Landowners seek to rely on 60-year old drainage maintenance agreement with municipality

Landowners and a municipality disagreed over the continuing effectiveness of an agreement made in 1953 that required the municipality's predecessor to maintain a drainage system and to make good any and all damage caused to the landowner (property owner).  The agreement had been made at a time when the local Township wished to construct a drainage system along a road.  In exchange for a right of access to the neighbouring property belonging to the predecessor-in-title to the current landowners, the Township gave the undertakings respecting maintenance and repair of damages.  The agreement was not registered on title, but the current landowners were aware of it.

When the current landowners asked the current municipality (the successor of the original Township) to meet its obligations under the agreement, the municipality responded that it was no longer bound by the agreement.  The parties then agreed to have the Court decide the question in a "Special Case" under Rule 22 of the Rules of Civil Procedure.

The result was the following series of declarations by the Court in favour of the landowners:

1. A DECLARATION that the Agreement on April 27, 1953, properly interpreted, did impose a perpetual obligation of the Township of Thurlow to maintain the drainage system it had installed in good working condition at all times and to make good any and all damage caused to the property owner whoever that may be from time to time as a result of lack of repair or of acts done at any time by the corporation in maintaining and repairing the system.

2. A DECLARATION that as a result of the amalgamation of the Township of Thurlow and the Defendant City in 1998, the Defendant City is bound by the contractual obligations of the former Township which are found to have been created by the Agreement.

3. A DECLARATION that the Agreement is valid and binding notwithstanding that it was not entered into or, the system was not constructed, under or in accordance with legislation such as the Drainage Act.

4. A DECLARATION that the Agreement can be enforced against the Defendant City although it was not registered on title under the Registry Act and/or the Land Titles Act.

5. A DECLARATION that the Plaintiffs are not barred from enforcing the Agreement by s. 449 of the Municipal Act, 2001.

6. A DECLARATION that the Defendant does not have a valid defence to the Plaintiffs’ claim on the basis that the conduct of the Defendant amounts to the exercise or non-exercise of a discretionary function resulting from a policy decision.

7. A DECLARATION that the Plaintiffs are successors of the Agreement and thus, are entitled to enforce the Agreement without an express assignment.

8. A DECLARATION that the Defendant does not have a valid defence to the Plaintiffs' claim on the basis that the Plaintiffs are trying to enforce a positive covenant in regard the land.

9. A DECLARATION that the Agreement, which imposes a perpetual obligation upon the City, is not invalid as contrary to public policy because it does impose a perpetual obligation.

10. A DECLARATION that there is sufficient description of the property and easements in the Agreement to create an enforceable agreement.

11. A DECLARATION that the Defendant does not have a valid defence to the Plaintiffs’claim on the basis that the Plaintiffs did not inquire about the Agreement and/or its status before they bought the land, and/or by reason of the defence that the Plaintiffs did not rely on the Agreement when they bought the land.

12. A DECLARATION that the Agreement is not void as against public policy as fettering the Defendant City’s discretion with respect to future uses of roads and road allowances.

13. A DECLARATION that there is no statutory limitation period that acts to bar an action by the Plaintiffs.

14. A DECLARATION that the Plaintiffs’ claim for damages for breach of the Agreement is not defeated by the doctrine of laches.

Read the decision at: Brown v. Belleville (City).

Divisional Court upholds land registry freeze in face of apparent "scheme"

The Ontario Divisional Court has upheld a decision of the Director of Land Titles to place a freeze on the land records for a piece of property in Bruce County.  Krystal Summer Williams had sought to register a "self-to-self" transfer of the property, which was still administered under the Registry Act system of land registration.  Under the registry system, a person dealing with the property only has to trace the chain of title back for forty years.  The property in this case had not been dealt with since 1936 and Ms. Williams applied to become the registered owner of the land.

Ms. Williams admitted that she did not own or have any interest in the property prior to registration, and the Director alleged that she was involved in a scheme to convey title to property that she does not own. 

