Docket: A-115-16
Citation:
2017 FCA 159
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CORAM:
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NEAR J.A.
BOIVIN J.A.
RENNIE J.A.
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BETWEEN:
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MICHAEL SAWYER
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Appellant
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and
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TRANSCANADA
PIPELINE LIMITED and PRINCE RUPERT GAS TRANSMISSION LTD. and NATIONAL ENERGY
BOARD
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Respondents
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REASONS
FOR JUDGMENT
RENNIE J.A.
[1]
Subsection 12(1) of the National Energy Board
Act, R.S.C. 1985, c. N-7 (Act) authorizes the National Energy Board to
inquire into, hear, and determine any matter “where it
appears to the Board that the circumstances may require the Board, in the
public interest,” to make any order or decision. The appellant, Mr. Sawyer,
felt that the respondents’ proposed 900 kilometre pipeline should be subject to
the jurisdiction and regulatory review of the Board. The Board disagreed. It
concluded that Mr. Sawyer had not established a “prima
facie case” that the pipeline was a federal work or undertaking
within paragraph 92(10)(a) of the Constitution Act, 1867, and
that, in consequence, the Board had no jurisdiction. Mr. Sawyer appeals that
decision.
[2]
Subsection 12(1) of the Act grants the Board “full and exclusive jurisdiction” to determine whether
an inquiry would be in the public interest. Public interest determinations made
in a regulatory context engage discretionary considerations usually within the
expertise of the Board, and subsection 22(1) of the Act limits appeals from
Board decisions to this Court to questions of law and jurisdiction. The scope
of appellate intervention in respect of a decision made under subsection 12(1)
is therefore limited.
[3]
This, however, is not an ordinary case. The
Board defined the public interest to be determined solely by a question
of constitutionality—specifically, whether the respondents’ proposed pipeline
was a federal work and undertaking within the ambit of paragraph 92(10)(a)
of the Constitution Act. If the Board had been satisfied that a prima
facie case for jurisdiction had been made out, it would have proceeded to a
full hearing on the question whether it had jurisdiction. Only after that
hearing, and only if it decided that it had jurisdiction, would the full
regulatory review process be triggered.
[4]
In this case, the Board held that a prima
facie case had not been made out and that the pipeline was not within
Parliament’s legislative competence. A final determination was therefore made
on a question of constitutional jurisdiction.
[5]
As might be anticipated, the appellant and
respondents diverged on the nature of the decision in question. The appellant stressed
the substance of the decision, namely one of constitutionality, and hence
contended that the decision gave rise to a question of law and ought to be subject
to a correctness review. The respondents, on the other hand, characterized the
decision as a discretionary gatekeeping decision, one which was within the
authority of the Board to make as part of its ability to determine the limits
of its jurisdiction and manage its own agenda. However, the argument before
this Court focused on whether the Board had reached, albeit on a preliminary
basis, the correct conclusion with respect to the substantive constitutional
question; whether the pipeline proposal was a work or undertaking within the
scope of paragraph 92(10)(a) of the Constitution Act. In my view,
the argument before this Court mirrored the reality of the Board’s decision,
which was, in substance, a determination of a constitutional issue.
[6]
I agree with the respondents that subsection
12(1) of the Act grants a broad discretionary power the exercise of which would
seldom give rise to a question of law or jurisdiction. Situations can readily
be envisaged in which the public interest would support a decision not to hear
an application. Those would include situations where a hearing was premature,
where another decision was pending, where there were pending regulatory or
legislative changes, where the parties requested the application be held in
abeyance for commercial or operational reasons, or where the application was
frivolous or vexatious. It may even decline to determine a threshold
jurisdictional issue where the record is inadequate. However, none of those
considerations were at play in this case. The Board’s determination of the
public interest hinged entirely on the outcome of the constitutional analysis.
[7]
The Board – having defined the public interest
wholly in terms of the question of constitutionality, which is a question of
both law and jurisdiction – triggered the standard of review corresponding to
the determination of constitutional questions. Constitutionality is one of the
few issues that remain subject to correctness review. This has been the case
since Dunsmuir v. New Brunswick, 2008 SCC 9 at para. 58, [2008] 1 S.C.R.
