Court File and Parties

COURT FILE NO.: CV-21-3174 DATE: 2022-10-05 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Brian Huber Holdings Ltd., Applicant AND: The Corporation of the Municipality of West Perth, Respondent

BEFORE: Justice R. Raikes

COUNSEL: Jacob Damstra - Counsel, for the Applicant Steven O’Melia - Counsel, for the Respondent

HEARD: December 14, 2021 and January 5, 2022

ENDORSEMENT

[1] The Applicant, Brian Huber Holdings Ltd. (hereafter “Huber”) is the assignee of a subdivision agreement dated July 28, 1975, between its predecessor, Arris Land Development Corporation (hereafter “Arris”), and the Respondent, The Corporation of the Municipality of West Perth (hereafter “West Perth” or the “the Municipality”).

[2] In its application, Huber seeks, inter alia, the following relief:

a. A declaration that the cost sharing provisions of the subdivision agreement are binding and enforceable as against West Perth.

b. A declaration that upon receipt of an application for subdivision or building permit for lands on the East side of Arthur Street, West Perth has a contractual obligation to charge a proportionate share of the costs incurred by Arris and its assignees in the construction of Arthur Street, including accrued interest, and to pay the collected amounts to Huber in accordance with the cost sharing provisions.

c. A declaration that West Perth failed to charge a proportionate share of the costs and interest accrued and to pay that amount to Huber when it received a subdivision application on May 6, 2019.

d. A declaration that when it receives applications for subdivision or building permits for the remaining undeveloped adjacent lands on Arthur Street, West Perth has an obligation to charge a proportionate share of the costs and accrued interest against the owner of those lands.

e. A declaration that the cost sharing provisions are not ultra vires the statutory authority of the Town of Mitchell, West Perth’s predecessor.

f. A declaration that West Perth has breached its contract with West Perth by refusing to comply with its obligations under the cost sharing provisions.

g. An order for specific performance requiring West Perth to comply with the cost sharing provisions in relation to the development of the adjacent lands on Arthur Street.

h. In the alternative to (g), damages for breach of contract with respect to the Arthur Street Development of $33,472.01 together with interest at the contractual rate.

i. Pre- and post-judgment interest at the rate of 7% per annum in accordance with the contract, compounded.

j. In the alternative to (a)-(i), a declaration that West Perth has been unjustly enriched by the construction of municipal services on Arthur Street.

k. An order awarding Huber restitution equal to the present-day value of the services constructed under the subdivision agreement or, in the alternative, awarding restitution in the full amount of the construction costs of the services with equitable interest at the contractual rate of 7% per year compounded, or restitution in the amount of 50% of the construction costs of the services with equitable interest at the contractual rate of 7% per year, compounded.

[3] Counsel for Huber clarified that the application was prepared at a point when West Perth was denying the validity and enforceability of the subdivision agreement; viz. West Perth was essentially asserting that the agreement was no longer binding and was ultra vires.

[4] West Perth’s position has modified since then, and the essence of Huber’s claim is for damages for breach of the subdivision agreement and/or equivalent compensation on a restitutionary basis and a declaration that West Perth is obligated to charge and remit the payments received as and when the remaining adjacent lands on Arthur Street are developed.

Jurisdiction

[5] This matter comes before me as an application. There was no argument and no suggestion that the matter ought to proceed by way of action. Counsel confirmed by letter dated May 13, 2022 that there was no dispute as to jurisdiction to deal with the issues raised and submissions made by way of application.

[6] Rule 14.05(3) authorizes the commencement of a proceeding by application where the relief claimed is

(d) the determination of rights that depend on the interpretation of a deed, will, contract or other instrument, or on the interpretation of a statute, order-in-council, regulation or municipal by-law or resolution; …

[7] The core issues in dispute in this matter involve the interpretation of the subdivision agreement; specifically,

1. the scope of the obligations on West Perth under the subdivision agreement;

2. whether the cost sharing provisions were triggered by an application for subdivision approval in May 2019; and

3. whether legislative changes to the provincial land development regime make it impossible for West Perth to strictly comply with the subdivision agreement and, if so, how that affects its obligations, if any, to Huber.

[8] The material facts are largely undisputed.

Background Facts

[9] On July 28, 1975, Arris entered into a subdivision agreement with the Town of Mitchell (“the subdivision agreement” or “the Arris subdivision agreement”).

[10] In 1982, Huber purchased Arris’ assets and took an assignment of Arris’ rights and obligations under the subdivision agreement.

[11] On January 1, 1998, the Town of Mitchell and Townships of Logan, Hibbert, and Fullarton were amalgamated into a single entity, West Perth. West Perth assumed the rights and obligations of the Town of Mitchell under the subdivision agreement.

[12] Attached to this decision is a copy of Registered Plan No. 469 which depicts the subdivision contemplated by the Arris subdivision agreement. Save for some development along Wellington Street, the lands comprising the subdivision were vacant in 1975.

