COURT FILE NO.: CV-14-00010695-00CL

DATE: 20231212

SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

AND:

IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT WITH RESPECT TO U.S. STEEL CANADA INC.

BEFORE: Penny J.

COUNSEL: Crawford Smith, David Ionis and Katelyn Johnstone for DGAP Investments Ltd.

Geoff Hall and Saneea Tanvir for Stelco Inc.

Richard Swan and Raj Sahni for Ernst & Young Inc., the Court-Appointed Monitor and Land Restructuring Officer

HEARD: November 6, 2023

REASONS For decision

Overview

[1] Stelco Inc. was ordered by this court to specifically perform its obligation to reconvey certain land (the “Planning Act Lands”) to a special purpose entity called LandCo under a reconveyance agreement. It has not done so. The stumbling block is a provision of the reconveyance agreement (article 4.1(m)), which requires the parties to “enter into such shared facilities and/or reciprocal easement agreements required for the operation of the Planning Act Lands and the balance of the Property [the land owned and retained by Stelco (the “Stelco Lands”)]” (I will refer to this provision of the reconveyance agreement as the “reciprocal easement provision”).

[2] DGAP Investments Ltd. (“DGAP”) entered into an agreement with LandCo to purchase certain portions of the Planning Act Lands. Thus, the “DGAP Parcel” is a subset of the Planning Act Lands, all subject to the reconveyance agreement. For reasons explained later in these reasons, DGAP is the only party with a relevant economic stake in the DGAP Parcel, other than Stelco.

[3] Having failed to achieve a negotiated resolution to the reciprocal easement provision dispute with Stelco, DGAP brings a motion for an order interpreting the reciprocal easement provision and determining what, if any, form of shared facilities and/or reciprocal easement agreements Stelco is entitled to in the circumstances. DGAP also asks that its proposed form of easement agreement be approved and imposed by the court.

[4] For reasons I will explain below, the motion is granted in part. The disputed terms and conditions of reconveyance under the reciprocal easement provision being sought by Stelco do not constitute “shared facilities and/or reciprocal easements” within the meaning of article 4.1(m) of the reconveyance agreement. As such, Stelco’s disputed terms and conditions can not and will not form part of any shared facilities and/or reciprocal easement agreements. The court retains the authority to impose terms and conditions to bring about the reconveyance of the DGAP Parcel.

[5] Whether Stelco, with the benefit of these directions from the court, should be bound to the form of easement agreement proposed by DGAP (or some other mutually acceptable agreement) I will not determine at this point. But, given my conclusion that Stelco’s disputed easement demands are not available to it under the terms of the reconveyance agreement, Stelco’s alternatives to finding common ground on the undisputed easement provisions are to have an easement agreement imposed or to have no easement agreement at all.

[6] One way or another, this issue will be resolved by the parties by February 29, 2024, failing which the court will determine what, if any, terms and conditions of reconveyance will be imposed.

Background

[7] The background to the present problem was exhaustively canvassed in the December 19, 2022 decision of McEwen J. in this matter (2022 ONSC 6993). I will try to outline in simple terms, without repeating all the details, how the parties arrived at the current imbroglio.

[8] Faced with severe financial constraints following its acquisition of Stelco in 2007, by 2013 U.S. Steel was in trouble. Among other things, U.S. Steel “resorted to underfunding its pension obligations.” It applied for and was granted an initial order under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 in 2014. Bedrock Industries became the purchaser and plan sponsor in these CCAA proceedings following a sale and investment solicitation process.

[9] A plan of compromise was approved by the stakeholders and by the court. Among other things, under the terms of that plan, U.S. Steel was restructured and renamed Stelco. Most of U.S. Steel’s real estate was transferred to a land vehicle, ultimately owned by the employee, retiree and pensioner stakeholders, referred to as LandCo. The Monitor was appointed as the Land Restructuring Officer (“LRO”), whose role was to provide governance and administration of the lands held by LandCo for the benefit of these stakeholders.

[10] Some of these lands were leased back to Stelco for its ongoing operations in two locations: the Hamilton Works on Hamilton Harbour and the Lake Erie Works in Haldimand County on Lake Erie. The remaining LandCo lands were intended to be monetized for the benefit of the stakeholders.

[11] In 2018, negotiations between Stelco and the stakeholders occurred that resulted in a proposal by which Stelco would acquire the leased lands as well as certain additional acreage in Hamilton and in Haldimand County. The lease would be replaced by a mortgage for the purchase price of about $114.1 million ($69.5 million for the Hamilton lands and $44.6 million for the Lake Erie lands). The lands not purchased by Stelco (approximately 4,300 acres) would remain with LandCo for the benefit of the stakeholders.

[12] However, there were parcels of LandCo land in Hamilton and at Lake Erie that, because of the operation of the Planning Act, R.S.O. 1990, c. P.13 (“Planning Act”), could not be separated from the lands being sold back to Stelco without Planning Act consents to severance being first obtained. As a result of this problem, it was agreed that these LandCo lands, the Planning Act Lands, would be conveyed to Stelco without consideration. Under the terms of the reconveyance agreement, it was Stelco’s obligation to obtain Planning Act consents for the required severances and then to reconvey the Planning Act Lands to LandCo, again without consideration.

[13] The court approved the proposed amendments to the plan of compromise, including this transaction, and the reconveyance agreement.

[14] Following approval of the amended plan, LandCo began a marketing and sales process regarding the Planning Act Lands, including what became the DGAP Parcel. Ultimately, in February 2021, the Monitor determined that DGAP’s offer to purchase the DGAP Parcel (and certain other Planning Act Lands that are not in dispute) was the best economic offer. LandCo and DGAP entered into an agreement of purchase and sale for approximately 4,150 acres, including the DGAP Parcel. The DGAP Parcel comprises about 1,963 acres that abuts the western flank of Stelco’s Lake Erie Works.

[15] In March 2021, the Monitor brought a motion for court authorization to enter into the sale to DGAP. This was granted. Stelco did not oppose that motion, nor did it ever take any steps to appeal, vary or set aside that order.

