finance and economic development committee report 10

Transcription

FINANCE AND ECONOMIC
DEVELOPMENT COMMITTEE
REPORT 10
9 DECEMBER 2015
4.
63
COMITÉ DES FINANCES ET DU
DÉVELOPPEMENT ÉCONOMIQUE
RAPPORT 10
LE 9 DÉCEMBRE 2015
LANSDOWNE PARTNERSHIP PLAN – PROPOSED SETTLEMENT OF THE
OTTAWA SPORTS AND ENTERTAINMENT GROUP CLAIMS
PLAN DE PARTENARIAT DU PARC LANSDOWNE – PROPOSITION DE
RÈGLEMENT DE L’OTTAWA SPORTS AND ENTERTAINMENT GROUP
COMMITTEE RECOMMENDATIONS
That Council:
1.
Approve the settlement with respect to the disputed costs that the
Ottawa Sports and Entertainment Group has funded as equity within
the closed financial system in the amount of approximately $23.6M,
to resolve the outstanding claims between the Ottawa Sports and
Entertainment Group and the City of Ottawa, pursuant to Option 2, as
outlined in this report; and
2.
Delegate the authority to the City Manager, in consultation with the
City Clerk and Solicitor and the City Treasurer, to amend and execute
the Lansdowne Partnership Plan Legal Agreements as necessary to
reflect the changes arising from the proposed settlement and such
other documents, including the Loan Guarantee and related lender
documents, as may be required to give effect to the settlement.
RECOMMANDATIONS DU COMITÉ
Que le Conseil :
1.
Approuve le règlement en ce qui a trait aux coûts contestés
totalisant 23,6 millions de dollars que l’Ottawa Sports and
Entertainment Group a engagés en tant que capitaux propres aux
REPORT 10
9 DECEMBER 2015
64
RAPPORT 10
LE 9 DÉCEMBRE 2015
termes du système financier fermé afin de résoudre le différend en
suspens qui oppose l’Ottawa Sports and Entertainment Group et la
Ville d’Ottawa, conformément à l’Option 2, comme il est expliqué
dans le présent rapport;
2.
Délègue au directeur municipal le pouvoir, en consultation avec le
greffier municipal et chef du contentieux et la trésorière municipale,
de modifier et de signer les ententes juridiques du Plan de
partenariat du parc Lansdowne afin de refléter les changements
découlant du règlement proposé et d’autres documents similaires, y
compris la garantie d’emprunt et les documents de prêt connexes
propres à donner effet au règlement.
DOCUMENTATION / DOCUMENTATION
1.
Kent Kirkpatrick, City Manager, report dated 24 November 2015 /
Directeur municipal, rapport daté du 24 novembre 2015 (ACS2015-CMRLEG-0005)
2.
Extract of Draft Minutes, Finance and Economic Development Committee,
1 December 2015. / Extrait de l’ébauche du procès-verbal du Comité des
finances et du développement économique, le 1 décembre 2015.
REPORT 10
9 DECEMBER 2015
65
RAPPORT 10
LE 9 DÉCEMBRE 2015
Report to
Rapport au:
Finance and Economic Development Committee
Comité des finances et du développement économique
1 December 2015 / 1 décembre 2015
and Council
et au Conseil
9 December 2015 / 9 décembre 2015
Submitted on November 24, 2015
Soumis le 24 novembre 2015
Submitted by
Soumis par:
Kent Kirkpatrick, City Manager
Directeur municipal
Contact Person
Personne ressource:
M. Rick O’Connor, City Clerk and Solicitor
Greffier de la Ville et chef du contentieux
613-580-2424 ext 21215 [email protected]
Ward: CITY WIDE / À L'ÉCHELLE DE LA
VILLE
File Number: ACS2015-CMR-LEG-0005
SUBJECT: Lansdowne Partnership Plan – Proposed Settlement of the Ottawa
Sports and Entertainment Group Claims
OBJET:
Plan de partenariat du parc Lansdowne – Proposition de règlement
de l’Ottawa Sports and Entertainment Group
REPORT 10
9 DECEMBER 2015
66
RAPPORT 10
LE 9 DÉCEMBRE 2015
REPORT RECOMMENDATIONS
That the Finance and Economic Development Committee recommend that
Council:
1.
Approve the settlement with respect to the disputed costs that the Ottawa
Sports and Entertainment Group has funded as equity within the closed
financial system in the amount of approximately $23.6M, to resolve the
outstanding claims between the Ottawa Sports and Entertainment Group
and the City of Ottawa, pursuant to Option 2, as outlined in this report; and
2.
Delegate the authority to the City Manager, in consultation with the City
Clerk and Solicitor and the City Treasurer, to amend and execute the
Lansdowne Partnership Plan Legal Agreements as necessary to reflect the
changes arising from the proposed settlement and such other documents,
including the Loan Guarantee and related lender documents, as may be
required to give effect to the settlement.
RECOMMANDATIONS DU RAPPORT
Que le Comité des finances et du développement économique recommande au
Conseil :
1.
d’approuver le règlement en ce qui a trait aux coûts contestés totalisant
23,6 millions de dollars que l’Ottawa Sports and Entertainment Group a
engagés en tant que capitaux propres aux termes du système financier
fermé afin de résoudre le différend en suspens qui oppose l’Ottawa Sports
and Entertainment Group et la Ville d’Ottawa, conformément à l’Option 2,
comme il est expliqué dans le présent rapport;
2.
