Citation: Annapolis (County) v Kings Transit Authority, 2012 NSSC 401
Date: 20121120
Docket: Ann No 350760
Registry: Annapolis
Between:
The Municipality of the County of Annapolis
Plaintiff
v.
Kings Transit Authority
Defendant
Judge: The Honourable Justice Gregory M. Warner
Heard: October 22, 2012 at Digby, Nova Scotia
Written Decision: November 20, 2012
Counsel: Blaine Schumacher, counsel for the plaintiff
Thomas R. MacEwan and Martin Glogier, counsel for the defendant
By the Court:
A. The Issue
[1] The Municipality of the County of Annapolis (“Annapolis”) claims $404,884.00 from Kings Transit Authority (“Kings Transit”), a portion of 1.76 million dollars received by Kings Transit between 2006 and 2010 from the Federal Public Transit Capital Trust Fund (“Federal Fund”).
[2] Annapolis first attempted to obtain $404,884.00 through a contract-interpretation arbitration and lost. Annapolis brings this action for recovery under the third logic of private law - unjust enrichment or restitution.
[3] The federal funds received by Kings Transit were calculated in part on the ridership of Kings Transit, which ridership included passengers on buses operated by Kings Transit under agreements with Annapolis, pursuant to which Annapolis paid to Kings Transit the net operating deficit, and, directly, all capital costs of the Annapolis routes.
[4] As required under the terms of the Federal Transit Fund, Kings Transit spent the grant money on eligible capital projects that benefited the entire transit system.
[5] This decision applies the analytical framework set out in a series of Supreme Court decisions beginning in 1954 but, most notably, Garland v Consumers’ Gas Co. (Garland), 2004 SCC 25, and Kerr v Baranow (Kerr), 2011 SCC 10.
[6] As with all evolving aspects of the law, especially those founded on the general principles of equity and fairness, the words used by the Supreme Court in its decisions have generated divergent interpretations of the analytical framework for determining unjust enrichment claims. Most recently, the divergence is represented by the commentary on the one hand by Professor John D. McCamus, author of a post-Kerr commentary in (2011) 50 C.B.L.J. 47, and on the other hand by Professor Mitchell McInnis, in a September 2011 conference presentation, published in (2012) 92 Boston University Law Review 1049 and in his response, in (2011) 38 Adv.Q. 165, to Professor McCamus’ commentary. More helpful are the seminal text, The Law of Restitution, by Peter D. Maddaugh and John D. McCamus, looseleaf edition (Toronto: Canada Law Book, 2012), and the condensed but thorough review of the development of the analytical framework through the Supreme Court decisions in Jocelyn M. Campbell, Q.C. and Jack Townsend, “Unjust Enrichment and the Supreme Court of Canada: Where Have We Been, Where Are We Now, and Where Do We need To Go From here?”, Annual Review of Civil Litigation, 2012 (Toronto: Carswell, 2012).
[7] This analysis can be divided into five parts: the benefit or enrichment analysis, the detriment or deprivation analysis, the two-stage “absence of juristic reason” analysis, the defences analysis, and the remedy analysis.
[8] In this case, Annapolis is obliged to establish, on a balance of probabilities, facts supporting the following: (i) enrichment or benefit to Kings Transit, (ii) a corresponding deprivation or detriment to Annapolis, and (iii) absence of a juristic reason for the benefit/detriment based on the first step of the juristic reason analysis - existence of an established category of juristic reason for retention of the benefit and deprivation.
[9] If Annapolis succeeds, the burden shifts to Kings Transit to establish through evidence: (iv) existence of a juristic reason for retention of the benefit under the second step of the juristic reason analysis - consideration of the reasonable expectations of the parties and public policy considerations, (v) a defence, or (vi) that the discretion of the Court to grant a remedy should not be exercised for some other equitable reason. Defences and reasons to refuse a remedy are unlimited. They may relate to, but are not limited to, benefits accruing to Annapolis that are equal to the benefits accruing to Kings Transit, unreasonable delay, a change in position by the beneficiary, or that the claimant did not come before the Court with clean hands.
[10] I dismiss Annapolis’ claim for the reasons that follow.
B. The Evidence
[11] This action was converted into an Application in Court. The evidence consisted of the affidavits of Brenda Orchard, Chief Administrative Officer of Annapolis, and Ronald Mullins, General Manager of Kings Transit. Both were cross-examined.
Relationship between Annapolis and Kings Transit
[12] Kings Transit commenced providing public transit to the four municipal units in Kings County in 1981. At that time, it was a body corporate, owned by the four municipal governments in Kings County. By Section 541 of the Municipal Government Act (“MGA”), S.N.S. 1998, c. 18, each regional transit authority was dissolved, its assets and liabilities were vested in the municipalities that established it, and all member municipalities were deemed to have entered into an intermunicipal services agreement for the provision of public transit pursuant to s. 60 of the MGA on the same terms and conditions as contained in the incorporating documents of the transit authority and to have dedicated the property of the authority for that purpose. This meant that the assets could not be returned to, and used by, the member municipalities for any other purposes, unless the intermunicipal services agreement was amended to so provide.
[13] The four Kings Transit member municipalities entered into an intermunicipal services agreement, dated April 1, 1999, to provide public transit within Kings County pursuant to ss. 55 and 60 of the MGA. The agreement requires consent of all member municipalities to add new parties. It requires members to provide funding for needed capital assets on the same formula as for the sharing of operating costs - based on members’ respective populations. Section 21 provides that the member municipalities may apply for grants on behalf of the authority for which the authority is not directly eligible; any such grants would be credited to the authority and be in addition to the member’s share of the authority’s capital and operating costs.
