On July 2, 2015, the Supreme Court of Canada dismissed an application for leave to appeal from a recent Ontario Court of Appeal decision in 1298417 Ontario Ltd. v. Lakeshore (Town) 2014 ONCA 802.
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. Clair Shores.
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 monopoly.
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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