de déléguer au directeur municipal le pouvoir, en consultation avec le
greffier municipal et chef du contentieux et la trésorière municipale, de
modifier et de signer les ententes juridiques du Plan de partenariat du parc
Lansdowne afin de refléter les changements découlant du règlement
proposé et d’autres documents similaires, y compris la garantie d’emprunt
et les documents de prêt connexes propres à donner effet au règlement.
REPORT 10
9 DECEMBER 2015
67
RAPPORT 10
LE 9 DÉCEMBRE 2015
EXECUTIVE SUMMARY
This report outlines a recommended settlement for disputed costs totalling $23.6M
which the Ottawa Sports and Entertainment Group (“OSEG”) has expended for the
remediation of the corrosion of the structural steel by water infiltration in the Civic
Centre Arena (now known as the Arena at TD Place) and other additional costs in the
mixed-use public realm retail component, as outlined in the report, during the
construction of the Lansdowne Partnership Plan (“LPP”).
The staff recommendation to settle these claims is set out in Option 2 of the report,
together with the Financial Implications for the City under the closed financial system
(“Waterfall”) between the City and OSEG within the LPP. The recommended settlement
would be funded by OSEG, under a Loan to be guaranteed by the City to obtain the
best interest rate available.
The Loan payments of principal and interest, as with other expenses under the Waterfall
would be paid out of revenues received under the LPP and would not change the
existing six-step structure for the distribution of net cash flow between the City and
OSEG. If there was a default under the Loan which was not cured by OSEG it would
constitute an event of default and a cross-default under the LLP Project Agreement and
a cross default with the Retail and Stadium Leases. This would supplement the rights
and remedies currently available to the City under these Agreements, which would be
amended accordingly under the recommended settlement.
RÉSUMÉ
Ce rapport présente une proposition de règlement des coûts contestés totalisant
23,6 millions de dollars que l’Ottawa Sports and Entertainment Group
(« OSEG ») a engagés pour remédier à la corrosion de la structure en acier due à
l’infiltration d’eau à l’aréna du Centre municipal (aujourd’hui connu sous le nom d’aréna
de la Place TD) et des autres coûts relatifs aux commerces de détail polyvalents de la
sphère publique, comme il est décrit dans le rapport, pendant la construction dans le
cadre du Plan de partenariat du parc Lansdowne (« PPL »).
REPORT 10
9 DECEMBER 2015
68
RAPPORT 10
LE 9 DÉCEMBRE 2015
Les recommandations du personnel pour régler ces revendications proposition sont
présentées dans l’option 2 du rapport, ainsi que ses répercussions financières pour la
Ville aux termes du système financier fermé (la structure en cascade) qui prévaut entre
la Ville et l’OSEG dans le cadre du PPL. Le règlement recommandé serait financé par
l’OSEG, aux termes d’un prêt garanti par la Ville, dans le but d’obtenir le meilleur taux
d’intérêt possible.
Le remboursement du capital et des intérêts sur le prêt, comme c'est le cas des autres
dépenses en vertu de la structure en cascade, serait fait à même les recettes perçues
aux termes du PPL et ne modifierait pas la structure existante en six étapes de
répartition des flux de trésorerie nets entre la Ville et l’OSEG. Tout manquement aux
modalités du prêt qui ne serait pas corrigé par l’OSEG constituerait une situation de
défaut et un défaut croisé en vertu de l’accord du projet de PPL et un défaut croisé en
vertu des contrats de location des commerces de détail et du stade. Ceux-ci
s’ajouteraient aux droits et recours actuels de la Ville aux termes de ces accords,
lesquels seraient modifiés en conséquence conformément à la proposition de
règlement.
BACKGROUND
On October 10th, 2012, City Council considered and approved the following two reports
concerning the Lansdowne Partnership Plan (“LPP”) for the redevelopment of the park,
the stadium and the hockey arena: (1) the “Lansdowne Partnership Plan
Implementation – Final Report on Legal Agreements” (ACS2012-CMR-LEG-0002); and
(2) the “Lansdowne Partnership Plan – Authorization to Proceed with the Legal Close
and Implementation” (ACS2012-PAI-INF-0010). These two reports finalized the various
legal agreements as well as the updated LPP Project Agreement Framework and
authorized the commencement of construction of this redevelopment project.
In the “Lansdowne Update” for Q2 2013, issued by the General Manager (“GM”),
Infrastructure Services on September 18th, 2013, Council was apprised of construction
issues concerning the corrosion of the structural steel elements in the Civic Centre
Arena (now known as the Arena at TD Place) roof as follows:
REPORT 10
9 DECEMBER 2015
69
RAPPORT 10
LE 9 DÉCEMBRE 2015
The renovations to the almost 50 year-old Civic Centre are proceeding. In late
