Rocky View Water Co-Op Ltd v Cidex Developments Ltd, 2021 ABQB 594

Court of Queen’s Bench of Alberta Citation: Rocky View Water Co-Op Ltd v Cidex Developments Ltd, 2021 ABQB 594 Date: 20210729 Docket: 1901 12716 Registry: Calgary Between: Rocky View Water Co-Op Ltd. Plaintiff/Applicant - and - Cidex Developments Ltd. Defendant/Respondent _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice A. Woolley _______________________________________________________ Introduction [ 1 ] Rocky View Water Co-Op Ltd. (RVWC) is a rural water utility co-operative incorporated pursuant to the Rural Utilities Act , RSA 2000, c R-21 ( RUA ).

It provides water services to customers within its service area. [ 2 ] Cidex Developments Ltd. (Cidex) owns lands within the service area of RVWC and is a member of the RVWC. It acquired the lands in 2016 and, when it did so, also acquired one Class A voting share, and 2,000,000 Class B non-voting shares, of RVWC. The ownership of the Class B non-voting shares translates to holding “200 capacity units” which, in turn, entitles Cidex to 200 connections to the RVWC waterworks system. [ 3 ] Cidex does not currently receive any water services from RVWC.

It has not yet developed the land it owns and, at this time, has no plans to do so. Cidex is thus a member of the RVWC, but not a customer of it. As such, Cidex had paid the cost of its shares but, until the events giving rise to this litigation, was not expected to pay rates or fees to RVWC associated with the provision of water services. [ 4 ] At an Annual General Meeting on April 19, 2018, RVWC members in attendance voted to enact a “special levy” pursuant to

s. 18(2) (

a) of the RUA . Specifically, according to the minutes of the AGM, the members approved the following resolution: To ensure all Rocky View Water Co-op Ltd. members contribute equitably to capital requirements of the Co-op, and as per the Rural Utilities Act ,

Chapter R-21 , section 18(2)(a), Rocky View Water Co-op Ltd. shall impose a levy on all groups of 10,0000 Class B non- voting shares, excluding the inactive groups of 10,0000 Class B non-voting shares of Charter Members as Defined in the Bylaws. This levy shall be known as the Capital Surcharge and shall be applied at the rate of $60.00 per quarter, per 10,000 Class B non-voting shares [ 5 ] The effect of this levy was that Cidex was expected to pay $12,000 per quarter ($48,000 over the year) to RVWC. [ 6 ] At the AGMs in 2019 and 2020, RVWC members in attendance voted to renew the surcharge.

According to the minutes of those AGMs, the members voted that: To ensure all Rocky View Water Co-op Ltd. members contribute equitably to capital requirements of the Co-op, and as per the Rural Utilities Act ,

Chapter R-21 , section 18(1), Rocky View Water Co-op Ltd. shall impose a levy on all groups of 10,0000 Class B non- voting shares, excluding the inactive groups of 10,0000 Class B non-voting shares of Charter Members as Defined in the Bylaws. This levy shall be known as the Capital Surcharge and shall be applied at the rate of $60.00 per quarter, per 10,000 Class B non-voting shares [ 7 ] The General Manager of the RVWC, Mr. Bradley Mason, testified by way of Affidavit that the reference to s. 18(1) in the 2019 and 2020 minutes was a typographical error, and that the minutes should have referred to s. 18(2) (a).

He said the intention of the Board was to confirm and renew the 2018 surcharge, and it was the renewal that was discussed at the meeting.

Neither he nor RVWC provided any evidence about whether or not the error in the minutes was also reflected in the resolution voted on and approved at the 2019 and 2020 meetings (that is, as to whether the error was introduced before or after the 2019 and 2020 meetings). [ 8 ] The 2019 and 2020 capital surcharge renewals would, again, have required Cidex to pay $12,000 per quarter to RVWC. [ 9 ] Cidex has declined to pay the surcharge, asserting that the surcharge was not validly levied against it. RVWC says that as of March 5, 2021, when it applied for a

summary trial of this matter, Cidex owed RVWC $107,184.80 as a result of its unpaid surcharge fees. [ 10 ] On September 11, 2019, RVWC sued Cidex, seeking a declaration that the capital surcharge was duly and validly passed and within its authority, a declaration that the capital surcharge is binding on Cidex, and damages for the amounts that Cidex has not paid. [ 11 ] For the reasons that follow, I deny RVWC the relief it seeks. Issues [ 12 ] RVWC’s claim raises the following questions to be decided: 1) Is this matter suitable for resolution by way of a

summary trial? 2) What falls within the scope of s. 18(2)(

a) of the RUA and, in particular, are there any requirements or limits with respect to what constitutes a “special” levy? 3) Were the capital surcharges approved by resolution in 2018, 2019 and 2020 within the scope of s. 18(2) (

a) of the RUA ? Facts Background [ 13 ] RVWC is a rural water utility co-operative incorporated pursuant to the RUA . RVWC has 1747 members, approximately 80 of whom are currently inactive (that is, they do not receive water services from RVWC at the present time), and 54 of whom are charter members. [ 14 ] Cidex is an Alberta incorporated real estate development corporation. On June 20, 2016, it purchased lands from PricewaterhouseCoopers Inc (PWC), in its capacity as the receiver and manager of Homco Realty Fund

(121) Limited Partnership. The lands purchased by Cidex fall within the RVWC service area. [ 15 ] At the time it purchased the lands, Cidex also purchased 2,000,000 Class B non-voting shares in RVWC from PWC. It paid $1,000,000 for the lands, and $200,000 for the Class B non-voting shares. Its purchase of the Class B non-voting shares entitled Cidex to 200 Capacity Units in the RVWC. [ 16 ] On September 29, 2016, Cidex applied for membership in the RVWC, and requested that RVWC transfer the shares to it. On October 14, 2016, RVWC advised Cidex that the Board had approved Cidex’s membership in the RVWC.

It issued Cidex share certificates for one Class A voting share, and 2,000,000 Class B non-voting shares. [ 17 ] The RVWC has Amended Bylaws, dated April 20, 2017, that address issues related to governance and membership (Bylaws). It also has Terms and Conditions of Service, dated March 22, 2016, that govern its relationship with its customers (Terms and Conditions).