The Divisional Court agreed and ruled that the Director had authority to impose the freeze in order to determine the propriety of the self-to-self transfer.  In the Court's view, this was "merely a scheme to create an interest in land where none exists." 

Read the decision at: Williams v. Ontario.

Can a right of first refusal bind non-parties?

That general question was at the heart of a recent Ontario Court of Appeal ruling on an estate matter.  Parents owned a property; they wanted to sell it to one of their three children, but the other two kids opposed the sale; in order to appease everyone, the parents proposed an agreement that would allow the property to go to the one child, but with a right of first refusal on the part of the other two kids in case the property-owner child ever decided to sell.  The other two kids wanted to keep the property in the family.

The agreement was executed by the three children, including the right of first refusal and a provision stating that notice of the agreement could be registered on title to the property.  Later, the property was transferred from the one child to her and her husband as joint tenants, with the husband having agreed to be bound by the previous agreement (including the right of first refusal).  The agreement was subsequently registered on title to the property, with the undertaking of the husband appended.

The whole situation ended up in Court because of disagreement between the siblings and their children over what could happen with the property on the death of the property-owner sibling (and her husband).  Was the agreement binding on the heirs of the property-owner?  Those heirs raised the issue of privity of contract, which was described by the Court of Appeal as follows:

The doctrine of privity of contract stands for the proposition that a contract cannot, as a general rule, confer rights or impose obligations arising under it on any person except the parties to it. This doctrine has two very distinct components or aspects. On the one hand, it precludes parties to a contract from imposing liabilities or obligations on third parties. On the other hand, it prevents third parties from obtaining rights or benefits under a contract. See London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), [1992] 3 S.C.R. 299, at para. 200.

 

There are established exceptions to the second aspect of the doctrine. In certain situations, the courts will permit strangers to enforce the contract and take the benefit of its provisions. The established exceptions are agency, trust, assignment or assumption, exceptions established by statute, and restrictive covenants. See Greenwood Shopping Plaza Ltd. v. Beattie et al.,1980 CanLII 202 (SCC), [1980] 2 S.C.R. 228, at para. 11.

The Court noted that, at first blush, it might seems as if privity of contract applies in this case and that the heirs of the property-owner sibling are not bound by the right of first refusal.  However, death does not terminate a contract unless the contract is "based on personal considerations, skill or confidence (a personal contract)."  The estate of the owner would be in the position of the owner, bound by the agreement.

What if the property is then conveyed by the estate to the heirs?  The Court found that the heirs, too, would be bound by the right of first refusal.  The estate would pass title to the property to the heirs subject to the requirements in the agreement.  Not only do those heirs have actual notice of the agreement (in this case), but they "are volunteers in the sense that they give no consideration for title to the Property".  The heirs cannot stand in a better position than did the estate.

The Court of Appeal also ruled that the Agreement containing the right of first refusal was properly registrable against title to the property under the Land Titles Act.  The Court says the following with respect to the nature of the interest held by a holder of a right of first refusal:

What did the holder have before crystallization? The holder had an interest in the unregistered equity that arose at the point of crystallization. To be sure, the holder is not entitled to the equity, as that entitlement arises on crystallization. But the holder has an interest in it, in the sense that the holder has something more than a mere spes or hope. The holder, prior to crystallization, has the recognised legal interest that will swell into an equitable right on crystallization. In the language of s. 71(1), the holder is a person “… interested in [an] unregistered … [equity] in registered land…”. Accordingly, rights of first refusal over land can be protected by registration under s. 71(1).

Read the decision at: Benzie v. Hania.

Court of Appeal sends family farm dispute back for a second trial

An "unfortunate dispute" between a brother and a sister over the family farm of their late parents has been sent back for a second trial.  The Ontario Court of Appeal found that the first trial judge "applied incorrect legal principles to the evidence and made numerous unreasonable findings of fact."  These "cumulative errors" rose "to the level of a substantial wrong".  A new trial was ordered because the transcript from the first trial did not allow the Court of Appeal to decide the factual issues for itself.