[13] The Arris subdivision is bounded on the south by Henry Street and on the east by Arthur Street. Lots 13 to 23 front on Arthur Street. The lands on the opposite side of Arthur Street were vacant land used for agricultural purposes.

[14] Plan 469 also shows that Henry and Arthur Streets meet at a T-intersection. Henry Street did not extend beyond Arthur Street.

The Subdivision Agreement

[15] Schedule B to the subdivision agreement contains the following provision which is at the heart of this dispute:

COST SHARING

This paragraph will apply to the sharing of construction costs with particular reference to the item breakdown shown in the following table. The Owner agrees to pay initially one-hundred percent of all construction costs associated with each phase of construction. The consulting engineer shall advise the Town of the finished costs thereof on a footage basis. The Town shall charge against the lots on the opposite side of the street their share of the costs shown as adjacent property owner’s costs in the following table. Upon the application of the relevant owner for a sub-divider’s agreement, or if none, for a building permit, the Town shall collect from such owner the share charged against him for the construction of the aforementioned services. Interest shall be charged at the rate of seven percent (7%) per year compounded. The entire amount less five percent (5%) collection charge to be retained by the Town shall be paid forthwith to Arris Land Developments Corp. or its assigns. ... [Italics added.]

[16] Immediately following the above provision is a table. Along the top are various services such as storm sewer, sanitary sewer, asphalt etc.. The left column lists the streets to which the servicing applies including Henry and Arthur Streets. For each category of servicing, there is a breakdown of who will bear what percentage of that cost. “(A)” means adjacent property owner and “(O)” means Owner – Arris.

[17] At the bottom of the table, there is an explanatory note that states:

The Owner will pay 100% of the construction costs at the time of construction, the designation (A) is used to indicate those portions of the costs which will be reimbursed to the Owner under the conditions outlined in the previous paragraph of this Schedule entitled “Cost Sharing”.

[18] I observe that all costs applicable to Arthur Street are split equally between Owner and Adjacent Property Owner. The municipality does not contribute to those expenses.

Arthur Street

[19] Huber installed the required servicing for the lots on Arthur Street and constructed Arthur Street in 1986.

[20] Arthur Street is narrower than a standard street. It has never had curbs or gutters. The road and servicing installed was necessary for the development and sale of lots 13-23 in the subdivision. Those lots front on Arthur Street. The lands on the opposite side of Arthur Street remained vacant land used for crops.

[21] After Arthur Street was constructed, the Municipality assumed it and has maintained it at its sole expense.

Development of Adjacent Lands

[22] Other lands adjacent to the Arris subdivision have been developed and built upon, including on the south side of Henry Street.

[23] For example, on February 3, 1976, G.A. Spence & Sons Developments Limited (“G.A. Spence”) entered into a subdivision agreement with the Town of Mitchell to subdivide and develop the land on the south side of Henry Street. In his affidavit, Mr. Huber quoted the following found in Schedule “B” to the G.A. Spence subdivision agreement:

Special costs are to be assessed to adjacent property owners on the two periphery streets, Henry Street and Arthur Street, are partially controlled by the previous Subdividers Agreement with Arris Land Development Corporation (hereinafter referred to as “Arris”) but are intended to be an assessment of the costs incurred which are of direct benefit to the future development of those adjacent properties. The sharing of the Henry Street storm sewer costs is predetermined as 12% to be paid by the Owner [G.A. Spence] and 88% to be paid by Arris… [Italics added.]

[24] On October 27, 1986, Mr. Huber attended a Town Council meeting to request that G.A. Spence pay the balance of its share of the costs of constructing and servicing Henry Street. At that point, G.A. Spence had only paid half of the required amount. Mr. Huber wanted a guarantee that Huber would receive the balance with interest.

[25] At the conclusion of the Council meeting, Council required G.A. Spence to enter into an agreement with the Town that was registered on title and directed that no building permits would issue until the agreement was signed by both parties.

[26] The municipality collected the construction and servicing costs from G.A Spence with accrued interest. It applied and took its five percent collection fee and remitted the balance to Huber.

Correspondence to Confirm Ongoing Agreement

[27] After the amalgamation that created West Perth, Mr. Huber wrote to West Perth on August 3, 2001 to advise of the cost sharing provisions in the Arris subdivision agreement. He indicated that the Town of Mitchell had fulfilled its obligations as it related to Henry Street, but its obligations related to Arthur Street remained outstanding.

[28] At that point, none of the adjacent lands on the opposite side of Arthur Street had been developed. There was no pending subdivision application nor any building permit application. The lands opposite remained agricultural.

[29] The Clerk Administrator responded by letter dated April 8, 2002. She indicated that based on legal advice obtained, the municipality took the position that the cost sharing provisions were not legally enforceable. Attached to her letter was the opinion provided by counsel which opined that the Town of Mitchell did not have the legal authority to agree to the cost sharing provisions in the Arris subdivision agreement.

