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Supreme Court of Canada

Energy—Contract involving purchase and sale of gas—Effective date of contract—Exercise of nominations or options thereunder—Whether contract required to be filed with National Energy Board—Tolls and tariffs—National Energy Board Act, R.S.C. 1970, c. N-6, ss. 2, 11(b), 18, 50, 51 and 61—British North America Act, 1867, ss. 92(10)(a), 91.

Constitutional law—Federal undertaking—Challenge to validity of ss. 50, 51 of the National Energy Board Act, R.S.C. 1970, c. N-6—British North America Act, 1867, ss. 92(10)(a), 91.

TransCanada is a company within the meaning of the National Energy Board Act, R.S.C. 1970, c. N-6, and owns and operates an interprovincial pipeline for the transmission of natural gas. In 1969 it entered into a twelve year contract under which it agreed to purchase natural gas in specified volumes from Saskatchewan Power during each of the first five contract years. This contract followed an earlier agreement dated May 1, 1959, and made certain provisions of the 1959 agreement applicable, mutatis mutandis, including the provision for the point of delivery viz. at TransCanada’s main transmission line in Saskatchewan at a point to be agreed on in writing. The contract also provided for a right to redelivery of gas to the buyer during the second five contract years to a limit of 16,000,000 M.C.F. of gas in any contract year at a price of 23.5 cents per M.C.F. The seller was to give the buyer not less than eighteen month’s written notice of seller’s nomination for this gas. On April 30, 1974 Saskatchewan Power sent a telex to TransCanada and stipulated for 5,000,000 M.C.F. for the contract year commencing November 1, 1975; and on March 27, 1975, for 16,000,000 M.C.F. for the year commencing November 1, 1976. On August 6, 1975, the contract was amended to permit

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nomination for redelivery of 17,000,000 M.C.F. during a contract year. The nomination of April 30, 1974, was cancelled and the nomination of March 27, 1975, was increased to 17,000,000 M.C.F.

The contract was filed in 1971 with the National Energy Board in connection with an application by TransCanada for increased rates, limited to higher costs of purchased gas. In 1975 an application was made by TransCanada to the Board in respect of all of its rates and included with the application was a request to substitute for the gas sale prices stipulated in the contract to be paid by Saskatchewan Power for gas it might purchase from TransCanada, the Saskatchewan zone rate, proposed in the application. Saskatchewan Power applied to the Board for an order that the Board should refuse the filing of the contract of November 1, 1969, on the grounds that the contract was between a producer and a pipeline company for an inseparable consideration and not a divisible contract and that the contract was in essence not a contract of sale but a contract of exchange. The Board however held that the contract was one which TransCanada was obliged to file under s. 51(2) of the National Energy Board Act. The Federal Court of Appeal in upholding that decision of the National Energy Board rejected appellant’s additional argument that s. 51(2) was ultra vires the Parliament of Canada as being part of a scheme to regulate intra-provincial as well as extra-provincial operations.

Held: The appeal should be dismissed.

The Federal Court of Appeal correctly decided that the contract, when coupled with the nominations of Saskatchewan Power for deliveries of gas from TransCanada was a contract for the sale of gas within s. 51(2). The agreement was not one of exchange, indeed Saskatchewan Power was not required to receive any gas under the contract except at its own sole discretion. While the contract was made in 1969 (prior to the enactment of s. 51(2)) it was a contract providing for a series of options and it was only if and when those options were exercised that contracts of sale came into being. The options were not made until 1974 and 1975.

The constitutional issue was limited solely to ss. 50 and 51 of the Act. Under s. 92(10)(a) of the B.N.A. Act an interprovincial pipeline company is an undertaking subject to federal jurisdiction. Federal jurisdiction to regulate interprovincial undertakings includes the power to regulate tolls and extends to all services provided by the undertaking including those that are provided entire-

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ly within the limits of a province. Parliament had the power to provide for the Board controlling the tolls and tariffs to be applied in connection with the transmission of gas through an interprovincial pipeline and the power to require a pipeline company to file with the Board copies of its contracts for the sale of gas, which would be deemed to constitute a tariff.

