



COURT OF APPEAL FOR ONTARIO

CITATION: Herold
    Estate v. Canada (Attorney General), 2021 ONCA 579

DATE: 20210824

DOCKET: C68393 & C68467

Fairburn A.C.J.O., Miller and
    Zarnett JJ.A.

BETWEEN

DOCKET:
    C68393

The Estate of William Albin Herold,
    deceased

Applicant (Respondent)

and

Attorney
    General of Canada
,
Curve Lake First Nation,
    Hiawartha First Nation and
Mississaugas of Scugog Island First Nation

Respondents (
Respondent
/
Appellants
)

AND BETWEEN

DOCKET:
    C68467

The Estate of William Albin
    Herold, deceased

Applicant (Respondent)

and

Attorney
    General of Canada
,
Curve Lake First Nation,
    Hiawatha First Nation and
Mississaugas of Scugog Island First Nation

Respondent (
Appellant
/
Respondents
)

Robert Janes, Candice S. Metallic, and
    Aubrey Charette, for the appellants (C68393)/respondents (C68467) Curve Lake
    First Nation, Hiawatha First Nation and Mississaugas of Scugog Island First
    Nation

Daniel E. Luxat, for the appellant (C68467)/respondent
    (C68393) Attorney General of Canada

D. Jared Brown, for the respondent
    (C68393/C68467) Estate of William Albin Herold

Heard: March 2, 2021 by videoconference

On appeal from the order of Justice C.M.
    Smith of the Superior Court of Justice, dated February 28, 2020 with reasons
    reported at 2020 ONSC 1202.

Zarnett J.A.:



I.

INTRODUCTION

[1]

This litigation concerns the ownership of three
    islands (the Islands) located in Lake Katchewanooka
[1]
, which is part of the
    Trent-Severn Waterway. The Islands are in close proximity to each other. The largest
    is referred to as Island 27; the two smaller islands were at one time part of
    Island 27 but are now separated from it as a consequence of flooding and
    erosion.
[2]

[2]

In the decision under appeal, the application
    judge held that  the respondent, the Estate of William Albin Herold (the
    Estate), owns the Islands by virtue of its ownership of Lot 35, Concession
    11, in the Township of Smith, County of Peterborough (Lot 35).

[3]

The application judge found that when Lot 35 was
    first surveyed in 1818, the land that became the Islands was a headland or
    peninsula connected to Lot 35s mainland. In 1868, the Province of Ontario, by Letters
    Patent, granted Lot 35 to Alexander Rose, the Estates predecessor in title. Although
    he was not satisfied that in 1868 the Islands were still physically part of the
    mainland of Lot 35, and the Letters Patent made no reference to any islands, the
    application judge declined to determine the intention of the parties to the
    Letters Patent. Instead, he concluded that since Island 27 had, by 1855, separated
    from the mainland as a result of changes in water levels brought about by dams
    erected in the 1830s, it was included as a matter of law in the Letters
    Patents conveyance of Lot 35. He further held that ownership of the Islands
    was not affected by treaties between the appellant First Nations
[3]
(the First Nations) and the
    Crown made in 1818 and 1856. He interpreted the treaties, by which the First
    Nations had surrendered their title to a vast tract of land in what is now
    Central Ontario, to include a surrender of the property in issue in this
    litigation, giving the Crown the right to sell. Accordingly, as the Islands had
    been sold as part of Lot 35, when the Estate became the owner of Lot 35, it also
    became the owner of the Islands.

[4]

The First Nations and the Attorney General of Canada
    (AG Canada) both appeal. For the reasons that follow, I would allow the
    appeals.

[5]

In my view, the application judges determination
    that the Letters Patent conveyed the Islands as part of the conveyance of Lot
    35 is not subject to deference, since he made extricable errors of law. The
    application judge failed to follow the fundamental principle of interpretationto
    determine the meaning of the Letters Patent in accordance with the intentions
    of the parties, objectively ascertained from the language they used in light of
    the relevant factual matrix. He also erred in treating a legal principle about
    the effect of sudden changes in water levels on boundaries between different
    owners as applicable and determinative. Finally, he failed to properly consider
    the Crowns obligations to the First Nations in determining what the Crown intended
    to convey by the Letters Patent.

[6]

Properly interpreted, the Letters Patent did not
    include any conveyance of the Islands. As Mr. Rose did not obtain ownership of
    the Islands when he received a conveyance of Lot 35 under the Letters Patent,
    the Estate did not obtain ownership of them when it obtained ownership of Lot
    35.


II.

Background

A.

Treaty 20

[7]

In 1818, the Crown and the First Nations entered
    into the Treaty of Newcastle (Treaty 20). It provided for the surrender to
    the Crown of a vast tract of land in what is now Central Ontario. Although the
    description in Treaty 20 was general, the application judge found that it included
    the property in issue in this litigation.

[8]

Although there was no express exclusion in
    Treaty 20 of any islands, the evidence before the application judge, which he
    accepted, was that the First Nations had requested that any islands in the
    waterways within the surrendered lands be excluded, and the Crowns
    representative had assured them that the request would be communicated to the
    King who would no doubt accede to it.

B.

The Wilmot Survey

[9]

At about the same time as Treaty 20 came into
    effect, the southern part of the Township of Smith was surveyed by Samuel
    Wilmot. The 1818 survey he prepared (the Wilmot Survey) showed bodies of
    water, concessions, and lots; of particular relevance is its depiction of Lot
    35.

[10]

The Wilmot Survey depicts Lot 35 as a mainland lot roughly
    triangular in shape. Its northern boundary is the concession line separating
    Concessions 11 and 12; its western boundary is the division between Lots 34 and
    35; and its southeastern boundary is the waters edge of Lake Katchewanooka. The
    Wilmot Survey does not show any distances between the fixed boundaries on the
    north and west, and the southeastern waters edge boundary.

