Supreme Court of Canada
Attorney General of British Columbia v. The Deeks Sand & Gravel
Company Limited, [1956] S.C.R. 336
Date: 1956-03-02
The Attorney
General of British Columbia (Defendant) Appellant;
and
The Deeks
Sand & Gravel Company Limited (Plaintiff) Respondent.
1955: October 28; 1956: March
2.
Present: Kerwin C.J., Rand,
Kellock, Estey, Locke, Fauteux and Abbott JJ. Estey J. died before the delivery
of the judgment.
ON APPEAL FROM THE COURT OF
APPEAL FOR BRITISH COLUMBIA
Crown lands—Lease—Transfer of
leased land from Dominion to Province—Whether Province entitled to alter terms
of lease on renewal—Whether compromise agreement enforceable—Railway Belt Re-transfer
Agreement Act, 1930 (B.C.), c. 60; 1930 (Can.), c. 37; 1930 (Imp.), c. 26.
In 1910, the predecessors in title of the respondent obtained
two renewable quarrying leases from the Dominion for 21 years, at a fixed
rental, the lessees covenanting to observe regulations made from time to time.
There was no mention of royalty. In 1930, the lands subject to the leases were,
by statute, vested in the Province of British Columbia, the Province being
bound to carry out the leases. When the respondent applied to the Province in
1931 for renewal, the latter claimed the right to vary the rental and to impose
a royalty. A compromise agreement was made providing that the leases would be
"thereafter subject to adjustment . . . both with regard to rental and to
royalty". The rental was subsequently increased and a royalty was
demanded. The respondent paid the increased rent only and sued the Province for
a declaration that it was not liable for the royalty. The trial judge and the
Court of Appeal for British Columbia held the compromise to be ultra vires
the Province and maintained the action.
Held: The appeal should be allowed. The agreement by
way of compromise was not ultra vires the Province.
[Page 337]
APPEAL from the judgment of
the Court of Appeal for British Columbia , affirming the judgment at trial in a declaratory
action.
D. N. Hossie, Q.C. for the
appellant.
A. Bull, Q.C. for the
respondent.
THE CHIEF JUSTICE:—This appeal
may be disposed of on a short ground. The parties compromised a dispute which
had arisen between them and the terms thereof appear in the following
endorsement on each lease:—
Renewed for a period of
twenty-one years from June 20, 1931, at a rental of one dollar per acre per annum,
free from royalty, for the first five years and thereafter subject to
adjustment for each successive five year period both with regard to rental and
royalty.
I agree with the trial Judge that
there is no uncertainty about this agreement and that its terms gave the
Minister power to vary the rentals and impose a variable royalty in order to
have the leases conform with similar leases granted by him. There was a
dispute, as to which the Minister believed he was in the right, and, therefore,
the easing of the provisions in favour of the respondent constituted good
consideration. Under these circumstances there appears to be no doubt as to the
law which, for present purposes, is sufficiently stated in para. 203 of Vol.
VII of the Second Edition of Halsbury's Laws of England.
The respondent succeeded in the
Courts below on the ground that the agreement was ultra vires the
Province. This, however, is not a case of an attack on legislation enacted by
the Legislature. In Attorney General of Canada v. Western Higbie and
Albion Investments, Ltd.
, it was held that para. 4 of a certain British
Columbia Order-in-Council was an
admission by the executive authority of the Province that certain harbours were
"public harbours" within the meaning of Item 2 of Schedule 3 of The
British North America Act, 1867.
While that was a case of the power of the executive to make an admission, the
circumstances, here present, that it might be held if action had then been
taken that the Province could not insist upon altered terms, does not affect
the matter.
[Page 338]
The decision of this Court in Anthony
v. Attorney General for Alberta , is quite distinguishable, as Alberta's
claim had not been agreed to by the other party. In Attorney General for
Alberta v. West Canadian Colleries, Ltd. et al. and Attorney General for
Manitoba and another
, s. 8 of an Alberta statute of 1948 was "a naked assertion" that the
terms of pre-1930 Dominion leases and grants could be wholly disregarded (p.
549). Here there was no such attempt, but a bona fide agreement was
entered into by two parties, each of which was capable of so contracting.
