COURT OF APPEAL FOR ONTARIO

CITATION: Biancaniello
    v. DMCT LLP, 2017 ONCA 386

DATE: 20170515

DOCKET: C61773

Feldman, Epstein and
    Miller JJ.A.

BETWEEN

Steve Biancaniello, Nick
    Romano, Prinova Technologies Inc., Prinova Software Inc.

Plaintiffs (Respondents)

and

DMCT LLP, Collins Barrow
    and Collins Barrow Toronto LLP

Defendants (Appellants)

Thomas D. Galligan, for the appellants

Adam Pantel, for the respondents

Heard: September 26, 2016

On appeal from the order of the
    Divisional Court (Justices
Herman J.
Wilton-Siegel,
    David L. Corbett and
Deena F.
Baltman), dated October
    30, 2015, with reasons reported at 2015 ONSC 6361.

Feldman
    J.A.:

INTRODUCTION

[1]

The parties signed a broadly-worded, mutual
    release to settle an action. Years later, an unanticipated claim came to light.
    The issue in this case is whether the release applies to the unanticipated
    claim. The motion judge and the Divisional Court held that it did not. I
    disagree and would allow the appeal for the following reasons.

FACTS

[2]

The respondent, Prinova Technologies, was
    incorporated in 1998 as a consulting business offering advice on document
    automation. It also developed a software business. From 2004 to until a fee
    dispute arose in 2007, the appellant, DMCT LLP, acted as Prinovas accountant.

[3]

DMCT billed Prinova a total of $66,632.45 for
    services rendered on three separate matters between 2006-2007:

·

Applying for a Scientific Research and Experimental Development
    (SRED) tax credit;

·

Negotiating the departure of an employee; and

·

Structuring a butterfly transaction in which Prinovas software
    and consulting businesses were divided into separate companies. This involved
    transferring the assets and intellectual property of the software business into
    a new company on a tax-deferred basis.

[4]

Prinova objected to paying the fees. In
    correspondence between Prinovas lawyer and DMCTs lawyer, Prinova alleged:

·

DMCT provided little or [no] value in preparing the SRED
    application. Not only was the application submitted late, Prinovas lawyer
    advised that, if challenged, his client was in a position to have several
    experts opine that the work carried out by [DMCT] in respect of the SRED claim
    was deficient.

·

DMCT ought to have recognized that it was in a conflict of
    interest by providing advice to both Prinova and the departing employee about
    the tax implications of the employees exit. Prinova alleged that DMCT clearly
    preferred the departing employees interest over those of Prinova and its
    principals.

·

DMCT overcharged Prinova for fees on the butterfly transaction.
    In particular, DMCT charged significant fees to ensure that the transaction did
    not negatively impact Prinovas bank covenants. Prinova described this as a
    make work project and argued that DMCT would have known that the bank would
    treat the consulting and software businesses as consolidated companies.

[5]

Prinovas counsel summarized his position: At
    the end of the day, my clients position has not changed in that not only did
    they obtain little value for the payments it has already made to your clients
    in respect of these matters, but it has incurred damages as a result of some of
    the advice provided by your client.

[6]

DMCT sued for its fees. Before a statement of
    defence was delivered, the parties agreed to settle the litigation for a total payment
    by Prinova of $35,000. As part of the settlement, the parties executed a mutual
    release dated March 31, 2008, the relevant part of which provides:

KNOW ALL
    MEN BY THESE PRESENTS that DMCT LLP (DMCT) and PRINOVA TECHNOLOGIES INC. and
    PRINOVA SOFTWARE INC. (hereinafter collectively referred to as Prinova)
,
    (including their officers, directors, employees, representatives, associates
    and assigns) in consideration of the sum of
THIRTY-FIVE THOUSAND DOLLARS ($35,000)
and other good and valuable consideration, receipt and sufficiency of which is
    hereby acknowledged, do hereby remise, release, and forever discharge each
    other of and from all manner of actions, causes of actions, suits, debts,
    duties, accounts, bonds, covenants, claims and demands which against each other
    they had, now have or hereafter may, can or shall have for or by reason of any
    cause, manner or thing whatsoever existing to the present time with respect to
    any and all claims
arising
    from any and all services provided by DMCT to Prinova through to and including
    December 31, 2007 and, without limiting the generality of the foregoing, with
    respect to any and all claims, counterclaims or defences that were pleaded or
    could have been pleaded in the action commenced in the Ontario Superior Court
    of Justice, as court file no. 08-CV-349246 PD3
. [Bold in
    original.]

[7]

In late 2011, in the course of a restructuring,
    Prinova learned that  far from being tax-free  the butterfly transaction, as
    DMCT had structured it, could be subject to an income tax liability of
    approximately $1.24 million.

[8]

As a result, Prinova obtained a court order
    dated January 23, 2013, rescinding the steps taken to implement the butterfly
    transaction. As part of the rescission application, Prinova included an
    affidavit from Enzo Testa, the DMCT partner who had advised Prinova on the
    butterfly transaction. In that affidavit, Testa acknowledged, without
    explanation, that the transactions as designed by DMCT did not comply with the
    relevant provisions of the
Income Tax Act
, R.S.C. 1985, c. 1 (5th Supp.),
and therefore were
    contrary to Prinovas intentions. Prinova incurred over $250,000 in legal and
    accounting fees in the process of obtaining the rescission order.

[9]

In May 2012, Prinova filed a notice of action
    against DMCT seeking an order setting aside the 2008 Release and claiming
    damages for negligence, breach of contract, misrepresentation and breach of
    fiduciary duty in the amount of $3 million.

[10]

DMCT moved for summary judgment to dismiss the action on the basis
    that Prinovas claim was barred by the 2008 Release.

JUDGMENTS BELOW

Motion
    for summary judgment

[11]

The motion judge dismissed DMCTs motion for summary judgment,
    finding that the release did not bar Prinovas claim. She explained that the
    wording of the 2008 Release refers to claims existing to the present time
    i.e., in 2008. DMCTs admitted negligence only came to light in 2011, and
    because the evidence demonstrated that DMCT failed to make the proper records
    and tax filings that might have revealed it sooner, there would have been no
    basis for the plaintiffs to have asserted a claim, counterclaim or defence in
    the fees action at the relevant time: at para. 6(1).

[12]

The motion judge also made the following finding to support her
    conclusion, at para. 6(6):

[T]he Mutual Release is a standard, boilerplate form of release
    that did not and was not realistically intended by its wording to apply to an
    unrelated matter that arose  years subsequently and was not contemplated by
    the parties. As noted by Testa in his affidavit of June 15, 2012 filed in the
    rescission application, the result of non-compliance with s. 52(2) of the
Income
    Tax Act
was contrary to the intentions of both parties. The standard
    release in the fees action cannot, in my view, be read broadly to cover this
    circumstance.

Motion
    for leave to appeal to Divisional Court

[13]

Sachs J. granted leave to appeal to the Divisional Court. She found
    that there was good reason to doubt the correctness of the motion judges
    decision. Accepting that the parties might never have contemplated that DMCTs
    advice on the butterfly transaction might be wrong when they signed the 2008
    Release, there was still good reason to find that the express terms of the
    release precluded Prinovas claim. Relying on the express wording of the
    release, she stated, at para. 2(a): It is open to serious debate that this
    wording is broad enough to cover any claim, even a future claim, in relation to
    the advice that the defendants gave the plaintiffs prior to December of 2007.

[14]

The leave judge concluded, at para. 3: The proposed appeal involves
    issues concerning the ability of parties to settle claims that they may not
    have contemplated at the time of the settlement. This issue is an important one
    that extends beyond the interests of the parties and that could have an impact
    on the administration of justice.

Appeal
    to Divisional Court

[15]

The Divisional Court dismissed DMCTs appeal. At para. 4, it stated
    as a matter of law that:

Unless a release has exceptionally comprehensive language, it
    applies only to claims that were known to the parties at the time that it was
    executed. A dispute that had not emerged, or a question which had not arisen,
    cannot be absorbed by the words of a general release. If the parties want to
    bar unknown claims, they must use clear and unequivocal language to express
    that intention. [Citations omitted.]

