



COURT OF APPEAL FOR ONTARIO

CITATION: Friends
    of Lansdowne Inc. v. Ottawa (City), 2012 ONCA 273

DATE: 20120430

DOCKET: C54206

Winkler C.J.O., Blair and Lang JJ.A.

BETWEEN

Friends of Lansdowne Inc.

Applicant (Appellant)

and

City of Ottawa

(Respondent) Respondent

and

Ottawa Sports and Entertainment Group

Intervener

Steven Shrybman and Steven Barrett, for the appellant

Peter K. Doody and Katherine Humphries, for the
    respondent

K. Scott McLean, for the intervener

Heard:
November 28, 2011

On appeal from the judgment of Regional Senior Judge
    Charles T. Hackland of the Superior Court of Justice, dated July 28, 2011, with
    reasons reported at 2011 ONSC 4402, 107 O.R. (3d) 104.

Lang J.A.:


A.

INTRODUCTION

[1]

The respondent, City of Ottawa, proposed to redevelop its important
    landmark, Lansdowne Park, by way of a public private partnership between the
    City and the Ottawa Sports and Entertainment Group (OSEG), a consortium of
    developers. After two-and-a-half years of discussion and consultation, City
    Council passed a by-law in June 2010 advancing the development.  Friends of
    Lansdowne Inc., which formed to oppose the development, applied to quash the
    by-law.  Its application was dismissed.

[2]

Friends appeals arguing that the application judge erred on three main
    points.  First, it argues that the approved development provides financial assistance
    in the nature of a bonus to OSEG, contrary to s. 106(1) of the
Municipal
    Act
,
2001
, S.O. 2001, c. 25 (Act).  Second, Friends argues that
    the by-law that approved the development did so in breach of the Citys own
    procurement by-laws.  Finally, Friends argues that the City acted in bad faith
    in approving the proposed development.

[3]

For the reasons that follow, I would dismiss the appeal. In my view, the
    application judge, Hackland R.S.J., correctly interpreted and applied the
    provisions of the Act. He appropriately and comprehensively considered Councils
    decision in light of his legal conclusions, including the financial
    ramifications and mutual obligations contained in the proposed development plan. 
    His reasons support his conclusion that the by-law did not provide an illegal
    bonus or procurement as well as his conclusion that the by-law was not passed
    in bad faith.  Accordingly, I would dismiss the appeal.

B.

bACKGROUND

[4]

Beginning in 1967, Lansdowne Park housed both a 20,172-seat football
    stadium and a 9,261-seat hockey arena.  Until the Canadian Football League
    suspended the franchise in 2006, the stadium was the home field first for the
    Ottawa Rough Riders and later for the Ottawa Renegades.  The arena has also
    been the long-term home ice for the Ottawa 67s of the Ontario Hockey League. 
    The Park also provides a home for important heritage buildings.  The balance of
    the Park is generally covered in asphalt and used for parking.

[5]

By 2007, the Park was in serious need of redevelopment. Council
    considered holding a design competition.  However, in 2008, Council tabled that
    proposal before it received final approval and chose instead to consider the unsolicited
    proposal it received from OSEG.

[6]

In 2009, the City Manager filed a Report to Council concerning OSEGs
    proposal. Council authorized staff teams and outside consultants to enter into
    the negotiation of a public private partnership with OSEG for the Parks
    development. As the application judge noted, the City initially authorized negotiations
    with two objectives: the revenue neutral objective of not increasing the
    overall costs to the taxpayer and the sports teams objective of not using revenues
    from the revitalized Park to subsidize any professional sports teams.

[7]

The proposed partnership is envisioned as a joint commitment by the City
    and OSEG to develop five components of the property, the first of which is the
    renovation of the arena and stadium for the hockey and football teams. The
    second and related component is the acquisition of the two sports franchises, one
    of which currently operates at the site.  The third involves the construction
    of over 330,000 square feet of office, retail and residential space and the
    fourth, the provision of extensive underground and surface parking.  Finally,
    the property will include an urban park, which will involve relocation of the
    heritage buildings within the site.

[8]

In September 2009, Council considered what became known as the Lansdowne
    Park Plan (Plan), which initially consisted of a formal Memorandum of
    Understanding and a Redevelopment Plan that contained the fundamental elements
    of the proposed financial arrangements for the development. 
    PricewaterhouseCoopers issued a report.  Other reports came in.  Negotiations
    continued.  Changes were made.  The City engaged in lengthy broad-based
    consultation with experts and the public and commissioned a report from its own
    Auditor General.   The City sought outside legal advice, including on the
    question of bonus.  The consultation included detailed consideration of the
    cost and revenue implications of the Plan.

[9]

In 2010, based on a record of comprehensive consultation, and in
    conformity with the advice of its Auditor General, Council conditionally passed
    the impugned by-law.

[10]

Friends
    launched its application challenging the by-law. This resulted in a
    comprehensive record for the application judge, including lengthy affidavits
    and detailed cross-examinations. During those cross-examinations, it became
    apparent that particular financial information before Council at the time it
    passed the by-law was in error. However, that error does not affect the
    decision in this case because, as the application judge observed, Council will
    have another opportunity to reconsider the development with the corrected data before
    providing its final approval.
[1]

C.

