SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-11-423243
DATE: 20120613

RE: Enbridge Gas Distribution Inc.

Applicant

• and -

City of Toronto

Respondent

BEFORE: Justice S. M. Stevenson

COUNSEL:
Robert G. Doumani, for the Applicant

Rosanne Giulietti, for the Respondent

DATE HEARD: May 15, 2012

E N D O R S E M E N T

Introduction

[ 1 ] This is an Application brought by the Applicant, Enbridge Gas Distribution Inc. ("Enbridge"), for an order quashing By-law No. 358-10 ("By-law") of the Respondent, the City of Toronto ("City"), which was enacted on April 1, 2010. Specifically, Enbridge seeks to quash section 1 B. of the By-law, the Pavement Degradation Fee ("PDF"). Enbridge seeks to declare that the PDF By-law is ultra vires the City and of no force and effect against Enbridge. Enbridge also seeks a refund of the amount paid by Enbridge to the City pursuant to the PDF By-law and it is also seeking its costs of this Application.

[ 2 ] The PDF By-law imposes a pavement degradation fee per square metre of proposed excavation based on pavement type, pavement age and road type, to be paid by each person applying to excavate on a road of the City.

[ 3 ] Enbridge asserts that the by-law is ultra vires for the following reasons:

(a) there are no exceptions from the fees and charges set out in the By-law for utilities generally or for the gas transmission and distribution activities of Enbridge contrary to section 8 of O.Reg 595/06 ;

(b) the fee is not imposed for the purpose of recovering the City's reasonable costs of issuing permits contrary to section 9 of O.Reg 595/06 ;

(c) the fee is for the purpose of addressing the consequences of the use of the City's property and as such is contrary to section 259(1) (c) of the City of Toronto Act 2006, S.O. 2006, c. 11, Sch. A (the "COTA"); and

(d) the fee relates to the transportation of a natural resource; namely natural gas and is contrary to section 261(1) (e) of the COTA .

[ 4 ] The City's position is that the By-law is intra vires for the following reasons:

(a) the City has the jurisdiction to charge fees for permits for utility cuts;

(b) loss of the serviceable lifespan of a road is part of the City's reasonable costs for issuing the permit;

(c) the fee is ancillary or adhesive to a valid regulatory scheme; and

(d) the revenue from the fee is reasonably related to the costs of the regulatory scheme.

Relevant Statutory Provisions

[ 5 ] The City derives its jurisdiction from the COTA . Section 2 of the COTA sets out the purposes of the COTA as follows:

The purpose of this Act is to create a framework of broad powers for the City which balances the interests of the Province and the City and which recognizes that the City must be able to do the following things in order to provide good government:

1. Determine what is in the public interest for the City.

2. Respond to the needs of the City.

3. Determine the appropriate structure for governing the City.

4. Ensure that the City is accountable to the public and that the process for making decisions is transparent.

5. Determine the appropriate mechanisms for delivering municipal services in the City.

6. Determine the appropriate levels of municipal spending and municipal taxation for the City.

7. Use fiscal tools to support the activities of the City.

[ 6 ] Other sections of the COTA applicable to this Application are portions of sections 7, 8 , 12, 259(1) , 261(1) (e), and 266 as follows:

7. The City has the capacity, rights, powers and privileges of a natural person for the purpose of exercising its authority under this or any other Act. 2006, c. 11 , Sched. A, s. 7.

8. (1) The City may provide any service or thing that the City considers necessary or desirable for the public.

(2) The City may pass by-laws respecting the following matters:

1. Governance structure of the City and its local boards (restricted definition).

2. Accountability and transparency of the City and its operations and of its local boards (restricted definition) and their operations.

3. Financial management of the City and its local boards (restricted definition).

4. Public assets of the City acquired for the purpose of exercising its authority under this or any other Act.

5. Economic, social and environmental well-being of the City.

6. Health, safety and well-being of persons.

7. Services and things that the City is authorized to provide under subsection (1).

8. Protection of persons and property, including consumer protection.

9. Animals.

10. Structures, including fences and signs.

11. Business licensing.

(3) Without limiting the generality of section 6, a by-law under this section respecting a matter may,

(a) regulate or prohibit respecting the matter;

(b) require persons to do things respecting the matter;

(c) provide for a system of licences respecting the matter.