Because Cidex does not currently receive water services from RVWC, its relationship with RVWC is not currently governed by the Terms and Conditions; however, were it to develop its land and seek to obtain water from RVWC, the provision of those water services would be subject to the Terms and Conditions.

[ 18 ] The Bylaws provide that a member must purchase one Class A voting share (Bylaw 20.3) and must also purchase Class B non-voting shares “for each unit for which the Member receives service from the Water System” (Bylaw 20.6). [ 19 ] Membership and ownership of the required amount of Class B non-voting shares entitles a member to connect to the water system “at his own cost using a contractor approved by [RVWC]” (Bylaw 20.14). A member “is responsible for the cost of services” provided by RVWC (Bylaw 20.17).

The Bylaws provide that if a member or developer “requires expansion, replacement, and/or alterations to the existing system, that Member or Developer shall pay all costs and expenses related thereto as determined by the Board” (Bylaw 29.2). [ 20 ] The Bylaws provide that the directors shall “use their best efforts to ensure” that RVWC has at least a $1,000,000 contingency fund, with the amount of the fund to be determined based on future expansion or major renovations (Bylaw 26.3(c)). [ 21 ] The Bylaws require RVWC to hold annual meetings within 120 days of each fiscal year end (Bylaw 2.1).

Bylaw 4.1 requires that notice be given of each meeting at least 10 days prior by: (

a) mailing or delivering, by post, hand or electronically, to each Member of the Association at his or her last registered address in the office of the Association, a notice stating the date, time and place of the meeting, or (

b) advertising the date, time and place of the meeting in a newspaper circulating throughout the Association’s locality If the resolution involves a change, amendment or repeal of the Bylaws, or an extraordinary resolution, the Board must give 15 days written notice, including reasonable particulars thereof (Bylaw 4.2). “Extraordinary resolution” is a defined term in the RUA and is explicitly referenced in a number of provisions of that legislation, but not by s. 18. [ 22 ] Under the Terms and Conditions, a capacity unit, which Cidex was entitled to 200 of, flows an instantaneous supply of 22.725 liters per minute and an average maximum flow of 3272.4 liters per day (TC 1.1). [ 23 ] The Terms and Conditions state that RVWC “will” provide water services at the price set out in the Price

Schedule (TC 2.1(a); 2.3). RVWC is permitted to adopt guidelines to clarify or explain the fees, rates or other charges in the Price

Schedule (TC 2.2(a) (i)). [ 24 ] To obtain water services, a customer must open an account with RVWC (TC 3.1(a)). A member “is responsible for the cost of services provided by RVWC to the Member or to the parcel of land owned by the Member” (TC 3.1(c)). Where a customer’s receipt of water requires installation of a new service connection, the customer must provide a written acknowledgement that it agrees to the Terms and Conditions and may also be required to execute a water services agreement (TC 3.2(

c) and (d)). A service connection is “all of the Facilities required to effect a physical connection between the Waterworks System and a Private Service Line to allow a Customer to receive water delivered through the Waterworks system” (TC 1.1) [ 25 ] Consistent with Bylaws 20.14 and 29.2, “All costs incurred involving a new Service Connection or construction of new Facilities or an extension or modification of the Waterworks System shall be the responsibility of, and borne by, the Customer” and must be constructed by qualified contractors approved by RVWC (TC 3.2 (

e) and (f)).

The ongoing obligation of the customer to pay for an extension of the system its needs require is further specified in Term and Condition 6.4 which states: Unless otherwise specified in a Water Services Agreement the full cost of any new Facilities or extensions to the Waterworks System shall be paid by the Customer whose new or upgraded Service Connection gives rise to the need for the new Facilities or extension to the Waterworks System. [ 26 ] The customer must, unless otherwise agreed, also supply the plan and engineering reports related to the service connection and related documents (TC 7.1(a)) and is responsible for the installation and condition of the Customer’s “private service line and all other piping and equipment or other facilities of any [sort] whatsoever on the Customer’s side of the Service Connection Point” (TC 7.1(c)). [ 27 ] A customer must also pay the “full cost” of “modifications, extensions or additions” necessary to accommodate a customer’s change to a service connection or a material change to the Customer’ consumption or water or use of water services (TC 9.2). [ 28 ] The Bylaws and Terms and Conditions thus generally require members and customers to pay for the cost of services received.

That includes paying for water services as a customer in accordance with the price schedule, paying for any extension or upgrade to the system that the customer requires, and paying any costs associated with obtaining a new service connection. Enactment of the Capital Surcharge [ 29 ] On November 28, 2017, the RVWC Board met. It discussed the draft 2018-2027 long range capital plan. The minutes of the meeting note that RVWC had an “immediate need…to address short term capital funding requirements, while at the same time contributing to reserves to increase the balance to meet the minimum level required”.

The minutes said that, “For the first time, Capital Improvement Plan funding will have to be generated from rate revenue”. The Board approved the 2017-2027 long range capital plan. [ 30 ] The Board also discussed water rates at that meeting. The minutes noted that water rates “are, and should be, the primary source of revenue for a water utility” and “should be based on the revenue required to operate the system”. They said that the 2018 water rates would be based “on a cost of service study following American Water Works Association manual”, and that rates should be: • Cost based • Equitable

• Set at such a level that they meet the utility’s full revenue requirements and financial objectives • Predictable from year to year • Easy to understand and administer [ 31 ] The minutes further specified that “Cost allocations used for rate determination should follow the principles of cost causation, or those that cause the costs pay the costs” [emphasis in original]. [ 32 ] It noted that administration recommended that the new rate structure include a base rate and a consumption rate, as well as a “capital surcharge” of $60.00 per quarter.

The rates were a significant increase over what had previously been charged to customers, of 20% in the base rate and 27% in the consumption rate, plus the addition of the $60 capital surcharge. The proposed rates were approved by the Board. [ 33 ] At a subsequent board meeting in March 2018, the Board received a further report with respect to the capital surcharge, dated March 27, 2018 (“March Report”).

