ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 281/13
DATE: 2015 09 14
AMENDED: 2015 10 15
BETWEEN:
ORANGEVILLE RAILWAY DEVELOPMENT CORP.
Effie Lidakis and John C.L. Ritchie, for the Applicants
Applicant
- and -
THE CORPORATION OF THE CITY OF MISSISSAUGA, THE CORPORATION OF THE CITY OF BRAMPTON, THE CORPORATION OF THE TOWN OF CALEDON, MUNICIPAL PROPERTY ASSESSMENT CORPORATION
John L. O’Kane, for the Defendants Caledon, Mississauga & Brampton
Donald G. Mitchell, for the Defendants MPAC
Respondents
HEARD: March 2 and May 11, 2014
in Orangeville, Ontario
AMENDED REASONS FOR DECISION
(See paragraphs 4, 33, 37, 41, 42, 45, 53, 59, 62, 65, 66 & 68)
EMERY J
[1] The Orangeville Brampton Railway runs a short distance across southern Ontario, from Orangeville to Mississauga.
[2] The Town of Orangeville is the sole shareholder of the applicant, Orangeville Railway Development Corporation (“ORDC”), which owns the Orangeville Brampton Railway (the “OBRY”). The rail line for the OBRY runs over roadbeds and rights of way that pass through the neighbouring municipalities of Caledon, Brampton and Mississauga. Since ORDC acquired the railway in 2011, it has paid municipal taxes for the rail line to those municipalities it travels through. This includes the payment of municipal taxes to the Town of Orangeville.
[3] ORDC brings this application to seek a declaration from the court that it is exempt from the payment of municipal taxes with the enactment of section 315(1) of the Municipal Act, and for a tax refund of municipal taxes already paid. The respondent municipalities and the respondent Municipal Property Assessment Corporation (“MPAC”) vigorously resist the application. There is also an issue raised by the respondents that even if ORDC is exempt from the payment of tax, it is statute barred from recovering taxes paid prior to 2013 when this application was commenced.
[4] The Municipal Property Assessment Corporation is joined as a respondent to the application because of its statutory role to determine the assessed value of property for the purposes of taxation under the Assessment Act. The respondent MPAC is the “assessment corporation” defined under section 1(1) of the Assessment Act and has a gatekeeper function to perform with respect to the assessment of land owned by a railway line company reported under section 30 of the Assessment Act to determine whether section 3(4) applies to or excludes that land.
RELEVANT BACKGROUND
[5] ORDC purchased the OBRY railway lands from Canadian Pacific Railway Company (“CPR”) on September 29, 2000. Prior to this purchase, CPR operated the railway lands now operated as the OBRY as part of its overall network. The OBRY was formerly part of what the CPR operated as its Owen Sound subdivision.
[6] The Owen Sound subdivision had been constructed in the 1850’s by CPR to operate as a main line between Mississauga to the south, and the City of Owen Sound to the north. In the 1970’s, CPR discontinued the use of that portion of the Owen Sound subdivision north of Orangeville, took up the rail tracks and sold the lands over which they travelled.
[7] In the 1990s, CPR served notice that it intended to discontinue most of the remainder of the Owen Sound subdivision. In 1998, CPR offered to transfer all of its interest in the railway line to municipal governments under section 145 of the Canada Transportation Act. Orangeville, Caledon and Brampton all accepted this offer, but ultimately it was only Orangeville that completed the purchase of that portion of the Owen Sound subdivision. If Orangeville had not completed this purchase, the Owen Sound subdivision would have been discontinued, the tracks taken up and the land sold by CPR. This would have left businesses in the Orangeville area with no rail service.
[8] Several businesses in Orangeville considered closing their existing operations in the Orangeville area and moving them elsewhere if the railway service was discontinued. Those businesses, and the Town of Orangeville therefore entered into an agreement in June of 2000 where Orangeville would pay the property taxes and liability insurance in connection with the railway line, and the businesses would look after the operation, maintenance and administration of the railway line, including repairs and improvements, for ten years. Those businesses formed a consortium known as the Orangeville Brampton Rail Access Group (“OBRAG”), who signed an internal memorandum of agreement between themselves.
[9] OBRAG also incorporated the Orangeville Brampton Rail Access Group Inc. (“OBRAG Inc.”) to contract with third parties. OBRAG Inc. entered the Orangeville/Rail Users’ Agreement in June 2000 with Orangeville to enable Orangeville to negotiate with CPR to purchase the Owen Sound subdivision part of that railway line from CPR.
[10] The Orangeville/Rail Users’ Agreement also contemplated that ORDC and OBRAG Inc. would contract with a shortline railway operator to actually operate the OBRY.