ISSUES

[11]

Friends
    argues that the application judge erred in determining:

(i)  the appropriate standard of review of the Citys by-law;
    and

(ii) whether the by-law was passed without jurisdiction
    because:

(a) the development Plan provided an illegal bonus for the
    purpose of assisting OSEG contrary to the
Municipal Act
;

(b) the development Plan failed to conform with the Citys
    procurement requirements;

and

(c) the City acted in bad faith in passing the by-law.

D.

analysis

(1)

Standard of Review

[12]

Since
    municipalities are creatures of statute, their jurisdiction is limited to the
    powers provided by the legislature.  Accordingly, a city does not have
    jurisdiction to pass a by-law that authorizes acts prohibited by its governing
    legislation.  Since a city has no particular expertise in jurisdictional
    issues, a court will review the legality of a municipal by-law on the standard
    of correctness:  see
London (City) v. RSJ Holdings Inc
., 2007 SCC 29,
    [2007] 2 S.C.R. 588, at para. 37.  Section 273(1) of the Act gives the Superior
    Court the discretion to quash a by-law  for illegality.

[13]

Absent
    illegality, municipal by-laws are well insulated from judicial review.  Section
    272 of the Act prohibits a review of a by-law passed in good faith in whole or
    in part by any court because of the unreasonableness or supposed
    unreasonableness of the by-law.  Thus, a court cannot interfere with a by-law
    that is unreasonable, but a court may quash one that is illegal.

[14]

In
    reviewing a decision quashing or refusing to quash a by-law for illegality, an
    appellate court must give a high degree of deference to the judges findings of
    fact and the inferences drawn from those facts.  While generally the appropriate
    standard of review on questions of law is correctness, courts are cautioned in cases
    involving municipal challenges to require clear demonstration before
    concluding that a municipalitys decision is made without jurisdiction:  see
Nanaimo
    (City) v. Rascal Trucking Ltd
., 2000 SCC 13, [2000] 1 S.C.R. 342, at para.
    36, citing
Shell Canada Products Ltd. v. Vancouver (City),
[1994] 1
    S.C.R. 231, at p. 244.

[15]

Courts
    reviewing decisions made within jurisdiction must apply a deferential standard: 
    see
Nanaimo
, at para. 35.  As the application judge explained,
    provided they act with jurisdiction, municipalities are accountable to their
    constituents, and not to the courts.

[16]

Counsel
    do not take issue with this standard of review, but part company on whether the
    reviewing judge properly applied it to the issues in this case.  This is best
    addressed by looking at the individual questions that were before the
    application judge.

(2)

Jurisdictional
    Challenges

(a)

Did the development agreement provide an illegal bonus to OSEG?

[17]

I
    turn first to the question of whether Council lacked jurisdiction to pass the
    by-law because it effectively provided an illegal bonus to OSEG.

[18]

An
    illegal bonus is addressed in s. 106(1) of the Act
,
which prohibits a
    municipality from granting a bonus for the purpose of assisting certain
    entities, including any commercial enterprise in these words:

Despite any Act, a municipality
shall not assist
directly or indirectly any manufacturing business or other industrial or commercial
    enterprise
through the granting of bonuses
for that purpose. [Emphasis
    added.]

[19]

Section
    106(2) sets out certain types of prohibited assistance, including (a) giving
    or lending any property of the municipality and (c) leasing or selling any
    property of the municipality at below fair market value.  In this case, as the
    application judge explained, Friends takes the position that the City was granting
    OSEG a bonus because the terms of the Plan included provision for the lease of
    the sports facilities and the commercial properties for a nominal rent for the
    first thirty years of the development.  In addition, Friends argues that the
    Plan offends the prohibition against bonuses by providing subsidization of the
    sport franchises through cash payments to OSEG under the waterfall
    distribution of revenues, a term I will explain briefly later in these
    reasons.  Finally, Friends challenges the Citys $35 million undertaking to
    build the urban park, which it argues provides a bonus to the commercial
    development aspect of the project.

[20]

In
    response, the City and OSEG argue that, when considered as a whole, the Plan
    represents a negotiated balancing of risks and obligations that does not
    provide OSEG with a bonus.

[21]

With
    that background in mind, I approach the question this way
:

(i) What is the proper approach to the interpretation of the
    statutory restrictions placed on the municipalitys powers?

(ii) Should the impugned terms be considered in isolation or in
    the context of the terms of the Plan as a whole? and,

(iii) Do the terms of the Plan, properly interpreted, provide
    OSEG with an illegal bonus?

(i)

The
    approach to interpretation

[22]

The modern rule of statutory interpretation requires that the
    words of an Act ... be read in their entire context and in their grammatical
    and ordinary sense harmoniously with the scheme of the Act, the object of the
    Act, and the intention of Parliament:
Bell ExpressVu Limited Partnership
    v. Rex
, 2002 SCC 42, [2002] 2 S.C.R. 559, at para. 26, citing Elmer A.
    Driedger,
Construction of Statutes
, 2d ed. (Toronto: Butterworths,
    1983), at p. 87.

