Toronto Transit Commission v. City of Toronto, [1971] SCR 746

Supreme Court of Canada

Toronto Transit Commission v. City of Toronto, [1971] S.C.R. 746

Date: 1971-04-05

Toronto Transit Commission (Plaintiff) Appellant;

and

The Corporation of the City of Toronto (Defendant) Respondent.

The Corporation of the City of Toronto (Defendant) Appellant;

and

Toronto Transit Commission (Plaintiff) Respondent.

1970: November 6, 9; 1971: April 5.

Present: Martland, Judson, Ritchie, Hall and Spence JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Assessment—Real property—Exemptions—Lease of lands owned by public transit commission—Intended commercial development—Right to occupation not exercised by lessee except for purpose of soil testing—Whether commission properly assessed—The Assessment Act, R.S.O. 1960, c. 23, s. 4, para. 9 (rep. & subs. 1965, c. 6, s. 1).

Certain lands in the City of Toronto owned by the plaintiff Transit Commission and occupied by it for marshalling yards, repair depots and other transit purposes were leased by the Commission to an investment company. The lease granted what was described therein as ground rights, air rights and right of way, and it was indicated that there should be erected above the marshalling yards and repair buildings another level of structures to be used for both commercial and housing accommodation. Construction of the intended development was not proceeded with and the only use made of the lands by the lessee was for the purpose of soil testing. The lessee, however, continued to pay rental to the Transit Commission in accordance with the terms of the lease.

An action was brought by the Commission for a declaration that certain assessments for municipal taxation in respect of the leased lands were nullities and for consequential relief. The assessments in question were made by the defendant municipal corporation in 1962 and 1963 for the taxation years 1963 and 1964. The action was dismissed at trial. On appeal, the Court of Appeal held that, under

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the provisions of para. 9 of s. 4 of The Assessment Act, R.S.O. 1960, c. 23, as amended, the lands leased were not liable to be assessed as they were not occupied by a tenant or lessee for the purpose of assessment in 1962 and 1963 for taxation in 1963 and 1964. The Court of Appeal, therefore, held that the assessment for the year 1963 was a nullity and set it aside but held that the assessment made in the year 1962 although wrongly made could not be impeached in view of the limitation provisions of s. 88 of the Act. From this judgment both the Transit Commission and the municipal corporation appealed to this Court. The Transit Commission sought this Court’s judgment that the said provisions of s. 88 did not bar the action for a declaration that the 1962 assessment was a nullity and the municipal corporation in its cross-appeal sought judgment declaring that the assessment of the lands leased was valid in both the years 1962 and 1963.

Held: The appeal of the Transit Commission should be dismissed and the appeal of the municipal corporation allowed.

The words in para. 9 of s. 4 “but not when occupied by a tenant or lessee” in order to carry out the legislative policy of The Assessment Act must be interpreted to result that when a tenant or lessee has a contractual right to occupation whether or not he exercises that right by going on the lands and building or otherwise utilizing them for the development which he intends the exemption is removed and the lands become subject to assessment in the ordinary course.

Liverpool Corporation v. Chorley Union Assessment Committee et al., [1913] A.C. 197; The King v. The Assessors of the Town of Sunny Brae, Ex p. Les Dames Religieuses de Notre Dame de Charité du Bon Pasteur, [1952] 2 S.C.R. 76, referred to.

APPEALS by the Toronto Transit Commission and the Corporation of the City of Toronto from a judgment of the Court of Appeal for Ontario[1], allowing in part an appeal by the Commission from a judgment of Moorhouse J. Appeal of the Commission dismissed and appeal of the City allowed.

W.J. Smith, Q.C., N.E. Balfour and S.R. Zupan, for the Toronto Transit Commission.

D.C. Lyons, for the Corporation of the City of Toronto.

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The judgment of the Court was delivered by

SPENCE J.—These are appeals by the plaintiff the Toronto Transit Commission and by the defendant the Corporation of the City of Toronto from the judgment of the Court of Appeal for Ontario pronounced on January 7, 1969.

