COURT OF APPEAL FOR ONTARIO

CITATION: Durham (Regional Municipality) v. Oshawa (City), 2013 ONCA 573

DATE: 20130925

DOCKET: C56297

Weiler, Sharpe and Rouleau JJ.A.

BETWEEN

Regional Municipality of Durham

Plaintiff (Respondent)

and

The Corporation of the City of Oshawa

Defendant (Appellant)

Barnet H. Kussner and Tiffany Tsun, for the appellant

John Harild and Courtney Raphael, for the respondent

Heard: April 18, 2013

On appeal from the judgment of Justice Janet Wilson of the Superior Court of Justice, dated October 31, 2012, with reasons reported at 2012 ONSC 5803, 113 O.R. (3d) 54.

Rouleau J.A.:

OVERVIEW

[1] The issue raised in this appeal is the application of the two-year limitation period in the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, to a dispute involving the transfer of responsibility for public transit from a local municipality to a regional municipality.

[2] In March 2011, the Regional Municipality of Durham (Durham) issued a statement of claim against the City of Oshawa (Oshawa) seeking relief under the terms of a 2004 by-law that transferred responsibility for Oshawa’s public transit system to Durham. Oshawa responded with a motion for summary judgment seeking to dismiss Durham’s claim on the basis that it was commenced after the limitation period had expired. The motion was dismissed and Oshawa appeals from that dismissal.

FACTS

[3] Oshawa is one of eight lower-tier municipalities located in Durham.

[4] In November 2004, Oshawa received a report from Durham’s Commissioners of Planning, Finance and Works. The report recommended transferring the responsibility for operating public transportation systems from the eight lower-tier municipalities to the upper-tier municipality of Durham. Such a transfer is contemplated by s. 189 of the Municipal Act, 2001, S.O. 2001, c. 25, which provides for the transfer of power and responsibility from a lower-tier municipality to an upper-tier municipality pursuant to a by-law.

[5] The proposal in the report included as one of the terms of transfer that:

The amount of any unfunded liabilities existing at the Effective Date shall be determined through negotiations between the Region and the lower tier municipalities to ensure that the Region receives the necessary funding from the transferring corporation or agency.

[6] In response to the proposed terms of transfer, Oshawa council called a special meeting on December 9, 2004. At the meeting it passed a resolution supporting the transfer of its municipal transit services to Durham “in principle”. However, this support was subject to the qualification that “any unfunded liabilities be assumed by the Region of Durham as a condition of the transfer to Regional Operations.” This qualification reflected Oshawa’s concern about being liable for significant unfunded liabilities that were owed primarily to unionized transit employees whose employment would be transferred to Durham.

[7] On December 15, 2004, Durham Regional Council (Durham council) considered the proposed transfer. Representatives of the lower-tier municipalities sit on the Durham council. Oshawa’s representatives on Durham council were thus aware of and involved in the deliberations of Durham council throughout the transfer process.

[8] Oshawa’s concern with respect to unfunded liabilities was discussed at the Durham council meeting. An Oshawa councillor proposed amending the draft language concerning unfunded liabilities. The proposed amendment read:

The amount and future payments of any unfunded liabilities existing at the Effective Date shall be determined through negotiations between the Region and the lower-tier municipalities.

[9] The Oshawa councillor explained his reason for proposing the amendment as follows:

[I]f you’re truly entering a partnership through negotiation, you don’t reach your conclusion in your operative clause. You actually allow everything to be put on the table, and the amounts of unfunded liabilities, review a number of scenarios as to how they’re going to be paid, and negotiate, and then bring that back for a recommendation. If you didn’t do this change, then the only thing that’s negotiated, and I stress this, the only [thing] that’s negotiated between the local tier and the regional tier would be the amount of necessary funding to be transferred between the lower tier and the upper tier.

So I think if you’re going to be truly a partner, open it up, allow us to look at all types of options and credits, and then that might help us resolve the issue.

