CITATION: 80 Mornelle Properties Inc. v. Malla Properties Ltd., 2010 ONCA 850
	DATE: 20101214
DOCKET: C51968
COURT OF APPEAL FOR ONTARIO
Moldaver, Simmons and Gillese JJ.A.
BETWEEN
80 Mornelle Properties Inc.
Applicant (Appellant)
and
Malla Properties Ltd.
Respondent (Respondent)
Martin G. Banach, for the appellant
Robert Shour, for the respondent
Heard: October 21, 2010
On appeal from the orders of Justice James M. Spence of the Superior Court of Justice dated March 18, 2010 and May 25, 2010.
Gillese J.A.:

[1]               The owner of an apartment building in Toronto appealed the property’s tax assessment.  It then sold the property. 

[2]               The City reassessed the property and issued a property tax refund, largely for the period during which the vendor owned the property. Who is entitled to the refund – the vendor or the purchaser?

[3]               This appeal answers that question in favour of the vendor.

OVERVIEW

[4]               80 Mornelle Properties Inc. (the Vendor) owned an apartment building in Toronto (the property). It sold the property to PFB Investments Ltd.  The sale was completed on October 19, 2006 (the closing).  On closing, PFB directed title to Malla Properties Inc. (the Purchaser).

[5]               Before closing, the Vendor had retained lawyers to appeal the property’s tax assessment.  The Vendor continued to pursue the assessment appeal after closing and was ultimately successful.  In November 2008, the property was reassessed with the result that a refund of $251,166.43 (the refund) was owed for the period 2003 to 2006.

[6]               The City paid the refund to the Purchaser.  It did so because s. 306(2) of the City of Toronto Act, 2006,[1] provides that property tax refunds are to be paid “to the owner of the land as shown on the tax roll on the date the adjustment is made”.

[7]               The Vendor asked the Purchaser for the refund.  The Purchaser refused. 

[8]               The Vendor then brought an application in which it asked the court to direct the Purchaser to deliver the majority of the refund to it.  The Vendor did not seek the entire refund because it accepted that the Purchaser could retain the part that related to the period after closing. 

[9]               By order dated March 18, 2010 (the Order), the application judge dismissed the application.  In his view, at the time the property was sold, the most that the Vendor could be said to have in respect of its assessment appeal was a “contingent prospect for receiving a tax refund in an amount yet to be determined”.  He stated that the Vendor could not have sued on the basis of such an interest and opined that it could not be a chose in action. 

[10]          The application judge rejected the Purchaser’s argument that it was entitled to the refund because of provisions in various pieces of legislation governing real property.  He noted that such legislation relates to land and interests therein and that it is not clear that the “creation of a request for a tax refund gives rise to a right against land or the title to the land”. 

[11]          The application judge then considered whether the doctrine of unjust enrichment would require the Purchaser to disgorge the refund.  He concluded that the case law favoured the Vendor’s claim.  Nonetheless, he held that because s. 306(2) of the City of Toronto Act, 2006 authorized payment of the refund to the Purchaser, the Purchaser had a juristic reason to retain it.    

[12]          By order dated May 25, 2010 (the Costs Order), costs of the application were awarded to the Purchaser in the sum of $25,000, plus disbursements and applicable taxes. 

[13]          The Vendor appeals.

[14]          In my view, the appeal must be allowed.

THE ISSUES

[15]          In order to decide this appeal, two issues must be addressed:

1. Did the right to the refund pass to the Purchaser on the sale of the   property?

2.  Is the Purchaser entitled to retain the refund as a result of s. 306(2) of the City of Toronto Act, 2006?

1.         DID THE RIGHT TO THE REFUND PASS TO THE PURCHASER ON THE SALE OF THE PROPERTY?

[16]          I begin with a point of clarification.  While I have referred to the right in question as “the right to the refund”, that is not completely accurate.  On October 19, 2006, immediately prior to closing, the Vendor had the right to pursue the assessment appeal that it had launched in respect of the property and to receive any benefit that might flow from that appeal (the right).  At the time of closing, because the reassessment had not yet been performed, there was no right to a refund.  The right was to receive the fruits of the process that the Vendor had undertaken.  The value of those fruits might be $0.  Nonetheless, whatever its value, the Vendor was entitled to (i.e. owned) the right.      

