Court File and Parties

COURT FILE NO.: CV-12-0201-00 DATE: January 22, 2020

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MAC 5 CORP., Plaintiff – and – THE CORPORATION OF THE CITY OF BELLEVILLE, Defendant

COUNSEL: Robert J. Reynolds, for the Plaintiff David Demille and Suzanne Hunt, for the Defendant

HEARD: January 14 and 15, 2019 and June 14, 2019

HURLEY, J.

Reasons for Decision

Overview

[1] The plaintiff is a land developer. In 1994, it purchased approximately 47 acres of raw land in what was then the Township of Thurlow. In 1998, it sought amendments to the Official Plan and zoning by-law to permit it to develop the land for commercial purposes. The defendant approved the proposed amendments on certain conditions, one of which was that the plaintiff construct sewer and water infrastructure at its own cost which would connect to the existing municipal system.

[2] In 1999, the plaintiff and defendant entered into a written agreement entitled “Development Agreement”. Clause 22 of the Development Agreement stated that owners of “benefiting properties” would be required to enter into an agreement with the plaintiff for the sharing of the cost of the infrastructure before they could connect to it.

[3] The plaintiff constructed the required extension of the trunk sanitary sewer and watermain at a cost of about $260,000. The ownership of it was transferred to the defendant in August 2000.

[4] There were large tracts of undeveloped land adjacent to the plaintiff’s property owned by various parties. Three owners negotiated cost sharing agreements with the plaintiff, one in 1999 and the others in 2008 and 2009. Two subsequently completed residential subdivisions; the third has received municipal approval to proceed with the development of its property but has not yet done so.

[5] In 2009, the defendant decided that a municipal roadway, Cloverleaf Drive, required major repairs because of its poor condition. Almost all of it consisted of single-family homes, none of which were connected to municipal sewer and water services. As part of the road reconstruction, the defendant installed sewer and water lines which connected to the extension constructed by the plaintiff.

[6] In order to connect to these municipal services, the property owners on Cloverleaf Drive must pay a fee that is based on the reimbursement of the defendant for the cost of the installation of the sewer and water infrastructure. To date, less than half have paid the connection fee, preferring to continue with well water and septic systems. For those who did, the defendant did not require them to negotiate a cost sharing agreement with the plaintiff, a decision which led to this lawsuit.

[7] The statement of claim was issued in July 2012. After the defendant delivered a statement of defence which pleaded that the Public Utilities Act, R. S. O. 1990, c. P.52 precluded the enforcement of clause 22 of the Development Agreement, the plaintiff added a restitutionary claim, based on the doctrine of unjust enrichment.

[8] Following a pretrial conference, McLeod- Beliveau, J. made a bifurcation order on consent, directing that the issue of liability be tried first. The evidence consisted of a statement of agreed facts, a document brief, read-ins from the examination for discovery of the defendant’s representative, Rod Bovay and the viva voce testimony of Mr. Bovay and Arnold MacLauchlan, the principal of the plaintiff.

[9] As will be apparent from this introduction, liability turns on the interpretation of the Development Agreement and, in particular, clause 22 and the application of the Public Utilities Act.

The Evidence

[10] There is little dispute over the facts or, for that matter, the applicable legal principles.

[11] The undeveloped land which the plaintiff purchased on March 30, 1994 was located just north of Highway 401. Its northern boundary was a short distance south of Cloverleaf Drive. To the east and north were large, similarly undeveloped properties, owned by parties who intended to develop them either as residential subdivisions or for commercial purposes.

[12] Cloverleaf Drive runs in an east-west direction. The western boundary is a municipal roadway, Sydney Street, and the eastern is Highway 62. It roughly bisected the plaintiff’s land and the largest undeveloped properties to the north.

[13] On January 1, 1998, the Township of Thurlow amalgamated with the defendant. In accordance with an order made under s. 25.2 of the Municipal Act, R. S. O. 1990, c. M.45, the Township’s existing Official Plan and zoning by-laws remained in force until amended or repealed by the defendant.

[14] The relevant provisions of the Official Plan, applicable to the area where the plaintiff’s property was located, were:

The Policy of this Plan shall be that no new major development or plans of subdivision shall be permitted unless adequate municipal water and sanitary sewer facilities are available to serve such a development.

Development within the Secondary Plan area with the exception of the site specific locations identified in subsections 4.6 exceptions for Highway Commercial and 5.6 Exceptions for General Industrial development shall not be permitted until water supply and sanitary sewage disposal services are provided. These major services shall be extended from the existing municipal systems from the City of Belleville and their cost shall be borne entirely by the area’s developers.

It is the intent of this plan that development within the Secondary Plan area not create a financial hardship for the taxpayers of the Township of Thurlow. As such the construction of major water distribution and sanitary sewerage disposal facilities shall only proceed on the basis of the following.

i) If Council is satisfied that it can reasonably finance and afford the initial cost of the facilities the Township may undertake their construction and recover the expended funds through a development levy; or

ii) The developers undertaking such works at no cost to the Township.

