Essex (County of) v. Enbridge Gas Inc., 2024 ONSC 866
CITATION: Essex (County of) v. Enbridge Gas Inc., 2024 ONSC 866
DIVISIONAL COURT FILE NO.: 23-265
DATE: 20240212
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
Sachs, Backhouse and Lococo JJ.
BETWEEN:
THE CORPORATION OF THE COUNTY OF ESSEX Appellant
– and –
ENBRIDGE GAS INC. and ONTARIO ENERGY BOARD Respondents
COUNSEL:
David M. Sundin and Josephine Stark, for the Appellant
Arlen Sternberg and Emily Sherky, for the Respondent Enbridge Gas Inc.
M. Philip Tunley and Flora Yu, for the Respondent Ontario Energy Board
HEARD in Toronto: January 18, 2024
REASONS FOR JUDGMENT
BY THE COURT
I. Introduction
[1] The appellant The Corporation of the County of Essex appeals the order of the respondent Ontario Energy Board (“OEB”) as set out in the OEB’s Decision and Order EB-2022-0207 dated March 30, 2023 (“OEB Decision”).
[2] In the OEB Decision, the OEB approved the application of the respondent Enbridge Gas Inc. to renew the existing natural gas franchise between Essex and Enbridge. The OEB found that the pre-existing 1957 franchise agreement between Essex and Enbridge had expired by operation of the common law rule against perpetuities. It ordered renewal of the franchise based on the terms and conditions set out in OEB’s Model Franchise Agreement.
[3] Essex submits that the OEB exceeded it jurisdiction and erred in law in determining that the 1957 franchise agreement had expired by the operation of the rule against perpetuities. Essex asks the court to set aside the OEB’s order and grant a declaration that the rule against perpetuities does not apply to the 1957 franchise agreement, which has not expired and remains in effect.
[4] The appeal is allowed. As explained below, the OEB did not exceed its jurisdiction in determining whether the 1957 franchise agreement had expired by the operation of the rule against perpetuities but erred in law in finding that the agreement did expire by the operation of that rule. Enbridge’s rights under the 1957 franchise agreement do not constitute a future contingent interest in property that is subject to the rule against perpetuities.
II. Background
A. The parties
[5] Essex is a municipal corporation under the laws of Ontario. It is an upper-tier regional municipality comprised of seven lower-tier municipalities in southwestern Ontario. Essex has jurisdiction over certain roads (“County Roads”) within its area, while the lower-tier municipalities have jurisdiction over other roads and other matters related to the use and development of lands in their respective areas.
[6] Enbridge is an OEB-regulated natural gas storage, transmission, and distribution company that provides natural gas services to homes and businesses in Essex and elsewhere in Ontario.
[7] The OEB is the independent regulator of electricity and natural gas sectors in Ontario. The Ontario Energy Board Act, 1998, S.O. 1998, c. 15, Sched. B. (“OEB Act”), along with the Municipal Franchises Act, R.S.O. 1990, c. M.55 (“MF Act”), set out the OEB’s regulatory mandate and powers that are relevant for the purposes of this appeal.
[8] The OEB’s approval is required for gas companies to construct any works to supply natural gas in any Ontario municipality pursuant to “certificates of public convenience and necessity” issued by the OEB: MF Act, s. 8. Enbridge is authorized to construct works to supply natural gas to persons within the municipal boundaries of Essex pursuant to such a certificate granted to Enbridge’s predecessor corporation, Union Gas Limited, on January 8, 1958. Since that time, Enbridge (or its predecessor corporation) has delivered natural gas distribution services to customers in Essex under the terms of a franchise agreement dated December 11, 1957, as described further below.
B. Regulatory framework
[9] The OEB is an independent quasi-judicial regulatory body with broad statutory powers to regulate the natural gas industry. In doing so, the OEB exercises a public interest mandate, which includes promoting a financially viable and efficient energy sector that provides the public with reliable energy services at a reasonable cost: OEB Act, ss. 1, 2
[10] As part of its mandate, the OEB regulates natural gas distributors (including Enbridge) and their transmission and distribution of gas through and within municipalities (including Essex). The OEB’s regulatory powers are broad, and include: regulating the terms of franchise agreements between municipalities and utilities; approving applications for “certificates of public convenience and necessity” for the construction of works to supply gas; and approving the construction, expansion or reinforcement of pipelines.
