SUPREME COURT OF PRINCE EDWARD ISLAND KEL-MAC INCORPORATED. Before: The Honourable Justice Benjamin B. Taylor

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1 SUPREME COURT OF PRINCE EDWARD ISLAND Citation: Kel-Mac v. Town of Stratford 2009 PESC 04 Date: Docket: S1-GS Registry: Charlottetown BETWEEN: KEL-MAC INCORPORATED APPLICANT AND: TOWN OF STRATFORD RESPONDENT Before: The Honourable Justice Benjamin B. Taylor Appearances: Pamela J. Williams Paul Michael Q.C. Solicitor for the Applicant Solicitor for the Respondent Place and Date of Hearing Charlottetown, Prince Edward Island September 18, 2008 Place and Date of Judgment Charlottetown, Prince Edward Island February 26, 2009

2 Citation: Kel-Mac v. Town of Stratford 2009 PESC 04 Court File No. S1-GS BETWEEN: AND: KEL-MAC INCORPORATED TOWN OF STRATFORD APPLICANT RESPONDENT Supreme Court of Prince Edward Island Before: Taylor J. Date of Hearing: September 18, 2008 Date of Decision: February 26, 2009 [9 Pages] PRACTICE Rule 1.05(3)(d) determination of rights that depend on the interpretation of contracts and a municipal bylaw procedure. Cases Considered: Re Halmos (1979) 12 CPC 16 (Ont. H.C.); Re Ont. Ltd. and Richmond Hill (1977) 14 O.R. (2d) 787 (Ont. C.A.); Re Fulton and Eastern Holdings Ltd. [1973] 2 O.R. 438 (H.C.); Acumen Investments Ltd. v. Williams (1985) 53 O.R. (2d) 247 (Ont. H.C.); Re Burlington and Clairton (1979), 24 O.R. (2d) 586 (Ont. C.A.) Rule Considered: Prince Edward Island Rules of Civil Procedure, Rule 14.05(3)(d) Bylaws Referred to: Stratford Water and Sewer Customer Service Regulations, Bylaw 21, ss. 66 and 67; City of Charlottetown Water and Sewer Utility Bylaw ss. 6.1 and 6.3. Regulations Referred to: The Prince Edward Island Municipal Water and Sewerage Utilities General Rules and Regulations, made and approved by the Island Regulatory and Appeals Commission under authority of the Water and Sewerage Act, R.S.P.E.I. 1988, Cap. W-2, ss. 6.1 and 6.3. Pamela J. Williams, solicitor for the applicant Paul Michael Q.C., solicitor for the respondent

3 Taylor J.: [1] This decision follows the hearing under Rule (3)(d) of the Prince Edward Rules of Civil Procedure of an application by Kel-Mac Incorporated ( Kel-Mac ) for the determination of rights that depend on the interpretation of: 1) an agreement of purchase and sale dated September 19, 2001 between Kel- Mac Incorporated and the Town of Stratford ( Stratford ); and 2) the Stratford Water and Sewer Customer Service Regulations, being Bylaw Number 21, a municipal by-law of Stratford ( Bylaw 21"). [2] According to its application, Kel-Mac seeks a ruling that its agreement of purchase and sale with Stratford, and Stratford s Bylaw 21 (s. 67) be interpreted so that lots with service being placed on more than one side shall include the length of the [longest] side only with respect to the calculation of non-recurring capital contribution for water and sewer charges. As discussed below, this interpretation advanced by Kel-Mac is more or less correct, as far as it goes, but it is incomplete and lacking in context, and, as a result, misleading. The most important qualification to this interpretation is that entire cost of the water and sewer services for a development, less only the exceptions specified in s. 66(c) of Bylaw 21 is to be borne by the lot owners in the proportions stated in the bylaw. My discussion follows as to how the agreements and bylaws are to be interpreted. BACKGROUND [3] Kel-Mac is a Prince Edward Island company which owns land in Stratford, PEI and has done some land development. Stratford is a municipality in Prince Edward Island which owns and controls the Stratford Utility Corporation, and through it owns and operates a water and sewer system within Stratford s municipal boundaries. [4] Kel-Mac and Stratford entered into two agreements dated September 19, 2001 and March 13, In these agreements, Stratford agreed to provide water and sewer lines to service an undeveloped parcel of land owned by Kel-Mac, and Kel-Mac agreed to pay for the cost of the installation of these services by way of proportional frontage charges, to be paid as and when lots were developed. Stratford constructed the water and sewer lines, and in July 2007, Kel-Mac applied to subdivide one lot, which triggered the need to determine the formula under which Stratford s costs were to be repaid by Kel-Mac. According to exhibit S to the affidavit of Fay MacKinnon, the first lot to be severed was a two-acre parcel bounded on the southwest by the existing highway, on the southeast by Jubilee Drive, on the northeast by Shakespeare Drive and on the northwest by other lands of Kel-Mac. Stratford installed new water and sewer lines on Jubilee Drive and Shakespeare Drive.