[11]

The application judge noted that there was some concern about the precision
    of the Wilmot Surveys depiction of the southeastern area of Lot 35, as the surveyor
    had noted that the waters are not traversed only sketched. However, according
    to evidence that the application judge accepted, at the time of the Wilmot
    Survey, what came to be the Islands was a headland or peninsula on part of the
    mainland of Lot 35.

C.

Dams in the Waterway

[12]

Dams were constructed in
    the Trent Severn waterway in the 1830s, downstream and upstream from Lot 35.
The application judge did not make a finding of the distance
    between the dams and Lot 35. Some of the evidence suggests that one of the dams
    was about 7.5 kilometres away. The application judge found that these dams
    caused a rise in water levels, resulting in a change to the configuration of Lot
    35. His precise findings concerning the timing and nature of the rise in water
    levels are discussed in more detail in the Analysis section below.

D.

The Haslett Survey

[13]

In 1854, a survey of islands in the Rivers Trent and Otonabee and
    their lakes was authorized by the Privy Council and commissioned by the Commissioner
    of Crown Lands. The application judge found that the resulting survey (the
    Haslett survey), completed in 1855, identified an island in Lake
    Katchewanooka in the location of what had been the headland or peninsula depicted
    on the Wilmot Survey of Lot 35. The Haslett survey named it Island 27.

[14]

The Estate contended before the application judge that the Haslett
    survey was unreliable to the extent it identified Island 27 as separated from
    the mainland of Lot 35 in 1855. The Estate maintained that the Islands
    continued to be physically connected to the mainland of Lot 35 at the time of
    the Letters Patent in 1868, and only became separated due to flooding in the
    1870s.
Ultimately, the application judge found against
    the Estate, which bore the onus of proof, on these factual points. He noted
    that, based on the evidence of the expert witnesses, it is reasonable to
    conclude that Island 27 existed as surveyed [by Haslett] in 1856. The
    application judge concluded that I cannot be satisfied on a balance of
    probabilities that Island 27 was still attached to the main land in 1868  a
    reference to the date of the Letters Patent.

E.

Treaty 78

[15]

In 1856, the Crown and the First Nations entered into the Islands of
    the Trent Treaty (Treaty 78). The application judge found that Treaty 78
    addressed any uncertainty there may have been regarding the status of the
    islands in the waters in question flowing from the wording of Treaty 20 in 1818.
    Under Treaty 78, the First Nations conditionally surrendered to the Crown, in
    trust, to [be] sold or otherwise disposed of to the best advantage for
    ourselves and our descendants forever  all islands and mainland  in the
    Newcastle and Colborne Districts, including the islands in Rice Lake which have
    not heretofore been ceded to the Crown with the principal arising from such
    sales to be safely funded and the interest accruing therefrom to be paid annually
    to us and our said descendants for all time to come.

[16]

The application judge found that the description of land covered by
    Treaty 78 would include the Township of Smith where the subject property is
    located.

F.

The Letters Patent

[17]

In 1868, by Letters Patent, the Province of Ontario granted Lot 35 to
    Mr. Rose, from whom the Estate ultimately derived its title. The Letters Patent
    describe what was conveyed as being composed of Lot Number Thirty five in the
    Eleventh Concession of the  Township of Smith. An approximate acreage is
    provided but it is unclear if it is 21 or 71 acres. There is no express mention
    of any islands. The Letters Patent provided for the consideration to be paid by
    Mr. Rose  $17.00  and did not allocate it between the mainland and any
    islands.

G.

The 1893 Resolution

[18]

In 1893, the federal Crown issued a Resolution (the 1893
    Resolution) approving a request by the First Nations that certain islands,
    including Island 27, not be sold under Treaty 78, but instead be reserved for
    their use.

H.

Conduct After the Letters Patent

[19]

The parties led evidence of conduct and views expressed after the
    Letters Patent relating to whether the Islands were part of Lot 35, and whether
    they were sold as part of the 1868 Crown grant.

[20]

The after-the-fact evidence included: that between 1894 and 1896,
    the federal, Ontario, and Quebec governments participated in arbitration
    proceedings regarding amounts owing to the First Nations from the sale of
    islands, which did not include anything about Island 27; compensation having
    been paid to Jane Rose for flooding damage to Lot 35 that occurred because of
    the reconstruction of a dam in 1879; the registration of the 1893 Resolution and
    related resolutions on title in 1973; the Islands having been assigned their
    own Property Identification Numbers as separate parcels with no owners
    specified; correspondence between various government agencies articulating
    different positions; and
the Estate having used the
    Islands, made improvements, paid property taxes, and posted Private Property
    and No Trespassing signs on them.

[21]

The application judge summarized the effect of the after-the-fact evidence
    as follows: The title to [Lot 35] has been plagued since 1868 by uncertainty
    about whether three islands in the lake, the largest of which is referred to as
    Island 27, are properly a part of [Lot 35].

III.

The Application Judges Decision

[22]

The Estate applied for various orders to confirm its ownership of
    the Islands.

[23]

The application judge identified three issues for determination:

a)

Did the 1868 Letters Patent convey the Islands
    to the Estates predecessor in title, Mr. Rose?

b)

What is the effect of Treaty 20 and Treaty 78 on
    the ownership of Island 27?

c)

What is the effect of the Resolution of 1893 on
    the ownership of Island 27?

[24]

On the first issue, the application judge declined to consider the
    intention of the parties to the Letters Patent on the basis that to do so would
    be sheer speculation. He also observed that the
Beds of Navigable Waters
    Act
, R.S.O. 1990, C. B-4 (the 
Act
), which deemed a Crown grant
    not to include the bed of a navigable body of water unless a contrary intention
    is expressly stated, could not have been on the minds of either party at the
    time of the Letters Patent as it was not yet proclaimed into force.

