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Westcoast Energy Inc. v. Canada (National Energy Board), [1998] 1 S.C.R. 322

 

BC Gas Utility Ltd.                                                                            Appellant

 

v.

 

Westcoast Energy Inc., the National Energy Board,

the Attorney General of Canada and the

Attorney General of British Columbia                                              Respondents

 

and

 

The Attorney General of Nova Scotia,

the Attorney General for Saskatchewan

and the Attorney General for Alberta                                              Interveners

 

Indexed as:  Westcoast Energy Inc. v. Canada (National Energy Board)

 

File No.:  25259.

 

1997:  November 12; 1998:  March 19.

 

Present:  L’Heureux‑Dubé, Gonthier, Cory, McLachlin, Iacobucci, Major and Bastarache JJ.

 

on appeal from the federal court of appeal

 


Constitutional law -- Division of powers -- Interprovincial transportation -- Local works and undertakings -- Firm wanting to expand collecting pipeline network and processing facilities -- Processing necessary before gas transported through mainline pipeline -- Whether gathering pipeline and processing facilities under federal jurisdiction by operation of s. 92(10) (a) of the Constitution Act, 1867  -- If not, whether gathering pipeline and processing facilities integral to mainline transmission pipeline -- Effect of s. 92A  (natural resources amendment) -- If proposed facilities within federal jurisdiction, whether proposed gas processing plant facilities within definition of “pipeline” in National Energy Board Act  -- Constitution Act, 1867, ss. 92(10) (a), 92A  -- National Energy Board Act, R.S.C., 1985, c. N-7, s. 2 .

 

Westcoast Energy Inc. (“Westcoast”) owns and operates an integrated natural gas pipeline system which transports raw natural gas through its gathering pipelines from production fields located in the various jurisdictions to gas processing plants where it is processed to remove impurities.  The gathering pipelines are constructed of a steel that resists the corrosion caused by the impurities in the raw gas.  The processed gas is then transported through Westcoast’s mainline gas transmission pipeline to delivery points within British Columbia, Alberta and the United States.  The mainline pipeline is constructed of a steel that would not resist the corrosion of unprocessed gas.  The gas is also processed because of safety concerns associated with shipping it through densely populated areas.

 


Two separate applications were made by Westcoast to the National Energy Board (the “Board”) for certain exemption orders and certificates pursuant to the National Energy Board Act  (the “Act ”) in respect of proposed expansions of its gathering pipeline and processing plant facilities in the Fort St. John and Grizzly Valley resource areas.  The Board initially adjourned the Grizzly Valley application.  On the St. John application, a majority of the three-member Board (whose expertise was not in law) held that the proposed facilities were not federal works or undertakings under s. 92(10) (a) of the Constitution Act, 1867  and dismissed the application for lack of jurisdiction.  In rendering their judgment they found that gas processing and gas transmission were fundamentally different activities or services.

 

Westcoast appealed the Fort St. John decision to the Federal Court of Appeal.  It also revived its Grizzly Valley application and applied to have the Board refer jurisdictional questions to the Federal Court of Appeal.  The court dealt with the Fort St. John appeal and the Grizzly Valley reference together and held unanimously that both proposed facilities were part of a single federal transportation undertaking within the jurisdiction of Parliament under s. 92(10) (a) and that they came within the definition of “pipeline” in s. 2  of the Act .

 

BC Gas appealed and was supported by the respondent, the Attorney General of British Columbia.  The interveners, the Attorneys General of Alberta, Nova Scotia and Saskatchewan, also appeared in its support.  The respondents, Westcoast and the Attorney General of Canada, appeared in support of the judgment of the Court of Appeal.  The respondent Board did not participate in this appeal.  The constitutional question before the Court queried whether, given the division of constitutional authority, several sections of the Act  applied to the proposed facilities at (a) Fort St. John and (b) at Grizzly Valley.  Among the issues to be decided were the degree of curial deference owed to the Board’s finding that gas processing and gas transmission are fundamentally different activities, whether the proposed gathering pipeline and gas processing facilities came within the jurisdiction of Parliament under s. 92(10) (a) of the Constitution Act, 1867 , and, if so, whether the proposed gas processing plant facilities came within the definition of “pipeline” in s. 2  of the Act .

 


Held (McLachlin J. dissenting):  The appeal should be dismissed.  The constitutional question should be answered in the affirmative.

 

Per L’Heureux‑Dubé, Gonthier, Cory, Iacobucci, Major and Bastarache JJ.:  Questions of mixed law and fact are to be accorded some measure of deference, but not in every case.  It would be particularly inappropriate to defer to a tribunal whose expertise lies completely outside the realm of legal analysis on a question of constitutional interpretation.  Questions of this type must be answered correctly and are subject to being overridden by the courts.

 

Here, the characterization of processing and gathering as independent activities was not a pure finding of fact in the true sense, but rather, one of mixed fact and law as an inference was drawn from other, detailed findings related to the natural gas industry and the business operations of Westcoast.  It was meant as a partial answer to the core  constitutional question at issue, whether Westcoast’s operations constituted a single undertaking or multiple undertakings, and therefore went beyond simply being a statement of the facts of the natural gas industry or the business of Westcoast.  Rather,  it was an opinion as to the constitutional significance of these facts.  The Board was not entitled to deference because of the nature of the legal question answered.

 

The Court of Appeal owed no deference to the Board’s conclusion as to the constitutional effect of its finding that Westcoast was carrying out different activities because the issue was a pure question of law, which was wholly outside the Board’s otherwise considerable expertise.  The court properly applied the standard of correctness in reviewing the Board’s ultimate decision. It did, however, accept the Board’s factual conclusion as to the different activities carried on by Westcoast.

 


Undertakings may come within federal jurisdiction in one of two ways:  (1) if they constitute a single federal work or undertaking, or (2) if they do not, if they are integral to the core federal transportation or communication facility.  Westcoast’s gathering pipelines, processing plants and mainline transmission pipeline, of which the proposed Fort St. John and Grizzly Valley facilities would form part, constitute a single federal transportation undertaking within the exclusive jurisdiction of Parliament under s. 92(10) (a) of the Constitution Act, 1867 .  Since the first test was met,  it was not necessary to consider whether the proposed facilities would be essential, vital and integral to the mainline transmission pipeline under the second test.

 

In order for several operations, carrying on different activities, to be considered a single federal undertaking for the purposes of s. 92(10) (a), they must be functionally integrated and subject to common management, control and direction.  Common ownership must be coupled with functional integration and common management and a physical connection must be coupled with an operational connection.  A close commercial relationship is insufficient. The inquiry into whether various operations are functionally integrated and managed in common requires a careful examination of the factual circumstances of any given case.  The manner in which the undertaking might have been structured or the manner in which other similar undertakings are carried on is irrelevant. The fact that one aspect of a business is dedicated exclusively or even primarily to the operation of the core interprovincial undertaking is an indication of the type of functional integration that is necessary for a single undertaking to exist.  However, it remains only one factor to consider and may not be sufficient by itself.  It is the overall degree of functional integration and common management which must be assessed.

 


The fact that an activity or service is not of a transportation or communications character does not preclude a finding that it is a single federal undertaking under the first test.  Although it may be impossible to formulate in the abstract a single comprehensive test, it is not impossible to identify certain indicia which will assist in the s. 92(10) (a) analysis.  The primary factor to consider is whether the various operations are functionally integrated and subject to common management, control and direction.  The absence of these characteristics will, in all likelihood, determine that the operations are not part of the same interprovincial undertaking, although the converse will not necessarily be true.  Other relevant questions, though not determinative, will include whether the operations are under common ownership (perhaps as an indicator of common management and control), and whether the goods or services provided by one operation are for the sole benefit of the other operation and/or its customers, or whether they are generally available.  Because of the factual nature of this determination, evidence of the ordinary way in which business is conducted within a particular industry will not be particularly relevant.  In the instant case, it is precisely because Westcoast’s business is exceptional that it was concluded that it comprises a single federal undertaking.

 


The fact that Westcoast’s gathering pipelines and processing plants are physically connected to the mainline transmission pipeline is insufficient by itself to conclude that they constitute a single federal undertaking.  Further, the fact that Westcoast owns all of these facilities is insufficient.  However, the description of the business and facilities of Westcoast demonstrates that it manages them in common as a single enterprise which is functionally integrated.  Westcoast facilities and personnel are subject to common control, direction and management, and are operated in a coordinated manner.  Moreover, the primary purpose of processing the raw gas, from the perspective of Westcoast, is to facilitate its transmission through the Westcoast mainline transmission pipeline.  Virtually all processing provided by Westcoast is of gas which is subsequently delivered into this transmission line.

 

The finding by the Board that interdependence and coordination is a necessary feature of the natural gas industry was not a valid basis for concluding that Westcoast does not operate a single federal undertaking.  The facts demonstrate that, above and beyond this coordination, Westcoast also operates the gathering pipelines, processing plants and mainline transmission pipeline in common as a single enterprise.  Simply put, the facilities are subject to common control, direction and management by Westcoast.  This distinguishes the Westcoast undertaking from others in the natural gas industry.

 

Parliament did not give up its declaratory power over interprovincial transportation undertakings under s. 92(10) (a) when s. 92A  of the Constitution Act, 1867  was added to the Constitution in 1982.  The resource amendment increased provincial power with respect to the raising of revenues from resources and to regulating the development and production of resources without diminishing Parliament’s pre-existing powers.  Section 92A  does not derogate from Parliament’s jurisdiction under s. 92(10) (a).  Federal jurisdiction under s. 92(10) (a) is premised on a finding that an interprovincial transportation undertaking exists whereas s. 92A(1) (b) is with the “development, conservation and management” of these resources within the province and not the transportation of natural resources beyond the province.  Section 92A(1) (b) cannot extend provincial jurisdiction to include the regulation of the interprovincial transportation of natural gas through these facilities.

 


Westcoast’s processing plants are subject to the Board’s jurisdiction by virtue of the overall scheme of the National Energy Board Act  and its definition of “pipeline”.  Its wording is very broad and quite adequate to cover processing plants.

 

Per McLachlin J. (dissenting):  A work or undertaking may fall within the s. 92(10) (a) in two ways:  (1) it may itself be an interprovincial work or undertaking and (2) if it does not itself make an interprovincial connection, it may fall under federal jurisdiction by virtue of its relationship to an interprovincial work or undertaking.   To say that a work or undertaking can fall within the residual clause of s. 92(10) (a) by (1) being part of a single integrated interprovincial work or undertaking, and, (2) being “integral” to an interprovincial work or undertaking, amounts to the same thing for the inquiry under either alternative is whether the work or undertaking is part of an integrated scheme.  The two branches of the test do not duplicate, however, if the residual clause of s. 92(10) (a) applies where the work or undertaking at issue (1) is itself an interprovincial work or undertaking (primary instance) or (2) is functionally integrated with an interprovincial work or undertaking (secondary instance).

 

No primary instance occurred here.  The processing plants are not in themselves works connecting one province to another.  The mere fact that these plants are to separate, refine and produce and are ultimately connected to an interprovincial transportation grid does not convert them into an interprovincial means of transportation.

 

The functional integration required by the secondary instance is informed by the framework of the Constitution and the functional integration test and other factors indicated in the jurisprudence.

 


The Constitution is clear.  The provinces have the right to control works and undertakings within their boundaries, including facilities related to the production of resources.  Exceptionally, and only to the extent required to maintain interprovincial transportation and communication networks, the federal government, through s. 92(10) (a), has the power to regulate provincial works and undertakings.  This interpretation is strengthened and confirmed by s. 92A .

 

The functional integration test requires that the local work or undertaking essentially function as part of the interprovincial entity by virtue of its relationship with it and that it lose its distinct character.  Functional integration requires more than a demonstration that the provincial work functions as part of a “unified system” in which the constituent parts of the system retain their identities.  Functional integration is established if the dominant character of the local work or undertaking, considered functionally and in the industry context, is transformed by its connection to the interprovincial enterprise, from that of a local work or undertaking with a district local character, into that of an interprovincial transportation or communications undertaking.  In determining whether the test has been met, the court must examine the substance of the activity being carried on.  The suggested procedure is to identify the core federal work or undertaking to which the local entity is said to be integral, then examine the physical and operational character of the provincial work or undertaking, and its practical or functional relationship to the core operation or character of the federal work or undertaking.

 

A comprehensive factor-based test is elusive.  Common management, common ownership and coordination, and dependency of the interprovincial enterprise on the local enterprise are among those factors which may prove useful.

 


Since the ultimate question in this appeal went to the heart of the Board’s jurisdiction, the standard is one of correctness and no deference is owed.  The courts may still owe deference to the Board on matters of fact falling within the Board’s area of expertise.

 

The determination of the dominant character of the processing plants required an in-depth knowledge of the natural gas industry and the role processing plants play in that industry. The majority of the Board applied the correct legal test and  correctly concluded that while the processing plants and the interprovincial pipeline might be viewed as a unified system, they nevertheless retained their distinct non-transportation identity and hence were not essential or integral, in the required constitutional sense, to the interprovincial pipeline.  As a consequence, the processing plants remained under provincial jurisdiction.

 

It was not necessary to consider if the processing plants came within the definition of “pipeline” in the National Energy Board Act .

 

Cases Cited

 

By Iacobucci and Major JJ.

 


Applied: United Transportation Union v. Central Western Railway Corp., [1990] 3 S.C.R. 1112; considered:  Alberta Government Telephones v. Canada (Canadian Radio-television and Telecommunications Commission), [1989] 2 S.C.R. 225; Canadian Pacific Railway Co. v. Attorney-General for British Columbia, [1950] A.C. 122; Luscar Collieries, Ltd. v. McDonald, [1927] A.C. 925; Northern Telecom Ltd. v. Communications Workers of Canada (No. 1), [1980] 1 S.C.R. 115; Attorney-General for Ontario v. Winner, [1954] A.C. 541; Dome Petroleum Ltd. v. National Energy Board (1987), 73 N.R. 135; Ontario Hydro v. Ontario (Labour Relations Board), [1993] 3 S.C.R. 327;  distinguished:  Canadian National Railway Co. v. Nor-Min Supplies Ltd., [1977] 1 S.C.R. 322; referred to:  Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748; Campbell-Bennett Ltd. v. Comstock Midwestern Ltd., [1954] S.C.R. 207; City of Montreal v. Montreal Street Railway, [1912] A.C. 333; Re Regulation & Control of Radio Communication, [1932] 2 D.L.R. 81; Reference re Industrial Relations and Disputes Investigation Act, [1955] S.C.R. 529; The King v. Eastern Terminal Elevator Co., [1925] S.C.R. 434; The Queen v. Nova, An Alberta Corporation, [1988] 2 C.T.C. 167.

 

By McLachlin J. (dissenting)

 


United Transportation Union v. Central Western Railway Corp., [1990] 3 S.C.R. 1112; Campbell-Bennett Ltd. v. Comstock Midwestern Ltd., [1954] S.C.R. 207; National Energy Board (Re), [1988] 2 F.C. 196; City of Montreal v. Montreal Street Railway, [1912] A.C. 333; Ontario Hydro v. Ontario (Labour Relations Board), [1993] 3 S.C.R. 327; Canadian Pacific Railway Co. v. Attorney-General for British Columbia, [1950] A.C. 122; Canadian National Railway Co. v. Nor-Min Supplies Ltd., [1977] 1 S.C.R. 322; Attorney-General for Ontario v. Winner, [1954] A.C. 541; Northern Telecom Ltd. v. Communications Workers of Canada (No. 1), [1980] 1 S.C.R. 115; Alberta Government Telephones v. Canada (Canadian Radio-television and Telecommunications Commission), [1989] 2 S.C.R. 225; City of Toronto v. Bell Telephone Company of Canada, [1905] A.C. 52; Northern Telecom Canada Ltd. v. Communications Workers of Canada (No. 2), [1983] 1 S.C.R. 733; British Columbia Electric Railway Co. v. Canadian National Railway Co., [1932] S.C.R. 161; Kootenay & Elk Railway Co. v. Canadian Pacific Railway Co., [1974] S.C.R. 955; Luscar Collieries, Ltd. v. McDonald, [1927] A.C. 925; The Queen v. Board of Transport Commissioners, [1968] S.C.R. 118; In re Cannet Freight Cartage Ltd., [1976] 1 F.C. 174; Reference re Industrial Relations and Disputes Investigation Act, [1955] S.C.R. 529; Letter Carriers’ Union of Canada v. Canadian Union of Postal Workers, [1975] 1 S.C.R. 178; U.E.S., Local 298 v. Bibeault, [1988] 2 S.C.R. 1048; Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557; University of British Columbia v. Berg, [1993] 2 S.C.R. 353; Cuddy Chicks Ltd. v. Ontario (Labour Relations Board), [1991] 2 S.C.R. 5; Ross v. New Brunswick School District No. 15, [1996] 1 S.C.R. 825.

 

Statutes and Regulations Cited

 

Constitution Act, 1867, ss. 91(29) , 92(10) (a), (c), (13) , (16) , 92A(1) (b), (c), (5) , Sixth Schedule, s. 1.

