COURT OF APPEAL FOR ONTARIO

CITATION: Metrolinx v. Enbridge Gas Distribution Inc., 2015 ONCA 429

DATE: 20150615

DOCKET: C59191

MacPherson, Epstein and Roberts JJ.A.

BETWEEN

Metrolinx

Applicant (Respondent)

and

Enbridge Gas Distribution Inc.

Respondent (Appellant)

Cynthia R.C. Sefton and Meghan Cowan, for the appellant

Wendy J. Earle and Matthew Furrow, for the respondent

Heard: June 9, 2015

On appeal from the judgment of Justice Edward M. Morgan of the Superior Court of Justice, dated July 17, 2014.

Epstein J.A.:

OVERVIEW

[1] The respondent, Metrolinx,[^1] purchased from the Canadian National Railway Company (“CN”) a corridor on which Metrolinx operates a railway. The appellant, Enbridge Gas Distribution Inc., owns six gas pipelines that run along municipal road allowances and cross under the Metrolinx railway. Metrolinx asked that the six pipelines be relocated. A dispute arose over which party, Metrolinx or Enbridge, should bear the relocation costs.

[2] The application judge examined the relevant agreements and came to two main conclusions. First, the agreements between CN and Enbridge’s predecessor provided that Enbridge was responsible for the costs of relocating the six pipelines. Second, in the sale from CN to Metrolinx, Metrolinx assumed all of CN’s rights and obligations: these rights and obligations included the ability of Metrolinx to require Enbridge to pay the relocation costs in issue.

[3] Enbridge appeals.

[4] First, Enbridge argues that CN only had a contractual right to require that Enbridge pay to relocate pipelines on CN owned lands, not on municipal road allowances. Second, even if CN had such a right, CN did not convey these rights to Metrolinx. Enbridge submits that the application judge erred in law in holding otherwise.

[5] For the reasons that follow, I see no reason to interfere with the application judge’s analysis or conclusion.

ANALYSIS

[6] The resolution of the divide between the parties rests on the interpretation of three complex agreements relating to the arrangements between CN, subsequently Metrolinx, and Enbridge.

(a) The Master Utility Agreement – January 1, 1997

[7] On January 1, 1997, CN and Enbridge’s predecessor entered into an agreement referred to as the Master Utility Agreement (the “MUA”). The purpose of the MUA was to consolidate previous agreements relating to areas in which gas pipelines cross beneath CN’s railways.

[8] The first issue on appeal is whether, under the terms of the MUA, CN was entitled to require Enbridge to pay the costs associated with relocating the six pipelines. This depends on the definition of “Crossing” in the MUA. Specifically, do the locations at which the six pipelines at issue cross underneath CN’s railways, which are located on municipal road allowances, constitute “Crossings” under the terms of the MUA?

[9] The MUA defines “Crossing” or “Crossings” in art. 1.1 as the “pipeline or pipelines… of [Enbridge] which cross, more or less, perpendicularly on, over or under the Right-of-Way of [CN].”

[10] “Right-of-Way” is in turn defined in art. 1.4 as “the lands of [CN] now or formerly used as corridors for the movement of trains.”

[11] Enbridge submits that the definition of “Crossing” excludes the six crossings at issue in this litigation. Enbridge points out that the definition of “Crossing” refers to pipelines that cross under CN’s “Right-of-Way”, which in turn is defined as lands of CN. Since the pipelines run under municipal road allowances, not lands of CN, the pipelines are not “Crossings” within the terms of the MUA.

[12] I disagree.

[13] Under the “APPLICATION” section of the MUA, art. 4.1 provides that, “This Agreement shall apply to all Crossings already established as referred to in Schedule “A”…”. Schedule A contains a list of all railway crossings to which the MUA applies. Enbridge has admitted that the six crossings in issue are included in Schedule A.

[14] In my view, art. 4.1 indicates that the six crossings at issue in this appeal qualify as “Crossings” for the purposes of the MUA. They are “Crossings already established” under art. 4.1. Therefore, these “Crossings” are governed by the MUA.

