ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-10-1864
DATE: 2015/07/17
BETWEEN:
Middlesex Condominium Corporation 229
M. Paul Morrissey, for the Plaintiff
Plaintiff
– and –
WMJO Limited, Ayerswood Development Corporation, Middlesex Condominium Corporation 282, Middlesex Condominium Corporation 492 and Middlesex Condominium Corporation 500
F. Scott Turton, for the Defendants
Defendants
HEARD: February 11, 12 and 13, 2015
LEITCH J.
REASONS FOR JUDGMENT
[1] The plaintiff is a condominium corporation created under the Condominium Act, 1998, S.O. 1998.
[2] In this simplified trial, the plaintiff seeks a finding that the defendants are liable to contribute to the operating and maintenance costs of a private sewage system. The plaintiff contracts with a plumbing company for the required regular maintenance and cleaning of the pumps and tanks. Sludge must be removed from the tanks every three months. It arranges for repairs, pays the insurance, electrical and alarm system bills, and posts the performance bond required under the Ministry of the Environment certificate of approval. It invoices the owners of townhouse complexes whose units have been connected to sewage systems for their proportionate share of the expenses.
[3] In its third amended statement of claim, the plaintiff seeks a declaration that one or more of the defendants are jointly or severally obligated to contribute, on a pro rata basis, to the costs of maintaining and operating the jointly used sewer system. In the alternative, the plaintiff seeks an order requiring the defendants to pay to the plaintiff the equivalent of 26.92% of the plaintiff's expenses to operate the jointly used sewage facilities from 2008 until the disposition of this action.
[4] Originally, the plaintiff based its claim on a joint use and maintenance agreement, which binds the successors and assigns of the parties to the agreement, as described below.
[5] However, in Amberwood Investments Ltd. v. Durham Condominium Corporation No. 123, 2002 44913 (ON CA), [2002] O.J. No. 1023 (C.A.), 58 O.R. (3d) 481, the Ontario Court of Appeal, at para. 33, held that positive covenants do not run with freehold land, either at law or in equity. Therefore, in that case the defendant was not bound by a positive covenant to pay interim expenses under an agreement solely by virtue of having acquired the lands with notice of the terms of the agreement.
[6] As a result, the plaintiff at this trial pursues its alternative relief and seeks a remedy against the defendants on the basis of unjust enrichment and in the alternative, on the basis that there was, and is, an expressed or implied agreement between the plaintiff and one or more of the defendants to the effect that parties jointly using facilities will share the costs of maintaining and operating such facilities on a proportionate basis.
[7] The plaintiff noted in paras. 70 - 73 of its factum that:
- The defendant takes the position that the plaintiff's remedy is limited to a percentage of the hydro bills, because the plaintiff would bear all of the other costs in any event. This does not take into account a number of factors including the following:
a) increased costs from having to maintain a system designed for 156 rather than 42 units;
b) a corresponding increase in wear and tear on the works;
c) increased amount of sludge that must be removed from the holding tanks every three months;
d) increased risk of foreign objects being flushed into the system, resulting in system breakdowns, emergency calls and unscheduled repairs;
e) increased amount of sewage that would have to be hauled away from the site in the event of system failure.
- Nor does the defendant's position take into account the substantial value to the defendant in:
a) not having to incur the expense of firstly constructing and then operating a private sewage system;
b) not being exposed to environmental and regulatory liabilities as the system operator;
c) not having to deal with day to day management of the system, including contracting, supervising, decision-making, arranging insurance and bonding and ensuring that applicable regulatory requirements are being met;
d) not having to deal with system emergencies.
Whether viewed as a common venture in respect of which it is unjust to not require one of the joint partners receiving a benefit to not contribute, or a service which is being accepted with knowledge that payment is expected, it is submitted that the best measure for determining the remedy for unjust enrichment is the actual amount the plaintiff must pay to third parties to maintain and operate the system, which can be fairly taken as evidence as to the market price for such services, and then apportion that expense among the users on a pro rata basis.
