Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp.

Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp.
Collection
Supreme Court Judgments
Date
2020-10-23
Neutral citation
2020 SCC 29
Case number
38741
Judges
Wagner, Richard; Abella, Rosalie Silberman; Moldaver, Michael J.; Karakatsanis, Andromache; Côté, Suzanne; Brown, Russell; Rowe, Malcolm; Martin, Sheilah; Kasirer, Nicholas
On appeal from
British Columbia
Notes
Case in Brief
SCC Case Information
Decision Content
SUPREME COURT OF CANADA
Citation: Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp., 2020 SCC 29
Appeal Heard: June 9, 2020 Judgment Rendered: October 23, 2020 Docket: 38741
Between:
Owners, Strata Plan LMS 3905
Appellant
and
Crystal Square Parking Corporation
Respondent
- and -
C.H.O.A. Condominium Home Owners’ Association of B.C.
and Urban Development Institute – Pacific Region
Interveners
Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.
Reasons for Judgment: (paras. 1 to 59)
Reasons Dissenting in Part: (paras. 60 to 106)
Côté J. (Wagner C.J. and Abella, Moldaver, Karakatsanis, Brown, Martin and Kasirer JJ. concurring)
Rowe J.
Note: This document is subject to editorial revision before its reproduction in final form in the Canada Supreme Court Reports.
owners, strata plan lms 3905 v. crystal square
Owners, Strata Plan LMS 3905 Appellant
v.
Crystal Square Parking Corporation Respondent
and
C.H.O.A. Condominium Home Owners’ Association of B.C. and
Urban Development Institute – Pacific Region Interveners
Indexed as: Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp.
2020 SCC 29
File No.: 38741.
2020: June 9; 2020: October 23.
Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.
on appeal from the court of appeal for british columbia
Contracts — Post‑incorporation contracts — Formation — Strata corporations — Air space parcel agreement providing for payment obligations in relation to parking rights entered into and registered on title by developer prior to incorporation of strata corporation — Dispute later arising between strata corporation and owner of parking facility — Whether strata corporation bound by air space parcel agreement — Strata Property Act, S.B.C. 1998, c. 43.
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.
Held (Rowe J. dissenting in part): The appeal should be dismissed.
Per Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Martin and Kasirer JJ.: Although a corporation is not bound by a pre‑incorporation contract, it may, after coming into existence, enter into a new contract on the same terms as those of the pre‑incorporation contract. 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. An outward manifestation of assent by each party such as to induce a reasonable expectation in the other is required, and an examination of how each party’s conduct would appear to a reasonable person in the position of the other party is necessary.
The Strata Property Act (“SPA”) does not oust the common law principles relating to contract formation. The common law forms part of the context in which a legislature enacts statutes, and the legislature is presumed not to have intended to alter or extinguish common law rules in doing so. These presumptions can be rebutted only by establishing a clear expression of legislative intent to the contrary. There is no indication in the SPA of a clear legislative intent to rebut the presumptions; on the contrary, there are signs in the SPA that the legislature in fact intended to allow strata corporations to enter into unwritten agreements by their conduct. Finding that a contract is binding on a strata corporation on the basis of its objective conduct is not inconsistent with the SPA’s governance model for strata corporations. Furthermore, there are no compelling reasons to alter the common law of contracts as applied to strata corporations in order to protect strata lot purchasers from unscrupulous practices of or unfair surprises from developers, because British Columbia’s legislative framework already includes several protections for strata lot purchasers. 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, it is best to resort to the settled and generally applicable principles established in the jurisprudence. 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. A strata corporation can therefore enter into a post‑incorporation contract by its conduct.
The enforcement of a post‑incorporation contract which affects interests in land does not amount to an exception to the general rule that positive covenants do not bind subsequent purchasers of land. Real covenants and contracts create juridically distinct forms of rights and obligations, which should not be confused with one another. Landowners may use restrictive real covenants to bind subsequent purchasers in equity, even in the absence of privity of contract. In contrast, the right to contractual performance is a legal interest that is personal to the contracting parties. Another distinction between real covenants and contractual rights lies in the timing of the creation of the right. When equity is used to enforce a restrictive real covenant against a subsequent purchaser who purchased the land with notice of the covenant, the right being enforced is a pre‑existing equitable right which persisted through the transfer from the predecessor in title. Contractual rights, on the other hand, are created at the time of contract formation. In the case of a post‑incorporation contract, they are created after the corporation comes into existence when the parties objectively manifest an intention to be bound by a new agreement on the same terms as those of the pre‑incorporation contract. The enforcement of a contractual right against a party to the contract is therefore not to be equated with the enforcement of a real covenant against a subsequent purchaser and an otherwise valid and effective post‑incorporation contract is not unenforceable simply because its terms affect interests in land.
