Silver Eagle Management Inc. v. Onoway (Town), 2011 ABQB 139

Court of Queen ’ s Bench of Alberta Citation: Silver Eagle Management Inc. v. Onoway (Town), 2011 ABQB 139 Date: 20110308 Docket: 0703 10051 Registry: Edmonton Between: Silver Eagle Management Inc. Plaintiff (Defendant by Counterclaim) - and - Town of Onoway Defendant (Plaintiff by Counter Claim) Corrected judgment: A corrigendum was issued on March 9, 2011; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.M. Ross _______________________________________________________

Introduction [ 1 ] This trial followed the course of an attempted development by Silver Eagle Management Ltd. (the “Developer”) in the Town of Onoway (the “Town”). Between 2005 and 2007, the Developer and the Town entered into three written agreements: A Purchase Agreement and Option to Repurchase, both executed on May 18, 2005, and a Development Agreement, executed on June 26, 2007. The issues raised in the Developer’s claim and the Town’s counterclaim relate to the parties’ rights under the three agreements. Facts [ 2 ] The Developer is solely owned and managed by Stan Slezinsky. In early 2005, Mr.

Slezinsky was looking for development opportunities, and became interested in the town of Onoway. He drove around the town looking for parcels of land, and became interested in a parcel of land 46.25 acres in size (the “Land”) that was for sale by the Town. [ 3 ] The Land had been acquired by the Town as a result of unpaid property taxes. It was zoned for commercial/industrial use. A previous owner had commenced development work in relation to the Land, and had developed a tentative subdivision plan which was approved by the Town, but was not proceeded with in the allotted time.

The Town was interested in seeing the Land developed and was prepared to sell it at a price that both the Mayor, Patrick Yull, and the Town Manager, Joseph Trapani, characterized as very favourable to the purchaser, in order to have development proceed. [ 4 ] The Developer and the Town entered into a written Purchase Agreement on May 18, 2005 under which the Developer agreed to buy the Land for $220,000 and to develop, service and subdivide it for resale. The Purchase Agreement called for a $5000 deposit, and a further $15,000 on the possession date of June 8, 2005.

Both of these amounts were paid and the Land was transferred to the Developer. The remainder of the price, $200,000 was to be paid by June 7, 2007, and was secured by a Vendor Take Back Mortgage in favour of the Town. [ 5 ] The Purchase Agreement included the following relevant terms: 1. The Condition: a. The Purchase Agreement was conditional on the parties agreeing on a development agreement by the Condition Date of August 31, 2005 (Schedule A). b. The Purchase Agreement was to terminate and be voided if parties did not agree on the terms of a Development Agreement by the Condition Date (s. 9). c.

The Condition could “only be waived by an agreement of both parties in writing at any time on or before the Condition Date” (Schedule A). 1. The Option to Repurchase (Schedule C): a. The Town had the option to repurchase the land from the Developer for 25% less than the Purchase Agreement price if:

i. the Developer failed to complete the development by June 7, 2007 or any portion thereof as per the dates in the Development Agreement (s. 2(a)); ii. the Developer tried to sell the land before the condition in s. 2(

a) was completed (s. 2(b)); iii. the Developer failed to complete the subdivision by December 31, 2005 (s. 2(c); iv. the Developer failed to make payments when required under the Purchase Agreement (s. 2(e)). b. The Option to Repurchase had to be exercised within 90 days of any of the above events (s. 2). 1.

Section B of the

preamble to the Option to Repurchase stated as follows: “Whereas... The Grantee agreed to sell the Lands to the Grantor on the condition that the Grantor commence and complete the construction, in accordance with the Development Permit dated on or prior to August 31, 2005 (the “Development Permit”), and the Development Agreement dated on or prior to August 31, 2005 (the “Development Agreement”), of the following development upon the Lands within twenty-four (24) months of the completion of the purchase of the Lands from the Grantee ending June 7, 2007". 2.

The Purchase Agreement provided that the Agreement constituted the entire agreement between the parties and there were no other representations, conditions or warranties with respect to the Agreement (s. 16). [ 6 ] Mr. Trapani, who negotiated the Purchase Agreement on behalf of the Town, testified that the purpose of the two year time frame for development contained in the Purchase Agreement was to ensure that the Land was developed, and that it not be “left to sit” or “flipped”. He advised Mr. Slezinsky that the Town’s intention was to ensure that work was being done.

