ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-11-424814
DATE: 20120502

BETWEEN:

DR. NORMA NOWAK, PATRICIA MURRETT, DEREK CRANE, ORMA BLEEKS, LINDA CAMPBELL, ROBERT LUND
Plaintiffs

– and –

THE CORPORATION OF THE TOWN OF FORT ERIE, MOLINARO GROUP CRYSTAL BEACH WATERFRONT INC.
Defendants

John Keenan, for the Plaintiffs

Timothy J. Hill and Andrea Skinner, for The Corporation of the Town of Fort Erie
Michael Valente, for the Molinaro Group

HEARD: February 8, 2012

HAINEY J.

Overview

[ 1 ] This action relates to the Town of Fort Erie’s (the “Town”) waterfront redevelopment project for the Bay Beach Lands that adjoin Crystal Beach on the shoreline of Lake Erie. The Town and the Molinaro Group have entered into agreements for this project that provide for the transfer of a portion of the land from the Town to the Molinaro Group. The Molinaro Group is to construct a 12-storey residential condominium on the land in exchange for which they are to provide the Town with community benefits valued at approximately $3.5 million. The plaintiffs, who are municipal property owners and ratepayers, oppose the redevelopment project and seek a declaration that the agreements between the defendants are ultra vires and illegal as well as an injunction to prevent the project from proceeding on the grounds that it is outside the scope of the Town’s statutory powers, constitutes illegal bonusing and is without sufficient consideration.

[ 2 ] All parties seek summary judgment under Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and agree that a trial is not necessary. They submit that I should decide all of the issues raised in the plaintiffs’ action on the record before me.

[ 3 ] I agree that this is an appropriate case to grant summary judgment and for the reasons that follow, I find that the plaintiffs’ action should be dismissed.

Facts

[ 4 ] The Bay Beach Lands are located on the waterfront of Lake Erie in the community of Crystal Beach and front onto approximately 125 metres of beach adjoining the Town’s existing municipal public beach. Since the closure of the Crystal Beach Amusement Park in the 1980s, the Crystal Beach area has been in decline with very little development activity.

[ 5 ] A portion of the property that comprises the Bay Beach Lands was purchased by the Town in 2001 for the purpose of redeveloping and revitalizing the Crystal Beach community. At that time the Town intended to sell the non-beach lands in order to provide the Town’s ratepayers with a return on their investment and to assist in stimulating growth and development of the Crystal Beach community.

[ 6 ] After acquiring the property in 2001, the Town engaged in extensive consultations and explored various redevelopment alternatives for the Bay Beach Lands. In 2008, Town staff concluded that it could not afford to redevelop the property as a public facility and recommended that the Town involve the private sector in a redevelopment program for the area. The Town sought expressions of interest from developers with expertise in public-private waterfront developments and received submissions from two developers, including the Molinaro Group. In January 2009, Town staff evaluated the submissions from the two developers and concluded that the Molinaro Group’s submission was the better of the two. The Town was then authorized by Town Council to enter into a memorandum of understanding with the Molinaro Group, which it did, on July 8, 2009. Thereafter, the Town embarked on an extensive and comprehensive public consultation process in respect of the redevelopment project. It determined that a re-zoning application would be necessary to permit the proposed project and it held open houses in respect of the proposed re-zoning and redevelopment project in December 2009 and January 2010.

[ 7 ] In March 2010, Town Council considered an economic impact analysis report which concluded that the redevelopment project had an estimated value of approximately $33 million and would generate a number of positive impacts upon the local economy including:

• $85.8 million in total economic input;

• $19.9 million in labour income; and

• 387 full-time equivalent jobs during the construction phase.

[ 8 ] On March 1, 2010, Town Council passed By-law 26-10 which permitted an increase in the height and density of development permitted on the Bay Beach Lands in exchange for certain facilities and services to be developed on the land by the Molinaro Group that was to be “secured by an agreement or agreements pursuant to section 37(3) of the Planning Act .” Shortly thereafter, By-law 26-10 was appealed to the Ontario Municipal Board (“OMB”). In January 2011, following an eight day hearing, the OMB dismissed the appeals and concluded that By-law 26-10 and the redevelopment project was consistent with proper planning principles and compatible with the surrounding community. In September 2011, leave to appeal the OMB’s decision to the Divisional Court was denied.