[25]

The application judge reasoned that the southeastern boundary of Lot
    35 was riparian and ambulatory at the time of the Wilmot Survey, but the water
    boundary lost its ambulatory status sometime during the 1830s, when the dams
    were first constructed. He relied on a legal principle that when water levels
    are quickly raised through a process that is not gradual, then the boundary of
    the property in question is fixed in location at the time of encroachment. Although
    he was not satisfied that the Islands were physically connected to Lot 35 in
    1868, the Letters Patent conveyed them because they were within the boundary of
    Lot 35 that had been so fixed.

[26]

On the second issue, the application judge found that Treaty 20
    provided for the surrender to the Crown of a vast tract of land which included
    Lot 35 and, based on his findings, the land that later became the Islands. He
    found that Treaty 20 contained no exceptions relating to the property in issue
    and imposed no restrictions of any kind regarding subsequent dealings with the
    lands by the Crown. He held that Treaty 78 did not detract from the Crowns
    full ownership rights, which included a right to sell. He noted that while Treaty
    78 imposed a condition that the Crown use the proceeds of any sale for the
    benefit of the First Nations, this did not estop the Crown from selling any of
    the surrendered lands. The honour of the Crown was not at risk as long as it
    used the proceeds in that way.

[27]

On the third issue, the application judge found that Island 27 was
    included in the 1893 Resolution by mistake, and that the 1893 Resolution should
    not affect title to the islands.

IV.

The Parties Positions

[28]

The First Nations argue that the application judge erred in giving
    Treaty 20 and Treaty 78 the effect of extinguishing the title of the First
    Nations to the Islands. Treaty 20 was subject to an orally agreed to
    reservation concerning islands. Treaty 78 was a conditional surrender in trust,
    which imposed obligations if the Crown were to effect a sale of any islands. There
    was no evidence of compliance with those obligations in the transaction
    contemplated by the Letters Patent. The application judge should have, but
    failed to, interpret the Letters Patent with reference to the Crowns intention
    as grantor and in a manner that reconciled their meaning with the obligations of
    the Crown under Treaty 78. The only way to do so would be to conclude that the Letters
    Patent did not include the Islands.

[29]

The First Nations further submit that the application judge erred in
    applying legal principles respecting water boundaries and misapprehended the
    evidence concerning the nature and timing of any change in water levels.
    Finally, they submit that the application judge erred in finding that after the
    Letters Patent, the federal Crown had no authority to deal with the Islands and
    thus had included them in the 1893 Resolution by mistake.

[30]

The appellant AG Canada argues that the application judge erred by: failing
    to properly interpret the Letters Patent in accordance with the intentions of
    the parties, objectively ascertained; and, applying a legal principle respecting
    water boundaries between different owners to conclude that Island 27 remained
    part of Lot 35 at the time of the Letters Patent, when the principle was
    factually and legally inapplicable.

[31]

The Estate argues that the application judge properly found as a
    fact that, prior to the Letters Patent, flooding had occurred causing the
    separation of the Islands from the mainland of Lot 35. They submit that he correctly
    concluded, as a matter of law, that the flooding fixed the boundary of Lot 35 such
    that what became the Islands were included as part of the Lot 35 Letters Patent
    conveyance. The Estate also argues that the application judge properly
    interpreted the treaties as giving the Crown the right to sell the Islands and properly
    found that the honour of the Crown was not engaged in any way that detracted
    from the Estates ownership.


V.

Analysis

[32]

If the application judge erred in finding that the Letters Patent included
    a conveyance of the Islands by the Province of Ontario to Mr. Rose, that is
    determinative of the appeals. Accordingly, my analysis commences with
    identifying the interpretive issue under the Letters Patent, the principles of
    interpretation, and the standard of review. I then discuss the errors which, in
    my view, the application judge committed in his approach. Finally, I set out the
    proper resolution of the interpretive question. The effect of the treaties and
    the legal principles concerning water boundaries all play a part in this
    analysis.

A.

The Interpretive Issue and The Standard of Review

[33]

The Letters Patent did not include a metes and bounds description of
    the property conveyed or any express mention of islands. The property was
    described by what the parties agree was a reference to Lot 35 on the 1818 Wilmot
    Survey.
[4]
The Wilmot Survey depicted Lot 35 as a mainland lot with a southeastern
    boundary formed by the waters edge of Lake Katchewanooka. In this court, all parties
    accept the application judges finding that Island 27 was beyond the waters edge
    and was not connected to the mainland of Lot 35 at the time of the Letters
    Patent in 1868.

[34]

The interpretive question thus raised was whether the Letters Patent
    conveyed the land up to the waters edge in 1868, and therefore did not include
    the Islands, or whether the Letters Patent also conveyed the Islands, as land that
    had previously been connected to the mainland of Lot 35, including at the time
    of the Wilmot Survey.

[35]

The parties advance different formulations of the issues and thus
    the applicable standard of review. The Estate characterizes the application, to
    the facts, of legal principles about the effect of flooding on boundaries and
    the resulting determination of what was conveyed as a question of mixed fact
    and law, subject to deference on appeal. The First Nations characterize the
    failure of the application judge to determine the intentions of the parties to
    the Letters Patent as an error of mixed fact and law, with a commensurate standard
    of appellate review. The AG Canada submits that the interpretation of the Letters
    Patent should be reviewed on a standard of correctness because it deals with
    title and the factual matrix is not required to resolve any ambiguity in the
    Letters Patent.