Q2, a requirement for extensive repair work on the suspended roof over the
arena including associated environmental remediation was identified. The
Ottawa Sports and Entertainment Group (OSEG) has begun repair work and is
continuing the necessary analysis to determine the full extent of repairs required.
Staff will provide future updates on the work being undertaken by OSEG. The
project schedule remains in place.
A complete copy of the Lansdowne Update for Q2 of 2013 is attached at Document “1”
to this report.
On December 23rd, 2013, Council received “Q3 Lansdowne Status Update” from the
GM, Infrastructure Services, which provided a more detailed summary of this
construction issue including the following additional information regarding the findings of
OSEG’s structural engineering review and the estimated cost of the repairs:
The completed investigation identified extensive repairs [which were] required
due to the corrosion of the structural steel elements of the facility, which would
impact the structure’s capability of supporting the designed loading capacity...
*****
The cost estimate identified by OSEG to complete the repair work is $17 million.
To minimize disruption to the construction schedule, OSEG has proceeded with
the necessary work and the overall construction schedule remains in place.
It is the City’s view that, with regard to the funding of these unexpected costs, the
provisions of the Lansdowne Redevelopment Plan Project Agreement related to
the City’s guaranteed maximum price (GMP) require OSEG to pay for the costs
of the work that are in excess of the project contingency that is contained within
the GMP. OSEG will do so through the contribution of increased minimum equity
as per the terms of the Project Agreement. However, OSEG has notified the City
that it is considering invoking the dispute resolution of the Project Agreement to
determine if some or all of these costs should be exempt from the GMP and paid
for by the City. The City and OSEG, guided by their respective legal counsels,
are in without prejudice discussions regarding this issue.
REPORT 10
9 DECEMBER 2015
70
RAPPORT 10
LE 9 DÉCEMBRE 2015
A complete copy of the Q3 Lansdowne Status Update is attached at Document “2” to
this report.
In September 2013, OSEG gave formal notice to the City that it was reserving its rights
to claim these disputed costs from the City. The basis for this claim was OSEG’s
assertion that the repair work related to the corrosive steel in the Arena was outside the
scope of the Comprehensive Construction Contract for the Lansdowne Partnership Plan
Stadium and Improvements. As a result of that notice, the City and OSEG, with the
guidance of their respective legal counsel, entered into “without prejudice” discussions
and negotiations concerning the claims.
The LPP Legal Agreements provide that any disputes arising under them are to proceed
to commercial arbitration. Commercial arbitration is the forum where the OSEG claim
would proceed to if not settled by the parties. With respect to this specific claim, OSEG
and the City entered into a Tolling Agreement in July 2014, which was subsequently
amended in September 2014 as well as March and September 2015, to suspend the
operation of any limitation period applicable to the above-noted dispute. This
procedural mechanism was to allow the parties to continue their “without prejudice”
discussions concerning OSEG’s claims for disputed costs for the purpose of exploring
the merits and possibility of settlement of them. Those discussions have now formed
the basis of this settlement which is being recommended to resolve these matters.
DISCUSSION
The LPP Project Agreement was meant to limit the City’s financial contribution to the
Lansdowne Redevelopment Project Stadium and Improvements to a maximum upset
cost of $135.8M. This limitation was subject to specific exceptions contained within the
Project Agreement (e.g. City initiated Change Orders, environmental remediation costs
and archaeological costs) and provides that all of the known construction risks were to
be assumed by OSEG. However, with the discovery of the structural steel issues at the
Civic Centre Arena, the associated repair costs have given rise to a dispute between
OSEG and the City over the legal responsibility to pay for such costs that were
unforeseen at the time the parties entered into the legal agreements in October 2012.
Further, OSEG has claimed that the City was also responsible for additional work within
the mixed-use public realm component of the LPP within the Retail Component relating
REPORT 10
9 DECEMBER 2015
71
RAPPORT 10
LE 9 DÉCEMBRE 2015
to temporary asphalt, concrete pavers and larger bollards to ensure consistency with
materials in the Urban Park.
Generally speaking, there are two resolution options to consider when parties to a
contract are faced with a dispute: (1) litigate the matter through the appropriate venue
