Legal Blog

Relief

The Ontario Municipal Act (the “Act“) establishes a procedure by which a municipality can sell property if the owner fails to pay arrears of property tax. A municipality has to wait a significant amount of time before it sells the property and some municipalities wait even longer than the minimum time. Even after the property is sold, any surplus (after payment of all arrears, interest, and costs) must be paid into court and any person who has a claim to the surplus funds may, within one year, apply to the court for payment of all or part of the funds. If no one makes application for the surplus, the Act deems the funds to be forfeited to the municipality.

What happens when a person (be it an owner, mortgagee, lien claimant, execution creditor, etc.), otherwise entitled to some or all of the funds, misses the deadline and applies too late? This question was answered in a 2016 decision of the Ontario Court of Appeal in Poplar Point First Nation Development Corp. v. Thunder Bay (City).

Facts

The City sold a property belonging to a non-profit owner. The tax arrears were a mere $5,800 as of December 2011 and the surplus from the sale, after payment of the arrears and all interest and expenses, was $76,200. The City paid the surplus into court on September 18, 2014 and anyone entitled to the surplus had one year to apply for payment of the money. In this case, only the owner had any entitlement to the surplus.

Approximately three weeks after the application deadline, the owner applied to the court for payment of the surplus. The City applied for payment to it because of the deemed forfeiture. The court had two issues to determine. First, did the court have the authority to relieve the owner from forfeiting the surplus to the City? Second, if it did, should it exercise that authority?

The application judge decided that he did not have authority to grant relief from the forfeiture, but, if he had that authority, he would have exercised it in favour of the owner. The owner appealed that decision to the Court of Appeal.

Authority

The Courts of Justice Act (s. 98) provides that “a court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.” You might think that this allows the courts to do anything they wish, but you would be incorrect. After analysing previous jurisprudence, the Court decided that it had no authority to grant relief from forfeiture under a statute if that forfeiture were imposed in order to punish the property owner (e.g. forfeiture under drug crimes).

The Court therefore had to determine whether, under the Act, the forfeiture was intended to punish. It decided that it was not a “penalty for the taxpayer’s failure to pay taxes or breach of any other obligation, nor does it occur as the release of security for an obligation owed to the municipality. The municipality has already been made whole, having received the cancellation price consisting of the tax arrears, interest and its costs. The forfeiture does not occur in order to punish the property owner, but to ensure that the money, which belongs to the owner or other claimants at the time it is paid into court, does not sit in court unclaimed, in perpetuity. The forfeiture brings finality to the process where funds might otherwise remain in court and unclaimed. The forfeiture arises from the failure to meet a time limit, and not as the consequence of any breach of a statutory obligation.”

Accordingly, the court determined that, merely because forfeiture occurred in the context of a statutory scheme, there was no absolute bar to granting relief. Then, as a matter of statutory interpretation, the Court had to determine whether the Act expressly or implicitly precluded relief from forfeiture.

Preclude

The Court first noted that “the policy reasons for restricting the circumstances in which municipal tax sales might be challenged (certainty, finality and the integrity of the sale process, including interests of third parties) are not engaged when dealing with the surplus … The taxpayer is not challenging the sale process, but asserting a claim to the surplus. (The Act) operates after the municipality has recovered its tax arrears and its costs, at a time when its claim against the property is spent, and without affecting the rights or interests of third party purchasers. At issue … is entitlement to the surplus, not the property itself. As such, there is no prospect of interfering with or undermining the municipal tax sale process.”

With that analysis in mind, the Court decided that the Act did not preclude relief for a number of reasons, the most important of which follow:

• The Act did not direct that an unclaimed surplus belonged to the municipality; rather, it deemed it to be forfeited.
• The Act did not authorise the municipality to retain the surplus for the first year; rather, it directed the municipality to pay it into court, thus giving the court authority over it and, for purposes of payment out of court, giving the court all of the authority that it would normally have in civil proceedings.

Discretion

Once the Court decided that it had the authority to grant relief from forfeiture, the Court agreed with the application judge that it ought to exercise its discretion to do so. The delay was short, the owner had adequately explained why it had made an error as to the time limit for bringing an application, and the municipality, which had not yet even received the funds out of court and had been paid all of its arrears, costs, and interest, was not prejudiced by the owner’s late application.

Image courtesy of kakisky.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.