CITATION: Wheatley Harbour Authority Corporation v. Municipal Property Assessment Corporation, 2010 ONSC 2499
COURT FILE NO.: 1806/09
DATE: 20100519
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
MATLOW, FERRIER and SACHS J.J.
B E T W E E N:
THE WHEATLEY HARBOUR AUTHORITY CORPORATION AND THE ERIEAU HARBOUR AUTHOURITY
Stephen Longo, for the Applicants/ Respondents in Appeal
Applicants (Respondents in Appeal)
- and -
THE MUNICIPAL PROPERTY ASSESSMENT CORPORATION (“MPAC”), MUNICIPALITY OF LEAMINGTON and MUNICIPALITY OF CHATHAM-KENT
Donald G. Mitchell, for the Respondents/ Appellants in Appeal
Respondents (Appellants in Appeal)
HEARD at London: April 14, 2010
H. SACHS J.
INTRODUCTION
[1] The Municipal Property Assessment Corporation (“MPAC”) appeals from the judgment of J. G. Quinn J. declaring that certain properties are exempt from property taxation under the Assessment Act, R.S.O. 1990, c. A.31, as amended (the “Act”). The properties are owned by the Crown, but leased to the applicant Harbour Authorities (“Harbour Authorities”) under leases that provide for rent of $1.00 per year. The application focused on the Wheatley Harbour Authority, with the agreement that the decision would be binding with respect to the other applicant, as the arrangements between the Crown and both Harbour Authorities are very similar.
[2] Pursuant to s. 3(1)1 of the Act, lands owned by the Crown are exempt from taxation. However s. 18(1)(a) of the Act provides that “a tenant of land owned by the Crown shall be assessed as though the tenant were the owner if rent or any valuable consideration is paid in respect of the land.”
[3] One issue raised by this appeal is whether the Harbour Authorities, as tenants of the land in question, “paid” the Crown “valuable consideration in respect of the land” they leased. The application judge found that they did not. MPAC appeals, arguing that the application judge made a palpable and overriding error when he failed to find that the Crown receives valuable consideration in the form of services performed by the Harbour Authorities under their lease agreements with the Crown.
[4] The other issue raised by this appeal is whether the Harbour Authorities share a patrimony with the Crown such that they are entitled to the same exemption as the Crown is entitled to under the Act. This issue is not addressed directly in the reasons of the application judge.
[5] For the reasons that follow I would dismiss the appeal. In my view, the application judge made no palpable and overriding error when he found that the services rendered by the Harbour Authorities did not constitute “valuable consideration in respect of the land” within the meaning of s. 18(1)(a) of the Act. However, I would also dismiss the appeal because the Harbour Authorities share a patrimony with the Crown that entitles them to the same exemption as the Crown.
FACTUAL BACKGROUND
[6] The Harbour Authorities are non-profit corporations that manage and operate harbours on behalf of the Crown. They are administered by the Small Craft Harbours Branch (“SCHB”) of the Department of Fisheries and Oceans (“DFO”). The mandate of the SCHB is to keep harbours open and in a state of good repair in order to provide commercial fish harvesters and recreational boaters with safe and accessible harbours. The SCHB operates under the authority of the Fishing and Recreational Harbours Act, R.S. 1985, c. F-24, as amended (“FRHA”).
[7] The SCHB fulfils its mandate, in part, by promoting the formation of harbour authorities. The harbour authority concept was introduced in 1987, when responsibility for the day-to-day management of core commercial fishing harbours was given to representative harbour authorities. Harbour authorities are incorporated, not-for-profit organizations that are managed by a board of directors and members, who are representative of local interest groups and harbour users. The harbour authority program is designed to give more control to local communities in handling the day-to-day operations of their fishing harbours.
[8] Pursuant to s. 4 of the FRHA, the DFO controls the use, management and maintenance of every designated harbour authority, enforcement of regulations relating thereto and collection of charges for the use of each harbour authority.
[9] The Harbour Authorities are designated harbour authorities pursuant to the Fishing and Recreational Harbours Regulations, SOR/78-767, s. 1, enacted under the FRHA. In the event of a dissolution or winding-up, all the remaining assets of a harbour authority revert to the Crown.
[10] The DFO assists the harbour authorities by providing them with reference materials, the primary example being the Harbour Authority Manual (the “Manual”). The Manual provides practical procedures and guidelines for the creation, ongoing operation and maintenance of each harbour authority.
[11] The authority for the DFO to enter into leases with a harbour authority is found in s. 8 of the FRHA. Pursuant to that section, the DFO entered into leases with the Harbour Authorities. The leases provide that the Harbour Authorities will pay the DFO a nominal rent of $1.00 per year. The management and day-to-day operations of the harbours are the responsibility of the Harbour Authorities.
