Court File and Parties
Court File No.: CV-16-11468-00CL Date: 2022-10-03 Superior Court of Justice – Ontario (Commercial List)
Re: Romspen Investment Corporation, Applicant And: Horseshoe Valley Lands Ltd. and Horseshoe Ridge Homes Inc., Respondents
Before: Penny J.
Counsel: Eric Golden, Chad Kopach and Susan Rosenthal for Romspen Investment Corporation and Horseshoe Valley Developments (2018) Inc., Applicants on the motion G. Hemsworth and David Wang for the Zhiyuan (Charles) Xiao and his corporations, Respondents on the motion Jeffrey Larry and Danielle Glatt for the Green Space Supporters David Preger for Rosen Goldberg Inc. in its capacity as Receiver of Horseshoe Valley Lands Ltd. and Horseshoe Ridge Homes Inc.
Heard: July 26, 2022
Reasons for Decision
Overview
[1] This motion involves the proposed development of two properties in the Horseshoe Valley, in the Township of Oro-Medonte, near Barrie. The first property is a former nine hole golf course (the “Golf Course Lands”), now owned by Zhiyuan (Charles) Xiao through his corporations. The second property is a five phase residential development (the “Development Lands”) surrounding the Golf Course Lands. The Development Lands are owned by Horseshoe Valley Developments 2018 Inc. (“HVD 2018”), one of the two moving parties on this motion. The other applicant, Romspen Development Corporation, is the mortgagee of the Development Lands and a related party to HVD 2018.
[2] These two adjacent properties are the subject of an instrument registered on title in 2001, by which the owner of the Golf Course Lands granted the owner of the Development Lands two easements combined with a restrictive covenant (the “2001 Easement”).
[3] The easements permit the owner of the Development Lands (the dominant tenement), in connection with the five phase residential development of those lands, to: a) construct, operate and maintain storm water management facilities on the Golf Course Lands (the servient tenement) as required by the Township of Oro-Medonte or the County of Simcoe; and, b) enter upon the Golf Course Lands with workers, material and equipment to construct, maintain, repair or replace these storm water management facilities.
[4] The restrictive covenants in the 2001 Easement require the transferor, the owner of the Golf Course Lands, to keep the Golf Course Lands free of physical encumbrances which would hinder the access by the transferee, the owner of the Development Lands. These covenants also require that “only the usual grass cover and/or flower beds, trees, golf course features and fencing with gates, will be suffered on the [Golf Course Lands], and that no trees, structures, or obstructions will be permitted to remain thereon” unless agreed to by both owners in writing.
[5] The applicants seek an order confirming the meaning of the provisions in the 2001 Easement such that it would preclude residential development on the Golf Course Lands for, at least, the foreseeable future. This motion was prompted by Mr. Xiao’s announced intention to turn the Golf Course Lands into a significant residential development.
[6] In simple terms, the applicants argue that the 2001 Easement, properly interpreted, prohibits residential development on the Golf Course Lands until 2041. The Xiao companies, which purchased the Golf Course Lands in 2018, argue that the 2001 Easement, properly interpreted, merely provides the dominant tenement with a right to establish and maintain storm water management facilities. They argue the 2001 Easement is not inconsistent with Mr. Xiao’s proposed residential development on the remainder of the Golf Course Lands.
[7] To better conceptualize the competing claims at the heart of this dispute, I have included below a coloured map setting out the Golf Course Lands in green (including the locations of existing storm water management ponds at holes 2, 6 and 7), and the Development Lands (phase 1 adjacent to Hole 9 of the Golf Course Lands and phases 2 to 5 in pink). Phases 1, 2 and 3 of the Development Lands are completed. Phases 4 and 5 are underway and have recently been approved for development by the Ontario Land Tribunal. Individual property owners of completed homes in phases 1, 2 and 3, as well as certain property owners immediately north of the Golf Course Lands, are entitled, by deed, to the benefit of the same 2001 Easement relied upon by the applicants.
[8] The essential issue raised on this motion is the proper interpretation of the 2001 Easement and whether it prohibits residential development on the Golf Course Lands. Based on the arguments of the parties, there are four issues:
(i) whether the application has been brought in the wrong forum;
(ii) whether the interpretation sought by the applicants would exceed the allowable limits of an easement in that it would nullify essentially all of the attributes of the Xiao companies’ ownership of the Golf Course Lands;
(iii) whether the application is premature; and
(iv) whether the 2001 Easement, read in its proper context, should be interpreted to do no more than grant a right of way for storm water management such that it does not prohibit residential development on the Golf Course Lands.
[9] For the reasons that follow, I grant the Romspen/HVD 2018 motion in part.
Relevant Background
[10] In 2001, the owner of the Golf Course Lands, Horseshoe Valley Resort Ltd. (“HV Resort”), owned the Horseshoe Valley Resort (“Resort”), two golf courses (including the Golf Course Lands) which opened in the early 1990s, and much of the lands surrounding the Resort. Horseshoe Valley Lands Ltd. (“HVL”) owned what is now HVD 2018’s Development Lands. The 2001 Easement was granted by HV Resort, the transferor, in favour of HVL, the transferee, as part of the overall development of the Resort project.
