The Lawyers Weekly - September 30, 2011

JOHN
MASCARIN

Section 106 of Ontario’s Municipal Act, 2001 expressly provides that a municipality is precluded from assisting businesses by granting “bonuses.” The so-called “anti-bonusing clause” is a typical feature in many municipal statutes throughout Canada where municipalities are prohibited from conferring financial benefits or incentives (such as exempting fees, levies or taxes; giving or lending money without interest; and selling or leasing land at less than fair market value) on manufacturing, industrial or commercial businesses.

The bonusing prohibition is a long-standing statutory provision which is designed to prevent municipalities from giving an unfair advantage to private parties. There is relatively little jurisprudence interpreting s. 106, although it was recently considered by the Ontario Superior Court of Justice in Friends

Lansdowne Park.

of Lansdowne Inc. v. Ottawa (City), [2011] O. J. No. 3500. The decision is illustrative of a common attempt to misapply the anti-bonusing clause against a municipality.

The City of Ottawa (the City)
sought to redevelop an important
landmark, Lansdowne Park. City
council made a very controversial
decision to abandon a public
design competition and enter
into an arrangement with the
Ottawa Sports and Entertain-
ment Group (OSEG—a consor-
tium of private developers) to
redevelop Lansdowne Park. The
complex public-private partner-
ship contemplated the renova-
tion and refurbishment of the
on-site football stadium and
hockey arena, the development of
housing and commercial struc-

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bonuses in s. 106 should be
restrictively interpreted:
“To do otherwise would be to
unduly restrict the public/pri-
vate joint ventures that are of
increasing importance in the
establishment of municipal
facilities and which often depend
upon a complex exchange of
benefits, assets and services to
facilitate development.”
A similar sentiment is echoed
in Friends of Lansdowne where
Justice Hackland writes: “…I do
not accept the submission that
leasing land at a nominal rental
as part of a public private part-
nership is per se an illegal bonus
to the extent it benefits the pri-
vately held interest. The com-
mercial arrangement must be
viewed as a whole and the ques-
tion asked as to whether the City
has conferred an obvious advan-
tage on the private developer
(OSEG) which is not balanced by
a concomitant benefit to the City.”
With respect to the specific
issue of whether the City con-
ferred an “obvious advantage”
on OSEG, the court deferred to
the detailed report of the City’s
auditor general which con-
cluded that the proposal repre-
sented an appropriate balance
of risk and potential reward and
loss. Justice Hackland con-
cluded, “I am not persuaded
that OSEG has received any
obvious advantage in the [pro-
posal] and I am not prepared,
nor do I have the jurisdiction, to
interfere with City Council’s
determination on the reason-
ableness of the financial model.”
The court correctly deter-
mined that, when viewed as a
whole, the Lansdowne Park
redevelopment proposal did not
constitute bonusing in contra-
vention of s. 106 of the Munici-
pal Act, 2001. That the prohibi-
tion in s. 106 should be
restrictively interpreted is in
keeping with a broad and gener-
ous interpretation to legislative
municipal powers as advocated
by the courts.

Friends of Lansdowne demonstrates the courts will continue to recognize the “complicated matrix of covenants” and the structuring of reciprocal arrangements to allocate mutual risk and benefits among the contracting parties, including municipalities. n

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tures and the preservation of historically significant buildings. The City also sought to re-gain its Canadian Football League (CFL) team and to retain the Ottawa 67’s of the Ontario Hockey League (OHL). The lengthy review process involved numerous public studies, public consultations, expert reports, presentations and debates at city hall and a comprehensive review of the financial proposal by the City’s auditor general.

The memorandum of understanding between the City and OSEG detailed the financial transactions that would formulate the project. As is the case with most forms of partnership, the City was liable for certain financial costs and OSEG was correspondingly obligated to incur other expenses. The revenue allocation between the parties was subject to a complicated “ waterfall” distribution of payments.

The Friends of Lansdowne Park challenged city council’s decisions on several grounds, including that the City had illegally bonused OSEG contrary to s. 106 of the Municipal Act, 2001. The applicant pointed out that under the partnership arrangement, the stadium, arena and a portion of the park were to be leased for a nominal rent to limited partnerships equally owned by the City and OSEG for commercial development. It was argued that this constituted a lease of municipal property at below fair market value contrary to s. 106. The applicant also contended that OSEG was to be indirectly reimbursed by the City for the costs of acquiring the CFL and OHL franchises through cash payments to OSEG under the waterfall revenue distribution.

Noting that there was no appellate jurisprudence interpreting s. 106, Justice Hackland considered and applied the rulings in trial decisions from both B.C. and Ontario and ruled that individual aspects of a complex contractual arrangement cannot be viewed in isolation.

The key to the ruling is the recognition a “complicated matrix of covenants” may exist whereby reciprocal arrangements are structured so as to provide mutual benefits and risks to one or more parties, including a municipality. In such cases, the “benefit” may not necessarily constitute a “bonus” but rather a concomitant obligation of the municipality and simply one aspect of a larger and multi-faceted transaction.

In 1085459 Ontario Ltd. v. Prince Edward (County), [2005] O.J. No. 3471, the Ontario Superior Court (coincidentally Justice Hackland) indicated that the prohibition against granting

John Mascarin is a partner with Aird & Berlis LLP in Toronto. He is a certified specialist in municipal law, local government and land use planning and development and is an adjunct professor at Osgoode Hall Law School. He is the 2011 recipient of the International Municipal Lawyers Association’s President’s Award.