COURT FILE NO.: 11-51434 DATE: 2017/05/18 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Adams Pizzeria (Prescott) Ltd. c.o.b. The Limit Exotic Lounge Plaintiff (moving party) – and – The Corporation of the Town of Prescott Defendant (responding party)

Counsel: Brent Craswell, for the Plaintiff William R. Hunter, for the Defendant

HEARD: February 17, 2017

REASONS FOR Decision R. Smith J.

Overview

[1] The Plaintiff has brought a Summary Judgment motion for an order that the Defendant issue Adult Entertainment Establishment owner and operator licences (“licences”) to it in accordance with a Settlement Agreement reached by the parties.

[2] The Defendant (“Prescott” or the “Town”) acknowledges that a tentative settlement of the lawsuit was reached between the lawyers for the parties but submit that it was never finalized and not enforceable because a resolution of council was never passed approving the settlement. In addition, the Plaintiff ceased to operate its adult entertainment business from 2010 until 2016 and could no longer establish that it enjoyed a legal non-confirming use when it applied for licences five and one half (5.5) years later in 2016. As a result, Prescott submits that it did not breach the Settlement Agreement by refusing to issue licences to the Plaintiff when it applied in 2016.

Factual Background

[3] The Plaintiff has been the owner and operator of an Adult Entertainment Establishment known as The Limit Exotic Lounge (“The Limit”) since 1998. The Limit is located in the downtown core of the Town of Prescott.

[4] In 2005, the Town passed By-Law 06-2005 (the “Bylaw”), which prohibited any Adult Entertainment businesses from being located within the downtown core and specified that any such establishment be located north of the railway tracks.

[5] Following the enactment of the By-Law, The Limit continued to operate at 147 King Street West, Prescott and the Town renewed its Adult Entertainment Establishment owner’s and operator’s licences on five occasions from 2005 to 2009, even though it was not located north of the railway tracks as required by the licencing By-Law.

[6] Between 2005 and 2009, the Plaintiff renewed the licences by providing a cheque for renewal fees to the Town licensing officer.

[7] In the summer of 2010, the Plaintiff was informed by the Town that, in addition to the usual fees, the Plaintiff would need to submit a more formal application with supporting documentation, including an inspection report from the Fire Chief.

[8] In compliance with the Town’s request, the Plaintiff arranged for an inspection to be conducted. The inspection by the Fire Chief indicated there were numerous deficiencies that required rectification before The Limit could re-open. Because of the scope of the repairs, it was not possible to complete them prior to July 25, 2010, when The Limit's previous licences expired.

[9] On July 28, 2010, the Town gave notice to The Limit to cease operation immediately, as it was conducting an Adult Entertainment Establishment without the proper licences. As a result, The Limit ceased operations while it took steps to become compliant with the applicable Fire Code regulations.

[10] On October 15, 2010, the Plaintiff submitted a new application for a renewal of the Licences, which complied with all elements of the licensing By-Law, other than its location, but the Town refused to renew the licences.

[11] As a result, the Plaintiff commenced an action seeking monetary compensation for the Defendant's wrongful interference with its use of the premises, a Declaration that the Plaintiff had a legal non-conforming right to use the premises for the purposes of operating an Adult Entertainment Establishment, and an Order requiring the Town to renew the licences.

[12] In subsequent correspondence, the Town acknowledged that as of June of 2012, The Limit enjoyed a legal non-conforming use under the zoning bylaw, to operate an Adult Entertainment Establishment.

[13] This matter was subsequently settled by an exchange of letters between the parties’ lawyers on or about June of 2012. Prescott agreed to pay The Limit the sum of $15,000.00 and agreed to issue the licences on receipt of a new application, which otherwise satisfied the requirements of the By-Law. While the lawyers for the parties reached an agreement on settlement terms, the Town never passed a resolution or By-Law agreeing, adopting or ratifying the settlement. Also neither the Plaintiff or the Town ever signed the Minutes of Settlement. The settlement funds were provided by the Town to its counsel to be held in trust pending the execution of Minutes of Settlement and a Full and Final Release.

[14] In 2012, The Limit reapplied for licences but the Town refused to issue the licences because the operator Mr. Valaveris, had a criminal record for possession of illegal drugs. He was subsequently diagnosed with cancer and died.

[15] On June 2, 2016 The Limit submitted an application to renew the licences. On July 14, 2016, the Town notified the Plaintiff that it would not be issuing the licences because The Limit was located in the downtown core, in contravention of the licensing By-Law.

