PEC Conservancy group seeks legal challenge on settlement between Picton Terminals and municipality

The citizen group PEC Conservancy has sought legal advice which advises council not to pass its bylaw for the terms of settlement with Picton Terminals which is to go to the Sept. 10 council agenda; then would be signed.

Leslie Stewart, on behalf of County Conservancy, states the group is opposed to the recent settlement agreement and asked its lawyers (Goodmans) to review both the procedure and the settlement.

“In summary, the municipal process was not followed, meaning there can be no legal an binding agreement until there is a bylaw voted on and passed, and the document itself is no legal as it has the municipality selling zoning, which it is not allowed to do,” states Stewart.

The legal challenge to the settlement agreement letter below:

Dear Mayor Ferguson and Members of Council:
Re: Purported Settlement with Picton Terminals

We represent The Prince Edward County Conservancy (the “PECC”), a registered non-profit corporation. We write further to the ongoing litigation matters concerning Picton Terminals, including Prince Edward County’s 2022 application to Superior Court to address the issue of jurisdiction over Picton Terminal’s activities (the “Court Application”), and recent consideration of these matters before Prince Edward County Council (“Council”).

It has been reported a legally binding settlement has been entered into between the Prince Edward County (the “County”) and Picton Terminals, flowing from a motion passed by Council at its meeting of June 25, 2024 (the “June Meeting”) and subsequent actions taken by County staff and legal counsel. On behalf of PECC and for the reasons set out herein, we write to advise Council that there can be no valid or binding agreement between the County and Picton Terminals as has been reported.

A Notice issued by the County dated August 8, 2024 (the “August Notice”), as well as reports in various local media, indicate that Council has received advice from its lawyers that the County is required to proceed with a settlement with Picton Terminals based on draft terms of settlement (the “Draft Terms”) that Council considered at the June Meeting, because Picton Terminals agreed to the Draft Terms without changes when presented with same.

To the extent that is the advice Council has received, it is not consistent with the facts or the applicable law. As set out in more detail below, there was no delegation of authority by Council to make a binding settlement offer, there is no indoor management rule applicable to municipalities, Council may only act through bylaws, and Council has not yet accepted any settlement with Picton Terminals.

In addition to there being no settlement in place between the County and Picton Terminals, we bring to Council’s attention that the proposed minutes of settlement that Council directed be released at its August 7, 2024 special meeting (the “Proposed Settlement”) contains terms that are impermissible and illegal. As set out more fully below, the Proposed Settlement would have the County effectively sell zoning in exchange for a resolution of the Court Application, which is invalid.

No Delegation of Authority to Make a Binding Settlement Offer

At the June Meeting and based on the Council approved minutes of that meeting, Council went into closed session to consider matters related to the Court Application and Picton Terminals more generally. Following the closed session, Motion 2024-304 was moved by Councillor Harrison and seconded by Councillor Pennell (the “Motion”). The entirety of the Motion is reproduced here for your ease of review and consideration:
THAT Council approve the draft terms of settlement, and direct legal counsel to seek similar approval from Picton Terminals;
THAT a meeting with Council, the Mohawks of the Bay of Quinte Council, and Picton Terminals be held to discuss the draft terms of settlement, at the earliest opportunity, prior to bringing a by-law to implement a settlement agreement; and
THAT the executed minutes of settlement be made public with the applicable Council agenda.

Councillor MacNaughton requested a recorded vote on the Motion. The Motion carried by a vote of 7 in favour and 6 opposed. The Motion represented the totality of the delegation of authority and instructions from Council to County staff and representatives related to this matter.

