Supreme Court Judgments

Pacific National Investments Ltd. v. Victoria (City), [2000] 2 S.C.R. 919

Pacific National Investments Ltd.                                                     Appellant

v.

The Corporation of the City of Victoria                                            Respondent

and between

The Corporation of the City of Victoria                                            Appellant

v.

Pacific National Investments Ltd.                                                     Respondent

Indexed as:  Pacific National Investments Ltd. v. Victoria (City)

Neutral citation:  2000 SCC 64.

File No.:  27006.

2000:  May 25; 2000:  December 14.

Present:  Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel JJ.

on appeal from the court of appeal for british columbia

Municipal law ‑‑ Zoning ‑‑ Development of lands ‑‑ Developer suing municipality for breach of contract following “down‑zoning” of lots ‑‑ Whether municipality  liable to pay damages under implied contractual term that municipality would not rezone before expiration of reasonable period of time ‑‑ Whether implied term ultra vires and contrary to public policy ‑‑ Whether implied term illegally fettering municipality’s discretionary legislative powers.

Land titles ‑‑ Subdivision of land ‑‑ Transfer of title to Crown ‑‑ Land title legislation providing in certain circumstances for  a deemed transfer of title to Crown and extinguishment of fee simple ‑‑ Water lots part of subdivided area on subdivision plan ‑‑ Whether land title legislation applicable to any subdivided land or only to adjoining land ‑‑ Land Title Act, R.S.B.C. 1979, c. 219, s. 108(2).

In 1987, the respondent City and BCEC, a Crown corporation, signed an umbrella agreement (“Master Agreement”) to redevelop certain lands located around the City’s harbour.  Under the Master Agreement, BCEC would develop “Phase I” and would sell the “Phase II” area.  The Master Agreement was authorized by City Council and was registered as a restrictive covenant under s. 215 of the Land Title Act.  The appellant developer (“PNI”) entered into an agreement to purchase the Phase II area from BCEC.  The agreement was binding only if the City granted the subdivision of the lands and passed the requisite zoning, which it did.  In 1988, PNI deposited the subdivision plan.  It developed and sold three lots but when PNI’s plans for the development of the two water lots became known, objections were raised to the transformation of the harbourfront.  These plans included three‑storey buildings, restaurants and other commercial establishments.  City Council decided to rezone the water lots so as to prevent additional residential development and to restrict the height of the buildings.  PNI sued for breach of contract and maintained that this “down‑zoning” was in breach of the City’s implied obligations under the Master Agreement and thus in breach of PNI’s rights as successor to BCEC under the Master Agreement.  In the alternative, it claimed restitution for unjust enrichment for the parks and other amenities that it had constructed and which the City would benefit from.  The trial judge found the City liable for breach of contract.   The Court of Appeal set aside the judgment and remitted the matter for trial on the remaining issue of restitution for unjust enrichment.

Held (Major, Bastarache and Binnie JJ. dissenting on the appeal):  The appeal and the cross‑appeal should be dismissed.

(1) Cross‑appeal

The City’s argument that PNI did not own the water lots must fail. Section 108(2) of the Land Title Act did not vest these lots in the Province when PNI deposited its subdivision plan at the land titles office.   Given its clear confiscatory effect, s. 108(2) should be strictly construed.  The section is not concerned with the lots created through subdivision but with other areas within the titled land that amount to remainders.   On this interpretation, the water lots do not fall within the scope of s. 108(2) since they are part of the subdivided area on the subdivision plan and are in no way remainders.

(2) Appeal

Per Gonthier, Iacobucci, Arbour and LeBel JJ.:  Under the provincial legislation, the City did not have the capacity to make and be bound by an implied term to keep the zoning in place for a number of years and to pay damages if it modified it.  Section 963 of the Municipal Act provides for the power to zone by by-law.  On its face, the statute provides for no power to constrain the future use of this legislative power and the legislature has generally considered that municipalities should not pay compensation for how they use this legislative power.  These principles all militate against PNI’s case from the outset.   Nor can PNI find the capacity it seeks through s. 215 of the Land Title Act or through s. 980(5) of the Municipal Act. Under s. 215(3), although the BCEC covenant in favour of the City was registered, the City is not bound to keep zoning that would allow BCEC or its successor PNI to fulfill its plans.   Section 215(3) was clearly intended to provide that a covenant was still binding on the covenantor, even when the covenantee had not signed it.  Section 980(5), which provided that a development permit was binding on the municipality once issued and might even prevent rezoning,  has no application in this case since PNI did not have a development permit for the water lots.  Lastly, a comparison with the prior and subsequent legislative schemes in B.C.  makes it clear that under the legislation applicable at the time of the events in this case, implied terms such as the one alleged by PNI were without any statutory authorization.   B.C. abolished the land use contracts system enabling municipalities to commit to particular zoning by contract in 1978, and it is only in 1993 that B.C. municipalities were permitted to request amenities in exchange for zoning.  As well, prior to 1998, although municipalities could enter into long‑term commitments related to their business and proprietary powers  under the Municipal Act, these commitments were subject to the statute’s close controls.

Moreover, while a municipality may engage in business and proprietary contracts, it cannot agree to terms that fetter its legislative power unless there is legislation expressing a public policy permitting it to do so.   In this respect, s. 19 of the Municipal Act does not provide the statutory basis for a municipality to enter into long‑term agreements with a developer about the exercise of its zoning powers.  The distinction between indirect and direct fettering cannot be accepted as it is likely without any legal basis.   The supposed distinction is also unhelpful in rationalizing the case law and,  more importantly, is inconsistent with the principles that undergird this area of the law.   Here,  the alleged implied term would have been an illegal fetter on the municipality’s discretionary legislative powers.

The wording of the legislation, its history, consistent case law, and established public policy against municipalities being bound in ways that constrain their legislative powers all support the conclusion that the City had no implied or express powers to agree to an implied term such as the one PNI has alleged.  Whether such an implied term might or might not have made sense for business efficiency reasons, any such term was ultra vires and contrary to legislatively established public policy.

Per Major, Bastarache and Binnie JJ. (dissenting):    Based on an analysis of the Master Agreement and  the relevant external documentary evidence, and from all of the circumstances of this case, it can be concluded that the contract contained the implied term not to rezone for a reasonable time.  Zoning was an essential pre‑condition of the Master Agreement.   The implied term does not bind the City from rezoning for any length of time: it simply recognizes that in consideration of PNI’s initial investment, a change in zoning must be offset by compensation.  It would be contrary to business sense and to all obligations of fairness to conclude that the condition precedent regarding zoning had to be met but was not protected in any way from unilateral retraction.  While the parties did not agree to a bare term preventing the City from down‑zoning, since it is acknowledged that they were cognizant of the rule against binding future councils, they carefully arranged the contract as an innovative means of achieving the parties’ differing objectives by hinging binding obligations on each piece going into place. The implied term must be present to give the contract business efficacy.  In view of the condition precedent in the contract, an officious bystander would necessarily hold the view that the City believed it would owe compensation in the event it down‑zoned without the passage of a reasonable time.

Although a municipality cannot be held liable for breaching a term that is ultra vires,  in this case the implied term in the Master Agreement not to rezone for a reasonable time is intra vires the City.   The general municipal power to contract in furtherance of municipal objectives is a solid basis for the City’s authority to agree to the zoning commitments in the Master Agreement.  Sections 19(1) and 963 (read in conjunction with s. 287) of the Municipal Act establish that the subject matter of the implied term was within the City’s jurisdiction.  The express power to contract for materials and services, coupled with the municipality’s power to zone, provided the City with the authority to agree to a contract that contained a term which temporarily maintains zoning.  Even if the authorization did not flow directly from these provisions, this power would necessarily or fairly be implied under these express powers.  Significantly, the City conceded that the Master Agreement was lawful despite being unable to identify a specific statutory basis which granted it the authority to enter into this type of contract.   Finally, a review of the history of zoning power in British Columbia confirms that in 1987, the City had the power to agree to the term that the City would not rezone for a reasonable time.   The repeal in 1978 of s. 702A of the Municipal Act did not signify that the City gained the power to exercise the discretion to rezone, in violation of a lawful contract, with no consequences.   The  repeal of s. 702A removed the right of municipalities to enter contracts where specific performance was guaranteed but did not prevent them from entering long‑term development contracts.

The implied term of the Master Agreement does not offend against public policy.   The well‑established rule that a city council does not have the authority to fetter the ability of a future council to exercise its legislative power is not violated by the implied term of the Master Agreement since the agreement does not restrict the City’s authority to rezone.  A distinction must be made between preventing council from exercising its legislative discretion and requiring it to consider its contractual obligations before exercising that discretion.  To require a municipal council to consider its contractual obligations does not violate public policy but promotes the public interest.  Councils are free to legislate as they like, but they cannot ignore the contractual obligations that they owe.  Having such an indirect fetter does not subject the municipal legislative process to undue influence or embarrassment.  It is sound policy to allow municipalities to enter complex, long‑term development contracts which provide developers with a promise that existing zoning will continue for a period sufficient to allow for development.   In this case, there is no direct fettering of the municipality’s legislative power and there is no reason to fear that the duty to pay damages will affect in a detrimental way the public interest in preserving the legislative independence of all municipal governments.

In sum,  where a municipality enters a contract with a legitimate purpose, that contract must be honoured.  The City should not be able to terminate with impunity a contract that it uniquely crafted, thoughtfully entered into, received the full benefit of, and concedes is lawful.  Here,  PNI spent over $2.5 million on infrastructure upgrades in anticipation of the commercial development that would result from the land transfer and zoning provided for in the contract.  The public interest would not be served by allowing the City to escape its commitments.   PNI is entitled to damages for breach of contract.   Awarding compensation does not amount to a fettering of the municipal power over zoning that adversely affects the public’s interest in local government.

Cases Cited

By LeBel J.

Distinguished: Wells v. Newfoundland, [1999] 3 S.C.R. 199; referred to:  Vancouver v. Registrar Vancouver Land Registration District, [1955] 2 D.L.R. 709; Ingledew’s Ltd. v. City of Vancouver (1967), 61 D.L.R. (2d) 41; Leiriao v. Val‑Bélair (Town), [1991] 3 S.C.R. 349; Hongkong Bank of Canada v. Wheeler Holdings Ltd., [1993] 1 S.C.R. 167; M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619; Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711; Immeubles Port Louis Ltée v. Lafontaine (Village), [1991] 1 S.C.R. 326; Public School Boards’ Assn. of Alberta v. Alberta (Attorney General), [2000] 2 S.C.R. 409, 2000 SCC 45; Nanaimo (City) v. Rascal Trucking Ltd., [2000] 1 S.C.R. 342, 2000 SCC 13; R. v. Greenbaum, [1993] 1 S.C.R. 674; R. v. Sharma, [1993] 1 S.C.R. 650; City of Vancouver v. B.C. Telephone Co., [1951] S.C.R. 3; Martin Corp. v. West Vancouver (District) (1993), 85 B.C.L.R. (2d) 305; Re Walmar Investments Ltd. and City of North Bay, [1970] 1 O.R. 109; Lawrason v. Town of Dundas (1920), 18 O.W.N. 22; Birkdale District Electric Supply Co. v. Corporation of Southport, [1926] A.C. 355; Town of Eastview v. Roman Catholic Episcopal Corporation of Ottawa (1918), 44 O.L.R. 284; Capital Regional District v. District of Saanich (1980), 115 D.L.R. (3d) 596; Re Galt‑Canadian Woodworking Machinery Ltd. and City of Cambridge (1982), 135 D.L.R. (3d) 58, aff’d (1983), 146 D.L.R. (3d) 768; Kendrick v. Nelson (City) (1997), 31 B.C.L.R. (3d) 134; Attorney‑General for New Brunswick v. Saint John, [1948] 3 D.L.R. 693, leave to appeal granted, [1948] 3 D.L.R. 851; Walker v. Mayor of St. John (1872), 14 N.B.R. 143; Wall and Redekop Corp. v. City of Vancouver (1974), 16 N.R. 436, aff’d (1976), 16 N.R. 435; Dowty Boulton Paul Ltd. v. Wolverhampton Corp., [1971] 2 All E.R. 277; Shell Canada Products Ltd. v. Vancouver (City), [1994] 1 S.C.R. 231; William Cory & Son Ltd. v. London Corp., [1951] 2 K.B. 476.

By Bastarache J. (dissenting on appeal)

M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619; Nanaimo (City) v. Rascal Trucking Ltd., [2000] 1 S.C.R. 342, 2000 SCC 13; R. v. Sharma, [1993] 1 S.C.R. 650; The King v. Dominion of Canada Postage Stamp Vending Co., [1930] S.C.R. 500; R. v. Greenbaum, [1993] 1 S.C.R. 674; Kendrick v. Nelson (City) (1997), 31 B.C.L.R. (3d) 134; Wells v. Newfoundland, [1999] 3 S.C.R. 199; Re Cressey Development Corp. and Township of Richmond (1982), 132 D.L.R. (3d) 166; Shell Canada Products Ltd. v. Vancouver (City), [1994] 1 S.C.R. 231; Vancouver v. Registrar Vancouver Land Registration District, [1955] 2 D.L.R. 709; Ingledew’s Ltd. v. City of Vancouver (1967), 61 D.L.R. (2d) 41; Town of Eastview v. Roman Catholic Episcopal Corporation of Ottawa (1918), 44 O.L.R. 284; Walker v. Mayor of St. John (1872), 14 N.B.R. 143; Attorney‑General for New Brunswick v. Saint John, [1948] 3 D.L.R. 693; First City Development Corp. v. Durham (Regional Municipality) (1989), 41 M.P.L.R. 241; Stourcliffe Estates Co. v. Bournemouth Corp., [1908‑10] All E.R. 785; Dowty Boulton Paul Ltd. v. Wolverhampton Corp., [1971] 2 All E.R. 277; Lawrason v. Town of Dundas (1920), 18 O.W.N. 22; Muskoka Mall Ltd. v. Town of Huntsville (1977), 3 M.P.L.R. 279; Re Galt‑Canadian Woodworking Machinery Ltd. and City of Cambridge (1982), 135 D.L.R. (3d) 58, aff’d (1983), 146 D.L.R. (3d) 768.