[36]

As I discuss in more detail below, the interpretation of the Letters
    Patent involves discerning what the parties to them objectively intended. That is
    a fact specific exercise; it is a function of the language used, read in light
    of the relevant factual matrix or surrounding circumstances, and the legal
    principles that arise from those circumstances. It follows that the
    interpretation of the Letters Patent is a question of mixed fact and law. Absent
    an extricable error of law, or a palpable and overriding error of fact, a
    determination of a question of mixed fact and law is subject to deference on
    appeal:
Housen v. Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R. 234, at
    paras. 26, 36-37;
Sattva Capital Corp. v. Creston Moly Corp.
, 2014 SCC
    53, [2014] 2 S.C.R. 633, at paras. 50, 53;
Corner Brook (City) v. Bailey
,
    2021 SCC 29, at para. 44.

[37]

In my view, the application judge made three extricable legal errors
    in his approach to the question of whether the Islands were included in the
    conveyance by the Letters Patent. First, he failed to follow the fundamental
    principle of interpretation, which is to determine the meaning of the Letters
    Patent based on the parties intentions, objectively derived from the words
    they used in light of the factual matrix. Second, he erroneously relied on a
    legal principle about a sudden change in water levels fixing boundaries between
    different owners; in the circumstances, that principle was neither applicable
    nor determinative. Third, he failed to consider how the apparent disconnect
    between the obligations of the Crown concerning a sale of an island covered by
    Treaty 78, and the terms of the Letters Patent, bore on the question of whether
    the Province of Ontario intended to include the Islands in the Letters Patent.

[38]

As a result of these extricable legal errors, the application
    judges conclusion about the meaning of the Letters Patent is not entitled to
    deference:
Sattva
,
at para. 53.

[39]

Below, I will expand on the application judges three errors. I will
    then turn to what I consider to be the proper interpretation of the Letters
    Patent.

B.

The Application Judges Errors

(1)

Failure to Consider the Meaning of the Letters
    Patent from the Standpoint of the Intention of the Parties Objectively Derived

[40]

Although the meaning of the Letters Patent was a core issue
    identified by the application judge, he declined to determine the intentions of
    the parties to it. This was an error, as objectively ascertaining the intention
    of the parties is the very goal of interpreting a written instrument.

[41]

As the Supreme Court of Canada said in
Sattva
, the overriding
    concern in the interpretation of contracts is to:

determine the intent of the parties
and the scope of their understanding. To do so, a decision-maker must
    read the contract as a whole  consistent with the surrounding circumstances known
    [or that reasonably ought to have been known] to the parties at the time of
    formation of the contract. Consideration of the surrounding circumstances
    recognizes that
ascertaining contractual intention
can be difficult when
    looking at words on their own, because words alone do not have an immutable or
    absolute meaning [Emphasis added.] [Citations omitted.]:
Sattva
, at
    para. 47.

[42]

In other words, when interpreting a contract, the question is not
    the abstract meaning of its words, but what the parties to the contract are
    objectively taken to have intended by the words they chose in light of the
    circumstances  the factual matrix  in which they used them. A court objectively
    derives the parties intentions by examining the words to determine what the
    parties intended, and examining the surrounding circumstances to deepen [its]
    understanding of
the mutual and objective intentions of the parties
as
    expressed in the words of the contract (emphasis added):
Sattva
, at
    para. 48, 57-58, 60;
McLean v. McLean
, 2013 ONCA 788, 118 O.R. (3d)
    216, at para. 54, leave to appeal refused, [2014] S.C.C.A. No. 76.

[43]

This approach is consistent with the goals of finality and certainty
    in contractual dealings  the interpretation that is reached is grounded in the
    text of the agreement read as a whole, and the factual matrix is used as an
    interpretive aid for determining the meaning of the written words chosen by the
    parties, not to overwhelm or deviate from them, or change or overrule their
    meaning:
Sattva
, at paras. 57, 59-60.

[44]

These general principles apply equally to the interpretation of an
    instrument that creates or conveys an interest in land. I draw that conclusion
    for three reasons.

[45]

First, the Supreme Court of Canada has noted that the construction
    of an easement  clearly an interest in land  is a question of mixed fact and
    law as it must be interpreted in light of the entire factual matrix:
Owners,
    Strata Plan LMS 3905 v. Crystal Square Parking Corp.
, 2020 SCC 29, 450
    D.L.R. (4th) 105, at para. 101. In support of that proposition, the Supreme
    Court cited both
Robb v. Walker
, 2015 BCCA 117, 383 D.L.R. (4th) 554, at
    paras. 30-31 (which held the principles in
Sattva
to be applicable to
    the interpretation of an easement) and
Sattva
itself. There is no
    apparent reason to distinguish the principles applicable to the interpretation
    of an instrument granting or conveying an easement from those applicable to a
    different type of interest in land. Determining the objective intentions of the
    parties is thus equally the goal of interpreting a conveyance, as that is the
    overriding concern of interpretation as identified in
Sattva
.

[46]

Second, the need for certainty and finality in conveyancing is
    respected by determining the objective intentions of the parties to the instrument
    through examining its words in light of the factual matrix that illuminates their
    meaning, in accordance with the principles in
Sattva
.

[47]

Third, this approach is in line with this courts holding in the
    leading case concerning the interpretation of conveyances by deed or Crown
    grant:
Gibbs v. Grand Bend (Village)

(1995), 129 D.L.R. (4th) 449 (Ont.
    C.A.)
. Although expressed in pre-
Sattva
language, the basic principles articulated in
Gibbs

do
    not vary, in any respect that is material to this case, from those articulated
    in
Sattva
. Those principles equally focus on determining the intention
    of the parties to the deed or grant.

