2017 ONSC 2033
DIVISIONAL COURT FILE NO.: 243/16 DATE: 20170330
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
LEDERMAN, NORDHEIMER and MCCARTHY JJ.
BETWEEN:
UNION GAS LIMITED Appellant
– and –
THE MUNICIPAL PROPERTY ASSESSMENT CORPORATION, THE CITIES OF BELLEVILLE, BURLINGTON, DRYDEN, HAMILTON, KINGSTON, NORTH BAY, AND TEMISKAMING SHORES; THE TOWNS OF BRACEBRIDGE, COCHRANE, GRAVENHURST, GREENSTONE, HEARST, IROQUOIS FALLS, AND SMOOTH ROCK FALLS; THE TOWNSHIPS OF COLEMAN, EDWARDSBURGH/CARDINAL, EVANTUREL, LEEDS AND THE THOUSAND ISLANDS, LOYALIST, MATTICE-VAL CȎTÉ, NIPIGON, ORO-MEDONTE, PAPINEAU-CAMERON, SEVERN, SOUTH DUNDAS, SOUTH STORMONT; THE LOCALITY OF KIRKLAND LAKE; THE LOCALITY EDUCATION OF TIMISKAMING; and THE MUNICIPALITIES OF PORT HOPE AND TEMAGAMI Respondent in appeal (Respondents)
Peter A. Milligan and Jamie G. Walker, for the Appellant Donald G. Mitchell, for the Respondent, The Municipal Property Assessment Corporation
HEARD at Toronto: March 30, 2017
NORDHEIMER J. (Orally)
[1] Union Gas Limited appeals, with leave, from a decision of the Assessment Review Board (the “Board”) dated April 19, 2016. In that decision, the Board dismissed the appellant’s appeal which sought a determination that thirty-two natural gas ‘gate station’ properties were correctly classified under the Commercial Property Class rather than the Industrial Property Class for the purposes of subparagraph 6(1)1.i of O. Reg. 282/98 (the “Regulation”) under the Assessment Act, R.S.O. 1990, c. A.31, as amended.
[2] In granting leave to appeal, two questions were stated for determination. The two questions are:
Does a legal requirement to do something to render a product deliverable make the product more marketable within the meaning of the test for “processing anything”?
In considering the test for “processing anything”, is it necessary to establish the purpose of a particular activity and determine, from an economic point of view, whether the activity increases the worth or value of the product or item in question?
[3] The appellant is in the business of distributing pipeline quality natural gas throughout the Province of Ontario to its residential and small commercial customers. As part of this, it operates the thirty-two natural gas gate station properties, which function as distribution sites for the gas.
[4] Before pipeline quality natural gas can be distributed to consumers, the Province requires that a foul smelling odorant be added to the gas so that it can be easily detected in the event of a leak.
[5] The thirty-two natural gas gate station properties were historically assessed in the Commercial Property Class but, in 2013, this classification was altered to Industrial Property Class. The basis for the change was that the respondent concluded that the adding of the odorant constituted “processing” within the meaning of the Regulation.
[6] Section 6(1)1.i of the Regulation reads:
The industrial property class consists of the following:
- Land used for or in connection with,
i. manufacturing, producing or processing anything,
[7] The parties are in agreement that the test for “processing anything” is two-fold. It asks:
(a) whether the process changes the product in its form, appearance, or nature; and
(b) whether the process makes the product more marketable.
[8] The matter proceeded before the Board by way of an agreed statement of facts. The Board found that the addition of an odorant to natural gas is a process that changes the character of natural gas and makes it significantly more marketable. Consequently, the Board concluded that the appellant’s thirty-two natural gas gate station properties were correctly classified in the Industrial Property Class.
[9] In reaching its decision, the Board placed reliance on an earlier decision of the Board in Enbridge Gas Distribution Inc. v. Municipal Property Assessment Corporation, [2011] O.A.R.B.D. No. 256 which involved essentially the same issue. In Enbridge, the Board also concluded that the property in that case was properly classified in the industrial property class. In this case, the Board acknowledged that it was not bound by the decision in Enbridge, but elected to follow it on the basis that a decision of the Board, that is directly on point, should be followed, unless there is a significant change in circumstances, or there are reasons to doubt the previous decision is correct. The Board found that neither of those exceptions applied.
[10] The appellant’s position is that the decision in Enbridge was wrongly decided. The appellant submits that there are relevant authorities that were not put before the Board that decided Enbridge that, had they been, would have led the Board to reach the opposite conclusion. Principal among those decisions is Harvey C. Smith Drugs Ltd. v. Minister of National Revenue, [1994] F.C.J. No. 1899 (C.A.); affirming [1992] F.C.J. No. 358 (T.D.); affirming 1986 7450 (TCC), [1986] 1 C.T.C. 2339 (T.C.C.).
[11] The issue in Smith was whether the activities of pharmacists in dispensing drugs, that involved separating smaller quantities of capsules or tablets from large bulk quantities of capsules or tablets, and placing them into containers before they were sold to a customer, constituted processing. All three levels of court in Smith concluded that the activities of the pharmacist did not constitute processing. For example, in the Trial Division decision, Reed J. said, at para. 22:
I agree with Brulé J. in the Tax Court that the pharmacists’ dispensing activities cannot be classified as processing because there is no change in the form or appearance or other characteristic of the tablets and capsules which are actually sold.