In the present case, the Court of Appeal was correct to find that Strata Co. did in fact manifest an intention, by way of objective conduct, to be bound by a post‑incorporation contract with CSPC after CSPC purchased the parking facility from the developer. There is strong evidence of both offer and acceptance of a post‑incorporation contract between Strata Co. and CSPC. After purchasing the parking facility, CSPC objectively manifested an intention to offer Strata Co. a contract on the terms of the ASP Agreement by making valid parking passes available to Strata Co.’s members in a quantity which corresponded to their share of parking spaces under s. 7.5 the ASP Agreement. As well, CSPC’s maintenance and operation of the parking facility over the years would have required significant capital expenditures. The ASP Agreement in fact provided for such expenditures, which were factored into the parking fee paid by Strata Co. Strata Co.’s members ought to have known that valuable consideration was being rendered for their benefit with an expectation that they would pay for it on terms corresponding to those set out in s. 7.5 the ASP Agreement. In turn, Strata Co. objectively manifested an intention to accept CSPC’s offer by paying the fees contemplated in the ASP Agreement, and its members exercised the rights corresponding to those payments by parking in the facility after CSPC became the facility’s owner. The members, having either assented to the consideration or acquiesced in its being rendered, taking the benefit of it when it was rendered, should be taken impliedly to have requested its being rendered. Thus, a reasonable person in CSPC’s position would consider that Strata Co.’s course of conduct constituted assent by Strata Co. to the terms set out in s. 7.5 of the ASP Agreement. 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.
Per Rowe J. (dissenting in part): The majority’s analysis of the law in this case should be adopted, but not the disposition of the appeal. It should not be decided whether Strata Co. had manifested an objective intent to be bound to the terms of the ASP Agreement. Rather, this question should be remitted for determination by the trial court as it is better placed to answer it. Applying the law here is a fact‑specific exercise and the Court does not have all the facts needed to do so. The majority’s finding of fact differs from that made by the trial judge and the Court of Appeal. The Court of Appeal treated taking the benefit of the agreement as a per se manifestation of the intention of the party to be bound by the terms as expressed. The majority, however, appears to frame things slightly differently in favour of a more traditional assessment of offer and acceptance. By reframing the legal test, the application of the law to the facts necessarily gives rise to a different question of mixed fact and law than that decided by the Court of Appeal.
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. 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. In this case, both factors run counter to the Court making findings of fact; rather, they favour appellate restraint. It is questionable whether there is efficiency in the use of judicial or counsel resources to be gained by the Court making the factual determinations that the majority would make. The 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 this case, evidence to which the 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, the trial judge enjoys numerous advantages over appellate judges which bear on all conclusions of fact and 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.
The existence of a pre‑incorporation contract is part of the circumstances in which the parties’ conduct is objectively interpreted. Conduct consistent with the contract can be persuasive evidence that an offer has been accepted. Such conduct is not, however, dispositive evidence of the acceptance of the offer. In some circumstances, an alternate inference may provide an objectively better explanation for the conduct than acceptance of the offer. It is plausible that the trial court, with the benefit of a more complete record, would not see the conduct by the Strata Co. as objectively manifesting an intention to accept the contract. There are three competing inferences that the trial court might prefer: in paying the parking fees, Strata Co. was performing a pre‑existing obligation rather than assenting to a new obligation; Strata Co. was performing what it (mistakenly) thought to be a pre‑existing obligation and if the parking corporation, CSPC had reason to know this, it could be unreasonable for it to take Strata Co.’s payment as an indication of acceptance of a new obligation; and the ASP Agreement formed a conditional easement, and Strata Co.’s payment was the exercise of an option under the conditional easement. Accordingly, these factual matters should be remitted to the trial court.
Cases Cited
By Côté J.