[48]

Under
Gibbs
, the primary determinant of the meaning of a
    conveyance, whether by deed between private parties or by Crown grant, is its
    language:

Gibbs
, at p. 461. This is consistent with the role played by the text
    of a written agreement under
Sattva
: at para 57. Extrinsic
evidence cannot be used to contradict the unambiguous terms of a
    conveyance made by deed or Crown grant (
Gibbs
, at p. 461), just as it
    cannot be used to contradict the meaning of the language of any contract (
Sattva
,
    at paras. 59-60). But just as evidence of factual matrix or surrounding circumstances
    can be used to ascertain contractual intention when it is difficult to do so by
    looking at the words alone (
Sattva
, at para. 47), in the case of a
    deed or Crown grant, extrinsic evidence can be
used 
to explain the sense
    in which words, open to more meanings than one, have been used by the
    contracting parties"
,
and thus to give
    effect to the grantors intention:
Gibbs
, at p. 461
(citations omitted).
[5]
The purpose of
    reviewing such evidence is to permit the court to carry out the intentions of
    the parties:
Gibbs
, at p. 463.

[49]

Gibbs
refers to the requirement that a
    latent ambiguity must exist in a deed or Crown grant before extrinsic evidence will
    be considered: at p. 461.
Sattva
permits the consideration of factual
    matrix or surrounding circumstances in any contractual interpretation,
    recognizing that it may be difficult to determine intention by the words alone.
    In this case, this is a distinction without a difference. The test for a latent
    ambiguity, and thus for the admission of extrinsic evidence under
Gibbs
,
is met in cases where the description of the land in the deed or grant, when
    applied to the land itself, raises an issue about the location of a boundary. Clearly,
    that test is met in this case.

[50]

An example referred to with approval in
Gibbs
was a case in
    which a deed described the old shore road as the westerly boundary of a lot
    expropriated by the provincial government. However, the old shore road no longer
    existed at the time of expropriation, causing difficulty in determining the
    dimensions of the land. Extrinsic evidence was admitted to assist in determining
    the previous location of the road: at p. 462.

[51]

Similarly, the interpretive issue in this case arises since the
    description in the Letters Patent, referring to property depicted on a survey
    in 1818 as a mainland lot with a waters edge boundary, when applied to the land
    in 1868 after Island 27 was no longer part of the mainland, raises an issue
    about the boundary of what was conveyed. Extrinsic evidence of the factual
    matrix or surrounding circumstances was thus admissible under both
Gibbs
and
Sattva
.

[52]

The parties introduced, and the application judge admitted, extrinsic
    evidence of the circumstances existing up to the time of the Letters Patent. Yet
    the application judge did not use this evidence to determine the intentions of
    Ontario and Mr. Rose, as revealed by the words of the Letters Patent, in light
    of the surrounding circumstances. He held that [a]ny consideration of the intention
    of the parties to the 1868 Letters Patent is  sheer speculation.

[53]

If all the application judge meant by this was that he was
    jettisoning from the analysis any consideration of the
subjective
thoughts
    of the parties, as opposed to what they
objectively
intended, he would
    have been correct. Evidence of subjective intentions plays no role in
    contractual interpretation:
Sattva
, at para. 59. But the application
    judge did not make that distinction.

[54]

He made numerous findings based on extrinsic evidence, including
    about the Wilmot Survey, the historical and then current location of the
    Islands, the Haslett survey, and Treaties 20 and 78. He did not hold that any
    of those matters fell outside of the category of background facts known or that
    reasonably ought to have been known to the parties at the time of the Letters
    Patent (the description of factual matrix used in
Sattva
) or as
    evidence of writings prior to and leading up to the issue of the Letters Patent
    that explains the sense in which the parties used language open to more than
    one meaning (the description of extrinsic evidence used in
Gibbs
).
[6]
Despite his acceptance of this
    evidence, he did not use it to assist in determining the objective intentions
    of the parties by examining the words used in the Letters Patent in light of those
    circumstances.

[55]

By failing to determine the objective intentions derived from the
    language of the Letters Patent in light of the surrounding circumstances, the application
    judge failed to consider and apply the correct principle of interpretation.
    This was an extricable legal error:
Sattva
, at para. 53.


(2)

Error in the Consideration of Boundaries
    Principles

[56]

The application judge identified three legal principles relating to water
    boundaries of property. He rejected the application of one of them, held that a
    second applied only up to a point in time, and treated one as applicable and
    determinative.

[57]

The appellants argue that the application judge erred in rejecting
    the applicability of the
Act
on the basis that it could not have been
    within the parties contemplation at the time of the 1868 Letters Patent, as it
    was not enacted until 1911. I agree that his basis for rejection was erroneous,
    but I do not agree that the error was material.

[58]

Section 1 of the

Act
provides that where land that borders
    a navigable body of water has been or is granted by the Crown, it shall be
    deemed, in the absence of an express grant of it, that the bed of that body of
    water was not intended to and did not pass to the grantee. Given the language
    of s. 1 (has been  granted), and the nature of the exceptions in s. 2 (for
    example, rights determined by a court before March 24, 1911), it is clear that s.
    1 has retrospective effect, governing grants made before the first version of
    the
Act
came into force in 1911:
Middlesex Centre (Municipality)
    v. MacMillan
, 2016 ONCA 475, 132 O.R. (3d) 497, at para. 16.

[59]

The
Act
specifically and retrospectively regulates the meaning
    of a grant from the Crown. If the applicability of the
Act
were contingent
    on it being in force at the time of the grant, its provisions that give it
    retrospective operation would be meaningless.

[60]

Although the basis on which he rejected the applicability of the
Act
was erroneous, in my view the error was not material; as the Estate argues, interpreting
    the Letters Patent to exclude the water bed between Lot 35 and the Islands does
    not necessarily exclude the Islands themselves, as Island 27 was above the
    water.