As this is a bifurcated proceeding, any issues with respect to the reasonableness of the sums being expended to maintain the system can be challenged at the second part of this trial at which time the issue of the quantum payable shall be determined.
[8] The defendants ask that the court declare that the defendants are not jointly or severally obligated to contribute, on a pro rata basis to costs arising under the joint use and maintenance agreement or to contribute, on a pro rata basis to the costs of maintaining and operating the jointly used sewer systems. The defendants ask that the action otherwise be dismissed with costs and they seek costs against the plaintiff and each unit owner in accordance with that unit's proportionate share specified in the declaration.
Procedural History
[9] This action originally began with three proceedings in the Small Claims Court. These three small claims court claims were defended and consolidated under Rule 76 into this action.
[10] On June 26, 2013, the plaintiff moved for summary judgment before Gorman J. seeking a finding that the defendants were liable under the joint use and maintenance agreement earlier referred to or liable in equity to pay a proportionate share of the costs of the sewage pumping facility. The motion was dismissed.
[11] The order of Gorman J. was appealed to the Court of Appeal. The Court of Appeal quashed the appeal on March 3, 2014, finding that Gorman J. had not made a final order.
[12] At a pre-trial conference before Leach J. on October 9, 2014, the parties agreed to bifurcate the issues of liability and damages. The parties agreed to have the issue of liability determined at this summary trial.
Background Facts
[13] In order to build a 156 townhouse development on Hamilton Road in London, Ontario the original developer, Trenlon Developments Limited ("Trenlon") was required by the City of London (the "City"), pursuant to s. 41 of the Planning Act, R.S.O. 1990, c. P.13, to construct a private sewage system to carry waste uphill from the townhouse development to the municipal sewage lines.
[14] Trenlon entered into a development agreement with the City.
[15] Mr. Graat signed the development agreement on behalf of Trenlon and the agreement was registered against the title to the property on August 31, 1989.
[16] The development agreement required Trenlon to construct and maintain a sanitary sewer pumping station with the capacity to service 156 townhouse units.
[17] As it developed each phase of the property, Trenlon was required, as set out in para. 9 of the development agreement, to enter into an agreement with the owners of other phases to provide for the joint use and maintenance of the common internal driveway and services.
[18] Sub-paragraph 13(h) of the development agreement required as follows:
The Owner [Trenlon] hereby agrees to design, construct, maintain and operate a sanitary pumping station in accordance with City of London and Ministry of the Environment guidelines and specifications, to serve this development. The Owner further agrees to incorporate a high water alarm or other alarm in the pumping station that will signal a system failure of every nature or kind including electrical and mechanical failure. Such a design shall be approved by both the City of London and the Ministry of the Environment as part of the specification approval process. The parties hereto agree that the pumping station will not be assumed by the City of London as part of the City’s sewage system and the Owner shall remain liable for the maintenance thereof, all in accordance with the information specifications and documents filed and approved by the City of London and the Ministry of the Environment. Notwithstanding any other term of this agreement the parties hereto agree that this covenant shall be binding on the transferee, its heirs, administrators, successors and assigns and upon the Owners from time to time of the lands herein conveyed and shall run with the land, the subject of this agreement and be binding thereon.
[19] Paragraph 27 of the development agreement provided that its terms and conditions would run with the land and be binding upon all successors and assigns as subsequent owners and occupiers of the lands from time to time.
[20] In September 1989, Trenlon sold the property to Award Developments (Ontario) Limited ("Award"), retaining a small parcel which was later conveyed to the City to widen Hamilton Road.
[21] Award transferred a portion of the property to a related company, Double G Contractors Limited ("Double G"), in March, 1990.
[22] The sewage system was approved under the Ontario Water Resources Act, R.S.O. 1990, c. O.40 on September 26, 1990, and a licence was issued to Double G permitting 156 townhouse units to connect to the sewage system.
