Court of Appeal for Ontario
Date: 2025-04-10
Docket: COA-24-CV-0614
Coram: Trotter, Paciocco and Sossin JJ.A.
Between:
The Corporation of the County of Essex (Appellant/Respondent)
and
Enbridge Gas Inc.* and Ontario Energy Board** (Respondents/Appellant*/Respondent**)
Appearances:
- Arlen Sternberg and Jonathan Silver, for the appellant Enbridge Gas Inc.
- David M. Sundin and Josephine Stark, for the respondent the Corporation of the County of Essex
- M. Philip Tunley, for the respondent the Ontario Energy Board
Heard: 2025-02-10
On appeal from the order of the Divisional Court (Justices Harriet E. Sachs, Nancy L. Backhouse and Richard A. Lococo), dated February 12, 2024, with reasons reported at 2024 ONSC 866, allowing an appeal from a decision of the Ontario Energy Board, dated March 30, 2023.
Paciocco J.A.:
Overview
[1] The appellant, Enbridge Gas Inc. (“Enbridge”) has been delivering natural gas to customers in the County of Essex pursuant to a 1957 franchise agreement (the “1957 Agreement”) between its predecessor, Union Gas Company of Canada, and the Corporation of the County of Essex (“Essex”). On March 30, 2023, after finding that this agreement had expired as a result of the rule against perpetuities, the Ontario Energy Board (the “OEB”) granted an application initiated by Enbridge pursuant to s. 10(1) of the Municipal Franchises Act, R.S.O. 1990, c. M.55, and ordered “the renewal of the franchise agreement based on the terms and conditions of the Model Agreement” which it had developed for the distribution, storage, and transmission of gas in Ontario. Essex successfully appealed this order to the Divisional Court. Enbridge now appeals the Divisional Court order.
[2] As I will explain, I would dismiss the appeal. I agree with the Divisional Court that the OEB committed an extricable error of law in finding that the 1957 Agreement had expired due to the rule against perpetuities. Specifically, the OEB decision discloses that it misapprehended the legal concept of a future contingent interest in property that triggers the rule against perpetuities. As a result, the OEB based its decision on an erroneous rule of law.
[3] Enbridge offered alternative arguments as to why the Divisional Court should have found nonetheless that the 1957 Agreement transgressed the rule against perpetuities. Those submissions are not persuasive. In my view, the Divisional Court was correct in overturning the OEB decision and in certifying its opinion to the OEB that the 1957 Agreement had not expired and remains in effect.
[4] In concluding that this appeal must be dismissed I have considered the concerns raised by the OEB about the unacceptable condition of the existing pipeline and the inadequacy of a franchise agreement drafted almost 70 years ago. This decision is made without prejudice to the OEB to use any legitimate statutory powers it may have to ensure public safety and an uninterrupted gas supply. But it is not acceptable for the OEB to claim the authority to do so through a misapplication of the statutory powers granted by s. 10 of the Municipal Franchises Act.
Material Facts
[5] Given the age of its gas pipeline servicing the Windsor corridor, Enbridge developed concerns about its integrity and adequacy. It sought and obtained OEB approval, subject to conditions, to replace and relocate 64 kilometres of the pipeline. Part of that pipeline runs along County Road 46 in the County of Essex, therefore the pending relocation required Essex’s co-operation. But disagreements arose.
[6] First, Essex refused to issue the necessary permits unless Enbridge: (1) removed the existing pipeline instead of abandoning it in place; and (2) agreed to install the new pipeline more deeply than Enbridge had proposed. In a ruling dated November 12, 2020, the Ontario Energy Board resolved the dispute in favour of Enbridge pursuant to s. 101 of the Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sched. B.
[7] Second, the parties disagreed over whether Essex should contribute to the costs of the construction. Under the terms of the 1957 Agreement, Enbridge would be solely responsible for the costs. But under the terms of the Model Franchise Agreement now used for virtually all other gas pipelines in Ontario, the municipal corporation may have to bear responsibility for 35% of the relocation costs. Enbridge proposed to Essex that they should replace their “outdated” 1957 Agreement with the modernized and more comprehensive Model Franchise Agreement, but Essex disagreed.