[16] By June 2021, LandCo and DGAP realized that the DGAP Parcel had not yet been severed in accordance with the reconveyance agreement. The Monitor contacted Stelco’s counsel. Stelco indicated it was working on the severance consents for all the Planning Act Lands. In November 2021, Stelco filed its severance application. Following a hearing, the Haldimand County Committee of Adjustment approved the severance application in January 2022. The appeal period expired and that decision became final and binding in February 2022.

[17] As McEwen J. noted, difficulties began in February 2022 when Stelco apparently learned that DGAP intended to develop the DGAP Parcel for both industrial and residential uses. This proposed development, for which rezoning and other approvals would be required, was regarded by Stelco as an “existential threat” to its Lake Erie Works operations. Stelco took the position that, under the terms of the reconveyance agreement, it was entitled to purchase the Planning Act Lands, thus terminating the DGAP sale agreement.

[18] The Monitor and the stakeholders disagreed. The parties were at a stand off. This prompted the Monitor to bring a motion seeking an order for specific performance to compel Stelco to reconvey the Planning Act Lands, including the DGAP Parcel, to LandCo under the terms of the reconveyance agreement.

[19] In lengthy and detailed reasons (2022 ONSC 6993), McEwen J. found that Stelco had breached the reconveyance agreement by failing to reconvey the Planning Act Lands. He found that Stelco did not have the right to purchase those lands, including the DGAP Parcel. To the contrary, he held that, in the circumstances, the appropriate remedy for Stelco’s breach was an order for specific performance.

[20] In the courser of his analysis, McEwen J. made several key findings relevant to the current dispute. These included:

• the provisions of the CCAA are still applicable to all issues related to the performance of the reconveyance agreement (para. 40);

• it would be contrary to the purpose and spirit of the CCAA if Stelco could employ the CCAA to effect a restructuring and thereafter, during implementation of the restructuring, no longer be bound by the CCAA. This would provide Stelco with all of the benefits and none of the obligations in the Act (para.43);

• Stelco refused to comply with its obligations under the reconveyance agreement because it was “unhappy with [DGAP’s] development plans” (para. 103);

• section 11 of the CCAA provides the court with broad jurisdiction to make “any order that it considers appropriate in the circumstances”. The court should take advantage of the flexibility and discretion granted by the CCAA to oversee the completion of the severance and reconveyance of the Planning Act Lands (para. 218);

• the court has the authority to order specific performance of those portions of the reconveyance agreement that are required to complete the reconveyance of the Planning Act Lands, including the DGAP Parcel (para. 221);

• Stelco’s argument that the court should not end up “supervising the negotiation of the” reciprocal easement provision has no merit. The court is “well suited to perform such a role”. This court has “previously overseen much more complex and difficult negotiations in CCAA proceedings” (para. 227);

• it is fair and reasonable that the court “stay on and see the reconveyance completed where Stelco has breached the Reconveyance Agreement (para. 228);

• the employees, retirees and pensioners want to see a fair and reasonable resolution to this dispute. The Planning Act Lands can be “reconveyed and sold with the benefit passed on to them. It is the simplest and fairest way forward” (para. 229);

• while Stelco may be upset with DGAP’s redevelopment plans, the CCAA proceedings is “not the forum in which that dispute ought to be entertained. Stelco will have the opportunity under the Planning Act to oppose whatever rezoning efforts” are made by DGAP (para. 230);

• the CCAA proceedings were invoked by Stelco itself and used for its own benefit. Stelco should “[live] up to the obligations it took on”. This includes “completion of the portions of the Reconveyance Agreement necessary to convey” the Planning Act Lands to LandCo (para. 231).

[21] Stelco sought a stay of McEwen J.’s order and leave to appeal to the Court of Appeal. Both the stay and the motion for leave were denied. Thorburn J.A. did not agree with Stelco that there were any “serious issues to be determined on appeal.” A full panel of the Court of Appeal denied Stelco’s motion for leave to appeal. The court was not satisfied, among other things, that the proposed appeal was prima facie meritorious.

[22] Following its unsuccessful pursuit of the appeal option, Stelco took a different tack. It entered into negotiations with the stakeholders and the Monitor to acquire the stakeholders’ interest in LandCo by way of a securities purchase agreement (SPA). This had the benefit to the stakeholders of immediately achieving the monetary benefits of the amended plan of compromise by immediately monetizing the value of the lands subject to the reconveyance agreement.

[23] Stelco’s motion for an order authorizing the Monitor to complete the SPA transaction was granted by McEwen J. in reasons dated May 5, 2023 (2023 ONSC 2579). McEwen J. found that a key feature of the plan of compromise was to monetize the lands held by LandCo for the benefit of the pension plans. The SPA would accomplish that objective and enable the stakeholders, who are an aging demographic, to enjoy the benefits of the plan and to extricate themselves from bitter and costly litigation between Stelco and DGAP over the purchase agreement for the DGAP Parcel.

[24] DGAP argued that this was yet another strategy by Stelco to frustrate DGAP’s acquisition of the DGAP Parcel. McEwen J. rejected this argument. Nothing, he said, had happened that would frustrate the completion of the reconveyance agreement or the completion of the DGAP sale agreement. Stelco gave an undertaking acknowledging that if the SPA were concluded, DGAP would be entitled to raise any positions that LandCo could have raised. Ongoing court involvement with the assistance of the Monitor and Stelco’s undertaking were sufficient to address DGAP’s concerns. The parties were directed to continue negotiating in good faith toward the completion of the reconveyance agreement and the DGAP sale agreement.

[25] DGAP’s motion for a stay pending a motion for leave to appeal to the Court of Appeal was denied. Pepall J.A. rejected DGAP’s argument that Stelco would use its acquisition of LandCo under the SPA to avoid its obligation to reconvey the DGAP Parcel and upend DGAP’s sale agreement. Stelco was bound by its undertaking. The SPA (concerning ownership of LandCo) was completely separate and distinct from the DGAP sale agreement for the purchase of the DGAP Parcel from LandCo. The CCAA proceedings would continue to be closely supervised. Importantly, she found that “both Stelco and DGAP conceded that the agreements contemplated in Article 4.1(m) of the Reconveyance Agreement could be determined by the Commercial List judge if the parties could not reach agreement.”

[26] DGAP returned before McEwen J. in July 2023 seeking an order that any reference to “shared facilities and/or reciprocal easement agreements” in the reconveyance agreement has been complied with or, alternatively, an order approving the form of easement agreement proposed by DGAP.

