5901058 Manitoba Ltd. v. The Corporation of the City of Kenora et al, 2025 ONSC 1943

COURT FILE NO.: CV-24-0362-00
DATE: 2025-03-27
ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:
5901058 Manitoba Ltd., Plaintiff
C. Harris and C. Spitz, for the Plaintiff/Responding Party

- and -
The Corporation of the City of Kenora, Robert Bernie, John Doe 1, John Doe 2 and John Doe 3, Defendants
C. Bryson, for the Defendants/Moving Parties

HEARD: January 28, 2025 at Kenora, Ontario, by videoconference
Justice: J.S. Fregeau

Reasons on Motion to Strike

Introduction

[1] The Corporation of the City of Kenora, Robert Bernie, John Doe 1, John Doe 2 and John Doe 3 seek an order pursuant to Rules 21.01(1), (a), (b) and (3)(d) striking the action, or certain portions thereof, on the grounds that it discloses no reasonable cause of action or that the action is frivolous or vexatious.

Background

[2] 5901058 Manitoba Ltd. (“590” or the “plaintiff”), is a Manitoba corporation carrying on business in the area of real estate development, primarily in the City of Kenora. The defendant, The Corporation of the City of Kenora (the “City”), is a municipality duly incorporated in the Province of Ontario. The defendant Robert Bernie is a member of Council for the City. Mr. Bernie was an employee of the Ontario Provincial Police for approximately 20 years. The defendants John Doe 1, John Doe 2, and John Doe 3 are also members of Council for the City.

[3] In or around August 2020, 590 consulted with City staff regarding the suitability of developing a 16.17 acre parcel of vacant municipal property (the “Subject Property”). 590 is the owner of 17.34 acres of vacant land adjacent to the Subject Property (the “Adjacent Lands”). 590’s intention was to combine the Subject Property and the Adjacent Lands into a single development. The only access to the Adjacent Lands is through the Subject Property.

[4] On or about August 26, 2020, and following preliminary discussions between the City and 590, the City confirmed to 590 that it was supportive of the development proposal for the Subject Property. At the City’s request, 590 began preparing an application to purchase the Subject Property. Ultimately, the parties agreed that an irrevocable option to purchase for a period of three years would better suit their mutual interests.

[5] 590 prepared an Option to Purchase Agreement (the “Option Agreement”) for the City’s review. At the request of the City’s Manager of Development Services, a condition was added to the Option Agreement regarding the passage of a surplus land by-law for the subject property upon the option notice being served and the completion of a reference plan. 590 understood that this condition was primarily procedural in nature and that the purchase had already been approved in all other respects.

[6] It was 590’s understanding that the City would bring its Application for Purchase of a City Property to Council concurrently with the declaration of the Subject Property as surplus. 590 further understood that the surplus lands declaration regarding the Subject Property could not be done at the time the Option Agreement was signed because there was no way to legally describe the Subject Property.

[7] On or about July 7, 2021, 590 delivered the signed Option Agreement for the Subject Property to the City. The Option Agreement includes the following terms:

1. The City granted 590 the exclusive option to purchase the subject property for the price of $323,000 (the “Option”);
2. The Option was open to be exercised by 590 until 4:00 p.m., May 31, 2024 and was to be exercised by notice delivered to the City by that date;
3. On the exercise of the Option, 590 was required to pay a deposit of $5,000 to be held in trust pending completion or other termination of the Agreement arising out of the exercise of the Option;
4. 590 paid $2,000 to the City as consideration for the Option, to be credited toward the purchase price; and
5. Upon the exercise of the Option by 590, the Option was to become a binding agreement between the parties and was to be completed on the terms set out therein.

[8] Schedule B to the Option Agreement includes two conditions:

1. The Option Agreement is conditional on the 590, at its sole expense, completing a reference plan of survey, describing the property to be transferred, satisfactory to the City; and
2. The Option Agreement is conditional upon the City completing the passing of a surplus land by-law authorizing the sale of the Subject Lands upon the notice of the exercise of the Option and completion of the reference plan of survey.

[9] In Schedule B to the Option Agreement, the parties also expressly agreed that 590, upon the signing of the Option Agreement, could proceed with environmental and feasibility studies leading to the preparation and filing of a proposed re-zoning application and with respect to the development of a manufactured home community on the Subject Property.