[11] Under the OEB Act, the OEB has “exclusive jurisdiction in all cases and in respect of all matters in which jurisdiction is conferred on it by this or any other Act”: OEB Act, s. 19(6). In all matters within its jurisdiction, the OEB has authority to hear and determine all questions of law and of fact: OEB Act, s. 19(1).
C. Natural gas franchise agreements
[12] A utility is not permitted to provide gas transmission and distribution services through or within an Ontario municipality unless the requirements of the MF Act have been met. The MF Act requires the municipality to enter into a franchise agreement with a natural gas distributor: MF Act, s. 3. The terms and conditions of the franchise agreement must be approved by the OEB: MF Act, s. 9.
[13] Where a franchise agreement has expired or is about to expire within a year, either the municipality or the utility may make an application to the OEB for a renewal or an extension of the franchise rights, including in circumstances where the parties are not able to agree on the terms and conditions for renewing or extending the franchise agreement: MF Act, s. 10. In that regard, s. 10(2) provides as follows:
Powers of Energy Board
(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. [Emphasis added.]
[14] As s. 10 and related provisions in the MF Act make clear, the MF Act confers on the OEB a broad and highly discretionary power to make decisions about the renewal of natural gas franchises, based on “public convenience and necessity”, and to decide the terms of such renewal. In Sudbury (City) v. Union Gas Ltd. (2001), 2001 2886 (ON CA), 54 O.R. (3d) 439 (C.A.), at para. 6, the Court of Appeal for Ontario stated that the MF Act and the OEB Act “make clear that the Legislature has accorded to the OEB the widest powers to regulate the supply and distribution of natural gas in the public interest” (emphasis added). At para. 23, the court went on to state the following about the OEB’s authority with respect to a franchise renewal or extension:
Section 10 of the Municipal Franchises Act … protects the interests of those who depend on the gas distribution system by allowing either the municipality or the gas utility company to seek a renewal or extension of the bundle of rights that is the franchise. The OEB may make the order on the terms it determines necessary to protect the public interest. In my view, a purposive reading of the section gives to the OEB a broad power to impose the terms of renewal or extension of the franchise so that service to the public will not be interrupted simply because the municipality and the utility have been unable to agree on the terms for carrying on the service. [Emphasis added.]
D. Model Franchise Agreement
[15] After an extensive public consultation and hearing process (including oral and written submissions from municipalities and other interested parties), the OEB developed a Model Franchise Agreement in order to standardize the format and content of franchise agreements between natural gas distributors and Ontario municipalities. Following a public hearing in 1985 and a resulting OEB report, the OEB approved the initial version of the model agreement in 1987, which was revised in 2000 following a further public hearing in 1999 and a subsequent OEB report.
[16] The purpose of the Model Franchise Agreement is to provide a template to guide natural gas distributors and municipalities as to the terms and conditions that the OEB generally finds reasonable: OEB, Guidelines for Gas Expansion in Ontario, OEB-2015-0156, February 18, 2015, at p. 4. The OEB has advised that natural gas distributors “are expected to follow the form of the Model Agreement when filing applications for the approval of franchise agreements, unless there is a compelling reason for deviation”: Epcor Natural Gas Limited Partnership, Decision and Order EB-2021-0269, February 17, 2022, at p. 8. Virtually all municipal franchise agreements in Ontario are currently in the form of the OEB’s Model Franchise Agreement: see OEB, Natural Gas Facilities Handbook, EB-2022-0081, March 31, 2022, at p. 10.
E. 1957 Essex franchise agreement
[17] Since the issuance of a “certificates of public convenience and necessity” in January 1958 under s. 8 of the MF Act, Enbridge (or its predecessor corporation) has delivered natural gas distribution services to customers in Essex under the terms of a franchise agreement dated December 11, 1957 (the “1957 Agreement”). Consistent with the division of jurisdiction between upper-tier and lower-tier municipalities, the 1957 Agreement related primarily to “works for the transmission of gas” along County Roads, as well as to transmission works serving customers located adjacent to County Roads. Enbridge has separate franchise agreements with the lower-tier municipalities it serves, which relate primarily to the distribution of natural gas received from those transmission works to other end-use customers in their municipal areas.
