Sweet Relief: Court Of Appeal Applies Relief From Forfeiture In Municipal Tax Sale Dispute

Sweet Relief: Court Of Appeal Applies Relief From Forfeiture In Municipal Tax Sale Dispute

February 27, 2017

By Brian Babcock

In a recent decision, Poplar Point First Nation Development Corporation v. Thunder Bay, the Ontario Court of Appeal clarified the law of “relief from forfeiture” and allowed a former property owner to recover surplus funds received by the City on a tax sale, even though the claimant had missed the one year window to apply to court for the money as established under the Municipal Act, 2001.

The appellant was a not-for-profit corporation supporting Poplar Point First Nation Band and its members. It was the registered owner of a property that was sold by the City of Thunder Bay in a municipal tax sale. After recovering $5,843.11 in tax arrears and additional associated costs, the City paid into court the surplus (more than $76,000).

Pursuant to s. 380(4) of the Act, the appellant had one year from the date of payment of the surplus into court to bring an application for payment out of court. Pursuant to s. 380(6), one year after payment in, the monies were deemed to be forfeited to the Municipality. The appellant applied to the court three weeks after the one year deadline, because it was confused about the date which applied to this property.

The appellant applied for payment out before the City applied for a declaration that the money was forfeited to the City and thus payable to the City. There were no other potential claimants.

If the appellant did not receive an extension of time, the City and its taxpayers would benefit from a windfall, since the City had done nothing to deserve the money, other than being the designated body under the Act entitled to receive unclaimed funds from tax sales.

The Court of Appeal determined that in appropriate fact situations, a court may extend the time to claim surplus tax sales amounts by granting relief from forfeiture under s. 98 of the Courts of Justice Act.

Relief from forfeiture is a remedy which allows a judge to excuse imperfect compliance with a contractual or statutory requirement, upon terms that are fair to everybody affected, where the result is unfair to the party who made the error. Typical situations where this occurs are technical breaches of leases or failure to file certain insurance documents on time, where no harm occurs to the other party.

Prior to 2017, this provision had never been used to extend the time for applying to receive surplus tax sale proceeds. The extent of the availability of relief from forfeiture in situations of non-compliance with a provision in a statute rather than a contract was very much unclear. It was clear that relief is not available where the statute creates a fine or penalty for non-compliance, because the courts cannot do something which in effect repeals the penalty set by the legislature. However, earlier cases had not explored fully the meaning of “what is a fine or penalty”?

In 2014, the Court of Appeal extended the availability of relief from forfeiture for insurance claims.

In the Poplar Point case, the Court made the general statement that “Where a forfeiture occurs under a statutory scheme, the scheme should be examined in order to determine whether by necessary implication relief from forfeiture under s. 98 would be precluded.”

They differentiate cases such as the Poplar Point situations from those where the claim for relief relates to a true penalty, such as a fine. If there is no clear intent in the statute to exclude relief from forfeiture, it may be available on the right facts.

As a result, the bottom line is that in each case, the availability of relief from forfeiture is a matter first of statutory interpretation, and then the application of the law to the facts of the particular case.

Although the result of this is less finality, hopefully it will lead to more fairness, not just in dealing with tax sale surpluses, but in a variety of other situations where the strict application of a law might lead to an absurd result.