We note the following important elements of the Motion, which are objectively apparent on its face:
• It was only the Draft Terms that were approved. The Motion explicitly noted that “draft terms of settlement” were approved. The word “draft” has meaning and can be contrasted with the phrases “terms of settlement” and “final terms of settlement”;
• It made a distinction between the Draft Terms, “a settlement agreement” that could be brought before Council after a meeting with Council, the Mohawks of the Bay of Quinte Council, and Picton Terminals, and “executed minutes of settlement”;
• It provided a clear procedure before there would be a bylaw passed authorizing “a settlement agreement”, namely:
o Step 1 – seek similar approval from Picton Terminals on the “draft terms of settlement”;
o Step 2 – hold a meeting with Council, the Mohawks of the Bay of Quinte Council, and Picton Terminals to discuss the “draft terms of settlement”; and,
o Step 3 – hold a meeting of Council to consider “a settlement agreement”. (Given the reference to “bringing a bylaw to implement a settlement agreement” in the Motion, it is implicit that there would have to be a further meeting of Council to consider “a settlement agreement” as Council can only pass bylaws at a meeting of Council.)
• It did not provide staff or representatives of the County with authority to present an offer of settlement to Picton Terminals or to settle any matter with Picton Terminals. There is no mention of a settlement offer in the Motion. Likewise, it did not authorize any County staff or officials to execute minutes of settlement, or any other document on behalf of the County in relation to a settlement.

The plain wording of the Motion did not provide County staff or representatives with authority to present a binding settlement offer to Picton Terminals. The Motion only went so far as to direct legal counsel to seek “similar approval from Picton Terminals” of the Draft Terms and if there was such a similar approval, there was going to be a tri-party meeting that included the Mohawks of the Bay of Quinte Council to discuss the Draft Terms, which could thereafter be followed by the consideration of a by-law to implement a settlement agreement.

It is incorrect for staff, Picton Terminals, or anyone else reading the Motion to reasonably conclude that Council was giving County staff the authority to enter into a binding agreement on behalf of the County based on the Draft Terms. The Motion made it clear that Council intended to have further consideration of the matter before coming to a decision as to whether it would agree to settle matters with Picton Terminals on the basis of the Draft Terms or otherwise. To find otherwise would be inconsistent with the plain wording of the Motion and mean that Council intended the proposed meeting with the Mohawks of the Bay of Quinte Council to be perfunctory and meaningless. Further, it would mean that the provision for “bringing a by-law to implement a settlement agreement” was superfluous because there would have been nothing more for Council to do on the matter.

In fairness to County staff or representatives who took action following the Motion, it can be challenging to disassociate matters discussed in a closed session, and assumptions regarding Council intentions, from the actual specific directions, delegations of authority, and instructions given by Council. While County staff or representatives may sincerely have believed Council’s intention to be different from what the Motion provides for objectively on its face, Council’s direction must be taken strictly from the wording of the Motion itself as we have set out in this letter.

No Indoor Management Rule for Municipalities

If County staff or representatives mistakenly presented a formal settlement offer to Picton Terminals that Picton Terminals believed could be accepted to create a legally binding agreement with the County, it does not mean that there is a legally binding agreement. Indeed, as there was no delegation of authority to make a formal settlement offer to Picton Terminals, there can be no legally binding agreement.

Were Picton Terminals dealing with a business corporation rather than the County, they might seek to rely on the indoor management rule to cure any procedural defect in there being sufficient instructions to present a settlement offer to them. In simple terms, the indoor management rule means that a person who deals in good faith with a company does not need to inquire whether the company has complied with its internal rules and procedures but can assume that these have been followed.

However, the indoor management rule does not apply to municipalities. In Pacific National Investments Ltd. V. Victoria (City), (2000) 2000 SCC 64 (CanLII), 2 S.C.R. 919 [“Pacific National”], LeBel J. writes for the majority of the Supreme Court of Canada. At paragraph 68 he states:
[N]o indoor management rule protects someone dealing with a municipality from having to ensure that proper procedures were followed with respect to the contract, which is quite different from the situation with a private corporation; . . . The record shows that as an experienced developer, PNI (the plaintiff) was aware of the special legal and political risks attendant on dealing with a municipality. Developers choose to take those risks.

Accordingly, if the basis for advice to Council has been that Picton Terminals was entitled to accept the Draft Terms because they were presented as a settlement offer, the lack of delegation of authority to make such a settlement offer and the fact that Picton Terminals is deemed to understand the limits of the Motion undermine that advice.