[16]

The Divisional Court agreed with the motion judge that at the time
    it signed the release, Prinova did not know that DMCTs advice on the butterfly
    transaction had been negligently given, and therefore it did not know that it
    had a claim for negligence against DMCT. The court rejected DMCTs submission
    that the quality of its work (or lack thereof) was clearly within the
    contemplation of the parties when the 2008 Release was executed. The court
    held that Prinovas objections at that point related to the quality of work
    performed on the SRED application and the employment matter, but not the
    butterfly transaction.

[17]

By interpreting the words in the release any cause, manner or thing
     existing to the present time to include only known causes, the Divisional
    Court concluded that the negligence claim did not exist when the release was
    signed.

[18]

The appeal comes to this court with leave, granted on February 17,
    2016,  applying the criteria set out in
Re Sault Dock Co. Ltd. and City of
    Sault Ste. Marie
, [1973] 2 O.R. 479 (C.A.).

ISSUE

[19]

Did the Divisional Court err in law in its interpretation of the
    standard language used in the release by failing to properly apply the
    principles of interpretation established by the relevant case law?

ANALYSIS

Standard

of review

[20]

Before addressing the issue of law, I will briefly address the
    standard of review. As this case involves the interpretation of a release given
    in the context of the settlement of an action and the circumstances leading up
    to the action, one may think that the standard of review would be the
    deferential standard normally applicable to the interpretation of negotiated
    agreements:
Sattva Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53,
    [2014] 2 S.C.R. 633. However, this appeal comes to the court as an appeal from
    the Divisional Court with leave. This affects the applicable standard of
    review.

[21]

In
Sault Dock
, this court determined the criteria it would
    apply when deciding whether to grant leave from a decision of the Divisional
    Court sitting in its appellate capacity. Because the court would be granting a
    second appeal hearing, leave will only be granted in exceptional circumstances
    where this court would be giving guidance on certain types of issues of general
    public importance. The court explained, at p. 481:

If the resolution of the question would largely have
    significance only to the parties and would not settle for the future a question
    of general interest to the public or a broad segment of the public, the
    requirements to obtain leave will not have been met.

[22]

Although the court does not give reasons when granting leave, it is presumed
    that leave was granted in this case because the appeal raises such an issue. Indeed,
    that was the basis upon which Sachs J. granted leave to the Divisional Court.
[1]
Here, the issue is the
    proper approach to the interpretation of a release. It is an issue of general
    public importance because although the release is not on a standard form, it
    uses language that is standard in many common release documents. From a standard
    of review perspective, this appeal raises a question of law to which the
    correctness standard applies. See
Ledcor Construction Ltd. v. Northbridge
    Indemnity Insurance Co.
, 2016 SCC 37,
    [2016] 2 S.C.R. 23.

Interpretation
    of the release

(a)

General
    principles

[23]

The seminal decision on the proper approach to
    the interpretation of a release is the House of Lords decision in
London
    and South Western Railway v. Blackmore

(1870), L.R. 4 H.L. 610. At
    p. 263, Lord Westbury stated: The general words in a release are limited
    always to that thing or those things which were specially in the contemplation
    of the parties at the time the release was given.

[24]

In
Hill v. Nova Scotia (Attorney General)
,
    [1997] 1 S.C.R. 69, Cory J. cited this principle with approval and noted, at
    para. 20:

What the statement quoted means is that in
    determining what was contemplated by the parties, the words used in a document
    need not be looked at in a vacuum.  The specific context in which a
    document was executed may well assist in understanding the words used.  It
    is perfectly proper, and indeed may be necessary, to look at the surrounding
    circumstances in order to ascertain what the parties were really contracting
    about.
[Emphasis added by Cory J.]

[25]

This approach was recently addressed again by the House of Lords in
Bank
    of Credit and Commerce International SA v. Munawar Ali
,

[2001]
    UKHL 8; [2001] 1 All E.R. 961.

[26]

In
Ali
, a bank terminated the
    employment of a number of employees and gave them severance packages. In
    exchange for a release, the bank gave the terminated employees, including the
    respondent, an extra months salary. The release contained the following
    language:

The Applicant [Mr.  Naeem] agrees to accept the terms set out
    in the documents attached in full and final settlement of all or any claims
    whether under statute, Common Law or in Equity of whatsoever nature that exist
    or may exist and, in particular, all or any claims rights or applications of
    whatsoever nature that the Applicant has or may have or has made or could make
    in or to the Industrial Tribunal, except the Applicants rights under the
    Respondents [the banks] pension scheme.

[27]

A year later, during the course of the wind-up
    of the bank, it was discovered that the bank had been carrying on its business
    in a corrupt and dishonest manner. A number of employees wished to sue the bank
    for damages caused by the stigma of working for a corrupt bank, a previously-unknown
    cause of action. The claim was rejected until the case reached the House of
    Lords, which ruled that such a claim was sustainable in principle. The respondent
    then wished to pursue a claim for stigma damages, and the issue was whether he
    was barred from doing so by the terms of the release.

[28]

Lord Bingham of Cornhill wrote the main decision
    for the majority. He explained that in interpreting the release, as in
    interpreting any contractual provision, the object of the court is to give
    effect to what the contracting parties intended: at para. 8. The court does
    not inquire into the parties subjective states of mind, but makes an objective
    assessment based on the contract as a whole, the impugned words in their
    ordinary meaning and in the context of the agreement, the parties relationship,
    and all relevant facts surrounding the transaction so far as known to the
    parties.

[29]

Lord Bingham reviewed the jurisprudence from the
    English and Australian courts on the interpretation of releases. The
    jurisprudence established that, by using appropriate language, a party can release
    claims that the party neither knew nor could have known, nor even imagined.
    However, in the absence of clear language, the court will be very slow to
    infer that a party intended to surrender rights and claims of which he was
    unaware and could not have been aware: at para. 10. At para. 14, Lord Bingham
    quoted from a decision of Dixon C.J. of the High Court of Australia in
Grant
    v. John Grant and Sons Pty. Ltd.

(1954), 91 C.L.R. 112, at pp. 129-130:

From the authorities which have already been cited it will be
    seen that equity proceeded upon the principle that a releasee must not use the
    general words of a release as a means of escaping the fulfilment of obligations
    falling outside the true purpose of the transaction as ascertained from the
    nature of the instrument and the surrounding circumstances including the state
    of knowledge of the respective parties concerning the existence, character and
    extent of the liability in question and the actual intention of the releasor.

[30]

Turning to the release before the court, Lord
    Bingham pointed out that although the wording was wide enough to cover more
    than all incidents of the employer/employee relationship, the banks liquidators
    acknowledged that they would not seek to apply the release to, for example, a
    claim for a deposit held in an account at the bank. He concluded from this that
    the broad words used could not be read literally.

[31]

Lord Bingham held, at para. 19, that because the
    claim for stigma damages was something that the parties to the release could
    never have had in contemplation at all, the parties could not have intended
    that such a claim would be surrendered by the release.

[32]

Lord Nicholls of Birkenhead wrote concurring
    reasons. He pointed out the problem that often arises when interpreting a
    release: in settling a dispute, the parties want to wipe the slate clean, but
    then when an unexpected claim comes to light, it is unclear whether the broad
    general language used was intended to cover the unexpected claim.

[33]

In addressing the problem, he refuted the
    suggestion that unknown claims are not covered by broad general language. I
    quote his discussion, at para. 27:

The wording of a general release and the context in which it
    was given commonly make plain that the parties intended that the release should
    not be confined to known claims. On the contrary, part of the object was that
    the release should extend to any claims which might later come to light. The
    parties wanted to achieve finality. When, therefore, a claim whose existence
    was not appreciated does come to light, on the face of the general words of the
    release and consistently with the purpose for which the release was given the
    release is applicable. The mere fact that the parties were unaware of the
    particular claim is not a reason for excluding it from the scope of the
    release. The risk that further claims might later emerge was a risk the person
    giving the release took upon himself. It was against this very risk that the
    release was intended to protect the person in whose favour the release was
    made.