The appeal should be allowed and
the action dismissed with costs throughout.
The judgment of Rand, Kellock,
Locke, Fauteux and Abbott JJ. was delivered by:—
KELLOCK J.:—The liability
asserted by the appellant herein to rest upon the respondent depends, in the
first place, upon the binding nature or otherwise of an agreement of compromise
made at the time of renewal by the province of two quarrying leases made on August 13, 1910 by Canada to
predecessors in title of the respondent, and, in the second place, upon the
proper construction of that agreement.
Each lease was for a term of
twenty-one years from June 20, 1910, at an annual rental of $1 per acre,
renewable for a further term
of twenty-one years, provided the lessee can furnish evidence satisfactory to
the Minister of the Interior to show that during the term of the lease he has
complied fully with the conditions of such lease, and with the provisions of
the regulations regarding the disposal and operation of quarrying allocations
which may have been made from time to time by the Governor in Council.
The leases were granted pursuant
to regulations passed by virtue of s. 4 of the Dominion Lands Act, 7-8
Ed. VII, c. 20, which authorized the Governor in Council "from time to
time to make such regulations for the survey, administration and disposal"
of the lands as "he deemed suited to the conditions thereof." While
by the terms of the regulations, as well as by the leases themselves, the
lessee was required to keep books showing the quantities of material obtained
under the leases, to make returns as to
[Page 339]
its working and operations and to
"abide by all the obligations, conditions, provisoes and restrictions in
or under the said regulations imposed upon lessees or upon the said
lessee", neither in the leases nor in the applicable regulations is there any
mention of royalty.
By an agreement between the
Dominion and the province under date of the 20th of February, 1930, validated
by Imperial, Dominion and provincial legislation, the interest of the Dominion
in these and other lands was vested in the province upon terms, inter alia.
binding the province to carry out, in accordance with the terms thereof,
"every contract to purchase or lease any interest in the lands transferred
and every arrangement whereby any person had become entitled to any interest
therein as against Canada."
Subsequent to the expiry of the
original term, negotiations took place between the respondent and the province
as to renewal. The province claimed to be entitled to stipulate that the rent
should be "subject to adjustment" for each succeeding five-year
period after the first five years of the renewal term and that the lessee
should pay a royalty of five cents per cubic yard on all material removed, it
being contended that such right had pertained to the Dominion upon the proper
construction of the regulations as well as the provision as to renewal in the
leases themselves, and that the province had succeeded to the rights of Canada
under the terms of para. 4 of the Dominion-Provincial agreement, which provides
that
any power or right which, by
any agreement or other arrangement relating to any interest in the lands hereby
transferred or by any Act of Parliament relating to the said lands, or by any
regulation made under any such Act, is reserved to the Governor in Council, or
to the Minister of the Interior or any other officer of the Government of
Canada, may be exercised by the Lieutenant-Governor of the Province in Council
or by such officer of the Government of the Province as is authorized to
exercise similar powers or rights under the laws of the Province relating to
the administration of Crown lands therein.
The respondent's solicitors took
the position that neither under the terms of the leases nor the regulations had
the Dominion reserved any power to alter the rent or impose any royalty, and
they threatened proceedings to compel the issuance of the renewals in
accordance with their view of the respondent's rights.
[Page 340]
In the result, a compromise was
arrived at and embodied in an endorsement on each lease as follows:
Renewed for a period of
twenty-one years from June 20, 1931, at a rental of one dollar per acre per annum,
free from royalty, for the first five years and thereafter subject to
adjustment for each successive five year period both with regard to rental and
royalty.
While in the correspondence prior
to the making of this agreement the province had stated that provincial
regulations were in force providing for the payment of royalties, that was not
the fact, but the parties have made no point of this in argument before us. That
this matter may have been the subject of discussion when the agreement of
compromise was entered into, is perhaps indicated by the letter of May 16,
1932, to the respondent from the provincial Superintendent of Lands which does
not refer to any provincial regulations but to the understanding arrived at
between the parties that the respondent had "no objection to the principle
of the conditions attached to all Provincial leases of this nature." These
conditions were inserted in provincial leases by the Minister of Lands under
the authority of s. 80 of the Provincial Lands Act; R.S., 1924, c. 131.
