Newfoundland and Labrador court holds that a municipality has authority to agree to arbitration but not to impose it as a condition of regulatory approval

In 10718 Nfld. Inc. v. St. John’s (City), 2018 NLSC 82, Madam Justice Frances J. Knickle of the Newfoundland and Labrador Supreme Court determined that the City of St. John’s (the “City”), as a creature of statute, had no authority under its enabling legislation to require that parties agree to mandatory arbitration as a condition for the City’s regulatory approval of the grant of a contract.

10718 Nfld. Inc. (the “Developer”) and the City were involved in developing a complex, multi-year, residential/industrial/commercial area covering 2,400 acres.  Over the course of the initial phases of the development, the Developer applied for various approvals from the City permitting re-zoning and additions to infrastructures.  The City would respond with either ‘approvals in principle’ or with comments regarding needed revisions.

The Developer and the City had signed one development agreement but were unable to resolve their differences over the contents of several other development agreements.  In particular, the City required that, as a condition of granting regulatory approval, the Developer agree to a mandatory arbitration clause.  The full clause is reproduced at para. 8 of the Knickle J.’s reasons.

The Developer applied for declaratory relief as well as a mandamus order.  By the date of the hearing, and after having sorted through the materials presented to her, Knickle J. distilled a single issue of jurisdiction raised by the Developer’s applications: does the City possess the authority to require mandatory arbitration as a term of approval of a development in a development agreement?

The Developer objected to the City precluding the Developer’s ability to access the courts if ever the parties to the agreement had a dispute.  The City claimed that its requirement to arbitrate was within its authority and a reasonable exercise of that authority.

Knickle J. did note two important factors that may seem to have been issues but were not.  First, the utility and efficacy of arbitration was not in question as a dispute resolution method.  The reasons, well into the discussion at para. 55, expressly signal support for some of the promises made by arbitration.

[55] In a complex multi-purpose development, such as is the case here, resolving disputes by way of arbitration may provide a time-efficient and cost-effective alternative to litigation, and in this regard, the City’s rationale for the inclusion of arbitration as a dispute resolution mechanism, in development agreements is sound (See Seidel v. Telus Communications Inc., 2011 SCC 15 (CanLII) at paragraph 23).

Second, no one disputed the City’s ability, as a corporate entity, to enter into a contract and to agree to arbitration.

Rather, Knickle J. framed the disagreement as follows:

[19] However, the City’s insistence on including mandatory arbitration over the objection of the Developer raises a jurisdictional issue because the insistence on the clause is not strictly a matter of the City’s ability to contract, of which there is no issue between the parties, but a matter of the City’s authority in the regulation of development.

Knickle J. approached her analysis by identifying the City as a creature of statute.  As such, the City has only those powers which its enabling legislation gives it, either expressly or necessarily implied or incidental to those powers expressly granted.  Her review of the case law on that standard did provide her, and the City, with a fair but not unlimited way to read the City’s enabling legislation.

She looked at the Urban and Rural Planning Act, 2000, SNL 2000, c U-8  (“URPA”) and the related Development Regulations, NLR 3/01 (“Development Regulations”) as well as other related legislation such as City of St. John’s Act, RSNL 1990, c C-17.  Her review identified no express statement conferring authority on the City to impose arbitration as a condition of a development agreement.  The arbitration clause was not a negotiated clause but presented as a regulatory requirement by the City.  The City could not point to any express authority in the legislation that supported its position.

Knickle J. then considered if any of the legislation provided an implicit or necessarily incidental grant of jurisdiction to impose arbitration.   She did not consider that the legislation’s phrase “shall set out the terms” included mandatory arbitration.  Any such “terms” must relate to the legislation under which the City acts and do not create unlimited scope for the City.  Those “terms” must reflect what the legislation requires before the City can approve an application.

She observed that an existing right, such as access to the courts, can only be removed by legislation that does so in a clear expression of the intention to remove.  Referring to U.K. precedents, she resolved that any ambiguity as to that intent, should be resolved in maintaining the right in question.

[53] In the absence of express language so granting such a limitation (which, as discussed earlier, is within the City’s enabling legislation to so enact), it would be contrary to the above settled principles to imply the authority to impose such a limitation on a developer as a term of its approval for a development.

The City’s ability to contract and to agree to arbitrate does not, absent clear legislation, also include the authority to imposes arbitration as a condition of its approval.  The City’s authority to impose “terms” is limited to imposing those terms which further the legislated purpose.

On a closing note, Knickle J. noted that the legislation did create for an appeal board procedure under the URPA and the Development Regulations but, in so doing, the legislature did not also add a mandatory arbitration process.

Knickle J. granted the Developer’s application for a declaration that the City cannot require mandatory arbitration as a term of approval of development in a development agreement as doing so is acting beyond its beyond its jurisdiction under its enabling legislation. No costs were ordered.