Snopko et al. v. Union Gas Ltd. et al. [Indexed as: Snopko v. Union Gas Ltd.]
100 O.R. (3d) 161
2010 ONCA 248
Court of Appeal for Ontario,
Sharpe, MacFarland and Watt JJ.A.
April 7, 2010
Courts -- Jurisdiction -- Ontario Energy Board having exclusive jurisdiction with respect to compensation to owners of property overlaying natural gas storage area -- Superior Court of Justice not having jurisdiction to hear action for damages for breach of contract, negligence, nuisance and unjust enrichment where those claims were essentially for just and equitable compensation in respect of gas or oil rights or right to store gas or for just and equitable compensation for any damage resulting from exercise of authority given by designation order -- Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sch. B, s. 38.
The plaintiffs were rural landowners whose lands formed part of a natural gas storage pool operated by the defendant U Ltd. They entered into petroleum and natural gas leases in the 1970s with the defendant R Ltd., which were later assigned to U Ltd. They brought an action against both defendants alleging breach of contract, negligence, unjust enrichment and nuisance. U Ltd. moved for summary judgment dismissing the action against it on the ground that the Superior Court had no jurisdiction to entertain the claim as it fell within the exclusive jurisdiction of the Ontario Energy Board. The motion was granted. The plaintiffs appealed.
Held, the appeal should be dismissed.
Under the Ontario Energy Board Act, 1998, the Board has broad jurisdiction to regulate the storage of natural gas, to designate an area as a gas storage area, to authorize the injection of gas into that area, and to order the person so authorized to pay just and equitable compensation to the owners of the property overlaying the storage area. Section 38(3) of the Act provides that no civil proceeding may be commenced in order to determine that compensation. The legal characterization of the plaintiffs' claims did not determine the Board's jurisdiction. It is the substance, not the legal form of the claim, that should determine the issue of jurisdiction. If the substance of the claim falls within the ambit of s. 38, the Board has jurisdiction, whatever legal label the claimant chooses to describe it. The claims asserted by the plaintiffs all fell within the language of s. 38(2) as claims for "just and equitable compensation in respect of the gas or oil rights or the right to store gas" or for "just and equitable compensation for any damage necessarily resulting from the exercise of the authority given by the [designation] order". The Board had exclusive jurisdiction to deal with those claims.
The Matter of an Application by Union Gas Company of Canada and Ontario Natural Gas Storage to inject gas into, store gas in and remove gas from the designated gas storage area known as Dawn #156 Pool (1962), E.B.O. 1; The Matter of certain applications to the Ontario Energy Board in respect of the Bentpath Pool (1982), E.B.O. 64(1) & (2); Wellington and Imperial Oil Ltd. (Re), 1969 CanLII 493 (ON SC), [1970] 1 O.R. 177, [1969] O.J. No. 1438, 8 D.L.R. (3d) 29 (H.C.J.), consd
APPEAL from the summary judgment of Desotti J. of the Superior Court of Justice dated January 6, 2009 dismissing an action.
Statutes referred to Limitations Act, 2002, S.O. 2002, c. 24, Sch. B [as am.] Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sch. B, ss. 19, 36.1(1)--38 [as am.], (2), (3) [page162]
Donald R. Good, for appellants. Crawford Smith, for respondents.
The judgment of the court was delivered by
[1] SHARPE J.A.: -- This appeal involves a question as to the jurisdiction of the Ontario Energy Board (the "Board"), namely, the extent of the Board's exclusive jurisdiction to deal with legal and factual issues raised by a party claiming damages arising from the use of natural gas storage pools.
Facts
[2] The appellants are landowners in a rural area near the Township of Dawn-Euphemia. Their lands form part of the Edys Mills Storage Pool, one of 19 natural gas storage pools operated by the respondent Union Gas Ltd. ("Union") as part of its integrated natural gas storage and transmission system. Natural gas storage pools are naturally occurring geological formations suitable for the injection, storage and withdrawal of natural gas.