The Toronto Transit Commission is the owner of a large block of property in the City of Toronto bordered on the east by Yonge Street, on the north by Chaplin Crescent and properties on the south side thereof, on the west by Lascelles Boulevard, and the south by what was then the Canadian National Railways right of way. This property straddles the line of the Yonge Street subway and is occupied by the Transit Commission for large marshalling yards, repair depots and other transit purposes. The Transit Commission leased the lands to the Davisville Investment Co. Ltd. under lease dated October 24, 1961, which was to run for a period of fifty-two years from January 1, 1962, until December 31, 2013. The rental for the period from January 1, 1962, for the next eight years was to be $85,000 and thereafter at varying rents. The premises leased were described in the document in five parcels and the lease granted what was described therein as ground rights, air rights and right of way. It was indicated that there should be erected above the marshalling yards and repair buildings another level of structures to be used for both commercial and housing accommodation and elaborate plans were prepared for a unique and very large development.

The lease to Davisville Investment Co. Ltd. describing by metes and bounds the five parcels to be demised to that tenant commences its description of parcels A and C with the words AIR RIGHTS and following the metes and bounds description of each of those two parcels reserves to the lessor all rights in the parcel lying below a specified level. In my view, this demise of air rights required no special consideration on this appeal. There may well be cases even along the fine of the Toronto Transit Commission subway where buildings have been erected above the right of way supported alone by buildings which have their foundations on either side of the right

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of way on lands owned by others than the Commission. In such and other like cases it might be a question whether the lands beneath such buildings held up by foundations under other lands were occupied. Such is not the present case. The structures to be erected by the tenant were to be based on foundation pillars sunk into the lands owned by the Commission. In my view, what was contemplated was merely a structure on stilts and was to be as much an occupation of lands as if the structure had sat on the ground over the whole surface rather than merely on the pillars. Moreover, as Lord Atkinson pointed out in Liverpool Corporation v. Chorley Union Assessment Committee et al.[2], at pp. 204-5:

In order to prove that an owner in possession of such an extensive tract as this has entered into actual occupation of it, one is not obliged to prove the doing of some physical act on every portion of it. One must have regard to the kind of occupation of which the tract is reasonably susceptible. Acts done on one portion of it may furnish strong evidence of his having entered into, and being in actual occupation of, other portions of it, or indeed of the whole tract. The fencing off and planting of nearly 300 acres of this tract, and the demolition of farmhouses and other buildings erected upon other portions of it, go strongly to prove in this case, that the appellants had entered into actual occupation of the whole tract. But as regards the moorland there is much more.

The lessee entered upon the lands only for the purpose of drilling to conduct soil tests, a programme which it carried out both before and after the commencement of the lease period but the lessee up to the time of this litigation had never proceeded with any construction upon the lands nor indeed had used them except for the purpose of the aforesaid soil testing. The lessee, however, had continued to pay rental to the Transit Commission in accordance with the terms of the lease.

In 1962, the Corporation of the City of Toronto, hereinafter referred to as the municipal corporation, assessed the property for taxation in

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1963 by two assessments: firstly, for $347,500 in respect of the Transit Commission’s unleased holdings and, secondly, for $760,500 for the land value in respect of the interest therein leased to the Davisville Investment Co. Ltd. The first of these assessments was noted as exempt but the municipal corporation claimed to be entitled to the taxes for the year 1963 upon the assessment of $760,500. In 1963, the municipal corporation assessed the lands for taxes which would be due in 1964, this time in one notice for a total assessment of $1,108,000 indicating on the assessment notice for that amount to the Transit Commission that it was exempt but forwarding a companion notice of assessment to the lessee in the sum of $760,500. The Transit Commission appealed the 1962 assessment but later abandoned the appeal.

On June 15, 1964, it brought the present action against the municipal corporation for a declaration that the assessments were nullities and for consequential relief. The action was dismissed at trial and an appeal was taken to the Court of Appeal for Ontario. By its judgment, the Court of Appeal for Ontario held that the lands leased were not liable to be assessed as they were not occupied by a tenant or lessee for the purpose of assessment in 1962 and 1963 for taxation in 1963 and 1964. The Court of Appeal, therefore, held that the assessment for the year 1963 was a nullity and set it aside but held that the assessment made in the year 1962 although wrongly made could not be impeached in view of the limitation provisions in s. 88 of The Assessment Act, R.S.O. 1960, c. 23, as amended. From this judgment, both the Transit Commission and the municipal corporation have appealed to this Court. The Transit Commission seeks this Court’s judgment that the said provisions of s. 88 of The Assessment Act do not bar the action for a declaration that the 1962 assessment was a nullity and the municipal corporation in its cross-appeal seeks judgment declaring that the assessment of the lands leased was valid in both the years 1962 and 1963.