[11] In negotiating with CPR, Orangeville incorporated ORDC as the ownership vehicle to purchase the railway line.
[12] ORDC is not a party to the Orangeville/Rail Users’ Agreement. Orangeville did not and has not assigned its rights and obligations under that agreement to ORDC. The Acknowledgement and Confirmation Agreement dated September 20, 2000 is not an assignment of the Orangeville/Rail Users’ Agreement by Orangeville to ORDC. The purpose of the Acknowledgement and Confirmation Agreement was specifically to confirm that the agreement with the Town of Orangeville, now ORDC has been incorporated and will be acquiring the rail line on or about September 29, 2000. This acknowledgement and confirmation was made by OBRAG Inc. and the six businesses at the time that made up OBRAG. Further, ORDC was not a party to the Acknowledgement and Confirmation Agreement.
[13] ORDC purchased the portion of the Owen Sound subdivision, which included a part of the line extending to Orangeville, from CPR for $3.5 million in accordance with an Asset Purchase Agreement dated September 29, 2000. The assets that ORDC purchased included the rail line between Mississauga and Orangeville, a railway station in Orangeville and an extensive railway yard.
[14] The railway lands purchased by the ORDC consist of approximately 286 acres of land stretching in a linear fashion for 34.3 miles between Mississauga and Orangeville.
[15] At the same time that Orangeville negotiated the Asset Purchase Agreement with CPR, Orangeville negotiated an agreement with OBRAG and Cando Contracting Ltd. (“Cando”), a shortline railway operator. This further agreement between Orangeville, OBRAG and Cando has become known as the Tripartite Agreement. The Tripartite Agreement sets out the rights and obligations with respect to the management and operation of that portion of the rail line purchased by ORDC from CPR, which was renamed the Orangeville Brampton Railway.
[16] The Orangeville/Rail Users’ Agreement and the Tripartite Agreement, along with certain other separate agreements between OBRAG, Cando and CPR has governed the use, operation, administration and maintenance of the Orangeville Brampton Railway, along with repairs and improvements to the railway line, since September 2000.
[17] Under the Tripartite Agreement, ORDC granted Cando the exclusive right to operate the rail line for an annual rent of one dollar. Cando is the actual operator licenced to operate the rail line as a shortline railway company under the Shortline Railways Act, 1995. Cando is therefore solely responsible for the operation of the Orangeville Brampton railway under the Tripartite Agreement, and at law.
[18] The Tripartite Agreement also contains the following terms:
(a) In paragraph 1, the parties agree that ORDC is entering into the Tripartite Agreement for the sole purpose of enabling Cando to operate a shortline railway on the railway line.
(b) In paragraph 22, that ORDC will retain all its rights and obligations as the property owner of the rail line subject to the licence granted to Cando and subject to the terms of the Orangeville/Rail Users’ Agreement.
(c) In paragraph 23, that ORDC is responsible for the payment of realty taxes against the rail line.
(d) In paragraph 24, OBRAG or Cando must obtain ORDC’s consent prior to making improvements on the rail line.
(e) In paragraph 26, ORDC may undertake or licence other uses of the rail line lands including the installation of fibre optic cables or communications infrastructure, underground service pipes or cable signs and the construction of pedestrian or utility corridors. Upon following a protocol to interact with Cando and OBRAG before or in the course of doing so.
[19] Specifically, paragraph 23 of the Tripartite Agreement reads as follows:
Orangeville (or Railco) agrees to be responsible for the timely payment of all real property taxes assessed against the Rail Line. Except for the payment of said real property taxes, the parties agree that CANDO’s license to operate a shortline railway on the Rail Line and to provide rail services on the Rail Line as hereinafter set out shall be considered net to Orangeville (or Railco). In other words, CANDO and OBRAG agree to be responsible for all other expenses associated with the Rail Line. Moreover, if CANDO or OBRAG should make any improvements to the Rail Line property which result in an increase in real property taxes, then CANDO or OBRAG accordingly shall pay for such increases in the real property taxes. Orangeville (or Railco) shall not charge CANDO or OBRAG ay lease costs for the Rail Line.
[20] The Tripartite Agreement also contains paragraph 71 where Cando acknowledges that the agreement is a licence and shall not be construed as a lease. Paragraph 71 also provides that Orangeville retains its rights as the owner of the railway as set out in paragraph 22 of the Agreement which makes those rights subject to the Orangeville/Rail Assets Agreement. Orangeville assigned its rights and obligations in the Tripartite Agreement to ORDC on September 22, 2000.