Pursuant to Section 35 of the Planning Act, Council may pass a holding by-law for the purpose of delaying development within specified areas until certain criteria have been satisfied. For example, a holding by-law could be utilized to enable the phasing of development and the extension of municipal services.

[15] At the time of amalgamation, there were 43 developed properties on Cloverleaf Drive, two of which were small businesses with the rest being single family dwellings. The defendant had extended water and sewer services north across Highway 401 and along Highway 62 but they ended at a point about 100 metres west of the Highway 62/Cloverleaf Drive intersection.

[16] When the plaintiff sought amendments to the Official Plan and zoning by-law in 1998 to allow it to develop the property, the Public Works and Planning Department of the defendant recommended in a report dated July 13, 1998 that the amendments be approved with, among others, the following conditions:

The subject property is to be serviced with municipal water and sewer services to the satisfaction of the Belleville Utilities Commission and the municipality, and the owner will be required to enter into a cost-sharing agreement for the construction of the services to the satisfaction of the municipality.

A stormwater management plan for the subject property must be completed and approved by all applicable review agencies which must generally conform with the recommendations of the Upper No-Name Creek Stormwater Management Study. The owner shall be required to enter into a cost-sharing agreement for the design and construction of the stormwater management works to the satisfaction of the City.

That the City of Belleville and Belleville Utilities Commission undertake to use best efforts to collect the proportionate share of costs from benefiting landowners with respect to the construction of water, sanitary sewer, roadworks and stormwater management works, and to return the proportionate shares to the original developer less any administrative costs.

[17] Under the heading “Staff and Agency Comments”, the report stated:

The subject property is located within stage 1 of the Servicing Plan contained in the Cannifton Secondary Plan and sufficient capacity exists to allow the full development of the subject lands. However, the extension of water and sewer mains will be required in order to service this property. At present, servicing ends approximately 100 metres west of the Highway 62/Cloverleaf Drive intersection. The developers, and possibly other benefiting landowners will be responsible for extending the pipes approximately 275 metres along Cloverleaf Drive to the MTO access road and then south into the property to the west limit of the property at Sydney Street. A cost-sharing agreement amongst the benefiting landowners including Guerrera (the landowner on the north side of Cloverleaf Drive in lots 2 and 3, Concession 3) and Goodman, will be required. It is expected that the developers will finance the total cost of the extension. The proposed “Holding – h” zone will require that all servicing issues be addressed prior to the removal of the “h” zone symbol. At the time servicing extension plans are reviewed by the City, the issue of blasting impacts should be addressed by the developer, and if necessary the developer should conduct pre-and post-blasting surveys as needed.

A number of Cloverleaf Drive residents have expressed a keen interest in having water and sewer services extended along their street to its intersection with Sydney Street, however the Mac-5 development proposes sewer and water extensions westerly to the MTO access road only. Thurlow Council recognized the need for the servicing of this area sometime ago and received a preliminary cost estimate for servicing and road reconstruction which was in excess of $1 million. A decision was made to consider the proposal during the budget deliberations each year keeping in mind the fact that this project was identified in the urban development charge justification report and lot levy funds could be used to complete the project. At the time of amalgamation, sufficient funds in the development charges reserve account did not exist to complete this project. Recognizing the need for servicing and road improvements on Cloverleaf Drive, the City should address the planning for the improvement of this area in the near future as part of a service delivery plan for the Cannifton Secondary Plan Area. A service delivery plan should be completed for the Cannifton Secondary Plan Area to identify how servicing is to be extended to existing development.

[18] The proposed Official Plan and zoning by-law amendments were passed by the municipal council on July 20, 1998. The by-law included the following conditions with respect to the removal of the hold on the development:

The subject property is to be serviced with municipal water and sewer services to the satisfaction of the Belleville Utilities Commission and the municipality, and the owner will be required to enter into a cost-sharing agreement for the construction of the services to the satisfaction of the municipality.

A stormwater management plan for the subject property must be completed and approved by all applicable review agencies which must generally conform with the recommendations of the Upper No-Name Creek Stormwater Management Study. The owner shall be required to enter into a cost-sharing agreement for the design and construction of the stormwater management works to the satisfaction of the City.

[19] The plaintiff’s engineering consultant, Byron Keene, prepared a draft Development Agreement which he sent to Mr. Bovay by letter dated October 27, 1999. At the time, Mr. Bovay held the position of Manager, Approvals Section and was responsible for the defendant’s Development Approvals program. The covering letter stated: “We have attached herewith a Draft copy of the Subdivision/Development Agreement for the above-noted development for your review and approval. As you are aware, time is of the essence for this development and we would ask that you contact our office as soon as possible if any changes are required to be made to the agreement.” This agreement contained the following provisions about the costs of the stormwater management and sewer and water infrastructure that the plaintiff was going to install:

18. The Owner agrees the development is located within the No-Name Sub-Watershed Area for which a stormwater management facility is to be constructed on Parts 1, 3 & 4, Reference Plan 21R-17972, and Part 10, Plan 21r - __________.