(in this case commercial arbitration); or (2) settle the matter in a mutually agreeable
manner. These two options are discussed below in greater detail.
Option No. 1: Commercial Arbitration
As noted above, the dispute mechanism in the LPP Legal Agreements is for the parties
to litigate issues via commercial arbitration. In short, the arbitration process includes:
written notice containing details of the dispute from one party with ten (10) days for a
reply from the other party; and, if not resolved in the ten (10) day period, the dispute can
be referred to arbitration pursuant to the Arbitration Act, 1991.
Should Council reject the staff recommendation to settle the dispute in this instance,
thereby opting for a litigated resolution, a broad summary of the parties’ positions is set
out below.
Overview of OSEG’s Claim;
Briefly, OSEG alleges that it was unaware that, while the Civic Centre was being
operated and maintained by the City, there had been significant water infiltration which
had penetrated the roof and upper arena concourse of the Civic Centre Arena, causing
extensive damage to the structural steel elements. OSEG further asserts that the
damaged structural steel elements were hidden by facing material, such as drywall and
fireproofing membrane, which were not visible or accessible prior to actual construction.
In effect, OSEG has claimed that, despite its exercise of its due diligence in formulating
the scope of work before a fixed-price Comprehensive Construction Contract and
Completion Guarantee (“Contract”) were signed on October 12th, 2012 , after being
approved by Council on October 10th, 2012, it could not have discovered the manner
and extent of damage before construction commenced. Consequently, OSEG alleges
that it could not have been included in the scope of work agreed upon with the City.
REPORT 10
9 DECEMBER 2015
72
RAPPORT 10
LE 9 DÉCEMBRE 2015
In this regard, OSEG has argued that its final claim for additional total compensation of
$23.6M, is effectively outside the scope of the Contract. The figure of $23.6M is
summarized as follows:
$21.6 M – costs incurred by OSEG arising from the remediation of the corrosion
of the structural steel by water infiltration in the Civic Centre Arena and other
expenses directly related to those repairs;
$1M – costs paid by OSEG to resolve a delay claim initiated by its contractor as
a result of the repairs to the steel corrosion in the Arena; and
$1M – additional costs arising from the mixed-use public realm elements in the
Retail Component for which the City was responsible.
Ultimately, OSEG alleges that the City is responsible for these additional, disputed costs
and such payment would be outside of the parties’ closed financial system (“Waterfall”)
under the Lansdowne Partnership Plan.
Overview of City’s Defence;
In contrast, the City’s position is that OSEG assumed all of the risks associated with the
LPP construction, as it had concluded a fixed-price Comprehensive Construction
Contract with the City which also included a Completion Guarantee. The City has
further asserted that it was made clear in the provisions of the Project Agreement for the
Redevelopment of Lansdowne Park and the Stadium Construction Licence, executed by
the parties on October 12th, 2012, that OSEG was accepting the Stadium and Civic
Centre Arena structures on an “as is” basis. In this regard, the Overview of Structure
and Content – Final LPP Project Agreements that was Document 1 in the report
entitled, “LPP Implementation – Final Report on Legal Agreements” summarized the
intent of this principle as follows:
Subject to existing environmental conditions, archaeological conditions and any
express representations and warranties of the City, OSEG enters into the Project
Agreement on an “as is where is” basis and is relying solely on its own due
diligence.
REPORT 10
9 DECEMBER 2015
73
RAPPORT 10
LE 9 DÉCEMBRE 2015
All Members of Council will have received as a companion document to this report a
confidential legal opinion by external legal counsel meant to provide further context and
additional explanation of the City’s defences to the OSEG claims for these disputed
costs. This 14 page document, subject to solicitor-client privilege, is an Executive
Summary that was drawn from the more comprehensive and complete 47 page legal
opinion, which is also subject to solicitor-client privilege. Both confidential opinions
were prepared by the law firm of Gowling Lafleur Henderson LPP (“Gowlings”), and the
latter is available from the Office of the City Clerk and Solicitor upon request from
Members of Council.
Should the recommended settlement not be approved and the costs’ dispute proceeds
to arbitration, it is anticipated that there would also be significant City staff time
expended, including that of various senior managers, in assisting external legal counsel