[23]

Thus,
    the objective of the legislation informs the interpretation of its provisions. In
    this case, s. 2 provides that the purpose of the Act is to create
    municipalities as responsible and accountable governments with respect to
    matters within their jurisdiction and to give municipalities powers and
    duties  for the purpose of providing good government.  To ensure
    municipalities can fulfill that purpose, the Act specifies in s. 8(1) that
    municipal powers are to be interpreted broadly so as to confer broad authority
     to enable the municipality to govern its affairs as it considers appropriate
    and to enhance the municipalitys ability to respond to municipal issues. 
    Thus, the province intends municipalities to have expansive powers to self-govern
    in relation to matters within their jurisdiction.

[24]

In
Croplife Canada v. Toronto (City)
(2005), 75 O.R. (3d) 357, at para.
    34, this court explained that the Act was amended to give municipalities in
    Ontario the tools they need to tackle the challenges of governing in the 21st
    century and, at para. 37, that generally municipal powers are to be
    interpreted broadly and generously within their context and statutory limits,
    to achieve the legitimate interests of the municipality and its inhabitants.

[25]

This
    approach was also discussed in
Fourth Generation Realty Corp. v. Ottawa
    (City)
(2005), 254 D.L.R. (4th) 315 (Ont. C.A.), at para. 29, where
    Gillese J.A. observed that municipalities have enhanced responsibilities arising
    from the download of services to them by the federal and provincial
    governments. Cognizant of these increased governing responsibilities, Gillese
    J.A. described the modern approach to interpretation that gives a liberal and
    benevolent interpretation to municipal powers and confines findings that
    municipal by-laws are
ultra vires
to the clearest of cases:  see
    para. 36.

[26]

The
    broad powers given to municipalities are restricted by s. 106, which, among
    other things, prohibits a municipality from granting a bonus to a commercial
    enterprise. Restrictions on a statutory power are generally construed narrowly
    in order to give effect to the purpose of the power conferred.  Ruth Sullivan,
    in
Sullivan on the Construction of Statutes
, 5th ed. (Markham:  LexisNexis
    Canada Inc., 2008) explains at p. 484, given the current focus on the purpose
    of legislation, that modern courts are particularly concerned that exceptions
    and exemptions be interpreted in light of their underlying rationale and not be
    used to undermine the broad purpose of the legislation.  As LaForest J. stated
    in
Air Canada v. British Columbia
, [1989] 1 S.C.R. 1161, at p. 1207,
    an exception should not be construed more widely than necessary to fulfil the
    values which support it.

(i)

Whether the impugned provision should be interpreted in context

[27]

Friends
    argues that the application judge erred in failing to test each individual
    provision of the Plan to see whether it complied with the requirements of s.
    106, while the City argues that the application judge took the correct approach
    by considering the Plan as a whole.

[28]

In
    my view, the application judge was correct in rejecting Friends provision-by-provision
    argument. Such a parsing of the Plan would be contrary to the seminal rule that
    provides for a contextual approach to the interpretation of terms in a
    contract:  see Geoff R. Hall

in
Canadian Contractual
    Interpretation Law
, 1st ed. (Canada: LexisNexis, 2007) at para. 2.2.1;
Canadian
    Newspapers Co. v. Kansa General Insurance Co
. (1997), 30 O.R. (3d) 257
    (C.A.), at p. 270, leave to appeal to S.C.C. refused, [1990] S.C.C.A. No. 553;
    and
Toronto Dominion Bank v. Leigh Instruments Ltd.
(2000), 45 O.R.
    (3d) 417 (C.A.), at para. 9.  Accordingly, an isolated provision cannot be
    interpreted as a prohibited bonus if that interpretation is not available upon
    a reading of the contract as a whole.

[29]

The
    purpose of a contextual approach to interpretation is highlighted in this case
    where the benefits and obligations of the Plan are complex and interdependent
    and the impugned terms are but components of a much larger picture.  The
    interdependence of the terms is apparent from the Plans waterfall
    distribution of revenues.  The application judge reviews this structure in his
    reasons.  Overall, he describes it as an intertwining or pooling of 
all revenues and losses from the sports teams and
    athletic facilities as well as the commercial and retail components of the LPP
for the first thirty years of the life of the Plan:  see para. 46.  It
    is in the context of this structure that Friends challenges the components
    concerning leases, the sports franchises and the urban park.

[30]

I
    agree with the application judge that the impugned terms of the waterfall
    distribution cannot be isolated from the other terms.  Rather, the components
    of the waterfall structure in the context of the Plan as a whole must be
    considered to see whether there is an illegal bonus.

[31]

Accordingly,
    I see no error in the application judges conclusion that the challenged
    provisions must be interpreted in the context of the broad purpose of the Act
    and the interdependent nature of the terms of the Plan.  I turn to the core
    question of whether the Plan provides an illegal bonus.

(ii)

Did
    the Plan provide an illegal bonus?