[23] On December 13, 1990, Double G and Award entered into a joint use and maintenance agreement which provided for a sharing of certain joint facilities. The other parties to this joint use and maintenance agreement were Central Guaranty Trust Company and Junsen Limited in Trust ("Junsen") which held mortgages on the lands.
[24] The recitals to the agreement indicated that it was contemplated that Double G would create a condominium corporation on part of the property and that three further separate condominium corporations would be created in three further phases on the remainder of the land owned by Award.
[25] The final recital to the agreement stated the desirability of having a joint use and maintenance agreement "for the regulation of future repair, maintenance, and/or replacement of the joint facilities and to provide for payment in respect thereof."
[26] Paragraph 1 of the agreement itself stated that Double G and Award would use, enjoy and maintain the joint facilities, which were described in the agreement as the pumping station, the internal road system and certain utilities and services.
[27] Paragraph 7 provided that each phase of the four phase project would "assume and be responsible for a proportionate share of the costs and expenses of maintenance, repairs and/or replacement of the joint facilities."
[28] Double G and Award agreed that the terms of the agreement would not be altered without the consent of Central Guaranty or Junsen during the time that those entities held mortgages on any part of the properties.
[29] Central Guaranty and Junsen executed the agreement to confirm their knowledge of it and they postponed their mortgage interests to the joint maintenance agreement. Mr. Graat signed the agreement on behalf of Junsen.
[30] Between 1989 and 1991 Double G developed its property into a 43 unit townhouse complex. This project was registered as Middlesex Condominium Corporation 229 (the current plaintiff) on June 5, 1991. Each of the 43 townhouse units have been sold to individual owners and these individual unit owners now own a proportionate share of the common elements including the sewage pumping station as tenants in common with all other unit owners.
[31] In 1991, the property owned by Award was transferred to 683024 Ontario Limited ("683024"), a company in which Mr. Graat is an officer and director. As Mr. Graat testified, Award defaulted on its mortgage to Junsen, Junsen stepped in and his company 683024 became the owner of the property.
[32] In 1993, 683024, transferred part of these lands to WMJO Limited ("WMJO"), another company in which Mr. Graat is a director and officer. WMJO continues to own these lands after developing them in phases between 1993 and 2003 into three condominium corporations: Middlesex Condominium Corporation 282 registered October 21, 1993; Middlesex Condominium Corporation 492 registered December 27, 2001, and Middlesex Condominium Corporation 500 registered April 5, 2002 (the "defendant condominium corporations").
[33] Each of the defendant condominium corporations has 14 townhouse units which are rented by the owner, WMJO. WMJO first retained Key Property Management Limited ("Key Property") as its property manager, then Cornerstone Properties Inc. ("Cornerstone") and then more recently Ayerswood Development Corporation ("Ayerswood"). Mr. Graat is a director and officer of Key Property, Cornerstone and Ayerswood.
[34] Each of the 42 units owned by WMJO is connected to the private sanitary sewer system owned by the unit owners in the plaintiff's project.
[35] In 1993, 683024 transferred the balance of the property to a third party. This portion of the property was developed into a 71 unit housing co-operative known as Oaklands Housing Co-Operative ("Oaklands").
[36] Therefore, there are five townhouse style complexes consisting of 156 residential units on the property that was originally the subject of the development agreement between Trenlon and the City (the 43 units which are part of the plaintiff's condominium complex, the 42 units which are part of the three defendant condominium complexes and the 71 units in Oaklands) which all share certain amenities and infrastructure, in particular, the use of common entrances from Hamilton Road, the internal roadways, a common storm water sewage system and a common sanitary sewage system. These complexes also share the same municipal addresses.
The Documentary Evidence Presented at the Summary Trial
[37] At this hearing to deal with the issue of liability, the plaintiff filed, on consent, a two-volume exhibit brief, which included an agreed statement of facts (Exhibit 1).