[61]

A second principle the application judge referred to is that a
    riparian or waters edge boundary may be ambulatory, in the sense that it may change
    to reflect gradual
[7]
movement of the waters edge (the Ambulatory Principle). A parcel of land with
    this type of boundary is subject to accretion  the addition of land when the
    waters edge gradually moves out  and erosion  the decrease of land when the
    waters edge gradually moves in. Put differently, when this principle applies,
    the waters edge, wherever it may gradually move to from time to time, is the
    boundary: Natural Resources Canada, Surveyor General Branch,
Water
    Boundaries on Canada Lands: That Fuzzy Shadowland,
(Edmonton: Her Majesty
    the Queen in Right of Canada, 2016) (the Surveyor General Publication), at p.
    31.

[62]

The application judge concluded that in 1818, the southeastern
    boundary of Lot 35 as depicted on the Wilmot Survey  the waters edge of Lake
    Katchewanooka  was ambulatory.

[63]

The application judge also referred to a principle (the Flooding Principle)
    that when water levels are quickly raised through a process that is not
    gradual, then the boundary of the property in question is fixed in location at
    the time of encroachment. In other words, where a sudden
[8]
change in water levels occurs,
    the boundary of the owners property will be fixed at the point where the land
    met the waters edge at the time of the sudden rise of water levels: Surveyor
    General Publication, at p. 39;
Neilson v. British Columbia (Attorney
    General)
, [1956] S.C.R. 819
,
at p. 840. The application judge
    applied this principle to conclude that the boundary of Lot 35 had ceased to be
    ambulatory in the 1830s.

[64]

The appellants argue that there are two problems with the
    application judges use of the Flooding Principle.

[65]

First, they say that the evidence was insufficient to support a
    finding that a non-gradual change in water levels separated the Islands. Indeed,
    the First Nations say that the application judge made findings that were
    contradictory, in that he referred to the rise in water levels as a lengthy
    and gradual process which commenced in the 1830s, but then applied the Flooding
    Principle as though the rise was sudden enough to engage it.

[66]

Second, the AG Canada argues that the Flooding Principle applies to
    prevent a person from losing land to another due to a sudden rise in water
    levels, not to determine where one parcel of unpatented land belonging to the
    Crown ends and another begins. Here, on the application judges findings, at
    the time that the water levels changed, the Crown owned Lot 35, the adjacent water
    bed, and the Islands that were separated from the mainland of Lot 35.

[67]

I address each point below.

a)

The Application Judges Factual Findings Do Not
    Support the Application of the Flooding Principle

[68]

The application judge found that the Islands separated from Lot 35
    in a lengthy and gradual manner:

I am also satisfied that the configuration of
    the subject property was radically altered by the installation of man-made dams
    on the river.
This was a lengthy and gradual process
which commenced in
    the 1830s with the Herriot dam, continued through the construction of the Trent
    Severn Waterway in the middle years of the 19th century, culminating in the
    more significant damage caused by the flooding in the 1870s which led to the
    damages paid by the Crown to Jane Rose, as evidenced by the release registered
    on title of the subject property in 1885 as Instrument Smith 3160.
The Baird
    drawings and the Haslett survey are the only evidence available regarding flood
    conditions at the subject property in the mid-19th century. Those documents,
    particularly the Haslett survey, support the notion that water levels on the
    river at the point in question had risen by as much as 2.5 feet by the
    mid-1850s
. [Emphasis added.]

[69]

After making these findings, he set out the Flooding Principle by
    reference to p. 44 of the Surveyor General Publication, which states that it
    applies where water levels rise quickly through a process that is not gradual:

Watercourses regulated for navigation or
    reservoir (millpond) purposes have higher levels, which remain somewhat
    constant throughout the year (e.g. many lakes in Ontario). Such levels are
    upstream of dams and remove impediments to navigation such as rocks and reeds.
    This means that discharge varies greatly throughout the year.
If
water
    levels are quickly raised (through a process that is not gradual)
, then erosion has not occurred and the boundary is fixed in
    location at the time of encroachment. The upland parcel is partially (or
    completely) submerged. [Emphasis added.]

[70]

The application judges factual finding of a gradual and lengthy
    process by which water levels changed over approximately 25 years was not a
    finding of a quick rise in water levels through a process that was not gradual,
    as necessary for the application of the Flooding Principle he described.
    Nonetheless, without explanation of this discrepancy, the application judge concluded
:

What does persuade me that Island 27 and the
    two smaller islands were [what] was conveyed to Alexander Rose in 1868 is the [principle]
    set out in the [Surveyor General Publication] to the effect that
when, as
    here, water levels are quickly raised through a process that is not gradual
,
    then the boundary of the property in question is fixed in location at the time
    of encroachment. That principle is set out in an article produced and published
    by no less an authority than the Surveyor General Branch of Natural Resources
    Canada. That same principle was also applied by this Court in the
Gall v. Rogers

case, also referred to above. In my view, that is the governing law.
    That being the case, I find that the applicant has met its onus and has
    established on the balance of probabilities that Island 27, as well as the two
    smaller islands which formed immediately adjacent to Island 27, were conveyed
    by the Crown to Alexander Rose by the Letters Patent of 1868. [Emphasis added.]

[71]

Although the application judge used the words as here, he did not
    make any factual findings that the change in water levels was non-gradual. He found
    the opposite  that the property was altered through a lengthy and gradual
    process. This characterization is also in line with what he described as the
    only evidence of the change in water levels and alteration of Lot 35, namely,
    that approximately 25 years after the dams were erected, Island 27 existed as
    depicted by the Haslett Survey, and that the water level had increased by 2.5
    feet over the course of those years. There was no evidence of water levels in
    1818 or the effect on them in the 1830s when the dams were erected.