190 [Dunsmuir] and remains so today: Edmonton (City) v. Edmonton East
(Capilano) Shopping Centres Ltd., 2016 SCC 47, [2016] 2 S.C.R. 293 [Edmonton
East].
[8]
The rationale underlying this principle is that
the expertise of the Board is not in respect of legal analysis of the
constitution: Dunsmuir at paras. 58-61; Westcoast Energy Inc. v.
Canada (National Energy Board), [1998] 1 S.C.R. 322 at para. 40, 156 D.L.R.
(4th) 456 [Westcoast Energy]. This point is underscored by considering
that the premise that underlies deference, the existence of a range of possible
outcomes, recognizes that reasonable people may take different, but equally
acceptable views on the same point: Canada (Canadian Human Rights
Commission) v. Canada (Attorney General), 2011 SCC 53, [2011] 3 S.C.R. 471.
Governance of the Canadian federation would not be well served by the
application of deference, and its tolerance for divergent but equally
sustainable outcomes, with respect to legislative jurisdiction.
[9]
The purpose of section 12 is not to screen out
cases where the Board has jurisdiction. The Board has no discretion, regardless
of how broad one construes the words “where it appears
to the Board,” to decline to hear cases that are within its jurisdiction
to hear. The converse is equally true. The Board has no discretion to inquire
into matters that it has no jurisdiction to hear. Once a decision is made that
a matter is within its jurisdiction, the nature, extent, and timing of any hearing
would be subject to the considerations contemplated by section 12, which I have
noted earlier.
[10]
To accept that this is simply a discretionary
exercise of the Board’s power would effectively immunize what are de jure
and de facto determinations of constitutionality from meaningful and
timely judicial consideration. For this reason, I do not agree with the characterization
by TransCanada Pipeline Limited (TransCanada) that the decision is simply “a guide” to the exercise of discretion, and therefore
beyond review. Nor does the fact that the question of constitutionality arises
in the context of a threshold question and against a lower burden of proof change
the underlying substantive question before the Board – an assessment of whether
there is an arguable case on constitutionality. Though it is cloaked as a
public interest decision, the decision is one of law or jurisdiction.
[11]
This said, the Board is not precluded, in
certain circumstances, from declining to hear a case where constitutionality is
in issue. Where it does, however, it must do so on the correct articulation of
the governing evidentiary and constitutional principles such that this Court
can discharge its appellate responsibilities.
[12]
To conclude, discretionary powers must be
exercised according to law, and having defined the question of the public
interest to be contingent solely on the answer to the question of whether
there was a prima facie case that the pipeline was subject to
Parliament’s constitutional jurisdiction, the Board was obligated to apply the
legal principles governing paragraph 92(10)(a) of the Constitution
Act correctly. Viewed in another light, the Board was determining the scope
of its jurisdiction, which mirrors paragraph 92(10)(a). However viewed,
the Board erred in its appreciation and application of the prima facie
test in determining its mandate, and in respect of the legal analysis of the constitutional
question. These errors fall within the scope of section 22 of the Act: Canadian
National Railway Company v. Emerson Milling Inc., 2017 FCA 79 at paras.
16-28.
[13]
Before expanding on these errors, I will briefly
describe the project and the Board’s decision.
I.
Overview of the project and the Board’s decision
[14]
The proposal by TransCanada is to move gas from
the Western Canadian Sedimentary Basin (WCSB) in Northeastern British Columbia
and Northwestern Alberta to an export facility on Lelu Island, on the Pacific
coast of British Columbia (the LNG plant). From there it would be liquefied and
shipped to international markets. There are two components to this project.
[15]
First, the existing NOVA Gas Transmission Ltd.
pipeline (NGTL) would be extended northward by the North Montney Mainline (NM
Line), a $1.7 billion project, to the fields in the WCSB. Gas from the NM Line
would enter the Prince Rupert Gas Transmission line (PRGT) at the Mackie Creek “interconnection” (the Board’s language) near Hudson’s
Hope in British Columbia and continue to the proposed liquefied natural gas
(LNG) export facility.
[16]
It is not disputed that the NM and NGTL Lines
are subject to federal regulation. The Lelu Island LNG plant is also subject to
federal regulation.
[17]
The PRGT line was the subject of the Board’s
decision which is under appeal. The Board had ruled earlier that the NM Line
was subject to federal regulatory jurisdiction.