Council May Only Act Through Bylaws

There is a large body of case law in Ontario that confirms that the powers conferred on a municipal corporation by the legislature are required to be exercised by Council and Council must exercise its power by bylaw. Council has not passed any by-law to settle any matter with Picton Terminals nor has it delegated any authority to do the same. This is underscored by the Motion’s clear reference to an implementing by-law for “a settlement agreement” and the current procedure the County is taking where the Proposed Settlement is to be brought back for another meeting of Council where there will be a bylaw proposed to approve and authorize the execution of minutes of settlement. This further calls into question any advice that may have been given to Council that there is a legally binding settlement agreement between Picton Terminals and the County.

Council Should Not Accept the Proposed Settlement

As set out above, Council has not yet entered into a settlement with Picton Terminals. At this point the Proposed Settlement is nothing more than an offer from Picton Terminals, which Council ought to reject on behalf of the County. PECC has many substantive concerns with the terms of the Proposed Settlement, which they can address separately to Council if necessary. However, fundamentally Council should not accept the Proposed Settlement as, for the reasons set out below, the County has no legal authority to do so.

The Court Application does not concern matters of the appropriate zoning of the Property or zoning compliance. However, it is a condition of the Proposed Settlement that the County will request the Minister of Municipal Affairs and Housing to issue a Ministerial Zoning Order in a form provided for in the Proposed Settlement.

Municipalities are not permitted to sell zoning. This is clearly stated in the Supreme Court of Canada’s decision in Pacific National and in many court decisions in Ontario. Municipalities cannot agree to change zoning in return for particular consideration, and they cannot agree to keep zoning unchanged in return for particular consideration. (See Pacific National at para. 57.) Council cannot give up its legislative powers by contract.

Ministerial Zoning Orders are issued by the Minister under section 47 of the Planning Act. The Minister has established a Zoning Order Framework that guides how requests for Ministerial Zoning Orders are considered. The Framework provides that the Minister will consider requests if one of two “intake thresholds” are met, one of which is: “requests that are supported by a single-tier or lower-tier municipality.” Although the final decision is made at the discretion of the Minister, a County resolution requesting the Ministerial Zoning Order is a necessary requirement for it to be considered by the Minister.

Accordingly, we do not believe that by relying on the use of a Council resolution requesting a Ministerial Zoning Order, rather than the Council enacting a zoning by-law itself, the Proposed Settlement can escape or circumvent the clear rule against selling zoning, as appears to have been the clear intent.

Requesting a Ministerial Zoning Order is the use of a legislative power and limits how the County can exercise its zoning authority in the future. We note that pursuant to the Planning Act, Ministerial Zoning Orders take precedence over municipally passed zoning by-laws. Clearly, this aspect of the Proposed Settlement does not involve Council acting in its proprietary or business capacity to make contracts. The County is agreeing to exercise a discretion it has in relation to how the Property and neighboring properties should be zoned (i.e., to pass a resolution supporting a Ministerial Zoning Order), for the purposes of resolving a dispute between the County and Picton Terminals that is not related to zoning, since zoning is not a topic of the Application. Accordingly, the Proposed Settlement may fairly be described as the County selling zoning, which is not permissible at law.

Fortunately, as set out above, Council need not accept the Proposed Settlement which would purport to have Council invalidly limit its legislative powers by contract. If Council does accept the Proposed Settlement, it may attract liability and the Proposed Settlement could be challenged on the basis that is void and illegal.

PECC respectfully requests that Council reject the Proposed Settlement and direct staff to ensure that Picton Terminals complies with all applicable laws that the County is charged to enforce. In the alternative, PECC requests that Council defer consideration of the Proposed Settlement until it has had an opportunity to receive further advice from staff and those retained by the County with respect to the matters and issues raised in this letter.

Please provide us with notice of any further consideration and decisions on this matter.
Yours truly,
Goodmans LLP
Rodney Gill