[14] In 2002, Annapolis entered into an arrangement with Kings Transit whereby it would provide buses and Kings Transit would operate a public transit service on routes serving the communities of Greenwood, Middleton, Lawrencetown, Bridgetown and Annapolis Royal. This arrangement was confirmed by two written agreements executed on July 15, 2003 between Annapolis and Kings Transit, for a five-year period commencing April 1, 2002 and terminating March 31, 2007. The agreement for the Annapolis East route, serving Greenwood, Middleton, Lawrencetown and Bridgetown, (“Transit Agreement”) is before the Court. The agreement for the Annapolis West route (from Bridgetown to Digby County, including Annapolis Royal) is not before the Court. Counsel state that the two agreements contain identical provisions. Counsel ask the Court to determine Annapolis’ claim for both routes on the basis of the Transit Agreement before the Court.
[15] The 2003 agreements between Annapolis and Kings Transit were not renewed in writing. The parties continued to operate under the terms and conditions in the Transit Agreement until Annapolis gave notice in January 2012 that it was withdrawing from the Transit Agreement effective July 18, 2012. Before the agreements expired, the parties negotiated a short-term arrangement to continue the Annapolis routes, while Annapolis arranged for an alternative service and while Kings Transit applied to the Utility and Review Board (“UARB”) for permission to terminate the Annapolis routes.
[16] Apparently the parties are attempting to negotiate a new agreement while operating under the interim arrangement.
[17] The Transit Agreement is relevant to this application; it is set out in full as Schedule “A” to this decision.
[18] The arrangement described in the Transit Agreement is that Annapolis is responsible for the capital costs of the Annapolis service (para 10) and that “any and all capital assets acquired by Annapolis” are owned by and remained the property of Annapolis (para 14). It appears that the capital costs of the services consisted of the buses used on the Annapolis routes. Replacement buses (when Annapolis buses required servicing or broke down) were rented from Kings Transit. Kings Transit collected the fares on the Annapolis routes and credited them against the operating costs of the Annapolis routes.
[19] Annapolis paid Kings Transit the difference between the operating revenues (para 6) and the actual gross operating expenses (para 9). These expenses included an annual management fee. The Transit Agreement required Kings Transit to submit annual budget estimates for Annapolis’ approval and for Annapolis to make monthly payments on the estimated net operating expenses. As actual revenue and expense information became available, Annapolis’ payments were adjusted, up or down.
[20] The statutory authorization for the Transit Agreement is found in ss. 55 and 60 of the MGA.
[21] To paraphrase s. 55(1), a municipality may provide a public transportation service by the purchase of vehicles and operation of the service, or by providing financial assistance to a person who undertakes to provide the service, or by a combination of these methods. In this case, a combination of methods was employed. Annapolis purchased the buses and provided financial assistance to Kings Transit to operate the service. Section 55(2) provides that the Public Utilities Act does not apply to a service within a municipality. Because the service in this case included service to the Towns of Middleton and Bridgetown and extended into Kings, Digby and later Hants Counties, Kings Transit operated the service as a regulated service pursuant to the Public Utilities Act.
[22] To paraphrase s. 60(1), a municipality may agree with one or more municipalities to provide or administer municipal services. Section 60(2) provides that any agreement may “delegate the power to provide the service to a committee representing each of the participating municipalities, or to a party to the agreement.” Section 60(3) sets out what terms the agreement may contain. Terms may include a description of the service, the area of the service, how and by whom the services will be provided, how the costs (both capital and current) will be paid and shared, as well as the “ownership of any capital assets created under the agreement.”
[23] The Transit Agreement in this case does not provide that Annapolis become a member of Kings Transit in the manner contemplated in section 60 of the MGA; that is, by signing into the intermunicipal services agreement of April 1, 1999 (which would have required the consent of all four existing member municipalities). The Transit Agreement did not purport to amend, directly or indirectly, the 1999 intermunicipal services agreement. No evidence or explanation was given as to why Annapolis did not “join” as a full member the intermunicipal services agreement that operates Kings Transit.
[24] At least one representative of Annapolis was made an ex officio (non-voting) member of Kings Transit. Annapolis was given notice of Kings Transit meetings with one or two representatives of Annapolis attending meetings of Kings Transit and participating in the discussions regarding the operation of Kings Transit generally, and, in particular, Kings Transit’s discussions about proposals for its application to the Federal Fund.
[25] Applying Section 55 of the MGA to the Transit Agreement and evidence, I conclude that Annapolis provided a transit service by a combination of two methods: purchasing buses for the two Annapolis routes, and providing financial assistance to a third party ( Kings Transit) to provide the transit service (s.55(1)(c)).
[26] Ms. Orchard testified that Annapolis made its own agreements with the Towns of Middleton and Bridgetown to recover part of its cost associated with the Annapolis East route. Neither agreement nor their terms (nor any agreement that Annapolis may have with the Town of Annapolis Royal respecting the Annapolis West route) is before the Court. It is relevant to this analysis that Annapolis seeks to recover a portion of the Federal Fund, applied for and received by Kings Transit on the basis of ridership that did not entirely originate within its municipal boundaries but which originated in the Towns of Middleton, Bridgetown and Annapolis Royal.