[30] I pause to note that that position was not advanced by West Perth on this application.

[31] Huber did not take any steps following receipt of that correspondence because the municipality’s obligations had not yet been triggered for Arthur Street. Although Huber perhaps could have treated the correspondence received as an anticipatory breach, it did not and continued with the agreement.

[32] In September 2015, Huber communicated again with West Perth to request that it perform its obligations under the cost sharing provisions of the Arris subdivision agreement. Again, there was no triggering event at that time.

[33] On January 7, 2016, Huber received a letter from the Interim Clerk for West Perth in which she advised that based on advice from its solicitor, the cost sharing provisions are ultra vires the statutory authority of the Town of Mitchell, cannot be imposed on property owners without their consent, and cannot be enforced due to the passage of time.

[34] Correspondence followed between the parties’ respective counsel. Huber took the position that the cost sharing provisions were within the statutory authority of the municipality, and it intended to enforce the agreement as against West Perth, not individual property owners.

[35] Mr. O’Melia, counsel for West Perth, wrote on January 27, 2017 that the cost sharing provisions were void ab initio and any effort to enforce those provisions would be contrary to recent developments in the law.

Subdivision Application dated May 6, 2019

[36] On May 22, 2019, counsel for Huber learned that an application had been made for approval of a subdivision that included a portion of the lands on Arthur Street roughly opposite to lot 23 and part of lot 22 in the Arris subdivision.

[37] Attached as Schedule “A” is a draft plan of subdivision that depicts the proposed subdivision. The salient points of interest are:

1. Arthur Street is the westerly boundary for the subdivided lands.

2. Street C near the top is an extension of Henry Street. Where Henry Street previously ended at the T-intersection with Arthur Street, Street C extends Henry Street through Arthur Street in a roughly easterly direction.

3. Lots 61-71 of the proposed subdivision front on Street C.

4. The side-yard of Lot 61 is 34.63m.

5. Lots 61-71 are on lands that were part of the farmlands opposite the Arris subdivision on Arthur Street.

6. The depth of Lot 61 (its side-yard length) spans the whole frontage of Lot 23 (70.13’) and part of the frontage of Lot 22 (60.0’) in the Arris subdivision. Put another way, the owners of Lots 23 and 22 now look into Lot 61, not a farmer’s field.

7. By far, most of the lots in the proposed subdivision lie south of the intersection of Henry and Arthur Streets. That portion has no implications for the Arris subdivision agreement, and the cost sharing provisions.

[38] On July 11, 2019, Huber’s lawyer wrote to West Perth to advise that the cost sharing provisions were triggered by the subdivision application of May 6, 2019. He asked that West Perth pay Huber $235,294.24 for the proportionate share of costs to construct Artur Street with accrued interest, less the five percent collection fee. The new subdivider’s share of the cost of construction and accrued interest for that portion of Arthur Street that was to be developed was $30,888.

[39] On July 25, 2019, West Perth’s lawyer wrote to advise that there was a public meeting scheduled by the County of Perth and if Huber wished to have the cost sharing condition imposed as a condition of development approval, it should make such representations to County Council, the approving authority for the proposed new subdivision.

[40] On August 19, 2019, the subdivision application was before the County of Perth’s Council for consideration. Although aware of the meeting, Huber did not attend. No request was made by either party to the County Council to impose cost sharing for Arthur Street as a condition to development approval.

[41] Planning staff for the County of Perth recommended approval of the subdivision application. That recommendation was accepted by County Council on September 5, 2019. The subdivision application was approved with conditions. None of those conditions included a cost sharing payment for any portion of the construction costs incurred by Huber for Arthur Street. No appeal was taken from that decision.

[42] Lots 61-71 and 48-60 of the new subdivision front on Street C. Because of the configuration of Lots 61-71, only Lot 61 abuts Arthur Street. Each lot is connected to servicing located under Street C; for example, water and storm water. None of the homes on Street C, including Lots 61-71 are connected to any of the servicing previously installed for the Arris subdivision on Arthur Street.

[43] The side-yard to Lot 61 is roughly 9.8 percent of the length of the lands on Arthur Street opposite the Arris subdivision. The amount calculated by Huber as owing assumes that West Perth should have required the developer of the new subdivision to contribute 50 percent of 9.8 percent of the cost of construction of Arthur Street plus accrued interest per the cost sharing table.

Huber’s Position

[44] Huber takes the following positions on this application:

1. The cost sharing provisions of the Arris subdivision agreement were triggered by the subdivision application dated May 6, 2019.

2. The Arris subdivision agreement is a standard form agreement used by the Town of Mitchell. If there is any ambiguity in the cost sharing terms, the contra proferentum rule applies. The provision should read in a manner favourable to Huber.

3. West Perth breached its contractual obligations by failing to require the developer of the new subdivision to contribute its proportionate share of the costs of construction of Arthur Street plus accrued interest.