[18] The 1957 Agreement provided that the rights and privileges granted under the agreement “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.” Therefore, by its terms, the franchise could continue indefinitely as long as gas distribution through the gas lines continued.
[19] Since the 1957 Agreement was entered into long before the OEB developed the Model Franchise Agreement, it does not contain various provisions and topics that are addressed in the Model Franchise Agreement, including: the requirement to provide “As Built Drawings” (s. 6); details of what needs to be done in the case of an emergency (s. 7); insurance requirements (s. 10); the requirement for a municipality to provide reasonable notice if an alternate easement is required (s. 11); and the allocation of costs associated with pipeline relocation when required to allow the municipality to proceed with municipal works, including road construction and improvement (s. 12).
III. OEB Decision under appeal
[20] During the fall of 2021 and spring of 2022, Enbridge and Essex corresponded regarding Enbridge’s request that a renewal of its gas franchise with Essex be put in place in the form of the Model Franchise Agreement. Essex did not agree.
[21] In July 2022, Enbridge applied to the OEB under s. 10 of the MF Act for a renewal of its franchise with Essex, based on the terms of the Model Franchise Agreement. Essex was granted intervenor status as a party in the application and opposed it. Essex took the position that the 1957 Agreement remained in place as the governing agreement for the franchise. As part of the hearing before the OEB, Essex and Enbridge filed evidence and written submissions, and made oral submissions. OEB staff also made submissions.
[22] On March 30, 2023, the OEB released the OEB Decision, finding that the 1957 Agreement had expired by the application of the rule against perpetuities. The OEB ordered the renewal of the franchise for a period of 20 years based on the terms and conditions of the Model Franchise Agreement, in accordance with public convenience and necessity: OEB Decision, at p. 2.
[23] In reaching the conclusion that the 1957 Agreement had expired by the application of the rule against perpetuities, the OEB found as follows (at p. 8):
[T]he 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 this rule in Ontario has been confirmed in the provisions of the Perpetuities Act [R.S.O. 1990, c. P.9] and applied by the Ontario Divisional Court in the decision in Dawn-Euphemia [(Township) v. Union Gas Ltd., 2004 CarswellOnt 3909 (Ont. Div. Ct.), leave to appeal refused, 2004 CarswellOnt 3861 (Ont. C.A.)].
[24] On the question of the OEB’s jurisdiction to decide whether it had the jurisdiction to decide whether the 1957 Agreement had expired, the OEB found as follows (at p. 8):
The OEB also finds that its conclusion that the 1957 Agreement has expired is within its jurisdiction to determine. Section 5(1) of the Perpetuities Act is permissive not mandatory with respect to applications to a court of competent jurisdiction to determine the validity of a provision challenged as a potential violation of the rule. The OEB’s powers under the OEB Act are clear in determining the issue of renewals as required by the Municipal Franchises Act and can be exercised with respect to the 1957 Agreement.
[25] The OEB then turned to consideration of the appropriate terms on which to renew Enbridge’s franchise right: OEB Decision, at p. 8. In exercising its discretion to determine the franchise agreement’s terms, the OEB concluded that the Model Franchise Agreement “best meets the requirements of public convenience and necessity appropriate to govern Enbridge Gas and its natural gas operations in the County of Essex”: OEB Decision, at p. 11. The OEB explained as follows:
This determination of the application of the terms of the Model Agreement to the operations of Enbridge Gas in the County of Essex is based both on its comprehensive provisions and its successful use throughout the province. The OEB is of the view that the Model Agreement is respectful of the interests and the needs of the respective parties in this application including those of Enbridge Gas’s ratepayers.
[26] By Notice of Appeal dated April 27, 2023, Essex appeals the OEB Decision.
IV. Jurisdiction and standard of review
[27] The Divisional Court has jurisdiction to hear this appeal, but only on a question of law or jurisdiction: OEB Act, ss. 33(1), 33(2). Absent an extricable error of law, the OEB’s findings of fact and its findings of mixed fact and law (which include the application of correct legal principles to the evidence) cannot be appealed.
[28] The standard of review is correctness for questions of law or jurisdiction, including legal principles extricable from questions of mixed fact and law: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 8, 34-37; Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, [2019] 4 S.C.R. 653, at para. 37.
