Scotia Square Hotel Ltd. v. City of Halifax, [1977] 2 SCR 490

Supreme Court of Canada

Scotia Square Hotel Ltd. v. City of Halifax, [1977] 2 S.C.R. 490

Date: 1976-04-01

Scotia Square Hotel Limited and Halifax Developments Limited Appellants;

and

The City of Halifax Respondent.

1975: November 24; 1976: April 1.

Present: Laskin C.J. and Ritchie, Spence, Dickson and Beetz JJ.

ON APPEAL FROM THE SUPREME COURT OF NOVA SCOTIA, APPEAL DIVISION

Municipal law—Contracts—Interpretation—Agreement by municipality to service redevelopment with sewerage—Sewer development charge subsequently imposed on new buildings—Entitlement of developer to recover amount of charge from municipality.

In 1966 an agreement providing for a redevelopment in downtown Halifax was entered into between the City and C.M.H.C. on the one hand and the appellant Halifax Developments Limited on the other. The City agreed to be responsible for certain municipal works and projects including “the construction of all public sewers in each stage and the enlargement of any public sewers located outside such stage that may be required to properly service such stage”. In 1972 the City imposed a sewer development charge on owners of new buildings or of building additions with a greater floor space than 80 square feet, the purpose of which was to finance a general upgrading of the City’s trunk sewer system. The appellant claimed remission of the development charge because of the City’s obligation in the agreement. While the City had completed sewerage installation and there was no dispute as to the serviceability of the sewers it was contended by the appellant that the obligation was an ongoing one not to be considered discharged until after the redevelopment had been completed.

The trial judge found that the appellant was entitled to remission of the development charge the purpose of which “to pay for the additional sewer capacity required to accommodate the effluent from new buildings or additions to existing buildings”, obligations which the City had undertaken in relation to the redevelopment in the 1966 agreement. The Appeal Division, however, concluded that the City had met its obligation in terms of the agreement before the sewer development tax was created and set aside the judgment at trial.

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Held (Ritchie and Dickson JJ. dissenting): The appeal should be dismissed.

Per Laskin C.J. and Spence and Beetz JJ.: There was no evidence to show that the appellant’s hotel was not properly serviced by the sewer system provided or that any inadequacy was anticipated in the foreseeable future. The report, which gave rise to the development charge, concerned a long-term replacement programme and there was no evidence to connect its findings with the serviceability of the sewer system provided by the redevelopment project.

Per Ritchie and Dickson JJ., dissenting: By the express terms of the agreement the City had assumed responsibility for the construction and enlargement of sewers bearing on the redevelopment in each stage of the project’s construction. “Construction” and “enlargement” of sewers as used in the agreement should be construed as including their “development” and “rehabilitation” within the meaning of the ordinance imposing the development charge. The charge was validly imposed in relation to the redevelopment but as its effect was to expose the appellant to an expense for which the City had assumed responsibility it should recover the amount of that charge.

APPEAL from the Supreme Court of Nova Scotia, Appeal Division[1], allowing an appeal from a judgment of Cowan C.J.[2] at trial holding appellant entitled to remission of a sewer development charge by reason of an agreement previously made with respondent. Appeal dismissed, Ritchie and Dickson JJ. dissenting.

Ronald N. Pugsley, Q.C., and John D. Murphy, for the appellants.

Ronald J. Downie, Q.C., and Barry S. Allen, for the respondent.

The judgment of Laskin C.J. and Spence and Beetz JJ. was delivered by

THE CHIEF JUSTICE—This appeal arises out of proceedings which, in form, raised the question whether the appellants were liable to pay the sewer development charge imposed by the respondent City under its Ordinance 153, which came into force on April 1, 1972. At the trial of this question before Cowan C.J.T.D. counsel for the parties

[Page 492]

agreed that the substantial question between them was a different one, namely, whether the City was in breach of its obligation under s. 31 of a development agreement of August 31, 1966, made between the City and Central Mortgage and Housing Corporation (referred to in the agreement as the “Partnership”) on the one hand and Halifax Developments Limited, one of the appellants herein, on the other.