[8] In response, Enbridge initiated its application pursuant to s. 10(1) of the Municipal Franchises Act for an order approving “the terms and conditions upon which, and the period for which, the County of Essex is, by by-law, to grant Enbridge Gas the right to construct and operate works for the distribution, transmission and storage of natural gas and the right to extend and add to the works”. Section 10 of the Act provides, in material part:
(1) Where the term of a right … to operate works for the distribution of gas has expired or will expire within one year, either the municipality or the party having the right may apply to the Ontario Energy Board for an order for a renewal of or an extension of the term of right.
(2) The Ontario Energy Board has and may exercise jurisdiction and power necessary for the purposes of this section, and if public convenience and necessity appear to require it, may make an order renewing or extending the term of the right for such period of time and upon such terms and conditions as may be prescribed by the Board, or if public convenience and necessity do not appear to require a renewal or extension of the term of the right, may make an order refusing a renewal or extension of the right.
[9] According to its terms, the 1957 Agreement had not expired at the time of Enbridge’s application, and it was not set to expire within the coming year. The provision that addresses the term of the agreement, clause 2, provides:
The rights and privileges hereby granted shall continue and remain in force for a period of ten years from the date hereof and so long thereafter as the said lines are in actual use for the transportation of gas.
[10] Enbridge argued before the OEB that the 1957 Agreement had nonetheless expired by operation of the rule against perpetuities, and that this triggered s. 10 of the Municipal Franchises Act and the power of the OEB to impose the terms of the Model Franchise Agreement. In support of this submission, Enbridge argued that the Divisional Court had already found in Dawn-Euphemia (Township) v. Union Gas Ltd., 2004 CarswellOnt 3909 (Div. Ct.), leave to appeal refused, 2004 CarswellOnt 3861 (C.A.), that an indistinguishably worded franchise agreement conferred a future contingent interest in land that offended the rule against perpetuities. In its March 30, 2023 Decision and Order, the OEB agreed with Enbridge, writing:
If the 1957 Agreement is a perpetual agreement as contended by the County of Essex, there would be no need for a renewal as contemplated by section 10(2). However, the OEB finds that the 1957 Agreement has not vested Enbridge Gas with the perpetual rights and obligations conferred by that agreement. The franchise right is a contingent interest, contingent on the former Union Gas Limited’s (now Enbridge Gas’s) continued transportation of gas, and cannot be held and exercised in perpetuity without a violation of the common law rule against perpetuities. The operation of the rule in Ontario has been confirmed in the provisions of the Perpetuities Act and applied by the Ontario Divisional Court in the decision in Dawn-Euphemia.
[11] Essex appealed this decision to the Divisional Court, which on February 12, 2024 allowed the appeal. The Divisional Court accepted the conclusion in Dawn-Euphemia that “the agreement conferred a franchise right, which was an interest in land akin to an easement” and was therefore subject to the rule against perpetuities, a conclusion which is not in issue before us. However, after cautioning itself that its appellate jurisdiction is confined to legal and jurisdictional errors, and that “an appeal court should exercise caution in identifying extricable questions of law”, the Divisional Court concluded that “in applying the rule against perpetuities in this case, the OEB made an extricable legal error (reviewable on a correctness standard) relating to the nature of the interest that is subject to the rule against perpetuities.”
[12] The Divisional Court also rejected Enbridge’s submission that the OEB was required to follow the Dawn-Euphemia decision. It noted that the reasoning in Dawn-Euphemia on the vesting issue was “more cursory” than its decision that franchise rights are subject to the rule against perpetuities, and that to the extent that it is inconsistent with the principles affirmed in Ottawa (City) v. ClubLink Corporation ULC, 2021 ONCA 847, and Clarke v. Kokic, 2018 ONCA 705, Dawn-Euphemia should not be followed.
Issues
[13] Enbridge argues that the Divisional Court erred by:
a. Permitting Essex to appeal the OEB’s application of the rule against perpetuities to the particular facts of the 1957 Agreement, which is a question of mixed fact and law and therefore not appealable under s. 33 of the Ontario Energy Board Act,
b. Departing from and overruling Dawn-Euphemia in respect of the application of the rule against perpetuities, and
c. Limiting the OEB’s powers to regulate the terms of natural gas franchise agreements in a manner that is inconsistent with the governing statutory framework and powers granted to the OEB.
[14] The OEB supports the first two grounds of appeal and added during oral submissions that even if the OEB used a wrong basis to find that the 1957 Agreement breached the rule against perpetuities, the Divisional Court erred by embarking on its own examination of the factual matrix rather than remitting the matter back to the OEB.
