The Corporation of the City of Sarnia v. Bluewater Health, 2016 ONSC 3501

Court File No.: 7578/15 (Sarnia) Date: 2016-05-30 Ontario Superior Court of Justice

Between: The Corporation of the City of Sarnia, Applicant – and – Bluewater Health, Respondent

Counsel: Joe Hoffer and Laura McKeen, for the Applicant John A. MacDonald and Mark Sheeley, for the Respondent

Heard: October 30, 2015 and January 8, 2016

Reasons on Application

campbell j.:

Introduction

[1] The Corporation of the City of Sarnia (“the City”) applies pursuant to rule 14.05(3) (a), (g) and (h) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, for a declaration that the City holds title to two properties (which I will refer to jointly as the “Mitton site”) for the respondent Bluewater Health (“Bluewater”). They seek related and alternative relief. This includes an equitable right to indemnity against Bluewater for the costs associated with the respondent’s failure or refusal to operate and maintain these two parcels of property.

[2] The City’s primary position, stated briefly, is that it is a bare trustee and Bluewater is the sole beneficial owner of the lands. The City’s alternate position is that it holds the property as a constructive trustee for Bluewater and is entitled to an equitable right of indemnification. Either way, Bluewater should be responsible for the costs associated with the site’s continued maintenance and upkeep. They assert it would be unfair to allow Bluewater to disclaim any obligation relative to the property now that it is no longer operating as a hospital.

[3] The respondent, Bluewater, does not dispute in any large measure the facts on which the applicant bases its claim. It contends the City’s position is not supported by the law and seeks an order dismissing the application.

[4] In addition to the submissions of counsel, I had the benefit of well-prepared factums and extensive motion records, including a joint undertaking brief. The factual background is lengthy but the primary facts themselves are not contested. What is contested is the importance of some facts over others and the conclusion I should reach based on the facts. I will first summarize what I consider are the relevant facts.

Facts

[5] The applicant is the registered owner of 220 North Mitton Street and 327 George Street in Sarnia, Ontario. These properties, known as the Mitton site, were assembled over a number of decades. A public hospital operated for over one hundred years at this site.

[6] A hospital was originally established on the Mitton site in 1896 by the Town of Sarnia General Hospital Trust (“SGH Trust”). The SGH Trust was incorporated pursuant to an Act respecting Benevolent, Provident and other Societies, 1887 R.S.O. Chapter 172. The Trust acquired lands in the City of Sarnia and constructed and operated a hospital and nurses' home known as the Sarnia General Hospital.

[7] In or about 1920, SGH Trust applied to the City to take over the administration of the hospital property. The Trust did not have the financial resources to provide the necessary upgrades to the facility. The City sought approval from the taxpayers to grant SGH Trust money but that request was not approved by the taxpayers.

[8] In response, the Province of Ontario enacted An Act Respecting the Sarnia General Hospital, 1920 R.S.O. Chapter 163 [“1920 Act”]. The 1920 Act authorized, among other things, the conveyance of all “real and personal estate” held by SGH Trust to the City. It also granted the City the power to alienate any property and to use the funds “for the purpose of a hospital or a nurses’ home”. It authorized the City to acquire further real estate or other property as may be necessary for the operation of a general hospital.

[9] The 1920 Act also created a commission that was responsible for conducting the affairs of the hospital. Members of the Commission were appointed by the Sarnia municipal council. The Commission’s responsibility included the expenditure of monies for the construction of, or improvement to, the hospital and nurses’ home as well as the operation and maintenance of those facilities. The Commission’s operation of the home was subject to accounting to the municipal council. However, the Commission was assigned the sole responsibility to operate and maintain Sarnia General Hospital.

[10] From 1920 to 1972, the City acquired lands adjoining the original hospital site. The lands are known collectively as 220 North Mitton Street. In 1962 the City acquired property known municipally as 327 George Street. It acquired property thereafter, which forms part of 327 George Street. All properties were acquired for hospital purposes and the City continues to hold title to them.

