



COURT OF APPEAL FOR ONTARIO

CITATION: Union Building Corporation of Canada v. Markham
    Woodmills Development Inc., 2018 ONCA 401

DATE: 20180427

DOCKET: C64257

Hourigan, Huscroft and Nordheimer JJ.A.

BETWEEN

Union Building Corporation of Canada

Applicant (Respondent)

and

Markham Woodmills Development Inc.

Respondent (Appellant)

Benjamin Zarnett and Francy Kussner, for the appellant

Gavin J. Tighe and Bill R. Michelson, for the respondent

Heard: April 19, 2018

On appeal from the judgment of Justice Thomas R. Lederer
    of the Superior Court of Justice, dated July 25, 2017, with reasons for
    judgment reported at 2017 ONSC 4514 and reasons for costs reported at 2017 ONSC
    6351.

Nordheimer J.A.:

[1]

Markham Woodmills Development Inc. appeals from the judgment of Lederer
    J. that awarded the applicant, Union Building Corporation of Canada, the sum of
    $407,582, together with interest and costs.

[2]

For the reasons that follow, I would allow the appeal and dismiss the
    application.

Background

[3]

By an Agreement of Purchase and Sale made in July 2015 (the APS), the
    appellant agreed to sell to the respondent an undeveloped 3.6 acre parcel of
    land for a sale price of $3,960,000. The land was zoned agricultural and was
    part of a larger 19.29 acre parcel of land owned by the appellant in the City
    of Markham (the City). The respondent wished to purchase the land so that it
    could develop it for its head office.

[4]

The APS contained a provision, clause 17, making the sale conditional
    upon the City consenting to a severance of the land being sold to the
    respondent from the larger parcel owned by the appellant, pursuant to s. 50 of
    the
Planning Act
, R.S.O. 1990, c. P.13. Clause 17 provided that the
    appellant would seek the severance and satisfy any conditions the City imposed,
    except for conditions that were onerous or unreasonable. In the event the
    City imposed an onerous or unreasonable condition, clause 17 provided that the
    appellant could give the respondent the opportunity to satisfy such severance
    condition. If the respondent chose not to do so, then the APS would be null and
    void. The full text of clause 17 appears in the appendix to these reasons.

[5]

The severance was obtained by the appellant but it was made subject to
    certain conditions. One of the severance conditions that the City imposed was
    to require the appellant to enter into the Cathedral West Cost Sharing
    Agreement (the Cost Sharing Agreement)  a private agreement among other
    landowners in the area who were developing, or had developed, their lands. The
    appellant had no intention of developing its property and had not previously
    entered into the Cost Sharing Agreement. One aspect of entering into the Cost
    Sharing Agreement was that the appellant would have to fund development related
    costs in the amount of $407,582.

[6]

The appellant took the position that this severance condition was
    onerous or unreasonable under clause 17. It was not developing the land. It was
    selling the land. The evidence showed that there was no precedent in the City
    for a non-developing vendor being forced, as a condition of severance, to enter
    into a cost sharing agreement among developers  something the Citys Official
    Plan required only of development proponents.

[7]

The appellant invoked its rights under clause 17 and gave the respondent
    the option to satisfy the severance condition. The respondent disagreed that
    the severance condition was onerous or unreasonable. It took the position that clause
    17 required the appellant to satisfy the condition. However, in order to
    prevent the APS from floundering on this issue, the respondent agreed to pay
    the $407,582 necessary to satisfy the severance condition but reserved its rights
    to seek that amount back from the appellant. On that basis, the purchase of the
    property closed.

[8]

The respondent then brought the underlying application to the Superior
    Court of Justice for a determination that the appellant was required to pay the
    $407,582 that the respondent had paid to satisfy the severance condition. As
    the Notice of Application makes clear, the issue fell to be determined on the
    meaning of the words in clause 17. Indeed, in the Notice of Application, the
    respondent sought the following relief:

a declaration that Woodmills is solely responsible for the
    associated costs of satisfying section 17 of the Purchase Agreement, and more
    specifically Unifors $407,582 without prejudice payment/contribution to the
    City of Markham...

