Contracts/Condos: “Air Space Parcels”; Parking; Pre & Post‑Incorporation Contracts

Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp.2020 SCC 29 (38741)

“The Crystal development is a large multi‑use development with various air space parcels, including an office tower and parking facility. In 1999, the developer and the City of Burnaby entered into an agreement (“ASP Agreement”), which provided for mutual easements for support, service connections, vehicular access and other uses to and on the Crystal’s various air space parcels. In particular, s. 7.5 of the ASP Agreement obliged the owner of the parking facility to provide the owners of the other air space parcels with parking and vehicular access rights in exchange for an annual fee, payable monthly. It also provided that, upon the subdivision of any of the air space parcels by a strata plan, the strata corporation so created would be entitled to give all permissions and consents permitted to be given by the owners of the subdivided parcel, and that the strata corporation would be responsible for payment of the fee as well as for administering the parking rights of the strata lot owners. In addition, it provided that once the owner of the parking facility had recouped the capital costs of construction of the facility, the annual fee would be significantly reduced. Further, s. 16.3 provided that, upon subdivision of a parcel by a strata plan, the strata corporation was to enter into an assumption agreement with the owners of the other air space parcels so as to assume obligations under the ASP Agreement. The ASP Agreement was registered as an easement in a land title office on March 17, 1999.

On May 26, 1999, Strata Plan LMS 3905, which comprises 68 strata lots in the office tower on the Crystal’s second air space parcel, was deposited in a land title office, establishing Strata Co. Strata Co. never entered into the assumption agreement with the other air space parcel owners that was provided for in the ASP Agreement. On June 28, 2002, the developer sold the fifth air space parcel, upon which the parking facility is situated, to a parking corporation (“CSPC”). As part of the transaction, the developer assigned the ASP Agreement to CSPC.

Until 2012, Strata Co.’s members parked in the parking facility and paid the fees at the rate contemplated in the ASP Agreement. A dispute then arose between the parties and Strata Co. ceased paying the parking fees. CSPC responded by revoking the parking privileges of Strata Co.’s members. Litigation ensued. Strata Co. sought a declaration that s. 7.5 of the ASP agreement was null and void or an order that it was unenforceable, or, in the alternative, an order that s. 7.5 be rectified to state that the capital costs had been fully recovered, and also sought damages or disgorgement for breach of contract. CSPC filed a counterclaim, seeking judgment in the amount of unpaid fees it alleged were owed to it by Strata Co. pursuant to the ASP Agreement. The trial judge found Strata Co.’s conduct did not evince an intention to enter into a post‑incorporation agreement and therefore that it was not bound by the ASP Agreement. The Court of Appeal reversed the trial judge’s decision and held that Strata Co. had entered into a post-incorporation contract on the same terms as those of the ASP Agreement.”

The SCC (8:1, in part) dismissed the appeal.

Justice Côté wrote as follows (at paras. 23-24, 33, 37, 44-45, 52-53, 57-58):

“I appreciate that the members of a strata corporation may come and go, and that successive purchasers of strata lots will be bound by covenants arising from agreements to which they, as individual strata lot owners, were not parties. Thus, enforcing a post-incorporation contract may appear, from the perspective of the members of the strata corporation, to operate very similarly to an exception to the general rule that positive covenants do not run with the land. Rather than being a flaw in the legal framework, however, this appears to be a feature of the SPA, which gives a strata corporation the power and capacity of a natural person and specifically provides that the strata corporation itself may enter into contracts: SPA, ss. 2(2), 10, 30, 32, 35(2)(g) and 38(a); Ziff, at p. 472. Given the strata corporation’s capacity to enter into contracts, its conduct may well cause a person to have a reasonable expectation that an agreement with the strata corporation will be legally binding. Parties’ reasonable expectations are an interest which is generally protected in the common law of contracts: J. D. McCamus, The Law of Contracts (2nd ed. 2012), at pp. 32-33; S. M. Waddams, The Law of Contract (7th ed. 2017), at §§141 and 148. Thus, the public policy interests raised by Strata Co. do not outweigh the “very strong public interest in the enforcement of contracts”: Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at para. 123, per Binnie J. (dissenting, but not on this point).
In conclusion, an otherwise valid and effective post-incorporation contract is not unenforceable simply because its terms affect interests in land.

In sum, an “outward manifestation of assent by each party such as to induce a reasonable expectation in the other” is required in order to find that a binding post-incorporation contract exists: Waddams, at §25. The test is objective. It requires an examination of how each party’s conduct would appear to a reasonable person in the position of the other party: P. Benson, Justice in Transactions: A Theory of Contract Law (2019), at pp. 112-13. Thus, a court should determine whether a reasonable person in the position of one party would consider that the other party’s conduct constituted an offer: Grant v. Province of New Brunswick (1973), 6 N.B.R. (2d) 95 (S.C. (App. Div.)), at para. 12. And, conversely, whether a reasonable person in the position of the latter would consider that the former’s conduct constituted an acceptance: Saint‑John Tug Boat, at pp. 621-22. The pre-incorporation contract is merely one aspect of the objective circumstances that can be used to interpret the parties’ conduct and from which the terms of a post-incorporation contract may be inferred.

To conclude, the applicable test for finding that a post-incorporation contract exists is the same as the one for finding that any other agreement exists at common law. The test is objective, and the offer, acceptance, consideration and terms may be inferred from the parties’ conduct and from the surrounding circumstances.

