In the recent decision Ironclad Developments Inc. v. West Kelowna (City), 2024 BCSC 1285, the Honourable Madam Justice Hardwick held that local governments do not owe procedural fairness rights to property owners when charging them latecomer fees.
The City of West Kelowna successfully defended a challenge from a developer (“Ironclad”) alleging the City acted unfairly when it charged Ironclad a substantial latecomer fee. In this case, had the decision been one which requires procedural fairness, Hardwick J would have applied the doctrine of legitimate expectations to quash the City’s decision. However, because latecomer regimes are “inherently legislative” they are not subject to procedural fairness duties. Nevertheless, the decision in Ironclad Developments is a good reminder to all municipal officials to be conscious of creating and honouring legitimate expectations regarding the decision-making process they will follow.
The Latecomer Fee Regime
Municipalities ensure that neighbourhoods have roads, water, sewage, and drainage facilities by requiring developers to construct these facilities as a condition of approving their development plans. When these new facilities extend beyond the developer’s own property, for the benefit of other nearby properties, the facilities are referred to as “excess or extended services.” Unless the municipality pays the costs of the excess or extended services itself, it must have a system for collecting “latecomer fees.”
Section 508 of the Local Government Act sets out the mandatory components of a latecomer fee regime. First, the municipality must determine how much of the developer’s costs are related to the excess or extended services and determine the proportion of the costs attributable to each benefitting property (i.e. their “latecomer fee”). Second, the municipality must impose a condition on the owners of those properties requiring them to pay their latecomer fee at the time they use or connect to the excess or extended services. Lastly, the municipality must return to the developer all the latecomer fees it collects.
In Ironclad Developments, the City of West Kelowna had a latecomer fee regime in place, including a bylaw and a policy. In 2018, the developer WestUrban was required to construct excess or extended services as a condition of developing its land. WestUrban’s engineering contractor proposed, and the City accepted, a distribution of the costs which attributed 54% to Ironclad.
The City informed Ironclad that 1) Ironclad would be responsible for 54% of the costs, 2) the estimated amount payable by Ironclad would be just under $400,000, and 3) the fee was payable in the event that Ironclad developed its property within the next 15 years. Through ongoing communications with City staff, Ironclad expressed its concern that the agreement the City was planning to enter into with WestUrban would not provide Ironclad with any certainty on the final amount of the latecomer fee, as it would depend on actual construction costs.
Over a year later, WestUrban provided the City with its final cost of $1.9M for building the excess or extended services, far above initial estimates. The City informed Ironclad, and Ironclad requested that it be allowed respond to the increased amount WestUrban was claiming. As Ironclad was developing its property as well, it would be required to pay the latecomer fee in order to obtain an occupancy permit.
The City commissioned an independent consultant to evaluate WestUrban’s claimed costs. The consultant’s report advised that the reasonable cost of the constructed services was only $1.39M. The City approved the consultant’s report the same day it was received, with no input from Ironclad. Ironclad was then informed that it would need to pay nearly $750,000 in latecomer fees, based on the $1.39M approved costs. Ironclad paid the fee under protest and brought a petition for judicial review.
No Duty of Fairness for Legislative Decisions
The Ironclad Developments decision was a judicial review, meaning the court reviewed a government’s decision, with the power to quash the decision if it fell below a certain standard. In her analysis, Hardwick J first reviewed the caselaw on distinguishing between legislative versus administrative government decisions. The distinction is important when a decision is alleged to be unfair. While administrative decisions must be made fairly if they affect the rights, privileges, or interests of a person, there is no duty to act fairly when governments make legislative decisions.
The nature of a decision is determined by the subject matter engaged by the decision. Administrative decisions engage with matters of “individual concern” or “a right unique to the petitioner or the appellant.” Legislative decisions engage with “political, economic and social concerns” (para 59).
Hardwick J concluded that the latecomer fee regime is legislative rather than administrative. Importantly, she found it analogous to other rate-setting decisions such as telephone rates and municipal property tax rates, both of which are legislative, as previously determined by Canadian courts.
In making this conclusion, Hardwick J clarified that both bylaws and Council resolutions can be legislative decisions. Furthermore, the nature of the decision is only determined by its subject matter, not by how many people are affected. A decision only affecting one person can still be a legislative decision.