 

Federal Court Act, R.S.C., 1985, c. F-7, ss. 18.3(1)  [ad. 1990, c. 8, s. 5], 28(1)(f) [rep. & sub. 1990, c. 8, s. 8], (2) [idem].

National Energy Board Act, R.S.C., 1985, c. N-7, ss. 2  ‘pipeline’ [rep. & sub. c. 28 (3rd Supp.), s. 299 ], 12, 22, 29, 30, 31, 33, 47(1) [am. 1996, c. 10, s. 237.1], (2), 52 [rep. & sub. 1990, c. 7, s. 18], 58 [am. 1990, c. 7, s. 22], 59.

 

Authors Cited

 

Hogg, Peter W.  Constitutional Law of Canada, loose-leaf ed.  Scarborough, Ont.: Carswell, 1992 (updated 1997, release 2).

 

La Forest, Gerard V.  Water Law in Canada: The Atlantic Provinces.  Ottawa:  Department of Regional Economic Expansion, 1973.

 

 

APPEAL from a judgment of the Federal Court of Appeal, [1996] 2 F.C. 263, 134 D.L.R. (4th) 114, 193 N.R. 321, [1996] F.C.J. No. 160 (QL), allowing an appeal on questions of jurisdiction from a judgment of the National Energy Board.  Appeal dismissed, McLachlin J. dissenting.


W. S. Martin and C. B. Johnson, for the appellant.

 

W. Ian C. Binnie, Q.C., Robin M. Sirett and Bruce E. Pydee, for the respondent Westcoast Energy Inc.

 

Peter W. Noonan and Lori Ann B. Boychuk, for the respondent the National Energy Board.

 

Judith Bowers, Q.C., and Simon Fothergill, for the respondent the Attorney General of Canada.

 

George H. Copley, Q.C., for the respondent the Attorney General of British Columbia.

 

Written submission only by Michael S. McPhee for the intervener the Attorney General of Nova Scotia.

 

Written submission only by Thomson Irvine for the intervener the Attorney General for Saskatchewan.

 

Robert J. Normey and Jill Page, for the intervener the Attorney General for Alberta.

 

 

 

//Iacobucci and Major JJ.//

 


The judgment of L’Heureux-Dubé, Gonthier, Cory, Iacobucci, Major and Bastarache JJ. was delivered by

 

Iacobucci and Major JJ. --

 

I.                 Introduction

 

1                                   The principal issue in this appeal is whether certain proposed natural gas gathering pipeline and processing plant facilities form part of a federal natural gas pipeline transportation undertaking under s. 92(10) (a) of the Constitution Act, 1867 .  The appeal also raises the subsidiary issues of whether natural gas processing plants come within the definition of “pipeline” in s. 2  of the National Energy Board Act, R.S.C., 1985, c. N-7 , and what degree of curial deference is owed to the National Energy Board on questions involving its constitutional jurisdiction.

 

II.                Procedural Background

 

2                                   The respondent, Westcoast Energy Inc. (“Westcoast”), owns and operates an integrated natural gas pipeline system.  Raw natural gas is received from production fields located in the Yukon, the Northwest Territories, Alberta and British Columbia and transported through gathering pipelines to gas processing plants where it is processed to remove impurities.  The processed gas is transported through Westcoast’s mainline gas transmission pipeline to delivery points within British Columbia, Alberta and the United States.

 


3                                   This appeal arises out of two separate applications by Westcoast to the National Energy Board (the “Board”) for certain exemption orders and certificates pursuant to the National Energy Board Act  in respect of proposed expansions of Westcoast’s gathering pipeline and processing plant facilities in the Fort St. John and Grizzly Valley resource areas, respectively.  Westcoast initially adjourned the Grizzly Valley application.  The Board held a hearing for the Fort St. John application at which the appellant, BC Gas Utility Ltd. (“BC Gas”), challenged its jurisdiction by arguing that the proposed Fort St. John facilities were not federal works or undertakings under s. 92(10) (a) of the Constitution Act, 1867 .  In the alternative, BC Gas contended that the National Energy Board Act  did not apply to the proposed gas processing plant facilities because they did not come within the definition of “pipeline” in s. 2  of the Act .  A majority of the three-member Board held that the proposed facilities were not federal works or undertakings under s. 92(10) (a) and dismissed Westcoast’s application for lack of jurisdiction.

 

4                                   Westcoast appealed to the Federal Court of Appeal.  It also revived its Grizzly Valley application, and applied to have the Board refer the jurisdictional questions raised by BC Gas to the Federal Court of Appeal pursuant to ss. 18.3  and 28(2)  of the Federal Court Act, R.S.C., 1985, c. F-7 .  The Board issued Order No. MO-21-95 stating the findings of fact relevant to the following questions, which were referred to the Federal Court of Appeal:

 

(1)   Are the facilities proposed to be constructed and operated by Westcoast Energy Inc. within the jurisdiction of the Parliament of Canada pursuant to the Constitution Acts, 1867 to 1982?

 

(2)   If so, do such facilities fall within the definition of “pipeline” in section 2  of the National Energy Board Act ?

 


5                                   The Federal Court of Appeal dealt with the Fort St. John appeal and the Grizzly Valley reference together and held unanimously that both the proposed Fort St. John facilities and Grizzly Valley facilities were part of a single federal transportation undertaking within the jurisdiction of Parliament under s. 92(10) (a).  It also held that the proposed processing plant facilities came within the definition of “pipeline” in s. 2  of the Act .  It allowed the appeal from the decision of the Board in the Fort St. John proceeding and remitted the application back to the Board for a decision on its merits.  It also answered both of the questions stated in the Grizzly Valley reference in the affirmative.

 

6                                   The appellant, BC Gas, appealed from the decision of the Federal Court of Appeal to this Court.  The respondent, the Attorney General of British Columbia, and the interveners, the Attorneys General of Alberta, Nova Scotia and Saskatchewan, appeared in support of the appellant.  The respondents, Westcoast and the Attorney General of Canada, appeared in support of the judgment of the Court of Appeal.  The respondent, the National Energy Board, did not participate in the appeal before this Court.

 

III.               Facts

 

7                                   In order to resolve the constitutional issue raised by this appeal, it is necessary to examine the physical and operational features of Westcoast’s business in some detail.  The following description is based on those in the reasons of the Board in the Fort St. John proceeding and Order No. MO-21-95 concerning the Grizzly Valley reference.

 

A.                The Business and Facilities of Westcoast

 


8                                   The Westcoast natural gas pipeline system is essentially a network of gathering pipelines which feed gas into four gas processing plants, which in turn feed processed gas into an interprovincial mainline transmission pipeline.  Natural gas is extracted by independent producers at production fields in the Yukon, the Northwest Territories, British Columbia and Alberta.  The extracted gas is called “raw gas” and contains a mixture of both gaseous and liquid hydrocarbons consisting primarily of methane, as well as other substances such as water, hydrogen sulphide and carbon dioxide.  Water is removed from the raw gas by the producers before it is delivered into the Westcoast gathering pipelines to avoid corrosion and the formation of hydrates which can obstruct the flow of gas.

 

9                                   The raw gas is transported through the Westcoast gathering pipelines by means of compression to one of four Westcoast processing plants, where it is processed to remove impurities, including hydrogen sulphide, carbon dioxide and liquid hydrocarbons.  These impurities must be removed from the raw gas before it can be used by the ultimate consumers.  The processed gas is called “residue gas” or “sales gas” and is delivered into the Westcoast mainline transmission pipeline for transportation by means of compression to markets in British Columbia, Alberta and the United States.  The processing of the raw gas produces several byproducts which are also commercially valuable.  For example, the hydrogen sulphide that is removed is converted into elemental sulphur which is stored or sold.

 

10                               It is necessary to remove the hydrogen sulphide and carbon dioxide from the raw gas before it is delivered into the mainline transmission pipeline for two reasons.  First, the combination of hydrogen sulphide and carbon dioxide is corrosive.  While the steel used in the gathering pipelines is designed to resist this corrosion, the steel used in the mainline transmission pipeline is not.  Second, hydrogen sulphide is toxic and poses unacceptable safety and environmental risks.  As such, gas which contains hydrogen sulphide cannot be transported through the heavily populated areas where the mainline transmission pipeline runs.

 


11                               The Westcoast facilities include approximately 2,488 kilometres of gathering pipelines located in Alberta, British Columbia, the Yukon and the Northwest Territories, with 17 field compressor or “booster” stations; five gas processing plants located in British Columbia at Fort Nelson, Taylor (the McMahon Plant), Pine River, Aitken Creek and in the Sikanni area northwest of Fort St. John; and approximately 2,576 kilometres of mainline transmission pipeline located in Alberta and British Columbia, with 17 mainline compressor stations.

 


12                               Westcoast’s mainline transmission pipeline commences at the international boundary near Huntingdon, British Columbia, east of Vancouver, where it connects with the interstate pipeline owned and operated in the United States by Northwest Pipeline Corporation.  From Huntingdon, the mainline transmission pipeline extends north to Compressor Station No. 2 where it divides into three branches.  One branch (the Fort Nelson Mainline) extends north to the Fort Nelson Plant, at Fort Nelson, British Columbia, with pipelines connecting its Sikanni Plant and the Aitken Creek Plant to the Fort Nelson Mainline near Compressor Station N4.  The Fort Nelson Mainline also connects with the Buckinghorse Plant which is owned by Westcoast Gas Services Inc., a subsidiary of Westcoast.  The second branch (the Pine River Mainline) extends southeast to the Pine River Plant near Chetwynd, British Columbia.  The third branch (the Fort St. John Mainline) extends northeast to Compressor Station No. 1 adjacent to the McMahon Plant at Taylor, British Columbia (near Fort St. John) where it divides into two branches extending into Alberta.  The more northerly of these lines (the Boundary Lake Mainline) extends approximately 1.6 kilometres into Alberta where it connects with the NOVA Gas Transmission Ltd. (“NOVA”) pipeline.  The more southerly of these lines (the Alberta Mainline) extends approximately 6.6 kilometres into Alberta where it connects with pipeline facilities owned by Westcoast Transmission Company (Alberta) Ltd. (“Westcoast Alberta”), a wholly owned subsidiary of Westcoast.  The Westcoast Alberta pipeline facilities, in turn, connect with the NOVA pipeline facilities east of the border between Alberta and British Columbia.  In addition, the Westcoast Alberta pipeline facilities connect gas fields in the Peace River area of Alberta to the Westcoast gathering pipeline facilities.

 

13                               Westcoast owns and operates three sets of gathering pipelines.  First, the Fort Nelson gathering pipelines in the Fort Nelson resource area, which consist of approximately 856 kilometres of pipeline facilities extending north and east of the Fort Nelson Plant and related compression facilities.  Second, the Fort St. John gathering pipelines in the Fort St. John resource area, which consist of approximately 1,372 kilometres of pipeline facilities extending north of the McMahon Plant at Taylor, British Columbia, and the Aitken Creek Plant and related compression facilities.  Third, the Grizzly Valley gathering pipelines in the Grizzly Valley resource area, which consist of approximately 179 kilometres of pipeline facilities extending from the Pine River Plant to gas fields in the Grizzly Valley resource area southeast of the plant.

 

14                               The gathering pipelines lie behind four of the five Westcoast processing plants: the Aitken Creek Plant, the McMahon Plant, the Pine River Plant and the Fort Nelson Plant.  The Aitken Creek Plant and the McMahon Plant are both located in the Fort St. John area and the Pine River Plant is in the Grizzly Valley area.  There is no interconnection between the gathering lines in the Fort Nelson, Fort St. John and Grizzly Valley areas.  There are no gathering pipelines upstream of the Pine River Plant, the Aitken Creek Plant and the McMahon Plant which transport raw gas across the provincial boundary to those plants.  Some of the gathering pipelines that transport gas to the Fort Nelson Plant cross the provincial boundary.  The gathering pipelines upstream of the Sikanni Plant are owned by producers.

 


15                               With the exception of minor volumes of gas sold by Westcoast under “offline” sales agreements to local distribution utilities in northeastern British Columbia, none of the gas which is transported through the Westcoast facilities is owned by Westcoast.  It is owned by producers, gas brokers, local distribution utilities, industrial gas users and other customers, and is transported by Westcoast on behalf of these customers pursuant to service agreements.  Gathering, processing, northern mainline transmission and southern mainline transmission are separate services provided by Westcoast and can be subject to one or more separate agreements.  Ownership of the gas may change at various points and one party may own the raw gas prior to processing while other parties may own the residue gas and other commodities produced in a processing plant, such as sulphur.

 

16                               Residue gas can be processed in a processing plant not owned by Westcoast and then transported through the Westcoast mainline transmission pipeline in exactly the same manner as if the residue gas had been processed in a Westcoast processing plant.  All of the residue gas which is processed at any of the Westcoast processing plants is delivered into the Westcoast mainline transmission pipeline, except for some residue gas from the Pine River Plant, which is delivered back to producers in the Grizzly Valley Resource area through the Sukunka Fuel Gas Pipeline for use as fuel in field dehydration and compression facilities.

 


17                               The Westcoast mainline transmission pipeline facilities and gathering pipeline facilities are operated by the same personnel.  The pipeline operations are divided into two geographic regions: the Southern District and the Northern District.  Southern District personnel operate and maintain the Southern Mainline to and including Compressor Station No. 2, as well as Compressor Station N5 on the Fort Nelson Mainline.  Northern District personnel operate and maintain the Fort Nelson Mainline north of Compressor Station No. 2, the Fort Nelson gathering pipelines, the Fort St. John mainline transmission pipeline, the Fort St. John gathering pipelines, the Boundary Lake mainline transmission pipeline, the Alberta mainline transmission pipeline, the Pine River mainline transmission pipeline and the Grizzly Valley gathering pipelines.  Pipeline crews, directed by the same Westcoast management, work at times on gathering pipelines and associated compressor facilities and at other times on mainline transmission pipelines and associated compressor facilities.  Both of Westcoast’s mainline and gathering pipelines are serviced by common field offices, pipe storage yards, warehouses, compression repair facilities and measurement and pipeline maintenance shops.  The personnel who maintain and operate pipeline or compressor facilities of Westcoast may also operate or maintain pipelines or compressor facilities owned by subsidiaries or affiliates of Westcoast.  At times some of them may also undertake work related to the maintenance or operation of Westcoast’s processing plants.  The field operation of Westcoast’s processing plants is carried out by Westcoast plant personnel at each plant location under the direction and supervision of management personnel located in Vancouver.  An exception is the Aitken Creek processing plant which is operated by Unocal Canada Ltd. employees under Westcoast’s direction and supervision.

 


18                               Westcoast’s Gas Control personnel in its Vancouver Gas Control Centre are responsible for monitoring and controlling the flow of gas through its gathering pipeline facilities and mainline transmission pipeline facilities to ensure that shippers are able to deliver gas into, and receive gas off, the pipelines.  These personnel monitor and control pressures throughout the gathering and mainline transmission facilities to ensure that shippers maintain a balance between gas receipts into the gathering pipelines and deliveries off the mainline transmission pipelines.  Maintaining this balance is critical to the safe and efficient operation of the pipeline facilities.  Westcoast also uses an extensive and interconnected telecommunications system for the operation of its pipeline and processing facilities, which includes dedicated private telephone channels and multi-channel point-to-point and two-way mobile radio coverage.

 

B.                The Proposed Westcoast Expansion Facilities

 

1.                The Proposed Fort St. John Facilities

 

19                               The Fort St. John application concerned a proposal by Westcoast to expand its facilities in the vicinity of the Fort St. John Processing Plant through: (1) the construction of four loops and one extension of existing gathering pipelines; (2) the addition of three new compressor facilities; (3) the construction of the new Aitken Creek Plant, which is to be connected on the upstream side to the gathering pipelines and on the downstream side to Westcoast’s main transmission pipeline through an expanded Aitken Creek Pipeline; and (4) the construction of a loop of the Aitken Creek Pipeline connecting the new Aitken Creek Plant with the mainline transmission pipeline.  The estimated cost of the proposed project was  approximately $397,000,000 at the time of the application, of which approximately $265,000,000 was for the construction of the processing plant.  Westcoast applied to the Board for: (1) a certificate of public convenience and necessity pursuant to s. 52  of the National Energy Board Act  authorizing the construction and operation of pipeline facilities; (2) an order pursuant to s. 58  to exempt the new Aitken Creek Plant, additional compressor facilities and certain additional pipeline facilities from the provisions of ss. 30 , 31 , 33  and 47 ; and (3) an order pursuant to s. 59  confirming that the tolls for services to be provided through the proposed facilities would be determined on a “rolled-in” basis.