The Town would work with the Developer to this end and had no intention of enforcing the Option to Repurchase unless nothing was being done with the Land. Mr. Slezinsky also testified that he was told that the Option to Repurchase would not be enforced, provided he was not “just sitting” on the Land, and that he was assured by “everyone” that they were “working with him.” [ 7 ] Commencing in June 2005 the Developer retained David Williams, a planning consultant, to prepare and submit an application for subdivision approval.

One of the first matters to be dealt with was a Traffic Impact Assessment required in order to obtain Alberta Transport approval for access from the north side of the Land to Highway 37. The Developer was interested in highway access, and the previous subdivision plan approved by the Town had included highway access. However, the ultimate decision regarding highway access lay with Alberta Transport. Mr. Williams was concerned that the cost of access would be high and this turned out to be the case. Alberta Transport required acceleration and deceleration lanes; Mr.

Slezinsky obtained an estimate of the cost of construction which he recalled as being in the area of $300,000. In the fall of 2005, Mr. Williams on behalf of the Developer inquired as to the Town’s willingness to share the cost of constructing highway access. The Town was not prepared to do this. [ 8 ] A determination was made to have the development proceed in two stages. Stage 1 of the development consisted of nine lots on the southern part of the Land accessed from Lac Ste. Anne Trail.

Development of the northern part of the Land, and the issue of access to Highway 37 would be left to future development in Stage 2. [ 9 ] Mr. Williams prepared and submitted an application for subdivision approval for Stage 1. This was approved on January 23, 2006. Conditions of approval included entry into a development agreement between the Developer and the Town.

The approval was valid until January 23, 2007, within which time the Developer would have to satisfy the conditions of approval and submit a subdivision plan for registration. [ 10 ] Negotiations regarding a development agreement followed, and an agreement respecting Stage 1 of the development was entered into on June 27, 2006 (the “Development Agreement”). The Town was represented in the negotiations and conclusion of the Development Agreement by its new Manager, Ryan Bard.

The fact that the Development Agreement was executed well after the August 31, 2005 Condition Date in the Purchase Agreement did not concern either party. Mr. Slezinsky testified that it was his view that the Condition in the Purchase Agreement had been met. Mr. Bard testified that no one drew his attention to the Condition Date. He noted that a development agreement would typically follow subdivision approval, so he would not have expected to have the Development

Agreement executed before February 2006, and he was not concerned that negotiations continued until June 2006. [ 11 ] One of the subjects of negotiation in relation to the Development Agreement was the provision of security to be provided by the Developer to the Town at the time of registration of a plan of subdivision. The Development Agreement required security in the form of cash or an irrevocable letter of credit in the amount of 50% of the estimated costs of constructing the required improvements to the Land, including roadwork and site grading, a gravel roadway and cisterns for sewer and water.

The total required security was $130,500. [ 12 ] The Development Agreement included the following additional relevant terms: 1. References to the Purchase Agreement: a.

Preamble: “Whereas the Developer is, or is entitled to become, the registered owner of those lands situate in the Municipality”. b.

Schedule D, s. 2: the Developer relinquished “any interest, claim or approval that the Developer holds for development and construction of an access on to Highway 37 in the event that the Developer does not complete a highway 2A level intersection access within the development time frames” in the May 18, 2005 Purchase Agreement. The Developer also agreed not to “hold the Town liable or bring a legal claim against the Town for giving up this interest, claim or approval, or on any prior representation on the part of the Town that the access would be allowed.” 2. Timelines: a.

The Developer must register a Plan of Subdivision by June 27, 2007 (s.2.2). b. The Developer must submit Plans to the Town, and those plans will include time limits and a construction timetable that must be complied with (ss. 3.1 and 3.5). c. The Developer must commence construction of the Municipal Improvements within 12 months (June 27, 2007) and finish construction within 24 months (June 27, 2008) (s. 5.1). [ 13 ] A limited amount of construction work was done on the Land in 2005. Mr.

Slezinsky arranged for some tree and topsoil removal, but he was not satisfied with the contractor he had hired, and he also did not have engineering drawings to proceed with road construction. In 2006, Mr. Slezinsky had trouble obtaining engineering services. The firm that he had first contracted with was unable to do the work, and he had trouble finding a replacement. On August 8, 2006, he retained the firm of Sheffer Andrew Ltd. to provide design and other engineering services in relation to the development.

As a result of the delay in obtaining engineering services and other issues, only a limited amount of work was done on the Land during the 2006 construction season. The final drawings and subdivision plan for Stage 1 were not submitted to the Town. [ 14 ] Commencing in the fall of 2006 agents for the Developer made a number of requests for extensions of time under the Purchase Agreement, the Option to Repurchase and registration of the Stage 1 subdivision plan.

