Court File and Parties

Citation: Union Gas Limited v. Municipal Property Assessment Corporation, 2016 ONSC 7128 Court File No.: 243/16 Date: 2016-11-17 Superior Court of Justice – Ontario – Divisional Court

Re: Union Gas Limited (Applicant) And: The Municipal Property Assessment Corporation (“MPAC”); 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 (Respondents)

Before: Molloy J.

Counsel: Peter Milligan and Jamie Walker, for Union Gas Limited Donald Mitchell, for MPAC

Heard: October 17, 2016 in Toronto

Endorsement

Introduction

[1] Union Gas Limited seeks leave to appeal to the Divisional Court from the decision of the Assessment Review Board (the “Board”) dated April 19, 2016.[^1] At issue is whether 32 “gate station” properties owned by Union Gas are properly classified as commercial properties, rather than industrial properties. The gate stations operate as a sort of hub, from which Union Gas delivers natural gas to its customers and other distributors. Natural gas is odourless. Before natural gas leaves the gate station, Union Gas adds an odourant to it, which is required by law. Based on its interpretation of the term “processing” in a Regulation under the Assessment Act[^2], the Board held that the odourization constitutes “processing” and that the properties were therefore industrial, and subject to a higher property tax rate.

Test for Leave to Appeal

[2] An appeal lies from the Board to the Divisional Court, but only with leave of the Divisional Court, and only on a question of law.[^3]

[3] The parties before me agreed that the test for leave to appeal is as set out in BCE Place v. MPAC[^4] and has two components: (1) a question of law of sufficient importance to merit the attention of the Divisional Court; and (2) some reason to doubt the correctness of the decision under review.

[4] Certainly, that test has been consistently applied for quite some time, indeed for quite some time even before the decision in BCE Place. However, notwithstanding the agreement of counsel, the standard of review is a question of law and it is incumbent on me to identify the correct test and apply it.[^5] In my view, the test set out in BCE Place needs to be revisited in light of developments in the law since Dunsmuir v. New Brunswick.[^6]

[5] In Onyskiw v. CJM Property Management,[^7] the Court of Appeal held that the same standard of deference should be applied on an appeal from a tribunal as would be applied on judicial review of that same tribunal.

[6] It is clear from numerous decisions of the Supreme Court of Canada since Dunsmuir that a standard of reasonableness applies in reviewing a tribunal’s interpretation of its home statute or related statutes squarely within its area of expertise.[^8] Interpreting provisions of the Assessment Act and Regulations under that Act is within the core area of expertise of the Assessment Review Board. As such, the decision of the Board that is under appeal in this case would be reviewable on the reasonableness standard. On the appeal itself, should leave be granted, the reviewing court would not be entitled to substitute its own interpretation of the Regulation. Rather, the reviewing court would only be entitled to intervene if the construction placed on the Regulation is unreasonable.[^9]

[7] Given that an appellate court would apply a standard of reasonableness to the Board’s decision, it does not make sense that the test for granting leave is whether there is reason to doubt the correctness of the decision. Reason to doubt correctness is an appropriate test when the tribunal is required to be correct in its decision. However, when the tribunal is only required to be reasonable, I believe the proper question on the leave application is whether there is a basis for doubting the reasonableness of the decision.

[8] As far as I am aware, this issue has not been addressed in any decision dealing with the Assessment Review Board. However, there is case authority applying the reason to doubt reasonableness test on motions for leave to appeal from the Ontario Municipal Board (“OMB”). Like the Assessment Review Board, decisions of the OMB are subject to a statutory right of appeal to the Divisional Court on a question of law, with leave of the Divisional Court. Like the Assessment Review Board, decisions of the OMB interpreting its home statute are reviewable on the reasonableness standard. In considering the implication of this for the test for leave to appeal from the OMB, Ray J. held as follows in City of Ottawa v. Ottawa Home Builders Association[^10] (at paras. 3-4):

Because of the deferential standard of reasonableness to be applied to appeals from the OMB, the issue of ‘correctness’ applied by earlier decisions on a leave application must be interpreted to have given way to the reasonableness standard. The test would therefore be framed to include an analysis of whether there is ‘good reason to doubt the reasonableness of the decision being appealed’. Secondly the test must include a determination of whether the issue is sufficiently important to require the attention of the Divisional Court. While the test in the Rules of Civil Procedure has been referenced from time to time on leave motions from decisions from the OMB, it is stated to be explicitly for leave from an interlocutory decision of another Superior Court Judge. [Citations omitted.]