[10] Durham council approved the proposed amendment and adopted By-Law 85-2004 (By-Law), as amended, transferring the responsibilities for public transportation from the lower-tier municipalities to Durham. The By-Law had an “Effective Date” of January 1, 2006. Oshawa council approved the By-Law on February 7, 2005.

[11] Section 2 of the By-Law addresses how the transfer of assets, liabilities and personnel is to be effected. Section 2(k) imposes an obligation to negotiate the amount and future payments of any unfunded liabilities. Section 2(o) provides for a right to request arbitration of unresolved matters under the By-Law if no agreement has been reached through negotiations between Durham and the lower-tier municipalities by April 1, 2006. The full text of the relevant provisions are as follows:

2. On the Effective Date, all rights and obligations and all assets and liabilities of the lower-tier municipalities pertaining to or used for Public Transportation Systems including all real and personal property and all interests and obligations in any agreement, shall be transferred to the Region subject to the following terms and conditions:

(k) The amount and future payments of any unfunded liabilities existing at the Effective Date shall be determined through negotiations between the Region and the lower-tier municipalities.

(o) During the Transition Period,[^1] the Region and the lower-tier municipalities shall negotiate and enter into agreements for the transfer of all assets, liabilities and personnel on terms that are consistent with this by-law. Any matters not agreed to within three (3) months of the Effective Date may, at the request of the Region or a lower-tier municipality, be determined by arbitration under the provisions of the Ontario Arbitrations Act.

[12] Implementing the transfer of public transit under the By-Law involved complex negotiations between Durham and the eight local municipalities. Many issues had to be resolved such as the transfer of vehicles, inventory and equipment, resolving issues related to the provincial gas tax, transit reserves and development charges, arranging for the transfer or leasing of transit-related facilities, and other issues such as right of way agreements, insurance and unfunded liabilities.

[13] The allocation of responsibility for employee-related unfunded liabilities was a most difficult issue. As a first step, Oshawa and Durham agreed to retain an actuary to determine the amount of these unfunded liabilities. It is undisputed that the amount of unfunded liabilities in issue between the parties is $8.9 million.

[14] By April 1, 2006 – the date specified in s. 2(o) of the By-Law as the earliest date for requesting arbitration on outstanding matters – staff of Durham and Oshawa had been unable to agree on responsibility for these unfunded liabilities. Neither Durham nor Oshawa requested arbitration, and negotiations of that issue continued. Indeed, as pointed out by the motion judge, the financial statements related to the employee-related unfunded liabilities were not available prior to April 1, 2006, and so resolution of the issue was impossible before that date: see para. 47 of the motion judge’s reasons.

[15] By June 1, 2007, many of the transfer issues had been resolved. On that day, Mr. Robert J. Clapp, the Treasurer and Commissioner of Finance of Durham, sent Mr. Rick Stockman, the Treasurer of Oshawa, a facsimile containing a table entitled “Summary of Transit Transition Issues”. The table summarized the transition issues that had been resolved and those that were still outstanding. In a covering letter, Mr. Clapp asked Mr. Stockman to look over the table for accuracy, provide any necessary clarifications, and indicate whether he agreed or disagreed with the summary of the current status of a given issue by marking the box marked “agree” or “disagree”.

[16] The table identifies one of the issues as “Unfunded Liabilities”, which is described as follows:

Per 2005 OTC [Oshawa Transit Commission] Financial Statements, OTC employee related unfunded liabilities total $8.9 million as of December 31, 2005. Region will be seeking funding on a multi-year payment schedule from the City to cover accumulated unfunded liabilities.

[17] On June 5, 2007, Mr. Stockman sent the completed table back to Durham staff. Regarding the issue of “Unfunded Liabilities”, he did not check the “agree” or the “disagree” box, but rather he wrote in the comments section of the table: “Transfer by-law directs that the Region will assume all liabilities.” In examination on his affidavit, Mr. Stockman testified that he and his staff did not put an “X” in either box because “we could not be in a position to agree or disagree. That would have to be a council decision.” Mr. Clapp similarly testified: “[W]e knew that we couldn’t resolve it [the unfunded liabilities issue] at the staff level. It was a political decision to be made.”