 

2.                The Proposed Grizzly Valley Facilities


20                               The Grizzly Valley application concerned a proposal by Westcoast to expand its facilities in the vicinity of the Grizzly Valley area through: (1) the construction of a loop of the existing Grizzly Pipeline to increase its capacity to transport raw gas to the Pine River Plant; (2) the construction of several gathering pipelines; (3) an expansion of the Pine River Plant to increase its capacity; (4) the construction of a fuel gas pipeline connected to the existing Sukunka Fuel Gas Pipeline to deliver fuel gas to the producers in the Highhat supply area; (5) the construction of a loop of the Pine River mainline transmission pipeline to increase its capacity; and (6) an upgrade of an existing compressor unit at Compressor Station No. 2.  The total cost of the proposed Grizzly Valley facilities was estimated to be approximately $400,000,000 at the time of the application, of which approximately $348,800,000 was for the Pine River Plant expansion facilities, $29,500,000 was for the Grizzly Valley gathering facilities and $21,700,000 was for the mainline transmission facilities.  Westcoast applied to the Board for: (1) an order pursuant to s. 58 to exempt the proposed processing, compressor, and pipeline facilities from the provisions of ss. 30, 31 and 47; and (2) an order pursuant to s. 59 confirming that the tolls for services to be provided at the proposed facilities would be determined on a “rolled-in” basis.

 

IV.              Relevant Constitutional and Statutory Provisions

 

21                               The following constitutional and statutory provisions are relevant to this appeal:

 

Constitution Act, 1867 

 


91.  It shall be lawful for the Queen, by and with the Advice and Consent of the Senate and House of Commons, to make Laws for the Peace, Order, and good Government of Canada, in relation to all Matters not coming within the Classes of Subjects by this Act  assigned exclusively to the Legislatures of the Provinces; and for greater Certainty, but not so as to restrict the Generality of the foregoing Terms of this Section, it is hereby declared that (notwithstanding anything in this Act ) the exclusive Legislative Authority of the Parliament of Canada extends to all Matters coming within the Classes of Subjects next hereinafter enumerated; that is to say, --

 

. . .

 

29. Such Classes of Subjects as are expressly excepted in the Enumeration of the Classes of Subjects by this Act  assigned exclusively to the Legislatures of the Provinces.

 

And any Matter coming within any of the Classes of Subjects enumerated in this Section shall not be deemed to come within the Class of Matters of a local or private Nature comprised in the Enumeration of the Classes of Subjects by this Act  assigned exclusively to the Legislatures of the Provinces.

 

92.  In each Province the Legislature may exclusively make Laws in relation to Matters coming within the Classes of Subjects next hereinafter enumerated; that is to say, --

 

. . .

 

10.  Local Works and Undertakings other than such as are of the following Classes: --

 

(a)  Lines of Steam or other Ships, Railways, Canals, Telegraphs, and other Works and Undertakings connecting the Province with any other or others of the Provinces, or extending beyond the Limits of the Province;

 

92A. (1) In each province, the legislature may exclusively make laws in relation to

 

. . .

 

(b) development, conservation and management of non-renewable natural resources and forestry resources in the province, including laws in relation to the rate of primary production therefrom; and

 

(c) development, conservation and management of sites and facilities in the province for the generation and production of electrical energy.

 

. . .

 

(5) The expression “primary production” has the meaning assigned by the Sixth Schedule.

 

. . .

 


THE SIXTH SCHEDULE

 

Primary Production from Non-Renewable Natural Resources and Forestry

 Resources

 

1.  For the purposes of section 92A of this Act ,

 

(a) production from a non-renewable natural resource is primary production therefrom if

 

(i) it is in the form in which it exists upon its recovery of severance from its natural state, or

 

(ii) it is a product resulting from processing or refining the resource, and is not a manufactured product or a product resulting from refining crude oil, refining upgraded heavy crude oil, refining gases or liquids derived from coal or refining a synthetic equivalent of crude oil; . . .

 

Federal Court Act, R.S.C., 1985, c. F-7 

 

18.3 (1) A federal board, commission or other tribunal may at any stage of its proceedings refer any question or issue of law, of jurisdiction or of practice and procedure to the Trial Division for hearing and determination.

 

28. (1) The Court of Appeal has jurisdiction to hear and determine applications for judicial review made in respect of any of the following federal boards, commissions or other tribunals:

 

. . .

 

(f) the National Energy Board established by the National Energy Board Act ;

 

                                                                   . . .

 

(2) Sections 18 to 18.5, except subsection 18.4(2), apply, with such modifications as the circumstances require, in respect of any matter within the jurisdiction of the Court of Appeal under subsection (1) and, where they so apply, a reference to the Trial Division shall be read as a reference to the Court of Appeal.

 

National Energy Board Act, R.S.C., 1985, c. N-7 

 

2.  In this Act ,


. . .

 

“pipeline” means a line that is used or to be used for the transmission of oil or gas, alone or with any other commodity, and that connects a province with any other province or provinces or extends beyond the limits of a province or the offshore area as defined in section 123, and includes all branches, extensions, tanks, reservoirs, storage facilities, pumps, racks, compressors, loading facilities, interstation systems of communication by telephone, telegraph or radio and real and personal property and works connected therewith;

 

29. (1) No person, other than a company, shall construct or operate a pipeline.

 

(2) Nothing in this section shall be construed to prohibit or prevent any person from operating or improving a pipeline constructed before October 1, 1953, but every such pipeline shall be operated in accordance with this Act .

 

(3) For the purposes of this Act ,

 

(a) a liquidator, receiver or manager of the property of a company, appointed by a court of competent jurisdiction to carry on the business of the company,

 

(b) a trustee for the holders of bonds, debentures, debenture stock or other evidence of indebtedness of the company, issued under a trust deed or other instrument and secured on or against the property of the company, if the trustee is authorized by the trust deed or other instrument to carry on the business of the company, and

 

(c) a person, other than a company,

 

(i) operating a pipeline constructed before October 1, 1953, or

 

(ii) constructing or operating a pipeline exempted from subsection (1) by an order of the Board made under subsection 58(1),

 

is deemed to be a company.

 

30. (1) No company shall operate a pipeline unless

 

(a) there is a certificate in force with respect to that pipeline; and

 

(b) leave has been given under this Part to the company to open the pipeline.

 

(2) No company shall operate a pipeline otherwise than in accordance with the terms and conditions of the certificate issued with respect thereto.

 

31.  Except as otherwise provided in this Act , no company shall begin the construction of a section or part of a pipeline unless

 


(a) the Board has by the issue of a certificate granted the company leave to construct the line;

 

(b) the company has complied with all applicable terms and conditions to which the certificate is subject;

 

(c) the plan, profile and book of reference of the section or part of the proposed line have been approved by the Board; and

 

(d) copies of the plan, profile and book of reference so approved, duly certified as such by the Secretary, have been deposited in the offices of the registrars of deeds for the districts or counties through which the section or part of the pipeline is to pass.

 

33. (1) When the Board has issued a certificate, the company shall prepare and submit to the Board a plan, profile and book of reference of the pipeline.

 

(2) The plan and profile shall be drawn with such detail as the Board may require.

 

(3) The book of reference shall describe the portion of land proposed to be taken in each parcel of land to be traversed, giving the numbers of the parcels, and the area, length and width of the portion of each parcel to be taken, and the names of the owners and occupiers in so far as they can be ascertained.

 

(4) The plan, profile and book of reference shall be prepared to the satisfaction of the Board, and the Board may require the company to furnish any further or other information that the Board considers necessary.

 

47. (1) No pipeline and no section of a pipeline shall be opened for the transmission of hydrocarbons or any other commodity by a company until leave to do so has been obtained from the Board.

 

(2) Leave may be granted by the Board under this section if the Board is satisfied that the pipeline may safely be opened for transmission.

 

52. The Board may, subject to the approval of the Governor in Council, issue a certificate in respect of a pipeline if the Board is satisfied that the pipeline is and will be required by the present and future public convenience and necessity and, in considering an application for a certificate, the Board shall have regard to all considerations that appear to it to be relevant, and may have regard to the following:

 

(a) the availability of oil or gas to the pipeline;

 

(b) the existence of markets, actual or potential;

 

(c) the economic feasibility of the pipeline;

 


(d) the financial responsibility and financial structure of the applicant, the methods of financing the pipeline and the extent to which Canadians will have an opportunity of participating in the financing, engineering and construction of the pipeline; and

 

(e) any public interest that in the Board's opinion may be affected by the granting or the refusing of the application.

 

58. (1) The Board may make orders exempting

 

(a) pipelines or branches of or extensions to pipelines, not exceeding in any case forty kilometres in length, and

 

(b) such tanks, reservoirs, storage facilities, pumps, racks, compressors, loading facilities, interstation systems of communication by telephone, telegraph or radio, and real and personal property and works connected therewith, as the Board considers proper,

 

from any or all of the provisions of sections 29 to 33 and 47.

 

(2) [Repealed, 1990, c. 7, s. 22]

 

(3) In any order made under this section the Board may impose such terms and conditions as it considers proper.

 

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

 

V.                Decisions Below

 

A.                National Energy Board (Reasons for Decision GH-5-94 re the Fort St. John Application)

 

1.                A. Côté-Verhaaf and K. W. Vollman

 

22                               The majority of the Board stated that it was clear that Westcoast’s existing mainline transmission pipeline was within federal jurisdiction.  It cited United Transportation Union v. Central Western Railway Corp., [1990] 3 S.C.R. 1112, for the propositions that the proposed Fort St. John facilities were also subject to federal jurisdiction under s. 92(10) (a) of the Constitution Act, 1867  if they would constitute part of this federal undertaking, or, in the alternative, be integral to it.


 

23                               In considering whether the facilities formed part of the federal undertaking under the first test in Central Western, supra, the majority concluded that, in decisions where courts have found there to be a single undertaking, the nature of the local and interprovincial services was the same.  The majority then made a finding that the processing and transmission services offered by Westcoast were different (at p. 9):

 

In Flamborough, as in Winner and other cases in which the courts have found a single undertaking, the nature of the local and interprovincial services was the same; in Flamborough and Winner, for example, the services were transportation.  In the Board’s view, gas processing and gas transmission are fundamentally different activities or services.  Processing is one of the operations that result in the production of residue gas, sulphur and liquids, which are then transported to markets by various means.  Gathering is a transportation activity, but in the view of the Board it is related to the production process rather than the mainline transmission activity. [Emphasis added.]

 

24                               The majority stated that Westcoast’s business practices reflected the different services it offered.  Customers could contract for Westcoast’s transmission services separately from its gathering and processing services.  Gathering, processing and mainline transmission were tolled separately and according to different methodologies.  The majority noted that Westcoast’s facilities were operated in a coordinated matter, but concluded that this was a universal feature of the natural gas industry and would occur between connected facilities regardless of ownership.  It concluded that the proposed Fort St. John facilities would not form part of Westcoast’s federal mainline transmission pipeline undertaking, with the exception of the proposed loop of the Aitken Creek pipeline that would connect the new Aitken Creek Plant with the main transmission pipeline.

 


25                               The majority went on to find that the proposed facilities would not be integral to Westcoast’s mainline transmission undertaking under the second test in Central Western, supra, because the dependence of the mainline transmission pipeline on the processing plants and gathering lines was a necessary feature of the industry.  It concluded that the facilities were not within federal jurisdiction under s. 92(10) (a) and dismissed Westcoast’s application for lack of jurisdiction.

 

2.                R. Illing (dissenting)

 

26                               The dissenting member of the Board concluded that the entire Westcoast system was a single federal undertaking under s. 92(10) (a).  He also concluded that, even if the gathering and processing facilities were considered individually, they would both come within federal jurisdiction.  The fact that some of the gathering pipelines crossed provincial boundaries was sufficient for all of the gathering pipelines to constitute a federal undertaking because the interprovincial gathering pipelines could not be severed from those located entirely within British Columbia.  The processing plants came within federal jurisdiction because they were an integral part of the mainline transmission pipeline and essential to its operation.  The processing services were provided solely for those who transported gas in the mainline transmission pipeline and the raw gas had to be processed before it could be transported in the mainline transmission pipeline because of the metallurgical properties of the pipeline and environmental and safety concerns.

 


27                               Having concluded that the proposed Fort St. John facilities were within federal jurisdiction under s. 92(10) (a), the dissenting member went on to find that the proposed gas processing facility came within the definition of “pipeline” in s. 2  of the National Energy Board Act  by virtue of the phrase “real and personal property and works connected therewith”.  Therefore, he was of the view that the Board had jurisdiction over the proposed Fort St. John facilities.

 

B.                Federal Court of Appeal, [1996] 2 F.C. 263

 

28                               As noted above, the Federal Court of Appeal considered the appeal by Westcoast from the decision of the Board that it did not have jurisdiction over the proposed Fort St. John facilities together with the reference concerning the jurisdiction of the Board over the proposed Grizzly Valley facilities.  Hugessen J.A. for a unanimous court (Pratte and Stone JJ.A. concurring) stated that the business of Westcoast was the transportation of natural gas by pipeline for the account of others.  Applying the first test in Central Western, supra, he considered whether the Westcoast facilities constituted a single federal undertaking under s. 92(10) (a).

 

29                               Hugessen J.A. concluded that the fact that there may be different activities or services being carried on did not preclude a finding that a single federal undertaking exists.  He referred to the conclusion of the majority of the Board that Westcoast’s gathering and processing facilities were separate undertakings from the mainline transmission system because “gas processing and gas transmission are fundamentally different activities or services”, and stated at pp. 283-84:

 

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.

 


30                               Hugessen J.A. also stated that it was the degree to which the operations were integrated in a functional or business sense that determined whether they constituted one undertaking.  He added that the conclusion of the majority of the Board that gathering and processing are fundamentally different activities and services was simply stated as a conclusion and was not supported by any detailed findings of fact which would permit a reasoned analysis of whether one was dealing with a single undertaking or more than one.  He reproduced the detailed description of the gathering and processing facilities and their relationship to one another and the mainline transmission pipeline set out in Order No. MO-21-95, and stated at p. 289 that he found it impossible to read this description without concluding “that Westcoast is engaged in a single undertaking comprised of the business of gathering, processing and transporting natural gas”.

 

31                               In particular, he stated, at pp. 290-91, that the following facts supported this conclusion:

 

(1) Westcoast is a provider of services only; it does not trade or deal in the gas it transports;

 

(2) Processing is required to facilitate the transportation service provided by Westcoast.  In particular, processing,

 

a) makes long distance transportation easier and safer from the point of view of the physical pipeline facilities themselves and,

 

b) removes components from the raw gas which would not be acceptable for transportation in populated areas from the point of view of public health and safety;

 

(3) Processing is offered as a service exclusively to shippers on Westcoast’s mainline transmission facilities; while some raw gas comes into some of Westcoast’s processing facilities by means of gathering lines owned and operated by others, all fuel gas coming out of such processing plants is transported onwards by Westcoast;

 


(4) The fuel gas which goes into Westcoast’s mainline transmission facilities is, by far, the major component (over 80%) of the raw gas gathered and processed by Westcoast; the methane does not change during processing other than to have removed from it the hydrocarbon liquids, hydrogen sulphide and other components which make transportation difficult or dangerous;

 

(5) Westcoast’s facilities are not only physically interconnected and interdependent, they are, in some cases, interchangeable; some compressors may be used on either the raw gas or the fuel gas sides of the processing plants and some are apparently used on both;

 

(6) Fuel gas may be contractually delivered across provincial borders (by means of displacement) from all Westcoast processing plants, including those which take their raw gas supply from across provincial borders;

 

(7) The same personnel work on both the gathering and mainline transmission pipelines and they, together with the personnel of the processing plants, are subject to a unified central operational control and direction;

 

(8) Westcoast is the owner of all the facilities in question.

 

32                               Hugessen J.A. concluded that Westcoast operated a single undertaking engaged in the interprovincial and international transportation of natural gas by virtue of the combination of ownership, direction and control in the hands of Westcoast, together with the other factors he referred to.  As such, it was subject to federal jurisdiction under s. 92(10) (a).  He added that s. 92A  of the Constitution Act, 1867  did not affect this conclusion.

 

33                               Hugessen J.A. went on to find that gas processing plants came within the definition of “pipeline” in s. 2  of the Act .  The processing plants were an integral part of the mainline transmission pipeline undertaking to which they were connected  and the phrase “real and personal property and works connected therewith” was broad enough to include them.  The court allowed the appeal, set aside the decision of the Board declining jurisdiction in the Fort St. John proceeding and remitted the application back to the Board for a decision on its merits.  It answered both of the questions stated in the reference in the affirmative.

 


VI.              Issues

 

34                               On April 4, 1997, the Chief Justice stated the following constitutional question:

 

Given the division of authority between the Parliament of Canada and the legislatures of the provinces in the Constitution Acts, 1867 to 1982, are ss. 29 , 30 , 31 , 33 , 47 , 52 , 58  and 59  of the National Energy Board Act, R.S.C., 1985, c. N-7 , applicable to the facilities proposed to be constructed by Westcoast Energy Inc. in respect of:

 

(a)   its Fort St. John Expansion Project, the subject of the application in proceeding GH-5-94 before the National Energy Board, and

 

(b)   its Grizzly Valley Expansion Project, as described in Order No. MO-21-95 of the National Energy Board?

 

35                               Three issues arise on this appeal:

 

1.                What degree of curial deference is owed to the Board’s finding that gas processing and gas transmission are fundamentally different activities?

