Court File and Parties
Court of Appeal for Ontario Citation: Ouest (Municipalité), 2021 ONCA 544 Date: 2021-07-28 Docket: C67949
Judges: Rouleau, Hoy and van Rensburg JJ.A.
Between: Conseil Scolaire Catholique Franco-Nord Applicant (Appellant)
And: La Corporation de la Municipalité de Nipissing Ouest Respondent (Respondent)
Counsel: Pierre Champagne and Andréane Lafrance, for the appellant Michael F. Sirdevan, for the respondent
Heard: May 31, 2021 by video conference
On appeal from the judgment of Justice David R. Nadeau of the Superior Court of Justice, dated December 17, 2019, with reasons reported at 2019 ONSC 6474.
Rouleau J.A.:
FACTS
[1] The Conseil Scolaire Catholique Franco-Nord (the “school board”) is a successor school board to the Nipissing District Roman Catholic Separate School Board. In 1988, the Nipissing District Roman Catholic Separate School Board sold a property known as the St. Jean Baptiste School to the Township of Caldwell (the “Township”). The Municipality of West Nipissing (the “Municipality”) is the successor to the Township. In return for the school, the Township agreed to provide snow and garbage removal services to one of the school board’s other schools located in the Township, the Ste. Marguerite d’Youville School.
[2] The evidence documenting the sale tendered by the school board is straightforward. It consists of a March 10, 1988 letter from the Township offering to buy the school and a school board resolution accepting the offer subject only to the approval of the sale by the Ministry of Education. The relevant parts of the Township’s offer letter are as follows:
Further to our past discussions regarding the above mentioned [school], please be advised that the Council of the Township of Caldwell wishes to acquire the St. Jean Baptiste School for the sum of $1.00.
We have been approached by many interested groups such as the Recreation Committee, l’Union Culturelle des Femmes Franco-Ontariennes etc…for accommodations in this building.
The municipal library is presently in dire need of additional space and is also located on a second storey being [a] very unsuitable location …
As you can tell, we have many plans for the use of this building all being for the best of the community. Please note that these organizations are all non-profit and are vital to the well-being of the area residents.
However, the municipality is agreeable to render certain services to the School Board such as clearing of snow in school yard and garbage pick-up at Marguerite d’Youville School. I wish to point out that the school is already using our arena facilities at no cost. We are also open to any other suggestions.
[3] The school board’s resolution accepting the offer is dated April 13, 1988. It reads as follows: “Que le C.E.C.L.F. accepte l’offre d’achat de l’école St-Jean-Baptiste soumise par le canton de Caldwell le 10 mars 1988, sous réserve d’autorisation du ministère de l’éducation”. The Township began providing snow and garbage removal services to the school board shortly thereafter. These services would continue until 2017.
[4] At the time of the sale, the disposition of school board property required approval from the Ministry of Education in accordance with the Ministry’s 1979 Capital Grant Plan. On June 15, 1988 the Ministry granted its approval for the transfer of the school:
It is noted that the requirements of the Ministry have been met. Accordingly, this letter may be considered as approval to dispose of this school building to the Township of Caldwell for community use.
This approval does not absolve the board from any other responsibility under the Education Act respecting the sale of property. The Regional Office will confirm with you any reduction in recognized extraordinary expenditure that may arise as a result of this transaction.
I should like to thank the board for its co-operation in the disposal of this surplus asset in accordance with section 12.3 of the Capital Grant Plan as amended.
[5] On September 16, 1988 the school board received a letter from its lawyers enclosing a copy of the signed transfer and a cheque for $1 “as payment in full of the purchase price”.
[6] The transfer included two clauses of relevance to this appeal. First, the transfer granted the school board a vendor’s lien over the transferred property in the following terms:
The within conveyance is subject to a Vendor’s Lien in the amount of $27,300.00. In the event that the Transferee grants, transfers or in any way conveys its interest in the within described lands or any portion thereof, prior to the expiration of ten (10) years from the date of registration herein, the Transferee shall remit payment of the said sum of $27,300.00 to the Transferor. This Vendor’s Lien shall expire ten (10) years from the date of registration of this transfer.
[7] Second, the transfer granted the school board a right of first refusal if the Township intended to sell the school within 20 years of the initial transfer:
The Transferee further grants to the Transferor the right of first refusal to purchase the land described herein and any buildings and improvements thereto for the sum of ONE ($1.00) DOLLAR. This first right of refusal shall run for a period of twenty (20) years from the date of registration of the within transfer. The Transferee agrees not to sell the real property described herein to another party without first offering the Transferor the right to repurchase the lands and buildings for the said sum of ONE ($1.00) DOLLAR.