[27] I conclude that Annapolis did not became a member of Kings Transit by joining the committee of the four Kings County municipalities in an intermunicipal agreement authorized by MGA section 60(1)(c); rather, it delegated the power to provide the transit service to a third party - the committee representing the four Kings County municipalities who owned and operated Kings Transit by the Transit Agreement.
The Federal Fund, Federal Agreement, and Transit Funding Agreement between Nova Scotia and Kings Transit
[28] In 2006 the Government of Canada (“Canada”) established trust funds to provide financial assistance respecting matters within provincial jurisdiction. The Federal Fund was established to support capital investments in public transit during the period 2006 to 2010.
[29] Canada and Nova Scotia entered an “Agreement on the Transfer of Federal Public Transit Funds 2006 - 2010" (“Federal Agreement”) on November 3, 2006, whereby Canada committed funds for “Eligible Recipients” of up to 100% of “Eligible Costs” for “Eligible Projects”. The funds were required to be used for additional capital expenditures, rather than as a replacement for existing capital funding.
[30] An eligible recipient was defined in s. 1.1 as: (i) a municipality or its duly authorized agent (including its wholly owned corporation such as a transit agency); and (ii) a Community Transit Organization. Section 7.1 of the Federal Agreement expressly identified and allocated the funds to the three existing public transit systems in Nova Scotia: Metro Transit in HRM, Cape Breton Transit in CBRM, and Kings Transit in Kings County.
[31] Section 7 allocated to each transit system equal base funding. The remainder of the funding was allocated among the three transit systems in proportion to their ridership as reported to an industry organization, Canadian Urban Transit Association (“CUTA”). To trigger access to the federal funds, Kings Transit was required to sign a Transit Funding Agreement (“TFA”) with Nova Scotia, and submit a capital budget which identified eligible costs in respect of eligible projects. Nova Scotia was required to return to Canada any federal funds not advanced to eligible recipients by March 31, 2010. The schedules to the Federal Agreement set out eligible projects and very specifically defined eligible costs.
[32] I accept the evidence of Kings Transit that it had no involvement in, nor prior knowledge of, the establishment of the Federal Fund, nor the content of the Federal Agreement, nor the determination of who would be an eligible recipient, nor the formula for the allocation of the Federal Fund.
[33] I further find that Kings Transit reported its ridership figures to CUTA without reason to believe that the reporting of these figures may impact upon the Federal Fund. I find that in the 2006 - 2007 fiscal year, approximately 22.8 % of Kings Transit’s total ridership was in respect of the two Annapolis routes.
[34] I do not accept Annapolis’ contention that Kings Transit knew, or was negligent in not knowing, about the Federal Fund and the terms of the Federal Agreement, or that Canada would rely upon the annual ridership figures provided by Kings Transit to CUTA as part of the formula for the allocation of the Federal Fund.
[35] At the time of the Federal Agreement, Kings Transit was operating a public transit service in Kings, Annapolis and Digby Counties. There is no evidence before the Court as to whether the Federal or Nova Scotia governments knew the terms of the agreement between Kings Transit and the municipal governments within these three counties, or whether knowledge of those agreements would have made any difference to the designation of Kings Transit as the eligible recipient of a portion of the Federal Fund, or whether Canada would have designated a municipal government that had contracted with a public transit authority to operate a transit service as an eligible recipient instead of the transit authority.
[36] Brenda Orchard, on cross-examination, testified that, at a meeting in late 2009, Rene Frigault, a Nova Scotia civil servant working with the office dealing with the Federal Agreement and the TFA, stated that he did not understand the relationship between Kings Transit and Annapolis or that Annapolis did not have a vote on the Kings Transit board. This evidence is hearsay. Furthermore, it is not evidence that Canada would have altered the designation of Kings Transit as the eligible recipient in the Federal Agreement, or Nova Scotia in the TFA, or would have designated Annapolis as an eligible recipient for a portion of the federal funds Kings Transit applied for, received and spent.
[37] On December 1, 2006, Nova Scotia entered into an Transit Funding Agreement (“TFA”) with Kings Transit. The TFA incorporated many of the provisions of the Federal Agreement. It set out King Transit’s responsibility to submit capital budgets for eligible costs on eligible projects, to comply with detailed terms and conditions, and to report outcomes.
[38] Subsections 2.3.3 (i) and (j) of the TFA required the eligible recipient to ensure that the funds would “not displace or be used to clawback any capital funding that is currently being made available for public transit infrastructure”, and to agree that Kings Transit’s “average annual capital spending on public transit infrastructure over the period of the agreement would not fall below $200,000 [per year], exclusive of any funding allocated under this Agreement.” Paragraph 11 of Schedule 3 of the TFA provided that Kings Transit was required to “retain title to, and ownership of, the Public Transit Infrastructure resulting from the Eligible Project for at least ten years after project completion”, and if, for any reason it did not, Kings Transit “shall repay Nova Scotia on demand a proportionate amount of the funds contributed by Canada” by the formula in Schedule 3.
[39] Kings Transit discussed how the federal funds could best be used for the benefit of the transit system on a number of occasions. Annapolis County was represented at meetings of Kings Transit in an ex officio (non-voting) capacity during these discussions, including, in particular, a planning session that occurred on July 17, 2008. I find that Annapolis County was aware of the availability of Federal Fund to Kings Transit, and of Kings Transit’s plans for the use of those funds through the attendance of its representatives at Kings Transit meetings throughout the period that Kings Transit planned for, applied for, received and spent their portion of the Federal Fund.