Upon the expiry of the first five
years of the renewal period, the province advised the respondent that
thereafter the leases would be subject to royalty, but this claim was waived
for a further five year period when the province increased the rental and
demanded payment of royalty. The increased rental has been in fact paid so that
no question arises with regard to it. The royalty, however, has not been paid.
The respondent contends that the
agreement of compromise was without consideration in that the leases themselves
and the Dominion regulations properly construed conferred no right upon the
Dominion and therefore none on the province, to insist upon the inclusion of a
term as to royalty. The respondent thus seeks to revert to the position taken
by it when the discussion arose which eventuated in the compromise. It is
further contended that the compromise itself did not, properly construed,
impose liability for royalty upon the respondent but amounted to no more than
an agreement to discuss.
[Page 341]
The learned trial judge was of
opinion as a matter of construction that the agreement did obligate the
respondent to pay, with which opinion I agree, and that the province, at the
time the agreement was negotiated, entertained a reasonable hope that its
contention would be maintained if litigated and that it had an honest belief in
its chances of success. He therefore concluded that the endorsement on the
leases constituted a binding compromise, and authorized the increase in rental
and imposition of the royalty "unless it was ultra vires the
Province."
As to this, the learned judge was
of opinion that, upon the proper construction of the terms of the leases and
the regulations, the position taken by the province in 1931 as to its rights
was, in reality, untenable in law, and that because the obligation of the
province toward the respondent under the Dominion-Provincial agreement of 1930
had been constituted by statute, "the compromise, if not illegal, was at
least beyond the powers of the Minister and the Province, and was therefore
invalid." The learned judge saw no distinction in principle between
unilateral action on the part of a province by way of legislation which proved
ultimately to be ultra vires as in opposition to the terms of the
statutory agreement between the Dominion and the province and an agreement
between a province and a lessee arrived at by way of composition of conflicting
views as to the proper construction of that agreement and the rights thereby
accruing to each.
The learned judge said:
The present case is one of
the Province of British Columbia asserting and thereby exacting by compromise
rights which it did not enjoy under the original lease, or the Railway Belt
Agreement, by which it nullified in part its obligation under clause 3 of the
latter agreement to carry out the lease granted by the Dominion according to
its terms, and the Plaintiff's rights under those contracts.
There is no distinction in
principle. The Imperial Act and the Statute of Canada confirming the Railway
Belt Agreement imposed the same constitutional limitation on the prerogative of
the Crown, in the right of the Province of British Columbia, that Natural
Resources Agreement and the confirming Statutes imposed on the authority of the
Alberta Legislature; in neither case would the consent of the contracting
parties allow the Province to break the bounds imposed by that limitation.
[Page 342]
In this view, for which he found
support in the decision of this court in Mark Anthony v. Attorney
General of Alberta , the learned judge decided:
It is unnecessary to
consider whether the Province and the lessee could amend the leases without the
authority of Dominion and Provincial legislation by an agreement fairly and
freely made to meet their mutual requirements under circumstances which did not
involve a compromise of untenable claims made by the Province in conflict with
the Railway Belt Agreement.
This judgment was upheld on
appeal ,
O'Halloran J.A., who wrote the judgment of the court, stating:
Once it appears, therefore,
that the Province has no power to impose a royalty on the leased lands, it is
beyond the capability of the Province, or of any official on its behalf, to
enter into an agreement in virtual effect forcing the Respondent to subscribe
to payment of a royalty which there was no power in the Province to demand.
If, therefore, it is argued
that a compromise agreement came out of such conditions it becomes apparent
that such compromise agreement must be invalid and not binding on the
Respondent, because the subject-matter of such attempted agreement was ultra
vires the Province to bring into being. Since the subject-matter never
could have had a legal existence, there remains no foundation for an agreement;
in short, there could not be an agreement.