Issues

1. Did the parties reach a settlement agreement? If so, on what terms?
2. Was the Settlement Agreement binding on the Town, without being adopted by a By-Law or resolution?
3. Did The Limit lose its legal non-conforming rights by not operating for 5.5 years?

Analysis

Issue #1 – Did the parties reach a settlement agreement? If so, on what terms?

Summary Motion

[16] I am satisfied that a genuine issue requiring a trial has not been raised. Following Hryniak v. Mauldin, 2014 SCC 7, I find that a just and fair adjudication may be made without a trial as the facts are largely uncontested. Both parties also agree that a summary motion is the least expensive and most efficient way to proceed. I agree.

[17] On August 31, 2011 The Limit’s lawyer proposed to settle the lawsuit provided the Town acknowledged that it had a legal non-conforming use status to use the premises as an adult entertainment business, would renew its adult entertainment licences effective immediately, would forgive $10,000 worth of taxes, and would pay $20,000 towards its legal costs.

[18] On December 9, 2011, counsel for the Town stated that it agreed to issue the licences and to pay the sum of $15,000 towards the plaintiff’s legal fees, provided The Limit prepared a new application for the licences and fulfilled all of the Town’s other requirements.

[19] The parties agreed to sign Minutes of Settlement and a Full and Final Release (“Release”). On March 9, 2012, the solicitor for The Limit responded that it should be in a position to provide the executed Minutes and Release, but that they had to be amended.

[20] On March 14, 2012 counsel for The Limit proposed to add some additional terms to the draft Minutes of Settlement and Release.

[21] On May 10, 2012 counsel for the Town made some further amendments to paragraph 3 of the Minutes of Settlement and the Release, reflecting the comments from counsel. The proposed amendments to paragraph 3 also included a term in the first sentence of the Minutes stating as follows:

The parties agree that this settlement shall not limit or otherwise preclude the Town of Prescott’s right to further amend and replace Town of Prescott By-Law 06-2005.

[22] On June 21, 2012, counsel for the Town advised the lawyer for its Insurer that the parties had agreed to the amendments and on June 22, 2012 counsel for the Insurer also agreed with the proposed amendments to the Minutes of Settlement.

[23] There is no evidence of any written response from the lawyer for The Limit, to the May 10, 2012 letter from the Town’s lawyer indicating its acceptance of the amended Minutes of Settlement, which reserved the Town’s right to amend or replace By-Law 06-2005. M. Valaveris, the operator of the business was subsequently sent to jail for trafficking and possession of illegal drugs. In 2014, the premises failed to meet the requirements of the property standards of the fire and health By-Law. Mr. Valaveris passed away in 2015.

[24] On June 2, 2016, an application for an Adult Entertainment licence for The Limit was submitted naming Anna Dawson, an officer of The Limit, as the “operator”. This was the first time since October 15, 2010 that the Plaintiff had applied for Adult Entertainment Establishment licence.

[25] The Town argues that it is justified in refusing to issue Adult Entertainment licences to The Limit for the following reasons:

(a) The Limit is located in an area that contravenes the Licensing By-Law; (b) The Limit does not enjoy a legal non-conforming use for a Licensing By-Law, (this concept only applies to a use under a zoning By-Law under the Planning Act); and (c) Any legal non-conforming use enjoyed by The Limit under the zoning By-Law, had expired in the five and half years since it had last used the premises as an Adult Entertainment business.

[26] Paragraph 2 of the draft Minutes of Settlement states as follows:

The Defendant will issue the Adult Entertainment Establishment’s owner and operators licences to the Plaintiff, on receipt of a new application which otherwise satisfies the requirements of the Town of Prescott By-Law 06-2005.

[27] I find that based on the exchange of e-mails and the plain meaning of the proposed Minutes of Settlement that a verbal agreement was reached between the parties counsel to settle the litigation, whereby the Town agreed to pay $15,000 to the Plaintiff and to issue the Adult Entertainment licences on receipt of a new application, which “otherwise satisfied the requirements of By-Law 06-2005”.

[28] I further infer that the agreement to issue the Entertainment licences was only for one year (2012) and the agreement did not include a right to further renewals of the licence, because of the Minutes of Settlement do not include any such term for future years. Paragraph 3 of the Minutes reserved the Plaintiff’s right to make a claim if the Town refused to issue a licence “in subsequent years”. In addition, the Town also reserved the right to amend or replace By-Law 01-2005 in the Minutes of Settlement. I find that the parties had agreed that the Town would not enforce the provisions of By-Law 2005 against The Limit for a one year period.