[34]

That said, Lord Nicholls cautioned that this approach should not be
    pressed too far. He explained, at para. 28:

However widely drawn the language, the circumstances in which
    the release was given may suggest, and frequently they do suggest, that the
    parties intended or, more precisely, that the parties are reasonably to be
    taken to have intended, that the release should apply only to claims, known or
    unknown, relating to a particular subject matter. The court has to consider,
    therefore, what was the type of claims at which the release was directed.

[35]

For example, Lord Nicholls explained, a mutual
    general release on a settlement of final partnership accounts might properly be
    interpreted as being confined to claims arising in connection with the
    partnership business. It would not extend, for example, to a later claim by one
    partner against the other that the tree roots of his neighbouring property were
    encroaching.

[36]

Applying this discussion of principles to the
    issue in
Ali
, Lord Nicholls held that it was clear from the wording
    that the parties did not intend the release to be limited to known claims, but
    that it was limited to claims arising out of the ending of the employment
    relationship. However, the parties were contracting based on the law as it then
    stood, and a claim arising as a result of a change in the law could not have
    been within the contemplation of the parties.

[37]

Lord Hoffmann, writing in dissent, began by
    characterizing the words of the release as very broad, without any deliberate
    gaps. Nevertheless, he explained that there may still be limitations in the
    scope of the release which could be inferred from the background.

[38]

Often a release is given as part of the
    settlement of a dispute. In such a case, the scope of the dispute provides a
    limiting background context to the document: at para. 41. Lord Hoffmann
    adopted the oft-quoted statement of Lord Westbury in
London Railway
: The
    general words in a release are limited always to that thing or those things
    which were specially in the contemplation of the parties at the time when the
    release was given. Lord Hoffmann noted, at para. 42: This is a rather
    sweeping statement. It is almost always dangerous to say always. But, in
    cases of a release given in connection with the settlement of a dispute, it is
    a fair generalization.

[39]

In
Ali
, the context for the release was
    not ending litigation, but ending an employment relationship. Therefore, all
    claims meant claims arising from the employment relationship, and included
    both known and unknown claims. Lord Hoffmann reasoned that because the bank
    paid specific amounts for the known claims, the extra months salary it paid
    for the release must have been for unknown claims, including those not then
    known to the law. For the bank, the purpose of the release was finality. For
    the employee, the more unlikely or remote a claim, the more likely the employee
    would be willing to release it for extra money.

[40]

Lord Hoffmanns approach was to give effect to what the parties
    agreed on ordinary principles of construction. He rejected the submission that
    because the bank conceded that in spite of the very broad language of the
    release, some claims such as personal injury claims or claims on accounts held
    at the bank were not covered, therefore
all
unknown claims were not
    covered. He explained that while the bank did not advocate for a literal
    meaning (i.e. covering any claim whatsoever), it argued for a contextual
    meaning that would exclude claims outside the employment relationship, but
    would not exclude unknown claims altogether. Further, if the context
    demonstrated that both parties intended that the release applied to claims
    unknown to both of them, he saw nothing unfair in giving effect to that
    intention. He concluded that it would give the language of the release a strained
    construction to interpret it to exclude the stigma claim: at para. 75.

[41]

In summary, the real issue in
Ali
was not whether the
    general words of the release should be interpreted to include unknown claims. All
    the Law Lords agreed that the release covered factually unknown claims. Rather,
    the issue was whether it was fair to conclude that it was in the parties contemplation
    that the release included a claim for stigma damages, where such a claim was
    unknown in law (and in fact) to the parties when they drafted and signed it.

(b)

Application to this
    case

[42]

The factual context and wording of the release are both quite different
    in this case than in
Ali
. However, I have discussed the opinions in
    the
Ali

case at some length because the Law Lords considered virtually
    every interpretive issue that could arise in applying the concept of what was in
    the contemplation of the parties when faced with a broadly-worded release. One
    can distill the following principles from these reasons:

1. One looks first to the language of a
    release to find its meaning: at para. 8.

2. Parties may use language that
    releases every claim that arises, including unknown claims. However, courts
    will require clear language to infer that a party intended to release claims of
    which it was unaware: at paras. 9-10.

3. General language in a release will
    be limited to the thing or things that were specially in the contemplation of
    the parties when the release was given: at para. 13.

4. When a release is given as part of
    the settlement of a claim, the parties want to wipe the slate clean between
    them: at para. 23.

5. One can look at the circumstances
    surrounding the giving of the release to determine what was specially in the
    contemplation of the parties: at para. 28.

[43]

Applying these principles to the interpretation of the mutual release
    between these parties, the context was that the release was given as part of
    the settlement of a fees action by accountants against their client. The client
    had been unhappy with the service provided by the accountants on three matters.
    In their lawyers letter, the client complained that the accountants
    overcharged for what was accomplished, were in a conflict of interest, performed
    unnecessary work, and performed deficient work. Because the release was given
    as part of the settlement of the fees claim, its purpose for both parties was to
    wipe the slate clean in respect of the dispute between the parties.

[44]

The release does not purport to release all possible claims, without
    limitation, that may exist between the parties. Nevertheless, to the extent
    that the release contains general language, the court must try to determine the
    matters that were specially within the contemplation of the parties In this
    case, one will look at the fact that the context is the settlement of an
    action. In that context, the language of the release limits its intended scope.

[45]

The language of the release refers to all claims existing up to the
    present time, arising from any and all services provided by DMCT to Prinova
    through to and including December 31, 2007. In other words, it limits the
    claims that are released to those that existed up to that time, arising from
    all of the services provided by the accountants to the client up to the end of
    December, 2007. And for greater certainty, it releases all claims made in the
    fees litigation, as well as all defences or counterclaims that were pleaded or
    could have been pleaded. Negligent provision of services would have been a
    viable defence or counterclaim in the fees litigation.

[46]

Because the release is specific as to the exact claims that are
    released, there is no need to search for what was contemplated by the parties.
    It is spelled out specifically and clearly.

[47]

The claim that the client now seeks to assert against the
    accountants is a claim that arises out of the services that the accountants
    provided before the end of December 2007.  The client says that its claim is
    nevertheless not barred by the language of the release on two bases: first, the
    claim was unknown to the parties at the time the release was signed and the
    release does not say that it includes unknown claims. Second, the claim did not
    exist at the time the release was signed because neither party knew about it or
    had any reason to know about it at that time.

[48]

In my view, neither of these objections bears scrutiny.

[49]

Although the release does not specifically say that it includes
    unknown claims, it includes all claims arising from the services provided by
    the accountants up to the end of December 2007. By including all claims, but
    limiting the description of the claims that are intended to be covered both by
    subject matter and by time frame, there is no need to further specify the types
    of claims that are included. The language is specific and fully understandable:
    it includes all claims related to professional services provided during the
    specified time frame. There is no need, for example, to say, including tort
    claims, negligence claims, breach of contract claims, costs claims, etc. They
    are all included unless specifically excluded. The same analysis applies to
    unknown claims  by specifying the claims contemplated by the parties and
    describing them inclusively, all claims in the defined category are included
    unless specifically excluded. Had it said including known and unknown claims,
    that would just have been another way of saying that the release includes all
    claims.

[50]

In my view, the language used by the parties in this release was
    clear and unequivocal in its intent and effect. The Divisional Court did not
    find the language exceptionally comprehensive enough to include the claim
    that arose. I do not agree. More words would not assist. I agree with the
    observation by Lord Hoffmann in
Ali
, at para. 38, that the solution
    does not lie with more verbiage.

