2013 NBCA 34, 2013 NBCA 34

COURT OF APPEAL OF COUR D’APPEL DU NEW BRUNSWICK NOUVEAU-BRUNSWICK 122-12-CA ENBRIDGE GAS NEW BRUNSWICK LIMITED PARTNERSHIP, ENBRIDGE ENERGY DISTRIBUTION INC. and ENBRIDGE INC. APPELLANTS ENBRIDGE GAS NEW BRUNSWICK LIMITED PARTNERSHIP, ENBRIDGE ENERGY DISTRIBUTION INC. et ENBRIDGE INC. APPELANTES - and - - et - THE ATTORNEY GENERAL IN AND FOR THE PROVINCE OF NEW BRUNSWICK RESPONDENT LA PROCUREURE GÉNÉRALE DU NOUVEAU-BRUNSWICK, POUR LA PROVINCE DU NOUVEAU-BRUNSWICK INTIMÉE Enbridge Gas New Brunswick Limited Partnership et al. v.

The Attorney General in and for the Province of New Brunswick, 2013 NBCA 34 Enbridge Gas New Brunswick Limited Partnership et autres c. la Procureure générale du Nouveau-Brunswick, pour la Province du Nouveau-Brunswick, 2013 NBCA 34 CORAM: The Honourable Justice Robertson The Honourable Justice Richard The Honourable Justice Bell CORAM : L’honorable juge Robertson L’honorable juge Richard L’honorable juge Bell Appeal from a decision of the Court of Queen's Bench: August 23, 2012 Appel d’une décision de la Cour du Banc de la Reine : Le 23 août 2012 History of Case: Historique de la cause : Decision under appeal: 2012 NBQB 267 Décision frappée d’appel : 2012 NBBR 267 Preliminary or incidental proceedings: 2012 NBQB 186 Procédures préliminaires ou accessoires : 2012 NBBR 186 Appeal heard: February 18, 2013 Appel entendu : Le 18 février 2013

Judgment rendered: May 3, 2013 Jugement rendu : Le 3 mai 2013 Reasons for judgment by: The Honourable Justice Robertson Motifs de jugement : L’honorable juge Robertson Concurred in by: The Honourable Justice Richard Souscrit aux motifs : L’honorable juge Richard Concurring reasons by: The Honourable Justice Bell Motifs concordants : L’honorable juge Bell Counsel at hearing: For the appellants: David Duncan Young For the respondent: Kenneth B. McCullogh, Q.C. Avocats à l’audience : Pour les appelantes : David Duncan Young Pour l’intimée : Kenneth B. McCullogh, c.r.

THE COURT The appeal is allowed, in part, in accordance with paragraph 17 of the reasons for decision. As success is divided, no costs are payable at first instance or in the Court of Appeal. LA COUR L’appel est accueilli en

partie conformément au paragraphe 17 des motifs de décision. Puisque les deux parties ont partiellement eu gain de cause, aucuns dépens ne sont payables en première instance non plus que devant la Cour d’appel. The judgment of Robertson, J.A. and Richard J.A. was delivered by ROBERTSON, J.A. [ 1 ] This appeal raises a narrow issue: whether s. 4(1) of the Rates and Tariffs Regulation- Gas Distribution Act, 1999 (Reg. 2012-49) exceeds the regulation-making authority of the Lieutenant-Governor in Council granted under the Gas Distribution Act, 1999 , S.N.B. 1999, c. G-2.11. Pursuant to s. 52(5)(

a) of the Act, the New Brunswick Energy and Utilities Board “shall adopt the methods or techniques prescribed by regulation” when fixing rates and tariffs for the sale of natural gas. Section 4(1) of the Regulation directs the Board to apply “the cost of service method or technique”. However, s. 4(1) also directs the Board to apply a “revenue to cost ratio not exceeding 1.2:1” for any class of customers.

Finally, s. 4(1) adds a proviso that the rates and tariffs determined according to the “cost of service method or technique” are not to exceed those rates that would have been fixed had the Board adopted the “market based method or technique”. [Hereinafter, the word “rate” also embraces the word “tariff” and the word “method” embraces the word “technique”]. [ 2 ] The appellants, collectively referred to as Enbridge, sought a declaration that s. 4(1) of the Regulation is ultra vires the Lieutenant-Governor in Council (“LGC”). Enbridge is a regulated public utility which holds a general

franchise from the Province of New Brunswick for the distribution and sale of natural gas in accordance with the provisions of the GasDistribution Act, 1999. Hence, its standing to seek declaratory relief has never been questioned. The application judge ruled againstEnbridge after concluding that “great deference” must be accorded to the regulation-making power conferred upon the LGC and also thatthe “attitude of considerable deference is in keeping with the principle that the Legislature can pass any law it wishes”.