[11] HV Resort and HVL were legally distinct but affiliated corporations, both part of a Horseshoe Valley limited partnership. HV Resort built and operated the Resort and the golf courses. HVL was set up to develop, build and offer for sale residential homes in the Horseshoe Valley, including the five proposed development phases on the Development Lands.
[12] As noted, the 2001 Easement contains two easements and a restrictive covenant. The interpretation of the 2001 Easement is at the heart of this motion. I will return to the details of the 2001 Easement in the analysis below.
Romspen Receivership Application and Acquisition of the Development Lands
[13] In May 2010, Romspen entered into a loan agreement with HVL to finance construction of the five phase development on the Development Lands. By July 2016, HVL owed Romspen over $20 million. After the first three phases were substantially completed, the project stalled and the loan went into default. Romspen applied for the appointment of a receiver over HVL. A receivership order was made in November 2016. HVL’s real estate assets included 67 acres approved for 789 residential units for phases 4 and 5 of the original five phase development. In October 2017, Romspen entered into an asset purchase agreement with the Receiver to purchase HVL’s property. This purchase included the undeveloped portion of the five phase development, phases 4 and 5. The purchase was approved by the court and a vesting order issued in February 2018. The vesting order specifically provides that the 2001 Easement shall remain an encumbrance registered on title. On closing, HVD 2018 took title to the Development Lands.
[14] HVD 2018 is developing, and intends to build homes on, the lands comprising phases 4 and 5 of the Development Lands. Romspen is funding the remaining development through a first mortgage over phases 4 and 5 of the Development Lands.
Sale of the Golf Course Lands by HV Resort
[15] In 2008, HV Resort sold the Resort, including the Golf Course Lands, to Skyline Horseshoe Valley Inc. (“Skyline”).
[16] The Skyline agreement of purchase and sale contemplated a “Good Neighbour Agreement” with HVL (the “GNA”). The GNA was an agreement entered into between Skyline and HVL regarding, among other things, easements, rights of way, consents and other matters required to permit further development or maintenance of the Resort and other defined lands. The GNA was registered against title to the Development Lands and the Golf Course Lands. The Xiao companies rely on certain provisions of the GNA to support their interpretation of the 2001 Easement. I will return to the details of this agreement in the analysis below.
[17] Skyline operated the golf course from 2008 until it was permanently closed following the 2016 golf season. The first nine holes of the golf course (the Golf Course Lands) have since been left to naturalize.
[18] After the golf course was closed in 2016, Skyline retained Cushman & Wakefield to sell the Golf Course Lands. The Golf Course Lands were sold to 2607807 Ontario Limited (“260 Ontario”) for $6.25 million, closing in November 2017. In May 2018, Mr. Xiao’s companies agreed to purchase the Golf Course Lands from 260 Ontario for $11 million.
[19] In an October 2018 email, a lawyer for 260 Ontario requested that Romspen “remove” the 2001 Easement. About two weeks later, counsel for Romspen and HVD 2018 responded, stating unequivocally that HVD 2018 and Romspen would not release the 2001 Easement.
[20] The Xiao purchase closed on November 7, 2018. Mr. Xiao first contacted Romspen/HVD 2018 directly in February 2019. After an initial meeting between Mr. Xiao, the moving parties and their lawyers on July 3, 2019, Mr. Xiao was informed that Romspen and HVD 2018’s position had not changed from that stated to 260 Ontario in October 2018.
[21] In a Statement of Claim issued July 6, 2020, Mr. Xiao and his companies claim $10 million in damages against 260 Ontario, as well as against Mr. Xiao’s legal advisors and the real estate agents on the Xiao Purchase. Mr. Xiao makes the following allegations/admissions in his claim:
(a) he had legal and real estate advisors when he entered into and closed the agreement of purchase and sale;
(b) there was a 60-day due diligence period in the agreement and the due diligence condition was extended, then waived on September 11, 2018;
(c) Mr. Xiao’s lawyers identified certain easements registered on title to the Golf Course Lands, including the 2001 Easement. They recommended to Mr. Xiao that he refuse to close until these easements were “rectified”; and,
(d) on October 31, 2018, Mr. Xiao’s lawyers extended the closing of the agreement of purchase and sale to November 7, 2018. The parties came to an agreement that, within 90 days post-closing, 260 Ontario would use “best efforts” to obtain a “release” of the 2001 Easement.
[22] It is also relevant that many homeowners in the Development Lands support the applicant’s interpretation of the 2001 Easement. By March 2022, much of the Development Lands had been developed and sold as residential homes to individual purchasers. When this matter first came before me on March 4, 2022, it was adjourned to provide notice to these additional owners, who represent over 190 parcels of land which enjoy the benefit of the 2001 Easement. As a result of that notice, many land owners sent the Receiver robust expressions of support for the Romspen position. There was almost no support for the Xiao position. Following the homeowners’ response, and on the recommendation of the Receiver, I appointed Paliare Roland as representative counsel for the homeowners whose lands benefit from the 2001 Easement. Only eight homeowners chose to opt out of representation by Paliare Roland. Paliare Roland’s clients, who are referred to as the “Green Space Supporters”, represent a total of 184 additional properties that benefit from the 2001 Easement. They share the applicant’s view that the 2001 Easement, properly interpreted, prohibits development on the Golf Course Lands.