The March Report noted that RVWC had received feedback from members at a January 24, 2018 rates meeting raising the concern that “members who were currently connected were not paying more than their share to the benefit of members who are not connected”. This led it to propose “a method to charge the Capital Surcharge to inactive accounts (members who have Capacity Units but are not connected to the distribution system)”. The March Report said, “The Rural Utilities Act (s)18(2)(

b) provides for the ability of a Utility to impose a monthly levy on members to whom water service has been made available but not used”. [ 34 ] The March Report then quoted the RUA , highlighting both s. 18(2) (

a) and (b). It said that the Board may choose to present a resolution at the AGM authorizing the application of the Capital Surcharge to members who maintain Capacity Units but are not connected to the distribution system. [ 35 ] The March Report noted the issue of developers who hold multiple Capacity Units, saying: We can likely expect backlash from those who hold multiple Capacity Units in reserve. For example, a member who holds five additional Capacity Units would pay an additional $1,200.00 per year.

Large developers, say Silverhorn, who currently holds 30 unused Capacity Units would pay $7,200 per year, and Cidex Developments, who holds 200 Capacity Units would pay $48,000 per year. [ 36 ] The March Report listed two possible resolutions for the Board to consider, both referencing s. 18(2) (a), with one effective July 1, 2018, and the other effective October 1, 2018. [ 37 ] The proposed surcharge said, To ensure all Rocky View Water Co-op Ltd. members contribute equitably to capital requirements of the Co-op, and as per the Rural Utilities Act,

Chapter 4-21, section 18(2)(a), Rocky View Water Co-op Ltd. shall impose a monthly levy on members to whom water service has been made available but not used. The levy shall be known as the Capital Surcharge, and shall be applied at the same rates as the Capital Surcharge set by the Board and applied to members of the Co-op with active accounts, (currently $60.00 per quarter). This Capital Surcharge shall be applied at the rate of $60.00 per quarter, per 10,000 Class B non-voting shares, effective October 1, 2018. [ 38 ] The March Report indicates that the Board approved the proposed resolution referencing s. 18(2) (

a) and to be effective July 1, 2018. [ 39 ] The March Report does not explain how the capital surcharge falls within the scope of s. 18(2) (a). It does not explain why, after beginning its discussion by noting the potential applicability of s. 18(2) (b), it was not using that provision. The motion “suggested” in the Report references s. 18(2) (

a) but uses the language of s. 18(2) (

b) in proposing a “monthly” levy and referring to “members to whom water service has been made available but not used”. In questioning, Mr. Mason explained that they spoke with legal counsel and “ended up going with 18(2)(a)” [ 40 ] RVWC did not submit in evidence the 2018-2027 capital plan, the price schedule, its cost of service study or the American Water Works Association Manual. It did not provide any affidavit evidence about how the $60 amount of the capital surcharge was calculated, or which specific capital requirements it was designed to meet.

As noted, the November 2017 board minutes say that RVWC had an “immediate need…to address short term capital funding requirements, while at the same time contributing to reserves to increase the balance to meet the minimum level required”, which counsel referenced to show the purpose of the capital surcharge. [ 41 ] In questioning on his Affidavit, Mr. Mason said with respect to the reason for adopting the capital surcharge, that the Capital Plan brought to the Board in November 2017 showed that RVWC was going to be “millions of dollars short in our capital requirements” – in the amount of $6-7 million.

He noted that prior to his arrival at RVWC they had an operating loss every year, which could not continue. He said that the “sole purpose” of the surcharge was to re-establish RVWC’s capital reserves; “It wasn’t the sole source of revenue, but it was to help in re-establishing our capital reserves”. [ 42 ] On being asked why $60 was chosen for the capital surcharge, Mr. Mason said “it was $60 because that’s the rate that was being charged the active members effective January 1 st , 2018”; he clarified that an active member is one connected to the waterwork system. That is, Mr.

Mason said that the special levy of $60 was chosen because that was the amount that had already been identified as appropriately included in the rates paid by customers of RVWC. [ 43 ] After the March 27, 2018 meeting, RVWC prepared its notice of the upcoming annual general meeting to be included in its “Running Report”, which is printed on the back of customer invoices. Cidex at that time did not receive such an invoice. The affidavit evidence of Mr. Mason was, Cidex …has been a Non-Consuming Member of the RVWC since late 2016.

Accordingly, I believe that, based on our usual business practices, the Office Manager prepared a mailing label for the last registered address of Cidex and mailed the Spring issue of the

Running Report to Cidex as notice of the 2018 AGM. [ 44 ] The CEO of Cidex, Mr. Abdul Itani, swore in his Affidavit dated April 8, 2021 that the notice published in the Running Report “did not come to the attention of Cidex”. However, in its prior reply to the Notice to Admit Facts Cidex admitted that it received a paper copy of the March 31, 2018 issue of Running Report in the mail. Counsel for Cidex would not permit questioning of Mr.

Itani on this admission, saying, “in my view, if the purpose of a notice to admit is to establish the facts and if the response admits the fact, what you're now seeking to do is to have him reconfirm the fact that has been admitted by the reply to the notice to admit”. Based on this exchange, I am satisfied that Cidex’s position now is that it received the 2018 Running Report. [ 45 ] The 2018 Running Report said with respect to the upcoming Annual General Meeting: Rock View Water Co-op Ltd. will hold its 2018 Annual Meeting on Thursday April 19 th at the Balzac Hall, 10075 Twp. Rd. 262, Balzac at 7:00pm.

We encourage you to attend. The Agenda includes presentation of the 2017 Audited Financial Statements and annual reports from the Chair, Treasurer and General Manager. There are openings on the Board of Directors. Interested candidates are encouraged to contact Brad Mason … for further information. We hope to see you there! [ 46 ] The notice thus listed some substantive topics from the meeting’s agenda but made no reference of the proposed resolution with respect to imposing a special levy on members, including members not currently receiving water services from RVWC. [ 47 ] In questioning on his Affidavit Mr.

Mason said that they did not list the capital surcharge because they prepared the notice in a hurry and this was “just business as – as allowed under the Rural Utilities Act, the business of the organization”. And he said that they did not notify Cidex because he did not view them as meriting any different treatment than other members who would be required to pay the capital surcharge. [ 48 ] The annual general meeting took place on April 19, 2018. It was attended by 23 members, including one charter member. Item 11.1 dealt with the Capital Surcharge.

The minutes note that discussion included, “equity to all members paying for capital, perceived penalty to charter members for supporting the organization in its beginnings, potential opposition from members with multiple capacity units, particularly land developers, and the possibility of deterring development”. [ 49 ] The minutes suggest that, following the discussion, amendments were made to the proposed resolution to exclude charter members from paying the surcharge.

