REMINDER: CAFA - Farm Tax & Legal Update - Thursday, October 17, 2019 - Waterloo, ON

The Canadian Association of Farm Advisors will hold its Annual Farm Tax & Legal Update for 2019 at St. George's Banquet Hall in Waterloo, Ontario on Thursday, October 17, 2019.  For the agenda and registration information, visit:
2019 Farm Tax & Legal Update.

This year, I will be making a presentation on "Sowing the Seeds of Litigation - What's Trending in Farm Property Disputes".

Not all Drainage Act appeals are decided on a without costs basis

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

Ontario's Drainage Act provides mechanisms to municipalities and landowners to implement drainage solutions on a collective basis.  On petition by landowners, a municipality may be compelled to construct a municipal drain; a municipality may develop a municipal drain on its own initiative; an existing municipal drain may be reconstructed, improved, or maintained.  Costs associated with the municipal drain, including engineering costs, are generally shared by the owners of the lands that outlet to the drain, with each owner responsible for an amount proportional to his or her respective share of the total drainage area.

Disputes related to municipal drains are often the subject of appeals by affected landowners to the Agriculture, Food and Rural Affairs Appeal Tribunal.  Landowners may challenge the necessity for the drainage work being proposed by a municipality and its drainage engineer, the scope or extent of the drainage work, the cost of the drainage work, or the portion of the cost of the drainage work being charged to the landowner.  In the normal course, the parties to a drainage appeal before the Tribunal bear their own costs of litigation, such as legal fees and disbursements; cost awards against a party are exceptional.  However, no party should assume that an adverse cost award might not be made in the right circumstances.

The Tribunal's Rules of Procedure include the following commentary on appeal costs:

Costs are a sum of money ordered to be paid from one party to another party in order to cover only this party's expenses incurred for preparation and attending the proceeding. This may include such things as preparation and hearing time for counsel, consultant and witness fees, and travel expenses. It does not include business or personal financial losses. If the party's conduct caused such losses, however, this conduct may be included in considering a cost order.

A cost order may be made if a party requests it, if one party has in the Tribunal's opinion acted inappropriately, as in Rule 28.04. Such orders and the amount awarded are to discourage conduct that wastes a great deal of the Tribunal's and parties' time as well as other resources. Note that for matters under the Drainage Act, costs are awarded only as provided in that Act.

An order for costs is very rare. Recovery of costs is not standard as in court proceedings. It is only where the Tribunal finds that a party wrongly brought the appeal or participated unacceptably in preparation or hearing events, that an award of cost will be made. Only a party may make a request for costs. Participants, witnesses or others without official party standing can request or receive costs only in the most unusual circumstances. [emphasis added]

According to the Rules, a party to a drainage appeal may ask for an award of costs where another party has "acted clearly unreasonably, frivolously, vexatiously or in bad faith considering all of the circumstances."  Conduct that might warrant an award of costs can include failing to attend the hearing, changing a position without notice, failing to prepare adequately for hearing events, failing to present evidence, acting disrespectfully or maligning the character of another party, or knowingly presenting false or misleading evidence.

In a drainage appeal decision released in January of this year, the Tribunal ordered an appellant landowner to pay the respondent municipality nearly $6,000 in costs.  The landowner had brought an appeal challenging the quality of construction of drainage works, which is a proper issue for appeal under the Drainage Act.  However, the Tribunal found that the landowner provided no reliable evidence of any quality of construction issue and, in fact, that the landowner's true complaint was about the design of the drainage works.  The design of the works was not something that could be appealed to the Tribunal by that point in time, and the Tribunal dismissed the appeal.

The respondent municipality had communicated to the landowner early in the appeal process that the appeal did not actually raise quality of construction issues, and warned the landowner that the municipality might seek costs if the appeal continued.  This communication apparently resulted in a settlement between the landowner and the municipality, but the landowner almost immediately rescinded the settlement.  In its costs decision, the Tribunal concluded that the landowner understood the deficiencies in its appeal, but continued nevertheless, "using the appeal process and potential associated costs as a negotiating tactic to get the Township to fund some or all of its private drainage works of approximately $25,000."

The Tribunal ordered the appellant landowner to pay the municipality its legal costs and engineering costs related to the appeal incurred after the failed settlement, and authorized the municipality to enter the cost award immediately on the tax roll of any land owned by the appellant assessed under the particular municipal drain at issue.  The Tribunal found that the landowner had failed to produce any evidence in support of its quality of construction appeal and, more importantly, that the landowner had unreasonably reneged on its settlement with the municipality.  But for this conduct, the municipality would not have incurred the costs awarded by the Tribunal.