Implicit in thatstatement is the understanding that the Legislature can only pass laws that are within its constitutional competence and can surviveCharter scrutiny. What we are dealing with is the authority of the LGC to adopt s. 4(1) of the Regulation having regard to theregulation-making authority vested in it under s. 52(5)(

a) of the Act. In effect, the application judge held that s. 52(5)(

a) must beconstrued broadly. [3] Section 52(5)(

a) of the Gas Distribution Act, 1999 is not the only provision relevant to theLGC’s regulation-making power.

Section 95 authorizes the adoption of regulations covering those matters set out in that section.Specifically, s. 95(1)(m.2) authorizes the LGC to adopt a regulation prescribing the methods the Board must adopt when approving orfixing rates. The

section also states that the methods may vary for different prescribed classes of customers. For purposes of deciding thisappeal, it is assumed there is no substantive difference between ss. 52(5)(

a) and 95(1)(m.2). [4] The respondent Province no longer seeks to defend the application judge’s reasons foradopting a broad

interpretation of s. 52(5)(

a) of the Gas Distribution Act, 1999. This is because the Supreme Court decision cited insupport of granting deference to the LGC’s exercise of its regulation-making authority supports an entirely different proposition. Thecited case is Thorne’s Hardware Ltd. v. R., (SCC), [1983] 1 S.C.R. 106, [1983] S.C.J. No. 10 (QL). Therein, theSupreme Court accepted that the Governor General in Council had the authority to issue an Order in Council extending the geographiclimits of the port of Saint John to include the appellant’s berth and harbour facilities.

What the Court had to deal with was the argumentthat the Order had been passed for an improper purpose or motive; namely, to increase harbour revenues. While the argument wasunequivocally rejected, the Supreme Court did hold: […] Decisions made by the Governor in Council in matters of public convenience and general policy are final and notreviewable in legal proceedings. Although […]the possibility of striking down an order in council on jurisdictional or other compellinggrounds remains open, it would take an egregious case to warrant such action.

This is not such a case. [p. 111] [5] What is evident from the above passage is that considerable deference is accorded to thereasons of Councils to adopt subordinate or delegated legislation that is within the powers conferred on them under the enablinglegislation. This understanding does not preclude an argument of bad faith on the part of the LGC.

But, obviously, the argument wouldonly succeed in the most egregious of cases: see Brown and Evans, Judicial Review of Administrative Action in Canada, vol. 3, loose-leaf (Toronto: Canvasback Publishing Inc., 2012) at 15:3262. [6] While the Province no longer supports the application judge’s reasons for interpreting s. 52(5)(

a) of the Act broadly, the Province has not abandoned its contention that the provision should be so interpreted. The Province insists thatthe phrase “methods or techniques prescribed by regulation” should be interpreted broadly to cover all relevant considerations when itcomes to fixing rates. This broad

interpretation would embrace matters such as the service to cost ratio and the proviso found within s.4(1) of the Regulation. In response, Enbridge argues that the phrase “methods or techniques” has a special or limited meaning (a term ofart, so to speak) which embraces recognized methods for fixing rates. As it happens, the impugned Regulation speaks of two: (1) the costof service; and (2) the market based method. Enbridge insists that the meaning of the phrase “methods or techniques” should go nofurther than that. [7] The starting point of any interpretative analysis rests on Elmer Driedger’s modern approach tothe

interpretation of statutes: “Today there is only one principle or approach, namely the words of

an Act are to be read in their entirecontext, in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention ofParliament”. This is the preferred approach of the Supreme Court and the one explained in Re Rizzo and Rizzo Shoes Ltd., (SCC), [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2 (QL) referring to E.A. Dreidger, Construction of Statutes (Toronto, Butterworths,1974), at p. 87, and the approach applied by this Court (see New Brunswick v. Rothmans Inc., 2010 NBCA 35, 357 N.B.R. (2d) 160,leave to appeal refused, [2010] S.C.C.A. No. 240 (QL); Lévesque v.

