Treesann Management Inc. et al. v. Corporation of the Town of Richmond Hill
[Indexed as: Treesann Management Inc. v. Richmond Hill (Town)]
47 O.R. (3d) 221
 O.J. No. 406 No. C30613
Court of Appeal for Ontario
Carthy, Goudge and O’Connor JJ.A.
February 22, 2000
Municipal law — By-laws — Validity — Adult entertainment parlour being operated in neighbourhood designated for this activity — Municipality amending licensing by-law and discontinuing designation — Municipality having power to pass by-law abrogating existing rights of adult entertainment establishment — Amended by-law for adult entertainment parlours illegal for being prohibitory — That re-zoning available or that another property was re-zoned not relevant to issue of whether zoning is prohibitory — Municipal Act, R.S.O. 1990, c. M.45, s. 225.
TM Inc. operated an adult entertainment parlour in premises
on Yonge Street in the Town of Richmond Hill. In 1996, the Town amended its adult entertainment licensing by-law to delete the Yonge Street frontage. The amended by-law replaced the Yonge Street frontage with the Enford Road Industrial Area. However, the zoning category of “places of entertainment” was not included in the industrial zoning of the substituted district.
TM Inc. applied for an order quashing the by-law on the grounds of bias, bad faith and illegality. The Town applied for a permanent injunction. TM Inc.’s application was dismissed and
the Town application was granted. TM Inc. appealed. On the appeal, TM Inc. did not contest that the municipality had the power to amend the by-law so as to abrogate existing rights but submitted that the by-law amendment was illegal as prohibiting adult entertainment parlours in the Town.
Held, the appeal should be allowed without costs.
The by-law did not permit the adult entertainment use and the motions judge was correct in concluding that an adult entertainment parlour could not be considered an accessory use to a restaurant. The by-law was prohibitory and beyond the authority of the municipality, and the fact that a re-zoning was available or that another property was re-zoned did not bear upon the issue of whether the existing zoning was prohibitory.
Cases referred to
1121472 Ontario Inc. v. Toronto (City) (1998), 39 O.R. (3d) 535, 160 D.L.R. (4th) 83, 47 M.P.L.R. (2d) 23 (C.A.); 538745
Ontario Inc. v. Windsor (City) (1988), 64 O.R. (2d) 38, 25
O.A.C. 285, 49 D.L.R. (4th) 108, 37 M.P.L.R. 1 (C.A.); Bayfield (Village) v. MacDonald (1997), 39 M.P.L.R. (2d) 63 (Ont.
C.A.); Pro Catering Ltd. v. Vaughan (Town) (1986), 17 O.A.C.
238 (Div. Ct.); Soo Mill & Lumber Co. v. Sault Ste. Marie (City),  2 S.C.R. 78, 47 D.L.R. (3d) 1, 2 N.R. 429; Toronto (City) v. Merit Corp. (1983), 23 M.P.L.R. 125 (Ont. H.C.J.)
Statutes referred to
Municipal Act, R.S.O. 1990, c. M.45, ss. 225(1), (3), 257.2(4), 328
APPEAL from a judgment of Klowak J. (1998), 41 O.R. (3d) 625,
48 M.P.L.R. (2d) 139 (Gen. Div.) granting a permanent injunction and dismissing an application to quash a by-law licensing adult entertainment parlours.
Noel D. Gerry, for appellant.
George H. Rust-D’Eye and Barnet H. Kussner, for respondent.
The judgment of the court was delivered by
 CARTHY J.A.: — The appellants appeal from two judgments of Klowak J. dated September 23, 1998, one dismissing an application for an order quashing By-law 321-96 of the respondent and ancillary relief, the other granting a permanent injunction restraining the appellants from using premises on Yonge Street in Richmond Hill as an adult entertainment parlour.
 In the background of the present proceedings were some years of skirmishing and litigation between the Town and Treesann over the latter’s operation of an adult entertainment parlour (as it is termed in the by-law) known as the Major Mack Hotel. By my observation of the evidence, as the entertainment became more and more erotic, the political opposition became more and more resolute. Finally, in 1996 the Town passed By-law 321-96 amending its adult entertainment licensing by-law by deleting the Yonge Street frontage, where the Major Mack Hotel was located. The by-law creates a new area for the operation of adult entertainment parlours known as the Enford Road Industrial Area.
 Treesann, the operator, and 593288 Ontario Ltd., the owner, brought proceedings alleging bias, bad faith and illegality and the Town countered with an application for a permanent injunction enjoining further operation. Klowak J. upheld the by-law and granted the injunction.