4. West Perth has an ongoing obligation to seek recovery of the costs of construction and accrued interest for Arthur Street as and when future development occurs of the lands opposite the Arris subdivision on Arthur Street per the cost sharing provisions in the Arris subdivision agreement.

5. If West Perth is unable or unwilling to perform or enforce the cost sharing provisions because of changes to the regime for approval of subdivisions, West Perth is in breach of the Arris subdivision agreement.

6. Alternatively, if West Perth cannot perform its obligations under the Arris subdivision agreement because of changes to the legislative regime governing subdivision approvals, equity will provide a remedy. West Perth has been unjustly enriched and should pay compensation to Huber for that enrichment.

7. The appropriate remedy is damages calculated in accordance with the Arris subdivision agreement.

8. Alternatively, if the remedy lies in unjust enrichment, the compensation payable should be the same as if the contract had been performed or provide full restitution.

West Perth’s Position

[45] West Perth takes the following positions on this application:

1. There has been no breach of the cost sharing provisions of the Arris subdivision agreement because a triggering event has not happened. Most of the land on the east side of Arthur Street remains farmland under cultivation. Lots 61-71 in the new subdivision do not hook into and, thus, derive no benefit from the Arthur Street services. The whole purpose of the cost sharing provision was to share the costs of servicing proportionate to the benefit derived.

2. The cost sharing provisions do not require the Municipality to pay for or contribute to the Arthur Street services; its obligation is limited to seeking contribution from the adjacent property developer. Huber’s application misstates and misunderstands what the Municipality is to do.

3. The law applicable to cost sharing has changed since the Arris subdivision agreement was signed. First, it is the County not West Perth that can impose cost sharing terms. Second, the ability of the County to impose cost sharing on a developer of adjacent lands is limited to circumstances where that new developer is benefitting from the earlier services installed. There is no benefit here.

4. By ignoring the changes to the authority to approve subdivisions and case law, Huber is asking the court to re-write the agreement.

5. Because of changes to the legislative regime for approval of subdivisions, the cost sharing provisions in question are simply unenforceable.

6. The agreement is still a valid, binding agreement. There is no need to “bootstrap” an equitable claim.

7. The elements of unjust enrichment are not established. Arris needed to install the services and construct Arthur Street for its own purposes – to service, develop and sell lots 13-23. The municipality gained no benefit.

8. Huber failed to mitigate. It could have approached County Council to ask that the cost sharing obligation be imposed and did not. It could have appealed the approval by the County if the County declined to impose cost sharing as a condition to its approval. Huber did not go that route because it presumably knew that there was no prospect of success before County Council.

9. The declaratory relief sought is contrary to the legislative regime in place today and to appellate case authority. It cannot be granted.

[46] By way of reply, Huber submitted that:

1. It seeks damages for breach of contract only, as is clear from its factum. It does not seek specific performance or an order requiring West Perth to impose charges.

2. Huber had no obligation to apply to the County Council or to appeal its decision. Asking West Perth to comply with its obligations was enough.

3. It is West Perth that is asking that the court re-write the agreement. It seeks to read in a requirement for direct benefit for lots fronting on Arthur Street.

4. Arris was not party to the G.A. Spence agreement. The rationale expressed in that agreement should not be imported into the interpretation of the Arris subdivision agreement. Doing so would offend the parol evidence rule.

5. It is precisely because West Perth says that it cannot comply with its obligations under the Arris subdivision agreement as drafted that the unjust enrichment analysis is engaged to provide a remedy.

Governing Principles of Contractual Interpretation

[47] In Prism Resources Inc. v. Detour Gold Corporation, 2022 ONCA 326, Lauwers J.A. summarized the law relating to contractual interpretation at paras. 15-17 as follows:

[15] The partis agree that the Supreme Court’s decision in Sattva Capital Corp. v Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, sets out the governing principles of contractual interpretation. The relevant principles are also addressed in this court’s decisions in Weyerhauser Co. v. Ontario (Attorney General), 2017 ONCA 1007, 77 B.L.R. (5th) 175, at para. 65, per Brown J.A., rev’d on other grounds, Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, 444 D.L.R. (4th) 77; Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corp., 2021 ONCA 592, at para. 46, per Jamal J.A.; Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254, at para. 24, per Blair J.A.; and Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at paras. 52-56, per Doherty J.A.

[16] These principles were conveniently summarized by Brown J.A. in Weyerhauser, at para. 65. A judge interpreting a contract should:

(i) determine the intention of the parties in accordance with the language they have used in the written document, based upon the “cardinal presumption” but they have intended what they have said;

(ii) read the text of the written agreement as a whole, giving the words used their ordinary and grammatical meaning, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

(iii) read the contract in the context of the surrounding circumstances known to the parties at the time of the formation of the contract. The surrounding circumstances, or factual matrix, include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement, such as facts concerning the genesis of the agreement, its purpose, and the commercial context in which the agreement was made. However, the factual matrix cannot include evidence about the subjective intention of the parties; and

(iv) read the text in a fashion that accords with sound commercial principles and good business sense, avoiding a commercially absurd result, objectively assessed.