with e-discovery of relevant documents and information, pre-arbitration discovery
processes and cross-examinations and testifying of City witnesses and consultants at
the arbitration.
Based on the nature, complexity and quantum of the above-noted costs’ dispute, as well
as the right of appeal available if either party seeks to challenge the decision of the
arbitrator, it is estimated that it may take between two to five years before a final and
binding decision is ultimately attained. In addition, it is estimated that the spectrum of
the legal costs that the City could incur in defending the OSEG claims would be in the
range of $1M to $2.5M, depending on whether there is an appeal to the courts of the
arbitrator’s decision. In arbitrations, it is not unusual for the arbitrator to have the
jurisdiction to award legal costs to the successful party to be paid by the other party.
Such legal costs are over and above what the unsuccessful party may have paid to its
own legal counsel in the initiation of a claim or the defence of the dispute. As noted
above, a right of appeal may be available to either party based on an error of law. In
effect, either OSEG or the City could argue that the initial decision of the arbitrator is
wrong as the arbitrator failed to correctly apply to the factual circumstances and/or the
applicable law and legal principles.
REPORT 10
9 DECEMBER 2015
74
RAPPORT 10
LE 9 DÉCEMBRE 2015
Litigation versus Settlement Options: Factors to Consider
With any form of litigation, including commercial arbitration, there are generally two
outcomes: a win or a loss, the costs of which are described below and summarized in
the Financial Implications section of the report below. The legal analysis surrounding
this potential arbitration has been set out in the Gowlings’ legal opinions. However, it is
important to appreciate that such an assessment, at this relatively early stage of the
litigation process, should not be construed as any form of guarantee of success. Each
of the claims surrounding the disputed costs for the Arena is factually intensive and will
involve extensive documentation from both parties. In addition, any arbitration or
litigation will involve considerable oral evidence given by witnesses and experts of, and
for, the respective parties.
Regardless of the preparation undertaken in advance, hearings often result in witnesses
providing the “unexpected” as evidence and their credibility can be detrimentally
affected. In fact, it is not unusual for legal opinions to change following a complete
documentary discovery, oral discovery, and extensive interviews to prepare various
witnesses including third party experts subsequently engaged. It is worth noting further
that on February 11th, 2015, Council received the Comprehensive Legal Services
Report for the Period July 1 to December 31, 2014, in which staff summarized the
recent changes by the Supreme Court of Canada (“SCC”) to the common law with
regard to contract disputes. In the first case called, Sattva Capital Corp. v. Creston Moly
Corp., the SCC clarified that issues of contractual interpretation will generally be mixed
questions of fact and law. As a result, decision-makers such as courts, tribunals and
arbitrators should consider the “factual matrix” surrounding the intent of the parties
entering into the agreement. In the second case of Bhasin v. Hrynew, the SCC
established a new common law duty of honest performance in contracts. Prior to this
decision, the role of honesty and good faith in contracts was unsettled and only applied
to specific types of agreements and legal relationships. The new duty of honesty now
applies to all contracts, including those executed by municipalities, regardless of the
terms and conditions included in the agreement.
At the end of a hearing, it will be the arbitrator or judge who decides what evidence to
accept or reject and the legal merits of a party’s case and, ultimately, which party will be
successful in the dispute.
REPORT 10
9 DECEMBER 2015
75
RAPPORT 10
LE 9 DÉCEMBRE 2015
That said, the decision to settle any dispute short of litigation invariably involves the
balancing of a number of factors including: risks to the project as well as the party’s
reputation; costs of both the dispute itself and various legal fees; delays; and the desire
to achieve a specific outcome that is negotiated and agreed to in advance by all
concerned. Further, the Lansdowne Partnership Plan is a long-term public-private
partnership between the City and OSEG which commenced upon substantial
completion of the Stadium and other improvements in July 2014. As such, the
partnership will continue for the next twenty-nine years. This ongoing contractual and
commercial relationship between the two parties is an important factor to consider under
all of the circumstances.
Option No. 2: Settlement by Amending the LPP Legal Agreements