[8] Contrary to the application judge’s finding, the school board submits that these clauses had nothing to do with the duration of the Township’s obligation to provide snow and garbage removal services in payment of the purchase price. They were inserted to ensure that the Township could not resell the property without first giving the school board the opportunity to repurchase it, and to comply with s. 12.7.3 of the Ministry’s Capital Grant Plan, which provided:
When a complete school property is sold to a preferred agency and the sale price is below the total undepreciated value of the building, and the market value of the land, a commitment in writing shall be obtained from the purchaser which will ensure that the board recovers equity if the property is resold within a period of ten years from the date of sale.
[9] In 1999, all of the Township’s obligations were transferred to the Municipality. The Municipality continued to provide snow and garbage removal services to the school board in the same manner as before.
[10] In 2002, the Municipality advised the school board that it intended to put an end to the snow removal service. Following discussions between the school board and the Municipality, the Municipality agreed to continue providing snow removal services. The school board confirmed that it would hold the Municipality harmless for damage to school property.
[11] In 2012, the Municipality again indicated an intention to put an end to the snow and garbage removal services. Once again, following discussions, the services were maintained.
[12] Finally, in November 2017, the Municipality informed the school board that it had, by resolution, decided to end the snow and garbage removal services. The school board attempted to negotiate with the Municipality over the summer of 2018 but the Municipality would not deviate from its decision. During these discussions, the school board maintained that the 1988 agreement was intended to last in perpetuity.
[13] On August 31, 2018 the school board filed its notice of application in this matter, seeking, among other things, a declaration that the 1988 contract remained in force and that the Municipality had an obligation to continue providing snow and garbage removal free of charge.
[14] In support of its application, the school board filed affidavits of school board employees who were either employed by the school board in 1988 or involved in the 1988 agreement with the Township. The affiants stated that the contract did not provide for any expiry or term.
DECISION BELOW
[15] The application judge found that the application raised two separate issues as follows:
a. Was the 1988 contract of perpetual duration?
b. Could the Municipality terminate the contract unilaterally as it had done in November 2017?
[16] On the first issue, the application judge found that the school board had not satisfied him that the agreement was perpetual in duration.
[17] When the application judge turned to the second issue, he referenced the case of 1397868 Ontario Ltd. v. Nordic Gaming Corporation (Fort Erie Race Track), 2010 ONCA 101, finding it to be instructive. He also noted that, unlike the case of Thunder Bay (City) v. Canadian National Railway Co., 2017 ONSC 3560, rev’d 2018 ONCA 517, leave to appeal refused [2018] S.C.C.A. No. 358, the word “perpetual” is nowhere mentioned in the contract. He acknowledged that there was “complete silence as to the duration of this contract” and that there had been continuous performance of snow and garbage removal since 1988.
[18] In attempting to characterize the relationship between the parties, the application judge found that “while the relationship created by the 1988 contract is not one of employment or partnership, it resembles in some fashion a personal services contract”, adding that “[t]hese are the types of contracts into which Courts routinely imply terms of termination on reasonable notice”.
[19] The application judge found that the surrounding circumstances, including the vendor’s lien expiring after 10 years and the right of first refusal expiring after 20 years, pointed away from a perpetual agreement. He considered the “non-pecuniary considerations” expressed in the Township’s letter “such as mutual betterment of the community” but he did not explain how these considerations figured into his analysis. The application judge also found that the Municipality’s efforts to terminate the agreement in 2002 and 2012 supported a finding that the contract could be terminated on reasonable notice in November 2017.
[20] Although he did not determine what would constitute a reasonable notice provision in the circumstances, the application judge was “satisfied that the Municipality has properly exercised its implied right to terminate its obligations on reasonable notice to the Board”.
ISSUES
[21] The only issue on appeal is whether the application judge erred in concluding that the 1988 agreement was terminable on reasonable notice. In light of my conclusion that he did so err and that the agreement was not terminable on reasonable notice, I need not address the issue of whether reasonable notice was in fact given in this case.
THE LAW
[22] Before addressing the specific arguments raised in this case, I will outline the principles that guide the interpretation of contracts that are silent on the issue of termination.