The minutes further show that, even prior to those amendments, the motion brought to the annual general meeting had some differences from what had been proposed in the March Report.

Specifically, the resolution brough to the annual general meeting no longer referred to a “monthly levy”, using simply the word “levy”, and instead of saying “members to whom water service has been made available but not used”, simply said “members”. [ 50 ] The resolution finally approved by those members at the 2018 annual general meeting said: To ensure all Rocky View Water Co-Op Ltd. members contribute equitably to capital requirements of the Co-op, and as per the Rural Utilities Act,

Chapter R-21 , section 18(2)(a), Rocky View Water Co-op Ltd. shall impose a levy on all groups of 10,000 Class B non- voting shares, excluding the inactive groups of 10,000 Class B non-voting share of Charter Members as defined in the Bylaws. This levy shall be known as the Capital Surcharge and shall be applied at the rate of $60.00 per quarter, per 10,000 Class B non-voting shares. [ 51 ] RVWC held further annual general meetings on April 11, 2019 and on July 16, 2020. For both meetings, it published a notice in the Running Report which was send to Cidex.

The notices for the 2019 and 2020 meetings both referred to the proposed renewal of the surcharge. The 2019 notice (which in relevant respects is the same as that given in 2020) said: The Rocky View Water Co-op Ltd. 2019 Annual General Meeting will be held at the Bearspaw Lions Hall, 25240 Nagway Road, Bearspaw, on Thursday April 11, 2019 at 7:00pm.

Matters to be considered include: • Presentation of the Annual Reports, 2018 Audited Financial Statements, Independent Auditors Report. • Appointment of Auditor. • Election of Directors. • Capital Surcharge Renewal. • New Business, Question and Answer period. [ 52 ] The 2019 annual general meeting was attended by 14 members, and no charter members; the 2020 annual general meeting was attended by 13 members, including one charter member. [ 53 ] No evidence was provided as to what text was given to the members prior to their vote on the resolution at the 2019 and 2020 annual general meetings.

In particular no evidence was provided as to whether the text given to the members prior to their vote contained the typographical errors noted by Mr. Mason, in which the resolution refers to a surcharge pursuant to s. 18(1) of the RUA rather than s. 18(2) (a). In any event, the minutes of the two annual general meetings indicate the following resolutions having been approved by the members in attendance:

To ensure all Rocky View Water Co-op Ltd. members contribute equitably to capital requirements of the Co-op, and as per the Rural Utilities Act,

Chapter R-21 , section 18(1), Rocky View Water Co-op Ltd. shall impose a levy on all groups of 10,0000 Class B non- voting shares, excluding the inactive groups of 10,0000 Class B non-voting shares of Charter Members as Defined in the Bylaws. This levy shall be known as the Capital Surcharge and shall be applied at the rate of $60.00 per quarter, per 10,000 Class B non-voting shares [ 54 ] Cidex received its first utility bill including the capital surcharge on September 30, 2018, in the amount of $12,000. It did not pay it or any subsequent bills seeking payment of the capital surcharge. Analysis Suitability for a

summary trial [ 55 ] RVWC applied for

summary trial on the issue of whether the RUA grants it authority to impose on its members a special ley in the form of a capital surcharge on groups of Class B non-voting shares held by RVWC members. It said that if it prevailed on this issue, it would be entitled to the relief set out in its Statement of Claim. [ 56 ] Cidex agreed that a

summary trial was an appropriate venue for resolution of the parties’ dispute. [ 57 ] Whether a

summary trial is appropriate depends on whether a court can decide disputed questions of fact based on affidavit evidence, and whether a

summary trial would be a just means to resolve the parties’ dispute: JN v GJK , 2004 ABCA 394 at para 40 , cited in Hanne , 2014 ABCA 168 at para 9 . Other relevant factors include the amount of money in dispute, the complexity of the litigation, whether discovery of the plaintiffs’ documents and witnesses will assist the defence, and whether resolution depends on findings of credibility: Jagodnik v Oudshoorn , 2015 ABQB 456 at para 3 . [ 58 ] I am satisfied that the

summary trial procedure is appropriate here. The amount of money at issue is relatively small, the parties agree on the appropriateness of the

summary trial procedure, the factual questions do not turn on credibility, and the primary issue is the proper

interpretation of s. 18(2) (

a) of the RUA . [ 59 ] RVWC submitted limited evidence in support of its claim, particularly in relation to the nature of the capital requirements to be met by the surcharge, and how the surcharge would meet those requirements. Ultimately, however, RVWC has the burden of proof and sought the

summary trial. That the evidence presented was limited does not itself make the

summary trial procedure inappropriate. Scope of s. 18(2)(

a) of the RUA [ 60 ] The central question for determination is whether the RUA grants RVWC the authority to impose a special levy, in the form of a capital surcharge assessed based on the number of Class B non-voting shares held by RVWC members. [ 61 ] RVWC submits that s. 18(2) (

a) of the RUA grants it that authority. It submits that the requirements of that

section are that the resolution specify a purpose, that the levy be imposed on members for that purpose, and that it be approved through a vote of members at an annual general meeting. It submits that it has met each of these requirements of s. 18(2) (a). It submits that nothing in the RUA limits the purposes for which an association may impose a special levy. [ 62 ] Cidex submits that s. 18(2) (

a) only grants RVWC the power to impose a special levy on members qua members, and that it does not permit RVWC to impose a special levy based on a member’s Class B shareholdings. It notes that, pursuant to the Bylaws, holding Class B shares is a condition of obtaining service from the utility, not a condition of membership. [ 63 ]

Section 18 of the RUA provides: Levies on members 18

(1) Notwithstanding anything in this Act, an association may by resolution impose an annual levy on its members on the basis of the number of utility service contracts held and the amount of the levy shall be set each year by resolution at the annual meeting.

(2) Notwithstanding anything in this Act, an association, by resolution at an annual meeting or at a special general meeting called for the purpose, may set (

a) a special levy to be imposed on members for the purpose specified in the resolution; (

b) a monthly levy to be imposed on members to whom electric power, natural gas, water or sewage service has been made available but not used.

(3) A levy made pursuant to this

section may be collected by whatever means the directors consider advisable.