[15] As the application judge noted, art. 6.1 of the MUA provides that the removal and alteration of the “Crossings” is governed by a document called the “Railway Guidelines”, which is incorporated by reference. The “Railway Guidelines” are defined in art. 1.9 of the MUA as “the Guide to Pipe and Wire Process which has been provided to [Enbridge].” Significantly, the relevant portion of this guide provides that Enbridge shall pay the cost of modifying any Crossings. Moreover, s. 4 of Appendix “D” of the guide further provides that Enbridge shall pay the cost of modifying any Crossings not simply for lands owned by the Railway but “for the purposes of alterations in Railway Property, facilities or operations of the Railway.” “Railway Property” is defined in the first paragraph of the MUA’s preamble as “the right-of-way, tracks or other property owned or controlled by the Railway.”

[16] The interpretation Enbridge urges is not supported by the wording of the MUA. Moreover, it would represent a change in the historical financial arrangements between the parties of such significance that the MUA would, one would think, contain express wording to this effect.

[17] I agree with the application judge that, under the MUA, the six pipelines in issue are “Crossings”. It follows that CN had the right to require Enbridge to pay the cost of relocating the pipelines.

(b) The Agreement of Purchase and Sale – March 31, 2009

[18] On March 31, 2009, CN and Metrolinx entered into an agreement of purchase and sale (the “APS”) whereby CN sold to Metrolinx the railway corridor where the six pipelines in issue are located.

[19] The second issue on appeal is whether, as part of this transaction, CN also conveyed to Metrolinx the right to require Enbridge to pay to relocate the six pipelines.

[20] To resolve this issue, the question that must be answered is whether CN’s right to demand that Enbridge pay for the pipeline relocation in issue is a “Crossing Agreement” within the meaning of the APS.

[21] “Crossing Agreements” are defined in art. 1.01 of the APS as:

the agreements and orders provided to [Metrolinx] by [CN] permitting access in, over, along, under or with respect to roads, highways and other public access routes connecting the parcels of land comprising the Land and attached hereto as Schedule H. [Emphasis added.]

Article 5.01(12) of the APS reads:

[CN]: (a) to the best of its knowledge, has the lawful right and authority to cross over, under and through all public highways and roads connecting all parcels of land (which parcels collectively comprise the Land) and to operate its trains[,] have railway tracks, ties and related rail equipment on such public roads and highways, (b) has the lawful right and authority to assign and transfer the private crossing agreements forming part of the Crossing Agreements to [Enbridge] without notice to or approval of any third party or any Authority… [Emphasis added.]

[22] While the definition of “Crossing Agreements” in art. 1.01 of the APS is not entirely clear, the term acquires greater clarity from Schedule H of the APS, which is incorporated into the APS by art. 1.04.

[23] The use of “Crossing Agreement” in other parts of the APS, particularly Schedule H, makes it apparent that “Crossing Agreement” includes CN’s agreement to require Enbridge to pay the costs of relocating the six pipelines.

[24] In art. 1 of Schedule H, CN gives Metrolinx its “right, title and interest” in the “Crossing Agreements” and “the full benefit of all covenants, agreements, obligations, terms, conditions, representations and warranties of any nature or kind whatsoever arising from or out of or in any way relating to the Crossing Agreements”. In my view, CN’s right to require Enbridge to pay to relocate the pipelines in issue constitutes a covenant or obligation relating to the Crossing Agreements, the “full benefit” of which has been assigned to Metrolinx.

[25] Accordingly, based on the terms of the APS, including Schedule H, CN gave Metrolinx the right to require Enbridge to remove the pipelines at Enbridge’s expense. This conclusion is confirmed with reference to a third agreement, to which I now turn.