[23] With this background, I will now turn to my analysis of the central issues in dispute.
Analysis
[24] As noted earlier, the Xiao companies have advanced essentially four arguments why the relief and the interpretation of the 2001 Easement sought by the applicants should be rejected:
(1) the application has been brought in the wrong forum;
(2) the interpretation sought by the applicants would exceed the allowable limits of an easement in that it would nullify essentially all of the attributes of the Xiao companies’ ownership of the Golf Course Lands;
(3) the application is premature; and
(4) the 2001 Easement, read in its proper context (which includes consideration of the GNA from 2008), does no more than grant a right of way for storm water management and does not prohibit residential development on those portions of the Golf Course Lands (which would be most of them) which are not required for storm water management.
[25] The first three arguments can be dealt with succinctly.
Forum
[26] Mr. Xiao argues that this motion was brought in the wrong forum for two reasons: 1) it is unrelated to the receivership and should not have been brought in the receivership proceedings; and 2) the GNA between Skyline and HVL, on which Mr. Xiao now seeks to rely, contains an arbitration clause.
[27] The receivership order is still in place; the work of the Receiver is not yet complete. The Receiver is an officer of the court and has sought the advice and direction of the court regarding this dispute. In addition, this dispute involves numerous parties besides the applicants and the Xiao companies. The Receiver played an essential role in bringing this matter before the court in an orderly manner on notice to all affected parties. There is no evidence that Mr. Xiao has been in any way adversely affected by this motion being made in the ongoing receivership proceeding.
[28] As to the arbitration clause in the GNA, the applicants do not rely on the GNA. They are not seeking to vindicate rights under the GNA. Rather, they are seeking to vindicate rights under the 2001 Easement. It is Mr. Xiao who seeks to rely on the GNA, and then only insofar as it informs the interpretation of the 2001 Easement.
[29] Neither of Mr. Xiao’s forum arguments were made in his factum; they were raised for the first time in oral argument. No motion for a stay has been brought on the basis of either forum argument. To the contrary, Mr. Xiao has filed extensive material, including affidavits and a factum, and cross examined the applicant’s witnesses in these proceedings, without prior complaint. Mr. Xiao’s forum arguments are without merit and are dismissed.
Easement Unenforceable
[30] Mr. Xiao relies on cases such as Lund v. Miles Farm Ltd., 2002 BCSC 275 to argue that an easement cannot confer a right to possession or control over the servient lands that is inconsistent with the possessory rights of the servient owner. While this legal proposition is no doubt correct, the 2001 Easement does not purport to exclude all incidents of Mr. Xiao’s ownership. The Lund analysis simply has no application to the facts of this case.
[31] The restrictive covenant in the 2001 Easement was given in a context where the Golf Course Lands were being used, and were contemplated to be used in the foreseeable future, as a golf course. Restricting improvements to flowers, shrubs and grass, and the prohibition against buildings and other large features, was entirely consistent with that contemplated use.
[32] One of the leading and most famous restrictive covenant cases, which established that restrictive covenant can “run with the land” in equity, involved very similar facts. In Tulk v. Moxhay (1848), 2 Ph. 744, 41 E.R. 1143, Mr. Tulk owned land in Leicester Square in London. He sold part of this land on the purchaser’s covenant to keep the garden square “uncovered with buildings” such that it would remain a “pleasure ground”. The land was sold several more times, ending up with Mr. Moxhay. Moxhay’s contract did not recite the covenant but he had prior knowledge of it. Moxhay took the position that he was not bound by the covenant as he was not in privity of contract with the covenantee. Moxhay lost. The covenant was enforceable in equity. He was enjoined from erecting buildings in Leicester Square. This is no different in substance from the facts of this case. I am unable to accept Mr. Xiao’s argument that the 2001 Easement is so restrictive as to exceed the valid bounds of any easement or restrictive covenant in law.
Prematurity
[33] Mr. Xiao argues this application is premature. HVD 2018 has a plan of subdivision before the municipality that was recently approved on appeal by the Ontario Land Tribunal. By contrast, the Xiao companies have, as yet, no plan of subdivision before the municipality. The applicants concede that the easements granted in paragraphs 1 and 2 of the 2001 Easement will not require use of 100% of the Golf Course Lands for storm water management. Indeed, as shown on the map in para. 7, it appears that relatively little of the Golf Course Lands may actually be required by HVD 2018 for storm water management, either for existing (phases 1 to 3) or proposed (phases 4 and 5) residential development.