(4) The power to pass a by-law respecting a matter set out in a paragraph of subsection (2) is not limited or restricted by the power to pass a by-law respecting a matter set out in another paragraph of subsection (2).

12. (1) If the City has the power to pass a by-law under section 7 or 8 and also under a specific provision of this or any other Act, the power conferred by section 7 or 8 is subject to any procedural requirements, including conditions, approvals and appeals, that apply to the power and any limits on the power contained in the specific provision.

13. (1) Without limiting sections 7 and 8 , those sections authorize the City to pass by-laws imposing fees or charges on persons,

(a) for services or activities provided or done by or on behalf of it;

(b) for costs payable by it for services or activities provided or done by or on behalf of any other municipality or any local board; and

(c) for the use of its property including property under its control. 2006, c. 32 , Sched. B, s. 52 (1).

261. (1) No fee or charge by-law shall impose a fee or charge that is based on, is in respect of or is computed by reference to,

(e) the generation, exploitation, extraction, harvesting, processing, renewal or transportation of natural resources. 2006, c. 11 , Sched. A, s. 261 (1); 2006, c. 32 , Sched. B, s. 54.

266. The Minister of Municipal Affairs and Housing may make regulations providing for any matters which, in the opinion of the Minister, are necessary or desirable for the purposes of this Part, including,

(a) providing that the City or a local board (extended definition) does not have the power to impose fees or charges for services or activities, for costs payable for services or activities, for use of municipal property or on the persons prescribed in the regulation;

[ 7 ] Sections 8 and 9 of O. Reg. 595/06 are also applicable to this Application:

8. The City and a local board (extended definition) do not have the power under the Act to impose a fee or charge on a generator, transmitter, distributor or retailer, as these terms are defined in section 2 of the Electricity Act, 1998 , or on a producer, gas distributor, gas transmitter or storage company, as these terms are defined in section 3 of the Ontario Energy Board Act, 1998 , for services or activities, costs payable or the use of property with respect to wires, cables, poles, conduits, pipes, equipment, machinery or other works that,

(a) are or will be located on a municipal highway; and

(b) are or will be used as part of the business of the generator, transmitter, distributor, retailer, producer, gas distributor, gas transmitter or storage company, as the case may be.

Permits for works described in ss. 7 and 8

9. Nothing in subsection 7 (1) or section 8 prevents the imposition of fees or charges to recover the City’s or local board’s (extended definition) reasonable costs for issuing permits with respect to the works described in those provisions,

(a) to place the works on a municipal highway; and

(b) to cut the pavement of or otherwise dig up a municipal highway for the works.

The Jurisdiction to Quash a By-Law

[ 8 ] Section 214 of the COTA provides that upon the Application of any person, "the Superior Court of Justice may quash a by-law.....of the City in whole or in part for illegality." As stated by Penny J. in the recent decision of Pattison Outdoor Advertising LP v. Toronto (City) , [2011] O.J. No. 925, 2011 ONSC 537 (S.C.J.) at para. 15 : "…The power to quash a by-law for illegality is discretionary. This discretion must be exercised judicially and in accordance with established principles of law."

[ 9 ] The question of whether a by-law is ultra vires the jurisdiction of the municipality is a question of law which is reviewed on a standard of correctness. In determining this question, the courts are to take a broad and purposive approach to the construction and interpretation of municipal powers as was stated in the decision of the Ontario Court of Appeal in Cash Converters Canada Inc. v. Oshawa (City) , [2007] O.J. No. 2613, 2007 ONCA 502 , at para. 20 .

[ 10 ] By-laws are presumed to be valid and the onus is on the applicants to prove otherwise. "…The modern approach presumes that municipal by-laws are validly enacted absent ‘clear demonstration’ that the by-law was beyond the municipality's powers....". (See: Ontario Restaurant Hotel & Motel Association v. Toronto (City), 2005 36152 (ON CA) , [2005] O.J. No. 4268 at para. 3 .)

Issues

[ 11 ] The following are the issues for determination:

(i) Is section 1. B of By-law No. 358-10 contrary to sections 8 and 9 of O. Reg. 595/06 , section 259(1)(c) or section 261(1)(e) of the COTA and therefore ultra vires the City, or is the PDF intra vires the City as being ancillary to a valid regulatory scheme and is there a reasonable nexus between the PDF and the regulatory scheme?

