Entreprises Sibeca Inc. v. Frelighsburg (Municipality), 2004 SCC 61, [2004] 3 SCR 304

Entreprises Sibeca Inc. v. Frelighsburg (Municipality), [2004] 3 S.C.R. 304, 2004 SCC 61

Les Entreprises Sibeca Inc.                                                                             Appellant

v.

Municipality of Frelighsburg                                                                        Respondent

Indexed as:  Entreprises Sibeca Inc. v. Frelighsburg (Municipality)

Neutral citation:  2004 SCC 61.

File No.:  29600.

2004:  March 23; 2004:  October 1.

Present:  McLachlin C.J. and Iacobucci^*, Bastarache, Binnie, LeBel, Deschamps and Fish JJ.

on appeal from the court of appeal for quebec

Civil liability — Municipality — Exercise of power to make by‑laws — Relative immunity — Zoning by‑law — Developer suing municipality for loss of profits following amendment to zoning by‑law affecting its real estate development project — Whether public law immunity attaching to exercise of regulatory power included in rules of liability applicable to municipalities — Whether municipality acted in bad faith, or in circumstances leading to conclusion it acted in bad faith, in amending its zoning by‑law — Civil Code of Québec, S.Q. 1991, c. 64, art. 1457.

Municipal law — Exercise of power to make by‑laws — Relative immunity — Whether public law immunity attaching to exercise of regulatory power included in rules of liability applicable to municipalities —  Civil Code of Québec, S.Q. 1991, c. 64, art. 1457.

Municipal law — Zoning by‑law — Whether municipality acted in bad faith, or in circumstances leading to conclusion it acted in bad faith, in amending its zoning by‑law.

In 1988, a developer purchased a lot in the respondent municipality that encompassed the summit of Mount Pinacle and submitted a project involving a recreational and real estate development.  The municipality gave its approval in principle to the project, which was contested by advocates of conservation of the mountain.  In 1991, the recreational development project was put on hold because of the economic situation.  The developer instead made plans for a residential development.  However, the project faced numerous delays.  In the fall of 1993, a number of advocates of conservation of the mountain were elected to the municipal council, and a notice of motion to amend the zoning by‑law was filed in April 1994.  At the time this notice was filed, the building permits that had been issued to the developer for its residential development project had expired.  The amended by‑law was adopted in August 1994.  The amendment required the developer to submit a comprehensive development program for its land and to erect its buildings on land adjacent to a public road.  In light of these new requirements, the developer subdivided its land, sold it off piece by piece and sued the municipality for loss of profits.  The Superior Court concluded that the developer’s project had been blocked and characterized the municipality’s attitude as one of “administrative” bad faith.  It ordered the municipality to pay the developer $330,500.  It also found that the municipal councillors had not acted maliciously and could not be held personally liable.  The Court of Appeal set aside the award.

Held:  The appeal should be dismissed.

Per McLachlin C.J. and Bastarache, Binnie and Deschamps JJ.:  The adoption, amendment or repeal of a zoning by‑law does not in itself trigger liability even if the effect of that action is to reduce the value of the lands affected.  In exercising its regulatory power, a municipality enjoys broad discretion in public law.  It may not be held liable if it acts in good faith or if the exercise of this power cannot be characterized as irrational.  This protection provided by the public law relative immunity must be incorporated into the rules of liability applicable in civil law to municipalities.  In light of art. 1457 C.C.Q., an applicant can be required to establish that the public body acted in bad faith, or in circumstances leading to a conclusion that it acted in bad faith.

The Court of Appeal was correct to intervene and set aside the award of damages.  The trial judge misinterpreted the decision in Boyd Builders, which was rendered in the specific context of a permit application, and incorrectly shifted the burden of proof by requiring the municipality to prove its good faith.  The principles of that decision have no bearing on the instant case.  As the developer had not applied to renew its expired permits and had not applied for fresh permits, it did not have a prima facie right to a permit.  The setbacks that led to the interruption of the real estate development project were unrelated to the municipality’s actions.  Moreover, the amendment to the zoning by‑law, which had as its purpose to protect the natural environment within the municipality’s jurisdiction, was compatible with the development plan for its territory and promoted an objective the municipality considered to be in the municipal interest.  A legitimate objective does not become improper because the people seeking to achieve it are councillors who have been publicly identified with the conservation of the mountain.  Finally, there is no such concept as administrative bad faith.  Since a legal person can act only through its agents, it can have no intention separate from theirs.  If, as in the case at bar, the municipal council, comprised of councillors acting in good faith, adopts a by‑law, then the municipality will be considered to have acted in good faith.