Analysis
A. Did the Divisional Court err by Permitting Essex to appeal a question of mixed fact and law?
[15] The parties agree that pursuant to s. 33 of the Ontario Energy Board Act, the right of appeal to the Divisional Court is limited to questions of law or jurisdiction, and that s. 33 does not permit appeals on questions of mixed fact and law. Questions of law “are questions about what the correct legal test is”, whereas questions of mixed fact and law involve “applying a legal standard to a set of facts”: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para. 49.
[16] However, virtually all legal decisions involve the application of a legal standard to a set of facts. It is therefore too simplistic, and incorrect, to conclude that because an impugned decision involved the application of legal principles to factual findings that decision is impervious to appeal. If a tribunal fails to consider a required element of a legal test when purporting to apply the law to its factual findings it will be committing an extricable error of law: see ClubLink, at para. 30.
[17] In my view, this is the kind of error of law the Divisional Court correctly identified in the present case. As the Divisional Court found, the OEB erred in identifying the nature of the interests that are subject to the rule against perpetuities. As I will explain, by focusing on the duration of the right rather than the time of its vesting, the OEB misunderstood one of the elements of the legal test for a breach of the rule against perpetuities and therefore failed to consider the actual element of the test that applied, resulting in an extricable error of law.
[18] Roberts J.A. addressed the material element of the rule against perpetuities in ClubLink. She began by noting, at para. 2, that “the rule [against perpetuities] arises out of the public policy against the fettering of real property with future interests dependent upon unduly remote contingencies.” However, she made clear that the rule against perpetuities does not address all future contingencies that can affect the enjoyment of property. As she explained in ClubLink, at para. 61, “the public policy purpose of the rule against perpetuities [is] to prevent contingent property interests from vesting too remotely.” Therefore, “[t]he rule does not restrict the duration of property interests, but the length of time that may elapse between the creation of a contingent interest and the vesting of that interest”: Clarke, at para. 15. Put otherwise, so long as an interest in land vests within the perpetuity period, in this case 21 years, the rule against perpetuities will not be infringed even if the duration of enjoyment of that right is limited by the terms of the grant. A property interest will be vested when the taker is ascertained, the interest they are to take is determined, and their right to the property interest is “already acquired”, there being no contingencies or conditions precedent left to satisfy before that interest takes effect: see O’Dell v. Gregory (1895), 24 S.C.R. 661, at p. 663; Re Campeau Family Trust (1984), 44 O.R. (2d) 549 (H.C.), aff’d 50 O.R. (2d) 296 (C.A.); Re Ogilvy (1966), 58 D.L.R. (2d) 385 (Ont. H.C.), at pp. 393-394. McLachlin C.J. put the same concept differently in Tsilhqot’in Nation v. British Columbia, 2014 SCC 44, at para. 111, explaining, “[i]n property law, an interest is vested when no condition or limitation stands in the way of enjoyment” of the interest. The vesting of an interest therefore has nothing to do with limitations on the duration of the enjoyment of that interest once it has been acquired.
[19] However, as I have stated, as the Divisional Court found, the OEB proceeded on the misunderstanding that a term affecting the duration of enjoyment triggered the rule against perpetuities. When the OEB explained its conclusion as to why Enbridge’s franchise rights violated the rule against perpetuities, it directed its explanation solely at clause 2 of the 1957 Agreement, finding that “[t]he franchise right is a contingent interest, contingent on the former Union Gas Limited’s (now Enbridge Gas Inc.’s) continued transportation of gas”. As the Divisional Court pointed out, although clause 2 describes a limitation on the continuation of the franchise right beyond the initial ten-year period, “[t]he rule against perpetuities does not restrict the duration of vested property rights”. Since the OEB relied upon a provision addressing the duration of Enbridge’s right, rather than the vesting of that right, “the OEB made an extricable legal error (reviewable on a correctness standard) relating to the nature of the interest that is subject to the rule against perpetuities.”
[20] In coming to this conclusion, the Divisional Court was not simply describing and responding to a mere error of mixed fact and law. It correctly decided that the OEB misapprehended the requirements of the legal rule it was meant to apply. In my view, the Divisional Court did not err by permitting Essex to appeal on this basis.