[ 12 ] Under section 259(1) of the COTA , the City has broad jurisdiction to impose fees and charges for services or activities provided or done by or on behalf of it, for costs payable by it for services or activities provided or done by or on behalf of any other municipality, or any local board and for the use of its property, including property under its control.

[ 13 ] Under section 259(3) of the COTA , the costs included in a fee or charge incurred by the City may be related to administration, enforcement and the establishment, acquisition and replacement of capital assets.

[ 14 ] However, the City's authority to impose fees on natural gas distributors is partly limited by section 8 of O. Reg. 595/06 which does not allow the City to impose charges for services or activities with respect to "wires, cables, poles, conduits, pipes, equipment, machinery or other works" that "are or will be located on a municipal highway" and "are or will be used as part of the business of the ...gas distributor".

[ 15 ] Additionally, the City's authority to impose fees on natural gas distributors is also limited by s. 261(1) (3) of the COTA which states that any fee cannot be in respect of or computed by reference to the generation, exploitation, extraction, harvesting, processing, renewal or transportation of natural resources.

[ 16 ] Despite the limitations in section 8 , under section 9 of O. Reg. 595/06 , the City is not precluded from imposing fees or charges to recover the City's "...reasonable costs for issuing permits with respect to works described in those provisions (sections 7(1) and 8) (a) to place the works on a municipal highway; and (b) to cut the pavement of or otherwise dig up a municipal highway for the works".

Enbridge's Position

[ 17 ] Enbridge submits that the By-law does not provide any exemptions for Enbridge in respect of the fees or charges specified in it and therefore the By-law is ultra vires as it is contrary to section 8 of O. Reg. 595/06 . Enbridge also submits that the By-Law is for the purpose of recovering the alleged cost consequences of cuts to the pavement and not the recovery of the cost of issuing the permit. This purpose is also ultra vires as it is Enbridge submits, contrary to section 9 of O. Reg. 595/06.

[ 18 ] Enbridge also submits that the By-law is not authorized by section 259(1) (c) of the COTA as the By-law was passed for the purpose of addressing an alleged premature degradation of the pavement due to utility cuts. They submit that the fee is being imposed by reason of the alleged consequences of the use and not the use itself of the City's roads and therefore this is unauthorized by section 259(1)(c) of the COTA.

[ 19 ] Enbridge also submits that the PDF imposed by the By-law arises from the cutting of City roads to install, maintain or replace pipes carrying natural gas, which is a natural resource. They submit further that the By-law is in respect of the transportation of a natural resource which is explicitly precluded in section 261(1)(c) of the COTA and is therefore ultra vires .

[ 20 ] Enbridge also relies upon section 12 of the COTA for its position that "...the power conferred by sections 7 or 8 is subject to any procedural requirements, including conditions, approvals and appeals, that apply to the power and any limits on the power contained in the specific provision." Enbridge's position is that section 12 (1) codifies the principle enunciated by the Supreme Court of Canada in 114957 Canada Ltée (Spraytech, Société d'arrosage) v. Hudson (Town), 2001 SCC 40 () , [2001] S.C.J. No. 42 where the Court stated at para. 52:

In the case of a specific grant of power, its limits must be found in the provision itself. Non-included powers may not be supplemented through the use of the general residuary clauses often found in municipal laws ( R. v. Greenbaum , 1993 166 (SCC) , [1993] 1 S.C.R. 674).

[ 21 ] It is Enbridge's position that there is no power to establish the PDF and as stated in 114957 Canada Ltée at paragraph 49: "...Although such a grant of power must be construed reasonably and generously ( Nanaimo (City) v. Rascal Trucking Ltd., [2000] 1 S.C.R. 342, 2000 SCC 13 ), it cannot receive such an interpretation unless it already exists. Interpretation may not supplement the absence of power."

[ 22 ] Enbridge also submits that the City's position that the By-law is intra vires as part of a regulatory scheme is incorrect. They submit that there is no regulatory scheme within the By-law and there is no specific language of regulation contained within the By-law itself.

City's Position

[ 23 ] The City submits that the position taken by Enbridge that section 8 of O. Reg. 595/06 prevents the imposition of the PDF on it because it is a gas distributor and that section 261(1) (e) of the COTA prevents the imposition of the PDF because Enbridge's business is in respect of the transportation of a natural resource, renders section 9 of O. Reg. 595/06 a nullity and that certainly could not have been the intention of the legislature.