[18]
The Pacific North West LNG plant at Lelu Island
was subject to federal regulatory review and has been approved by the Board.
The Board has issued an export licence to Petroliam Nasional Berhad (Petronas)
for the export of 19.68 million metric tons per annum of LNG: Canada, “National Energy Board Report in the Matter of NOVA Gas
Transmission Ltd.”, GH-001-2014 (Calgary: National Energy Board, 2015) at
47 [NM Decision]. The largest leaseholder in the North Montney area is Progress
Energy Canada Ltd. (Appellant’s Memorandum of Fact and Law, paras. 15-16),
which is indirectly owned by Petronas.
[19]
The Board identified a number of factors that pointed
toward federal jurisdiction:
1.
There is a physical connection between the two
federally regulated undertakings.
2.
TransCanada owns the PRGT, the federally
regulated NGTL, and the NM Line extension.
3.
The PRGT and NM Line are governed by the same
Operational Control Centre.
4.
The PRGT would not be built without the NM Line
extension.
5.
The flow of gas and the design of the federally regulated
NGTL system might be different without the project.
6.
There is a mutually beneficial commercial
relationship between the project and the federally regulated NGTL.
7.
The gas for the PRGT line will come from both
the NM Line and the NGTL system.
[20]
TransCanada concedes that the NM Line is
federally regulated and if constructed will connect with TransCanada’s federally
regulated NGTL system.
[21]
After reciting these factors, the Board
concluded that it did not find them to “be sufficient”
to establish a prima facie case. It did not say why. It also noted that
the PRGT will rely on gas from the federally regulated system, but again the
Board simply said that it did not consider this to be “sufficient
justification” to bring a facility wholly located within a province
under federal jurisdiction.
[22]
In very short reasons, the Board concluded that
the PRGT was “local” in nature. It noted that “federal jurisdiction should not be interpreted in a manner that
is overly broad and inconsistent with its purpose” and that the PRGT
line provided for “gas transportation between two
points in British Columbia to meet the requirements of a single shipper.”
This, it concluded, made the PRGT functionally different than the NGTL, which,
although also provides a gas transportation service (and in some cases inter-provincial
service), it does so to multiple customers on a different commercial arrangement.
[23]
The Board pointed to two factors that characterized
the project as a local work or undertaking. It looked at the business
arrangement between TransCanada and Progress Energy. It also stated that the
two projects (the PRGT and the NGTL) had different management teams. As I will
explain, the reliance on these considerations, whether as determinative or, in
the Board’s own language, to “overcome” the
factors that it previously identified as establishing a prima facie case
of federal jurisdiction, was a legal error. This is not a question of the
weight or appreciation of evidence; rather, it is a question of understanding
and applying the correct constitutional lens through which the facts are
assessed.
II.
Error in applying the prima facie test
[24]
I will start with the Board’s understanding of
the prima facie test.
[25]
In adopting the prima facie test, the
Board recognized that the nature of the evidence and depth of analysis is
substantively different than would be the case in an adjudication on the merits.
The Board considered that a prima facie case will prevail unless overcome
by other evidence.
[26]
The Board considered a prima facie case
to be one that is made out at first appearance, or as counsel for TransCanada
stated, as a matter of first impression. I agree with TransCanada’s
characterization. Inherent in this test is an understanding that the Board should
not delve too deeply into the merits. It only ought to consider whether at
first blush the project falls within federal jurisdiction. In applying a prima
facie test, the Court looks to the evidence without reaching a final
conclusion: Marcotte v. Longueuil (City),
2009 SCC 43 at para. 23, [2009] 3 S.C.R. 65 [Marcotte]. As Justice LeBel noted in Marcotte, at paragraph 90, the prima facie test is analogous to the
test for interlocutory injunctions; an extremely limited review of the merits,
and the legal threshold in law.
[27]
The prima facie test asks whether there
is an arguable case: Vivendi Canada Inc. v. Dell’Aniello, 2014 SCC 1,
[2014] 1 S.C.R. 3 [Vivendi]. Importantly, a tribunal applying a prima
facie test is not to deal with the case on the merits, through the weighing
and balancing of evidence. That comes later: RJR -- MacDonald Inc. v. Canada
(Attorney General), [1994] 1 S.C.R. 311, 111 D.L.R. (4th) 385; Vivendi
at para. 37. These tests reflect the fact that, at this preliminary stage, not
all relevant evidence is before the Board and that which is has not been
tested. Nor are all the relevant parties before the Board. In the case at bar,
notice has not been served on the Attorneys General.