Applied: Saint John Tug Boat Co. v. Irving Refining Ltd., [1964] S.C.R. 614; adopted: Touche v. Metropolitan Railway Warehousing Co. (1871), L.R. 6 Ch. App. 671; Howard v. Patent Ivory Manufacturing Co. (1888), 38 Ch. D. 156; Smith v. Hughes (1871), L.R. 6 Q.B. 597; considered: Heinhuis v. Blacksheep Charters Ltd. (1987), 19 B.C.L.R. (2d) 239; disapproved: In re Northumberland Avenue Hotel Co. (1886), 33 Ch. D. 16; Bagot Pneumatic Tyre Co. v. Clipper Pneumatic Tyre Co., [1901] 1 Ch. D. 196; referred to: Rhone v. Stephens, [1994] 2 A.C. 310; Tulk v. Moxhay (1848), 2 Ph. 774, 41 E.R. 1143; Austerberry v. Corporation of Oldham (1885), 29 Ch. D. 750; Noble v. Alley, [1951] S.C.R. 64; Heritage Capital Corp. v. Equitable Trust Co., 2016 SCC 19, [2016] 1 S.C.R. 306; Parkinson v. Reid, [1966] S.C.R. 162; Design Services Ltd. v. Canada, 2008 SCC 22, [2008] 1 S.C.R. 737; Keppell v. Bailey (1834), 2 My. & K. 517, 39 E.R. 1042; Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69; Kelner v. Baxter (1866), L.R. 2 C.P. 174; In re Empress Engineering Co. (1880), 16 Ch. D. 125; Natal Land and Colonization Co. v. Pauline Colliery and Development Syndicate Ltd., [1904] A.C. 120; Scotsburn Co‑operative Services Ltd. v. W. T. Goodwin Ltd., [1985] 1 S.C.R. 54; Chartbrook Ltd. v. Persimmon Homes Ltd., [2009] UKHL 38, [2009] 1 A.C. 1101; Grant v. Province of New Brunswick (1973), 6 N.B.R. (2d) 95; Phelps Holdings Ltd. v. Strata Plan VIS 3430, 2010 BCCA 196, 71 B.L.R. 1; Gibson v. Manchester City Council, [1979] 1 W.L.R. 294; Jedfro Investments (U.S.A.) Ltd. v. Jacyk, 2007 SCC 55, [2007] 3 S.C.R. 679; Parry Sound (District) Social Services Administration Board v. O.P.S.E.U., Local 324, 2003 SCC 42, [2003] 2 S.C.R. 157; R. v. D.L.W., 2016 SCC 22, [2016] 1 S.C.R. 402; Vallejo v. Wheeler (1774), 1 Cowp 143, 98 E.R. 1012; Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494; Davies v. Jones, [2009] EWCA Civ. 1164, [2010] 2 All E.R. 755; Wilkinson & Ors v. Kerdene Ltd., [2013] EWCA Civ. 44, [2013] 2 E.G.L.R. 163; Halsall v. Brizell, [1957] 1 Ch. 169; Tito v. Waddell (No. 2), [1977] 1 Ch. 106; The Owners, Strata Plan BCS 4006 v. Jameson House Ventures Ltd., 2019 BCCA 144, 22 B.C.L.R. (6th) 35; Amberwood Investments Ltd. v. Durham Condominium Corporation No. 123 (2002), 58 O.R. (3d) 481; Black v. Owen, 2017 ONCA 397, 137 O.R. (3d) 334; Elwood v. Goodman, [2013] EWCA Civ. 1103, [2014] Ch. 442.
By Rowe J. (dissenting in part)
Watkins v. Olafson, [1989] 2 S.C.R 750; Heinhuis v. Blacksheep Charters Ltd. (1987), 19 B.C.L.R. (2d) 239; Hollis v. Dow Corning Corp., [1995] 4 S.C.R. 634; Madsen Estate v. Saylor, 2007 SCC 18, [2007] 1 S.C.R. 838; Matchim v. Bgi Atlantic Inc., 2010 NLCA 9, 294 Nfld. & P.E.I.R. 46; Masterpiece Inc. v. Alavida Lifestyles Inc., 2011 SCC 27, [2011] 2 S.C.R. 387; Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23, [2011] 2 S.C.R. 175; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Uber v. Heller, 2020 SCC 16; Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56, [2016] 2 S.C.R. 720; Amberwood Investments Limited v. Durham Condominium Corporation No. 123 (2002), 58 O.R. (3d) 481; The Owners, Strata Plan BCS 4006 v. Jameson House Ventures Ltd., 2019 BCCA 144, 22 B.C.L.R. (6th) 35; Robb v. Walker, 2015 BCCA 117, 69 B.C.L.R. (5th) 249; Arbutus Bay Estates Ltd. v. Canada (Attorney General), 2017 BCCA 374, 3 B.C.L.R. (6th) 59; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633.