Throughout the last year, both the City and OSEG have reviewed various options to
settle this claim. As a result of these lengthy negotiations, which intensified in the past
several months, the parties’ respective legal counsels have recommended that both
sides settle this matter by way of an amendment to the LPP Legal Agreements. As
there is no authority delegated to the either the City Manager or the City Clerk and
Solicitor to resolve this claim, staff are recommending that Council approve the
settlement proposal summarized below.
To begin with, OSEG’s payments totalling $23.6M to remediate the corroded steel in the
Civic Centre Arena and the mixed-use public realm costs for the Retail Component
have been recognized as contributions of “Equity” to the Master Limited Partnership.
The characterization of the $23.6M as “Equity” is pursuant to the Project Agreement.
Under the recommended settlement, OSEG would secure a bank loan (“Loan”), the
proceeds of which will be used to reduce the Equity contributed by OSEG. The Loan
would be arranged by OSEG and would be made to the Master Limited Partnership as
“borrower”.
Once that has occurred, the $23.6M contribution will be characterized as debt, not
Equity. This results in it having a lesser impact on the City in the distribution of funds
pursuant to the Waterfall and, therefore, would be beneficial to the City. In return, the
City would guarantee the Loan (“Loan Guarantee”) in an effort to allow OSEG to secure
the lowest available interest rate. The terms of both the Loan, the Loan Guarantee and
REPORT 10
9 DECEMBER 2015
76
RAPPORT 10
LE 9 DÉCEMBRE 2015
any related lender documents would be required to be reviewed and approved by the
City Manager, the City Treasurer and the City Clerk and Solicitor.
The annual payments of principal and interest on the Loan, as with other expenses
under the LPP’s closed financial system, would be paid out of revenues received under
the LPP. This approach would not change the current, six-step structure, for the
distribution of net cash flow following payment of expenses.
Should the Master Limited Partnership default in payments of interest or principal under
the Loan, and OSEG fail to cure the default by advancing Equity to the Master Limited
Partnership to provide funds to meet the deficiency, such that the City was required to
make a payment under the Guarantee, it would constitute an event of default and a
cross-default under the Project Agreement and a cross-default with the Retail Lease
and the Stadium Lease. Since an event of default in favour of the City under one Lease
constitutes an event of default in favour of the City under all Agreements/Leases, the
City would be entitled to all available rights and remedies currently provided for under
the Lansdowne Redevelopment Plan Project Agreement and related LPP
Agreements/Leases. In addition, if the City were called upon to make any payment on
its Loan Guarantee, the amount paid by the City would increase the City’s Funding
Equity under the Waterfall.
Finally, OSEG and the other parties to the Project Agreement and the Master Limited
Partnership Agreement, at their expense, would be required to enter into Amending
Agreements with the City to reflect the above terms and they would be executed at the
same time as the documentation for the loan guarantee.
In support of this recommended settlement, the law firm of Borden Ladner Gervais LPP
(“BLG”) was retained to provide a confidential legal opinion on whether or not this
approach would constitute a breach of the “bonusing” provision in Section 106 of the
Municipal Act, 2001. BLG was the firm that successfully defended the City in the
Friends of Lansdowne Inc. case at trial and before the Ontario Court of Appeal in 2012.
In this instance, the Act prohibits municipalities from “assisting directly, or indirectly any
. . . commercial enterprise through the granting of bonuses”. In short, BLG has opined
that the proposed settlement, and in particular the Loan Guarantee, does not breach the
REPORT 10
9 DECEMBER 2015
77
RAPPORT 10
LE 9 DÉCEMBRE 2015
bonusing prohibition in the Municipal Act, 2001. This legal opinion is subject to solicitorclient privilege and was also issued separately to all Members of Council.
RURAL IMPLICATIONS
There are no rural implications associated with this report.
CONSULTATION
As this report recommends the settlement of various claims, there was no consultation
undertaken. However, the parties engaged in extensive “without prejudice” discussions
and negotiations to arrive at the recommended settlement on the disputed costs
outlined in this report.
LEGAL IMPLICATIONS
For the reasons set out above, there are no legal impediments to Committee and
Council considering the recommendations in the report. The public commentary in this
report is intended to be read in conjunction with the following three, confidential
documents:

