Legal Matters Affecting You and Your Municipality Tauna

Legal Matters Affecting You and Your Municipality Tauna Staniland Jonathan Dale

Outline 1. Issues of Taxation a. Types of Taxation b. “carrying on business” c. Exemptions d. Tax Collection 2. Contract Law a. Tendering and Bidding b. Contract Drafting and Contract Management c. Contract Principles

Taxation – Types of Taxation 1. 2. 3. 4. 5. Real property tax Business tax Poll tax Direct sellers tax Water and sewage tax

Taxation – Real Property Tax Municipalities Act: 112. (1) A council may impose an annual tax, to be known as "the real property tax", on the owners of real property within the municipality. subsection (2) states that there may be different rates for residential and commercial property. Municipality cannot be discriminatory with respect to setting and applying tax rates. Must be fair. Courts will not tolerate arbitrary decision making. Must treat all parties fairly.

Taxation – Real Property Tax Who is liability for Property Tax in a Landlord / Tenant or Rent-to-own situation? • The Act states that a council may impose a real property tax on owners of real property (Landlord, not the Tenant). • Landlord may choose to charge the Tenant property tax as part of the rental. • Where Landlord is not known, s. 115 provides that the occupier is considered to be the owner for the purpose of property tax. • Burden is then on the Tenant to ensure town knows who the Landlord is.

Taxation – Real Property Tax • In a rent-to-own situation, a strict reading of s. 112 suggests that until title passes to the renter, the owner is liable for taxes. • In both situations, where poll tax is imposed, the town may impose the poll tax on the tenant pursuant to s. 126. • Where a landlord has not paid outstanding taxes, a town can direct that the tenant pay all rental monies to the town (s. 148). If tenant does not comply, town may prosecute in Provincial Court for breach of statutory duty.

Taxation – Business Tax Municipalities Act, 1999 120. A council shall impose an annual tax, to be known as "the business tax", on all businesses carrying on business in the municipality. VS Services v. St. Anthony (NFCA 1988) “business” is employment; occupation; profession; calling; vocation; means of livelihood; that which occupies the time, attention and labour of men, for the purpose of profit or improvement.

Taxation – Business Tax • Municipalities run into difficulty when a business operates from one location while carrying on business in various other communities Hypothetical: Company A has a registered head office in Town X, with a small office house a phone line and a garage full of heavy equipment. The company operates and generates revenue in neighbouring Town Y and Town Z. Does the Company have to pay business tax in 3 communities?

Taxation – Business Tax Company’s argument would be that the garage is housing the heavy equipment and that no revenue is being generated therefrom since the work is being performed in Towns Y and Z. If Town X imposes property tax: company will be responsible for taxes based on the assessed value of the real property If Town X doesn’t impose property tax: business tax will be a percentage of the total gross revenue of the business regardless of whether some or most of the work is carried out in Town Y or Z.

Taxation – Business Tax Discuss case: Town of Long Harbour & Mount Arlington Heights This case demonstrates that Company A in the above hypothetical example will likely have to pay taxes in each Town in which is it operating.

Taxation – Business Tax Not-for-profit (non-profit) businesses • Act states that a Town shall impose a business tax on all businesses carrying on business within the Town. • Definition of business in s. 2(1)(c) includes all types of business organizations “whether or not they are for profit” • However, Towns often consider the nature and purpose of these business enterprises and vote to exempt such corporations from taxation pursuant to s. 111 of the Act

Taxation – Home-based Business All home based business should be subject to business tax No Property Tax? : Business tax is a percentage of the gross revenue of the business and it is irrelevant whether the business is a home-based business. • s. 121(2) allows the business tax to be a percentage of the assessed value of the property used by the business even where no property tax Property Tax? : business tax is a percentage of the assessed value of the space used by the business

Taxation – Business Tax Discussion case: Ultramar Canada Inc. v. Mount Pearl (Town) (1987)

Taxation – Business Tax Hypothetical -Exemptions A fish processing company operated in the Town on a seasonal basis for nearly 15 years. There was only one other commercial fish operation in the Town. The second company operated for less time throughout the year. The Town imposed a business tax on the first company, but gave the second company an exemption. Does the Town have the discretion to apply taxes differently to these similar businesses?

Taxation – Business Tax • NO! (see Petty Harbour v. Peerless (NLSCTD 2005) • Municipalities must operate within the powers conferred on them; it cannot discriminate beyond what is permitted in its empowering statute. • A municipality cannot decide on its own, in the absence of statutory authority, to decline to tax a taxpayer in a class when it is authorized and directed to tax “all” taxpayers.

Tax Collection Disconnection of service s. 132 – council may disconnect service of a water system, sewage system or water and sewage system provided to the person who owes the tax, fee, levy, assessment, fine or charge to the council. Lien s. 134 - Where taxes owed are in respect to real property owned by the person to whom the tax is assessed (e. g. the owner of the house where water tax is owing, or business tax where the owner of the business also owns the property where the business is located), the tax imposed upon the real property constitutes a lien.