[11] The Commission required the cooperation and approval of the City to acquire property. The City also had the right to sell the property. Acquisitions appear to have been made at the request of the Commission. The requests from the Commission were approved by council. The City paid for the land using money received from the Commission. Some of the records appear to have been lost over time. However, the documents which are available confirm that the Commission paid for the land and reimbursed the City’s costs in acquiring the land. It would also appear that the Commission paid to the City, at least on occasion, $500 per transaction to cover the time spent by City staff in facilitating the acquisitions.

[12] The Commission also obtained independent legal advice on issues from time to time. Some examples cited in the materials filed included the confidentiality of executive salaries and the implications of the Municipal Conflict of Interest Act.

[13] There were a series of amendments made to the 1920 Act between 1928 and 1956. None of these amendments materially affect the matters at issue in this application. I would note, however, the Commission was able to borrow funds on its own up to a limit of $200,000 after the 1956 amendments to the Act. However, the City did sign loan agreements as a guarantor.

[14] From 1920 to 1989, the Sarnia General Hospital Commission operated the hospital. The degree of involvement and control by the City into the operations of the Commission is both ambiguous and contradictory. While the City made two investments into the hospital ($83,000 in 1928 and $1,500,000 in 1953), in most years the Commission operated the hospital without the financial assistance or involvement of the City.

[15] In 1989 the Sarnia General Hospital Corporation was incorporated. This incorporation was authorized by the Sarnia General Hospital Act, 1989, S.O. 1989, c. Pr.20 [“1989 Act”]. After incorporation, the Commission amalgamated with Charlotte Eleanor Englehart Hospital. Thereafter, the hospitals continued under the name Lambton Hospital Group. Lambton Hospital Group changed its name to Bluewater Health on or about February 6, 2004.

[16] After 1989, the new corporation continued to operate and manage a hospital on the Mitton site until 2012. In that year, Bluewater moved all hospital operations to a new location at 89 Norman Street in Sarnia. The Norman Street location first opened in 2010. The buildings and structures on the Mitton site are now vacant.

[17] The interpretation of clause 6 of the 1989 Act is at the centre of the parties’ dispute. It reads as follows:

6. –(1) All personal property used by the hospital corporation in the operation of the hospital is vested in the hospital corporation. (2) The land, buildings and fixtures owned by The Corporation of the City of Sarnia on the day this Act comes into force for hospital purposes continue to be vested in the City until disposed of by it and The Corporation of the City of Sarnia may continue to acquire and hold land, buildings and fixtures for hospital purposes.

[18] The Commission transferred all its new records to the hospital corporation upon incorporation. Also transferred were all the personal property of the Commission, including substantial funds contained in the Commission’s bank accounts. These are set out in the 1989 financial statements. Like the 1920 Act, the 1989 Act is clear that the real property owned by the City, including the Mitton site, continues to be vested in the City and the City is empowered to acquire and hold lands, buildings and fixtures for hospital purposes.

[19] The Commission continued to administer the operations of the hospital. Rather than running the Trust as they had done so previously, the Commission became the directing authority to the legally independent corporation.

[20] The 1989 Act continued the appointment process for board members. Members of the Commission continued to hold office after the incorporation. On or about April 1, 2003, letters patent of continuation were registered. Thereafter, Bluewater became subject to the rules under the Corporations Act, R.S.O. 1990, c. C.38, and members of the Bluewater board were no longer appointed by council.

[21] Before and after incorporation, the hospital (Bluewater) continued to be listed as part of the consolidated financial statements of the City. Hospital (Bluewater) staff would gather the financial information and submit it to the City’s auditors. From the material provided it is unclear when this practice started, but it is evident that the practice ended in or around the year 2000. This was approximately 10 years after incorporation.

[22] I would add prior to incorporation, the City included the Commission’s operation in the City’s unaudited financial statements. In its financial statement the City showed the hospital to be a capital asset.

[23] It should also be noted that prior to incorporation the Commission maintained its own records. Further, the Commission had full control of management with respect to the hospital. The Commission was an unincorporated entity. It could not hold title to real property.