[17] Brown J.A. added several observations about the proper consideration of the “factual matrix” by a judge interpreting a contract, at paras. 66-68, to the effect that it comprises, as stated in Sattva at para. 58, only “objective evidence of the background facts at the time of the execution of the contract… that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting”. The “surrounding circumstances”, Sattva noted, at para. 57, “must never be allowed to overwhelm the words of that agreement” and cannot be used “to deviate from the text such that the court effectively creates a new agreement”.

[48] In the case before me, both parties point to evidence that occurred after the execution of the subdivision agreement to bolster their respective submissions as to the proper interpretation to be taken of that agreement. In Prism Resources, Justice Lauwers summarized the general principles applicable to the use of post-event conduct in contractual interpretation at paras. 18-20:

[18] Strathy C.J.O. thoroughly canvassed the authorities governing the use of subsequent conduct evidence in contractual interpretation in Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, 404 D.L.R. (4th) 512. In considering Sattva, he noted that “subsequent conduct, or evidence of the behavior of the parties after the execution of the contract, is not part of the factual matrix”: at para. 41. Unlike the factual matrix, which “relates solely to events at the time of contract formation,” evidence of which is “admissible in every case,” evidence of the parties’ subsequent conduct is only admissible in certain circumstances: Geoff R. Hall, Canadian Contractual Interpretation Law, 4th ed. (Toronto: LexisNexis, 2020), at p. 112. If, after considering the text and the factual matrix, the contract remains ambiguous, then subsequent conduct evidence may be admitted to help resolve that ambiguity: Shewchuk, at para. 46. As Lambert J.A. put it in Re Canadian National Railways and Canadian Pacific Ltd. (1978), 1978 CanLII 1975 (BC CA), 95 D.L.R. (3d) 242, (B.C.C.A.), aff’d, 1979 CanLII 229 (SCC), [1979] 2 S.C.R. 668, at para. 82:

In Canada the rule with respect to subsequent conduct is that if, after considering the agreement itself, including the particular words used in their immediate context and in the context of the agreement as a whole, there remain two reasonable alternative interpretations, then certain additional evidence may be both admitted and taken to have legal relevance if that additional evidence will help to determine which of the two reasonable alternative interpretations is the correct one. [Emphasis added.]

[19] Subsequent conduct evidence may be probative because it can shed light on “the meaning the parties gave to the words of their contract after its execution”, which “may support an inference concerning their intentions at the time they made their agreement” (emphasis in original): Shewchuk, at para. 48. However, relying on evidence of subsequent conduct poses certain risks, and can “be an unreliable guide to the parties’ intent at the time they entered into an agreement”: Thunder Bay (City) v. Canadian National Railway Co., 2018 ONCA 517, 424 D.L.R. (4th) 588, at para. 63. Parties’ conduct may change overtime, the evidence itself may be ambiguous, and parties may deliberately conduct themselves in a manner consistent with their preferred interpretation of the contract: Shewchuk, at paras. 43-45.

[20] In light of the dangers subsequent conduct evidence poses, once it has been admitted, the court should carefully consider what weight to assign to it. Such evidence “will be more reliable if the acts it considers are the acts of both parties, are intentional, are consistent over time, and are acts of individuals rather than agents of corporations”: Shewchuk, at para. 53. This evidence may also be given greater weight if it is “unequivocal in the sense of being consistent with only one of the two alternative interpretations of the contract” and if it is closer in time to the contract’s execution: Shewchuk, at paras. 54-55.

What does the cost sharing provision mean?

[49] The cost sharing provision found in Schedule B to the subdivision agreement is the starting point for the analysis: (see para. 15 above). That provision must be considered in the context of the whole agreement.

[50] The subdivision agreement was required by Arris to secure municipal approval to subdivide and develop its proposed subdivision. That proposed subdivision included eleven lots fronting on Arthur St. (lots 13-23). Servicing was needed for those lots, absent which they could not be developed and built upon.

[51] Pursuant to the cost sharing provision, Arris agreed to fund 100 percent of the servicing costs for Arthur Street in front of lots 13-23. In return for doing so, it obtained a commitment from the municipality that the municipality would charge, collect, and remit half of that cost with interest when the lands on the opposite side of Arthur St. were developed or built on.

[52] I agree with Respondent’s counsel that the agreement did not require the municipality to pay directly when the lands opposite were developed; rather, the municipality would charge the developer of those lands and it is that developer who would pay to the municipality their share of those costs. The municipality acted as a conduit for obtaining the monies and remitting them for which it would receive a fee.

[53] The key provision is headed “Cost Sharing”, and the clause in question requires the Town to charge against the lots on the opposite side of the street “their share” of the costs incurred by Arris.