[27] In his decision on that motion (2023 ONSC 4035), McEwen J. reiterated that it was “entirely consistent with the objectives of the CCAA to make the necessary orders to complete the reciprocal easement agreements required to effectuate the Reconveyance Agreement.” He rejected Stelco’s argument that, if there was an impasse, the court should not intervene and should instead merely allow for indefinite negotiations to take place. Such an approach would be the “antithesis” of the entire purpose of the CCAA.

[28] That said, McEwen J. was concerned that much of the material on the motion was filed at the last minute, such that issue had not properly been joined between the parties and he, as the presiding judge, had not had the opportunity to properly review and understand the competing positions of the parties. In addition, McEwen was not satisfied that Stelco and DGAP had exhausted negotiations over the reciprocal easement issue. He concluded that the record was not sufficiently developed to conduct the necessary analysis to determine the form of the remedy for the reciprocal easement issue.

[29] In the end, McEwen J. adjourned the DGAP motion to a further case conference before me on August 2, 2023 (Justice McEwen retired at the end of June 2023). McEwen J. held that the reciprocal easement issue should be resolved before the completion of the DGAP sale agreement. He directed CEO to CEO negotiations to continue in the meantime and stayed the outside date by which the DGAP sale agreement was to be completed.

[30] At the August 2, 2023 case conference, I scheduled the reciprocal easement motion for November 6, 2023.

The Reciprocal Easement Provision

[31] The dispute involves the meaning and effect of article 4.1(m) of the reconveyance agreement. That article provides:

4.1 Reconveyance

Transfer of the Planning Act Lands by Stelco to LandCo shall be on the following terms and conditions:

(m) on the Reconveyance Date, LandCo and Stelco shall enter into such shared facilities and/or reciprocal easement agreements required for the operation of the Planning Act Lands and the balance of the Property, which shared facilities and/or reciprocal easement agreements shall be settled by the Parties prior to the Reconveyance Date.

The Disputed “Shared Facilities and/or Reciprocal Easement” Terms and Conditions Sought by Stelco

[32] DGAP takes the position that there are no shared facilities or reciprocal easements “required” under the reconveyance agreement. Notwithstanding this formal position, DGAP sought to engage in good faith discussions with Stelco and offered various easements. It did so on a “with prejudice” basis. Between May and June 2023, DGAP and Stelco attended in-person and virtual meetings and exchanged draft easement proposals. DGAP sent the most recent draft of DGAP’s proposed easement agreement to Stelco on May 22, 2023. This draft was prepared by DGAP to address requests and concerns raised by Stelco during the easement negotiations. DGAP takes the position that its proposed easement agreement goes well beyond what is contemplated in the reconveyance agreement. It has offered a separate Industrial and Mining Lands Compensation Act agreement. DGAP has also offered easements over land parcels DGAP has separately acquired under its sale agreement (“Additional Lands”) —land that is distinct from the DGAP Parcel and therefore not subject to Stelco’s claimed easement entitlement under article 4.1(m) of the reconveyance agreement at all. This was done, DGAP says, with the hope that a resolution could be achieved. The easement proposal offered on May 22 is, however, “as far as DGAP can go.”

[33] Stelco’s response to the DGAP proposal is summarized in a chart included in para. 8 of Mr. Kestenbaum’s September 22 affidavit. I will focus on the five areas that DGAP says are completely unacceptable and cannot be justified by the language of article 4.1(m). They are:

• “Utilities Easement” An easement benefiting Stelco’s lands for existing, and all enhancements, upgrades, replacements or expansion of or to any and all pipes, lines, potable water mains, industrial water mains, power lines, channels, conduits and other infrastructure for sanitary sewers, storm drains, steam, gas (including natural gas, nitrogen, oxygen, carbon dioxide, hydrogen, coke oven gas, pseudo gas and other industrial gases), electricity, electrical ducts and substations, industrial process water, municipal water, industrial waste water, industrial sewers, fibre optic conduits and transmission lines, and other utilities.

• “Sequestration Easement” An easement benefiting Stelco’s lands for the purpose of permitting Stelco to: (A) conduct comprehensive geological, geotechnical and seismic fieldwork and testing; (B) conduct subsurface borehole drilling, sampling, testing and analysis; and (C) construct, install, operate and maintain, and to have access to, carbon sequestration equipment, infrastructure and associated utilities for the purpose of carbon sequestration, subject to the following:

(i) the location of each of the items or systems of sequestration equipment and infrastructure on the Planning Act Lands and Additional Lands shall be set out in a written election delivered by Stelco to DGAP;

(ii) all sequestration equipment shall be constructed, installed, operated and maintained at the sole cost and expense of Stelco;

(iii) utilities connections to and from the sequestration equipment and infrastructure shall be effected by and through the Utilities Easement; and

(iv) regulations in Ontario shall have been proclaimed in force permitting the carbon sequestration activities described in subclause (C) above.

• “Emissions Easement” An easement benefiting Stelco lands for the purposes of permitting Stelco to continue to emit, discharge, vent and release, at any time during the day or night, gaseous, particulate and other contaminants into the air over, through and across the Planning Act Lands and Additional Lands arising from, out of or in connection with the present and future operations of Stelco from the Stelco lands, including any noise, light, vibrations, fumes, odours, dust, smoke, hazardous substances, or any other nuisance, provided that any such emissions are permitted under any current or future environmental compliance approvals used under applicable law, site specific standards or any other permit under applicable law. In addition, Stelco would be entitled to seek to obtain a designation that the Stelco Lands and the Planning Act Lands and Additional Lands will be treated as and deemed to be a single property for the purposes of compliance with Ontario Regulation 419/05, such that Stelco’s point of impingement will be determined based on the combined area of the Stelco lands and the Planning Act Lands and Additional Lands.

• “Nuisance Easement” An easement benefiting the Stelco lands prohibiting any future owner, tenant or occupant of the Planning Act Lands and Additional Lands from making any trespass, negligence, strict liability, nuisance claim, claim of infringement of quiet enjoyment of the lands or similar tort claim in respect of the rights or easements granted in favour of Stelco.