4 Page: 2 September 19, 2002 Agreement [5] The September 19, 2001 agreement is partly an agreement of purchase and sale, in which Kel-Mac sells 13 acres of land to Stratford, and partly a development agreement, in which Stratford agrees to extend water and sewer services to other lands of Kel-Mac. As to those water and sewer services, the agreement states: The Purchaser had agreed to extend the water and sewer services for the proposed Four Hundred (400) foot extension of the Kinlock Road, and the proposed subdivision road leading to the proposed Stratford Town Centre. The Purchaser shall complete installation of the water and sewer services for the four hundred (400) foot extension of the Kinlock Road by November 15, 2001 and for the subdivision road leading to the Stratford Town Centre by June 30, The Town shall charge back the cost of installation of such services to the Landowners at the time of the development through proportional frontage charges in accordance with standard procedures used by similar utilities in establishing such frontage charges. The Vendor agrees to make available to the Purchaser any concept plans which the Vendor may have in its possession respecting the layout of the subdivision access road. (Emphasis added) March 13, 2002 Agreement [6] The March 13, 2002 agreement is specific to Kel-Mac s planned subdivision and the cost of water and sewer services to be provided by Stratford. Articles 3 and 4 state: Article#3 - Municipality Sanitary Sewer Services Kel-Mac Inc. covenants and agrees to service the lot(s) by connecting to the Town s municipal sanitary sewer system and to pay their proportionate share of the cost of installing the sewer line at the time of development (when a Development Permit(s) is issued) in accordance with the Stratford Utility corporation Bylaw. The Stratford Utility Corporation shall install the sanitary sewer system. Article #4 - Municipal Water Supply Services Kel-Mac Inc. covenants and agrees to service the lot(s) by connecting to the Town s municipal water supply and to pay their proportionate share of the cost of installing the water line at the time of development (when a Development Permit(s) is issued) in accordance with the Stratford Utility Corporation Bylaw.

5 Page: 3 The Stratford Utility Corporation shall install the water line system. LAW [7] Rule 14.05(3)(d) of the Prince Edward Island Rules of Civil Procedure states: Application Under Rules (3) A proceeding may be brought by application where these rules authorize the commencement of a proceeding by application or where the relief claimed is for,... (d) the determination of rights that depend on the interpretation of a deed, will, contract or other instrument, or on the interpretation of a statute, order in council, regulation or municipal by-law or resolution; [8] This application under Rule 14.05(3)(d) is based on the interpretation of the wording of the contracts and the municipal bylaw, not on what the parties believed the contracts or bylaw meant, not on credibility issues, not on any disputed facts. Examples may be used to illustrate the application or effect of an interpretation, but the examples must be consistent with the terms of the contracts and bylaw, and must not involve any hypothetical facts which are disputed. (Re Halmos (1979) 12 CPC 16 (Ont. H.C.); Re Ont. Ltd. and Richmond Hill (1977) 14 O.R. (2d) 787 (Ont. C.A.); Re Fulton and Eastern Holdings Ltd. [1973] 2 O.R. 438 (H.C.); Acumen Investments Ltd. v. Williams (1985) 53 O.R. (2d) 247 (Ont. H.C.); Re Burlington and Clairton (1979), 24 O.R. (2d) 586 (Ont. C.A.)) Stratford Water and Sewer Customer Service Regulations (Bylaw 21) [9] Sections 66 and 67 of Bylaw Number 21 state: 66. Utility Extensions to Un-Serviced Areas (a) Where the utility decides to extend water or sewer mains to or through an area that does not have water or sewer service, the utility may: (i) where the property is not serviced with on-site services, fix and determine a one time, non-recurring capital contribution that shall be paid by the owner of the property prior to connecting to the water