 Thereafter, Treesann ceased operations and this appeal was pursued, as explained by counsel, to establish the owner’s rights to the use of this property. Further, the issues on appeal were refined to focus on the legality of the by-law. Bad faith was only pressed as associated with the alleged excess of authority in passing the by-law. In effect, this court is only asked to determine if the by-law was one the municipality was empowered to enact.
 The reasons of Klowak J. are cited as Treesann Management Inc. v. Richmond Hill (Town) (1998), 41 O.R. (3d) 625, 48 M.P.L.R. (2d) 139 (Gen. Div.). Before analyzing those reasons I will set forth the relevant legislation. Section 225 of the Municipal Act, R.S.O. 1990, c. M.45 reads in part:
225(1) By-laws may be passed by the councils of local municipalities for licensing, regulating, governing, classifying and inspecting adult entertainment parlours or any class or classes thereof and for revoking or suspending any such licence and for limiting the number of such licences to be granted, in accordance with subsection (3).
. . . . .
(3) Despite subsection 257.2(4), a by-law passed under this section may define the area or areas of the municipality in which adult entertainment parlours or any class or classes thereof may or may not operate and may limit the number of licences to be granted in respect of adult entertainment parlours or any class or classes thereof in any such area or areas in which they are permitted.
Section 257.2(4) (referred to in s. 225(3)) reads:
257.2(4) A council shall not refuse to grant a licence to carry on or engage in any business by reason only of the location of the business if the business was being carried on or engaged in at that location at the time the by-law requiring the licence came into force.
 By-law 321-96 effectively amended earlier by-laws passed pursuant to s. 225 by deleting the designated Yonge Street frontage and replacing it with the Enford Road Industrial Area. The balance of the licensing regime in the by-law as amended sets out comprehensive regulatory provisions as authorized by the legislation and as one might expect in a licensing by-law.
 Klowak J. first found that the Town had the power to amend the by-law so as to abrogate existing rights which had been created by that very by-law. She cites strong authority for that conclusion and this was not challenged on appeal. The motions judge then deals with the alleged bias of the members of council and the imputed lack of planning rationale for the amendment. She found in favour of the municipality and that conclusion was not contested on the appeal.
 The appeal issue was whether the by-law amendment was illegal as effectively prohibiting adult entertainment parlours in the Town. The zoning category of “places of entertainment” was not included in the industrial zoning of the substituted district.
 The Town’s position was, and is, that adult entertainment is an accessory use to restaurant use, which is permitted in the industrial zoning. Further, it is the Town’s position that it has committed itself to that position as evidenced by the planning reports leading to By-law 321-96, and has demonstrated its good faith by permitting a re-zoning of a Legion Hall in the industrial district to include tavern and entertainment uses.
 Klowak J. relied on the reasons of Craig J. in Toronto (City) v. Merit Corp. (1983), 23 M.P.L.R. 125 (Ont. H.C.J.) to find that adult entertainment could not be considered an accessory use to a restaurant. She then concluded [at pp. 630-31]:
Had the Town before me taken no other action with respect to allowing an adult entertainment parlour in the new industrial area, other than stating it interpreted restaurant to include adult entertainment parlour, I would not accept their good faith in passing the re-designating by-law. Such interpretation could be readily challenged, and the by-law would in effect be prohibitory.
In this case, however, another applicant has been successful in obtaining a licence in the new industrial area and the Town has already re-zoned that applicant’s property from specific zoning which accommodated a Legion Hall to one which includes a tavern and entertainment. This supports the Town’s contention that it is prepared to accommodate an adult entertainment parlour in the re-designated area, and also shows they will re-zone if necessary, even though they have maintained to date it is not necessary to do so.
Although the intention of the legislature was to give municipalities the choice and flexibility afforded by the licensing regime with respect to adult entertainment parlours, thereby dealing with adult entertainment as an activity rather than as a land use requiring re-zoning, the Town may have put itself in the position in this case of having to re-zone because of the existing zoning in the re- designated area it has selected. The by-law does not become prohibitive, however, just because re-zoning may be required: Soo Mill & Lumber Co. v. Sault Ste. Marie (City),  2 S.C.R. 78, 47 D.L.R. (3d) 1.
For the purposes of the issue of good faith before me, in taking the whole of the Town’s actions into account, including those preceding the by-law, surrounding the enactment of the by-law, and its subsequent actions in accommodating and facilitating another adult entertainment parlour in the new industrial area, all support that the Town acted in good faith in enacting the by-law re-designating the location of adult entertainment parlours in Richmond Hill.