Under that agreement, which provided for a redevelopment of about 14 acres of land in the downtown core of the City, a redevelopment under the name of Scotia Square which involved the construction, inter alia, of apartment buildings, a trade mart building and a hotel, the Partnership (i.e. for present purposes, the City) agreed to certain obligations among which was the following in s. 31 of the agreement:

31. The Partnership covenants and agrees that it will:

(a) be responsible for and undertake or cause to be undertaken the following municipal works and projects applicable to each stage:

(i) …

(ii) …

(iii) the construction of all public sewers in each stage and the enlargement of any public sewers located outside such stage that may be required to properly service such stage. Provided, however, that the Company shall be responsible for and shall pay the normal Betterment Charges as determined from time to time by City Council for the City generally.

It is common ground that the concluding sentence in s. 31 referring to Betterment Charges is not germane to the present case. It is also common ground that the sewer development charge was validly imposed and that the appellants, like other owners of new buildings or of building additions with a greater floor space than 80 square feet, were liable to pay the charge. However, the effect of the agreement of counsel before Cowan C.J.T.D. was to turn the issue of liability for the sewer development charge into an issue of liability of the City for breach of s. 31, and to substitute remission of the amount of the charge (a one-shot affair in the amount of 30 cents per square foot)

[Page 493]

for the damages to which the appellants would be entitled on proof of breach of s. 31 by the City.

The trial judge found that the appellants, owners of a hotel in Scotia Square, were entitled to remission of the sewer development charge. At the time of the hearing before the trial judge the hotel was still under construction, and it is not denied that the owners were caught by the terms of Ordinance 153. There was an existing sewer system in the redevelopment area and the City purported to discharge its obligation in respect of sewers under s. 31 of the agreement by providing 1330 additional lineal feet of sewers to serve the Scotia Square project. In so doing it conformed to the outlay contemplated by the developers’ tender which showed the estimated cost to the City of sewers for the project (there were other costs for street lighting, sidewalks, paving and landscaping) at $23,940, but with a net cost of only $4,520 after allowing for recoupment of charges to abutters. The question is, however, whether the City conformed to its obligations under s. 31, and this depends on whether proof was made by the appellants of a breach of obligation by the City.

The City completed the installation of the 1330 lineal feet of sewers by November 1969, before construction of the hotel was begun but not before construction of the trade mart which was the first building of the project to be completed. The record does not disclose any dispute about the serviceability of the sewers at the time they were installed, but it was contended by the appellants that the obligation under s. 31 was an ongoing one, presumably not to be considered discharged until the redevelopment was complete and an assessment of serviceability could be made. The trial judge’s reasons in favour of the appellants appeared to turn in large part on the effect of a report made on January 31, 1970, to the Halifax City Council by a firm of consulting engineers. The report, as it itself states, was authorized by the City Council acting with the support of the Nova Scotia Water Resources Commission. Letters passing between

[Page 494]

the City manager and the Commission in July and August, 1968 show that the City and the Commission were concerned primarily with treatment of sewage, with a plan for the disposal of waste by treatment that would abate pollution of the waters into which the sewage was then being discharged. The engineering firm’s report, which was produced a year after it was given terms of reference on January 30, 1969, is headed “Report on a Master Plan for Sewage Works and Drainage in the City of Halifax”. The report referred to the appropriateness of such a study “especially in the light of the recent extensive annexation of the urban area of the County by which the City’s area was increased from seven to more than 24 square miles”, and the plan proposed was one “to provide a guide for the efficient and economic development of these works in the years to come”.

The recommendations of the report were preceded by the following statement:

The recommendations are founded on the following significant aspects of this study and which have formed the predominant theme of this report:

(i) Separate sanitary and storm sewers including street or lateral and trunk sewers to serve all future developments and all present developments not yet served with sewers.

(ii) New storm sewers, together with the replacement as considered necessary, of existing sanitary sewers in all areas of present development within Wards seven to ten. This would provide additional capacity in the existing sanitary sewer system as redevelopment occurs and more particularly as new development proceeds in the upper areas of the tributary drainage pattern. It would also ultimately permit achievement of a complete separate sewer system throughout Wards seven to ten.

(iii) Replacement and enlargement of ultimately 80 to 90 per cent of the existing combined sewers on the Peninsula as a consequence of redevelopment and physical deterioration of the existing sewers.

(iv) Pollution control measures and facilities including interceptors, pumping stations, forcemains,

[Page 495]

a combined trunk sewer adjacent to the Northwest Arm, and a treatment plant and outlet. The recommended pollution control works are shown in Figure 1-1.