[23] The interpretation of a contract that is not a standard form contract or contract of adhesion involves questions of mixed fact and law. An appellate court will only intervene if the decision below is tainted by palpable and overriding error: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 4, 55-56, and 69-71.
[24] As this court explained in Thunder Bay, at para. 30, “the overriding principle is that the meaning of an agreement and the intent of the parties in entering into it must be derived from the words the parties used and the context in which they used those words”.
[25] In this case the court must determine whether, in the absence of any stipulation as to the duration of the contract or the parties’ rights of termination, the contract should be treated as either perpetual in nature or as an indefinite term contract into which the court implies a provision of unilateral termination on reasonable notice. The inquiry focuses on the specific parties to the contract in issue. As the Supreme Court specified in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619, at para. 29: “A court, when dealing with terms implied in fact, must be careful not to slide into determining the intentions of reasonable parties” (emphasis in original).
[26] The case law has in the last 150 years identified certain challenges unique to the issue of when parties are silent on issues of duration and termination.
[27] Historically, courts concluded that contracts of indefinite duration were presumptively perpetual and that the burden lay on the party seeking termination to establish an implied right of termination. John McCamus explains as follows:
Initially, the common law took the position that if the parties did not stipulate in the agreement a method of termination, the agreement should be presumed to be perpetual in nature. The presumption could be set aside if the party alleging an entitlement to terminate, perhaps on reasonable notice, was able to demonstrate either from the wording of the agreement or its nature that the presumption should be set aside.
See John McCamus, The Law of Contracts, 3rd ed. (Toronto: Irwin Law, 2020), at pp. 844-845.
[28] The 1875 House of Lords decision in Llanelly Railway & Dock Co. v. London & North Western Railway Co. (1875), L.R. 7 H.L. 550 is typically cited as the starting point for this line of cases. In that case, the Llanelly Railway company allowed trains owned by the London & North Western Railway to travel on its rails. The contract did not stipulate any kind of term. Lord Selborne wrote what was, for a time, the predominant view:
My lords, an agreement de futuro, extending over a tract of time which, on the face of the instrument, is indefinite and unlimited, must (in general) throw upon anyone alleging that it is not perpetual, the burden of proving that allegation, either from the nature of the subject, or from some rule of law applicable thereto.
[29] The presumption that an indefinite contract was intended to be perpetual survived in one form or another into the mid-20th century, appearing for example in Kerwin J.’s reasons in Gill Brothers v. Mission Saw Mills Limited, [1945] S.C.R. 766, where he wrote: “Speaking generally, a contract indefinite in time is prima facie perpetual”.
[30] Despite the long lifespan of the historical approach, a contrary presumption in favour of termination rights arose in the commercial context. The trend favouring a presumptive right to terminate on reasonable notice appears to have gained traction following the House of Lords decision in Winter Garden Theatre (London) Ltd. v. Millennium Productions Ltd., [1948] A.C. 173, in which Lords Porter and Uthwatt acknowledged that, in a business context, it is more realistic to expect that parties do not intend an indefinite arrangement to be perpetual, and that they would generally expect to be granted a right to terminate on reasonable notice: See Rapatax (1987) Inc. v. Cantax Corporation Ltd., 1997 ABCA 86, 145 D.L.R. (4th) 419, at paras. 15-19, leave to appeal refused [1997] S.C.C.A. No. 307. Even before Winter Garden, however, this court had expressed a view that business contracts “must be interpreted in a business way; and it would be a palpable absurdity to consider such a contract as a perpetual chain on the defendant to oblige it for all time to continue the plaintiff in such work; the only reasonable way of interpreting it is to consider it as terminable on reasonable notice”: Robinson v. Galt Chemical Products Ltd., [1933] O.J. No. 114 (C.A.), at para. 14.
[31] More recently, the law has evolved to eschew all presumptions in favour of a more balanced contextual approach. As McCamus explains at p. 844, there is no longer any kind of presumption going either way:
Modern authorities appear to accept, however, that the matter is to be determined simply on the basis of ordinary principles of interpretation, without the aid of a presumption in favour of perpetuity.
While the trend of the modern cases appears to lie in the direction of implying rights to terminate on reasonable notice, there is no reason, in principle, precluding parties from agreeing to indefinite or perpetual obligations and if, on the proper construction of the agreement, a perpetual obligation is intended, it will be enforced.