[21] The Orangeville/Rail Users’ Agreement provided the following agreements between rail users and OBRAG to the Town of Orangeville to pay for the operation, maintenance and administration of the shortline railway on the rail line for a period of 10 years after Orangeville’s purchase of the rail line from CPR:
(a) In paragraph 3(a), OBRAG and the rail users are required to fund the operation, maintenance and administration of a shortline railway except for realty taxes.
(b) In paragraph 3(b), the rail users agree that Orangeville will be a third party beneficiary of the rights and/or obligations of the rail users as set out in the OBRAG memorandum of agreement for the purposes of enforcing the payment obligations of any of the rail users pursuant to the ORAG agreement.
(c) In consideration of the covenants and commitments given by OBRAG and the grant by the rail users of third party beneficiary status to Orangeville, OBRAG is entitled to all revenues of the shortline railway operation on the rail line for a period of 10 years, save and except for revenues that do not relate to the operation and maintenance of the shortline railway.
(d) In paragraph 5, OBRAG’s 10 year commitment may be reduced if the rail users have collectively made $10 million in capital improvements to their plant and equipment.
(e) In paragraph 8, provided the rail users and OBRAG have honoured their obligations, the Town of Orangeville shall undertake to negotiate in good faith a basis for continuing the operation of the rail line.
(f) In paragraph 2, the Town of Orangeville shall purchase a rail line in its own name or in the name of a company which it shall incorporate, provided that, among other things, OBRAG enters into an agreement with CPR regarding rail traffic over the rail line, OBRAG along with Orangeville or the company it will incorporate and CPR enter into an agreement with a shortline railway operator such as Cando to operate a shortline railway on the rail line.
[22] The Tripartite Agreement was extended three times prior to the termination of the share purchase agreement with Highland. It was extended a third time in July 2014 to September 29, 2022. ORDC relies upon a number of paragraphs in extension agreement number three, including the following paragraphs:
The parties confirm that pursuant to the OBRAG Agreement [a.k.a. Orangeville/Rail Users’ Agreement], as extended by Extension Agreement No. 1 and Extension Agreement No. 2, OBRAG: (i) is an occupier of the OBRY; (ii) had, and continues to have, the right of exclusive possession of the OBRY, save for the Credit Valley Explorer (“CVE”) passenger service for which OBRAG, at its sole discretion, grants its permission to operate on the OBRY from time to time, on a strictly without liability basis; and (iii) is responsible for controlling the OBRY through OBRAG’s operation, maintenance and administration of same.
Furthermore, the parties hereby confirm that ORDC had, and continues to have, the intention of creating an estate in the OBRY in favour of OBRAG, with ORDC is a lessor and OBRAG is a lessee of the OBRY pursuant to the [Orangeville/Rail Users’ Agreement], as extended by Extension Agreement No. 1 and Extension Agreement No. 2.
The parties hereby confirm that this Extension Agreement No. 3 serves, inter alia, as a further lease renewal agreement of the [Orangeville/Rail Users’ Agreement] between ORDC, as landlord, and OBRAG as tenant, of the premises known as the OBRY. Furthermore, the valuable consideration given by OBRAG to ORDC for the right of exclusive possession of the OBRY remains unchanged from that provided in the [Orangeville/Rail Users’ Agreement], as extended.
ORDC and OBRAG expressly state that their intention for entering into the [Orangeville/Rail Users’ Agreement] was to create the relationship of lessor-lessee, respectively, between them with respect to the OBRY. Furthermore, ORDC and OBRAG hereby confirm their mutual intention to continue the lease agreement, being the [Orangeville/Rail Users’ Agreement], by way of this Extension Agreement No. 3.
Notwithstanding anything to the contrary in either of the OBRY Agreements, ORDC and OBRAG state that each of them had the intention of creating a lessor-lessee relationship as between them with respect to the OBRY, which terms of the lease agreement are provided for in the [Orangeville/Rail Users’ Agreement].
In the event that ORDC and OBRAG failed to create a lessor-lessee relationship as between them with respect to the OBRY through the [Orangeville/Rail Users’ Agreement] and extensions thereto despite their mutual intention of doing so, then this Extension Agreement No. 3 shall correct any such failure to adequately capture this intention.
ORDC and OBRAG agree that they shall make such further and other provisions or amendments to either or both of the OBRY Agreements to correct any such shortcoming of a lease agreement as between them.
The parties also confirm Cando as the licensee to operate the OBRY pursuant to the OBRY Agreements.