What is, in effect, being said by
both these learned judges is that, having construed the terms of the leases and
the regulations and come to the conclusion that the province was wrong in law
in the view taken by it in 1931 when the compromise was entered into, the
province lacked the capacity which an ordinary individual, entertaining an
honest opinion as to the construction of an instrument or a statute and his
rights arising thereunder, would have had to compromise a dispute with a person
holding a conflicting view of such rights. In forming his own opinion on the
question of construction in the case at bar, the learned judge himself had
"not found it easy to decide whether the terms of the original lease
authorized a subsequent imposition of royalty or increase in rent."
I find it impossible to agree
with the view upon which the courts below have proceeded. It clearly cannot be
said that the province was without capacity to accept a surrender of even the
entire interest of the respondent in the leases nor of something less than the
entire interest had such been proferre Nor can it be said that the province
[Page 343]
was without capacity bona fide
to place its interpretation on the terms of the leases and the regulations even
though such interpretation might subsequently be found to be in error. In my
opinion, this is self-evident and any question of constitutional limitation on
the part of the province does not arise. The question involved is merely as to
whether or not the agreement of compromise was validly arrived at, the test not
differing in the case at bar from that which applies as between individuals.
What is really being said by the learned judges below is that a claim which may
subsequently be determined to be unfounded in law, cannot validly form the
basis of an agreement of compromise. That was undoubtedly the law formerly, as
the earlier authorities show. But it has not been the law for a considerable
period.
In Cook v. Wright
, the plaintiffs, trustees under a local Act, had called upon the defendant,
who was not the owner but the agent of the owner, of certain houses, to pay
expenses chargeable under the statute to the owner. The defendant attended a
meeting of the trustees at which he advised them that he was not the owner and
gave them the name of his principal. The trustees, however, took the position
that the defendant was the owner within the statutory definition of that term
and advised him that unless he paid he would be proceeded against. As a result,
a compromise was entered into under which the defendant agreed to pay.
It was held that although the
defendant was not personally liable under the statute, the plaintiffs honestly
believed that he was and that was sufficient even although the defendant
himself never did so believe but entered into the agreement in order to avoid
being sued. Blackburn J., who delivered the judgment of the Court, said, at p.
324:
The real consideration,
therefore, depends not on the actual commencement of a suit, but on the reality
of the claim made, and the bona fides of the compromise.
It will be observed that in this
case the dispute between the parties was, as in the case at bar, namely, the
construction of a statute.
Again, in Callisher v.
Bischoffsheim
, the plaintiff, alleging that certain monies were due and owing to him from
the Government of Honduras, threatened legal pro-
[Page 344]
ceedings to enforce payment,
whereupon the defendant promised to deliver to him certain securities provided
he would forbear taking proceedings for an agreed time. It turned out that in
fact there were no monies owing by the Honduras Government but that the
plaintiff honestly believed there were. The defendant was held liable. Cockburn
C.J., said, at p. 452:
Every day a compromise is
effected on the ground that the party making it has a chance of succeeding in
it, and if he bona fide believes he has a fair chance of success, he has a
reasonable ground for suing, and his forbearance to sue will constitute a good
consideration….
It would be another matter
if a person made a claim which he knew to be unfounded, and, by a compromise,
derived an advantage under it: in that case his conduct would be fraudulent.
Blackburn J., said also, on the
same page:
If we are to infer that the
plaintiff believed that some money was due to him, his claim was honest, and
the compromise of that claim would be binding, and would form a good
consideration, although the plaintiff, if he had prosecuted his original claim,
would have been defeated.
In Miles v. New Zealand
Alford Estate Company
, Cotton L.J., at p. 283, put the matter thus:
Now, what I understand to be
the law is this, that if there is in fact a serious claim honestly made, the
abandonment of the claim is a good "consideration" for a contract; …Now,
by "honest claim", I think is meant this, that a claim is honest if
the claimant does not know that his claim is unsubstantial, or if he does not
know facts, to his knowledge unknown to the other party, which shew that his
claim is a bad one. Of course, if both parties know all the facts, and with
knowledge of those facts obtain a compromise, it cannot be said that that is
dishonest. That is, I think, the correct law, and it is in accordance with what
is laid down in Cook v. Wright and Callisher v. Bischoffsheim
and Ockford v. Barelli (20W.R. 116).
