) ) The Corporation of the Municipality of Strathroy-Caradoc Appellant – v. –, 2023 ONSC 3563

CITATION : Corporation of the Municipality of Strathroy-Caradoc v. Corporation of the Township of Adelaide Metcalfe, 2023 ONSC 3563 DIVISIONAL COURT FILE NO.: 44/22 DATE: 20230614 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT Fregeau, Varpio, and Nishikawa JJ.

BETWEEN: ) ) The Corporation of the Municipality of Strathroy-Caradoc Appellant – and – The Corporation of the Township of Adelaide Metcalfe ) ) ) ) ) ) ) ) ) Carolyn Brandow and John Petrella, for the Appellant Paula Lombardi and Michael Polvere, for the Respondent ) Brennyn Watterton and Kathleen Coulter for the Ontario Land Tribunal Respondent ) ) HEARD: April 25, 2023 REASONS FOR DECISION nISHIKAWA j.

Overview [ 1 ] The issue in this appeal is whether the Ontario Land Tribunal (the “Tribunal”) erred in asserting jurisdiction over the dispute between the Appellant, the Corporation of the Municipality of Strathroy-Caradoc (“Strathroy-Caradoc”) and the Respondent, the Corporation of the Township of Adelaide Metcalfe (“Adelaide Metcalfe”). [ 2 ] In a decision dated July 4, 2022 (the “Decision”), Vice-Chair David Lanthier concluded that the Tribunal had jurisdiction to hear the issues raised by Adelaide Metcalfe in its Notice of Request for Arbitration dated April 19, 2022 (the “Arbitration Notice”). [ 3 ] Strathroy-Caradoc sought leave to appeal the Decision to this court, which was granted by Heeney J. on November 25, 2022: 2022 ONSC 6604 (Div.

Ct.) . On appeal, Strathroy-Caradoc seeks an order declaring that the Tribunal does not have jurisdiction to hear and resolve the issues raised by Adelaide Metcalfe and an order quashing the Tribunal’s interim order requiring that Strathroy-Caradoc facilitate and issue all permits necessary to provide connections to the water and sewage services in the identified Service Area. [ 4 ] For the reasons given below, the appeal is granted. Issues [ 5 ] In his endorsement, Heeney J. granted leave to appeal on the following question only: (

a) Did the Tribunal err in law in its

interpretation of Clause 4.2.4 of the Servicing Agreement by: (

i) Failing to follow a pragmatic and common-sense approach to contract

interpretation; (ii) Arriving at an

interpretation that deviates significantly from the text of the clause; (iii) Failing to consider relevant surrounding circumstances at the time of the execution of the original agreement; (iv) Considering surrounding circumstances subsequent to entering into the agreement and extensions thereof; and

(

v) Misapplying appellate jurisprudence. [ 6 ] In my view, the sub-issues are aspects of the overarching question of whether the Tribunal erred in its

interpretation of the Servicing Agreement and the applicable statutory provisions. Background The Servicing Agreement and Renewals [ 7 ] The Appellant, Strathroy-Caradoc, has potable water supply and sewage treatment systems and provides those services to properties within its geographical boundaries. [ 8 ] The Respondent, Adelaide Metcalfe, did not have potable water supply and sewage treatment systems services for properties in a certain area within its geographical boundaries.

Adelaide Metcalfe sought to provide such services to encourage the development of lands adjacent to a county highway. [ 9 ] Subsection 20(1) of the Municipal Act 2001 , S.O. 2001, c. 25 , provides for the sharing of services across municipal boundaries.

Under that provision, a municipality “may enter into an agreement with one or more municipalities… to jointly provide, for their joint benefit, any matter which all of them have the power to provide within their own boundaries.” [ 10 ] After extensive negotiations for over three years, Strathroy-Caradoc and Adelaide Metcalfe entered into a written agreement effective October 1, 2003 (the “Servicing Agreement”). Under the Servicing Agreement, Strathroy-Caradoc would provide potable water supply and sewage treatment to specified lands within a certain area of Adelaide Metcalfe (the “Service Area”).

