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Energy - Ontario Energy Board (2)

. Essex (County of) v. Enbridge Gas Inc.

In Essex (County of) v. Enbridge Gas Inc. (Div Court, 2023) the Divisional Court considered an appeal from the decision of the OEB where it had "found that the pre-existing 1957 franchise agreement between Essex and Enbridge had expired by operation of the common law rule against perpetuities" and ordered it's renewal under the Municipal Franchises Act (MFA).

In these quotes the court considers the 'rule against perpetuities' issue, here regarding whether the franchise agreements had expired:

[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.

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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.

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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

19. 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.

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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.