Statutes and Regulations Cited

Act to Amend the Municipal Act, S.B.C. 1971, c. 38, s. 52.

Land Title Act, R.S.B.C. 1979, c. 219, ss. 23(1) [am. 1982, c. 60, s. 3], 108(2) [idem, s. 25(a)], 215 [idem, s. 58; am. 1989, c. 69, s. 22].

Land Title Act, R.S.B.C. 1996, c. 250, s. 108(2).

Local Elections Reform Act, 1993, S.B.C. 1993, c. 54, s. 23.

Local Government Statutes Amendment Act, 1998, S.B.C. 1998, c. 34, preamble.

Municipal Act, R.S.B.C. 1960, c. 255, ss. 702A [ad. 1968, c. 33, s. 166; am. 1970, c. 29, s. 21; rep. & sub. 1971, c. 38, s. 52; am. 1972, c.  36, s.  28; am. 1972 (2nd Sess.), c. 9, s. 1; rep. 1977, c. 57, s. 13(1)], 702AA [ad. idem, s. 13(2)].

Municipal Act, R.S.B.C. 1979, c. 290, ss. 19, 287, 290 [am. 1993, c. 41, s. 32], 292, 313, 321 [rep. & sub. 1993, c. 54, s. 23], 322 [am. 1980, c. 50, s. 63; am. 1982, c. 76, s. 28; am. 1987, c. 38, s. 4], 344(1), 717 [rep. 1985, c. 79, s. 4], 963 [ad. idem, s. 8; am. 1987, c. 14, s. 27], 963.1(2) [ad. 1993, c. 58, s. 4; am. 1994, c. 43, s. 71], 972 [ad. 1985, c. 79, s. 8], 976 [idem], 980(5) [idem], (6) [idem], 982 [idem], 989(4) [ad. 1987, c. 14, s. 45(e)].

Municipal Act, R.S.B.C. 1996, c. 323, ss. 176, 903.

Municipal Affairs, Recreation and Housing Statutes Amendment Act, 1993, S.B.C. 1993, c. 58, s. 4.

Municipal Amendment Act, 1977, S.B.C. 1977, c. 57, s. 13.

Municipal Amendment Act, 1985, S.B.C. 1985, c. 79, ss. 4, 8.

Authors Cited

British Columbia.  Debates of the Legislative Assembly, vol. 6, 2nd Sess. 31st Parl., August 8, 1977, pp. 4353‑54.

Côté, Pierre‑André.  The Interpretation of Legislation in Canada, 3rd ed.  Scarborough, Ont.:  Carswell, 2000.

Hétu, Jean, Yvon Duplessis et Dennis Pakenham.  Droit municipal:  Principes généraux et contentieux.  Montréal: Hébert Denault, 1998.

Hogg, Peter W.  Liability of the Crown, 2nd ed.  Toronto: Carswell, 1989.

Jones, David Phillip, and Anne S. de Villars.  Principles of Administrative Law, 3rd ed. Scarborough, Ont.:  Carswell, 1999.

Macaulay, Robert W., and Robert G. Doumani.  Ontario Land Development: Legislation and Practice, vol. 1.  Scarborough, Ont.:  Carswell, 1995 (loose‑leaf updated 1999, release 3).

Rogers, Ian MacFee.  Canadian Law of Planning and Zoning.  Toronto:  Carswell, 1973 (loose‑leaf updated 2000, release 3).

Rogers, Ian MacFee. The Law of Canadian Municipal Corporations, 2nd ed.  Toronto: Carswell, 1971 (loose‑leaf updated 2000, release 3).

Waddams, S. M.  The Law of Contracts, 3rd ed.  Toronto:  Canada Law Book, 1993.

APPEAL and CROSS‑APPEAL from a judgment of the British Columbia Court of Appeal (1998), 58 B.C.L.R. (3d) 390, 165 D.L.R. (4th) 577, [1999] 7 W.W.R. 265, 112 B.C.A.C. 161, 182 W.A.C. 161, 1 M.P.L.R. (3d) 58, [1998] B.C.J. No. 2302 (QL), allowing the city’s appeal from a decision of the British Columbia Supreme Court, [1996] B.C.J. No. 2523 (QL).  Appeal dismissed, Major, Bastarache, and Binnie JJ. dissenting.  Cross‑appeal dismissed.

L. John Alexander and Charles Edward Hanman, for the appellant/respondent on cross‑appeal.

Guy McDannold, for the respondent/appellant on cross‑appeal.

The judgment of Gonthier, Iacobucci, Arbour and LeBel JJ. was delivered by

LeBel J. –

I.  Introduction

1          Land law may look like a dry, forbidding, and not very fashionable subject.  Sometimes, however, it involves broad issues of policy and the principles of municipal governance, as will be found in the present appeal.

2            This case concerns land in and around Victoria’s Inner Harbour.  The parties argued vigorously over a question that ultimately amounted to whether the City of Victoria could sell zoning for, or at least commit itself to a freeze in the zoning of, a particular piece of property.  They also discussed the application of an obscure subsection of the Land Title Act, R.S.B.C. 1979, c. 219, s. 108(2), the effect of which could have deprived the respondent on the cross-appeal of any interest in the property.  After tracing the factual background of the case and the judgments below, I turn to these questions and to why both the appeal and the cross-appeal must be dismissed.  Indeed, I conclude that any decision otherwise would go against the wording, history, and object of British Columbia’s land titles and municipal government legislation and would potentially threaten longstanding principles of municipal law jurisprudence.

II.  Factual Background

3          From 1911 until the 1970s, the “Songhees lands” located around Victoria’s Inner Harbour had been used for industrial purposes by various parties who leased them from the Province of British Columbia.  In the 1980s, the Province became interested in redeveloping the area.  The Province and the City of Victoria engaged in discussions, and the City published a concept plan in 1984.  In 1986, the Province shifted control of the land to the Crown corporation that would become the British Columbia Enterprise Corporation (“BCEC”).

4                                   On August 28, 1987, the City and BCEC signed an umbrella agreement called the “Songhees Master Agreement” (“Master Agreement”).  Under the Master Agreement, BCEC would itself develop some of the lands in a part of the development called “Phase I”, and it would sell other land consisting of some 22 acres to a private developer in a part of the development called “Phase II”.  The City Council shortly thereafter gave its official authorization to the Master Agreement at a Council meeting.  The Master Agreement was registered as a restrictive covenant under s. 215 of the Land Title Act, presumably, as explained in oral argument,  in order that BCEC would subject itself to the City’s legislative powers over land use (from which, as part of the provincial government, it would ordinarily be exempt). 

5                                   Contemporaneously with these events, after two years of planning, Pacific National Investments Ltd. (“PNI”) was negotiating with BCEC to buy the Phase II area in order that it could construct a commercial and residential development on this land.  Under the purchase agreement, PNI would take over BCEC’s rights and obligations under the Master Agreement as successor to BCEC.  This meant that PNI would fulfill BCEC’s commitments, among others, with respect to providing for roads, parkland, a seawall, and walking paths.  PNI envisioned its development as eventually including three-storey structures on platforms on two proposed water lots within the Phase II area.  As found by the trial judge ([1996] B.C.J. No. 2523 (QL), at para. 22), what PNI would pay for the land obviously depended on what kinds of developments it might have the opportunity to undertake.  PNI’s agreement to purchase the land from BCEC was binding only if the City granted the subdivision of the Phase II land into five lots and passed the requisite zoning.

6                                   The City granted the subdivision and passed the zoning that would give PNI an opportunity to develop the land as it envisioned, this zoning permitting three-storey structures with mixed commercial and residential uses on the proposed water lots.  In 1988, PNI deposited subdivision plan 47008, which would subdivide the Phase II land into five lots.  These included Lots 3 and 4, the two water lots that have been the subject of so much litigation in this case.  Most of the area of Lots 3 and 4 was covered by water when the subdivision plan was deposited and at other relevant times.  Immediately to the north would be parkland and an area set aside for roads.  Since the lands set aside for parks and roads were lands set aside for the Crown, Lots 3 and 4 thereby adjoined Crown lands.  The City of Victoria would take the position in its reply to PNI’s claim that these specific details about the lots triggered a special section, s. 108(2), of the Land Title Act when PNI deposited the subdivision plan.  Under s. 108(2), according to the City, title to the lots would have reverted to the Crown upon the filing of the subdivision plan.              

7                                   In any case, the initial development by PNI did not take place on Lots 3 and 4.  It began with landscaping of the parks and the other servicing work that it had to do to fulfill its obligations.  It constructed condominiums on the south half of Lot 2 and began development on Lots 1 and 5, the other upland lots.  No buildings were put up on the water lots.  Through the sale of Lots 1 and 5 and the developed half of Lot 2, the trial judge found, at para. 41, that PNI recovered about $7 million compared to its costs for all the Phase II lands of $5 million; in other words, with land remaining to sell, PNI already had a 40 percent profit. 

8                                   PNI’s development of residential property amid landscaped parks and near the newly constructed seawall resulted in the creation of a peaceful, tranquil setting.  Residents and visitors would frolic in the parks and might stroll along the seawall to watch the sunset.

9                                   So, as the trial judge noted at para. 17, it was not surprising when those enjoying this oasis of tranquility objected to the plans that PNI brought forth for Lots 3 and 4.  About five years after PNI purchased the land and began development on the other lots, PNI’s architect had designed for the water lots three-storey edifices that would sit atop concrete slabs.  Such buildings were allowed under the City’s 1987 zoning by-law.  The concrete slabs would rest on piles going down into the Harbour.  With a combination of restaurants and other commercial establishments planned in conjunction with additional residential development, PNI aspired to the creation of a waterfront that would be full of people, energy, and noise.                    

10                               As the public became aware of these plans that would transform the harbourfront as they now knew it, they began to express their discontent.  They voiced their concerns to their elected representatives on the City Council, and all but one member of the Council voted on August 26, 1993 to rezone the water lots so as to prevent additional residential development on them and so as to limit buildings on these lots to one storey in height.  In implementing new limits, the Council asserted that it was trying to strike a balance appropriate to the values and interests of the community in 1993 and that, in so doing, it was not bound by the zoning adopted by a previous council.

11                               Because this rezoning would significantly impact on PNI’s intentions for these lots, PNI took the position that this “down-zoning” was in breach of the City’s implied obligations under the Master Agreement and thus infringed PNI’s rights as successor to BCEC under the Master Agreement.  Accordingly, it sued for breach of contract.  Alternatively, it claimed restitution for unjust enrichment for the parks and other amenities that it had constructed and from which the City would benefit.  With major issues at stake, the matter has gradually made its way toward our Court.

III.  Judicial History

A.       British Columbia Supreme Court, [1996] B.C.J. No. 2523 (QL)

12                               In the British Columbia Supreme Court trial before Mackenzie J., PNI claimed against the City for damages for breach of contract or, alternatively, restitution for unjust enrichment.  After considering one preliminary issue, the trial judge held that the City was liable to pay damages and, thus, did not consider the alternative argument on restitution.

13                               On a preliminary question at a voir dire, the City argued that s. 108(2) of the Land Title Act had operated to vest Lots 3 and 4 in the Province when PNI deposited its subdivision plan at the land titles office.  This would mean that PNI did not even own the land that had given rise to its claim against the City.  The trial judge rejected this argument, holding that s. 108(2) did not apply to areas within subdivided lots on the subdivision plan but only to remainders within the titled land.  Thus, it did not apply to Lots 3 and 4.

14                               On the contractual issue, the trial judge was prepared to find for PNI.  Although there was no explicit term to this effect, he considered that there was a necessary implication in the Master Agreement that the City’s zoning would remain in place for a reasonable period of time.  Such an implied term did not bind future councils to particular zoning but simply dictated that a future council would be liable for damages if it broke this contractual term.  In arriving at his conclusion that it was appropriate to find this implied term, the trial judge took into consideration the policy reasons that “[t]o the extent that certainty reduces business risk, it reduces the cost of development . . .” (para. 39) and that “[t]he members of council . . . were in the best position to assess public attitudes and the risk that those attitudes might change during the course of a development intended to be built over a period of time” (para. 40).  The trial judge found that PNI had proceeded within a reasonable time in the circumstances.  He rejected any argument that the City was exempt from paying damages when it breached a contract.  Therefore, in his written judgment, he held the City liable for breach of contract.

15                               The trial judge did not reach any conclusion on the quantum of damages, which he considered was still very much a live issue, nor on the alternative claim of restitution for unjust enrichment.

B.       British Columbia Court of Appeal (1998), 58 B.C.L.R. (3d) 390

16                               Esson J.A. wrote for a unanimous Court of Appeal.  He set aside the trial judgment and remitted the matter for trial on the remaining issue of restitution for unjust enrichment.

17                               In the judgment, Esson J.A. had to consider first the City’s attempt to revive the s. 108(2) argument from the voir dire.  Based on principles of indefeasibility of title, he came close to saying that the City had no standing to make the argument.  In any event, the City lost on the merits of the point.  Esson J.A. considered that the obscure language of s. 108(2) was directed toward the recovery of foreshore previously granted away and thus did not apply to the case at bar.  Indeed, he considered that any application of s. 108(2) here would lead to an absurd and unconscionable result.  Thus, the Court of Appeal’s judgment rejected the City’s argument on this point and even went on to make a special costs award to show its disdain for the argument.

18                               On the contractual issue, Esson J.A referred first to the foundational principle that a municipal council cannot bind future councils.  Previous legislation in British Columbia had made special provisions for a municipality to do just this in certain circumstances, but this legislation had been repealed.  In the absence of that kind of legislation, the proper approach to municipal powers was to interpret them so that a present council could not bind future citizens.  Based on Vancouver v. Registrar  Vancouver Land Registration District, [1955] 2 D.L.R. 709 (B.C.C.A.), and Ingledew’s Ltd. v. City of Vancouver (1967), 61 D.L.R. (2d) 41 (B.C.S.C.), Esson J.A. held that even making the City liable for damages could effectively bind a future municipal government.  In the context of an agreement like the alleged implied term, Esson J.A. concluded that the City lacked the power to fetter future councils. 

