



COURT OF APPEAL FOR ONTARIO

CITATION: Union Gas Limited v. Norwich (Township), 2018 ONCA
    11

DATE: 20180110

DOCKET: C62779

LaForme, Pepall and van Rensburg JJ.A.

BETWEEN

Union Gas Limited

Applicant
(Appellant in Appeal)

and

The Corporation of the Township of Norwich

Respondent
(Respondent in Appeal)

Crawford
    Smith and Emily Sherkey, for the appellant

Roberto Aburto and Jacob Polowin, for the respondent

Philip Tunley, for the intervener, Ontario Energy Board

Heard: August 14, 2017

On appeal from the order of Justice M.A. Garson of the Superior
    Court of Justice, dated September 7, 2016.

van Rensburg J.A.:

OVERVIEW

[1]

This appeal concerns a dispute between a utility
    and a rural municipality over the sharing of the utilitys costs to relocate
    parts of a gas pipeline as a result of the rural municipalitys construction of
    certain drainage works. The disposition of the appeal requires the court to consider
    the terms of a franchise agreement dated September 28, 2004 between the parties
    (the Franchise Agreement) and provisions of the
Drainage Act
, R.S.O. 1990, c. D.17 (the Act).

[2]

Union Gas Limited (Union) asserts that The
    Corporation of the Township of Norwich (Norwich) is required to pay Union 35%
    of its costs to relocate a gas pipeline necessitated by certain drainage works,
    in accordance with the Franchise Agreement. Norwich argues that Union should assume
    the full cost of relocation, as its engineer directed, under s. 26 of the Act.

[3]

The application judge held that the cost to
    relocate gas works when a drain is constructed under the Act is an increase in
    the cost of drainage works, and therefore subject to s. 26 of the Act, which
    provides for the utility to assume the entirety of the increased cost of
    drainage works caused by the existence of the public utilitys works. He held
    that the cost-sharing provisions of the Franchise Agreement did not trump and
    hold priority over s. 26 of the Act.

[4]

Union appeals, arguing that the application
    judge erred: (1) in interpreting s. 26 of the Act to apply to the cost of
    relocating gas works; and (2) in concluding that the Act overrides the
    cost-sharing provisions of the Franchise Agreement.

[5]

The Ontario Energy Board (the OEB) intervened,
    taking no position on the facts of the appeal, but to provide submissions on
    the interpretation of the term drainage works in the Act and the policy
    behind the cost-sharing provisions of the Franchise Agreement.

[6]

For the reasons that follow, I would allow the
    appeal. It is unnecessary to determine in this appeal the full scope of s. 26,
    and in particular whether the reference to the increased cost of drainage
    works could
include a utilitys
cost to relocate gas
    works. The cost-sharing provisions of the Franchise Agreement apply to the
    parties dispute. The application judge erred in law when he refused to give
    effect to the parties agreement on the basis that it could not oust or override
    the provisions of the Act.

FACTS

[7]

Under s. 4 of the Act a landowner may petition a municipality to
    undertake drainage works. Where the municipalitys council decides to proceed
    with the construction of drainage works, it appoints an engineer under s. 8 to
    plan the works, including to assess their cost. The engineer is required to submit
    a report to the municipality. If the council proceeds based on the report, it
    passes a by-law adopting the report and authorizing the drainage works.

[8]

The engineers report is required to assess landowners and utilities for
    benefit, outlet liability, injury liability and special benefits (ss. 21 to
    24). Section 26 allows all of the increase in the cost of drainage works due to
    the presence of public utilities to be assessed by the engineer against those
    utilities. The section provides as follows:

In addition to all other
    sums lawfully assessed against the property of a public utility or road
    authority under this Act, and despite the fact that the public utility or road
    authority is not otherwise assessable under this Act, the public utility or
    road authority shall be assessed for and shall pay all the increase of cost of
    such drainage works caused by the existence of the works of the public utility
    or road authority.

[9]

Section 48(1) provides for a right of appeal by a landowner or public
    utility from an engineers report, to the Agriculture, Food and Rural Affairs
    Appeal Tribunal.

