SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-13-483603

DATE: 2014-07-17

RE: Metrolinx, Applicant

– AND –

Enbridge Gas Distribution Inc., Respondent

BEFORE: Justice E.M. Morgan

COUNSEL:
Wendy Earle and Matthew Furrow, for the Applicant

Cynthia Sefton and Meghan Cowan, for the Respondent

HEARD: July 16, 2014

REASONS FOR JUDGMENT

[1] The Applicant (“Metrolinx”) operates an urban rail transit service and the Respondent (“Enbridge”) operates a gas utility. When an Enbridge gas pipeline crosses a Metrolinx rail corridor, which one bears the cost of the pipe’s relocation?

[2] At issue in this Application is the cost of removing and relocating gas pipelines belonging to Enbridge at six sites in which the pipes cross a Metrolinx rail corridor known as the Weston Subdivision. The Enbridge pipes run along the length of a number of municipal road allowances, and the rail line crosses these roads and gas pipes at various points.

[3] The predecessor to Metrolinx, the Greater Toronto Transit Authority (“GTTA”), acquired the Weston Subdivision rail corridor from Canadian National Railway Company (“CN”) by way of an Agreement of Purchase and Sale dated March 31, 2009 (the “Purchase Agreement”). Since its acquisition, Metrolinx has operated an urban rail transit system on the Weston Subdivision corridor.

[4] The Purchase Agreement assigned to GTTA all of CN’s interest in the property of which the rail corridor is comprised, together with all of the rights and obligations appurtenant thereto. These included CN’s interest in certain “Crossing Agreements” with Consumers Gas Company of Toronto (“Consumers Gas”), Enbridge’s predecessor company. These Crossing Agreements were incorporated into GTTA’s acquisition of the Weston Subdivision rail corridor by virtue of Art.1.04 of the Purchase Agreement. Under Art. 5.01(12) of the Purchase Agreement, CN warranted and represented that it has the lawful right to assign and transfer the Crossing Agreements to the purchaser without notice to or approval of any third party or any regulatory authority.

[5] There were numerous Crossing Agreements signed between CN and Consumers Gas over many decades, each pertaining to a specific location. Schedule H to the Purchase Agreement included all of the relevant Crossing Agreements, which, for the convenience of the parties, were consolidated into one overarching “Assignment, Assumption and Indemnification Agreement” signed March 31, 2009 (the “Schedule H Agreement”). The recital to the Schedule H Agreement provides “AND WHEREAS the Assignor has agreed to assign to the Assignee all of the Assignor’s right, title and interest in and to the Crossing Agreements and the Crossing Rights…”

[6] A review of the relevant documents leaves no doubt that Crossing Agreements relating to the six crossings at issue between Metrolinx and Enbridge were assigned by CN to GTTA under the Purchase Agreement and the Schedule H Agreement. In Art.3 of the Schedule H Agreement, the Assignee accepts the assignments and agrees with the assignor to assume and perform all of the assignor’s covenants and obligations under the Crossing Agreements. CN also warrants and represents that “the Crossing Agreements are good, valid and subsisting agreements, that the Assignor has the right, power and authority to assign the Crossing Agreements…”

[7] For even greater certainty, CN and GTTA entered a General Assignment and Assumption Agreement dated March 30, 2011 (the “General Assignment Agreement”). This document makes it clear, in case anything was left out of the Purchase Agreement and the Schedule H Agreement, that everything CN had relating to the stretch of track at issue has been assigned to Metrolinx. The commercial intent of the overall series of agreements is that Metrolinx, as successor to GTTA, would have all of CN’s rights and obligations relating to the Weston Subdivision railway corridor. CN was to have no further involvement in this railway property.

[8] The six crossings at issue here are covered in Crossing Agreements entered into by CN and Consumers Gas between the years 1928 and 1976. They all contain relatively similar terms and are drafted in relatively similar language. With respect to the fundamental question at issue between the parties – who bears the cost in the event that the rail line requires a gas pipe’s relocation or removal at a crossing point? – the agreements all give the same answer: Consumers Gas (i.e. Enbridge).