The Queen v. Board of Transport Commissioners, [1968] S.C.R. 118, referred to.

APPEAL from the Federal Court of Appeal[1] dismissing an appeal from a National Energy Board decision. Appeal dismissed.

Gordon H. Henderson, Q.C., Maurice J. Sychuk, and Y.A.G. Hynna, for the appellants.

George G. Finlayson, Q.C., and John H. Francis, Q.C., for the respondent.

T.B. Smith, Q.C., and P.G. Griffin, for the Attorney General of Canada.

K.C. MacKenzie, for the Attorney General of British Columbia.

The judgment of the Court was delivered by

MARTLAND J.—The respondent TransCanada Pipelines Limited, hereinafter called “TransCanada”, is a company within the meaning of the National Energy Board Act, R.S.C. 1970, c. N-6. It owns and operates an interprovincial pipeline for the transmission of natural gas. It entered into a contract, hereinafter referred to as “the contract”, made as of November 1, 1969, with the appellant, Saskatchewan Power Corporation, and its wholly owned subsidiary, Many Islands Pipe Lines Limited, hereinafter jointly referred to as “Saskatchewan Power”. The contract was for a term of twelve years, terminating on October 31, 1981. TransCanada agreed, during each of the first five contract years, to purchase natural gas in specified volumes from Saskatchewan Power. The parties to the contract had been parties to an earlier agreement dated May 1, 1959, which provided for the sale of natural gas by Saskatchewan Power to TransCanada. The contract made certain of the provisions of the 1959 agreement applicable mutatis mutandis, and these provisions included provision for the point of delivery, which was to be at

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TransCanada’s main transmission line in Saskatchewan at a point to be agreed upon in writing. The point agreed upon was near Success, Saskatchewan. The price to be paid for natural gas purchased in the first contract year was 23 cents per M.C.F. The price increased in each of the subsequent four contract years by one quarter of a cent per M.C.F. In the contract, Saskatchewan Power was described as “Seller” and TransCanada as “Buyer”.

Article XVII of the contract provided as follows:

ARTICLE XVII—REDELIVERY OF GAS BY BUYER

1. Seller shall have the right during the period commencing November 1, 1974 and ending October 31, 1981 to purchase and Buyer shall sell and redeliver to Seller volumes of gas as requested by Seller up to the total volumes of gas purchased by Buyer during the period commencing November 1, 1969 and ending November 1, 1974; provided that

(i) Seller shall give Buyer not less than eighteen (18) months written notice of Seller’s nomination for gas for each contract year, and

(ii) Seller may only nominate to have redelivered to Seller a volume up to 16,000,000 McF during any contract year, and

(iii) Upon such nomination being made by Seller hereunder Seller shall then be obligated to take and pay for, or nevertheless to pay for if available and not taken, the quantities of gas that Seller has so nominated to be redelivered to Seller by Buyer, and

(iv) Buyer’s obligation to redeliver each day shall be up to a daily quantity calculated by dividing the annual volume nominated hereunder by Seller for the contract year by 365 and multiplying the quotient so obtained by 1.33, and

(v) The point of delivery for such redelivery of gas by Buyer to Seller shall be at the existing point of delivery near Success, Saskatchewan, as provided in the original Contract and at the pressure existing in Buyer’s pipe line at the time of such redelivery, and

(vi) The price to be paid by Seller to Buyer for all such gas to be redelivered hereunder shall be 23.500 per McF and if the weighted average BTU content of the gas redelivered in any month is less than 1,000 BTUs per cubic foot the price of the gas shall be decreased in direct proportion to the decrease in the BTU content of such gas from 1,000 BTUs per cubic foot.

