In what circumstances will a municipality be required to account for surplus funds raised through the issue of debentures?

In his concurring opinion, Kellock J.A. provided a similar rationale for the result: It is true that in one sense the surplus here in question was "not required" for the work, in that the cost of the work itself was fully met apart from this surplus. However, the moneys constituting this surplus were not free moneys in the hands of the appellant, but were impressed with a trust and therefore were "required" to be accounted for to the cestuis que trust, whoever they might be. There are numerous instances in which the appellant municipality would, or could, have outstanding debenture issues payable entirely by the corporation at large, in connection with which unrequired balances would remain in the hands of the appellant; to such balances para. (c) would no doubt apply. In my opinion, it would require more explicit language to make applicable the provisions of this paragraph to a surplus such as that in question in this action. In Smith v. The Township of Raleigh (1882), 3 O.R. 405, it was held that moneys raised by a special rate upon certain lands to be benefited by a drainage work pursuant to the drainage provisions of the then Municipal Act were trust moneys. As stated by the trial judge, Ferguson J., at p. 411: "The defendants became possessed of moneys which they were bound to expend in a certain way and no other, for the benefit and advantage of certain land owners and ratepayers, of whom the plaintiff was one." In my opinion the moneys raised by the issue of debentures, including the surplus here in question, are also trust moneys bound by a similar trust. The question for decision in the case at bar is as to the persons who constitute the cestuis que trust of these surplus moneys. …

Like Robertson C.J.O., Kellock J.A. found the chambers judge to have erred in treating the present group of ratepayers as the beneficiaries of the trust. Instead, the City was found to be holding the excess funds in trust on behalf of all those who had paid the special rates since the project’s inception: In my opinion, there being no statutory provision expressly applicable, the cestuis que trust of the fund here in question are the persons who paid the special rates to provide for the debt created by the debentures, i.e., to adopt the language of s. 612(5) of the Act of 1883, "those by whom" the debenture debt will have been paid. It required special provisions, as already point out, to restrict the class of those entitled to the "then owners" and owners "according to the last revised assessment roll." I refer to Re Schneider's Application; Petty and Levison v. The City of New York (1910), 136 App. Div. (N.Y.) 444. It does not appear how long the respondent has been the owner of the lands in respect of which he is personally interested, nor does it appear what changes of ownership there have been in the other lands liable for the special assessment throughout the twenty years during which these local improvement rates have been levied. Had there been no changes in ownership of any of these lands, it might perhaps have been proper to direct that the surplus in question in the hands of the appellant be applied pro rata in payment of the last annual instalment of the rate due in 1943 under by-law 9999. It is most unlikely, however, that no changes of ownership have taken place. I would substitute for the declaration contained in the judgment below a declaration that the persons who have paid the local improvements rates called for under by-law 9999 throughout the twenty years are entitled to share pro rata in the fund in question in this action, and direct a reference to the Master to determine the persons entitled and their respective shares. I would allow the appeal accordingly.