[29] The Town had not enforced the provisions of its Licensing By-Law for 5 years after it was passed, and it agreed to continue not enforcing the By-Law for a further year in the Settlement Agreement. The parties’ Settlement Agreement did not include a term that the Town would not enforce By-Law 06-2005 for any period beyond the 1 year period in 2012, for which the licences would be issued if The Limit met all other standards, other than its location.

[30] I also infer that as part of the settlement the parties intended that the Plaintiff would complete any work required to comply with all fire and health regulations, and would submit a new application for an Adult Entertainment licence within a reasonably short period of time. The parties were aware that The Limit enjoyed a legal non-conforming use under the zoning by-law, because the Plaintiff asked the Town to confirm this in its first Offer to Settle. A legal non-conforming use under a zoning by-law may be lost if the non-conforming use is not continuous. To avoid losing its right to continue a legal non-conforming use The Limit was required to take reasonable steps within a reasonable time frame to make the repairs required to comply with the fire and health regulations.

Disposition of Issue #1

[31] I find that the parties agreed on terms of settlement as outlined above, subject to being adopted by Bylaw or resolution of council.

Issue #2 – Was the Settlement Agreement binding on the Town, without being adopted by a By-Law or resolution?

No Acceptance of Settlement by the Town of Prescott

[32] Section 5 of the Municipal Act, 2001, S.O. 2001, c. 25, states that the powers of a municipality must be exercised by By-Law, including the powers under s. 8, which grants the municipality the capacity, rights, powers and privileges of a natural person.

[33] In Magical Waters Fountains Ltd. v. Sarnia (City) (1992), 8 O.R. (3d) 689, 1992 CarswellOnt 486, (Ont. Div. Ct.) at para. 4, the court stated that the powers conferred on a municipal corporation by the legislature are required to be exercised by council and council must exercise its power by By-Law.

[34] In Irecan Ltd. v. Yellowknife (City), (1988), 40 M.P.L.R. 136, 1988 CarswellNWT 51, (rev’d on other grounds (1988), 54 D.L.R. (4th) 706) (NWT S.C.), at para. 56 the court held that municipalities are creatures of statute whose only powers are those given to it by statute and so, a municipality cannot be bound by acts done in excess of those powers and contrary to statute.

[35] In Ontario Mission for the Deaf v. Barrie (City) (2003), 64 O.R. (3d) 55, 2003 CarswellOnt 1200, (S.C.J.) at para. 9 the court held that an agreement, purporting to bind a municipality, that had been entered into without an authorizing By-Law, was not a valid exercise of municipal power. The court stated that the lack of any formal adoption of the agreement by council was “fatal to its legal validity.”

[36] In the Ontario Mission for the Deaf case, the City argued that a letter of understanding between the City and the Plaintiff was a valid contract, despite there being no authorizing By-Law or resolution passed by City Council. At trial, counsel for the City conceded that he had found no legal authority for this argument. The Court held that there was no enforceable contract.

[37] In coming to this decision, Howden J. relied with favour on the decision of J. E. Verreau and fils Ltée v. Quebec (Attorney General), [1977] 1 S.C.R. 41 where the court stated:

“Municipalities, unlike the Crown, are purely creatures of statute; “the ultra vires doctrine must accordingly be applied in its full vigour”, in the case of municipalities.”

[38] The Divisional Court, in Magical Waters Fountains Ltd. v. Sarnia (City) (1992), 8 O.R. (3d) 689, O.J. No. 1320 (Ont. Div. Ct.) at para. 8. supra, stated as follows:

...a staff member cannot bind the municipal corporation unless authority has been delegated to the staff member by By-Law or resolution of Council. In the absence of delegation by Council to an individual or By-Law, there must be some affirmative action, evidenced by a majority vote of the members of Council, sufficient for a quorum, in order to commit a municipal corporation to any legal obligation.

[39] Based on the above case law, I find that the Town is not bound by any contract, which includes the settlement agreement, unless it was approved or adopted by a By-Law of council. I further infer that counsel for The Limit would have known and contemplated that the Town was required to pass a resolution or By-Law before any settlement with the Town became legally binding on the Town.

Disposition

[40] For the above reasons, I find that the settlement agreement was not binding on the Town until approved by a by-law or a resolution of council.