[12] Key elements of the leases between the Harbour Authorities and the Crown are as follows:
(a) Any construction, physical alterations or improvements to the harbour facility must be approved by the DFO.
(b) All acounting records must be kept in a form acceptable to the DFO.
(c) Each Harbour Authority must report to the DFO on an annual basis respecting its financial situation.
(d) The DFO must have “reasonable” access to each Harbour Authority facility or any part of it “at any time for any purpose.”
(e) If the Harbour Authority fails to perform any one of its obligations under the lease, the DFO may perform the obligation and do whatever it considers necessary for the continued operation of the Harbour Authority.
(f) The DFO may terminate the lease on sixty (60) days written notice.
[13] Schedule “B1” to the lease contains a breakdown of Operations, Management and Maintenance Responsibilities as between the Harbour Authority and the DFO. Among other things, the DFO remains responsible for:
(a) Approval of all expenditures exceeding $5000.00 and “major projects”;
(b) All repairs in excess of pre-approved budgets;
(c) Providing funding in accordance with the annual budget;
(d) Granting final approval to any development permit applications or building permit applications being pursued by the Harbour Authority; and
(e) Granting final approval of the annual operating budget in conjunction with the Board of Directors of the Harbour Authority.
[14] With respect to maintenance/repair work, the DFO provides necessary technical assistance and required approvals. The DFO also establishes the construction standards for maintenance and repair of each harbour facility. Appendix 4-C of the Manual details the process to be followed with respect to major repairs and construction projects and sets out the responsibility/funding scheme between the DFO and the Harbour Authority.
[15] The DFO has made significant financial grants to the Harbour Authority on an annual basis.
[16] The Harbour Authorities applied for an exemption from taxation under the Act. In opposing the exemption MPAC argues that the Harbour Authorities were tenants of the Crown who were paying the Crown “rent or other valuable consideration in relation to the land” they leased. MPAC does not argue that the nominal amount for rent paid under the leases constitutes “rent or valuable consideration”. Rather, it submits that the Harbour Authorities perform a vital service for the Crown that would otherwise be the Crown’s responsibility. They are also obligated to repair and maintain the Crown’s property. According to MPAC, these services and repair/maintenance obligations constitute “valuable consideration” paid to the Crown.
DECISION OF THE APPLICATION JUDGE
[17] The application judge gave three reasons for rejecting MPAC’s position. First, he found that it is the local communities who benefit from harbour authorities, not the Crown. The purpose is not to relieve the Crown of obligations, but rather to provide for local management and input. Thus, the services rendered by the Harbour Authorities “could not be characterized by any definition as compensation or profit passing to the Crown” (Reasons of the application judge, para. 8).
[18] The second reason given by the application judge is a matter of some controversy. According to MPAC, the application judge found that the Harbour Authorities were covered by a specific exemption under the Act. According to the Harbour Authorities, the application judge found that granting them an exemption was consistent with the purpose of the Act (and its exemptions) as articulated by the Court of Appeal in Ottawa Salus Corp. v. Municipal Property Assessment Corp. (2004), 2004 14620 (ON CA), 69 O.R.(3d) 417.
[19] Third, the application judge found that it did not seem appropriate that the Harbour Authorities should pay municipal taxes while receiving annual subsidies from the Crown.
STANDARD OF REVIEW
[20] With respect to the standard of review, MPAC accepted that it is well-established that a trial judge’s findings of fact, including inferences drawn from the facts, are entitled to deference and an appellate court will not intervene unless it can identify a palpable and overriding error. The test will be met if the findings are clearly wrong or can be properly characterized as unreasonable or unsupported by the evidence. As stated by the Divisional Court in United States of America v. Yemec (2005), 2005 8709 (ON SCDC), 75 O.R. (3d) 52 at para. 9:
An appellate court must not interfere with a lower court’s findings of fact unless there is a palpable and overriding error. However, the standard of review of a trial judge’s decision on a question of law is correctness (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 at paras. 8 and 10). Matters of mixed fact and law have been said to lie upon a spectrum, but “where the issue on appeal involves the trial judge’s interpretation of the evidence as a whole, it should not be overturned absent palpable and overriding error” (ibid at para. 36).
[21] According to MPAC, the application judge committed overriding and palpable errors when he failed to consider relevant and agreed upon evidence and took irrelevant matters into account in coming to his conclusion that there was no valuable consideration paid in respect of the land.