The City agrees to use it’s [sic] best efforts to collect the amount of $430,770.00 as adjusted, from the following owners of the undeveloped lands within the sub-catchment area at their respective percentage share and to pay this amount to the Owner, or the Owner’s heirs, executors, administrators, successors or assigns as can be reasonably be determined by the City.

MTO Lands 5.9% $ 48,970.00 Foxborough Lake Corp. 22.8% $189,240.00 Guerrera Subdivision 12.9% $107,070.00 Goodman Property 8.0% $ 66,400.00 Centrefund proposal) Kellar Property 1.1% $ 9,130.00 Fitzgibbon Lands 1.2% $ 9,960.00

Total 51.9% $430,770.00

The amount is to be adjusted upwards annually at a rate based on the Average Annual prime Rate plus 2%, to start upon completion of the works.

19. The City agrees that prior to approving development on Parts 2 & 5, Reference Plan 21R-17972, and Part 9, Reference Plan 21R-_____ save and except Parts 10 & , Reference Plan 21R-______ to use it’s best efforts to collect the amount of $168,687.38 as adjusted for the cost of providing municipal services to the subject property, from the owner of the undeveloped land along the south side of the proposed street designated as Part 5, Reference Plan 21R- and to pay this amount to the Owner, or the Owner’s heirs, executors, administrators, successors or assigns as can be reasonably be determined by the City.

The amount is to be adjusted upwards annually at a rate based on the Average Annual prime Rate plus 2%, to start upon completion of the works.

19[sic]. The City agrees that prior to approving development of the land owned by the Ministry of Transportation described as Parts 2, 3, 4 & 7, Reference Plan 21R-19061 and the Department of National Defense described in Inst. No. 91357, to use it’s best efforts to collect the amount of $164,300.00 as adjusted for the cost of providing municipal services to the subject properties, including land costs from the owner(s) of the undeveloped land along the east side of the proposed street designated as Part 5, Reference Plan 21R- and to pay this amount to the Owner, or the Owner’s heirs, executors, administrators, successors or assigns as can be reasonably be determined by the City.

The amount is to be adjusted upwards annually at a rate based on the Average Annual prime Rate plus 2%, to start upon completion of the works.

[20] On November 8, 1999 the plaintiff, defendant and the Belleville Public Utilities Commission executed the Development Agreement which is the subject matter of this action. It was approved and authorized by a by-law enacted on the same date. Although paragraph 22 of the Development Agreement is the focus of this case, I will also set out paragraphs 20, 21 and 23 because, as I will later explain, these particular sections are important to the defendant’s proposed interpretation of paragraph 22. They are as follows:

[20] The owner agrees the development is located within the No-Name Sub-Watershed Area for which a stormwater management facility is to be constructed on Parts 1, 3 & 4, Reference Plan 21R-17972, and Part 14, Reference Plan 21R-19228.

The City agrees that the following owners of undeveloped benefiting properties within the sub-catchment area be required to enter into a Cost Sharing Agreement with the Owner at their respective percentage share for the sharing of cost of a storm water management facility that has been constructed by the Owner for the servicing or aiding the development of adjoining owner’s lands before these owners will be permitted to connect to these facilities and to pay this amount to the Owner or the Owner’s heirs, executors, administrators, successors or assigns:

MTO Lands 5.9% $ 48,970.00 Foxborough Lake Corp. 22.8% $ 189,240.00 Guerrera Subdivision 12.9% $ 107,070.00 Goodman Property (Centrefund) 8.0% $ 66,400.00 Kellar Property 1.1% $ 9,130.00 Fitzgibbon Lands 1.2% $ 9,960.00 51.0% $ 430,770.00

The amount is to be adjusted upwards annually at a rate based on the Average Annual Prime Rate plus 2%, to start upon completion of the works.

[21] The City agrees that the Ministry of Transportation and the Department of National Defence, being owners of the lands described as Parts 2, 3, 4 & 7, Reference Plan 21R-19061, and the lands described in Inst. No. 91357 located along the east side of the proposed street designed as Part 5, Reference Plan 21R-19228, be required to enter into a Cost Sharing Agreement with the Owner for the sharing of the cost of providing municipal services and subject properties, including land costs, estimated to be One Hundred and sixty-four Thousand, Three Hundred Dollars ($164,300.00), that has been constructed by the Owner for servicing or aiding in the development of the adjoining owner’s lands before the owner will be permitted to connect to the road, and to pay this amount to the Owner, or the Owner’s heirs, executors, administrators, successors or assigns.