[ 9 ] Before By-law 26-10 was passed, the Town obtained a fair market value assessment of the portion of the Bay Beach Lands that was to be transferred to the Molinaro Group for private development. The total appraised value of this property was approximately $2,700,000. Because the redevelopment project contemplates that a portion of this property will ultimately be reconveyed to the Town, the appraised value of the portion of the Bay Beach Lands that will ultimately be owned by the Molinaro Group is approximately $1,677,759. In June 2010, the Town entered into an Agreement of Purchase and Sale (the “APS”) and a Community Benefits Agreement (the “CBA”) with the Molinaro Group in order to implement By-law 26-10 and to secure the respective obligations of the parties regarding the redevelopment project. Section 3 of the APS provides as follows:

The purchase price for the property shall be the equal exchange of good and valuable consideration between the Buyer and the Town in the amount of TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS (CDN) $2,700,000, excluding Goods and Services Tax (GST) or Harmonized Sales Tax (HST) (as may be applicable at the closing date), and is more particularly detailed in the agreement to be entered into between the Buyer and the Town under section 37 of the Planning Act described in Section (8) of this Agreement.

[ 10 ] Under the APS the Town will receive no cash in the transaction as the purchase price is to be paid by the Molinaro Group by the provision of community benefits provided for under the CBA.

[ 11 ] The CBA provides a detailed description of the approximately $3,456,200 in community benefits that the Molinaro Group is required to provide to the Town and the conditions that must be adhered to. The community benefits include:

• A multi-purpose, indoor community pavilion with an estimated value of approximately $814,000;

• An outdoor podium and beachfront promenade with an estimated value of approximately $600,000;

• Various site works, open space improvements to Town-owned lands and public amenities with an estimated value of approximately $953,000;

• Road reconstruction and servicing works with an estimated value of approximately $736,000; and

• Parking lot improvements on the two existing Town-owned parking lots located on the north side of Erie Road with an estimated value of approximately $353,200.

Issues

[ 12 ] The issues to be determined are the following:

1. Are the actions of the Town in attempting to convey a portion of the Bay Beach Lands to the Molinaro Group in exchange for facilities and other public benefits to be provided under section 37 of the Planning Act, R.S.O. 1990, c. P.13 ultra vires the statutory authority of the Town, thereby rendering the APS null and void?

2. Does the Town’s plan to convey land to the Molinaro Group in return for facilities and other public benefits contravene section 106 of the Municipal Act, 2001 , S.O. 2001, c.25 because it constitutes an illegal bonus?

3. Is there no consideration from the Molinaro Group to the Town to support the APS, therefore, rendering it null and void?

4. Is the formation of a partnership between the Town and the Molinaro Group for the financial benefit of a commercial enterprise ultra vires the statutory authority of the Town and in contravention of section 106 of the Municipal Act, 2001 ?

5. Do the plaintiffs have standing to bring this action?

Issue 1 – Is the conveyance by the Town ultra vires?

Position of the Parties

[ 13 ] The plaintiffs submit that the conveyance of land by a municipality in return for the provision of community benefits by a developer pursuant to section 37 of the Planning Act is ultra vires because section 37 does not authorize the conveyance of land in exchange for the provision of community benefits. Section 37 of the Planning Act provides in part as follows:

(1) The council of a local municipality may, in a by-law passed under section 34, authorize increases in the height and density of development otherwise permitted by the by-law that will be permitted in return for the provision of such facilities, services or matters as are set out in the by-law.

(3) Where an owner of land elects to provide facilities, services or matters in return for an increase in the height and density of development, the municipality may require the owner to enter into one or more agreements with the municipality dealing with the facilities, services or matters.

[ 14 ] The plaintiffs argue that section 37 neither authorizes nor contemplates the conveyance of land in return for the provision of community benefits. As the APS provides that it is conveying land pursuant to section 37 of the Planning Act it is therefore ultra vires and should be declared null and void. Further, the plaintiffs submit that the Town cannot engage in an ultra vires act or “redraft” section 37 to allow for the conveyance of land pursuant to the APS in return for community benefits solely because it possesses the natural powers of a person.

[ 15 ] The defendants submit that the plaintiffs are isolating the components of the overall contractual arrangement between the parties, and in particular the APS, in a manner that is artificial and unreasonable. They submit that the overall contractual arrangement is complex and each component is fundamental to the business transaction as a whole. Under the overall contractual arrangement the Town will receive $3,456,200 in community benefits from the Molinaro Group, which the defendants submit, is more than adequate consideration for the benefits to be received by the Molinaro Group under the overall contractual arrangement.