[40] Pursuant to the TFA, Kings Transit received $1,769,992.00 from Federal Fund between 2006 and March 31, 2010. As discussed during meetings and planning sessions, Kings Transit spent the federal funds on the following eligible projects: five feeder buses; two used spare buses; security cameras, radios and fare boxes for every bus in the system, and a new garage facility. Approximately one million dollars of the funds were used to acquire and set up the garage facility.
Benefits to Annapolis from the Federal Fund Expenditures by Kings Transit
[41] I accept the evidence of Mr. Mullins that the security cameras, radios and fare boxes were placed on all Kings Transit buses, including those buses owned by Annapolis and operated on the Annapolis routes, without cost to Annapolis. I accept that the acquisition of feeder buses was, in part, to reduce the operating expenses of the Annapolis West route.
[42] I accept the analysis in Exhibit E to Ronald Mullins’ affidavit describing the significant financial benefits to Annapolis by Kings Transit’s acquisition of its own garage facility. The garage project allowed Kings Transit to hire its own mechanics (at half the hourly rate charged by private garages), to stock its own replacement parts, thereby lowering repair costs, and to attain faster service and to reduce bus downtime (saving rental costs of back-up buses), thereby reducing the operating expenses of the transit system as a whole, and, in turn, reducing the net operating expenses of the Annapolis routes for which Annapolis was responsible under the Transit Agreement.
[43] Brenda Orchard’s response to the Mullins analysis of the benefits to the entire transit system by the capital expenditures from the Federal Fund, consisted of an unexplained bald assertion that Annapolis received no benefit. On cross-examination, her explanation was that Annapolis did not receive the monies directly, and therefore did not control how the federal funds were spent. She speculated that Annapolis would have spent the federal funds on new buses that may have reduced maintenance costs.
[44] While Annapolis did not control the projects upon which the federal funds were expended, it received the same proportionate benefit from the projects as the other areas serviced by Kings Transit. Having said this, ownership of the capital asset, as required by the TFA, remains with Kings Transit, and Annapolis acquired no ownership interest in the assets of Kings Transit by reason of the terms of the Transit Agreement.
[45] Before Annapolis advanced its claim for entitlement to a portion of the Federal Fund, the Municipality of the County of Digby, with whom Kings Transit also had a transit service agreement, had apparently raised the same or a similar concern. Both counsel referred the Court to an e-mail dated October 20, 2009 from Mr. Frigualt to the general manager of Kings Transit, which reads as follows:
Hi Ron: The Transit Funding Agreement is signed specifically with Kings Transit Authority. The total ridership does factor in how we allocate the funds, but the Agreement is very specific on which services are eligible to receive PTF. It is the discretion of Kings Transit Authority on how these funds are distributed as long as they meet the conditions set out in the TFA. However, because the Mun of Digby are not considered an eligible recipient under the PTF...there is really no provincial requirement to distribute the funding based on population areas contributing to the total ridership. If Kings Transit have a separate signed agreement with the Mun of Digby that specifically outlines the (PTF) funding relationship then you would have to follow the conditions that agreement.
[46] It appears that after this date Digby did not pursue a claim for a share of the Federal Fund, but it lead Annapolis to commence an inquiry into whether it was entitled to receive directly a portion of the Federal Fund, on the basis that 22.86% of Kings Transit’s ridership, which it describes an intangible asset owned by Annapolis, and therefore, 22.86% of the Federal Fund paid to Kings Transit belonged to Annapolis.
C. The Law
[47] Courts invariably succumb to the pressure to warp general principles into rules that are clear, certain and consistent. Rules that are clear, certain and consistent do not result in fairness or justice in every instance, because fairness or justice is a dynamic societal value subject to constant re-balancing of competing interests, and because the just resolution of every factual matrix has not yet been recognized by legislation or common law.
[48] Unjust enrichment is an equitable principle, a notion that equity will intervene to protect against an unfairness that is not recognized by the common law or legislation. Equity does not override legislation or the common law, but imputes an obligation on those who have legal rights and responsibilities to act fairly. Equity looks at the substance of conduct, not the form. Where the equities are equal, the law prevails. Those seeking equity, must act equitably.
[49] Unjust enrichment specifically addresses when to reverse the unjust or unwarranted transfers of tangible economic benefits. Because unjust enrichment is an equitable principle, and not a rule of law, the circumstances in which it arises are unlimited. Intervention by a court is therefore discretionary, but that discretion cannot be exercised capriciously or arbitrarily.
[50] Intervention is dependent entirely upon the particular factual and social context out of which the claim arises (Kerr, para.34), and, where an established category justifying the benefit does not exist, on the legitimate expectations of the parties and moral or policy-based arguments (Kerr, para. 44), and must be well grounded in the evidence (Kerr, para. 88).
[51] The private law of obligations has existed and evolved for centuries in the form of the law of torts and contracts. Contract law involves the voluntary assumption of obligations. Tort law involves the allocation by society of the risk of harm or loss or, said differently, imposes an obligation of compensation for harm. While traditionally the tort obligation was based on fault, it is now largely founded on legislation and expectations imposed by society.
[52] Courts have always imposed obligations that do not fit neatly into the law of contracts or torts. Professors Maddaugh and MacCamus succinctly relate the convergence of some of these trust, quasi-contract and quasi-tort notions into the law of restitution or unjust enrichment. In Canada, this convergence began with Deglman v Guaranty Trust [1954] S.C.R. 725, and was most recently developed in Kerr.