[32]

To
    determine whether the Plan provides an illegal bonus to OSEG, it is helpful to
    consider first the parameters of Ontarios prohibition on bonuses in light of
    its legislative history.

[33]

Early
    legislation specifically empowered municipalities to pass by-laws to provide
    aid, apparently in order to attract certain industries to a particular
    municipality.  For example, the
Municipal Institutions Act
, S.C. 1866,
    c. 51, was amended in 1871, 1873 and 1877 to allow by-laws to provide bonuses
    to railways and manufacturing businesses.

[34]

In
    1900, the legislature provided a lengthy definition of bonus by providing
    examples, such as granting money, issuing guarantees, and gifts of land:  see
Municipal
    Amendment Act
, S.O. 1900, c. 33, s. 10.  The
Consolidated Municipal
    Act
, S.O. 1903, c. 19 in s. 591
a
continued the definition of bonus, but
introduced controls
    such as requirements for electoral consent and a cap on permitted amounts:  see
    s. 591(12).

[35]

The
    1914
Municipal Institutions Act
, R.S.O. 1914, c. 192, s. 396 permitted
    the granting [of] a bonus for the promotion of manufactures in the
    municipality, or for the promotion of iron works, rolling mills, works for
    refining or smelting ore, or the establishment of grain elevators, or aiding a
    beet sugar factory ....  This version of the Act added additional controls on
    bonus by-laws, such as a prohibition against the granting of bonuses to the
    branch of an industry of a similar nature to one already established in the
    community.

[36]

The
    legislature refined the definition of bonus in 1922, then enacted a separate statute
    entitled the
Bonus Limitation Act, 1924
, S.O. 1924, c. 56. This Act
    also permitted bonuses, but with restrictions. The Act was repealed and its
    provisions subsumed into
An Act to Amend the Municipal Act
, S.O. 1950,
    c. 46, s. 23.

[37]

Bonuses
    in aid of any manufacturing business or other industrial or commercial
    enterprise were first prohibited in 1961 in
An Act to Amend the Municipal
    Act
, S.O. 1961-62, c. 86, s. 36.  The 1961 prohibition continued through
    various iterations of the
Municipal Act
until 1986, when specific
    examples of prohibited assistance were added, including the giving or lending
    of any property of the municipality, including money as well as the leasing
    or selling any property of the municipality at below fair market value: see
An
    Act to Amend the Municipal Act
, S.O. 1986, c. 24, s. 112.  These
    prohibitions are similar to those at issue in this case.

[38]

When
    the 1986 amendments were introduced, it was explained that they were intended
    to clarify what constituted a bonus and to level the playing field between
    municipalities, making it clearer to municipalities that they can be
    competitive but also that they have limitations:  see Ontario, Legislative
    Assembly,
Official Report of Debates (Hansard)
, No. 70 (16 December
    1985) and No. S-19 (26 June 1986) (Hon. Mr. Grandmaître).

[39]

In
    1989, the statutory examples of a prohibited bonus were slightly modified, and
    the provision similar to todays s. 106 appeared as s. 111 in the consolidated
    statutes of 1990.  The amendments since then do not further inform the
    interpretation of the provision, although the parliamentary debates at the time
    of certain of those amendments confirm the purpose of the prohibition.

[40]

When
    the 2001 Act was debated, the discussion again centred on the objective of ensuring
    a level playing field so that municipalities were prohibited from offering
    financial incentives to an industry or business to locate in that particular
    municipality and to prevent municipalities from giving all kinds of grants and
    money to companies to attract them to a particular location:  see Ontario,
    Legislative Assembly,
Official Report of Debates (Hansard)
, No. 60B
    (31 October 2001), at 2120 (James J. Bradley).  That said, it is of note that
    the s. 106 prohibition is located under the section of the Act entitled Economic
    Development Services.  After setting out the prohibition against bonuses in s.
    106, the remaining provisions set out a municipalitys jurisdiction to provide
    assistance in the nature of grants and loans.

[41]

I
    turn from the legislative history of the provision to the ordinary meaning of
    the chosen word bonus as reflected in dictionary definitions.
The Shorter
    Oxford English Dictionary
, 3d ed., defines bonus as a boon or gift over
    and above what is normally due. Similarly,
Blacks Law Dictionary
, 8th
    ed., defines bonus as bounty, which in turn, is defined as a premium or
    benefit offered or given, especially by government, to induce someone to take
    action or perform a service.

[42]

The
    rationale for the bonus prohibition is canvassed in Ian MacFee Rogers,
The
    Law of Canadian Municipal Corporations
, 2d ed., looseleaf (Toronto: 
    Thomson Reuters Canada Ltd., 2009) at s. 146.2 where the author describes the
    prohibition as one against the giving of aid in some form or other to induce
    some undertaking to establish and maintain itself in the municipality. Stephen
    Auerback and John Mascarin in
The Annotated Municipal Act,
2d ed., looseleaf
    (Toronto:  Carswell, 2009) at p. MA3-252.1, describe s. 106 as a
    longstanding provision which is designed to prevent municipal corporations from
    giving an unfair advantage to private parties in the commercial market place.