Counsel for the appellant emphasized item (iii), but it should be noted (and the trial judge did note it) that with respect to the “rehabilitation and improvement of the existing combined sewer system on the Peninsula” (the Scotia Square project was within it), the report said that “it is assumed that this programme will be undertaken over the next 100 years …”. The pollution control programme recommended in the report was proposed for implementation over the next ten years. City Council adopted the report in principle in April, 1970 and it was after considering its financial implications that Council decided to levy a sewer development charge.

It appears to me that the trial judge regarded the report, and Ordinance 153 which was one result thereof, as having an immediate bearing on the serviceability of the sewers which the City had obligated itself to construct and enlarge in order to service the Scotia Square project. His decision on the issue between the parties is encased in three sentences of his lengthy reasons, and those sentences read as follows:

…I find that the stated purpose for the sewer development charge imposed by Ordinance 153 was to provide the funds necessary to pay for the additional sewer capacity required to accommodate the effluent from new buildings or additions to existing buildings. In my opinion, the provision of such facilities was an obligation of the Partnership under the Agreement of August 31, 1966. By Clause 31, the Partnership agreed to be responsible for, and to undertake or cause to be undertaken, the construction of all public sewers in each stage of the redevelopment covered by the Agreement, and the enlargement of any public sewers located outside such stage that may be required to properly service such stage.

In this passage the trial judge treated the issue as if it was a matter of law that was concluded by finding a relationship between the purpose of Ordinance 153 and the City’s obligation under s. 31 of the development agreement. This, however,

[Page 496]

misconceives the issue that the parties agreed should be tried. The Ordinance was immaterial on the question of liability and only provided a measure of the agreed damages that would result if a breach of the development agreement was established. Moreover, Ordinance 153 was not an ordinance that had any special relationship to the Scotia Square project. It was a by-product of the report of January 31, 1970, and neither the report nor the Ordinance nor the two together can be taken as determining that there was a violation by the City of its obligation to construct and enlarge all public sewers that might be required to properly service each stage of the development.

In his reasons for judgment for the Nova Scotia Court of Appeal, MacKeigan C.J.N.S. said that “no evidence was given by the [appellants] pointing to any inadequacies in the sewers servicing the project or to any other specific failure by the City to comply with s. 31. The [appellants] admitted that they had not had to do any work or pay any costs which should have been done or paid by the City under s. 31”. In concluding that the City had met its obligation under s. 31 before the sewer development tax was created, the Nova Scotia Court of Appeal took a different view of the issue from that taken by the trial judge.

I agree with the Court of Appeal. Not only was there no evidence to show that the hotel was not properly serviced by the existing sewer system as supplemented by the 1330 lineal feet of sewer provided by the City, but, in addition, no attempt appears to have been made to show any likely inadequacy of the sewers in the foreseeable future. Of course, they may eventually have to be replaced if they become worn or corroded or for some other reason unserviceable. Nothing in the record points to any existing or imminent inadequacy, and I cannot regard the report, which was addressed to a long-term replacement programme, as having any bearing on the construction and application of s. 31 of the development contract. Certainly, it could not have any bearing unless there was evidence to

[Page 497]

connect its findings with the serviceability of the sewer system provided for the Scotia Square project. There was no such evidence.

I would dismiss the appeal with costs.

The judgment of Ritchie and Dickson JJ. was delivered by

RITCHIE J. (dissenting)—This is an appeal from a judgment of the Appeal Division of the Supreme Court of Nova Scotia reversing the judgment rendered at trial by Cowan C.J.T.D., insofar as it directed that the appellant Halifax Developments Limited recover from the City of Halifax the amount of a sewer development charge imposed by the City pursuant to the provisions of its Ordinance No. 153 with respect to hotel premises then being constructed which formed a part of the Scotia Square project in the new “central development area” of the City.

In December 1965, the City of Halifax issued a “CALL FOR DEVELOPMENT PROPOSALS for the development of approximately 13.9 acres of land in the central portion of the City”. The land was stated to be owned jointly by the City of Halifax and C.M.H.C., and the tenders were required to be marked “Development Proposals—Halifax Central Development Area.”

The call for proposals contained detailed provisions with regard to instructions to tenderers and s. 5 of Part II thereof dealt with responsibility for Municipal Works, Open Spaces, and Car Parks and in part provided as follows:

(a) The City will clear the land subject to the CALL FOR PROPOSALS within the Central Redevelopment Area of all the existing buildings and structures.