[3] In the 1970s, the appellants (to be read in this judgment where necessary as including the appellants' predecessors in title or interest) entered into petroleum and natural gas leases with Ram Petroleums Ltd. ("Ram"). Those leases granted Ram the right to conduct drilling operations on the appellants' properties in exchange for a monthly royalty payment on all oil produced. In October 1987, the appellants entered into Gas Storage Leases (the "GSLs") with Ram, which ratified the earlier gas and petroleum leases and provided the appellants with a 10 per cent profit share of all of Ram's earnings from storage operations unless the leases were assigned to a third party. The GSLs required the appellants' consent before such an assignment could be made.
[4] In August 1989, the appellants agreed to Ram's assignment of the GSLs to Union. The appellants assert that they consented to the assignment on the understanding, based on representations made by Ram, that they would receive significant crude-oil royalty payments from Union under the earlier leases. However, shortly after the assignment, Union ceased oil production and all royalty payments ceased.
[5] In 1992, the appellant Snopko entered into an amending agreement pursuant to which Union acquired the right to construct certain roadways on her property. In the amending [page163] agreement, Snopko acknowledged receipt of compensation in respect of these roadways while also reserving the right to make a future claim in relation to wells installed by Union.
[6] On November 30, 1992, the Lieutenant Governor in Council issued a regulation designating the Edys Mills Storage Pool as a designated gas storage area. On February 1, 1993, the Board issued a designation order under the predecessor legislation granting Union's application for an order authorizing it to inject, store and remove gas from the Edys Mills Storage Pool, and giving it permission to drill and construct the wells and other facilities necessary to connect the Edys Mills Storage Pool to Union's integrated natural gas storage and transmission system.
[7] Between 1993 and 1999, Union paid the appellants compensation pursuant to the terms of their GSLs and, in the case of the appellant Snopko, pursuant to the 1992 amending agreement. Union also provided compensation to the appellants Lyle and Eldon Knight pursuant to a roadway agreement they had entered into, which provided for certain annual roadway payments.
[8] The Lambton County Storage Association (the "LCSA"), of which the appellants were members at the relevant time, is a volunteer association representing approximately 160 landowners who own property within Union's storage system. In 2000, the LCSA brought an application before the Board seeking "fair and equitable compensation" from Union pursuant to s. 38(3) of the Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sch. B (the "Act"), which requires a party authorized to use a designated gas storage area to make "just and equitable compensation" for the right to store gas or for any damage resulting from the authority to do so.
[9] Union argued that, in the light of the terms of their leases, the appellants had no standing to apply for compensation. In a decision and order dated September 10, 2003, the Board found that Snopko's standing was limited to issues not dealt with in the GSLs and that the appellant McMurphy had no standing.
[10] Before the remaining issues were decided on the merits by the Board, the LCSA and Union settled on the question of just and equitable compensation for all claims arising between 1999--2008 that were or could have been raised at the hearing. On March 23, 2004, the Board approved this settlement by way of a compensation order.
[11] Consistent with the terms of an undertaking given by Union to the Board, Union extended to all LCSA members who did not receive full standing an offer to be compensated on the same terms enshrined in the compensation order. Each of the [page164] appellants accepted. The agreements pertaining to the appellants Lyle and Eldon Knight extend to 2013.
[12] On January 29, 2008, the appellants commenced this action in the Superior Court against both Ram and Union, alleging breach of contract, negligence, unjust enrichment and nuisance.
[13] The appellants advance the following claims against Union: -- breach of contract -- the appellants claim that Union, in breach of their GSLs, has failed to properly compensate them for crop loss and other lost income arising from Union's storage operations (statement of claim, at paras. 26-27); -- unjust enrichment -- the appellants claim that Union has been unjustly enriched by storing gas on and in the appellants' land (statement of claim, at para. 28(b)); -- nuisance -- the appellants claim that Union's storage operations, which have decreased the profitability of their land, caused damage to their land and decreased their enjoyment of the land, constitute a nuisance (statement of claim, at para. 36); -- negligence -- the appellants claim that due to Union's storage operations, oil has not been produced from the Edys Mills Storage Pool since 1993 and, as a result, the appellants have not received royalty payments since that time (statement of claim, at para. 37(c)); and -- termination of contract -- the appellants seek a declaration that their GSLs were terminated in 2006, along with compensation from Union on the basis that it is storing gas without a contract (statement of claim, at paras. 34-35).