[9]

The hearing before the application judge proceeded on this basis. As the
    Notice of Application also states, the parties had agreed that the Court
    should determine the single issue regarding the $407,582 payment.

[10]

In
    reaching his conclusion, however, the application judge took a different route.
    He decided the application based upon his interpretation of clause 19 of the
    APS, a provision that dealt with the requirement to get an amendment to the
    existing agricultural zoning for the property being conveyed. Indeed, the application
    judge said in his reasons, at para. 26:

The issue in this case is not determined by an understanding of
    the application of clause 17 of the Agreement of Purchase and Sale. Rather it
    is the requirement found in clause 19 that the zoning for the intended
    development of the purchaser be in place and be in full force and effect (see
    para. [20] above) at the time the property was sold.

[11]

The
    application judge observed that clause 19 of the APS required the amended
    zoning to be in full force and effect at the time of closing. However, the
    amended zoning, as passed by the City, had a hold in place. The hold would
    be lifted once there was compliance with the Cost Sharing Agreement and payment
    of the accompanying obligations. The application judge concluded that the
    amended zoning was not in full force and effect until that payment was made.
[1]
Consequently, he found that the appellant was required to bear the costs
    associated with the Cost Sharing Agreement. He therefore granted the
    application and ordered the appellant to pay the $407,582 to the respondent.

Analysis

[12]

In
    a normal situation, an application judges interpretation of a non-standard
    form contract is entitled to deference. This is because the interpretation of such
    a contract involves a question of mixed fact and law:
Sattva Capital Corp.
    v. Creston Moly Corp
.
, 2014 SCC 53, [2014] 2 S.C.R. 633, at para.
    50. As such, on an appeal from a judicial decision, the interpretation of a
    non-standard form contract is normally reviewable only for palpable and
    overriding error unless there is an extricable question of law:
Housen v.
    Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 36.

[13]

There
    are, however, situations where a broader principle involving natural justice overtakes
    questions of contractual interpretation. One of the instances where that broader
    principle is invoked is where a judge decides a proceeding on a basis that was not
    anchored in the pleadings, evidence, positions or submissions of any of the
    parties:

Labatt Brewing Co. v. NHL Enterprises Canada L.P.
, 2011
    ONCA 511, 106 O.R. (3d) 677, at para. 5. When that occurs, the judge commits an
    error of law:
Moore v. Sweet
, 2017 ONCA 182, 134 O.R. (3d) 721, at
    para. 30 (leave to appeal to S.C.C. allowed [2017] S.C.C.A. No. 156 with
    judgment reserved on February 8, 2018). That error results from the procedural
    unfairness that is visited upon the parties which, by itself, warrants
    appellate intervention:
Rodaro v. Royal Bank of Canada
(2002), 59 O.R.
    (3d) 74 (C.A.), at para. 62.

[14]

In
    this case, the parties proceeded before the application judge for a
    determination of their respective rights based on the interpretation of clause
    17 of the APS. More specifically, the parties sought a determination as to whether
    the payment required under the Cost Sharing Agreement, as a condition of the
    severance, was onerous or unreasonable under Clause 17. Clause 19 was not part
    of the dispute between the parties. In fact, the respondent never took the
    position that there was any failure by the appellant to comply with its
    obligations in respect of the propertys zoning or the requirements of clause 19.
    There is also not a single mention of clause 19 in the Notice of Application nor
    is there any mention of the zoning issue generally. Further, this court was told
    that there was no mention of clause 19 during the course of the application hearing,
    save for a passing reference in the respondents reply. While counsel for the
    respondent hedged on this issue at the appeal hearing, any doubt on this point
    is removed by the contents of the application judges reasons on costs. In
    those reasons, he said, at paras. 5-6:

Time was spent examining the requirement of severance, and how
    it should be applied in the particular context. As it is, the decision made
    reflects not on that question but on zoning and the responsibility to have the
    rezoning of the property in full force and effect at the time of sale.