The amount is to be adjusted upwards annually at a rate based on the Average Annual Prime Rate plus 2%, to start upon completion of the works.

[22] The City agrees that all owners of benefiting properties be required to enter into a Cost Sharing Agreement with the Owner for the sharing of the cost of a trunk sanitary sewer and trunk watermain on Cloverleaf Drive from Highway 62 westerly to the MTO access road that has been constructed by the Owner at an estimated cost of Two Hundred and Twenty-Nine Thousand, Four Hundred and Twenty Dollars ($229,420.00) for servicing or aiding in the development of the adjoining owner’s lands before the owners will be permitted to connect to these services, and pay their share of this amount to the Owner, or the Owner’s heirs, executors, administrators, successors or assigns.

The amount is to be adjusted upwards annually at a rate based on the Average Annual Prime Rate plus 2%, to start upon completion of the works.

[23] In negotiating a Cost Sharing Agreement pursuant to Paragraphs 20, 21 and 22 of this Agreement, the Owner and any benefiting property owner shall negotiate in good faith and on a reasonable basis. On the event a Cost Sharing Agreement between the Owner and any benefiting property owner cannot be satisfactorily entered into by the parties, acting reasonably, the dispute shall be resolved between them to the award and determination of a single arbitrator, if the parties agree upon one, otherwise to three arbitrators, one to be appointed by each of the Owner and the benefiting property owner within one week after notice demanding an arbitration has been given and the third to be chosen by the first two named within two weeks after the demand notice. The arbitrator or arbitrators as the case may be shall have all powers given by the Arbitration Act, R.S.O. 1990 and amendments thereto, to arbitrators and shall fix a date for hearing within three weeks from the demand notice and shall make a determination and award within five weeks of the demand notice. No time may be abridged or extended without the consent in writing of all parties. The parties agree that such an award shall be final and binding upon them and shall in all respects be well and faithfully kept and observed.

[21] Although both Mr. MacLauchlan and Mr. Bovay testified at trial, neither gave evidence about the specific negotiations that led to final version of the Development Agreement. Mr. McLachlan claimed it was a “common understanding” that, when municipal sewer and water services were extended along Cloverleaf Drive in the future, the residents would, like the developers, be required to enter into cost sharing agreements with the plaintiff. Mr. Bovay denied that there was any such mutual understanding and that imposing such a requirement on individual ratepayers would be so far out of the norm that only the municipal council could make such a decision, not staff.

[22] The plaintiff and an entity known as the “Maitland Partnership” entered into a written agreement dated December 10, 1999 entitled “Services Cost Sharing and Development Agreement” in which the Maitland Partnership agreed to pay $40,430 to the plaintiff. [1] The agreement stated that the cost of “shared services”, defined as services to be constructed and installed on Cloverleaf Drive for their joint benefit, was $229,420. As a result of this agreement, the defendant removed the hold on the property which allowed the Maitland Partnership to commence development of a residential subdivision adjacent to Cloverleaf Drive.

[23] The plaintiff completed the extension of sewer and water infrastructure contemplated under the zoning by-law amendment and Development Agreement in 2000 at a cost of $255,953.44 and by a by-law dated August 28, 2000 the defendant became the owner of the sewer and water lines, responsible for their maintenance. On January 13, 2003, the defendant assumed by by-law the roadway known as Millennium Parkway that the plaintiff had constructed on the property including the utilities installed there.

[24] On October 1, 2008, another developer, Settlers Ridge Developments Inc., entered into a cost sharing agreement with the plaintiff and paid $275,000 to it. [2] The agreement specified that the payment was for the costs incurred by the plaintiff with respect to the stormwater management facility and the trunk sanitary sewer and watermain constructed by it. Upon execution of the agreement, the defendant removed the hold on the property which allowed Settler’s Ridge to proceed with the construction of a residential subdivision immediately north of the Maitland Partnership subdivision.

[25] On August 28, 2009, a third developer, Cloverbell Developments Ltd. followed suit, entering into a cost sharing agreement with the plaintiff and paying it $170,000 on account of the costs associated with the stormwater management facility and the sewer and water infrastructure. [3] This land remains undeveloped but, because of the agreement, the defendant has lifted the hold on development of it.

[26] The sewer and water lines for the subdivisions built by the Maitland Partnership and Settlers Ridge connect directly to the sewer and water extension constructed by the plaintiff.

[27] Mr. MacLauchlan testified that he negotiated these agreements but could not explain how the amounts were determined other than to say that they were based on calculations done by the plaintiff’s engineering consultant.

[28] At the time the Development Agreement was negotiated, the plaintiff and defendant knew that, at some point in the future, the defendant would likely install municipal sewer and water services on that portion of Cloverleaf Drive which did not have them in 1999. This happened 10 years later as part of a major road reconstruction project.