• “Restrictive Covenant” Title to all the Planning Act Lands and Additional Lands shall contain a restrictive covenant binding on all future transferees, whereby the owner and any successor owners , residents or lessors fully and forever release Stelco and its successors in title from any and all actions, causes of action, proceedings, claims, damages and demands of every nature and kind, including with respect to any loss in value, damage, trespass, negligence, strict liability, nuisance or similar tort claims arising from the rights and easements benefiting Stelco.

Stelco’s Position

[34] Stelco’s fundamental position is that “it is not the function of the court to rewrite a contract for the parties.” The court “cannot make a new agreement” for the parties. Contract formation is a matter of freedom of contract and individual autonomy. Judicial imposition of a contract is anathema to these principles. Even if a judicially imposed contract would create “a very fair agreement and one calculated to do justice to both parties”, it is not something a court can order because “it is not the agreement the parties themselves reached or intended”. A court may not make an order that “amounts in fact to the making of a new contract for the parties.”

[35] From this starting point, Stelco submits that it would be “unprecedented, unwise and unfair” for the court to impose an easement agreement on Stelco against its wishes. On this basis, the DGAP motion should be dismissed and the parties told to return to the bargaining table.

[36] Stelco does, however, concede that a legitimate function of the court is to interpret contracts. In Stelco’s submission, the court could perhaps provide “guidance” on several issues: a) what does the expression “shared facilities and/or reciprocal easement agreements” mean? b) what does the expression “required for the operation of” the Planning Act Lands and the [Stelco Lands]” mean? c) is the “necessity” requirement to be assessed as of the date of the reconveyance agreement in June 2018 or the date on which the shared facilities and/or reciprocal easement agreements are being determined (i.e., now)? and d) do the disputed easements demanded by Stelco as a term of the reconveyance fall within the meaning of article 4.1(m)?

[37] Stelco takes the position that the necessity requirement must be assessed as of the date the shared facilities and/or reciprocal easement agreements are being determined (i.e., now). Stelco argues that the disputed easements it is seeking as a term of the reconveyance fall well within the meaning of article 4.1(m) and are required for its continued operations at the Lake Erie Works.

The Issues for Determination by the Court

[38] There are, in my view, three issues raised by the DGAP motion which require the court’s determination:

(1) Does the court have the authority to decide the terms and conditions of the reconveyance which Stelco has been ordered (by this court) to specifically perform?

(2) If the answer to issue #1 is yes, do the five disputed “easements” claimed to be required by Stelco qualify as “shared facilities and/or reciprocal easement agreements required for the operation of the Planning Act Lands and the balance of the Property”? and

(3) Depending on the answer to issues #1 and #2, should the DGAP form of easement agreement be approved by the court and imposed on the parties without Stelco’s consent or agreement?

Analysis

The Authority of the Court to Decide the Terms and Conditions of the Reconveyance

[39] In the ordinary case, there would be much force to Stelco’s argument about the role of the court in making rather than interpreting agreements. However, this is a highly unusual case.

[40] The very issue now raised by Stelco about the need for agreement on the terms and conditions of reconveyance (specifically, the “shared facilities and/or reciprocal easement agreements” in article 4.1(m)) was raised by Stelco before McEwen J. as a reason not to grant specific performance. Justice McEwen rejected that argument. He found that the court had the power to impose terms of an agreement under s. 11 of the CCAA (to make “any order that [the court] considers appropriate”). He found that Stelco’s argument about the court not getting involved in the negotiation or settling of terms of an agreement was without merit. The court, McEwen J. said, “remains in its supervisory capacity and is well suited to perform such a role.” Because Stelco had reaped the benefits of the CCAA (including the reacquisition of significant lands in 2018), it was “fair and reasonable that the court stay on and see the reconveyance completed”. The court must oversee “the orderly conduct of the CCAA process and compliance with orders made.” This involved ensuring that Stelco live up to its obligations, including “completion of the portions of the Reconveyance Agreement necessary to convey” the DGAP Parcel back to LandCo so that the DGAP purchase could be completed. Leave to appeal this decision was refused by the Court of Appeal.

[41] McEwen J. returned to this issue in his reasons adjourning DGAP’s motion in June 2023 (2023 ONSC 4035). Justice McEwen began his analysis by reiterating that s. 11 of the CCAA “confers authority upon this court to resolve the dispute between Stelco and DGAP concerning article 4.1(m) of the Reconveyance Agreement involving reciprocal easements.” He went on to say that it was “entirely consistent with the objectives of the CCAA to make the necessary orders to complete the reciprocal easement agreements required to effectuate the Reconveyance Agreement.” This would provide for a timely, efficient and impartial resolution of the issues and ensure the fair and equitable treatment of Stelco, DGAP and the stakeholders. McEwen J. rejected Stelco’s submission that “even where there is an impasse, this court should not intervene and [should] allow for indefinite negotiations to take place. In my view, such an approach would be the antithesis to the entire purpose of the CCAA.”

[42] Subsequent to this decision, the Court of Appeal refused DGAP’s motion for a stay of McEwen J.’s earlier decision approving the SPA and the sale of LandCo’s limited partnership units, held by the pension plans, to Stelco. In finding that no irreparable harm had been established, Pepall J.A. said, among other things, that “both Stelco and DGAP conceded that the agreements contemplated in Article 4.1(m) of the Reconveyance Agreement could be determined by the Commercial List judge if the parties could not reach agreement.”

[43] These findings are a complete answer to Stelco’s argument that the court can not, and should not, venture into any determination of the appropriate form of reciprocal easements required under article 4.1(m).

[44] Further, an order for specific performance is an equitable remedy. The order for specific performance was made by this court, and upheld by the Court of Appeal, with full knowledge that the terms of any reciprocal easements under article 4.1(m) had not yet been resolved. If Stelco could unilaterally frustrate the order for specific performance by insisting on whatever easement provisions it deems desirable, it would make a mockery of the court’s order; it would enable the “tail” of the easement provision to “wag the dog” of the order for specific performance. It is precisely this conundrum that drove McEwen J. (and the Court of Appeal) to reject Stelco’s arguments. If the parties cannot reach a consensual resolution of the terms of reconveyance under article 4.1(m), then the court not only can but must step in, exercise its equitable jurisdiction and cause to be done what ought to be done -- cause Stelco to specifically perform its obligation to reconvey the DGAP Parcel in accordance with the terms of the reconveyance agreement, including article 4.1(m).