 

2.                Do the proposed Fort St. John and Grizzly Valley gathering pipeline and gas processing facilities come within the jurisdiction of Parliament under s. 92(10) (a) of the Constitution Act, 1867 ?

 

3.                If the proposed facilities come within federal jurisdiction, do the proposed gas processing plant facilities come within the definition of “pipeline” in s. 2  of the National Energy Board Act ?

 

VII.             Analysis

 


A.                What Degree of Curial Deference Is Owed to the Board’s Finding that Gas Processing and Gas Transmission Are Fundamentally Different Activities?

 

36                               Before turning to the substantive legal issues raised on this appeal, and, in particular, to the constitutional question, we should address the preliminary issue of deference.  The intervener, the Attorney General of Nova Scotia, puts forth the argument that in reaching its decision, the Federal Court of Appeal failed to accord due deference to the findings of fact made by the majority of the Board on the Fort St. John application.  Reference is made specifically to the Board’s finding at p. 9 that “gas processing and gas transmission are fundamentally different activities or services”, and to the Federal Court of Appeal’s statement at p. 284 that:

 

. . . the majority’s view that gathering and processing are “fundamentally different activities and services” is simply stated as a conclusion and is not supported by any detailed findings of fact which would permit any reasoned analysis of whether one is dealing with a single undertaking or more than one.

 

37                               The thrust of the argument is that by criticizing the way in which the Board reached its conclusion as to the character of the activities in question, the court improperly rejected this “finding of fact”.  As the Board is an expert tribunal, the argument goes, the standard of review applied to findings within its expertise ought to be patent unreasonableness, or at least reasonableness simpliciter.  See Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748.  By substituting its own findings for those made by the Board in the absence of palpable or overriding error, therefore, the court committed an error of law.  If the court was of the opinion that the Board’s legal conclusions were not amply supported by its findings of fact, then the matter should have been remitted to the Board to decide the case in a manner consistent with the reasons of the court.  For several reasons, we are unable to agree.


 

38                               To begin with, it is necessary to examine more precisely the nature of the Board’s finding in question.  While appellate courts will generally accord deference to findings of fact made by a tribunal, this is not equally true of findings of law.  However, when the problem is one of mixed law and fact -- a question about whether the facts satisfy the applicable legal tests -- some measure of deference is owed.  Appellate courts should be reluctant to venture into a re-examination of the conclusions of the tribunal on such questions.  See Southam, supra.

 

39                               Although at first glance it may appear that the finding on which this controversy centres is one of fact, modest examination reveals that it is one of mixed law and fact.  The key to this determination is to consider the purpose for which the finding was made, that is, what question it was intended to answer.  Clearly, the characterization of processing and gathering as independent activities was not a pure finding of fact in the true sense, but rather, an inference drawn from other, detailed findings related to the natural gas industry and the business operations of Westcoast.  It was meant as a partial answer to the core of the constitutional question at issue on this appeal, which is whether the Westcoast operations constitute a single undertaking or multiple undertakings.  Thus, it was not simply a statement of the facts of the natural gas industry or the business of Westcoast.  It went one step further as it was an opinion as to the constitutional significance of these facts, or, to use the language in Southam, at para. 35, an assessment of “whether the facts satisfy the legal tests”.

 


40                               As stated above, even questions of mixed law and fact are to be accorded some measure of deference, but this is not so in every case.  It would be particularly inappropriate to defer to a tribunal like the Board, the expertise of which lies completely outside the realm of legal analysis, on a question of constitutional interpretation.  Questions of this type must be answered correctly and are subject to overriding by the courts.  It seems reasonable to accept the proposition that courts are in a better position than administrative tribunals to adjudicate constitutional questions.  It is interesting to note that this particular panel’s professional training was not in law.  So, although the question here was one of mixed law and fact, it follows that the Board was not entitled to deference because of the nature of the legal question to be answered.

 

41                               However, it is not clear to us that the court in fact rejected the finding in question.  As we develop in detail below, the case law makes it clear that “different activities or services” may nonetheless form part of the same undertaking.  Whether two activities are of different kinds and whether they constitute one or multiple undertakings are two separate questions; while the former may be one of mixed law and fact, the latter is purely one of law.  In this connection, we observe that the Federal Court of Appeal does not seem to have rejected the Board’s finding that the gathering and processing operations conducted by Westcoast constituted “different activities or services”.  Instead, it disagreed with the Board as to the legal consequences of that conclusion at pp. 283-84:

 

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.

 


42                               It seems to us, in light of the foregoing, that the Court of Appeal did not err in the way in which it treated the findings of the Board.  The court clearly accepted the Board’s conclusion as to the different activities carried on by Westcoast, but differed as to the constitutional effect of this conclusion.  No deference was owed, because the issue was a pure question of law, which was wholly outside the Board’s otherwise considerable expertise.  Therefore, we conclude that the Federal Court of Appeal applied the proper standard of review to the ultimate decision of the Board, namely, the standard of correctness.

 

B.                Do the Proposed Fort St. John and Grizzly Valley Gathering Pipeline and Gas Processing Facilities Come Within the Jurisdiction of Parliament Under Section 92(10)(a) of the Constitution Act, 1867 ?

 

43                               Subsection 92(10)  of the Constitution Act, 1867  provides generally that local works and undertakings within a province come within provincial jurisdiction.  However, the combined effect of ss. 91(29)  and 92(10) (a) creates an exception whereby Parliament has exclusive jurisdiction over works and undertakings that come within the phrase “Lines of Steam or other Ships, Railways, Canals, Telegraphs, and other Works and Undertakings connecting the Province with any other or others of the Provinces, or extending beyond the Limits of the Province” in s. 92(10) (a).  The effect of s. 92(10) (a) is that interprovincial transportation and communications works and undertakings fall within federal jurisdiction.  See the discussion by Professor Hogg in Constitutional Law of Canada (loose-leaf ed.), vol. 1, at pp. 22-2 and 22-3.

 

44                               Campbell-Bennett Ltd. v. Comstock Midwestern Ltd., [1954] S.C.R. 207, confirmed that a pipeline which extends beyond the boundaries of a province, such as the Westcoast mainline transmission pipeline, is a federal transportation undertaking under s. 92(10) (a).  It is apparent that whether the Board has jurisdiction over the construction and operation of the proposed Fort St. John and Grizzly Valley gathering pipeline and gas processing plant facilities under the National Energy Board Act  depends on whether these facilities also come within federal jurisdiction under s. 92(10) (a).


 

45                               It is well settled that the proposed facilities may come within federal jurisdiction under s. 92(10) (a) in one of two ways.  First, they are subject to federal jurisdiction if the Westcoast mainline transmission pipeline, gathering pipelines and processing plants, including the proposed facilities, together constitute a single federal work or undertaking.  Second, if the proposed facilities do not form part of a single federal work or undertaking, they come within federal jurisdiction if they are integral to the mainline transmission pipeline.  See Central Western, supra, per Dickson C.J., at pp. 1124-25:

 

There are two ways in which Central Western may be found to fall within federal jurisdiction and thus be subject to the Canada Labour Code .  First, it may be seen as an interprovincial railway and therefore come under s. 92(10) (a) of the Constitution Act, 1867  as a federal work or undertaking.  Second, if the appellant can be properly viewed as integral to an existing federal work or undertaking it would be subject to federal jurisdiction under s. 92(10) (a).  For clarity, I should point out that these two approaches, though not unrelated, are distinct from one another.  For the former, the emphasis must be on determining whether the railway is itself an interprovincial work or undertaking.  Under the latter, however, jurisdiction is dependent upon a finding that regulation of the subject matter in question is integral to a core federal work or undertaking.  [Emphasis in original.]

 

46                               Thus, the first issue is whether the Westcoast mainline transmission pipeline, gathering pipelines and processing plants, including the proposed facilities, together constitute a single federal work or undertaking.  If not, we must consider whether the gathering pipeline and processing plant facilities are essential, vital and integral to the mainline transmission pipeline undertaking.

 

1.                Do the Westcoast Mainline Transmission Pipeline, Gathering Pipelines and Processing Plants Together Constitute a Single Federal Work or Undertaking?

 


(a)               The Features of a Single Federal Undertaking

 

47                               Section 92(10) (a) refers to both “works” and “undertakings”.  “Works” were defined in City of Montreal v. Montreal Street Railway, [1912] A.C. 333 (P.C.), at p. 342, as “physical things, not services”.  Since the proposed gathering pipeline and processing plant facilities will be located entirely within the province of British Columbia, it seems clear that they would constitute local works.  As a result, the submissions of the parties concentrated on whether Westcoast operated a single federal undertaking.  “Undertaking” was defined in Re Regulation & Control of Radio Communication, [1932] 2 D.L.R. 81 (P.C.), at p. 86, as “not a physical thing but . . . an arrangement under which . . . physical things are used”.  Professor Hogg concludes in Constitutional Law of Canada, supra, at p. 22-4, that the term “undertaking” appears to be equivalent to “organization” or “enterprise”.  In Alberta Government Telephones v. Canada (Canadian Radio-television and Telecommunications Commission), [1989] 2 S.C.R. 225 (“A.G.T.”), Dickson C.J. stated at p. 259 that “[t]he primary concern is not the physical structures or their geographical location, but rather the service which is provided by the undertaking through the use of its physical equipment.”

 


48                               The cases grouped under what has become known as the first test in Central Western, supra, demonstrate that whether a single federal undertaking exists for the purposes of s. 92(10) (a) depends on a number of factors.  It is clear that the mere fact that a local work or undertaking is physically connected to an interprovincial undertaking is insufficient to render the former a part of the latter.  See Central Western, supra, at pp. 1128-29.  The fact that both operations are owned by the same entity is also insufficient.  In A.G.T., supra, Dickson C.J. stated at p. 263 that “[t]his 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” and, at p. 265, that “[o]wnership itself is not conclusive”.  A single entity may own more than one undertaking.  See Canadian Pacific Railway Co. v. Attorney-General for British Columbia, [1950] A.C. 122 (P.C.) (the Empress Hotel case), at p. 143.

 

49                               In order for several operations to be considered a single federal undertaking for the purposes of s. 92(10) (a), they must be functionally integrated and subject to common management, control and direction.  Professor Hogg states, at p. 22-10, that “[i]t is the degree to which the [various business] operations are integrated in a functional or business sense that will determine whether they constitute one undertaking or not”.  He adds, at p. 22-11, that the various operations will form a single undertaking if they are “actually operated in common as a single enterprise”.  In other words, common ownership must be coupled with functional integration and common management.  A physical connection must be coupled with an operational connection.  A close commercial relationship is insufficient.  See Central Western, supra, at p. 1132.

 

50                               Common management and operational control was determinative in Luscar Collieries, Ltd. v. McDonald, [1927] A.C. 925 (P.C.), and their absence was determinative in Central Western, supra.  In Luscar, supra, the Privy Council held that a short line of railway located entirely within Alberta formed part of the Canadian National Railway Company (“CN”) federal railway undertaking.  Although the line was owned by the appellant Luscar, Lord Warrington focused at pp. 932-33 on the fact that it was operated by CN pursuant to several agreements:

 

Their Lordships agree with the opinion of Duff J. that the Mountain Park Railway and the Luscar Branch are, under the circumstances hereinbefore set forth, a part of a continuous system of railways operated together by the Canadian National Railway Company, and connecting the Province of Alberta with other Provinces of the Dominion. . . .

 


In the present case, having regard to the way in which the railway is operated, their Lordships are of the opinion that it is in fact a railway connecting the Province of Alberta with others of the Provinces, and therefore falls within s. 92, head 10 (a), of the Act  of 1867.  There is a continuous connection by railway between the point of the Luscar Branch farthest from its junction with the Mountain Park Branch and parts of Canada outside the Province of Alberta.  If under the agreements hereinbefore mentioned the Canadian National Railway Company should cease to operate the Luscar Branch, the question whether under such altered circumstances the railway ceases to be within s. 92 , head 10 (a), may have to be determined, but that question does not now arise.  [Emphasis added.]

 

51                               The question left open by the Privy Council in the concluding sentence of this passage arose in Central Western, supra, which also involved a short line of railway located entirely within Alberta.  The appellant Central Western Railway Corporation had purchased the line from CN but, unlike the situation in Luscar, supra, CN did not operate the line.  Dickson C.J. distinguished Luscar, supra, on this basis and held that the absence of a close operational connection in the case before the Court meant that the Central Western line did not form part of the CN federal railway undertaking for the purposes of s. 92(10) (a).  The close commercial relationship between Central Western and CN was insufficient.  He summarized his position at p. 1132:

 

In my view, while the factors mentioned by the respondents indicate a close commercial relationship between the two railways they do not show that CN operates Central Western.  Rather, the sale of Central Western has resulted in a fundamental change in the management of the rail line.  Most notably, the difference is manifested in the daily control of the business of the rail line.  The distribution of the grain cars along the rail line is handled by the appellant, and CN rail cars do not travel on Central Western, nor does the federal rail company participate in the management of any of the leases connected to the property.  Basically, CN exercises no control over the running of the rail line, making it difficult to view Central Western as a federal work or undertaking.

 


52                               This inquiry into whether various operations are functionally integrated and managed in common requires a careful examination of the factual circumstances of any given case.  In Northern Telecom Ltd. v. Communications Workers of Canada, [1980] 1 S.C.R. 115, at p. 132, it was stated that “one must look at the normal or habitual activities of the business as those of ‘a going concern’, without regard for exceptional or casual factors”.  As was stressed by Dickson C.J. in A.G.T., supra, at pp. 257-58, the court must focus on “the nature or character of the undertaking that is in fact being carried on”.  He went on to state, at p. 258:

 

It is impossible, in my view, to formulate in the abstract a single comprehensive test which will be useful in all of the cases involving s. 92(10) (a).  The common theme in the cases is simply that the court must be guided by the particular facts in each situation. . . .  Useful analogies may be found in the decided cases, but in each case the determination of this constitutional issue will depend on the facts which must be carefully reviewed as was done by the trial judge in the present appeal.

 

53                               The manner in which the undertaking might have been structured or the manner in which other similar undertakings are carried on is irrelevant.  This principle was emphasized by Lord Porter in Attorney-General for Ontario v. Winner, [1954] A.C. 541 (P.C.), at pp. 581-82:

 

The question is not what portions of the undertaking can be stripped from it without interfering with the activity altogether; it is rather what is the undertaking which is in fact being carried on.  Is there one undertaking, and as part of that one undertaking does the respondent carry passengers between two points both within the province, or are there two?

 

. . .

 

The undertaking in question is in fact one and indivisible.  It is true that it might have been carried on differently and might have been limited to activities within or without the province, but it is not, and their Lordships do not agree that the fact that it might be carried on otherwise than it is makes it or any part of it any the less an interconnecting undertaking.

 


54                               The fact that one aspect of a business is dedicated exclusively or even primarily to the operation of the core interprovincial undertaking is an indication of the type of functional integration that is necessary for a single undertaking to exist.  See Empress Hotel, supra, where the Privy Council held that the Empress Hotel in Victoria, British Columbia did not form part of the appellant’s federal railway undertaking, but suggested in obiter dicta at p. 144 that a hotel built by the railway exclusively to serve its passengers could:

 

It appears from the facts stated in the order of reference that the appellant has so interpreted its powers and that in the Empress Hotel it does carry on general hotel business.  It may be that, if the appellant chose to conduct a hotel solely or even principally for the benefit of travellers on its system, that hotel would be a part of its railway undertaking.  Their Lordships do not doubt that the provision of meals and rest for travellers on the appellant’s system may be a part of its railway undertaking whether that provision is made in trains or at stations, and such provision might be made in a hotel.  But the Empress Hotel differs markedly from such a hotel.  Indeed, there is little, if anything, in the facts stated to distinguish it from an independently owned hotel in a similar position.  No doubt the fact that there is a large and well-managed hotel at Victoria tends to increase the traffic on the appellant’s system; it may be that the appellant’s railway business and hotel business help each other, but that does not prevent them from being separate businesses or undertakings.  [Emphasis added.]

 

55                               This reasoning was adopted in Dome Petroleum Ltd. v. National Energy Board (1987), 73 N.R. 135 (F.C.A.), where underground storage caverns were held to form part of an interprovincial natural gas pipeline undertaking.  The court focused on the fact that the facilities were provided exclusively for the benefit of the shippers at pp. 139-40:

 

The relationship of the storage caverns to Cochin’s undertaking differs markedly from that of the Empress Hotel to Canadian Pacific’s railway undertaking.

 

The terminalling facilities of a pipeline, whoever provides them and whatever the ultimate destination of shipments, are provided solely for the benefit of shippers on the line.  In my opinion, when they are provided by the owner of the transportation undertaking, they are part and parcel of that undertaking.  That is the case here.  The joint venture’s storage caverns are an integral and essential part of its Cochin system.  [Emphasis added.]