[17]          There are two ways in which the right could have passed to the Purchaser on closing:  under the terms of the agreement of purchase and sale (the Agreement) or as a result of the operation of real property legislation.  As I will explain, neither resulted in the right being conveyed to the Purchaser. 

[18]          Before embarking on that explanation, it is essential to focus on the legal nature of the right.  As previously mentioned, on October 19, 2006 immediately prior to closing, the Vendor had the right to the proceeds of the assessment appeal.  What kind of property right is that?  Is it a right that attaches to the land or a personal right that belonged to the Vendor?

[19]          The Ontario Municipal Board wrestled with this question in Mitsubishi Electronics Canada Inc. v. Ontario Property Assessment Corp., Region No. 16, [2000] O.M.B.D. No. 406.  It concluded that the right is a chose in action and not one that runs with the land.  The Board’s reasoning, with which I agree, can be summarized as follows. 

[20]          The assessment of land and the taxation of land are distinct processes.  The assessment of a piece of land is the valuation given to it for the purposes of determining the quantum of property taxes.  The assessment of the land does not relate to its use or enjoyment and does not fall within the provisions of s. 15 of the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34.  The alteration of an assessment on an appeal does not give rise to an asset or liability.  Only the separate mechanism of the application of a tax rate by the taxing authority results in a debt or refund. That mechanism is independent of the assessment process itself.  By virtue of legislation,[2] outstanding taxes on a piece of land are a debt to the municipality for which the municipality has been granted a special enforcement right.  The burden of outstanding taxes is assigned to a new owner through the conveyance and transfer of the land, subject to the purchaser’s recourse against the vendor.  However, an assessment appeal is a chose in action that is not assigned by operation of law.  Instead, it must be expressly assigned if it is to pass from a vendor to a purchaser. 

[21]          In many ways, the right in question is akin to the right of a taxpayer to receive a refund for any overpayment in taxes.  If a taxpayer has the right to a refund of overpayment, he or she may enforce that right by an action against the government:  see Profitt v. Ad Productions Ltd. (Trustee of) (2002), 157 O.A.C. 356 (C.A.) at paras. 18-20.  Similarly, if an assessment appeal is successful, the property owner has the right to a refund of the overpayment of property taxes and can enforce that right by way of action against the municipality.  In both cases, the right that the owner has is a chose in action. 

[22]          Choses in action are intangible personal property rights enforceable by legal action.  As an intangible personal property right that belonged to the Vendor, it could only have been assigned to the Purchaser by valid legal or equitable assignment.  For legal assignment to occur, the Vendor would have had to expressly assign the right to the Purchaser, in writing.[3]  No question of an equitable assignment arises on the facts of this case as there was no evidence of an intention to assign the chose in action.   

[23]          I turn now to explain why the right was not conveyed to the Purchaser, either by the Agreement or by operation of the real property statutes.

                        The Agreement

[24]          Under the Agreement, the Purchaser agreed to purchase and the Vendor agreed to sell the “Property” (art. 2.01).  Article 1.01 of the Agreement contains definitions of the significant terms used in the Agreement.   “Property” is defined to mean, “collectively the Chattels, the Building, and the Lands”.  “Chattels” is defined as “all goods, chattels, fixtures and other tangible personal property owned by the Vendor and used by it in its operation and maintenance of the Property which includes, without limitation, 265 refrigerators, 265 stoves”.  “Building” is defined as “[the] existing building at the Lands and all other structures and fixed improvements located on, in or under the Lands belonging to the Vendor”.  “Lands” means “the parcel(s) of land as set out in Schedule “A” attached hereto”. 

[25]          In sum, the Agreement conveyed the property, chattels, building and lands.

[26]          As explained above, the right was intangible personal property that belonged to the Vendor.  Clearly, that right does not fall within the meaning of “property, chattels, buildings and lands”, as those terms are defined in the Agreement. 