[45] A determination by this court of the easements required to complete the reconveyance of the DGAP Parcel is not unprecedented. Such a result was specifically contemplated, not only by McEwen J., but by the Court of Appeal. Making this determination is not unwise. If the parties cannot come to terms, it is no longer an option to proclaim that there was never consensus ad idem on all essential terms and that there is no enforceable agreement. That possibility has been entirely precluded by Justice McEwen’s order for specific performance. And, such a determination is not unfair. Stelco undertook the obligation to reconvey the Planning Act Lands. It received very substantial benefits in exchange for doing so. Stelco had the opportunity to make its arguments before McEwen J. (effectively twice) and the Court of Appeal. Both courts rejected Stelco’s arguments. The court, as a result, can and indeed must intervene in the case of an impasse over the terms of reconveyance under article 4.1(m) to determine what those terms shall be.

Do the Disputed Easements Demanded by Stelco Fall Within the Language of Article 4.1(m)?

[46] In my view, Stelco’s disputed easements do not fall within the parameters of article 4.1(m) for two reasons. First, they do not meet the common law test for a valid easement at all. Second, and in any event, they do not fall within the requirements specified under article 4.1(m): shared facilities and/or reciprocal easements required for the operation of both the Stelco Lands and the DGAP Parcel.

Not Easements At Common Law

[47] An easement is an incorporeal hereditament, being an inheritable, non-possessory ownership interest in land. It is a right of usage over a property, which is described as the servient tenement, that is annexed to a parcel of land, which is described as the dominant tenement: 1832732 Ontario Corp. v. Regina Properties Ltd., 2018 ONSC 7643, at para. 41.

[48] Easements may be positive or negative. A positive easement grants to the owner of the dominant tenement the right to use the land of the servient tenement in a particular way that would, in the absence of the easement, be a trespass. Having an easement permits the owner of the dominant tenement to require the owner of the servient tenement to suffer some use on that land. A negative easement grants to the owner of the dominant tenement a right to prevent the owner of the servient tenement from using his or her land in a particular way. An example of a negative easement is an easement for building support. The effect of this easement is to enjoin the owner of the servient tenement from using his or her land in a way that would withdraw the support provided to the dominant tenement. The types of easements are not closed, and new examples may be created. However, there are few negative easements, and the law is reluctant to grant new ones. The work of negative easements is, practically speaking, more often performed by equity through its recognition of restrictive covenants: Regina Properties, at para. 42.

[49] Easements are often drafted in conjunction with restrictive covenants but the two are conceptually distinct creations of the law. The bargain struck in article 4.1(m) of the reconveyance agreement contemplates a particular form of one but not the other. This is consistent with my view of the limited role and purpose article 4.1(m) was intended to play, as discussed in more detail in the next section of these reasons.

[50] Where an easement is created by express grant or by express reservation in a grant, the nature and extent of the easement, including any ancillary rights, are determined by the wording of the instrument creating the easement, considered in the context of the circumstances that existed or were within the reasonable contemplation of the parties when the easement was created: Raimondi v. Ontario Heritage Trust, 2017 ONSC 3389, 84 R.P.R. (5th) 221; Laurie v. Winch, 1952 CanLII 10 (SCC), [1953] 1 S.C.R. 49.

[51] There are four essential characteristics of an easement:

(a) there must be a dominant and a servient tenement;

(b) the easement must accommodate the dominant tenement;

(c) the owners of the dominant and servient tenements must be different persons; and,

(d) a right over land cannot amount to an easement unless it is capable of forming the subject matter of a grant.

[52] That an easement is “capable of forming the subject matter of a grant” is not the full extent of the inquiry required by the fourth characteristic, however. The fourth characteristic also requires the court to consider the express terms of the grant to determine, among other things, whether the rights purported to be given by the grant are too wide or vague: Mihaylov v. 1165996 Ontario Inc., 2017 ONCA 116, 134 O.R. (3d) 401, at para. 85.

[53] In Ellenborough Park (Re), [1956] Ch. 131, [1955] 3 All E.R. 667 (Eng. C.A.), the court said, among other things, that the court had to consider the actual terms of the grant to determine whether “the rights purported to be given are expressed in terms of too wide and vague a character” and whether such rights “would amount to rights of joint occupation” or would substantially deprive the servient tenement owner of proprietorship or legal possession: cited in Mihaylov at para. 87.

[54] The present case engages the fourth requirement. Easements must be of a type recognized by the law, be defined with adequate certainty, and be limited in scope. An easement “cannot give exclusive possession or unrestricted use of a parcel of land”: Robinson v. Pipito, 2014 BCCA 200, 56 B.C.L.R. (5th) 1, quoted in Square-Boy Limited v. The City of Toronto, 2017 ONSC 7178, at para. 48. Easements are not recognized as enforceable if the nature of the permitted use or its dimensions are uncertain or unlimited in scope: Regina Properties Ltd., at paras. 49 and 64. The degree of occupation or possession, and whether that degree of occupation or possession is compatible with the existence of an easement, should be governed by the document conceding the grant.

[55] Stelco’s proposed utilities easement purports to give Stelco the right to construct any future utilities it wants, at any time, and over any part of the DGAP Parcel. The proposed rights of use are not defined with adequate—or any—certainty and are far-ranging in scope. Moreover, Stelco is not a utilities provider. It would be the utility service providers to Stelco who would potentially need easements, not Stelco itself. Utility service providers, unlike private parties, have many statutory and other powers to achieve necessary easements where they are required.

[56] Further, Stelco has not identified what, if any, utilities may be necessary in the future, where those utilities would be located, or what ancillary rights would be required in their construction and maintenance. Stelco is effectively seeking an easement over the entirety of the DGAP Parcel for any undefined utilities it may require for current or expanded operations on its property at any time in the future. This easement does not, in my view, meet the requisite level of certainty and has the potential to essentially eviscerate DGAP’s ownership interest in the land.