 


56                               BC Gas argued that dedication of this kind does not necessarily indicate that a single federal undertaking exists.  It relied on Canadian National Railway Co. v. Nor-Min Supplies Ltd., [1977] 1 S.C.R. 322, where Laskin C.J., writing for the Court, held that the fact that the output of a quarry adjacent to the appellant’s railway was devoted exclusively to providing ballast for the railway did not mean that the quarry formed part of the railway undertaking (at pp. 332-33):

 

If the intended supply of rock for ballast for a railway line makes that quarrying operation part of the railway undertaking, would not the same conclusion follow with respect to the supply of fuel and with respect to factories that produce railway cars or locomotives or that produce the rails that are laid on the right-of-way? . . . In short, although not saying that  mere ownership of any enterprise or land by the C.N.R. is enough to immunize such holdings from provincial regulatory legislation, the contention of counsel is that because the output of the quarry is devoted to its use for the railway line the operation and the land on which it is carried on become part of the railway undertaking, part of the transportation system.

 

We are not concerned here with any competent federal legislation which purports to exclude the application of provincial legislation like The Mechanics’ Lien Act of Ontario.  Nor, apart from such federal legislation, do we even reach any issue of immunity from provincial legislation unless the quarry is shown to be more than a convenience, more than a source of supply for railway purposes but, indeed, an essential part of the transportation operation in its day-to-day functioning.  In the circumstances of the present case I cannot arrive at such a conclusion.  The mere economic tie-up between the C.N.R.’s quarry and the use of the crushed rock for railway line ballast does not make the quarry a part of the transportation enterprise in the same sense as railway sheds or switching stations are part of that enterprise.  The exclusive devotion of the output of the quarry to railway uses feeds the convenience of the C.N.R., as would any other economic relationship for supply of fuel or materials or rolling stock, but this does not make the fuel refineries or depots or the factories which produce the materials or the rolling stock parts of the transportation system.  [Emphasis added.]

 


57                               In our opinion, Nor-Min is not inconsistent with the indication in Empress Hotel, supra, and Dome Petroleum, supra, that the exclusive or primary dedication of a local operation to the core interprovincial undertaking supports a finding that they comprise a single federal undertaking.  As discussed above, this exclusive or primary dedication is an indication of the type of functional integration that is required under s. 92(10) (a).  However, it remains only one factor to consider and may not be sufficient by itself.  It is the overall degree of functional integration and common management which must be assessed.  See Central Western, supra, where the fact that all of Central Western’s freight was delivered to CN to be transported onward was held to be insufficient.

 

58                               In this regard, it is important to note that, while the appellant in Nor-Min, supra, owned the quarry, it had contracted out its operation to a third party.  Thus, the required degree of operational control was lacking in that case and the statements by Laskin C.J. should be read in this light.  Accordingly, in our view, the decision in Nor-Min is distinguishable.  In any event, the issue before the Court in that case was not whether the quarry formed part of the appellant’s railway undertaking for the purposes of s. 92(10) (a), but whether the land on which the quarry was located was subject to provincial mechanics’ lien legislation.  The statements by Laskin C.J. were made in response to the submission by the appellant that the quarry came within the definition of “railway” in s. 2(1) of the Railway Act, R.S.C. 1970, c. R-2, and was, by that reason or, in any event, an integral part of the railway as a transportation system.

 

59                               BC Gas and the respondent, the Attorney General of British Columbia, submitted that this inquiry under the first test in Central Western, supra, into whether the various operations are functionally integrated and operated in common as a single enterprise is inappropriate when one of the activities involved is not a transportation or communications activity.  This submission was no doubt prompted by the finding of the Board in the Fort St. John proceeding that gas processing and gas transmission are fundamentally different activities.

 


60                               They noted that s. 92(10) (a) only confers jurisdiction on Parliament over interprovincial transportation and communications undertakings, and argued that activities which are not of this character should not be included within such an undertaking.  It was argued that the case law reflects this principle because there is no decision in which an activity that was not a transportation or communications character was held to form part of a single federal undertaking.  They relied on Empress Hotel, supra, where a hotel owned by Canadian Pacific Railway Co. was found not to form part of its federal railway undertaking, and Nor-Min, supra, where a quarry used to provide ballast for Canadian National Railway’s interprovincial railway was held not to form part of its federal railway undertaking.  They also submitted that every decision in which a single federal undertaking was found to exist involved activities of a transportation or communications character.

 

61                               The Attorney General of British Columbia went one step further and submitted that when an activity is not of a transportation or communications character, the court should proceed directly to the second test in Central Western, supra, and determine whether it is vital, essential and integral to the core federal transportation or communications undertaking.  It relied on cases such as Reference re Industrial Relations and Disputes Investigation Act, [1955] S.C.R. 529, where a stevedoring operation was held to be essential to a shipping undertaking.

 


62                               These submissions are unconvincing for two reasons.  First, no authority was cited in which a single federal undertaking was held not to exist because one of the activities was not of a transportation or communications character.  In Empress Hotel, supra, as the passage reproduced above demonstrates, the finding that the hotel was a separate undertaking was based on the fact that it was not dedicated primarily to the railway undertaking.  It was no different from any other hotel.  In Nor-Min, supra, the passages set out above demonstrate that the quarry was held not to form part of the federal railway undertaking because it was incidental to the operation of the railway.  Neither of these decisions supports the submissions of BC Gas and the Attorney General of British Columbia on this point.  The fact that the hotel and the quarry were arguably not of a “transportation character” was not mentioned or even alluded to in these decisions.

 

63                               Second, and more importantly, a number of cases expressly contradict these submissions by stating that a single federal undertaking may exist notwithstanding that it is engaged in different activities and one of them is not a transportation or communications activity. In Empress Hotel, supra, the Privy Council stated in obiter dicta that a hotel set up exclusively to serve the railway’s passengers could form part of a federal railway undertaking.  In The King v. Eastern Terminal Elevator Co., [1925] S.C.R. 434, Duff J. stated at p. 447 in obiter dicta that a grain elevator could form part of a federal railway or shipping undertaking.  In Dome Petroleum, supra, underground storage caverns were held to form part of an interprovincial pipeline undertaking.  This was also the view of Gerard V. La Forest in Water Law in Canada: The Atlantic Provinces (1973), at pp. 49-50:

 

. . . there may be situations where a single business enterprise may carry on several undertakings.  This is evident from Canadian Pacific Railway v. Attorney-General of British Columbia where the Empress Hotel operated by the C.P.R. like any other large hotel was held to be a separate undertaking from the company’s railway operations.  This by no means indicates that all aspects of a company’s work must be of the same kind, as in the Bell Telephone Co. and Winner cases, to come within the same operation.  In the Empress Hotel case the court conceded that a hotel or restaurant maintained as an adjunct to the company’s railway business for the benefit of passengers travelling on its lines could certainly be part of its railway undertaking.  [Emphasis added.]

 


64                               In our opinion, the fact that an activity or service is not of a transportation or communications character does not preclude a finding that it forms part of a single federal undertaking for the purposes of s. 92(10) (a) under the first test in Central Western, supra.  The test remains a fact-based one.  As Dickson C.J. made clear in A.G.T  supra, at p. 258:

 

It is impossible, in my view, to formulate in the abstract a single comprehensive test which will be useful in all of the cases involving s. 92(10) (a).  The common theme in the cases is simply that the court must be guided by the particular facts in each situation. . . . Useful analogies may be found in the decided cases, but in each case the determination of this constitutional issue will depend on the facts which must be carefully reviewed. . . .

 

65                               That is not to say, however, that it is impossible to identify certain indicia which will assist in the s. 92(10) (a) analysis.  In our view, the primary factor to consider is whether the various operations are functionally integrated and subject to common management, control and direction.  The absence of these factors will, in all likelihood, determine that the operations are not part of the same interprovincial undertaking, although the converse will not necessarily be true.  Other relevant questions, though not determinative, will include whether the operations are under common ownership (perhaps as an indicator of common management and control), and whether the goods or services provided by one operation are for the sole benefit of the other operation and/or its customers, or whether they are generally available.

 


66                               Because of the factual nature of this determination, evidence of the ordinary way in which business is conducted within a particular industry will not be particularly relevant.  Thus, the reliance by BC Gas on the expert evidence adduced before the Board as to the typical characterization of the natural gas industry is perhaps misplaced.  Although it was accepted by the Federal Court of Appeal in The Queen v. Nova, An Alberta Corporation, [1988] 2 C.T.C. 167, that the industry is generally divided into four distinct stages -- exploration, production and development (including extraction, dehydration, and transportation through gathering lines to processing plants), transportation from processing plants to regions of consumption, and distribution to the ultimate consumer -- and although the Board characterized gas processing and gas transmission as “fundamentally different activities”, this does not preclude the two operations from being part of the same interprovincial undertaking for the purposes of s. 92(10) (a).  While this division may be convenient for industrial purposes, it has no bearing on the constitutional division of powers between the federal and provincial legislatures.

 

67                               Whether the Westcoast gathering pipelines, processing plants and mainline transmission pipeline constitute a single undertaking depends on the degree to which they are in fact functionally integrated and managed in common as a single enterprise.  What is important is how Westcoast actually operates its business, not how it might otherwise operate it or how others in the natural gas industry operate their businesses: see Winner, supra, at pp. 581-82.  The fact that the natural gas industry is typically divided into the four sectors described above is beside the point, as is the fact that producers typically own gathering pipelines and processing plants.  As discussed below, it is precisely because Westcoast’s business is exceptional that we conclude that it comprises a single federal undertaking.  We also emphasize that the manner in which participants in the natural gas industry typically describe the industry cannot dictate the characterization for constitutional purposes.  Finally, the fact that this description of the industry was adopted in Nova, supra, is irrelevant for the purposes of this appeal since that case dealt with the unrelated matter of the appropriate capital cost allowance classification of certain pieces of yard pipe, metering pipe and valves for income tax purposes.


 

(b)               Application of These Principles to the Business of Westcoast

 

68                               Turning to the application of the principles discussed above, the fact that the Westcoast gathering pipelines and processing plants are physically connected to the mainline transmission pipeline is insufficient by itself to conclude that they constitute a single federal undertaking.  Further, the fact that Westcoast owns all of these facilities is insufficient.  However, we agree with Hugessen J.A. that the description of the business and facilities of Westcoast by the Board in its Fort St. John reasons and Order No. MO-21-95 concerning the Grizzly Valley reference demonstrate that Westcoast manages them in common as a single enterprise which is functionally integrated.

 

69                               It is apparent that the Westcoast facilities and personnel are subject to common control, direction and management, and are operated in a coordinated and integrated manner.  Westcoast management personnel in Vancouver control and direct the field personnel who operate the gathering pipeline, processing plant and mainline transmission pipeline facilities.  The gathering pipeline facilities and the mainline transmission pipeline facilities, and the associated compressor facilities, are operated by the same field personnel.  Both sets of pipeline facilities are serviced by common field offices, pipe storage yards, warehouses, compression repair facilities and measurement and pipeline maintenance shops.  Employees in Vancouver are responsible for monitoring and controlling the flow of gas through both the gathering pipelines and the mainline transmission pipeline.  Although the operation of the processing plants is carried out by different persons at each plant, this is done under the direction and supervision of management located in Vancouver.  Finally, the gathering, processing and transmission facilities are connected by a sophisticated telecommunications system.

 


70                               This functional integration is underscored by the fact that the primary purpose of processing the raw gas at the Westcoast processing plants is to facilitate its transmission through the Westcoast mainline transmission pipeline.  As discussed above, the raw gas that is extracted at the production fields often contains impurities, including hydrogen sulphide and carbon dioxide.  These impurities must be removed from the gas before it is delivered into the mainline transmission pipeline for two reasons.  First, the combination of sulphur dioxide and carbon dioxide is corrosive.  While steel used in the gathering pipelines is designed to withstand this corrosion, the steel used in the mainline transmission pipeline is not.  Second, hydrogen sulphide is toxic and poses unacceptable safety and environmental risks.  As such, gas which contains hydrogen sulphide cannot be transported through the heavily populated areas through which the mainline transmission pipeline runs.

 

71                               BC Gas argued that these concerns are incidental to the primary purpose of processing, which it characterized as the transformation of the raw gas into commercially useful products, including residue gas and other useful byproducts like sulphur.  In our opinion, this purpose is irrelevant to Westcoast’s business.  It is true that the raw gas must be processed to remove impurities before it can be used by the ultimate consumer.  However, what is important from the perspective of Westcoast is that this processing occur before the gas is delivered into its mainline transmission pipeline because of the design, safety and environmental concerns set out above.

 


72                               In addition, processing is provided by Westcoast almost exclusively in respect of gas which is subsequently delivered into the Westcoast mainline transmission pipeline.  While some raw gas is delivered to Westcoast’s processing plants by means of gathering lines owned and operated by others, virtually all of the residue gas that is processed at the Westcoast processing plants is delivered into the Westcoast mainline transmission pipeline for transportation onward.  This residue gas consists primarily of methane, which comprises approximately 80 percent of the raw gas prior to processing.  Westcoast does not offer processing as an independent service in respect of gas that it does not transport in its mainline transmission pipeline.

 

73                               In our view, this dedication of the Westcoast processing plants to the operation of the mainline transmission pipeline is analogous to that of the underground storage caverns to the pipeline undertaking in Dome Petroleum, supra, and to that of the hypothetical railway hotel to the railway undertaking described by the Privy Council in Empress Hotel, supra.  As well, the functional integration between the Westcoast gathering pipelines and processing plants on the one hand, and the Westcoast mainline transmission pipeline on the other hand, demonstrate that these facilities cannot be compared to the quarry and the railway in Nor-Min, supra, as previously discussed.

 

74                               It is significant that, except for some small quantities, Westcoast does not own or deal in the natural gas that it transports.  The fact that processing the gas transforms it into a commercially useful state and produces byproducts which are also commercially valuable may be relevant to the owners of these substances, but it is irrelevant to Westcoast.  Its only interest is in providing transportation and processing services to the owners of the gas and its byproducts.

 

75                               The majority of the Board concluded in dismissing the Fort St. John application that the Westcoast facilities did not form a single undertaking for the purposes of s. 92(10) (a) because the degree of coordination between the facilities was a necessary feature of the natural gas industry and would occur whether the facilities were owned solely by Westcoast or not.  It stated at p. 9:

 


Westcoast’s facilities are operated in a coordinated manner, but in the Board’s view this is a universal feature of the natural gas industry and would occur between connected facilities regardless of ownership.

 

76                               The Board concluded that this degree of coordination is present with respect to the processing plants owned and operated by others which feed gas into the Westcoast mainline transmission pipeline, and the gathering lines owned and operated by others which deliver gas to Westcoast processing plants.  The Board repeated this finding in Order No. MO-21-95 concerning the Grizzly Valley reference at para. 38:

 

38.  This interdependence and coordination is a necessary feature of the natural gas industry.  The various facilities involved in the production, transportation and distribution of natural gas to the ultimate consumers are physically connected and must be operated in a coordinated manner.  This dependency and coordination of facilities is true regardless of ownership.

 


77                               As we see the matter, this finding by the Board was not a valid basis for concluding that Westcoast does not operate a single federal undertaking.  The facts demonstrate that, above and beyond the coordination described above, Westcoast also operates the gathering pipelines, processing plants and mainline transmission pipeline in common as a single enterprise.  Simply put, the facilities are subject to common control, direction and management by Westcoast.  This is what distinguishes the Westcoast undertaking from others in the natural gas industry.  The coordination exhibited by the Westcoast facilities may be a necessary feature of the natural gas industry, but the common management of these facilities by Westcoast as a single business is not.  It is obviously not a feature of those independently owned gathering pipelines which feed into the Westcoast processing plants and those independently owned processing plants which feed into the Westcoast mainline transmission pipeline.  Westcoast has no control over these facilities.  We disagree with the Board’s suggestion to the contrary in its Fort St. John reasons at p. 9:

 

Some of the plants now operated by Westcoast were previously owned and operated by others under provincial jurisdiction.  Although “a change of corporate control can be significant . . . where it leads to alterations in the operation of the activity in question” (Central Western at 1131), there is no evidence that the transfer of ownership and control to Westcoast has made a significant difference in the overall manner of operation of these facilities.

 

 

78                               The distinction is similar to that between the railway line operated by CN in Luscar, supra, and the independently operated railway line in Central Western, supra, with the added feature in this case that Westcoast actually owns the facilities in question.  These aspects of the operation of the Westcoast gathering pipelines, processing plants and mainline transmission pipeline lead us to conclude that they constitute a single federal undertaking for the purposes of s. 92(10) (a).

 

2.                Are the Westcoast Gathering Pipeline and Processing Plant Facilities Integral to the Mainline Transmission Pipeline?

 

79                               In light of the above conclusion, it is unnecessary for us to consider whether the proposed facilities would be essential, vital and integral to the mainline transmission pipeline under the second test in Central Western, supra, and accordingly we express no opinion on this issue.

