Case in Brief

A Case in Brief is a short summary of a written decision of the Court, drafted in plain language. These summaries are prepared by staff of the Supreme Court of Canada. They do not form part of the Court’s reasons for judgment and are not for use in legal proceedings.

Ville de Sainte-Julie v. Investissements Laroda inc.

Case summary

The Supreme Court of Canada finds that a municipality must compensate a company for the value of a land reserve in connection with property development projects.

During the 1990s, a property developer, Promotions M.G. Larochelle inc., carried out several projects on land belonging to the city of Sainte Julie. To comply with applicable rules, the developer had to transfer part of its land to the city so that the land could be used for parks or green spaces. However, the developer transferred more land than was required.

Since the city was unable at the time to return the excess land transferred or to reimburse its value, Larochelle and the city entered into an agreement. The agreement created a land reserve in the developer’s favour. That reserve was to be applied in compensation for future park fees at the time of new property development projects, while also allowing the city to acquire other land. However, those projects never took place.

Following a corporate reorganization, Investissements Laroda inc. took over Larochelle’s rights under the agreement, including rights to the land reserve. When it became clear that the land reserve could not be used, Laroda turned to the courts to obtain compensation for its value. The Superior Court dismissed Laroda’s application. It found that the city’s obligation depended on the completion of future property development projects and that, because those projects had never taken place, the city no longer had to compensate Laroda. The Court of Appeal allowed Laroda’s appeal. It held that the effect of the agreement was not to release the city from its obligation but only to delay the performance of the obligation. It therefore ordered the city to compensate Laroda. The city and Laroda both brought this case to the Supreme Court of Canada.

The Supreme Court has dismissed the city’s appeal and allowed Laroda’s appeal in part.

The agreement replaced the city’s former obligation with a new obligation, the performance of which was deferred.

Writing for a unanimous Court, Justice Côté explained that the agreement entered into by the parties had replaced the city’s initial obligation with a new obligation. In civil law, such replacement is known as novation.

Justice Côté explained that although the date of the future property development projects was unknown, the parties believed that they would take place. The city’s obligation was therefore based on a future event that was considered certain, but the exact timing of which was not determined (obligation with a suspensive term).

Justice Côté concluded that the city could not be required to return the land because the agreement had replaced the initial obligation. She instead applied the financial compensation (performance by equivalence) regime, which allows the creditor to obtain a sum of money when the obligation cannot be performed in another way. The injury suffered by the company resulted from being deprived of the value of the land that was transferred to the city, which used the land without paying anything in return. That injury justifies compensation corresponding to the market value of the land at the time the obligation became due, that is, on December 15, 2015. This was the date of the demand letter sent to the city by Laroda, the date from which, in the Court’s opinion, the obligation had to be performed. Because the evidence in the record did not make it possible to establish this value, the Court referred the case back to the Superior Court to determine the amount of compensation to be paid.