[18] Shortly thereafter, Mr. Clapp drafted a report to the Finance and Administration Committee of Durham, a standing committee of Durham council. The June 2007 report, entitled “Outstanding Transit Transition Issues”, stated that Durham and Oshawa staff were “not in a position to agree” on the issue of unfunded employee-related liabilities. The report recommended that Durham council refer this issue to an independent third party arbitrator in accordance with the By-Law. Mr. Clapp sent a copy of the report to Mr. Stockman.

[19] The June 2007 report was initially on the agenda for the Finance and Administration Committee meeting to be held on June 13, 2007. However, it was pulled from the agenda prior to the meeting and was not, therefore, considered by the Committee or by Durham council. All members of Durham council had been provided with a copy of the report before it was pulled from the agenda.

[20] Between June 2007 and April 2009, staff of Durham and the lower-tier municipalities had further discussions seeking to resolve other outstanding transition issues. There were no discussions at the staff level concerning unfunded liabilities involving Oshawa during this period.

[21] On April 15, 2009, a report prepared by Mr. Clapp was presented to Durham’s Finance and Administration Committee. The report recommended ratifying the minutes of settlement between Durham and the City of Pickering. The report also recommended that Durham council refer the issue of unfunded liabilities involving Oshawa to arbitration within the next 90 days in accordance with the By-Law. By this time, disputes concerning unfunded liability issues involving two other local municipalities had been resolved.

[22] After the report had gone to Durham’s Finance and Administration Committee but before it was presented to Durham council, Oshawa council passed a resolution dated April 20, 2009 denying responsibility for the unfunded liabilities. The resolution denied responsibility on the basis that Durham had assumed liability for the unfunded liabilities on January 1, 2006. The resolution also stated that the limitation period for referring an unresolved matter to arbitration had expired on March 31, 2008.

[23] Two days later, on April 22, 2009, Durham council formally adopted a resolution referring the unfunded liabilities issue to arbitration within 90 days.

[24] On May 19, 2009, Oshawa council adopted a further resolution rejecting the notion that the unfunded liabilities issue could be referred to arbitration, noting that “the time horizon of using an arbitrator has passed.”

[25] On October 14, 2009, Durham council adopted a resolution to initiate legal proceedings against Oshawa to compel its participation in an arbitration of the issue of responsibility for the unfunded liabilities.

[26] Another issue between Durham and Oshawa that was the subject of continuing negotiations in the latter part of 2009 involved the leasing of a former Oshawa transit facility. On November 9, 2009, Oshawa council resolved that it was prepared to lease one of its former transit facilities to Durham for nominal rent on the condition that Durham would deliver a “full and final release respecting the Transfer By-Law”. Alternatively, the proposal was that Durham would lease the facilities from Oshawa for $440,000 per year for five years with specified renewal terms. In other words, Oshawa offered to lease the disputed transit facility for a nominal rent on condition that Durham drop its request that Oshawa be responsible for the unfunded liabilities under the By-Law.

[27] Durham did not accept either alternative and negotiations surrounding the transit facility continued. In December 2009, the parties agreed that the transit facility would be transferred to Durham outright. Oshawa council stipulated in a resolution approving the transfer of the facility to Durham that the agreement was “not pursuant to Regional By-Law 85-2004 and [was] without prejudice to [Oshawa’s] right to defend any legal proceedings”.

[28] On March 22, 2011, Durham commenced a civil action against Oshawa for payment of unfunded liabilities in the amount of $8.9 million. Durham based its claim on the terms of the By-Law.