The test on a motion for leave from a decision of the OMB where the reasonableness standard applies is:

a. whether there is good reason to doubt the reasonableness of the decision,

b. whether the question is an important one;

[9] A similar conclusion as reached by Lauwers J. (as he then was) in Train v. John Weir,[^11] holding as follows (at para 5):

In light of the evolution of the jurisprudence around Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, the older test of showing “that the correctness of the order is open to very serious debate” seems to me to be insufficiently deferential to the Ontario Municipal Board where its interpretation of the Planning Act, R.S.O. 1990, c. P. 13, other similar legislation, or planning documents is involved.

[10] Some judges have characterized the issue as one of deference, without changing the language of the reason to doubt correctness test. For example, Labrosse J. held in Ottawa (City) v. 267 O’Connor Limited[^12] (at para. 15):

When evaluating the correctness of the Board’s decision, the court must consider the standard of review that will apply should appeal be granted. Where the Board’s decision involves matters within its expertise, such as planning matters and interpretation of the Board’s “home statute”, the Planning Act, the standard of review is one of reasonableness. Where the challenged decision falls into this area, the decision of the Board is entitled to deference, including at the leave stage (Richmond Hill at paras. 23-24; 2341066 Ontario Ltd. v. County of Oxford, 2015 ONSC 3361 at paras. 40-42, 38 M.P.L.R. (5th) 88 (Div. Ct.)).

[11] Regardless of whether the question is characterized as deference within the reason to doubt correctness test, or whether the question is recast as reason to doubt reasonableness, in my opinion it is no longer appropriate to simply consider whether there is reason to doubt the correctness of the decision being challenged. Accordingly, in determining whether to grant leave to appeal in this case, I have applied the deferential standard and considered whether there is some basis for doubting the reasonableness of the decision.

Reason to Doubt Reasonableness

[12] Section 6(1)1.i of Ontario Regulation 282/98 provides that land is classified as industrial if it is “used for or in connection with manufacturing, producing or processing anything.” For the purposes of this case, the issue is whether adding an odourant to natural gas constitutes “processing anything.”

[13] The parties agree that the Board was correct in the general legal test applied to determine what “processing anything” means,[^13] namely:

(1) whether the process changes the product in its form, appearance or nature; and

(2) whether the process made the product more marketable.

[14] The Board held that adding odourant to the gas changed its form and also made it more marketable, since it could not be marketed at all without having the odour added.

[15] The applicant Union Gas presented a compelling argument that there is reason to doubt the correctness of this decision. If the test to be applied was reason to doubt correctness, I would have found the test was met without much difficulty. The issue is considerably less clear when applying the deferential reasonableness test. However, even applying the reasonableness test, I find there is a basis for doubting the reasonableness of the decision. Of the grounds advanced, I found the most persuasive to be the fact that the decision seems to be out of line with a number of established authorities in the Federal Court interpreting the same type of language and applying the same test.[^14] Although the Board considered some of those decisions, it ruled that the main decision had been overruled by a subsequent appeal decision in the same case.[^15] There is a good argument that the Board misread and misapplied that appellate decision. The Board placed considerable reliance on a previous decision of another Board Member involving Enbridge Gas[^16] on the precise issue before it. However, it failed to recognize that in the Enbridge case, this line of authority was not considered by the Member, nor by the Divisional Court judge who subsequently denied leave to appeal.[^17] In addition, the Board does not appear to have turned its mind to whether “marketability” has an economic component, and how that should be seen in the natural gas market, given that the gas is already contracted for before it is odourized and leaves the gate station and that adding odour has no impact on sale value or profitability. Also, the Board did not undertake a contextual purposive analysis in determining the meaning of “processing” and the purpose of industrial land classification for this industry as well as in other tax statutes. Finally, both the Enbridge decision and this decision involving Union Gas are arguably inconsistent with an earlier Board decision in L.H. Gray & Sons v. M.P.A.C.[^18] in which the Board Member found that a “highly sophisticated operation for washing, inspecting, grading and packaging eggs” established in order to comply with federal and provincial regulations was not “processing” and was therefore not properly classified as industrial.

[16] I do not propose to conduct an analysis of these various legal arguments for purposes of this leave to appeal application. That will be the function of the Divisional Court on the appeal. For present purposes, the issue is not whether I find the decision to be unreasonable, or even probably unreasonable. The question is whether there is some basis for concluding that it is unreasonable. In my view, there is much to be said for the merits of the arguments advanced and this aspect of the test for leave to appeal is therefore met.

[17] The applicant proposes two questions for the Divisional Court to consider if leave is granted.

(1) 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”?

(2) 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?

[18] In my view, formulated in this manner, these are questions of law. The applicant is not seeking to appeal the manner in which the Board applied the law to the facts, but rather the proper interpretation of the test itself.

