Quercus Algoma Corporation et al. v. Algoma Central Corporation

[Indexed as: Quercus Algoma Corp. v. Algoma Central Corp.]

Ontario Reports

Ontario Superior Court of Justice

Vella J.

April 1, 2021

155 O.R. (3d) 293 | 2021 ONSC 2457

Case Summary

Real property — Option to purchase — Perpetuities — Parties entering into mining rights option agreement registered on title in 1997 — Respondent having option to purchase half interest in mining rights with associated profits — Applicants claiming that option had a statutory perpetuity period of 21 years and had expired — Application to declare option void dismissed — Option was product of sophisticated commercial transaction creating an interest similar to incorporeal interests of easements and profits à prendre such that perpetuity period was 40 years and option was still valid — Perpetuities Act, R.S.O. 1990, c. P.9, ss. 13, 14.

The parties entered into a mining rights option agreement (MROA) with a term of 40 years. Notice of the MROA was registered on title to various properties in 1997. The respondent had an option to purchase an undivided one-half interest in mining rights with associated profits regarding some of those lands. A disagreement arose between the parties as to the validity of the option. The Perpetuities Act provided that the rule against perpetuities did not apply to options to acquire reversionary interests, and pursuant to s. 13(3) the perpetuity period for all other options to acquire for valuable consideration any interest in land was 21 years. Under s. 14, the perpetuity period was 40 years in the case of an easement, profit à prendre, or other similar interest. According to the applicants, the property interest created by the MROA fell within the scope of "all other options" within the meaning of s. 13(3), and as such the option had expired. The respondent submitted that it fell within "other similar interest" within the meaning of s. 14 and as such was presumptively valid. The applicants sought to declare the option void.

Held, the application should be dismissed.

The option created by the MROA was a right exercisable within the meaning of s. 14 such that the vesting period was 40 years and the option was valid. The object of the legislation was to modify the common law rule against perpetuities to reflect the modern reality of commercial transactions. The history of the legislation, and ss. 13 and 14 in particular, demonstrated an intention to create a longer vesting period for the exercise of future rights over incorporeal property interests. The reading of the two sections together led to the conclusion that "other options" related only to options to acquire for valuable consideration an interest in corporeal hereditaments. The reference to a "similar interest" meant interests similar in nature to easements and profits à prendre, being incorporeal interests. Section 14 reflected the commercial reality that transactions involving incorporeal hereditament interests were generally the product of sophisticated commercial transactions and should not be frustrated by the rule against perpetuities. The fact that s. 14 provided a longer vesting period than the common law vesting period of 21 years further supported that view. The MROA did not deter future commercial development of the property since it was the applicants who exercised complete control over when, how and whether to enter into mineral exploration, extraction, and development. The MROA was registered on title and the option was a covenant running with the land and as a charge. The fact that the contingent incorporeal interest was framed within a commercial contract as an "option" did not [page294] transform it into an interest in a corporeal hereditament within the meaning of the Perpetuities Act.

Third Eye Capital Corp. v. Dianor Resources Inc. (2018), 141 O.R. (3d) 192, [2018] O.J. No. 1381, 2018 ONCA 253, 420 D.L.R. (4th) 657, 8 P.P.S.A.C. (4th) 181, 57 C.B.R. (6th) 171 ; Bank of Montreal v. Dynex Petroleum Ltd., [2002] 1 S.C.R. 146, [2001] S.C.J. No. 70, 2002 SCC 7, 208 D.L.R. (4th) 155, 281 N.R. 113, J.E. 2002-230, 299 A.R. 1, 19 B.L.R. (3d) 159, 30 C.B.R. (4th) 168, 1 R.P.R. (4th) 1, apld

Other cases referred to

Ayr Farmers Mutual Insurance Co. v. Wright (2016), 134 O.R. (3d) 427, [2016] O.J. No. 5556, 2016 ONCA 789, 61 C.C.L.I. (5th) 64, 2 M.V.R. (7th) 31; Belwood Lake Cottagers Assn. Inc. v. Ontario (Ministry of the Environment), [2019] O.J. No. 485, 2019 ONCA 70, 431 D.L.R. (4th) 318, 23 C.E.L.R. (4th) 227, 83 M.P.L.R. (5th) 1; Montréal (City) v. 2952-1366 Québec Inc., [2005] 3 S.C.R. 141, [2005] S.C.J. No. 63, 2005 SCC 62, 258 D.L.R. (4th) 595, 340 N.R. 305, 32 Admin. L.R. (4th) 159, 201 C.C.C. (3d) 161, 18 C.E.L.R. (3d) 1, 36 C.R. (6th) 78, 134 C.R.R. (2d) 196, 15 M.P.L.R. (4th) 1, 67 W.C.B. (2d) 397; R. v. Jarvis, [2019] 1 S.C.R. 488, [2019] S.C.J. No. 10, 2019 SCC 10, 429 C.R.R. (2d) 175, 433 D.L.R. (4th) 195, 52 C.R. (7th) 62, 375 C.C.C. (3d) 324; R. v. Perka, 1984 CanLII 23 (SCC), [1984] 2 S.C.R. 232, [1984] S.C.J. No. 40, 13 D.L.R. (4th) 1, 55 N.R. 1, [1984] 6 W.W.R. 289, J.E. 84-1013, 28 B.C.L.R. (2d) 205, 14 C.C.C. (3d) 385, 42 C.R. (3d) 113, EYB 1984-149792; Reyhani v. Karimov, [2019] O.J. No. 4759, 2019 ONSC 5290, 49 E.T.R. (4th) 216, 13 R.P.R. (6th) 342 (S.C.J.); Rizzo & Rizzo Shoes Ltd. (Re) (1998), 1998 CanLII 837 (SCC), 36 O.R. (3d) 418, [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2, 154 D.L.R. (4th) 193, 221 N.R. 241, 106 O.A.C. 1, 50 C.B.R. (3d) 163, 33 C.C.E.L. (2d) 173, 98 CLLC para. 210-006; Saskatchewan Minerals v. Keyes, 1971 CanLII 183 (SCC), [1972] S.C.R. 703, [1971] S.C.J. No. 136, 23 D.L.R. (3d) 573, [1972] 2 W.W.R. 108; Scurry-Rainbow Oil (Sask) Ltd. v. Taylor, [2001] S.J. No. 479, 2001 SKCA 85, 203 D.L.R. (4th) 38, [2001] 11 W.W.R. 25, 207 Sask. R. 266

Statutes referred to

Land Titles Act, R.S.O. 1990, c. L.5, s. 71 [as am.]