The Doctrine of Legitimate Expectations
When a court reviews a government decision on the grounds of procedural fairness, the first consideration is a threshold question – is this a type of decision where a duty of procedural fairness arises at all? If so, then the next step is to determine the content of the procedural fairness duty – what was the person affected by the decision entitled to, in regard to a procedure?
In this case the decision was legislative therefore the threshold was not met and no duty of procedural fairness existed. Nevertheless, Hardwick J found a fairness concern worth commenting on, even if ultimately it could not affect the Court’s decision.
The doctrine of legitimate expectations arises when a government official, who has authority over a decision-making process, communicates to the affected person that a specific process will be followed. Whether it be by conduct, words, or both, if the communication is “clear, unambiguous and unqualified” then the government may be “held to its word” regarding that process (para 76).
In the case of Ironclad Developments, City staff had given Ironclad the legitimate expectation of a certain process. Early on, the City provided Ironclad with the draft latecomer fee agreement it was intending to sign with WestUrban. For months the City corresponded with Ironclad regarding Ironclad’s concerns about not knowing how high the fee would ultimately be. When WestUrban submitted its final costs, Ironclad was again informed, and indicated its interest to have further input. However, the consultant’s report was immediately accepted by the City, leaving Ironclad no opportunity to respond to the increase in fees or to the consultant’s report. Hardwick J commented that, if the City had had a duty of procedural fairness, it would have been breached by this conduct. The City had created a legitimate expectation of Ironclad’s ongoing consultation and input, and then failed to fulfill the expectation.
Reasonableness Standard Not Applicable to Procedure
Ironclad’s main challenge to the increased latecomer fee was on the grounds of procedural fairness, which was unsuccessful because the decision was legislative in nature. However, Ironclad also tried to challenge it on the standard of reasonableness, which is the standard of review applicable to the substance of government decisions. Ironclad argued that both the process and the outcome of the decision were unreasonable.
Ironclad’s argument that the process was unreasonable was flatly rejected. Legislative decisions are immune from procedural fairness challenges, and there is no “back door” option to challenge them under the guise of “unreasonable process” (para 88). Additionally, Ironclad argued that the City’s deviation from its existing latecomer policy constituted an unreasonable departure from the City’s past practices and decisions. This argument was rejected on the basis that it can apply only to the outcome of a decision, not the decision-making process (para 92).
Ironclad also argued the outcome of the City’s decision was unreasonable, alleging that the “wholesale acceptance” of the consultant’s report led to an unreasonable outcome. In support of this position, Ironclad provided its own expert report critiquing the consultant’s report. Hardwick J declined to consider the expert report because it was not part of the City’s decision, and was therefore inadmissible as evidence in a judicial review proceeding.
Without the expert report, Ironclad did not have evidence showing it was unreasonable for the City to rely on the consultant’s report. Notably, the consultant retained by the City was reputable, qualified, and independent. Furthermore, the consultant’s report resulted in a lower assessment of the total costs than what WestUrban had submitted. Even where a reasonableness standard could be applied, Ironclad was thus unable to show the decision ought to be quashed.
Result
In the result, the City’s decision to charge Ironclad nearly $750,000 in latecomer fees was upheld. It could not be quashed on the basis of failing to provide a fair process because latecomer fee decisions are not subject to procedural fairness duties.
Takeaway
Despite the City’s success, and the new clarity around latecomer fee decisions, this case provides a caution for municipal officials regarding procedural fairness rights. In general terms, all administrative decisions affecting the rights, privileges, and interests of persons must be made fairly. The content of these rights is often pre-determined, for example a bylaw may provide that a person whose permit is denied is entitled to have City Council reconsider the denial.
However, the exact nature of these rights, and when they arise, is not always easily discernible. Moreover, the rights may be inadvertently expanded by the conduct of staff, for example, by creating legitimate expectations of a certain level of participation or input in decision making. To avoid challenges brought against local government decisions on procedural fairness grounds, decision makers need to identify and abide by procedural fairness duties in each instance. Uncertainty about procedural fairness entitlements should be addressed by consulting with legal counsel prior to issuing the decision.