6 Page: 4 or sewer system and the total contribution shall not exceed the total cost of installing the system.... (b) For the purpose of determining the non-recurring capital contribution, the cost of installation may include: (i) (ii) the cost of engineering, labour, materials and equipment associated with water or sewer mains, laterals and appurtenances required for a complete installation; the cost of short term debt servicing. (c) For the purpose of determining the non-recurring capital contribution, the cost of installation may not include:... (ii) the cost of over-sizing of the water or sewer mains to service adjacent areas but the minimum size deemed required to service any area shall to be less than 150 mm (6") for a water main or 200 mm (8") for a sewer main. (d) (e) The utility may base the non-recurring capital contribution on frontage along the water or sewer main, on a per lot basis, or on a percentage of the area served by the water or sewer main. For the purpose of determining if a property is serviced with on-site services, a septic tank and tile field or a well and water pump will constitute on site sanitary or water service respectively. 67. Frontage Charges Where frontage charges are applied, the calculation shall be based on the following: (a) The cost shall be distributed based on the applicable frontage of each customer in proportion to the total applicable frontage subject to Section 105 of the Charlottetown Area Municipalities Act or any successor act or provision.

7 Page: 5 (b) (c) (d) The applicable frontage for lots with service being placed on more than one side shall include the length of the longest side only, the shorter sides shall not be included in the total applicable frontage. The frontage of lots already serviced from an existing main shall not be considered part of the total applicable frontage. Public rights of-way, easements and intersections shall not be considered part of the total applicable frontage (unless the easement is the only frontage on a main for a particular lot). [10] I note the following with respect to ss. 66 and 67: 1) The cost to be paid by the owner(s) of land serviced will not be more than the utility s cost; 2) There are three ways the utility could charge the land owner: a) frontage charge; b) per lot basis; and c) based on the lot s percentage of the total area served. 3) The municipality bears some costs. Specifically, pursuant to s. 66 (c) (i) where the size of water or sewer mains is increased so as to serve the areas, the additional cost is borne by the municipality; and 4) The expense associated with some stretches of water and sewer lines are counted for purpose of determining the total cost to be borne by the lot owners, but the stretches of water and sewer lines are not counted as part of total applicable frontage (s. 67(a), (b), (c) and (d). I take this to mean these stretches add to the cost to be borne by the lot owners without increasing the pool of people to pay the cost. By way of example, a ten-lot subdivision might have corner lots, intersections, public rights-of-way or easements (like a walkway), and lot(s) already served (not part of the ten-lot subdivision, but bordering on the new water and sewer lines). The cost to be borne by the lot owners would be the entire cost (less only costs to oversize water or sewer mains for fire or to serve the system) and the individual lot owner s cost would be the entire cost times the individual s longest frontage bordering the new service, divided by the total of the longest frontages for all ten lots. [11] The agreement of purchase and sale refers to standard procedures used by similar utilities in establishing such frontage charges.

8 Page: 6 [12] Kel-Mac filed two comparable regulations: 1) the Prince Edward Island Municipal Water and Sewer Utility General Rules and Regulations, made and approved by the Island Regulatory and Appeals Commission under authority of the Water and Sewerage Act, R.S.P.E.I. 1988, Cap. W-2, and 2) the Charlottetown Water and Sewer Utility Bylaw Part 6. The regulations are different from each other: the PEI regulations say 90%, the Charlottetown regulations say 100%. I also note the provisions for costs for over sizing lines are different from each other and from Stratford. The regulations state as follows: 1) The Prince Edward Island Municipal Water and Sewerage Utilities General Rules and Regulations state at Part 6 Extension of Services, ss. 6.1 and 6.3 as follows: 6.1 Customer Contributions Unless otherwise ordered by the Commission, property owners or customers shall, in case where service is not available, contribute towards the cost of extending mains, including service laterals to the property line, on the following basis: (i) In the case of water service, ninety percent (90%) of the total cost with the fire protection and sprinkler system components having first been subtracted. (ii) In the case of sewerage service, ninety percent (90%) of the total cost. Such contributions shall, in cases of developed, unserviced land, be based on a property owner s lot frontage in relation to the total frontage of the service extension Corner Lots In the case of a corner lot, if service is placed on more than one (1) side, the owner shall contribute towards the cost of the longest side only. 2) The City of Charlottetown Water and Sewer Utility ByLaw states at Part 6 - Extension of Services, ss. 6.1 and 6.3 as follows: 6.1 Customer Contributions Unless otherwise ordered by the Utility, property owners or customers shall, in cases where service is not available,