Per LeBel and Fish JJ.:  There is agreement with the analysis of the principles governing the municipality’s civil liability, and with the disposition.  It is unnecessary to apply the principles to the facts, or to pass judgment on the motives, intentions or conduct of the municipality.  Even had the municipality been found to be at fault, the developer, by allowing the building permits to expire, had broken any causal connection.

Cases Cited

By Deschamps J.

Applied:  Prud’homme v. Prud’homme, [2002] 4 S.C.R. 663, 2002 SCC 85; Welbridge Holdings Ltd. v. Greater Winnipeg, [1971] S.C.R. 957; distinguished:  City of Ottawa v. Boyd Builders Ltd., [1965] S.C.R. 408; referred to:  Laurentide Motels Ltd. v. Beauport (City), [1989] 1 S.C.R. 705; Roncarelli v. Duplessis, [1959] S.C.R. 121; Brown v. British Columbia (Minister of Transportation and Highways), [1994] 1 S.C.R. 420; Finney v. Barreau du Québec, [2004] 2 S.C.R. 17, 2004 SCC 36.

Statutes and Regulations Cited

Act respecting land use planning and development, R.S.Q., c. A‑19.1.

Act respecting the preservation of agricultural land and agricultural activities, R.S.Q., c. P‑41.1.

Civil Code of Lower Canada.

Civil Code of Québec, S.Q. 1991, c. 64, arts. 1376, 1457.

APPEAL from a judgment of the Quebec Court of Appeal (2002), 40 M.P.L.R. (3d) 157, [2002] Q.J. No. 5093 (QL), reversing a decision of the Superior Court, [2000] Q.J. No. 5908 (QL).  Appeal dismissed.

Jacques Jeansonne and Pierre Luc Blain, for the appellant.

Guy Pepin and Pierre Le Page, for the respondent.

English version of the judgment of McLachlin C.J. and Bastarache, Binnie and Deschamps JJ. delivered by

1                                   Deschamps J. — At issue in this appeal are the rules governing the extra‑contractual liability of municipalities, and more specifically the circumstances in which damages may be awarded against a municipality following the exercise of its power to make by‑laws.

2                                   The adoption of zoning by‑laws is an exercise in respect of which a municipality clearly has wide latitude.  However, any discretion, no matter how broad, has limits.  The appellant, Entreprises Sibeca Inc. (“Sibeca”), contends that the municipality exceeded those limits.  The trial judge, starting from a false premise, found in its favour.  The Court of Appeal set that judgment aside.  For the reasons set out below, I would dismiss the appeal.

I.  Facts

3                                   On May 28, 1988, Sibeca purchased an approximately 1500‑acre lot in the municipality of Frelighsburg (“municipality”).  The lot encompasses the summit of Mount Pinacle, which is regarded as the most important area of the municipality from the political, economic and social points of view.  Shortly after purchasing the lot, Sibeca submitted to the municipality a project involving a recreational and real estate development on approximately 600 acres of land on the north face of Mount Pinacle.  The project included a downhill ski resort, a golf course and a residential housing development.  The project, as a whole, was compatible with the development plan for the Regional County Municipality of Brôme‑Missisquoi (“RCM”), which was in force as of May 19, 1987.  By resolution passed on September 12, 1988, the municipality approved the project in principle, subject to a number of conditions, one of which was that the municipality would be able to regulate the manner in which the project was carried out, by way of by‑laws that were soon to be adopted.

4                                   At the time of approval of the Sibeca project, the municipality had not yet adopted the by‑laws that were needed to implement the development plan adopted under the Act respecting land use planning and development, R.S.Q., c. A‑19.1.  In addition, Sibeca’s lot was located in a zone that was still designated agricultural under the Act respecting the preservation of agricultural land and agricultural activities, R.S.Q., c. P‑41.1.  Sibeca therefore could not go ahead with its project unless it was first granted the change to the designation it needed to withdraw the lot from the zone protected as agricultural land.