Issue #3 – Did The Limit lose its legal non-conforming use right by not operating for 5.5 years?

[41] While the disposition of issue #2 is sufficient to dispose of this motion, I also find that the Town had valid reasons for refusing to issue an Adult Entertainment licence to The Limit and I would not enforce the terms of the Settlement Agreement for the following reasons:

(a) The concept of a legal non-conforming use does not apply to the issuance of a licence with respect to the regulation of an Adult Entertainment Establishment as that licence is not a zoning By-Law issued pursuant to the Planning Act. In Oshawa (City) v. 505191 Ontario Ltd, 54 O.R. (2d) 632, 1986 CarswellOnt 630 (Ont. C.A.), the court found that the effect of the non obstante clause, in what is now s. 154 of the Municipal Act, was to allow the municipality to enforce a restriction in a licensing By-Law passed under this section of the Act, and that this restriction would apply even if an establishment was lawfully operating at the time the By-Law was passed. Therefore, the concept of a legal non-conforming use does not exist in relation to the Licencing By-Law 06-2005. (b) In the case at bar, the Plaintiff was operating an Adult Entertainment Establishment when its licence expired on July 25, 2010 and the Plaintiff applied for a renewal. The fact that The Limit was previously operating does not provide it with a legal non-conforming use which would entitle it to a licence. The Limit did not meet the requirements of By-Law 06-2005, and the fact that licenses were issued to it for five previous years does not entitle it to a license for a use that contravenes its licencing By-Law; (c) In Feather v. Bradford West Gwillimbury (Township), (2010) 2010 ONCA 440, 71 M.P.L.R. (4th) 1, 2010 CarswellOnt 3986, (Ont. C.A.) at para. 49, the Court of Appeal stated as follows:

There must be more than a simple “intention” to continue a legal non-conforming use. The intention to resume the use must be coupled with reasonable steps taken to resume its use, made within a reasonable time frame.

(d) A legal non-conforming use may be preserved during a temporary discontinuance of the use, if there is some reasonable explanation for the discontinuance of the use or some circumstance beyond the owner’s control that prevented the use from continuing for a period of time. (e) Any legal non-conforming rights enjoyed by The Limit under the zoning By-Law to use the premises as an adult entertainment business was lost because that use was discontinued from 2010 until a new licence was applied for in 2016, a period of five and one half (5.5) years, which exceeds a reasonable time frame in the circumstances. (f) The Settlement Agreement reached in June of 2012 contemplated that the required repairs would have made and the licences issued within a reasonable time, which I find would not have exceeded 6 months in all of the circumstances. I find that by waiting for a period of 4 years from the June settlement, The Limit failed to take reasonable steps within a reasonable time to preserve any legal non-conforming use under the Planning Act. The fact that the operator was in jail for part of the four years is not a reasonable excuse for failing to continue operation of the adult entertainment business for 4 years after the date of settlement. As a result, I find that any legal non-conforming use under the zoning by-law has been extinguished. (g) In addition, the Town was not required to exercise its discretion, not to enforce the Licensing By-Law 06-2005 other than for the one year as agreed in the Settlement Agreement. The Town was able to decide to enforce its Licensing By-Law 06-2005 at any time after the one year had expired.

Disposition of Issue #3

[42] For the above reasons I find that The Limit lost its legal non-conforming rights under the zoning by-law because it discontinued the operation for at least 4 years and did not take reasonable steps within a reasonable period of time to comply with the health and safety requirements.

Disposition of the Summary Motion

[43] For the above reasons, the Plaintiff’s Motion for Summary Judgment to enforce the terms of the Settlement Agreement is dismissed.

Costs

[44] In its costs outline, the Plaintiff sought costs on a partial indemnity basis of $4,346.71 and the Defendant sought $8,811.00. The parties both agree that the issues were important to them and there was some legal complexity. The Plaintiff did not diligently pursue its claim and both parties failed to complete the settlement by signing Minutes of Settlement and a Release and as a result, they each share some responsibility for the requirement for this motion.

[45] I find that the losing party on this motion would reasonably have expected to pay approximately the amount sought by the Town. The Defendant’s costs as claimed are what a unsuccessful party would reasonably expect to pay.

Disposition on Costs

[46] In considering all of the factors set out under Rule 57, The Plaintiff is ordered to pay costs of $6,000 plus HST plus disbursements of $290.66 inclusive of HST to the Defendant.

Justice Robert J. Smith Released: May 18, 2017