Executive Summary: Key Legal and Evidentiary Issues

• Eagles Rest Estates Inc. appealed a Superior Court ruling finding that the Purchasers were not required to pay for privately built water and wastewater infrastructure.
   
• Contractual interpretation of the 2023 agreement of purchase and sale was central to the dispute over an $82,000,000 lot sale.
   
• Municipal responsibility agreements between the Vendor and the Township of Oro-Medonte were negotiated without the Purchasers' involvement.
   
• Capital costs exceeding $6,000,000 for the private water and wastewater systems were at the heart of the appeal.
   
• Deference was owed to the application judge's findings on mixed questions of law and fact absent palpable and overriding error.
   
• The Court of Appeal for Ontario dismissed the appeal and upheld the application judge's decision.
   

Facts of the case

Eagles Rest Estates Inc. (the "Vendor") and homebuilders Fernbrook Homes (Bass Lake) Limited and Crystal Homes (Eagles' Rest) Corporation (the "Purchasers") entered into an agreement of purchase and sale in 2021, under which the Vendor agreed to sell the Purchasers 208 developed building lots to be created on a plan of subdivision in the Township of Oro-Medonte, County of Simcoe. The parties later replaced that agreement with a 2023 agreement of purchase and sale (the "2023 APS"), which increased the purchase price to $82,000,000. The 2023 APS contemplated that the Vendor would build infrastructure connecting the lots to the Township's municipal drinking water and wastewater systems. Instead, without consulting the Purchasers or amending the agreement to allow for recouping costs, the Vendor built a private system for both services. It entered into two municipal responsibility agreements (the "MRAs") with the Township, to which the Purchasers were not party, making the Vendor responsible for imposing and collecting charges for connection to and use of the systems. The transaction closed in September 2024. When the Vendor sought to recover the capital costs of the private construction, totalling over $6,000,000, the Purchasers refused to pay, and the Vendor brought an application. The application judge, Justice Benjamin T. Glustein of the Superior Court of Justice, ruled that the Purchasers had no obligation to pay those costs, in a decision dated October 8, 2025 and reported at 2025 ONSC 5710. The Vendor appealed to the Court of Appeal for Ontario.

Policy and legislative provisions at issue

The dispute turned on the terms of the 2023 APS. Under that agreement, the Purchasers' only obligation regarding water services was to pay connection and meter charges to the Township, or to the Vendor if the Vendor had already paid those charges by the closing date. The Vendor had separately committed, as part of the "Vendor's Services" included in the purchase price, to construct, at its own cost, "functioning storm and sanitary sewers" and "functioning [drinking] water services." On appeal, the Vendor argued that the application judge failed to properly apply principles of contractual interpretation, contending that the MRAs authorized it to charge connection and service fees for water services and that it had effectively "stepped into the shoes" of the Township when it entered into those agreements, entitling it to collect charges at its discretion.

Reasoning and analysis

The Court of Appeal found that the application judge had correctly identified and applied the applicable law on contractual interpretation. Based on a review of the record, the application judge determined that the Vendor was aware, when negotiating the 2023 APS, that it would likely build and operate the wastewater system privately, yet proposed no changes to account for the resulting capital costs. He further found that the Vendor neither consulted the Purchasers nor sought their agreement to pay before deciding to build a private system rather than connect to municipal services, and so assumed the risk of that choice itself. The Purchasers were not party to the MRAs the Vendor negotiated with the Township, and any question of what charges the Vendor might later seek from homebuyers under those agreements was not before the court. The Court of Appeal noted that the application judge's conclusions, being questions of mixed law and fact, were reviewable only for palpable and overriding error, and that he had grounded his analysis in the ordinary and grammatical meaning of the contract's words, read in the context of the agreement as a whole and the parties' surrounding circumstances and reasonable expectations, consistent with Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 47.

Ruling and overall outcome

The Court of Appeal for Ontario held that the application judge's interpretation of the 2023 APS disclosed no reviewable error and dismissed the appeal, ruling in favour of the Purchasers, Fernbrook Homes (Bass Lake) Limited and Crystal Homes (Eagles' Rest) Corporation. Costs of $15,000, inclusive of HST and disbursements, were ordered payable by the Vendor, Eagles Rest Estates Inc., to the Purchasers within 30 days.