[10]

In April 2012, a landowner petitioned Norwich
    regarding two improvements to the Otter Creek Municipal Drain. Norwichs council
    appointed an engineer. The engineer prepared one report for both projects, and
    assessed Union $1,180 under s. 26 of the Act for costs relating to boring steel
    pipes across the gas main. This assessment was not disputed.

[11]

The report also identified a conflict between a
    Union gas pipeline and the proposed drainage work that would require the gas
    pipeline to be moved. The report stated that if any utilities required
    relocation the extra costs incurred shall be borne by the utility involved in
    accordance with the provisions of section 26 of the [Act]. In February 2014, the
    Norwich council adopted a by-law approving the engineers report.

[12]

Union did not appeal the engineers report.
    Instead, with respect to the gas pipeline that required relocation, it issued
    an invoice to Norwich seeking a 35% contribution, relying on a cost-sharing
    mechanism in the Franchise Agreement.

[13]

The Franchise Agreement is based on a model
    franchise agreement, whose terms were approved by the OEB in accordance with
    the
Municipal Franchise Act
, R.S.O. 1990, c.
    M.55
.
The Franchise
    Agreement allows Union to operate its gas infrastructure within Norwichs
    territorial boundaries.

[14]

Section 12 of the Franchise Agreement permits
    Norwich to request Union to relocate any part of the gas system where such
    relocation is necessary to alter or improve any highway or municipal work, and
    provides for cost-sharing. The applicable paragraphs are as follows:

(a) If in the course of constructing,
    reconstructing, changing, altering or improving any highway or any municipal
    works, [Norwich] deems that it is necessary to take up, remove or change the
    location of any part of the gas system, [Union] shall, upon notice to do so,
    remove and/or relocate within a reasonable period of time such part of the gas
    system to a location approved by the Engineer/Road Superintendent.

(d) The total relocation costs as calculated
    above [described in detail in paragraph (c)] shall be paid 35% by [Norwich] and
    65% by [Union] except [an exception follows that does not apply here.]

[15]

Section 13 of the Franchise Agreement provides:

The Agreement is subject to the provisions of
    all regulating statutes and all municipal by-laws of general application,
    except by-laws which have the effect of amending this Agreement.

[16]

Norwich did not pay Unions invoice. The work proceeded, and Union
    brought an application to the Superior Court to determine the rights of the
    parties.

DECISION OF THE
    APPLICATION JUDGE

[17]

The
    application judge characterized the issue as whether Unions gas pipeline relocation
    costs fell within the scope of the Franchise Agreement or s. 26 of the Act.

[18]

The
    application judge characterized the Act as a complete and comprehensive code
    dealing with drainage works. He considered the definition of drainage works as
    including a drain constructed by any means and he interpreted the Act as
    allowing either municipalities or utilities to reconstruct portions of existing
    gas pipelines. He concluded that moving gas pipelines would fall within the
    broad definition of drainage works, and that this cost would accordingly be subject
    to the cost-sharing mechanism of s. 26 of the Act. He considered that it was
    the intent of the Act to defer to the engineers report regarding cost
    allocation, and that Union was subject to the assessment, which it had not
    appealed.

[19]

The
    application judge concluded that the Franchise Agreement did not oust or
    override the provisions of the Act. He referred to
Seidel v. Telus
    Communications Inc.
, 2011 SCC 15, [2011] 1 S.C.R. 531, at para. 91, citing
Brand v. National Life Assurance Co. of Canada
(1918), 44 D.L.R. 412
    (Man. K.B.), at para.15, as authority that no mere contract
inter partes
can
    take away that which the law has conferred.

[20]

The
    application judge stated that the cost-sharing provisions of the Franchise Agreement
    did not apply to all costs associated with drains. Municipal works is not
    defined in the Franchise Agreement. Moreover, the Gas Franchise Handbook, to
    which the Franchise Agreement refers, states that the cost-sharing mechanism
    will apply in most circumstances, suggesting it will not always apply. He
    noted that the Franchise Agreement provides that it is subject to the
    provisions of all regulating statutes, which includes the Act.

[21]

The
    application judge ordered Union to pay the full cost of the gas pipeline
    relocation. The clear and unambiguous language of the engineers report was
    that Union would bear the full cost of any utility relocation, and Union did
    not appeal the report despite a right to do so under s. 48 of the Act.