19                               Moreover, Esson J.A. considered that s. 972(1) of the Municipal Act, R.S.B.C. 1979, c. 290, created a statutory bar on claims against a municipality related to changes in value from changed zoning.  The legislature had created one exception to this in s. 972(2).  It could have created other exceptions, but it did not.  This further supported Esson J.A.’s view that the scheme of the legislation was against a council being liable on implied terms like in the case at bar.  Esson J.A. considered that these kinds of policy questions were appropriately questions for the legislature. 

20                               Esson J.A. concluded, then, that it was doubtful that contracting not to down-zone would be intra vires.  However, he preferred to rule based on whether the allegedly implied term was actually implicit or not.  On his reading of the record, there had been acknowledgments in the negotiation process that the City retained ultimate control over matters like zoning.  After examining the business efficacy rule, he stated that the term could not be implied in fact because the City would not have agreed to it and could not be implied in law because it contradicted the legislature’s pronounced policy.  Thus, the implication of the term had to be set aside.    

21                               In the circumstances, Esson J.A., writing for the unanimous Court of Appeal, held that the alleged term could not be implied and would likely be ultra vires.  Thus, the City could not be liable in contract.  However, because the matter had not been dealt with below, the case would be remitted for trial on the unjust enrichment issue.         

IV.  Relevant Statutory Provisions

22                               Land Title Act, R.S.B.C. 1979, c. 219 (now R.S.B.C. 1996, c. 250)

23. (1)  Every indefeasible title, as long as it remains in force and uncancelled, shall be conclusive evidence at law and in equity, as against the Crown and all other persons, that the person named in the title is indefeasibly entitled to an estate in fee simple to the land described in the indefeasible title, subject to. . . .

108. . . .                                                                    

(2) Where the subdivided area shown in and included in a subdivision or reference plan deposited in the land title office before or after this section comes into force adjoins land covered by water, and the land is included in the subdivider’s indefeasible title and adjoins land the title to which is vested in Her Majesty the Queen in right of the Province, the deposit shall be deemed to be a transfer in fee simple of the first mentioned land to Her Majesty the Queen in right of the Province, and the title of the registered owner to the first mentioned land covered by water shall be deemed to be extinguished.

215. (1) A covenant, whether of a negative or positive nature,

(a)       in respect of

(i)    the use of land; or

(ii)   the use of a building on or to be erected on land;

(b)       that land is or is not to be built on;

(c)       that land is not to be subdivided, or if subdivision is permitted by the covenant, is not to be subdivided except in accordance with the covenant;

or

(d)       that several parcels of land designated in the covenant and registered under one or more indefeasible titles are not to be sold or transferred separately

in favour of the Crown or a Crown corporation or agency or of a municipality or a regional district, in this section referred to as the “covenantee”, may be registered as a charge against the title to that land and is enforceable against the covenantor and his successors in title, even if the covenant is not annexed to land owned by the covenantee.

                                               . . .

(3) Where an instrument contains a covenant registrable under this section, the covenant is binding on the covenantee and his successors in title, notwithstanding that the instrument or other disposition has not been signed by the covenantee.

Municipal Act, R.S.B.C. 1979, c. 290 (now R.S.B.C. 1996, c. 323)

963. (1) A local government may, by bylaw,

(a)                divide the whole or part of the municipality or regional district, as the case may be, into zones, name each zone and show by map or describe by legal description the boundaries of the zones,

(b)               limit the vertical extent of a zone and provide other zones above or below it, and

(c)                regulate within the zones

(i)   the use of land, buildings and structures,

(ii)  the density of the use of land, buildings and structures, and

(iii)  the siting, size and dimensions of

(A) buildings and structures, and

(B) uses that are permitted on the land, and

(d)        regulate the shape, dimensions and area, including the establishment of minimum and maximum sizes, of all parcels of land that may be created by subdivision, and

(i)            the regulations may be different for different areas, and

(ii)     the boundaries of those areas need not be the same as the boundaries of zones created under subsection 1(a).  

(2) The regulations under subsection (1) may be different for different

(a) zones,

(b) uses within a zone,

(c) standards of works and services provided, and

(d) siting circumstances

as specified in the bylaw.

(3) The power to regulate under subsection (1) includes the power to prohibit any use or uses in any zone or zones.

972. (1) Compensation is not payable to any person for any reduction in the value of that person’s interest in land, or for any loss or damages that result from the adoption of an official community plan, a rural land use bylaw or a bylaw under this Division or the issue of a permit under Division (5).

980. . . .

(5)  A local government may issue more than one permit for an area of land, and the land shall be developed strictly in accordance with the permit or permits issued, which shall also be binding on the local government.

V.  Issues

23                There are two basic issues in this case.  First, on the appeal, the question is whether the City was liable to pay damages under an implied contractual term that the municipality would not rezone before the expiration of a reasonable period of time.  Second, on the cross-appeal, the question is whether the City can successfully argue that s. 108(2) of the Land Title Act means that PNI does not even have title to the land in question.  I turn now to analyzing these questions.

VI.  Analysis

24                If we were to allow the City’s cross-appeal, PNI would no longer have title to the land in question, and the appeal itself would thus become meaningless.  Thus, I propose to deal with the cross-appeal first.  After explaining why it must be dismissed, I will then turn to the appeal itself and why it too must not be allowed.

A.        Does Section 108(2) of the Land Title Act Mean that PNI Does Not even Have Title to the Land in Question? 

25                The cross-appeal presents a discrete, technical problem of statutory interpretation.  It has ultimately consisted of much argument on the small, obscure, and even somewhat peculiar s. 108(2) of British Columbia’s Land Title Act.  This subsection provides in certain circumstances for a deemed transfer of title to the Crown and extinguishment of fee simple.  I can find no good reason to interfere with the British Columbia Court of Appeal’s interpretation of this subsection of their provincial statute.  Indeed, on the contrary, there is solid reason to reject the City’s interpretation and to affirm the conclusion reached by both levels of courts in British Columbia.  

26                In interpreting legislation, our Court and its members must be guided by long-standing and well-accepted principles of statutory interpretation.  One such principle states that potentially confiscatory legislation ought to be construed cautiously so as not to strip individuals of their rights without the legislation being clear as to this intent.  As described by P.-A. Côté, The Interpretation of Legislation in Canada (3rd  ed. 2000), at p. 482, “encroachments on the enjoyment of property should be interpreted rigourously and strictly. . . .    The courts require that the legislature express himself extremely clearly where there is an intention to expropriate or confiscate without compensation.”  (See also Leiriao v. Val-Bélair (Town), [1991] 3 S.C.R. 349, at p. 357; Hongkong Bank of Canada v. Wheeler Holdings Ltd., [1993] 1 S.C.R. 167, at p. 197.)

27                Given s. 108(2)’s clear confiscatory effect, the lower courts have appropriately given it a strict interpretation and thus avoided what the Court of Appeal termed “a result that could fairly be called absurd and unconscionable” (para. 15).  The trial judge held in the oral hearing on the voir dire that a necessary implication of the subsection’s wording was that the subsection did not apply to any subdivided area itself but simply to adjoining land.  The Court of Appeal upheld the trial judge’s “reasonable interpretation [that] accords with the purpose of the enactment” (para. 15).  I too consider this to be the correct interpretation of the subsection.  The subsection uses two terms, “subdivided area” and “land”, that must be read to refer to different things.  The text, after all, refers to the “land” as adjoining the “subdivided area”.  The subsection results in a change of title only for this “land” and thus not for the “subdivided area”.  It is concerned not with the lots created through subdivision but with other areas within the titled land that amount to remainders.   

28                On this interpretation of s. 108(2), it is clear that the subsection can have no application to the facts before us.  As the courts below correctly determined, the water lots in question are part of the subdivided area on the subdivision plan and are in no way remainders.  They are thus not within the scope of s. 108(2).  Given this conclusion, I see no need to discuss the argument that the City lacked standing to raise this argument.  I do note in passing my doubts on the proposition that the indefeasibility principle in s. 23(1), designed as a curtain against past interests, can operate as a bar to standing on the present operations of a statutory section such as s. 108(2) of the Land Title Act.  But the principles governing standing are set out elsewhere in our jurisprudence, and I need not make any decisions on these issues here given that the cross-appeal ultimately fails on its merits. 

29                Thus, there was no error in the courts below on the merits of this issue.  Accordingly, I would dismiss the cross-appeal.

B.         Was the City Liable to Pay Damages Under an Implied Contractual Term that the Municipality Would Not Rezone Before the Expiration of a Reasonable Period of Time?

1.        Introduction

The Alleged Implied Term

30                In the end, the appellant rests its case on the argument that the City of Victoria is bound by an implied term to keep the zoning in place for a number of years and to pay damages if it modifies it.  The onus was on the appellant to demonstrate that such a term would be legal and in conformity with the legislation governing municipalities and with the public policy considerations underpinning the legislative rules.  It would also have to demonstrate that such an implied term has indeed been agreed to by the parties and should thus be read into their contract.  (M.J.B. Enterprises Ltd. v.  Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619, at para. 27, per Iacobucci J. citing Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711, at  p. 775, per Le Dain J.)  Reading in of such a term is an act of judicial authority particularly important in the context of a contractual relationship with municipalities, owing to the special nature of their powers and their societal functions.

31                In the absence of evidence and given the onus on the party alleging the implied term, reading such a term into the contract between the parties in the case at bar would be a purely discretionary exercise of judicial power.  It would lack any evidentiary foundation.  Indeed, the City never conceded the existence of such a term either in its factum or at the hearing in our Court.  Its counsel consistently maintained that such a term would infringe the law and negate important public policy considerations.

32                This alleged term would have far reaching implications.  As explained by the appellant, it would amount to a clear commitment by the City to bind itself not to exercise in the future for an indefinite period some of its most important regulatory powers about zoning and construction.  To give effect to the alleged term, the appellant needs to demonstrate that such a power exists and that this term is not illegal or contrary to fundamental principles of public policy.   In addition to proving the existence of such a term, the party alleging it has to demonstrate that it is neither ultra vires nor illegal.

2.         The Nature of Municipal Governments

33                Municipal governments are democratic institutions through which the people of a community embark upon and structure a life together.  Even in this context, however, nobody can challenge the proposition that municipal governments are creatures of the legislature –  a municipal government has only those powers granted to it by provincial legislation:

[translation]  A municipality is a creature of statute and has only those powers that have been expressly delegated to it or that are directly derived from the powers so delegated. . . .

 (J. Hétu, Y. Duplessis and D. Pakenham, Droit municipal: Principes généraux et contentieux (1998), at p. 13; Immeubles Port Louis Ltée v. Lafontaine (Village), [1991] 1 S.C.R. 326, at p. 346)

There is no doubt about this principle, and our Court has unanimously reaffirmed it in its decision in Public School Boards’ Assn. of Alberta v. Alberta (Attorney General), [2000] 2 S.C.R. 409, 2000 SCC 45, at para. 33.  (See generally Hétu, Duplessis and Pakenham, supra, at pp. 8-13.)

34                Given that provincial legislation will determine the limits on the City’s powers, it is to provincial legislation that we must turn to answer the fundamental question of whether the City had the capacity to make and be bound by the contractual term that PNI alleges.  Only if it did have this capacity under the relevant provincial legislation could there be any issue as to whether the set of interlocking agreements here gave rise to such a contractual obligation.  Thus, the question becomes the content of the pertinent provincial legislation in force at the relevant time.  

35                In embarking on my analysis of British Columbia’s municipal government legislation, I am mindful of the recent words of Major J. in Nanaimo (City) v. Rascal Trucking Ltd., [2000] 1 S.C.R. 342, 2000 SCC 13: “There is ample authority, on the interpretation of statutes generally and of municipal statutes specifically, to support a broad and purposive approach” (para. 18).   Major J. also cited this comment from Iacobucci J.’s reasons in R. v. Greenbaum, [1993] 1 S.C.R. 674, at p. 688:  “a court should look to the purpose and wording of the provincial enabling legislation when deciding whether or not a municipality has been empowered to pass a certain by‑law”.  (Nanaimo, at para. 19).  These words do not mean that municipal jurisdiction is to be read in an unlimited way.  Indeed the judgment of this Court in Greenbaum, supra, suggests that the purposive aspects of the interpretation apply only to the scope of expressly conferred powers.  Municipalities have only those powers expressly conferred on them, powers necessarily following from these, or powers essential to municipal purposes (R. v. Sharma, [1993] 1 S.C.R. 650, at p. 668, affirmed in Nanaimo, supra, at para. 17). 

36                In interpreting municipal powers, then, we should look at the text and context of the legislation.  A careful examination of the text of the legislation, its legislative history, judicial interpretation and underlying objects and policy rationales demonstrates that the City did not have the capacity to make and be bound by a contractual term such as the one alleged to exist in this case.  If there was any such term implicit in the agreements in the case before us, it was ultra vires and contrary to well-established public policy.

3.        Legislative Text

37                In seeking to demonstrate that the City had the capacity to agree to the kind of term PNI alleges, it is incumbent on PNI to find some textual basis for this capacity.  The general zoning capacity is found in ss. 963 and 972 of the Municipal Act.  PNI attempts to find something binding on the City in s. 980(5) of the Municipal Act and s. 215 of the Land Title Act, as well as in arguments about an implied power that would give rise to this capacity. 

38                Section 963 of the Municipal Act provides for the power to zone by by-law.  Inherent in this is that a municipality may change its zoning in the same way.  Moreover, s. 972(1) of the same statute states that no compensation is payable to any person for reduced land values due to changes in zoning.  There is a very specific exception from this latter rule in s. 972(2).  Whether or not s. 972 would serve as a specific bar to a claim such as the one in the case at bar, it and s. 963 together clearly show the scheme of the statute.  Zoning is a legislative power.  On its face, the statute provides for no power to constrain the future use of this legislative power.  The legislature has generally considered that municipalities should not pay compensation for how they use this legislative power.  These principles all militate against PNI’s case from the outset.