On October 23, 2006 the Developer’s lawyer requested from the Town a one year extension under the Purchase Agreement and Option to Repurchase to complete the subdivision and development. Mr. Bard replied to Mr. Slezinsky on December 1, 2006, advising that the Town was not prepared to grant this extension. [ 15 ] On December 14, 2006, Mr. Williams applied to the Town Planner for an extension of subdivision approval for Stage 1 for an additional year (from January 23, 2007 to January 23, 2008). Mr.

Williams noted that the legal survey plan was complete, engineering detailed drawings were being finalized, a construction contract had been entered into relating to the road and grading, and contracts signed for overhead power and underground gas. He requested an extension so that the project could be completed during the spring of 2007. On December 21, 2006, the Town Planner extended subdivision approval to June 6, 2007 rather than January 2008, on the basis that an extension beyond that date would conflict with the Purchase Agreement.

[ 16 ] On January 18, 2007 Sheffer Andrew requested an extension to “development and land purchase agreements beyond the current expiry dates of June 7, 2007" to October 31, 2007, “to permit the entire construction season to complete the work”. They cited as reasons for the extension delays arising from the proposed highway intersection, extensive negotiations to put a development agreement in place and difficulties in obtaining engineering services. They requested the extension subject to five conditions: 1.

That an application be made for Stage 2 of the subdivision immediately after the Council meeting on January 22. 2 That satisfactory arrangements be made for the cost sharing of the proposed intersection with the highway, providing that the subject lands benefit, due to improved access to the highway. 3. That engineering drawings for both stages 1 and 2 be completed and submitted for approval by February 28, 2007. 4.

That the developer provides the Town with a signed contract with a qualified contractor prior to the end of March, indicating that the contractor will complete the required site grading, storm water management facilities, and roadwork by the end of August. 5. That the developer provides copies of contracts with Fortis Alberta and Atco Gas for both Stages 1 and 2, indicating they will complete the overhead power and gas distribution prior to the end of the construction season. [ 17 ] On January 22, 2007 Sheffer Andrew’s request was considered at a meeting of Town Council.

The Town agreed to approve the extension of the development “subject to the conditions in the proposal from the Developer’s engineer”, plus the following additional conditions: 1. The Option to Repurchase would be extended to October 31, 2007. 2. The Option to Repurchase could be executed on failure to meet any of the milestone dates stipulated by the Developer. 3. The mortgage final payment would remain due on June 1, 2007. 4. The Developer would complete subdivision registration on both Stage 1 and Stage 2 by June 1, 2007. 5.

The Developer would provide a letter of credit in the amount of $100,000 to the Town as security, which would not be returned to the Developer in the event that the conditions of the extension were violated. [ 18 ] Mr. Bard explained that there were two reasons for the requirement of a letter of credit. One was the Town’s concern regarding delay. The second was that the security required under the Development Agreement was sufficient to cover only 50% of the estimated costs of constructing the required improvements to the Land. [ 19 ] On February 5, 2007, Mr.

Williams submitted an application for subdivision approval for Stage 2 of the subdivision. The proposal did not include access to Highway 37. The application was approved by the Town on March 26, 2007. [ 20 ] The Developer did not accept the conditions stipulated by the Town on January 22, 2007. There was discussion regarding the conditions at a meeting between Mr. Slezinsky and representatives of the Town on January 31, 2007. Mr. Slezinsky expressed concerns not only with the Town’s conditions, but with some of the proposals that had been put forward by the Developer’s engineer.

He was particularly concerned with the requirement to provide a letter of credit. Mr. Slezinsky’s concerns were subsequently addressed at a

Town Council meeting. On February 22, 2007, Mr. Bard advised Mr. Slezinsky that the Town was not prepared to alter the conditions stipulated on January 22, 2007. [ 21 ] Following this impasse, no further steps were taken towards registration of a subdivision plan. The Developer did not provide the security referred to in the Development Agreement or the additional letter of credit referred to in the January 22, 2007 conditions.

No further construction was undertaken on the Land. [ 22 ] On June 7, 2007, the Developer tendered final payment on the mortgage. [ 23 ] On July 12, 2007, the Town served notice on the Developer that it was exercising the Option to Repurchase. [ 24 ] On August 8, 2007, the Developer started this action against the Town, seeking damages and a declaration that its obligations under the Purchase Agreement are completed. [ 25 ] On August 30, 2007, the Town counter-claimed, seeking a declaration that it has a valid option to purchase the land and specific performance of that option.