Statutes and Regulations Cited
Business Corporations Act, R.S.A. 2000, c. B‑9, s. 15(3).
Business Corporations Act, R.S.O. 1990, c. B.16, s. 21(2).
Business Corporations Act, S.B.C. 2002, c. 57, s. 20.
Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2.
Canada Business Corporations Act, R.S.C. 1985, c. C‑44, s. 14(2) .
Land Title Act, R.S.B.C. 1996, c. 250, ss. 20, 23, 26, 27, 29, 282, 288.
Law and Equity Act, R.S.B.C. 1996, c. 253, s. 59.
Real Estate Development Marketing Act, S.B.C. 2004, c. 41, ss. 14, 15, 21, 23.
Real Estate Development Marketing Regulation, B.C. Reg. 230/2018, s. 3(2).
Strata Property Act, S.B.C. 1998, c. 43, ss. 2, 4, 5, 6(1), 7 to 11, 20(2)(a)(iii), 30, 32, 35(2)(g), 38(a), 291.
Authors Cited
Adamski, Jakub, and Angela Swan. Halsbury’s Laws of Canada — Contracts. Toronto: LexisNexis, 2017 Reissue.
Beatson, Sir Jack, Andrew Burrows and John Cartwright. Anson’s Law of Contract, 30th ed. New York: Oxford University Press, 2016.
Benson, Peter. Justice in Transactions: A Theory of Contract Law. Cambridge, Mass.: Harvard University Press, 2019.
Burke, Edmund. Reflections on the Revolution in France, and on the Proceedings of certain Societies in London relative to that event. London: Seeley, Jackson and Halliday, 1790 (1872 reprint).
Fridman, G. H. L. The Law of Contract in Canada, 6th ed. Toronto: Carswell, 2011.
McFarlane, Ben, Nicholas Hopkins and Sarah Nield. Land Law. New York: Oxford University Press, 2017.
McCamus, John D. The Law of Contracts, 2nd ed. Toronto: Irwin Law, 2012.
Perell, Paul M. “Covenants as Contracts and as Interests in Land” (2005), 29 Adv. Q. 476.
Rabin, Edward H. Fundamentals of Modern Real Property Law. Mineola, N.Y.: Foundation Press, 1974.
Waddams, S. M. The Law of Contracts, 7th ed. Toronto: Thomson Reuters, 2017.
Ziff, Bruce. Principles of Property Law, 7th ed. Toronto: Thomson Reuters, 2018.
APPEAL from a judgment of the British Columbia Court of Appeal (Garson, Willcock and Fisher JJ.A.), 2019 BCCA 145, 24 B.C.L.R. (6th) 24, 2 R.P.R. (6th) 1, [2019] 12 W.W.R. 263, [2019] B.C.J. No. 790 (QL), 2019 CarswellBC 1227 (WL Can.), setting aside a decision of Young J., 2017 BCSC 71, 73 R.P.R. (5th) 244, [2017] B.C.J. No. 68 (QL), 2017 CarswellBC 93 (WL Can.). Appeal dismissed, Rowe J. dissenting in part.
Stephen Hamilton, for the appellant.
Ken McEwan, Q.C., and Emily Kirkpatrick, for the respondent.
Wes McMillan, for the intervener C.H.O.A. Condominium Home Owners’ Association of B.C.
Andrew Morrison and Mark V. Lewis, for the intervener Urban Development Institute – Pacific Region.
The judgment of Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Martin and Kasirer JJ. was delivered by
Côté J. —
I. Introduction
[1] The narrow question raised by this appeal concerns the enforceability of a payment obligation in relation to parking rights provided for in an instrument that is registered on title. In answering this narrow question, however, the Court must consider more fundamental legal questions related to the distinction between property rights and contractual rights, general common law principles with respect to contract formation, the common law’s interaction with the relevant statutory framework and a proposed means of circumventing the long-standing rule that positive covenants do not bind subsequent purchasers of land.