[10] On July 20, 2021 the City passed By-Law 93-2021 authorizing the Mayor and Clerk to execute the Option Agreement and to take such action as necessary to complete the transaction.

[11] Between July 2021 and May 2024, 590 completed extensive due diligence studies to confirm the Subject Property was suitable for its plans and to advance the re-zoning process. 590 pleads that throughout this three-year process, the City consistently represented to 590 that the lands were surplus and would be conveyed to it upon the exercise of the Option Agreement. 590 further pleads that the City attended a site meeting on or about April 18, 2024, with representatives and consultants of 590 to determine the acceptable boundaries of the proposed development. At the site meeting the City representatives said nothing about resiling from the option agreement or that the Subject Lands were required for any other municipal purpose.

[12] 590 invested more than $300,000 in studies and plans for the Subject Property on the strength of the Option Agreement, including engineering and architectural drawings and Phases I and II environmental studies. 590 shared the results of these studies and plans with the City. 590 pleads that these studies have been, or will be, used for the benefit of the City and any future owner or purchaser of the Subject Property. At no time between June 2021 and May 2024 did the City inform 590 that the Subject Lands were required for municipal purposes.

[13] On May 6, 2024, 590 delivered an executed Option Notice to the City in accordance with the Option Agreement. 590 also paid the $5,000 deposit due upon the exercise of the Option Notice. On or about May 17, 2024, 590 provided a draft reference plan to the City for input prior to finalization. No material concerns were raised by the City and 590 inquired of the City as to whether a plan or survey could be completed on the basis of the draft reference plan 590 had provided. The City did not respond.

[14] 590 pleads that the City, in or around April 2024, without disclosure to 590, was approached by and began negotiations with a “significant public entity” regarding a sale of the Subject Property to it instead of 590. On May 21, 2024, prior to the expiration of the option period, City Council held an in-camera meeting, without notice to 590 or the public and allegedly in contravention of the City’s Sale and Other Disposition of Land Policy, during which it apparently considered the disposition of the Subject Property as surplus lands. At this meeting, the City passed a resolution stating that a portion of the Subject Property was required for municipal services and that the Subject Property would therefore not be declared surplus lands.

[15] At the May 21, 2024 in-camera meeting, one councillor voting on the City’s course of conduct was a former OPP officer. 590 pleads that this councillor was in a conflict of interest and should have been recused from any vote on the issue.

[16] On May 23, 2024, the City advised 590 that the surplus lands by-law for the subject property did not pass. 590 asked the City for further information. On May 28, 2024, the City advised 590 that an alternative purchaser had come forward and that the City had chosen to pursue the sale of the Subject Property to a “significant public entity”, apparently the Ontario Provincial Police. 590 pleads that this decision was made after 590 exercised its Option and before the expiry of the option term.

[17] 590 pleads that the City did not notify 590 that it did not intend to honour its obligations in the Option Agreement before proceeding with the alternative acquisition, nor did it raise the possibility that the Subject Property might be required for municipal purposes, despite numerous discussions between the City and 590 during April and May 2024.

The Positions of the Parties

The City

[18] The City submits that the Option Agreement is expressly conditional on it passing a surplus land by-law, as required by the City’s Land Disposition Policy (the “LDP”), authorizing the sale of the Subject Property, upon 590 exercising the Option.

[19] The City submits that prior to 590 exercising its Option, it was approached by a third party, now known to be the OPP, the police service for the municipality, which expressed an interest in purchasing a portion of the Subject Property. The City therefore passed a resolution stating that a portion of the Subject Property was required for municipal services and that the Subject Property would therefore not be declared surplus lands.

[20] The City contends that an express condition of the Option Agreement was not met, that 590 was advised of this on May 23, 2024 and that it was therefore not bound to enter into an Agreement of Purchase and Sale upon 590 exercising its Option. The City submits that it is plain and obvious that 590’s claim for breach of contract, and the related remedy of specific performance, have no reasonable chance of success and should be struck without leave to amend.

[21] The City submits that the plaintiff has not pleaded that City authority was delegated to administrative staff in relation to any of the issues in this claim. The City submits that the plaintiff, a sophisticated developer, would or should have been aware that it cannot rely on the alleged representations of administrative staff in relation to the issues in this claim. The City submits that the plaintiff’s claim for negligent misrepresentation has no chance of success and should be struck.