The Developer’s Claim [ 26 ] The Statement of Claim alleges that the Town breached the Purchase Agreement by withdrawing its agreement to access on Highway 37. The evidence did not establish any such breach by the Town. The Developer chose not to pursue access to Highway 37 because of the cost that would be involved to comply with Alberta Transportation requirements.

Further, in the Development Agreement, the Developer relinquished any claim to access on Highway 37 if it did not complete a highway 2A level intersection access within the development time frames, and agreed not to hold the Town liable or bring a claim against the Town for giving up this interest or based on any representation on the part of the Town that the access would be allowed. [ 27 ] The Statement of Claim also alleges that the Town interfered with the relationship between the Developer and its mortgagee.

There was no evidence called in relation to this claim. [ 28 ] The Statement of Claim alleges that it was a term of the Purchase Agreement and the Option to Repurchase that the Town “would cooperate in the development and subdivision” and would “not take any action, directly or indirectly, that would impede or prevent” the development. Accepting that this was an implied term of the Purchase Agreement, the evidence did not establish a failure to cooperate on the part of the Town, or any action by the Town that would impede or prevent the development.

The Town promptly approved the Developer’s applications for subdivision approval. There was no issue regarding the conditions of subdivision approval imposed by the Town. [ 29 ] The Developer has not proven a breach of the Purchase Agreement or any other action by the Town that would give the Developer any basis to claim a damages award against the Town.

Because of this, I have not reviewed the expert and other evidence that was called at the trial relating to damages, in the sense of either a loss of the value of the proposed development or out-of-pocket expenses incurred by the Developer. [ 30 ] In addition to claiming damages, the Developer also seeks a declaration that it has performed its obligations under the Purchase Agreement and that the Town has no further interest in the Land.

A determination in relation to this claim requires a consideration in more detail regarding the Developer’s obligations and the timelines associated with those obligations, which will be addressed in the context of considering the Town’s Counterclaim. I will therefore return to the issue of what, if any, declaratory relief the Developer may be entitled to after I have considered the Counterclaim.

The Town’s Counterclaim [ 31 ] The Town’s Counterclaim alleges that the Town properly exercised the Option to Repurchase on July 12, 2007. [ 32 ] The Developer advanced three arguments that the Option to Repurchase was not capable of being exercised or was not properly exercised. 1. Exercise of Option to Repurchase Contrary to Representations [ 33 ] The Developer argued that the exercise of the Option to Repurchase was contrary to representations made by Mr. Trepani to Mr.

Slezinsky that the Town would not enforce the Option to Repurchase unless no work was proceeding on the Land and that the Town would cooperate with the Developer. The Town has a number of responses to this allegation. [ 34 ] First, the Town argues that any such verbal representation would not alter the terms of the written Purchase Agreement, as the Purchase Agreement provided that it constituted the entire agreement between the parties and there were no other representations, conditions or warranties with respect to the Agreement (s. 16).

The Purchase Agreement is a formal written agreement entered into by parties who were both represented by lawyers during the negotiation and drafting of the agreement, and who had full opportunity to be informed regarding the content and meaning of the agreement. Both parties were certainly fully aware of the existence and terms of the Option to Repurchase. [ 35 ] Second, the Town points out that for a representation to give rise to legal rights, much more must be proved than the existence of the representation itself.

For example, it must be shown that the representation was relied upon by the representee to his or her detriment. The evidence does not show such reliance in this case. There is no suggestion that the Developer was misled as to feasibility of a two-year timeline for construction, or regarding the need to proceed to take steps to achieve the subdivision and development in that period of time. Mr. Williams testified that he was promptly retained by the Developer and that Mr. Slezinsky was in constant contact and pushing for completion.

As time went on, there were delays and complexities associated with the development. These related to issues arising from the cost of highway access and the difficulty of obtaining engineering services at a time when the Alberta economy was booming. The issues were not caused or contributed to by the Town. Further, as the Developer took steps to deal with the issues and consequent delays, there is no suggestion that the representations had the effect of lulling the Developer into a false sense of security that the time line would not be relied upon.

To the contrary, the Developer’s agents demonstrated a full awareness of the impending deadline, and commenced negotiations well in advance of that deadline for a extension. [ 36 ] Third, for a representation to cause harm it must, of course, be false. Mr. Trepani’s statements to Mr. Slezinsky were essentially that the Town was concerned to have work proceed on the Land, that the Town was prepared to cooperate with the Developer to facilitate this, and that the Town would be reasonable. In my view, the Town’s actions were fully consistent with these representations.