[12] However, Reed J. disagreed with the Tax Court on the issue of whether the activities of the pharmacist made the drugs “more marketable”. On that point, she said, at para. 23:
I have no doubt that the activity engaged in by the pharmacist renders the prescription drugs more marketable. Indeed, they cannot be sold to the ultimate consumer without the dispensing activity.
This latter conclusion was not the subject of any ruling by the Federal Court of Appeal.
[13] The Board considered the decision in Smith and two other tax court decisions that had followed it. The Board concluded that those decisions were not determinative of the issue before it. The Board also noted that the marketability issue had been decided by the Trial Division against the position taken by the appellant.
[14] The appellant accepts that the standard of review to be applied to the Board’s decision is reasonableness. The Board is interpreting its home statute, namely, the Assessment Act and Regulation. Consequently, the reasonableness standard applies: Alberta (Information and Privacy Commissioner) v. Alberta Teachers' Association, 2011 SCC 61, [2011] 3 S.C.R. 654, at para. 39.
[15] The appellant does not dispute that the first part of the test for “processing anything” is met. It is clear that adding the odorant constitutes a change in the characteristics of the product, to use the words from Reed J.’s decision in Smith.
[16] Contrary to the appellant’s position, I find that the conclusion reached by the Board, that the legal requirement to add the odorant in order to permit the gas to be legally sold renders the gas “more marketable”, is a reasonable one. It is consistent with Reed J.’s finding in Smith. It would seem self-evident that going from no marketability to full marketability makes the product more marketable.
[17] The appellant’s central argument, that the “more marketable” test is not met in this case, because the gas has been presold, has no merit. The gas cannot be delivered to the customer unless and until the odorant is added. Until the gas is delivered, the sale is not complete. The appellant's argument ignores the commercial reality of the situation. It follows that the second part of the test is also met.
[18] Consequently, I conclude that the decision of the Board, that the activities of the appellant at its thirty-two natural gas gate stations involve processing, and are properly assessed as Industrial Property Class, is a reasonable one.
[19] In the end result, for the above reasons, I would answer the first question “Yes” and the second question “No”.
[20] Before concluding, the judge who granted leave to appeal asked the parties to address the test that should be applied to granting leave in a situation such as this, namely, where there is a motion for leave to appeal on an issue where the standard of review to be applied to the decision, if leave is granted, would be a standard of review of reasonableness. Should the test on the leave application be good reason to doubt the correctness of the decision (as has been historically applied to all leave applications) or should it be good reason to doubt the reasonableness of the decision?
[21] The appellant acceded to the leave judge’s request and addressed the issue in its factum. The respondent did not. The respondent’s position is that the issue does not arise in this case and therefore should not be considered. The appellant ultimately agreed with the respondent.
[22] I also agree with the respondent. Absent a real issue between the parties regarding the basis upon which leave was granted, and a full argument on the issue, I do not believe that this court should weigh in on the issue. I would note, however, in passing, that the question of the standard to be applied on a leave motion may not be the same in every case, depending on the issue upon which leave to appeal is sought. While the decisions of tribunals are generally subject to a reasonableness standard, they are also subject to a correctness standard in certain defined situations.
[23] The appeal is dismissed.
costs – Lederman J.
[24] I have endorsed the Appeal Book and Compendium as follows: “This appeal is dismissed for oral reasons delivered by Nordheimer J. Counsel have agreed upon the quantum of costs. The Appellant will pay costs to the Respondents fixed in the amount of $12,500 for the appeal and leave application, all inclusive.”
___________________________ NORDHEIMER J.
I agree
LEDERMAN J.
I agree
MCCARTHY J.
Date of Reasons for Judgment: March 30, 2017
Date of Release: March 31, 2017
CITATION: Union Gas Limited v. The Municipal Property Assessment Corporation, 2017 ONSC 2033
DIVISIONAL COURT FILE NO.: 243/16 DATE: 20170330
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
LEDERMAN, NORDHEIMER and MCCARTHY JJ.
BETWEEN:
UNION GAS LIMITED Appellant
– and –
THE MUNICIPAL PROPERTY ASSESSMENT CORPORATION, THE CITIES OF BELLEVILLE, BURLINGTON, DRYDEN, HAMILTON, KINGSTON, NORTH BAY, AND TEMISKAMING SHORES; THE TOWNS OF BRACEBRIDGE, COCHRANE, GRAVENHURST, GREENSTONE, HEARST, IROQUOIS FALLS, AND SMOOTH ROCK FALLS; THE TOWNSHIPS OF COLEMAN, EDWARDSBURGH/CARDINAL, EVANTUREL, LEEDS AND THE THOUSAND ISLANDS, LOYALIST, MATTICE-VAL CȎTÉ, NIPIGON, ORO-MEDONTE, PAPINEAU-CAMERON, SEVERN, SOUTH DUNDAS, SOUTH STORMONT; THE LOCALITY OF KIRKLAND LAKE; THE LOCALITY EDUCATION OF TIMISKAMING; and THE MUNICIPALITIES OF PORT HOPE AND TEMAGAMI Respondent in appeal (Respondents)
ORAL REASONS FOR JUDGMENT
NORDHEIMER J.
Date of Reasons for Judgment: March 30, 2017
Date of Release: March 31, 2017