Read the decision at: Ellis Drain Branch 'A' 2017.

Who will clean up when the tenant walks away?

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

When a residential tenant vacates a farmhouse, they may leave behind personal items; they may leave behind a mess.  The landlord might succeed in requiring the former tenant to clean up, or the landlord himself or herself might have to clean up.  When there’s a change in a farm land tenancy, the landlord or the new tenant may need to apply fertilizers or pesticides, pick stones, or conduct extra tillage to transition from the previous tenant’s cropping practices to new ones.  But what happens when an industrial tenant or occupant of a farm property walks away or goes bankrupt?  What happens when an oil well, a pipeline, or a wind turbine is abandoned in place?

The Supreme Court of Canada very recently addressed this question in the context of orphaned oil wells in Alberta.  An orphan well is one for which the cost of remediation required for abandonment of the well exceeds the actual monetary value of the well.  The Supreme Court was tasked with deciding whether a bankruptcy trustee, in administering the estate of a bankrupt oil and gas company, can renounce or disclaim the company’s interests in orphan oil wells (and walk away from remediation obligations) while at the same time selling off the company’s other valuable wells and assets in order to maximize the recovery by creditors. 

The case involved Redwater Energy Corporation, a publicly traded oil and gas company. In 2015, Redwater's principal secured creditor, the Alberta Treasury Branches ("ATB"), commenced enforcement proceedings after Redwater couldn't meet its financial obligations.  On May 12, 2015, Grant Thornton was appointed Receiver for Redwater under the Bankruptcy and Insolvency Act ("BIA").  In July, 2015, Grant Thornton told the Alberta Energy Regulator (“AER”) that it would be taking control of only 20 of the 127 Redwater oil and gas licences.  The AER responded by issuing orders "for environmental and public safety reasons" requiring the abandonment and remediation of the 107 wells that the Receiver was looking to “disclaim”.  In October, 2015, a bankruptcy order was issued for Redwater.  In November, 2015, Grant Thornton, now trustee in bankruptcy for Redwater, disclaimed the assets it had previously renounced in its capacity as Receiver, and indicated to the AER that it did not intend to comply with the environmental remediation orders.

The AER and the Orphan Well Association ("OWA") brought court applications for declarations that the disclaimer was void.  They also sought an order compelling Grant Thornton, as trustee, to comply with the abandonment and remediation orders issued by the AER.  Grant Thornton brought a cross-application for approval of the sale of certain assets, and a ruling on the constitutionality of the AER's position.  At first instance, the Chambers Judge sided with the trustee in bankruptcy.  On appeal before the Alberta Court of Appeal, two of three judges sided with the Trustee, while one judge would have ruled that a portion of the sale proceeds from the viable wells must be set aside to meet the expected cost of remediating the orphan wells.

The Supreme Court of Canada was also split on the case (5-2), but this time in favour of the AER position.   The majority found that the AER’s use of its regulatory powers to require remediation of the environment was not in conflict with the BIA, so that the doctrine of federal paramountcy (which would resolve the conflict in favour of the federal bankruptcy legislation and against the provincial energy and environmental legislation) was not triggered.  The Court found that the BIA did not empower the bankruptcy trustee to walk away from the environmental liabilities of the estate it was administering.  Also, as the AER was not asserting any claims provable in the bankruptcy, the AER’s exercise of its authority did not upend the priority scheme established by the BIA.  The AER regulatory scheme and the federal bankruptcy scheme co-existed with and applied alongside each other.

As Chief Justice Wagner wrote:

Bankruptcy is not a licence to ignore rules, and insolvency professionals are bound by and must comply with valid provincial laws during bankruptcy. ... The Abandonment Orders and the LMR requirements are based on valid provincial laws of general application — exactly the kind of valid provincial laws upon which the BIA is built. … End-of-life obligations are imposed by valid provincial laws which define the contours of the bankrupt estate available for distribution.

Leases, easement agreements, and other similar land use agreements can and often do contain clauses requiring the tenant or occupant to remove its facilities and to restore the land to previous conditions once the tenant or occupant ceases operations and vacates the land.  However, the protection afforded to landowners in such clauses is only as good as the tenant or occupant – if operations have ceased, and there is no money left, the promise to clean up and restore the property is an empty one.  Wherever possible, landowners should require additional security to guarantee fulfillment of contractual clean-up and restoration obligations by tenants and occupants.  Landowners should not assume that government funds for orphaned and abandoned facilities will be sufficient or even available.