[53] Garland provides a clear, coherent framework for the application of the unjust enrichment principle in a practical and flexible way. It divided the juristic reason analysis into two parts, in what Justice Iacobucci described as a distinctive Canadian approach. This was expressly stated to be in response to academic and judicial comments that: showed preferences for and against both the English (common law) and American (civilian) approaches, complaints about the difficulty of proving a negative, and worries about a purely subjective or “case by case palm tree justice” approach.
[54] Some of the elements of the unjust enrichment analysis were not in issue in Garland and not fully explained. This void was substantially filled by the Supreme Court decision in Kerr. Kerr endorsed the Garland approach and expanded on aspects of the Garland analysis.
[55] Most of the unjust enrichment litigation has focussed on the third step - the juristic reason analysis.
[56] I agree with Professor McInnis that the Supreme Court in Garland (and in Kerr) clearly adopted the civilian model from the American Restatement of the Law of Restitution: however, Garland did incorporate “established categories of recovery” from the common-law model as the first step in the juristic reason analysis. Only if the applicant establishes that one of the existing categories of justification for retention of the benefit does not justify retention of the benefit, does the evidential burden switch to the beneficiary to establish a new or non-established juristic reason for the benefit or “another reason for denying recovery” (Garland, para 45).
[57] Garland clearly recognizes that unjust enrichment is an evolving principle and not a clear and certain rule of law. If the applicant establishes that one of the established justifications for retention of a benefit does not apply on the factual matrix, the door is open, in the second part of the juristic reason analysis, to a consideration of the reasonable expectations of parties (expanded upon in Kerr) and public policy considerations, that may yield new justification. At paragraph 46, the Garland court clearly identified, in step two of the juristic reason analysis, three possible outcomes: (1) establishment of a new category of juristic reason for the enrichment; (2) no new category of juristic reason but a juristic reason in the particular circumstances of a case; and (3) no juristic reason for the enrichment.
[58] The Garland approach to the juristic reason analysis merges earlier court decisions in upholding or overturning enrichments, with the new principled approach.
[59] The Supreme Court’s approach is analogous to its approach to the admission of hearsay evidence. Traditional exceptions to exclusion remain presumptively in place, subject to their conforming to the new principled approach, which approach otherwise requires the proponent for admission to establish the indicia of necessity and reliability.
[60] The analytical framework described in Garland, beginning at para 28, and Kerr, beginning at para 31, is as follows.
1. Was the defendant enriched by the plaintiff? Enrichment connotes a tangible economic benefit conferred on the defendant. This analysis is devoid of moral or policy considerations. In Kerr, the Court clarified that the benefit may be positive or negative.
2. Was the plaintiff deprived? The Garland and Kerr courts do not analyze this step in any depth. Deprivation or detriment does not appear to have been in serious dispute in these cases. In Garland, the transfer of money was directly from the plaintiff to the defendant. In Garland, the Court described deprivation as involving a tangible, economic deprivation, devoid of moral or policy considerations. In Kerr, the Court clarified that the deprivation is a “corresponding” deprivation that may, in respect of a benefit to the Defendant, occur directly or indirectly.
3. While the Garland Court described the issue in para 28 as: “Is there a juristic reason for the enrichment?”, the analysis begins at para 38 and clearly frames the third question as whether there is “an absence of juristic reason” for the enrichment. The answer to the question may require a two-step analysis. As noted above, in response to academic and judicial commentary, the Court described the first step as requiring the deprived party to prove that none of the established justifications for the benefit apply. If it is successful, the evidential burden shifts to the beneficiary to establish a juristic reason for retention, either by establishing a new category of juristic reason, or alternatively, that in the particular circumstances of the case (without establishing a new category) the retention is justified. Justice Cromwell amplifies the juristic reason analysis at paras 40 to 46 in Kerr.
4. Can the Defendant avail itself of any defence? Garland effectively sets this up as a fourth question (para 28.2 and beginning at para 62). In Garland the defences advanced included the ‘change of position’ defence, and the ‘regulated industry’ or obedience-to-a-statute defence. In Kerr the defences included the ‘mutual enrichments’ defence.
5. What remedy, if any, should the court order? One of the features of equity is that equitable remedies are discretionary. The Supreme Court has not suggested, either in Garland or Kerr, that unjust enrichment has lost its equitable foundation such as to restrict the discretion of the Court in granting a fair remedy, or refusing any remedy.
[61] While it would be strange to encounter a matrix in which a finding of unjust enrichment did not lead to a remedy, the nature of any remedy must flow logically from the specific matrix, and the determinations made as to the nature of the benefit, the nature of the deprivation, the absence of a juristic reason, and the defences.
D. Analysis
Step One: Enrichment to Kings Transit
[62] The Supreme Court downloaded most of the analysis of unjust enrichment to the third, fourth and fifth steps.
[63] The simple question at step one is whether Kings Transit received a tangible, economic benefit related to Annapolis (my emphasis).
[64] The Federal Agreement provided a framework for the transfer of federal funds to Nova Scotia for investment in the public transit infrastructure to support environmental objectives of the Federal Government. Based on the following evidence, I find that Kings Transit received a tangible, economic benefit related to Annapolis.
[65] The Federal Agreement and TFA resulted in the receipt by Kings Transit of $1,769,992 in federal funds. Of this amount, $592,492 was core or base funding paid to each of the three public transit systems in Nova Scotia, irrespective of their ridership. The balance, $1,177,052, was allocated and paid to Kings Transit on the basis of ridership figures reported to CUTA for the 2006 - 2007 fiscal year.