[28]
The Board erred in its understanding and application
of the prima facie test. It engaged in an evaluation of the substance of
the evidence as it would in a full jurisdictional hearing, giving rise to an
error of law. In adopting the language that the case for jurisdiction had been “overcome” by the opposing evidence, it assessed the
competing evidence and constitutional arguments, and did not follow the
guidance of the Supreme Court of Canada on how a prima facie test is
applied. It did not ask whether an arguable case had been made out—it answered
the underlying question. This is also inconsistent with the purpose of section
12, which is to screen out unmeritorious cases, or to manage the Board’s agenda
– not to avoid hearings that it is legally mandated to hear.
[29]
I note in particular that the Board did not
identify deficiencies in the argument advanced by the appellant—nor did it
point to evidence that was essential to advancing an arguable case but was
otherwise lacking. Instead, the Board concluded that it was not “persuaded” that the pipelines will be functionally
integrated and operated as a single enterprise as described in Westcoast
Energy at paragraph 45.
[30]
At this stage, it was not the appellant’s burden
to “persuade” the Board that the pipeline would
form part of a single enterprise or undertaking. The appellant’s only burden
was to lay out an arguable case that it might, and that evidentiary burden in
this respect is not heavy: Vivendi.
[31]
I turn, in the context of the prima facie
case, to the Board’s oblique reference to Consolidated Fastfrate Inc. v.
Western Canada Council of Teamsters, 2009 SCC 53, [2009] 3 S.C.R. 407 [Fastfrate].
After reviewing the evidence in support of paragraph 92(10)(a), the
Board referenced the decision in Fastfrate, specifically paragraphs 31
to 39 and 68. The Board noted that it was “cognizant
that federal jurisdiction should not be interpreted in a manner that is overly
broad and inconsistent with its purpose.”
[32]
It is unclear what the Board intended by this
reference, or how it related to the Board’s understanding of the content of the
prima facie test, or of paragraph 92(10)(a). However, the
structure of the Board’s reasons supports the view that the Board considered that,
even if there was a prima facie case, the Board should tip the scales
against federal competence.
[33]
Westcoast Energy
was not cited in Fastfrate, and there are many points of distinction
between Fastfrate and the case before the Board. To the extent that Fastfrate
is relevant, the observation by Binnie J. at paragraph 83 would, at the
threshold stage of an inquiry, equally appear germane, namely that “[c]heckerboard provincial regulation is antithetical to the
coherent operation of a single functionally integrated indivisible national
transportation service.”
[34]
It is not necessary to enter into this debate,
as no determination on the question of legislative jurisdiction is called for in
this appeal. However, the Board’s reference to Fastfrate is telling. It reinforces
the concern that the Board lost sight of the essence of a prima facie
test. It was not supposed to answer the substantive question. It was only
supposed to answer whether a prima facie case had been made out, a
question on which Fastfrate sheds little light. It was not part of the
Board’s task, at this stage, to parse the fine points of paragraph 92(10)(a)
jurisprudence.
[35]
To conclude, the Board did not apply the prima
facie test. This conclusion holds regardless of how the error or errors are
characterised – whether in the misunderstanding of the substantive elements of
a prima facie test, in the associated legal and evidentiary burdens, or,
on a different reading of the Board’s reasons, in finding a prima facie
case had been displaced by two facts at the very margins of legal relevance to
the constitutional analysis.
[36]
It is sufficient to dispose of this appeal on
the basis of error in the Board’s understanding of a prima facie test alone.
However, there are errors of law in the underlying constitutional analysis.
III.
Errors in the constitutional analysis
[37]
Three errors permeate the Board’s constitutional
analysis. The first is that it did not consider the nature of the undertaking
or project as a whole. With two exceptions that I will address, the Board confined
its analysis to the fact that the pipeline was “point
to point” within the province of British Columbia. In so doing, it
departed from the guidance of the Supreme Court of Canada that, in considering
paragraph 92(10)(a) undertakings, the focus is on what the undertaking
does and how it does it, not where it is located. In focussing on the
geographic location, the Board blinded itself to all evidence that was upstream
or downstream of the two points—where the gas came from and where it was going.