[29] Before the defendant decided to proceed with the project, it notified the property owners on Cloverleaf Drive about it and held a public meeting on July 22, 2009. According to a report prepared by the Engineering and Development Services Department dated October 13, 2009, the main concerns of the residents were the costs associated with connecting to the municipal sewer and water services and the decommissioning of their wells and septic systems. The estimated cost of the project was $2,735,000, of which $1,292,000 was ascribed to the sewer and water infrastructure.

[30] The defendant passed a by-law on December 14, 2009 that set out the costs which property owners would have to pay if they connected to the municipal services and how this amount was calculated. It was based on 43 existing properties and an estimated 17 new lots in the future. An owner could pay in full at the time of connection or by way of yearly instalments over 20 years. If the latter method was chosen, there would be an additional payment of interest at a prescribed rate. Connection to the services was contingent on the decommissioning of existing wells and septic systems at the owner’s cost.

[31] According to the by-law, the maximum amount for each property owner would not exceed $22,175. The actual fee turned out to be $15,712.45 (lump sum) or $23,679.20 (instalment payments). [4] The construction was completed in 2010. Only 21 owners have connected to the municipal services. Mr. Bovay testified that, in his view, the services would be a benefit to the landowners but also observed that the majority of the residents on Cloverleaf Drive do not appear to agree because they continue to use their wells and septic systems.

[32] Included in the book of documents was correspondence exchanged between the lawyers for the plaintiff and the defendant in 2008 and 2010 that concerned the defendant’s failure to require a cost sharing agreement from a landowner who developed a property which had allegedly connected to the trunk sewer and watermain constructed by the plaintiff. I did not hear any further evidence about this particular dispute or if it was resolved. There was no correspondence included in the book of documents in which the plaintiff or its lawyers asserted that the defendant had an obligation to obtain such an agreement from the property owners on Cloverleaf Drive. Nor was there any evidence of the plaintiff notifying the defendant of this potential claim before the commencement of the lawsuit.

[33] The defendant did not require any of the property owners on Cloverleaf Drive who connected to the sewer and water lines installed by it to enter into a cost sharing agreement with the plaintiff.

[34] Although the trial dealt only with the issue of liability because of the bifurcation order, I asked Mr. Reynolds to advise me of his client’s position on the potential damages claim. On consent, he filed a letter which he had sent to Mr. DeMille dated December 5, 2018 which calculated the current amount as $449,000 with interest accruing at the rate stipulated in the Development Agreement.

The Issues

[35] The legal issues which I have to decide in this case are: i) The proper interpretation of clause 22 of the Development Agreement. ii) The effect of the Public Utilities Act in the circumstances. iii) The application of the doctrine of unjust enrichment should I find that the Public Utilities Act precludes enforcement of clause 22 of the Development Agreement.

The interpretation of clause 22

[36] The plaintiff submits that clause 22 of the Development Agreement, properly construed, requires the property owners on Cloverleaf Drive to enter into a cost sharing agreement with it because they are “benefiting properties” once they connect to the sewer and water lines installed by the defendant since these connect to the infrastructure originally constructed by the plaintiff. Access to public utilities, the plaintiff argues, constitutes a benefit to a property owner because it is more advantageous than their existing well water and septic system. It matters not whether the owner directly or indirectly connects to what was constructed by the plaintiff. The defendant breached the Development Agreement by not requiring those who connected to the municipal services to also enter into a cost sharing agreement with the plaintiff.

[37] The defendant contends that clause 22 applies only to the land developers that directly connect to the infrastructure constructed by the plaintiff. A “benefiting owner” is one who secures a pecuniary advantage which, in this case, is the right to develop their land (or sell it as property approved for development) upon entering into a cost sharing agreement with the plaintiff.

[38] In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, Rothstein, J. set out the modern approach to the interpretation of contracts, identifying the following principles: i. The court should have regard for the surrounding circumstances of the contract, often referred to as the factual matrix. ii. A practical, common-sense approach should be taken rather than reliance on technical rules of construction. iii. The overriding concern is to determine “the intent of the parties and the scope of their understanding”. iv. The contract is to be read as a whole, giving the words used their ordinary grammatical meaning consistent with the surrounding circumstances. Because words can have different meanings, the factual matrix is important. He approved the following passage from the decision of the House of Lords in Reardon Smith Line v. Hansen-Tangen [1976] 3 All E.R. 570:

“No contracts are made in a vacuum: there is always a setting in which they have to be placed…. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”

v. It is the objective intent of the parties that is paramount. [5]

[39] Doherty, J.A. described the interpretive process in Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59 as follows at paras. 50 – 56:

In my view, when interpreting written contracts, at least in the context of commercial relationships, it is not helpful to frame the analysis in terms of the subjective intention of the parties at the time the contract was drawn. This is so for at least two reasons. First, emphasis on subjective intention denudes the contractual arrangement of the certainty that reducing an arrangement to writing was intended to achieve. This is particularly important where, as is often the case, strangers to the contract must rely on its terms. They have no way of discerning the actual intention of the parties, but must rely on the intent expressed in the written words. Second, many contractual disputes involve issues on which there is no common subjective intention between the parties. Quite simply, the answer to what the parties intended at the time they entered into the contract will often be that they never gave it a moment's thought until it became a problem: see Kim Lewison, The Interpretation of Contracts, 3rd ed. (London: Sweet & Maxwell, 2004) at 18-31.