5                                   The adoption of the development plan in 1987 had brought to the fore a dispute that had long been under way between those in favour of developing Mount Pinacle and those in favor of conserving it.  Since 1976, the municipality’s master plan had provided for a conservation‑oriented approach to the land surrounding Mount Pinacle.  From the very beginning of the preparation of the development plan, the RCM adopted that approach, and the proposal it submitted for public consultation incorporated that permitted use.  Only when the final version was adopted was the permitted use changed to authorize a recreational zone.  What had been a political and social dispute then became a legal one.

6                                   The advocates of conservation advanced their position on several fronts.  They formed the Association for the Conservation of Mount Pinacle (the “Association”).  They instituted legal proceedings to challenge the development plan, claiming that the change of use was illegal.  Their action was dismissed on May 22, 1992 ([1992] R.J.Q. 1613) by Hélène LeBel J. of the Superior Court, on the ground that the RCM was not bound by the version submitted for public consultation, and more specifically that the complaint regarding the change of approach related to the quality of the decision‑making process rather than to its legality (p. 1634).  The judge also rejected the argument that the RCM had acted under the influence of Desourdy Inc., Sibeca’s predecessor in title, although she observed that it is normal for an organization like the RCM, made up of the mayors of each of the municipalities within its territory, to give great weight to the opinions of the local municipalities.  In 1991, the conservationists also founded the Mount Pinacle Land Trust (“Trust”) to collect funds for the purchase of land to be made into protection areas.  They then contested a decision by the Commission de protection du territoire agricole dated November 12, 1992, which had ruled in Sibeca’s favour.  The Association’s contestation was dismissed on May 3, 1993.

7                                   Sibeca’s project had been on shaky ground since 1991 because of the economic situation.  The recreational development project was put on hold.  According to Sibeca’s representative, it was pointless to develop a ski resort during a recession.  Sibeca instead made plans for a residential development, the Domaine de l’Aigle, on the south side of the mountain.  It consisted of 50 lots of about 5 acres each.  In 1992, Sibeca obtained subdivision permits and permits to cut down trees and build roads for the Domaine de l’Aigle development.  As well, the municipality issued three building permits for three model homes on April 1, 1993.  Sibeca started work on the project, but encountered a number of snags.  As a result of administrative challenges relating to the designation as agricultural land, and of bad weather, vandalism and subcontracting problems, marketing of the Domaine de l’Aigle had not yet begun by the fall of 1993.

8                                   The fall of 1993 brought another change, this one political.  A new municipal council was elected.  A number of long‑time conservation activists found themselves in the majority on the council.  They were criticized for holding office in the Trust and the Association.  The municipal council shelved the work that had already been done on preparing the by‑laws.  It retained a new planning firm.  Rather than adopting a whole new zoning by‑law, the council drafted an amendment to the existing zoning by‑law.

9                                   Sibeca’s building permits, which had initially been issued for six months but had been extended to April 1, 1994 as the result of toleration on the municipality’s part, then expired.  Sibeca had not yet begun construction on the three houses.  On April 5, 1994, a notice of motion was filed announcing that zoning by‑law 215‑82 was to be amended.  Once the amendment had been adopted, the developer would have to submit a comprehensive development program (“CDP”) to the municipality for all of its land (meaning for both the north and south faces) and all construction would have to be adjacent to a public road.  In addition, downhill skiing would not be permitted.  On August 21, 1994, the eligible voters came down in favour of the by‑law.  The RCM issued a certificate of conformity of the by‑law with the development plan on December 20, 1994.

10                               Sibeca was facing a tight deadline.  Its creditors had given it an extension until December 31, 1994.  However, it believed that the new requirements meant it would be unable to find common ground with the municipality.  Sibeca subdivided its land and sold it off piece by piece.  It sued for loss of the profits it would have realized by selling the lots in the Domaine de l’Aigle individually.

11                               Two opposing theories were argued in the Superior Court:  Sibeca contended that the municipality had blocked its project, while the municipality argued that it had made legitimate use of tools provided to it by the legislature to regulate development within its boundaries.