Tax Collection Seizure of rentals s. 148 Council may seize rentals payable by tenants of real property that is subject to the real property tax, business tax or water and sewage tax to discharge the liability of the owners of that real property for tax due, whether or not the taxes are in respect of the real property occupied by the tenants. Prosecution s. 421 provides that prosecutions for offences under the Act may be carried out by a council or a local service district committee or its agent or a peace officer.

Tax Collection Civil debt s. 133 - All taxes, together with interest owing on those taxes may be sued for and collected by action in the name of the council as a civil debt due to the council. Tax Sale s. 137 – 147 - Where taxes owed are in arrears, the council can give notice to the owner and encumbrancers of the real property that the property is to be sold unless arrears are paid within 60 days from the date of the notice. NOT where occupied for residential purposes

Contract Law BIDDING AND TENDERING • Towns should know their obligations • Common Source of Litigation • Complicated area of the Law

BIDDING/TENDERING PUBLIC TENDER ACT WHEN IS IT NECESSARY TO CALL? - Whenever public work is to executed under a Town’s direction or goods/services to be acquired by a Town BUT, numerous exceptions as to when it is not necessary (Section 3(2) of the Act) - Example: Not necessary to call where estimated cost of goods is less than $10, 000 or where estimated cost of work is less than $20, 000 - Example: Emergency

BIDDING/TENDERING Practical Considerations • Have good tender specifications and a good contract • Consider how specific a call for tenders needs to be: i. e. overly specific requirements that have no relationship to the quality or cost of the work might cause problems

BIDDING/TENDERING – Legal Framework Contract A All companies that submit a compliant bid further to a call for tenders are parties to Contract A between each of them individually and the Town. Contract A requires: • Fair and Equal Treatment of every compliant bidder; • Privilege clauses do not allow Town to accept noncompliant bid; • Implied term that Town will only accept a compliant bid • Must award to the lowest price bid (vs. RFP where you can use multiple criteria)

BIDDING/TENDERING – Legal Framework Contract B • After a bid is accepted and awarded, obligations under Contract A cease • Contract B is governed by the terms of the Tender and the compliant bid • Town can insist on strict compliance • Town can take such other contractual actions as are contemplated in the Tender and the compliant bid

Double N Earthmovers – 2007 SCC 3 • Town put out call for a term contract for supply of refuse equipment and operators • Tender documents required all equipment to be 1980 or newer and required bids to include year of manufacture and serial number • Lowest tender was from Sureway – but the serial numbers corresponded to equipment manufactured before 1980 and the year of manufacture in Sureway’s bid was incorrect • Town awarded contract to Sureway on basis of its bid, which was compliant on its face, and allowed Sureway to carry out the work with older equipment

Double N Earthmovers – 2007 SCC 3 • Double N had submitted a compliant bid and sued the Town, stating that Town could not later modify the contract by allowing older machines Action Dismissed • Bid was compliant on its face and Town was not required to check its database to confirm that serial numbers corresponded to appropriately aged machinery • Call for tenders allowed for changes to be negotiated with the lowest compliant bidder, so Town was able to allow older machinery • SCC was split 5 -4 in its decision

CMH Construction – 2010 NLTD 145 • Department of Municipal and Provincial Affairs approved a budget of $120, 000 to Town’s municipal centre; • Call for tenders issued by Town; • CMH was only bidder, in amount of $183, 000; • CMH bid was compliant; • Call for tenders provided that Town did not have to accept the lowest or any bid; • Town chose to not award the contract, and instead got Department approval to revise the specifications of the work and also got approval to get the work done in a phased approach, which meant that it was not necessary to call for tenders.

CMH Construction – 2010 NLTD 145 CMH sued and was successful at Trial • Court found that the Town breached its duty of fairness to CMH, as follows: • The specifications in the call for tenders could not reasonably have been met within the Town’s budget; • Town was still in possession of CMH’s security at the time work was being carried out by other contractors; • Town did not offer CMH opportunity to bid on the broken down aspects of the revised work.

Tender Specifications Consider the following in tendering specifications: • How specific should specifications be? • Include material items • Town has discretion - but don’t be “fancy” • Reserve the right to cancel tender and re-bid • Budgetary concerns or other legitimate reasons • Otherwise accept compliant/lowest price bid • Reserve the right to waive any irregularities/informalities that would not materially affect price or performance • Exclude any implied terms based on past practice of municipality

Tendering specifications (con’t): • Exclude Town’s liability for breach of “Contract A” • Tercon Contractors (2010 SCC) • Attach “Contract B” to tender specifications

Contract Drafting and Contract Management • “Contract B” Should be well drafted for the benefit of the Town and included with the specifications • But also - outside of the context of bidding and tendering - municipalities should aim for well drafted contracts. • Examples - service contracts, leases, employment contracts, supply contracts, sale and purchase of land • Pay attention to contract management. Don’t just stick it away in a drawer!