The Servicing Agreement included detailed provisions about the construction of the necessary infrastructure as well as usage, capital and improvement payments to be made by Adelaide Metcalfe. The Servicing Agreement was for a term of 10 years starting on October 1, 2003, with an option to renew for five years on certain conditions. [ 11 ] The Servicing Agreement explicitly provided that if no agreement to continue the provision of services was reached at the end of the time period specified in the agreement, Strathroy-Caradoc would be at liberty to terminate the services.

Clause 4.2.4 of the Servicing Agreement states, under the heading “Termination of Services at End of Term,” as follows: Unless this Agreement is terminated earlier in accordance with the terms of this Agreement, S-C and A-M hereby agree to enter into negotiations and make all reasonable efforts to negotiate a new agreement relating to the subject matter herein. These negotiations shall commence no later than six (6) months before the end of the Term, or any renewal thereof, by notice from A-M.

If the parties have not reached a new agreement by the end of the Term (or Renewal Term), either party may within one (1) year of the notice from A-M, request arbitration by the Ontario Municipal Board to settle the terms under which the servicing arrangements shall be continued. If no agreement to continue has been reached and neither party requests arbitration within one (1) year after the notice from A-M, S-C shall be a liberty to terminate the services provided under this Agreement. In the event that the terms of a new agreement are arbitrated by the Ontario Municipal Board under this

Article 4.2A, A-M and S-C hereby agree to be bound by the decision of the Ontario Municipal Board . [ 12 ] At the end of the 10-year term, the parties entered into a renewal agreement for a five-year term beginning on October 1, 2013. The renewal agreement contained a termination clause identical to Clause 4.2.4. The parties subsequently agreed to a six-month extension of the renewal agreement to March 31, 2019. [ 13 ] At that point, despite extensive negotiations to reach a new agreement for the continued provision of services, the parties were unable to agree on the terms.

They nonetheless continued to operate “within the spirit” of their agreement. [ 14 ] On April 19, 2022, Adelaide Metcalfe delivered the Arbitration Notice. Adelaide Metcalfe also brought a motion for: (

i) an order confirming the Tribunal’s jurisdiction to deal with the issues raised; and (ii) requiring Strathroy-Caradoc to continue to provide services and allow new connections for properties in the service area. [ 15 ] On April 28, 2022, Strathroy-Caradoc commenced an application in the Superior Court of Justice seeking declaratory and injunctive relief. Specifically, Strathroy-Caradoc sought a declaration that the written servicing agreements terminated and were no longer in force and an injunction preventing Adelaide Metcalfe from adding connections to the water supply or sewage system.

Strathroy-Caradoc also sought inspection rights for as long it continued to supply services to previously connected properties. [ 16 ] On May 27, 2022, Garson J. granted Adelaide Metcalfe’s request for an adjournment to permit the Tribunal to decide whether it would be assuming jurisdiction. Garson J. ordered that no new connections be made to Strathroy-Caradoc’s water supply or sewer systems until the matter was decided by the Tribunal. [ 17 ] On September 12, 2022, Dubé J. granted a further adjournment of the application pending the motion for leave to appeal to this court.

The Relevant Statutory Provisions [ 18 ] The Tribunal has only that jurisdiction ascribed to it by statute. Under s. 8(1) of the Ontario Land Tribunal Act, 2021 , S.O.

2021, Sch. 6, “the Tribunal has exclusive jurisdiction in respect of all matters in which jurisdiction is conferred on it by this or any other Act.” [ 19 ] Under s. 474.10.3(1) of the Municipal Act , the Tribunal has jurisdiction and power in relation to municipal affairs, among other things, (

j) when authorized by an agreement entered into by two or more municipalities in which the municipalities agree to be bound by the decision of the Tribunal, to hear and determine disputes in relation to the agreement[.] [ 20 ] Pursuant to s. 474.10.16(1) of the Municipal Act , the Tribunal has jurisdiction and power, (

a) to hear and determine any application with respect to any public utility, its construction, maintenance or operation by reason of the contravening of or failure to comply on the part of any person, firm, company, corporation or municipality with the requirements of any Act, or of any regulation, rule, by-law or order made under any Act, or of any agreement entered into in relation to such public utility, its construction, maintenance or operation; and (

b) to hear and determine any application with respect to any tolls charged by any person, firm, company, corporation or municipality operating a public utility in excess of those approved or prescribed by lawful authority, or which are otherwise unlawful.