(b) The City will grant any easements required for connecting the sewers and water mains across City land to adjacent streets and permit soil test borings on its land subject to reasonable notice to existing tenants.

(c) The City will enlarge any sewers outside the areas covered by the DEVELOPMENT PROPOSALS if required to serve the development.

[Page 498]

and

(h) Sewers. The City will be responsible for the construction of all the public sewers within the Central Redevelopment Area and will provide the Developers with all the required sewer facilities at the stated charges.

The original call for proposals indicated that preferential consideration would be given to development proposals which included “a comprehensive shopping centre planned on pedestrian mall principle with a large department store as its nucleus and ample parking facilities”, but it will be seen that as the project developed it involved the construction of an apartment building and a hotel.

Halifax Developments Limited submitted a tender, the acceptance of which was evidenced by an agreement dated August 31, 1966, between the City of Halifax and Central Mortgage and Housing Corporation referred to in the agreement as a “Partnership” of the one part and Halifax Developments Limited, one of the present appellants referred to in the agreement as the “Company” of the other part. For the purpose of this appeal the most significant part of this agreement is contained in para. 31 thereof which provides, in part, as follows:

31. The Partnership covenants and agrees that it will:

(a) be responsible for and undertake or cause to be undertaken the following municipal works and projects applicable to each stage:

(i) …

(ii) …

(iii) the construction of all public sewers in each stage and the enlargement of any public sewers located outside such stage that may be required to properly service such stage. Provided, however, that the Company shall be responsible for and shall pay the normal Betterment Charges as determined from time to time by City Council for the City generally.

This paragraph indicates that the Partnership incorporated in its agreement with the Company an express undertaking to assume responsibility for the construction of public sewers within the central development area and to enlarge any sewer outside

[Page 499]

the area in the manner specified by the City’s original “Call for Development Proposals”.

There is no doubt that during the early stages of construction of this very considerable project, the City of Halifax installed and completed a substantial amount of sewer development in accordance with the agreement and in fact by 1969, 1330 lineal feet of sewers had been constructed, but this was before the work had been commenced on the construction of the hotel and before the enactment of that portion of Ordinance No. 153 with which we are here concerned.

Ordinance No. 153 was passed pursuant to s. 376(B)(i) of the Halifax City Charter which was enacted by s. 20 of c. 79 of the Statutes of Nova Scotia 1971, as an amendment to the City Charter. That section provided that:

The Council may by ordinance define the class or classes of buildings to be erected or enlarged according to the varying loads which in the opinion of Council they impose or may impose on the sewer system and levy a charge or charges thereon to pay for additional or trunk sanitary or storm sewer capacity required to accommodate the effluent from such buildings and for the purpose of levying such redevelopment or trunk sewer charges the City may be divided into zones.

By the Statutes of Nova Scotia 1972 c. 71, the last quoted subsection was repealed and the following substituted therefor:

(1) Notwithstanding any other provisions of this Act, the Council may, by ordinance, impose a special charge on any or all buildings or class or classes of buildings to be erected or enlarged after the effective date of the Ordinance, and may impose different charges on the various classes of buildings to pay for all or any part of the cost of providing sanitary or storm capacity which may be required.

Ordinance No. 153, passed by the City Council on February 17, 1972, reads, in part, as follows:

(1) On building additions having a floor space of greater than eighty square feet (80 sq. ft.) and on all new buildings, a sewer development charge, in the amount of

[Page 500]

thirty cents (30¢) per square foot of floor space, is hereby levied and imposed.

…

(4) The sewer development charge shall become due and payable by the owner of the new building or additional to a building on the date of issuance of a building permit by the Building Inspector.

By s. 4 of the Ordinance it is provided that:

The proceeds of the charges authorized by this Ordinance shall be paid into an account to be called the Sewer Rehabilitation and Trunk Sewer Account, and shall be used for sewer rehabilitation and the City’s share of the cost of trunk sewer construction.

The sewer charge, in the amount of $39,232.60, was levied against Scotia Square Hotel Limited, one of the present appellants, under circumstances which the learned trial judge describes as follows:

There is now in course of construction a hotel to be owned by Scotia Square Hotel Limited, the other plaintiff, and Halifax Developments Limited has an interest in that Company. The sewer development charge giving rise to this application was levied in respect of the Hotel building now under construction.

