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Sawyer v. TransCanada Pipeline Limited (2017 FCA 159)

Decision Report

Federal Work and Undertaking – Section 92(1)(a) – NEB Jurisdiction – Prima Facie Test


In this decision, the Federal Court of Appeal (“FCA”) considered an appeal by Mr. Sawyer from an NEB decision (the “NEB Decision”). The NEB Decision subject to appeal found that Mr. Sawyer had not established a prima facie case that a proposed TransCanada pipeline project was a federal work or undertaking within section 92(10)(a) of the Constitution Act, 1867 (the “Constitution Act”) and therefore not subject to the jurisdiction and regulatory review of the NEB.

The argument before the FCA focused on whether the NEB 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.

Standard of Review

The FCA found that the question before it was, in substance, a determination of a constitutional issue. The FCA noted that constitutional questions are one of the few issues that remain subject to the correctness standard of review (citing New Brunswick (Board of Management) v. Dunsmuir, 2008 SCC 9 at para 58; affirmed in Edmonton (City) v. Edmonton East (Capilano) Shopping Centres Ltd., 2016 SCC 47).

The FCA therefore held that the correctness standard of review applied. In other words, the question before the FCA was whether the NEB applied the legal principles governing paragraph 92(10)(a) of the Constitution Act correctly.

The FCA found that the Board erred both 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.

The Pipeline Project

The FCA explained that TransCanada’s proposed pipeline would 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, the gas would would be liquefied and shipped to international markets.

The project connects to the existing NOVA Gas Transmission Ltd. pipeline system (the “NGTL System”) and consists of two components:

1) a northward extension by the North Montney Mainline (“NM Line”), a $1.7 billion project, to the fields in the WCSB; and

2) the Prince Rupert Gas Transmission line (“PRGT Line”), into which gas from the NM Line would enter at the Mackie Creek interconnection near Hudson’s Hope in British Columbia and be transported to the proposed LNG Plant.

The status of the PRGT Line was the subject of the NEB’s decision under appeal. There was no dispute that the NGTL System, the NM Line, and the LNG Plant were subject to federal jurisdiction.

NEB Decision

Notwithstanding the NEB’s ultimate determination that the PRGT Line was not subject to federal jurisdiction, the FCA noted a number of factors identified by the NEB that pointed toward federal jurisdiction, including:

• the physical connection between the PRGT Line and the two federally regulated undertakings;

• TransCanada owning the PRGT Line, the federally regulated NGTL System, and the NM Line extension;

• the PRGT Line and NM Line being governed by the same Operational Control Centre;

• the PRGT Line would not be built without the NM Line extension;

• the flow of gas and the design of the federally regulated NGTL System being different without the PRGT Line;

• the mutual beneficial commercial relationship between the PRGT Line and the federally regulated NGTL System; and

• the gas for the PRGT Line coming from both the NM Line and the NGTL System.

The NEB concluded that it did not find those factors to “be sufficient” to establish a prima facie case.

The NEB concluded that the PRGT was “local” in nature. The NEB 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, the NEB concluded, made the PRGT functionally different than the NGTL, which, although also providing a gas transportation service (and in some cases inter-provincial service), it does so to multiple customers on a different commercial arrangement.

The FCA noted the two factors relied on by the NEB to characterize the PRGT Line as a local work or undertaking, namely:

1. the business arrangement between TransCanada and Progress Energy (the “PRGT Shipper”); and

2. that the PRGT Line and the NGTL System had different management teams.

For the reasons summarized below, the FCA found that reliance on these considerations to “overcome” the factors that it previously identified as establishing a prima facie case of federal jurisdiction, was a legal error.

NEB Erred in Applying Prima Facie Test

The prima facie test asks whether there is an arguable case. A tribunal applying a prima facie test is not to deal with the case on the merits, through the weighing and balancing of evidence, reflecting the fact that not all relevant evidence is before the decision maker, and that which is has not been tested.

The FCA found that:

(a) the NEB erred in its understanding and application of the prima facie test;

(b) the NEB incorrectly engaged in an evaluation of the substance of the evidence as it would in a full jurisdictional hearing; and

(c) the NEB’s finding that the case for jurisdiction had been “overcome” by the opposing evidence, showed that the NEB failed to ask whether an arguable case had been made out.

The FCA therefore concluded that the NEB had misapplied (or not applied) the prima facie test.

The FCA found that it was sufficient to dispose of the appeal on the basis of the NEB’s misunderstanding of the prima facie test alone. However, the FCA went on to address the NEB’s additional errors of law in the underlying constitutional analysis.

NEB Errors in Constitutional Analysis

The FCA found that three errors permeated the NEB’s constitutional analysis:

(a) the NEB did not consider the nature of the undertaking or project as a whole. Rather, the NEB confined its analysis to the fact that the pipeline was “point to point” within the province of British Columbia. The FCA found that in doing so, the NEB departed from the guidance of the Supreme Court of Canada (“SCC”) that the focus is on what the undertaking does and how it does it, not where it is located;

(b) the NEB erred by confusing the commercial and billing arrangements with the undertaking. The FCA explained that 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; and

(c) the NEB failed to identify and consider a considerable body of highly pertinent evidence on the criterion of “common direction and control” in the paragraph 92(10)(a) analysis.

Failure to Identify Undertaking

The FCA found that the NEB did not define the PRGT undertaking in purposive terms. The NEB asked itself whether the PRGT and NGTL lines were “functionally different”, which the FCA found to be the incorrect test.

The FCA found that the NEB failed to 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. The FCA found that in so doing, the NEB failed to consider that an enterprise can form part of federal undertaking and still be wholly situated within a province.

The FCA explained that the correct 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.

The FCA found that the NEB did not apply the correct constitutional lens to the evidence before it. It did not look at the role the PRGT Line played in conjunction with the NGTL System, the MN Line, and the LNG Plant in the exercise of moving gas from the WCSB to export. Nor did it consider evidence essential to the correct understanding of the legal test it was applying.

Commercial Relationship

The FCA found that 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 the commercial arrangement between TransCanada and the PRGT Shipper was relevant:

The FCA found that, as the Board did not identify other factors, it could only be concluded that the sui generis nature of the commercial arrangement for the PRGT Line either weighed heavily or was the determinative factor in its assessment of whether there was a prima facie case.

The FCA found that in this regard, the NEB erred by predicating its decision on the existence of separate tolling and costing methodologies between gas transmission charges and gas processing charges.

The FCA held that:

• 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; and

• while the commercial arrangement may inform the question of common control and management and hence functional integration, it does not define the enterprise – the business arrangement is not the undertaking.

The FCA found that, given the above, the NEB erred in relying on the business model of the PRGT Line — that it carries gas for one customer — as the basis of displacing what was otherwise a prima facie case.

Disposition

The FCA therefore allowed the appeal with costs and remitted the appellant’s application to the NEB for redetermination.

The FCA clarified that its decision allowing the appeal expresses no opinion on the question of whether the PRGT Line is subject to the regulatory jurisdiction of the NEB.

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