[66] It appears that in the 2006 - 2007 fiscal year, 22.87% of Kings Transit ridership originated with the two Annapolis routes. This ridership was part of the data provided by Kings Transit to CUTA upon which the federal funds were allocated and paid to Kings Transit.
[67] By the Transit Agreement between Kings Transit and Annapolis, Annapolis was directly responsible for all capital costs related to the Annapolis routes and indirectly (by its monthly payments to Kings Transit) for the net operating costs or deficit of the Annapolis routes. But for the ridership on Annapolis routes, it is logical to infer that Kings Transit would not have been eligible for or have received $269,248, being the portion of the federal funds received that relate to the Annapolis ridership.
[68] There is no basis in the evidence, particularly upon a review of the Federal Agreement, to suggest or infer that the allocation of the base or core funding, which was in the same amount for each of the three public transit systems in Nova Scotia, would have been any different if the Annapolis routes had not existed.
[69] For the step one analysis, it is not relevant: that neither Canada nor Nova Scotia knew that Annapolis was paying the capital and net operating costs of the Annapolis routes (less those amounts recovered from towns within Annapolis County); whether Canada might have changed the Federal Agreement and Nova Scotia the TFA, to divert the ridership - based portion of the Federal funds to Annapolis directly; or that Kings Transit did not know that Canada and Nova Scotia intended to create a program by which monies would be advanced to public transit systems based in part upon ridership.
[70] It is relevant that part of the ridership originated in the towns of Middleton, Bridgetown and Annapolis Royal and not the Municipality of the County of Annapolis, and that Annapolis had separate financial arrangements with at least two of these municipal corporations to recover some of their costs. For convenience, this issue is considered at a later step.
Step Two: Deprivation to Annapolis
[71] Very little guidance is provided by the Supreme Court respecting this second step. In both Garland and Kerr, there was no real issue that the benefit to the defendant was tied to a deprivation or detriment to the plaintiff.
[72] In Garland, the monies came directly from the deprived party so the deprivation was obvious.
[73] In Kerr, at para 39, Justice Cromwell states that the second element in the unjust enrichment analysis is a corresponding deprivation involving a material loss suffered by the plaintiff.
[74] At paragraphs 37, 38 and 112, Justice Cromwell reiterates that the analysis involves a straightforward economic approach respecting something that confers a tangible benefit in either a positive (transfer of value by the plaintiff to the defendant) or negative (sparing an expense that the defendant would have otherwise had to undertake) manner.
[75] In his discussion of remedies (proprietary versus monetary awards) at para 51, Justice Cromwell makes an observation about the nature of the link between the contribution (the deprivation) and the property (the benefit) in trust situations that assists in the interpretation and application of the terms “corresponding” and “loss suffered” in para 39. He wrote:
As to the nature of the link required between the contribution and the property, the Court has consistently held that the plaintiff must demonstrate a “sufficiently substantial and direct” link, a “casual connection” or a “nexus” between the plaintiff’s contributions and the property which is the subject matter of the trust. A minor or indirect contribution will not suffice. As Dickson C.J. put it in Sorocham, the primary focus is on whether the contributions have a “clear proprietary relationship”. Indirect contributions of money and direct contributions of labour may suffice, provided that a connection is established between the plaintiff’s deprivation and the acquisition, preservation, maintenance, or improvement of the property.
[76] The evidence in this case does not establish that Annapolis has suffered a corresponding deprivation or loss.
[77] The monies received by Kings Transit came from Canada pursuant to a nationwide program to benefit existing public transit systems. The monies did not come from Annapolis, directly or indirectly. Nor did they constitute a positive or negative deprivation, in the sense that Kings Transit was saved an expense it would otherwise have had to incur.
[78] The program, as evidenced in the Federal Agreement and TFA, was directed at the infusion of new investments in capital infrastructure, where capital funds would not otherwise be deployed. In the Federal Agreement, Nova Scotia promised: in para 4.2(a) to ensure that the funding under this agreement provide additional revenues for eligible recipients rather than displace other provincial public transit infrastructure funding; and in para 4.2(b), to ensure that spending on public transit infrastructures within Nova Scotia, exclusive of the Federal funds, would not be less than the ‘base amount’.
[79] Most of the terms and conditions of the Federal Agreement were incorporated in the TFA, and thereby made binding on Kings Transit. Kings Transit agreed that the federal funds “will not displace or be used to clawback any capital funding that is currently being made available for public transit infrastructure” (para 2.3.3(i), and that Kings Transit’s average annual capital spending on public transit infrastructures would not fall below $200,000 per year, exclusive of any funds allocated under the TFA (para 2.3.3(j)). Simply put, the federal funds were made available to Kings Transit, one of the three existing public transit services in Nova Scotia, as additions to, and not in substitution for, existing capital funding.
[80] The federal funds could not displace existing capital funds available to Kings Transit, which, by inference, meant that they could not displace existing capital funds required to be contributed by Annapolis for the Annapolis routes.
[81] At paragraph 38 in Kerr, Justice Cromwell wrote that a benefit may be positive or negative. Similarly, a deprivation may be positive (by a direct payment by the plaintiff to the defendant) or negative (by, for example, sparing the defendant an expense it would otherwise have had to incur).
[82] The terms and conditions for the allocation of federal funds to Kings Transit would not have reduced any obligation of Annapolis. I conclude that there was no corresponding deprivation or loss suffered by the plaintiff by reason of the federal program.