[24] Complicating matters was the convoluted composition of the Commission, which was altered after the hospital’s incorporation. Pre-incorporation, the City held the right to appoint the members of the Commission. These members were usually appointed from city council itself. However, this appointment changed after letters patent continuation were registered. Furthermore, it is not clear whether councillors serving as commission members were acting on behalf of the City or separately acting in their capacity as commission members.

[25] The City played a dual role with respect to the hospital properties. It was the titled owner of the property. The City also had statutory obligations with respect to the regulation of land use in the municipality generally and on property owned by the City specifically.

[26] The City was not responsible for costs associated with the operation and maintenance of the Mitton site at any time. The only cash infusions were the aforementioned investments in 1928 and 1953. They were noted as capital investments.

[27] It appears from the material filed in the Joint Undertakings Brief that the City considered the issue of ownership of the Mitton site during the incorporation process (1989). An internal City memo, dated March 30, 1989, describes that the Commission proposed incorporation in order to “provide some protection from liability to their Board of Commissioners, and recognize the existing situation with respect to funding which is clearly in contravention of the legislation, which legislation is equally outdated.”

[28] The same memo shows the Commission did not want to change the provisions of the legislation with respect to the appointment of the Board. That would appear to be motivated by the Commission’s desire to “retain the protection that is afforded them by the existing method from possible political exploitation of particular interest groups”.

[29] In this memo the issue of title to the Mitton site was also raised. The memo from the Commission indicated that it was looking for “guidance” from council on the issue of ownership. Subsequent memos to council on the issue of the draft legislation and proposed incorporation indicate that the Commission was interested in transferring the title but was not demanding a transfer. Counsel for both the City and the Commission worked on drafting the 1989 legislation.

[30] The 1989 Act has not been repealed, therefore it continues to prescribe the City’s ownership of the Mitton site. The letters patent for Bluewater confirm the objects of the corporation are the same as set out in the 1989 Act. That is to operate, maintain and manage a public hospital in the County of Lambton.

[31] As with the Commission, Bluewater receives the vast majority of its funding from the Ministry of Health. The financial statements for the fiscal year ending March 31, 1990 show that none of Bluewater’s revenue came from the City. Those same statements show that substantial assets and liabilities belonging to the Commission at the end of the fiscal year, which ended March 31, 1989, were assumed by Bluewater upon incorporation.

[32] In 1996, the City made submissions to the Health Services Restructuring Commission. In those submissions, the City raised several issues and made recommendations regarding proposed restructuring. These included submissions about de-commissioning costs. In that submission, it was stated “As the commission is aware the ownership of Sarnia General Hospital, lands, buildings and facilities, is best in the Corporation of the City of Sarnia”.

[33] In 1997, a committee was created to assess alternatives for the Mitton site. It appears that it was a joint staff committee. In a letter dated May 27, 1997, Ron Brooks, the City manager, proposes that the committee be made up of six staff persons, three each from the City and Bluewater.

[34] In the correspondence from the City manager to the executive director of Sarnia General Hospital it was noted that the City was embarking on a program to review the official plan. One of the issues to be addressed in the process would be the future use of the Mitton site. It also appears from the documents filed that the City proposed consultation with different community groups.

[35] Prior to the May 27, 1997 correspondence, in a letter dated April 18, 1997, the City manager advised Bluewater’s legal counsel that city council had decided to table the issue of the proposed transfer. Thereafter, discussions continued but no transfer was completed.

[36] In that same letter Mr. Brooks states:

The fact remains that lands, buildings and facilities are vested with the City of Sarnia and that is in the first instance, the disposition of these assets will be a City of Sarnia decision.

[37] In 1998, the City contacted the Ministry of Health regarding decommissioning funding. The Ministry of Health indicated it would not provide funding directly to the City for decommissioning. The Ministry proposed the City sell the Mitton site and retain the proceeds after decommissioning and demolition costs. In the alternative, the Commission suggested that the Mitton site be transferred to Bluewater for a nominal sum.

[38] The transfer did not occur. It appears that Bluewater was prepared to pay a nominal sum in exchange for the title. The Ministry had estimated the net value of Mitton to be substantial. In the affidavit of Sue Denomy sworn August 12, 2015, it is deposed that negotiations occurred between the City. At no time did Bluewater offer to pay anything more than a nominal sum.