[27]          Nor does the right fall within the provisions in the Agreement that govern the adjustment of property taxes on closing.  Taken together, arts. 1.01(b), 1.01(f) and 2.01(e) of the Agreement provide that adjustments are to be made to taxes, among other things, on closing.  Article 5.02 required the Purchaser to deliver, on closing, an undertaking to re-adjust.  In accordance with the Statement of Adjustments, realty taxes were adjusted to compensate the Vendor for the excess taxes it had paid in respect of the property prior to closing.   

[28]          A valid legal conveyance of a chose in action can be achieved only by express written assignment.  The Agreement contains no such assignment. Therefore, the Purchaser cannot rely on it as the basis for retaining the refund.    

                        The Real Property Legislation

[29]          The application judge concluded that the provisions in real property statutes such as the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34 and the Land Registration Reform Act, R.S.O. 1990, c. L.4, apply to land and interests therein and, therefore, did not apply to the Vendor’s right in respect of the assessment appeal.  I agree. 

[30]          As I have explained, the right was a personal one that belonged to the Vendor.  Accordingly, it did not run with the land.  Put another way, the right is neither land nor an interest in land and, therefore, the legislation governing real property did not apply to cause it to be conveyed to the Purchaser. 

2.         IS THE PURCHASER ENTITLED TO RETAIN THE REFUND AS A RESULT OF S. 306(2) OF THE CITY OF TORONTO ACT, 2006?

[31]          It is trite law that to succeed in a claim based on unjust enrichment, the Vendor must show: (1) that the Purchaser was enriched; (2) it (the Vendor) suffered a corresponding deprivation; and, (3) the absence of a juristic reason for the enrichment:  see Pacific National Investments Ltd. v. Victoria (City), [2004] 3 S.C.R. 575, at para. 14.

[32]          It is self-evident that the Purchaser was enriched by receipt of the refund and that the Vendor suffered a corresponding deprivation.  The only question is whether s. 306(2) provides the Purchaser with a juristic reason entitling it to retain the refund.  In my view, it does not. 

[33]          Section 306 falls under Part XIII of the City of Toronto Act, 2006, which provides for the collection of traditional municipal taxes.  Section 306 deals with adjustments to the tax roll to reflect changes to the assessment roll.  Section 306(2), the provision in question in this appeal, deals with refunding overpayments of municipal property taxes. 

[34]          Section 306 of the City of Toronto Act, 2006, reads as follows:

Adjustments to roll

306 (1)  The treasurer shall adjust the tax roll for a year to reflect changes to the assessment roll for that year made under the Assessment Act after the tax roll is prepared.

Consequences of adjustments

(2)  Taxes for the year shall be collected in accordance with the adjusted tax roll as if the adjustments had formed part of the original tax roll and the City,

a)      shall refund any overpayment to the owner of the land as shown on the tax roll on the date the adjustment is made; or

b)     shall send another tax bill to raise the amount of any underpayment.  [Emphasis added.]

[35]          A brief explanation of the history of s. 306 is in order.

[36]          Historically, the City’s authority to impose and collect taxes for municipal and school purposes was governed by Parts VIII to XI of the Municipal Act, 2001, S.O. 2001, c. 25.  That authority was continued under Parts XI to XIV of the City of Toronto Act, 2006,[4] with some modification.

[37]          The City of Toronto Act, 2006, repealed the City of Toronto Act, 1997, S.O. 1997, c. 2.  Section 306 appeared for the first time in the 2006 Act.  However, when the City of Toronto Act, 2006, first came into force, s. 306(2) made no reference to whom the refund was to be paid.  It simply read as follows:

306.  (2)  Taxes for the year shall be collected in accordance with the adjusted tax roll as if the adjustments had formed part of the original tax roll and the City,

                                    a) shall refund any overpayment; or …

[38]          On January 1, 2007, s. 306(2)(a) was amended by the Municipal Statute Law Amendment Act, 2006, S.O. 2006, c. 32, Sched. B, s. 61, (the Amendment Act) to include language specifying to whom the municipality is to pay the refund.  This amendment appears in the current version of s. 306(2)(a), which it will be recalled, reads as follows:

306.  (2)  Taxes for the year shall be collected in accordance with the adjusted tax roll as if the adjustments had formed part of the original tax roll and the City,

a)      shall refund any overpayment to the owner of the land as shown on the tax roll on the date the adjustment is made;…  [Emphasis added.]