Eli Lilly, supra, instructs that the words of the contract drawn between the parties must be the focal point of the interpretative exercise. The inquiry must be into the meaning of the words and not the subjective intentions of the parties. In this sense, my approach is textualist. However, the meaning of the written agreement must be distinguished from the dictionary and syntactical meaning of the words used in the agreement. Lord Hoffmann observed in Investors Compensation Scheme Ltd., supra, at p. 115 All E.R.:

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.

No doubt, the dictionary and grammatical meaning of the words (sometimes called the "plain meaning") used by the parties will be important and often decisive in determining the meaning of the document. However, the former cannot be equated with the latter. The meaning of a document is derived not just from the words used, but from the context or the circumstances in which the words were used. Professor John Swan puts it well in Canadian Contract Law (Markham, Ont.: Butterworths, 2006) at 493:

There are a number of inherent features of language that need to be noted. Few, if any words, can be understood apart from their context and no contractual language can be understood without some knowledge of its context and the purpose of the contract. Words, taken individually, have an inherent vagueness that will often require courts to determine their meaning by looking at their context and the expectations that the parties may have had.

The text of the written agreement must be read as a whole and in the context of the circumstances as they existed when the agreement was created. The circumstances include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement. [citations omitted]

A consideration of the context in which the written agreement was made is an integral part of the interpretative process and is not something that is resorted to only where the words viewed in isolation suggest some ambiguity. To find ambiguity, one must come to certain conclusions as to the meaning of the words used. A conclusion as to the meaning of words used in a written contract can only be properly reached if the contract is considered in the context in which it was made: see McCamus, The Law of Contracts (Toronto: Irwin Law, 2005) at 710-11.

There is some controversy as to how expansively context should be examined for the purposes of contractual interpretation: see Geoff R. Hall, "A Curious Incident in the Law of Contract: The Impact of 22 Words from the House of Lords" (2004) 40 Can. Bus. L.J. 20. Insofar as written agreements are concerned, the context, or as it is sometimes called the "factual matrix", clearly extends to the genesis of the agreement, its purpose, and the commercial context in which the agreement was made. [citation omitted]

I would adopt the description of the interpretative process provided by Lord Justice Steyn, "The Intracticable Problem of the Interpretation of Legal Texts", supra, at 8:

In sharp contrast with civil legal systems the common law adopts a largely objective theory to the interpretation of contracts. The purpose of the interpretation of a contract is not to discover how the parties understood the language of the text, which they adopted. The aim is to determine the meaning of the contract against its objective contextual scene. By and large the objective approach to the question of construction serves the needs of commerce.

[40] These legal principles apply to agreements between a municipality and a developer: 1298417 Ontario Ltd v. Lakeshore (Town), 2014 ONCA 802.

[41] The starting point for the interpretation of the Development Agreement is the Official Plan because it incorporated the municipality’s policies in respect of land development which were in effect when the agreement was negotiated. Under the Official Plan, land could not be developed without adequate municipal sewer and water services and, if such services were not available, all costs associated with the construction of the necessary infrastructure to connect with the existing municipal system were to be borne by the developer. If the developer did not want to incur these costs, it would have to wait until the municipality extended the services to the property before it could be developed. As stated in the Official Plan, the intent was that development not “create a financial hardship for the taxpayers of the Township of Thurlow”.

[42] Another important constituent of the factual matrix was the defendant’s practice that a developer who incurred infrastructure costs, like the plaintiff in this case, could recover a portion of those costs from other developers who gained a benefit from that infrastructure. This convention was explained by the Ontario Municipal Board in Strano v. Guelph (City) 34 O.M.B.R. at p. 336:

The concept of a front-ending agreement is simple. The first landowner to get started in an undeveloped area is required to front the cost of necessary services, some of which will ultimately benefit lands beyond those of that owner. These costs are paid pursuant to an agreement which provides that the municipality will require subsequent developers, usually referred to as “benefiting owners”, to reimburse the first developer in amounts reflecting their respective shares of the benefits of the front-ended services. That reimbursement is either made directly, or through the municipality. [6]

[43] I find that a central purpose of the Development Agreement was to impose all the costs of the sewer and water infrastructure on the plaintiff because this was consistent with the Official Plan and that, in so doing, fulfilled the objective of it which was that such an expense be incurred by land developers rather than the municipality.