[51]

The problem for the client here is not that the words used are unclear,
    but that the claim that arose was unanticipated. In signing the release, the
    parties intended to fully and finally settle the fee dispute  a dispute that
    arose because the client was unhappy with both the time spent and the quality
    of service provided by the accountants. The language of the release covers all
    claims arising from the work the accountants did on the butterfly transaction
    in 2007. The parties were wiping the slate clean in respect of that work. Had
    the client wished to exclude claims it might later discover arising from that
    work, it could have bargained for that result.

[52]

The Divisional Court held that because the parties were not aware
    that the accountants had given negligent advice on the butterfly transaction,
    the clients claim for negligence did not exist when the release was signed.
    With respect, this statement constitutes an error of law. The negligent advice
    on how to put in place a butterfly transaction to achieve a tax-free division
    of the clients business was provided by the accountants in April 2007. Because
    neither party was apparently aware that the advice was negligent, there would
    be a discoverability issue for the purpose of determining the relevant
    limitation period. However, the fact that the claim was not discovered does not
    mean that it did not exist, nor that it was not discoverable. In fact, it did
    exist, but came to light only upon being discovered by other accountants four
    years later.

(c)

Other issues
    raised by the Statement of Claim

[53]

The client did not commence this action with a claim for negligent
    advice and a defence based on the release. Rather, the statement of claim seeks
    to set aside the release on the basis that it was entered into based on the misrepresentation
    by the accountants that their advice on the butterfly transaction would result
    in no tax consequences, and that because that turned out to be untrue, the
    release was unconscionable.

[54]

The accountants responded by moving for summary judgment on the
    basis that the release released any claim against it arising from the impugned
    advice. The courts below found that the release did not bar the underlying negligence
    claim. I have found that the release does bar the underlying claim. This leaves
    the question whether there is anything left to be determined in the action.

[55]

There is no claim made for fraudulent misrepresentation or
    concealment. To the contrary, it is acknowledged that the accountants did not
    know that the advice on the butterfly transaction was ineffective or negligent
    at the time it was given. Therefore, the misrepresentation claim is, in effect,
    a claim based on negligent advice on the butterfly transaction. I have found
    that that claim is barred by the release. The unconscionability claim is
    similarly founded upon the negligent advice on the butterfly transaction. It is
    therefore barred as well.

RESULT

[56]

The Divisional Court upheld the decision of the motion judge, which dismissed
    the appellants motion for summary judgment and set this matter down for trial,
    because it found that the respondents claims were not barred by the release. I
    would allow the appeal, set aside the decision of the Divisional Court and
    grant summary judgment dismissing the action.

[57]

I would fix the costs of the appeal and motion for leave to appeal
    at $24,000 inclusive of disbursements and HST. I would award the costs of the
    three proceedings below to the appellant in the amounts fixed by the courts
    below.

Released: G.E. May 15, 2017

K.Feldman J.A.

I agree. Gloria Epstein J.A.

I
    agree. B.W. Miller J.A.

[1]

Sault Dock
also recognizes that
    the court may grant leave where it appears in the interests of justice to do
    so, such as where there is new evidence, an obvious misapprehension on the
    Divisional Courts part of a relevant fact, or a clear departure from the
    established principles of law resulting in a miscarriage of justice. None of
    these criteria apply in this case.


COURT OF APPEAL FOR ONTARIO

CITATION: Black v. Owen, 2017 ONCA 397

DATE: 20170518

DOCKET: C62396

Feldman, Cronk and Miller JJ.A.

BETWEEN

Richard Black and Scott Lamacroft

Plaintiffs (Respondents)

and

Gerald Owen and Katherine Anderson

Defendants (Appellants)

Scott C. Hutchison and Matthew R. Gourlay, for the
    appellants

Anne E. Spafford and Shannon M. Gaudet, for the
    respondents

Heard: April 10, 2017

On appeal from the order of Justice Janet Wilson of the
    Superior Court of Justice, dated February 4, 2016, with reasons reported at 2016
    ONSC 40, 345 O.A.C. 245.

Cronk J.A.:

Introduction

[1]

This appeal concerns the alleged obligation of the appellants, Gerald
    Owen and Katherine Anderson, to pay an annual levy as a contribution to
    maintenance costs and taxes for certain private property situated in an area of
    Toronto known as Wychwood Park.  The payment obligation is said to arise under
    an 1891 trust deed concerning certain common property in the Park (the Trust
    Deed).

[2]

The appellants deny any liability for the contested levies.  They
    contend that the covenant to pay contained in the Trust Deed offends the
    well-established common law rule that positive covenants do not run with freehold
    land, whether in law or in equity.
This rule is commonly
    referred to as the rule in
Austerberry
    v. Oldham Corpn.
(1885), 29 Ch. D. 750 (C.A.).  It
    has been much discussed in the English case law, including, most notably, in
Rhone v. Stephens
,
[1994] 2 All E.R. 65 (H.L.),
    and has clearly been adopted in Canada:
Parkinson v. Reid
, [1966] S.C.R. 162.  See
    also
Heritage Capital Corp. v. Equitable Trust Co.
, 2016 SCC 19, [2016] 1 S.C.R. 306.  The appellants argue that, as
no
    exception to this general rule is recognized under Ontario law, the requirement
    under the Trust Deed to pay the annual levy is unenforceable as against them
    (the Positive Covenants Argument).

[3]

To assess the merits of the Positive Covenants Argument, it is necessary
    to examine the terms of the Trust Deed in light of this courts decision in
Amberwood
    Investments Ltd. v. Durham Condominium Corp. No. 123
(2002), 58 O.R. (3d)
    481, leave to appeal to S.C.C. abandoned, [2002] S.C.C.A. No. 208.

[4]

In
Amberwood
, a condominium corporation and the owner of an
    adjoining property had entered into an agreement to exchange easements on their
    respective properties and to share expenses concerning a recreational
    facility.  The agreement was registered on title to both parcels of land and
    the obligations and benefits in the agreement were expressed to run with the
    land and to bind and benefit the successors in title of the original
    contracting parties.  When the successor in title to one of the original
    covenantors refused to pay its share of the expenses, litigation ensued.

[5]

Justice Charron, writing for the majority of the
Amberwood
court, held that the common law rule that positive covenants do not run with
    freehold land is settled law in Ontario and that legislative action is required
    and advisable for any reform of it.  The court also considered whether two
    exceptions to this rule recognized under English law, known as the benefit and
    burden exception and the conditional grant of easement exception, could and
    should be adopted in Ontario and, if so, whether either applied on the facts of
    the case.

[6]

For lengthy reasons it explained, including the uncertainties and many
    frailties of the existing common law in England in this area of the law, the
    majority in
Amberwood
concluded that it would be inadvisable to adopt
    the benefit and burden exception to the rule about positive covenants in
    Ontario.  For essentially the same reasons, although perhaps not as explicitly,
    the majority also declined to import the conditional grant exception as
    discussed in the English jurisprudence into Ontario law, holding, in any event,
    that it was not available on the facts to assist the defaulting landowner.  The
    dissenting judge in
Amberwood
, MacPherson J.A., would have adopted
    both exceptions to the positive covenants rule into the law of Ontario and
    would also have held that both exceptions applied in the particular factual
    circumstances of that case.

[7]

The principles articulated in the majority opinion in
Amberwood
are directly engaged in this appeal.  As I will explain, in this case, the
    Divisional Court judge (the Appeal Judge) declined to apply the majority
    decision in
Amberwood
and, based on a recent case in England and a
    decision of the Ontario Superior Court of Justice, concluded that both the benefit
    and burden and conditional grant exceptions to the positive covenants rule form
    part of Ontario law and are applicable on the facts of this case.  These rulings
    are now challenged before this court.

Background

(1)

The Trust Deed

[8]

Wychwood Park is a small community of 60 residential houses in the
    Bathurst Street and Davenport Road area of Toronto.  The properties are subject
    to the Trust Deed, which was entered into on July 3, 1891 by the original
    owners of the various parcels of land comprising the Park and registered on
    title with the registry office of the County of York.