[57] The sequestration easement similarly lacks any meaningful definition and would inappropriately interfere with DGAP’s proprietary interest over its own property. When the reconveyance agreement was made, carbon sequestration was illegal in Ontario. While it is no longer banned outright, there is still no regulatory regime to govern how, where and when sequestration facilities might be permitted. Stelco’s sequestration easement is effectively a request for unrestricted future use of the entire DGAP Parcel. Stelco seeks an easement allowing it to, among other things, “construct, install, operate and maintain, and to have access to, carbon sequestration equipment, infrastructure and Utilities for the purpose of carbon sequestration.” There is no specificity as to what these facilities might be, how much land surface they will occupy or where they might be located. The proposed sequestration easement, on its face, encompasses a right to exclusive use of DGAP’s land—both surface and subsurface. This is incompatible with the fourth characteristic of an easement.

[58] Stelco’s requests relating to emissions designation, nuisance, and restrictive covenants are likewise not capable of being recognized easements. An easement is a “right of usage over a property”. Positive easements grant the owner of the dominant tenement the right to use the servient tenement in a particular way. Negative easements grant the owner of the dominant tenement a right to prevent the owner of the servient tenement from using their land in a particular way. These requests of Stelco fall into neither category.

[59] Regarding emissions designation, Stelco requests the ability to “seek to obtain a designation that the Stelco Lands and the Development Lands will be treated as and deemed to be a single property for the purposes of compliance with Ontario Regulation 419/05, such that Stelco’s point of impingement will be determined based on the combined area of the Stelco Lands and the Development Lands.” This is not a usage of land. It is not the proper subject of an easement. It is instead a technical, contractual request to assist Stelco in complying with its regulatory obligations. Stelco’s request to use the DGAP Parcel as part of its designation for emissions purposes is also detrimental to DGAP’s future use. This designation would negatively impact any future industrial operations on the DGAP Parcel involving emissions, as any review of the emissions permits for future users would have to exclude the area already being utilized in Stelco’s “point of impingement” calculation, which would have a high likelihood of reducing the emissions capacity available to future industrial users on the DGAP Parcel.

[60] Stelco’s nuisance “easement” is equally problematic. It requests an easement “prohibiting any owner, tenant or occupant of the Development Lands from making any trespass, negligence, strict liability, nuisance claim, claim of infringement of quiet enjoyment of the lands or similar tort claim in respect of the rights or easements granted in favour of Stelco.” This is not the proper subject of an easement. Stelco’s request impacts the non-proprietary legal rights of the future owners, tenants, or occupants of DGAP’s land. It seeks to preclude them from bringing claims against Stelco. It does not permit Stelco to use the DGAP land or restrict the occupants of DGAP’s land from using their land in a particular way.

[61] Finally, Stelco’s requests for restrictive covenants are also not easements. Stelco seeks releases from any successor owners, residents, or lessors, fully and forever releasing Stelco from “any and all actions, causes of action, proceedings, claims, damages and demands of every nature and kind”. Like the nuisance request, these restrictive covenants do not concern land usage and cannot be the subject of an easement.

Not Shared Facilities or Reciprocal Easements Required for Operation on Both Properties Within Article 4.1(m)

[62] It is well settled that commercial contracts must be read and interpreted in accordance with the following principles:

(a) the agreement must be read as a whole, 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;

(b) the court must determine the intention of the parties in accordance with:

(i) the language they have used in the written document, based upon the cardinal presumption that they have intended what they said;

(ii) objective evidence of the factual matrix reasonably known to both parties when the contract was made, without reference to the subjective intentions of the parties (without allowing surrounding circumstances to overwhelm the words of the agreement); and

(c) the agreement must be interpreted in a fashion that accords with sound commercial principles and good business sense and that avoids commercial absurdity.

Factual Matrix

[63] The recitals to the reconveyance agreement make it clear that although large swaths of property in Hamilton and in Haldimand were conveyed to Stelco, LandCo did not intend to sell, and Stelco did not intend to purchase, the Planning Act Lands in either locale. Stelco agreed to reconvey the Planning Act Lands to LandCo for no consideration and free and clear of all encumbrances once severance consents were obtained. There is no suggestion in the language of the reconveyance agreement that the parties’ intention at the time was for easements to be agreed upon based on the proposed use by a specific third-party purchaser of the Planning Act Lands generally or the DGAP Parcel in particular. Indeed, the timing for Stelco’s reconveyance appears to have been intended to be relatively brief; only so long as it might take for Stelco to apply for and obtain the required consents from the Hamilton and Haldimand committees of adjustment.

[64] In February 2021, LandCo and DGAP entered into the sale agreement whereby DGAP purchased unencumbered title to the DGAP Parcel from LandCo. Stelco’s performance of the reconveyance agreement remained necessary for the sale agreement to close. The LRO brought a motion to the court for an order confirming the authority of, and directing, the LRO to execute and deliver the sale agreement with DGAP. The Monitor’s Fifty-First Report expressly stipulates that Empire Communities Corp., which owns DGAP, “is a well known residential homebuilder involved in all sectors of the new home building industry”. On March 4, 2021, McEwen J. authorized the LRO to execute the sale agreement and issued an approval and vesting order in respect of that conveyance. Stelco did not oppose the LRO’s motion or seek to appeal, vary, or set aside McEwen J.’s Order.

[65] It seems the parties had forgotten about the need for a reconveyance of the Planning Act Lands until after DGAP’s sale agreement was concluded. In June 2021, it was “revealed” that the DGAP Parcel was still registered in Stelco’s name. The Monitor’s Fifty-Fourth Report details the course of events that followed that revelation. In essence, Stelco was asked to complete the severance process for the Planning Act Lands, including the DGAP Parcel, so that LandCo could deliver clean title to DGAP. Stelco’s counsel worked on this issue through the balance of 2021. In January 2022, the severance application filed by Stelco’s counsel for the DGAP Parcel was heard by the Committee of Adjustment for Haldimand County. The application was successful and severance consent for the DGAP Parcel was obtained. The appeal period expired, and the decision became final and binding, on February 7, 2022.

[66] For reasons not explained, it appears Stelco did not raise any concerns about the reconveyance agreement until February 2022, when it apparently “learned” that DGAP planned to develop the DGAP Parcel incorporating both industrial and residential uses. This is when Stelco began its active opposition to the reconveyance of the DGAP Parcel to LandCo. Stelco described the proposed development (for which zoning approval remained, and still remains, necessary to permit residential use) as an “existential threat” to its operations. This opposition ultimately culminated in McEwen’s J. order for specific performance in December 2022.