[54] The Respondent submits that it is self-evident or implicit that cost sharing assumes that the developer/builder on the lands on the other side of Arthur St. would benefit from the servicing already installed. No developer or builder would expect or agree to pay for past servicing costs that provide no benefit to the new lands being developed. They should not contribute to that expense any more than they would contribute to unrelated servicing costs incurred more remote from the subject property.

[55] The Respondent also points to the later subdivision agreement with G.A. Spence & Sons (see para. 22 above) in which reference is made to the assessment of costs incurred “which are of direct benefit to the future development of” the adjacent properties. There, the wording used expressly references “direct benefit”.

[56] The Applicant submits that the absence of that same language in the Arris subdivision agreement means a different intention by the parties to that agreement. Alternatively, I should not use the later agreement to interpret the Arris subdivision agreement. Arris was not a party to that agreement.

[57] I agree that the G. A. Spence agreement cannot and should not be used to interpret the Arris subdivision agreement. It is an agreement to which Arris was not a party and there is no evidence that it was consulted or informed of the terms before it was signed. Likewise, there is no evidence that it agreed to the characterization set out in the agreement. The absence of evidence that Aris ever objected to that provision does not equate to agreement with it.

[58] The Applicant submits that the cost sharing clause in the Arris subdivision agreement does not expressly require that the development on the new lands tie into or benefit from the servicing installed by Arris. The clause simply requires the municipality to charge when an application to subdivide is made or a building permit is requested. It was open to the municipality to insert a condition regarding benefit, but it did not. If there is a shortcoming in the drafting, the clause should be interpreted in favour of the Applicant since the agreement is a standard form agreement used by the Respondent.

[59] I disagree with the latter point. There is insufficient evidence to make any finding that the subject agreement was a standard form agreement used by the municipality and imposed on the subdivider, Arris. No evidence was adduced as to the origins of the agreement nor with respect to the negotiations that led to same.

[60] I agree that the clause does not expressly state that the obligation to charge, collect, and remit arises only if the developer/builder obtains a benefit from the servicing installed by Arris. It contemplates “cost sharing” and the developer of the lands opposite paying “their share”. What does that encompass?

[61] The Concise Oxford English Dictionary, 12th ed. (Oxford, UK: Oxford University Press, 2011) defines “share” to mean:

1. [noun] A part or portion of a larger amount which is divided among or contributed by a number of people… 2. The allotted or due amount of something expected to be had or done. [verb] 1. Have a share of with another or others. – possess in common with others – have a part in (an activity).

[62] In my view, the words “cost sharing” and “their share” as used in this agreement contemplate a scenario where the lands opposite are to be developed or built upon and the developer/builder contributes to the original cost of servicing because they derive a benefit from same. If the lands opposite are to be developed such that the lots or buildings only back onto Arthur St. and servicing is provided through entirely new lines that run under new roads installed, it would be unreasonable to expect the developer/builder in that circumstance to contribute to the costs for Arthur St. from which they gain no benefit and impose no burden. “[T]their share” must import an element of fairness and reasonableness. It would be manifestly unfair to the developer/builder to pay for something they gain no tangible benefit from.

[63] Put another way, the notion of “sharing” incorporates the expectation that the person being required to pay has, in some way, benefitted from the expense incurred by the original developer. The reasonable expectations of the parties and their intent was for Arris (now Huber) to recover its upfront servicing costs from the developer of the lands opposite on Arthur St. because that developer would use that servicing without the need to incur that cost on its own.

[64] I note that the Applicant does not contend that the developer of the lands on Street C (the extension of Henry St.) obtained some benefit from the services installed on Arthur St. There is no evidence that, for example, the water lines installed on the Henry St. extension are supplied by the water pipe on Arthur St.

[65] This construction is consistent with rationale underpinning development charge conditions generally. In Eastpine Kennedy-Steeles Limited v. Markham (Town), 2004 CanLII 28228 (ON SCDC), Campbell J. wrote at para. 31:

The Underlying Policy

[31] As noted by the Board, above, a simple principle underlies all three regimes, the pre-statutory “best efforts” regime and the 1989 and 1997 Development Charges Acts. The principle of proportionate sharing flows from the reality that development may take place over a period of time so that the roads and sewers and other infrastructure installed by one developer may directly benefit later developers who would become obliged to absorb their proportionate share of the cost from which they benefited.

[66] The construction proposed by the Applicant is a literal reading divorced from commercial sense. It requires the municipality to force a developer or builder to pay when there is no reason for them to do so. If the shoe were on the foot and it was Huber developing the vacant lands with no prior connection to the Arris subdivision, would Huber agree to pay for servicing it did not need and would not have installed for its development? Of course not, but that is the effect of the Applicant’s position: the Respondent should impose such a charge. That makes no sense in the context of the purpose of the agreement and does not make good business sense.

[67] Alternatively, and if necessary, I would find that there is a gap not contemplated by the parties when they drafted their agreement: what if the new development did not use and did not benefit from the servicing installed by Arris?