Executive Summary of the Legal Opinion (14 pages) by Gowling Lafleur
Henderson LPP (November 5, 2015), issued separately to all Members of
Council;

Complete Legal Opinion (47 pages) by Gowling Lafleur Henderson LPP
(November 5, 2015) available upon request from the office of the City Clerk and
Solicitor; and

Legal Opinion (3 pages) by Borden Ladner Gervais LPP (November 17, 2015),
issued separately to all Members of Council.
RISK MANAGEMENT IMPLICATIONS
There are risk implications and these have been identified and explained in the report.
REPORT 10
9 DECEMBER 2015
78
RAPPORT 10
LE 9 DÉCEMBRE 2015
FINANCIAL IMPLICATIONS
In the current pro-forma projections, the $23.6M is calculated as additional equity
contributed by OSEG. Based on the Waterfall formula, this contribution would be
subject to an 8% return on, and recovery of, the $23.6M of OSEG’s additional minimum
equity. Should the issue over these disputed costs proceed to arbitration, the following
two results are likely under all of the circumstances.
Option No. 1: Commercial Arbitration
Scenario 1 - the City successfully defends against the OSEG claim for the disputed
costs at arbitration. Under this scenario the following financial implications are likely to
arise:
- OSEG is not compensated for the $23.6M and may be required to partially
reimburse the City some its legal costs for the arbitration;
- OSEG continues to earn 8% on the additional minimum equity of $23.6M;
- Return of the $23.6M equity to OSEG will be distributed from the net cash
flows;
- No distributions from the Waterfall to the City over the life of the LPP 30year term.
Scenario 2 – OSEG is successful at arbitration. Under this scenario the following
financial implications are likely to arise:
- City repays OSEG $23.6M immediately and may be required to partially
reimburse OSEG some of its legal costs for the arbitration;
- OSEG does not continue to earn 8% on the $23.6M;
- Return of the $23.6M equity to OSEG from net cash flows is eliminated;
- Distributions from the Waterfall to the City occur with payments starting in
the last two years of the LPP 30-year term.
REPORT 10
9 DECEMBER 2015
79
RAPPORT 10
LE 9 DÉCEMBRE 2015
Option No. 2: Settlement by Amending the LPP Legal Agreements
In the recommended settlement, the City would guarantee the Loan to enable OSEG to
obtain a more favourable interest rate, estimated at approximately 3.5%. Under Option
No. 2 the following financial implications are likely to arise:
- The return of the $23.6M OSEG paid for the disputed costs is accelerated
from the Loan proceeds;
- OSEG does not continue to earn 8% on the $23.6M;
- Return of the $23.6M equity to OSEG from net cash flows is eliminated;
- No arbitration costs are incurred;
- Overall net cash flows are reduced by the cost of the Loan and debt
financing costs;
- Distributions from the Waterfall to the City occur with payments starting in
the last two years of the LPP 30-year term.
The net present value (“NPV”) comparison of each scenario using a discount rate of
5.35% and taking into consideration the cost of arbitration and the $23.6M that the City
must repay OSEG in Scenario 2 of Option 1 is provided in Document “3” attached to this
report.
Only Scenario 2 of Option No. 1 and Option No. 2 show a distribution to the City for the
Waterfall. In NPV terms, Scenario 2 of Option No. 1 shows a slightly higher distribution
to the City from the Waterfall, but there is a $23.6M outflow in 2015 plus arbitration
costs. The approach with the highest NPV to the City is Option No. 2. Correspondingly,
a City loss at arbitration under Option No. 1, Scenario 2 would have the highest net
return to OSEG.
The arbitration costs are mid-range estimates. These costs could be as low as $250K
