continued validity of the Minister's order must be determined in the proceeding in which the Minister's order is challenged.

[73] It cannot be denied that the proceedings challenging the by-law and resolution took some time to reach trial. While delay can disentitle an applicant to declaratory relief, the record does not establish the kind of delay which should disentitle the respondents to an order declaring the by-law and resolution invalid. The question of delay may arise again in the challenge to the validity of the Minister's order.

VII.

[74] The by-law and resolution passed by the Black River town council were ultra vires, and were properly quashed by Meehan J. I would affirm his judgment as it applies to Black River and dismiss the appeal with costs.

Order accordingly.

Notes

Note 1: O. Reg. 216/96 was amended by O. Reg. 422/96, s. 3. The amendments do not alter the substance of the regulations and the parties have referred throughout to O. Reg. 216/96.

Note 2: This case is one of several in which the court has struggled with the difficult concept of a "fraud upon a statute". See also Ontario (Attorney General) v. Yeotes (1981), 1981 1959 (ON CA), 31 O.R. (2d) 589 at p. 608, 120 D.L.R. (3d) 128 (C.A.); Re Certain Titles to Land in Ontario, 1973 609 (ON CA), [1973] 2 O.R. 613 at p. 640, 35 D.L.R. (3d) 10 (C.A.).