[22] The City submits that its LDP expressly states that all costs associated with the disposition of City land shall be borne by the parties acquiring the land. The City contends that 590’s claim of unjust enrichment is therefore without merit, has no reasonable chance of success and should be struck.

[23] The City submits that the Municipal Conflict of Interest Act, RSO 1990, c M.50 applies only where a council member, or a member of his/her immediate family, has a direct or indirect pecuniary interest in a matter before municipal council. The City contends that 590 has not pleaded that Robert Bernie or John Doe 1, John Doe 2 or John Doe 3 had a direct or indirect pecuniary interest in the proposed sale or development of the Subject Property. The City submits that the cause of action in bad faith and misfeasance in public office against these individual members of City Council therefore has no chance of success and should be struck.

[24] The City further submits that 590’s claims for abusive administrative action and constructive taking are without merit, have no reasonable chance of success and should be struck entirely.

590

[25] 590 submits that its claim in contract includes both a claim for breach of contract and a related claim for breach of the duty of honesty and good faith in contractual performance. 590 submits that claims of this type raise questions of mixed fact and law, require a detailed review of the evidence in issue and should be determined at trial and not on preliminary motions to strike. 590 submits that its claim in contract discloses a reasonable cause of action and should not be struck. 590 contends that the availability of the related remedy of specific performance is fact-driven and should be addressed at trial.

[26] 590 submits that its claim in negligent misrepresentation should be read generously. 590 submits that its claim alleges that City officials made unambiguous and unequivocal representations, in the exercise of the City’s business and administrative powers, in April 2024 at a site meeting and at other times. 590 submits that it has pleaded a reasonable cause of action that should be allowed to proceed.

[27] 590 submits that the City’s LDP is not a complete answer to its claim of unjust enrichment. 590 submits that the interpretation of the applicable provision in the City’s LDP is a question of fact or mixed fact and law which is properly determined at trial.

[28] 590 contends that its claim of bad faith and misfeasance in public office is based on the allegation that Mr. Bernie acted unlawfully, with malice or bad faith, when he failed to recuse himself from the vote to sell the subject property to the OPP and that John Does 1-3 were aware of this bad faith and malicious conduct and voted to support it. 590 submits that this claim, read generously as required, goes beyond the narrow application of the Municipal Conflict of Interest Act and should not be struck.

[29] 590 submits that it has pleaded the necessary elements to support its claim for constructive taking and that there is no basis to dismiss that claim on a motion to strike. 590 further submits that it has pleaded the necessary facts in support of its claim in tort of abusive administrative action and that that claim should not be struck.

Discussion

[30] Pursuant to Rule 21.01(2)(b) of the Rules of Civil Procedure, no evidence is admissible on a motion to strike a pleading under Rule 21.01(1)(b). The motion is to be determined on the material facts pleaded in the Statement of Claim which are taken to be true unless they are patently ridiculous or incapable of proof.

[31] The test applicable on a motion to strike for not disclosing a reasonable cause of action under Rule 21.01(b) is well established. A claim will only be struck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action or if the claim has no reasonable prospect of success. See R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, para 17.

[32] I accept the submission of 590 that the claim, when considered at large, potentially supports reasonable causes of action. The claim itself is not frivolous, vexatious or an abuse of the court’s process. There is no basis to strike out the entire Statement of Claim. That request is denied.

Breach of Contract and Specific Performance

[33] 590 alleges the City breached the Option Agreement and the related duty of honesty and good faith in contractual performance by actively pursuing a sale of the Subject Property to the OPP instead of 590 following the exercise of 590’s Option. Specific performance is claimed as a remedy for breach of contract because 590 is the owner of the Adjacent Lands, which are landlocked but for potential access through the Subject Property.

[34] Both the claim and the remedy raise questions of fact and law. The suggestion that these claims, as pleaded and as supported by the facts alleged in the claim, have no reasonable prospect of success is without merit. The motion to strike the claim in contract and the related remedy of specific performance is dismissed.