12                               Arsenault J. of the Superior Court held that even if there were no acquired rights, Sibeca could reasonably have expected, as regards the Domaine de l’Aigle, that the project would not be arbitrarily blocked by a council hostile to the project to develop a ski resort and golf course on Mount Pinacle.  In his opinion, the by‑law affected only the Domaine de l’Aigle.  Relying on City of Ottawa v. Boyd Builders Ltd., [1965] S.C.R. 408, the judge required that the municipality prove its good faith.  He agreed that the municipal councillors were entitled to support the conservation of Mount Pinacle but criticized the municipality for requiring a CDP, it being his view that the council had deviated from the development plan.  He also said that he was inclined to think that the council had strayed from the goal of the provision of the Act respecting land use planning and development concerning CDPs in including the requirement that construction be on land adjacent to a public road.  He therefore cast doubt on the real intentions of the municipality and its councillors, since he was of the view that they were undoubtedly aware that any work on the ski resort and golf course project was tied to the financial success of the Domaine de l’Aigle.  He concluded that Sibeca’s project had been blocked.  He characterized the municipality’s attitude as one of “administrative” bad faith.  He ordered the municipality to pay $330,500 in damages.  However, he found that the municipal councillors had not acted maliciously and could not be held personally liable.

13                               The Court of Appeal set aside the award of damages.  In reasons in which her two colleagues concurred, Mailhot J.A. relied on the finding that the councillors had not acted in bad faith to demonstrate the contradictory nature of the Superior Court’s conclusion as regards the municipality.  Mailhot J.A. analysed the facts and the law and concluded that the municipality had the power to amend the zoning by‑law, that this power had not been used improperly and that the members of the municipal council had not closed their minds to Sibeca’s ideas.

14                               In this Court, Sibeca again argued that the municipality had used its powers for an improper purpose.  It alleged that the councillors had acted in a discriminatory manner and in bad faith.  In combination with the requirement that construction be along a public road, the effect of the requirement that a CDP be filed was to block the Domaine de l’Aigle project.  Sibeca also alleged that a number of councillors had placed themselves in a conflict of interest.  It further submitted that its cross‑appeal to the Court of Appeal should have been allowed.

II.  Analysis

15                               It is important not to confuse the rules of administrative law with the rules that govern the extra‑contractual liability of a public body.  The rules of administrative law allow for an application to be made to the Superior Court for judicial review of a public body’s decision.  The setting aside of such a decision will not necessarily lead to the municipality’s being civilly liable.

16                               An action in damages against a public body is governed by the rules of civil liability.  This appeal relates only to the rules of civil liability.  Sibeca has divested itself of its property, and is not seeking to have the zoning by‑law quashed.  Its action is limited to a claim for loss of the anticipated profits on the sale of the lots in the Domaine de l’Aigle.  The action in damages was brought under art. 1457 of the Civil Code of Québec, S.Q. 1991, c. 64:

1457.  Every person has a duty to abide by the rules of conduct which lie upon him, according to the circumstances, usage or law, so as not to cause injury to another.

Where he is endowed with reason and fails in this duty, he is responsible for any injury he causes to another person by such fault and is liable to reparation for the injury, whether it be bodily, moral or material in nature.

He is also liable, in certain cases, to reparation for injury caused to another by the act or fault of another person or by the act of things in his custody.

17                               Under the Civil Code of Lower Canada, a municipality’s civil liability was governed by the rules this Court laid down in Laurentide Motels Ltd. v. Beauport (City), [1989] 1 S.C.R. 705.  Those rules were reviewed in Prud’homme v. Prud’homme, [2002] 4 S.C.R. 663, 2002 SCC 85, after art. 1376 of the Civil Code of Québec had come into force in 1994.  Article 1376 reads as follows:

1376.  The rules set forth in this Book apply to the State and its bodies, and to all other legal persons established in the public interest, subject to any other rules of law which may be applicable to them.

18                               In Prud’homme the Court concluded that under art. 1376 of the Civil Code of Québec, the general rules of civil law are applicable unless the public body establishes that public law principles prevail over the civil law rules (at para. 31): 

In short, when the new provisions of the Civil Code of Québec, and more particularly art. 1376, came into force, they no longer allowed the use of the method laid down by Laurentide Motels, supra, insofar as that decision imposed an obligation on the individual to identify a public common law rule that made the private law applicable to his or her action in liability against the governmental body.  The civil law principles of civil liability now apply, as a rule, to wrongful acts by such bodies.  It therefore belongs to the party which intends to rely on the public law in order to avoid or to limit the application of the general rules of civil liability to establish, where the need arises, that there are relevant public law principles that prevail over the civil law rules.

