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Posted in: Ontario | Practice & Procedure | Facilities

Jan 16, 2018

Ontario Court of Appeal Finds That Gas Utility’s Franchise Agreement Prevails Over Drainage Act

By David Stevens

In a decision released on January 10, 2018, the Ontario Court of Appeal found in favour of Union Gas on the question of whether the cost sharing provisions of a model franchise agreement apply to the relocation of a gas pipeline necessitated by drainage works. The Court found that the provisions of the municipal franchise agreement override the Drainage Act, and require a municipality to share relocation costs with the gas utility where the relocation results from drainage works.

The Union Gas Limited v Norwich (Township) case arose over a dispute between the gas utility and a municipality over whether the parties must share the costs of relocating part of a gas work required because of the municipality’s construction of drainage works. Under the provisions of the Drainage Act, the utility is required to pay the full costs of relocation. However, the terms of the municipal franchise agreement between the parties indicate that the municipality is required to reimburse the utility for 35% of gas relocation costs necessitated by municipal works.

The Court found that the municipal franchise agreement cost sharing provisions operated as an exception to the Drainage Act. In coming to this determination, the Court held that parties can contract out of the benefits conferred by a statute unless this would be contrary to public policy or the wording of the statute specifically prohibits this. The Court considered the cost sharing provisions of the municipal franchise agreement (which is a standard form applicable across Ontario) and found that they displace the Drainage Act requirement that the utility pay all costs. In coming to this conclusion, the Court noted that the municipal franchise agreement “describes the cost-sharing mechanism in clear language and it unambiguously applies when a municipality requests relocation of a gas system to accommodate any municipal works.”

While it’s unlikely that the specific facts of the Union Gas Limited v Norwich (Township) case will arise frequently, the discussion about the effect of the municipal franchise agreement is instructive. As the Court acknowledged, the intent of the cost sharing provision mechanism of the municipal franchise agreement is to act as a disincentive to municipalities to require gas pipeline relocations. This case confirms the expectation that a municipality will be responsible for some of the associated costs, even in a situation where a statute appears to require otherwise. 

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