[34] Because Mr. Xiao and his companies do not have a concrete subdivision plan before the municipality, the incompatibility of any proposed development with the storm water management protections under the 2001 Easement remain theoretical in nature. For this reason, the Xiao companies argue that the declarations sought by the applicants are premature and would serve no useful purpose, since all a court could do at this point is restate what the language of the 2001 Easement already provides. Absent a concrete proposal for development of the Golf Course Lands, they argue, it is impossible to say what impact, if any, Mr. Xiao’s development would have on the storm water management-related easement rights in issue. Indeed, Mr. Xiao takes the position that his development proposal, once finalized, will either obviate the need for the storm water management easement altogether or, at the very least, have a minimal effect on HVL 2018’s easement rights.
[35] In these circumstances, the Xiao companies submit that this application is premature; it seeks to assert rights “in the air” so to speak. The Xiao companies, therefore, take the position that the application should be dismissed on this basis.
[36] If the only issue on this application was the meaning and extent of paragraphs 1 and 2 of the 2001 Easement, there would be much force to Mr. Xiao’s argument. However, there is more to the application than the interpretation of the scope of the easements granted in paragraphs 1 and 2. That is because of the restrictive covenant contained in paragraph 3 of the 2001 Easement.
[37] The applicants take the position that paragraph 3 of the 2001 Easement constitutes a complete prohibition against any residential development on the Golf Course Lands for a certain period of time (they say it is forty years from the grant, i.e., 2041). The Xiao companies take the position that there is no such prohibition and that paragraph 3 merely serves to support the easements granted in paragraphs 1 and 2. That disagreement is a live and consequential issue that should be decided before the parties spend more time and money on detailed development plans. It is sufficient, to have a justiciable lis between the parties, that the Xiao companies have a stated intention to proceed with some form of residential development on the Golf Course Lands and that there are diametrically opposed interpretations of paragraph 3 of the 2001 Easement which directly affect the parties’ present rights.
[38] It is for this reason that the motion is not premature. It is, however, my intention to limit my analysis to the restrictive covenant issue. Any other potential issues arising from the interpretation of paragraphs 1 and 2 of the 2001 Easement would only properly come before the court after the scope and effect of the restrictive covenant has been determined and the Xiao companies have a concrete proposal which addresses the storm water management rights of the dominant tenement owners, including HVD 2018 and the Green Space Supporters, under the 2001 Easement.
Interpretation of the 2001 Easement
[39] This brings me to Mr. Xiao’s final argument, the “real” or “deep” issue upon which the result in this motion must turn; that is, the interpretation of paragraph 3 of the 2001 Easement. The difference between the parties is stark. The applicants, backed by the Green Space Supporters, say that the restrictive covenant in paragraph 3 stands alone, in addition to the storm water management easements in paragraphs 1 and 2, as a complete prohibition on residential development of the Golf Course Lands until 2041. The Xiao companies say that the restrictive covenant does not stand alone and that it must be read as solely related to, or in the service of, the storm water management easements granted in paragraphs 1 and 2. As long as the rights of the dominant tenement owners regarding access for storm water management purposes can be accommodated in any proposed development of the Golf Course Lands, they say, the restrictive covenant does not operate so as to prevent that development.
The Legal Framework
[40] In Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, the Supreme Court of Canada clarified and restated the basic principles to be followed in the interpretation of contracts. The overriding concern is to determine “the intent of the parties and the scope of their understanding”. To do this the interpreting court must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances reasonably known to the parties at the time of formation of the contract: Sattva at para. 47. This is, in fact, consistent with longstanding easement interpretation principles, which require consideration of the circumstances that existed when the easement was created: Laurie v. Winch, [1953] 1 S.C.R. 49, at p. 56.
[41] Sattva elaborates on this principle. While the surrounding circumstances (properly understood to exclude subjective evidence of intention) are relevant in interpreting the terms of the contract, they cannot overwhelm the words of the agreement. The goal of examining evidence of surrounding circumstances is to deepen the court’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract. While the surrounding circumstances are relied upon in the interpretive process, the court cannot use them to deviate from the plain meaning of the words chosen by the parties or to permit the court to effectively create a new agreement: Sattva at para. 57.
[42] The contract interpretation principles set out in Sattva apply to the interpretation of easements: see for example Mihaylov v. 1165996 Ontario Inc., 2017 ONCA 116, 134 O.R. (3d) 401.
The Surrounding Circumstances
[43] In 2001, the dominant (Development Lands) and servient (Golf Course Lands) tenement lands were owed by separate but related companies organized for the purpose of developing the Resort and associated residential projects. Mr. Xiao emphasizes that all these lands were zoned residential, although the use of the Golf Course Lands as a golf course was always a permitted use under that zoning designation from the outset.
[44] Mr. Xiao also seems to rely on the fact that the parties to the 2001 Easement were related. This strikes me as at best a neutral, if not a “bad”, fact for Mr. Xiao. The two entities at the time were each pursuing different aspects of the overall resort development: HV Resort the resort and golf course; HVL the associated residential development which surrounded the golf course. Because the parties were related, they could have included whatever they wanted in the 2001 Easement. What they in fact agreed to, it seems to me, is all the more reliable because they were related parties. More importantly, the owners of the dominant and tenement lands ceased to be related in 2008. Since that time, the Golf Course Lands have changed hands three times. Every purchaser had knowledge of the 2001 Easement because it was registered on title.