 

3.                The Effect of Section 92A  of the Constitution Act, 1867 

 


80                               It is still necessary to consider the effect, if any, of s. 92A  of the Constitution Act, 1867  on our conclusion that Westcoast operates a single federal undertaking under s. 92(10) (a).  BC Gas and the Attorneys General of British Columbia and for Alberta argued that s. 92A  altered the division of powers in the Constitution Act, 1867 .  In particular, they argued that s. 92A(1) (b), which provides provincial legislatures with exclusive jurisdiction to make laws in relation to “development, conservation and management of non-renewable natural resources . . . in the province”, circumscribes Parliament’s jurisdiction over interprovincial natural gas transportation undertakings under s. 92(10) (a).

 

81                               The scope of s. 92A  was considered in Ontario Hydro v. Ontario (Labour Relations Board), [1993] 3 S.C.R. 327, where the majority held that federal labour relations legislation applied to employees working at provincial nuclear electrical generating stations.  Parliament had declared the generating stations to be works for the general advantage of Canada pursuant to s. 92(10) (c) of the Constitution Act, 1867 .  One of the issues was whether s. 92A(1) (c), which provides that provincial legislatures may exclusively make laws in relation to “development, conservation and management of sites and facilities in the province for the generation and production of electrical energy”, altered the scope of the declaratory power in s. 92(10) (c).  Six of the seven members of this Court concluded that it did not.  Iacobucci J., writing for himself, Sopinka and Cory JJ., made the following comments at pp. 409-10:

 

While the wording of s. 92A  is unambiguous that management of electrical generating facilities is within the exclusive jurisdiction of the province, the section does not indicate that any special reservation from the federal declaratory power was made.  In my opinion, Parliament did not give up its declaratory power over nuclear electrical generating stations when s. 92A  of the Constitution Act, 1867  was added to the Constitution in 1982.

 

I would add that these conclusions accord with academic writings on s. 92A  which have indicated that the resource amendment, as the section is called, increased provincial power with respect to the raising of revenues from resources and to regulating the development and production of resources without diminishing Parliament’s pre-existing powers. [Emphasis added.]

 


82                               In our view, those comments apply with equal force to Parliament’s jurisdiction over interprovincial transportation undertakings under s. 92(10) (a).  Section 92A  does not derogate from Parliament’s jurisdiction under s. 92(10) (a).  Federal jurisdiction under s. 92(10) (a) is premised on a finding that an interprovincial transportation undertaking exists.  Subsection 92A(1) (b), on the other hand, is not concerned with the transportation of natural resources beyond the province, but rather with the “development, conservation and management” of these resources within the province.  As discussed above, the Westcoast gathering pipelines, processing plants and mainline transmission pipeline constitute a single interprovincial undertaking which transports natural gas from production fields in the Yukon, Northwest Territories, Alberta and British Columbia to delivery points in Alberta, British Columbia and the United States.  We fail to see how s. 92A(1) (b) could extend provincial jurisdiction to include the regulation of the transportation of natural gas through these facilities across provincial boundaries.

 

83                               BC Gas and the Attorneys General of British Columbia and for Alberta relied on comments by La Forest J., writing for himself, L’Heureux-Dubé and Gonthier JJ., in Ontario Hydro, supra, at pp. 376-78, concerning the impact of s. 92A(1) (c) on the jurisdiction of Parliament over electrical generating facilities under s. 92(10) (a):

 

To understand the situation, it is useful to examine the backdrop against which s. 92A  was passed.  In a general sense, the interventionist policies of the federal authorities in the 1970s in relation to natural resources, particularly oil and other petroleum products, were a source of major concern to the provinces. . . .

 


It was to respond to this insecurity about provincial jurisdiction over resources -- one of the mainstays of provincial power -- that s. 92A  was enacted.  Section 92A(1)  reassures by restating this jurisdiction in contemporary terms, and the following provisions go on, for the first time, to authorize the provinces to legislate for the export of resources to other provinces subject to Parliament’s paramount legislative power in the area, as well as to permit indirect taxation in respect of resources so long as such taxes do not discriminate against other provinces.

 

Most commentators mention only these issues in describing the background against which s. 92A  was enacted, but there were others, specifically in relation to the generation, production and exporting of electrical energy, that must have been seen as a threat to provincial autonomy in these areas.  In most of the provinces, at least, the generation and distribution of electrical energy is done by the same undertaking.  There is an integrated and interconnected system beginning at the generating plant and extending to its ultimate destination.  There was authority that indicated that even an emergency interprovincial grid system might effect an interconnection between utilities sufficient to make the whole system a work connecting or extending beyond the province, and so falling within federal jurisdiction within the meaning of s. 92(10) (a) of the Constitution Act, 1867 .... There was danger, then, that at least the supply system and conceivably the whole undertaking, from production to export, could be viewed as being a federal undertaking. . . . The express grant of legislative power over the development of facilities for the generation and production of electrical energy (s. 92A(1) (c)), coupled with the legislative power in relation to the export of electrical energy offers at least comfort for the position that, leaving aside other heads of power, the development, conservation and management of generating facilities fall exclusively within provincial competence.  The nature of provincial electrical generating and distribution systems at the time of the passing of s. 92A  must have been appreciated.

 

What is important to note is that the danger to provincial autonomy over the generation of electrical energy did not arise out of the discretion Parliament had or might in future exercise under its declaratory power.  The danger, rather, lay in the possible transformation of these enterprises into purely federal undertakings by reason of their connection or extension beyond the province.  Section 92A  ensures the province the management, including the regulation of labour relations, of the sites and facilities for the generation and production of electrical energy that might otherwise be threatened by s. 92(10) (a).  But I cannot believe it was meant to interfere with the paramount power vested in Parliament by virtue of the declaratory power (or for that matter Parliament’s general power to legislate for the peace, order and good government of Canada) over “(a)ll works and undertakings constructed for the production, use and application of atomic energy”.  This, as already seen, comprises the management of these facilities, displacing any management powers the province might otherwise have had under s. 92A .  And a vital part of the power of management is the power to regulate labour relations.  [Emphasis added.]

 


These parties argued that these comments apply with equal force to the jurisdiction of Parliament over natural gas pipeline facilities under s. 92(10) (a) and therefore that federal jurisdiction over the Westcoast gathering pipeline and processing plant facilities under s. 92(10) (a) is ousted by s. 92A(1) (b).

 

84                               We do not believe that the statements made by La Forest J. go quite as far as was submitted.  To begin with, the issue in Ontario Hydro, supra, was the impact of s. 92A(1) (c) on the declaratory power in s. 92(10) (c).  The effect of s. 92A(1) (b) on s. 92(10) (a) was not before the Court and the comments of La Forest J. concerning the impact of s. 92A  on s. 92(10) (a) were obiter dicta. But more importantly, s. 92A(1) (c) deals specifically with jurisdiction over “development, conservation and management of sites and facilities in the province for the generation and production of electrical energy”.  Subsection 92A(1) (b), on the other hand, does not refer to jurisdiction over “sites and facilities”, but more generally to jurisdiction over “development, conservation and management of non-renewable resources”.  Finally, even assuming that s. 92A(1)  was enacted to respond to concerns about the potential reach of federal jurisdiction under s. 92(10) (a), we fail to see how s. 92A(1) (b) would alter the result in this particular case, for the reasons already given.  Indeed, the last three sentences of the above-quoted excerpt from the reasons of La Forest J. serve to reinforce this conclusion.  Nothing in s. 92A  was intended to derogate from the pre-existing powers of Parliament.

 

4.                Conclusion

 


85                               We conclude that the Westcoast gathering pipelines, processing plants and mainline transmission pipeline, of which the proposed Fort St. John and Grizzly Valley facilities would form part, constitute a single federal transportation undertaking which is engaged in the transportation of natural gas from production fields located in the Yukon, the Northwest Territories, Alberta and British Columbia to delivery points within Alberta and British Columbia and the international boundary with the United States.  As such, the proposed facilities come within the exclusive jurisdiction of Parliament under s. 92(10) (a) of the Constitution Act, 1867 .

 

C.                If the Proposed Facilities Come Within Federal Jurisdiction, Do the Proposed Gas Processing Plant Facilities Come Within the Definition of “Pipeline” in Section 2  of the National Energy Board Act ?

 

86                               It was argued by BC Gas that, even if the projects in issue are within federal jurisdiction, the National Energy Board Act  does not give the Board jurisdiction over gas processing plants because they do not fall within the following definition of “pipeline”, found in s. 2 :

 

“pipeline” means a line that is used or to be used for the transmission of oil or gas, alone or with any other commodity, and that connects a province with any other province or provinces or extends beyond the limits of a province or the offshore area as defined in section 123, and includes all branches, extensions, tanks, reservoirs, storage facilities, pumps, racks, compressors, loading facilities, interstation systems of communication by telephone, telegraph or radio and real and personal property and works connected therewith;  [Emphasis added.]

 

87                               If processing plants are to fall within this definition, this must be by virtue of the concluding words of the section: “and real and personal property and works connected therewith”.  It is difficult to see how the processing plants could be viewed other than as works connected to the Westcoast transmission lines.  BC Gas contends that the entire definition is qualified by the words “used or to be used for the transmission of oil or gas”, and that because the processing plants are not, strictly speaking, for transmission, they fall outside the scope of the provision.  However, we find no support in the wording or structure of the definition to support this interpretation.

 


88                               It was also argued by BC Gas that the ejusdem generis principle of statutory interpretation dictates that the general words at the end of the definition should be construed to refer to items similar to those specifically enumerated.  We disagree.  As Hugessen J.A. stated, at p. 302:

 

The second part of the definition is in its terms inclusory and should not be read so as to restrict the more general words which both precede and follow it.  Those words are in themselves very broad and quite adequate to cover processing plants.  Furthermore, it seems to me that there is a sound constitutional reason why the processing plants should not have been included in the enumeration: such plants are ordinarily local works subject to provincial jurisdiction; they  only become subject to federal jurisdiction by reason of their being part of a federal interprovincial transportation undertaking.  It would be unusual for Parliament to include in the definition works which would not normally be subject to its jurisdiction and only became so by reason of factors external to the legislation.

 

We agree with this statement and conclude that the Westcoast processing plants are subject to the jurisdiction of the Board by virtue of the overall scheme of the National Energy Board Act  and the definition of “pipeline” contained therein.

 

VIII.            Disposition

 

89                               We would dismiss the appeal with costs.  The constitutional question should be answered as follows:

 

Q.               Given the division of authority between the Parliament of Canada and the legislatures of the provinces in the Constitution Acts, 1867 to 1982, are ss.  29 , 30 , 31 , 33 , 47 , 52 , 58  and 59  of the National Energy Board Act, R.S.C., 1985, c. N-7 , applicable to the facilities proposed to be constructed by Westcoast Energy Inc. in respect of:

 

(a)   its Fort St. John Expansion Project, the subject of the application in proceeding GH-5-94 before the National Energy Board, and

 

(b)   its Grizzly Valley Expansion Project, as described in Order No. MO-21-95 of the National Energy Board?


A.                (a)   Yes.

 

(b)   Yes.

 

//McLachlin J.//

 

The following are the reasons delivered by

 

McLachlin J. (dissenting) --

 

I.                 Introduction

 

90                               Under the Canadian Constitution, the provinces have exclusive jurisdiction over the development and management of non-renewable nature resources, including minerals, oil and gas.  The provinces also have the power to govern works and undertakings within the province.

 

91                               There are exceptions to this rule.  First, s. 92(10)(c) of the Constitution Act, 1867  enables Parliament to declare a local work “to be for the general Advantage of Canada or for the Advantage of Two or more of the Provinces”.  Second, Parliament may assume power pursuant to the peace, order and good government (POGG) clause of the Constitution.  Finally, a provincial work or undertaking may fall under federal power through the operation of s. 92(10) (a) of the Constitution Act, 1867 : “Lines of Steam or other Ships, Railways, Canals, Telegraphs, and other Works and Undertakings connecting the Province with any other or others of the Provinces, or extending beyond the Limits of the Province”.

 


92                               The main issue before this Court is whether the federal government has the power to regulate two gas processing plants and related gathering facilities  (hereinafter referred to as the “processing plants”) that Westcoast Energy Inc. (“Westcoast”) proposes to build in northern British Columbia:  the “Fort St. John” and “Grizzly Valley” projects.  As resource production facilities located within the province, the processing plants prima facie fall within provincial jurisdiction,  under ss. 92(10)  (local works and undertakings), 92(13) (property and civil rights in the province), 92(16) (matters of a local or private nature), or s. 92A(1)  (resource development, conservation and management).  The question is whether any of the exceptional rules which permit federal regulation of provincial operations apply.  The federal government has not declared the processing plants to be for the general advantage of Canada.  Nor has it been argued that the federal government is entitled to regulate the processing plants through the peace, order and good government power.  The claim of federal jurisdiction is based solely on the argument that the processing plants fall within the residual phrase of s. 92(10) (a):  “other Works and Undertakings connecting the Province with any other or others of the Provinces, or extending beyond the Limits of the Province”.  If this issue is resolved in favour of federal jurisdiction, the further question is whether the processing plants fall within the definition of “pipeline” in the National Energy Board Act, R.S.C., 1985, c. N-7 .  If they do not, the National Energy Board does not have jurisdiction over the processing plants.

 


93                               I cannot accept the claim that the processing plants fall within federal jurisdiction.  They do not themselves qualify as works or undertakings connecting the province with other provinces, territories or countries.  If they are to fall under federal jurisdiction, it must be by association with Westcoast’s interprovincial pipeline, which is an interprovincial transportation undertaking.  In my respectful opinion, the relationship between the processing plants and the interprovincial pipeline which will carry most of their product does not suffice to remove the plants from provincial to federal control.  A purposive interpretation of the allocation of powers between the federal government and the provinces supports the view that the plants remain within provincial jurisdiction.  So does the jurisprudence.  To hold otherwise is to shift fundamentally the balance of powers in the Constitution.

 

II.                Facts

 

94                               The northeast portion of British Columbia contains rich reserves of natural gas.  Numerous entities have explored, drilled and found gas in this region.  They, or others to whom they have sold their rights, sell this gas.  Before it is sold, however, much of the gas produced in British Columbia is processed. 

 

95                               The processing of the gas serves a variety of purposes.  First, it extracts a number of commercially valuable products, including hydrocarbon liquids and sulphur.  Second, the extraction of these and other substances makes the gas cheaper and safer to transport.  The gathering lines carrying the raw gas to the plants are built of steel designed to resist corrosion. The steel in the lines carrying processed gas from the plants, by contrast, does not need to be corrosion resistant because the corrosive chemicals have been removed from the gas.  It is thus cheaper to transport processed gas.  It is also safer because processing removes hydrogen sulphide, a toxic substance, before the gas reaches densely populated areas.

 


96                               Westcoast is not the only company engaged in processing gas in British Columbia.  A number of other companies operate gas processing plants.  All of these are currently operating under provincial jurisdiction, even where their product flows into interprovincial pipelines.  Several processing plants are owned by Westcoast subsidiaries.  They too are currently operating under provincial jurisdiction, though their product flows into interprovincial pipelines owned by Westcoast.

 

97                               Some of the natural gas and other commodities produced by the plants are sold in British Columbia; some are exported.  These products are transported to market, whether domestic or export, by various means.  The natural gas liquids and sulphur are transported by truck and rail.  The residue gas — about 80 percent of the raw gas fed to the processing plants — is transported by pipelines which move the gas throughout the province and beyond its borders, to other provinces and the United States.

 

98                               Sometimes gathering lines, processing plants and transmission pipelines are owned by different companies.  In much of northeast British Columbia, however, one company -- Westcoast -- operates the activities of gathering, processing and transportation and owns the associated facilities.  Westcoast coordinates the three activities through its head office in Vancouver and its staff in the field.

 

III.               Relevant Constitutional and Statutory Provisions

 

99                               Constitution Act, 1867 

 

91.  It shall be lawful for the Queen, by and with the Advice and Consent of the Senate and House of Commons, to make Laws for the Peace, Order, and good Government of Canada, in relation to all Matters not coming within the Classes of Subjects by this Act  assigned exclusively to the Legislatures of the Provinces; and for greater Certainty, but not so as to restrict the Generality of the foregoing Terms of this Section, it is hereby declared that (notwithstanding anything in this Act ) the exclusive Legislative Authority of the Parliament of Canada extends to all Matters coming within the Classes of Subjects next hereinafter enumerated; that is to say, —

 

                                                                   . . .

 


29.       Such Classes of Subjects as are expressly excepted in the Enumeration of the Classes of Subjects by this Act  assigned exclusively to the Legislatures of the Provinces.

 

And any Matter coming within any of the Classes of Subjects enumerated in this Section shall not be deemed to come within the Class of Matters of a local or private Nature comprised in the Enumeration of the Classes of Subjects by this Act  assigned exclusively to the Legislatures of the Provinces.

 

 

92.  In each Province the Legislature may exclusively make Laws in relation to Matters coming within the Classes of Subjects next hereinafter enumerated; that is to say, --

 

                                                                   . . .

 

10.       Local Works and Undertakings other than such as are of the following Classes: — 

 

(a)   Lines of Steam or other Ships, Railways, Canals, Telegraphs, and other Works and Undertakings connecting the Province with any other or others of the Provinces, or extending beyond the Limits of the Province;

 

 

92A.  (1)     In each province, the legislature may exclusively make laws in relation to

 

                                                                   . . .