[72]

The flooding principle requires a
sudden
alteration or
    displacement of land or water:
Neilson
, at p. 826
;

McLeay et al v. City of Kelowna et al.
,
    2004 BCSC 325, 27 B.C.L.R. (4th) 344, at para. 20.

[73]

The Estate seeks to support the application judges conclusion by
    relying on the cause of the rise in water levels having been artificial  the
    result of dams. However, the fact that the cause of a rise in water levels was
    artificial does not on its own make the Flooding Principle applicable if the
    rise was not sudden.

Nor is the
    Ambulatory Principle inapplicable if accretion or erosion is the result but not
    the intended effect of a lawful artificial structure: Surveyor General Publication,
    at p. 29;
Clarke v. Canada (Attorney-General)
, [1930] S.C.R. 137, at p. 144. A change in water levels somewhere
    may be the natural result of a dam. But the inference that the dams erected in
    the 1830s were intended to cause erosion at, and to take land away from, Lot 35
    was not one that the application judge drew. Nor is such an inference properly
    available from the fact that water levels were different, and Island 27 had
    separated from the mainland, some 25 years after the dams were erected.

[74]

Where the facts found by a trial judge are insufficient to engage a
    correctly articulated legal standard, the application of that standard is an
    error of law, since it is tantamount to the judge having altered the legal
    standard:

Housen
, at para. 27. On the factual findings of the
    application judge, the Flooding Principle was not applicable. It was thus an
    error of law for him to apply it.

b)

Applying The Flooding Principle to a Time Before
    the Crown Grant

[75]

The AG Canada submits that it was an error to apply the Flooding
    Principle to unpatented land, that is, to fix the boundary at a location other
    than the 1868 waters edge because of  changes in water levels before the
    Letters Patent.

[76]

Although in light of my finding above it is unnecessary to finally
    conclude on this issue, I note that the authority that the application judge
    relied on, The Surveyor General Publication, does not seem to support applying
    the Flooding Principle in this circumstance. The authors make the following
    observation about the relevance of the movement of the waters edge between the
    time a lot has been surveyed, and the time of the Crown grant:

What if the watercourse shifts between time of
    survey and time of parcel creation (e.g. creating a Reserve,
granting a
    Crown patent,
registering a subdivision plan, or raising a new title)?

The significant date is when the parcel is
    created.
The location of the watercourse and thus the location of the water
    boundary pertains when the parcel is created and not when the
    parcel/watercourse is surveyed:
The test is whether the land in fact comes
    to the waters edge under the grant and not upon the manner of land description
    within the grant. The time of survey pales into insignificance because
    riparian rights exist ... at the time of the original Crown grants. at p. 5
    (emphasis added).

[77]

Contrary to the submission of counsel for the Estate, the reference
in Becker v. Walgate
,
2020 ONCA 491,

at footnote 4, that
    the waters edge at the time of the Crown grant does not necessarily mean the
    waters edge on the day of the grant but rather the waters edge in its natural
    and calm condition cannot be read in this case to refer to the waters edge
    some 30 years prior to the Crown grant.

(3)

Failure to Consider the  Implications of the
    Treaties on the Interpretation of the Letters Patent

[78]

After finding that, because of the Flooding Principle, the Letters
    Patent conveyed the Islands to Mr. Rose, the application judge considered the
    effect of Treaties 20 and 78 on ownership of the Islands. As described above,
    he found that Treaty 20 effected an absolute surrender of lands that included
    Lot 35, and that Treaty 78 resolved any uncertainty about the Islands and did
    not detract from the Crowns full ownership rights which included a right to
    sell. The condition Treaty 78 imposed that the Crown use the proceeds of sale
    for the benefit of the First Nations did not estop the Crown from selling any
    of the surrendered lands, and the honour of the Crown was not at risk as long
    as the Crown used the proceeds in that way.

[79]

In other words, the application judge, having found without
    reference to the Treaties, that the Letters Patent meant that the Islands had
    been sold, then concluded that the Treaties did not affect the title that was
    conveyed.

[80]

The appellants argue that in approaching the matter this way the
    application judge made a number of errors. It is not necessary, in my view, to
    address each of those arguments. I accept the argument that in considering what
    the Letters Patent conveyed, the application judge erred by failing to consider
    the obligations in Treaty 78, and whether they were consistent with reading the
    Letters Patent to include Island 27. In other words, he failed to take them
    into account as something that
shed
    light on the sense in which the words in the Letters Patent were used:
Sattva
, at para.
    58;
Gibbs
, at p. 463.

[81]

Treaty 20 recorded an absolute surrender of title by the First
    Nations, but the application judge accepted that assurances were given that the
    King would accede to the First Nations request to exclude any islands. The
    application judge found that those assurances were not given effect until
    Treaty 78. However, Treaty 78 resolved those issues by effecting a surrender
    that was
in trust
and
on conditions
. It imposed limitations on the
    type of sale that could be made  to the best advantage for ourselves and our
    descendants forever  and obligations about any proceeds  the principal
    arising from such sales to be safely funded and the interest accruing therefrom
    to be paid annually to us and our said descendants for all time to come.

[82]

The Crown was under an obligation to ensure the conditions of
    surrender, which are construed liberally and through the lens of the honour of
    the Crown, were faithfully carried out:
R. v. Badger
, [1996] 1 S.C.R. 771, at para. 41
;
Guerin v. The Queen
, [1984] 2 S.C.R. 335, at pp. 376, 382.
    And the Province was bound by those obligations if it carried out the Crown
    power to sell:
Grassy Narrows First Nation v. Ontario (Natural Resources)
,
    2014 SCC 48, [2014] 2 S.C.R. 447, at para. 50.