The Town was not prepared to waive the time line in the Purchase Agreement, but it was prepared to grant a reasonable extension. Counsel for the Developer argued that the Town placed unreasonable conditions on the extension sought by the Developer’s engineers. The evidence does not establish this. The Town was prepared to grant the full extension sought by the engineers. It did seek security as a condition of that grant, but there is nothing in the evidence that indicates that the security sought was unreasonable.

The security sought by the Town was in the same form that had been agreed to by the Developer in the Development Agreement, which was to be provided under that Agreement when the subdivision plan was submitted for registration. The amount of security, even including the additional amount stipulated on January 22, 2007, was still less than the estimated cost of constructing the required improvements to the Land.

And the security was just that, security, intended only to guarantee that the Developer would comply with the contractual obligations it had already agreed to, within the extended time lines proposed by its own engineers. [ 37 ] I accept the Town’s arguments in relation to the representations and find that the representations made by Mr. Trepani did not alter the provisions of the Option to Repurchase and, in any event, the exercise of the Option to Repurchase was not contrary to those representations. 2. Purchase Agreement and Option to Repurchase Voided

[38] The Developer argued that the Purchase Agreement, and the Option to Repurchase which depended on the validity of thePurchase Agreement, were both voided due to non-compliance with the Condition that the parties agree to a development agreement bythe Condition Date of August 31, 2005. The Purchase Agreement provided that the Condition could “only be waived by an agreement ofboth parties in writing at any time on or before the Condition Date”.

The Purchase Agreement further provided that it would be voided ifthe Condition was not satisfied or waived in the stipulated time period. [39] The parties did not enter into a written waiver agreement before or after the Condition Date. The Development Agreementwas not executed by the parties until June 27, 2006. [40] The Developer’s argument is that under the Purchase Agreement, the Condition was a “true condition precedent”, “anexternal condition upon which the existence of the obligation depends”: Turney v. Zhilka, (SCC), [1959] S.C.R. 578 at583.

True conditions precedent cannot be waived because “there is no right to be waived. . . Until the event occurs there is no right toperformance on either side. The parties have not promised that it will occur”: Turney, at 583-584. Although the rule that true conditionsprecedent cannot be waived has been somewhat controversial, it was upheld by the Supreme Court of Canada in Barnett v. Harrison, (SCC), [1976] 2 S.C.R. 531.

However, the Court in Barnett did note at 559 that parties could avoid the rule by writinginto the agreement that the rule should not apply. [41] In most cases that address waiver of a true condition precedent, one of the parties sues for specific performance of a contract,even though the condition precedent has not been fulfilled.

Turney and Barnett both fall within this category. [42] In this case, if the Town had applied for specific performance of the Purchase Agreement prior to June 27, 2006, the casewould have fallen in this same category and the Developer would likely have been successful in defending the suit by arguing that a truecondition precedent to the Purchase Agreement had not been met and could not be waived. [43] The Condition meets the test of a true condition precedent. It was not a promise by either party.

Whether the parties agreeupon a Development Agreement is an uncertain event that is not in the sole control of either party. Further,

section 9 of the PurchaseAgreement states that if the Condition was not satisfied, the Deposit and possession date payment were to be returned and the PurchaseAgreement is to be voided. In other words, the parties did not intend the Purchase Agreement to exist if the Condition was not met. [44] In addition, because the Condition was an agreement to agree, it was unenforceable; neither party could insist that the otherparty enter a Development Agreement: Brown's Cleaners and Tailors Limited v. OMERS Realty Corporation, 2010 ONCA 599 atpara. 4; 77316 Alberta Inc. v.

Command Drilling Corporation, 2009 ABCA 169. [45] However, this case is distinguishable from Turney and Barnett because the parties did eventually enter into the DevelopmentAgreement. I agree with the Town’s position that that fact fundamentally alters the nature of the issue. The issue is not whether theCondition could be waived, but whether it was varied. [46] The Town cites, from G.H.L.

Fridman, The Law of Contract in Canada, 2nd ed. (Toronto: Carswell, 1986) at 510-11, thefollowing distinction between waiver and variation: Two important methods of changing the original duty to perform created by a contract are by variation of the contract and waiver ofrights arising thereunder. These two methods must be carefully distinguished. In cases of variation what happens is that, by mutualagreement, for the benefit or convenience of both parties, there is a later alteration of an original agreement.

Where waiver is alleged tohave occurred, however, the change is for the benefit or convenience of one party only, and the other party is said to acquiesce in suchchange in the original terms of their contract. . . . Where waiver is alleged, the suggested alteration is, at the most, implicit from whathas occurred. Furthermore, where the variation is operative, the first agreement must now be considered to have been completelychanged in respect of the variation in question.