The Ontario Land Tribunal Decision [ 21 ] In the Decision, the Vice-Chair concluded that the Tribunal had jurisdiction to hear the issues raised in the Arbitration Notice. [ 22 ] The Vice-Chair found that based on Clause 4.2.4 of the Servicing Agreement, the parties intended to settle the terms under which the Service Agreement would be continued and to be bound by a decision of the Tribunal, if that was the process that followed. On that basis, the Vice-Chair found sufficient statutory authority to take jurisdiction under s. 474.10.3(1)(

j) of the Municipal Act . [ 23 ] The Vice-Chair concluded that Clause 4.2.4 “represents the intended attornment of the Municipalities to the jurisdiction of the Tribunal, and its binding decision to determine how the parties move forward, mindful of the impact upon the owners of property in the Service Area.” The Vice-Chair rejected Strathroy-Caradoc’s argument that the delivery of the Arbitration Notice after the expiry of the time limit specified in Clause 4.2.4 nullified the parties’ agreement to be bound, finding that “this was not what the parties intended.” (Emphasis in original.) [ 24 ] The Vice-Chair further found that the Tribunal had jurisdiction because the issues raised by Adelaide Metcalfe regarding the failure to negotiate a new agreement “are squarely within the types of applications and contentious disputes provided for in s. 474.10.16(1) of the Municipal Act .” The Vice-Chair considered the potential impact of the dispute on residents and owner/developers within the Service Area and concluded that assuming jurisdiction was consistent with the Tribunal’s public interest mandate. [ 25 ] In addition, the Vice-Chair granted an interim order requiring Strathroy-Caradoc to issue all permits necessary for water and sewage connections to be provided to three specified developers in the Service Area.

However, the Tribunal denied Adelaide Metcalfe’s broader request for an allocation and continuation of service. Analysis Standard of Review [ 26 ] A party may appeal from a decision of the Tribunal only with leave, and only on questions of law: Ontario Land Tribunal Act , s. 24. The standard of review for questions of law on a statutory appeal is correctness: Canada (Minister of Citizenship and Immigration) v. Vavilov , 2019 SCC 65 , [2019] 4 S.C.R. 653, at para. 37 . The Proper

Interpretation of Clause 4.2.4 of the Servicing Agreement The Principles of Contract

Interpretation [ 27 ] The Supreme Court of Canada has observed that the courts’ approach to contract

interpretation “has evolved towards a practical, common-sense approach not dominated by technical rules of construction”: Sattva Capital Corp. v. Creston Moly Corp ., 2014 SCC 53 , [2014] 2 S.C.R. 633, at para. 47 . The primary object of contract

interpretation is to give effect to the intention of the parties at the time of contract formation: Bhasin v. Hrynew , 2014 SCC 71 , [2014] 3 S.C.R. 71, at para. 45 . The “intent of the parties and the scope of their understanding,” is determined by reading a contract “as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”: Sattva Capital , at para. 47. [ 28 ] While contextual factors are relevant to the

interpretation of a contract, “the

interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract.” Sattva Capital , at para. 57. In Weyerhaeuser Company

Limited v Ontario (Attorney General) , 2017 ONCA 1007 , at para. 76 , the Court of Appeal described that “the plain meaning of the words in a contract is the logical place to start the contractual

interpretation exercise.” [ 29 ] Similarly, in The Plan Group v. Bell Canada , 2009 ONCA 548 , at para. 37 , the Court of Appeal held that a commercial contract should be interpreted: (

i) as a whole, by giving meaning to all the terms of a contract to avoid an

interpretation that would render any term ineffective; (ii) by determining the intention of the parties with reference to the words used in the contract; (iii) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to subjective intention; and (iv) to the extent that there is any ambiguity in the contract, in a fashion that accords with sound commercial principles and good business sense and that avoids a commercial absurdity. See also Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205 , at para. 24 . Did the Tribunal Fail to Follow a Pragmatic and Common-Sense Approach to Contract

Interpretation? Did the Tribunal Arrive at an

Interpretation that Deviates Significantly from the Text of the Clause? [ 30 ] In my view, the Tribunal’s

interpretation of Clause 4.2.4 of the Servicing Agreement was inconsistent with the ordinary and grammatical meaning of the words used in that provision.