[38] In addition, the parties filed a plaintiff's brief of miscellaneous documentation (Exhibit 2); an affidavit from Mr. Leonard Reich, who was the plaintiff's lawyer from 1993 until the late 90s, to which was attached 76 exhibits (Exhibit 3); the plaintiff's financial statements for the 1992 to 2009 fiscal years (Exhibit 4); a brief of the minutes of the plaintiff's Board of Directors from 1995 to September 2003 (Exhibit 5); the defendants' affidavits for trial (Exhibit 6) which included the affidavit of Susan Turton, outlining the history of ownership of the property, and an affidavit of Mr. John Camara, a construction manager for Ayerswood, affirmed June 17, 2013, an affidavit of Mr. Graat affirmed June 17, 2013, and a supplemental affidavit of Mr. Camara affirmed January 22, 2015; a second volume of defendants' affidavits (Exhibit 7), which included a second affidavit of Mr. Graat affirmed February 11, 2015 and a third affidavit of Mr. Camara affirmed February 11, 2015; and, a two-volume brief of exhibits referenced by Ms. Lozon, containing 77 documents (Exhibit 8).
The Oral Evidence Presented at the Summary Trial
[39] Mr. Reich, Mr. Camara and Mr. Graat were cross-examined on their affidavits.
[40] Ms. Lozon, the plaintiff's property manager from 1991 - 2003, had been examined pursuant to Rule 36 on December 2, 2014. Her testimony was videotaped and the videotape was viewed as part of the trial.
[41] Mr. Joel Corbett, a plumber retained by the plaintiff, and Ms. Froggett, a member of the plaintiff's board of directors, testified as part of the plaintiff's case.
[42] I note that the transcript of Ms. Lozon's examination is not part of the evidentiary record, nor is the transcript of the examination for discovery of Mr. Camara, dated May 9, 2012. Parts of his examination for discovery were read into evidence by Mr. Morrissey as part of the plaintiff's case.
The Sewage System
[43] On the land in question, the ground slopes downward from Hamilton Road which means that the townhouse basements are lower than the municipal sewer pipes and therefore, must be pumped uphill. Instead of constructing multiple sewage systems a single shared sewage system was developed that would be used by all of the complexes.
[44] Sewage flows from the townhouses by gravity to a central round buried tank. There are two sewage ejector pumps that are triggered once the water level reaches a certain height. The sewage then gets pumped through a pipe that connects to the City sewage line on Hamilton Road. The pump turns off when the water level has dropped below threshold level. South of the sewage pit are two large concrete retention tanks. If there is too much waste in the pit, the sewage flows to the retention tanks to avoid overflow. There is a switch that activates an alarm when the sewage level reaches unacceptable levels. The alarm is carried by a telephone line.
[45] Mr. Corbett, a licenced plumber, has serviced the plaintiff's sewage pumping system and described regularly testing the equipment and responding to service calls including on one occasion at 4:30 a.m. on a Saturday.
[46] He described the pumping station as having two electrical systems, one for the pump and one for the lights.
[47] He testified that the system has a very large tank, which is much too large for only 43 units.
[48] He described plugged pumps as being a common problem and various things such as flushable wipes and mop heads getting stuck in the pumps. As he testified, the more items flushed into the pumps, the more potential for problems and the more the equipment gets used, the more it wears down.
[49] On cross-examination he acknowledged that he had no idea where a mop head that had caused a problem would have come from and the same is true for flushable wipes.
(Decision continues with the remaining numbered paragraphs exactly as in the original text up to paragraph [141], concluding with the declaration that WMJO must pay a pro rata share of the expenses to maintain and operate the plaintiff's private sewage system.)
“Justice L.C. Leitch”
Justice L.C. Leitch
Released: July 17, 2015
COURT FILE NO.: CV-10-1864
DATE: July 17, 2015
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Middlesex Condominium Corporation 229
Plaintiff
- and -
WMJO Limited, Ayerswood Development Corporation, Middlesex Condominium Corporation 282, Middlesex Condominium Corporation 492 and Middlesex Condominium Corporation 500
Defendants
REASONS FOR JUDGMENT
LEITCH J.
Released: July 17, 2015