Importance of the Issue

[19] As I noted above, the test for leave is two-fold, and both branches of the test must be met. I am satisfied that the issue involved is one that merits the attention of the Divisional Court. This issue transcends just the interests of Union Gas. It affects gas distributors and suppliers throughout Ontario. There are, apparently, hundreds of similar gate stations throughout the province. Further, the decision has potential implications beyond oil and gas because of similar language for real estate classifications under the Assessment Act and various taxing statutes.

Conclusion

[20] I am satisfied that the test for leave to appeal is met. Leave is granted on the two questions identified by the applicant. It would also be useful for the Divisional Court to clarify the standard to be applied on the leave to appeal test. The parties are directed to address this argument in their facta on the appeal.

[21] The parties are agreed that costs of the leave motion shall be $5000 payable to whichever party is successful in the appeal itself.

MOLLOY J.

Date: November 17, 2016

[^1]: Union Gas Limited v. Municipal Property Assessment Corporation, 2016 22809 (On. Arb.) [Board Decision]. [^2]: O. Reg. 282/98, s. 6(1)1.i. [^3]: Assessment Act, R.S.O. 1990, c. A. 31, s. 43.1. [^4]: BCE Place Ltd. v. Municipal Property Assessment Corporation (2008), 51 M.P.L.R. (4th) 314 (Div. Ct.), at paras. 4 and 6. [^5]: Monsanto Canada v. Ontario (Superintendent of Financial Services), 2004 SCC 54, [2004] 3 S.C.R. 152, at para. 6. [^6]: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 [Dunsmuir]. [^7]: Onyskiw v. CJM Property Management Ltd., 2016 ONCA 477, [2016] O.J. No. 3817 at para. 27; Edmonton (City) v. Edmonton East (Capilano) Shopping Centres, 2016 SCC 47, at paras. 22-23, 27-31 [Edmonton Shopping Centres]. [^8]: Dunsmuir at para. 54; Canada (Minister of Citizenship and Immigration) v. Khosa, 2009 SCC 12, [2009] 1 S.C.R. 339, at para. 25; A.T.A. v. Alberta (Information & Privacy Commissioner), 2011 SCC 61, [2011] 3 S.C.R. 654, at paras. 1, 30 and 32; British Columbia (Securities Commission) v. McLean, 2013 SCC 67, [2013] 3 S.C.R. 895, at paras. 31-33. [^9]: Edmonton Shopping Centres at paras. 20-34; Kensington Foundation v. Municipal Property Assessment Corp., Region No. 9, 2013 ONSC 7694, 316 O.A.C. 210 (Div.Ct.), at paras. 11-13. [^10]: City of Ottawa v. Ottawa Home Builders Association, 2013 ONSC 5062, 77 O.M.B.R. 450 (Div. Ct.),at paras. 3-4. [^11]: Train v. John Weir, 2012 ONSC 5157, 299 O.A.C. 307 (Div.Ct.), at para. 5. See also Spellman v. Essex (Town), [2003] O.J. No. 4619 (Div. Ct.), at para. 5. [^12]: Ottawa (City) v. 267 O’Connor Limited, 2016 ONSC 565, 46 M.P.L.R. (5th) 272 (Div. Ct.), at para. 15. [^13]: Minister of National Revenue v. Federal Farms, 1966 884 (CA EXC), [1966] Ex. C.R. 410 at paras. 27-32, aff’d [1967] S.C.R. vi; Tenneco Canada Inc. v. R., 1987 9000 (FC), [1988] 2 F.C. 3, at para. 3, aff’d (1991) 91 D.T.C. 5207 (F.C.A.); Board Decision at para 6. [^14]: Harvey C. Smith Drugs v. Minister of National Revenue, 1986 7450 (TCC), [1986] 1 C.T.C. 2339 (T.C.C.); Midland Transport Limited v. R., 1994 19344 (TCC), [1994] 2 C.T.C. 2303 (T.C.C.); Démolition A.M. de l’est du Québec Inc. v. Minister of National Revenue, 1993 17181 (TCC), [1993] 2 C.T.C. 2447 (T.C.C.). [^15]: Harvey C. Smith Drugs v. Minister of National Revenue, 1992 14733 (FC), [1992] 1 C.T.C. 325 (F.C.T.D.); Harvey C. Smith Drugs v. Minister of National Revenue, 1994 19404 (FCA), [1995] 1 C.T.C. 143 (F.C.A.). [^16]: Enbridge Gas Distribution v. Municipal Property Assessment Corporation, Region No. 13 (2011), 69 O.M.B.R. 17 (Ont. A.R.B.). [^17]: Enbridge Gas Distribution Inc. v. Municipal Property Assessment Corporation, 2012 ONSC 4901, [2012] O.J. No. 4664 (Div. Ct.). [^18]: L. H. Gray v. Sons v. Municipal Property Assessment Corporation, Region No. 24 (2002), 44 O.M.B.R. 96, at para. 21.