DISCUSSION AND ANALYSIS

[22]

In
    my view the application judge erred in his analysis and in the result. First, I
    address his conclusion that the Act overrides the provisions of the Franchise
    Agreement.

[23]

The
    foundation of this conclusion is the application judges interpretation of
Seidel
as standing for a general principle that no mere contract
inter
    partes
can take away that which the law has conferred. There is no such
    general principle, and the application judge was not correct in his
    interpretation of what was said, or quoted from, in
Seidel.

[24]

In
Seidel
the court considered whether a provision in a cell phone
    service agreement requiring arbitration of claims was enforceable when B.C.
    consumer protection legislation expressly prohibited contracting out of its
    terms. In the course of the minority judgment, and before turning to the modern
    approach to arbitration, LeBel and Deschamps JJ. described the courts
    traditional hostility towards arbitration, as contrary to public policy,
    because it was seen to challenge the jurisdiction of the courts. It was in this
    context that they quoted a passage from the 1918 decision in
Brand
which
    stated in part:

The true ground for holding that the jurisdiction of the courts
    cannot be ousted by an agreement between parties is that the courts derive
    their jurisdiction either from the statute or common law, and no mere contract
    inter partes can take away that which the law has conferred.

[25]

The
    traditional view that parties could not, by contracting for arbitration, oust
    the jurisdiction of the courts, has been overtaken by modern authorities,
    including
Seidel
itself, recognizing that arbitration clauses will be
    enforced absent legislative language to the contrary (at para. 42).

[26]

The
    application judge took a part of the quotation noted above out of context as
    authority that parties cannot contract out of statutory provisions. As
    discussed below, the law is to the contrary.

[27]

In
Ontario (Human Rights Commission) v. Etobicoke (Borough)
, [1982] 1
    S.C.R. 202, at para. 19, the Supreme Court endorsed the principle that parties
    can contract out of benefits conferred by statute, unless it would be contrary
    to public policy or prohibited by the statute itself. In that case, a provision
    of a collective agreement that was contrary to the
Ontario Human Rights
    Code
, R.S.O. 1970, c. 318, s. 4(6),

was unenforceable. Similarly, in
Seidel
a provision requiring the
    arbitration of disputes was unenforceable against consumers because of the
    relevant B.C. consumer protection legislation. See also
Fleming v. Massey
,
    2016 ONCA 70, 128 O.R. (3d) 401, leave to appeal to SCC refused, 2016
    CarswellOnt 9353, in which this court stated that courts should exercise
    extreme caution in interfering with the freedom to contract on the grounds of
    public policy before concluding that employers and workers could not contract
    out of the workers compensation regime absent a contrary legislative
    indication (at para. 34).

[28]

Second,
    the application judge, informed by his first error, did not go on to consider
    whether the Franchise Agreement cost-sharing provisions applied to the parties
    dispute.

[29]

The correct approach therefore is: first, to consider
    whether the Act would

prohibit contracting out of s. 26, and whether
    it would be contrary to public policy to recognize an agreement that does so;
    and second, to interpret the Franchise Agreement itself, to determine whether
    there is anything in the contract that would take the parties out of the
    cost-sharing mechanism to which they have agreed, in the case of drainage works
    undertaken under the Act.

[30]

The
    first issue, whether the Act prohibits contracting out of s. 26, can be
    addressed in short course. The application judge characterized the Act as a
    complete and comprehensive code with regard to who does what and who pays for
    what, in support of his conclusion that the provisions of the Act override the
    parties agreement. The issue here however is whether the Act expressly, or by
    necessary implication, would prohibit a utility and a municipality from
    arriving at their own agreement respecting the sharing of costs, where the
    construction of the drainage works requires the relocation of a pipeline. I see
    nothing in the legislative scheme that would preclude such a cost-sharing
    agreement in circumstances where the utility is required by the municipality to
    alter its pipeline to accommodate drainage works. Enforcement of the parties
    contractual cost-sharing agreement would not undermine the detailed procedures
    set out in the Act, for the proposal, planning and approval of drainage works,
    and the sharing of the municipalitys own costs. Indeed, as the application
    judge noted, referring to a 1986 OEB report, the cost-sharing mechanism in s.
    12 was developed by the OEB as a disincentive to municipalities to require gas
    pipeline relocation.