 

(b)       development, conservation and management of non-renewable natural resources and forestry resources in the province, including laws in relation to the rate of primary production therefrom; and

 

(c)       development, conservation and management of sites and facilities in the province for the generation and production of electrical energy.

 

                                                                   . . .

 

(5)       The expression “primary production” has the meaning assigned by the Sixth Schedule.

 

. . .

 

                                                 THE SIXTH SCHEDULE

 

Primary Production from Non-Renewable Natural Resources and Forestry Resources

 

1.    For the purposes of section 92A of this Act ,

 


(a)  production from a non-renewable natural resource is primary production therefrom if

 

(i)    it is in the form in which it exists upon its recovery of severance from its natural state, or

 

(ii)   it is a product resulting from processing or refining the resource, and is not a manufactured product or a product resulting from refining crude oil, refining upgraded heavy crude oil, refining gases or liquids derived from coal or refining a synthetic equivalent of crude oil; . . .

 

National Energy Board Act, R.S.C., 1985, c. N-7 

 

2.  In this Act ,

                                                                   . . .

 

“pipeline” means a line that is used or to be used for the transmission of oil or gas, alone or with any other commodity, and that connects a province with any other province or provinces or extends beyond the limits of a province or the offshore area as defined in section 123, and includes all branches, extensions, tanks, reservoirs, storage facilities, pumps, racks, compressors, loading facilities, interstation systems of communication by telephone, telegraph or radio and real and personal property and works connected therewith;

 

 

30.       (1)   No company shall operate a pipeline unless

 

(a)  there is a certificate in force with respect to that pipeline; and

 

(b)  leave has been given under this Part to the company to open the pipeline.

 

(2) No company shall operate a pipeline otherwise than in accordance with the terms and conditions of the certificate issued with respect thereto.

 

31.  Except as otherwise provided in this Act , no company shall begin the construction of a section or part of a pipeline unless

 

(a)  the Board has by the issue of a certificate granted the company leave to construct the line; . . .

 

 

47. (1)  No pipeline and no section of a pipeline shall be opened for    the transmission of hydrocarbons or any other commodity by a company until leave to do so has been obtained from the Board.

 

(2)       Leave may be granted by the Board under this section if the Board is satisfied that the pipeline may safely be opened for transmission.

 


52.  The Board may, subject to the approval of the Governor in Council, issue a certificate in respect of a pipeline if the Board is satisfied that the pipeline is and will be required by the present and future public convenience and necessity and, in considering an application for a certificate, the Board shall have regard to all considerations that appear to it to be relevant, and may have regard to the following:

 

(a)  the availability of oil or gas to the pipeline;

 

(b)  the existence of markets, actual or potential;

 

(c)  the economic feasibility of the pipeline;

 

(d)  the financial responsibility and financial structure of the applicant, the methods of financing the pipeline and the extent to which Canadians will have an opportunity of participating in the financing, engineering and construction of the pipeline; and

 

(e)  any public interest that in the Board's opinion may be affected by the granting or the refusing of the application.

 

 

IV.              Decisions Below

 

A.                National Energy Board, Reasons for Decision GH-5-94 (A. Côté-Verhaaf, K. W. Vollman and R. Illing)

 

100                           The National Energy Board considered whether it had jurisdiction over the Fort St. John project.  The majority of the Board ruled that while the federal government had jurisdiction over the interprovincial transportation of natural gas, it did not have jurisdiction over the processing plants.  The majority accepted that Westcoast would operate its gathering, processing and interprovincial transportation activities as an integrated business.  But that, in its view, did not bring the provincial aspects of that business -- the gathering and processing -- into the federal sphere because all three segments of the business would retain their distinctive character.  The federal government’s entitlement to regulate one aspect of Westcoast’s business — interprovincial transportation — did not entitle it to regulate all of them.

 


101                           In support of this view, the majority of the National Energy Board noted, at p. 9, that gathering, processing and interprovincial transportation, while in this case carried on by the same company, are “fundamentally different activities or services”.  It observed that Westcoast’s business practices reflect these differences.  Customers can contract for Westcoast’s transmission services separately from its gathering and processing services.  Gathering, processing and mainline transmission are tolled separately and according to different methodologies.  The majority held that coordination between the three activities is a universal feature of the natural gas industry and would occur even if different companies were operating the different activities.  The mere fact that Westcoast happens to operate all three activities should not change the constitutional jurisdiction over each of the activities.  Nor should the fact that interprovincial transmission is dependent on processing; this dependence flows from the nature of the industry.  It followed, the majority concluded, that the gathering and gas processing were not “integral” or “essential” to a core federal work or undertaking according to the test in United Transportation Union v. Central Western Railway Corp., [1990] 3 S.C.R. 1112, and the processing plants did not fall within federal jurisdiction through the operation of s. 92(10) (a).  The majority of the National Energy Board dismissed Westcoast’s application on the ground that the Board lacked jurisdiction.

 

102                           The dissenting member of the Board held that the entire Westcoast system constituted a single undertaking falling under federal jurisdiction.  The processing plants came within federal jurisdiction because they were an integral part of the main transmission pipeline and were essential to its operation.  He also held that gas processing plants came within the definition of “pipeline” in the National Energy Board Act .  Therefore, he concluded that the Board had jurisdiction over the Fort St. John project.

 


B.                Federal Court of Appeal, [1996] 2 F.C. 263

 

103                           The Federal Court of Appeal heard Westcoast’s appeal from the National Energy Board’s Fort St. John decision together with a reference concerning the Board’s jurisdiction over the Grizzly Valley project.  That court agreed with the dissenting member of the Board that the integrated operations of Westcoast rendered the entirety of its activities in northeastern British Columbia a single undertaking under federal jurisdiction.  It held that the Board erred in relying on the distinctive nature of the gas processing plants vis-à-vis the interprovincial pipeline. What mattered was not whether the plants differed from an interprovincial transportation undertaking, but whether they were interconnected and interdependent with it.  The court ruled as a matter of law that the interconnection and interdependence between gathering, processing and transportation of gas outside the province rendered all the activities part of Westcoast’s federally regulated transportation enterprise through the operation of s. 92(10) (a).  The court further held that the National Energy Board had jurisdiction over the processing plants as the plants came within the definition of “pipeline” in s. 2  of the National Energy Board Act .

 

V.                Issues

 

104                           On April 4, 1997, the Chief Justice stated the following constitutional question:

 

Given the division of authority between the Parliament of Canada and the legislatures of the provinces in the Constitution Acts, 1867 to 1982, are ss. 29 , 30 , 31 , 33 , 47 , 52 , 58  and 59  of the National Energy Board Act, R.S.C., 1985, c. N-7 , applicable to the facilities proposed to be constructed by Westcoast Energy Inc. in respect of:

 


(a)   its Fort St. John Expansion Project, the subject of the application in proceeding GH-5-94 before the National Energy Board, and

 

(b)   its Grizzly Valley Expansion Project, as described in Order No. MO-21-95 of the National Energy Board?

 

 

Resolution of the above question requires a consideration of what is the appropriate test, and how the test applies to the processing plants.  A subsidiary issue is whether deference is owed to the decision of the National Energy Board.  Finally, if the processing plants come within federal jurisdiction, it will be necessary to determine whether they come within the definition of “pipeline” in the National Energy Board Act .

 

VI.              Analysis

 

A.                The Test for Determining Whether a Local Work or Undertaking Falls Under Federal Jurisdiction Through the Operation of Section 92(10) (a) of the Constitution Act, 1867 

 


105                           Two different legal tests for when a local work or undertaking will be swept into the federal sphere by virtue of its relationship to an interprovincial work or undertaking emerge from the decisions of the Board and the Federal Court of Appeal.  The test of the majority of the National Energy Board suggests that so long as the local work or undertaking retains a distinct identity from the interprovincial work or undertaking, it will not be subsumed into the federal sphere.  Using this approach, the inquiry is whether, on the one hand, viewed in the context of its day-to-day operations and the industry as a whole, the dominant character of the local work or undertaking is essentially the same as that of the interprovincial work or undertaking, or whether, on the other hand, the local enterprise retains a distinct provincial character.  The test of the dissenting member and the Federal Court of Appeal, by contrast, suggests that a provincial work or undertaking will be swept into the federal realm whenever it is interconnected to and interdependent with the interprovincial work or undertaking.  In my view, the first test — that adopted by the majority of the National Energy Board — is the correct test.

 

(1)   The Two Ways a Local Work or Undertaking May Come Under Federal Jurisdiction Through the Application of Section 92(10) (a)

 

 

106                           Section 92(10) of the Constitution gives the provinces jurisdiction over works and undertakings within their boundaries. This is subject to the exception found in s. 92(10) (a): “Lines of Steam or other Ships, Railways, Canals, Telegraphs, and other Works and Undertakings connecting the Province with any other or others of the Provinces, or extending beyond the Limits of the Province”.  As the processing plants are located within the boundaries of the province of British Columbia, in order for them to fall under federal jurisdiction, it must be shown that they fall within this exception.  The plants are not one of the specifically named works or undertakings.  The only way they can fall under the exception is if they come within the residual clause:  “other Works and Undertakings connecting the Province with any other or others of the Provinces, or extending beyond the Limits of the Province”.

 


107                           There are two ways that a work or undertaking may fall within the residual clause:  Central Western, supra.  First, the work or undertaking at issue — whether it is a railway line, hotel or processing plant — may itself be an interprovincial work or undertaking.  An interprovincial pipeline is an example.  Interprovincial pipelines are not mentioned specifically in s. 92(10) (a).  But an interprovincial pipeline, viewed itself, is a work that connects one province to another province or provinces.  Therefore, interprovincial pipelines fall within s. 92(10) (a):  Campbell-Bennett Ltd. v. Comstock Midwestern Ltd., [1954] S.C.R. 207.  Second, a work or undertaking which does not itself extend beyond the province or connect the province with any other or others of the provinces may come within s. 92(10) (a) and fall under federal jurisdiction by virtue of its relationship to an interprovincial work or undertaking.

 

108                           My colleagues Justice Iacobucci and Justice Major seem to take a different view of the two branches of Central Western, supra.  Essentially, they say that the two ways a work or undertaking can fall within the residual clause of s. 92(10) (a) are: (1) by being part of a single integrated interprovincial work or undertaking; and, (2) by being “integral” to an interprovincial work or undertaking (see para. 45).  With respect, it seems to me these amount to the same thing.  Under either alternative (1) or (2), the inquiry is whether the work or undertaking is part of an integrated scheme.

 

109                           I understand this Court’s reasons in Central Western as distinguishing between a work or undertaking not enumerated in s. 92(10) (a) which is itself of an interprovincial nature, and a work or undertaking which is not itself an interprovincial nature but which falls under federal jurisdiction because it is an integral part of an interprovincial work or undertaking.  This was also the understanding of MacGuigan J. in National Energy Board (Re), [1988] 2 F.C. 196 (C.A.), at p. 216 (cited with approval in Central Western at p. 1145) when he said:

 

Whatever the terminology adopted, the courts say again and again in these cases that for a work or undertaking to fall under federal jurisdiction under paragraph 92(10) (a), it must either be an interprovincial work or undertaking (the primary instance) or be joined to an interprovincial work or undertaking through a necessary nexus (the secondary instance).  [Emphasis in original.]

 

Therefore, there are two possible situations to which the residual clause of s. 92(10) (a) may apply:

 


(i)    where the work or undertaking at issue is itself an interprovincial work or undertaking (primary instance); or

 

(ii)   where the work or undertaking at issue is functionally integrated with an interprovincial work or undertaking (secondary instance).

 

 

Considered in this way, the two branches of the Central Western test do not duplicate each other and provide a comprehensive test for when s. 92(10) (a) may bring a provincial work or undertaking under federal jurisdiction.

 

(2)   Primary Instance:  Are the Processing Plants Themselves Interprovincial Works or Undertakings?

 

 

110                           Unlike shipping lines, railways, canals, telegraphs or interprovincial pipelines, the processing plants are not in themselves works connecting one province to another.  The function of a processing plant is to separate, refine and produce, not to function as a means of transportation or communication beyond the province’s boundaries.  Its sole function is to process raw gas into a number of other products which are then shipped and transported throughout and beyond British Columbia by a variety of means, including trucks, rail and pipelines.  The mere fact that the plants are ultimately connected to an interprovincial transportation grid does not convert them into an interprovincial means of transportation: Central Western, supra.  It simply cannot be said that the plants themselves are interprovincial works or undertakings.  Therefore, the processing plants do not fall under federal jurisdiction through the operation of the first branch of the Central Western test.

 

 


(3)   Secondary Instance:  Are the Processing Plants Functionally Integrated With an Interprovincial Work or Undertaking?

 

 

111                           The second way in which a work or undertaking may come within the residual clause of s. 92(10) (a) is by being “integral to a core federal work or undertaking”: Central Western, supra, at p. 1125.  In other words, while the work or undertaking at issue is not itself of an interprovincial nature, its functional connection to an interprovincial work or undertaking may be so intimate that it may properly be considered to have an interprovincial character.  At this point the local work or undertaking loses its distinct provincial character and moves from the provincial sphere into the federal sphere.  This is the question at the heart of this appeal:  what is required to establish that a work or undertaking, which is not itself of an interprovincial nature, is related to an interprovincial work or undertaking in such a way that the local work or undertaking moves from the provincial to the federal domain?

 

112                           The authorities suggest that the transformation, through the operation of s. 92(10) (a), of a local work or undertaking into a federally regulated entity can only happen where the local enterprise is “essential” or “integral” to an interprovincial work or undertaking.  Some of the cases require common direction or operation.  Still others demand dependence of the federal enterprise on the provincial work or undertaking.  The difficulty lies in infusing meaning into these terms and in determining how they apply to a particular situation.  In more concrete terms, what factors establish the functional integration required to bring a provincial enterprise into the realm of federal regulation?

 


113                           The answer to this question lies in the framework of the Constitution and the division of powers it establishes between the federal and provincial governments.  The test for a transfer of provincial regulatory power to the federal government by means of s. 92(10) (a) must conform to this constitutional framework, not deform it.

 

(a)   The Constitutional Framework

 

114                           The Constitution divides power over transportation and communication between the federal government and the provinces.  The provinces are entitled to regulate transportation and communication within their boundaries.  The federal government has jurisdiction over transportation and communication systems that transcend provincial boundaries and connect the provinces with each other or with other countries.

 

115                           Section 92(10) reflects this division.  It first confirms the right of the provinces to regulate works and undertakings within their boundaries.  It then, through s. 92(10) (a), creates an exception for interprovincial transportation and communication -- for “Lines of Steam or other Ships, Railways, Canals, Telegraphs, and other Works and Undertakings connecting the Province with any other or others of the Provinces, or extending beyond the Limits of the Province”.  The purpose of this exceptional federal power is obvious:  it enables the federal government to ensure the passage of people, goods and information throughout the country and beyond.

 


116                           Because the federal power is exceptional, it follows that it should be extended as far as required by the purpose that animates it, and no further.  To derogate from the provincial power to regulate local works and undertakings, it must be shown that derogation is necessary to enable the federal government to maintain an interprovincial transportation or communication link.  As Lord Atkinson put it in rejecting a federal claim to jurisdiction under s. 92(10) (a) (City of Montreal v. Montreal Street Railway, [1912] A.C. 333 (P.C.), at p. 346):

 

In their Lordships’ view this right and power is not necessarily incidental to the exercise by the Parliament of Canada of its undoubted jurisdiction and control over federal lines, and is therefore, they think, an unauthorized invasion of the rights of the Legislature of the Province of Quebec. [Emphasis added.]

 

 

117                           This purposive reading of s. 92(10) (a) is the key to adding the necessary precision to the test for determining when power over local works or undertakings may exceptionally be transferred to the federal government.  The federal power to annex jurisdiction which is essentially provincial should be strictly confined to situations where it is required to meet the purpose of the exception embodied in s. 92(10) (a).  This is the philosophy that properly imbues the construction of s. 92(10) (a). 

 


118                           The recent addition of s. 92A to the Constitution confirms this purpose of s. 92(10) (a) in the context of the primary production of provincial resources.  Section 92A provides that “[i]n each province, the legislature may exclusively make laws in relation to . . . (b) [the] development, conservation and management of non-renewable natural resources and forestry resources in the province, including laws in relation to the rate of primary production therefrom . . . and (c) [the] development, conservation and management of sites and facilities in the province for the generation and production of electrical energy”.  “Primary production” includes a product “in the form in which it exists upon its recovery of severance from its natural state” and “a product resulting from processing or refining the [non-renewable natural] resource”.  Natural gas falls within the definition of primary production, both in its processed and unprocessed state.  Under s. 92A the province has exclusive power to make laws in relation to the development and management of non-renewable natural resources.  It follows that the province under s. 92A has exclusive power to make laws with respect to the development of the processing plants. 