[67] Stelco raised its need for the disputed easements for the first time in September 2022, only after learning of DGAP’s potential proposed use of the DGAP Parcel. Between June 2017, the date of the original Plan of Arrangement, and September 2022, Stelco did nothing about the reciprocal easement provision. It also did not ask for any additional easement rights on any of the numerous other parcels of land previously owned by it that were transferred to LandCo as part of the Plan of Arrangement.

Interpretation of Article 4.1(m)

[68] By its terms, article 4.1(m) is limited to the provision of shared facilities and/or reciprocal easements that are required for the operation of both properties, i.e., the operations of the Planning Act Lands and the Stelco Lands. Thus, to qualify under article 4.1(m), a provision must either be in relation to a shared facility or a reciprocal easement but, in either case, the shared facility or the reciprocal easement must be required for the operation of both LandCo’s land and Stelco’s Lands.

[69] I have concluded, on the proper interpretation of article 4.1(m), that even if Stelco’s proposed easements were capable of qualifying as enforceable easements at common law, they still do not meet the requirements of article 4.1(m).

Shared Facilities

[70] The disputed easements do not contemplate any specific “facilities” at all. All they contemplate are possible, unspecified facilities somewhere and someday in the unspecified future. Moreover, these theoretical facilities do not represent in any way, shape or form, shared facilities. The use of the word “shared” in this context can only refer to facilities that are possessed or that operate “in common with others” or in which both parties “have a part in” the thing or activity. A shared facility would be one in respect of which both parties would contribute and derive benefit in some way. There is utterly nothing about Stelco’s unspecified facilities that are “shared” with present or future owners of the DGAP Parcel; it is a one way street -- Stelco takes all the benefit and the DGAP Parcel takes all the burden.

Reciprocal Easements

[71] Likewise, there is nothing “reciprocal” about Stelco’s proposed easements. A reciprocal easement would be one in which, for example, Stelco has a right of access over the DGAP Parcel in exchange of a right of access by DGAP over Stelco Lands. There is no mutual action or relationship in Stelco’s disputed easements; there is no responding or corresponding activity for mutual benefit. Again, Stelco’s disputed easements represent a one way street on which Stelco takes all the benefit and the DGAP Parcel takes all the burden.

Required for Operation

[72] Finally, there is no evidence that Stelco’s disputed easements are required for its operations at all, much less required for operations on both the DGAP Parcel and on the Stelco Lands.

[73] Stelco’s disputed easements are asserted on the basis that they are required for Stelco’s operations on the Stelco Lands. Stelco maintains that the necessity requirement in 4.1(m) is satisfied as long as the proposed easement is required for operations on one parcel or the other. I am unable to agree with this position.

[74] Under article 4.1(m), any facilities must be “shared” and any easement must be “reciprocal”. The necessity requirement is in relation to operations on the DGAP Parcel “and” on the Stelco Lands. When the necessity clause is read in its proper context, therefore, it is not sufficient that the facilities or easements are required for operations on only one of the two parcels. As shared facilities or reciprocal easements, they must be required for operations on both parcels.

[75] In any event, even if the necessity requirement is met so long as it is referrable only to the Stelco Lands, I would still conclude that Stelco has not shown than its disputed easements on the DGAP Parcel are “required” for operations on Stelco’s Lands. I come to this conclusion on the following basis.

[76] Stelco filed expert evidence from a land use planner, Mr. Riley, and from a professor of geological engineering, Professor Dusseault.

[77] Mr. Riley explains that a core function of land use planning is to ensure compatibility between uses. Manufacturing and residential uses are generally incompatible and placing them in proximity should be avoided. When proximate incompatible uses cannot be avoided, adverse effects should be mitigated. One of the ways to do this is through easements.

[78] There are provincial land-use planning guidelines that seek to minimize and mitigate adverse effects from incompatible uses, such as separation distances and other control measures. Where impacts cannot be reasonably mitigated, Mr. Riley says, new development “shall not be permitted.” He concludes that from a land use planning perspective, there is a need to ensure that any development of the DGAP Parcel minimizes and mitigates any potential impacts on the Stelco Lands.

[79] Importantly, Mr. Riley himself places all these issues in the context of future land use planning applications. In this key passage, he says:

[T]he future development of the LandCo Lands will proceed by way of future planning applications, including plans of subdivision, which are required by the Planning Act to be assessed to have regard for matters of provincial interest and to conform to the Official Plan. As such, through these future planning application processes, applicants will be required to demonstrate how matters of land use compatibility between the proposed sensitive land uses and existing industrial operations (Stelco) have been addressed, including an assessment of the impacts of noise, odour and other contaminants on the proposed sensitive land uses, an assessment of risks to public health and safety, and an assessment of the impact to the long-term operational and economic viability of major facilities, and identify how any potential impacts to industrial uses and adverse effects are minimized and mitigated.

[80] Mr. Riley then considers each of Stelco’s disputed easement proposals. It is important to know, however, that Mr. Riley was asked by Stelco to assume Stelco’s easements (including the disputed easements) were “required” by Stelco for the purpose of his report. Thus, Mr. Riley himself makes no comment on whether the disputed easements are “required”:

• The sequestration easement would benefit Stelco lands by capturing carbon emissions. He says it is “reasonable to ensure Stelco’s ability to operate”.

• The utilities easement relates to Stelco’s ability to maintain and expand operations and is therefore “reasonable to ensure the long-term viability of Stelco.”

• Restrictions that permit Stelco to emit contaminants or that prohibit future owners of the DGAP Parcel from objecting to these emissions are “reasonable and would represent an appropriate way to address provincial policy requirements and guidelines addressing land use compatibility.” He concludes that the easements requested by Stelco under the reconveyance agreement are “reasonable and necessary in the context of land use compatibility for the operation of Stelco’s steel mill … beside a new residential community on the severed lands.”