[38]
The second error also relates to the requirement
that the “functional analysis must centre on what
operations the undertaking actually performs”: Fastfrate at para.
76. Here, the Board erred in confusing the commercial and billing arrangements
with the undertaking. The business model is not the undertaking. The business
model may be a relevant factor; however, it is only relevant insofar as it
informs the degree of functional integration: Westcoast Energy at para. 49.
The number of customers and the financial agreement are tangential, at best.
[39]
The third error arises from the consideration of
the legal criteria of “common direction and control”
in the paragraph 92(10)(a) analysis. The Board failed to identify and
consider a considerable body of highly pertinent evidence on this criterion.
This is not a matter of the Board’s weighing of evidence, or of not addressing
some elements of the evidence; rather, it is a question of whether the Board
understood the constitutional test. Where the jurisprudence requires that
certain evidence be considered, and it is not, the legal test has been
misunderstood or misapplied.
A.
Governing legal principles
[40]
Subsection 92(10) of the Constitution Act
stipulates that local works and undertakings situated within a province are
subject to provincial jurisdiction. Paragraph 92(10)(a) indicates that a
work or undertaking that extends beyond or “joins”
a provincial boundary will fall within federal jurisdiction.
[41]
A work or undertaking located within a province
can come within federal jurisdiction if it satisfies one of two tests set out
in Westcoast Energy. Under the first test, the otherwise local work or
undertaking will be subject to federal jurisdiction if it is part of a federal
work or undertaking in the sense of being “functionally
integrated and subject to common management, control and direction” : Westcoast
Energy at para. 49.
[42]
Under the second Westcoast Energy test,
the work or undertaking at issue will fall within federal jurisdiction if it is
“essential, vital and integral” to a federal
work or undertaking: Westcoast Energy at para. 46.
[43]
The appellant based his argument on the first
branch of the Westcoast Energy test. The Board decided the matter
on both branches.
B.
Failure to define the undertaking
[44]
I turn to the first error in the constitutional
analysis. The Board did not define the PRGT undertaking in purposive terms. It
asked itself whether the PRGT and NGTL lines were “functionally
different”, which is not the correct test. The test is one of functional
integration. Works may be different, but as Westcoast Energy makes
clear, that is not the question: Westcoast Energy at para. 40. The test
is whether the parts of the undertaking are functionally integrated and, if so,
how they work together and for what purpose. Only when these criteria are taken
into account can the nature of the undertaking be determined.
[45]
The NGTL line is described by TransCanada as “the major natural gas gathering and transportation system
for the WCSB, connecting most of the natural gas production in Western Canada
to domestic and export markets” (appellant’s memorandum of fact and law,
para. 14). The NM Line is an extension of the NGTL to which the PRGT is connected.
The NM and the PRGT lines serve the purpose of moving gas from the WCSB to the
rest of the NGTL system and to the LNG export facility. Importantly, the NM
extension will not be built without the PRGT.
[46]
The Board did not define or consider the relationship
between the PRGT/NM Line project and the NGTL system as a whole. It focused on
the local character of the line, being between two points within British
Columbia, an observation that it mentioned on three occasions in what was an
otherwise very short analysis. In so doing, it failed to consider that an
enterprise can form part of federal undertaking and still be wholly situated
within a province. The observations of this Court, as adopted by the Supreme
Court of Canada in Westcoast, at paragraph 41, apply with equal force to
the reasoning of the Board in this case:
As we have seen, the majority of the Board
were of the view that Westcoast’s gathering and processing facilities were
separate undertakings from mainline transmission because “gas processing and
gas transmission are fundamentally different activities or services”. With
respect, it seems to me that this observation misses the mark; the fact that
different activities are carried on or services provided cannot by itself be
determinative of whether one is dealing with more than one undertaking. It is
not the difference between the activities and services but the
inter-relationship between them, and whether or not they have a common
direction and purpose which will determine whether they form part of a single
undertaking.
[47]
Put otherwise, the Board did not direct its mind
to the nature of the enterprise or undertaking in issue. There was considerable
evidence before the Board, none of which was in dispute, that the purpose of
the PRGT was to move gas from the WCSB for export to international markets. The
Board looked at where the pipeline was, and did not ask what it did.