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On April 30, 1974, Saskatchewan Power sent a telex message to TransCanada confirmed by letter of the same date nominating 5,000,000 M.C.F. of gas for redelivery during the contract year commencing November 1, 1975. On March 27, 1975, by letter to TransCanada, Saskatchewan Power nominated to take redelivery of 16,000,000 M.C.F. of natural gas for the contract year commencing November 1, 1976. Subsequently, on August 6, 1975, the contract was amended to permit Saskatchewan Power to nominate to receive 17,000,000 M.C.F. during any contract year. The nomination of April 30, 1974, was cancelled, and the nomination dated March 27, 1975, was increased to 17,000,000 M.C.F. during a contract year.

The contract was filed with the National Energy Board, hereinafter referred to as “the Board”, on April 15, 1971. This filing was made in connection with an application by TransCanada for increased rates, limited to higher costs of purchased gas. At that time TransCanada was purchasing gas from Saskatchewan Power, and the contract was evidence of the cost of purchased gas. Saskatchewan Power’s right to buy gas from TransCanada related to the period of the contract commencing on November 1, 1974.

In 1975, an application was made by TransCanada to the Board in respect of all of its rates. The application was dated July 15, 1975. Included in the application was a request to substitute for the gas sale prices stipulated in the contract to be paid by Saskatchewan Power for gas which it might purchase from TransCanada, the Saskatchewan zone rate proposed in the application.

Prior to making this application, TransCanada, on July 11, 1975, filed with the Board copies of the contract with amendments thereto and copies of the nominations of Saskatchewan Power dated April 30, 1974, and March 27, 1975. TransCanada contends that it was obligated to file these documents pursuant to s. 51(2) of the National Energy Board Act. Sections 50 and 51, which are a part of Part IV of the Act, entitled “Traffic, Tolls and Tariffs”, provide as follows:

50. The Board may make orders with respect to all matters relating to traffic, tolls or tariffs.

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51. (1) A company shall not charge any tolls except tolls specified in a tariff that has been filed with the Board and is in effect.

(2) Where the gas transmitted by a company through its pipeline is the property of the company, the company shall file with the Board, upon the making thereof, true copies of all the contracts it may make for the sale of gas and amendments from time to time made thereto, and the true copies so filed shall be deemed, for the purposes of this Part, to constitute a tariff pursuant to subsection (1).

Subsection (2) of s. 51 was enacted on June 26, 1970. Other relevant provisions of the Act are as follows:

53. The Board may disallow any tariff or any portion thereof that it considers to be contrary to any of the provisions of this Act or to any order of the Board, and may require a company, within a prescribed time, to substitute a tariff satisfactory to the Board in lieu thereof, or may prescribe other tariffs in lieu of the tariff or portion thereof so disallowed.

54. The Board may suspend any tariff or any portion thereof before or after the tariff goes into effect.

61. Where the gas transmitted by a company through its pipeline is the property of the company, the differential between the cost to the company of the gas at the point where it enters its pipeline and the amount for which the gas is sold by the company shall, for the purposes of this Part, be deemed to be a toll charged by the company to the purchaser for the transmission thereof.

On August 22, 1975, Saskatchewan Power applied to the Board, as follows:

Saskatchewan Power Corporation hereby applies to the National Energy Board for an order refusing the purported filing or directing that the question of the validity of the proposed filing by TransCanada Pipelines Limited of the Gas Purchase Contract dated November 1, 1969, between Saskatchewan Power Corporation as Seller and TransCanada Pipelines Limited as Buyer, be determined by the National Energy Board at a special hearing of the Board;

And take notice that this application will be made upon the grounds that the contract is between a producer and a pipeline company for an inseparable consideration and is not a divisible contract and it was the intention that an equitable charge on reserves was created upon execution of the contract and upon request for

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redelivery Saskatchewan Power Corporation became the owner in equity and the contract provided for an exchange over its term and the contract is therefore not subject to regulations under Part IV of the National Energy Board Act.