[31]

And
    there is nothing in the legislative scheme to suggest that the ability to
    contract for the allocation of relocation costs between a municipality and a
    utility is contrary to public policy. In approving this specific Franchise
    Agreement, the OEB explicitly found that the agreement was in the public
    interest in a Decision and Order dated September 16, 2004. The Act is not a
    public policy statute, a point that was acknowledged in argument by the
    respondent.

[32]

Once
    it is determined that the Act does not prohibit contracting out of its cost-allocation
    provisions, and that contracting out would not be contrary to public policy,
    the question is whether the Franchise Agreement applies to the current dispute.

[33]

The
    Franchise Agreement provides for the sharing of the utilitys costs occasioned
    by municipal works. Municipal works, which is not defined in the Franchise
    Agreement, is a broad term that, given its ordinary meaning, would include drainage
    works undertaken by a municipality. Municipal drainage works are approved,
    constructed, repaired and maintained by a municipality (see ss. 4, 5, 8, 58 and
    74 of the Act). Section 5(g) of the Franchise Agreement specifically refers to
    gas systems affecting a municipal drain, and accordingly contemplates that
    drainage works are part of the municipal works covered by the agreement. There
    is nothing in the Franchise Agreement that would exclude drainage works from
    municipal works, or that would remove from its cost-sharing provisions the
    drainage works undertaken by Norwich in this case.

[34]

The
    Franchise Agreement describes the cost-sharing mechanism in clear language and
    it unambiguously applies when a municipality requests relocation of a gas system
    to accommodate
any
municipal works. Section 13 does not assist Norwich
    in its argument that the Act, and not the Franchise Agreement, would apply to
    this dispute. That section provides that the Franchise Agreement is subject to
    the provisions of all regulating statutes and municipal by-laws of general
    application, but specifically excludes by-laws which have the effect of
    amending [the] Agreement. The appellant says, without relying on any
    authority, that the Act is a regulating statute to which the Franchise
    Agreement is subject, and therefore overrides the provisions of the agreement.
    I disagree. I would interpret regulating statute in the context of this
    agreement, as referring to health and safety, environmental and other like
    statutes that would regulate the construction of and work on a gas system by
    the utility within the regional municipality. Section 13 does not exempt the
    parties from the cost-allocation provisions to which they have agreed. As for
    by-laws, the intention is clear (and the respondent acknowledges) that any
    by-law (including the one passed in this case approving the engineers report),
    would be unenforceable if it sought to impose an assessment of costs other than
    that to which the parties agreed. As such, the Franchise Agreement would
    override Norwichs by-law approving the engineers report to the extent it purported
    to assess Union for the entire cost of relocating its pipeline.

CONCLUSION AND DISPOSITION

[35]

The
    appellant argued forcefully that s. 26 would apply to the increased cost of the
    drainage works to the municipality, but not to the relocation of a gas system
    required as a result of drainage works, which work could only by statute be
    performed by the utility. It is not necessary for the disposition of this
    appeal to determine this issue. The cost-sharing mechanism in the Franchise
    Agreement prevails over any assessment that was or could have been made under
    the Act, against the utility, as a result of the relocation of its pipeline to
    accommodate the municipal work undertaken here.

[36]

For
    these reasons I would allow the appeal, and substitute for the application
    judges order an order declaring that Norwich is required to pay Union 35% of
    the total costs to relocate Unions gas system; declaring that Union is not
    subject to an assessment under s. 26 of the Act

for such costs; and
    directing Norwich to pay Union $26,808.39 plus prejudgment and post-judgment
    interest in accordance with ss. 128 and 129 of the
Courts of Justice Act
, R.S.O. 1990, c. C.43
.
I would
    set aside the application judges order for costs in favour of Norwich, and substitute
    an order requiring Norwich to pay Union the costs of the application in the sum
    of $18,000 inclusive of HST and disbursements. I would order costs of the
    appeal to Union, to be paid by Norwich, in the agreed sum of $23,000, also
    inclusive of HST and disbursements, with no costs sought by or awarded to the
    OEB.

K. van Rensburg J.A.

I agree H.S. LaForme
    J.A.

I agree S.E. Pepall
    J.A.

Released: January 10, 2018