[23] Through the operation of the Orangeville/Rail Users’ Agreement and the Tripartite Agreement, OBRAG is responsible for the costs of operating, maintaining and administrating the rail line except for property taxes and insurance which are contractually the responsibilities of ORDC and Cando, respectively. OBRAG is entitled to all of the revenues of the shortline railway on which Cando operates the rail line, save and except for revenues that do not relate to the operation and maintenance of the shortline railway. Cando is entitled to annual revenue in the amount of $350,000 from railway operations plus 50 percent of any other railway operation. ORDC is entitled to non-operational revenues from easements, licences or leases for cables and wires, signs or water, sanitary and storm sewers, communication towers and shelters located in or on the rail line.
[24] OBRAG has spent significant amounts of money each year to repair, maintain, improve and manage the OBRY. In the last three years, OBRAG has expended $1.8 million towards the repair maintenance, improvement and management of the OBRY and its infrastructure. The maintenance and improvement of the OBRY rail line has kept it operational at Canadian Rail Standards for a Class 2 track. The OBRAG expenditures to maintain and improve the OBRY has provided benefits to Orangeville by retaining OBRAG member companies located in Orangeville, which have continued their operations through the service and use of the rail line.
[25] In 2008, Orangeville entered into negotiations with 3217916 Nova Scotia Corporation, known as the “Highland Rail Group” for the sale of shares in ORDC to Highland for a minimum of $5 million. Orangeville and Highland entered a share purchase agreement that was conditional in nature and ultimately terminated by Highland in late 2012. In the course of the share purchase agreement, Highland paid the ORDC property taxes in excess of $2 million in total to those municipalities which are respondents to this application. These taxes were paid pursuant to article 8.1(a) of the share purchase agreement by Highland as the buyer, which reads as follows:
8.1 Pre-Closing Payments
In consideration of the Seller providing access to the Buyer to make due diligence investigations of the Corporation, as set out in Section 7.10, and the Seller granting the Buyer the right to extend the Pre-Closing Condition Period, as set out in Section 8.2, the Parties agree as follows:
(a) The Buyer shall pay directly to the applicable municipalities or shall reimburse CPRC, to the extent CPRC receives invoices for realty taxes and makes applicable payments, the realty taxes for the Railway Lands owed by the Corporation to the municipalities of Mississauga, Brampton, Caledon and Orangeville (except the realty taxes for the Excluded Assets which shall remain the responsibility of the Seller) up to and not exceeding the sum of five hundred and fifty thousand dollars ($550,000.00) per calendar year…
[26] ORDC currently pays a total in excess of $400,000 annually in assessed taxes to the respondent municipalities. ORDC seeks a declaration that it is exempt from the payment of municipal taxes to the respondent municipalities pursuant to section 315 of the Municipal Act, 2001, and an order requiring the respondent MPAC to amend the assessment rolls for those respondent municipalities to negate any tax liability of ORDC.
[27] ORDC also seeks judgment in an amount sufficient to refund all municipal taxes paid to the respondent municipalities for the tax years 2011, 2012, 2013, 2014 and 2015 pursuant to Ontario Regulation 387/98 of the Municipal Act, and Ontario Regulation 392/98 of the Education Act.
ANALYSIS
[28] Municipalities tax land in Ontario under the Assessment Act, R.S.O. 1990, c. A.31. Section 3(1) provides that all real property in Ontario is liable to assessment and taxation, subject to certain enumerated exceptions.
[29] Short railway lines are not exempt from the taxation scheme for railway land that runs through any municipality. The ORDC brings this application for exemption under section 315(1), paragraph 1. Section 315(1) of the Municipal Act, 2001, S.O. 2001, c. 25, reads as follows:
Taxation of certain railway, power utility lands
(1) Every local municipality shall impose taxes, in accordance with the regulations, on the following land:
The roadway or right-of-way of a railway company, other than the structures, substructures and superstructures, rails, ties, poles and other property on the roadway or right-of-way, not including land leased by the railway company to another person for rent or other valuable consideration.
[30] The roadway or right-of-way of a railway company that runs through a municipality is subject to taxation because it is not exempt under section 3 of the Assessment Act. Those lands are expressly taxable under section 315(1) paragraph 1, except as provided for in section 315(1) paragraph 1 as “not including land leased by the railway company to another person for rent or other valuable consideration”.
[31] The City of Mississauga, the City of Brampton and the Town of Caledon have each collected taxes from the ORDC under Ontario Regulation 387/98 of the Municipal Act and Ontario Regulation 392/98 under the Education Act each year since the Highland group terminated the asset purchase agreement in 2012. ORDC seeks a refund of the taxes paid to the City of Mississauga of $9,823.04, from the City of Brampton in the amount of $107,393.76 and also $3,427.31, and from the Town of Caledon $305,374.56 for each year between 2011 to 2014 inclusive in addition to a declaration that those rail lands are exempt from municipal taxation going forward. The total amount of refund claimed by ORDC against the respondent municipalities adds up to at least $1,656,379.14.