[39] In a letter dated May 25, 1998, from Ron Brooks to David Vigger, the chief executive officer of the hospital, it is proposed that the City transfer all property and buildings north of George Street to SGH for a nominal fee. The City would retain the property south of George Street, which included the recently constructed ambulance garage. The City also sought conditions, or side agreements, that would effectively retain a role for the City in planning, development and disposition of the property north of George Street.

[40] That proposal was discussed at the property development committee, the joint committee of Bluewater and the City of Sarnia. On July 2, 1998, the City council adopted a resolution essentially in accordance with Mr. Brooks’s proposal May 25, 1998.

[41] It would appear that the proposal never came to fruition. Negotiations continued without a resolution. At some point, the parties attempted to sell the Mitton site to a third party. Those efforts to date have proved unsuccessful. In the end, the City elected to retain ownership.

[42] In 2012, this corporation was amalgamated with the Charlotte Eleanor Englehart Hospital Corporation to create a new corporation, Bluewater, which would administer all hospitals in Sarnia. It is not disputed that Bluewater assumed the role previously served by the Commission. In 2012 Bluewater completely vacated the Mitton site in favour of new hospital facilities at a different location. This move was anticipated for many years and the Commission and the City held meetings as early as 1997 to discuss alternatives for the site.

[43] On October 30, 2014, Bluewater sent notification to the City informing the City that it would no longer maintain the Mitton site. It was Bluewater’s position that costs of maintaining the site had become prohibitive.

[44] Unfortunately, upon learning of the substantial costs of the decommissioning and clean-up of the site, the City was unable to sell the property. The City is now asserting that the property has always been held in trust for Bluewater, and therefore, Bluewater is obliged to accept title as a beneficiary. Bluewater disputes this assertion and claims there is no indication from the Acts or the parties’ actions that Bluewater has ever held trust rights to the property.

Issues

[45] The parties articulated the issues somewhat differently. I would state the issues that I am tasked to determine to be as follows:

1. Does the City hold legal title to the Mitton site in trust for Bluewater, either by a bare trust or a constructive trust?
2. If a trust relationship exists, does Bluewater continue to have a legal obligation to indemnify the City for ongoing costs to operate and maintain the Mitton site?

Position of the Parties

[46] There is no issue that the City holds registered title to the subject property. The applicant City argues that the Commission, and subsequently Bluewater, received all beneficial interests for the property. They paid for, operated, maintained and managed all operations at the Mitton site and received all benefits of ownership. The applicant asserts that a bare trust relationship exists between it and the respondent and such relationship is exclusively for the benefit of Bluewater.

[47] The applicant argues that the existence of such a relationship is supported by the facts, including the relevant statutes, bylaws and documents. The applicant submits that when you apply the law to the facts, the court should find that a bare trust exists. The bare trust continues today despite the fact that the Mitton site is now perceived as a liability.

[48] In the alternative, the applicant argues a constructive trust should be found. Again, the beneficiary of that trust is the respondent. A constructive trust should be recognized by the court and imposed upon the parties in the interests of justice. Such a finding is required to maintain the integrity of the trust relationships which underlie many of our institutions. Additionally, there is no factual basis to conclude a constructive trust would be unfair.

[49] Finally, the applicant argues for the existence of a constructive trust because the respondent is the beneficial owner of the property. Therefore, Bluewater should be solely liable for the continued costs of operation, maintenance and management of the property.

[50] The respondent argues that there is no trust relationship. That is, neither a bare or constructive trust. The 1989 Act, and particularly s. 6(2) thereof, does not give the respondent beneficial interest in the property. The respondent did not have a right to demand transfer of title to the Mitton property. Indeed, the City had the right to dispose of the property.

[51] The respondent argues that the rules of statutory interpretation do not support a finding there was a trust relationship, nor does a consideration of the broader legislative context. Had the legislature intended to create a beneficial interest for the respondent, it would have used different language to directly accomplish such a result.

[52] The respondent states the purpose of the 1989 Act was not to create a trust relationship, but was intended only to create a hospital corporation and to maintain the status quo. Further, the conduct of the parties is not relevant to statutory interpretation. However, even if it were, the parties’ conduct does not support a finding of a trust relation.