[43]

I
    turn to consider this review of the meaning of bonus in the context of the
    argument before the application judge in this case.

[44]

The
    Plan is said not to involve a bonus in the sense reflected in the legislative
    debates of granting an unfair advantage or windfall to OSEG in preference over
    another competitor or of inducing OSEG to develop in Ottawa as opposed to in
    another municipality. Thus, the challenged Plan does not reflect the specific problem
    that s. 106 and its predecessors were seemingly enacted to address. However,
    Friends argues that the Plan, or more tellingly, particular features of the
    Plan, nonetheless constitute an illegal bonus within the plain meaning of s.
    106 in the sense that they constitute an inducement or windfall to OSEG at the
    expense of the City. Friends frames this as an allegation of illegal bonus,
    while the City responds that Friends is actually challenging the merits of the
    financial deal, a challenge that all acknowledge is not available as long as
    the transaction is found to be within the Citys jurisdiction.

[45]

The
    resolution of this argument requires two steps. The first step asks the legal
    question of what constitutes an illegal bonus.  The second step involves an
    application of the legal test to the terms of the Plan. The appellant argues
    that the application judge conflated these two steps by dealing with the appellants
    challenge to the legality of the By-law as a complaint about the merits of the
    Plan. I do not agree.

[46]

In
    concluding the Plan did not grant an illegal bonus, Hackland R.S.J. first
    examined the legal question. He adopted the approach taken by McEwan J. in
Kendrick
    v. Nelson (City)
(1997), 31 B.C.L.R. (3d) 134 (S.C.), another case
    involving a public private partnership for municipal development. He
    interpreted s. 292(d) of the British Columbia
Municipal Act
, R.S.B.C.
    1979, c. 290 which does not use the word bonus, but rather prohibits the
    granting of assistance, including the granting as a gift property owned by
    the municipality. At para. 65, McEwan J. concludes that assistance, within
    the context of the B.C. legislation, means the conferring of an obvious
    advantage. In answering whether the development plan before him conferred an
    obvious advantage to the developer, McEwan J., at para. 56, concluded that the
    development plan did not demonstrate that the developer received something for
    nothing. In addition, in his view, the complicated matrix of covenants,
    viewed as a whole, do not clearly confer a benefit on [the developer]
    unsupported by any concomitant obligation benefitting the City:  see para. 65. 
    In other words, McEwan J. found a balance between the benefits and the
    obligations of the development plan.

[47]

1085459
    Ontario Ltd. v. Prince Edward County (Municipality)
(2006), 77 O.R. (3d)
    144 (S.C.J.) similarly involved an allegation of illegal bonus in the context
    of a public private municipal joint venture, this time in Ontario. In that
    case, Hackland R.S.J. (also the application judge in this case) agreed with McEwan
    J.s reasoning in
Kendrick.
Hackland R.S.J. concluded that

assistance
    in the B.C. legislation and bonus in Ontarios Act should both be interpreted
    to mean the conferring of an obvious advantage. In his analysis, he observed
    the growth of municipal reliance on public private joint partnerships and the increasing
    importance [of those partnerships] in the establishment of municipal facilities.
    He also noted that such partnerships by their nature involve an inherently complex
    exchange of benefits, assets and services to facilitate the proposed development:
    see para. 13.

[48]

Hackland
    R.S.J. applied the legal principle of obvious advantage from
Kendrick
and
Prince Edward County
to this case.

[49]

The
    parties do not dispute the correctness of that principle, only its
    application.  Nonetheless, it is worth observing that the concept of an obvious
    advantage or undue benefit makes sense. All municipal contracts confer an
    advantage or benefit of some kind because, in the normal course, they
    inevitably provide assistance or an advantage by providing work and consequent
    profit to the contractor. However, that advantage simply reflects fair
    compensation for work undertaken. Interpreting bonus to prohibit ordinary
    contracts, or specific provisions of a contract, would clearly lead to an absurd
    result. Thus, the granting of an advantage is to be anticipated; the granting
    of an obviously undue advantage is prohibited.  This interpretation is
    supported by the legislative choice of the word bonus, which suggests that
    the advantage prohibited is one that is undue; that is, on the spectrum of
    benefits, it falls closer to providing a party with an unmerited windfall.

[50]

The
    application judge correctly applied this test to the impugned provisions,
    cognizant of their importance as components, albeit essential components, of a
    complex public private partnership.  At this step of the process, the question
    is not whether the City made a good deal but whether the Plan provided OSEG
    with an undue advantage.  Expert opinion was necessary to understand the
    complex provisions of the Plan, including the waterfall revenue distribution.

[51]

In
    addition to other reports it received, Council commissioned a report from its
    Auditor General pursuant to s. 223.19(1) of the Act. When such a report is
    commissioned, the Auditor General is required to provide advice in an
    independent manner so that Council can properly hold itself accountable for
    the quality of stewardship over public funds and for achievement of value for
    money in municipal operations:  see s. 223.19(1.1).