If waiver is alleged, however, the original rights and duties of the parties remainunchanged. [47] Parties can vary the terms of their contract if they agree to do so and if there is consideration passing. In Hyslip v. MacLeod

Savings & Credit Union Ltd. (1988), (AB KB), 90 A.R. 141 (Q.B.), at 153, Yanosik J. set out the definition andrequirements of variation: It may be stated as a general principle that the parties to a concluded agreement may by agreement vary the terms of their concludedagreement, and that such variation may be by express agreement or may be implied by conduct. An agreement varying an existingagreement must in itself amount to a valid contract. To effect a variation the parties must be ad idem in the same sense as for theformation of a contract, and there must be consideration passing.

Where an agreement is varied it then operates according to thevariation, and the original term or terms cannot be set up by one of the parties against the other. A variation cannot occur by a unilateralnotification by one party to the other, without any agreement, but if the variation is made unilaterally by one party and accepted by theother party and there is valid consideration passing, a variation of the original agreement can occur. [48] In Hyslip, the plaintiff borrower and defendant lender were parties to a loan agreement.

As a condition precedent to the loanagreement, the interest rates could not be raised above a certain rate. However, the lender raised the interest rates above that set rate morethan once. For each of these increases, the borrower had been aware of the increases, had paid those increases, and in fact at one pointhad even been a director on the lender’s board and had voted in favour of the increases.

Years later, the borrower brought an action torecover the overpayment of interest. [49] In Hyslip, the defendant lender argued that the borrower waived his right to rely on the condition precedent, but Yanosik J.found that the case was better characterized as variation (at 155): With respect to the doctrine of waiver first mentioned as a defence of Hyslip's claims, I am not so certain that waiver has beenestablished, or that it applies in this case.

In my view the issues can be decided by determining whether or not there was a variation ineach case of the terms of the original agreement with respect to the interest rate, and for that matter the amount of the semi-annualpayments, and if not, whether the doctrine of estoppel applies. [50] In the result, Yanosik J. dismissed the borrower’s claim, finding that the original contract had been varied by the conduct ofthe parties. The parties had come to another agreement. [51] I agree with the Town that the present case is best characterized as variation, not waiver.

When the parties finally entered theDevelopment Agreement on June 27, 2006, they came to another agreement and that act varied the Condition in the PurchaseAgreement. [52] The most reasonable conclusion to draw from the Development Agreement is that when the parties executed theDevelopment Agreement, they intended the May 18, 2005 Purchase Agreement to be binding on the parties. The

preamble to theDevelopment Agreement states “WHEREAS the Developer is, or is entitled to become, the registered owner of those lands situate in theMunicipality as described in

Schedule “A” attached to this agreement,” which implies that an agreement to purchase must exist betweenthe parties. The lands described in

Schedule “A” are the lands that are the subject of the Purchase Agreement. Further, the DevelopmentAgreement explicitly refers to the Purchase Agreement at least once (see

section 2 of

Schedule D). [53] When the parties agreed to enter into the Development Agreement on June 27, 2006, the act of entering that agreement variedthe Condition in the Purchase Agreement. For a variation to be valid, the parties must agree to the variation, and consideration mustflow: Hyslip at 153. Here, both parties agreed to the variation by signing the Development Agreement. Further, both parties wanted tocontinue with the contract and would benefit from doing so, thus consideration flowed in both directions.

I conclude that the Conditionwas validly varied to remove the August 31, 2005 deadline. [54] As a result of the variation, on June 27, 2006 the Purchase Agreement, the related Option to Repurchase, and theDevelopment Agreement were valid, existing contracts. [55] This is not only the most reasonable

interpretation of the contracts, it is also accords with the evidence as to the parties’intention, since both parties continued to act under the Purchase Agreement and the Development Agreement until this litigation startedin 2007.

3. Purchase Agreement and Option to Repurchase Varied [ 56 ] The Developer’s alternative argument is that the Purchase Agreement and Option to Repurchase were varied when the parties entered into the Development Agreement, not only as to the Condition Date, but also regarding other timelines in the Purchase Agreement and Option to Repurchase, including the June 7, 2007 date for completion of construction. The Development Agreement substituted June 26, 2008 as the new date for completion of construction.

The Developer also argues that, when the Town attempted to exercise the Option to Repurchase on July 12, 2007, the Developer was unable to comply with the new deadline and the agreements were frustrated. [ 57 ] The Option to Repurchase in

Schedule C of the Purchase Agreement included a number of events which would trigger the Town’s right to repurchase the land from the Developer for 25% less than the original purchase price.