ANALYSIS
[22] It was accepted by the parties that rent need not consist just of the payment of money, but that it may consist of the performance of services. In this case MPAC submits that the application judge failed to consider the evidence that the services undertaken by the Harbour Authorities pursuant to their leases benefit the Crown by helping the Crown to fulfill its mandate to keep harbours open and in a state of good repair. Specifically, according to MPAC, the application judge ignored the admitted evidence about what the Crown had to gain by entering into the harbour authority program. Experience had shown that allowing local authorities to do their own contracting for the work that needed to be done around the harbours was cheaper than using public works engineers and outside contractors. This, in turn, could result in savings to the small craft harbour program of an estimated $10 million a year, money that could then be put back into repairs. Thus, as a result of the responsibilities assumed by the Harbour Authorities under their leases, the Crown benefits by having more money to spread around the small craft harbour program. The fact that the local communities also benefit does not detract from the benefit that the Crown receives under the leases.
[23] In my view, the application judge’s reasons make it clear that he was aware of and considered the leases that the Harbour Authorities had entered into with the Crown. He specifically adverts to those leases in paragraphs 2 and 3 of his short, but succinct endorsement. Furthermore, his reasons also advert to the purpose of the harbour authority program. He does so by quoting another document that had been filed before him on the application. That document put it this way:
The H.A. program was introduced in 1998 in recognition that individual communities are in the best position to manage their local commercial fishing harbour facilities.
[24] This is just a different way of stating the same thing, which is that the local communities can do more with the money that is directed to the program than the Crown can.
[25] What the application judge focused on is whether by entering into the leases the Crown was seeking to get a “profit” for itself in relation to the land. In focusing on this question the application judge followed the direction of the Court of Appeal in Maple Leaf Services v. Townships of Essa and Petawawa, 1963 206 (ON CA), [1963] 1 O.R. 475.
[26] Maple Leaf Services was incorporated as a non-profit corporation to provide services to members of the Canadian Army and their dependants. In doing so they took over services that were formerly provided by the Crown. Maple Leaf operated their businesses on Crown land pursuant to license agreements under which they paid the Crown $1.00 per year. The municipality sought to levy a tax on Maple Leaf under the Act on the basis that they were a tenant of land owned by the Crown where valuable consideration was paid in respect of the land. The Court of Appeal found that Maple Leaf was exempt from taxation. They did so on two bases, one of which is not applicable in the case at bar i.e. that Maple Leaf was a licensee of the land. However, they also found that the words “rent or any valuable consideration” as used in the Act mean “real compensation- a profit”.
[27] Applying this test, the application judge concluded that on the facts before him it could not be said that the Crown was receiving any profit in relation to the leases in question. This was made apparent by the fact that when it came to any repairs that would improve the value of the land, they were the responsibility of the Crown. Further, the Crown, rather than profiting from the leases, was paying annual subsidies to the Harbour Authorities. Given these facts, it cannot be said that the application judge made an overriding and palpable error in coming to the conclusion that he did.
[28] I turn now to the application judge’s second reason for rejecting MPAC’s position. At paragraph 10 of his reasons the application judge states “the Applicants are organizations that are covered by such an exemption.” I agree with MPAC that if, by making this statement, the application judge was saying that the Harbour Authorities are organizations that are covered by a specific exemption in the Act, he would be in error. However, taken in context, I do not agree that this is what the application judge intended. Rather, he found that granting the Harbour Authorities an exemption would not be inconsistent with the purpose of the Act as that purpose has been articulated by the Court of Appeal in Ottawa Salus Corp. In making this observation, he made no error.
[29] In fact, in making this observation, the application judge was beginning to engage in the analysis which, in my view, forms the heart of this application. It is an analysis that flows from the Supreme Court of Canada’s decisions in Buanderie Centrale de Montreal Inc. v. Montreal (City), 1994 59 (SCC), [1994] 3 S.C.R. 29 and Partagec Inc. v. Quebec, 1994 60 (SCC), [1994] 3 S.C.R. 57. The analysis used in these cases was applied by Perell J. in University Health Network v. Municipal Property Assessment Corp. (2006), 49 R.P.R. (4th)90, [2006] O.J. No 3565 (S.C.). The essence of the reasoning is that, looking at the legislative intent of the Act, given the identity of patrimony between the Crown and the Harbour Authorities, the latter should not be treated differently than the former for tax purposes.
[30] In both Buanderie and Partagec , the Supreme Court of Canada dealt with the question of whether or not non-profit corporations formed to carry out laundry and linen services for establishments in the regional social affairs network qualified for an exemption from real estate and business taxes. The establishments that were served by the laundry service were exempt from taxation. However, the laundry and linen service was clearly owned and operated by a distinct corporate entity that was not under the “‘immediate domination’ or even the control of the establishments it serves”(Buanderie at p. 48 ). Thus, unlike in the case of Halifax (City) v. Halifax Harbour Commissioner, 1934 79 (SCC), [1935] S.C.R. 215, the corporations in question could not be regarded as the alter egos of the establishments they served. As noted by Gonthier J., who wrote the decisions for the Court, the alter ego concept was developed in the commercial context, where the element of control is of paramount importance.