[32] ORDC, as the person against whom the land is assessed by each of the respondent municipalities, brings this application for the court to determine any matter relating to the assessment or taxation of those lands by each of the respondent municipalities under section 46(1) of the Assessment Act.
[33] Railway lands are unique. Instead of basing the assessment on which taxes shall be charged on the current value of land under section 19 of the Assessment Act, railway lands are assessed according to regulations by virtue of section 3(4) of the Assessment Act that essentially provides no assessed value or classification by MPAC is required. Instead, railway lands are assessed according to schedules prescribed by regulation under the Municipal Act for payment to the lower-tier government to finance municipal services, and under the Education Act for the applicable levy to fund schools and education in that municipality.
[34] ORDC has made no challenge to the actual amounts for which it has been assessed for its rail lands that run through the Town of Caledon, City of Brampton and City of Mississauga pursuant to the regulations under the Municipal Act and the Education Act prescribing the assessable amounts for taxation for railway lands per acre in the Region of Peel.
[35] The Shortline Railways Act, 1995 contains section 11 that provides a municipality may own and operate a shortline railway outside of its municipal boundaries provided that part of the railway line is located within the municipality. Section 11(3), then reads as follows as to taxation:
Taxes
(3) Despite paragraph 9 of section 3 of the Assessment Act, a municipality that operates a railway line outside of its municipal boundaries is liable for taxation on that portion of the railway line located on land outside of its municipal boundaries. 1995, c. 2, s. 11 (3).
[36] Rick Schwarzer swore the affidavit in support of ORDC’s application as the corporate secretary. On cross-examination, Mr. Schwarzer admitted that ORDC was aware that the property assessment and tax system had changed in or around 1997 and in respect of those changes Orangeville and ORDC knew that:
a) Before the changes, railway rights of way were assessed based on the value of the surrounding lands.
b) Part of the government’s stated purpose for changing the legislation was to bring about fair, consistent tax treatment of railway rights of way.
c) That stated objective was to be achieved by valuing railway rights of way on linear approach using regional acreage rates.
d) To achieve that stated objective, the Government of Ontario prescribed nine regions within the province. The Region of Peel was one of those nine regions.
[37] The prescribed rates per acre applicable under Regulation 387/98 of the Municipal Act and Regulation 392/98 under the Education Act have not changed since the legislature enacted those regulations.
[38] The sole question on this application is whether ORDC is exempt from the statutory requirement under section 315(1) of the Municipal Act, 2001 that the respondent municipalities, Mississauga, Brampton and Caledon shall impose taxes on any roadway or right of way it owns as a railway company that travels through each of those municipalities because that requirement does not include “land lease by the railway company to another person for rent or other valuable consideration.” The issue can be broken down into two questions:
- Are the rail lands owned by ORDC that pass through each of the respondent municipalities leased to another person?
- If so, is the land leased for rent or other valuable consideration?
[39] ORDC does not dispute that as the applicant seeking exemption from taxation, it bears the onus to establish that it fits within the exemption provided by the applicable legislation. This is consistent with the statement of the law in the cases: The Religious Hospitallers of Saint Joseph Housing Corporation v. Regional Assessment Commissioner, Region 1 (1998), 1998 2943 (ON CA), 42 O.R. (3d) 532 (Ont. C.A.). Whether ORDC is exempt from taxation under the Assessment Act by virtue of section 315 of the Municipal Act, 2001 is a question of law. It is a question of law by virtue of what is a proper interpretation arising from the interplay between the two statutory provisions, as well as the determination of whether OBRAG pays rent or other consideration for ORDC to claim its exemption as a matter of the construction of the agreements between them. The construction of contracts is a matter of law: Sattva Capital Corporation v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633.
[40] If this court makes the determination that those lands make the ORDC exempt from taxation by the respondent municipalities, I do not propose to decide whether any other person or entity shall have those lands assessed and taxes imposed for those lands. I have also been asked, on consent, to state that any determination I make is without prejudice to any rights ORDC may have with respect to any application it makes to the appropriate authority for lands falling within or adjacent to conservation lands under the Assessment Act.
[41] The application by ORDC may be a case of “be careful what you wish for because it may come true”. In section 3(1), paragraph 9, land owned by a municipality is not exempt if occupied by a tenant who would be taxable if the tenant owned the land. It was held by the Court of Appeal in Exchange Corporation Canada Inc. v. Mississauga et al, 2014 ONCA 113, that a tenant may be liable to pay municipal taxes even though its landlord is exempt under section 3(1) of the Assessment Act.