[29] Oshawa brought a motion for summary judgment pursuant to Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, seeking the dismissal of Durham’s action. Oshawa argued that the claim was commenced after the expiry of the two-year limitation period prescribed by the Limitations Act. Oshawa also contended in its notice of motion that Durham’s claim is tantamount to a claim for liquidated damages arising from an alleged breach of a by-law, for which there is no basis under the By-Law and no cause of action known to law.

[30] On the motion, the parties agreed that if Oshawa’s summary judgment motion was dismissed, Durham’s action would be stayed and the parties would proceed to binding arbitration. The motion judge did not consider whether Durham’s claim has any chance of success. The parties on appeal did not raise this issue and, accordingly, I do not address it.

THE MOTION JUDGE’S DECISION

[31] The motion judge dismissed Oshawa’s motion for summary judgment. She found that the two-year limitation period did not begin to run against Durham until April 21, 2009. The motion judge indicated that this was the date when Durham received notification that Oshawa council had passed a resolution denying responsibility for the unfunded liabilities and taking the position that the limitation period for referring an unresolved matter to arbitration had expired. The motion judge found that, because municipal staff cannot bind a municipality, the limitation period cannot be triggered until municipal council formally confirms its position denying liability: see the motion judge’s reasons, at para. 52. She therefore concluded that Durham’s action, initiated on March 22, 2011, was commenced within the applicable limitation period.

ISSUE

[32] The issue in this appeal involves an interpretation of the discoverability principle enshrined in s. 5(1) of the Limitations Act. Specifically, the issue is as follows: when did the limitation period in the Limitations Act begin to run on the facts of this case having regard to the definition of when a claim is “discovered” in s. 5(1) of the Act?

RELEVANT STATUTORY PROVISIONS

[33] The Limitations Act provides that a proceeding must be commenced within two years of the day when the claim was discovered. Section 4 of the Act states:

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

[34] Section 5(1) of the Act explains when a claim is “discovered” within the meaning of s. 4. This provision states:

5. (1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a). [Emphasis added.]

[35] It is common ground between the parties that at no time did they enter into a tolling or standstill agreement under s. 11 of the Limitations Act, nor did they enter into an agreement under s. 22 of the Limitations Act to suspend or extend the two-year limitation period.

[36] Section 52(1) of the Arbitration Act, 1991, S.O. 1991, c. 17, applies the law with respect to limitation periods to an arbitration as if the arbitration were an action and a claim made in the arbitration were a cause of action. No issue was taken that the limitation period for arbitration is two years.

OSHAWA’S POSITION

[37] Oshawa points out that the By-Law provides that the parties could send any outstanding issue to arbitration by April 1, 2006, three months after the effective date of the transfer of responsibility. Oshawa argues that by April 1, 2006, Durham staff knew that there was no agreement on the issue of unfunded liabilities and also knew that Oshawa staff’s position was that Durham had agreed to assume unfunded employee liabilities under the By-Law. Accordingly, Oshawa contends that the limitation period for arbitrating or commencing a civil claim for payment of unfunded liabilities began on April 1, 2006 and expired on April 1, 2008.

[38] In the alternative, Oshawa argues that even if the discoverability principle in s. 5(1) of the Limitations Act applies, it was by no later than June 2007 that a reasonable person exercising due diligence would have known of a potential claim against Oshawa for the unfunded liabilities. By June 2007, it was clear to Durham council that Oshawa would not agree to assume the unfunded liabilities. This position was confirmed and acknowledged by Durham in a staff report prepared in June 2007 for presentation to Durham council. That report recommended that the Oshawa unfunded liability issue, as well as an outstanding unfunded liability issue with the Town of Ajax, be referred to arbitration.

[39] In Oshawa’s view, the fact that the report was pulled and was not formally presented to Durham council is irrelevant. The report would have been seen by the members of Durham council and it clearly showed that no agreement on the unfunded liabilities issue could be reached. Further proof that the dispute had crystallized can, in Oshawa’s submission, be found in the fact that, after June 2007, the issue of unfunded liabilities was not discussed at the staff level.