[ 16 ] The defendants further submit that the land to be conveyed to the Molinaro Group is not being transferred pursuant to the Town’s statutory authority under section 37 of the Planning Act but pursuant to its authority to enter into contracts to convey land under section 9 of the Municipal Act, 2001 .

[ 17 ] The defendants argue that under section 9 of the Municipal Act, 2001 the Town has the power of a natural person to enter into contracts for the purpose of exercising its authority. Section 9 of the Municipal Act, 2001 provides as follows:

A municipality has the capacity, rights, powers and privileges of a natural person for the purpose of exercising its authority under this or any other Act.

[ 18 ] The defendants further submit that the components of the overall contractual arrangement, in particular the APS and the CBA, are integral parts of a sophisticated business transaction that was negotiated by Town staff at the direction of Town Council following an extensive planning and public consultation process. According to the defendants, the overall contractual arrangement is clearly within the scope of the Town’s general powers under the Municipal Act , 2001 , which should be broadly interpreted.

[ 19 ] According to the defendants, the CBA performs the combined function of:

• Securing certain community benefits for the Town pursuant to section 37 of the Planning Act , in exchange for the increased height and density permissions provided for by By-law 26-10; and

• Stipulating the total value and specific form of consideration owing from the Molinaro Group to the Town in exchange for the Town’s transfer of a portion of the Bay Beach Lands to the Molinaro Group under the APS.

Analysis

[ 20 ] I agree with the defendants that the Town has the powers of a natural person, including the power to enter into contracts, such as the APS and the CBA, for the purpose of exercising its statutory authority.

[ 21 ] Further, under section 11 of the Municipal Act, 2001 the Town is authorized to provide any service that it considers necessary or desirable for the public and it may pass by-laws to achieve this end. The Town’s waterfront redevelopment project is intended to revitalize the Crystal Beach community and to improve the economic well-being of the local economy. Under section 8 of the Municipal Act, 2001 the Town’s powers are to be interpreted broadly so as to enable it to govern its affairs as it considers appropriate. Section 8 (1) provides as follows:

The powers of a municipality under this or any other Act shall be interpreted broadly so as to confer broad authority on the municipality to enable the municipality to govern its affairs as it considers appropriate and to enhance the municipality’s ability to respond to municipal issues.

[ 22 ] As the Ontario Court of Appeal confirmed in Fourth Generation Realty Corp. v. Ottawa (City) , 2005 16568 (ON CA) , 254 D.L.R. (4 th ) 315, at paragraphs 29 and 31 :

The Supreme Court of Canada has made it abundantly clear that courts must adopt a deferential approach to municipal governments and apply a liberal and benevolent interpretation of their powers…

The Municipal Act , 2001 gives municipalities broad authority over generally defined matters. It is meant to provide municipalities with a broader, more flexible framework within which to work.

[ 23 ] In my view, the overall contractual arrangement for this redevelopment project is within the scope of the Town’s general powers under the Municipal Act, 2001 . The individual components of the contractual arrangement between the parties, such as the APS and the CBA, are integral parts of a sophisticated business transaction between the Town and the Molinaro Group. The arrangement was negotiated by Town staff at the direction of Town Council following an extensive planning and public consultation process and was duly authorized by a by-law that has been upheld by the OMB. Accordingly, for the reasons cited by the defendants, I find that the overall contractual arrangement, including the APS and the CBA, is intra vires the Town’s statutory powers under sections 8 , 9 and 11 of the Municipal Act , 2001 and section 37 of the Planning Act . The plaintiffs’ claim in this respect, accordingly, fails.

Issue 2 – Does the contractual arrangement constitute an illegal bonus?

[continues exactly as provided in the source text…]

HAINEY J.

Released: May 2, 2012

COURT FILE NO.: CV-11-424814
DATE: 20120502

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

DR. NORMA NOWAK, PATRICIA MURRETT, DEREK CRANE, ORMA BLEEKS, LINDA CAMPBELL, ROBERT LUND
Plaintiffs – and –
THE CORPORATION OF THE TOWN OF FORT ERIE, MOLINARO GROUP CRYSTAL BEACH WATERFRONT INC.
Defendants

REASONS FOR JUDGMENT

HAINEY J.

Released: May 2, 2012