(c) The General Assignment and Assumption Agreement – March 30, 2011

[26] On March 30, 2011, the parties entered into a General Assignment and Assumption Agreement (the “GAAA”), a document that appears to be a follow-up agreement to the APS. Although the GAAA was signed in 2011, it had an effective date of March 31, 2009. The GAAA reinforces the conclusion that Metrolinx is entitled to require Enbridge to pay the costs of relocating the pipelines in issue. In the words of the application judge, the GAAA “[made] it clear, in case anything was left out of the [APS] and the Schedule H Agreement, that everything CN had relating to the stretch of track at issue has been assigned to Metrolinx.”

[27] Article 1 of the GAAA provides:

[CN] does hereby assign, set over and transfer to [Metrolinx]… all of the right, title and interest of [CN] in and to the Assigned Agreements and Rights together with the full benefit of all covenants, agreements, obligations, terms, conditions, representations and warranties of any nature or kind whatsoever arising from or out of or in any way relating to the Assigned Agreements and Rights to the extent that same affect the Rail Lands, as of the 31st day of March, 2009...

[28] “Assigned Agreements and Rights” is defined in the recitals of the GAAA as “various leases and license agreements, crossing agreements and development agreements in relation to Rail Lands” (emphasis added). The term “crossing agreements” is not further defined.

[29] Since “crossing agreements” are not defined in the GAAA, it was open to the application judge to interpret them as including the agreements between CN and Enbridge relating to Enbridge’s pipelines crossing under CN’s railways.

[30] Accordingly, CN and Enbridge’s agreements regarding who bears the cost of moving the pipelines constitute “Assigned Agreements and Rights” under the GAAA. Article 1 of the GAAA says that CN gave Metrolinx “the full benefit of all covenants, agreements, obligations… of any nature or kind whatsoever arising from or out of or in any way relating to the Assigned Agreements and Rights”.

[31] Thus, the GAAA confirms the conclusion that CN gave Metrolinx the right to require Enbridge to remove the pipelines, at Enbridge’s expense.

[32] Finally, I agree with the application judge that the fact that the contracts at issue arose in a federally regulated context does not alter the interpretation of the agreements in issue. As the application judge wrote, “It may well be the case that the Crossing Agreements were an outgrowth of federal regulations that prevailed at the time of their signing. Nevertheless, they are valid contracts, and remain so whether or not the relevant federal regulations continue to govern either of the parties.”

CONCLUSION

[33] The application judge’s decision was based on the interpretation of a number of contracts between the parties and their predecessors. In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, the Supreme Court clarified that contractual interpretation is a question of mixed fact and law as it requires an examination of the agreement in issue as well as the surrounding circumstances known to the parties at the time the contract was entered into.

[34] In limited circumstances, it may be possible to extract a discrete question of law upon which the interpretation depends. However, such circumstances will be rare.

[35] This is not one of them. Here, the application judge examined the wording of the agreements in the light of the surrounding circumstances, including the objective intentions of the parties and the commercial arrangements between them. This was a question of mixed fact and law.

[36] It follows that the application judge’s decision will only be overturned where there has been a palpable and overriding error. And, in my view, the application judge committed no error in interpreting the various agreements as he did and in reaching the conclusions he reached.

[37] The wording of the relevant agreements supports the application judge’s interpretation. Furthermore, the application judge’s reasoning that the intention of CN and Metrolinx when they entered into the APS and especially the GAAA was that Metrolinx would fully “step into the shoes” of CN and assume all of CN’s rights and obligations – and that CN would therefore have no further involvement with the railway property – makes commercial sense.

DISPOSITION

[38] For these reasons, the appeal is dismissed.

[39] In accordance with the agreement of counsel, Metrolinx is entitled to its costs of the appeal fixed at $12,000, inclusive of disbursements and HST.

Released: June 15, 2015 (JCM)

“Gloria Epstein J.A.”

“I agree J.C. MacPherson J.A.”

“I agree L.B. Roberts J.A.”

[^1]: The Greater Toronto Transit Authority was the predecessor to Metrolinx. For the purposes of these reasons, both Metrolinx and the Greater Toronto Transit Authority will be referred to as “Metrolinx”.