[9] Two of the Crossing Agreements have identical clauses covering the cost of removal issue. The John Street Crossing Agreement dated July 10, 1958 and the Weston Road Crossing Agreement dated September 4, 1963 provide:

Should it become necessary or expedient for the purposes of repair or improvement on the said railway that the said pipe crossing be temporarily removed or relocated the applicant [i.e. Consumers Gas, now Enbridge] shall upon request of the railway and at the sole cost and expense of the applicant forthwith remove or relocate the works.

[10] Another two of the Crossing Agreements, the King Street Crossing Agreement and the Strachan Avenue Crossing Agreement (pertaining to two different crossings), contain a similar clause with only a minimal wording difference:

Should it become necessary or expedient for the purposes of repair or improvement on the said railway that the said works [i.e. the pipe crossing] be temporarily removed or relocated the applicant [i.e. Consumers Gas, now Enbridge] shall upon request of the railway and at the sole cost and expense of the applicant forthwith remove or relocate the works.

[11] The Church Street Crossing Agreement dated April 2, 1928 is a much earlier version of a CN-Consumers Gas Crossing Agreement. It refers to, and incorporates by reference, the terms of certain General Orders of the Railway Commissioners of Canada dated May 26, 1911 and April 19, 1911, as amended on August 7, 1919. These General Orders also provide for the costs to be borne by the gas utility rather than the railway:

All work in connection with the laying, maintaining, renewing and repairing of the said pipe and the continued supervision of the same shall be performed by, and all costs and expenses thereby incurred be borne and paid by, the Applicant [i.e. Consumers Gas, now Enbridge].

[12] On January 1, 1997, CN and Enbridge entered into a Master Utility Agreement that incorporated a large number of existing Crossing Agreements. The Master Utility Agreement provided that the removal or alteration of the gas pipe crossings would be subject to a document entitled the Guide to Pipe and Wire Process (the “Guide”). Appendix D to the Guide contains the provisions on “Removal or Alterations of Crossings”, paragraph 4 of which states:

…should it become necessary or expedient for the purposes of alterations in Railway property, facilities or operations of the Railway that any Crossing be relocated or modified, the Company [i.e. Consumers Gas, now Enbridge] shall, upon ninety (90) days’ prior written notice from the Railway, use its best efforts to relocate or modify, at the Company’s expense, any such Crossing in order to accommodate such alterations.

[13] The Metrolinx position is that the Crossing Agreements as consolidated by the Master Utility Agreement and assigned to GTTA under the Purchase Agreement and Schedule H Agreement, and now inherited by Metrolinx, are enforceable as against Enbridge as the successor to Consumers Gas. Enbridge concedes that it is the successor to Consumers Gas, but argues that these agreements apply only to gas pipes that run along land owned by CN, and not to pipes that run along municipal road allowances. It submits that where its pipes run along road allowances, the contracts originally entered with CN and assigned to Metrolinx are inapplicable.

[14] Enbridge’s position is not borne out by the language of the Crossing Agreements. I also note that among the various representations and warranties given by CN to GTTA in Art.5.01 of the Purchase Agreement, CN assured its assignee that it has the lawful right and authority to cross over public roads and highways”. It is self-evident that this representation and warranty would have been unnecessary if the assignment did not pertain to Crossing Agreements relating to gas pipes running along municipal road allowances.

[15] Counsel for Enbridge further submits that the Crossing Agreements, with their provisions for the gas utility rather than the railroad to bear the cost of any removal or relocation, arose by virtue of the fact that CN is a federally regulated railroad. The payment terms, counsel submits, were compelled by the predecessor to the Canada Transportation Act, S.C. 1996, c. 10 and regulations thereunder. The argument goes on to contend that since Metrolinx is not a railroad, but rather is a provincial Crown agency operating an urban transit system, it is not subject to federal jurisdiction.