[14] The claim against Ram is framed in misrepresentation, negligence, breach of contract and unjust enrichment. More importantly, the appellants plead that the agreement permitting Ram to assign the GSLs should be set aside on grounds of unconscionability.
[15] In September 2008, Union moved for summary judgment dismissing the action against it on several grounds, namely: (i) that the Superior Court has no jurisdiction to entertain the claim, as it falls within the exclusive jurisdiction of the Board; (ii) that the claims are statute-barred under the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B (the "LTA"); and (iii) that the [page165] claims are barred by the doctrines of res judicata or abuse of process.
[16] Ram took no part in the motion for summary judgment and the claims advanced against it by the appellants remain outstanding.
Legislation
[17] The Act provides as follows with respect to the regulation of gas storage areas:
Gas storage areas
36.1(1) The Board may by order, (a) designate an area as a gas storage area for the purposes of this Act; or (b) amend or revoke a designation made under clause (a).
Transition
(2) Every area that was designated by regulation as a gas storage area on the day before this section came into force shall be deemed to have been designated under clause (1)(a) as a gas storage area on the day the regulation came into force.
Prohibition, gas storage in undesignated areas
- No person shall inject gas for storage into a geological formation unless the geological formation is within a designated gas storage area and unless, in the case of gas storage areas designated after January 31, 1962, authorization to do so has been obtained under section 38 or its predecessor.
Authority to store
38(1) The Board by order may authorize a person to inject gas into, store gas in and remove gas from a designated gas storage area, and to enter into and upon the land in the area and use the land for that purpose.
Right to compensation
(2) Subject to any agreement with respect thereto, the person authorized by an order under subsection (1), (a) shall make to the owners of any gas or oil rights or of any right to store gas in the area just and equitable compensation in respect of the gas or oil rights or the right to store gas; and (b) shall make to the owner of any land in the area just and equitable compensation for any damage necessarily resulting from the exercise of the authority given by the order.
Determination of amount of compensation
(3) No action or other proceeding lies in respect of compensation payable under this section and, failing agreement, the amount shall be determined by the Board. [page166]
Appeal
(4) An appeal within the meaning of section 31 of the Expropriations Act lies from a determination of the Board under subsection (3) to the Divisional Court, in which case that section applies and section 33 of this Act does not apply.
[18] In addition, s. 19 of the Act provides as follows:
Power to determine law and fact
19(1) The Board has in all matters within its jurisdiction authority to hear and determine all questions of law and of fact.
Disposition of the Motion Judge
[19] The motion judge granted Union's motion for summary judgment and dismissed the claim on jurisdictional grounds. The motion judge followed the decision of Pennell J. in Wellington and Imperial Oil Ltd. (Re), 1969 CanLII 493 (ON SC), [1970] 1 O.R. 177, [1969] O.J. No. 1438 (H.C.J.), at pp. 183-84 O.R.:
[I]n many cases where a dispute arises as to the amount of compensation, the first thing a board of arbitration has to do is to inquire what were the subsisting rights at the time the right to compensation arose; and that in some cases such inquiry would necessarily involve the interpretation of agreements in which the subsisting rights were embodied. . . . . .
It is with reluctance that I conclude that the Legislature has taken away the prima facie right of a party to have a dispute determined by declaration of the Court.
[20] The motion judge concluded that s. 38 conferred exclusive jurisdiction on the Board to decide all issues pertaining to compensation from the operation of the gas storage operation and that the appellants' claims fell within that exclusive jurisdiction. Accordingly, he dismissed the appellants' action.
Issue
[21] While Union submits that the appellants' claims should be dismissed on several grounds, the central issue on this appeal is whether the motion judge erred in concluding that the Superior Court has no jurisdiction to entertain those claims against Union.
Analysis
[22] Under the Act, the Board has broad jurisdiction to regulate the storage of natural gas, to designate an area as a gas storage area, to authorize the injection of gas into that area, and to order the person so authorized to pay just and equitable compensation to the owners of the property overlaying the storage [page167] area. Moreover, s. 38(3) provides that no civil proceeding may be commenced in order to determine that compensation.
