Test your understanding of fairness in this recent case from Nova Scotia.

In 2012, the Halifax Regional Municipality (HRM) issued an RFP for the purchase and redevelopment of a surplus elementary school property. Jono Developments Ltd. and several community groups submitted proposals. There is evidence that the HRM closely followed the terms of the evaluation process laid out in the RFP, which allocated 20 percent of the weighting to the financial offer. Following evaluations, the HRM approved sale of the property to Jono.

Around the time the sale to Jono was approved, the community groups discovered that the HRM had passed a “Policy and Procedure for Disposal of Surplus Schools” in 2000. Among other steps, the HRM was required under the policy to first assess and evaluate any proposals from community groups or grant applications and, if none were received or none were supported by the Community Grants and Partnering Program under the HRM, then the HRM was to take steps to seek Council approval to put the property on the market.

Compelling evidence was presented that the HRM had not tested the policy since its inception, and in fact was not aware that it even existed until challenged by the community groups following the approval of the sale to Jono. When the HRM became aware of the policy, which clearly had not been followed in this instance (or in any of the previous disposals of 18 other surplus school properties), the HRM rescinded its decision to sell to Jono, made a motion to rescind the policy and, then, passed a third motion to sell the property to Jono.

The HRM was also enabled under its Municipal Charter to “sell property at market value when the property is no longer required.” The appraised value of the property was listed in the RFP as $4.3 million, based on a valuation report that provided three scenarios:

  • Market value of property as is: $1 million
  • Prospective market value – maintain old school/redevelop remainder: $3 million
  • Prospective market value – demolish all buildings and redevelop: $4.3 million

Jono had submitted an unconditional financial offer of $3 million for the property “as is,” to be increased by increments of $75,000 over the highest bid to a maximum of $4 million. In other words, Jono offered to pay $3 million if there were no competing bids, and up to $4 million if there were. Jono also provided a slightly higher option that was conditional on certain development approvals.

Several community groups also submitted proposals, each offering a purchase price of less than $3 million. The HRM approved the $3 million offer from Jono. As shown by the HRM’s evaluation process, Jono had received the highest score in the RFP process, in part because of its financial proposal.

In the HRM’s view, “market value” is the price the market will offer, so it therefore believed that it was complying with the Charter.

Pursuant to a Judicial Review application by the community groups, in 2012, the N.S. Supreme Court set aside the sale to Jono on the basis that the HRM had breached its duty of fairness to the community groups by not following its own policy, and further, that the HRM’s interpretation of “market value” was unreasonable, so the HRM had breached the Charter by selling the property below market value. The Court also ordered Jono to pay a portion of the costs awarded. Jono appealed the decision, and the matter was heard by the N.S. Court of Appeal in May 2014.

What would you decide in this case? See below for the answers.

» Answer:

 

Answer

It is important to keep in mind that Jono Developments Ltd. v. North End Community Health Association, 2014 NSCA 92 was an appeal from a Judicial Review application, not a breach of Contract A claim. A Judicial Review examines whether the decision was reasonable, given the circumstances.

Did the HRM breach its duty of fairness to the community groups by failing to follow the policy, even though it had followed the RFP evaluation process? The Court of Appeal reviewed the standard to be applied and agreed with the trial judge that the HRM owed a duty of procedural fairness to the community groups. It then turned to the degree of procedural fairness that should apply, referring to Kelly v. Nova Scotia Police Commission, 2006 NSCA 27: “Fairness is often in the eye of the beholder and the tribunal’s perspective and the whole context of the proceeding should be taken into account. Court procedures are not necessarily the gold standard for review.”

After reviewing all the facts, including the terms of the RFP, the Court of Appeal in Jono concluded that the duty owed to the community groups amounted to an opportunity to advance a proposal and to have the proposal considered by the HRM on criteria other than simply the price offered for the property. In concluding that the RFP process followed was sufficient to discharge the duty of procedural fairness owed to the community groups, the Court noted that the process was consistent and predictable, the community groups were notified of the process, the RFP granted the community groups participatory rights in a substantial way, and their proposals were considered on more than just a financial basis. This ground of appeal was therefore allowed, and the lower court’s decision was overturned on this point.

Did the reviewing judge err in law by determining that the HRM’s interpretation of “market value” was unreasonable? The Court of Appeal agreed with the trial judge that the appropriate standard of review was the reasonableness of the HRM decision, but the Court of Appeal found that the trial judge incorrectly applied that standard in concluding that HRM had breached the Charter by selling the property for less than market value.

The Court of Appeal accepted what it considered to be “the very logical conclusions” put forward in the staff report recommending the sale to Jono at $3 million, including a detailed analysis of the then net present value (NPV) of each of the financial proposals. Jono was offering the equivalent of approximately $3.1 million NPV for the property “as is,” which the HRM’s independent appraisal had identified at a value of $1 million. There were no financial proposals higher than Jono’s, and the Court accepted that this in and of itself served as the best evidence of market value of the property.

The Court of Appeal concluded that the trial judge was in error in finding this analysis unreasonable, and it overturned that finding.

Was the Court correct to order Jono to pay a portion of the costs in this circumstance?

This issue was a moot point in light of the Court of Appeal’s decision to allow the appeal and set aside the lower court decision. As a result, the Court of Appeal ordered that any costs paid by Jono and the HRM to the community groups be returned. The Court of Appeal awarded Jono costs in the amount of $15,000 for the lower court proceedings, and $6,000 plus disbursements for the appeal.

 

Reprinted from The Legal Edge Issue 112, October – December 2015

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