9 Page: 7 contribute towards the cost of extending mains, including service laterals to the property line, on the following basis: (I) In the case of water service, One Hundred percent (100%) of the total cost. (II) In the case of sewerage service, On [sic] Hundred percent (100%) of the total cost. Such contributions shall, in cases of developed, unserviced land, be based on a property owner s lot frontage in relation to the total frontage of the service extension. 6.2 Customer Contribution Frequency A customer contribution shall not be made more than once in the case of a water line or of a sewerage line on any frontage. No charge shall be made where service has been provided in the past. 6.3 Corner Lots In the case of a corner lot, if service is place on more than one (1) side, the owner shall contribute towards the cost of the longest side only. [13] In my view, Stratford s proportional frontage charge provisions accord with the frontage charge provisions used by Charlottetown, and those approved by the Island Regulatory and Appeals Commission to be used by smaller utilities in Prince Edward Island. It is plain the provision dealing with frontage charges for corner lots is conventional, which in this case is to say, an agreed upon but arbitrary way of dealing with something which could be done in other arbitrary ways, arguably as fair or perhaps even fairer. The corner lot provision spreads the cost of the short side amongst all lots. [14] Kel-Mac not only seeks to have corner lots pay a proportional share based only on the length of the longest side of the lot fronting the street, Kel-Mac also seeks a determination that the municipality must pay the short side costs. I do not agree. For purposes of this application, since Kel-Mac owns the entire development, Kel-Mac is responsible to pay 100% of the cost. How is a One-Lot Subdivision Treated? [15] Subdividing one lot at a time does not have the result of the lot owner avoiding a major part of the cost of installing the water and sewer lines. The calculation is exactly the same as for the hypothetical ten-lot subdivision described above: the entire cost of the lines associated with this one-lot subdivision is multiplied

10 Page: 8 by the applicable frontage of [the single] customer (i.e. the longest side, which according to the plan at the applicant s exhibit S, appears to be the northeast side measuring feet = feet), in proportion to the total applicable frontage..., which, because there is only one lot, is also feet, resulting in the single customer paying 100% of the cost. Summary [16] To summarize my findings: 1) It is acceptable for Stratford to require 100% recovery of costs for water and sewer lines (less oversizing costs as discussed above); 2) Stratford s bylaw does require 100% recovery, and the September 19, 2001 agreement states The Town shall charge back the cost of installation of such services. [emphasis added]; 3) For purposes of recovery of costs, only the longer sides of corner lots are used in calculating applicable frontage for such lots; 4) The shorter sides of corner lots, and a number of other categories of water and sewer lines: intersections, rights-of-way, easements, and the frontage of lots already served from any existing main, are not counted in determining total applicable frontage. The sum of the applicable frontage for each lot is the total applicable frontage; and 5) The total cost is borne by the owners of the total applicable frontage, and is shared proportionally among the total applicable frontage of the lots; 6) If there is only one lot, the total cost is borne by the total applicable frontage of that one lot. In other words, the lot owner pays 100% of the cost. CONCLUSION [17] The parties rights under the contracts and under the bylaw are as I have stated above. I find the narrow interpretation sought by the applicant is correct but incomplete, and the correct interpretation of all the provisions leads to the opposite result from that sought by the applicant. The respondent s position is correct as to who should pay for the water and sewer lines associated with the subdivision. Accordingly, barring an offer by the respondent under s. 49 of the Rules of Civil

11 Page: 9 Procedure which could result in an award substantial indemnity costs, I award the respondent its costs of this application on a partial indemnity basis. The applicant will have ten days from the date of this decision to file its submission on costs and the respondent will have ten days thereafter to file its response, if any, following which I will fix costs. February 26, 2009 J.