When a public law rule is identified and determined to be applicable, it must be incorporated into the law of civil liability.  It is therefore necessary to identify the public law rules applicable to municipalities, determine whether they prevail over the civil law rules and, if so, incorporate them into the civil law.

19                               In this case, the Civil Code of Québec does not specify a particular standard for determining when a public body is liable for acts performed in a general policy context.  On the other hand, public bodies enjoy immunity in public law for acts performed in the exercise of their legislative or regulatory power.

20                               The public law rules applicable to public bodies exercising a legislative power have been considered in numerous decisions of this Court.  Welbridge Holdings Ltd. v. Greater Winnipeg, [1971] S.C.R. 957, remains one of the leading cases.  In that case, a real estate developer had sued a public body, asserting that there was a duty of care in making a zoning by‑law.  After the by‑law was declared invalid, the developer claimed that the public body was liable in damages.  Laskin J., speaking for the Court, laid down some clear basic principles (at pp. 966 and 968‑70):

It is important to emphasize in this case that a duty of care of the defendant to the plaintiff cannot be based merely on the fact that economic loss would foreseeably result to the latter if By‑law No. 177 should prove to be invalid. . . .

                                                                   . . .

. . . A municipality at what may be called the operating level is different in kind from the same municipality at the legislative or quasi‑judicial level where it is exercising discretionary statutory authority.  In exercising such authority, a municipality (no less than a provincial Legislature or the Parliament of Canada) may act beyond its powers in the ultimate view of a Court, albeit it acted on the advice of counsel.  It would be incredible to say in such circumstances that it owed a duty of care giving rise to liability in damages for its breach.  “Invalidity is not the test of fault and it should not be the test of liability” . . . .

                                                                   . . . 

. . . If, instead of rezoning the land involved herein to enhance its development value, the defendant had rezoned so as to reduce its value and the owners had sold it thereafter, could it be successfully contended, when the rezoning by‑law was declared invalid on the same ground as By‑law No. 177, that the owners were entitled to recoup their losses from the municipality?  I think not, because the risk of loss from the exercise of legislative or adjudicative authority is a general public risk and not one for which compensation can be supported on the basis of a private duty of care. . . .

21                               The adoption, amendment or repeal of a zoning by‑law does not in itself trigger a municipality’s liability even if the effect of that action is to reduce the value of the lands affected.  In exercising its regulatory power, a municipality enjoys broad discretion in public law.  That discretion is limited, however.  The scope and limits of the discretion were discussed in Roncarelli v. Duplessis, [1959] S.C.R. 121, at p. 140:

In public regulation of this sort there is no such thing as absolute and untrammelled “discretion”, that is that action can be taken on any ground or for any reason that can be suggested to the mind of the administrator; no legislative Act can, without express language, be taken to contemplate an unlimited arbitrary power exercisable for any purpose, however capricious or irrelevant, regardless of the nature or purpose of the statute. Fraud and corruption in the Commission may not be mentioned in such statutes but they are always implied as exceptions.  “Discretion” necessarily implies good faith in discharging public duty; there is always a perspective within which a statute is intended to operate; and any clear departure from its lines or objects is just as objectionable as fraud or corruption. [Emphasis added.]

22                               That standard was reiterated in, inter alia, Brown v. British Columbia (Minister of Transportation and Highways), [1994] 1 S.C.R. 420, at p. 442:

Such a policy decision cannot be reviewed on a private law standard of reasonableness.  Since no allegation was made that the decision was not bona fide or was so irrational that it could not constitute a proper exercise of discretion, it cannot be attacked.  [Emphasis added.]

23                               In public law, a municipality may not therefore be held liable for the exercise of its regulatory power if it acts in good faith or if the exercise of this power cannot be characterized as irrational.  The declaration on judicial review that a by‑law is invalid because it is founded on a misinterpretation of the law or on a consideration determined to be irrelevant does not necessarily expose the municipality to extra‑contractual liability.  A municipality has a margin of legitimate error.  In public law, it is protected by what may be called relative immunity.  Does that immunity prevail over the civil law rules?