[32] The modern reconciliation between conflicting presumptions is best expressed in the Manitoba Court of Appeal decision in Shaw Cablesystems (Manitoba) Ltd. v. Canadian Legion Memorial Housing Foundation (Manitoba) (1997), 143 D.L.R. (4th) 193. In Shaw, a cable company provided cable television to two retirement homes at a promotional price. The contract provided for a unilateral right of termination in favour of the clients, but it was silent on Shaw’s right to terminate. Ultimately, the Manitoba Court of Appeal held that the contract was perpetual, largely because the contract included a price adjustment clause ensuring that Shaw was not required to provide services at an unreasonably low price in the future.
[33] Shaw provides an authoritative expression of what has become the dominant approach. Huband J.A. wrote at p. 196:
There is no lack of reported cases where the courts have implied a term into a contract allowing one of the parties to terminate an agreement that otherwise would be unlimited in time, by giving reasonable notice. There is also a host of cases which go in the other direction … I think the essence of the case is simply that each of the decisions turns on the particular agreement under consideration and the circumstances surrounding it.
[34] In concurring reasons, Helper J.A. agreed at p. 211 that “whether a contract is on the one hand perpetual in duration or on the other hand, terminable by one or both parties, is purely a matter of construction. Arguably, contracts are not subject to a presumption one way or the other”.
[35] Turning to the particular facts in Shaw, Huband J.A. explained at p. 200:
Counsel for the company argues that the parties must have contemplated from the outset that the company would not continue to provide the service on a subsidized basis until the buildings crumble into dust.
This would be a strong argument indeed, if there was no provision for an increase in the monthly fee. But the agreements specifically contemplate the prospect of future rate increases. The agreements foresee what has taken place over the years, namely, that the individual service fee has more than doubled; and so has the fee payable by these customers. The agreements contemplate contingencies far into the future, and contemplate that the service fee payable by these customers would remain subsidized into the future.
[36] This court adopted the approach set out in Shaw in Nordic Gaming, at para. 13, where O’Connor A.C.J.O. stated:
When the term of a contract is not fixed and there is no provision for termination on reasonable notice, a court may treat a contract as either perpetual in nature or as an indefinite term contract into which the court implies a provision of unilateral termination on reasonable notice … In determining this issue, courts typically look to the specific terms of the contract as well as to the relationship between the parties and the surrounding circumstances. As the majority of the court explained in Shaw at para. 15, “the essence of the cases is simply that each of the decisions turns on the particular agreement under consideration and the circumstances surrounding it.” [Emphasis added. Citations omitted.]
See also Brown v. Belleville (City), 2013 ONCA 148, 359 D.L.R. (4th) 658, at para. 64.
[37] In considering the nature of the parties’ agreement, the case law places a particular emphasis on the relationship created by the contract. As this court recognized in Nordic Gaming, at para. 14, certain types of contracts naturally give rise to an implied right to terminate upon reasonable notice. Employment relationships, partnerships, and personal service contracts, all of which depend upon a level of trust and continuous performance, engage specific concerns about the extent to which courts should enforce performance when a relationship has collapsed. The implied right to terminate a contract for personal services is in a sense the corollary to the court’s general unwillingness to order specific performance of such contracts.
[38] In Nordic Gaming, for example, the trust relationship was inherent in the nature of the contract, as O’Connor A.C.J.O explained at para. 24:
The agreement contemplates that the two parties would work together with 139 operating a food and beverage service and maintaining the premises, and Nordic running the [off-track betting] operation in the premises. Thus, they would have to work together closely and co-operation would be important. While the relationship created by the agreement was not one of employment, partnership or, strictly speaking, for personal services – which are the types of contracts into which courts routinely imply terms of termination on reasonable notice – it did involve many of the same components, such as the need for trust, confidence and satisfaction.
[39] However, the simple characterization of a contract as a “personal service contract” does not automatically give rise to an implied right of termination on reasonable notice; the court is still required to examine the agreement in its entire context. Mesbur J. examined this question in Credit Security Insurance Agency Inc. v. CIBC Mortgages Inc. (2006), 268 D.L.R. (4th) 725, aff’d 2007 ONCA 287. In that case, Credit Security agreed to provide pooled mortgage insurance to customers of FirstLine Trust, later acquired by CIBC Mortgages. The contract stipulated that the agreement could only be terminated by mutual agreement or for fundamental breach. CIBC decided for business reasons that it wished to terminate the agreement and gave Credit Security three months’ notice of termination. Credit Security commenced an action to enforce the agreement.