The plain language of the provision states that the parties may request arbitration within one year of notice from Adelaide Metcalfe. [1] If no agreement to continue to provide services has been reached and neither party requests arbitration within one year of the notice from Adelaide Metcalfe, Strathroy-Caradoc is at liberty to terminate the services. [ 31 ] The Servicing Agreement was extended by the renewal agreement to September 30, 2018 and then again for six months until March 31, 2019.

Adelaide Metcalfe did not deliver the Arbitration Notice until April 19, 2022, some 30 months after the one-year period agreed upon by the parties in Clause 4.2.4. [ 32 ] The Tribunal’s

interpretation of Clause 4.2.4 would require Strathroy-Caradoc to continue to provide the services and, as a result, fails to give effect to Strathroy-Caradoc’s right to terminate the services as expressly provided in that provision. [ 33 ] Further, the effect of the Tribunal’s

interpretation of Clause 4.2.4 was to convert a limited term agreement into an agreement to provide services indefinitely. The Vice-Chair’s finding that Strathroy-Caradoc’s right to terminate without proceeding to arbitration “was not what the parties intended” was contrary to the parties’ intent, as demonstrated by the plain and unambiguous language employed in Clause 4.2.4. [ 34 ] In my view, in interpreting the Servicing Agreement in a manner that disregarded its temporal scope and the time-limited right to seek arbitration, the Vice-Chair deviated significantly from the text of the agreement and in doing so, failed to follow a pragmatic and common-sense approach to contract

interpretation. The Vice-Chair placed greater significance on the potential pragmatic effects on Adelaide Metcalfe of Strathroy-Caradoc’s termination of services. While his concerns about the potential consequences of termination may have been valid, he was not permitted to depart from the principles of contract

interpretation in an attempt to prevent such consequences. [ 35 ] Moreover, the contract should be read as a whole . In Thunder Bay (City) v. Canadian National Railway Company, 2018 ONCA 517 , at para. 46 , the Court of Appeal explained that it is an error of law to interpret a contract in such a way that fails to give effect to all of a contract’s terms or that renders one or more of the contract’s terms ineffective. [ 36 ] The Tribunal’s

interpretation of Clause 4.2.4 is inconsistent with other clauses in the Servicing Agreement. Under the Servicing Agreement, the provision of services by Strathroy-Caradoc was contingent on a variety of conditions and the failure to satisfy those conditions was stated in other provisions to give Strathroy-Caradoc the right to terminate services. Under Clause 4.12.4, Strathroy- Caradoc had a right to stop providing water and sewage services after a certain period following notice of default.

Read as a whole, the Servicing Agreement is clear that the provision of services by Strathroy-Caradoc was not intended to be indefinite. The agreement to binding arbitration by the Tribunal was also not all-encompassing or unlimited. [ 37 ] Contrary to the requirement of Clause 4.2.4 of the Servicing Agreement, Adelaide Metcalfe did not serve the Arbitration Notice within one year of the notice of negotiation of a new agreement given by Adelaide Metcalfe. Nor did the parties reach an agreement to continue.

Pursuant to the terms of Clause 4.2.4, Strathroy-Caradoc was at liberty to terminate the services provided under the Servicing Agreement. Did the Tribunal Fail to Consider Relevant Surrounding Circumstances at the Time of the Execution of the Original Agreement? Did the Tribunal Consider Surrounding Circumstances Subsequent to Entering into the Agreement and Extensions? [ 38 ] In Sattva Capital , at para. 57, the Supreme Court of Canada stated that surrounding circumstances must never be used to overwhelm the words of the agreement and that “the

interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract.” Surrounding circumstances “should consist only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting.”: Sattva Capital , at para. 58. [ 39 ] In addition, “[e]vidence of subsequent conduct should be admitted only if the contract remains ambiguous after considering its text and its factual matrix” : Shewchuk v.