[42] I intend to make no comment about whether OBRAG or Cando may be liable to any of the respondent municipalities for municipal taxes if I find that section 315(1) paragraph 1 of the Municipal Act, 2001 exempts ORDC from the payment of taxes to those municipalities. I distinguish the Exchange Corporation Canada Inc. case in this respect from the facts on this application because the Court of Appeal in the Exchange Corporation Canada Inc. case found that section 18(1) of the Assessment Act expressly provides that “the tenant of land owned by the Crown shall be assessed in respect of the land as though the tenant were the owner if rent or any valuable consideration is paid in respect of the land”. In that case, the order under appeal concerned a tenancy at Pearson International Airport.
[43] The answer instead lies under section 3(4) of the Assessment Act, which states as follows:
Certain lands
(4) The following apply to land described in subsection 315(1) of the Municipal Act, 2001:
- The land is liable to taxation but only as provided under section 315 of the Municipal Act, 2001 or Division B of Part IX of the Education Act.
- No assessed value or classification is required for the land. 2002, c. 17, Sched. F, Table.
[44] In the event that the ORDC lands are exempt from taxation by the respondent municipalities, I shall decide whether ORDC is entitled to a refund for taxes paid beginning in the year the application was made to alter an assessment of those lands pursuant to section 46(7) of the Assessment Act, or whether ORDC is entitled to a refund of taxes paid retroactive to 2011 pursuant to the general two year limitation period prescribed by the Limitations Act, 2002.
Whether the ORDC Contractual Arrangement with OBRAG and Cando is a Lease
[45] The court must consider an agreement, or in this case the collective agreements made up of the Tripartite Agreement, the Orangeville/Rail Users Agreement and any extensions as a whole to determine whether the parties intended the relationship to be that of a lessor and lessee, and whether one party to that relationship is to pay rent or other valuable consideration to ORDC to fit within the exception under section 315(1), paragraph 1 of the Municipal Act. The intention of the parties must be ascertained from considering the agreement as whole: Exchange Corporation Canada Inc. v. Mississauga (City), 2014 ONCA 113, at paras. 25‑29.
[46] The character of the relationship does not depend on what the document is called, or whether the word lease is found in the language used by the parties to the agreement. The relationship between a lessor and lessee, as distinct from that of a licensor and a licensee, where there is a transfer of an estate in the subject land from the lessor to the lessee, and the granting of exclusive possession and control of that land to the lessee. In British American Oil Co. v. DePass, 1959 125 (ON CA), [1960] O.R. 71 (Ont. C.A.), the court of appeal distinguished the nature of each relationship in the following way:
- Wherever the relationship of landlord and tenant exists there is present the element of permission or consent on the part of the landlord, and subordination to the landlord's title and rights on the part of the tenant. There must be a reversion in the landlord, the creation of an estate in the tenant, and a transfer of possession and control of the premises to the tenant. The reservation of rent to the landlord is usual but not in all cases essential, and whether the rent reserved is payable in money or through some other medium has no particular significance. It will be observed, therefore, that the transmission of an estate to the tenant is an essential characteristic of the relationship of landlord and tenant. No estate in the land passes to a licensee and this, on the authorities, is the principle distinguishing trait between the two relationships. An agreement which confers exclusive possession of the premises as against all the world, including the owner, is a lease, while if it merely confers a privilege to occupy under the owner, it is a licence. It is often difficult to determine whether a particular agreement is to be regarded as a lease or a licence. Broadly speaking, however, the general concept of a licence is that it is a mere permission to occupy the land of another for some particular purpose.
[47] ORDC submits that OBRAG was created as a group to carry out the operation, maintenance and administration of the OBRY, and to provide a single mechanism to control, maintain and to administer the railway line. ORDC relies heavily on the Tripartite Agreement, where all parties acknowledge that ORDC is not responsible for the operation, maintenance and administration of OBRY. In turn, OBRAG selected Cando to be the operator of the Orangeville Brampton Railway in exercising its control over railway operations. This selection was formalized in the Tripartite Agreement, where ORDC and OBRAG granted an exclusive licence to Cando to operate the OBRY as a rail carrier.
[48] The actual wording of section 315(1) paragraph 1 does not include the terms lessor or lessee, let alone the terms landlord or tenant. While the words “not including land leased by the railway company to another person for rent or valuable consideration” suggests a lessor and lessee relationship, the authorities that govern how taxation statutes must be interpreted require a strict application of the terms used by the legislature. The law also requires a keen observance of the rule that the onus rests on a party claiming exemption from taxation.