[53] Additionally, the respondent submits a constructive trust is a remedy available primarily where there is a breach of equitable obligation, such as a fiduciary duty and unjust enrichment. The requirements necessary to support a finding of a constructive trust cannot be found in a consideration of the factual matrix. In essence, there does not exist an equitable obligation.

[54] The respondent also argues that there are several factors which render the imposition of the trust unjust. These include the City’s failure to convey the Mitton site to the respondent in the 1990s when decommissioning costs could have been mitigated.

Analysis

[55] The City of Sarnia has held title to the lands on which have been situated a public hospital since 1920. Prior to that, the hospital was operated in the City of Sarnia by Sarnia General Hospital Trust. Sections 4, 5 and 6 of An Act Respecting the Sarnia General Hospital of 1920 granted the City certain powers They included:

a) the power to assume the property (an asset of the SGH Trust); b) the right and power to acquire further real estate or property that was necessary to carry out the operation of a general hospital and nurses’ home; and c) the power to sell, lease or otherwise alienate any property it acquired for hospital purposes that became surplus.

[56] Property acquired from 1920 on was acquired with funds provided by the hospital Commission or, after 1989, the Sarnia General Hospital Corporation. These lands were acquired without cost to the City of Sarnia. There are only two occasions since 1920 when the City appears to have invested money in the hospital.

[57] There is some evidence that the parties considered the implications of this arrangement in the late 1980s and again in the late 1990s. However, the correspondence filed illustrates that the parties did not come to an agreement or even a consensus as to the nature of their relationship.

[58] The applicant City now asserts that it is a bare trustee for the respondent Bluewater. It argues that the three foundational principles necessary to find a bare trust relationship can be found in the factual matrix. The cornerstone of the applicant’s argument that there is a bare trust is the existence of the three certainties: certainty of intention, certainty of subject matter and certainty of objects. It is the presence of these certainties that establishes the existence of a bare trust.

[59] The principle of the three certainties is discussed by Donavan W.M. Waters, Mark R. Gillen and Lionel D. Smith, Waters’ Law of Trusts in Canada (Toronto: Thomson Reuters, 2012), beginning at page 140. Briefly stated, the certainties are:

(1) The language of the alleged settlor must be imperative. It must employ language which clearly shows intent that there should be a trust. (2) The subject-matter or trust property must be certain. (3) The objects of the trust must be certain.

[60] In the same text, the authors state at page 33:

The usually accepted meaning of the term “bare,” “naked” or “simple” trust is a trust where the trustee or trustees hold property without any duty to perform except to convey it to the beneficiary or beneficiaries upon demand.

[61] In Air Canada v. M&L Travel Ltd., [1993] 3 S.C.R. 787, [1993] S.C.J. No. 118, the court refers to the necessary elements of a trust (see paras. 22-24). In that decision, the court referred favourably to Canadian Pacific Airlines Ltd. v. Canadian Imperial Bank of Commerce (1987), 61 O.R. (2d) 233 (H.C.). In Canadian Pacific Airlines, the trial judge stated:

In order to constitute a trust, an arrangement must have three characteristics, known as the three certainties: certainty of intent, of subject matter and of object.

[62] In this matter, the subject matter of the trust appears to be certain. That is, the real property situated at the Mitton site. That property has been occupied and used for hospital purposes and title was registered in the name of the City of Sarnia beginning in 1920.

[63] I would also conclude that the certainty of the object of the trust is clear. The object of the trust at this time is the respondent. While the object of the trust has changed from time to time, it can generally be described as the entity responsible for maintaining a public hospital in the City of Sarnia. From 1920 to 1989 that entity was the Commission. After 1989, the entity is the corporation currently called Bluewater Health.

[64] In my view, the certainty of intention is problematic. I will comment more fully on this issue. Here it is sufficient to say there is no indication in either the 1920 Act or the 1989 Act that the City was to hold the property in trust. That is, there is no language in either Act or subsequent correspondence between the parties that defines or describes the relationship as a trust relationship.