[2] The facts of this appeal involve a number of players. The appellant is a strata corporation for the owners of Strata Plan LMS 3905 (“Strata Co.”) established pursuant to the Strata Property Act, S.B.C. 1998, c. 43 (“SPA”). The strata property is situated on an air space parcel within the “Crystal” development, a large multi-use development in Burnaby, B.C. Tyba Crystal Investments Corp. and Dong Ah Canada Development Corp. developed the Crystal in the 1990s as a joint venture through the Crystal Square Development Corporation (“Developer”). The respondent, the Crystal Square Parking Corporation (“CSPC”), owns and operates a parking facility situated on another air space parcel in the Crystal.
[3] The dispute between Strata Co. and CSPC is centred on whether the former is bound by payment obligations in relation to parking rights provided for in an air space parcel agreement that is registered on title (“ASP Agreement”). The primary difficulty arises from the fact that the ASP Agreement was entered into and registered on title by the Developer before Strata Co. was incorporated. Strata Co. cannot therefore be bound by it as a matter of contract, because the agreement predates Strata Co.’s existence. However, CSPC takes the position that Strata Co.’s post-incorporation conduct manifested its assent to a new agreement on the same terms as those of the ASP Agreement and that the result was a contract that was binding on Strata Co. CSPC also argues that the payment obligations should be held to be binding on subsequent owners on the basis of the narrow English law principle of benefit and burden, such that Strata Co., having accepted the benefits arising under the ASP Agreement, is bound by the burden of that agreement. Strata Co. denies liability under either of these approaches.
[4] For the reasons that follow, I conclude that Strata Co. entered into a post-incorporation contract with CSPC on the terms set out in s. 7.5 of the ASP Agreement. As a result, I find it unnecessary to consider whether Strata Co. is bound on the basis of the narrow principle of benefit and burden. The appeal is therefore dismissed.
II. Facts
[5] The Crystal is comprised of seven air space parcels upon which are built, respectively, (1) a retail complex, (2) an office tower, (3) a residential tower, (4) a hotel, (5) a parking facility, (6) a police office and (7) a cultural centre.
[6] In March 1999, the Developer and the City of Burnaby entered into the 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. The ASP Agreement was registered as an easement in a land title office on March 17, 1999.
[7] Section 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. In particular, it allocated 76 parking spaces to the owners of the second air space parcel, where the office tower was located. 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 owner(s) 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. Section 7.5(g) provided that, once the owner of the parking facility had recouped the capital costs, that is, the costs of construction of that facility, the annual fee would be significantly reduced, as 90 percent of the revenues from charging the public for parking would be applied to cover operating costs and taxes so as to reduce the amount of the fee charged to the other air space parcel owners. In addition, 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.
[8] On May 26, 1999, Strata Plan LMS 3905 was deposited in a land title office, thereby establishing Strata Co. This plan comprises 68 strata lots in the office tower on the Crystal’s second air space parcel. Strata Co. never entered into the assumption agreement with the other air space parcel owners that was provided for in the ASP Agreement.
[9] On June 28, 2002, the Developer sold CSPC the fifth air space parcel, upon which the parking facility is situated. As part of the transaction, the Developer assigned the ASP Agreement to CSPC together with “all other existing agreements . . . relating to the [air space parcel] approved by [CSPC]”: A.R., vol. II, at p. 106. The record contains no indication of what “existing agreements”, if any, were approved by CSPC.
[10] Until 2012, Strata Co.’s members parked in the parking facility and paid the fees at the rate contemplated in the ASP Agreement.
[11] In that year, a dispute arose between the parties. Strata Co. ceased paying the parking fees and 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.