[23] The appellants concede that if their claim arose simply from an inability to agree with Union on the amount of compensation, s. 38(3) of the Act grants the Board exclusive jurisdiction. They submit, however, that as their claim attacks the validity of agreements relied upon by Union and alleges breach of contract, negligence, unjust enrichment and nuisance, it falls outside the ambit of s. 38 or, at the very least, there is a triable issue as to jurisdiction that should not have been decided on a motion for summary judgment.
[24] I am unable to accept the appellants' submission that the legal characterization of their claims determines the issue of the Board's jurisdiction. It is the substance, not the legal form of the claim, that should determine the issue of jurisdiction. If the substance of the claim falls within the ambit of s. 38, the Board has jurisdiction, whatever legal label the claimant chooses to describe it. As Pennell J. stated in Wellington and Imperial Oil Ltd. (Re), at p. 183 O.R., "whatever may be the form of the issue presented . . . it is in substance a claim for compensation in respect of a gas right and damages necessarily resulting from the exercise of the authority given by virtue of the order of the Ontario Energy Board".
[25] The claims advanced by the appellants in the statement of claim all arise from Union's operation of the Edys Mills Storage Pool. The claim for breach of contract asserts that Union has failed to compensate the appellants for crop loss and other lost income arising from Union's storage operations. The claim for unjust enrichment asserts that Union "is enriched by storing gas on and in the Plaintiffs' land and is enriched by having oil located in the Plaintiffs' land left in place". The nuisance claim asserts that "Union's gas storage operation unreasonably interferes with [the plaintiffs'] enjoyment of their land." The negligence claim asserts that Union "was negligent in their gas storage operations", thereby causing harm to the appellants. Finally, the appellants alleged that Union has been storing gas without a contract.
[26] In my view, in substance, these are all claims falling within the language of s. 38(2) as claims for "just and equitable compensation in respect of the gas or oil rights or the right to store gas", or for "just and equitable compensation for any damage necessarily resulting from the exercise of the authority given by the [designation] order".
[27] Section 19 provides that, in the exercise of its jurisdiction, the Board has "in all matters within its jurisdiction authority to [page168] hear and determine all questions of law and of fact". This generous and expansive conferral of jurisdiction ensures that the Board has the requisite power to hear and decide all questions of fact and of law arising in connection with claims or other matters that are properly before it. This includes, inter alia, the power to rule on the validity of relevant contracts and to deal with other substantive legal issues.
[28] In response to the court's invitation to make written submissions on the jurisdictional issue, counsel for the Board advised us that the jurisprudence of the Board supports an expansive interpretation of its jurisdiction under its enabling statute, which would include the ability to determine the validity of compensation contracts. In The Matter of certain applications to the Ontario Energy Board in respect of the Bentpath Pool (1982), E.B.O. 64(1) & (2), the Board held, at p. 33, that it "does have the power, as part of its broader administrative function, to determine the validity of contracts" for the purpose of determining the appropriate compensation to be paid to a landowner under what is now s. 38 of the Act. I agree with the respondent that Bentpath and Wellington and Imperial Oil Ltd. (Re) supersede the Board's earlier decision in The Matter of an Application by Union Gas Company of Canada and Ontario Natural Gas Storage to inject gas into, store gas in and remove gas from the designated gas storage area known as Dawn #156 Pool (1962), E.B.O. 1.
[29] By precluding other actions or proceedings with respect to claims falling within the ambit of s. 38(2) of the Act, s. 38(3) precludes the courts from, in effect, usurping the jurisdiction of the Board by entertaining claims that it is empowered to decide. I agree with Union's submission that, to endorse the appellants' position by holding that the Board's jurisdiction could be avoided by virtue of the legal characterization of the cause of action asserted, would defeat the intention of the legislature.
[30] In my view, the motion judge did not err in concluding that this was a proper case for summary judgment. The issue of jurisdiction is an issue of pure law and the motion judge was correct in dealing with it by way of summary judgment.
[31] As the appeal must be resolved on the basis that the Board has exclusive jurisdiction to determine all issues of law and of fact arising from the appellants' claim against Union, it is unnecessary for me to deal with the alternative grounds for dismissal of the claim advanced by Union. [page169]
Disposition
[32] For these reasons, I would dismiss the appeal with costs to the respondent fixed at $7,306.73, inclusive of GST and disbursements.
Appeal dismissed.