[65] A trust may be construed from conduct. In Waters’ Law of Trusts in Canada, at page 142, the authors state:

A trust may be construed from conduct alone, but it is unlikely that such evidence will conclusively reveal the necessary intention. Words do show that intention, and they must either appear in a document which the maker regarded as final or be orally communicated to another. Evidence extrinsic to words in a document may be taken into account to resolve an ambiguity in the words or where the extrinsic evidence clearly demonstrates that the words of the document do not reflect the intention of the parties…(It) is not enough to intend to transfer for another’s benefit; the transferor must be shown to have had in mind a transfer on trust …The words employed to set up a trust, therefore, must show the transferee is to take the property not beneficially, but for objects which the transferor describes.

[66] The applicant argues that the relationship between the parties can be defined as a bare trust. The City exercised no inherent ownership powers, discretions or responsibilities that would prevent a bare trust relationship. Actions by the applicant that may appear to be related to active ownership, for example the City’s role in land use planning, are properly distinguishable from its role of owner of the property. I accept that the City’s acts as part of its power and responsibility as a municipality are properly distinguished from its power as legal owner.

[67] The respondent argues that the conduct of the parties in this circumstance is irrelevant in determining whether or not a trust relationship exists. The respondent is critical of the applicant’s reference to Air Canada and other authorities because the fact situations in those cases dealt with contractual arrangements, not statutory ones. It is the respondent’s position that what is relevant is the intention of the legislature, not the implied intent or conduct of the parties.

[68] It is not entirely clear that the applicant took a “hands-off” approach with respect to the respondent. For example, the nature of how the Commission members were appointed would appear to run contrary to that argument. The process changed only after letters patent of continuation were filed in 2004.

[69] I would also add that the 1989 Act does not restrict the City’s involvement in operating the hospital nor does it limit the responsibilities or powers of the City. The financial assistance given to the hospital by the City on two occasions many years apart would also appear to further confuse the nature of the parties’ relationships.

[70] The parties themselves did not seem to put their minds to the nature of their relationship until the Commission was incorporated. Even then, they did not appear to come to an agreement as to the nature of their relationship. In my view, the parties took no active steps to define their relationship until the property was no longer used as a hospital and became an apparent liability.

[71] The 1989 Act referred to the City as owning the land, buildings and fixtures. However, it made no mention that they were held in trust or any equivalent wording. I find the provision that they be held “for hospital purposes” may have restricted how the property was used but did not give Bluewater equitable title.

[72] This is further demonstrated by the fact that Bluewater apparently could not obligate the transfer of the property from the City. When the transfer of the property was considered, the City declined to do so, or alternatively, sought to impose conditions. The conditions were that the City retain part of the land and building site and have input on the hospital site’s future use. In my view, these conditions were more than the City exercising its dual role of title holder and regulator of land use.

[73] Notably, the City made a conscious decision to attempt to sell the property to a third party. It entered into some form of agreement for its disposition. That arrangement appears to have fallen through only when it was determined that the cost to decommission the hospital exceeded the property value.

[74] The City also sought to obtain decommissioning funds from the Province of Ontario. The City was advised by the restructuring commission that funds could not be paid to it. It proposed that the lands be transferred to Bluewater at a nominal amount. As noted, the City failed to do that.

[75] In the same vein, when the Commission was incorporated, the City’s solicitor’s memo considered whether a trust relationship between the new entity and the City should be formally established. Although there appears to have been some consideration of that issue, no action was taken.

[76] In Air Canada and Antle v. Canada, 2010 FCA 280, [2010] F.C.J. No. 1317, the court stated that when the language is ambiguous or absent, the conduct of the parties can be analyzed to provide meaning to their relationship, i.e. whether a trust relationship was intended. However, in Air Canada the court also states that analyzing conduct is unnecessary and injudicious when the language is clear.

[77] In my view, the enabling statutes of 1920 and 1989 are clear and the relationship can be found in those statutes. The parties’ relationship cannot be described as contractual.

[78] I find Bluewater has properly stated the law when it says “The modern approach to statutory interpretation requires the court to interpret a provision harmoniously with the intention of the legislature, not the conduct of the parties”. The absence of the word trust or equivalent language is significant and possibly of paramount importance in interpreting the relationship between the parties.