24                               To answer that question, I would refer to what Laskin J. said in Welbridge, supra, which, in my view, transcends the common law.  Municipalities perform functions that require them to take multiple and sometimes conflicting interests into consideration.  To ensure that political disputes are resolved democratically to the extent possible, elected public bodies must have considerable latitude.  Where no constitutional issues are in play, it would be inconceivable for the courts to interfere in this process and set themselves up as arbitrators to dictate that any particular interest be taken into consideration.  They may intervene only if there is evidence of bad faith.  The onerous and complex nature of the functions that are inherent in the exercise of a regulatory power justify incorporating a form of protection both in civil law and at common law.  Such protection was recognized under the Civil Code of Lower Canada, as evidenced in Laurentide Motels, supra, although the process followed to recognize it was different.  The considerations behind the formulation of the public law immunity recognized by the civil law, as governed by the Civil Code of Lower Canada, remain applicable after the coming into force of the Civil Code of Québec.  It must therefore be determined how that relative immunity can be incorporated into the civil law.

25                               No problem arises when the bad faith test is applied in civil law.  That concept is not unique to public law.  In fact, it applies to a wide range of fields of law.  The concept of bad faith is flexible, and its content will vary from one area of law to another.  As LeBel J. noted in Finney v. Barreau du Québec, [2004] 2 S.C.R. 17, 2004 SCC 36, the content of the concept of bad faith may go beyond intentional fault (at para. 39):

Bad faith certainly includes intentional fault, a classic example of which is found in the conduct of the Attorney General of Quebec that was examined in Roncarelli v. Duplessis, [1959] S.C.R. 121.  Such conduct is an abuse of power for which the State, or sometimes a public servant, may be held liable. However, recklessness implies a fundamental breakdown of the orderly exercise of authority, to the point that absence of good faith can be deduced and bad faith presumed. The act, in terms of how it is performed, is then inexplicable and incomprehensible, to the point that it can be regarded as an actual abuse of power, having regard to the purposes for which it is meant to be exercised . . . .

26                               Based on this interpretation, the concept of bad faith can encompass not only acts committed deliberately with intent to harm, which corresponds to the classical concept of bad faith, but also acts that are so markedly inconsistent with the relevant legislative context that a court cannot reasonably conclude that they were performed in good faith.  What appears to be an extension of bad faith is, in a way, no more than the admission in evidence of facts that amount to circumstantial evidence of bad faith where a victim is unable to present direct evidence of it.

27                               From this analysis, it may be concluded that the public law immunity that attaches to an exercise of legislative and regulatory power can be incorporated into the rules of liability applicable to public bodies.  In light of the wording of art. 1457 of the Civil Code of Québec, an applicant can be required to establish that the public body acted in bad faith, or in circumstances leading to a conclusion that it acted in bad faith.

III.  Application of the Law to the Facts

28                               The trial judge’s analysis properly begins with comments concerning the duty of the courts to show deference to a municipality’s exercise of its regulatory power.  Normally, he said, the liability of elected representatives is determined at the ballot box.  However, he relied on Boyd Builders, supra, in shifting the burden of proof of bad faith ([2000] Q.J. No. 5908 (QL), at para. 125):

[translation]  The notice of motion of April 4, 1994, as regards the Domaine de l’Aigle, created a legal situation more or less identical to the situation in Boyd Builders, and the dissimilarities in this case produce in practice the same effect in terms of the burden of proof.

29                               Boyd Builders does not support this conclusion.  In that case, the developer had submitted an application for a permit, after which the City of Ottawa had amended its zoning by‑law.  The Court held that when a municipal by‑law authorizes a use, an applicant for a permit has a prima facie right to the permit as of the date of the application.  In addition, when a by‑law is amended after an application is filed, the municipality must prove that the amendment was planned before the application was made.  The Court said the following (at p. 411):

Under the provisions of s. 30(9) of The Planning Act the by‑law is not in effect unless and until approved by the Municipal Board.  Therefore, when Boyd Builders Limited made application for a building permit and later when refused made application for a mandatory order that a building permit be issued, there was no valid by‑law in existence prohibiting the grant of such permit.  Therefore, Boyd Builders Limited had a prima facie right to the permit and upon its refusal a prima facie right to a mandatory order that it should be granted.  This prima facie right may only be defeated if the municipality demonstrates that it has in existence a clear plan for zoning the neighbourhood with which it is proceeding in good faith and with dispatch.