Bowen L.J., in the same case said
at p. 291:
I think therefore that the
reality of the claim which is given up must be measured, not by the state of
the law as it is ultimately discovered to be, but by the state of the knowledge
of the person who at the time has to judge and make the concession.
The learned Lord Justice went on
to say:
Otherwise you would have to
try the whole cause to know if the man had a right to compromise it, and with
regard to questions of law it is obvious you could never safely compromise a
question of law at all.
[Page 345]
Again, in Jayawickreme v.
Amarasuriya
, Lord Atkinson, speaking on behalf of the Judicial Committee said, at p. 873:
The legal validity or
invalidity of the claim the female plaintiff threatened to enforce by action is
entirely beside the point if she, however mistakenly bona fide, believed in its
validity.
The effect of the authorities was
thus expressed by Lord Westbury in Dixon v.
Evans
, as follows:
In dealing with a
compromise, always supposing it to be a thing that is within the power of each
party, if honestly done, all that a Court of Justice has to do is to ascertain
that the claim or the representation on the one side is bonâ fide and
truly made, and that on the other side, the answer, or defence, or counter
claim, is also bonâ fide and truly made. I mean by bona fides,
the truth of parties, and above all this, that the compromise is not a sham, or
an instrument to accomplish or to carry into effect any ulterior or collateral
purpose, but that the thing sought to be done is within the very terms of the
compromise—that all that the parties contemplate and desire to effect and to
deal with is, whether the claim on the one side or the defence on the other
side shall be admitted or not; or whether, if both things are bonâ fide
brought forward, there may not be some concession on the one side, and some
concession on the other side, so as to arrive at terms of agreement, which, if
honestly made, is an honest settlement of an existing dispute. That is the
characteristic of a compromise, and if it be not manifestly ultrà vires
of the parties, it is one that a Court of Justice ought to respect, and ought
not to permit to be questioned.
The last mentioned case affords
an illustration of a situation in which one of the parties to a compromise
(there the directors of a corporation), may lack capacity to enter into a
particular agreement. Reference may also be made to Holsworthy Urban District
Council v. Rural District Council of Holsworthy
. In the present case no such question arises.
In my opinion, therefore, the
compromise here in question fully meets the requirements of the authorities.
There was, as the learned trial judge found, an honest difference of opinion as
to the construction of the leases and the regulations to which they were
subject. Although the respondent was at the time acting under the advice of
solicitors and had been advised that it was entitled to receive renewals free
from the claims being put forward by the province, it saw fit to enter into the
compromise which involved concessions on both sides. In these circumstances, as
it cannot be said, in my opinion, that the provincial
[Page 346]
claims were either frivolous or
vexatious or other than "real" within the meaning of the authorities,
the compromise was a binding one.
In my opinion also, the decision
of this court in Anthony v. Attorney General for Alberta
affords no support for the judgments below. The licensee in that case, while he
had accepted renewals from the province in which a reference to the Provincial
Lands Act was substituted for the Dominion Lands Act, and
regulations passed by the Lieutenant Governor in Council for the former
Dominion regulations, was held not to have consented by such acceptance to any
alteration in the agreement with the Dominion which would vest in the province
a right to destroy or nullify indirectly the contract which he had with the
Dominion Government. The consent, therefore, which was in question in that case
did not, in the view of the court, involve a consent to the claim which the
province was there putting forward, namely, a claim to exact fees which, as the
court found, amounted to a destruction of the grants themselves. The decision,
therefore, has no application in the case at bar where the claim which the
province is asserting was covered by an express term of the agreement of
compromise.
I would therefore allow the
appeal and dismiss the action with costs throughout.
Appeal allowed with
costs.
Solicitor for the
appellant: D. N. Hossie.
Solicitor for the
respondent: G. E. Housser.
REPORTER'S NOTE: Following the
handing down of the judgment on March 2,
1956, Mr. R. G. McClenahan, appearing
for both parties, moved on March 15, 1956, to vary the judgment as to the
disposition of costs in view of the provisions of the Crown Costs Act, R.S.B.C.
1948, c. 85. The motion was granted and the Court ordered that the judgment be
amended to read as follows: "The appeal is allowed and the action
dismissed. The appellant is entitled to his costs in this Court".
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