[40] Mesbur J. found that the contract between Credit Security and CIBC was a commercial contract with only some of the hallmarks of “trust and confidence” that would normally give rise to an implied right to terminate on reasonable notice. She said, at para. 33: “While there is no doubt that there is a ‘provision of services’ element to the contract, it is also, and primarily, a contract for the provision of a product to CIBC Mortgages, a product in which … Credit Security was to retain a long-term proprietary interest for which it was to be paid”. She continued, at para. 36:
As I have said, it is true that there are elements of provision of services within the contract. What the court must look at, however, is whether, from the inception of the contract there should be an implied right to terminate. One does not look at the circumstances at the time that one of the parties wishes to terminate to see if it is then commercially reasonable. One must look at the time of the formation of the contract to make that determination.
[41] On appeal, this court held Mesbur J.’s analysis to be “entirely sound in every respect on all issues”: at para. 1.
[42] As Credit Security makes clear, the existence of a “provision of services element” in a contractual relationship does not automatically relieve the court of going through the exercise of determining whether, at the moment of contract formation and in all the circumstances, a term could be implied into the parties’ agreement providing for termination on reasonable notice. The existence of a “special relationship” or “trust relationship” is a strong and often decisive factor, but it is not definitive. This aligns with the Manitoba Court of Appeal’s reasoning in Shaw, where the company’s ongoing obligation to provide cable services was found to be perpetual, despite what could be described as a “service element”.
[43] I turn now to the consideration of the issues raised in this case.
POSITIONS OF THE PARTIES
[44] The school board argues that, in carrying out his analysis, the application judge committed several errors. Specifically, the school board submits that he erred in:
Placing the burden of showing that the contract is perpetual on the school board;
Finding that the contract is one of personal service involving the need for trust, confidence and satisfaction such that a term of termination on reasonable notice ought to be implied;
Considering the Municipality’s post-contract desire to terminate; and
Considering the two clauses inserted in the deed of transfer as being indicative of value or intention.
[45] For its part, the Municipality argues that the application judge’s assessment of the circumstances relevant to the contract and his determination that it resembles in some fashion a personal services contract are reasonable findings. In its submission there is simply no basis to set aside his conclusion that the contract did not bind the Municipality in perpetuity.
ANALYSIS
[46] In my view, the path taken by the application judge to reach his conclusion was flawed in several respects. As I will explain, the application judge’s analytical approach was confusing, and he erred in concluding that the agreement at issue was in the nature of a personal service contract such that a right of termination on reasonable notice ought to be implied. He also erred in his consideration of the surrounding circumstances. On a proper analysis, he ought to have concluded that the contract was perpetual in nature.
(1) How the application judge approached his task
[47] The application judge’s reasons present the analytical task as one involving two steps to address two discrete issues, with the first step requiring him to decide if the contract was perpetual in duration and the second requiring him to decide whether the contract could be terminated unilaterally by the Municipality in the manner it had done.
[48] In his analysis on this first issue, the application judge noted that “nowhere is it indicated, or even implied, that this contract is to be of perpetual duration”. He went on to state that, on the basis of what he considered to be “cryptic” evidence as to the terms of the agreement, he had “tremendous difficulty finding that the [school board] has satisfied me that this indefinite contract is of perpetual duration”. He then indicated that this did not end the analysis and further consideration was necessary. It was at that point that he turned to the second issue, where he reviewed the case law and considered the relationship of the parties and the surrounding circumstances.
[49] In my view, the application judge’s decision to divide the analysis into two separate questions was unnecessary and confusing in light of the applicable test. As this court explained in Nordic Gaming, when a contract contains no fixed term and no provision for termination on reasonable notice, the court may treat the contract either as perpetual or as indefinite into which a provision of unilateral termination on reasonable notice is implied. The decision as to which is the proper interpretation is an exercise in contractual interpretation which requires the court to examine the specific terms of the contract as well as the relationship between the parties and the surrounding circumstances. Because there is no presumption either way, neither party bears an onus except to the extent that any applicant bears the onus in an application for declaratory judgment, such as this one. The application judge’s reasons, however, could be read in such a way as to place the onus on the school board to “satisfy” the court that the contract was perpetual. Thus, without giving rise to a reversible error, the application judge’s reasons tend to obscure his approach to the relevant legal principles.
[50] It was on his second step that the application judge considered the application of Nordic Gaming and addressed the relationship between the parties and the surrounding circumstances. However, despite correctly identifying Nordic Gaming as the governing authority, the application judge committed palpable and overriding errors in its application, to which I now turn.