[68] A court may imply a term into a contract where it is necessary to give business efficacy to the agreement: Canadian Pacific Hotels Ltd. v. Bank of Montreal, 1987 CanLII 55 (SCC), 1987 CarswellOnt 760 (S.C.C.) at paras. 54-55. The applicable test is sometimes referred to as the “officious bystander” test; viz. had an officious bystander drawn the matter in issue to the attention of the parties, the parties would have agreed that the contract should provide for its resolution by the implied term. Put another way, the implied term is necessary to give effect to the reasonable expectations of the parties: Venture Capital USA Inc. v. Yorkton Securities Inc., 2005 CanLII 15708 (ON CA), [2005] O.J. No. 1885 (ON CA) at para. 31.

[69] In these circumstances, I am satisfied that if an officious bystander had drawn the prospect that the lands opposite could and would be developed so as not to use or connect to the Arthur St. servicing, the parties would readily have understood and agreed that in those circumstances, no contribution could or would be charged. Such a charge would be unreasonable.

[70] Given my interpretation of the cost sharing provision, there was no triggering event that required the municipality to charge and collect. The lands opposite lots 23 and 22 in the Arris subdivision did not gain any benefit, direct or indirect, from the original servicing installed by Arris – or at least there is no evidence that they did. Accordingly, the municipality’s obligation under the cost sharing provision was not engaged. As a result, there is no breach of contract and no damages have accrued for breach of contract.

[71] It is unnecessary to consider the Respondent’s alternative arguments with respect to the effect of changes to the planning regime on the municipality’s ability to impose the cost sharing obligation on any developer. I observe only that even if it no longer controls the approval process and cannot impose cost sharing as a condition of development approval because that role rests with the County Council, the Respondent may nevertheless have a duty to advocate for the imposition of such charges or, at a minimum, to draw the agreement to the attention of those responsible for such decisions. If the developer/builder on the lands opposite does tie into and use the services installed by Arris and cost sharing is not a condition of development, it remains open to Huber to claim for unjust enrichment at that point: see Guaranty Properties Limited v. Edmonton (City), 1998 ABQB 68 and the Ontario cases cited therein.

Has the Respondent been unjustly enriched?

[72] The Applicant submits in the alternative, that the Respondent municipality has received a windfall. It has been unjustly enriched to the extent that it obtained municipal servicing for which it paid nothing. This is so whether the obligation to impose the charge was not triggered as above or because the municipality lacks the legal authority to impose the charge due to changes to the planning regime in Ontario. Regardless the reason, Arris paid to install servicing which benefitted the municipality, and there is no juristic reason for the Respondent to obtain such a windfall.

[73] I observe first that the vast majority of the lands opposite the lots in the Arris subdivision on Arthur St. remain agricultural land just as it was when the Arris subdivision was created. If that land use changes and those lands are developed, the subdivision agreement may be triggered. That developer may well be required to contribute to the upfront servicing costs if it derives a benefit from them. The Respondent would undoubtedly draw the fact of the agreement and its terms to the attention of the approving authority, and the Applicant may do likewise. It is premature to conclude that Huber will receive nothing toward its servicing costs from future development along Arthur St.

[74] The Applicant has calculated the cost sharing portion of the servicing costs for Arthur St. with accrued interest to be $331,800. The lands affected by the new development comprise 9.8% of the length of Arthur St. for which cost sharing applies. Thus, the amount alleged payable by the Respondent is approximately $33,472 which is undoubtedly subject to some further adjustment to reflect the passage of more time.

[75] Suffice to say that the Applicant seeks, at a minimum, reimbursement from the Respondent for that portion of the servicing costs attributable to the lands on Arthur St. opposite lots 23 and 22 based upon unjust enrichment.

[76] In Pacific National Investments v. Victoria, 2004 SCC 75, [2004] 3 S.C.R. 575, the Supreme Court summarized the elements required for a claim for unjust enrichment at paras. 13 and 14:

[13] The doctrine of unjust enrichment provides an equitable cause of action that retains a large measure of remedial flexibility to deal with different circumstances according to principles rooted in fairness and good conscience. This is not to say that it is a form of “palm tree” justice (Peel (Regional Municipality) v. Canada, 1992 CanLII 21 (SCC), [1992] 3 S.C.R. 762, at p. 802) that varies with the temperament of the sitting judges. On the contrary, as the Court recently reaffirmed in Garland v. Consumers’ Gas Co., [2004] 1 S.C.R. 629, 2004 SCC 25, a court is to follow an established approach to unjust enrichment predicated on clearly defined principles. However, their application should not be mechanical. Iacobucci J. observed that “this is an equitable remedy that will necessarily involve discretion and questions of fairness” (para. 44).