[ 24 ] The City relies upon Urban Outdoor Trans Ad v. Scarborough (City) (2001), 52 O.R. (3d) 593 (C.A.) at para. 21 in support of its position that: "There is a presumption that the legislature did not intend to make contradictory enactments and thus the test for finding an inconsistency between two pieces of legislation is a stringent one." The City further submits that the imposition of a permit fee on a gas distributor for utility cuts, is clearly and specifically, permitted by the enabling legislation.

[ 25 ] The City also states that pursuant to section 64 of the Legislation Act, 2006, S.O. 2006, Chap. 21 Schedule F., the COTA is remedial legislation and therefore "shall be given such fair, large and liberal interpretation as best ensures the attainment of its objects." It also submits that where municipal by-laws are susceptible to more than one interpretation, they must be read to fit within the parameters of the empowering provincial statute as was stated in 114957 Canada Ltée at para. 21. Accordingly, the City submits that the phrase "reasonable costs for issuing permits" should therefore be read generously and deferentially to encompass costs causally-connected to the issuance of the permit, including the reasonable costs of the regulatory scheme for the management of utility cuts and of the City's roads.

[ 26 ] It is also the City's position that it is well-established law that a permit or licensing fee may recover more than the sole costs of administering the paperwork as it may also extend to the costs ancillary and adhesive to a regulatory scheme. It submits that there are numerous decisions where courts have upheld permit fees where fees were collected for purposes other than the costs of the paperwork. The City relies upon the decisions of Urban Outdoor Trans Ad v. Scarborough (City) (2001), 52 O.R. (3d) 593 (C.A.) at para. 35 ; 620 Connaught Ltd. v. Canada (Attorney General) , 2008 SCC 7 () , [2008] S.C.J. No. 7 (S.C.C.) at para. 38 ; Allard Contractors Ltd. v. Coquitlam (District), [1993] 4 S.C.R. (S.C.C.) 371 at para. 46; Falardeau v. Hinton (Town) , 1983 1134 (AB KB) , [1983] A.J. No. 693 (Q.B.) at para. 9 ; and Ontario Private Campground Association v. Georgian Bay (Township) , [2000] O.J. No. 2496 (S.C.J.) at para. 12 . in support of its position.

[ 27 ] The City also submits that the PDF is an integral part of the City's overall regulatory system for the management of City roads generally and of utility cuts specifically. The City relies upon the Supreme Court of Canada decisions of 620 Connaught Ltd. at para. 25 and Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 655 (SCC) , [1999] 3 S.C.R. 134 (S.C.C.) at para. 24 where the Court outlined the features of a regulatory scheme which include:

(1) a complete, complex and detailed code of regulation;

(2) a regulatory purpose which seeks to affect some behaviour;

(3) the presence of actual or properly estimated costs of the regulation; and

(4) a relationship between the persons being regulated and the regulation, where the person being regulated either benefits from, or causes the need for, the regulation.

As the Court in Westbank First Nation stated, not all of these factors must be present and the list is not exhaustive.

[ 28 ] The City submits that the PDF is part of the City's overall pavement management system which governs more than 5,600 kilometres of paved roadway. The PDF was one of the proposed improvements to the City's regulation of the utility cut process that were set out in the staff report entitled "Improvements to the Utility Cut Management Process (the "Report") and which was considered by City Counsel. Both Enbridge and the City relied upon the Report in their materials and submissions for the hearing of this Application.

[ 29 ] Additionally, the City submits that the terms, conditions and requirements of a utility cut permit are outlined in the City's document entitled "Municipal Consent Requirements for the Installation of Plant Within City of Toronto Streets" ("MCR").

[ 30 ] The City submits that:

(1) The regulatory scheme described in the MCR and in the Report is a complex, comprehensive system for utility cut management and preservation of Toronto's roads. The permit conditions in the MCR set out the policies, procedures and processes the City has put into place to address the challenges of utility cuts;

(2) The regulatory purpose is the protection, maintenance and repair of the City's road infrastructure by setting standards and conditions on permit holders, as outlined in the MCR;

(3) The actual costs of repairing the roads was used in the calculation of the PDF; and

(4) The need for regulation of utility cuts was caused by the actions of those who are being regulated and the utilities benefit from the maintenance of the roads they use to deliver their resources.