(2) The nature of the relationship
[51] Relying on Nordic Gaming, the application judge found that the relationship created by the 1988 contract “resembles in some fashion a personal service contract” and that the “provision of snow removal and garbage disposal involves the need for trust, confidence and satisfaction”. The application judge then concluded that the contract was the type of contract “into which courts routinely imply terms of termination on reasonable notice”.
[52] I disagree. The contract in this case is fundamentally different from the types of contract into which the courts routinely imply termination on reasonable notice. In my view, the application judge’s characterization of the agreement between the parties is tainted by palpable and overriding error. When compared against the contract at issue in Nordic Gaming, for example, there are two critical differences.
[53] First, in Nordic Gaming, the services being provided were being paid for on an ongoing basis. In the present case, the services provided by the Municipality form part of the consideration payable for real property transferred in 1988. This is not an ongoing relationship where service is being provided and payment made on an ongoing basis. Indeed, in Nordic Gaming, at para. 27, the court explained that a party’s large upfront investment can provide an indication that the parties intend to create a perpetual agreement:
However, there are aspects of the surrounding circumstances which could point to a perpetual agreement. Most significantly, was the large cost incurred by 139 in order to install fixtures in the premises. In passing, the trial judge indicated that this amount was $117,700, but made no clear finding on the point. This sum of money could have taken 139 many years to recover. Thus, it may be argued that it would be unusual for 139 to agree to enter a contract that could be terminated on reasonable notice where such a significant initial investment was needed. [Emphasis added.]
[54] The school board’s upfront investment was the transfer of the school for one dollar. As contemplated in Nordic Gaming, it would be unusual in this case for the school board to transfer property to the Municipality in return for a nominal sum plus ongoing services if those services could be terminated unilaterally and potentially prematurely. In that regard, it is of particular significance that the school board was transferring real property with enduring value.
[55] A second basic difference is that in Nordic Gaming, one party was serving the clientele of the other party. As the court explained, in such circumstances the parties had to “work together closely and co-operation would be important”. Implying a term permitting one party to exit the relationship in such circumstances is reasonable as it would be inappropriate to force such parties to continue working together where there is no longer any trust.
[56] The services being provided by the Municipality in this case are not the types of services that raise concerns of the nature referenced in Nordic Gaming. Snow and garbage removal are normal functions of a municipality, and the standards to which they are provided is generally consistent and uniform throughout the municipality. They do not engender the same type of trust relationship that gives rise to a presumption of an implied right to terminate. Nor is it suggested that the relationship of “trust” between the school board and the Municipality, if one was required, has collapsed or deteriorated to a point where it would be inappropriate to force the relationship to continue. In my view, the contract between the Municipality and the school board is not the sort of agreement into which courts routinely imply a right to terminate on reasonable notice and the application judge erred in so concluding.
(3) The surrounding circumstances
[57] In his analysis of the surrounding circumstances, the application judge referenced:
The mutual betterment of the community;
The provision in the transfer imposing a lien in the amount of $27,300 for 10 years and the right of first refusal in favour of the school board for 20 years; and
The length of time the Municipality performed the services and the Municipality’s express desire to end the relationship.
[58] The application judge considered that these circumstances supported the implication of a term permitting the Municipality to terminate the agreement unilaterally in the manner it did. The Municipality in its submissions further argued that, because the services had been provided for over 30 years, the transferred property had been paid for many times over. This provided further support for the application judge’s decision and addressed the concern, discussed above, that a unilateral termination right might prevent the school board from recovering fair value for the transferred property if the services were terminated prematurely.
[59] As I will explain, the application judge erred in his appreciation of the surrounding circumstances by considering irrelevant factors and failing to consider relevant factors. Viewed properly, the surrounding circumstances support the conclusion that the contract is perpetual in nature. Moreover, the Municipality’s suggestion that it has provided enough services over time to pay for the transferred property is not persuasive. The circumstances that are most relevant in interpreting the agreement are those known to the parties when they reached the agreement, not when the Municipality seeks to terminate it. I turn first to the three circumstances identified by the application judge.
[60] The application judge made reference to the mutual betterment of the community but he did not provide any indication of how it might favour either the school board’s or the Municipality’s interpretation of the agreement. I view this circumstance as being neutral in that it is simply an observation that the transaction was of benefit to the community served by both parties. At most, the status of the parties as public bodies working for the betterment of the community provides an indication that neither party was pursuing strictly commercial aims by entering into the agreement.