III. Procedural History
A. Supreme Court of British Columbia, 2017 BCSC 71, 73 R.P.R. (5th) 244
[12] Justice Young held that Strata Co. was not bound by the ASP Agreement. In her view, Strata Co.’s conduct did not evince an intention to enter into a post-incorporation agreement on the same terms as those of the ASP Agreement: para. 64. She observed that Strata Co.’s members had parked in the parking facility and made corresponding payments as contemplated by the ASP Agreement, but that this conduct was animated by their mistaken belief that they were already bound by that agreement: paras. 76-77. She held that conduct flowing from a mistaken belief that a pre-incorporation contract is binding is not sufficient to find that the newly incorporated entity has entered into a post-incorporation contract: para. 77. Given her conclusion that a post-incorporation contract did not exist, she did not address Strata Co.’s further arguments with respect to mistake, frustration and unconscionability, and she dismissed CSPC’s counterclaim.
B. Court of Appeal for British Columbia, 2019 BCCA 145, 24 B.C.L.R. (6th) 24
[13] The Court of Appeal reversed the trial judge’s decision. Willcock J.A. held that Strata Co. had entered into a post-incorporation contract on the same terms as those of the ASP Agreement. He concluded that the trial judge had erred in principle by relying on the facts that Strata Co. did not have privity of contract in respect of the pre-incorporation contract and that it had not adopted or ratified that contract, because such circumstances were irrelevant to the determination of whether Strata Co. had entered into a post-incorporation contract by its conduct. Willcock J.A. also held that Strata Co.’s subjective misunderstanding that it was bound by the pre-incorporation contract was irrelevant to the determination of whether the parties had objectively manifested an intention to be bound by a post-incorporation contract. The court ordered that Strata Co.’s claim and CSPC’s counterclaim be remitted to the trial court for determination of the contractual issues not addressed: mutual mistake of fact, rectification, unconscionability, or frustration and, if the claim is not made out, consideration of the counterclaim and assessment of amount owing, if any.
IV. Issues
[14] In this Court, Strata Co. maintains that it is not bound to pay the parking fees provided for in the ASP Agreement. Its arguments raise the following issues:
- Does the enforcement of a post-incorporation contract which affects interests in land amount to an exception to the general rule that positive covenants do not bind subsequent purchasers of land?
- What is the correct analytical approach to take in order to find that parties have entered into a post-incorporation contract on the same terms as those of a pre-incorporation contract?
- Can a strata corporation enter into a post-incorporation contract by its conduct?
- Did the parties objectively manifest an intention to be bound by a post-incorporation contract on the relevant terms of the ASP Agreement?
[15] CSPC raises another issue which it urges this Court to consider even if the Court should find against Strata Co. on the other grounds of appeal:
- Is there a narrow principle of benefit and burden that can be applied to circumvent the general rule that positive covenants do not bind subsequent purchasers of land?
[16] I will address each of these issues below.
V. Discussion
A. Does the Enforcement of a Post-incorporation Contract Which Affects Interests in Land Amount to an Exception to the General Rule That Positive Covenants Do Not Bind Subsequent Purchasers of Land?
[17] I begin by discussing the jurisprudence on when covenants may run with the land, which, despite having been memorably described as an “unspeakable quagmire”, can be summarized succinctly for the purposes of this appeal as establishing a general rule that positive covenants do not run with the land: E. Rabin, Fundamentals of Modern Real Property Law (1974), at p. 489. I then address the distinction between property rights and contractual rights, after which I consider Strata Co.’s suggestion that applying the principles for pre-incorporation contracts to agreements affecting interests in land is novel and its assertion that there is a public policy interest which justifies curtailing the parties’ freedom to contract in regard to its interests in land.
[18] At common law, the burden of a covenant which either requires the performance of an obligation by a landowner (a positive covenant) or restricts a landowner’s use of the land (a restrictive covenant) is not enforceable against a subsequent purchaser: Rhone v. Stephens, [1994] 2 A.C. 310 (H.L.), at pp. 316-17. In equity, however, a restrictive covenant may be enforced against a subsequent purchaser who purchased the land with notice of the covenant: Tulk v. Moxhay (1848), 2 Ph. 774, 41 E.R. 1143 (Ch.), at pp. 1144-45; Austerberry v. Corporation of Oldham (1885), 29 Ch. D. 750 (C.A.), at pp. 773-74, per Cotton L.J.; Noble v. Alley, [1951] S.C.R. 64, at p. 69, per Rand J. Where positive covenants are concerned, the general rule is that they do not run with the land: Heritage Capital Corp. v. Equitable Trust Co., 2016 SCC 19, [2016] 1 S.C.R. 306, at para. 25; Parkinson v. Reid, [1966] S.C.R. 162, at p. 167.