The relevant triggers were: 1. if the Developer failed to complete the development by June 7, 2007 or any portion thereof as per the dates in the Development Agreement (s. 2(a)); or 2. if the Developer failed to complete the subdivision by December 31, 2005 (s. 2(c)). [ 58 ] The Option to Repurchase had to be exercised within 90 days of any of the above events. [ 59 ] Since the Purchase Agreement and Option to Repurchase continued in effect after June 26, 2006, each of these terms still existed unless it was varied by the Development Agreement. [ 60 ] For ss. 2(

a) or 2(

c) to be varied by the Development Agreement, the parties would have had to agree to the variations. In other words, the parties had to come to a meeting of the minds, or consensus ad idem . It is important to note that consensus ad idem is an objective, not a subjective test. As noted by the Alberta Court of Appeal in Ron Ghitter Property Consultants Ltd. v. Beaver Lumber Company Limited , 2003 ABCA 221 , at para. 9 , the test is whether “it is clear to the objective reasonable bystander, in light of all the material facts, that the parties intended to contract and the essential terms of that contract can be determined with a reasonable degree of certainty.” [ 61 ]

Section 2(

a) triggered the option if the Developer failed to complete the Development by June 7, 2007 or any portion thereof as per the dates in the Development Agreement.

Section 1 of the Purchase Agreement defined “Development” as “construction on the Lands in accordance with the Development Agreement between the Vendor and the Purchaser referred to in

Schedule “A” of this agreement”. [ 62 ] In other words, under s. 2(

a) of the Option to Repurchase the Town’s option was triggered either if:

i) the Developer did not complete all of the construction in the Development Agreement by June 7, 2007, or ii) the Developer did not meet any of the deadlines for any portion of the development as set out in the Development Agreement. [ 63 ] It is noteworthy that the Development Agreement itself and thus the deadlines in it applied only to a portion of the Development contemplated in the Purchase Agreement (i.e., to Stage 1 only). There are many deadlines in the Development Agreement which fell after June 7, 2007. For example,

section 2.2 of the Development Agreement provided that the Developer must register a Plan of Subdivision by June 26, 2007. No reasonable bystander would find that the parties intended that the Developer must complete construction of the entire Development before the Plan of Subdivision for Stage 1 even had to be submitted. Further,

section 5.1 of the Development Agreement provided that the Developer must commence construction on Stage 1 by June 26, 2007, and complete construction on Stage 1 by June 27, 2008. It does not make sense to have the deadlines for a portion of the Development, Stage 1, come after the deadline for completion of the entire Development. In my view, a reasonable bystander would conclude that the June 7, 2007 deadline for completion of the Development was varied by the Development Agreement.

[ 64 ] It is important to note that the rest of the

section remained unchanged. Thus the Town had a valid option to repurchase the property if any of the timelines in the Development Agreement were not met. However, this option had to be exercised within 90 days of the breach. [ 65 ] If the Developer failed to meet construction deadlines in the Development Agreement within 90 days prior to July 12, 2007, the Option to Repurchase would have been validly exercised under s. 2(a).

However, the evidence was that construction on Stage 1 had been commenced by June 26, 2007, as required by the Development Agreement, and the date for completion of construction, June 26, 2008, had not been reached. The Town did not have a right to exercise its option under s. 2(

a) as none of the triggering events had occurred. [ 66 ]

Section 2(

c) triggered the option if the Developer failed to complete the subdivision of the land by December 31, 2005. This

section does not simply require that an application for subdivision must be submitted by the deadline, but it requires that the subdivision be “complete” by December 31, 2005. This implies that all conditions on the subdivision approval, such as registering a Plan of Subdivision, must have been completed by that date as well. [ 67 ]

Section 2 of the Development Agreement is entitled “Plan of Subdivision”. It sets out each of the steps that the Developer must complete and the requirements the Developer must meet, relating to the Plan of Subdivision.

Section 2.2 states in part as follows: The Developer covenants and agrees that it shall register in the Land Titles Office for the North Alberta Land Registration District a Plan of Subdivision for the Development Area within Twelve (12) months of the date of this Agreement. [ 68 ] This step is the last step described in the Development Agreement that is required for subdividing the property, the reasonable

interpretation is that this is the final step required to “complete the subdivision”. [ 69 ] In

summary, s. 2(

c) of the Option to Repurchase triggered the option if the Developer failed to complete the subdivision of the land by December 31, 2005. This provision was varied by the Development Agreement which required the Developer must register a Plan of Subdivision for Stage 1 by June 26, 2007. As a result, the Town had a valid option to repurchase if the Developer did not register a Plan of Subdivision - in other words, complete the subdivision by June 26, 2007. In this case the extended timeline was not met by the Developer.