[61] As for the two provisions inserted into the transfer, these provisions appear to flow directly from the requirements of the Ministry’s Capital Grant Plan and the school board’s desire to ensure that the Municipality would not simply resell the property. They are of little assistance in interpreting the Municipality’s obligation to provide snow and garbage removal, which is not tied to its continued ownership of the property.
[62] With respect to the third surrounding circumstance considered by the application judge, the length of time the Municipality rendered the services and its repeated attempts to bring them to an end, this circumstance may have relevance once it is decided that a reasonable notice period should be implied. It is, however, of little assistance in deciding the central issue as to whether the agreement is perpetual or one into which a reasonable notice provision should be implied.
[63] Similarly, the Municipality’s argument that the transferred property has been paid for many times over is of no assistance. The Municipality submits that this is relevant because the Township would have been alive to this possibility at the time of contract formation and would not have agreed to a contract requiring it to continue providing services until long after the aggregate value of the services exceeded the value of the property. The Municipality suggests that because it has provided services in excess of the property’s value many times over, it should now be permitted to terminate the agreement.
[64] I reject the Municipality’s position for two reasons. First, the record does not permit an accurate assessment of either the value of the school property or the value of the municipal services either at the time the contract was entered into or in the years following. The Municipality refers to the affidavit of Stephan Poulin, Director of Economic Development and Community Services for the Municipality of West Nipissing, where the calculation of the overpayment is contained. In his affidavit, Mr. Poulin suggests that the amount of the vendor’s lien included in the transfer, some $27,300, was the value of the property at the time of transfer. There is nothing to substantiate his evaluation on this point, and no indication of how the value of the property might have changed in relation to the value of the services over time. It is simply impossible to determine on this record the value of the property, whether at the date of the sale or in the period since the sale.
[65] With respect to the value of the snow and garbage removal services, Mr. Poulin estimated that the value of the services provided by the Municipality since 1988 could be as much as $270,000. This too is impossible to substantiate. Mr. Poulin’s figure is taken from the affidavit of Mr. Cantin, for the school board, who deposed that in 2017-18, when, on short notice, the school board was forced to pay for its own snow and garbage removal, it paid $4,500 for each service, or $9,000 for the year. Mr. Poulin then apparently extrapolates back to 1988, simply multiplying $9,000 by 30 years (1988-2019) to reach the figure of $270,000. There is no evidence of the value to the school board of the snow and garbage removal over the period, nor of the cost to the Municipality of providing the services. The amounts paid by the school board in 2017-18 for the services previously provided by the Municipality are of no assistance in determining the value of the services that the Township agreed to provide.
[66] Second, and more importantly, even if it could be shown that the value of snow and garbage removal had exceeded the value of the property since the 1988 sale, it does not necessarily follow that the parties did not intend those services to be provided in perpetuity. Contractual interpretation focuses on the intentions of the parties at the moment of contract formation: Sattva, at para. 58. Or, as Mesbur J. wrote in Credit Security, at para. 36: “One does not look at the circumstances at the time that one of the parties wishes to terminate to see if it is then commercially reasonable. One must look at the time of the formation of the contract to make that determination”.
[67] At the time the contract was entered into, the parties would not have known how long the school board would continue to operate the Ste. Marguerite d’Youville School. Obviously, if the school is closed, the Municipality’s obligations would come to an end. The school’s closure could have occurred five, ten or more years after the agreement was entered into. An early closure would potentially constitute a windfall for the Municipality. The fact that the school has remained in operation for over 30 years may result in a windfall to the school board, which it would turn out was not known nor likely contemplated by the parties when they made their contract. It ought not to have been a factor in the application judge’s decision.
[68] The application judge also appears to have overlooked other relevant considerations, such as the nature of the contracting parties as well as additional surrounding circumstances.
[69] This was an agreement between two public institutions. Both were in the business of providing services to the community they served, and both saw the agreement as a “win-win” in that regard. Neither party was pursuing strictly commercial objectives and it is doubtful, based on their relationship and on the available evidence, that much consideration was given to whether one might achieve a windfall at the other’s expense. It simply was not the focus of the parties’ negotiations.