[44] Although not specifically required by the Official Plan, the defendant followed a common practice that other developers who might subsequently benefit from these “front-end” costs would be required to contribute to them and, in order to accomplish this, the parties included a provision in the Development Agreement that mandated a cost sharing agreement with the plaintiff.

[45] These contextual factors support the defendant’s position that what the parties were negotiating was an agreement which applied to land developers only and that the objective intention was to impose all financial obligations arising from the development of the plaintiff’s lands either wholly on it or other developers within the municipality. Both parties would have been aware not only of the governing legal documents (the Official Plan and zoning by-law) but also those which the defendant prepared when considering the plaintiff’s application to develop the property. Of particular note is the Public Works and Planning Department’s report of July 13, 1998 which identified some of the surrounding undeveloped properties and stated: “It is expected that the developers will finance the total cost of the extension.”

[46] I turn now to the wording of the Development Agreement.

[47] The parties agree that I should look at the whole of the agreement and not just clause 22 but differ on how the other clauses affect the interpretation of it. The plaintiff argues that clause 22 is clear in its language and, given Mr. Bovay’s acknowledgement that the Cloverleaf Drive residents benefit from the connection to municipal services, they are, plainly, “owners of benefiting properties”. The defendant says the remaining words in clause 22 in effect define who those owners are and that clauses 20, 21 and 23 affirm the intention that it is owners of undeveloped adjoining properties who would share in the costs associated with the construction of the public utilities.

[48] I find that the defendant’s interpretation is the correct one. Clause 22 is not only directed at adjoining owners but also restricts the requirement of a cost sharing agreement to a specific situation – only if the infrastructure built by the plaintiff services or aids in the development of their lands. While, arguably, a homeowner on Cloverleaf Drive whose property abutted the extension built by the plaintiff could be considered an adjoining owner that would not be the case with the other properties more removed from it. Although there was evidence that a modest number of future lots could be developed on Cloverleaf Drive, the developed properties far exceeded them when the parties negotiated the Development Agreement. The extension, once constructed, would neither service these owners nor would it aid in the development of their properties then or in the future.

[49] Even applying the dictionary definition of benefit which is “an advantage or profit gained from something”, it is questionable how the Cloverleaf Drive residents benefit from the infrastructure built by the plaintiff. If connection to municipal sewer and water services is a benefit, that is gained by the connection to what the defendant, not the plaintiff, built. Moreover, the purported benefit depends on the cost incurred for the services. Although Mr. Bovay considered public utilities an advantage for the homeowner, the majority of those living on Cloverleaf Drive appear to disagree. Despite the availability of such services for the past 10 years, they have stuck with their well water and septic systems. For those who have connected, would they have still considered it a benefit if they had to pay several thousand dollars more to the plaintiff? I recognize that I am dealing only with liability at this stage of the case but, given the plaintiff’s estimated claim, a homeowner would incur a significant additional cost, increasing with each passing year because of the accruing interest, which would seriously diminish, if not eliminate, any perceived benefit from connecting to the municipal services.

[50] The dispute resolution mechanism in clause 23 supports the defendant’s position. Because they are not parties to the Development Agreement, other developers could not be legally compelled to participate in an arbitration but, as a practical matter, they would do so because otherwise the defendant could withhold permission to develop their land. There is no such incentive for a homeowner on Cloverleaf Drive. Even if they voluntarily agreed to negotiation or arbitration, it would be another potentially substantial expense particularly since, based on Mr. MacLauchlan’s testimony, the calculation of the contribution requires expert assistance. The purpose of this clause is clear (to ensure a fair adjudication of the amount if the parties cannot reach an agreement) but it is also a legal process that only a developer could realistically afford.

[51] In Consolidated Bathurst Export Ltd v. Mutual Boiler, Estey, J. stated at p. 8:

.. [T]he normal rules of construction lead a court to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract. Consequently, literal meaning should not be applied where to do so would bring about an unrealistic result or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted. Where words may bear two con­structions, the more reasonable one, that which produces a fair result, must certainly be taken as the interpretation which would promote the inten­tion of the parties. Similarly, an interpretation which defeats the intentions of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation of the policy which promotes a sensible commercial result.

[52] Under the plaintiff’s interpretation of clause 22, the defendant would have decided that, rather than follow the Official Plan, it would agree that a developer could recover its costs (plus interest) from individual ratepayers over an indefinite period of time. The defendant would, for no plausible reason, gratuitously confer a sizeable benefit on the plaintiff and impose a corresponding unnecessary financial detriment on the taxpayers of the municipality. And it would do so without notice to the public or discussion at the municipal council level. I conclude that this was not the intent of the parties and that the interpretation of clause 22 which promotes a sensible result is that it was the neighbouring developers, not the property owners on Cloverleaf Drive, who were obliged to enter into cost sharing agreements with the plaintiff.