 I will deal first with the argument that adult entertainment is an accessory use to a restaurant. The definition of “accessory use” in the Town’s zoning by-law is that it be “naturally and normally incidental, subordinate and exclusively devoted to a principal use.” I agree with Klowak J.’s conclusion. One can only offer a patronizing smile to the argument that such activities as towel dancing, touching of breasts and masturbation are naturally and ordinarily incidental to a dining out experience. Yet, the fundamental rationale of the planning department in recommending the area designation was that it would be a permitted accessory use: see, also on this subject, Bayfield (Village) v. MacDonald (1997), 39 M.P.L.R. (2d) 63 (Ont. C.A.), and 1121472 Ontario Inc. v. Toronto (City) (1998), 39 O.R. (3d) 535, 160 D.L.R. (4th) 83 (C.A.).
 Moving forward, I respectfully disagree with the remaining conclusions of Klowak J. The fact that a re-zoning is available or that another property was re-zoned does not bear upon the issue of whether existing zoning is prohibitory. It may indicate a sense of fairness, but it is at best ad hoc fairness. The best intentions of council members are subject to future planning processes and appropriate decisions in respect thereof. Furthermore, even if council chose to ignore its present zoning and grant a licence, any ratepayer would be entitled to bring action to enforce the present industrial zoning: see Municipal Act, s. 328 which reads:
328. Where any by-law of a municipality or of a local board thereof, passed under the authority of this or any other general or special Act, is contravened, in addition to any other remedy and to any penalty imposed by the by-law, such contravention may be restrained by action at the instance of a ratepayer or the corporation or local board.
 A comparison between two cases makes the point.
 In Pro Catering Ltd. v. Vaughan (Town) (1986), 17 O.A.C. 238, the Divisional Court held such a by-law invalid, saying at p. 239:
The present general zoning bylaw No. 2523 and bylaw 2961, which deals specifically with the regulation of lands and buildings for industrial purposes in the Township of Vaughan, do not list that use as a permitted use. As the town has interpreted its zoning bylaw and as it reads; the bylaw prohibits the operation of such Adult Entertainment Parlours in the said industrially zoned areas. Therefore, the bylaw is prohibitory and invalid.
 This court upheld such a by-law in 538745 Ontario Inc. v. Windsor (City) (1988), 64 O.R. (2d) 38, 49 D.L.R. (4th) 108 (C.A.) where the municipality passed zoning by-laws to permit adult entertainment in the newly designated areas.
 I disagree with the motion judge’s interpretation of Soo Mill & Lumber Co. v. Sault Ste. Marie (City),  2 S.C.R. 78. In that case certain of the land uses ostensibly permitted in the zoning by-law were in a “hold” category indicating proposed future uses in accordance with the long range planning envisaged in the official plan. It was argued that this “hold” category was a prohibition rendering the by-law illegal. Laskin C.J.C. concluded at p. 84:
The fact of a freeze on development, in accordance with the precepts of the Official Plan as implemented by the zoning by-law, does not amount to a violation of s. 35(1) when agriculture and related uses (and pre-existing uses) are permitted. Nor can the appellant complain of discrimination merely because the result of the freeze is to sterilize its land in respect of development when this has been done in the context of an overall Official Plan and a general zoning by- law in furtherance thereof. There was no suggestion of bad faith on the part of the respondent in bringing the appellant’s land within the holding category. That was a discretion which was reposed in the municipality under the zoning scheme.
 The court was considering whether land uses were prohibited and held that they were not — some were permitted and others postponed to official plan considerations. Here, we are considering whether adult entertainment uses are prohibited, and clearly they are. If all land uses had required a zoning application in Soo Mills the result would, in my view, have been very different.
 Thus, it is my conclusion that By-law 321-96 of the Town of Richmond Hill was illegal to the extent that it changed the area designations where adult entertainment licences might be issued, in a way which prohibited adult entertainment uses and is void to that extent. The injunction should therefore be set aside and the judgment below varied to allow the appellants’ application and grant a declaration in the terms of these reasons.
 In setting aside the injunction I am mindful of the fact that the operator, Treesann, is no longer in possession of the premises and there appears to be no immediate threat of a resumption of operations without a licence. In respect of costs, I note that this facility continued in business without a licence from 1992 through to 1998 when an injunction was granted. The municipality patiently awaited the outcome of various proceedings before seeking a restraining order and in the meantime the business apparently thrived. I think it a fair observation that the appellant Treesann was in the game of litigation so long as profits continued and lost interest in the merits when they could not continue. The owner appellant has been successful, but it is probably only a moral victory. It is still faced with the prospect that the Town will process proper by-laws, with due process, and directed to its original purpose of eliminating adult entertainment from the Yonge corridor. In all the circumstances, I would order no costs here or below.