The present proceedings were commenced by application made on behalf of Scotia Hotel Limited and Halifax Developments Limited for “a declaration that the plaintiffs are not liable to pay the sewer development charge imposed under Ordinance No. 153”.

During the course of the trial before Chief Justice Cowan, however, it was agreed that the more appropriate question to be determined was whether the appellants, Scotia Square Hotel Limited, being liable to pay the charge imposed under Ordinance No. 153 were entitled to recover the amount of that charge from the City of Halifax in its capacity as a member of the Partnership which had entered into the development agreement of August 31, 1966, the relevant portions of which I have already recited. The learned trial judge and the Appeal Division, and also the Chief Justice of this Court whose reasons for judgment I have had

[Page 501]

the benefit of reading, are all in agreement that the development charge was properly imposed under Ordinance No. 153 and I share this view. Chief Justice Cowan, however, was of opinion that by the express terms of s. 31(1)(a)(iii) of the Agreement, the City of Halifax, as a member of the Partnership, has assumed responsibility for the construction and enlargement of all public sewers in each stage of the project’s construction and for the enlargement of any public sewer located outside such stage and by the terms of that Agreement the City was required to reimburse Nova Scotia Hotel Limited for the sewer development charge. As Chief Justice Cowan observed:

Clause 31 of the Agreement provides that the Partnership, consisting of the City and Central Mortgage & Housing Corporation, will be responsible for, inter alia, ‘the construction of all public sewers in each stage and the enlargement of any public sewers located outside such stage that may be required to properly service such stage.’ The plain meaning of this clause is that, if new public sewers are required to be constructed or existing public sewers require to be enlarged, and such sewers are located or to be located in or outside the area to be redeveloped under the Agreement, the Partnership will provide such new sewers or enlarged sewers at no cost to Halifax Developments Limited. The MacLaren Report contemplated that, within the Peninsula of Halifax in which the Scotia Square Project is located, the only charge to be imposed, apart from the surcharge on water bills designated for pollution control, was a sewer development charge on new building floor areas. This was, presumably, based on the assumption that the construction of new buildings and additions to existing buildings on the Peninsula would increase the load to be carried by the existing, combined sewerage and draining system now serving the Peninsula.

Like Chief Justice Cowan I take the view that the provisions of s. 31(1)(a) of the Agreement constitute a binding undertaking on the part of the City by which it assumed responsibility for the construction of public sewers as therein specified and for the enlargement of such sewers “located outside” any particular stage of the project. I consider that the “construction” and enlargement of sewers includes the “development” and

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“rehabilitation” thereof within the meaning of Ordinance No. 153.

The undertaking of the City to be responsible for the construction and enlargement of the sewers required to service each stage of the Scotia Square project must have been one of the factors inducing the appellant to enter into the Agreement of 31st August, 1966. This undertaking was made by the City in its capacity as a member of the “Partnership” and its decision to enact Ordinance No. 153 was made in discharge of its public duty to the citizens of Halifax and in furtherance of the MacLaren Report which had been prepared for it as an overall survey of the present and future requirements of the City. This Ordinance, enacted nearly seven years after the date of the Agreement had the effect of increasing the financial burden on the appellants in relation to the development and rehabilitation of sewers by reason of the construction of the hotel building and thus involved them in an additional charge of $39,232.60 which was never contemplated at the time of the Agreement and which the City had created of its own motion. While the charge was levied in what the City considered to be the fulfilment of its duty to the citizens, it nevertheless had the effect of exposing the appellants to an expense in an area for which the Partnership has assumed responsibility under the Agreement, and I agree with Chief Justice Cowan that under s. 31 of that Agreement, Halifax Developments Limited has a right to recover from the City the amount of the sewer development charge which was validly imposed on Scotia Square Hotel Limited under the provisions of the relevant legislation.

For all these reasons I would allow this appeal and restore the judgment rendered at trial by Chief Justice Cowan. I would award the appellants their costs both here and in the Court of Appeal.

Appeal dismissed with costs, RITCHIE and DICKSON JJ. dissenting.

Solicitor for the appellants: R.N. Pugsley, Halifax.

Solicitor for the respondent: R.J. Downie, Halifax.