39                PNI argues, of course, that it can find the capacity it seeks through s. 215 of the Land Title Act or through s. 980(5) of the Municipal Act.  In particular, first, it cites s. 215(3) of the Land Title Act, which reads “[w]here an instrument contains a covenant registrable under this section, the covenant is binding on the covenantee and his successors in title, notwithstanding that the instrument or other disposition has not been signed by the covenantee” (emphasis added).  Based on the registered BCEC covenant, then, PNI seemingly tries to argue that the City was bound to keep zoning that would allow BCEC or its successor PNI to fulfill its plans.  But this is an argument that leads ultimately to an absurd result.  In making it, PNI asserts that because its predecessor has made a covenant in favour of the City in order to allow itself to be subject to the City’s legislative powers, the City is bound by the covenant.  In other words, the person to whom a promise was made is bound by it.  One wonders if there might not be an error in this section, especially when s. 215(1) in fine by contrast, describes how the covenant is “enforceable against the covenantor”.  And, indeed, British Columbia later corrected the words of the s. 215(3) on which PNI relies, by amending them in 1989 to read “binding on the covenantor”: Land Title Amendment Act, 1989, S.B.C. 1989, c. 69, s. 22.

40                Although there are statutes whose strict reading might make this more complicated, typographical errors in legislation should not ordinarily compel us to read statutes absurdly.  As Côté, supra, notes at p. 390,

Material errors may slip into a legislative text during the process of drafting or publication.  The result may be absurd either in itself, in relation to other provisions of the enactment, or with respect to the aim of the legislation.  The law should be interpreted in the light of its aims, passing over obviously defective written expression.

Section 215(3) was clearly intended to provide that a covenant was still binding on the covenantor even when the covenantee had not signed it.  The correction of this subsection confirms this understanding.  I would read it sensibly in accordance with this true intent.  As a result, it is of no use to PNI’s case.

41                PNI has also tried to argue on the basis of s. 980(5) of the Municipal Act.  As it existed in 1987, this section provided that a development permit was binding on the municipality once issued and might even prevent rezoning.  Unfortunately for PNI, it did not have a development permit for Lots 3 and 4.  It had obtained a development permit for its earlier work and was preparing to apply for a development permit for Lots 3 and 4 when the municipal council enacted the democratic wishes of the citizenry by changing the zoning on those lots.  PNI argues that the City is bound to its earlier zoning irrespective of the rules in the statute, which provide for development permits that bind the municipality and allow the developer to undertake construction within two years (s. 702AA(5), introduced by S.B.C. 1977, c. 57, s. 13(2), consolidated as Municipal Act, R.S.B.C. 1979, c. 290, s. 717, repealed and integrated into ss. 976 and 980(6) of the Municipal Act by S.B.C. 1985, c. 79, ss. 4 and 8).   But the very fact that the legislature has this system means that it wanted this system and not a slightly altered version thereof.  PNI cannot ask us to change the rules on the development permit system so that its project fits within it.  So, this argument also is without application in the case at bar.

42                            There was some discussion in the course of the oral argument of whether there could be an implied power for the City to enter into an implied term as argued.  This implication of an implication begins to tax the imagination.  But the question goes to the heart of how we are going to read the legislation.  I am satisfied that the text gives no support to any argument that the City could be fettered from changing its zoning.  Given that this Court is not in the business of pulling rabbits out of hats, whether we should find an implied power can best be answered by turning to the context of the legislation.  I begin with the appreciation of the doctrine of ultra vires.

43                In addition, the appellant relies on an implied power to be found more particularly in s. 19 of the Municipal Act which grants municipal corporations the power to enter into contracts for materials and services.  The appellant also invokes  s. 287 which vests incidental powers in municipalities.  The appellant thus tries to assert an implied power in order to validate an implied term of the contract.

44                Municipal powers must receive a broad, purposive but, also, reasonable interpretation as the Court stated in Nanaimo, supra, at para. 20, per Major J.   Reading in an implied power in relation to the exercise of the delegated legislative powers of the municipalities involves other policy considerations than business contracts entered into the normal exercise of the powers of the municipality, in its day-to-day life.  The history of the legislative scheme in this respect may also be relied upon to assess the soundness in law of this attempt to read in an implied power to enter into the alleged implied term.

4.      The Doctrine of Ultra Vires

The Legislative History:  The Absence of an Express Power

45             As Rand J. once stated, “That we may look at the history of legislation to ascertain its present meaning is undoubted” (City of Vancouver v. B.C. Telephone Co., [1951] S.C.R. 3, at p. 8).  Looking at the legislation in place preceding and following the events at issue in this appeal provides at least a context for comparison and might even shed light on the meaning of the statutory framework as it existed at the relevant time.  I propose, then, to survey briefly the land use contracts system of the 1970s as well as the later 1993 law that permits the trading of zoning for amenities.

46                From 1971 to 1978, British Columbia had a land use contracts system.  This appears to have been the only Canadian experience with a full-fledged system of this kind: see I. M.  Rogers, Canadian Law of Planning and Zoning (loose-leaf), at para. 5.116.  This system was essentially a means of enabling municipalities to commit to particular zoning by contract.  As described in one case, “[t]he land use contract process foresaw the possibility that subsequent municipal councils might take a different view of matters than their predecessors.  The land use contract was intended to provide certainty for both developers and municipalities” (Martin Corp. v. West Vancouver (District) (1993), 85 B.C.L.R. (2d) 305 (S.C.), at para. 27).  As a result, a land use contract could not be displaced or altered by a subsequent by-law (ibid.).  Section 702A of the Municipal Act at that time, based on certain conceptions of appropriate policy with respect to municipal governments, thus provided for zoning by contract.

47                However, British Columbia’s legislature chose to repeal this system: Municipal Amendment Act, 1977, S.B.C. 1977, c. 57, s. 13(1) (proclaimed into force for November 15, 1978 by B.C. Reg. 259/78).  It replaced the system with the more limited development permit scheme described earlier in these reasons:  s. 13(2).  This system, in force at the time relevant to the case, also allowed municipalities to request certain specific works on roads prior to a subdivision or building permit (Municipal Act, R.S.B.C. 1979, c. 290, s. 989(4)), but it did not allow general bargaining for amenities.  The deliberate legislative choice to repeal the land use contracts system underlines the fact that the British Columbia legislature had abolished contractual zoning and any notion of zoning being restricted by contract prior to the events in the case at bar.

48                After the repeal of the land development systems, s. 982(2) of the Municipal Act read:

982. . . .

(2)  Subject to subsections (3) and (5), a land use contract that is entered into and registered in a land title office may be amended

(a)        by bylaw . . ., or

(b)        by a development variance permit under section 974 or a  development permit under section 976.

Such a provision is purely a grandfathering clause.  It protected existing contracts already validly entered into by municipalities.  It did not purport to grant an authority to make such agreements with developers in the future when the very purpose and effect of the repeal was to deny them such powers.

49                Since 1993, British Columbia has permitted municipalities to request amenities in exchange for zoning.  With the Municipal Affairs, Recreation and Housing Statutes Amendment Act, 1993, S.B.C. 1993, c. 58, s. 4, the zoning power of s. 963 of the Municipal Act is replaced so as to include the possibility of the municipal council imposing conditions under which an owner is entitled to a higher-density zoning (see s. 963.1(2) of the amended legislation).  The basic position in Canadian law is that municipalities cannot zone in exchange for amenities without some specific statutory authority for such arrangements: Re Walmar Investments Ltd. and City of North Bay, [1970] 1 O.R. 109 (C.A.), additional reasons at [1970] 3 O.R. 492 (C.A.).  The post-1993 scheme provides such specific statutory authority.  As a point of comparison, it thus highlights the fact that the pre-1993 scheme simply did not provide the requisite specific statutory authority.

50                The legislative scheme that existed at the time PNI undertook its transactions did not include a land use contracts system, it did not include contractual zoning, and it did not authorize the trading of amenities for zoning.  Comparing it to prior and subsequent systems makes all the more clear that under the legislation as it existed at the relevant point in time, implied terms such as the one alleged by PNI were without any statutory authorization.

Implied Powers

51                The history of the legislative scheme may be relevant to the case at bar in another way, as well.  This gives further reason against trying to find an implied power to make long-term commitments with respect to zoning equivalent to the powers it might have with respect to certain long-term business arrangements.  Indeed, a municipality as a corporation arguably does have an implied power to bind successor  councils by a contract in the exercise of ordinary proprietary or business powers:  I.  M. Rogers, The Law of Canadian Municipal Corporations (2nd ed. (loose-leaf)), vol. 2, at para. 199.4; Lawrason v. Town of Dundas (1920), 18 O.W.N. 22.  But the form of British Columbia’s municipal government legislation militates against extending this to the present situation.

52                Prior to 1998, the types and modalities of long-term commitments into which municipalities might enter were enumerated quite precisely.  Indeed, the Municipal Act then in force implemented time limits on contracts for the supply of materials, equipment, and services.  The statute went so far as to require approval by municipal voters of contracts with a duration of over five years (Municipal Act, R.S.B.C. 1979, c. 290, ss. 290 and 321).  In 1993, s. 23 of the Local Elections Reform Act, 1993, S.B.C. 1993, c. 54, altered the form, but not the substance of s. 321 of the Municipal Act.   The statute also tightly regulated matters like short-term borrowing (s. 344(1)) and the leasing of property (s. 322).  Although municipalities could enter into long-term commitments related to their business and proprietary powers, these commitments were subject to the statute’s close controls.

53                A municipal government statute could simply allow municipalities to engage in contracts of whatever form served their proprietary and business purposes.  It would seem that British Columbia’s legislature later chose to implement such statutory terms.  In 1998, the Province passed the Local Government Statutes Amendment Act, 1998, S.B.C. 1998, c. 34, whose preamble explained the new statute’s philosophy as oriented toward “recogniz[ing] local government as an independent, responsible and accountable order of government. . .”.  The amendments in this statute removed all of the specific controls on municipalities’ long-term commitments and instead provided for a more general corporate power (see s. 176 of the new Municipal Act, R.S.B.C. 1996, c. 323).  Such a legislative scheme is clearly possible, since one now seems to exist, but this merely accentuates the point that prior to 1998, at the time relevant to the case at bar, British Columbia did not have such a régime.  It had set up a system of tight controls on long-term business and proprietary commitments.  This scheme did not even refer to long-term commitments affecting the legislative power, as these powers were not envisioned.

54                            Moreover, there is another important answer to the argument that municipalities have an implied power to enter into terms such as the one alleged.  It is that an implied power to allow contracts to trump the municipality’s future legislative discretion over zoning raises additional policy concerns.  We will see these clearly after a survey of some of the relevant case law in the area.

5.       Pertinent Case Law

55                            As the authorities make clear, a limitation on a municipality’s legislative power is a very serious matter.  As Rogers, The Law of Canadian Municipal Corporations, supra,  puts it at para. 199.4, “Unless expressly authorized to do so local authorities have no power to enter into an agreement the effect of which will be to restrict or divest the legislative powers of succeeding councils in respect of any matter affecting the public at large.”  Rogers goes on to note that this does not mean that a council acting in its proprietary or business capacity cannot make contracts.  But it does mean that a council cannot somehow give up its legislative powers: cf. Birkdale District Electric Supply Co. v. Corporation of Southport, [1926] A.C. 355 (H.L.), at pp. 364 and 371-72.

56                Eloquent echoes of this principle have rung out through Canadian case law:

Our municipal councils are just as truly legislative bodies within the ambit of their jurisdiction as Parliament or the Legislature; and any contract which would interfere with the due exercise of the discretion and judgment of a member of such a council must equally be void as against public policy. 

(Town of Eastview v. Roman Catholic Episcopal Corporation of Ottawa (1918), 44 O.L.R. 284 (S.C., App. Div.), at pp. 297-98)

[M]unicipalities must be free to amend or alter their by-laws as circumstances dictate.  They cannot bind themselves or their successors by contract with a third party to the status quo.

(Capital Regional District v. District of Saanich (1980), 115 D.L.R. (3d) 596 (B.C.S.C.), at p. 605)

[A] municipality cannot bargain away its legislative powers in advance.

(Re Galt-Canadian Woodworking Machinery Ltd. and City of Cambridge (1982), 135 D.L.R. (3d) 58 (Ont. Div. Ct.), at p. 63, aff’d (1983), 146 D.L.R. (3d) 768 (Ont. C.A.))

Municipal legislative powers are an integral part of governance that municipalities cannot give up.  Municipal councils cannot fetter the discretion of successor councils to engage in the legislative process without undue influences.

57                An implication of this is that in the absence of provincial legislation implementing a different public policy, municipalities cannot sell zoning: D. P. Jones and A. S. de Villars, Principles of Administrative Law (3rd ed. 1999), at p. 181; Vancouver v. Registrar Vancouver Land Registration District, supra; Ingledew’s Ltd. v. City of Vancouver, supra.  They cannot agree to change zoning in return for particular consideration, and they cannot agree to keep zoning unchanged in return for particular consideration.

58                In this respect, it should be noted that the judgment of the British Columbia Supreme Court in Kendrick v. Nelson (City) (1997), 31 B.C.L.R. (3d) 134, does not stand as an authority to support the assertion that s. 19 of the Municipal Act provides the statutory basis for a municipality to enter into long-term agreements with a developer about the exercise of its zoning powers.  In that case, the petitioners had claimed that an agreement made with the developer violated s. 292 of the Act in respect of the nominal transfer of land and contracts for construction and city services.  No claim had been made in respect of the zoning commitments and thus the Supreme Court did not have to address that issue.  The ratio of the judgment was that the agreement did not commit the city to assist the developer within the meaning of s. 292.  Moreover, the agreement in dispute was completed in 1995.  Since 1993, the province of British Columbia has permitted municipalities to request amenities in exchange for zoning.  Thus, even if the matter had been in dispute, the City of Nelson would not have had to rely on s. 19 to enter into a contract concerning the exchange of zoning for amenities.