[45] Even more importantly, the Golf Course Lands had operated as a golf course since the early 1990s. The development plans for the entire Horseshoe Valley project from 2001 contemplated the continued operation of the Golf Course Lands as a golf course. This is apparent from the five phase development plan described earlier and shown in the map set out in para. 7 above. There is no indication in any contemporaneous documents from the 2001 period that the Golf Course Lands were ever intended to be used or developed as anything other than a golf course.
[46] It is clear from the contemporaneous documents that the homes developed and sold in phases 1, 2 and 3 were laid out, built, marketed and sold in conjunction with the abutting golf course on the Golf Course Lands. The evidence is that those owners whose lands abutted the golf course paid a premium for their lots. This evidence was not cross examined on and there is no contrary evidence.
Other Significant Contextual Facts
[47] The Golf Course Lands were sold to Skyline in 2008. The Skyline 2008 agreement of purchase and sale included a “Concept Plan” from March 2003. This Concept Plan does not make any provision for residential or other development of the Golf Course Lands.
[48] The Golf Course Lands continued to be operated as a golf course until 2016.
[49] Finally, the 2001 Easement was registered on title. The Xiao companies are deemed to have had notice of the 2001 Easement. Indeed, the evidence makes it clear that the Xiao companies had actual notice of the 2001 Easement, as their agreement to buy the Golf Course Lands was specifically amended to provide for the vendor to use best efforts to remove the 2001 Easement from title. Romspen clearly and unequivocally refused to do so. By Mr. Xiao’s own admission, his counsel at the time recommended that he refuse to close until the 2001 Easement was “rectified”. Notwithstanding Romspen’s assertion of its rights under the 2001 Easement, Mr. Xiao proceeded to close the purchase transaction. Mr. Xiao has now sued his advisors in connection with the purchase of the Golf Course Lands.
The 2001 Easement
[50] Because the interpretation of the 2001 Easement is at the heart of this matter, I will set out the relevant provisions in full. Paragraphs 1 to 5 of the 2001 Easement provide:
The Transferor hereby transfers to the Transferee the free and uninterrupted and unobstructed right and easement to construct, operate and maintain such Storm Sewer or Sewers and such Stormwater Management Facilities (the said Storm Sewers and Stormwater Management Facilities are collectively called the “Storm Sewer”), together with any and all appurtenances thereto as may be required from time to time in, under and across the lands described in Box 5 [the Golf Course Lands] by the Township of Oro-Medonte or the County of Simcoe pursuant to the terms or any subdivision, engineering, development or site plan agreement.
Together with the right of the Transferee, its successors and assigns and its and their servants, agents and workmen with all necessary equipment, machinery and vehicles to enter upon said lands at all times and to pass and repass thereon for the purposes of constructing, reconstructing, examining, repairing, renewing or replacing (including replacement with a Storm Sewer of larger size or capacity) and maintaining the said Storm Sewer or any part or parts thereof whether or not any part to be so constructed, repaired, renewed, replaced or maintained is situate on the land above described.
The Transferor hereby undertakes that the lands described in Box 5 above shall remain free of physical encumbrances which would hinder the access by the Transferee, its servants, or its agents and the Transferor hereby undertakes that only the usual grass cover and/or flower beds, trees, golf course features and fencing with gates, will be suffered on the said lands, and that no trees, structures, or obstructions will be permitted to remain thereon unless the Transferee in writing permits the existence of certain physical encumbrances on the lands, for limited periods of time, upon written application by the Transferor to the Transferee.
And the Transferor further undertakes with the Transferee that no other Easement will be granted over the lands described in Box 5 above prior to the registration of this document.
Transferee acknowledges that the lands described in Box 5 are primarily used as a golf course by the Transferor, and accordingly any ingress onto the lands shall be by written notice to the Transferor, and, Transferee agrees to abide by any reasonable terms of ingress, and, to reduce, where possible any interference with the Transferor’s use of the golf course. Transferee agrees to schedule any required work on the Storm Sewer, during the times that the golf course is not in use, unless an emergency requires otherwise.
The Words of the 2001 Easement, Read as a Whole, Interpreted in Light of the Surrounding Circumstances
[51] Paragraphs 1 and 2 of the 2001 Easement deal with two aspects of the storm water management easement. Paragraph 1 establishes the basic easement itself – the right to construct, operate and maintain storm water management facilities on the Golf Course Lands as required by the township or the county under the terms of a subdivision agreement. Paragraph 2 expands the basic right to storm water management contained in paragraph 1 to include the right of the dominant tenement owners’ servants, agents and workmen, together with all necessary equipment, machinery and vehicles, to enter upon the Golf Course Lands at any time for the purposes of constructing, reconstructing, examining, repairing, renewing or replacing the storm water management facilities.