[40] In Oshawa’s view, the motion judge erred in concluding that Oshawa had to pass a by-law or resolution denying liability in order for the limitation period to begin to run. Oshawa thus contends that the limitation period had expired long before Durham issued its statement of claim in 2011.

ANALYSIS

[41] I do not accept either of Oshawa’s arguments concerning when the limitation period was triggered on the facts of this case.

[42] It is important to recognize that we are not dealing with a commercial transaction. Rather, this case involves a transaction governed by a municipal by-law that was adopted pursuant to the authority granted to municipalities by s. 189 of the Municipal Act. This provision permits passing a by-law that transfers a lower-tier municipal power to an upper-tier municipality, provided that the statutory conditions set out in s. 189(2) are met.

[43] The By-Law authorizing the transfer of responsibility for regional transit from the eight lower-tier municipalities to Durham contains little detail regarding how the complex transfer of rights, obligations, assets and liabilities was to be accomplished. Much was left to negotiations between the lower-tier municipalities and Durham. Some aspects of these negotiations were straightforward. Others were not.

[44] The issue underlying Durham’s action was not straightforward. Although the By-Law provided that the “liabilities of the lower-tier municipalities pertaining to or used for Public Transportation Systems” are to be transferred to Durham, the By-Law further stated that this transfer was subject to the “amount and future payments of any unfunded liabilities existing at the Effective Date” being negotiated between the parties. In effect, who was to bear the burden of the unfunded liabilities was to be the subject of negotiations.

[45] With respect to the unfunded liabilities, the By-Law thus did not create a debt or impose a specific obligation to pay as between Durham and Oshawa. The By-Law simply imposed an obligation on Oshawa and Durham to negotiate this issue.

[46] Moreover, ss. 2(k) and (o) of the By-Law left the negotiation of the unfunded liabilities issue to be carried out within the context of the broader negotiations over the other issues that required agreement between Durham and the lower-tier municipalities. As the Oshawa councillor who proposed the amended wording in s. 2(k) of the By-Law explained in the Durham council meeting, this provision allows:

…everything to be put on the table, and the amounts of unfunded liabilities, review a number of scenarios as to how they’re going to be paid, and negotiate, and then bring that back for a recommendation … [I]f you’re going to be truly a partner, open it up, allow us to look at all types of options and credits, and then that might help us resolve the issue.

[47] In other words, in allowing other issues such as the transfer of buildings, land, vehicles, reserve funds and the like to be negotiated by the parties, the By-Law was intended to facilitate compromise on the unfunded liabilities issue.

[48] In my view, the inability of Oshawa and Durham staff to resolve the unfunded liabilities issue by April 1, 2006 did not trigger the running of the limitation period on that date. The By-Law uses permissive rather than mandatory language, stating that either party “may” refer unresolved matters to arbitration by April 1, 2006. Thus, the By-Law simply provides that arbitration is an option if any matter could not be resolved through negotiations by April 1, 2006. The By-Law did not impose a deadline by which time negotiations must come to an end and arbitration must be undertaken.

[49] Nor do I accept Oshawa’s alternative position that the limitation period was triggered in June 2007, when Durham staff forwarded to Oshawa staff a report stating that “regional and area municipal staff are not in a position to agree on this [unfunded liabilities] issue”. This statement is consistent with the testimony given by Oshawa’s treasurer, Mr. Stockman, to the effect that, in June 2007, he was not “in a position to agree or disagree” on the unfunded liability issue and that this issue “would have to be a council decision”. In other words, only Oshawa council could compromise on this issue.

[50] As explained by Mr. Clapp, Durham staff understood this statement in the report to mean that Oshawa staff “did not have any marching orders” with respect to the unfunded liabilities issue. The unfunded liabilities issue was an issue that Oshawa council needed to resolve with Durham council. Durham staff therefore operated on the basis that this issue should be left until the negotiations at the staff level had run their course. Referring it to council would then afford Durham and Oshawa council the opportunity to decide whether a compromise on the unfunded liabilities issue could be reached.