…Abrogating the generally applicable principles of contract formation in the case of strata corporations would undermine commercial certainty and thwart the reasonable expectations of commercial parties by casting aside the wisdom and experience found in centuries of incrementally developed precedent and principle governing commercial relations. Rather than attempting to reinvent contract law to accommodate the novelty of strata property ownership, this Court can in my view do no better than to “avail [itself] of the general bank and capital of nations and of ages” by resorting to the settled and generally applicable principles established in the jurisprudence: E. Burke, Reflections on the Revolution in France (1790), at p. 84. Thus, the need for certainty in commercial affairs and the importance of protecting the reasonable expectations of commercial parties compel the continued ordinary operation of the common law in this area.
In conclusion, there was nothing to preclude the Court of Appeal from finding that Strata Co. had entered into a post-incorporation contract on the relevant terms of the ASP Agreement. Whether the evidence supported the existence of such a contract is, however, another question, and one on which the trial judge and the Court of Appeal disagreed. I now turn to that question.

…a pre-incorporation contract is merely one aspect of the objective circumstances which can be used to interpret the parties’ post-incorporation conduct. In other words, at the time of formation of the post-incorporation contract, each party would have understood the other party’s conduct in light of the knowledge that the ASP Agreement included a complex and interconnected scheme of benefits and burdens relating to the air space parcels in the Crystal. Thus, even if it were not a contract, the ASP Agreement formed part of the surrounding circumstances of formation of the post-incorporation contract, and a reasonable person would have understood that the parties were acting in a manner that implied an offer and an acceptance on terms that replicated the terms of s. 7.5 of the ASP Agreement.

In conclusion, Strata Co.’s objective conduct evinces an intention to enter into a legally binding agreement on the terms set out in s. 7.5 of the ASP Agreement. The Court of Appeal appears to have concluded that the ASP Agreement itself was binding on Strata Co.: para. 66. This is not technically accurate, however, as Strata Co. is bound by a post-incorporation contract on terms which are based on those of the ASP Agreement. That minor point notwithstanding, I agree with the Court of Appeal that appellate intervention was warranted, and I find that the Court of Appeal was correct to conclude that Strata Co. had entered into a post-incorporation contract with CSPC.

The ultimate question, whether this Court should recognize the existence of a narrow principle of benefit and burden, must be left for another day. The conclusion that Strata Co. is bound by a post-incorporation contract with CSPC on the terms set out in s. 7.5 of the ASP Agreement is sufficient to dismiss the appeal. It is therefore unnecessary to consider the merits of this alternative means of binding a subsequent owner. Nonetheless, I offer the following brief remarks, which should be taken as no more than observations.

The appellate courts in Canada that have considered this issue have declined to adopt the narrow principle of benefit and burden: Black v. Owen, 2017 ONCA 397, 137 O.R. (3d) 334, at para. 50; Jameson House, at para. 80; Amberwood Investments Ltd., at para. 84. They appear to conceive of the principle as creating an interest which runs with the land. There is, however, some authority for the proposition that the English law principle does not create an interest in the land: Elwood v. Goodman, [2013] EWCA Civ. 1103, [2014] Ch. 442, at paras. 35-36. Rather, the English doctrine of benefit and burden may be contractually based, such that it imposes a personal obligation particular to a subsequent purchaser who has decided to accept the burden in order to enjoy the benefit: B. McFarlane, N. Hopkins and S. Nield, Land Law (2017), at p. 351.”

Justice Rowe (dissenting in part) wrote as follows (at paras. 77-79):

“Appellate courts should make findings of fact not made by courts below only when doing so is in the interests of justice and is feasible on a practical level (Hollis v. Dow Corning Corp., [1995] 4 S.C.R. 634, at para. 33; Madsen Estate v. Saylor, 2007 SCC 18, [2007] 1 S.C.R. 838, at paras. 23-24; Matchim v. Bgi Atlantic Inc., 2010 NLCA 9, 294 Nfld. & P.E.I.R. 46, at paras. 94-99). This involves weighing two factors: first, the possible savings to the parties in cost and time arising from the appellate court deciding such factual issues; and, second, the possible harm from an appellate court making such findings in the absence of adequate evidence (Masterpiece Inc. v. Alavida Lifestyles Inc., 2011 SCC 27, [2011] 2 S.C.R. 387, at para. 103; Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23, [2011] 2 S.C.R. 175, at paras. 94, 172 and 174). In this case, both factors run counter to this Court making findings of fact; rather, they favour appellate restraint.
First, I question whether there is any efficiency in the use of judicial or counsel resources to be gained by this Court making the factual determinations that my colleague would make. This Court cannot finally dispose of the action, as even if it dismisses the appeal, the case must be remitted to the trial court for determination of mutual mistake of fact, rectification, unconscionability or frustration; and, if the claim is not made out, for determination of the counterclaim and assessment of damages.  In addition, at that trial the judge may well need to consider the circumstances of contract formation in detail.

Second, there is possible harm from this Court making the factual findings that are proposed. In contrast to various cases where this Court has made its own findings of fact (e.g., Masterpiece, at paras. 103-12; Sharbern Holding, at para. 175; Madsen Estate, at paras. 24-31) the record before this Court is limited: in addition to the findings of fact made by the trial judge and those by the Court of Appeal, this Court has before it only the pleadings, the ASP Agreement, the Assignment Agreement, and the transfer of title from the Developer to CSPC. No transcript was provided on appeal, despite the substantial vive voce evidence heard by the trial judge (see trial judgment, at paras. 18-34). In this case, evidence this Court does not have access to could plausibly lead the trial judge to a different conclusion on whether and, if so, when the Strata Co. objectively manifested an intention to be bound. Moreover, as this Court explained in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, the “trial judge enjoys numerous advantages over appellate judges which bear on all conclusions of fact” (para. 25 (emphasis in original)). The trial judge can assess the credibility of witnesses, is relatively expert with respect to the weighing and assessing of evidence, and has had greater exposure to the entire factual nexus of the case (ibid.).”