Legislation Act, 2006, S.O. 2006, c. 21, Sch. F, s. 64(1)

Perpetuities Act, R.S.O. 1990, c. P.9, ss. 2, 5(1), 13, (1), (2), (3), (4), 14

The Perpetuities Act, 1966, S.O. 1966, c. 113 [rep.]

Authorities referred to

Anger and Honsberger, Law of Real Property, 2nd ed. (Aurora, Ont.: Canada Law Book, 1985)

Langan, P. St. J., Maxwell on the Interpretation of Statutes, 12th ed. (London, U.K.: Sweet & Maxwell, 1969)

Morris, J.H.C. & W. Barton Leach, The Rule Against Perpetuities, 2nd ed. (London, U.K.: Stevens & Sons, 1962)

APPLICATION to declare an option under a mining rights agreement void.

Jonathan Lancaster and Daniel Richer, for applicants.

Christopher Matthews, for respondent.

[1] VELLA J.: — This is an application seeking declaratory relief regarding the validity or invalidity of an option exercisable by Algoma Central Corporation ("ACC") to purchase an undivided [page295] one-half interest in Mining Rights with associated profits regarding certain lands in eastern Ontario referred to collectively by the parties as the Quercus Algoma Parcels, pursuant to s. 5(1) of the Perpetuities Act, R.S.O. 1990, c. P.9.

[2] At issue is whether the option provided for in the Mining Rights Option Agreement ("MROA") is captured under s. 13(3) of the Perpetuities Act or, alternatively under s. 14. This is important to the parties because if the option is captured under s. 13(3) and the associated 21-year vesting period, as urged by the applicants, the option has expired and is voided. However, if the option is captured under s. 14, as urged by the respondent, then the 40-year vesting period applies and the option has not yet expired and is presumptively valid.

[3] The parties have advised that they cannot find any reported decision in which the scope and ambit of ss. 13(3) and 14, including, in particular, how the two legislative provisions interrelate. Therefore, this is a case of first impression.

Underlying umbrella land transaction with MROA

[4] The conveyance of the Quercus Algoma Parcels originated in a 1997 transaction whereby ACC sold approximately 816,000 acres of timberlands to McDonald Investment Company (the "McDonald transaction"). The purchase price for these lands was $60,189,000 and other valuable consideration. The sale was carried out through two transfers at the direction of McDonald Investment Company ("McDonald"): one conveyance of lands was to 3011650 Nova Scotia Limited in the amount of $55,420,000, and the second conveyance was to 3011651 Nova Scotia Limited in the amount of $4,769,000. The average price per acre of the timberlands was approximately $74.

[5] The terms of the McDonald transaction were set out in an agreement of purchase and sale dated June 12, 1997, between ACC and McDonald, and then in an amending agreement dated August 15, 1997 (collectively, the "land purchase agreement").

[6] At the direction of McDonald, the transfers/deeds of land named 3011650 Nova Scotia Limited and 3011651 Nova Scotia Limited as transferees.

[7] Section 8.5 of the land purchase agreement requires, as part of the 1997 MacDonald transaction, that MacDonald, as purchaser, enter into a mining rights option agreement with the vendor, ACC. A draft of the MROA is included as Schedule F to the land purchase agreement and in that document the parties [page296] agreed that the term of the MROA was 40 years from the date of this transaction. This term is also reflected in s. 8.5(b) of the land purchase agreement:

The Vendor shall, from and after closing, be entitled to an option to purchase an undivided 49% interest in the Mining Rights and to share in the proceeds of any Commercial Production therefrom, pursuant to the Mining Rights Option Agreement substantially in the form attached hereto as Schedule F. The Mining Rights Option Agreement shall be registered on title to the Purchased Assets and shall be binding on successors in title of the Purchaser. The Mining Rights Option Agreement shall have a term of forty (40) years.

Specific land transactions involving the MROA at issue in the application

[8] As indicated above, by direction of McDonald, ACC conveyed a number of properties to 3011650 Nova Scotia Limited ("301"). These properties are collectively referred to by the parties as the Quercus Algoma Parcels (see Exhibit A to the affidavit of David Stewart for the legal descriptions of these lands).

[9] More specifically, by Transfer Deed of the Land dated November 4, 1997, and registered on title on November 5, 1997, ACC conveyed the Quercus Algoma Parcels together with other adjacent lands in the District of Algoma to 301. As part of this transaction, 301 and ACC entered into the MROA, dated November 4, 1997. Notice of the MROA was registered pursuant to s. 71 of the Land Titles Act, R.S.O. 1990, c. L.5, on title to, among other properties, the Quercus Algoma Parcels on November 5, 1997. The MROA reflects the terms of the draft MROA which was attached as Schedule F to the land purchase agreement and continues to be registered on title.

[10] 301, in turn, divided the Quercus Algoma Parcels into two parts. First, by transfer/deed of land dated December 12, 2005, registered on title December 15, 2005, 301 conveyed the Quercus Algoma Parcels, other than what the parties have called the Vibert Lands, to Algoma Timberlakes Corporation ("Timberlakes").

[11] Then, by transfer deed of land dated December 12, 2005, registered on title December 15, 2005, 301 conveyed the Vibert Lands to Vibert Holdings Limited ("Vibert Holdings"), as bare trustee for and on behalf of Timberlakes as beneficial owner.

