SCC clarifies test on legality of post-incorporation contracts

The Supreme Court has ruled the test for finding whether a post-incorporation contract exists is the same as it is for any other agreement, a decision being called an important one for certainty in commercial transactions.

The decision in Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp. 2020 SCC 29 concerns Crystal Square, a mixed-use retail complex, office tower, residential tower and hotel in Burnaby, B.C. The developers entered an air space parcels (ASP) agreement with the City of Burnaby which contained easements for access to the parking facility and covenants to pay for that access in March 1999. An air space parcel is defined under B.C.’s Land Title Act as “a volumetric parcel, whether or not occupied in whole or in part by a building or other structure.”

Crystal Square Parking Corporation (CSPC) owns the parking facility within Crystal Square, having purchased it in June 2002. The strata (condo) corporation within the complex used the parking spots and paid the fees associated with the ASP for eight years, but commenced litigation when it felt the parking cost was too high, arguing the agreement didn’t apply to it as the corporation had never formally signed it. For its part, CSPC said the strata corporation had accepted the agreement by following its terms. At trial, Justice Barbara Young of the B.C. Supreme Court ruled the payment provisions were not binding on the strata owners, a decision eventually overturned by the B.C. Court of Appeal.

And Justice Suzanne Côté, who authored the Supreme Court’s 8-1 decision, dismissed the condo corporation’s appeal, ruling that a binding agreement does exist when both sides show by their actions they meant to enter into one. She wrote the applicable test for finding whether a post-incorporation contract exists is the same as the one for any other agreement under common law — the test is objective, and the offer, acceptance, consideration and terms may be inferred from the parties’ conduct and from the surrounding circumstances.

“An outward manifestation of assent by each party such as to induce a reasonable expectation in the other is required in order to find that a binding post-incorporation contract exists,” she wrote. “It requires an examination of how each party’s conduct would appear to a reasonable person in the position of the other party.”

The common law forms part of the context in which a legislature enacts statutes and the legislature is presumed not to have intended to alter or extinguish common law rules in doing so, wrote Justice Côté.

“These presumptions can be rebutted only by establishing a clear expression of legislative intent to the contrary,” she wrote. “There is no indication [in B.C.’s Strata Property Act] of a clear legislative intent to rebut the presumptions; on the contrary, there are signs in [the Act] that the legislature in fact intended to allow strata corporations to enter into unwritten agreements by their conduct.”

In his dissent, Justice Malcolm Rowe wrote he accepted the analysis of the law the majority came to but differed on the disposition of the case.

“I would not decide whether [the strata owners] had manifested an objective intent to be bound to the terms of the ASP agreement,” he wrote. “Rather, I would remit this question for determination by the trial court as the trial court is better placed to answer that question. Simply put, applying the law here is a fact-specific exercise and this court does not have all the facts needed to do so.”

Ken McEwan of McEwan Cooper Dennis LLP, who represented CSPC on appeal, said he was pleased with the decision and “legally it is of some significance.”

“In the judgment they mentioned there were some authorities which said you can look at a post-incorporation contract subjectively, as to whether people actually intended to enter into a contract,” he said. “But the court said, just as you would do with any contract, we look at what people said and did and not what they thought, and that is important for commercial certainty. You don’t know what is in people’s minds, so they clarified these post-incorporation contracts — how you analyze it is exactly the same as any other commercial contract.”

The decision was also helpful from the point of view of a developer in British Columbia, said McEwan.

“It really speaks to the fact that strata corporations are just corporations, and they can contract like any other corporation,” he said. “The importance of that here is that strata property owners can come and go, but it is the strata corporation which holds the contract.”

And the decision itself may go down in the history books for another reason — in June, it was the first appeal argued entirely virtually at the Supreme Court. McEwan said the process “worked quite well.”

“We went down once for about five minutes and there was a problem with one microphone, but it was pretty seamless and the technology is getting better and better,” he said. “It is forcing people to come to grips with the fact that we can do a lot of things electronically in terms of transfer of information — but it was interesting being in the Supreme Court of Canada from my boardroom.”

Counsel for the strata corporation did not provide comment by press time.


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Article from October, 2020

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