Contract Drafting and Contract Management Contra Proferentem is a rule of contractual interpretation which provides that an ambiguous term will be construed against the party that drafted the contract. Contract should be clearly drafted, particularly when: 1. 2. 3. 4. the Town is providing a standard form contract to a party; a contract is drafted in-house; contract is drafted by the town’s legal counsel; and where the other party has not had a real opportunity to negotiate the terms contract As the terms will be interpreted against the Town when this is a dispute.

Contract Drafting and Contract Management Written Agreements: • Set out the parties “intentions” with respect to the transaction or relationship. • If clear and unambiguous, they will be enforceable in court as set out in the agreement without reference to extrinsic evidence. “THIS is our agreement, enforce it. ”

Contract Drafting and Contract Management In Plain Language: • Always have a clear scope of work (where relevant) • Payment terms / payment schedule • Set out all material obligations of each party

Contract Drafting and Contract Management Common Provisions • Term (including any renewal rights subject to PTA) • Termination (on notice, on default or breach of conditions) • Default Provisions (insolvency, assignment/subcontract, fails to pay for labour/materials, fails to provide documentation, fails to perform work in manner specified, etc. ) • Liability and Indemnities (property, personal injury and 3 rd party for negligence and breach of contract)

Contract Drafting and Contract Management Common provisions (continued): • Insurance and Proof (automobile, general liability, business, employee, environmental, other? ) • Workplace Health, Safety and Compensation Act – registration and compliance • Compliance with laws • No assignment / no subcontracting (or with consent) • No waiver of terms except in writing • No Amendments except in writing

Contract Drafting and Contract Management Other useful provisions: • • • Severability No partnership Confidentiality Headings for Reference only Notice Time is of the essence

Contract Drafting and Contract Management Other useful provisions (con’t): • Counterpart execution • “The Parties agree that this agreement may be executed in counterparts and by facsimile and when so executed shall constitute a binding agreement between the Parties” • Delivery by fax / e-mail copies • Entire Agreement

Contract Principles • Breach of Contract is a legal cause of action in which a binding agreement is not honored by one or more of the parties to the contract by nonperformance or interference with the other party’s performance. • Minor Breach • Material Breach • Are you permitted to terminate the agreement?

Contract Principles Minor Breach: (partial breach or immaterial breach), occurs when the non-breaching party is not entitled to an order for performance of the obligations, but only to collect the actual amount of their damages. For example, suppose a Town hires a contractor to clear snow from town roads and insists that the plow be red. The contractor paints his plow blue part way through the winter but it still functions just as well. Although the contractor breached the literal terms of the contract, the Town can only recover the amount of its damages. Since the plows is identical in value and service, the difference is zero; therefore, there are no damages and the Town receives nothing. It is important to note, however, that if the agreement specifies that he plow colour is a condition of the agreement, the breach of that condition will permit termination by the Town.

Contract Principles Material Breach: any failure to perform that permits the other party to the contract to either compel performance, or collect damages because of the breach. If the contractor in the previous example had been instructed to use a plow with certain sized plow blade, and instead used a smaller plow blade which didn’t clear the snow as effectively as the larger plow, the Town could sue for breach of contract and recover the cost of correcting the breach – i. e. costs of hiring a new contractor with the correct size plow blade, or hiring someone to clear the snow that wasn’t removed by the smaller plow. In addition, if the size of the plow is a condition of the agreement – the Town may terminate the agreement AND recover damages.

Contract Principles Hypothetical The Town has a contract with Plows ‘R Us for snow removal which stipulates that plows must be on the roads before 5: 00 am. Plows ‘R Us fails to meet this requirement, and there is no mention in the contract of what remedy exists in this situation. The Town hires Super Plows to clear the roads. 1. Is the Town liable to Plows ‘R Us for damages? 2. Is Plows ‘R Us liable to the Town for damages?

Contract Principles • Town would not be liable to Plows ‘R Us. The Company’s claim for breach of contract would fail due to the fact that the Town had to act in the best interest of its residents to ensure safety. • Town could sue for a breach of contract under the common law and receive damages for amounts spent in hiring the subsequent service provider. • What about termination? What does the contract say. • This example shows the importance of good drafting. If a remedy had been included in the initial contract for this type of scenario, dispute would have been avoided.

Contract Principles • Key to a successful business relationship is a welldrafted contract. • Seek legal advice up front (prior to sending out specifications) rather than when the problem arises. • Anticipate problems and include them in the contract. • Even the most well-intentioned, reasonable parties can have disputes and it is always best to be able to point to a provision in the written contract which explains each party’s responsibilities, obligations and duties.

THANK YOU! ANY QUESTIONS?