Negligent Misrepresentation

[35] 590 pleads that the City made numerous representations to it during the Option period and, in particular, at a site meeting in April 2024, and that it relied on such representations to their detriment. Negligent misrepresentations made by municipal officials to persons who rely on them to their detriment can lead to the liability of a municipality. See Marks et al. v. City of Ottawa et al, 2010 ONSC 112, para 69. As noted by the City, the pleading does not explicitly state that City staff interacting with 590 had delegated authority to bind the City. However, the claim must be read generously and can be easily amended to correct this deficiency.

[36] The City’s request to strike 590’s claim for negligent misrepresentation is dismissed. 590 is granted leave to amend this claim to correct the deficiency noted above.

Constructive Taking

[37] At paras 78-83 of the claim, 590 pleads that the City’s actions in relation to the Subject Lands constitutes, on the particular facts of this case, a constructive taking of the Adjacent Lands. Constructive taking, or constructive expropriation, involves the appropriation of private property by a public authority exercising its regulatory powers.

[38] In Annapolis Group Inc. v. Halifax Regional Municipality, 2022 SCC 36, para 44, the Supreme Court affirmed the test to show a constructive taking. A plaintiff must establish (1) that the public authority has acquired a beneficial interest in the property or flowing from it (i.e. an advantage); and (2) that the state action has removed all reasonable uses of the property.

[39] 590 has pleaded facts in support of this claim. Assuming those facts to be true, it cannot be said that this claim has no reasonable prospect of success. The motion to strike this claim is dismissed.

Unjust Enrichment

[40] In Pacific National Investments Ltd. v. Victoria (City), 2004 SCC 75, paras 13-14, the Supreme Court considered the claim of unjust enrichment in the context of a land development project in Victoria, British Columbia. The Court noted that 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.

[41] The Court observed that 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”.

[42] The City seems to suggest that section 5.5 of its LDP is a complete answer to 590’s claim for unjust enrichment. I accept the submission of 590 that it is not necessarily so. I am not persuaded that this claim has no chance of success. The issue appears to turn on a question of fact or mixed fact and law that should be determined at trial and not on a motion to strike. The request to strike the claim for unjust enrichment is dismissed.

Bad Faith and Misfeasance in Public Office

[43] Robert Bernie and John Does 1-3 are city councillors and public officials. 590 alleges that Robert Bernie acted unlawfully, and with malice and bad faith, by failing to recuse himself from the vote to sell the Subject Property to the OPP instead of 590. 590 further alleges that John Does 1-3 were aware, or ought to have been aware, of Robert Bernie’s bad faith and malicious conduct, yet supported and participated in same by voting with Robert Bernie.

[44] The only basis pleaded to support the allegation that Robert Bernie acted unlawfully and with malice and bad faith is the claim that he participated in the vote while under a perceived or actual conflict of interest. However, the Municipal Conflict of Interest Act speaks only to the direct or indirect pecuniary interest of a member of council. 590 has not pleaded that Robert Bernie had a direct or indirect pecuniary interest in the outcome of the vote to sell the Subject Property to the OPP rather than to 590.

[45] There is no factual basis to support this claim against Robert Bernie or John Does 1-3 personally and it is struck as against the City and these defendants personally.

Public Law Liability and Abusive Administrative Action

[46] 590 alleges that the City’s conduct in denying the designation of the Subject Property as surplus lands was essentially done to frustrate the contractual obligation to proceed with the Option Agreement and to allow the sale of a portion of the Subject Lands to the OPP to proceed. 590 alleges that the City’s conduct was unreasonable, unjustifiable and taken in bad faith and deserving of remedial monetary relief.

[47] Assuming the facts pleaded in support of this claim to be true, I am unable to conclude that this claim has no chance of success. The City’s LDP may be a defence to this claim, but it is not sufficient to deny the plaintiff the opportunity to advance the claim at trial. The request to strike this claim is dismissed.

[48] 590 shall serve and file an amended claim in accordance with these Reasons.

[49] There has been mixed success on this motion. However, 590 has been predominantly successful and is presumptively entitled to some costs. If the parties cannot agree on costs, they shall file written Costs Submissions, not to exceed five pages, exclusive of their Costs Outlines. 590’s Costs Submissions shall be filed within 14 days of the release of these Reasons; the City’s Costs Submissions shall be filed within seven days thereafter. Reply Costs Submissions will not be received. The failure to file Costs Submissions within this timeframe shall be taken as a deemed waiver of costs.

“Original signed by”
J.S. Fregeau

Released: March 27, 2025