Step Three: Absence of Juristic Reason
[83] As noted, the juristic reason analysis is distinctly Canadian. It combines the American Restatement civilian approach with the English (built on existing categories of unjust enrichment) common law approach.
[84] The dichotomy is neatly finessed in paras 40 to 45 in Kerr. The benefit and corresponding detriment must have occurred without a juristic reason or, said differently, where there is no reason in law or justification for the defendant’s retention of the benefit conferred by the plaintiff, then its retention is unjust. As noted, the analysis is in two parts or stages.
[85] In the first, the plaintiff must prove an established category of juristic reasoning for retention does not apply. Existing categories include a contract, a disposition of law, a donative intent, and other ‘existing common law, equitable or statutory obligations’. Juristic reasons for retention by the benficiary are not limited to a close list. The analysis provides for consideration of the autonomy of the parties, including factors such as the legitimate expectations of the parties and the right of the parties to order their affairs by contract. In the second, the defendant must prove another juristic reason, beyond established categories, based on the reasonable expectations of the parties and public policy considerations, for denying recovery by the deprived party.
Stage One: The Established Categories
[86] Kings Transit argues that the contract between Kings Transit and Nova Scotia (TFA) constitutes an established category of juristic reason to deny recovery in this case.
[87] It relies upon the Supreme Court’s analysis in Gladstone v Canada, 2005 SCC 21, at paras 17 to 22, and Pacific National Investments Ltd. v Victoria, 2004 SCC 75, at para 28.
[88] Annapolis argues that the relevant contract is the Transit Agreement between Kings Transit and Annapolis. The Transit Agreement is silent respecting capital grants from third parties. Annapolis submits that because the Transit Agreement did not contemplate the federal grant to Kings Transit, Annapolis is not excluded from recovering on the basis of unjust enrichment. It argues that the Federal Agreement and TFA create statutory or regulatory authority supporting the payment of the federal funds to Kings Transit but they do not restrict or preclude, as an objective of the federal program, allocation of a portion of those funds attributable to Annapolis ridership to Annapolis itself. It argues that the Transit Agreement shows no donative intent by Annapolis to benefit Kings Transit. As its final argument respecting the stage one analysis, it submits that unjust enrichment is an equitable principle that is not offset in this case by any statutory provision or contractual agreement that prevents restitution.
[89] I agree with Kings Transit that the federal program, Federal Agreement and TFA provide a clear contractual basis for Kings Transit’s enrichment.
[90] Just as the statutory regime that regulated commercial fisheries so as to benefit a group was held in Gladstone v Canada as justifying retention of the benefit by the group, the federal program incorporated in the Federal Agreement clearly provides that the existing public transit authorities are to be the beneficiaries (“Eligible Recipients”) of one time capital infrastructure grants that are to be used to improve the public transit system with new funds beyond those capital funds that are already committed to the transit authorities.
[91] Annapolis’ argument ignores the clear objective of Canada not to replace or reduce existing capital funding, which objective was contained in the provisions that required Nova Scotia to enter agreements with the designated Eligible Recipients (the existing public transit authorities) to ensure that they maintained their existing capital funding. In the case of Kings Transit, it was obligated to maintain its annual capital contract funding of $200,000. The federal regime provides a juristic reason for the enrichment which occurred.
[92] The silence of the Transit Agreement between Annapolis and Kings Transit on the issue of the allocation of Federal Grant Funds does not assist Annapolis. The circumstances and analysis in Jedfro Investments (USA) Ltd. v Jacyk, 2007 SCC 55, at paras 30 to 44, are analogous and applicable to the circumstances of this case. Chief Justice McLachlin wrote:
[30] In the alternative, the appellants submit that this money should be returned on the basis of unjust enrichment. A finding of unjust enrichment has three requirements: an enrichment, a corresponding deprivation and an absence of any juristic reason for the enrichment. The fact that a party’s actions have benefited another is not enough; it must also be “evident that the retention of the benefit would be ‘unjust’ in the circumstances of the case”: Pettkus v. Becker, 1980 CanLII 22 (SCC), [1980] 2 S.C.R. 834, at p. 848, per Dickson J. (as he then was).
[31] The first two requirements of unjust enrichment are present in the case at bar. The respondents enjoyed the benefit of the appellants’ investment money and the appellants suffered an uncompensated loss of those funds when the foreclosure occurred.
[32] With respect to the third requirement, the appellants must show that the facts do not fall within one of the “established categories” of juristic reason, such as contract or “other valid common law, equitable or statutory obligations”: Garland v. Consumers’ Gas Co., 2004 SCC 25 (CanLII), [2004] 1 S.C.R. 629, 2004 SCC 25, at para. 44.
[33] The respondent Jacyk submits that the operation of the joint venture agreement provides a juristic reason why the US$1.4 million is not repayable to the appellants. The parties voluntarily contracted to invest money for the purpose of acquiring and maintaining the property, without providing for any right to have the money repaid under the circumstances that eventually arose.
[34] The respondent’s position is supported by the general rule “that it is not the function of the court to rewrite a contract for the parties. Nor is it their role to relieve one of the parties against the consequences of an improvident contract”: Pacific National Investments Ltd. v. Victoria (City), 2004 SCC 75 (CanLII), [2004] 3 S.C.R. 575, 2004 SCC 75, at para. 31.