In my view, the latter appeal should be first dealt with because if those assessments were valid then the application of s. 88 of The Assessment Act to limit the time within which an attack may

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be made upon them is, of course, irrelevant. The statutory provision involved is s. 4 of The Assessment Act, R.S.O. 1960, c. 23 as amended, and particularly para. 9 thereof. The section provides:

4. All real property in Ontario is liable to assessment and taxation, subject to the following exemptions from taxation:

9. Subject to section 43, the property belonging to any county or municipality or vested in or controlled by any public commission, municipal parking authority or local board as defined by The Department of Municipal Affairs Act, except property of a harbour commission used for the parking of vehicles for which a fee is charged, wherever situate and whether occupied for the purposes thereof or unoccupied, but not when occupied by a tenant or lessee.

It will be seen that the taxing provision is contained in the first two lines of s. 4 and, of course, one need not cite authority for the proposition that the taxing provision must be strictly construed. The construction, however, is not difficult as the section provides simply for the assessment of “all real property”. In the same initial lines appear the words “subject to the following exemptions from taxation” and since that provision sets up an exemption the person must show plainly that he comes within the exemption.

In The King v. The Assessors of the Town of Sunny Brae, Ex p. Les Dames Religieuses de Notre Dame de Charité du Bon Pasteur[3], per Rand J. at p. 89:

Taxes, then, are the rule against all, and he who claims an exemption must show that he comes within the language delineating it. It must be shown, as Duff J., later Chief Justice, said, speaking for the Judicial Committee in Montreal v. College of Sainte Marie, [1921] 1 A.C. 288 at 291, “that the privilege invoked has unquestionably been created.”

Again, referring to para. 9 of s. 4, it is quite plain that the Transit Commission brings itself within the said paragraph apart from the last few

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words thereof. It is a public commission and it is not a harbour commission so the lands are exempt from assessment “wherever situate and whether occupied for the purposes thereof or unoccupied”.

The question, therefore, is simply whether the exemption of the Transit Commission is defeated by the last few words of the subsection which read: “but not when occupied by a tenant or lessee”.

A very large number of cases were examined both before the Court of Appeal for Ontario and in this Court dealing with the words “occupied” or “occupation” either standing alone or accompanied by other words and phrases such as “actually occupied”, “actual occupant”, “used and occupied” or “actually used and occupied”. I am of the opinion that the canvassing of such a large number of authorities is not required to decide this particular appeal for two reasons: firstly, nearly all of those authorities deal with cases where under the appropriate assessment legislation lands are not liable for taxation when not occupied by the owner and therefore the cases are of doubtful application where the exemption is granted to the owner whether the lands are occupied or unoccupied and that exemption is only removed when the lands are “occupied by a tenant or lessee”, and, secondly, in every case the meaning of the statutory provision must be obtained by consideration not only of the actual words in a subsection but of the whole statute and by considering the purpose of the legislation.

The purpose of the relevant provisions of The Assessment Act seem to be quite plain. One starts with a basic proposition that all lands are subject to taxation and then there is carved out from that body of all lands certain lands which are exempt from taxation; amongst the latter exempt lands, quite rationally, are lands owned by the municipality, any public commission, and municipal parking authority or local board. Since those lands are such as are devoted to muncipal purposes, it would defeat the intent of the statute to subject them to taxes only resulting in a confusion of contradictory entries and an assessment and therefore tax rate which would result

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in a false representation of the true picture. Again, proceeding a step further in what may be termed an analysis of the legislative policy, this exemption of municipally owned lands, as the policy may be roughly designated, should not apply when the said lands are not devoted to purposes of the municipality but are devoted to commercial uses. A very plain example of that change of use is when the lands are leased to a tenant, then the use for municipal purposes disappears and in place thereof there is a commercial use producing a revenue to the municipality. That revenue comes from property used by the tenant for a commercial purpose wherein the tenant competes with other owners and tenants of commercially used lands. To permit lands so used to be tax free would be to bonus the tenants of such lands and permit unfair competition with other users of commercial lands. It should be noted that under the lease in question in para. 6 the lessee covenants to pay as additional rent all taxes, rates, duties and assessments that may be levied, rated, charged or assessed against the demised lands and their rights.