[16] It is certainly the case that Metrolinx is not a federally regulated railway. Indeed, Metrolinx has itself taken this position in proceedings before the federal regulator: see Canadian Transportation Agency, Decision No. 291-R-2009, July 9, 2009. Counsel for Enbridge submits in her factum that “it would be an abuse of process for Metrolinx to be permitted to litigate its right to obtain any benefit from the federal legislation, when it has successfully litigated in the past that it is not a railway and thereby avoided federal railway obligations.”

[17] Counsel for Metrolinx responds to this jurisdictional argument by pointing out that Metrolinx is not relying on any statutory instrument as a source of its rights. It is not claiming to be a federally regulated railway that could impose the payment obligations found in the General Orders or Regulations under the current or any previous version of the Canada Transportation Act.

[18] Rather, the rights claimed by Metrolinx and the payment obligations of Enbridge were granted to CN by Consumers Gas as a matter of contract, and were assigned by CN to GTTA (and inherited by Metrolinx) as a matter of contract. Like all market transactions, they occurred within a particular regulatory environment, but that fact does not undermine the contractual nature of the rights and obligations in question.

[19] Metrolinx’ position accurately reflects the governing documentation and legal state of affairs between the parties. It may well be the case that the Crossing Agreements were an outgrowth of federal regulations that prevailed at the time of their signing. Nevertheless, they are valid contracts, and remain so whether or not the relevant federal regulations continue to govern either of the parties.

[20] The Canada Transportation Act and Regulations could have been amended or repealed subsequent to the signing of the Crossing Agreements, in much the same way that any regulated industry could be subject to regulatory change; a change in the governing regulations does not, however, nullify all contracts that the regulated entity entered in meantime.

[21] The fact that Metrolinx is not governed by federal jurisdiction does not mean that the rights it acquired from a federally regulated company such as CN are unenforceable. If that were the case, federal entities could only transact with other federal entities, Ontario entities with other Ontario entities, etc.

[22] By way of simple illustration, the purchase of alcohol products in Ontario is subject to, and the purchase price for alcohol products is directly related to, Ontario’s strict regulatory environment. That fact would not undermine a contract in which an Alberta purchaser bought from a regulated Ontario supplier. The contract of sale would be valid whether or not the purchaser were subject to the same regulatory regime as the seller, and whether or not the seller’s regulatory regime remained intact after the purchaser took delivery.

[23] The law of contract, in other words, operates across jurisdictions – whether inter-provincial or federal-provincial. Having been assigned CN’s rights, Metrolinx is entitled to enforce them regardless of the fact that it operates within a different regulatory regime.

[24] On January 31, 2012, Metrolinx and Enbridge entered into a Pipeline Relocation Agreement that required Enbridge to remove or relocate the relevant pipelines at the crossing sites, and authorized Enbridge to invoice Metrolinx for this work. Metrolinx paid Enbridge for the costs of the pipeline work without prejudice to Metrolinx’ right to seek a declaration from this court that Enbridge is responsible for payment of these costs.

[25] Enbridge has in fact completed the work required to remove or relocate the gas pipes in issue, and has invoiced Metrolinx a total of $2,303,289.38 as of June 24, 2013. This amount has been paid by Metrolinx, and Metrolinx seeks to be reimbursed. Since the terms of the Crossing Agreements, as brought forward and incorporated into the Master Utility Agreement and other documents discussed above, are valid and enforceable by Metrolinx against Enbridge, Metrolinx has a right to reimbursement.

[26] Enbridge shall pay Metrolinx $2,303,289.38. Enbridge shall further reimburse Metrolinx for any other amounts paid by Metrolinx to Enbridge to remove and/or relocate and/or replace the pipelines at the six crossing sites in issue. Enbridge shall also pay Metrolinx pre and post judgment interest pursuant to the Courts of Justice Act, R.S.O. 1990, c. C.43 on all amounts owing to Metrolinx in respect of the work done at the six crossing sites.

[27] The parties are encouraged to come to an agreement on costs, failing which they may make written submissions. These submissions should be sent directly to me, and are to be limited to a Costs Outline and no more than 3 pages. Counsel for Metrolinx should provide me with her submissions within two weeks of today, and counsel for Enbridge should provide me with hers within two weeks thereafter.

Morgan J.

Date: July 17, 2014