A special hearing was held by the Board and both Saskatchewan Power and TransCanada filled written submissions. The submission of the former stated the points intended to be argued, as follows:

1. The contract is a contract for the exchange of natural gas.

2. The contract is a Gas Purchase Contract for an entire and indivisible consideration in which the right to redelivery is an integral part.

The order requested by Saskatchewan Power was:

That the filing of the contract, dated November 1, 1969, be refused because, for the reasons aforesaid, the National Energy Board has no jurisdiction with respect to the same under Part IV of the National Energy Board Act.

The special hearing was held by the Board and its conclusion was as follows:

It is the Board’s view that in referring to” …all contracts it may make for the sale of gas…” section 51(2) should be taken to refer to all contracts whereby TransCanada sells gas which is its property and is transmitted through its pipeline. The fact that such contracts may also provide for other matters, such as a purchase of gas by TransCanada, in no way changes the applicability of the provisions of section 51(2). Accordingly, the Board finds that the 1 November 1969 contract is one which TransCanada is obliged to file with the Board under the provisions of section 51(2).

In its reasons, the Board explained the purpose of s. 51(2) as follows:

Section 51(2) is essentially administrative, and has little to do with the powers of the Board. Prior to the enactment of Section 51(2), a company could not charge any tolls except those specified in a tariff, which was filed with the Board and in effect. Accordingly, each time a company such as TransCanada entered into a new contract for the sale of gas, it was necessary for it to amend its tariff filed under section 51(1). For purposes of administrative convenience, section 51(2) permits a

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company to file the contract itself, thus obviating the necessity of amending the tariff from time to time.

Saskatchewan Power appealed from this decision to the Federal Court of Appeal. The appeal was dismissed. Before that Court, Saskatchewan Power, in addition to the arguments which it had submitted to the Board, contended that s. 51(2) was ultra vires of the Parliament of Canada.

Leave to appeal to this Court was granted and, by order of the Chief Justice, the constitutional issue was defined as follows:

Are sections 50 and 51 of the National Energy Board Act intra vires the Parliament of Canada if, properly construed, they give the National Energy Board jurisdiction over the gas purchase contract involved in this case?

I am in agreement with the conclusion reached by the Board and by the Federal Court of Appeal that the contract, when coupled with the nominations of Saskatchewan Power for deliveries of gas from TransCanada, was a contract for the sale of gas within s. 51(2).

Saskatchewan Power contended that this was not a gas sale contract at all, but was either a gas exchange contract, or an indivisible gas purchase agreement for the purchase of gas by TransCanada.

In my opinion the agreement was not one for the exchange of gas. TransCanada, under the terms of the agreement, had no right to pay for the gas which it received from Saskatchewan Power in the first five years of the contract by making deliveries of gas in the subsequent years. It was required by the agreement to pay for the gas it received at a stipulated price. In fact, TransCanada made a prepayment of $3,000,000 to Saskatchewan Power to be credited against the cost of gas to be delivered to it. Furthermore, Saskatchewan Power was under no obligation to accept gas in exchange for the gas it had sold. It was not required to receive any gas from TransCanada except at its own sole election.

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The contract was not solely a gas purchase agreement for the purchase of gas by TransCanada. It is true that it provided for the purchase of gas by TransCanada during the first five years of the contract, but it also provided for a series of rights to purchase gas by Saskatchewan Power from TransCanada, exercisable at the option of the former, during the later years of the contract by written notice of nomination. At the time a nomination was made, TransCanada became contractually obligated to deliver the quantity of gas nominated at the price stipulated in the contract. This was a contract for the sale of gas within s. 51(2).

Saskatchewan Power contended that s. 51(2) was not applicable to this contract, because the subsection was enacted in 1970, whereas the contract was made in 1969, and it was argued that the subsection should not be construed as applying retroactively. As has already been pointed out, while the contract was made in November 1969, it gave to Saskatchewan Power a series of options to purchase exercisable during the later years of the contract. It was only if and when those options were exercised that contracts of sale by TransCanada came into being. The nominations where not made until 1974 and 1975.