[21] Enbridge argued before us that even if the explanation the OEB provided was wrong, the Divisional Court nonetheless erred in finding that the rule against perpetuities did not apply in this case, and that the franchise rights were vested. In support of its position, Enbridge submits that clause 1 of the 1957 Agreement provides broad rights, including the right to “remove” and “replace” its existing lines, but that pursuant to clause 3, the right to do these things is contingent on Essex approving the locations. It also submits that these rights are contingent on leave to remove or replace the pipeline being obtained from the OEB pursuant to s. 90(1) of the Ontario Energy Board Act, which the Board can grant pursuant to s. 96(1) only if it is of the opinion that “the proposed work is in the public interest”. Enbridge argues that the Divisional Court erred by failing to address these contingencies before deciding that the rule against perpetuities was not violated, and that it erred in so deciding in the face of these contingencies.
[22] In my view, the Divisional Court did not fail to address these contingencies. It answered these arguments in discussing the Dawn-Euphemia decision. It noted: “The court [in Dawn-Euphemia] found that the rights conferred by the franchise agreement constituted a future contingent interest in land, noting that the gas utility’s rights to enter the land and build transmission lines were contingent on future needs and not automatic”. It then disagreed with that conclusion, finding that the court in Dawn-Euphemia, like the OEB, failed to appreciate the nature of the interests that are subject to the rule against perpetuities.
[23] I also reject Enbridge’s position that the need for approval before removing and replacing the pipeline renders its franchise rights contingent. I agree with the Divisional Court’s conclusion that Enbridge’s “franchise right vested with the use of the County Roads for the supply of natural gas actually occurring under the 1957 agreement”. Once the agreement was entered, there were no conditions that had to be satisfied before Enbridge’s franchise rights arose. That agreement conferred immediately on Enbridge, without condition precedent, “[f]ull right … to keep, use, operate, repair, maintain, remove, abandon, replace, reconstruct, alter and extend its existing lines, pipes and works in the highways under the jurisdiction of the Council of the Municipality”. Essex’s authority under the agreement to designate the locations where the pipes “shall be laid across the said highways” does nothing to detract from this, as it is not a condition on any of those rights arising. It is no more than a provision that imposes limits on the way Enbridge may enjoy the franchise rights it received once the agreement was completed.
[24] The statutory requirement that Enbridge obtain approval from the OEB before constructing a hydrocarbon line in the circumstances designated by s. 90(1) of the Ontario Energy Board Act is not a condition to the franchise rights arising, either. It too is a limitation on how Enbridge may exercise its franchise rights, not unlike any other regulatory restriction on the enjoyment of existing property rights, such as zoning bylaws that may prohibit planned construction. I see no error in the Divisional Court’s decision.
[25] I am not persuaded by the OEB that the Divisional Court erred by declaring that the rule against perpetuities does not apply, instead of remitting the matter to the OEB for this issue of mixed fact and law to be resolved. The application of the rule against perpetuities was raised in the appeal proceedings and required no additional factual findings to resolve. All that was left to be done was for the Divisional Court to determine the proper legal characterization of the terms in the 1957 Agreement that Enbridge was relying upon.
B. Did the Divisional Court Err in Departing from Dawn-Euphemia?
[26] I do not accept Enbridge’s submission that pursuant to the principles of horizontal stare decisis the Divisional Court was bound to follow the decision in Dawn-Euphemia on the application of the rule against perpetuities because the agreement in that case was functionally identical to the 1957 Agreement.
[27] As I am about to explain, it is not clear to me that the principles of stare decisis are even engaged. I do not decide this issue on that basis, because I am persuaded that even if those principles do apply, the Divisional Court did not violate them by refusing to follow Dawn-Euphemia. I will nonetheless briefly explain my concerns about whether the principles of stare decisis even apply because I do not want my engagement with those principles to be seen as an acknowledgement that they govern.
[28] The concern I have just expressed arises because the rules of precedent, including the principles of stare decisis, impose obligations to follow rules of law: see R. v. Sullivan, 2022 SCC 19, at paras. 44, 75. They do not purport to direct future courts on the decisions of mixed fact and law they will make. It is arguable that the decision in Dawn-Euphemia did not establish or modify the law and is simply an example of a court attempting (albeit unsuccessfully) to apply an existing rule of law to a particular set of facts. If this is so, it is no more than a decision of mixed fact and law that does not trigger the rules of stare decisis.