[29] When the decision under appeal is fact-intensive or involves the exercise of discretion, care must be taken in identifying extricable errors of law since the process of severing out legal issues can undermine the standard of review analysis. An arguably unreasonable exercise of discretion is not an error of law or jurisdiction: Wood Buffalo (Regional Municipality) v. Alberta (Energy and Utilities Board), 2007 ABCA 192, 80 Alta. L.R. (4th) 229, at para. 8; Natural Resource Gas Limited v. Ontario (Energy Board), 2012 ONSC 3520 (Div. Ct.), at para. 8; Conserve Our Rural Environment v. Dufferin Wind Power Inc., 2013 ONSC 7307 (Div. Ct.), atpara. 13.
[30] While the court is empowered to replace a tribunal’s opinion on questions of law with its own, the correctness standard does not detract from the need to respect the tribunal’s specialized function. The tribunal’s subject matter experience and expertise relating to the requirements of its home statute should be taken into account: Reisher v. Westdale Properties, 2023 ONSC 1817 (Div. Ct.), at paras. 9-10, citing Planet Energy (Ontario) Corp. v. Ontario Energy Board, 2020 ONSC 598 (Div. Ct.), at para. 31, in which the court stated as follows:
While the Court will ultimately review the interpretation of the [Ontario Energy Board] Act on a standard of correctness, respect for the specialized function of the [Ontario Energy] Board still remains important. One of the important messages in Vavilov is the need for the courts to respect the institutional design chosen by the Legislature when it has established an administrative tribunal (at para. 36).
V. Issues to be determined
[31] Essex submits that the OEB exceeded it jurisdiction and erred in law in determining that the 1957 Agreement had expired by the operation of the rule against perpetuities.
[32] Essex asks the court to certify its opinion to the OEB (in accordance with s. 33(4) of the OEB Act) that the 1957 Agreement has not expired and remains in effect. Essex seeks an order setting aside the OEB Decision and a declaration that the rule against perpetuities does not apply to the 1957 Agreement.
[33] The issues to be determined on this appeal are as follows:
a. Jurisdiction: Did the OEB exceed its jurisdiction in determining whether the 1957 Agreement had expired by the operation of the rule against perpetuities?
b. Legal error: Did the OEB err in law in determining that the 1957 Agreement had expired by the operation of the rule against perpetuities?
[34] In the balance of these reasons, those issues will be addressed in turn.
VI. Application of rule against perpetuities – jurisdiction
[35] Did the OEB exceed its jurisdiction in determining whether the 1957 Agreement had expired by the operation of the rule against perpetuities?
[36] Essex submits that the OEB exceeded its jurisdiction in determining that the 1957 Agreement had expired. Among other things, Essex argues that the OEB exceeded its jurisdiction in determining whether the rule against perpetuities applied to the 1957 Agreement. Essex relies on s. 5(1) of the Perpetuities Act, which provides as follows:
Applications to determine validity
5(1) An executor or a trustee of any property or any person interested under, or on the validity or invalidity of, an interest in such property may at any time apply to the court for a declaration as to the validity or invalidity with respect to the rule against perpetuities of an interest in that property, and the court may on such application make an order as to validity or invalidity of an interest based on the facts existing and the events that have occurred at the time of the application and having regard to sections 8 and 9. [Emphasis added.]
[37] The term “court” is defined as the Superior Court of Justice: Perpetuities Act, s. 1.
[38] Essex submits that the Perpetuities Act expressly provides jurisdiction to the Superior Court to determine issues with respect to the validity and invalidity of property interests that are engaged by the rule against perpetuities. That Act does not delegate any authority to the OEB or any other administrative body to make such determinations. Essex therefore submits that the OEB exceeded its jurisdiction in determining whether the 1957 Agreement had expired by the operation of the rule against perpetuities. In those circumstances, Enbridge would be required to first bring a court application under the Perpetuities Act to determine whether the 1957 Agreement has expired before applying to the OEB for any renewal or extension under the MF Act.
[39] We disagree.
[40] There is no dispute that the standard of review for questions of jurisdiction is correctness. Contrary to Essex’s position, s. 5(1) of the Perpetuities Act is not expressed in mandatory language. As the OEB correctly found, the wording of s. 5(1) is “permissive”: OEB Decision, at p. 8. An application “may” be brought under s. 5(1) in certain circumstances relating to the application of the rule against perpetuities and the Superior Court “may” make an order. When the appeal of the OEB renewal order in Dawn-Euphemia came before the Divisional Court (discussed further below), there was no suggestion that a prior court application under the Perpetuities Act should have been brought and determined before the OEB renewal application could proceed under s. 10(2) the MF Act: Dawn-Euphemia, at para. 18.