(4) A member refusing to pay a levy made pursuant to this

section in the manner prescribed by the directors is liable to have the provision to the member of electricity, natural gas, water or sewage service discontinued on order of the directors after the notice to the member that the directors prescribe. [ 64 ] While the minutes of RVWC’s 2019 and 2020 meetings invoke s. 18(1), and the March Report cited s. 18(2)(b), RVWC relies only on s. 18(2)(

a) as authorizing the capital surcharge. [ 65 ]

Section 18 has received scant judicial consideration; its meaning has been discussed in only one case, where a provincial court

judge noted that s. 18(2) can only be used following a general meeting, and its levies cannot be imposed through a resolution of thedirectors: Simmonds v Yellowhead Gas Co-Op Ltd., 2014 ABPC 23. Another case mentioned s. 18 in passing but did not analyze it:Gravelle v Manning Rural Electrification Association Ltd., 2011 ABPC 306 at para 42-48. [66] The RUA as a whole has been subject to little judicial consideration. Two Court of Appeal decisions note that it is part of abroader scheme of provincial regulation of utilities.

A 2020 decision described it and the other legislative enactments related to utilitiesas creating a “complex regulatory and service scheme”, in which legislative provisions “should be read harmoniously”: FortisAlbertaInc v Alberta (Utilities Commission), 2020 ABCA 271 at para 53. [67] In ATCO Electric Limited v.

Alberta (Energy and Utilities Board), 2004 ABCA 215, at footnote 2, the Court of Appealdescribed the regulatory roles played respectively by the Utilities Commission, municipalities, and the boards of rural utilities, in thecontext of electricity transmission and distribution: The Board remains the regulatory authority with respect to transmission and distribution functions for all investor-owned utilities. Thatincludes the appellant in this case, ATCO Electric Ltd.

Under the EU Act, as with the 1998 Act before it, the Board does not regulaterates charged by municipally-owned utilities unless a municipality passes a bylaw authorizing the municipally-owned utility to begoverned for these purposes by the Board. In this event, the Board becomes the regulatory authority for purposes of setting rates fortransmission and distribution functions of the municipally-owned utility. A rural electrification association (REA) is an association underthe Rural Utilities Act, R.S.A. 2000, c. R-21, that has as its principal object the supply of electricity to its members.

Rates for REAs areregulated by the board of directors for each REA: s.102 of the EU Act.

In the result, the Board is the regulatory authority for transmissionand distribution functions for investor-owned utilities and those municipally-owned utilities brought under the EU Act by bylaw of thesubject municipality [68] The Court of Queen’s Bench quoted with approval an Alberta Utilities Commission decision distinguishing between theposition of customers of a public utility, who do not have ownership rights in the system, and customers of a rural utility, who do:FortisAlberta Inc v EQUS REA Ltd, 2016 ABQB 307 at para 53, citing Central Alberta Rural Electrification Association LimitedApplication for a Declaration under the Hydro and Electric Energy Act (July 04, 2012), AUC 2012-181 at para 78. [69] The AUC in that case, at footnote 55 to paragraph 78, noted the provisions of the Rural Utilities Regulation (AR 151/2000)with respect to ownership of a rural utility’s assets.

Of relevance here is the current

section 15 of the Rural Utilities Regulation, whichprovides that on sale of all of a rural utility’s assets, the proceeds from sale must be distributed based on the number of utility servicecontracts held by a member: Sale of works 15 Where an association sells all of its works, the sale proceeds and the amount in the reserve account shall be distributed among themembers on the basis of the number of utility service contracts held, and the distribution must be made (

a) in accordance with a method of distribution approved by the membership at a special general meeting of the association called toauthorize the sale of the works, or (

b) where there is no method referred to in clause (a), equally for each service contract held. [70] Other cases which mention the RUA include: Equs Rea Ltd v Alberta (Utilities Commission), 2019 ABCA 277; ContractPolicy Committee v FortisAlberta Inc., 2012 ABQB 653; Fazikos v. Manning Rural Electrification Association, 2011 ABPC 279. [71] While of limited assistance, this case law does support two observations: First, s. 18 should be interpreted based on the plainlanguage of the provision, consistent with the modern principle of statutory

interpretation; and, second, the RUA should be understoodthrough, and interpreted in light of, its place in the broader provincial scheme of utility regulation. [72] These two observations accord with the generally accepted approach to statutory

interpretation described in Wilson v AtomicEnergy of Canada Limited, 2016 SCC 29, at para 102. A statute must be interpreted based on the words it uses read in their ordinarysense and in the context of the legislation’s scheme and objects: This is a distilled question requiring statutory

interpretation and, accordingly, we must begin with the modern principle of statutoryinterpretation articulated in Rizzo & Rizzo Shoes Ltd. (Re), (SCC), [1998] 1 S.C.R. 27, at para. 21, quoting E. A.Driedger, Construction of Statutes (2nd ed. 1983), at p. 87: Today there is only one principle or approach, namely, the words of

an Act are to be read in their entire context and in their grammaticaland ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. The modern principle requires that statutes “be read to give the words their most obvious ordinary meaning which accords with thecontext and purpose of the enactment in which they occur”: CanadianOxy Chemicals Ltd. v. Canada (Attorney General), (SCC), [1999] 1 S.C.R. 743, at para. 14; Rizzo Shoes, at para. 41.

When a court interprets a statute, it is “seeking not whatParliament meant but the true meaning of what they said”: Black-Clawson International Ltd. v. Papierwerke Waldhof-AschaffenburgA.G., [1975] A.C. 591 (H.L.), at p. 613 (per Lord Reid) [73] Most recently in MediaQMI inc. v. Kamel, 2021 SCC 23, at paragraph 37, the Supreme Court stated: This Court has said repeatedly that “statutory

interpretation entails discerning legislative intent by examining statutory text in its entirecontext and in its grammatical and ordinary sense, in harmony with the statute’s scheme and objects”: Michel v. Graydon, 2020 SCC 24,at para. 21; see also Rizzo & Rizzo Shoes Ltd. (Re), (SCC), [1998] 1 S.C.R. 27, at para. 21. [74] In my view, the words of s. 18, when viewed in the context of the provision and statute as a whole, preclude RVWC’s

expansive

interpretation of its scope, under which as long as a resolution proposing a levy states a purpose, and members approve it at ageneral meeting, the proposed levy will satisfy s. 18(2)(a). Rather, the terms “special levy” and “imposed on members for the purposespecified” mean that a levy enacted pursuant to s. 18(2)(

a) must be for a purpose that falls outside the ordinary or usual financial andpractical needs of the utility – i.e., a purpose that is “special” – and, as well, most be structured and designed so as to achieve that specialpurpose – i.e., must be imposed on members “for” the purpose identified. [75] This understanding of the word special, that it connotes something unusual or extraordinary, fits with its ordinary dictionarydefinition: 1. distinguished by some unusual quality; 2. held in particular esteem; 3. readily distinguishable from others of the same category… 4. being other than usual; 5. designed for a particular purpose or occasion Merriam Webster Dictionary, <online: https://www.merriam-webster.com/dictionary/special> [76] It also accords with case law from other contexts, in which courts have held that a “special” tax, or a “special” rate, means arate that is special either because of who pays it, or because of the reason for which it is charged. [77] In Western Cablevision Ltd. v.