[52]

After
    an exhaustive review of the terms of the Plan, the Auditor General concluded
    that the waterfall revenue distribution achieved an appropriate balance between
    the parties based on assumptions he found to be reasonable.  He gave the
    opinion that there is an appropriate amount of risk for each party.  As well,
    he concluded that after examining all of the assumptions for the various
    structures, the distribution scheme appeared to be reasonable and fair to
    both parties.

[53]

The
    application judge adopted the opinion of the Auditor General and was not
    persuaded that OSEG has received any obvious advantage in the [Plan]:  see
    para. 84. This step of the process was largely fact-driven, although elements
    of policy were involved, including recognition of the importance of bringing
    the sports franchises to the Park.

[54]

As
    McEwan J. explained in
Kendrick
, at para. 65, where a municipality
    otherwise properly exercises its powers within the realm of public policy, I
    do not think [a statutory prohibition against assistance] is an available
    mechanism to obtain a review of the contract, weighing the tangible and
    inchoate benefits, to determine if the municipality has made a good deal or
    not.

[55]

The
    Auditor Generals opinion was not successfully challenged by opinions to the
    contrary provided by Friends or by any of the more than 100 presenters during
    the Citys lengthy public hearings.

[56]

On
    the basis of the correct application of the law and findings concerning the
    terms of the Plan, the application judge was entitled to conclude that the City
    had jurisdiction to pass the by-law because it did not grant the alleged
    illegal bonus.

[57]

Given
    this conclusion, s. 272 of the Act prohibits a review of the merits of the Plan
    on any argument of unreasonableness.

[58]

I
    see no basis to interfere with his decision.

(b)

Was the by-law outside the Citys jurisdiction because the underlying
    agreement breached the Citys procurement requirements?

[59]

Section
    270 of the Act requires a municipality to adopt and maintain policies,
    including for the procurement of goods and services.  Procurement policies
    are designed to ensure the integrity and transparency of a municipalitys
    procurement system.

[60]

In
    this case, Ottawa passed a Purchasing By-law that explains its objective in s.
    2(1) as aiming to obtain the best value for purchasing goods, construction and
    services for the City while treating all suppliers equitably.  To achieve this
    goal, s. 2(2) provides the guiding principle that purchases be made using a
    competitive process that is open, transparent and fair to all suppliers.

[61]

Section
    22(1)(d), which was also in force when the proposal was first received,
    provides for the waiver of competitive bidding and its replacement by
    negotiations where there is an absence of competition for technical or other
    reasons and the goods, services or construction can only be supplied by a
    particular supplier and no alternative exists.

[62]

Section
    25(2) requires that any unsolicited bid from private sector parties must comply
    with the Purchasing By-law and with the Ottawa Option Policy that it references.

[63]

One
    version of the Option Policy was in force when Ottawa first received OSEGs bid
    in 2008 and a different version when the City approved the Plan in 2010. The
    2009 Policy set out a detailed process to be followed upon receipt of an
    unsolicited bid for offers involving improved services, reduced cost, costs
    avoidance, or [providing] other benefits.  The process was intended to
    eliminate any perception of bias, and [ensure] transparency, fairness and best
    value for the City.  The Policy provided that, after evaluation, the City
    could reject the bid, request amendments, or seek approval if the bid met
    certain criteria, including that it was acceptable under section 22 of the
    Purchasing By-law dealing with the issue of Non Competitive Purchases. The
    Option Policy also required consideration of independent oversight:  see the
    2009 Option Policy, Part II Evaluation, at para. 2(c).

[64]

As
    the application judge concluded, the City and members of Council were of the
    view that the Option Policy did not apply because the OSEG proposal was for
    land development rather than for the purchase of goods, services, or
    construction. When the City Manager reported on the OSEG proposal in September
    2009, he advised Council that negotiation was an acceptable replacement for
    competition because s. 22(1)(d) of the Purchasing By-law provided for
    negotiation rather than competition where OSEG was the only entity that could
    bring the sports franchises to the table.

[65]

After
    careful consideration, the application judge arrived at three conclusions.
    First, he accepted that the City proceeded with the OSEG negotiation in a
    manner that it believed complied with its procurement requirements. 
    Accordingly, there was no issue of bad faith. Second, he concluded that, in any
    event, the detailed negotiation and evaluation of the OSEG proposal essentially
    [met] the process required under the Ottawa Option Policy.  In other words,
    any technical failure on the part of the City to invoke the Option Policy was
    addressed in substance by the detailed consultation process the City undertook
    before approving the Plan. Finally, the application judge determined that the
    exemption to the competitive bid requirement in s. 22(1)(d) of the Purchasing
    By-law was applicable because OSEG was the only available supplier.  On these
    bases, he dismissed Friends procurement argument.

[66]

On
    appeal, the appellant argues that the City was precluded from receiving OSEGs
    proposal when the earlier proposal for a design competition was outstanding.

[67]

This
    argument is based on the 2002 Option Policy in place in 2008 that the appellant
    argues did not allow for the receipt of an unsolicited bid when a competitive
    procurement process had been initiated or is planned to be initiated. The
    appellant takes the position that, since the City could not receive the OSEG
    proposal, all future approvals of the development by the City were void or
    illegal.