Read the Supreme Court's decision at: Orphan Well Association v. Grant Thornton Ltd.

Warrantless Powers of Inspection under the Environmental Protection Act

AS PREVIOUSLY PUBLISHED IN
THE RURAL VOICE:  

Section 156(1) of Ontario’s Environmental Protection Act (“EPA”) authorizes a provincial officer, without a warrant or court order, to inspect any location in which or from which a contaminant “is being, has been or may be discharged in to the natural environment.”  In order to exercise this power of entry and inspection, however, the provincial officer must first have a “reasonable belief” about the discharge or risk of discharge.  The Court of Appeal for Ontario recently interpreted this reasonable belief standard in deciding an appeal related to a charge of hindering or obstructing a provincial officer in the performance of his duties.

On November 22, 2013, a municipal by-law officer was advised by a resident about construction debris being hauled onto a neighbouring property and burned.  The by-law officer attended at the resident’s property, and from there observed a large fire on the neighbouring property.  Although the officer was not able to identify with certainty what material was being burned, he observed that the material included wood.  He did not detect any unusual colour or smell.

The by-law officer informed the Ministry of the Environment (“MOE”) of his observations.  About four hours later, two MOE inspection officers attended at the neighbouring property, together with the municipal by-law officer and two Regional Police officers.  At the trial of the hindering and obstructing charge in the Provincial Offences Court, one of the MOE officers testified that, based on information provided to him by the by-law officer, he had three concerns: 1) waste was being transported to and disposed of on the neighbouring property (which is an activity regulated under the EPA); 2) waste was being burned; and, 3) compounds generated by the burning of the waste would be emitted as smoke into the environment.

Importantly, the MOE officer did not personally see smoke or fire until after he had entered the neighbouring property.  Once on the property, the MOE officer observed smoke from a “fairly substantial fire” of broken wood.  The owner of the property was present, and the MOE officer advised the owner that he wanted to inspect the fire to determine whether or not waste was being burned, and whether the burning constituted a contravention of the EPA.  The property owner told the MOE officer that open burning was occurring on his property.  In response to a question from the by-law officer, the owner said that he was burning debris from a demolished barn on the property.  But the owner denied the officers access to inspect the fire, and asked the officers to leave.  The officers left.

The property owner was charged under the EPA with hindering or obstructing the MOE officer in the performance of his duties for having denied access to inspect the fire.  The essential facts of the case were uncontested at trial; the property owner admitted that there had been an open fire burning on his property and that he had prevented a provincial officer from entering the property to inspect the fire.  A Justice of the Peace convicted the property owner, but the conviction was overturned on an initial appeal to a Judge of the Ontario Court of Justice.   The Crown appealed the acquittal to the Court of Appeal, which allowed the Crown’s appeal and restored the conviction.  The issue on the Crown’s appeal was whether the MOE officer had the pre-existing reasonable belief necessary to permit him to enter and inspect the property without a warrant or court order.

What does “reasonable belief” mean in the context of the warrantless power of entry and inspection in the EPA?  Chief Justice Strathy observed that, “a belief is a state of mind.  It is an acceptance of the truth of something, without necessarily having personal knowledge of its truth.”  A “reasonable belief” is “one that a reasonable person would hold, based on the existence of some objective evidence to support the belief.” 

In the EPA-context, the provincial officer must have a subjective belief in the discharge or potential discharge of a contaminant, and that subjective belief must have an objective basis at the time it is formed: “While the provincial officer may be required to explain his or her belief after the fact, as is the situation in this case, the reasonableness of the belief is based on the provincial officer’s assessment of the information available at the time the power of inspection is invoked.”  In the case under appeal, Chief Justice Strathy found that, on the day in question and at the moment the MOE officer had requested access to the owner’s property to inspect the fire, the MOE officer had the reasonable belief to authorize a warrantless entry and inspection.  The information received by the MOE officer prior to his attempt to enter the property – reports that waste was being brought onto the property and smoke was being generated from an open fire – was sufficient to support a reasonable belief.

Property owners faced with a request by a provincial officer for access to permit an inspection under the EPA should consider seeking legal advice where possible.  Permitting access may ultimately lead to regulatory liability, but denying access may give rise to additional liability.

Read the decision at: Ontario (Environment and Climate Change) v. G.

Canadian Association of Farm Advisors (CAFA) - 2019 Cultivating Business guide released

The Canadian Association of Farm Advisors (CAFA) has released its 2018-2019 Cultivating Business guide.  In addition to articles on topics of interest to farmers and farm advisors, the guide contains listings of CAFA-certified farm advisors from across Canada.