6.  Illegality and Public Policy

The Rules Against Fettering  

59                PNI, of course, tries to distinguish its claim from a simple claim that the City has contracted to provide particular zoning.  PNI tries to argue that the implied term is that the City will either keep in place particular zoning or else pay compensation or damages.  Some cases do seem to have distinguished indirect fettering (such as in an agreement to compensate) from direct fettering: see  Attorney-General for New Brunswick v. Saint John, [1948] 3 D.L.R. 693 (N.B.S.C., App. Div.), at p. 707; Vancouver v. Registrar Vancouver Land Registration District, supra, at p. 715; and Re Galt-Canadian (Ont. Div. Ct.), supra, at p. 64.  But such a distinction cannot be accepted, as it is likely without any legal basis and, moreover, unhelpful in rationalizing the case law.

60                First, the distinction is likely without any legal basis because it is unclear whether it even reflects a principle from the cases cited to support it.  Different portions of the latter two cases contain language leading to quite the opposite conclusion:  Vancouver v. Registrar Vancouver Land Registration District, supra, at p. 713; Re Galt-Canadian (Ont. Div. Ct.), supra, at p. 63.  In the case of Saint John, supra, where the ratio decidendi  is not completely clear, the court did allow a city to commit to a six-year contract for a particular company to provide busing services and to receive compensation if the city cancelled this contract early.  But the court made its decision only after it provided a reading of the contract whereby it would not be illegal, and whereby the contract did not commit the municipality to any particular by-laws: pp. 705-6.  The contract at issue there could be characterized as a business agreement.  In addition, it was a relevant consideration that the city was a common-law corporation, rather than a statutory municipal corporation, and thus not subject to the same doctrines of ultra vires as relevant in a case like the case at bar:  p. 708.  Moreover, although nothing further seems to have ever come of this, special leave to appeal the result of the case to the Supreme Court of Canada was granted: Attorney-General for New Brunswick v. Saint John, [1948] 3 D.L.R. 851.  Thus, with two of the cases cited for it also supporting the opposite conclusion and the last not clearly supporting the distinction at all, the supposed distinction has a dubious legal foundation.

61                The judgment of our Court in Wells v. Newfoundland, [1999] 3 S.C.R. 199, has also been cited in support of the claim of an implied municipal power to contract regarding long-term development and involving the exercise of  zoning powers.  The Wells case did not deal with a contract governing the exercise of municipal legislative powers.  The agreement in dispute remained a business contract in relation to the hiring of senior civil servants.

62                Second, the supposed distinction between direct and indirect fettering is also unhelpful because it is inconsistent with other case law and, more importantly, with the principles that undergird this area of the law.  Other cases (and, as cited above, even different portions of the same cases) have used language that would make even an indirect fettering illegal: see e.g. Walker v. Mayor of St. John (1872), 14 N.B.R. 143 (S.C.), at pp. 147-48; and Town of Eastview, supra, at pp. 297-98.  This broader language springs from the rationales for a prohibition on fettered discretion, which include protecting the municipal legislative process from undue influence and from embarrassment.  Direct or indirect fettering would have the same effect on the exercise of municipal powers. 

63                The authorities generally support the view that this broader language is appropriate and that it should apply over the direct/indirect distinction that some have tried to draw.  In Vancouver v. Registrar Vancouver Land Registration District, supra (a case cited as supporting the use of the distinction at p. 715), the British Columbia Court of Appeal discussed how some councillors who might consider a by-law unwise might nonetheless vote for it so as not “to expose the City to a claim for damages by defeating it” (p. 713), thereby recognizing at least from a factual standpoint the problems inherent in allowing fettering through a requirement to compensate.  In Re Galt-Canadian, supra, the Ontario Court of Appeal analyzed a situation where a municipal council might incur a contractual liability if it failed to take a certain course of legislative action.  The Court of Appeal concluded at p. 768 that this was an unacceptable situation.  In the eloquent words of the lower court in that same case, “Legislative powers are entrusted to municipalities for the public good, and they must always be in a position to exercise them as the public good requires” (Re Galt-Canadian (Ont. Div. Ct.), supra, at p. 63).  Given this principle, an agreement to compensate for a legislative decision like the one in the present case is no more acceptable than an outright restriction on the legislative power.

64                All of PNI’s attempts to transform its case into a claim for compensation cannot hide the fact that it is demanding compensation precisely because the City exercised its legislative powers in a particular way.  A municipality’s choice to use its legislative powers to rezone land so that the municipality’s zoning continues to reflect its best wisdom is a legitimate choice and a choice that is very much part of its legislative power: see Wall and Redekop Corp. v. City of Vancouver (1974), 16 N.R. 436 (B.C.C.A.), aff’d (1976), 16 N.R. 435 (S.C.C.).  Indeed, it must be remembered that the new zoning by-law was never attacked as illegal.  A duty to compensate for a particular legislative choice along these lines would necessarily make that legislative choice subject to considerations other than an objective examination of what is best for the community of which the developer is undoubtedly also a part. 

65                Contracts related to a municipality’s business and proprietary functions might well affect the resources available to it and thereby hinder its legislative discretion (or bring hindrances of another kind, as in Dowty Boulton Paul Ltd. v. Wolverhampton Corp., [1971] 2 All E.R. 277 (Ch. D.)).  But they simply do not inject the same kind of outside consideration into the legislative process.   The distinction between direct and indirect fettering, as PNI conceives it, is simply not a useful distinction.  The distinction between legislative powers, adjudicative powers, and business or proprietary powers, accepted elsewhere in our Court’s jurisprudence (e.g., Shell Canada Products Ltd. v. Vancouver (City), [1994] 1 S.C.R. 231, at p. 273; Nanaimo, supra, at paras. 28 and 31), is the sole distinction that should apply (William Cory & Son Ltd. v. London Corp., [1951] 2 K.B. 476 (C.A.), at p. 486).  Unless there is legislation expressing a public policy permitting it to do so, a municipality may engage in business and proprietary contracts, but it cannot agree to terms that fetter its legislative power.

66                As a result, I would conclude that the alleged implied term would have been an illegal fetter on the municipality’s discretionary legislative powers.  Established case law and its underlying principles support my rejection of PNI’s argument, powerfully reinforcing the conclusion that already flowed from the statute itself.  The very illegality of such a term and its inconsistency with public policy strengthen the case against reading it into a contract entered into within a clear statutory framework.  It should be added in this appeal that counsel for the City never evidenced that there was such an implied term.  He rather affirmed that the contracts with PNI were legal if given the legal interpretation ascribed to them by the City of Victoria.  I turn in the final part of my reasons to a brief reference to how this result is rational from a public policy perspective.       

Public Policy Considerations

67                I wish to add a brief word as to public policy considerations since a good deal of debate in this case has been related to policy issues.  To some, it will seem like a harsh result to say that PNI cannot sue the City for departing from some alleged understanding and withdrawing its consideration after the construction of costly improvements by PNI.  Indeed, some would properly argue that there are policy reasons for allowing municipalities to derive the benefits of a fuller capacity to contract that would enable them to engage developers on a long-term basis with more certainty.  This capacity would presumably help reduce the risk premiums that developers might otherwise require.  But these considerations are not conclusive and should in no way alter the result. 

68                First, the result is not as harsh as it might initially seem because those in the business know that dealing with a municipal government is different from dealing with a purely private corporation.  For example, no indoor management rule protects someone dealing with a municipality from having to ensure that proper procedures were followed with respect to the contract, which is quite different from the situation with a private corporation: Rogers, The Law of Canadian Municipal Corporations, supra, at para. 199.1.  The record shows that as an experienced developer, PNI was aware of the special legal and political risks attendant on dealing with a municipality.  Developers choose to undertake those risks.

69                Moreover, municipalities will be bound by their business contracts.  They will not be free to break them on a whim.  They will have to pay compensation to the other party barring an express statutory provision denying any form of compensation or damages.   On the other hand, contracts concerning the exercise of legislative powers involve other legal rules and policy considerations, as appears from the discussion above of the rules against direct and indirect fettering of municipal authority.

70                Second, municipalities do not become free to break non-contractual understandings based on mere whim.  First, there remain legal protections against a municipality that acts in bad faith.  In addition, as R. W. Macaulay and R. G. Doumani put it in Ontario Land Development: Legislation and Practice (loose-leaf), vol. 1, at p. 4-119, para. 18.8, a major component of development and redevelopment projects is “a great deal of faith and trust between the public and private sectors of the region” (emphasis added).  Municipalities that deal with developers in a manner that does not reflect principles of faith and trust when they are not contractually bound may well face non-contractual consequences such as developers being less willing to deal with the municipality without significantly higher risk premiums. 

71                Third, a very important policy consideration militates against municipalities being bound in ways that constrain their legislative powers.  This is the policy consideration that runs through the jurisprudence in this area.  Municipal governments are governments exercising powers delegated by the provincial legislatures, and they must be able to govern based on the best interests of their residents and based on conceptions of the public good.  To help protect this important value, our Court has adopted such principles as the one that ambiguities in municipal government statutes are to be interpreted so as to favour the citizens  and their ability to undertake a path of shared self-governance (Shell, supra, at p. 277).  Although there can be arguments for each kind of public policy as to whether municipalities should be able to bind themselves on zoning matters, there is certainly nothing irrational about preventing municipalities from restraining themselves in striving for the public good in the future.  There is no doubt in my mind that British Columbia’s legislators, carefully balancing many competing interests and considerations, had chosen this latter public policy at the pertinent time.

72                As outlined earlier in these reasons, there was no statutory basis at the time on which a municipality could contract with respect to zoning.  The structure and scheme of the pertinent legislation revealed that the legislature did not intend for a municipality to compensate landowners for the financial impact of changes in zoning.  At other points in history, British Columbia had permitted contracts related to zoning, but it had explicitly repealed this legislation prior to the relevant time and did not introduce anything similar until some time after. 

73                Therefore, in my view, the legislature made its intentions very clear and deliberately and firmly established a public policy to which an implied term as argued would run totally counter.  That there are arguments for other policy approaches does not mean that judges should begin rewriting legislation.  Leaving aside our important role as guardians of the Constitution, our calling is generally the interpretation and implementation of the wishes of the democratically elected legislature where it has made its intentions clear, and it is the rational advancement of our traditional systems of common and civil law where the legislature has not otherwise spoken.

74                Under established law, the appeal must be dismissed.  The wording of the legislation, its history, consistent case law, and established public policy all support the conclusion that the municipality had no capacity to agree to an implied term such as PNI has argued.  Whether such an implied term might or might not have made sense for business efficiency reasons, any such term was ultra vires and contrary to legislatively established public policy.          

VII.     Conclusion

75                In the end, I would dismiss both the appeal and the cross-appeal with costs.  In the result, the conclusion of the Court of Appeal is affirmed, and the matter is remitted to trial on any unjust enrichment argument that may exist.

The reasons of Major, Bastarache and Binnie JJ. were delivered by

76                Bastarache J. (dissenting on the appeal)  — It is well accepted that where a municipality enters a contract with a legitimate purpose, that contract must be honoured.  The basis of this principle is the simple maxim relied on by Pacific National Investments Ltd. (“PNI”) in this appeal:  a deal is a deal.  I am not persuaded that the City of Victoria (“City”) should be able to terminate with impunity a contract that it uniquely crafted, thoughtfully entered, received the full benefit of, and concedes is lawful.  PNI spent over $2.5 million on infrastructure upgrades, which included building a new seawall, new roads and creating new parks for the City in anticipation of the commercial development that would result from the land transfer and zoning provided for in the contract.  The public interest would not be served by allowing the City to escape its commitments.  Nor do I consider that awarding compensation for breach of contract will amount to a fettering of the municipal power over zoning that adversely affects the public’s interest in local government.

77                In an effort to escape liability, the City has argued that the contract is ultra vires, taking a position that runs counter to the modern trend that municipal powers should be interpreted broadly and benevolently to enhance the public interest.  Further, this deal, which was specifically designed for the City’s needs and refined over a three-year period, is not, as contended by the City, void for public policy.  Current B.C. legislation allowing municipal corporations to bind themselves to long term development contracts evidences the strong policy reasons for granting such power.

78                I agree with my colleague LeBel J.’s analysis of the cross-appeal, but cannot accept his conclusion on the main appeal that PNI is not entitled to damages for breach of contract.  I will therefore address the following issues:

1.         Was there an implied term in the contract that the City would compensate if it did not maintain the zoning for a reasonable time?

2.         Is the implied term ultra vires?

3.         Is it contrary to public policy to enforce the implied term?

Analysis

Issue #1:  Was There an Implied Term  in the Contract that the City Would Compensate if It Did Not Maintain the Zoning for a Reasonable Time?

79                PNI argues that the Songhees Master Agreement (“SMA”) contained an implied term that the zoning contemplated in that contract would not be changed for a reasonable time.  It does not argue that the contract prohibited the City from ever changing the zoning or that in enacting the by-law which changed the zoning, the council acted in bad faith.  PNI’s position is simple:  it argues only that in entering a contract that was conditional on rezoning, the City agreed to adopt and maintain the zoning bargained for and that in view of the breach of that term, it is entitled to damages for breach of contract.  Thus, I would characterize the implied term sought to be recognized in a different manner than my colleague (para. 32 of his reasons).  The implied term does not bind the City from rezoning for any length of time:  it simply recognizes that in consideration of PNI’s initial investment, a change in zoning must be offset by compensation.

80                This Court recently reiterated the relevant test for an implied term in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619.  In M.J.B., after the respondent accepted a non-compliant tender, the lowest compliant tenderer successfully argued that there was an implied term in the call for tenders to accept the lowest compliant bid.  At para. 29, Iacobucci J. stated:

. . . a contractual term may be implied on the basis of presumed intentions of the parties where necessary to give business efficacy to the contract or where it meets the “officious bystander” test.  It is unclear whether these are to be understood as two separate tests but I need not determine that here.  What is important in both formulations is a focus on the intentions of the actual parties.  A court, when dealing with terms implied in fact, must be careful not to slide into determining the intentions of reasonable parties.  This is why the implication of the term must have a certain degree of obviousness to it, and why, if there is evidence of a contrary intention, on the part of either party, an implied term may not be found on this basis.  As G. H. L. Fridman states in The Law of Contract in Canada (3rd ed. 1994), at p. 476:

In determining the intention of the parties, attention must be paid to the express terms of the contract in order to see whether the suggested implication is necessary and fits in with what has clearly been agreed upon, and the precise nature of what, if anything, should be implied.  [Emphasis added; underlining  in original deleted.]