It was also contended by Saskatchewan Power that s. 51(2) only applies to contracts for the sale of gas transmitted by TransCanada through its interprovincial pipeline, and that it was not necessary that there be a transmission of gas through TransCanada’s interprovincial pipeline in order to deliver gas to Saskatchewan Power under Part XVII of the contract.

This point does not appear to have been submitted to the Board which, with its knowledge of TransCanada’s operations, could quickly have answered it. However, the provisions of the contract provide the answer to this argument.

Paragraph 2 of Article VIII of the earlier agreement of May 1, 1959, which was made applicable mutatis mutandis in the contract provided that:

The point of delivery of all gas delivered hereunder shall be at Buyer’s main transmission pipe line in the Province

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of Saskatchewan at a point to be agreed upon in writing between the parties hereto.

As already noted, that agreed point was near Success, Saskatchewan. Thus, gas purchased by TransCanada was to be delivered at its main transmission line. Sub-paragraph (v) of paragraph 1 of Article XVII of the agreement, governing deliveries of gas by TransCanada to Saskatchewan Power, fixes the same point of delivery, near Success, Saskatchewan, and provides that it be delivered “at the pressure existing in Buyer’s pipeline at the time of such redelivery”.

In the light of these provisions, it is apparent that the gas sold by TransCanada to Saskatchewan Power was to be delivered from its main transmission line.

I turn next to the constitutional issue. It is limited solely to ss. 50 and 51 of the Act. The reason for this is that the only issue before the Board was whether the agreement and the subsequent nominations for the purchase of gas by Saskatchewan Power were properly filed pursuant to s. 51(2). The constitutional issue, as framed, is whether ss. 50 and 51 are ultra vires “if, properly construed, they give the National Energy Board jurisdiction over the gas purchase contract involved in this case”.

The Attorney General of Canada intervened in support of the constitutional validity of the legislation challenged. The Attorney General of British Columbia intervened in support of the contention of Saskatchewan Power that that legislation was invalid.

Section 50 of the Act empowers the Board “to make orders with respect to all matters relating to traffic, tolls or tariffs”. It enables the Board, inter alia, to control the tolls and tariffs of a company having authority to construct or operate a pipeline for the transmission of gas connecting a province with any other or others of the province. Such a company is an undertaking of the kind defined in s. 92(10)(a) of the British North America Act and

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therefore falls within the class of subjects subject to federal legislative power under s. 91(29). I agree with the statement of Pratte J., in the Federal Court of Appeal, when he said:

First, it is now well established that the federal jurisdiction over an interprovincial undertaking includes the power to regulate tolls and extends to all the services provided by the undertaking, including those that are provided entirely within the limits of a province (Queen in Right of Ontario v. Board of Transport Commissioners, [1968] S.C.R. 118).

Subsection (1) of s. 51 forbids a company operating such an undertaking to charge tolls except those specified in a tariff filed with the Board.

Subsection (2) deals with a company which transmits gas which is its own property. It is required to file copies of its contract for the sale of such gas. Such copies are then deemed to constitute a tariff pursuant to subs. (1). The filing by TransCanada of its contract for the sale of gas to Saskatchewan Power constituted that document a tariff.

Section 61 of the Act has already been cited. Its constitutional validity is not under attack in these proceedings. It provides that where a company transmits its own gas through its pipeline, the differential between the cost to the company of the gas at the point where it enters the pipeline and the sale price of the gas is to be deemed to be a toll charged to the purchaser for the transmission of the gas.

The primary submission of Saskatchewan Power was that the agreement was one concerned with intra-provincial trade, and therefore beyond the legislative powers of the Federal Parliament. On the material before us, I would not be prepared to find that this was a matter of intra-provincial trade. The contract provided for deliveries of gas to Trans-Canada drawn from the Medicine Hat Field in Alberta and to be delivered to Trans-Canada’s main transmission line at Success, Saskatchewan. The deliveries by TransCanada to Saskatchewan Power were to be made at the same point. As already indicated, it appears clear to me that these deliveries were to be made from Trans-

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Canada’s main transmission line, which carries gas from Alberta to Saskatchewan and to other provinces. In the absence of contrary evidence, it is reasonable to assume that gas from Alberta would be delivered to Saskatchewan Power in Saskatchewan.