[19] Strata Co. argues that there is no difference between enforcing a post-incorporation contract against it and enforcing the burden of a positive covenant against it as if it ran with the land: A.F., at para. 71. But this submission disregards the important distinction between contract law and property law: Design Services Ltd. v. Canada, 2008 SCC 22, [2008] 1 S.C.R. 737, at para. 39; J. Beatson, A. Burrows and J. Cartwright, Anson’s Law of Contract (30th ed. 2016), at pp. 27-28. Landowners may use real covenants to create rights enforceable by one owner against another, even in the absence of privity of contract: B. Ziff, Principles of Property Law (7th ed. 2018), at p. 448. The resulting interests are distinct from contractual rights, as a restrictive covenant binds subsequent purchasers in equity, whereas the right to contractual performance is a legal interest that is personal to the contracting parties. Another distinction between real covenants and contractual rights in this instance lies in the timing of the creation of the right. When equity is used to enforce a restrictive real covenant against a subsequent purchaser who purchased the land with notice of the covenant, the right being enforced is a pre-existing equitable right which persisted through the transfer from the predecessor in title: Rhone, at p. 317. Contractual rights, on the other hand, are created at the time of contract formation. In the case of a post-incorporation contract, they are created after the corporation comes into existence when the parties objectively manifest an intention to be bound by a new agreement on the same terms as those of the pre-incorporation contract. Thus, real covenants and contracts create juridically distinct forms of rights and obligations, which should not be confused with one another.
[20] Further, the historical reluctance of common law courts to impose the burden of either a positive or a restrictive real covenant on a subsequent purchaser was founded on the principle that “a person cannot be made liable upon a contract unless he was a party to it”: Rhone, at p. 316; see also p. 318. Thus, to enforce a positive covenant against a subsequent purchaser of land “would be to enforce a personal obligation against a person who has not covenanted”: Rhone, at p. 321. To enforce a positive covenant against a party to a contract, however, would be to enforce a personal obligation against a person who has in fact covenanted to perform that obligation. The imperative which militates against enforcing a covenant against a successor in title does not exist when the successor in title has assumed the covenant by way of a contract (i.e. the covenant will survive only if there is a chain of contracts between subsequent successors in title). The enforcement of a contractual right against a party to the contract is therefore not to be equated with the enforcement of a real covenant against a subsequent purchaser.
[21] Strata Co. also suggests that to find that a corporation entered into a post-incorporation contract concerning interests in land would be to create a novel mode of holding and enjoying real property interests: A.F., at para. 74. However, there is nothing truly novel about a corporation entering into a post-incorporation contract which affects interests in land. There is no general prohibition against enforcing contractual obligations affecting interests in land other than s. 59 of the Law and Equity Act, R.S.B.C. 1996, c. 253 (“LEA”), which was not pleaded in this case. Privity of contract has always served as a means by which landowners may bypass the operation of the general rule that positive covenants do not run with the land, because “if there is privity of contract, all covenants are enforceable”: P. M. Perell, “Covenants as Contracts and as Interests in Land” (2005), 29 Adv. Q. 476, at p. 479; see also Ziff, at p. 472. As a result, a post-incorporation contract which affects interests in land does not represent a “new mod[e] of holding and enjoying real property”, and therefore does not offend the numerus clausus principle: Keppell v. Bailey (1834), 2 My. & K. 517, 39 E.R. 1042 (Ch.), at p. 1049.
[22] In support of its argument, Strata Co. asserts that the need for certainty in the ascertainment of title and its incidental rights justifies limiting freedom of contract when the agreement at issue is a post-incorporation contract concerning interests in land: A.F., at paras. 75-81. Ensuring certainty in the ascertainment of title is, without a doubt, an objective of the scheme created by the Land Title Act, R.S.B.C. 1996, c. 250: see, e.g., ss. 20, 23, 26, 27, 29, 282 and 288. However, this objective is, by definition, generally not concerned with rights in personam that operate only as between the parties to a contract: e.g. s. 20(1). The legislature’s objective of ensuring certainty in the ascertainment of title is thus not a bar to the enforcement of a post-incorporation contract against a party to the post-incorporation contract.
[23] 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 reasona