[29] Having said this, the facts of a case often play an indispensable role in discerning the legal rule that governed a decision. The question of whether a decision is an authority governing the resolution of substantially similar states of fact can therefore be a difficult one, as the decision in Delta Acceptance Corporation Ltd. v. Redman illustrates. As indicated, I will not attempt to resolve this challenging question because even if the rules of stare decisis do govern the Divisional Court’s treatment in this case of its prior decision in Dawn-Euphemia, it did not err in deciding not to follow that decision.
[30] The parties are not in agreement on the principles of stare decisis that should be used in making this determination. Enbridge proceeds on the basis that the Divisional Court must follow its own precedents unless the test set out in Toronto Standard Condominium Corporation No. 1628 v. Toronto Standard Condominium Corporation No. 1636, 2020 ONCA 612, at para. 73, (which was developed for decisions of this court) is met. Essex relies on the test in Sullivan, at para. 75, which was developed for trial courts. It may be that neither of these tests apply since the concurring judges in R. v. Kirkpatrick, 2022 SCC 33, at para. 179, directed that “[h]orizontal stare decisis applies differently at each level of court” and noted that “there is more room to depart from precedent as one moves up the judicial hierarchy”. Based on these directions, in terms of restrictiveness the principles of horizontal stare decisis that apply to the Divisional Court when sitting as an intermediate appeal court may fall somewhere between the tests that the parties are proposing. I need not delve further into this interesting question because even if one were to apply the most restrictive standard, the one identified in Sullivan, the Divisional Court was entitled to depart from its precedent in Dawn-Euphemia.
[31] Sullivan, at para. 75, recognized three narrow circumstances where courts not only may but “should” depart from decisions that are otherwise binding as a matter of horizontal stare decisis:
- The rationale of an earlier decision has been undermined by subsequent appellate decisions;
- The earlier decision was reached per incuriam (“through carelessness” or “by inadvertence”); or
- The earlier decision was not fully considered, e.g. taken in exigent circumstances.
[32] The Divisional Court raised all three of these concerns relating to the decision in Dawn-Euphemia, calling it “cursory” and noting that the court in that case failed to appreciate the governing principles affirmed in ClubLink and Clarke. I agree that ClubLink and Clarke did not change the law, but those decisions together clarified the point that the court in Dawn-Euphemia inadvertently missed and therefore failed to fully consider. I find no error in the Divisional Court’s decision not to follow Dawn-Euphemia.
[33] I take the OEB’s submission that, as a practical matter, it would have felt beholden to arrive at the same decision as the Divisional Court in Dawn-Euphemia given that the agreements are indistinguishable. But that does not change the fact that the Divisional Court in this case was legally right to depart from that decision. It cannot be that the Divisional Court was required to apply a rule of law incorrectly because the board being reviewed would have felt compelled to follow an earlier manifestly incorrect decision. I appreciate the importance of the certainty of the law and maintaining the integrity of the administration of justice, but those considerations do not warrant appellate recognition of the Dawn-Euphemia decision as a binding precedent.
[34] Finally, I note that even if the Divisional Court should have followed its own precedent in Dawn-Euphemia, we are not bound to do so. The issue is now before us. It would do no credit to the integrity of the law for this court to perpetuate the error and sanction an outcome that obscures a correct understanding of the law, by allowing the appeal on the basis that the Divisional Court was bound to follow an earlier, incorrect decision of its own.
C. Did the Divisional Court Err by Limiting the OEB’s powers to regulate the terms of natural gas franchise agreements?
[35] I would deny this ground of appeal. By the clear terms of s. 10 of the Municipal Franchises Act, the OEB does not have the power to impose a Model Franchise Agreement pursuant to that provision unless the existing agreement has or is about to lapse. Since the 1957 Agreement did not lapse and was not about to do so, the OEB did not have the authority it was claiming. A court that points out the legal limits on a regulatory body’s power is not wrongfully limiting that body’s power to regulate. It is doing no more than enforcing the limits of that power.
Conclusion
[36] I would dismiss the appeal.
[37] As agreed by counsel, Enbridge shall pay Essex $22,500 inclusive of disbursements and applicable taxes for the costs of the appeal and the leave to appeal motion, and no costs will be payable by or to the OEB.
Released: 2025-04-10
“G.T.T.”
“David M. Paciocco J.A.”
“I agree. Gary Trotter J.A.”
“I agree. Sossin J.A.”