[68]

The
    appellants position fails for one main reason.  The Citys decision to proceed
    with the OSEG proposal rather than the design proposal was implicit in the
    subsequent approvals given by Council to the development in 2008 as well as
    through 2009 and 2010.  Any contravention upon the initial receipt of the OSEG
    proposal would have been merely technical and could not invalidate the by-law
    considered and passed in 2010.  Moreover, as observed by the application judge,
    the finding of compliance with procurement policies was supported both by the
    opinion of the Auditor General, who specifically considered the matter at the
    time, as well as by an outside legal opinion commissioned by Council.

[69]

These
    opinions were before Council when it passed the by-law approving the Plan in
    2010. Council was also well aware of the importance of the procurement
    principles of transparency and accountability.  The process it adopted in fact replaced
    competition with negotiation and enabled interested persons to make
    comprehensive submissions regarding the merits and shortcomings of the Plan.
    Indeed as the application judge concluded, the process undertaken effectively
    complied with the provisions of the Purchasing By-law and the Ottawa Option Policy.

[70]

Assuming
    the absence of bad faith, any technical failure on the part of the municipality
    to adhere to its internal rules and procedures is an irregularity that does not
    vitiate the challenged decision. This was not a case where the City transgressed
    against statutorily-mandated requirements.

[71]

Citing
Blyth v. Northumberland (County)
(1991), 75 O.R.
    (2d) 576, at p. 582, the application judge concluded that the by-law ought not
    to be quashed because any technical non-compliance with the Option Policy did
    not contravene any statutorily-mandated requirements.

[72]

Rogers
    at s. 48.22 discusses technical objections of the type raised by Friends:

The procedure adopted by a council in passing by-laws or in
    transacting any other business within its jurisdiction, in the absence of
    express statutory requirements, is a matter wholly of domestic concern and
    internal regulation. The courts will accordingly not give effect to objections
    based upon the failure of council to observe its established procedure, unless there
    is clear evidence of bad faith or fraudulent intent(s).



The rule permitting councils to depart from their internal
    regulations is not applicable, however, where the council, in disregarding
    provisions of its own procedural rules, has also disregarded provisions of some
    statutory requirement. In such case, the by-law passed in contravention thereof
    may be quashed.  But simply because procedural regulations are passed pursuant
    to statute they are not statutory in the sense that the council, by reason of
    having enacted a procedural by-law, has lost control of its proceedings.

[73]

The
    courts discretion to quash a by-law was also discussed by the Supreme Court of
    Canada in
London,
which set out
the
    relevant factors that inform the courts exercise of discretion including, the
    nature of the by-law in question, the seriousness of the illegality committed,
    its consequences, delay, and mootness:  see para. 39.  There can be no doubt
    that any breach of the Citys procurement provisions in this case was merely
    technical in nature.  The objectives of those provisions, integrity and
    transparency, were more than met by the process undertaken by the City. In my
    view, the application judge made no error in refusing to quash the by-law.  I
    would not give effect to this ground of appeal.

[74]

I
    deal briefly with two other arguments raised by the appellant on the subject of
    the 2002 Option Policy.  The first one deals with the wording of the Policy.  The
    appellant argues the Policy prohibits an unsolicited proposal where a competitive
    procurement process had been initiated or is planned to be initiated. 
    However, this is not what the Policy provides.  Rather, the Policy simply
    describes a fair and practical process that begins with the bidder submitting
    a proposal for a project that was not initiated or is not planned to be
    initiated by the City.  The guidelines to help a bidder do not impose a mandatory
    requirement on the City restricting the bids that it may consider.  I would not
    give effect to this argument.

[75]

Second
    and in any event, the appellants argument ignores the evidence referred to by
    the application judge that, on November 12, 2008, the motion to restart the
    design competition was tabled pending the evaluation of the OSEG proposal.
    Moreover, the evidence discloses that the proposed design competition was never
    approved and the report that may have resulted in approval was put on hold in
    May 2008 for reasons related to the stadiums structure, as well as to
    suggestions that an unsolicited bid might be forthcoming. When the OSEG
    proposal was advanced, a motion to re-start the design competition was tabled.
    The design competition was not in play.

[76]

For
    these reasons, I would not give effect to this ground of appeal.

(c)

Did the City
    negotiate and approve the by-law in bad faith?

[77]

A
    by-law may be quashed for unreasonableness if passed in bad faith: see s. 272
    of the Act.

[78]

At
    this court, Friends argues that the application judge erred in identifying and
    applying the test for bad faith. In particular, Friends argues that the
    application judge failed to consider the cumulative effect of the allegations
    of bad faith, the Plans failure to meet Councils initial objectives, the
    erroneous information provided to Council and Friends expert evidence.