New Brunswick, 2011 NBCA 48, 372 N.B.R. (2d) 202; LeBlanc v.Doucet, 2012 NBCA 88, 394 N.B.R. (2d) 228; J.D. Irving Ltd. v. Douthwright, 2012 NBCA 35, 386 N.B.R. (2d) 241; Canada PostCorp. v. Carroll, 2012 NBCA 18, 383 N.B.R. (2d) 326 and Robichaud v. Canada (Attorney General), 2013 NBCA 3, [2013] N.B.J. No.7 (QL)). [8] The modern approach to statutory

interpretation tells us that s. 52(5)(

a) of the Act cannot beread in isolation. Rather, it must be read in the context of the legislative scheme surrounding the Board’s obligation to set “just andreasonable” rates with respect to the sale of natural gas in this Province. Aided by the presumption of “internal coherence” and thepresumption against “absurd results”, that contextual analysis leads to the conclusion that it was not the Legislature’s intention that s.52(5)(

a) would be interpreted broadly. To the contrary, the phrase “methods or techniques” has a technical meaning; one that is restrictedin nature and in keeping with s. 52 as a whole. The analysis to follow supports the conclusion that the directive set out in s. 4(1) of the

Regulation, requiring the Board to apply a set revenue to cost ratio, is ultra vires the regulation-making authority of the LGC. Bycontrast, the analysis supports the conclusion that the proviso is consistent with the wording and intent of the legislative scheme and,therefore, intra vires. [9] The Board, which is established under the Energy and Utilities Board Act, S.N.B. 2006, c. E-9.18, is a specialized and independent tribunal responsible for approving the rates that Enbridge may charge its customers.

Section 52(5)of the Gas Distribution Act, 1999 authorizes the Board to fix rates that are “just and reasonable”. Prior to 2012, neither the GasDistribution Act, 1999, nor the Regulations adopted thereunder, fettered the Board’s authority to set rates based on those considerations itdeemed relevant. Prior to 2012, the Board had been applying the “market based method or technique” when fixing rates. However, in2011 the Act was amended to permit the LGC to fetter the Board’s rate-setting powers through the former’s regulation-making authority.The fetter is found in s. 52(5) which came into effect on April 16, 2012.

As stated earlier, s. 52(5)(

a) provides that in approving or fixingrates, the Board “shall adopt the methods or techniques prescribed by regulation.” But s. 52(5)(

a) is not the only fetter placed on theBoard’s independent authority to fix rates. Paragraphs (b), (

c) and (

d) provide that the Board is not to consider various matters relating tothe utility’s “deferral account”, except in the circumstances and in the manner prescribed by regulation. [10] If this Court were to adopt the broad

interpretation which the Province places on s. 52(5)(

a) ofthe Gas Distribution Act, 1999, it would have been unnecessary for the Legislature to include the statutory directives found in ss. 52(5)(b), (

c) and (d). In other words, the LGC could have simply relied on paragraph (

a) to adopt a regulation that also incorporated thematters dealt with in paragraphs (b), (

c) and (d). Of course, it makes no sense to take the first of the four fetters and interpret it in amanner that eliminates the need to impose the remaining three. There is a presumption that legislatures are capable and intent on draftinglegislation that embraces the qualities of rationality and internal coherence. There is also a presumption that legislatures do not intend“absurd” results. That is why the Province’s interpretative argument is fatally flawed.

And that is why it makes better sense toacknowledge that the phrase “methods or techniques” is a technical term whose meaning is best understood by those who must interpretand apply the legislation within a regulated industry. (On this point see para. 14, infra) [11] If one looks to the Act and the Regulation, it is clear the Legislature was addressing itself to twoknown “methods or techniques” for fixing rates: (1) cost of service; and (2) market based. There may be others.

But regardless, thephrase “methods or techniques” cannot be reasonably interpreted to include the right of the LGC to direct the Board to apply, forexample, a designated “cost to service ratio”. It may well be true, as suggested by counsel for the Province, that the Board has neverexceeded the prescribed ratio of 1.2:1. But that is not a matter relevant to the task of statutory

interpretation. The point is simply this. Asthe Act presently reads, it is for the Board to determine what the ratio should be and that is why the directive is ultra vires the regulation-making authority of the LGC. [12] It remains necessary to consider whether the proviso found within s. 4(1) of the Regulation isalso ultra vires. That proviso has the effect of directing the Board to choose the “method or technique” that provides the consumer withthe lowest rate. Acknowledging that this issue was raised for the first time on this appeal and that Enbridge was preoccupied with thevires of the revenue to cost ratio, it is sufficient to state that the proviso comes within the spirit of s. 52(5)(

a) of the Act. Recall, that thatparagraph authorizes the LGC to specify which methods or techniques will be used by the Board when fixing rates. Section 4(1) simplystates the Board shall use the cost of service method unless the market based method provides the consumer with a lower rate. I seenothing in that directive which is incompatible with the objects of s. 52 of the Act. Accordingly, there is no reasonable basis on which todeclare the proviso invalid. [13] Enbridge cited several cases in support of its argument that the LGC lacked the authority toprescribe a revenue to cost ratio as found in s. 4(1) of the Regulation. Indeed, those decisions bolster the approach and