[31] In this case, as in Buanderie and Partagec, we are dealing with non-profit corporations. However, as Gonthier J. points out, at its most elementary level, the alter ego concept is a means of giving precedence to substance over form when considering whether two separate entities may be considered as one when to do so is consistent with the wording and purpose of the statute in question (Buanderie, at p. 49). He further finds that “In analyzing legislative intent, the courts are entitled to give precedence to substance over form in implementing tax legislation” (Buanderie at p. 51).
[32] In the cases before him Gonthier J. noted that the same hospital activities, namely the laundry and linen services, continued on behalf of the same institutions. The non-profit corporation was set up to provide a more efficient and less costly method of providing the same services that the establishments used to provide for themselves. Thus, as put by Gonthier J.:
In view of this it could be argued forthwith that it would go against common sense for the legislature to have intended to penalize public establishments for their decision to combine into a more efficient and less costly form of organization. (ibid, page 49)
[33] He then went on to analyze the relationship between the non-profit corporations and the establishments they served. He adverted to the fact that none of the organizations were making a profit, the budget of the laundry services was based on the operating costs that they assumed and upon dissolution, “any assets covered in whole or in part by a grant from the Ministère des Affaires sociales [would] revert to the Regional Council”. He concludes by finding at pages 52 and 53 that:
It seems to me that the Regional Council and the Buanderie form a single “conduit” to the establishments they serve and that this situation is not affected by the fact that the administrative functions or the titular ownership of property have been conferred on them. In pursuing its objective the legislature made no essential change to the substance of the patrimony of the establishments as a whole, whether in terms of financial responsibility or ownership of property. Taxation relates solely to patrimony. It may therefore be concluded that, in requiring the creation of a community laundry, the legislature did not intend to affect the exempt status which had always applied to the public establishments before they were merged. No indication is given to the contrary. Such a conclusion would run counter to the legislature’s aim of reducing costs. …
In light of the rules of interpretation developed in Corp. Notre-Dame de Bon-Secours, supra, and set out in the first part of my analysis, I conclude that the alter ego concept does not apply directly to the situation of the Regional Council and the Bouanderie in the case at bar. Nonetheless, in determining the legislative intent it seems to me that the identity of patrimony between the appellants and their member institutions is such that the former should not be treated differently from the latter for tax purposes. In my view, this is consistent with the specific realities of the links between the institutions in general.
[34] In my view, the same reasoning is applicable to the case at bar. The Harbour Authorities do no more than carry on the same activities that the Crown did before their formation. They were formed in the expectation that because of local input they would be able to carry out those activities more efficiently and effectively, thus freeing up more resources to devote to the program. The Harbour Authorities and their operations continue to be strictly supervised by the Crown. The Crown determines the charges that they levy, pays for all major repairs, and provides them with financing. In the event of dissolution their assets revert to the Crown. They make no profit. Their budget is determined by the cost of their operations and they must report to the Crown on an annual basis with respect to their financial operations. The Crown also has a say in granting final approval to the annual operating budget. Given these realities, the Harbour Authorities have an identity of patrimony with the Crown.
[35] Under the Act the Crown is exempt from taxation. It cannot be consistent with the purpose of the legislation to penalize the Crown for creating vehicles whereby they can carry on their responsibilities more efficiently and with more community input. Given the identity of patrimony between the Harbour Authorities and the Crown, the Harbour Authorities should not be treated differently than the Crown for tax purposes.
CONCLUSION
[36] For these reasons I would dismiss the appeal. The parties have agreed that the successful party on the appeal is entitled to $2500 by way of costs and I would so order.
H. Sachs J.
Matlow J.
Ferrier J.
Released: May 19, 2010
CITATION: Wheatley Harbour Authority Corporation v. Municipal Property Assessment Corporation, 2010 ONSC 2499
DIVISIONAL COURT FILE NO.: 1806/09
DATE: 20100519
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
MATLOW, FERRIER and SACHS J.J.
BETWEEN:
THE WHEATLEY HARBOUR AUTHORITY CORPORATION AND THE ERIEAU HARBOUR AUTHOURITY
Applicants (Respondents in Appeal)
- and –
THE MUNICIPAL PROPERTY ASSESSMENT CORPORATION (“MPAC”), MUNICIPALITY OF LEAMINGTON and MUNICIPALITY OF CHATHAM-KENT
Respondents (Appellants in Appeal)
REASONS FOR JUDGMENT
SACHS J.
Released: May 19, 2010