[12] Thereafter, Timberlakes conveyed the Quercus Algoma Parcels, other than the Vibert Lands, to 0990220 BC Limited which later changed its name to Quercus Algoma Corporation ("QAC"). At about the same time, Vibert Holdings, with the consent of Timberlakes, conveyed the Vibert Lands to 0990221 BC Limited which later changed its name to Quercus Algoma Land Corporation ("QALC"). [page297]

[13] As part of the Timberlakes/Vibert Holdings transactions with QAC and QALC, the parties entered into two earn out agreements each dated January 10, 2014, and notice of which were both registered on title pursuant to s. 71 of the Land Titles Act on January 14, 2014 (collectively, the "earn out agreements"). Under the earn out agreements, Timberlakes was granted the exclusive option for a period of ten years to designate a part, or parts, of the Quercus Algoma Parcels for the purpose of permitting Timberlakes, or those proposed by Timberlakes, to conduct or undertake mining exploration, development, and production activities in respect of minerals on those designated lands. Under the earn out agreements, Timberlakes' options will expire on or about January 10, 2024.

[14] Finally, by transfer deed of land dated and registered on title September 9, 2016, QAC conveyed a part of the Quercus Land Parcels, described as part of Raaflaub Township to COR Rural Holdings Inc. This was followed by a conveyance by transfer deed of land, dated and registered on title on October 31, 2016, of QAC's interests in Olsen and Brule Townships in the District of Algoma to Great Lakes Power Transmission Holding Corp.

[15] There is no dispute as to the authenticity of the MROA or its proper registration on title. The dispute focusses on the length of the vesting or perpetuity period of the MROA, which in turn will require a determination of whether the 21-year vesting period under s. 13(3) or the 40-year vesting period under s. 14 of the Perpetuities Act applies.

[16] The parties also agree that ACC has yet to exercise the option under the MROA and agree that the interest created by that document is a contingent interest.

Material Terms of the MROA

[17] Pursuant to the terms of the MROA, 301 is the Optionor (now the applicants as successors in title) and ACC is the Optionee.

[18] The following excerpts from the MROA are particularly relevant to an analysis of what interest or rights the parties intended to convey under the MROA:

1. DEFINITIONS:

"Commercial Production" means active mining or extraction of any Minerals from the Lands which is intended to result in shipment of the Minerals from the Lands for treatment or sale . . .

"Exploration Activities"means all work, operations or activities normally associated with prospecting, exploration, development or other mining work such as, but not limited to, geological, geophysical, geotechnical and geochemical surveys and studies, sampling, surface stripping, trenching, drilling, shaft [page298] sinking, raising, cross-cutting and drifting, ramp exploration, dewatering underground workings, beneficiation studies, assays, metallurgical testing, construction or improvements to access roads, any or all of which are completed to determine the potential Minerals on, under or in the Lands.

"Minerals" shall include, without limitation, all naturally occurring metallic and non-metallic ores, mines and minerals, natural gas, petroleum, coal, salt, quarry and aggregate or pit material, industrial stone, gold, silver, all rare and precious metals diamonds, gems and other precious or semi-precious stones.

"Mining Rights" means all rights in law to mine or extract Minerals in, on, from or under the Lands.

3. OPTIONOR AND OPTIONEE TO SHARE IN PAYMENTS

Without limiting the Optionee's rights under section 7 hereof, and for greater certainty only, the parties agree that the Optionor and the Optionee shall share 51% for the Optionor and 49% for the Optionee in all Payments, after deducting the reasonable costs and expenses of the Optionor in connection therewith.

4. OPTIONOR'S CONTROL

It is agreed and understood that the Optionor shall have sole discretion and control in deciding whether and which Exploration Activities, if any, shall be commenced and whether and which Commercial Production, if any, shall be undertaken. Apart from notices as provided herein,the Optionor shall not be required to consult the Optionee in undertaking or failing to undertake any Exploration Activities or Commercial Production and the Optionee shall not exercise any control or discretion in regard to the Exploration Activities or Commercial Production and agrees that the Optionor shall be solely entitled to control any Exploration Activities or Commercial Production as it sees fit, in its sole discretion, and may assign or delegate such control to third party.

5. NOTICE OF DISCOVERY

Each of the Optionor and the Exploration Company shall give written notice to the Optionee of any discovery on the Lands within fifteen (15) days of becoming aware of any Discovery . . .

7. OPTION TO PURCHASE

The Optionor hereby grants to the Optionee the sole, exclusive and immediate right and option to purchase a one-half undivided interest (the Subject Mining Rights) in the Mining Rights. The Optionee shall be entitled, at any time and from time to time, to deliver written notice to the Optionor that it elects to purchase the Subject Mining Rights, at the price of Twenty-Five Dollars ($25) per acre. The aforesaid option may be exercised for all or any part or parts of the Mining Rights owned by the Optionor in the Lands from time to time during the term of this agreement and the exercise of the option with respect to any part of the Mining Rights shall not preclude the subsequent exercise of the option against any other part or parts of the Mining Rights in the Lands from time to time. [page299]

8. CLOSING ARRANGEMENTS

In the event that the Optionee exercises its option to purchase the Subject Mining Rights as aforesaid, the Optionor shall convey good and marketable title to the Subject Mining Rights to the Optionee free and clear of all encumbrances except any Exploration Agreement entered into in compliance with this agreement . . .

9. EXPLORATION AGREEMENTS

(a) The Optionor shall not permit any party (an "Exploration Company") to engage in any Exploration Activities for any Minerals on, in or under the Lands or to mine or extract any Minerals . . . at any time or from time to time, except pursuant to an agreement between the Exploration Company and the Optionor (the "Exploration Agreement") . . . All cash payments . . . royalties . . . or other consideration made (hereinafter referred to as the "Payments") by the Exploration Company for the right to conduct Commercial Production . . . or payable or accruing as a result of the mining or extraction of minerals from the Lands shall be made to or accrued to the Optionor and Optionee subject to Section 3 hereof . . .

(b) the Optionor shall provide to the Optionee copies of all executed Exploration Agreements . . . within fifteen (15) days after receipt or execution thereof by the Optionor.

(c) Prior to being entitled to receive any Payments, the Optionee shall exercise the option to purchase the Subject Mining Rights pursuant to Section 7 hereof, provided that such option may be exercised at any time prior to, contemporaneously with or after entering into of any Exploration Agreement.

10. BINDING EFFECT

This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns, including, without limitation, all successors in title to the Lands. The obligations of the Optionor hereunder shall constitute covenants running with the land and shall be binding upon any mortgagees, chargees or successors in title of the Optionor as fully as if they had executed this agreement.