The farm had been in the family since 1830, and the son had worked on the farm as a full-time occupation for 24 years.  The son contended that he had an oral agreement with his parents that if he stayed on the farm and farmed with them, and if farming was his main occupation, he would receive the farm land and the farm assets when his parents stopped farming.  The sister, the only sibling, worked off the farm and was not involved in running the farm operation.

The mother and the father had identical wills: if one died, everything went to the survivor; when the survivor died, everything was shared equally between the son and the daughter.  After both parents died, the son commenced an action seeking a declaration that he was benefically entitled to the farm property and the farm business.  The sister contested the claim and filed a counterclaim asking for an accounting by the brother for his use of the farm property and the business since the father's death in 2001.  The son's claim was commenced in 2004.

The trial judge found that the son had not proven the alleged contract with his parents and dismissed his claim.  On the counterclaim, the trial judge ordered both son and daughter to account for their management of the estate property and assets since the father's death. The trial judge awarded costs to the daughter on a substantial indemnity basis fixed at $275,000 inclusive, payable by the son and not by the estate of the parents. 

The Court of Appeal allowed the appeal of the dismissal of the son's claim and also reversed the costs award.  The reasons for decision of the appellate court address the following three errors in the trial judge's consideration of the son's claim for part performance of an oral contract (i.e. for the transfer of the farm and farm business):

(i) he erred in concluding that because there were no signed documents, there was no oral agreement;

(ii) he erred in his application of the doctrine of part performance; and

(iii) he made various findings of fact that disclose palpable and overriding error.

The son was awarded $40,000 as costs of the appeal.

Read the decision at: Mountain v. TD Canada Trust Company.

Depth of Cover Monitoring Requirements Absurd? So says the Ontario Divisional Court

Enbridge Gas Distribution Inc. has won an appeal from the dismissal of its small claims court action against a contractor over damage caused to a gas main in Holland Landing, Ontario.  Enbridge claimed that the contractor damaged the pipe when using a mechanical digging device to uncover a leaking septic tank.  Enbridge had asserted at trial that the entire incident could have been avoided if the contractor had called for a locate; the contractor was negligent.  On appeal, the Divisional Court agreed and awarded damages to Enbridge.

At trial and in the appeal, the issue of depth of cover over the pipe came into play.  The trial judge had found that the pipe was not buried at the minimum required depth (2 feet) and that Enbridge should have ensured proper depth.  However, the Divisional Court noted that there is no requirement in the applicable legislation or regulations (or the TSSA Guideline or the CSA Standard) that a gas main must remain installed at the minimum depth.

The Court reasoned:

There is no requirement that Enbridge must continually measure the depths of all of its buried pipelines. Such a finding would lead to the absurd result that utility companies would be required to constantly recheck their lines in the ground. It is a well-established principle of statutory interpretation that the Legislature does not intend to produce absurd consequences. If the Legislature intended this result, the Act, the Regulation, the TSSA Guideline or CSA Standard would have stated that utility companies must ensure that the pipes “remain” buried at a minimum depth.

Unlike the case of Sun-Canadian Pipeline v. Lockwood, where the Court found that the company had actual knowledge that the pipeline had insufficient cover on the property, there is no evidence that Enbridge had knowledge that its Gas Main was at less than the required depth at the property until after the incident occurred.

Although these comments must be read in light of the facts of this particular case, it will no doubt be of concern to pipeline landowners to find an appellate court in Canada suggesting that pipeline companies have no obligation to monitor the depth of cover over their pipelines.  In fact, the Divisional Court suggested that such a requirement would be absurd.

Read the decision at: Enbridge Gas Distribution Inc. v. Froese. 

Have a healthy and productive 2013!

To my readers: please accept my belated wishes of a Merry Christmas and have a very Happy New Year!