[52] Paragraph 3, which includes the restrictive covenant, contains two distinct undertakings. Importantly, these undertakings are with respect to the Golf Course Lands as a whole, not merely the subset of those lands actually required for storm water management described in paragraphs 1 and 2. The first undertaking, nevertheless, relates directly to the storm water management easement: the servient tenement owner undertakes that the Golf Course Lands shall remain free of physical encumbrances “which would hinder the access by” the dominant tenement (emphasis added).
[53] However, paragraph 3 goes on to set out a second undertaking. In the second undertaking, the servient tenement further undertakes that: a) only features associated with golf course operations will be permitted on the Golf Course Lands, i.e., grass cover and/or flower beds, trees, golf course features and fencing with gates; and, b) “no trees, structures, or obstructions will be permitted to remain thereon” without written permission for limited periods of time (emphasis added). It is important to note, again, that the second undertaking, like the first, applies to the Golf Course Lands as a whole, not just the land within the Golf Course Lands actually required for storm water management facilities or access to those facilities.
[54] I am unable to agree with the Xiao companies that the sole purpose of paragraph 3, the restrictive covenant, is to serve or support the easements needed for storm water management. While the first undertaking in paragraph 3 might be so interpreted, the second and distinct undertaking, on the plain words used, can only be read as a free standing restrictive covenant not to place any structures or obstructions, other than typical golf course features, on the Golf Course Lands without express written consent.
[55] This interpretation of paragraph 3 is entirely consistent with the surrounding circumstances objectively and reasonably known to both parties at the time; that the Golf Course Lands were being, and were intended to be, used as a golf course, and that the five phases of the surrounding residential development were to be designed, built, marketed and sold on the basis that the adjacent lands were, and would continue to be, a golf course. Indeed, it is clear that the whole idea of the residential development was that it would be associated with a golf course: that was part of its appeal and why purchasers paid a premium for lots adjacent to the course.
[56] If the parties to the 2001 Easement had only wanted to prohibit residential development on the subset of Golf Course Lands actually required for storm water management facilities, they would have said so. Instead, the prohibition on non-golf course uses, and the prohibition against building “structures” in particular, is specifically said to apply to the Golf Course Lands as a whole, not just the lands required for storm water management. This interpretation is further supported by the language of paragraph 5 of the 2001 Easement in which: a) it is specifically acknowledged that the Golf Course Lands are primarily used as a golf course, such that the exercise of access under paragraphs 1 and 2 of the 2001 Easement must be on written notice to the servient tenement owner; and, b) there is a obligation on the dominant tenement owner to reduce, where possible, any interference with the servient tenement’s use and operation of the golf course.
[57] Finally, principles of contract interpretation require the court to read the contract as a whole and to strive to give purpose and effect to all its terms. Mr. Xiao’s interpretation of paragraph 3 – that it merely applies to the access right on the subset of Golf Course Lands actually required to build and maintain storm water management facilities – effectively renders the language of the second undertaking in paragraph 3 superfluous. I say this because the easement for access to build and maintain storm water management facilities contained in paragraphs 1 and 2 necessarily requires that the easement, as granted, not be obstructed by the servient tenement owner building structures or erecting obstructions which would deny that very access. The language of the first undertaking in paragraph 3 expressly protects the access granted in paragraphs 1 and 2 of the 2001 Easement. If the sole purpose of paragraph 3 were only to prevent obstruction of the access granted in paragraphs 1 and 2, that purpose is entirely achieved by the language of the first undertaking. That leaves no role for the second undertaking at all. On the interpretation advanced by Mr. Xiao, the language of the second undertaking in paragraph 3 is rendered unnecessary; it adds nothing and is therefore meaningless. That is an outcome the principles of contract interpretation seek to avoid.
The GNA
[58] The Xiao companies rely on the 2008 GNA as part of the factual matrix to assist in the interpretation of the 2001 Easement.
[59] In particular, the Xiao companies point to a “good neighbour cooperation” clause in which Skyline and HVL agreed to cooperate with one another. This clause concerns ongoing operation and development of their respective lands, and an agreement not to oppose or interfere with the development applications, proposals and initiatives of the other that are consistent with the development of the resort, recreation, retail and residential development and associated businesses within the project.
[60] The Xiao companies say that by entering into this 2008 agreement, HVL limited the scope of its rights as dominant tenement under the 2001 Easement and agreed not to oppose residential development of the Golf Course Lands in the future.
[61] The GNA is a lengthy agreement dealing with a multitude of issues, lands and development components, almost all of which do not relate to the Golf Course Lands or residential development around the Golf Course Lands. With one exception (which I will deal with below), the GNA covers new or additional sewage works, water works and road works and the like unrelated to the Golf Course Lands. It also establishes new easements, for the benefit of other Resort lands, to permit activities like cross country skiing/biking and the construction of related infrastructure.