12. CHARGE

The Optionor hereby mortgages and charges the Mining Rights to the Optionee as further security for the obligations of the Optionor contained in this agreement.

13. TERM

This agreement shall have a term of forty (40) years.

16. GOVERNING LAW

This agreement shall be governed by and construed in accordance with the laws of the Province of Ontario.

(Emphasis added) [page300]

Statutory Framework

[18a] The key provisions, ss. 13 and 14 of the Perpetuities Act, are as follows:

Options to acquire reversionary interests

13(1) The rule against perpetuities does not apply to an option to acquire for valuable consideration an interest reversionary on the term of a lease,

(a) if the option is exercisable only by the lessee or the lessee's successors in title; and

(b) if it ceases to be exercisable at or before the expiration of one year following the determination of the lease.

Application of subs. (1)

(2) Subsection (1) applies to an agreement for a lease as it applies to a lease, and "lessee" shall be construed accordingly.

Other options

(3) In the case of all other options to acquire for valuable consideration any interest in land, the perpetuity period under the rule against perpetuities is twenty-one years, and any such option that according to its terms is exercisable at a date more than twenty-one years from the date of its creation is void on the expiry of twenty-one years from the date of its creation as between the person by whom it was made and the person to whom or in whose favour it was made and all persons claiming through either or both of them, and no remedy lies for giving effect to it or making restitution for its lack of effect.

Options to renew leases

(4) The rule against perpetuities does not apply, nor do the provisions of subsection (3) apply, to options to renew a lease.

Easements, profits à prendre, etc.

14. In the case of an easement, profit à prendre or other similar interest to which the rule against perpetuities may be applicable, the perpetuity period is forty years from the time of the creation of such easement, profit à prendre or other similar interest, and the validity or invalidity of such easement, profit à prendre or other similar interest, so far as remoteness is concerned, shall be determined by actual events within such forty-year period, and the easement, profit à prendre or other similar interest is void only for remoteness if, and to the extent that, it fails to acquire the characteristics of a present exercisable right in the servient land within the forty-year period.

[19] The following additional provisions of the Perpetuities Act are relevant as providing context within which the interpretation and interrelationship of the above two sections to the present factual scenario must be considered:

Definitions

1. In this Act,

"limitation" includes any provision whereby property or any interest in property, or any right, power or authority over property, is disposed of, created or conferred.

Rule against perpetuities to continue; saving

2. Except as provided by this Act, the rule of law known as the rule against perpetuities continues to have full effect.

Possibility of vesting beyond period

3. No limitation creating a contingent interest in property shall be treated as or declared to be invalid as violating the rule against perpetuities by reason only of the fact that there is a possibility of such interest vesting beyond the perpetuity period.

Presumption of validity and "Wait and See"

4(1) Every contingent interest in property that is capable of vesting within or beyond the perpetuity period is presumptively valid until actual events establish,

(a) that the interest is incapable of vesting within the perpetuity period, in which case the interest, unless validated by the application of section 8 or 9, shall be treated as void or declared to be void; or

(b) that the interest is incapable of vesting beyond the perpetuity period, in which case the interest shall be treated as valid or declared to be valid.

Application of Act

19. Except as provided in subsection 12 (2) and in section 18, this Act applies only to instruments that take effect on or after the 6th day of September, 1966, and such instruments include an instrument made in the exercise of a general or special power of appointment on or after that date even though the instrument creating the power took effect before that date.

The Rule Against Perpetuities and Relevant Property Concepts

[20] According to s. 2, the common law rule against perpetuities continues to apply in Ontario, save as specifically modified or changed by the Perpetuities Act. Therefore, an understanding of the common law development of this rule is relevant.

[21] The rule against perpetuities is a creation of judge made law going back to the 17th century. The rule, at common law, provides that a contingent interest in land must vest within 21 years from its creation. According to the often cited text, J.H.C. Morris & W. Barton Leach, The Rule Against Perpetuities, 2nd ed. (London, U.K.: Stevens & Sons, 1962), at p. 1: "The Rule against Perpetuities is a rule invalidating interests which vest too remotely. Indeed, it is often called the rule against remoteness of vesting". Furthermore, "the rule against perpetuities is a doctrine of the law of property, not contract": Morris & Leach, at p. 219. Further of note, the rule has been held at common law not to apply to options to renew leases, even perpetually: Morris & Leach, at p. 223. [page301]

[22] Historically, the mischief sought to be prevented through this rule was the ability of a few wealthy (landowner) families in the United Kingdom to hold on to land beyond death, thereby tying up the future development of the land. Hence, the focus on "hereditaments" (meaning things that are capable of being inherited, reflecting the roots of this common law rule).

[23] In Scurry-Rainbow Oil (Sask) Ltd. v. Taylor, [2001] S.J. No. 479, 2001 SKCA 85, 203 D.L.R. (4th) 38, at paras. 52-53, the Saskatchewan Court of Appeal stated the public policy rationale for the rule as:

The underlying and fundamental purpose of the rule is founded in the public policy of preventing the fettering of the marketability of property over long periods of time by indirect restraints upon its alienation. The general purpose of the rule is to prevent the tying up of property to the detriment of society in general.

The exclusion of property from the stream of commercial development for extended periods of time was perceived by the law as a public evil. . . . Since this approach was adopted particularly in relation to devolution of estates, the judge-made rule limited the extent to which the "dead hand" could control contingent devolution.

[24] In Reyhani v. Karimov, [2019] O.J. No. 4759, 2019 ONSC 5290 (S.C.J.), at para. 11, our court articulated the policy rationale underlying the common law rule against perpetuities as follows: "to prevent the indefinite sterilization of property by fostering certainty of vesting". In other words, the public policy reflects the benefit of land not being tied up indefinitely thus preventing commercial or other development of property.

[25] At common law, an interest in land must vest within 21 years from the date of its creation or it is void. The rule was applied to immediately void interests where there was a possibility, however remote, that the interest would not vest within the 21-year perpetuity period.