Therefore, if no rates can be assessed against these lands, the Davisville Investment Co. Ltd. would hold, in the centre of one of the best areas in the City of Toronto for this type of commercial development, lands which if it had leased them from a private owner would have carried an assessment of $760,500 and would have been required by pay taxes on such an amount. This consideration is, in my view, a very strong argument against an interpretation of the words of para. 9 of s. 4 of The Assessment Act which would exempt from assessment the said lands when subject to the lease in question. Of course, the presence or absence in the lease of a covenant to pay taxes is not really an important factor because if the lessee is not required to pay taxes then the lands become that much more valuable to the lessee and the lessee would offer a higher rental therefor. In such case, the person who would be engaged in the unfair competition with the other users of commercial

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lands would be the Transit Commission and not the tenant. The result in either case is the same. Legislative policy would seem to only be carried out if lands are subject to taxation so soon as their use is no longer a use for municipal purposes but becomes a use for commercial purposes.

Therefore, I am in agreement with the view expressed by Moorhouse J. in his reasons for judgment after the trial of this action when he said:

I do not accept the plaintiff’s argument that the tenant must be in physical possession to come within the term “occupied”. The assessment is of real property and not merely of rights and the total assessment is $1,108,000. As between the owner and the tenant the assessor has quite properly made a division and valuation of the land to which each is entitled. I am not concerned with amounts nor the propriety of the division between the owner and the tenant. I find he did what he had a right to do. Davisville had a clear and undoubted right of occupancy. It was paying annually a substantial rent for that right. To say that the demised property was not occupied by the tenant is to my mind putting an interpretation upon that word which does not in my opinion do justice to the manner in which it is here used.

I am, in short, of the opinion that the words in para. 9 of s. 4 “but not when occupied by a tenant or lessee” in order to carry out the legislative policy of The Assessment Act must be interpreted to result that when a tenant or lessee has a contractual right to occupation whether or not he exercises that right by going on the lands and building or otherwise utilizing them for the development which he intends the exemption is removed and the lands become subject to assessment in the ordinary course. In my view, such an interpretation is the proper result in the many cases where developers will lease lands and then for a variety of business reasons fail to develop them over the considerable period although they pay to the owners the full rental value of the lands during that period preceding the actual development; the opposite interpretation would permit the lands to be exempt from taxation. To reach that conclusion I have not placed any reliance on the very minor physical occupation of the lands by entry for the purpose

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of soil testing. I have considered the fact that under the lease in question Davisville was entitled to enter upon the lands on the first day of the term and to use them completely from that date on and that in fact for the first seven years to pay a considerably higher amount as annual rent than during the succeeding twenty years although for the last twenty-five years the rent again increased.

Having come to this conclusion, I am not required to consider whether or not the Transit Commission’s action for a declaration of the nullity of the 1962 assessment failed because it was beyond the sixty day limitation period after the return of the roll as limited by s. 88 of The Assessment Act. In my view, the attack is defeated by consideration of the provisions of s. 4 para. 9 regardless of whether it is barred by the provisions of s. 88.

I would, therefore, allow the appeal of the municipal corporation and dismiss the appeal of the Transit Commission. Although the matter came to this Court as two appeals, it was argued as if one appeal only were involved. I would, therefore, award the Corporation of the City of Toronto one set of costs at trial, in the Court of Appeal and in this Court.

Appeal of Toronto Transit Commission dismissed without costs; appeal of the Corporation of the City of Toronto allowed with costs.

Solicitors for the Toronto Transit Commission: Manning, Bruce, Macdonald & Macintosh, Toronto.

Solicitor for the Corporation of the City of Toronto: W.R. Callow, Toronto.