[9]

Under the terms of the Trust Deed, the original covenantors agreed to
    appoint trustees to hold certain roadways, drives, a park reserve and
    stipulated land reservations in Wychwood Park (the Common Property) as
    private property for the benefit of the original covenantors and all persons
    hereinafter claiming through or under them any portion of the said property.  For
    this purpose, the original contracting parties granted their respective
    interests in the lands comprising the Common Property in Wychwood Park to the
    trustees, upon several express trusts.  Three of the covenantors were appointed
    under the Trust Deed as the initial trustees of the trust thereby created.

[10]

The first trust provision under the Trust Deed charges the trustees to
    keep the [Common Property] in good repair and order for the benefit of the
    owners from time to time being of the remaining portion of the said property.
    It also authorizes the trustees to require the respective property owners in Wychwood
    Park to pay an annual levy or charge, in the sum of $500, together with such sums
    as may be necessary to pay the taxes of the then current year in such amount
    as is proportionate to the value of the lands owned by each affected landowner,
    exclusive of the buildings thereon and the Common Property.  The stated
    purposes of the annual levy are twofold: i) maintaining and keeping the [Common
    Property] in good repair and order; and ii) paying the taxes due in respect
    thereof.

[11]

The concluding language of the first trust provision reads as follows:

[T]he respective amounts so payable by the respective owners of
    any portion of said property to the trustees after said demand shall be
    forthwith payable by them respectively and shall be a charge upon the portion
    of the said lands held by said owners or his, her or their executors,
    administrators or assigns or anyone claiming under him, her or them and shall
    be a first lien and encumbrance thereon and take priority over all incumbrances
    existing thereon and shall in case of non payment be recoverable from the party
    in default, his, her or their executors, administrators or assigns.

[12]

The remaining trust provisions of the Trust Deed provide for such matters
    as: the appointment of new trustees; the maintenance of records by the trustees
    regarding land holdings in Wychwood Park; an annual written notice to the
    affected landowners of the levies imposed for the preceding year; meetings of
    the affected landowners and trustees; the approval by the landowners of any
    increase in the amount of the annual levy; the potential conveyance of the
    Common Property to the applicable municipality or the dedication of the Common
    Property to the public; and certain restrictive covenants regarding the use and
    occupation of the properties comprising Wychwood Park.

[13]

All the covenants contained in the Trust Deed are expressed to bind both
    the original covenantors and their heirs, executors, administrators or
    assigns.  As set out in paragraph 11 above, the Trust Deed also expressly
    states that the annual levy contemplated under the first trust provision constitutes
    a charge upon the lands held by each landowner in the Park or his, her or
    their executors, administrators or assigns
or anyone
    claiming under him, her or them
 (emphasis added).

(2)

Parties Positions

[14]

The appellants are husband and wife.  They currently own and reside at a
    property that backs onto Wychwood Park.  Gerald Owens family acquired the
    property from the original owners in 1911.  The appellants have lived at the
    property since 1997 but until 2010 it was owned by Ivon Owen, Gerald Owens
    father.

[15]

Unlike many of the other properties in Wychwood Park, the appellants
    property is accessed and serviced by a public, municipal road (Alcina Avenue).
    The appellants assert that they derive no benefit from the expenditure of the
    annual levy imposed under the Trust Deed, they disclaim any benefit from their
    propertys inclusion in Wychwood Park, they maintain that they have never
    agreed to pay the annual levy contemplated by the Trust Deed and, further, they
    wish to be excluded from any use of the Common Property.  They rely on the
    Positive Covenants Argument to defeat the respondents debt action against
    them.

[16]

The respondents are the current trustees of the Wychwood Park trust.
    They argue that because the appellants are the owners of a property within the
    boundaries of Wychwood Park, they are beneficiaries under the Trust Deed and,
    consequently, have an obligation to pay their proportionate share of expenses
    incurred by the trustees in relation to the Common Property.

[17]

The respondents do not challenge the majority decision in
Amberwood
.
    Specifically, they do not seek to have the holdings of the
Amberwood
majority revisited by this court.  Rather, their main position is that the
    Appeal Judge properly interpreted the positive covenants rule and correctly
    applied the exceptions to that rule in accordance with
Amberwood
.

[18]

More particularly, the respondents argue in their factum that both the
    benefit and burden and the conditional grant exceptions to the positive
    covenants rule are available in Ontario and apply to the facts of this case.  During
    oral argument, however, the respondents did not contend that the benefit and
    burden exception forms part of Ontario law, nor did they seek to rely on that
    exception.  Instead, they maintained that there is a direct link under the
    Trust Deed between the benefits conferred regarding the Common Property and the
    positive obligation to pay the annual levy and, because the appellants derive
    benefits under the Trust Deed, the conditional grant exception applies to
    impose liability on the appellants for the disputed levies.

(3)

Litigation History

(i)

First Action

[19]

Ivon Owen ceased paying the annual levy in 2008.  At that time, the
    appellants were residing at his property and caring for him.  As a result of
    the non-payment, the then trustees of the trust sued him, together with the
    appellants, in Small Claims Court for recovery of the outstanding levies for 2008
    and 2009.

[20]

In 2010, Deputy Judge Kilian held that Ivon Owen was required to pay the
    disputed annual levies.  He held that Ivon Owen and the appellants were aware
    of and had actual notice of the trust and, on this basis, were bound by the
    terms of the Trust Deed.  He also found that the annual levy was used to
    maintain and redevelop a private road inside Wychwood Park and, further, to
    maintain the trees, fences, creek and other features of the Common Property.
    He held that:

The purpose of the trust was for the benefit of all of the
    property owners inside the Wychwood area.  Whether or not those owners make use
    of those benefits is irrelevant.  That is up to them.

[21]

Deputy Judge Kilian therefore granted judgment in favour of the trustees
    against Ivon Owen for $4,052.11  the amount of the annual levies for 2008 and
    2009  plus pre-and postjudgment interest.  He dismissed the action against the
    appellants on the ground that they were merely acting on behalf of Ivon Owen,
    the then owner of the property.

[22]

Importantly, the Positive Covenants Argument was not raised before or
    considered by Deputy Judge Kilian.

(ii)

First Appeal Decision

[23]

The appellants appealed.  By the time of the appeal, Ivon Owen had died
    and the appellants had inherited his property.  Consequently, the appellants
    appealed in their capacity as trustees of his estate.

[24]

On January 30, 2012, Swinton J. of the Superior Court of Justice,
    sitting as a single judge of the Divisional Court, dismissed the appeal.  She
    agreed with Deputy Judge Kilian that Ivon Owen was bound by the obligation to
    pay the annual levy because, as the registered owner of the property, he had
    actual notice of the terms of the Trust Deed:
Black v. Owen
, 2012 ONSC
    400, 291 O.A.C. 8.

[25]

Before Swinton J., the appellants sought to advance the Positive
    Covenants Argument for the first time.  Justice Swinton declined to entertain
    this argument, stating at paras. 39-40 of her reasons:

In my view, the interests of justice do not require the
    resolution of this issue on this appeal.  The appellant did not raise this
    issue at trial, although the case law was readily available.  The fact he did
    not have legal counsel at trial does not permit him to raise the issue now, as
    the respondents might well have responded in a different manner if the issue had
    been raised earlier.

Moreover, this issue, if resolved as the appellant argues,
    would call into question the binding nature of the Trust Deed not only for the
    Owen property, but for the other properties in the Park as well.  If this issue
    is to be litigated, it should be done in a manner that gives clear notice to
    the Trustees and, through them, to others in the community who are likely to be
    affected.  Therefore, I decline to deal with the positive covenant argument as
    a ground of appeal.

(iii)

Second Action

[26]

The appellants did not pay the annual levies for 2010 to 2013.  As a
    result, in June 2012, the respondents commenced a second Small Claims Court action
    against the appellants to recover the unpaid levies.  In response, the
    appellants relied on the Positive Covenants Argument as a complete answer to
    any alleged liability for the levies.