[51] The June 2007 report was not, as Oshawa suggests, an acknowledgment that a dispute with Oshawa had crystallized and a compromise on the unfunded liabilities issue was not possible. In my view, the decision to withhold the tabling of the report at the June 2007 meeting of Durham council reflected that the negotiations prescribed by the By-Law had not run their course. The fact that Oshawa and Durham staff made no attempt to resolve the unfunded liabilities issue after June 2007 simply reflected their understanding that this issue could only be resolved at the council level and that it should go to council only after staff had resolved as many of the other transfer issues as possible.

[52] In the end, neither Oshawa nor Durham council proposed a compromise to the unfunded liabilities issue. Instead, as noted above, Oshawa council adopted a resolution on April 20, 2009 denying responsibility for the unfunded liabilities and stating that the limitation period for referring unresolved matters to arbitration had expired on March 31, 2008. This resolution was prompted by a Durham staff report dated April 15, 2009, recommending that the unfunded liabilities issue involving Oshawa be referred to arbitration within 90 days. This recommendation was adopted by Durham council on April 22, 2009.

[53] The resolution adopted by Oshawa council on April 20, 2009 informed Durham council that the unfunded liabilities issue was no longer negotiable and that an impasse had been reached. Durham council now knew that the negotiations prescribed by s. 2(k) of the By-Law would not bear fruit and had come to an end. Thus, in my view, by April 20, 2009, Durham council would reasonably have known that, if it wished to seek to hold Oshawa liable for all or part of the unfunded liabilities, it would need to pursue arbitration or commence a civil proceeding. In other words, the claim was “discovered” in accordance with the definition of s. 5(1) of the Limitations Act as of that date. Accordingly, Durham’s statement of claim issued on March 22, 2011 was brought within the two-year limitation period prescribed by the Limitations Act.

[54] Although the motion judge’s reasons could be taken as suggesting that a municipal council must pass a formal resolution disputing a claim in order to trigger the limitation period under the Limitations Act, I wish to make it clear that I do not agree with this view as a general statement of law. It is only on the particular facts of this case that the limitation period was triggered by Oshawa council’s passage of a formal resolution denying responsibility for the unfunded liabilities.

[55] In summary, the terms of the By-Law that gave rise to the dispute between Oshawa and Durham did not create a specific debt or obligation as between the parties. Rather, it imposed on the parties an obligation to negotiate the issue underlying Durham’s eventual claim for monetary relief. The By-Law allowed the parties to submit any outstanding dispute to arbitration, but it did not require them to elect arbitration, let alone to elect arbitration by any particular date. Accordingly, it was only when Oshawa council passed a formal resolution refusing to continue the negotiations mandated by the By-Law and refusing to arbitrate that Durham council ought reasonably to have known that a civil proceeding was the appropriate means to seek to remedy the loss or damage it alleges to have suffered.

[56] Finally, I note that nothing in these reasons should be taken as addressing or resolving the extent to which Oshawa or Durham, or both, are responsible for the unfunded liabilities referred to in the By-Law.

CONCLUSION

[57] Although I would do so for reasons that are different from the motion judge, I conclude that Durham’s claim was commenced within the two-year limitation period, that there is no genuine issue for trial on the limitation issue, and that Oshawa’s summary judgment motion was properly dismissed on this ground.

[58] As a result, I would dismiss the appeal. As agreed by the parties, I would make no order as to costs.

“Paul Rouleau J.A.”

“I agree K.M. Weiler J.A.”

“I agree Robert J. Sharpe J.A.”

Released: September 25, 2013

[^1]: The By-Law defines the “Transition Period” as the period of time between the date that the By-Law received the triple approval required by s. 189(2) of the Municipal Act, which was February 5, 2005, and the Effective Date, which was January 1, 2006.