[39]          The Amendment Act simultaneously added the same language to s. 341(2)(a) of the Municipal Act, 2001, S.O. 2001, c. 25.  Section 341 of the Municipal Act, 2001, is almost identical to s. 306 of the City of Toronto Act, 2006.  It applies to municipalities other than the City of Toronto.    

[40]          The primary purpose of the Amendment Act was to amend the Municipal Act, 2001, so as to give municipalities many of the powers and duties that had been conferred on the City of Toronto.  However, as has been mentioned, it also made changes to the City of Toronto Act, 2006, most notably for the purposes of this appeal, by amending s. 306(2)(a).

[41]          Neither the Legislative Debates nor the Standing Committee transcripts for the Amendment Act disclose any reason for the change to ss. 306 and 341.  The change was approved for both Acts without debate or discussion by the Standing Committee. 

[42]          There is nothing in s. 306(2) or otherwise in the legislation to indicate that the legislature intended to interfere with the rights of property owners. Express wording is necessary before the courts are to interpret legislation as having adversely affected a person’s rights: see Morguard Properties Ltd. v. Winnipeg (City), [1983] 2 S.C.R. 493 at 511.  Thus, it cannot be presumed that in passing the amendment to s. 306, the legislature intended to strip the Vendor of the right.    

[43]          Rather, in light of the stated purpose of Part XIII of the City of Toronto Act, 2006, which is to “streamline processes” related to the tax roll, it appears that the change to s. 306(2)(a) was one of administrative convenience for the City.  The previous language – “the City shall refund any overpayment” – left it unclear to whom the City was required to pay the refund.  The language of s. 306(2)(a), as it now stands, relieves the City of the responsibility of determining who is entitled to the refund.  Its responsibility is limited to paying the refund to the owner of the land as shown on the tax roll on the date the adjustment is made.  Thus, any dispute over entitlement is between the claimants and not between one or more claimants and the City.

[44]          Accordingly, in my view, s. 306(2)(a) does not provide the Purchaser with a juristic reason to retain the refund.  It is simply an administrative provision designed to enable the City to pay the refund without having to determine who is properly entitled to it.  Section 306 does not affect ownership rights nor does it purport to.  While s. 306 made it lawful for the Purchaser to receive the refund, it does not give the Purchaser a juristic reason to withhold the refund from the Vendor.

CONCLUSION

[45]          The Vendor effectively overpaid taxes on the property during a period in which it owned the property. It was the Vendor who took the necessary steps to have the property taxes reassessed.  The right to receive the proceeds of the assessment appeal was a chose in action, a personal right belonging to the Vendor.  That right did not run with the property.  As the Vendor never assigned the right to the Purchaser, it is the Vendor who is entitled to the refund.  Section 306(2)(a) of the City of Toronto Act, 2006, does not amount to a juristic reason entitling the Purchaser to retain the refund.  Accordingly, the Purchaser must disgorge the refund less $22,397.11, the amount that the Vendor agrees it can keep.      

DISPOSITION

[46]          Accordingly, I would allow the appeal, set aside the Order and grant the application.  I would award costs of the appeal to the Vendor, fixed on consent at $12,500, plus disbursements and applicable taxes.

[47]          In light of the Vendor’s success on appeal, it is entitled to costs below.  I would set aside the Costs Order and order costs of the application to the Vendor fixed at $25,000, plus disbursements and applicable taxes.

RELEASED:  DEC 14 2010 (“M.J.M.”)

“E. E. Gillese J.A.”

“I agree. M. J. Moldaver J.A.”

“I agree. J. M. Simmons J.A.”