[27]

On December 4, 2014, Deputy Judge Caplan accepted the Positive Covenants
    Argument.  He held that: i) the appellants were not precluded by reason of the
    first action and the first appeal decision from defending the second action
    brought by the trustees; ii) as the Positive Covenants Argument had not been
    argued in the first action and, in his view, the appellants had met the
    pre-conditions for raising this argument outlined by Swinton J., it was open to
    the appellants to advance the Positive Covenants Argument before him; iii) on
    the authority of
Amberwood
, the applicable principle of law in Ontario
    is that positive covenants do not run with the land; and iv) the respondents had
    failed to demonstrate that the benefit and burden exception to this principle
    discussed further below  had been recognized under Ontario law.

[28]

Deputy Judge Caplan therefore concluded that the respondents had failed
    to prove their claim, and he dismissed their action.  He did not address the
    conditional grant exception to the positive covenants rule.

(iv)

Second Appeal Decision

[29]

The respondents appealed.  On February 4, 2016, the Appeal Judge ruled that
    Deputy Judge Caplans reasons were legally insufficient and that they were
    tainted by several factual and legal errors.  These errors, in her view,
    included consideration of the Positive Covenants Argument without any regard
    to the factual and legal analyses of Deputy Judge Kilian and Swinton J.  The Appeal
    Judge held, at paras. 49 and 52, that these analyses were binding on the
    appellants, as parties to the first action, under the principle of
res
    judicata
.  As a result, she ruled that any challenge by them to Deputy
    Judge Kilians factual findings in the first action would constitute a
    collateral attack and an abuse of process.

[30]

In light of the errors she found had been made by Deputy Judge Caplan,
    the Appeal Judge conducted her own analysis of the Positive Covenants
    Argument.  Citing
Amberwood
and
Parkinson
, she recognized
    that, under Ontario law, positive covenants generally do not run with freehold land.
    She framed the questions before her, at para. 65, as whether the exceptions to
    this rule are the law in Ontario, and whether the exceptions apply to the facts
    of this case.  She elaborated, at para. 69, that the application of the
    benefit and burden and conditional grant exceptions to the positive covenants
    rule, as discussed in
Amberwood
, were at issue.

[31]

Amberwood
was thus central to the Appeal Judges analysis.  She
    undertook a detailed review of it and of the subsequent decisions of the English
    Court of Appeal in
Wilkinson v. Kerdene Ltd.
, [2013] E.W.C.A. Civ. 44
    and the Ontario Superior Court of Justice in
Wentworth Condominium Corp.
    No. 12 v. Wentworth Condominium Corp. No. 59
, [2007] O.J. No. 2741.  Based
    on her interpretation of these cases, she held as follows:

(1)

the
    majority of the
Amberwood
court rejected the application of the
    benefit and burden exception in Ontario, concluding that the adoption of such
    an exception to the positive covenants rule is a matter best left to the
    legislature (at para. 80, citing
Amberwood
, at para. 75);

(2)

the
    majority in
Amberwood
accepted the availability of the conditional
    grant exception to the positive covenants rule under Ontario law, but concluded
    that it did not apply on the facts of that case (at para. 96);

(3)

in
    light of post-
Amberwood
developments in the law, specifically,
Wilkinson
in England and
Wentworth Condominium Corp.
in Ontario, the reasons of
    the dissenting judge in
Amberwood
reflect[ed] the current status of
    the law in Ontario.  As a result, the benefit and burden and the conditional
    grant exceptions were appropriately part of the common law in Ontario (at
    paras. 99 and 101);

(4)

even
    if the benefit and burden exception did not form part of the common law in
    Ontario, the conditional grant exception, at least, did, and it applied to the
    facts of this case (at paras. 101 and 104); and

(5)   the
    benefit and burden exception also applied in this case (at para. 107).

[32]

The Appeal Judge summarized her conclusions, at paras. 108-109 of her
    reasons, in this fashion:

[T]he Respondents are bound by the Trust Deed and are obliged
    to pay their annual levies for the benefits received.  I accept the arguments
    of the Appellants that both the conditional grant and the benefit and burden
    exceptions apply to the unique facts and circumstances of this case to modify
    the general rule that positive covenants do not run with the land.

Alternatively, if only the conditional grant principle applies
    in Ontario, I find that it is engaged by the facts of this case, and the
    Respondents are obliged to pay the annual levies.

[33]

Accordingly, the Appeal Judge allowed the appeal, set aside  Deputy
    Judge Caplans judgment dated December 4, 2014, ordered the appellants to pay
    the unpaid levies for 2010 to 2013 in the amount of $12,799.81, and granted an
    unqualified declaration that they are liable to pay the annual levies assessed
    against their property in accordance with the Trust Deed.

[34]

The appellants appeal, with leave, to this court.

Issues

[35]

As  raised by the appellants, there are several issues on appeal:

(1)

Did
    the Appeal Judge err by:

(a)        failing
    to follow binding appellate precedent, namely, the majority decision in
Amberwood
;

(b)        finding
    that the benefit and burden exception forms part of the law of Ontario and
    applies on the facts of this case;

(c)        finding
    that the conditional grant exception forms part of the law of Ontario and
    applies on the facts of this case;

(d)        finding
    that the principle of
res judicata
operates to prevent the appellants
    from arguing that they receive no benefit under the Trust Deed; and

(e)        granting

declaratory

relief requiring the appellants to pay the annual levies under
    the Trust Deed in perpetuity?

(2)

Are
    the reasons of Deputy Judge Caplan in the second action legally insufficient?

Analysis

[36]

In my view, it is unnecessary for the disposition of this appeal to address
    all the grounds of appeal raised by the appellants.  For the reasons that
    follow, I conclude that the Appeal Judge erred in law by failing to follow
    binding appellate precedent, namely, this courts majority decision in
Amberwood
,
    and by holding that the benefit and burden and conditional grant exceptions to
    the positive covenants rule apply in this case.  In light of these errors, I
    would allow the appeal and restore the judgment of Deputy Judge Caplan.

(1)

Failure to Follow Binding Precedent

[37]

The appellants argue that the Appeal Judge erred in law by failing to
    follow the binding majority judgment of this court in
Amberwood
.  They
    submit that the Appeal Judge was not entitled to adopt, as she did, the
    minority opinion in
Amberwood
as reflecting current Ontario law,
    either on the basis of an alleged evolution in the English jurisprudence
    concerning the positive covenants rule or in reliance on her interpretation of the
    decision of another Superior Court judge in another case.

[38]

I agree with these submissions.

[39]

The respondents expressly declined to request reconsideration of the majority
    decision in
Amberwood
by a five-judge panel of this court.  Having so
    elected, they quite properly did not seek to challenge the
Amberwood
majority
    decision in oral argument at the appeal hearing.  To the contrary, before this
    court, the parties accept that the principles of law articulated by the
Amberwood
majority apply in this case.

[40]

The majority decision in
Amberwood
remains good law in Ontario.
    Recently, in
Heritage Capital
, the Supreme Court cited
Amberwood
,
    at para. 25, for the proposition that the positive covenants rule applies even
    if an agreement contains an express intention to the contrary.  The Court went
    on to state: As a result, the common law rule is that [n]o personal or
    affirmative covenant, requiring the expenditure of money or the doing of some
    act can,
apart from statute
, be made to run with
    the land (emphasis in original; citations omitted).

[41]

Amberwood
was directly relevant to the matters in issue before
    the Appeal Judge.  It was also a precedent binding on her.  Absent
    reconsideration by this court of its decision in
Amberwood
, (which is
    not requested by the parties), or an authoritative pronouncement by the Supreme
    Court of Canada that displaces the majoritys holdings in
Amberwood
(which
    not only has not occurred, but would run contrary to
Heritage Capital
),
    it was not open to the Appeal Judge to disregard the binding majority opinion
    in
Amberwood
and, instead, to adopt and follow the minority opinion in
    that case.  She erred in law in so doing.

