The decision in Lakeshore highlights the principle that
a person contracting with a municipality should take careful notice
of the municipality's power to contract.
In this case, the Town of Lakeshore entered into an agreement
with the numbered company promising to reserve sewage capacity for
the company's project – St. Clair Shores
Subdivision. The clause in dispute read as follows:
"The Municipality hereby grants and
approves the allocation of additional capacity in the Existing
System so as to allow for full development of the St. Clair Shores
Subdivision, in compliance with the existing zoning provisions for
the said Subdivision. For greater certainty, said additional
capacity shall be deemed to have been expressly reserved for the
benefit of the St. Clair Shores Subdivision, and the Municipality
shall not, prior to completion of full development and build out of
residential and commercial buildings in the St. Clair Shores
Subdivision, grant and/or approve additional capacity in the
Existing System for lands outside of the St. Clair Shores
Subdivision." [emphasis added]
Before St. Clair Shores was completed, the Town allocated some
sewage capacity to another development. The numbered company
sued, arguing that the Town promised it a monopoly over sewage
capacity. The trial judge agreed with the company, awarding
it damages in the amount of $2,423,860.
The Court of Appeal overturned the trial decision, including the
award of damages, with two different lines of reasoning. Epstein
J.A. stated that the Town had no authority to promise a monopoly
over sewage capacity, making the above clause void. That
said, Epstein J.A. was prepared to interpret the clause as saying
that the Town had to provide sufficient sewage capacity to St.
Feldman J.A. and MacFarland J.A. did not find the clause
void. In their view, the clause could only be read as an
obligation to provide sufficient sewage capacity, rather than a
Relying on this interpretation, the Court found that the Town
did not know how much capacity St. Clair Shores would
require. As such, the Town did not breach its contractual
obligation to the numbered company.
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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