Surrey (Municipality), (1977) (BC SC), 1 BCLR 337 (BCSC) at para 14,Legg J for the British Columbia Supreme Court relied on authority from the Judicial Committee of the Privy Council to explain thispoint: In my view, the words "special rates" are used in the

section to mean a rate levied for a special purpose. These words are similar to thewords "special tax" considered by the Privy Council in Thetford Mines Ltd. v. Amalgamated Asbestos Corpn., (UKJCPC), [1916] 2 A.C. 588, 26 Que. K.B. 24, 29 D.L.R. 517 at 519-20. The words "special tax" were contained in a Quebec statute withprovisions for taxation relating to mines.

The Lord Chancellor, in giving the decision of the Privy Council, said: A tax, if imposed selectively upon mines, would be, in their Lordships' opinion, a special tax, for, in the absence of any definition of aspecial tax, such a tax would be either a tax levied generally on all property for a special purpose, such as the tax in question, or a tax ona special industry levied either for special or general purposes. It may not be easy to define exactly the line which will separate in allcases a special from a general tax.

It is sufficient to say that a tax may be special either by reason of the object for which it is levied orthe subject out of which it is raised. [78] The Manitoba Court of Queen’s Bench in R v T. Eaton Co. Ltd., (1973) 14 CCC (2d) 125 at 127 (MBQB), interpreted“special” similarly, as requiring an exceptional purpose or object: The word "special", or phrases incorporating that word or its adverbial derivative "specially", is not without meaning.

For the lawyer, onethinks perhaps of "special damages", "special agent", or "special jury", and no doubt there are other phrases of less technical significance,say "special leave", or "special circumstances". These last bring us closer to the every-day meaning imported by the word "special",namely, something out of the ordinary, a thing exceptional, designed for a particular purpose, occasion, or person.

So that, in reading thephrase "specially priced", one is entitled to expect that the amount asked represents exceptional value. (See also, Monney v Monney, (1999), (MB KB), 133 Man R (2d) 302 (MBQB) at paragraph 12). [79] Given the ordinary meaning of the word special, and the case law with respect to its use in a legal context, I find that a“special levy” under the RUA cannot be for any purpose identified by the board of a rural utility. Rather, the purpose must be somethingexceptional, unexpected, unusual or out of the ordinary.

A rural utility may not collect through a special levy costs or charges that wouldnormally be included in the ordinary rates charged by the utility, unless some unusual or extraordinary circumstance or situation hasarisen to make collecting those funds through a special levy appropriate. [80] Under the general scheme of utility regulation in Alberta, of which the RUA is a part, a utility’s ordinary rates will cover itscost of service, and those costs will be allocated based on which customer is responsible for them (see Public Utilities Act, RSA 2000 cP-45, sections 89-95).

The RUA does not dictate how rates must be established by the board of the rural utility.

However, as the Court ofAppeal indicated in ATCO Electric, the RUA is one part of the broader regulatory scheme governing utilities in Alberta, which suggeststhat, generally speaking, a rural utility’s directors will establish rates through a method consistent with ordinary utility rate practices.RVWC’s own practices conform with that expectation, as evidenced by Bylaw 20.17 (making customers responsible for the cost ofservice), Term and Condition 3.1(c) (making members responsible for the cost of services received from RVWC), and the Novemberboard meeting minutes referencing rates being based on the revenue required to operate the system, cost based rates, the use of a cost ofservice study, the reliance on the American Water Works Association Manual, and the practice of allocating costs to the customers whocause them. [81] As such, a special levy imposed under s. 18 would in general, and in particular for a utility like RVWC that employs a cost ofservice model, be for a purpose distinct from recovering the sorts of costs typically included in a utility’s cost of service. [82] Understanding the words “imposed on members for the purpose” as requiring that the levy be necessary and designed toachieve its special purpose also follows from the ordinary meaning of s. 18’s words.

A levy could not be imposed for a purpose unless itwas necessary and designed to achieve that purpose. It would be a levy, and there would be a purpose, but the levy would not be for thepurpose in question.

[ 83 ] In general, for a levy to be necessary and designed to achieve a special purpose requires that the financial dimensions of the special purpose be identified – a calculation or estimate of how much money the rural utility needs to achieve the purpose – and that the levy be designed so as to meet those financial requirements. If imposed under s. 18(2)(a), a levy may be collected at one time, or over a period of time; I note in this respect that s. 18(2)(a), unlike s. 18(1) and s. 18(2)(b), is silent as to the period of time for which the levy is to be collected.

This suggests that the legislature intended for the rural utility to have flexibility with respect to how it collected the special levy; this

interpretation is also supported by s. 18(3), which explicitly says that the levy may be collected by whatever means the directors view as advisable. [ 84 ] I also interpret the words “ imposed on members for the purpose” as meaning that the levy must be directed at those members, or at features or attributes of members, rationally connected to the purpose of the levy. On an ordinary and grammatical reading, the word “for” in s. 18 modifies both “purpose” ( for the purpose) and “imposed on members” (imposed on members for ).

The special levy must thus achieve the purpose (be for the purpose) and must be imposed on members in a way that is rationally connected to the purpose (be imposed on members for). So, for example, if a new and unusual financial cost or need of the rural utility arises only in relation to a sub-category of a rural utility’s membership, it is appropriate for the utility to charge the special levy only to that sub-category of members. Otherwise, the imposition on the members would be disconnected from, and in that sense not “for”, the levy’s special purpose.