[49] I note that the definition of the term “tenant” under the Assessment Act “includes an occupant and the person in possession other than the owner”.
[50] ORDC argues that the operation of the Orangeville Brampton Railway under the Orangeville/Rail Users’ Agreement, the Tripartite Agreement and the three extensions to the Tripartite Agreement have in effect transferred possession and control of the OBRY to OBRAG to the exclusion of ORDC until September 29, 2022 under the third extension agreement. ORDC argues in this way that it has ceded exclusive possession and control to OBRAG as a lessor to a lessee.
[51] ORDC distinguishes its relationship with Cando to be that of a licensor and a licensee. ORDC states that it has given Cando the privilege to occupy the OBRY, with OBRAG’s consent. Cando therefore operates the OBRY as a shortline railway operator under this authority.
[52] The court must focus on the words used by the parties in this agreement rather than the subjective intentions of the parties: Dumbrell v. The Regional Group of Companies Inc. et al., 2007 ONCA 59, at paras. 50‑56. This would include subjective intentions reflected in the third extension agreement that was created after the commencement of this application.
[53] In its factum, the respondent MPAC describes the following features in the agreements between ORDC, OBRAG and/or Cando as indicators that the agreements with respect to the OBRA and its lands are not leases:
• the Agreements are not called a “lease”;
• the Agreements do not refer to “landlord” or “tenant”;
• the Agreements do not contain a demise of land to OBRAG;
• the Agreements do not contain a quiet enjoyment clause;
• the Agreements do not confer exclusive possession of the land to OBRAG;
• ORDC has retained all its rights and obligations as the property owner including the right to receive all revenues that do not relate to the operation and maintenance of the shortline railway including revenues from easements, licenses or leases for cables and wires, signs or water, sanitary and storm sewers, communications towers and shelters located in or upon the real property of the Rail Line;
• ORDC’s grant to CANDO of an exclusive right or license to operate a shortline railway on the Rail Line is inconsistent with a grant of exclusive possession to OBRAG;
• the term of the Tripartite Agreement is open which is inconsistent with a lease which must be for a term certain;
• the Tripartite Agreement specifically provides that it is a licence and is not to be construed as a lease and that ORDC shall retain its rights as owner;
• OBRAG is not obliged to pay rent; and
• OBRAG is not required to pay property taxes.
[54] The respondent MPAC further submits that the OBRY agreements, when read as a whole, sets out an arrangement between Orangeville, ORDC, OBRAG, the Rail Users and Cando for the acquisition, operation and maintenance of a shortline railway that resembles a partnership or joint venture. Richard Lande, a director and the administrator, legal counsel for OBRAG described the contractual arrangement as a “public private partnership” whereby ORDC would buy the rail line, Cando would operate it and OBRAG would pay the costs for its operations and maintenance.
[55] The distinction again a lessor and lessee relationship and that of a licensor/licensee relationship lies in the indicia of granting quiet possession to the lessee and reserving a reversionary interest to itself. It is a granting of an interest in land that is the distinguishing feature. On the other hand, a licensor grants permission to use the subject lands without granting an interest in those lands to the licensee.
[56] ORDC is not a party to the Orangeville/Rail Users’ Agreement dated June 26, 2000, as one might expect as the owner of the rail line. There is no evidence that Orangeville assigned its rights and obligations under the Orangeville/Rail Users’ Agreement to ORDC. The respondent MPAC therefore argues that the Orangeville/Rail Users’ Agreement cannot be construed as a lease between ORDC and OBRAG.
[57] Cando also owns, operates and maintains the Credit Valley Explorer, which is a tourist train that runs on the rail line pursuant to agreements made with ORDC. OBRAG is not a party to the Credit Valley Explorer Agreements. The respondent MPAC further submits that the Credit Valley Explorer Agreements authorizing Cando’s operation of the tourist train on the ORDC rail line are inconsistent with a lease granting exclusive possession with OBRAG.
[58] The question before this court with respect to ORDC railway lands running through each of the respondent municipalities is one of statutory interpretation. The words in section 315(1), paragraph 1 of the Municipal Act, 2001 that would exempt ORDC as a railway company from taxation by each of the local municipalities require the court to find that such land is “land leased by the railway company to another person for rent or other valuable consideration”.
[59] The collection of agreements between ORDC, OBRAG and Cando do not grant quiet possession of the rail lands that run through each of the respondent municipalities to OBRAG. ORDC retains rights that an owner in possession might exercise. Some of those rights involve the use of the rail lands by third parties to the exclusion of OBRAG. They are therefore not lands “leased” to OBRAG within the meaning of section 315(1), paragraph 1 of the Municipal Act, 2001. The agreements that form the basis of the rights and obligations of the parties do not establish a lessor‑lessee relationship despite the language used in the third extension agreement: British American Air Co. v. DePass. The collection of agreements, when read as a whole, create a business relationship between ORDC, OBRAG and Cando that most resembles a joint venture between them where each retains or derives interests that are more operational than proprietary in nature.