[62] For definitional purposes, in the GNA, Skyline is the “Horseshoe Owner”. “Lands” is defined as the lands Skyline purchased, including the Golf Course Lands. The Xiao companies are successors in title to the Skyline Lands. “Retained Lands” is defined to include the Development Lands now owned by HVD 2018.
[63] The GNA contains only one provision dealing specifically with the storm water management facilities contemplated by the 2001 Easement. It provides:
5.1 Storm Water Facilities
(a) The parties acknowledge that certain ponds located on certain parts of the golf course forming part of the Lands would be required by the Retained Lands Owners as storm water management ponds for future development of the Retained Lands.
(b) The Resort Owner agrees to make such ponds available to the Retained Land Owners for storm water management purposes, provided the Retained Land Owners control silt from entering into the ponds during development of the Retained Lands, as well as maintain, clean, upkeep such ponds and all the contributory storm sewers until the earlier of completion of the development of the Retained Lands (including construction of the residential units and roads, sodding and landscaping) or assumption of the roads forming part of such development by the municipality.
(c) Once the development of the Retained Lands has been completed, the Horseshoe Owners or any one of them shall assume the obligation to maintain and manage such ponds, provided: (i) the obligations of the Retained Land Owners as set out above have been complied with; (ii) the Retained Land Owners obtained all required approvals and permits for the operation of such ponds as storm management ponds (including without limitation certificate of approvals from the Ministry of the Environment, if required); and (iii) the Horseshoe Owners shall have no obligation to ensure that such ponds have been properly sized and constructed or are otherwise suitable to serve as storm water management ponds for the Retained Lands’ development, and the Retained Land Owners hereby agree to indemnify the Horseshoe Owners against any liability or cost they may incur as a result of such ponds not being suitable.
[64] The Xiao companies place their greatest reliance, however, on the “good neighbour cooperation” provision. Article VI of the GNA, section 6.2, provides that:
The Retained Land Owners and the Horseshoe Owners agree, to the extent same does not materially adversely effect [sic] the lands owned by them, to cooperate with one another with respect to ongoing operation and development of their respective lands, and subject to the foregoing, to not oppose or interfere with the development applications, proposals and initiatives of the other that are consistent with the development of resort, recreation, retail and residential development and associated businesses.
[65] I am unable to agree with the Xiao companies that the GNA provides meaningful context for the interpretation of the 2001 Easement or, in particular, that it changes in any way that could be material to these proceedings, the plain meaning and effect of paragraph 3 of the 2001 Easement. I come to this conclusion for three basic reasons.
[66] First, the GNA was signed in 2008, seven years after Skyline’s predecessor in title and HVD entered into the 2001 Easement. The Xiao companies nevertheless argue that HVD’s conduct in 2008 is relevant to the interpretation of rights granted to HVD in the 2001 Easement.
[67] Post-contractual conduct has a limited role in contract interpretation. The Court of Appeal for Ontario dealt with the treatment of subsequent conduct in Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, 404 D.L.R. (4th) 512. In Shewchuk, the Court of Appeal distinguished evidence of post-contractual conduct from the factual matrix: paras. 41-42. The factual matrix consists only of the objective background evidence reasonably known to the parties at the date of execution of the contract. By definition, post-contractual conduct could not have been reasonably known to the parties when the contract was made. Accordingly, it cannot be part of the factual matrix: Shewchuk, para. 41.
[68] Further, evidence of subsequent conduct does not share the same quality of reliability as, or enhance the objectives of finality and certainty in the way that, the factual matrix does. There are dangers associated with reliance on subsequent conduct not found in the factual matrix. Evidence of subsequent conduct could permit the interpretation of the contract to fluctuate over time. The subsequent conduct may itself be ambiguous. And, subsequent conduct opens to door to perverse incentives or strategic, self-serving behaviour after the fact, as a result of which a party may engage in deliberate actions that tend to support its preferred interpretation of the agreement: Shewchuk, paras. 42-44.
[69] The Court of Appeal held, however, that subsequent conduct may be useful in resolving contractual ambiguity. Where it is used, however, its only purpose is to assist the court in determining the parties’ intentions at the time they executed the contract: Shewchuk, para. 48. Thus, evidence of subsequent conduct may be used where the contract itself is ambiguous. However, the inherent dangers in using this evidence means that it must be used cautiously and that its weight will vary from case to case: Shewchuk, para. 52.
[70] In my view, paragraph 3 of the 2001 Easement is not ambiguous. The second undertaking in paragraph 3 is a clear and explicit prohibition against erecting any structures on the Golf Course Lands. Such a prohibition is fully enforceable in law (see Tulk v. Moxley discussed above at para. 32) and consistent with the surrounding circumstances when the 2001 Easement was granted. However, even if HVL’s subsequent conduct in entering into the GNA is considered in the interpretation of the 2001 Easement, it does not change the outcome of my analysis in paras. 51 to 57 above. As discussed below, even assuming admissibility and reliability, the GNA in no way alters or detracts from my conclusions about the purpose and meaning of paragraph 3 of the 2001 Easement. Nor can the GNA be read as consisting of any kind of contractual amendment to the 2001 Easement.