[14] As accepted by the courts in British Columbia, the test for unjust enrichment has three elements: (1) an enrichment of the defendant; (2) a corresponding deprivation of the plaintiff; and (3) an absence of juristic reason for the enrichment (Rathwell v. Rathwell, [1978] S.C.R. 436, at p. 455; Pettkus v. Becker, 1980 CanLII 22 (SCC), [1980] 2 S.C.R. 834, at p. 848; Peter v. Beblow, 1993 CanLII 126 (SCC), [1993] 1 S.C.R. 980, at p. 987; Pell, supra, at p. 784; Garland, supra, at para. 30).

[77] Enrichment and corresponding deprivation are determined by a straightforward economic approach. They may comprise a tangible benefit or relief from an expense that the defendant would otherwise have incurred: Pacific National Investments, at para. 15.

[78] The final element of the cause of action is the absence of any juristic reason for the benefit obtained. There are two stages to the juristic reason inquiry:

1. Stage 1: the claimant must show that there is no juristic reason within the established categories that would deny recovery. Those categories include the existence of a contract, disposition of law, donative intent, and other valid common law, equitable or statutory obligation.

2. Stage 2: if the claimant is successful at stage one, the onus shifts to the defendant to rebut the claimant’s prima facie case by showing that there is some other valid reason to deny recovery. The court must have regard to the reasonable expectations of the parties and public policy considerations.

(See Pacific National Investments, at paras. 23-25, citing Garland, at paras. 44-46.)

[79] Here, Arris paid 100% of the municipal servicing costs along Arthur St. That servicing was necessary for the lots on Arthur St. within the Arris subdivision. I infer that the servicing installed was more than was strictly needed for the Arthur St. lots in the Arris subdivision It was sized to allow for prospective growth. That is why the agreement contemplated that Arris would bear only half of that cost.

[80] The municipality paid nothing for the road and servicing installed. The municipality now owns those improvements. However, that result is a by-product of the subdivision agreement. Pursuant to that agreement, it was always understood and intended that the municipality would obtain the servicing at no direct cost to it. Thus, there is an established category of juristic reason for the benefit received by the municipality – a contract.

[81] Huber relies on the decision in Pacific National Investments. In that case, the City and developer entered into an agreement that provided that the developer would build roads, parkland, walkways, and a new seawall. That work was done at a cost of $1.08 million. It was a condition precedent to the City rezoning 22 acres to permit the residential and commercial uses contemplated by the developer’s project. After the improvement were made and the developer had applied for building permits, it learned that the City had actually down-zoned the lots which prevented the developer from building two stories of residential condominiums that were part of the project.

[82] The developer sued for breach of contract. That claim went to the Supreme Court of Canada. The City was successful because under provincial law governing municipalities at the relevant time, the City lacked the statutory authority to make and be bound by an implied term to keep the zoning in place to allow the project to be completed. Any such understanding/agreement was ultra vires the City.

[83] The developer then sued for losses based on unjust enrichment. The developer succeeded at trial. The Court of Appeal overturned the trial decision, and the Supreme Court restored the trial decision. Although the agreement between the City and developer was ultra vires, the trial judge found those arrangements resulted from a common mistake. The Supreme Court held that the presence of the common mistake was critical to the outcome. If there had been only an ultra vires arrangement, a different result might have ensued. The Supreme Court found that neither party expected the developer to donate the improvements and it was not a sweetener for which the developer got something. The City was found liable for the cost of the improvements.

[84] The Pacific National Investments case is materially distinguishable on its facts from the case before me:

1. The Respondent municipality has withdrawn the defence of ultra vires. It does not say that it had no lawful authority to enter into the subdivision agreement; in fact, it relies on the agreement.

2. The developer, Arris, went ahead with its development as planned and as contemplated by the subdivision agreement.

3. The municipality did not alter its approval of the subdivision after the servicing was installed. It did not down-zone lots which reduced the value of the development.

4. The servicing installed on Arthur St. is exactly as agreed by the parties in the subdivision agreement. The subdivision agreement provided that unknown future developers would contribute to the cost of the servicing, not that the municipality would pay.

5. The decision of the developer on Street C not to connect to or use the Arthur St. servicing – to install separate servicing for those units – is beyond the control of the Respondent. There is no evidence that the Respondent directed or influenced that decision.

[85] For the reasons above, the claim for unjust enrichment fails.

Conclusion

[86] I conclude as follows:

1. The obligation on the Respondent in the subdivision agreement to seek reimbursement from a developer/builder on the lands opposite the Arthur St. Arris subdivision applies only if the developer/builder connects to and/or derives a benefit from the Arthur St. servicing improvements installed by Arris.

2. That obligation was not triggered by the development opposite lots 23 and 22 on Arthur St.

3. The Respondent did not breach the subdivision agreement.

4. The Applicant’s claim for unjust enrichment fails because there is an established category of juristic reason for the benefits received by the Respondent – a contract.

5. Any claim relating to the servicing costs for the remainder of Arthur St. per the subdivision agreement is premature.

[87] If the parties cannot agree on costs, they may make written submissions not exceeding 3 pages within 21 days hereof.

Justice R. Raikes

Date: October 5, 2022