In any event, the legislative power of Parliament with respect to an interprovincial undertaking depends upon the character of the undertaking itself. Parliament has the power to require that there be furnished by the undertaking to the regulatory Board all contracts for the sale of gas made from the pipeline operated by it. In The Queen v. Board of Transport Commissioners[2], previously cited, this Court said at p. 127:

In the present case, the constitutional jurisdiction depends on the character of the railway line, not on the character of a particular service provided on that railway line.

In my opinion, Parliament had the power to provide for the tolls and tariffs to be applied in connection with the transmission of gas through an interprovincial pipeline and had the power to require a pipeline company to file with it copies of its contracts for the sale of gas, which would be deemed to constitute a tariff. Those are the only constitutional issues involved in the present proceedings.

The Board concluded its reasons for decision in the present matter given in April 1976 with the following paragraph:

Accordingly, the Board finds that the 1 November 1969 contract was validly filed pursuant to section 51(2) of the Act. As no submissions were made on the point, the Board leaves for further consideration the question of whether the price stipulated in the contract is just and reasonable.

We were advised by counsel that in September 1976 the Board heard an application by TransCanada in respect of all its rates. We were further advised that by its decision of December 1976, the Board increased the rates payable under the contract to the same level as the rates for any deliveries in the Saskatchewan zone. We understand that

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an appeal has been taken from that decision, with leave, to the Federal Court of Appeal.

How far the exercise by the Board of its power to fix tolls affects the contractual rights of Saskatchewan Power under the contract is not a matter which was raised by the limited issue submitted to the Board in the present proceedings. We do not have before us the material which was before the Board when its decision was made in December 1976, nor do we have the benefit of its reasons. It is true that the constitutional issue, as framed, referred to the question as to whether ss. 50 and 51 gave the National Energy Board “jurisdiction over the gas purchase contract involved in this case”. But these sections do not purport to give jurisdiction over contracts. Section 50 gives the Board power to make orders as to traffic, tolls and tariffs. Section 51(2) provides for the filing of gas sales contracts which are deemed to constitute a tariff. The issues which may arise, as a result of the December 1976 decision, are the extent of the powers which have been or may be given to the Board to regulate the sale price of gas by TransCanada, and the impact of such regulations upon the contractual rights of the parties. To attempt to adjudicate now upon those issues on the limited material before the Court would be premature. This is emphasized by the contents of the addendum to the reasons for decision of the Board in the present proceedings:

Subsequent to the filing of this application with the Board, the Governor in council prescribed prices at which natural gas produced in the Province of Alberta is to be sold on and for delivery in areas or zones of Canada outside that Province, pursuant to section 51(1) of the Petroleum Administration Act. By Order in Council, P.C. 1975-2533, as amended by O.C. 1975-2731, the Governor in Council has prescribed prices applicable to, inter alia, sales in the Saskatchewan zone by TransCanada of natural gas produced in the Province of Alberta. It appears to the Board that the price stipulated in the 1 November 1969 contract, apart from being subject to regulation under Part IV of the National Energy Board Act, is subject to the prices prescribed pursuant to the Petroleum Administration Act.

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For the foregoing reasons I would dismiss this appeal with costs.

Appeal dismissed with costs.

Solicitors for the appellants: Gowling & Henderson, Ottawa,

Solicitors for the respondent: McCarthy & McCarthy, Toronto.

Solicitor for the Attorney General of Canada: R. Tassé, Ottawa.

Solicitors for the Attorney General of British Columbia: Burke-Robertson, Chadwick & Ritchie, Ottawa.

 



[1] [1977] 2 F.C. 324.

[2] [1968] S.C.R. 118.

 

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