Does OBRAG pay rent or other Valuable Consideration?
[60] The applicant ORDC argues that while the reservation of rent is a usual term of a lease, it is not essential. Consideration may take other forms. Valuable consideration may consist of the performance of services that profit the lessor: Maple Leaf Services v. Townships of Essa and Petawawa, 1963 206 (ON CA), [1963] 1 O.R. 475 (OSC) and The Wheatley Harbour Authority Corporation et al. v. Municipal Property Assessment Corporation et al., 2010 ONSC 2499.
[61] ORDC argues that even though it does not charge rent to OBRAG for possession and control of the railway lands to operate the OBRY, ORDC has received valuable consideration for granting possession and control of the railway lands to OBRAG. ORDC points to the value of the OBRY increasing from $3.5 million on purchase to at least $5 million dollars reflected by the share purchase agreement with Highland. ORDC also points to significant infrastructure improvements, such as the Chinguacousy Road bridge work, as well as other improvements that benefit ORDC lands now and will continue to benefit ORDC in the future.
[62] I find on the record that OBRAG does not pay rent or other valuable consideration to ORDC as those terms are used and intended under section 315(1), paragraph 1 of the Municipal Act, 2001. In the Tripartite Agreement, OBRAG agreed to assume the operation and maintain costs of the rail line when Orangeville purchased the rail line from CPR. The maintenance and capital improvements made to the rail line by OBRAG benefit the rail users who use the rail line for the operation of their respective businesses. The arrangements between ORDC and OBRAG were implemented to ensure that the rail users had the benefit of the rail line to keep their business operations in Orangeville. This, in my view, is not the payment of rent or other valuable consideration within the meaning of the statute to make the rail lands exempt from taxation.
CONCLUSION
[63] I therefore conclude on the evidentiary record before me that the rail lands owned by applicant ORDC that run through each of the respondent municipalities are not exempt from taxation by each of those respondent municipalities.
[64] In view of this conclusion, it is unnecessary to determine the extent or timeframe for the refund of taxes paid to the respondent municipalities that the applicant ORDC could have claimed. I have made the observation that as a taxing statute, the Assessment Act must be construed strictly. Under section 46(7), no order the court may make on an application by a party to determine any matter relating to an assessment can be made to alter an assessment so as to alter taxes for a taxation year before the year in which the application was made.
[65] I make the further observations in the event this decision is ever reviewed. The statutory right is given under section 46(7) of the Assessment Act to bring the application affects the substantive rights of the applicant ORDC, and of each respondent. The applicant ORDC brought this application under section 46 for a determination of those substantive rights, and the claim to any retroactivity under section 46, is therefore limited by section 46(7).
[66] The application may have been brought under Rule 14.05 of the Rules of Civil Procedure, but that is the exercise of a procedural vehicle to bring the question on the substantive rights at issue under section 46 of the Assessment Act before the court.
[67] Therefore, any claim the applicant ORDC had to a refund was based on section 46(7) of the Assessment Act, and not on Rule 14.05 of the Rules of Civil Procedure. The general limitation period of two years under the Limitations Act, 2002, does not apply.
[68] The application is therefore dismissed. If any of the respondents seek the costs of this application, they shall have until September 30, 2015, to make written submissions consisting of no more than five pages, not including any bill of costs. The applicant ORDC shall then have until October 21, 2015, to file responding materials of the same length. All submissions on costs may be made by delivery to the civil office in Brampton, or by fax to my judicial assistant, Sherry McHady at 905-456-4834 at Judge’s Chambers in Brampton.
EMERY J
Released: September 14, 2015
Amended: October 15, 2015
COURT FILE NO.: 281/13
DATE: 2015 09 14
AMENDED: 2015 10 15
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
ORANGEVILLE RAILWAY DEVELOPMENT CORP.
Applicant
- and -
THE CORPORATION OF THE CITY OF MISSISSAUGA, THE CORPORATION OF THE CITY OF BRAMPTON, THE CORPORATION OF THE TOWN OF CALEDON, MUNICIPAL PROPERTY ASSESSMENT CORPORATION
Respondents
AMENDED REASONS FOR DECISION
(see paragraphs 4, 33, 37, 41, 42, 45, 53, 59, 62, 65, 66 & 68)
EMERY J
Released: September 14, 2015
Amended: October 15, 2015