[71] Second, section 5.1, which is the only provision in the GNA which actually deals with the Golf Course Lands associated with the 2001 Easement, is notable more for what it does not say than what it does. Although dealing with storm water management facilities on the Golf Course Lands, section 5.1 specifically makes no mention of the 2001 Easement and does not purport to change, amend, alter or restrict the 2001 Easement in any way. Section 5.1 identifies who might have future responsibility to maintain and manage the storm water drainage ponds once all residential development has been completed. This of course has not yet happened. But, in any event, section 5.1 has nothing to do with the dominant tenement owner’s rights or the servient tenement owner’s obligations under the 2001 Easement. I note as well that section 5.1 specifically contemplates the continued operation of the golf course on the Golf Course Lands purchased by Skyline at that time as well as the storm water drainage ponds located on that golf course.
[72] Third, as to the meaning and effect of section 6.2 of the GNA (the good neighbor cooperation provision), there are three essential points. First, the GNA as a whole deals with a myriad of interactions, coordination requirements and development modifications, all of which (with the exception of section 5.1 dealt with above) have nothing to do with the Golf Course Lands. Section 6.2 is unspecific in its scope, but in the context must be read as intending to apply to those matters dealt with in the GNA, rather than a wholesale revision of the parties’ entire relationship irrespective of all existing agreements, commitments, rights and obligations.
[73] The second point as to the meaning and effect of section 6.2 is that the cooperation contemplated by section 6.2 contains an important qualification. The obligation to cooperate is only engaged to the extent that is does not materially adversely affect the lands owned by each of the parties. In this case, Mr. Xiao’s proposed residential development on the Golf Course Lands does materially adversely affect the proprietary rights of HVD 2018 and the Green Space Supporters associated with their status as dominant tenement owners and beneficiaries of the restrictive covenant, which prohibits building any structures on the Golf Club Lands. The continued existence of a golf course (or other green space) on the Golf Course Lands is a clear benefit to the individual landowners who bought their homes on that basis and to HVD 2018, which intends to build more homes, again on the that basis.
[74] Finally, the obligation to cooperate is a positive covenant. Positive covenants require a person to take some proactive action to comply, while negative covenants restrict a person from engaging in certain activities. Positive covenants are a personal obligation. It is well established that positive obligations do not run with the land and will not bind subsequent owners: Anne Warner La Forest, Anger & Honsberger, Law of Real Property, 3d ed., (Toronto: Thomson Reuters) at 16.1; Black v. Owen, 2017 ONCA 397, 137 O.R. (3d) 334, at paras. 2 and 40. HVD 2018 has no enforceable positive obligation to cooperate with the Xiao companies or to agree to remove or cancel the 2001 Easement, including paragraph 3.
[75] Mr. Xiao makes the point that section 6.2 also prohibits the parties from opposing development applications of the other party, which is a negative covenant and therefore enforceable against a subsequent owner. However, the Xiao companies have no subdivision application before the municipality. The applicants are not opposing Mr. Xiao’s development application. They are seeking a declaration as to their rights under the restrictive covenant provisions in the 2001 Easement and taking the position that they cannot be compelled to agree to remove the 2001 Easement from their title.
[76] For all these reasons, I find that the GNA, even if it may be cautiously considered within the rubric of the factual matrix, does not materially alter the proper interpretation of the restrictive covenant in paragraph 3 of the 2001 Easement.
The Term of the Restrictive Covenant
[77] Romspen and HVL 2018 submit that, as a matter of law, a restrictive covenant that purports to run “forever” or that does not expressly contain a period or fixed date for its expiry, is deemed to have expired 40 years after its registration on title. The authority for this proposition is s. 119(9) of the Land Titles Act, R.S.O. 1990, c. L.5:
119(9) Where a condition, restriction or covenant has been registered as annexed to or running with the land and no period or date was fixed for its expiry, the condition, restriction or covenant is deemed to have expired forty years after the condition, restriction or covenant was registered, and may be deleted from the register by the land registrar.
See also: Andrews v. Rago, 2019 ONSC 800, 146 O.R. (3d) 53 at paras. 31-32.
[78] Here, the restrictive covenant contains no fixed date for its termination. There were no contrary submissions from Mr. Xiao or his companies. The registration date of the 2001 Easement was November 15, 2001. By operation of law, therefore, paragraph 3 of the 2001 Easement is deemed to expire after November 14, 2041.
Conclusion
[79] For the foregoing reasons, I find and declare that the restrictive covenant in paragraph 3 of the 2001 Easement prohibits residential development on the Golf Course Lands until November 15, 2041.
Costs
[80] It was agreed between Romspen, HVD 2018, Mr. Xiao and the Xiao companies, that the successful side would be awarded partial indemnity costs of $25,000 inclusive of all fees, disbursements and HST. Neither the Receiver nor the Green Space Supporters sought costs and no one sought costs against them. Costs are, accordingly, awarded to Romspen and HVD 2018 in the all inclusive total amount of $25,000.
Penny J.
Date: October 3, 2022