interpretationadopted herein: see Royal Trust v. Law Society of Alberta, [1985] A.J. No. 1077 (C.A.) (QL); Gulf Canada Resources Ltd. v. Alberta,2001 ABQB 286, [2001] A.J. No. 387 (Q.B.) (QL) and Lexogest Inc. v. Manitoba (Attorney General), (MB CA),[1993] M.J. No. 54 (C.A.) (QL). [14] Before closing, I must express my unease with the way in which the underlying interpretativeissue reached this Court; an unease which was conveyed to counsel at the hearing of the appeal. Rather than raising the issue before theBoard and asking for its

interpretation of the legislation, Enbridge went directly to the Court of Queen’s Bench and asked for adeclaration of invalidity. But that is not the procedure the Energy and Utilities Board Act normally envisages for dealing withinterpretative issues. Under s. 32, the Board may of its own motion hear and determine any matter. Moreover, s. 36(1) provides that theBoard has full jurisdiction to hear and determine all matters, whether of law or fact. Section 52(1) enables an aggrieved party to apply forjudicial review to this Court, as opposed to a right of appeal.

Applying the Supreme Court’s decisions in Dunsmuir v. New Brunswick(Board of Management), 2008 SCC 9, [2008] 1 S.C.R. 190 and Alberta (Information and Privacy Commissioner) v. Alberta Teachers’Association, 2011 SCC 61, [2011] 3 S.C.R. 654, the Board’s

interpretation of the Gas Distribution Act, 1999 and the pertinentRegulations would be subject to review on the basis of a rebuttable presumption that reasonableness is the applicable standard. In brief,the route taken by Enbridge not only bypassed the relative expertise of the Board but also the application of the deference doctrine.

[15] It is at least arguable that the interpretative issue at hand could have been taken directly to theBoard. Most certainly, it could have been raised as a preliminary matter at a rate hearing. What is certain is that we do not have thebenefit of the Board’s “relative expertise” in interpreting the provisions of the legislation (on this point, see the concurring reasons ofWilson J. in National Corn Growers Assn. v. Canada (Import Tribunal), (SCC), [1990] 2 S.C.R. 1324, [1990] S.C.J. No.110 (QL)).

Instead, this Court was left with the task of interpreting “technical” terms with which the courts of this Province cannot bepresumed to have a familiarity. To exacerbate matters, the affidavit evidence submitted by both parties was not helpful in explaining, forexample, the rate-fixing process, the relevance of various factors and their potential impact on the Board’s assessment of what is “justand reasonable” having regard to both the interests of Enbridge and its customers.

In future, when an application for declaratory relief,such as the present one, is brought directly to the courts, the onus should be on the person seeking the relief to persuade the Court ofQueen’s Bench why the scheme outlined in the Energy and Utilities Board Act should be bypassed. Should the court exercise itsdiscretion to hear the application, this would not foreclose the possibility of the Board seeking intervener status in those cases where itsrelative expertise may shed light on regulatory matters with which courts are unfamiliar: see United Brotherhood of Carpenters andJoiners of America, Local 1386 v.

Bransen Construction Ltd., 2002 NBCA 27, 249 N.B.R. (2d) 93. [16] My colleague, Bell J.A., does not share the “unease” expressed in the preceding two paragraphs.I feel compelled to respond as the true precedential significance of this case may ultimately rest in those paragraphs. First, my concern isa cautionary observation directed at judges who are called on to adjudicate on the vires of subordinate or delegated legislation, incircumstances where the provisions in question involve technical or regulatory concepts that fall within the relative expertise of aspecialized tribunal.

After all, the granting of declaratory (equitable) relief is discretionary. Second, it may well be that correctnesswould have been the proper standard of review had the Board been given the opportunity to deal with the validity of s. 4(1) of theRegulation. But it is best to leave that issue for another day. In the interim, it must be remembered that this is not a case involving theconstitutional validity of legislation as was true in Saskatchewan (Human Rights Commission) v.

Whatcott, 2013 SCC 11, [2013] S.C.J.No. 11 (QL), nor should it be presumed that all questions of law are subject to the correctness standard of review. Finally, the reality isthat neither the application judge nor this Court had the benefit of the Board’s opinion even if correctness were the proper reviewstandard. What a pity! [17] I would allow the appeal, in part, and declare that that part of s. 4(1) of the Regulation dealingwith the “revenue to cost ratio” is beyond the regulation-making authority of the LGC.

As success is divided, no costs should be orderedwith respect to the hearing at first instance or in this Court. ____________________________________ J.T. ROBERTSON, J.A. I CONCUR: _____________________________________ J.C. MARC RICHARD, J.A.