[48]
TransCanada itself defined the project to be the
transportation of natural gas from the transboundary, NGTL system, to the Lelu
Island LNG facility for export to overseas markets. The three lines—the
proposed NM Line extension, the NGTL and the PRGT—were described by the Board
in a previous decision as having a highly integrated functionality: NM decision,
p. 3.
[49]
Nor did the Board address the fact that the PRGT
and the MN Line are functionally interdependent. Neither will be built without
the other. This factor alone, had it been identified, would have weighed heavily
in the consideration of whether a prima facie case had been established.
It was an error of law to ignore an undisputed fact that the law considers
pertinent to the constitutional analysis. However, the Board says, without
amplification, that it does not find this persuasive. It did not explain how or
why it reached this conclusion.
[50]
It is well understood that tribunals need not
address every piece of evidence before it, nor need they give reasons
addressing each and every point: Alberta (Information and Privacy
Commissioner) v. Alberta Teachers' Association, 2011 SCC 61, [2011] 3 S.C.R.
654; Newfoundland and Labrador Nurses' Union v. Newfoundland and Labrador
(Treasury Board), 2011 SCC 62, [2011] 3 S.C.R. 708. Where, however, the
legal test requires that certain evidence be addressed in order for it to be
applied, and that evidence has not been addressed, the test has not been
understood. Here, the Board did not grapple with other undisputed evidence
which was constitutionally relevant and pointed to functional integration:
•
PRGT line connects to the NGTL.
•
TransCanada itself sees the PRGT as an integral
part of the undertaking: “The NGTL System is well
positioned to connect WCSB supply to meet expected demand for LNG exports on
the B.C. coastline […] to extend and expand the NGTL” (AB 31, para. 41).
•
The gas for the PRGT will come from the existing
NGTL and the proposed NM Line.
[51]
In its submissions, TransCanada stresses that
the line is a “local merchant line” designed to
serve the interest of a single customer. Leaving aside the fact that, at 900
kilometres, it is a rather long spur line, the fact that one customer operates
the LNG export plant and also owns the gas is constitutionally irrelevant. No
gas, apart from gas incidentally necessary for the operation of the plant, is
consumed at the LNG facility. It was not disputed that the entire purpose of
the PRGT was to transport gas from Western Canada to Lelu Island for export.
This too, was not considered by the Board.
[52]
Reference re: National Energy Board Act, [1988] 2 F.C.R. 196, 48 D.L.R. (4th) 596 (F.C.A.), relied on by
the respondents, is of no assistance to the respondents. There, this Court held
that a 6.2 kilometre by-pass pipeline, which took gas directly to an end-user that
consumed all of the gas delivered to it, was not within the Board’s
jurisdiction.
[53]
The Board’s reasons approving the construction
of the NM Line provide prima facie support for the functional integration
of the PRGT with the NGTL and NM Line. In its description of the NM Line, the
Board held:
The Project is designed to transport sweet
natural gas from the North Montney area through the NGTL System and connected
pipelines (including the proposed Prince Rupert Gas Transmission pipeline
(PRGT), as described below) to gas markets across North America and to markets
overseas as liquefied natural gas (LNG). Purchase and sale of the North Montney
gas would be facilitated through the NOVA Inventory Transfer (NIT) market which
is a natural gas trading hub where gas is bought and sold electronically.
[…]
Progress ultimately plans to provide gas
supply from the North Montney area to the Pacific North West LNG Project, which
is a proposed liquefied natural gas (LNG) liquefaction and export facility (PNW
LNG Facility), situated on the coast of BC. Gas from the North Montney area
would enter the Project at various locations, and would enter the PRGT pipeline
at the Mackie Creek Interconnection.
(NM Decision, p. 3)
[54]
The Board notes that TransCanada characterized the
NM Line as “an extension and expansion of the NGTL
System needed to link supply in the North Montney area to demand centres in
North America and overseas. North Montney supply would reach Asia-Pacific LNG
markets through proposed pipelines to the west coast of BC connecting to
proposed LNG export terminals”: NM Decision, p. 46 [emphasis added].