To establish the existence of the implied term, PNI must demonstrate that the term was one which the parties would say, if questioned, that they had obviously assumed.  It must also show that the term was necessary to give business efficacy to the SMA.  In my view, both requirements are satisfied.

81                The courts below differed on the question of whether there was an implied term not to down-zone.  I find persuasive the trial judge’s reasoning that it was necessary to imply the term to give the agreement business efficacy:

I think that it is necessarily implied into the master agreement that zoning would remain undisturbed for a reasonable period of time for development. . . .  PNI was paying for a development opportunity dependent on zoning and it needed continuation of that zoning for a reasonable time to realize on its investment.

([1996] B.C.J. No. 2523 (QL), at para. 35)

On the other hand, the Court of Appeal stated that the reasons relied on by the trial judge “are all . . . reasons for concluding that it would have been reasonable and logical, from the point of view of PNI, to include such a term” ((1998), 58 B.C.L.R. (3d) 390, at para. 47).  With respect, I do not see any error in the trial judge’s conclusion:  PNI assumed the term was included, as would the officious bystander, because without it the contract could not be given business efficacy.  The Court of Appeal’s position is rather narrow (at para. 45):

[I]t seems a reasonable inference that no one raised the subject of the City agreeing not to down‑zone because it was taken for granted that it would give no such commitment.  Certainly, the evidence provides no basis for thinking that, had the subject been raised, the City would have said anything to the effect of:  “Of course, we will not down‑zone; we need not trouble to say that, it is too clear.”

I do not see how the Court of Appeal could find that the zoning was a valid condition precedent and conclude, at the same time, that the municipality could unilaterally cancel it with impunity.

82                The trial judge’s conclusion that the SMA contained the implied term not to rezone for a reasonable time is supported by an analysis of the agreement itself and the relevant external documentary evidence.  Hence, with respect to my colleague, it is not “a purely discretionary exercise of judicial power” but one based on the evidence in this case.

83                At the outset, it is important to recognize that the express terms of the purchase agreement between PNI and the British Columbia Enterprise Corporation (“BCEC”), under which PNI subsumed BCEC’s rights in the SMA, demonstrate the centrality and importance of the zoning from PNI’s perspective.  In the very first page of the offer/agreement for sale, Clause 2.01 explains that PNI’s obligation to purchase is conditional on zoning (as well as on the park dedication, a service agreement and formal subdivision approval):

The acceptance of this Offer by the Purchaser as herein provided shall convert this Offer into a binding agreement . . . for the sale and purchase of the Lands on the terms and conditions herein contained, including the Conditions Precedent and the Purchaser’s Condition contained in Section 5 thereof.

The purchaser’s condition, in Clause 5.01, confirms that there is no agreement if the zoning is not in place:

This Offer and, if accepted, this Agreement is subject to the satisfaction of the Conditions Precedent that:

(a)        the Lands have been rezoned in accordance with the Zoning Plan on or before February 1, 1988;

                                                                   . . .

These Conditions Precedent may not be waived unilaterally by either party.  If for any reason whatsoever any of the Conditions Precedent are not fully satisfied on or before February 1, 1988, the Initial Deposit, without interest, shall be returned immediately to the Purchaser without deduction and thereafter this Agreement shall be null and void and neither party shall have any further obligation to the other in respect of this Agreement.

84                The purchase agreement concluded between BCEC and PNI was the fruit of the City’s acceptance that BCEC would sell the development rights of the Phase II lands to a third party.  Article 13 of the SMA, entitled “Assignment or Sale by B.C. Enterprise”, documents the City’s understanding that BCEC would eventually sell the development rights to the land:

13.       B.C. Enterprise covenants and agrees that if it enters into an agreement to sell or convey all or a portion of the lands that are or will be subject to a registration of a restrictive covenant in accordance with this agreement, B.C. Enterprise shall obligate the purchaser in such agreement to enter into an agreement with the City to observe, keep and perform all of the covenants, conditions and obligations of B.C. Enterprise contained herein insofar as the same apply to the said lands being sold by B.C. Enterprise to such purchaser, and in the event of such sale being completed, the purchaser shall be entitled to all the rights, privileges and benefits of B.C. Enterprise contained herein insofar as they affect the lands purchased by such purchaser.  [Emphasis added.]

Article 5 of the SMA, entitled “Subdivision Plan Approval”, specifically states that the BCEC intends to develop the lands in phases, “subject to rezoning being completed in accordance with Article 11” (emphasis added).  When viewed together, Articles 5, 11 and 13 of the SMA reveal the City’s intention to maintain the zoning through any sale of the Phase II lands.  This is not surprising since, as the trial judge found at para. 33, it is quite apparent that zoning was an essential pre-condition of the SMA:

The master agreement dealt with zoning as a condition precedent.  If the City failed to adopt the zoning contemplated for the development the master agreement was simply unenforceable.  The City did adopt the zoning, the other conditions precedent were satisfied, and the master agreement was then binding on the parties.

Thus, the very wording of the SMA supports the trial judge’s finding that the City understood that PNI’s investment was premised on the belief that the zoning would remain undisturbed for a reasonable period of time.  It would be contrary to business sense and to all obligations of fairness to conclude that the condition precedent regarding zoning had to be met but was not protected in any way from unilateral retraction.

85                Evidence outside of the express terms of the contract also supports the implied term.  In particular, the City’s letter explaining the SMA to the town of Whistler illustrates the City’s view on the agreement.  The City stated that the SMA was

designed to facilitate an unusual rezoning of a large area. . . .  The developer . . . wished to have a large area . . . rezoned all at once and to proceed with subdivision in several stages over a period of 10 or 12 years without having to rezone the property at each stage.

In this letter, the City recognized that the developer would need 10 to 12 years to finish the project, and therefore, by implication, that the zoning must remain in place for that period.

86                The Court of Appeal relied on a pre-contractual memorandum written in 1986 by the solicitor of British Columbia Place, the predecessor to BCEC who assigned the development rights to PNI.  With respect, little can be gleaned from the passage pointed to:

It must be remembered and kept in mind that the City ALWAYS has final control because if [the developer] proceed[s] on tangents not acceptable to it, the City can always bring the total development to a halt by down-zoning the whole area.

The letter suggests that the City’s general power to down-zone has been restricted to a situation where the development is not proceeding as planned, or on tangents, and in this manner, acknowledges that it must respect its promise not to rezone for a reasonable time.  This provision is consistent with the understanding the parties had all along, that the contract could not remove the City’s ability to exercise its legislative discretion to down-zone.  It does not shed light on the crucial issue of the effect of such a decision.  Contrary to suggestions otherwise, the passage does not state that the original developer accepted the risk of a decision to down-zone based on issues unrelated to satisfaction with the progress of the development.

87                The conclusion that the contract contains the implied term is evident from all of the circumstances in this case.  Indeed, even counsel for the City made concessions on this point during oral argument.  When questioned, counsel for the City acknowledged that if the City had not maintained the zoning for a reasonable time, PNI might have attempted to quash the rezoning by-law under the bad faith provision, Municipal Act, R.S.B.C. 1979, c. 290, s. 313 (which PNI has chosen not to do in this proceeding).  The City quite properly conceded that if it had rezoned without allowing PNI reasonable time to complete the project (in their view five years, or at least until a new council was elected), this might have demonstrated that it had acted in bad faith.  While counsel stopped short of conceding that the bad faith argument open to PNI would be based on the fact that it was assumed by the parties that the zoning would remain in place for a reasonable time, this must be inferred from his position.  The trial judge’s finding that PNI had not slept on its rights but had acted with reasonable dispatch is unassailable.

88                To summarize, it is clear that the parties did not agree to a bare term preventing the City from down-zoning, since it is acknowledged that they were cognizant of the rule against binding future councils.  Rather, the parties carefully arranged the contract, as described by the trial judge (at para. 26), as “an innovative means of achieving the parties’ differing objectives by hinging binding obligations on each piece going into place”.  The implied term must be present to give the contract business efficacy.  In view of the condition precedent in the contract, an officious bystander would necessarily hold the view that the City believed it would owe compensation in the event it down-zoned without the passage of a reasonable time.  The alternative infuses the parties with an intention to give the City, as long as it was acting under the rubric of the “public interest”, the power to unilaterally, and with impunity, change the zoning immediately after the purchaser paid for the land, depriving him substantially of the benefit of the contract.  This cannot have been the parties’ intention and this Court should not sanction this type of unprincipled immunity.

Issue #2:  Is the Implied Term Ultra Vires?

89                It is accepted that the City cannot be held liable for breaching a term that is ultra vires.  An ultra vires term can be defined as a term entered into by statutory bodies outside the limits of authority granted or established by statute.  As put in I. M. Rogers, The Law of Canadian Municipal Corporations (2nd ed. (loose-leaf)), vol. 1, at para. 63.34:

If there is no legislative authority, express or implied, vested in the [Municipal] corporation to deal with the subject matter, then the by-law, resolution or other act is beyond its powers and is a nullity.

90                This Court recently reaffirmed the sources of municipal power in Nanaimo (City) v. Rascal Trucking Ltd., [2000] 1 S.C.R. 342, 2000 SCC 13, at para. 17, adopting the formulation set out in R. v. Sharma, [1993] 1 S.C.R. 650, at p. 668:

. . . as statutory bodies, municipalities “may exercise only those powers expressly conferred by statute, those powers necessarily or fairly implied by the expressed power in the statute, and those indispensable powers essential and not merely convenient to the effectuation of the purposes of the corporation”.

In Nanaimo, the Court confirmed that a broad, purposive and reasonable approach is to be taken when discerning the scope of municipal power.  This, I note, is not a recent development.  In  Rogers, supra, at para. 63.34, it is stated that

. . . the doctrine of ultra vires is to be applied reasonably and whatever may be regarded as being incidental to the things which are authorized by the legislature is not, in the absence of an express prohibition, ultra vires.  Thus, the rule of implied powers has, to some extent, limited the scope of the doctrine.

As the following will demonstrate, there exists a solid statutory basis that grounds the City’s authority to agree to the implied term in the SMA.

91                This Court applied the ultra vires doctrine in The King v. Dominion of Canada Postage Stamp Vending Co., [1930] S.C.R. 500, where the respondent had been granted an exclusive license to sell stamps for 20 years.  The Court upheld the Postmaster’s termination of the agreement since s. 77 of the Post Office Act, R.S.C. 1927, c. 161, stipulated that:  “No contract shall be entered into for a longer term than four years” (p. 505).  The contract clearly contradicted the statute and was held invalid, as the Postmaster could “constitutionally and validly depute the performance of his duties, only so far as authorized by Parliament” (p. 506).  The contract here does not violate any provision of the B.C. Act and this case is easily distinguished.

92                That brings us to the question of whether, in the instant appeal, the implied term is intra vires the City.  In my opinion, the City was authorized to enter the SMA and agree to the implied term under the general business and contracting power of municipalities.  At its lowest, the parties agree that this power allows a council to bind future councils to a long-term contract “where such a contract is made in the exercise of its proprietary or business powers” (Rogers, supra, vol. 2, at para. 199.4).  The scope of the general power to contract is quite broad (Rogers, supra, vol. 2, at para. 197.1):

Apart from statutory restrictions and prohibitions, the general rule is that municipal corporations, like private corporations, have a general power to contract in furtherance of their corporate objects, but where the corporation is of statutory origin its contractual powers are limited and circumscribed by its constituent Act.

It is important to emphasize that in the instant appeal, there is no statutory provision which specifically excludes the trading of zoning for amenities from the general power to contract.

93                I also rely on the fact that in B.C., under s. 19(1) of the Municipal Act, municipalities have the express power “to contract for materials and services”.  This is a wide and general municipal power, which should be interpreted broadly; see R. v. Greenbaum, [1993] 1 S.C.R. 674, and my colleague’s reasons, at para. 35.  Moreover, when viewed in combination with s. 287 of the Act, s. 19 effectively grants to municipalities all powers incidental or conducive to the exercise of the general power to contract for materials and services.  Section 287 states:

The council, in addition to powers specifically allotted to it, has the power to do anything incidental or conducive to the exercise of an allotted power.

94                While the courts of British Columbia have had little opportunity to interpret s. 19(1), there is precedent which suggests that this section is the statutory basis that grounds the municipal authority to enter development agreements with zoning commitments.  In Kendrick v. Nelson (City) (1997), 31 B.C.L.R. (3d) 134 (S.C.), the City of Nelson entered a waterfront development agreement with a developer to build a hotel/marina.  As well as agreeing to construct a dyke and a pathway at its own expense, the city agreed to “undertake to provide development permit approval based on meeting all the requirements of the development permit process which shall not exceed a maximum of four weeks from the date of application” and to “undertake to provide all the applicable zoning for the development” (para. 16).  The zoning in question was already in place; the city’s undertaking was to maintain it for the period necessary to carry out the development plan.  A group of citizens challenged the city’s authority to enter the agreement on the basis that it offended s. 292 which prevented the city from assisting a developer.  After describing the agreement as “a complex exercise in allocating responsibilities with a co-ordinated approach to the overall waterfront development” (para. 64), McEwan J. recognized that the “municipality exercise[d] its power to contract under S. 19 to effect purposes that are clearly within the realm of public policy” (para. 65).

95                While the statutory scheme had obviously changed by 1995, Nelson, supra, supports the view that s. 19 authorizes municipalities to enter development agreements in which they provide zoning commitments.  As with the SMA, the agreement at issue in Nelson was “an attempt to accommodate a waterfront development that includes public uses and a private business there was a public interest in promoting as part of an overall plan to enhance the economic viability and diversity of the City” (para. 55).  Where these types of development agreements do not restrict the City from rezoning, they are not ultra vires.  The SMA, which simply contemplates compensation in the event of rezoning, falls within the scope of this rule.