Stage Two: New Categories or Circumstances
[93] As noted, consideration of the reasonable expectations of parties and public policy considerations, the onus of which falls on the beneficiaries (defendant), may yield or result in a new category of juristic reason for an enrichment, or no new category but a juristic reason particular to the circumstances of a case.
[94] Because of my answer to the stage one analysis, a stage two analysis is not necessary.
Step Four: Defences
[95] If I am wrong, at least two defences advanced by Kings Transit have merit.
[96] First, Kings Transit argues that Annapolis benefited from the Federal Fund. The argument is similar to the analysis undertaken in Kerr as the “mutual benefit conferral” analysis. Beginning at para 101, Justice Cromwell writes that while sometimes relevant to the juristic reason analysis, it is more straightforward and just to consider the impact of benefits to the claimant at the defence and remedy stages.
[97] Brenda Orchard’s bald denial of any benefit to Annapolis is supported only by the fact that Annapolis did not end up with ownership of the capital assets acquired with the federal funds (except for the cameras, radios, and fare boxes installed on the Annapolis buses). Its submission that it was entitled to own, and control how a portion of the Federal Fund was spent, is not, per se, a reasonable expectation.
[98] The principles of unjust enrichment deal with benefits and deprivations. They do not, per se, entitle the deprived party to ownership. Applying the analogy of the existing categories of trust law, the beneficiary of a trust is not per se entitled to ownership of the trust.
[99] Ronald Mullins’ affidavit (Exhibit 2, paras 36 to 43 and 56 to 64 as well as Tab E) together with his oral cross-examination clearly show that Annapolis benefited proportionately to its ridership from the projects funded by Canada.
[100] The security cameras, radios and fare boxes were placed on all of the buses in the system, including the Annapolis-owned buses. The new garage facility, by far the largest project, permitted Kings Transit to hire its own mechanics and to stock its own parts rather than depend upon private garages. Significant benefits to the entire system resulted from the reduction in operating costs and the shortening of times for maintenance and repair. The reduction of operating costs of the transit service, including the Annapolis routes, was by far the largest benefit to the system from the portion of the Federal Fund received by Kings transit. The evidence shows that Annapolis benefited proportionately in the reduction of its net operating costs.
[101] The feeder buses and spare buses acquired under the Federal Fund program made the Annapolis routes more economical, and therefore had the effect of reducing the net operating costs that Annapolis was contractually obligated to pay to Kings Transit.
[102] Kings Transit became the owner of the new garage facility and buses. The Transit Agreement between Kings Transit and Annapolis was structured such that Annapolis did not commit itself to Kings Transit as a full member, in the same manner as the four Kings County municipalities, but rather it contracted with Kings Transit for limited, specific obligations for a limited period of time. Its commitment and obligation to Kings Transit was significantly less than the obligations on the other four members pursuant to the provisions of the MGA and the intermunicipal services agreement of April 1, 1999. In this respect, it is not unfair that Annapolis has no ownership in the assets acquired by Kings Transit through the Federal Fund.
[103] Annapolis benefited from the projects carried out by Kings Transit between 2006 and the spring of 2012, when Annapolis gave notice terminating the Transit Agreement of 2003 (which had been orally renewed on a year-to-year basis after March 31, 2007). Annapolis would have continued receiving the benefit to this day had it not terminated the Transit Agreement.
[104] The benefit to Annapolis from the projects undertaken by Kings Transit with the federal funds, respecting operating costs, is proportionate to the benefit received by the other municipal units served by Kings Transit.
[105] As a second defence, Kings Transit argues that it changed its position before Annapolis claimed a share of the federal funds. Annapolis’ demand that it be paid a share of the federal funds in cash or as credit against future operating costs, is, according to Kings Transit, unjust, since the federal funds may have been spent differently if Annapolis had made a timely claim.
[106] I accept that the municipal officials of Annapolis were given notice of and attended the regular meetings of Kings Transit throughout the period that Kings Transit discussed, applied for, and spent the federal funds. While Annapolis had no vote, it participated in the meetings and the strategy session when Kings Transit discussed what it would apply for and how it proposed to spend the Federal Fund.
[107] Only in late 2009, after Kings Transit committed to a strategy and forwarded their submission to Nova Scotia pursuant to the TFA, and received most, if not all, of its portion of the Federal Fund, did Annapolis first suggest that it was entitled to a portion of those funds. Only after all of the funds had been spent (which the Federal Government required to be spent or returned by March 31, 2010) did Annapolis initiate the arbitration procedure provided for in the Transit Agreement. Only after the arbitration did not result in an interpretation of the Transit Agreement that supported Annapolis’ contractual claim to a share of the federal funds, did it commence this proceeding in unjust enrichment.
[108] It would be unfair and unjust for Kings Transit to have to pay Annapolis money or the equivalent of money. Kings Transit spent money on new projects, which it cannot terminate under the TFA, and which it may not otherwise have spent, if it had been on notice of the Annapolis claim.
[109] Kings Transit is a public authority with a duty to act prudently in the public interest. The “owners” - the four municipal units who are parties to the intermunicipal services agreement, are obligated by the Municipal Government Act to maintain their capital investment in Kings Transit and cannot reallocate their investment in the assets for any purposes other than public transit. If I had found that Annapolis had been deprived, or that no juristic reason to deny Annapolis recovery existed, I would have dismissed the claim on the basis of the defences advanced by Kings Transit.
Step Five: Remedies
[110] Annapolis’ claim for $404,884.00 is dismissed. The parties shall make written submissions on costs within one month, if they are unable to agree.
J