[55]
The Board, in assessing the economic viability
of the NM Line, noted that its purpose was to “access
the global LNG market via the proposed PRGT pipeline and the PNW LNG Facility”:
NM Decision, p. 60 [emphasis added]. Indeed, the degree of interdependence
between the NM Line, the PRGT, and the LNG is such that the Board made approval
of the NM Line conditional on the supply of the LNG facility.
[56]
The Board’s NM Decision cannot be rationalized
with the decision under appeal. The symbiotic relationship between the pipeline
lines and the export facility acknowledged in the NM Decision was not considered.
The enterprise or undertaking, as determined by the Board in the NM Decision,
was the movement of gas from Western Canada to international markets. The
correct analysis of paragraph 92(1)(a) requires an examination of the
functional interrelationship. The guidance of the Supreme Court of Canada is
unequivocal and consistent on this point.
[57]
This is sufficient to dispose of the appeal. The
Board did not apply the correct constitutional lens to the evidence before it.
It concluded that ‘functionally different’ meant that the lines could not be ‘functionally
integrated’: It assumed incorrectly. It did not look at the role PRGT played in
the exercise of moving gas from the Western Canadian Sedimentary Basin to
export. Nor did it consider evidence essential to the correct understanding of
the legal test it was applying.
[58]
As I mentioned at the outset, there were two
other factors that the Board considered to have displaced the prima facie
case: the nature of the commercial relationship, and the management structure
of TransCanada. In respect of each, the Board’s legal analysis cannot be
sustained. In order for certain facts to displace a prima facie case for
jurisdiction, they must be relevant to the analysis.
C.
The commercial relationship
[59]
The Board concluded that the PRGT was simply to
provide “gas transportation between two points in
British Columbia to meet the requirements of a single shipper”.
[60]
Unlike the NGTL, which transports gas for
various customers, the PRGT serves a single customer on a different tolling
arrangement. This led the Board to infer that the PRGT system was “functionally” different from the NGTL system.
[61]
While the Board acknowledged that the
characterization of a work, for constitutional purposes, does not turn on the
business or commercial model, it nevertheless concluded, for reasons that it
did not articulate, that it was relevant:
However, the Board does believe [the
business or commercial model of an undertaking] is relevant and, on the facts
presented by the parties, the Board found it to be a factor pointing to a lack
of functional integration between the Project and the NGTL System, and the
different nature of their undertakings.
[62]
As the Board did not identify other factors, it
can only be concluded that the sui generis nature of the commercial
arrangement for the PRGT either weighed heavily or was the determinative factor
in its assessment of whether there was a prima facie case.
[63]
The Board made the very error that was addressed
by the Supreme Court of Canada in Westcoast Energy. In that case, the
Board predicated its decision on the existence of separate tolling and costing
methodologies between gas transmission charges and gas processing charges. At
the Federal Court of Appeal, [1996] 2 F.C.R. 263, 134 D.L.R. (4th) 114, Hugessen
J.A. noted, at 283-84:
It is not the difference between the
activities and services but the inter-relationship between them, and whether or
not they have a common direction and purpose which will determine whether they
form part of a single undertaking.
[64]
The point was put more strongly at the Supreme
Court of Canada, where Justices Iacobucci and Major wrote, at paragraph 66:
[the different commercial activity] has no
bearing on the constitutional division of powers between the federal and
provincial legislatures.
[65]
As noted earlier, Westcoast Energy, at
paragraph 49, teaches that the commercial arrangement may inform the question
of common control and management and hence functional integration, but it does
not define the enterprise. The business arrangement is not the undertaking.
[66]
To conclude, the Board erred in relying on the
business model of the PRGT—that it carries gas for one customer—as the basis of
displacing what it appears to have concluded was otherwise a prima facie
case. A tangential factor cannot “overcome” a prima
facie case that has otherwise been made out.
D.
Common management, control, and direction
[67]
The second consideration that the Board
identified as relevant to the question of whether the PRGT was a federal work
or undertaking was the management structure of the PRGT. On this point, the
Board simply stated:
The Board also found it relevant that [PRGT]
and the NGTL System are managed by different teams.
[68]
It is well, and long established that corporate
structure is not determinative of the question of whether an enterprise is a
federal work or undertaking. Although dissenting on other grounds, McLachlin J.