[ 31 ] The City relies upon Westbank First Nation at para. 44 and 620 Connaught Ltd. at para. 38 for the principle that once there is a regulatory scheme found, the second step of the analysis of a permit fee is a consideration of whether a charge is "connected or adhesive" to that scheme. In order for a regulatory charge intended to defray the costs of a regulatory scheme to be connected, the fee revenue must be tied to the costs of the regulatory scheme. The connection will exist "when the revenues are tied to the costs of the regulatory scheme, or where the charges themselves have a regulatory purpose, such as the regulation of certain behaviour" ( Westbank First Nation at para. 44 ).

Disposition

[ 32 ] I find that section 1.B of City of Toronto By-law No. 358-2010 is not ultra vires the City and should not be quashed.

[ 33 ] As indicated, the courts take a broad and purposive approach to the interpretation of municipal powers and there is the presumption of validity of a municipal by-law. The onus is on Enbridge in this Application to prove otherwise and Enbridge has not met that onus. As in Ontario Restaurant Hotel & Motel Association v. Toronto (City) , there must be a "clear demonstration" that the by-law was beyond the City's powers, which is not the case here.

[ 34 ] Section 1 A. of the By-law sets a full stream utility cut application fee to review the application and monitor the work. The fee is set at $600.00 payable upon application. Enbridge takes no issue with this section of the By-law as it deems this an allowable permit fee. However, this does not mean that the PDF is also not a permit fee and I find that section 9 of O. Reg 595/06 specifically authorizes the City to charge a permit fee.

[ 35 ] The PDF is part of an overall scheme that includes various charges and fees which are properly chargeable under section 9 of O. Reg. 595/06 , as I find these are reasonable costs for issuing the permit as allowed under section 9. There is much case law, as stated by counsel for the City and referenced earlier in this decision, where it was found that a city or municipal body could recover valid permit fees when these fees are connected to a valid regulatory scheme. These are not just fees permitted for the processing of paperwork.

[ 36 ] The City can properly charge for the costs causally connected to the maintenance of the roads and this can be properly charged as a permit fee under section 9 of O. Reg. 595/06 . Both counsel submit that the court cannot examine the reasonableness of the By-law. However, the court is entitled in determining the extent of the City's powers to look at what the legislature directed as the purpose behind the COTA and the purpose behind the City's powers. The legislature did not want to leave the City without the power to regulate how these cuts were completed or leave the City without the power to cover its costs.

[ 37 ] The PDF is one of the proposed improvements to the City's regulation of the utility cut process that were set out in the Report and the terms, conditions and requirements of a utility cut permit are outlined in the MCR. This is all part of the regulatory scheme to manage the City's roads and utility cuts and the fee revenue is tied to the costs of the regulatory scheme. There is a reasonable nexus between the fee and the regulatory scheme.

[ 38 ] I agree with the submissions of counsel for the City, that the position taken by Enbridge that section 8 of O. Reg. 595/06 and section 261(1) (e) of the COTA prevent the imposition of the PDF on Enbridge because it is a gas distributor, would in effect render section 9 of O. Reg. 595/06 a nullity and this was certainly not the intention of the legislature when it granted the City the right to impose fees and charges to recover its "reasonable costs for issuing permits with respect to works described in those provisions....".

[ 39 ] With respect to the submissions of Enbridge that the fee is contrary to s. 259(1) (c) of the COTA , I find that the fee is not for the “use” of the property as it does not matter why the road was dug up. Rather, it is to recover the costs of degradation of the road by virtue of having dug up the road. It is the digging up, not the fact that it is to install or maintain pipes, that is the cause of the fee within the meaning of the By-law.

[ 40 ] For these reasons, I would dismiss the Application of Enbridge.

Order

[ 41 ] The Application of the Applicant, Enbridge Gas Distribution Inc. is dismissed.

[ 42 ] I urge the parties to agree on costs, but if they are unable to do so, any party seeking costs shall submit brief written submissions, not to exceed two double-spaced pages, along with a Costs Outline within 20 days. Responding submissions, subject to the same limitations, from any party being asked to pay costs, shall be submitted 14 days thereafter.

Stevenson J.

DATE: June 13, 2012