Duties of Fairness in the Disposal of Municipal Buildings

At first blush, the result in North End Community Health Association v. Halifax (Regional Municipality), 2012 NSSC 330 is striking. A municipality’s decision to sell an old school to a property developer was held to be unlawful because it breached a duty of fairness to local non-profit organizations and because it was sold at less than market value.

Ordinarily, government entities do not owe a duty of fairness to the public at large when disposing of their assets. They may suffer political repercussions, but not legal ones.

Here, however, the municipality had adopted a procedure governing the sale of surplus school buildings. Non-profit organizations were given a right to make proposals about the use of the property. If the proposals were feasible and in line with the municipality’s fiscal goals for community organizations, they would be accepted.

There were two wrinkles. First, the municipality had, apparently, never actually applied its procedure: in this case, for example, it just made a Request for Proposals to which commercial and community groups responded. Second, the applicants were not aware of the existence of the procedure. In the circumstances, could any legitimate expectation arise?

MacAdam J. answered yes:

[52]         A duty is owed, particularly where the decision‑maker has created a procedure which it says it will follow. The fact that the decision‑maker has not followed its own process in the past does not entitle it to ignore its procedural obligations in this instance. The fact that there were apparently no complaints about such procedural failures in the past does not now make it proper. If it was wrong the first time, it continued to be wrong as Council continued to ignore its own Procedure.

[53]         Although one might characterize legitimate expectations as requiring knowledge of the specific expectation, this is not necessarily the case. The legitimate expectation is that Council will follow procedures which it has established and publicized, regardless of whether individual members of the public have actual knowledge of the procedures in question. The issue is whether the Procedure was an undertaking that members of the public were entitled to expect Council to follow. In this case, the Procedure was adopted by way of a resolution of Council. Residents of the municipality were entitled to expect that Council would follow its own prescribed procedure. By failing to do so, Council failed to meet its duty of fairness to the applicants.

I think this is correct. No doctrine of substantive legitimate expectations exists in Canada, but the applicants here were arguing only that a particular procedure should be followed, not that a particular substantive result should be reached. Moreover, even if the applicants were not aware of the policy, considerations of the rule of law and good administration suggest that the municipality should have followed it. Otherwise, adopting the policy in the first place would have been futile.

MacAdam J. went on to hold that the sale price of $3m was unreasonable. The winning bidder had offered up to $4m, in the event that there were competing commercial bids, and $3m if there were none. Under its Charter, the municipality was obliged to sell at “market value”. Given the willingness of the bidder to pay $4m, it could not be said that $3m was the market value:

[104]     Keeping in mind that the standard of review with respect to Council’s determination of price is reasonableness, I am not satisfied that Council met that standard. The materials before Council made it explicit that the buyer was willing to pay $4 million for the property. In these circumstances, I do not believe “market price” could reasonably be regarded as any amount less than this. Council’s decision to sell the property for $3 million was not within a reasonable range of decisions in circumstances where the buyer had informed Council that it was prepared to pay $4 million.

This conclusion might have been a little bit too quick. Market value is a tricky figure to arrive at. After all, there were no other willing buyers. And municipalities should perhaps have some elbow room in making determinations of market value.

All in all, an interesting case, and a useful reminder of the value of legitimate expectations, even in Canada, where the courts have not been so keen to give them the scope they enjoy elsewhere.

This content has been updated on June 11, 2014 at 09:47.