(as she then was) in Westcoast Energy relied on Dickson C.J. in Alberta
Government Telephones v. (Canada) Canadian Radio Television and
Telecommunications Commission, [1989] 2 S.C.R. 225 at page 263, 61 D.L.R.
(4th) 193:
This Court has made it clear in this area of
constitutional law that the reality of the situation is determinative, not the commercial
costume worn by the entities involved.
[69]
The assessment of whether a matter is a federal
undertaking is “a functional, practical one about the
factual character of the ongoing undertaking and does not turn on technical,
legal niceties of the corporate structure or the employment [in this case,
contractual] relationship”: Northern Telecom v. Communication Workers,
[1980] 1 S.C.R. 115 at 133, 98 D.L.R. (3d) 1.
[70]
The Board’s observation that the NGTL and the PRGT
have different management teams is not unexpected given that one pipeline is
operational and the other is in the planning stage. This sole reference, which was
not elaborated upon, stands in sharp relief to a large amount of other evidence
before the Board of highly integrated and connected common control and
management of the PRGT, the NM Line extension, and the NGTL. That evidence
included:
•
PRGT Ltd. is a wholly owned subsidiary of
TransCanada.
•
TransCanada’s annual report encompasses the
activities of PRGT.
•
TransCanada’s annual financial statements
consolidate “its interest in entities over which it is
able to exercise control”.
•
All of the directors of PRGT Ltd. hold senior
management positions within TransCanada and one of the directors of PRGT sits
on the Board of TransCanada.
•
All of senior officers of PRGT held senior
management positions at TransCanada and/or NGTL.
•
Senior PRGT executives, including vice-president
and controller of tax finance, risk management hold positions in both PRGT and
NGTL.
•
TransCanada held itself out publically as the proponent
of the project. Statements include “TransCanada will
build, own and operate the Project”
•
TransCanada’s PRGT project overview makes no
reference to its wholly owned subsidiary, treating it as one and the same.
•
TransCanada’s corporate logo, copyright, legal
notice and e-mail addresses are displayed on the PRGT Project webpage.
•
The domain name for the PRGT Project is
registered to TransCanada.
•
The emergency and procurement contact numbers
for the PRGT Project are for TransCanada employees.
•
All aspects of the PRGT Project,
including aboriginal, environmental assessment, routing, design, and
engineering are to be conducted by TransCanada employees or its consultants.
•
The PRGT and NGTL will be monitored and
controlled by TransCanada Operations Centre in Calgary.
[71]
None of this evidence was considered by the
Board. The only inference that can be drawn from this is that the Board did not
understand what paragraph 92(10)(a) required.
[72]
The Board also misunderstood the concept of
common management, control and direction. It does not mean that the two
undertakings must have the same management team; rather the proper frame of
analysis is whether PRGT and the NGTL are subject to the common management,
control and direction of TransCanada.
IV.
Conclusion
[73]
To be clear, this Court is not expressing an
opinion on the question of whether the PRGT is subject to the regulatory
jurisdiction of the Board. What was before the Board was only a preliminary
assessment. Only if it concluded that there was a prima facie case for
jurisdiction would it trigger a hearing on whether it had, or did not have,
jurisdiction. This hearing would proceed on a full record, on tested evidence,
and upon notice to the Attorneys General.
[74]
The Board did not ask itself whether an arguable
case for federal jurisdiction had been made out. Rather, it imposed a burden of
persuasion on the appellant that it did not have and it engaged in a weighing
of evidence on the merits. It made three errors in its application of paragraph
92(10)(a). It did not apply the required constitutional test of
functional integration, and it assumed that a project that was different could
not be functionally integrated as part of the undertaking as a whole.
[75]
The Board then looked at factors which might
displace a prima facie case and, in the course of which, it took into
account a constitutionally irrelevant factor—the business arrangement—and it
ignored a vast amount of evidence with respect to the management and control
test integral to the constitutional analysis.
[76]
I would therefore allow the appeal with costs,
and remit the appellant’s application to the Board for redetermination. In so
doing, I reiterate that while I have necessarily canvassed the principles and
evidence relevant to the constitutional analysis, I express no view as to the
answer to the underlying constitutional question.
“Donald J. Rennie”
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“I agree
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D.G. Near J.A.”
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“I agree
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Richard
Boivin J.A.”
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