This understanding did not arise from the submissions made
    but from the separate consideration by the court
. My concern for the award
    of costs does not stem from the failure of the applicant to establish bad faith
    or the unnecessary reliance of the respondent on what members of the municipal
    staff or others might have anticipated independent of the words of the
    agreement but on the fact that
for all the effort made the answer lay in a
    place the parties, for whatever reason, did not identify
.

[Emphasis added.]

[15]

As
    the authorities make clear, the application judges decision to dispose of the
    application on a basis that was not advanced by the parties amounts to a denial
    of procedural fairness. That reality mandates that the decision must be set
    aside. The issue then becomes whether the matter must be remitted back to the
    Superior Court of Justice for a fresh determination, or whether the issue can
    be determined by this court on the basis of the existing record and the
    arguments that were made by the parties on the interpretation of clause 17.
[2]

[16]

In
    my view, the record and arguments allow this court to make its own determination
    pursuant to s. 134(1)(a) of the
Courts of Justice Act
, R.S.O. 1990, c.
    C.43.

[17]

Clause
    17 permits the appellant to refuse to comply with a condition of severance that
    is onerous or unreasonable. The application judge made brief reference at the
    tail end of his reasons to the fact that, while the $407,582 that had to be paid
    under the Cost Sharing Agreement was approximately 10.3% of the $3,960,000 sale
    price, there was no evidence as to the percentage that the $407,582 represented
    in terms of the profit the appellant would make on the sale of the property.
    This led the application judge to say, at para. 32, in the absence of context
    it is not possible to assess whether $407,582 is onerous.

[18]

In
    my view, that is not the appropriate test to be applied in determining whether
    the amount to be paid under the Cost Sharing Agreement was onerous or
    unreasonable under clause 17. In fact, it is not the onerous exception that
    applies to the payment, it is the unreasonable exception. What renders the
    payment unreasonable, in these circumstances, is the fact that the appellant
    never had any intention of developing this property. It was selling the
    property. It was the respondent that wished to develop the property. I share
    the position of the appellant that it would be unreasonable for it to have to
    pay what is undeniably a cost of development from the price that it negotiated
    for the sale of an undeveloped property.

[19]

In
    this regard, reasonableness must be interpreted objectively. There was ample
    objective evidence demonstrating that a reasonable person would not consider
    the requirement, that a vendor of undeveloped land pay the costs associated
    with the future development of the land, to be a reasonable interpretation of
    the APS. As noted earlier, there was no precedent in the City for a
    non-developing vendor being forced, as a condition of severance, to enter into
    a cost sharing agreement among developers. This conclusion is reinforced by the
    application judges finding, at para. 30 of his reasons, that the appellant was
    surprised to find that it would be required to enter into the Cost Sharing
    Agreement, which related entirely to developers, in order to sever the property
    so that it could sell it.

[20]

I
    conclude that the condition imposed by the City, that the Cost Sharing
    Agreement be entered into, with the requisite $407,582 payment in order to
    obtain the severance, was an unreasonable one for the appellant to bear. It
    therefore fell to the respondent, under clause 17, to either bear that cost or
    terminate the APS. The respondent chose the former.

Conclusion

[21]

I
    would allow the appeal, set aside the judgment below, and dismiss the
    application.

[22]

In
    accordance with the agreement of the parties, the appellant is entitled to its
    costs of the appeal in the amount of $25,000, inclusive of disbursements and
    HST. The parties also agreed that, in the event that the appeal was successful,
    the appellant would be entitled to the costs of the application in the amount
    of $68,407.68, plus HST, as fixed by the application judge.

Released: IVBN APR 27 2018

I.V.B. Nordheimer J.A.

I agree. C.W. Hourigan J.A.

I agree. Grant Huscroft J.A.