The Developer had not registered a Plan of Subdivision for Stage 1 (or Stage 2) of the development by June 26, 2007. This was before the Town exercised the Option to Repurchase, so there is no basis to argue that the Developer was unable to meet this deadline due to the Town’s action, or that the agreements had been frustrated at this time. [ 70 ] As the Option to Repurchase was exercised within 90 days of the Developer’s failure to meet the June 26, 2007 deadline to register a Plan of Subdivision, I conclude that the Town was entitled to and did properly exercise its option under s. 2(c).

Pleadings [ 71 ] At trial, counsel for the Town submitted that he was surprised by his friend’s arguments on behalf of the Developer that the Condition had not been waived, that the Purchase Agreement and Option to Repurchase were invalid, and that the agreements had been varied. [ 72 ]

Section 13.6(3) of the Alberta Rules of Court , Alta. Reg. 124/2010, lists a number of arguments that must be pled in the pleadings if a party wishes to rely on them at trial: 13.6(3) A pleading must also include a statement of any matter on which a party intends to rely that may take another party by surprise, including, without limitation, any of the following matters:

(

a) breach of trust; (

b) duress; (

c) estoppel; (

d) fraud; (

e) illegality or invalidity of a contract, including the grounds; (

f) malice or ill will; (

g) misrepresentation; (

h) payment; (

i) performance; (

j) release; (

k) undue influence; (

l) voluntary assumption of risk; (

m) waiver; (

n) lack of capacity or authority; (

o) wilful default; (

p) tender of payment; (

q) a limitation period; (

r) a provision of an enactment.

[ 73 ]

Section 109 of the old Alberta Rules of Court , Alta. Reg. 390/1968, which were in place at the time that the pleadings were filed, states as follows: When specific pleading required 109 A party shall in any pleading subsequent to a statement of claim plead specifically any matter, for example, performance, release, payment, any statute of limitation, statute of frauds, fraud or any fact showing illegality (

a) which he alleges makes any claim or defence of the opposite party not maintainable, or (

b) which, if not specifically pleaded, might take the opposite party by surprise, or (

c) which raises issues of fact not arising out of the preceding pleading. [ 74 ] In the result, I have found that the Purchase Agreement and Option to Repurchase were valid and that waiver is irrelevant. The only remaining concern, then, is that neither party pleaded variation. [ 75 ] In determining whether a contract has been varied, a court is simply determining what the true agreement is between the parties. In the present case, determining whether the Purchase Agreement and Option to Repurchase were varied came down to reconciling inconsistent terms between those contracts and the Development Agreement.

The Development Agreement itself was pled in the Town’s Statement of Defence, and was entered in evidence as part of a joint Agreed Book of Exhibits. The question of variation in this case was basically a matter of interpreting three written contracts between the parties, contracts which were clearly placed before the Court, and the

interpretation of which should not have taken either party by surprise. Conclusion [ 76 ] The Developer did not make out its claim for damages, and, as it did not comply with its obligation under the varied Purchase Agreement and Option to Repurchase and under the Development Agreement to register a plan of subdivision by June 26, 2007, its claim for declaration that it has complied with its obligations is also dismissed. [ 77 ] The Town has established the validity of the Purchase Agreement and Option to Repurchase, its entitlement to exercise the Option to Repurchase under s. 2(

c) and its proper exercise of the option. The Town’s claims for a declaration to this effect and for specific performance of the Option to Repurchase are allowed. [ 78 ] The Town did not provide evidence that it has suffered damages as a result of the Developer’s refusal to complete the transfer of the Land under the Option to Repurchase. The Town’s claims for damages are therefore dismissed. [ 79 ] The parties may speak to me regarding costs, if they are unable to agree. Heard on November 1, 2, 3, 4 & 5, 2010.

Dated at the City of Edmonton, Alberta this 4 th day of March, 2011. J.M. Ross J.C.Q.B.A. Appearances: Jessica Chapman/Michael D. Thomas for the Plaintiff (Defendant by Counter Claim) Jonathan W. McCully for the Defendant (Plaintiff by Counter Claim) _______________________________________________________ Corrigendum of the Memorandum of Decision of The Honourable Madam Justice J.M. Ross _______________________________________________________ The citation should read Silver Eagle Management Inc. v. Onoway (Town), 2011 ABQB 139.