96                In light of the foregoing, I cannot accept the City’s position on this issue.  The City properly concedes that the SMA was lawful, agreeing that its subject matter was within the City’s jurisdiction.  Further, it acknowledges that before 1978 and after 1993, the Municipal Act clearly provided for this power.  However, based on the “legislative history of zoning provisions in B.C.”, it contends that during the relevant time period, the City did not have the authority to agree to the implied term that would maintain zoning.  More specifically, in contrast to the current trend in municipal law, it argues that its general power to contract should be interpreted narrowly, based exclusively on the fact that, when the SMA was negotiated, municipalities were not expressly authorized to enter land use contracts.

97                With respect to the contrary view, this argument does not carry the City very far.  A review of the legislative debates of the Municipal Amendment Act, 1977, S.B.C. 1977, c. 57, demonstrates that the legislature of British Columbia had no intention of removing the municipalities’ authority to enter long-term planning contracts when it repealed the land use contract provisions.  The reason for the amendment was not that the government objected to the municipalities having a tool to control long-term developments, but to the intricacies of the provisions themselves, which had caused the land use contract to become “an often confusing counterproductive roadblock” (Debates of the Legislative Assembly of British Columbia, vol. 6, August 8, 1977, at p. 4353).  Specifically, councils had been abusing the provisions in effect to raise revenue, by using the land use contract to extract additional concessions from developers.  The motive behind the repeal of the land use contract was entirely based on the fact that it was being used in an arbitrary and unintended manner and as a substitute for zoning.

98                In my view, the review of the history of zoning power in B.C. confirms that in 1987, the City had the power to agree to the term that the City would not rezone for a reasonable time.  In 1987, the basic zoning provision was s. 963 of the Municipal Act (now R.S.B.C. 1996, c. 323, s. 903), which gave municipalities jurisdiction to enact zoning by-laws.  That provision read:

963.  (1)  A local government may, by bylaw,

(a)        divide the whole or part of the municipality or regional district, as the case may be, into zones, name each zone and show by map or describe by legal description the boundaries of the zones,

(b)        limit the vertical extent of a zone and provide other zones above or below it, and

(c)        regulate within the zones

(i)         the use of land, buildings and structures,

(ii)        the density of the use of land, buildings and structures, and

(iii)       the siting, size and dimensions of

(A)    buildings and structures, and

(B)    uses that are permitted on the land, and

(d)        regulate the shape, dimensions and area, including the establishment of minimum and maximum sizes, of all parcels of land that may be created by subdivision, and

(i)         the regulations may be different for different areas, and

(ii)        the boundaries of those areas need not be the same as the boundaries of zones created under subsection 1(a).

(2)  The regulations under subsection (1) may be different for different

(a)  zones,

(b)  uses within a zone,

(c)  standards of works and services provided, and

(d)  siting circumstances

as specified in the bylaw.

(3)  The power to regulate under subsection (1) includes the power to prohibit any use or uses in any zone or zones.  [Emphasis added.]

99                As is evident, the municipality’s express powers included the power to create zones, and to regulate land use within the zones.  It did not, as noted by my colleague, include the power, formerly granted under s. 702A of the Municipal Act, R.S.B.C. 1960, c. 255 (as am. by S.B.C. 1971,  c. 38, s. 52), to enter land use contracts that froze zoning “notwithstanding any by-law of the municipality”.  The relevant part of s. 702A read:

702A.  . . .

(3)  Upon the application of an owner of land within the development area, or his agent, the Council may by by-law, notwithstanding any by-law of the municipality, or section 712 or 713, enter into a land use contract containing such terms and conditions for the use and development of the land as may be mutually agreed upon, and thereafter the use and development of the land shall, notwithstanding any by-law of the municipality, or section 712 or 713, be in accordance with the land use contract.

(4)  A contract entered into under subsection (3) shall have the force and effect of a restrictive covenant running with the land and shall be registered in the Land Registry Office by the municipality.  [Emphasis added.]

I cannot agree with my colleague that the absence of s. 702A in 1987 demonstrates that the City lacked the authority to agree to maintain the zoning bargained for in a lawful contract.  The primary purpose of s. 702A was to force the City to honour land use contracts by effectively granting the developer an acquired right to proceed with a development (including those not yet begun at the time of the change in the zoning), enforceable by specific performance.  It is important to emphasize that the absence of the provision does not demonstrate that the City lacked the authority to honour a lawfully entered contract in some other form; this is significant since PNI is not seeking the remedy of specific performance.  While the City was no longer forced to allow development projects to proceed, the repeal of s. 702A did not signify that it gained the power to exercise the discretion to rezone, in violation of a lawful contract, with no consequences; see Wells v. Newfoundland, [1999] 3 S.C.R. 199.

100            By repealing s. 702A, the B.C. government did not prevent the City from entering long-term development contracts; it simply removed the right of municipalities to enter contracts where specific performance was guaranteed (s. 13(3) of the Municipal Amendment Act, 1977).  The repeal did not end existing land use contracts; see Re Cressey Development Corp. and Township of Richmond (1982), 132 D.L.R. (3d) 166 (B.C.C.A.), and s. 982 of the Municipal Act, which acknowledged, by creating a process for their amendment, that existing land use contracts would continue in force:

982.  . . .

(2) Subject to subsections (3) and (5), a land use contract that is entered into and registered in a land title office may be amended

(a)        by bylaw . . ., or

(b)        by a development variance permit issued under section 974 or a development permit under section 976.

101            It must be recognized that the repeal of the land use contract system did not remove the authority of municipalities to bind themselves in regard to zoning.  When s. 702A was repealed by s. 13 of the Municipal Amendment Act, 1977, it was replaced with s. 702AA, which created a new development permit system.  The permit system did not statutorily restrict the municipality from rezoning, as did the land use contract system.  However, s. 980(5) was similar in effect:

A local government may issue more than one permit for an area of land, and the land shall be developed strictly in accordance with the permit or permits issued, which shall also be binding on local government.

102            This provision established that once a permit was issued it was “binding on local government”.  Despite my colleague’s assertion otherwise, in my view this confirms the authority of the City “to constrain the future use of this legislative power”.  Moreover, s. 702AA(8) confirms the binding nature of the permit:  “If a development permit is issued, the land shall be developed strictly in accordance with the terms, conditions and provisions of the permit.”

103            As stated by the Minister of Municipal Affairs during second reading of the Municipal Amendment Act, 1977 when the government repealed land use contracts and introduced development permits, it did not intend to remove the authority of municipalities to control exceptional types of developments (Debates of the Legislative Assembly of British Columbia, supra, at p. 4354):

The development permit represents much more than a response against the land-use contract.  Its introduction will accomplish several important reforms.  First, it defines and confirms the municipality’s right to control the qualitative aspects of the exceptional development. . . .

The Minister’s remarks confirm that the principle behind repealing land use contracts and substituting development permits was to ensure that developers received an easier, quicker treatment from councils who had previously abused the land use contract.  The intent was not, as my colleague suggests, to remove the authority of municipalities to control their planning needs by way of contract.  The fact that no development permit was issued in this case is not evidence of the scope of the municipality’s power to contract for zoning during the relevant time period.  Accordingly, it has no bearing on the authority of the City to enter into the SMA.

104            To summarize, the general municipal power to contract in furtherance of municipal objectives is a solid basis for the City’s authority to agree to the zoning commitments in the SMA.  As stated in Rogers, supra, vol. 2, at para. 197.1:

There is no principle of law enabling a court to prevent a council from making any contract it sees fit to make with respect to a matter within its jurisdiction (Independent Cdn. Business Assn. v. Vancouver (1988), 24 B.C.L.R. (2d) 96 (C.A.)).

Section 19(1) and s. 963 (read in conjunction with s. 287) establish that the subject matter of the implied term in the SMA was within the City’s jurisdiction.  The express power to contract for materials and services, coupled with the municipality’s power to zone, provided the City with the authority to agree to a contract that contained a term which temporarily maintains zoning; see Kendrick, supra.  Even if the authorization did not flow directly from these provisions, this power would necessarily or fairly be implied under these express powers.  Finally, and perhaps most telling, is the fact that, in argument, the City conceded the SMA was lawful despite being unable to identify a specific statutory basis which granted it the authority to enter into this type of contract.  Aside from the fact that it is inconsistent to assert that only the implied term is ultra vires, in my view, the statutory basis is the one that I have just identified and, properly interpreted, it extends to the City’s agreement to maintain the zoning.  While this disposes of the ultra vires issue, three additional points bear comment.

105            First, the City suggests that s. 972(1) of the Municipal Act which provides that no compensation is payable to any person for reduced land values due to changes in zoning supports its position that no remedy is available for breach of contract in this case.  I think the purpose and effect of s. 972(1) are entirely unrelated to the issue before us.  Section 972(1) states:

972. (1) Compensation is not payable to any person for any reduction in the value of that person’s interest in land, or for any loss or damages that result from the adoption of an official community plan, a rural land use bylaw or a bylaw under this Division or the issue of a permit under Division (5).

The statutory scheme demonstrates that s. 972(1) provides immunity to the City for decisions to down-zone simpliciter; it does not prevent recovery for rezoning in breach of a contract.  The subsection was introduced in 1985 by the Municipal Amendment Act, 1985, S.B.C. 1985, c. 79, s. 8, at the same time as s. 980(5) which established that development permits were binding on the City.  If s. 972(1) covered every decision to down-zone, s. 980(5) would have no purpose as the former provision would remove the availability of a remedy if the City did not honour a binding permit.  It is plain that the only way to interpret these provisions together as part of the same scheme is to realize that s. 972(1) allows municipalities to make routine zoning decisions with impunity and that the balance of the provisions, which demonstrate the legislative policy of allowing a municipality to bind itself, continue to have meaning.  Here, PNI is not demanding compensation only “because the City exercised its legislative powers in a particular way” (LeBel J., at para. 64).  It is suing because the City chose to do so in breach of contract.

106            Second, my colleague asserts that specific provisions in force in the relevant time period restricting the power of municipalities to enter into contracts of a duration exceeding five years reveal that the Province contemplated a regime where long term contracts were closely controlled.  I, on the other hand, believe that limiting the duration of contracts in specific instances is indicative of the fact that no restrictions were contemplated generally.  In my view, these provisions do not justify a restrictive interpretation of the City’s powers and are of little significance in this appeal.  The City concedes that the long-term development contract at issue in this appeal, the SMA, is lawful.

107            Third, I find it necessary to comment on the Court of Appeal’s approach to the ultra vires issue.  The Court of Appeal preferred not to rely on the ultra vires doctrine in finding for the City, but did express doubt that it would be “intra vires a municipal corporation to expressly contract not to down-zone” (para. 41).  To reach that position, it relied on the following statement by Sopinka J. in Shell Canada Products Ltd. v. Vancouver (City), [1994] 1 S.C.R. 231, at pp. 276-77:

In most cases, as here, the problem arises with respect to the exercise of a power that is not expressly conferred but is sought to be implied on the basis of a general grant of power.  It is in these cases that the purposes of the enabling statute assume great importance.  The approach in such circumstances is set out in the following excerpt in Rogers, The Law of Canadian Municipal Corporations, supra, § 64.1, at p. 387, with which I agree:

In approaching a problem of construing a municipal enactment a court should endeavour firstly to interpret it so that the powers sought to be exercised are in consonance with the purposes of the corporation.  The provision at hand should be construed with reference to the object of the municipality:  to render services to a group of persons in a locality with a view to advancing their health, welfare, safety and good government.

Any ambiguity or doubt is to be resolved in favour of the citizen especially when the grant of power contended for is out of the “usual range”.  See Rogers, supra, at § 64.1, and Re Taylor and the City of Winnipeg (1896), 11 Man. R. 420, per Taylor C.J.

108            To begin with, the Court of Appeal did not consider the last direction that any doubt is to be resolved in favour of the citizen.  More importantly, I do not agree with the Court of Appeal’s assessment that the significance of Shell to the instant appeal is “that the majority adopted a narrow approach to the definition of powers not expressly conferred but sought to be implied on the basis of a general grant of power” (para. 34).  The conclusion of the majority in Shell was prompted by their key finding (at p. 280) that the

purpose of the Resolutions is to affect matters beyond the boundaries of the City without any identifiable benefit to its inhabitants.  This is a purpose that is neither expressly nor impliedly authorized by the Vancouver Charter and is unrelated to the carrying into effect of the intent and purpose of the Vancouver Charter.

Quite clearly, the principal holding in Shell was that the municipality was not acting for a municipal purpose, and not that a municipality’s implied powers should be narrowly construed.  Shell merely confirms that a municipality must act for an appropriate purpose, and where it does not, its action will be ultra vires.  Here, the power sought to be exercised (to contract for long-term development) accords with the purposes of the corporation.

109            The Court of Appeal’s position on the ultra vires issue was largely based on its finding that it is “most doubtful that the City has the power to contractually bind itself to do that which, by settled law, it is forbidden to do” (para. 38).  With the greatest respect, the premise, and therefore the conclusion, is incorrect:  the agreement to maintain zoning is not forbidden by settled law.  Under the contract, as required, the City retained its power to modify the zoning but it remained liable for civil consequences if it breached its contractual obligations.  The following explains that the City’s commitment to the zoning does not violate public policy.

Issue #3:  Is It Contrary to Public Policy to Enforce the Implied Term?

110            The final question in this appeal is whether the well established rule accepted by both parties that City Council does not have the authority to fetter the ability of a future council to exercise its legislative power is violated by the implied term at issue. In my view, it does not and the implied term is not void for public policy.

111            I agree that a limitation on a municipality’s legislative power is not a trivial matter:  but the fact is that the SMA does not restrict the City’s authority to rezone.  This is not a case where the municipality has given up its legislative powers.  Thus, my colleague’s assertion that municipalities “cannot agree to change zoning in return for particular consideration, and they cannot agree to keep zoning unchanged in return for particular consideration” (para. 57) overlooks the existence of the contract that is at the heart of this dispute.  On the former point, the City concedes that the SMA, which was conditional on rezoning, was lawful.  The latter point is the very issue to be settled in this appeal.