[81] Professor Dusseault, in his report, says that subsurface storage of carbon “can serve as an aid to emissions reduction for heavy industries”. Realistically, the potential for large-volume carbon storage in Ontario is highly restricted because of “less-than-ideal geological and engineering characteristics”. Access to this limited-volume asset is only feasible in a zone that runs east west along the shoreline of Lake Erie from Hamilton to Windsor. This area contains a subsurface “sedimentary basin” which is approximately 300 km long. The integrity of this repository for carbon sequestration would “have to be demonstrated quantitatively by an exhaustive series of analyses and mathematical modelling”. Among other things, large-scale, long-term tests spanning at least 18 to 24 months would be required. Professor Dusseault concedes that no regulatory structure for utilization of this resource is in place in Ontario, although he thinks it is coming.

[82] I do not find either report especially helpful on the question before the court: whether Stelco’s disputed easements are reciprocal easements required for operations on the DGAP Parcel and on the Stelco Lands. Mr. Riley is a land use planner addressing land use planning issues. These are not issues for the court on this motion. The DGAP Parcel is currently zoned agricultural. It is admitted by both parties that there is a long land-use planning approval and other regulatory compliance road lying ahead of any efforts by DGAP to redevelop the DGAP Parcel, a process that has yet to even begin. All the issues raised by Mr. Riley will no doubt be important in the course that process, if and when it is undertaken. However, the task of the court on this motion is to interpret article 4.1(m) and to determine whether Stelco’s disputed easements fall within the meaning of that article. Article 4.1(m) is not conditioned by what is “reasonable” for land-use planning or mitigation of so-called incompatible land uses. As McEwen J. said in his December 2022 decision, any issues concerning DGAP’s proposed housing development must be dealt with by the appropriate planning authorities and should not be considered in the context of the provisions of the reconveyance agreement (at para. 230).

[83] Professor Dusseault’s report explains carbon sequestration and describes how the 300 km long sedimentary basin in southwestern Ontario might be used as a depository for carbon. But nothing in his report addresses the need for access to or use of the DGAP Parcel specifically for this purpose. He does not, for example, address (nor was he asked to address) whether bored wells necessary for carbon injection into the sedimentary basin were required to be located on the DGAP Parcel, as opposed to Stelco’s own lands or, for that matter, anywhere else within the 300 km range of the sedimentary basin.

[84] The terms of article 4.1(m) dictate that any shared service or reciprocal easement be “required for the operation of” the DGAP Parcel “and” the Stelco lands. I find, for the reasons set out above, that Stelco has failed to establish that its disputed easements meet this requirement.

Conclusion on Disputed Easements

[85] In my view, having regard to the surrounding circumstances, the requirements at common law for a valid easement and the language of article 4.1(m), Stelco’s proposed terms and conditions of reconveyance (i.e., the disputed easements) are not valid or permitted under the reconveyance agreement, article 4.1(m).[^1] Rather, they are a colourable attempt to sterilize the DGAP Parcel of any potential for residential development. While that may be a valid business objective for Stelco to have, it is not consistent with the terms and conditions of the reconveyance agreement. Stelco’s concerns in this regard are properly addressed in the context of Planning Act applications for rezoning and other approvals that will be required for any redevelopment of the DGAP Parcel. It is not the remit of this court to resolve land-use planning disputes of this nature.

Should the Court Impose the DGAP Form of Easement Agreement on Stelco Over Its Objections?

[86] Stelco argues that even if I have the power to make the order sought by DGAP, I should not exercise it until all possible avenues of negotiation have been exhausted. DGAP says that has already happened. Stelco had its chance to propose a specific form of easement agreement that it wanted but did not do so. It insisted on the disputed easements as a non-negotiable foundation for everything else. There is no point to further negotiations.

[87] As discussed earlier, this court has the power to impose the terms and conditions that will apply to Stelco’s reconveyance of the DGAP Parcel under the reconveyance agreement. However, the factums and the oral submissions of counsel on this motion were almost entirely consumed with the disputed easements. Very little, if any, time was spent on the areas over which DGAP has agreed to provide specific easements.

[88] Although the parties are close to the end of this road, I do not think they have run out of road altogether. I have resolved the issue of the disputed easements. They are not available to Stelco under the terms of article 4.1(m). With that guidance, it should be possible for Stelco and DGAP to continue their negotiations and reach agreement on those easements that remain in play. Whether these parties will actually be able to conclude a negotiated settlement of the terms of reconveyance on this basis, I do not know. But it is in keeping with the approach adopted by McEwen J. that the parties be required to take one last stab at a “boardroom” solution.

[89] The pension funds no longer have an economic interest in the reconveyance of the DGAP Parcel. The Monitor/LRO, however, is still in place. The Monitor/LRO is the appointee of the court and has deep knowledge of the history of these proceedings and, specifically, of the current problem before the court involving reconveyance of the DGAP Parcel. I direct the Monitor/LRO to do all that is reasonably necessary to foster and facilitate negotiation of an agreement between Stelco and DGAP containing the terms and conditions of reconveyance, consistent with these reasons (including the non-disputed easements proposed by DGAP on a with prejudice basis).

[90] Stelco’s obligation to reconvey the DGAP Parcel has been extant since 2018. Severance consents were obtained and became final in February 2022. Stelco was ordered to specifically perform its obligations to reconvey the DGAP Parcel in December 2022. This has still not been done; Stelco is effectively in continuing breach of McEwen J.’s order for specific performance. The time to conclude this transaction is nigh.

[91] One way or another, this matter will be resolved. If the parties cannot agree to the terms and conditions of reconveyance by February 29, 2024, the terms and conditions will be imposed by the court on further motion.

Costs

[92] I was advised by the parties that the costs of this motion have been resolved by agreement between them and that no further direction from the court is required.

Penny J.

Date: December 12, 2023

[^1]: In coming to this conclusion, I have not ruled out the possibility that subsequent events or opportunities could form the basis for an easement. Specifically, I would not rule out the possibility of a carbon sequestration easement simply because carbons sequestration was not permitted under Ontario law in 2018. It is frequently the case that commercial contracts do not expressly cover all eventualities. By the same token, the timing and status of the potential for carbon sequestration in Ontario is a relevant circumstance falling under the umbrella of factual matrix. I find Stelco’s carbon sequestration easement is not appropriate because, as framed, it does not meet the test for an easement at common law and, even if it did, it is not a “shared facility and/or reciprocal easement required for the operations” within the meaning of article 4.1(m).