[41] In any event, s. 5(1) of the Perpetuities Act does not oust the OEB’s broad and exclusive statutory authority under the MF Act and the OEB Act, which includes the exclusive authority to hear and determine all questions of law and of fact in all matters within the OEB’s jurisdiction: OEB Act, ss. 19(1), 19(6). As well, the OEB Act expressly provides that in the event there is a conflict between the OEB Act and any other general or special Act, the OEB Act prevails: OEB Act, s. 128(1). Therefore, even if the Perpetuities Act purported to grant the Superior Court exclusive jurisdiction over the application of the rule against perpetuities in the present context, the OEB’s jurisdiction pursuant to the OEB Act and the MF Act would still take precedence.
[42] Accordingly, we have concluded that the OEB did not exceed its jurisdiction in determining whether the 1957 Agreement had expired by the operation of the rule against perpetuities.
[43] We have reached the foregoing conclusion relating to the OEB’s jurisdiction without reference to s. 19 of the Perpetuities Act, under which that statute has only limited retroactive effect. The parties’ counsel did not bring that provision to the court’s attention in their written or oral submissions relating to jurisdiction (although the OEB’s factum referred to s. 19 in another context). Section 19 provides as follows:
Application of Act
- Except as provided in subsection 12 (2) and in section 18, this Act applies only to instruments that take effect on or after the 6th day of September, 1966, and such instruments include an instrument made in the exercise of a general or special power of appointment on or after that date even though the instrument creating the power took effect before that date. [Emphasis added].
[44] The 1957 Agreement took effect prior to September 6, 1966. Since ss. 12(2) and 18 of the Perpetuities Act appear to have no application in this case, the effect of s. 19 would be that it would not have been open to the parties to make an application to the Superior Court under s. 5 of Perpetuities Act to determine validity of their interests under the 1957 Agreement with respect to the rule against perpetuities. That being the case, had we considered s. 19 of the Perpetuities Act in deciding the above jurisdictional issue, that provision would have provided further support for the conclusion that the OEB did not exceed its jurisdiction in determining whether the 1957 Agreement had expired by the operation of the rule against perpetuities.
[45] Essex also makes an alternative jurisdictional argument if this court finds (as we have) that the OEB did not exceed its jurisdiction in determining whether the 1957 Agreement had expired by the operation of the rule against perpetuities, and further finds that the OEB did not err in law in concluding that the 1957 Agreement had expired on that basis. In those circumstances, Essex submits that the OEB had no jurisdiction to hear Enbridge’s renewal application, since the 1957 Agreement’s expiration pre-dated December 2, 1969. Section 10(6) of the MF Act provides that a franchise renewal application may not be made in respect of a right that expired before December 2, 1969, the date that s. 10 of the MF Act came into effect.
[46] As explained below, we have concluded that the OEB erred in law in determining that the 1957 Agreement had expired by the operation of the rule against perpetuities. Therefore, even though we see no merit to Essex’s submission regarding s. 10(6) of the MF Act, it is unnecessary to decide whether there were other valid bases for setting aside the OEB Decision, including other grounds for concluding that the OEB did not have jurisdiction to determine that the 1957 Agreement had expired.
VII. Application of rule against perpetuities – legal error
[47] Did the OEB err in law in determining that the 1957 Agreement had expired by the operation of the rule against perpetuities?
A. Legal principles
[48] The rule against perpetuities places a limit on the powers of property owners to designate who may enjoy beneficial ownership in the future. It does not directly seek to prevent restraints on alienation. It merely seeks to stop the creation of future interests that may take effect at too remote a time in the future: Canadian Encyclopedic Digest, “Perpetuities and Accumulations”, (Thomson Reuters Canada, 4th ed.) (“CED”), at I.1, citing Aldercrest Developments Ltd. v. Hunter, 1970 234 (ON CA), [1970] 2 O.R. 562 (Ont. C.A.). The rule against perpetuities does not deal with the duration of property interests, but rather with their commencement: CED, at II.A.2, citing Aldercrest.