[79] The Supreme Court of Canada recently stated in Imperial Oil v. Jacques, 2014 SCC 66, [2014] 3 S.C.R. 287, at para. 47, and in Canadian Broadcasting Corp. v. SODRAC 2003 Inc., 2015 SCC 57, [2015] S.C.J. No. 57, at para. 48:

The modern approach to statutory interpretation requires that we examine the “words of an Act … in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”.

[80] In my view, clause 6 of the 1989 Act should be interpreted in conjunction with the context and meaning of the entire Act. The 1920 Act was designed to save the hospital financially. The purpose of the 1989 Act is less clear but I conclude it was intended to facilitate a modern approach to hospital organization and to allow the new entity to raise funds by borrowing for hospital purposes.

[81] Broadly, the intentions of both Acts were to allow the hospital to survive and to continue serving the people of Sarnia. The intent was to provide the best health services possible for the people of the area and to maintain a successful hospital. Neither party intended to profit or take advantage of the other.

[82] It appears the applicant required some form of compensation or consideration to transfer the property. At the very least, it declined to transfer the property for nominal consideration at the suggestion of either the respondent or the hospital restructuring commission. In oral argument before me, it would appear the applicant’s position was that the respondent did not make a strong enough demand. That answer does not support the argument that the City held the property as a bare trustee.

[83] Through the course of argument, in my view, the parties blurred the lines of delineating their position. In essence, Bluewater wants to be tied to its pre-1989 form when it favours Bluewater and independent of its prior incarnation when these ties do not favour Bluewater. The City, likewise, will also associate Bluewater or dissociate Bluewater with its predecessor depending on whether the circumstances fit the City’s argument. Both parties demonstrate this inconsistency. The ability for both parties to change course with such ease demonstrates the ambiguous and blurred nature of the relationship of these parties in the past.

[84] I conclude that the applicant was a not a bare trustee of the property. There is no certainty of intention. To paraphrase Waters Law of Trusts, language of the legislation is not imperative and does not employ language which clearly shows intent that there be a trust. In my view, that is equally true of both the 1920 Act and 1989 Act. Even in the absence of these two Acts, the parties’ conduct does not support the applicant’s position that a bare trust exists.

[85] The applicant’s alternate position is that a constructive trust can be found between the parties. The applicant asserts there are four criteria in establishing a constructive trust. These four criteria are set out in the Supreme Court of Canada decision of Soulos v. Korkontzilas, [1997] 2 S.C.R. 217, [1997] S.C.J. No. 52, at para. 45. They are:

(1) The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, in relation to the activities giving rise to the assets in its hands; (2) The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff; (3) The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties; and (4) There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case; e.g., the interests of intervening creditors must be protected.

[86] Generally speaking, the basis for a constructive trust is to provide a remedy for an unjust enrichment: to entitle a party with rights to a property as compensation for their previously suffered loss. At para. 14 in Soulos, the court states that “the constructive trust may apply absent an established loss to condemn the wrongful act and maintain the integrity of the relationships of trust which underlie many of our industries and institutions”.

[87] The language in Soulos makes clear that gaining title to the property is the beneficial remedy for the unjust enrichment and not for the purposes of transferring the actual loss suffered by the plaintiff. Here, it is clear a loss has occurred: the land has lost its value as a result of the hospital’s activities on the property. However, it is not established at law that the remedy is to transfer this loss by constructing a trust to impose ownership obligations on a party. As Waters’ Law of Trusts in Canada explains, a constructive trust arises “when the law imposes upon a party an obligation to hold specific property for the benefit of another”.

[88] The City is, in effect, requesting the court to declare an obligation for Bluewater to receive specific property at its detriment. Trust jurisprudence concerns requesting rights to a property to off-set a loss, not imposing such rights to spread or transfer such a loss.

[89] Indemnification for trust purposes is designed to recompense a party for the benefit they contributed to that property or the service they performed on behalf of the beneficiary. In this case, the City requests the court to impose ownership rights on Bluewater as the actual indemnification. As the land costs more than it is worth, Bluewater taking legal title over the land is meant to recompense, or transfer, the costs the City would otherwise accrue.