30                               The decision in Boyd Builders establishes that the rights of a permit applicant exist as of the date the application is filed, and imposes a burden on the municipality of proving that it acted in good faith in amending a by‑law that affected a permit application after the application was submitted.  That decision was rendered in the specific context of a permit application.  The circumstances of the instant case are entirely different.  Sibeca had not applied to renew its expired permits and had not applied for fresh permits.  It therefore did not have a prima facie right to a permit.  In fact, at the time the notice of motion was filed, there were no pending permit applications.

31                               The principles developed in Boyd Builders, supra, have no bearing on the instant case.  The setbacks that led to the interruption of the project to develop the summit of Mount Pinacle were unrelated to the municipality’s actions.  In fact, the ski resort and golf course project was put on hold at a time when a municipal council favourable to the development was in office.  As for the Domaine de l’Aigle, a year had passed since building permits had been issued for the houses, and the roads had not been completed.  The trial judge misinterpreted Boyd Builders, supra, and incorrectly shifted the burden of proof.  Unfortunately, that false premise guided his entire analysis.

32                               The trial judge concluded that the municipality was liable to Sibeca based on an analysis of four factors:  the requirement that a CDP be submitted, the requirement that any construction be on land adjacent to a public road, the interest expressed by the councillors in the conservation of Mount Pinacle and the notice of motion of April 4, 1994.  He concluded that the by‑law was unfair, unreasonable, improperly discriminatory and illegal, and that its adoption amounted to “administrative” bad faith.  However, each step that led to that conclusion was founded on the error of law he had made, namely the burden of proof he had imposed on the municipality.

33                               In the Court of Appeal, Mailhot J.A. identified the salient points in the evidence regarding each of the factors addressed by the trial judge.  This alternative perspective becomes especially important when the burden of proof is not shifted ((2002), 40 M.P.L.R. (3d) 157, at paras. 62‑64):

[translation] The evidence shows that Mount Pinacle has always been a matter of concern to the municipal council — to both the present council and its predecessor.  It will be recalled that when the former council passed the resolution approving the Sibeca project in principle, it imposed the following condition:

(8)  That the municipality also be able to regulate uses and density in the areas contiguous with the project in order to protect the natural environment.

It was entirely appropriate to adopt a CDP in the circumstances.  Preserving the natural environment of Mount Pinacle called for more than merely checking the aesthetics of the architecture.  The municipal council had to get a comprehensive picture of the project before approving it and allowing the appropriate zoning change.  It should not be forgotten that there had been no agreement in principle regarding the Domaine de l’Aigle project as there had been for the downhill ski run on the north face of the mountain.

Municipal councillors Duval, Audette and Vanasse and Mayor Riel never concealed their intention regarding Mount Pinacle.  As ratepayers of the municipality of Frelighsburg, they brought legal proceedings to have the mountain conserved in its natural state.  This was a highly commendable concern.  To act on it, the municipal council had to adopt the two by‑laws referred to above.  This disrupted Sibeca’s projects, if indeed they could have been put back on track in April 1994, which, according to the evidence, was not a certainty. [Emphasis deleted.]

34                               The Court of Appeal also pointed out that the trial judge had inexplicably found that the municipality had acted in bad faith, although he had stated that the councillors themselves had exhibited no malice.

35                               I can see no explanation for the contradictory approach taken by the trial judge other than the error of law he made in placing on the municipality the burden of proving its good faith, whereas he did not make the same error in respect of the councillors.  That difference in treatment was not warranted.  There is no such concept as administrative bad faith.  A legal person can act only through its agents, and can have no intention separate from theirs.  If a municipal council, comprised of councillors acting in good faith, adopts a by‑law, it will be considered to have acted in good faith.  Mailhot J.A. was again correct to say the following (at paras. 71‑72):

[translation]  In short, while it may have been apparent that the new municipal council was not in favour of the respondent’s project, there is still no conclusive evidence of bad faith on the part of the municipal council, particularly given that the trial judge declined to award any damages against the councillors personally because they themselves had acted in good faith, while citing the entity made up of the councillors for bad faith.  It should be noted that a large portion of the declaration [paras. 55 to 101] and of the evidence dealt with the liability of the defendants arising out of their alleged bad faith, which the judge rejected.