[42]

As the Supreme Court emphasized in
Canada (Attorney General) v.
    Bedford
, 2013 SCC 72, [2013] 3 S.C.R. 1101, at para. 38: Certainty in the
    law requires that courts follow and apply authoritative precedents.  Indeed,
    this is the foundational principle upon which the common law relies.  Failure to
    adhere to this core principle is inconsistent with the principle of
stare
    decisis
, the need for certainty and stability in the administration of
    justice, and the orderly development of the law.

[43]

Consistent with this principle, the Supreme Court has held that a trial
    judges authority to depart from binding precedent is limited.
Bedford
instructs, at para. 42:

[A] trial judge can consider and decide arguments based on
Charter
provisions that were not raised in the earlier case; this constitutes a new
    legal issue.  Similarly, the matter may be revisited if new legal issues are
    raised as a consequence of significant developments in the law, or if there is
    a change in the circumstances or evidence that fundamentally shifts the
    parameters of the debate.

See also
Carter v. Canada (Attorney General)
,
    2015 SCC 5, [2015] 1  S.C.R. 331, at para. 44.  Further, the Supreme Court has
    rejected the notion of the anticipatory overruling by a lower court of a
    binding authority by a higher court:
Canada v. Craig
, 2012 SCC 43,
    [2012] S.C.R. 489.

[44]

In this case, the respondents do not contend that either of the
Bedford
conditions, set out above, were satisfied so as to justify departure from the
    majority opinion in
Amberwood
.

[45]

The
Bedford
conditions are not met here.  First, unlike
Bedford
and
Carter
, this is not a case involving s. 7 of the
Charter
    of Rights and Freedoms
.  Second, no new legal issue concerning the
    positive covenants rule or the possible exceptions to that rule, that were not addressed
    in
Amberwood
, was raised in this case.  Third, no significant post-
Amberwood
developments in the law of Ontario had occurred.  I note, in particular, that
    the extent to which the decision of the English Court of Appeal in
Wilkinson
warrants importation of the benefit and burden exception into Ontario law, if
    at all, was a matter for determination by this court.  Neither
Wilkinson
in England nor
Wentworth Condominium Corporation
in Ontario permits a
    lower court judge to prefer the minority, over the majority, opinion of this
    court in
Amberwood
.

[46]

To summarize, in a case like this one, a judge of a lower court may not
    decline to follow a binding precedent of a higher court on the ground that he
    or she disagrees with it or because, in his or her view, it appears to have
    been overtaken by subsequent decisions of a lower court in the same
    jurisdiction, or by jurisprudential developments in another jurisdiction.  In
    this case, what the Appeal Judge should have done was follow and apply the
    majority decision in
Amberwood
and provide reasons why she viewed it as
    problematic, rather than decline to follow it: see, for example, in the
    constitutional context,
Craig
, at para. 21.

(2)

Benefit and Burden

[47]

Nor are the holdings below that the benefit and burden exception to the
    positive covenants rule reflect[s] the current law in Ontario, and that it
    applies in this case to render the appellants liable to pay the annual levy
    contemplated by the Trust Deed, sustainable.  As I have said, the respondents
    do not argue to the contrary on this appeal.

[48]

The benefit and burden exception to the positive covenants rule does not
    form part of Ontario law at the present time.  In
Amberwood
, the
    majority unequivocally held that the principle of benefit and burden, often
    referred to as the doctrine in
Halsall v. Brizell
, [1957] 1 All E.R.
    371, has not been and should not be imported into Ontario law absent
    legislative reform in this area of the law.

[49]

Specifically, in
Amberwood
, the majority concluded, at paras.
    75-76, that it would be inadvisable to adopt [the benefit and burden
    principle] in Ontario given the uncertainties and the many frailties of the
    existing common law in England in this area of the law and further, that any
    reform to the positive covenants rule is best left to the legislature.  The
    majority also stated, at para. 19:

[T]he adoption of [the benefit and burden] doctrine as a
    recognized exception to the [positive covenants] rule in the common law of this
    province, in much the same way as the abolition of the rule itself, would have
    complex, far-reaching and uncertain ramifications that cannot be adequately
    addressed on a case-by-case basis.

[50]

Thus, the benefit and burden principle does not reflect the current law
    in Ontario.  As I have already explained, neither
Wilkinson
nor
Wentworth
    Condominium Corp.
could anchor a different conclusion.

[51]

The Appeal Judge also held that the appellants were bound by Deputy
    Judge Kilians factual findings in the first action, as later referenced by
    Swinton J. in the first appeal decision.  This included Deputy Judge Kilians
    finding that the purpose of the trust created by the Trust Deed was to benefit
    all the property owners within Wychwood Park, including, therefore, the
    appellants, and that a landowners actual use of the benefits conferred by the
    Trust Deed was immaterial.

[52]

I disagree.  I would reject the proposition, on the facts of this case,
    that the appellants must be taken to benefit from the Trust Deed by reason of
    the factual findings in the first action.

[53]

While it is true that the appellants were parties to the first action,
    and thus are bound by its outcome, Deputy Judge Kilians factual findings in
    that action must be understood in light of the critical fact that the Positive
    Covenants Argument was neither raised nor considered by him.  As a result, his
    factual findings were made in a legal context that did not take account of the
    positive covenants rule or any exceptions to that rule that may apply in this
    case.  The relevant legal context has now changed and the Positive Covenants
    Argument is now squarely before this court, as it was at trial in the second
    action.  During oral argument of this appeal, the respondents essentially
    conceded this point and did not press any
res judicata
or estoppel
    argument.

[54]

It is also significant that Swinton J. did not adjudicate on these
    issues in the first appeal decision.  Her ruling, as I have said, expressly left
    these issues open for future determination in a proper case.  Before this
    court, the respondents do not argue that the conditions identified by Swinton
    J. for the advancement of the Positive Covenants Argument in a future case have
    not been satisfied.

[55]

In these circumstances, as I see it, it cannot be said that the
    appellants are precluded by reason of the factual findings in the first action from
    asserting that they neither derive nor seek any benefit under the Trust Deed.

[56]

I find additional support for this conclusion in
Amberwood
itself.  The majority in
Amberwood
cautioned that care must be taken
    not to overstate the scope of the benefit and burden principle.  Justice
    Charron emphasized, at para. 65, that the doctrine cannot simply be defined by
    reference to the underlying general principle that a person who claims the
    benefit of a deed must also take it subject to the burdens.  As she explained,
    at para. 65, if the doctrine were so wide as to obligate a successor in title
    to all the burdens contained in the deed simply by reason of his acceptance of
    the benefit of the deed, it would swallow the rule.

[57]

Thus, the acceptance of a benefit under a deed, by itself, will not trigger
    liability under a positive covenant set out in the same deed.  Based on her
    extensive review of the English authorities, Charron J.A. concluded in
Amberwood
,
    at para. 73: The simple fact that Amberwood received certain benefits upon
    obtaining title to the Phase 2 lands is clearly not sufficient, without more,
    under the English common law to render it liable under the positive covenant
    contained in the same instrument.  Rather, to trigger liability under the
    positive covenant, there must be a correlation, evident in the deed itself,
    between the benefits received and the burden of the positive covenant.

[58]

I make this final point.  Both Deputy Judge Kilian in the first action,
    and Swinton J. in the first appeal decision, held that Ivon Owen was liable for
    the annual levies then in question because, as the owner of the affected
    property, he had actual notice of the Trust Deed and, consequently, was bound
    by its terms.

[59]

I again emphasize, however, that those findings were made without regard
    to the positive covenants rule.  The operation of the rule is not defeated
    merely by reason of a successor landowners having acquired the lands in
    question with notice of the positive covenant.  In
Rhone
, at p. 71,
    Lord Templeman explained that to enforce a positive covenant against a
    successor in title of freehold land would be to enforce a personal obligation
    against a person who has not covenanted.