[70] The public nature of the contracting parties also explains an additional surrounding circumstance with which the application judge failed to grapple. The parties did not carry out a valuation of the St. Jean Baptiste School being transferred, nor did they estimate the costs to the Municipality of incorporating the snow and garbage removal services for the Ste. Marguerite d’Youville School into their usual operations. An after-the-fact analysis as to whether the arrangement turns out to be economically advantageous to one party or the other ought not to have factored into the interpretation of the agreement that was reached. The fact that an agreement reached between two parties is not, after many years of operation, economically “fair” to one party or the other should not operate so as to justify ending the relationship. It is not the court’s role to “save a contracting party from a bargain that proves improvident with hindsight”: Northrock Resources v. ExxonMobil Canada Energy, 2017 SKCA 60, at para. 21; see also Churchill Falls (Labrador) Corp. v. Hydro-Québec, 2018 SCC 46, [2018] 3 S.C.R. 101.
[71] I hasten to add that, even if I were to conclude that the contract was ambiguous such that it became necessary to look at the subsequent conduct of the parties, that is, the fact that the service continued to be provided for over 30 years despite the twice stated intention of the Municipality to end it, this would not assist the Municipality. The fact that the Municipality continued to provide the services until 2017, well after the 10 and 20 year periods set out in the transfer had passed and despite the twice stated intention to end the provision of the services, is, in my view, more consistent with the agreement being perpetual in nature. The continuous 30-year performance and the abrupt termination in 2017, without any reference to an understanding that the agreement contained an implied termination provision, suggests that the agreement had been treated by the Municipality, until then, as being perpetual.
CONCLUSION
[72] In summary, in determining whether to treat a contract as either perpetual in nature or as an indefinite term contract into which the court implies a provision of unilateral termination on reasonable notice, the court looks to the specific terms of the contract as well as to the relationship between the parties and the surrounding circumstances.
[73] The contract in this case does not contain any clear indication as to whether it was intended to be perpetual. The word perpetual does not appear in the contract, nor does the contract provide for unilateral termination.
[74] As I have explained, the application judge erred in his analysis of the surrounding circumstances and in his characterization of the contract as a personal services contract into which courts routinely imply a right of termination upon reasonable notice. Viewed properly, the relationship between the parties and the surrounding circumstances suggest that no such right of termination was intended, nor should one be implied. As noted above, the contracting parties are two public institutions offering services to the same community. The arrangement reached was mutually beneficial. This was a relatively small township seeking to acquire a property it needed but was unable to pay for. In exchange for the acquisition of this capital asset, it made a commitment that was neither onerous nor unusual for a municipality. It already had the perpetual obligation to carry out snow and garbage removal throughout its boundaries. The Ste. Marguerite d’Youville School, a school located in and serving its township, would simply be treated as the Municipality might treat municipal arenas, libraries, parks and the like. It would clear snow from the parking lot and remove garbage for as long as the facility continued to operate.
[75] The school board, for its part, disposed of a capital asset and, although it did not receive payment for it, nonetheless benefitted in that the arrangement reduced its ongoing operating costs for the Ste. Marguerite d’Youville School. It is not possible to determine at this point and on this record what a sale of the property at fair market value might have generated in 1988 or what income might have been derived from investing the proceeds of sale, nor is that information necessary to understand and properly construe the bargain struck between the parties at the time. In exchange for an enduring capital asset, the school board received an enduring benefit, one that would last for as long as the school board continued to operate the Ste. Marguerite d’Youville School.
[76] Both parties also saw the advantage, as public bodies, of the St. Jean Baptiste School continuing to benefit the community served by them.
[77] Therefore, considering the terms of the agreement, the relationship of the parties and the surrounding circumstances at the time the contract was entered into, I conclude that the obligation of the municipality to provide snow and garbage removal services to the Ste. Marguerite d’Youville School is perpetual in nature.
DISPOSITION
[78] As a result, I would allow the appeal, set aside the application judge’s decision and grant judgment:
a. declaring that the 1988 agreement between the parties remains in force;
b. awarding the appellant damages in the amount of $9,000 plus applicable taxes per year from the month of November 2017 to the date of this decision; and
c. awarding costs of the appeal fixed in the amount of $12,000 to the appellant, together with costs of the application below.
[79] If the parties cannot agree on the amount of costs of the application below, I would ask the parties to submit brief written submissions not exceeding three pages, with the appellant’s submissions due within 10 days hereof and the respondent’s submissions due 7 days thereafter.
Released: July 28, 2021 “P.R.” “Paul Rouleau J.A.” “I agree Alexandra Hoy J.A.” “I agree K. van Rensburg J.A.”