I also note in this respect the principle of utility rate-making mentioned in the November board meeting minutes, that in designing a utility’s rates the party who causes the costs should pay the costs. [ 85 ] For that reason, I also reject Cidex’s submission that s. 18(2)(

a) only permits a levy based on the fact of membership – i.e., in which each member pays the same amount. Leaving aside whether RVWC could impose this particular levy based on Class B shareholdings and excluding the inactive shares of charter members, I accept that it is theoretically possible to impose a special levy with those features. What the rural utility must show is only that there is a rational connection between the special purpose the levy achieves on the one hand, and the amount of the levy and how it is charged to members on the other. [ 86 ] In sum, to impose a levy under s. 18(2)(

a) a rural utility must: (

a) Identify a specific purpose outside its ordinary financial needs and requirements; (

b) Quantify as best it can how much money it needs to achieve that purpose; and (

c) Design a levy that is rationally connected to the purpose for which it has been imposed both with respect to the amount of the levy and the members responsible for paying it. [ 87 ]

Section 18 has additional procedural requirements. Most obviously, and as noted in Simmonds , the levy must be voted on at an annual general meeting or a special general meeting of the utility, rather than being imposed by the utility’s board. A

section 18 levy is not an “extraordinary resolution” as that term is defined in the RUA ; given the several provisions using the term “extraordinary resolution”, the omission of the word “extraordinary” in s. 18 has interpretive significance. As such, a levy under s. 18 does not require a 2/3 majority or satisfaction of the specific and 15-day notice provisions associated with such resolutions. [ 88 ] Nonetheless, to impose a levy under s. 18(2) the utility’s notice about the annual or special general meeting must include notice that a special levy is being put forward at that meeting.

This notice requirement follows logically from the legislative choice to have such levies imposed by resolution at a general meeting rather than through board decision – that is, in a forum for which it is expected that notice of the meeting will be given, and where the decision will be based on the vote of the members or shareholders of the organization, rather than its directors.

Section 18’s requirement of having the special levy approved by a vote at a general meeting would be thwarted were the levy allowed to be brought to the meeting with no notice to the members empowered to impose it. [ 89 ] Once a levy has been imposed pursuant to s. 18(2), a rural utility may enforce payment of the levy as it sees fit, including by way of an action in this Court. That power flows from the broad scope of s. 18(3) and is not precluded by s. 18(4). The power to cut off service contained in s. 18(4) does not make that the only mechanism for enforcement given the language of s. 18(3): “A levy made pursuant to this

section may be collected by whatever means the directors consider advisable” [emphasis added] Was the capital surcharge validly enacted under s. 18(2)(a)? [ 90 ] The capital surcharge enacted by RVWC does not fall within s. 18(2)(a). [ 91 ] First, the 2018 notice of the general meeting did not advise members that a special levy was being proposed.

It provided notice of matters to be discussed at the meeting – “The Agenda includes presentation of the 2017 Audited Financial Statements and annual reports from the Chair, Treasurer and General Manager” – but it did not give the members any notice that the special levy was being proposed. [ 92 ] The evidence supports the inference that RVWC knew that notice of the proposed special levy was required.

Its documents show it had explicit knowledge that the special levy was new, that it would result in parties not currently paying rates being expected to do so, and that it would have a significant impact on developers like Cidex and Silverhorn, who own multiple capacity units. It also knew that it had to give notice of the general meeting by virtue of its Bylaws, which require it to give members 10 days notice of “any such meeting”.

Given that the 2018 notice listed substantive matters from the proposed agenda, and the 2019 and 2020 notices alerted members of the proposed “capital surcharge renewal”, I find that RVWC understood that the notice ought to indicate the substance of what would be dealt with at the meeting, particularly something as significant as the proposed imposition of a special levy. [ 93 ] In questioning, Mr. Mason said that the notice was not included because they were in “a hurry” and because it “was just business as – as allowed under the Rural Utilities Act , the business of the organization”.

The problem with this response, however, is that it does not appreciate that a special levy is not business as usual under the RUA ; it is rather a “special” power exercised under that legislation, that can only be exercised based on a vote at a general meeting, and that requires notice for members to know what is at stake, and to vote. Failing to give that notice deprives members of the participatory rights that the RUA itself ensures.

[ 94 ] Second, the capital surcharge does not have the features necessary to qualify as a “special” levy. The evidence does not satisfy me that it was directed at an extraordinary, unusual or distinct financial requirement of RVWC. Instead, the proposal at the November board meeting, and subsequent events, suggest that the surcharge was to meet capital requirements and financial needs associated with the regular operation of the utility that would be expected to be – and in the first instance were – included in the ordinary rates of the utility.

The evidence did not establish that the special levy was created because of an extraordinary or distinct financial requirement of the utility; it suggests instead that it was created because customers pushed back against the significant increase in their rates and did not want to pay more than their share. That request is understandable, but it does not create a purpose that justifies the exercise of the powers granted by s. 18(2)(

a) to charge a “special levy”. [ 95 ] RVWC could not identify – and provided no evidence to show – the specific capital needs being met by the surcharge. Its evidence showed there was a capital plan, that there were “short term capital funding requirements”, that there was a deficit in the contingency reserve fund, and that there had been an operational loss. As noted, Mr. Mason said in questioning that the capital surcharge “was to help in re-establishing our capital reserves”. These are legitimate financial objectives for the utility.

It is conceivable that some of them may have qualified as extraordinary, unusual or distinct expenditures that are properly collected by way of a special levy.

But generic, unspecified and unquantified evidence of “short term capital funding requirements”, and an unspecified and unquantified deficit in the capital reserve, the reasons for which are unknown, do not bring this capital surcharge within that category. [ 96 ] Further, the quantum of the financial needs of the utility being met by the special levy were not specified, and nor was any evidence provided about how the $60 charged to members would meet those needs. Mr. Mason’s evidence was that the $60 was chosen because that was the amount originally included in rates after the November board meeting.

But that evidence, rather than showing that this is a special levy designed to meet a specific and out of the ordinary financial need, instead suggests that this was an ordinary rate charge being sought, through the mechanism of a special levy, to be charged to someone in addition to the customers of the utility.