How can the council be held liable if its members acted in good faith on its behalf?  How can it be that a decision made separately by each voting member is devoid of bad faith, but is said to have been made in bad faith once the votes are counted?  Given that the municipality cannot be held liable for the consequences of the exercise of its discretion absent bad faith, the award against the municipal council is without basis in the case at bar.

36                               In fact, the trial judge observed on several occasions that the desire [translation] “to conserve Mount Pinacle in its natural state to the extent possible, to regulate the Mount Pinacle site more strictly in terms of future development projects affecting the mountain, cannot — by itself, certainly — be a ground for criticizing anyone” (para. 50).  The judge also stated that “[b]ecause this was a political choice, albeit a debatable one, [I] cannot . . . criticize the new council for wanting to further regulate the ski resort and golf course project when the time came, although [a site planning and architectural integration programme] could have served the same purpose” (para. 56).  His only criticism of the municipality related to the area around the Domaine de l’Aigle (at para. 57):

[translation]  But the municipality’s C.D.P. by‑law, relating to the REC‑2 zone, had the entirely foreseeable effect of blocking the development of the Domaine de l’Aigle because it required Sibeca to resubmit, and obtain fresh approval for, a project that would affect the entire REC‑2 zone, including the project for the north face of the peak (the ski resort and golf course) that had been put on hold.

37                               A municipality’s zoning by‑law must be compatible with the development plan for the jurisdiction within which it is located.  If this requirement is met, the municipality may regulate the development of the lands within its jurisdiction and promote the objectives that it believes to be in the municipal interest.

38                               The zoning by‑law, as amended, was declared to be compatible with the development plan, and no proceedings were brought against that decision.  Although there is specific legislation dealing with environmental conservation, protecting the natural environment within a municipality’s jurisdiction cannot be regarded as an improper goal for a municipal council.  As a corollary, such an objective does not become improper because the people seeking to achieve it are councillors who have been publicly identified with the conservation of Mount Pinacle.

IV.  Conclusion

39                               If the municipality had the authority to act to regulate the development of the mountain, it also had the authority to decide that it would be difficult to sever the Domaine de l’Aigle from the CDP.  When the Superior Court judge required the municipality to prove its good faith, he acted in disregard of the applicable legal principles.  By giving precedence to Sibeca’s wishes, he intruded into a sphere that is reserved to the municipal council.  The Court of Appeal was therefore correct to intervene and set aside the award of damages.  In light of this conclusion, there is no need to discuss the ground of appeal relating to the dismissal of the cross‑appeal.

40                               For these reasons, I would dismiss the appeal with costs.

English version of the reasons of LeBel and Fish JJ. delivered by

41                            LeBel J. — I have read the reasons of my colleague Deschamps J.  I agree with her analysis of the principles governing the civil liability of the municipality of Frelighsburg in this case, and with the disposition she proposes.  However, I do not believe that it is necessary to state an opinion regarding the application of those principles to the facts of this appeal or to pass judgment on the motives, intentions or conduct of the municipality in the instant case.

42                            Although this was only raised in passing at the hearing in this Court, there was a fundamental flaw in the appellant’s position in this matter.  As counsel for the

respondent pointed out, the appellant is in a sense the author of its own misfortune.  Even had the municipality been found to have committed a fault for which it could be held civilly liable, any causal connection that may have existed was apparently broken as a result of the appellant’s own decisions.

43                            Much time had already passed since building permits were issued to the appellant.  The appellant had done no work and had allowed the permits to expire.  It had done nothing that might have enabled it to preserve the authorizations which, according to the case law, afforded it protection against subsequent changes in the municipality’s by‑laws and administrative policy.  Having failed to do this, it cannot lay the consequences of its own inaction at someone else’s doorstep, nor can it claim compensation on the basis that a project it had left on hold for a long time was not carried out.

44                            For these reasons, I would dismiss the appeal with costs.

Appeal dismissed with costs.

Solicitors for the appellant:  Deslauriers Jeansonne, Montréal.

Solicitors for the respondent:  Bélanger Sauvé, Montréal.