The Ontario Court of Appeal recently addressed the issue of the role of the doctrine of bad faith as grounds for quashing a by-law in light of modern jurisprudence requiring that courts afford deference to municipalities in the exercise of their statutory powers.
The facts of Grosvenor v. East Luther Grand Valley (Township) were as follows: The Township purchased a 10.5 km stretch of abandoned railway right-of-way in 1997 for the purposes of reserving its future use as a highway and/or utilities and services corridor. The right-of-way was, however, developed and used as a walkway and riding trail. In 2002, a group of landowners, whose properties bordered one-half of the length of the right-of-way, complained about a lack of fencing along the right-of-way, which would have divided and protected their lands from the right-of-way, and about the attendant nuisance and disruption caused by the usage of the right-of-way. Relying on section 20(1)(c) of the Line Fences Act, the landowners submitted a demand for fencing to the Township. Section 20(1) provided that a municipality acquiring lands formerly used as part of a railway "is responsible for constructing, keeping up and repairing the fences that mark the lateral boundaries of" the land acquired. The landowners' demand put in motion a process that required "Fence Viewers" to inspect the land and arbitrate the construction and cost of the fence. The landowners' demand resulted in the Township enacting By-law No. 2003-07 (the "By-law"), which designated the right-of-way as a highway, thereby excepting the Township from its obligation to fence under the Line Fences Act, as section 25(1) of that Act provides that the Act does not apply to lands that constitute public highways. The By-law was passed without notice and was given first, second and third reading at the end of a Council meeting six days before the Fence Viewers were to attend to inspect the right-of-way.
The landowners commenced proceedings to have the by-law quashed on the ground that it was enacted in bad faith. The Superior Court of Justice allowed the landowners' application. Mr. Justice O'Connell found that the Township had acted in bad faith. That Court held that "the motive for passing the by-law was clearly established by the evidence, that it was to avoid responsibility that Council knew it had under the Line Fences Act and the law to fence and pay the cost…. Council acted unreasonably and arbitrarily and without the degree of fairness, openness and impartiality required of a municipal government."
The Township appealed to the Court of Appeal, which dismissed its appeal. The Court held that although the Township "indisputably" had the statutory authority to enact a by-law designating the right-of-way as a highway by virtue of section 31(1) of the Municipal Act, it enacted the by-law for a purpose other than that envisaged by the statutory power, thereby running afoul of its obligation to act in good faith. The Court stated "the obligation to act in good faith continues to be an essential characteristic of the valid exercise of by-law enacting authority by municipal councils. It is one component of the modern deferential approach" and "the 'bad faith' prohibition is not confined to cases where a municipal council enacts a by-law in an attempt to accomplish indirectly what it is not authorized by its statutory powers to achieve directly."