Again, this is understandable, but it does not show that this was a special levy under s. 18(2)(a). [ 97 ] I interpreted RVWC’s submissions as suggesting in part that the fact the expenditures recovered by the capital surcharge are expenses on account of capital, rather than operating expenses of the utility, justifies their recovery through a special levy. That position misses, however, the point that rates or prices charged to customers can include a capital component as an ordinary cost to be recovered.

This is the case in traditional utility rates, where rates include a return on the utility’s capital (its rate base), but it is also true in other consumer contexts. A person who buys a television can expect, for example, the price of the television to allow the manufacturer to recover costs associated with constructing manufacturing facilities, as well as those arising from paying the employees who work there.

The distinction between capital and operating expenses is conceptual, and while important for accounting and taxation purposes, should not obscure the point that both are costs incurred to do or make things. Where prices are based on costs, prices will ordinarily be designed to recover both operational and capital costs. That a cost is on account of capital does not, in and of itself, show that the cost is a special or extraordinary one. [ 98 ] In argument, counsel for RVWC emphasized the importance of members who were not customers paying for the utility’s capital. Mr.

Mason said in his affidavit that the “purpose of the Capital Surcharge was to ensure that all Members contributed equitably to the capital requirements of the RVWC”. This was also reflected in the March Report, where it was noted that the comment from the floor was that it was important “to ensure that members who were currently connected were not paying more than their share to the benefit of members who are not connected”. Counsel observed that because Cidex owns capacity units, the utility must be able to provide it with the water to which it is entitled by virtue of those capacity units.

Counsel seemed to suggest that the capital surcharge was properly charged to members who were not customers for this reason: it was ensuring they paid for the capital necessary to give them services in the future. [ 99 ] Two problems arise from this suggestion. First, no evidence was provided to show that the capital expenditures covered by the special levy were related to providing water to members who were not yet customers; indeed, the reference to “ short term capital funding requirements” [emphasis added] in the November board minutes seems contrary to this claim.

Second, it overlooks the terms of the Bylaws and Terms and Conditions, under which a member seeking a new service connection will pay for all costs associated with that connection. If Cidex or another member wants water services in the future, they will themselves have to pay capital costs associated with RVWC providing those services.

To reiterate, Term and Condition 3.2 provides: “ All costs incurred involving a new Service connection or construction of new Facilities or an extension or modification of the Waterworks System shall be the responsibility of, and borne by, the Customer ” [emphasis added] (see also, Bylaws 20.14 and 29.2 and TC 6.4). That does not mean that members like Cidex cannot be charged a special levy; pursuant to s. 18(2)(

a) they certainly can be. But it does undermine the attempt to justify that special levy based on capital costs associated with connecting those members to the water system in the future given the cost obligations imposed on members seeking such connections. This is particularly so when, again, there was no evidence to show that the capital costs covered by the capital surcharge were related to the costs associated with connecting those members to the water system in the future. [ 100 ] Counsel also emphasized the distinction between rural utilities and public utilities with respect to ownership of capital.

That distinction is correct; however, given s. 15 of the Rural Utilities Regulation , the proceeds of sale of the utility’s works would be distributed based on current service contracts, not membership per se . In the event RVWC dissolved and sold its assets before Cidex entered into service contracts, Cidex would not be entitled to proceeds of disposition.

Again, that does not mean that Cidex cannot be charged a special levy, but it does suggest that ownership rights in the rural utility’s capital do not in and of itself justify a levy to recover costs of capital. [ 101 ] Third, that RVWC renewed the capital surcharge on an annual basis (and its position before me appeared to be that it would continue to do so) is inconsistent with treating that surcharge as a special levy.

A special levy can be raised over several years – doing so may be necessary if a large sum is required by the utility – but voting to renew a surcharge year over year on a recurring basis suggests that this is an ordinary charge, not an unusual or extraordinary one. [ 102 ] Finally, while it may be possible to exclude inactive shares of charter members from a special levy, the reason for doing so here – those members had already paid an amount for capital – only adds to the issues with the capital surcharge’s design.

RVWC did not offer any analysis of whether the charter members contributed amounts related to the capital requirements for which the surcharge was imposed, whether they can be said to have caused the need for those requirements, or whether the charter members are factually distinct

from the other members who paid “all costs” associated with their connection to the water system. It also does not address the other benefits given to charter members, and in particular the benefits set out in Bylaws 31.1-31.3, in which a charter member may purchase an additional future tie-in at the original cost, plus inflation. These benefits seem potentially relevant to understanding the privileges associated with the inactive Class B shares of those charter members, which are the shares excluded by the capital surcharge.

Like the decision to take the capital surcharge out of the rates paid by customers, to instead have it be paid by members based on their Class B shares, the exclusion of the inactive shares of charter members speaks not to the extraordinary or unusual nature of the financial needs that led to the special levy, but rather to the desire to redistribute the payment of it. [ 103 ] RVWC had the legal authority to propose a special levy to its members, and those members could vote to approve such a levy.

To do so, however, it had to identify a specific and extraordinary financial need, it had to identify the amount of that need, and it had to design a levy that would allow it to recover the need from those members responsible for it. It also had to give notice that such a special levy was being proposed at the annual general meeting. RVWC did none of those things.

Rather, facing pushback from customers on a significant increase in rates, it sought to take an amount its board had decided should be included in its ordinary rates of customers and instead recover that amount from members as a whole, excluding inactive shares of charter members. That was an understandable choice, but it was not a “special levy” authorized by s. 18(2) (

a) of the RUA . [ 104 ] Given my conclusions on this point, that the 2019 and 2020 renewals were not permitted under s. 18(2) (a), I do not consider the issues arising from the reference in the minutes of the 2019 and 2020 meetings to s. 18(1). Conclusion [ 105 ] Based on the foregoing, RVWC’s claim is dismissed. The capital surcharge was not properly charged on Cidex in any of 2018, 2019 or 2020, and it does not owe RVWC any amounts in respect of those charges. [ 106 ] If necessary, the parties may make submissions with respect to costs within 30 days of this decision.

Those submissions must be in writing and must not exceed 10 pages, no less than 1.5 spacing and 12 pt. font. Heard on the 19 th day of May, 2021. Dated at the City of Calgary, Alberta this 29 th day of July, 2021. A. Woolley J.C.Q.B.A. Appearances: Keith Marlowe and Sarah Nykolaishen for the Plaintiff/Applicant Norman Anderson for the Defendant/Respondent