[60]

Accordingly, some other recognized legal principle, other than
    acquisition of the property in question with notice of the term under the Trust
    Deed providing for payment of the annual levy, must apply in order to conclude
    that the appellants are bound under the Trust Deed to pay the annual levy: see
Amberwood
,
    at paras. 33, 50 and 73.

[61]

I turn now to the respondents reliance on what the Appeal Judge refers
    to as the conditional grant exception to the positive covenants rule to ground
    their claim against the appellants for payment of the outstanding levies.

(3)

Conditional Grant

[62]

In
Amberwood
, the application judge had held that there is a
    conditional grant exception to the positive covenants rule, which is essentially
    a form of the benefit and burden principle:
Amberwood Investments Ltd. v.
    Durham Condominium Corp. No. 123
(2000), 50 O.R. (3d) 670 (S.C.), revd
    (2002), 58 O.R. (3d) 481 (C.A.), at para. 37.  In so holding, the application
    judge relied on this description of the conditional grant exception in
Halsburys
    Laws of England
, 4th ed. vol. 14, at p. 79:

If the facts establish that the granting of a benefit or easement
    was conditional on assuming the positive obligation, then the obligation is
    binding.  Where the obligation is framed so as to constitute a continuing
    obligation upon which the grant of the easement was conditional, the obligation
    can be imposed as an incident of the easement itself, and not merely a
    liability purporting to run with the land.

[63]

The majority in
Amberwood
confirmed, at para. 85, that the
    above-quoted description of the exception is consonant with the positive
    covenants rule set out in
Austerberry
.  That said, the majority did
    not accept that a conditional grant exception should be recognized under
    Ontario law as a separate and distinct exception to the positive covenants
    rule. The majority stated, at para. 86:

Hence, as a matter of construction of the creating
    instrument itself, if a grant of benefit or easement is framed as conditional
    upon the continuing performance of a positive obligation, the positive
    obligation may well be enforceable, not because it would run with the land, but
    because the condition would serve to limit the scope of the grant itself
.
    In effect, the law would simply be giving effect to the grant.  Indeed, as
    discussed earlier in this judgment at paras. 30 and 31, much the same reasoning
    underlies the law of restrictive covenants.  [Emphasis added.]

[64]

The majority went on to conclude that none of the grants of benefit or
    easement in the agreement at issue in
Amberwood
was framed in a manner
    that limited the scope of the grants themselves.  At its highest, all that the agreement
    did was reflect the parties intention to write in, as a term of their
    contractual bargain, the benefit and burden principle.  This attempt to create
    a contractual exception to the positive covenants rule, while binding on the
    original contracting parties, could not displace the rule that positive
    covenants do not bind successors-in-title.

[65]

Against this backdrop, I turn to the Appeal Judges treatment of the
    conditional grant principle.  I note, first, that she appears to have accepted
    the holding of Vice-Chancellor Megarry in
Tito v. Waddell (No. 2)
, [1977]
    3 All E.R. 129, at p. 291, that both the benefit and burden and the conditional
    grant exceptions form part of English law and that the former is distinct from
    the conditional benefit cases, and cases of burdens annexed to property.  As I
    read her reasons, the Appeal Judge relied on this holding in
Tito
to
    conclude that, under Ontario law, the conditional grant principle applies as a
    free-standing exception to the positive covenants rule, separate and apart from
    the benefit and burden principle.  As I have already said, I do not read
Amberwood
as endorsing this proposition.

[66]

The Appeal Judge recognized that the question whether a conditional
    benefit or burden annexed to property has been created turns on the
    construction of the instrument or transaction at issue.  However, when
    considering this issue under the rubric of the conditional grant principle, she
    failed to undertake any analysis of the specific terms of the Trust Deed.  Instead,
    she reasoned, at paras. 103-104:

When being asked to enforce a positive obligation, the courts
    will first look at the transaction to see if the conditional grant exemption [
sic
]
    applies.  Was a benefit granted that was clearly made on the conditional acceptance
    of a positive obligation?  If such an intention can be made out on the face of
    the transaction, the conditional grant exception is engaged.

I conclude that the conditional grant exception applies.
    Wychwood Park is a unique community governed by the Trust Deed.  Since 1911,
    the Owen family has had knowledge of the Trust Deed, have complied with the
    Trust Deed, and, as confirmed in the First Decision, the Respondents are
    beneficiaries of the trust.  The facts confirm a benefit was clearly granted to
    the Owen family, conditional on the acceptance of the positive obligation to
    pay their share of the annual levies.

[67]

She then concluded, at para. 106, that the Trust Deed contains an
    explicit and formal connection between the benefits and burdens of living
    in Wychwood Park and an implicit, yet necessary connection in the nature of
    the benefit and the burden.  On these bases, she held that both the benefit
    and burden and conditional grant exceptions to the positive covenants rule
    apply in this case to render the appellants liable for the payment of assessed
    annual levies under the Trust Deed.

[68]

With respect, this reasoning is flawed.  As I have indicated, the fact
    that the appellants had knowledge of the Trust Deed is no bar to the operation
    of the positive covenants rule.  And, although their predecessors in title did
    so for a lengthy period, the appellants have not complied with the Trust Deed since
    the date of their acquisition of Ivon Owens property.  They have not paid the
    annual levies for 2010 to 2013, indeed, they have never agreed to pay the
    levies, and they disclaim any benefits under the Trust Deed.  Further, there has
    been no binding judicial finding that the appellants are beneficiaries of the
    trust or that, in fact, they have derived benefits from it.

[69]

The reasons below also fail to explain the basis for the statement that
    a benefit was clearly granted to the Owen family, conditional on the
    acceptance of the positive obligation to pay their share of the annual
    levies.  In my view, the language of the Trust Deed does not support this
    assertion.

[70]

Simply put, nowhere does the Trust Deed provide that the right to the
    use and enjoyment of the Common Property conferred under the Trust Deed is
    conditional upon the acceptance of the burdens contained in any of the positive
    covenants, including the first trust provision that contemplates payment of the
    annual levy.  To the contrary, the grants of benefit contained in the Trust
    Deed are not framed as conditional upon the continuing performance of a
    positive obligation to pay the annual levy or the performance of any other
    positive obligation under the Trust Deed.  And the first trust provision itself
    does not state that compliance with it is a pre-condition to the use and
    enjoyment of any benefit conferred under the Trust Deed.  Consequently, the
    grants of benefit under the Trust Deed are not limited in the manner discussed
    by the
Amberwood
majority.

[71]

In light of this conclusion, I do not reach the appellants additional
    argument that, if the language of the Trust Deed creates a limited or conditional
    grant, the obligation to pay the annual levy is nonetheless unenforceable as
    against them because they have derived no past benefit, and are entitled to disclaim,
    as they have done, any present or future benefit under the Trust Deed.

[72]

To summarize, on proper application of the authoritative majority decision
    in
Amberwood
, no exception to the operation of the positive covenants
    rule recognized under Ontario law applies in this case.  Consequently, the
    obligation under the Trust Deed to pay the annual levy is unenforceable as
    against the appellants.  While this conclusion may have implications for the
    rights and obligations of the trustees and other landowners in Wychwood Park
    under the Trust Deed, the assessment of those rights and obligations is not
    before this court.

(4)

Other Issues

[73]

For the reasons given, I have concluded that the appellants are not
    bound to pay the annual levy on the basis of the positive covenant contained in
    the first trust provision of the Trust Deed.  It is therefore unnecessary to
    address the other grounds of appeal advanced by the appellants.

Disposition

[74]

Accordingly, I would allow the appeal, set aside the February 4, 2016
    order of the Appeal Judge and restore the December 4, 2014 judgment of Deputy
    Judge Caplan of the Small Claims Court.  I would allow the appellants their
    costs of the appeal, fixed in the agreed amount of $10,000, inclusive of
    disbursements and all applicable taxes.

Released:

KF                                                     E.A.
    Cronk J.A.

MAY 18 2017                                    I agree
    K. Feldman J.A.

I
    agree B.W. Miller J.A.