APPENDIX

17.
Severance

This Agreement is subject to
    the express condition that this Agreement is effective only if the provisions
    of Section 50 of the
Planning Act
(Ontario), as amended from time to
    time, have been complied with. Forthwith following the date the size and
    configuration of the Property has been determined, the Vendor, at the Vendors
    sole expense, shall make application for the consent of the Committee of
    Adjustment for the City of Markham in order to permit the conveyance of the
    Property to the Purchaser in accordance with the subdivision control provisions
    of the
Planning Act
and shall proceed diligently using all reasonable
    efforts to successfully complete this application.

All conditions imposed in
    the severance consent shall have been complied with on or before the Closing
    Date. The Vendor shall satisfy all conditions imposed in connection with the
    severance consent at its sole expense provided that such conditions are not
    onerous or unreasonable. In the event that the conditions of consent are
    onerous or unreasonable and as a result the Vendor is not prepared to satisfy
    the conditions imposed in the severance consent, the Purchaser at the Vendors
    sole and unfettered discretion shall have the option of satisfying the
    conditions imposed in the severance consent at the cost of the Purchaser. If by
    October 30, 2016 (the Severance Date) the necessary consent is not given, or
    if approval is given but conditions are attached which the Vendor is not
    prepared to satisfy for the reasons stated herein (and the Purchaser does not
    elect to satisfy, upon having been given the option to do so) or if approval is
    given but is appealed and the Vendor is not prepared to defend such appeal,
    this Agreement shall be null and void, the Deposit and any accrued interest
    thereon shall be returned to the Purchaser and neither party shall have any
    future obligations to the other respecting this Agreement.

The Vendor shall prepare the
    reference plan(s) required in order to effect the severance consent at its sole
    cost and expense, which reference plan shall be subject to the Purchasers
    written approval, acting reasonably.

Prior to submitting any
    materials to the Committee of Adjustment for the City of Markham in respect of
    the severance consent, the Vendor shall first deliver same to the Purchaser for
    the Purchasers written approval, such approval not to be unreasonably delayed
    or withheld. The Vendor shall keep the Purchaser informed of all matters in
    connection with the severance process and shall provide the Purchaser with
    copies of all materials in respect thereof.

19.
Zoning

The Purchaser acknowledges
    that the Property is currently zoned Agricultural and is designated as
    Business Park Corridor by the Official Plan of Markham. The Purchaser intends
    to construct a three storey office building of approximately 65,000 square feet
    with approximately 300 surface parking stalls (Purchaser's Intended
    Development). This Agreement shall be conditional until August 1, 2016 upon
    the Vendor obtaining Zoning in the Final Form required for the Purchaser's
    Intended Development of the Property. For the purposes of this Agreement,
    Zoning in Final Form shall mean an Official Plan amendment and/or rezoning of
    the Property re-designating and rezoning the Property to permit the Purchaser's
    Intended Development and such redesignation and rezoning being in full force
    and effect, with all appeal periods having expired without appeals, or all
    appeals having been determined to the satisfaction of the Purchaser without any
    further right of appeal. The required zoning change is to be undertaken at the
    sole cost and responsibility of the Vendor. Such rezoning may be completed
    prior to the Closing Date, but in the event that such rezoning is not
    completed, the Vendor or at its sole discretion may extend the Closing Date to
    such a time when the rezoning has been completed and is in force and effect. In
    such case, the Vendor shall notify the Purchaser in writing of the successor
    rezoning, and the Closing Date shall be amended to reflect thirty (30) days
    from such event. In the event that that Vendor is unable to obtain the
    necessary rezoning by December 1, 2016 then this agreement shall become null
    and void and the Vendor shall return all Deposits to the Purchaser with
    interest and without penalty.





[1]

I would observe, in passing, that this conclusion appears to
    be inconsistent with this courts decision in
Disera v. Liberty Development
    Corp.
, 2008 ONCA 34, 63 R.P.R. (4th) 197.



[2]
I note that this case does not involve an application for judicial review or an
    appeal from an administrative tribunal where this courts jurisdiction to
    substitute its own decision may be more limited.