[26] The Perpetuities Act, passed in 1966, preserves the common law rule, except to the extent modified by that statute. The Perpetuities Act did not codify the common law, but rather modified it, to reflect modern commercial and other realities and to bring clarity to the rule which was considered confusing and antiquated in its application: Saskatchewan Minerals v. Keyes, 1971 CanLII 183 (SCC), [1972] S.C.R. 703, [1971] S.C.J. No. 136, at p. 722, per Laskin J. (dissenting).

[27] Important to this analysis is the understanding of the two types of property with which the rule is engaged: corporeal hereditaments and incorporeal hereditaments. The respective definitions and differences between the two are essential to the characterization of the option at issue under the MROA.

[28] The Court of Appeal in Third Eye Capital Corp. v. Dianor Resources Inc. (2018), 2018 ONCA 253, 141 O.R. (3d) 192, [2018] O.J. No. 1381, [page302] 2018 ONCA 253 ("Third Eye"), at para. 31, defined corporeal and incorporeal hereditaments as follows:

At common law, rights in relation to land are divided into corporeal and incorporeal hereditaments . . . A corporeal hereditament is an interest in land that is capable of being held in possession, such as a fee simple. An incorporeal hereditament is an interest in land that is non-possessory such as easements, profits à prendre, and rent charges. Under each type of incorporeal hereditament, the holder has an interest in land.

[29] Accordingly, the right created by the entitlement to purchase a one-half undivided interest in the Mining Rights and the related share of revenues in the MROA is an incorporeal hereditament.

[30] More specifically, the type of incorporeal hereditament created by the MROA is an option to purchase what in essence is a share in a profit à prendre. Black's Law Dictionary defines a profit à prendre as:

A right exercised by one person in the soil of another, accompanied with participation in the profits of the soil thereof. A right to take part of the soil or produce of the land. A right to take from the soil, such as by logging, mining, drilling, etc. The taking (profit) is the distinguishing characteristic from an easement.

Right of "profit à prendre" is a right to make some use of the soil of another, such as a right to mine metals, and it carries with it the right of entry and the right to remove and take from the land the designated products or profit and also includes right to use such of the surface as is necessary and convenient for the exercise of the profit.

[31] A property interest is either vested or contingent. The vesting of a contingent interest is delayed by the occurrence of some future event (i.e., subject to a condition precedent): Reyhani, at para. 13. Both parties agree that the interest created in the MROA is a contingent interest because the resulting entitlement to a share of revenues by ACC as Optionee will only vest upon its exercise of the option to purchase the one-half undivided interest in the Mining Rights (and payment by the Optionee of $25 per acre to the Optionor). According to the terms of the MROA, the option is exercisable by ACC at any time within 40 years from the date of the MROA.

[32] The Supreme Court of Canada, in Bank of Montreal v. Dynex Petroleum Ltd., 2002 SCC 7, [2002] 1 S.C.R. 146, [2001] S.C.J. No. 70, changed the common law with respect to the characterization of royalties in the oil and gas industry as an interest in land.

[33] Dynex has particular relevance to the case at bar as it deals with royalties which is an incorporeal hereditament. Royalties are similar in nature to the profit-sharing scheme set out in the MROA.

[34] As noted by the Supreme Court, at para. 8, "At common law, an interest in land could issue from a corporeal hereditament but not from an incorporeal hereditament" (emphasis added). [page303]

[35] At para. 10, the Supreme Court quoted with approval, Laskin J.'s dissent from Saskatchewan Minerals, at p. 722 S.C.R.,

The language of "corporeal" and "incorporeal" does not point up the distinction between the legal interest and its subject-matter. On this distinction, all legal interests are "incorporeal", and it is only the unconfronted force of a long history that makes it necessary in this case to examine certain institutions of property in the common law provinces through an antiquated system of classification and an antiquated terminology. The association of rents and royalties has run through the cases . . . but without the necessity hitherto in this Court to test them against the common law classifications of interests in land or to determine whether those classifications are broad enough to embrace a royalty in gross.

[36] The Supreme Court accepted the Alberta Court of Appeal's finding that the longstanding practice of the oil and gas industry is to recognize that the owners of mineral rights can offer royalties as an interest in land to raise financing for ongoing exploration and development of "unproduced minerals": Dynex, at paras. 6, 15. The Supreme Court concluded, at paras. 15-21, that there were no compelling policy reasons for maintaining the common law prohibition on the creation of an interest in land from an incorporeal hereditament other than "fidelity to common law principles", reflecting the commercial reality of the mechanisms used by the industry to fund expensive drilling and exploration projects. Thus, the Supreme Court of Canada held that incorporeal hereditaments, such as royalties on unproduced minerals, can give rise to the creation of an interest in land providing that was the intention of the parties as determined by the contract giving rise to those rights.

[37] In summary, the Supreme Court of Canada found, at para. 21, that "[a] royalty which is an interest in land may be created from an incorporeal hereditament such as a working interest or a profit à prendre, if that is the intention of the parties".

[38] A profit à prendre, in the mining context, was recently defined by our Court of Appeal, in Third Eye, at para. 34, as "a working interest" and "a right given by the fee owner (often the Crown) to a miner to enter the owner's land and extract minerals or resources from the property". In Third Eye, at para. 63, the court also emphasized that to determine whether a grant was intended to convey an interest in land by way of an incorporeal hereditament, the court must examine the parties' intention "from the agreement as a whole, along with the surrounding circumstances".

[39] As will become apparent, it is important to repeat that the change in the common law by the Supreme Court of Canada in Dynex declaring that interests in land can now be created by incorporeal hereditaments was made in 2002, after the enactment of the Perpetuities Act and after the date of the MROA. Also [page304] important is that the courts in Dynex and Third Eye were not dealing with the concept of incorporeal hereditaments being interests in land within the context of the rule against perpetuities.

Statutory Interpretation Principles and Analysis

[40] To resolve the question posed to the court by the parties, this court must determine the scope and ambit of ss. 13(3) and 14 of the Perpetuities Act, respectively. To that point, does the property interest created by the MROA fall within the scope of "all other options" within the meaning of s. 13(3) or is it a "other similar interest" within the meaning of s. 14?