[83]

The fact that the Crown had undertaken separate obligations in
    connection with islands, and the nature of the obligations, should have shed
    light on whether a sale of Island 27 was objectively intended by the Province by
    Letters Patent that referred only to Lot 35. The Crown is not presumed to act
    in a manner that ignores its duties:
Badger
, at para. 41. The fact
    that the Letters Patent neither identified Island 27 separately, although
    surrendered to the Crown in trust and on conditions, nor allocated any of the
    sale price to Island 27 (a seemingly necessary first step toward investing those
    proceeds for the benefit of the First Nations as the terms of Treaty 78
    required) were facts that were objectively inconsistent with the inference that
    the reference to Lot 35 was intended to include Island 27.

C.

The Interpretation of the Letters Patent

[84]

In light of these errors, the application judges interpretation of
    the Letters Patent is not entitled to deference. I turn, therefore, to whether,
    applying the proper principles, his interpretation is nevertheless supportable.
    In my view, and as presaged by the discussion above, it is not.

[85]

I repeat the interpretive question: whether it was the intention of
    the parties, objectively ascertained, that the Letters Patent conveyed the land
    up to the waters edge in 1868, which did not physically include the islands,
    or whether they conveyed land that in 1868 was beyond the waters edge but
    which had been, at a prior point in time, connected to the mainland.

[86]

In my view, the former interpretation is the only one which reflects
    the objectively ascertained intentions of the parties, as determined by the
    language of the Letters Patent read in light of the factual matrix and the
    legal principles that apply:

a)

the language of the Letters Patent refer to Lot 35, which the Wilmot
    Survey depicted as a mainland lot having a southeastern boundary constituted by
    the waters edge of Lake Katchewanooka, and that did not include any land
    beyond the waters edge or any islands;

b)

the waters edge boundary shown on the Wilmot Survey was ambulatory.
    Nothing in the language of the Letters Patent incorporating the Wilmot Survey,
    or in correctly applied legal principles concerning boundaries, would
    reasonably be taken to mean that the reference to Lot 35 was intended to include
    any land beyond the waters edge at the time of the Letters Patent even if the
    waters edge had moved after the date of the Wilmot Survey;

c)

by the time of the Letters Patent, Island 27 had not only separated
    from the mainland of Lot 35, but had also been separately identified on the
    Haslett Survey  this makes the absence of any reference to Island 27 in the Letters
    Patent all the more important; and

d)

by the time of the Letters Patent, the Crown, under Treaty 78, had
    undertaken obligations in connection with Island 27 in favour of the First
    Nations. Yet the Letters Patent did not reference Island 27 or set out a value
    for Island 27, nor is anything else in them consistent with a sale of Island 27
    in accordance with those obligations.

[87]

Interpreting the Letters Patent to not include the Islands makes
    sense of their language  both the reference to Lot 35, a property that as
    depicted was a mainland lot that did not extend beyond the waters edge, and
    the lack of reference to any islands being included in the conveyance. This
    interpretation is consistent with the relevant factual matrix at the time of
    the Letters Patent, namely that Island 27 was physically separate from Lot 35,
    located beyond the waters edge, had been separately identified, and was the
    subject of a separate and fundamental set of Crown obligations in favour of the
    First Nations.

[88]

The effect of the application judges interpretation is that the
    Letters Patent were meant to convey land with a boundary defined not by the waters
    edge at the time of the Letters Patent, but by a point defined by a historical
    event. In my view, this would not be a reasonable assessment of the parties
    intentions in these circumstances, as it would not be consistent with water
    boundary principles and would exclude from consideration all other factors
    noted above. Given that Island 27 was physically separate at the time and known
    by a designation, it seems highly likely, given the objectives of certainty in
    a conveyance, that if the parties had intended to include Island 27 in the
    conveyance, they would have simply said so.

VI.

Conclusion

[89]

For these reasons, I would allow the appeals, set aside the orders
    of the application judge, and substitute an order dismissing the Estates
    application.

[90]

The Estate sought costs of $43,754 if successful. The appellants
    indicated they were content with the quantum referred to by the Estate. I would
    award costs of the appeals to the First Nations in the sum of $21,500, and to
    AG Canada in the sum of $21,500both inclusive of disbursements and applicable
    taxes.

Released: August 24, 2021 J.M.F.

B. Zarnett J.A.

I agree. Fairburn A.C.J.O.

I agree. B.W. Miller J.A.





[1]
Also known as the Otonabee River.



[2]

The ownership of Island 27 determines the ownership of the
    other Islands  no party argued otherwise. I refer in these reasons to the
    Islands or to Island 27 as the context requires.



[3]
The appellants Curve Lake First Nation (formerly known as the Mud
    Lake Indian Band or Mud Lake Reserve), Hiawatha First Nation (formerly known as
    Rice Lake Indian Band or Rice lake Reserve) and Mississaugas of Scugog Island
    First Nation (formerly known as The Scugog Band of Indians).



[4]
The application judge did not resolve the acreage reference in the
    Letters Patent or use it to assist in determining what was conveyed.



[5]
In this case, it could not be seriously contended that the
    interpretive issue could be resolved by the words of the Letters Patent alone.
    Extrinsic evidence was led and relied on by all parties.



[6]

Nor was any partys position comprehensible without
    reference to these matters. For example, the Estates position turned on the
    location of the Islands in relation to the mainland of Lot 35 in 1818, and if
    separated, when and why that occurred. The appellants positions required
    consideration of the location and identification of the Islands at various
    points prior to and at the time of the Letters Patent, as well as the obligations
    of the Crown to the First Nations.



[7]
Gradual is usually accompanied by additional modifiers that
    reinforce its meaning  imperceptible (in the moment, though perceptible over
    time), and incremental. The applicability of the principle is also a function of
    the cause of the change of water levels  either natural forces or the
    unintentional effects of an artificial structure.



[8]
The principle is sometimes described as involving a change in water
    levels that is sudden and artificial.