112            In finding that the implied term limited the Council’s discretion to rezone and was therefore contrary to public policy, the Court of Appeal relied on Vancouver v. Registrar Vancouver Land Registration District, [1955] 2 D.L.R. 709 (B.C.C.A.), and Ingledew’s Ltd. v. City of Vancouver (1967), 61 D.L.R. (2d) 41 (B.C.S.C.), to support its view that requiring council to consider liability for damages fetters legislative discretion.  I cannot agree with this proposition and do not find that those cases provide it with a solid foundation.

113            In Vancouver v. Registrar Vancouver Land Registration District, supra, the city entered into a contract with the aim of rezoning certain land in the City of Vancouver from a three-storey multiple dwelling zone to a six-storey light industrial zone.  The city gave an unqualified covenant to rezone the land (upon due registration of its rights under the Land Registry Act, R.S.B.C. 1948, c. 171) in exchange for a promise from the owners to refrain from building on the northern most edge of the property and to landscape it.  The city applied to register these charges against the land, but the Registrar refused because, in his view, there was no registrable interest.  The majority of the Court of Appeal decided that it was unnecessary to analyze the objections made by the Registrar since it found that the agreement was ex facie invalid.  The problem with the agreement was that the city had fettered its legislative discretion by agreeing to pass a by-law (at p. 712):

With these observations, I turn now to the invalidity of the agreement.  That lies in the fact that by cl. 11 of the agreement, the City bound itself without reservation or qualification, to pass the amending by-law effecting the proposed re-zoning upon due registration of the City’s rights under the agreement.  By so doing the City bound itself, and thereby the council (through whom it must act) to disregard all objections to its passage, though the objectors had the statutory right to have their objections considered and determined upon their merits when the by-law was presented for hearing.  The agreement impaired the discretion vested in the council by the Town Planning Act for the protection of the competing and conflicting interests of property owners affected by the proposed amending by-law and the interests of the community as a whole.

114            The agreement in Vancouver v. Registrar Vancouver Land Registration District required the city to act in a manner that violated its statutory commitments (i.e., a neutral assessment of the public interest through public hearings could not be conducted), and consequently embarrassed the legislative process.  That distinguishes it (and its progeny, including Ingledew’s, supra) from the present appeal, where the City did not bind itself to pass a by-law but merely agreed to honour its contractual commitments.  There is a valid distinction in, on the one hand, committing indelibly to pass a zoning by-law, and, on the other, agreeing to compensate if the basic by-law which is a condition precedent to the contract is repealed.  This latter promise is less restrictive, does not offend the public interest and does not embarrass the legislative process.  There is no danger that Council will be placed in the awkward position of compulsorily pushing through a by-law while conducting sham public hearings.  Here, the City merely accepted that the passing of a by-law would be a condition precedent to the contract.  There was never any obligation to pass the by-law.

115            In my view, there is a distinction between preventing council from exercising its legislative discretion and requiring it to consider its contractual obligations before exercising that discretion.  The case law upholds such a distinction.  In the recent decision of Wells, supra, this Court recognized, at para. 43, a similar distinction

between the respondent’s right to hold office as a Commissioner, and his right to the financial benefits of having agreed to serve in that capacity.  While the legislature is free to remove the power and responsibility of the office, in doing so it does not strip the respondent of the compensation flowing from the contract unless it specifically so enacts.

116            The cases which my colleague asserts support the position that an indirect fettering is illegal (Town of Eastview v. Roman Catholic Episcopal Corporation of Ottawa (1918), 44 O.L.R. 284 (S.C., App. Div.), and Walker v. Mayor of St. John (1872), 14 N.B.R. 143 (S.C.)) are easily distinguished.  In Eastview, the town council bound itself  “to approve and allow forever the use for cemetery purposes of the lands” and to “never attempt to prevent or prohibit internment of the dead in said lands” (p. 288).  That permanent and absolute covenant is obviously a far cry from the City’s temporary and reasonable promise to compensate PNI if it rezoned without giving PNI a reasonable period to proceed with its development project. Similar reasoning may apply to Walker.

117            The decision of the New Brunswick Supreme Court, Appeal Division in Attorney-General for New Brunswick v. Saint John, [1948] 3 D.L.R. 693, points out the significance between indirect and direct fettering of a municipal council’s power.  I cannot agree with my colleague that the ratio of this case is unclear.  In Saint John, the city gave the New Brunswick Power Co. the right to operate buses in the city for a period of six years.  The contract provided that if city council in the first six years gave another company a franchise to operate buses or compelled the Power Co. to end its operations, the city would indemnify it against the capital loss arising from the initial purchase of the buses.  It was argued that the city had fettered its discretion to grant a franchise to another entity because of the liability which it would incur to the Power Co. under the contract.  At p. 707, Harrison J. found that the indemnification of the Power Co. was not ultra vires:

This clause in the agreement cannot therefore be objected to because it creates a legal obstacle to the performance by the city of its statutory duties.  It is merely a question of good business, and as the city were asking the Power Company to purchase motor buses and go to a large expense in providing this equipment, the agreement to compensate the company, should this service be discontinued by reason of the city’s action, does not appear unreasonable.

The same reasoning was adopted in First City Development Corp. v. Durham (Regional Municipality) (1989), 41 M.P.L.R. 241 (Ont. H.C.), at p. 270, and is consistent with English case law on the issue; see Stourcliffe Estates Co. v. Bournemouth Corp., [1908-10] All E.R. 785 (C.A.); Dowty Boulton Paul Ltd. v. Wolverhampton Corp., [1971] 2 All E.R. 277 (Ch. D.).

118            That reasoning must be applied here.  The implied term is not a “legal obstacle to the performance . . . of . . . statutory duties”, but a “question of good business” (Saint John, supra, at p. 707).  The City asked PNI to involve itself in a complex, long-term development agreement that was in the public interest.  The developer was forced to make a large capital expenditure at the outset.  As in Saint John, the “agreement to compensate the company, should this [contract] be discontinued by reason of the city’s action, does not appear unreasonable” (p. 707).  By distinguishing Saint John, the Court of Appeal in Vancouver v. Registrar Vancouver Land Registration District accepted that a contractual term which allows for damages in the event of a change of policy by the City is not void per se for public policy.  Saint John recognizes that the City must respect vested rights and its contractual obligations.  Repudiating the consideration for the contract cannot, in my opinion, be justified on the basis of public policy.

119            The finding that the implied term is not contrary to public policy is consistent with the modern approach to Crown liability for breach of contract as this Court recently set out in Wells, supra.  I cannot agree with my colleague that the situation here can be distinguished from Wells because the SMA is not a business contract of a type similar to the one at issue in that case.  The artificial creation of categories of business contracts is unjustified and unworkable.  In Wells, this Court recognized that the government cannot glibly avoid responsibility for breaches of contract.  Thus Wells, who had been a Commissioner with the Public Utilities Board until he lost his job during government restructuring, was entitled to damages for breach of contract.  Our finding that the government of Newfoundland had the authority to restructure the Board did not signify that the legislature could act with impunity.  Rather, we stated that in order to avoid the legal consequences of breaching a contract, the Government had to use clear and explicit statutory language to extinguish any existing rights previously conferred to an individual.  Wells’s right to seek damages for the breach had not been removed by legislation, and consequently, he was entitled to compensation.  This is consistent with the conditions for municipal repeal of vested rights; see Rogers, supra, vol. 1, at para. 83.23.

120            Wells identifies important matters of policy fundamental to the analysis of the City’s liability in this case.  At para. 46, the Court recognized that in “a nation governed by the rule of law, we assume that the government will honour its obligations unless it explicitly exercises its power not to”.  This reasoning applies equally here.  The City argued that by passing the down-zoning by-law and by completing the public hearings necessary to it, it “explicitly exercise[d] its power” not to honour its obligation.  However, this argument suffers from the same weakness apparent in Wells:  although the government may act in a given manner, it is not relieved of financial liability for the consequences of its breach. Paragraph 35 of Wells demonstrates the direct parallel with the instant appeal:

While both the Crown and the respondent knew that the Board could be altered or eliminated by legislative action [just as both the City and PNI knew that the City could down-zone], there is no indication that this was understood to jeopardize the respondent’s financial security.

121            Wells is strong recent support for PNI’s position.  The important policy considerations eloquently expressed by Major J. in Wells, at para. 46, should be honoured here:

In the absence of a clear express intent to abrogate rights and obligations –  rights of the highest importance to the individual – those rights remain in force.  To argue the opposite is to say that the government is bound only by its whim, not its word.  In Canada this is unacceptable, and does not accord with the nation’s understanding of the relationship between the state and its citizens.

122            Contrary to my colleague’s assertion, a multitude of policy considerations make it clear that a municipality should be held liable for damages where its council acts in conflict with a contract entered into by a previous council.  The issue in this case is whether the City breached an implied term of a development contract, but the question applies equally to all contracts entered into by the City.  Most council decisions have financial implications which could be argued to indirectly fetter future councils.

123            It is quite apparent that requiring a municipal council to consider its contractual obligations does not violate public policy but promotes the public interest.  Contracts entered into by a municipality should serve as checks on the exercise of legislative discretion.  Councils are free to legislate as they like, but they cannot ignore the contractual obligations that they owe (Wells, supra).  Having such an indirect fetter does not subject the municipal legislative process to undue influence or embarrassment.  Moreover, the public policy of society is reflected in its statutes (S. M. Waddams, The Law of Contracts (3rd ed. 1993), at para. 554); hence, where a municipality enters a contract that is intra vires, the court must act cautiously before invalidating a term on the basis of public policy.  The scope of the doctrine must be constrained, since, after all, “most governmental functions are performed under statutory powers”.  Moreover, “[t]he Crown benefits no less than private persons from the principle that contractual undertakings should be reliable” (P. W. Hogg, Liability of the Crown (2nd ed. 1989), at p. 171).  If municipalities are not held to their contractual obligations, their impaired credit would cause them to pay higher prices for everything obtained by contract.

124            My colleague argues that a council’s decision to rezone should not be subject to “considerations other than an objective examination of what is best for the community” (para. 64).  In my view, where the City has entered a contract and received consideration, the “community” includes the holder of that contract.  The vested rights of that individual cannot be ignored.  It is disingenuous to argue that this contract was breached in the public interest, because, as pointed out in the hearing, it will always be in the community interest to get something, in this case $2.5 million worth of amenities, for nothing.  Like Professor Hogg, I believe the public purse should bear the cost of a change in public policy.  There is no justification for a special public law of contract (Hogg, supra, at pp. 171-72).

125            In contrast to my colleague, at para. 68 of his reasons, I do not think it is good policy to include the risk of the unilateral cancellation of contracts without compensation, under the guise of the public interest, as one of the “special legal and political risks” developers must assume in dealing with municipalities.  Further, I am not persuaded that the consideration of “faith and trust between the public and private sectors” will curb the exercise of this power by municipalities.  Certainly, the facts of this case demonstrate otherwise; see also First City, supra.

126            To summarize, it is sound policy to allow municipalities to enter complex, long-term development contracts which provide developers with a promise that existing zoning will continue for a period sufficient to allow for development.  The power to contract with developers and provide enforceable guarantees in return for the provision of infrastructure and amenities is indispensable to the operation and growth of municipalities.  This was recognized in First City, supra, where Craig J. found that an agreement between Durham and a developer was not contrary to public policy as, inter alia, “[t]he region had decided that as a matter of good planning, and for its own protection financially, that it was in the public interest” (p. 270).

127            I should note in passing that the doctrine that the Crown may not enter into a contract that might fetter future councils has been criticized in the literature.  In describing it as “intolerably vague”, Hogg points out, at p. 171, that the doctrine unfairly provides the Crown with a means of escape from many of its seemingly straightforward contractual obligations:  “Since there is no breach of contract, no damages have to be paid to the private contracting party.  This seems grossly unfair to the private contractor, who is forced to bear the cost of a change in public policy that ought to be paid for by the [public body].”  In this case, there is no direct fettering of the municipality’s legislative power and there is no reason to fear that the duty to pay damages will affect in a detrimental way the public interest in preserving the legislative independence of all municipal governments.

128            Finally, a review of the myriad of lower court decisions raised in this case, which are based on their specific factual and statutory context, does not sway support to the City’s position.  As Smith J.A. noted in dissent in Vancouver v. Registrar Vancouver Land Registration District, supra, at p. 710, “old authorities should be applied with caution . . . objections, often technical, should not be raised in frustration of reasonable measures taken for the City’s development”.  In any event, many of the cases support PNI’s position.  In Lawrason v. Town of Dundas (1920), 18 O.W.N. 22, the court held that “a municipal council of one year is not bound by the contract of the same council in a previous year is a proposition which has no merit but that of novelty” (p. 23).  Further, in Muskoka Mall Ltd. v. Town of Huntsville (1977), 3 M.P.L.R. 279 (Ont. H.C.), it was held that the municipality was bound by a development agreement and could not repudiate it by repealing the zoning by-law permitting the development.  A municipality must respect vested rights acquired under a valid agreement with it, particularly if the other party to the agreement has changed its position on the strength of the contract.  Moreover, Re Galt-Canadian Woodworking Machinery Ltd. and City of Cambridge (1982), 135 D.L.R. (3d) 58 (Ont. Div. Ct.), aff’d (1983), 146 D.L.R. (3d) 768 (Ont. C.A.), supports the view that the indirect fettering of legislative discretion by the potential liability for damages is permissible.  As long as the original decision to enter the contract is valid, as here, there is nothing illegal or contrary to public policy.

129            In light of the above analysis, I conclude that the implied term does not offend against public policy.

Disposition

130            For the above reasons, I conclude that the implied term is not ultra vires or contrary to public policy.  I would allow the appeal with costs and remit the matter to the trial judge, to decide the quantum of damages for breach of contract.  As mentioned earlier in these reasons, I would dismiss the cross-appeal.

Appeal dismissed with costs, Major, Bastarache and Binnie JJ. dissenting. Cross‑appeal dismissed with costs.

Solicitors for the appellant/respondent on cross‑appeal:  Cox, Taylor, Victoria.

Solicitors for the respondent/appellant on cross‑appeal:  Staples McDannold Stewart, Victoria.