[41] As there is no jurisprudence concerning the interrelationship between s. 13(3) and s. 14, I will now turn to a statutory interpretation analysis.

[42] Both parties urge that the court adopt the "modern approach" to statutory interpretation.

[43] The modern approach "requires a court to consider the words of a statute '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'": Belwood Lake Cottagers Assn. Inc. v. Ontario (Ministry of the Environment), [2019] O.J. No. 485, 2019 ONCA 70, 431 D.L.R. (4th) 318, at para. 39, citing Montréal (City) v. 2952-1366 Québec Inc., [2005] 3 S.C.R. 141, [2005] S.C.J. No. 63, 2005 SCC 62, at paras. 9-12, citing Rizzo & Rizzo Shoes Ltd. (Re) (1998), 1998 CanLII 837 (SCC), 36 O.R. (3d) 418, [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2, at para. 21.

[44] In Belwood, at paras. 40-41, Strathy C.J.O. states:

Both parties rely on the leading text by Ruth Sullivan, Sullivan on the Construction of Statutes, 6th ed. (Markham: LexisNexis Canada, 2014), who summarizes the "ordinary meaning" rule at §3.6:

It is presumed that the ordinary meaning of a legislative text is the meaning intended by the legislature. In the absence of a reason to reject it, the ordinary meaning prevails.

Even if the ordinary meaning is plain, courts must take into account the full range of relevant contextual considerations, including purpose, related provisions in the same or other Acts, legislative drafting conventions, presumptions of legislative intent, absurdities to be avoided and the like.

In light of these considerations, the court may adopt an interpretation that modifies or departs from the ordinary meaning, provided the interpretation is plausible and the reasons for adopting it are sufficient to justify the departure from ordinary meaning.

Sullivan notes that ordinary meaning is not the end of the process of statutory interpretation, it is simply the beginning. She refers to the observations of Iacobucci J. in Chieu v. Canada (Minister of Citizenship and Immigration), 2002 SCC 3, [2002] 1 S.C.R. 84, at para. 34, in connection with the interpretation of the Immigration Act: [page305]

The grammatical and ordinary sense of the words employed in s. 70(1)(b) is not determinative, however, as this Court has long rejected a literal approach to statutory interpretation. Instead, s. 70(1)(b) must be read in its entire context. This inquiry involves examining the history of the provision at issue, its place in the overall scheme of the Act, the object of the Act itself, and Parliament's intent both in enacting the Act as a whole, and in enacting the particular provision at issue.

[45] In Ayr Farmers Mutual Insurance Co. v. Wright (2016), 134 O.R. (3d) 427, [2016] O.J. No. 5556, 2016 ONCA 789, at paras. 28-29, the Court of Appeal characterized the modern approach:

The modern approach to statutory interpretation involves a textual, contextual and purposive analysis of the statute or provision in question.

Three factors must be examined: "the language of the provision, the context in which the language is used and the purpose of the legislation or statutory scheme in which the language is found": Blue Star Trailer Rentals Inc. v. 407 ETR Concession Co., 2008 ONCA 561, 91 O.R. (3d) 321, at para. 23.

[46] Furthermore, s. 64(1) of the Legislation Act, 2006, S.O. 2006, c. 21, Sch. F states that legislation "shall be interpreted as being remedial".

[47] ACC also urges the court to adopt the "original meaning" rule in interpreting ss. 13(3) and 14 of the Perpetuities Act. That rule requires that the words of the statute be interpreted as they would have been the day after the statute was passed: P. St. J. Langan, Maxwell on the Interpretation of Statutes, 12th ed. (London, U.K.: Sweet & Maxwell, 1969), at p. 85; R. v. Jarvis, [2019] 1 S.C.R. 488, [2019] S.C.J. No. 10, 2019 SCC 10, at para. 96.

[48] In R. v. Perka, 1984 CanLII 23 (SCC), [1984] 2 S.C.R. 232, [1984] S.C.J. No. 40, at pp. 264-65 S.C.R., the Supreme Court stated,

The doctrine of contemporanea expositio is well established in our law. "The words of a statute must be construed as they would have been the day after the statute was passed . . ." . . . See also Driedger, Construction of Statutes (2nd ed. 1983) at p. 163: "Since a statute must be considered in the light of all circumstances existing at the time of its enactment it follows logically that words must be given the meanings they had at the time of enactment, and the courts have so held"; Maxwell on the Interpretation of Statutes, supra, at p. 85: "The words of an Act will generally be understood in the sense which they bore when it was passed".

This does not mean, of course, that all terms in all statutes must always be confined to their original meanings. Broad statutory categories are often held to include things unknown when the statute was enacted. . . . This kind of interpretive approach is most likely to be taken, however, with legislative language that is broad or "open-textured". It is appropriate . . . to the interpretation of the words in constitutional documents, whose meaning must be capable of growth and development to meet changing circumstances.

[49] Accordingly, I will proceed to review the legislative history of the provisions in issue, their place in the overall scheme of the Perpetuities Act, the object of the Perpetuities Act, and the legislature's [page306] intent both in enacting the Perpetuities Act as a whole and the particular provisions at issue. I will employ a textual, contextual, and purposive analysis of the provisions in question.

[50] In light of the history and object of this Act and the provisions in question, I will also employ an interpretation that is consistent with the original meaning rule.

Legislative history

[51] Starting with a review of the legislative history of the statute, both parties have referred to the two reports released by the Ontario Law Reform Commission ("OLRC"). The first report, entitled "Report No. 1", is dated February 1, 1965. The second report is dated March 1, 1966 and called "Report No. 1A". These reports each attached draft legislation: An Act to Modify the Rule against Perpetuities (Bills 96 and 131, respectively). The resulting statute, entitled The Perpetuities Act, 1966, S.O. 1966, c. 113, was enacted in 1966 and was heavily informed by the respective OLRC Reports, ultimately mirroring the draft legislation attached as Bill 131 to Report No. 1A.

[52] Of note, there have been very few changes to this legislation, now entitled Perpetuities Act, R.S.O. 1990, c. P.9, and none that affects the current analysis.