[49] The rule against perpetuities applies to the disposition of real or personal property by any means: CED, at II.B.7. It applies to equitable or legal contingent interests, both in realty and personalty: CED, at II.B.15. The rule applies to contingent easements, profits à prendre and similar interests in real property: CED, at II.B.9, II.B.15. The rule is not otherwise applicable to contractual rights and has no application to personal contracts: CED, at II.B.7.
[50] The common law rule against perpetuities requires that an interest in property must vest, if at all, not later than 21 years after the determination of some “life in being” at the time of the interest’s creation that limits (or is a relevant factor in limiting) the period in which the interest will vest: CED, at II.A.2. Where no life in being is referenced, the perpetuity period is 21 years: Reyhani v. Karimov, 2019 ONSC 5290, at para. 12.
[51] If a property interest does not necessarily vest within the perpetuity period, it would be void at common law: CED, at II.B.9. In Ontario, that aspect of the rule against perpetuities has been varied by statute (to the extent applicable[^1]), under which there is a “wait and see” approach to determining if the rule against perpetuities is offended. If a contingent interest in property is capable of vesting either within or beyond the perpetuity period, it will generally be treated as valid at any particular time unless actual events establish that the interest is incapable of vesting within the perpetuity period: see Perpetuities Act, s. 4(1).
B. Essex’s position
[52] Essex submits that the OEB erred in determining that the 1957 Agreement had expired by the operation of the rule against perpetuities. In doing so, the OEB erred on a question of law, reviewable on a standard of correctness.
[53] In support of its position, Essex relies on two decisions of the Court of Appeal: Ottawa (City) v. ClubLink Corporation ULC, 2021 ONCA 847, 159 O.R. (3d) 255, leave to appeal refused, [2022] S.C.C.A. No. 17; and Clarke v. Kokic, 2018 ONCA 705, 94 R.P.R. (5th) 10, leave to appeal refused, [2018] S.C.C.A. No. 459.
[54] In ClubLink, at para. 2, the Court of Appeal stated that as a matter of public policy, the rule against perpetuities applies to extinguish “future interests [in property] dependent on unduly remote contingencies” (emphasis added). The rule invalidates contingent interests that “vest too remotely”, that is, longer than 21 years from creation: ClubLink, at para. 2. The rule does not restrict the duration of property interests, but rather the length of time that may elapse between the creation of a contingent interest and the vesting of that interest: Clarke, at para. 15.
[55] Essex submits that Enbridge’s right to use of the County's Roads under the terms of the 1957 Agreement is not a contingent property interest that is caught by the rule against perpetuities. The alleged contingent aspect of Enbridge’s franchise right is that its continuation beyond the initial ten-year period was “contingent on [Enbridge’s] continued transportation of gas”: OEB Decision, at p. 8. Essex submits that the franchise right was vested, not contingent. It had vested with the use of the County Roads for the supply of natural gas actually occurring under the 1957 Agreement and continuing to the present.
[56] Essex argues that the OEB erred in relying on the 2004 Divisional Court decision in Dawn-Euphemia (discussed further below) in support of the proposition that the rule against perpetuities operates to void the 1957 Agreement beyond 21 years. Essex says that the Court of Appeal’s subsequent decisions in Clarke and ClubLink are authoritative, and that the Divisional Court's determination in Dawn-Euphemia should not be followed.
C. Respondents’ position
[57] According to the respondents, Essex’s position that the OEB erred in determining that the 1957 Agreement had expired by the operation of the rule against perpetuities does not raise a question of law that is properly the subject of appeal under s. 33(2) of the OEB Act. The respondents submit that in taking that position, Essex is challenging how the OEB applied the rule against perpetuities to the terms of the 1957 Agreement, thereby raising a question of mixed fact and law: see ClubLink, at para. 12; Housen, at para. 26; Canada (Director of Investigation and Research) v. Southam Inc., 1997 385 (SCC), [1997] 1 S.C.R. 748, at para. 35. The respondents say that Essex has not identified a “readily extricable” error of law that may be the subject of appeal: see Housen, at para. 36; Vavilov, at para. 37.
[58] In any event, the respondents submit the OEB was correct in finding that the 1957 Agreement expired by the operation of the rule against perpetuities.