Normal Farm Practices Board shuts down greenhouse biodigester

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:  

In Ontario, a person affected by a disturbance from an agricultural operation, such as odour or noise, may apply to the Normal Farm Practices Protection Board for a determination as to whether the disturbance results from a “normal farm practice”.  If, following a hearing, the Board determines that the disturbance results from a practice that is not a normal farm practice, the Board must order the farmer involved to cease the practice.

On November 8, 2018, the Board issued its Reasons for Decision in a case involving allegations of disturbances due to odour, flies, dust, light, noise and vibration arising from the operation of a biodigester at a large greenhouse operation.  The Board determined that the operation of the biodigester was not a normal farm practice and ordered that the digester system be shut down immediately.  The Application was brought by a number of residents living in the vicinity of the operation in 2015.  A hearing of the Application was held by the Board over the course of 20 days in December, 2015, and January, April, June, and July, 2016.  In addition to hearing from no fewer than 25 witnesses, the Board received approximately 200 documentary exhibits into evidence.

The Board heard that the biodigester in question had been installed in or about 2008 by the greenhouse operator (now in receivership) at the rear of its greenhouses to provide an alternative source of energy.  Biogas produced by the digester ran a large electrical generator, and the electricity produced was used to heat water to heat the greenhouses.  The system included two enclosed digesters, a large generator, a flare for burning off excess gas, cement bunkers where feedstock for the digesters was stored, and both open and buried tanks for liquid digestate.  Feedstock for the digester has included material such as pet food, coffee grounds, vegetable and flower waste from grocery stores, solids from meat processing, and occasionally manure.

The rural area where the greenhouse operation was located is composed of small farms with narrow frontages, along with a number of residential lots that have been severed from larger farm properties.  Prior to the installation of the biodigester, the neighbourhood was considered to be "a relatively quiet, peaceful rural setting" where disturbances from agriculture were limited to the occasional sound of tractors operating and periodic odour from nearby chicken barns.  Following installation of the biodigester, however, significant disturbances were reported, including offensive odour noticeable almost daily, and an extreme increase in the number of flies around neighbours' homes.

In assessing the application, the first question for the Board was whether one or more of the applicants had proven that he or she was directly affected by a disturbance of odour, flies, dust, light, noise or vibration arising from a practice related to the greenhouse operation.  Although under the test applicable to the application, the Board would only need to find that one of the applicants had been directly affected by one of the alleged disturbances, the Board found that several of the applicants demonstrated that there had been:

"a substantial and repeated interference with the use of their properties by reason of the excessive odour and flies since 2009.  The character of the neighbourhood has been changed by the operation of the digester from a quiet, peaceful rural setting with the occasional sounds and smells of farming to one besieged by almost daily intense odour and hordes of flies."

The next question was whether the operation of the biodigester was a "normal farm practice", which is defined in the Farming and Food Production Protection Act, 1988 as a practice that: (a) “is conducted in a manner consistent with proper and acceptable customs and standards as established and followed by similar agricultural operations under similar circumstances”, or (b) “makes use of innovative technology in a manner consistent with proper advanced farm management practices."  If the Board found that the operation of the biodigester did not meet one or both of those definitions, the legislation would require the Board order the greenhouse operator to cease operation of the biodigester.

With respect to the first definition of "normal farm practice", being one that is conducted in a manner consistent with proper and acceptable customs and standards, the Board found that the greenhouse operator failed to provide sufficient evidence of other similar biodigester systems being used in similar circumstances as the biodigester at issue.  With respect to the second definition of "normal farm practice", being one that makes use of innovative technology, the Board accepted that the use of a biodigester in an agricultural setting, and the use of agricultural waste as feedstock, were innovative.  However, relying on the decision of the Ontario Court of Appeal in Pyke v. Tri Gro Enterprises Ltd., the Board ruled that operation of the biodigester was nevertheless not a "normal farm practice" on account of the intensity and severity of the disturbances caused and the change in the character of the neighbourhood surrounding the greenhouse operation.

The Board also found that the operation of the biodigester could not be modified so as to make it a “normal farm practice”, leaving no option but to shut the digester down.

Read the decision at:  2018 CanLII 107105 (ON NFPPB).

Reminder: Check the property boundary before cutting down (your neighbour's) trees

A Superior Court case heard in April, 2018 involved rural neighbours and the unauthorized removal of trees.  Neighbour O sold trees on his property to the owner of a local sawmill, T.  T apparently had a permit to remove the trees from Neighbour O's property, and took the timber that he had purchased.  T did not, however, have a permit to remove trees from Neighbour M's property, and neither Neighbour O nor Sawyer T had permission from Neighbour M to take down any trees at all on her property.  Unfortunately, T removed 98 mature white cedar trees from a forest area on Neighbour M's property.