[53] Report No. 1, at p. 1, sets out the need for a statute that addresses antiquated nature of the rule against perpetuities in the modern commercial context:

Your Commission believed that the rule against perpetuities was an urgent subject for study and recommendations, with a view to law reform. From its origins in the early part of the seventeenth century this judge-made rule has served a useful social function but in the long course of development has acquired unsatisfactory attributes which can now be removed only by legislation. Reform of the rule is long overdue. As has been said, "it is scarcely credible that in the second half of this twentieth century testamentary dispositions offering no threat to the public interest, and reasonable bargains between business men dealing with each other at arm's length, should continue to be struck down in the name of public policy," yet this is frequently the result of the application of the present form.

[54] The main concern of the OLRC, as reflected in Report No. 1, was that the common law rule was applied to abolish contingent property interests that had the mere possibility of vesting more than 21 years from its creation, even when the interest in fact vested before the expiry of that period. The OLRC proposed overcoming this problem by enacting in the proposed legislation a principle called the "wait and see" principle.

[55] Accordingly, the OLRC recommended that the 21-year vesting or perpetuity period be presumptively valid so long as the [page307] interest in question actually vested within 21 years. This was called the "wait and see" approach.

[56] Reviewing next the history of ss. 13(3) and 14 of the Act, the parties again referred to the OLRC Reports.

[57] Under Report No. 1, there was no recommendation made to address how the rule of perpetuities might affect the validity of contingent incorporeal interests such as profits à prendre and easements. As a result, there was no section equivalent to the current s. 14 or any reference whatsoever to profits à prendre or easements in the draft legislation annexed to Report No. 1.

[58] There was however a section in the draft legislation dealing with options which became s. 13 in the Act.

[59] The OLRC quoted p. 224 from Morris & Leach, at p. 26 of Report No. 1, that up to 1965, the relationship between options and the rule against perpetuities was "a confused one" and "it would seem eminently desirable to free the law from this inconsistent manner of dealing with options". It was observed that the rule against perpetuities originated in family settlements and family gift transactions and to derive from such a rule a general concept applicable to commercial transactions seemed unnecessary and dangerous. The OLRC concluded at p. 28 of Report No. 1 that to apply the common law rule to options left them susceptible to being struck down even though they were a product of "bargains negotiated between persons usually of competence and keen commercial ability".

[60] A review of this portion in Report No. 1, at pp. 26-31, reveals that the interests that were being addressed in what became s. 13(3) were known as options to purchase "in gross" and relate to corporeal hereditaments. Section 13(1) and (2) changed the common law by making the rule inapplicable to the purchase of reversionary interests in leases and agreements to lease because to continue to have these corporeal interests subjected to the rule was, in fact, contrary to the purpose of the rule. The OLRC wrote, at p. 29,

The application of the Rule to options in a lease is particularly obnoxious in that it defeats the basic purpose of the Rule. Here the situation is the exact opposite to that which exists in an option in gross. The option-holder, not the option-giver, is in possession of the land. He is the only person who can develop the land during the continuance of the term. The improvement of the land is stimulated, not retarded, by the existence of the option . . .

[61] The OLRC later repeated this point in Report No. 1A, at p. 6: "subsection 1 of section 13 in Bill 96 [attached to Report No. 1] dealt with options to acquire a reversionary interest expectant on the termination of a lease and subsection 3 of section 13 was intended to deal with options to purchase in gross. There was no [page308] intention of having the provisions of subsection 3 of section 13 apply to options to renew a lease, to which the rule against perpetuities does not now apply." The OLRC then recommended adding s. 13(4) to make this latter point clear.

[62] With respect to the then proposed s. 13(3), the OLRC states at p. 54: "Any other option to acquire an interest in land should be valid for a period of twenty-one years from the time of its creation as against all persons but thereafter it shall be void even a s against the original parties to such option." The proposed draft s. 13(3) is identical to the current s. 13(3).

[63] It seems clear that in s. 13, the OLRC was concerned about options relating to corporeal hereditaments.

[64] Further, while there is no definition offered in the Reports concerning what is meant by "interests in land" as that phrase is used in s. 13(3), under the common law an "interest in land" was, at the time The Perpetuities Act, 1966 was passed, limited to corporeal hereditaments. Namely, physical land that could be seen and handled and over which ownership or possession could be exercised such as a freehold or leasehold interest.

[65] Therefore, in the draft legislation annexed to each of the OLRC Reports, s. 13(1) dealt with reversionary interests on the term of lease, while s. 13(2) addressed reversionary interests on the term of agreements for a lease. Section 13(3) then addressed "all other options to acquire for valuable consideration any interest in land". The perpetuity or vesting period was 21 years "from the date of its creation as between the person by whom it was made and the person to whom or in whose favour it was made and all persons claiming through either or both of them". In the version of the draft legislation annexed to Report No. 1A, the OLRC, at p. 6, recommended adding s. 13(4) to make is "abundantly clear" that the rule would also not apply to "options to renew a lease".

[66] As stated earlier, this draft provision was enacted in the original legislation and is the same in the current version of s. 13 in the Perpetuities Act.

[67] It is not until Report No. 1A, that the OLRC raised the issue of incorporeal hereditaments such as easements, profits à prendre, and any "other similar interest" to which the rule against perpetuities may be applicable, and recommended a longer vesting period of 40 years.

[68] At pp. 6-8 of Report No. 1A, the OLRC explained that it had not yet addressed "the problem of easements, profits à prendre and other similar interests and the effect, if any, of the rule against perpetuities upon them". The OLRC noted, at p. 6, that the relationship between easements and the common law rule was "shrouded in uncertainty". It recommended that interests, such [page309] as easements and profits à prendre, be captured by the new legislation but with a longer vesting period of 40 years, subject to the "wait and see" principle that would be codified in s. 4 of the Act. The OLRC thus recommended that a new s. 14 be added to the proposed legislation which included the longer vesting period of 40 years and that the interest would only be void for remoteness "if, and to the extent that, it fails to acquire the characteristics of a present exercisable right in the servient land within the forty-year period".

[69] The specified property interests in s. 14 of easements and profits à prendre are incorporeal hereditaments. The exercisable right in question is one is in the "servient land", meaning the land that is subject to an easement, profit à prendre or similar interest.