[59] The respondents say that the rule against perpetuities applies to extinguish an interest in land if the interest does not vest within 21 years. The application of the rule in this case involved two questions. First, did the 1957 Agreement create an interest in land? Second, were the rights conveyed future contingent interests exceeding the 21-year perpetuity period, or were they vested rights?: see Dawn-Euphemia, at para. 21 (referred to below).
[60] The respondents argue that the OEB applied the proper test and correctly answered these questions in the affirmative. The OEB found that (i) the franchise right was an interest in land, and that (ii) the interest was contingent on Enbridge’s continued transportation of gas and cannot be held and exercised in perpetuity without violating the rule against perpetuities: OEB Decision, at p. 8.
[61] The respondents also submit that the OEB properly followed the 2004 decision of this court in Dawn-Euphemia, which was binding on the OEB and remains good law. In that case (as in the current appeal), the Divisional Court considered an appeal from an OEB decision on an application for renewal of a gas franchise under s. 10(2) of the MF Act. The terms of the 1954 franchise agreement at issue in that case were in all material respects the same as the 1957 Agreement for purposes of the analysis on this issue. Those terms included the almost identically worded clause relating to the rights and privileges granted to Union Gas and their continuation beyond the initial term (in that case 20 years) “so long thereafter as the said line or lines are in actual use for the transportation of gas”: Dawn-Euphemia, at para. 20.
[62] The respondents submit that consistent with the OEB’s reasoning in the current appeal, the court in Dawn-Euphemia considered two principal issues relating to the application of the rule against perpetuities. First, did the franchise agreement create an interest in land (as opposed to contractual obligations under a licence)? Second, were the rights conveyed under the franchise agreement future contingent rights exceeding the 21-year perpetuity period or were they vested rights?: Dawn-Euphemia, at para. 21.
[63] On the first issue, the court found that the agreement conferred a franchise right, which was an interest in land akin to an easement: Dawn-Euphemia, at paras. 22-36. On the second issue, the court found that the interest was a future contingent interest that extends beyond the 21-year perpetuity period, stating that the gas utility’s rights to enter the land and build further transmission lines were contingent on future needs and not automatic: Dawn-Euphemia, at paras. 37-40. Accordingly, the court held that the franchise agreement expired at the end of its initial 20-year term: Dawn-Euphemia at para. 41.
[64] The respondents challenge Essex’s position that the Court of Appeal’s subsequent decisions in ClubLink and Clarke conflict with Dawn-Euphemia and should be followed instead of Dawn-Euphemia. They say that those cases are factually distinguishable and in any case are consistent with the enunciation and application of the rule against perpetuities in Dawn-Euphemia and the OEB Decision.
D. Analysis and conclusion
[65] We have concluded that the OEB erred in law in determining that the 1957 Agreement had expired by the operation of the rule against perpetuities.
[66] We agree with the respondents that the application of legal principles to the evidence is a question of mixed fact and law and are mindful that an appeal court should exercise caution in identifying extractable questions of law. However, as explained below, we have 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.
[67] In ClubLink, at para. 2, the Court of Appeal stated as follows:
Of ancient origin, the rule [against perpetuities] arises out of the public policy against the fettering of real property with future interests dependent upon unduly remote contingencies. It applies to extinguish an interest in land if the interest does not vest within 21 years. The rule does not apply to a contractual right that does not create an interest in land. It serves only to invalidate contingent interests in land that vest too remotely. [Emphasis added.]
[68] In ClubLink, at para. 44, the Court of Appeal adopted the following description of the underlying reason for the rules against perpetuities:
The rule against perpetuities springs from considerations of public policy. The underlying reason for and purpose of the rule is to avoid fettering real property with future interests dependent upon contingencies unduly remote which isolate the property and exclude it from commerce and development for long periods of time, thus working an indirect restraint upon alienation, which is regarded at common law as a public evil. [Emphasis added.]
[69] Based on the foregoing, we agree with Essex that the effect of the rule against perpetuities is to extinguish “future” property interests dependent upon “unduly remote contingencies”. Such future contingent interests are extinguished if they “vest too remotely”, that is longer than the 21-year perpetuity period: ClubLink, at para. 2. We also agree that the rule is not intended to restrict the duration of vested property interests, but rather the length of time that may elapse between the creation of a contingent interest and the vesting of that interest: Clarke, at para. 15.