[79]

Before
    considering Friends argument on appeal, I observe that the application judge properly
    identified the heavy burden on the appellant to establish bad faith and to do
    so on the part of the majority of the members of Council.   The application
    judge quoted Laskin J.A. in
Equity Waste Management of Canada v. Halton
    Hills (Town)
(1997), 35 O.R. (3d) 321 (C.A.), explaining that bad faith by
    a municipality connotes a lack of candour, frankness and impartiality and includes
    arbitrary or unfair conduct and the exercise of power to serve private purposes
    at the expense of the public interest.

[80]

In
    his reasons, the application judge explained the appellants submissions about
    bad faith at para. 22.  He observed that Friends did not allege any improper
    motive on the part of any member of Council or against the City Manager or any
    member of the Citys staff. Rather, Friends argued a lack of candour and
    impartiality that resulted in a one sided deal favouring one private interest
    and a failure to distinguish between public and private interests with the
    result that the [proposal] was not presented to City Council and to the public
    in a candid transparent manner, including with no adequate discussion of the pros
    and cons.

[81]

Based
    on his thorough consideration of legal principles, and after carefully
    reviewing the Citys process for obtaining approval, the application judge
    individually considered Friends numerous factual allegations of bad faith.
    Those allegations included challenges to the Citys consultation process,
    missing minutes of meetings with OSEG in mid-2008, an alleged failure to
    distribute a particular report, an overriding of its initial objectives, and
    its overall decision to proceed with the sole source partnership. The
    application judge acknowledged that there were shortcomings in the process in
    some instances and not in others. For example, he found that the failure to
    retain minutes or documentation of the 2008 meetings, was unfortunate, but not
    bad faith conduct. He explained his conclusion that any shortcomings in
    relation to these issues were either inadvertent or immaterial.

[82]

Friends
    argues that, although the application judge considered the bad faith
    allegations separately, he failed to consider whether taken together, the Citys
    actions amounted to bad faith. A reading of the application judges reasons
    demonstrates that to the contrary, he did consider the allegations of bad faith
    cumulatively. He specifically decided that even if [Friends allegations were]
    correct factually or as matters of reasonable opinion, [they] do not
    individually
or taken together,
amount to bad faith (at para. 17, emphasis
    added). The application judge again recognized that Friends relied on the totality
    of circumstances and a pattern of conduct to support its argument of bad faith: 
    see para. 22.  Finally, the application judge concluded his analysis by expressly
    referring to his earlier reasoning at para. 17, in which he had stated that
    even taken together, Friends failed to prove bad faith.  Accordingly, I do
    not accept Friends argument on this point.

[83]

Friends
    also argues that the Plan did not meet Councils initial objectives regarding
    revenue neutrality and sports subsidization.  This argument is largely subsumed
    in the issue of bonus and the question of whether the Plan represented a good
    deal for the City. In addition, if not explicit, it is implicit in the
    voluminous record that Council was comprehensively informed about these issues
    and was alive to the changing nature of its objectives as the Plan evolved.
    Council was entitled to approve a Plan that emphasized different objectives
    than its initial ones, as long as the approved Plan was based on the relevant
    information and was passed within the Citys jurisdiction.  The application
    judge specifically turned his mind to this. He observed at para. 46 that, Council
    is entitled [in the exercise of its own wisdom] to depart from its initial
    negotiating objectives provided it does so with full disclosure of the
    relevant information.

[84]

It
    is not for the courts to second guess or reweigh policy and financial considerations
    that informed the Citys decision to advance the development.  The application
    judge aptly characterized Friends bad faith argument as largely an attempt to
    reargue [its] position that the [Plan] is a poor deal for the City from a
    financial perspective.  This position had been aired extensively before
    Council. It does not support a finding of bad faith.

[85]

The
    application judge was also alert to the erroneous financial data provided to
    Council. He acknowledged the difficulties the City experienced in presenting
    accurately all the intricacies of the complicated public private agreement to
    Council. He concluded that the erroneous information was supplied inadvertently
    and not in bad faith. Further, he observed that corrected information would be
    provided before Council was asked to give final approval to the Plan.

[86]

As
    a final point, the appellant argues that the application judge erred in
    concluding that certain expert reports tendered by Friends on the issue of bad
    faith were irrelevant or were entitled to little weight. The application judge
    explained in his reasons why the challenged expert reports tendered by Friends did
    not assist him in deciding the issue.  Primarily, they addressed the authors
    personal opinions on what best policy practices should be. I see no error in
    the application judges conclusions with respect to these reports.

[87]

I
    would not give effect to this ground of appeal.

E.

RESULT

[88]

For
    these reasons, I would dismiss the appeal.

[89]

Neither
    Friends nor Ottawa seek costs.  I understand the issue of costs of the
    intervener before the application judge remains under reserve.  I would make no
    order for the interveners costs for the appeal.

Released: Apr. 30, 2012                                         Susan
    E. Lang J.A.

WW                                                                  I
    agree W. Winkler C.J.O.

I
    agree R.A. Blair J.A.





[1]
The application judge was alert to the potential that the
    application before him was premature since Councils approval was not final. 
    However, he explained his reasons for proceeding with the parties request to
    determine the issues in light of their public importance and the need for
    timeliness.  His decision to do so was not challenged on appeal.