The effect of the Public Utilities Act

[53] S. 55 of the Public Utilities Act, which was in force at the time the Development Agreement was negotiated, provided:

Where there is a sufficient supply of the public utility, the corporation shall supply all buildings within the municipality situate upon land lying along the line of any supply pipe, wire or rod, upon the request in writing of the owner, occupant or other person in charge of any such building. [7]

[54] The defendant submits that this section has been judicially interpreted to impose an obligation on a municipality to permit the owner or occupant of any existing building along a line of supply of a public utility to connect to those lines. If the municipality refuses, the owner can obtain a court order compelling it to do so. As a result, if the plaintiff’s interpretation of clause 22 of the Development Agreement is correct, the defendant had no legal authority to agree to this clause. Alternatively, this should be considered as part of the interpretive exercise because if an agreement has two possible constructions, one lawful and the other unlawful, the former should be preferred.

[55] The plaintiff asserts that ss. 12 and 50(4) of the statute granted the authority to impose a reasonable fee for connection to municipal services, including the requirement of payment before the actual connection. [8] Accordingly, the defendant could add any amount due to the plaintiff to the fee that it required the owner to pay. In any event, clause 22 of the Development Agreement would be unenforceable only if it would be contrary to public policy to allow it to be enforced.

[56] Because of the Court of Appeal’s decision in Holmberg v. Sault Ste. Marie Public Utilities Commission, [1966] 2 O.R. 675, a property owner on Cloverleaf Drive could obtain a court order compelling the defendant to permit them to connect to the sewer and water lines installed by the defendant without entering into a cost sharing agreement with the plaintiff. This does not make clause 22 of the Development Agreement ultra vires or otherwise unenforceable as against the defendant.

[57] It does aid in the interpretive exercise. The parties knew, when the Development Agreement was negotiated, that the defendant would likely install sewer and water lines along the whole of Cloverleaf Drive at some point in the future. They likewise would have known that, when it did so, at least some of the owners would want to connect to these services and the defendant would be legally required to comply with any such request. If the intent of the parties was as the plaintiff contends, this would mean that before any connection could occur, the defendant would require each owner to first enter into a cost sharing agreement with the plaintiff. The defendant would have no legal ability to compel them to do so. It would not have the leverage, as it did with developers, to induce the homeowners to either negotiate an agreement or undertake the arbitration process. It is doubtful that the defendant could lawfully add to its connection fee an expense incurred by a third party many years before for other work. Even if it could be imposed, how would the cost be calculated? And what about those property owners who could not afford it or decided to wait before connecting to the municipal services – with accruing interest, the plaintiff would be entitled to increasingly larger payments for decades to come. Nobody would enter into an agreement that would ineluctably lead to such a legal imbroglio. But the plaintiff and defendant would do so if the intention was to restrict the application of the Development Agreement to adjacent fellow developers because, in that case, clause 23 makes sense; if the developers and the plaintiff cannot agree on the amount of the contribution, there is a legal mechanism that allows for an equitable resolution of the dispute.

The unjust enrichment claim

[58] In view of my conclusions about the interpretation of clause 22 and the defendant’s argument on the effect of the Public Utilities Act, it is unnecessary to decide this issue. I would have declined to do so in any event because a claim for unjust enrichment could not be decided on the evidentiary record before me nor should it be. This type of legal claim could only be properly assessed if I was also dealing with damages.

Disposition

[59] The action is dismissed. If the parties cannot agree on costs, the defendant shall submit written submissions, not to exceed three pages in length, exclusive of a costs outline, dockets, offers to settle and case law within 30 days of the release of this decision. The plaintiff has 20 days in which to deliver its reply submissions of the same length.

Hurley, J.

Released: January 22, 2020

Footnotes

[1] The Maitland partnership owned the property identified as the “Guerrera Subdivision” in clause 20 of the Development Agreement

[2] This corporation owned the property identified as “Foxborough Lake Corp.” in clause 20 of the Development Agreement.

[3] This corporation owned the property identified as “Goodman Property (Centrefund)” in clause 20 of the Development Agreement

[4] The amount was based on an arithmetical calculation which was the total cost divided by the number of properties on Cloverleaf Drive. If an owner chose instalment payments, the yearly amount would be added to their property tax bill. The final cost of construction was $743,333.42. The total number of lots was 60. The infrastructure charge was $12,388.89 per lot and the connection fee $3,323.56.

[5] Paras. 46-49 and 57-64

[6] The Board in that case was dealing with an agreement entered into under the Development Charges Act, R. S. O. 1990, c. D.9 but the stated principle applies equally to the Development Agreement in this case. See also Eastpine Kennedy-Steeles Ltd. v. Markham (Town), 46 O.M.B.R. 353 (Div. Ct.) at paras. 31 and 62-63.

[7] This provision is now also found in s. 86 of the Municipal Act, 2001. Ss. 78-93 of the Municipal Act deals with public utilities. The Public Utilities Act remains in force albeit with most of its provisions repealed.

[8] S. 12 was repealed in 2001.