[70] Applying those principles, we find that the OEB erred in law in determining that Enbridge’s franchise right to use of the County's Roads for the transmission of gas is a future contingent interest that is caught by the rule against perpetuities. The alleged contingent aspect of Enbridge’s franchise right was that its continuation beyond the initial ten-year period was contingent on the former Enbridge’s continued transportation of gas. That franchise right was a vested right and not contingent. The franchise right vested with the use of the County Roads for the supply of natural gas actually occurring under the 1957 agreement and continuing to the present. The rule against perpetuities does not restrict the duration of vested property rights: Clarke, at para. 15.
[71] The respondents argue that in the OEB Decision, the OEB properly followed the 2004 decision of this court in Dawn-Euphemia, relating to the appeal of a franchise renewal application under s. 10 of the MF Act. The relevant terms of the franchise agreement at issue in that case were substantially the same as the terms of the 1957 Agreement.
[72] As noted above, the court in Dawn-Euphemia considered two principal issues relating to the application of the rule against perpetuities. Most of that decision (as it related to the rule against perpetuities) addressed the first issue, that is, did the franchise agreement create an interest in land (which may be subject to the rule against perpetuities if the interest is contingent), as the gas utility argued, or was it a licence agreement (creating contractual rights not subject to the rule), as the municipality argued?: Dawn-Euphemia, at para. 21. While it appears that the first issue was vigorously contested in that case, counsel in the current appeal did not take issue with the court’s finding that the gas utility’s rights under the franchise agreement constituted an interest in property, rather than a licence.
[73] The second issue in contention in Dawn-Euphemia (as it was before the OEB and this court in the current appeal) was whether the rights conveyed under the franchise agreement were future contingent rights that exceeded the 21-year perpetuity period or whether they were vested rights: Dawn-Euphemia, at para. 21. The court’s consideration of this issue in Dawn-Euphemia was more cursory. The court 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 further transmission lines were contingent on future needs and not automatic: Dawn-Euphemia, at paras. 38-40.
[74] In making that finding, the court in Dawn-Euphemia (like the OEB in the current appeal) failed to appreciate the nature of interest that is subject to the rule against perpetuities. As indicated by the Court of Appeal in ClubLink and Clarke, the rule against perpetuities extinguishes future contingent property interests that may vest beyond the 21-year perpetuity period. It restricts the length of time that may elapse between the creation of a future contingent interest and the vesting of that interest. The rule does not restrict the duration of vested rights. Under the franchise agreement in Dawn-Euphemia (as in the current appeal), those rights vested with the use of the municipal land for the supply of natural gas actually occurring once the franchise agreement was entered into and continuing to the time of the franchise renewal application. Therefore, the gas utility’s franchise rights were not extinguished by the operation of the rule against perpetuities.
[75] We agree with Essex that the principles set out in ClubLink and Clarke are authoritative and binding on this court and the OEB. To the extent that the decision of this court in Dawn-Euphemia is inconsistent with those principles, the OEB should not have followed that decision.
VIII. Disposition
[76] Accordingly, judgment will issue (i) certifying this court’s opinion to the OEB in accordance s. 33(4) of the OEB Act that the 1957 Agreement has not expired and remains in effect, (ii) setting aside the OEB Decision, (iii) declaring that the common law rule against perpetuities does not apply to the 1957 Agreement, and (iv) ordering Enbridge to pay Essex’s costs of the appeal in the agreed amount of $15,000, with no costs being payable for or against the OEB.
___________________________ Sachs J.
___________________________ Backhouse J.
___________________________ Lococo J.
Date: February 12, 2024
CITATION: Essex (County of) v. Enbridge Gas Inc., 2024 ONSC 866
DIVISIONAL COURT FILE NO.: 23-259
DATE: 20240212
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Sachs, Backhouse and Lococo JJ.
BETWEEN:
THE CORPORATION OF THE COUNTY OF ESSEX Appellant
– and –
ENBRIDGE GAS INC. and ONTARIO ENERGY BOARD Respondents
REASONS FOR JUDGMENT
BY THE COURT
Date: February 12, 2024
[^1]: See s. 19 of the Perpetuities Act (referred to previously), under which that statute has only limited retroactive effect prior to September 6, 1966.