Neighbour M sued Neighbour O for damages in trespass.  The trespass was admitted.  However, the parties disputed two issues: 1) a limitation period defence put forward by Neighbour O; and, 2) the amount of damages to be awarded for the trespass, if the limitation period defence did not eliminate the claim entirely.

The Court rejected the limitation period defence.  The trees had been removed by T in February, 2011.  Although Neighbour M did not commence her claim until October, 2013, some 32 months after the trees had been removed from her property (beyond the 2-year limitation period applicable to most damages claims in Ontario), Justice Gordon accepted Neighbour M's explanation that she did not become aware of the tree cutting until November, 2011 (less than 2 years before the action was commenced).  The limitation period did not begin to run until Neighbour M had discovered her claim; Justice Gordon accepted her explanation that she had not visited the area of her property where the trees were located (which was a 15 minute walk from her residence) during the period from February to November, 2011.

As for damages, Justice Gordon decided that, in addition to an award of $8,000 as compensation for the value of the timber taken by T, the cost of restoration was the appropriate measure of damages for the trespass in this case.  He noted that the 98 trees taken had been growing for decades and could not be replaced, and further decided that the natural forest area should be left to re-seed itself.  Replanting was not found to be warranted.  Justice Gordon awarded Neighbour M a further $30,000 plus HST for the cost of "appropriate restoration", which would involve removing broken tree limbs in the canopy and on the forest floor, removing tree tops from timber removed, removing damaged, leaning and spring pole trees, chipping and spreading chips on the forest floor, and cutting stumps to ground level.

Read the decision at: M v. O.

Subsequent agreement doesn't necessarily cancel out pre-existing prescriptive easement

"Good fences do not always make good neighbours." 

I wonder how many court decisions begin with that line or something like it - it seems like it must be a lot.  Madam Justice Gomery of the Ontario Superior Court opens her reasons with that line in a recent case involving a claim for a prescriptive easement in Ottawa.  Neighbours were in court disputing the space between their houses, each built sometime prior to 1928.  The houses are just over 14 feet apart, and a shared driveway runs between the houses.

Neighbour E had lived in the one house since 1980.  Neighbours P moved into the other house in 2003.  Notwithstanding that the driveway had been between the houses for the entire time Neighbours P had occupied their property, they went ahead in November, 2016 and built a fence down the middle of the driveway, just inside their own property line.  Of course, they were still able to use the driveway with the fence in place because they had sufficient space on their side.  On Neighbour E's side, a retaining wall was in place and the space between that wall and the fence was insufficient to allow him to use the driveway.

As noted above, the actual property line ran down the middle portion of the shared driveway.  Neighbour E brought an application for an order recognizing his right to use the full width of the (previously) shared driveway and requiring Neighbours P to remove their fence.  Neighbour E claimed that he had a prescriptive easement (one that arises through use over a period of time) over the driveway.  At issue was whether Neighbour E's enjoyment of the driveway (and that of his predecessors in title) had been with the permission of Neighbours P (and their predecessors in title).  In order for an easement to arise by prescription, the use of the land must be without the permission or objection of the owner of the land involved. 

To succeed in his claim, Neighbour E had to show that the owners of his property had used the shared driveway for a period of at least 20 years prior to 1996 (when the lands were converted into the Land Titles System, which no longer permits the creation of easements by prescription), with the knowledge of the neighbouring landowners, and without their objection or permission.  While Neighbour E had evidence showing such use prior to 1996, he had to deal with the fact that a previous owner had entered into an agreement in 1980 in which each neighbour (predecessors in title to the current owners) had given the other a right to use the shared driveway, and had agreed to share expenses, for a period of 21 years less a day.  Did this agreement mean that use of the driveway was with permission and could not, therefore, give rise to a prescriptive easement?  If an easement had been established prior to 1980, did the agreement cancel the easement out?

Justice Gomery found that the agreement did not erase the prescriptive easement that she found to have existed prior to the agreement made in 1980.  She reasoned that where parties neglect to record an easement on title, that does not defeat the claim for the easement where the Court finds that it exists.  Likewise, the failure by the parties to have recognized the pre-existing easement in the 1980 agreement did not extinguish the pre-existing prescriptive easement.  Justice Gomery ruled in favour of Neighbour E.

Read the decision at: E et al. v. P et al.