Analysis

[70] In Anger and Honsberger's Law of Real Property, 2nd ed. (Aurora, Ont.: Canada Law Book, 1985), at p. 924, the authors state that not all rights relating to land are incorporeal hereditaments but that historically rent charges, easements, and profits à prendre have been recognized as such. With respect to profits à prendre, the authors state that where the right is held in common with others, including the owner of the land, it is known as a profit à prendre in common. Further, at pp. 974-75, a "right exercisable by the owner of it profit a prendre independently of his ownership of any land is a profit a prendre in gross". In this case, while the option provides that ACC can "immediately" purchase a one-half undivided interest in the Mining Rights, the applicants maintain sole discretion and control in deciding whether any exploration or extraction of the subject minerals will take place, without consultation with the ACC (see ss. 7 and 4 of the MROA respectively).

[71] The question seems thus to be whether an option to purchase a one-half undivided interest in the Mining Rights with the associated 49 per cent net share of the revenues through a profit à prendre in common falls into the category of interests reflected in s. 13(3) as "all other options" or rather falls into the categories of interest reflected in s. 14 as a "similar interest".

[72] The applicants submit that the wording in s. 13(3) of "all other options to acquire for valuable consideration any interest in land" means options of every type, irrespective of whether the subject of the option is an interest in a corporeal hereditament or an incorporeal hereditament, under a plain language interpretation that places an emphasis on "all other options" and "any interest in land". However, in my view, this interpretation fails to [page310] reflect the history or object of the legislation, as well as the context of ss. 13 and 14 when read together.

[73] The object of the legislation was to modify the common law rule against perpetuities to reflect the modern reality of commercial transactions.

[74] The history of the legislation and these two provisions in particular demonstrates an intention to create a longer vesting period for the exercise of future rights over incorporeal property interests. Further, the options intended to be addressed in s. 13(3) were options in gross.

[75] Section 13 deals with reversionary interests over corporeal hereditaments. The language of "interest in land" within the context of the common law rule against perpetuities, and at the time of the enactment of the legislation, was related to corporeal hereditaments. The specific items referenced in ss. 13(1)-(2) also deal with corporeal hereditaments in an area that was seen to be confusing at common law; namely, whether the rule applies to leases and agreements to lease.

[76] On the other hand, s. 14 deals with incorporeal hereditaments including easements and profits à prendre and "similar interests" in relation to rights exercisable in the "servient land".

[77] The reference to "other options" in s. 13(3) when read in harmony with the other subsections of that provision along with s. 14, leads me to the conclusion that "other options" relates only to options to acquire for valuable consideration an interest in corporeal hereditaments -- then characterized as the "interest in land", before the decision in Dynex. Similarly, the reference to "similar interests" in s. 14, when read together with s. 13, means interests similar in nature to easements and profits à prendre, which are incorporeal interests and, at common law, the subject of which was also one of confusion under the common law rule against perpetuities. An option to acquire a profit à prendre is still an incorporeal interest that is an "exercisable right in the servient land" and as such falls within the category of "similar interests" under s. 14.

[78] In my view, this interpretation of the interrelationship between ss. 13 and 14 reflects the intent of the legislature, as reflected in the legislation the day after its enactment, to modify or clarify the common law rule against perpetuities drawn along the lines of treatment of corporeal hereditament interests and incorporeal hereditament interests. In particular, s. 14 reflects the commercial reality that transactions involving incorporeal hereditament interests are generally the product of sophisticated commercial transactions and should not be frustrated by the rule against perpetuities. The fact that s. 14 provides a longer vesting [page311] period (40 years) than the common law vesting period (21 years) further supports this view.

[79] Furthermore, the public policy interest underlying the common law rule of perpetuities, as reflected and modernized in the Perpetuities Act, was that property not be unduly burdened by obligations indefinitely in a way that would discourage future commercial development of the property. The MROA does not pose any such deterrence, since it is the applicants who exercise complete control over when, how, and whether to enter into mineral exploration, extraction, and development. Further, the Quercus Algoma Parcels have been sold three times since the creation of this option, with full knowledge of it, as the MROA is registered on title and the option is a covenant running with the land and as a charge.

[80] The MROA was negotiated by sophisticated parties well versed in mining transactions. The MROA expressly provided for a term of 40 years for the exercising by the Optionee of the right to participate in a profit à prendre in common with the owners/Optionor of the Quercus Algoma Parcels. The MROA provided that this option would be registered on title, as it was, and binding on future landowners within the 40-year vesting period. At the time of the entering into of the MROA (and the MacDonald transaction), s. 14 of the Perpetuities Act had been in effect for over 30 years. The MROA provided that this option would be a covenant running with the land and a charge over the "Mining Rights" as security for the obligations owned by the owners of the Land.

[81] The fact that the contingent incorporeal interest is framed within a commercial contract as an "option" does not transform it into an interest in a corporeal hereditament within the meaning of the Perpetuities Act.

[82] It is reasonable to infer from the terms of the MROA that the intent of the parties to the MacDonald transaction was that the right created by the MROA as an option to purchase a one-half undivided interest in the Mining Rights and the associated share in the profits in relation to a profit à prendre in common was intended to be an "exercisable right in the servient land within the forty-year period" consistent with s. 14 of the Perpetuities Act, and s. 13 and of the MROA.

Conclusion

[83] Accordingly, I find that the option created by the MROA is a right exercisable within the meaning of s. 14 of the Perpetuities Act. Therefore, the vesting period applicable to the exercise of the option created by the MROA is 40 years. [page312]

[84] The option was created in 1997 and will not expire until 40 years hence. Therefore, the option is presumptively valid and can be exercised by ACC within the 40-year vesting period.

[85] For these reasons, the application is dismissed.

[86] In the event the parties cannot agree on the issue of costs, the respondent shall deliver its costs outline and written submissions (not to exceed three pages double spaced and only if necessary to supplement the cost outline) by no later than April 16, 2021. The applicants will then deliver its costs outline and written submissions (with the same restrictions) by no later than April 23, 2021. The costs outlines and submissions should be provided to my judicial assistant.

Application dismissed.

End of Document