[90] In my view, this is not how constructive trusts operate. At page 491 of Waters’ Law of Trust in Canada the authors explain, “while the response of giving back which is activated by the cause of action in unjust enrichment can be properly called “restitution”, it seems better to use the word “disgorgement”, to describe the response of giving up which may be activated by profitable wrongdoing”.

[91] The City does not want “to give back” as restitution, but as a burden. Their loss of title is to off-set their own loss rather than recompense Bluewater, the beneficiary, for their loss. The City did not provide any authority to support this proposition. In fact, a thorough review of Waters’ text revealed no jurisprudence considering similar circumstances.

[92] Further, it is difficult to find in this situation a constructive trust in the context of “unjust enrichment”. Bluewater retains no permanent benefit for the use of the land. As a non-profit corporation, they did not profit. The only enrichment was the medical and health benefits for the people of Sarnia. In my view, this is not a “gain that can (be) transferred (to offset) the corresponding deprivation”: see Waters’ Law of Trusts in Canada, at p. 491.

[93] The applicant maintains that the respondent has in the past received benefit from the lands. The respondent Bluewater and its predecessors benefited from the use of the land throughout the last century. Here, the applicant wants to impose a beneficiary status on Bluewater. This is a reversal of the normal position of a beneficiary which seeks to obtain rights in land to negate unjust enrichment. I have not been provided with any authority either from Waters or decided cases that describes the imposition of a trust as an equitable obligation to negate costs incurred by the party with legal title.

[94] The City concedes there is no wrongful gain. There is no suggestion the hospital was used for any purpose other than that allowed by statute.

[95] The respondent argues that the four common law requirements for constructive trusts are not found. It is their position that finding a constructive trust would be the anti-thesis to the equitable principles of trust law. In making that argument, the respondent relies on Soulos and submits that two of the fundamental elements are missing: a breach of an equitable obligation and unjust enrichment.

[96] There were neither equitable obligations nor breach of such by the respondent. There is no fiduciary relationship between the parties. Rather, the parties worked together for decades for the benefit of the people of Sarnia. The respondent has not been enriched in any way from the relationship with the City beyond the common purpose of serving the people of Sarnia.

[97] I conclude that a constructive trust relationship does not exist. The facts applied to the existing law does not support such a conclusion.

[98] The respondent also argues the proprietary remedy is inappropriate in such a situation. The City’s goal is not to return property to its original owner but to relieve itself of ongoing operating costs of the property which has now become a liability. The respondent argues it would be unjust to receive the burden of the property now that the applicant realizes it is worthless. This is particularly the case when the City previously refused to transfer the property to the respondent without compensation. Given the reasons for my decision, I do not find it necessary to address these arguments.

[99] In its application, the applicant, among other relief, sought “a declaration that the applicant has an equitable right to indemnity against the respondent for all costs associated with the respondent’s failure to operate and maintain the Mitton site”. In its factum and oral argument, the applicant submitted that that obligation arose out of what it alleged was a trust. That is, a bare trust or, in the alternative, a constructive trust. I have found that neither trust relationship exists.

[100] What the applicant did not appear to consider was any alternate basis for making such a claim. Certainly, they were not argued.

[101] In my view, it would be inappropriate for me, in this decision, to consider those alternate remedies. It may be the applicant has considered its position and chose to pursue the direction it did for specific reasons not known to me. In my view, if the applicant considers expanding its claim, I should remain seized of the matter and hear any other arguments from the parties in that regard.

Summary

[102] Therefore, the application is dismissed. If the parties are unable to agree on the issue of costs, submissions can be made to me by the respondent within 30 days of the release of these reasons. The applicant will have 20 days to respond.

Original signed by Justice Scott K. Campbell

Scott K. Campbell Justice

Released: May 30, 2016

COURT FILE NO.: 7578/15 (Sarnia) DATE: 20160530 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: The Corporation of the City of Sarnia Applicant – and – Bluewater Health Respondent REASONS on application Campbell J.

Released: May 30, 2016