to $500K if the City wins and as high as $2.5M if the City loses the arbitration.
In light of the above-noted figures, the recommended approach is Option No. 2, for the
parties to mutually resolve the dispute and fund the $23.6M of disputed costs with a
Loan and Loan Guarantee within the closed financial system.
REPORT 10
9 DECEMBER 2015
80
RAPPORT 10
LE 9 DÉCEMBRE 2015
ACCESSIBILITY IMPACTS
There are no accessibility implications associated with this report.
TERM OF COUNCIL PRIORITIES
The Lansdowne Partnership Plan and revitalization relates to the following Strategic
priorities of Council:
Economic Prosperity
Objective: Promote Ottawa – Revitalized Lansdowne provides an Ottawa venue for
hosting major sporting and cultural events.
Transportation and Mobility
Objective: Provide and promote infrastructure to support safe mobility choices – A key
element of the Lansdowne revitalization was the development and implementation of a
comprehensive and aggressive TDM program to encourage and promote the use of
sustainable transportation for day-to-day activities and for events.
Sustainable Environmental Services
Objective: Reduce long-term costs through planned investment and staging of diversion
and conservation strategies – The Lansdowne revitalization significantly improved the
manner in which stormwater flows into the City system, decreased storm run-off,
improved the quality of storm flow to the Rideau Canal and provides for the use of
stormwater for site irrigation.
Healthy and Caring Community
Objective: Revitalize recreation services – The revitalization has established
Lansdowne as a significant urban place that is grounded in the site’s history. It provides
improved opportunities for sporting and cultural endeavours through a re-purposed
stadium and a significant Urban Park to accommodate events and for day-to-day
community use.
REPORT 10
9 DECEMBER 2015
81
RAPPORT 10
LE 9 DÉCEMBRE 2015
DISPOSITION
Staff will implement any directions and approvals from Council with regard to this report.
If the recommended settlement is approved, the City Manager will execute the amended
LPP Legal Agreements, the Loan Guarantee and any related lender documents on
behalf of the City. As with most matters related to the Lansdowne Partnership Plan, the
exercise of the recommended delegated authority will be include as part of the regular
reporting on this project.
DOCUMENTS (issued previously to all Members of Council and held on file with the
City Clerk)
1.
Lansdowne Update for Q2 2013, issued by the General Manager, infrastructure
Services (September 18, 2013);
2.
Q3 Lansdowne Status Update, issued by the General Manager, Infrastructure
Services (December 23, 2013);
3.
Net Return to OSEG and City (in Net Present Value Dollars);
4.
Executive Summary of the Confidential Legal Opinion (14 pages) by Gowling
Lafleur Henderson LLP (November 5, 2015), issued separately;
5.
Complete Confidential Legal Opinion (47 pages) by Gowling Lafleur Henderson
LLP (November 5, 2015) available upon request from the office of the City Clerk
and Solicitor; and
6.
Confidential Legal Opinion (3 pages) by Borden Ladner Gervais LLP (November
17, 2015), issued separately.

finance and economic development committee report 10

Transcription

Documents pareils

2014 Investment and Endowment Fund Report

2013 Investment and Endowment Fund Report

Score savings through the ServicePlus program on Ottawa Senators

finance and economic development committee report 36

La grossesse, on s`en parle! Pregnancy chat!

Comprehensive Legal Services Report Q1-Q1 2015

presentation generale du cours et des objectifs bibliographie plan

[Descartes e il Seicento 5] Jean-Robert Armogathe, Vincent Carraud

4. L` animal a... Le poisson a . Le cochon d`Inde a . L

Homework 2 : Ces touristes ont des problèmes ! Fais