Blackmont Inc. , 2016 ONCA 912 , at para. 46 . Absent a finding of ambiguity in the contract, it is an error of law to consider the parties’ subsequent conduct: Thunder Bay , at paras. 62-65.

[ 40 ] In considering surrounding circumstances, the Vice-Chair disregarded relevant evidence of the circumstances that existed at the time of execution of the Servicing Agreement and renewals. This evidence included correspondence between the parties’ counsel stating that the agreement was limited in time. It is also worth noting that when the Servicing Agreement was originally being negotiated, s. 11 of the Public Utilities Act , R.S.O. 1990, c.

P.52 , limited agreements for water services to a term of 20 years. [ 41 ] Instead of considering the factual matrix at the time of execution, the Vice-Chair took into consideration the parties’ ongoing negotiations after the agreement came to an end, leading him to find that the contractual relationship continued. The Vice-Chair had not, however, made a finding of ambiguity before doing so. As a result, his consideration of subsequent conduct was contrary to the principles of contract

interpretation and an error of law. The erroneous consideration of subsequent conduct led him to conclude, incorrectly, that the parties intended to continue to be bound by the terms of the Servicing Agreement. [ 42 ] Because the agreement between Strathroy-Caradoc and Adelaide Metcalfe came to an end, s. 474.10.3(1) of the Municipal Act has no application.

As a result, the Tribunal does not have jurisdiction over the parties’ dispute because such jurisdiction is not “authorized by an agreement entered into by two or more municipalities in which the municipalities agree to be bound by the decision of the Tribunal, to hear and determine disputes in relation to the agreement[.]” [ 43 ] Based on my findings above, I need not consider whether the Tribunal erred in misapplying appellate jurisprudence. Alternative Ground for Jurisdiction under Paragraph 474.10.16(1)(a) [ 44 ] In my view, the Vice-Chair’s flawed

interpretation of the Servicing Agreement is also the basis for his finding jurisdiction, in the alternative, under s. 474.10.16(1)(

a) of the Municipal Act.

The Vice-Chair’ s determination that the Tribunal also had jurisdiction under that provision was based on his erroneous finding that the parties did not intend to allow Strathroy-Caradoc to stop providing services, and intended arbitration to create a new future servicing arrangement. [ 45 ] Similarly, in the absence of an agreement between Strathroy-Caradoc and Adelaide Metcalfe, s. 86 of the Municipal Act , which requires a municipality to supply services to a building, cannot form the basis for the Tribunal’s jurisdiction. [ 46 ] Finally, the Tribunal and Adelaide Metcalfe submit that the Tribunal’s public interest mandate and subject matter expertise weigh in favour of finding jurisdiction over the parties’ dispute.

The Tribunal’s mandate and expertise can only be exercised where there is a statutory basis for jurisdiction. In this case, the termination of the Servicing Agreement between the parties has removed the basis for jurisdiction under the applicable provisions of the Municipal Act . As a result, the Tribunal lacks jurisdiction over the parties’ dispute. Conclusion [ 47 ] Accordingly, the appeal is granted.

The order of the Tribunal dated July 4, 2022 is quashed. [ 48 ] In accordance with the parties’ agreement that the successful party be entitled to $30,000 in costs of the appeal and the motion for leave to appeal, Adelaide Metcalfe shall pay Strathroy-Caradoc’s costs in the amount of $30,000, all-inclusive. “Nishikawa J.” “I agree: Fregeau J.” “I agree: Varpio J.” Released: June 13, 2023 CITATION : Corporation of the Municipality of Strathroy-Caradoc v. Corporation of the Township of Adelaide Metcalfe, 2023 ONSC 3563 DIVISIONAL COURT FILE NO.: 44/22 DATE: 20230614

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT Fregeau, Varpio, and Nishikawa JJ. BETWEEN: The Corporation of the Municipality of Strathroy-Caradoc Appellant - and - The Corporation of the Township of Adelaide Metcalfe Respondent REASONS FOR DECISION Nishikawa J. Released: June 14, 2023