 

119                           In Ontario Hydro v. Ontario (Labour Relations Board), [1993] 3 S.C.R. 327, a majority of this Court held that s. 92A does not prevent the federal government from exercising its power under s. 92(10) (c) to declare a provincial work to be a work in the general interest of Canada.  With respect to s. 92(10) (a), however, La Forest J., writing for himself, L’Heureux-Dubé and Gonthier JJ., doubted that it could be used to sweep facilities for the development and processing of primary resources into the federal sphere.  He noted that s. 92A was enacted to respond to the insecurity felt by the provinces with respect to jurisdiction over resources — which he referred to as “one of the mainstays of provincial power” (p. 376) -- and, in particular, the concern that s. 92(10) (a) might be interpreted in a way that permitted the federal government to annex power over the development and processing of resources by virtue of their connection to interprovincial and international distribution systems (at p. 378).  While La Forest J. was referring to electrical power generation, his words apply to all primary resources (at pp. 377-78):

 

 

In most of the provinces . . . the generation and distribution of electrical energy is done by the same undertaking.  There is an integrated and interconnected system beginning at the generating plant and extending to its ultimate destination.  There was authority that indicated that even an emergency interprovincial grid system might effect an interconnection between utilities sufficient to make the whole system a work connecting or extending beyond the province, and so falling within federal jurisdiction within the meaning of s. 92(10) (a). . . .  There was danger, then, that at least the supply system and conceivably the whole undertaking, from production to export, could be viewed as being a federal undertaking. . . . While a number of commentators, including myself, did not share this view of the law, the result on the authorities was by no means certain.

 

                                                                   . . .

 


The danger . . . lay in the possible transformation of these enterprises into purely federal undertakings by reason of their connection or extension beyond the province.  Section 92A ensures the province the management ... of the sites and facilities for the generation and production of electrical energy that might otherwise be threatened by s. 92(10) (a).  [Emphasis added.]

 

 

120                           The provisions of the Constitution must be read together to create a harmonious whole.  Reading s. 92(10)(a) together with s. 92A in a purposive way leaves no doubt that the federal government cannot reach back to control the development and production of primary resources under the guise of the federal power to regulate interprovincial and international transportation and communication.

 

121                           In summary, the Constitution is clear.  The provinces have the right to control works and undertakings within their boundaries, including facilities related to the production of resources.  Exceptionally, and only to the extent required to maintain interprovincial transportation and communication networks, the federal government, through s. 92(10)(a), has the power to regulate provincial works and undertakings.  This interpretation is strengthened and confirmed by s. 92A. 

 

(b)   The Jurisprudence

 

122                           The jurisprudence on when a local work may be brought under federal jurisdiction by virtue of its relationship to an interprovincial work or undertaking reflects the exceptional nature of s. 92(10)(a) and the narrow purpose that animates it -- to enable the federal government to maintain interprovincial and international routes of transportation and communication.  The cases disclose a concern that if the test is drawn too broadly, a host of provincial works and undertakings may be subsumed into the federal sphere in a way that undermines the basic division of powers between the federal government and the provinces.


 

123                           The test which emanates from recent decisions is that of “functional integration”:  Central Western, supra, per Dickson C.J. at p. 1146.  What is meant by functional integration is clarified in the course of Dickson C.J.’s reasons in Central Western.  It is more than “a unified system which is widespread and important” (p. 1144, citing Lord Reid in Canadian Pacific Railway Co. v. Attorney-General for British Columbia, [1950] A.C. 122 (P.C.), at p. 140 (the Empress Hotel case)).  And it is “something more than physical connection and a mutually beneficial commercial relationship” (p. 1147).

 


124                           The additional element required to establish the degree of functional integration necessary to bring a local work or undertaking under federal jurisdiction through s. 92(10)(a) emerges from cases such as Empress Hotel and Canadian National Railway Co. v. Nor-Min Supplies Ltd., [1977] 1 S.C.R. 322.  The local work or undertaking must, by virtue of its relationship to the interprovincial work or undertaking, essentially function as part of the interprovincial entity and lose its distinct character.  In the context of an interprovincial transportation or communication entity, to be functionally integrated, the local work or undertaking, viewed from the perspective of its normal day-to-day activities, must be of an interprovincial nature — that is, be what might be referred to as an “interconnecting undertaking”:  see Attorney-General for Ontario v. Winner, [1954] A.C. 541 (P.C.), at p. 582.  If the dominant character of the local work or undertaking, viewed functionally, is something distinct from interprovincial transportation or communication, it remains under provincial jurisdictionFunctional integration in this sense — where the constituent parts lose their separate identities — requires more than a demonstration that the provincial work functions as part of a “unified system” in which the constituent parts of the system retain their identities.  In the former case, the local work or undertaking is captured by the federal net; in the latter it is not.

 

125                           While different decisions have emphasized different factors, most readily fit into this conceptual framework.  The cases upholding a transfer to federal jurisdiction evidence a degree of integration sufficient to make the local work or undertaking a mere adjunct of the interprovincial transportation or communications entity.  By contrast, those confirming provincial jurisdiction tend to be cases where the local work or undertaking, while connected to or associated with the federal work or undertaking in important ways, retained its own distinct character separate and apart from the business of interprovincial transportation or communication.

 

126                           This distinction — functional integration versus maintenance of a distinct character — conforms to the division of powers ordained by the Constitution.  Logic and policy suggest that if the relationship between the local work or undertaking and the federal entity is such that the dominant character of the local work or undertaking is that of interprovincial transportation or communication, then the local work or undertaking should be treated as an adjunct of the interprovincial transportation or communication system and fall under federal jurisdiction.  On the other hand, if the dominant character of the provincial work or undertaking remains something other than, and distinct from, interprovincial transportation or communication, the work or undertaking should remain under provincial jurisdiction.

 


127                           In determining whether a local work or undertaking is functionally integral to a federal interprovincial transportation or communications entity, the court must examine the substance of the activity being carried on:  Northern Telecom Ltd. v. Communications Workers of Canada (No. 1), [1980] 1 S.C.R. 115, at p. 132.  As Dickson C.J. stated (for the majority) in Alberta Government Telephones v. Canada (Canadian Radio-television and Telecommunications Commission), [1989] 2 S.C.R. 225 (hereinafter A.G.T. v. C.R.T.C.), at pp. 257-58, “the crucial issue in any particular case is the nature or character of the undertaking that is in fact being carried on”. “Character of the undertaking” refers to the character of the normal or habitual activities of the local work or undertaking:  Northern Telecom No. 1, at p. 132The suggested procedure is to identify the core federal work or undertaking to which the local entity is said to be integral, then examine the physical and operational character of the provincial work or undertaking, and its practical or functional relationship to the core operation or character of the federal work or undertaking:  see, e.g., Northern Telecom No. 1, at pp. 132-33; and Central Western, supra, at pp. 1119 and 1140.

 

128                           There is no simple litmus test, like common control or dependency.  The test is the more subtle but flexible one of functional integration:  see Central Western, supra, at p. 1147.  To determine whether the dominant character of the provincial work or undertaking is interprovincial transportation or communication requires careful evaluation of the operations of the provincial work or undertaking in the context of its relationship to the federal work or undertaking and the industry as a whole. 

 


129                           It may be easier to prove that the dominant character of a provincial work or undertaking is interprovincial in some cases than others.  If the provincial work or undertaking is itself a transportation or communications company, the first step of showing that the dominant character of the work or undertaking is of a transportation or communications nature is established.  All that remains is to show that the operations of the local work or undertaking, viewed in the context of its relationship to the interprovincial transportation or communications entity, bear a predominant interprovincial stamp.  The test may most easily be met where telecommunication services are at issue.  The instantaneous and borderless nature that characterizes telecommunication and the scope and complexity of the cooperative arrangements between companies may make it difficult to distinguish between a provincial communications enterprise and the federal enterprise of which it forms part.  At this point the distinct provincial identity of the communications carrier effectively vanishes, leading to the conclusion that, viewed functionally and realistically, it has assumed the character of an interprovincial communications undertaking:  see, e.g., City of Toronto v. Bell Telephone Company of Canada, [1905] A.C. 52 (P.C.) (local telephone services); A.G.T. v. C.R.T.C., supra, Northern Telecom No. 1, supra; and Northern Telecom Canada Ltd. v. Communication Workers of Canada (No. 2), [1983] 1 S.C.R. 733 (telephone installation services).

 

130                           Where works and undertakings are not of a telecommunications nature, the test may be more difficult to meet.  Unlike telecommunication systems, works or undertakings such as railways or pipelines may be physically contained in a province.  As stated by Dickson C.J. in Central Western, supra, at p. 1146, where pipelines or railways are under consideration “spatial boundaries limit the range of the business’ operations, something which can less easily be said with regard to broadcasting systems, where territorial boundaries are not extremely critical to the nature of the enterprise”.  For this reason, cooperative arrangements between provincial transporters and federal transporters do not suffice to transform the provincial transporters into interprovincial works or undertakings:  see, e.g., Montreal Street Railway, supra; British Columbia Electric Railway Co. v. Canadian National Railway Co., [1932] S.C.R. 161; Kootenay & Elk Railway Co. v. Canadian Pacific Railway Co., [1974] S.C.R. 955; and Central Western, supra.  A similar point may be made with respect to pipelines:  see National Energy Board (Re), supra

 


131                           The cases most helpful in resolving this appeal are Empress Hotel, supra, and Nor-Min, supra.  These cases are similar to this case in that:  (1) the local work or undertaking at issue was not itself of a transportation or communications nature; (2) the local work or undertaking and the federal railway undertaking which was alleged to bring the local work or undertaking within federal jurisdiction were owned  by the same company,  and in Empress Hotel, managed by the same company; and, (3) unlike the broadcasting and telecommunications cases, the operation of the local work or undertaking was spatially limited by the boundaries of the province.

 

132                           In Empress Hotel, supra, the issue was whether a hotel built, owned and operated by a federal railway fell under federal jurisdiction.  The Judicial Committee of the Privy Council held that it did not.  Their lordships allowed that had the federal railway operated the hotel solely or principally for its railway travellers, it might have been considered part of the interprovincial railway undertaking.  However, the hotel was not operated as a mere adjunct of the railway undertaking.  It was a hotel much like any other hotel.  There was “little, if anything, . . . to distinguish it from an independently owned hotel in a similar position” (p. 144). The fact that the railway and hotel businesses helped each other did not change the matter.  In other words, judged by its day-to-day activities, the dominant character of the hotel was not that of interprovincial transportation.  Its distinct character prevented it from being swept into the federal sphere.

 


133                           I see no distinction between the Empress Hotel case and the case at bar.  Both Empress Hotel and this case involve local works or undertakings not themselves engaged in interprovincial transportation or communication.   In both cases, common management and ownership are present.  In both cases, the local work or undertaking, while having strong cooperative and economic ties with the federal transportation undertaking, retains a distinct non-transportation identity.  Just as the Empress Hotel functioned much as any other hotel in the province, so the processing plants will function like other gas processing plants in British Columbia and in other provinces.

 

134                           The decision of this Court in Nor-Min, supra, is based on similar reasoning.  The issue in Nor-Min was whether a quarry owned by an interprovincial railway and used exclusively to provide gravel for use as ballast for the railway’s tracks fell under federal jurisdiction through the application of s. 92(10)(a).  This Court held that it did not.  Again, despite the economic relationship between the quarry and the railway, as well as common ownership and management, the character of the quarry, viewed realistically and substantively, was distinct from that of interprovincial transportation.  The quarry possessed its own distinct function and identity.  Thus, there was no functional integration between the quarry and the interprovincial railway undertaking. The Court concluded (at p. 333):

 

The mere economic tie-up between the C.N.R.’s quarry and the use of the crushed rock for railway line ballast does not make the quarry a part of the transportation enterprise in the same sense as railway sheds or switching stations are part of that enterprise.  The exclusive devotion of the output of the quarry to railway uses feeds the convenience of the C.N.R., as would any other economic relationship for supply of fuel or materials or rolling stock, but this does not make the fuel refineries or depots or the factories which produce the materials or the rolling stock parts of the transportation system.  [Emphasis added.]

 

 

135                           As with Empress Hotel, supra, it is difficult to distinguish Nor-Min from the case at bar.  Indeed, the case for federal jurisdiction was stronger in Nor-Min than in this case, since the entire output of the quarry was devoted to the interprovincial railway enterprise.  Despite this, and despite common ownership, the quarry remained within provincial jurisdiction.

 


(c)   The Underlying Factors

 

136                           Having set out the constitutional framework and basic test suggested by the jurisprudence, I turn to the factors cited in support of federal jurisdiction.  The Federal Court of Appeal proposed a test based on interconnection and interdependence, stressing the common management of the pipeline and the processing plants, and the common gas distribution network they share.  Without suggesting that these considerations may not be relevant in determining whether the dominant functional character of a work or undertaking is of a federal, i.e., interprovincial, nature, in my respectful opinion, “relevant” is the most that can be said of them. 

 


137                           I turn first to the argument based on common management.  It is argued that where the local work or undertaking and the interprovincial work or undertaking are operated in common as a single enterprise, the local enterprise is brought into the federal sphere through the operation of s. 92(10)(a).  While this Court has alluded en passant to common management as a factor, there are few examples of cases actually turning on this factor.  In Luscar Collieries, Ltd. v. McDonald, [1927] A.C. 925, the Privy Council, in ambiguous reasons, held a short branch railway, wholly located within Alberta but operated by an interprovincial railway under a management agreement, was part of the interprovincial railway undertaking.  The case is of dubious authority; it has since been held that physical connection and cooperatively organized through-traffic does not suffice to bring a branch railway line under federal jurisdiction:  see, British Columbia Electric Railway, supra; and Central Western, supra.  However, the Court in another case sometimes cited for the common management theory, The Queen v. Board of Transport Commissioners, [1968] S.C.R. 118 (the GO Train case), suggested that Luscar might be explained by the existence of common management (at p. 128).  In GO Train, this Court held the GO Train, which was to be operated only within Ontario, to use the tracks of an interprovincial railway, and to be operated by the interprovincial railway crews under an agency agreement with the province of Ontario, fell under federal jurisdiction.  The rationale underlying the GO Train case cannot be one of common management, since the GO Train was not to be managed by the interprovincial railway on its own behalf, but as agent for the provincial government.

 

138                           While common management may be a factor to be considered, it can only transfer a local work or undertaking from provincial to federal authority when it causes the local work or undertaking to lose its distinct character and merge with the interprovincial entity.  Viewed thus, the common management factor dovetails with the test of dominant character set out above.  In the context of interprovincial transportation, where the dominant character of the local work or undertaking remains distinct from interprovincial transportation, it remains under provincial jurisdiction, despite management and cooperative connections with the interprovincial transportation entity.

 


139                           Common ownership and coordination are also put forward as factors indicative of federal jurisdiction.  A single company may own both interprovincial and local works or undertakings and coordinate their activities.  The simple existence of common ownership and coordination is not enough to sweep a provincial work or undertaking into the federal regulatory net.  Empress Hotel, supra, and Nor-Min, supra, establish that a further inquiry must be made:  are the two enterprises fully integrated and managed as a single enterprise with the result that the provincial work or undertaking, viewed functionally and substantively, loses its distinct identity and becomes an adjunct of the interprovincial transportation undertaking?  In both Empress Hotel and Nor-Min there was common ownership, as well as some degree of coordination between the local enterprise and the interprovincial enterprise.  But these factors were not enough to shift regulatory power over the local enterprise from the province to the federal government because the distinct non-interprovincial identities of the local enterprises persisted.  The results in Empress Hotel and Nor-Min emphasize that it is the substance, not the form, that determines the jurisdictional issue.  As this Court warned in A.G.T. v. C.R.T.C., supra, at p. 263:

 

Underlying many of the arguments is an unjustified assumption that by choosing a particular corporate form the various players can control the determination of the constitutional issue.  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. [Emphasis added.]

 

 

140                           I turn next to the argument based on dependency.  Like common management, dependency may be a factor in determining whether the local work or undertaking has lost its distinct identity and essentially functions as a fully integrated adjunct of the interprovincial enterprise.  However, as with the factors previously considered, dependency is not the ultimate test. 

 

141                           To be relevant at all, the dependency must be permanent: Northern Telecom No.1, supra, at p. 132.  It is also clear that dependency of the local work or undertaking on the interprovincial enterprise is immaterial:  see Central Western, supra; National Energy Board (Re), supra; and In re Cannet Freight Cartage Ltd., [1976] 1 F.C. 174 (C.A.), at p. 177-78Dependency is relevant only where the interprovincial work or undertaking is dependent on the local enterprise in the sense that the latter is essential to the interprovincial enterprise’s delivery of services.

 


142                           Thus, in Reference re Industrial Relations and Disputes Investigation Act, [1955] S.C.R. 529, the fact that the interprovincial shipping undertaking was “entirely dependent” (to use the wording of Taschereau J. (as he then was), at p. 543) on the stevedoring enterprise supported the conclusion that the stevedoring was “part and parcel” (as found by Kerwin C.J., at p. 537) of the interprovincial shipping enterprise.  Similarly, in Letter Carriers’ Union of Canada v. Canadian Union of Postal Workers, [1975] 1 S.C.R. 178, Ritchie J., for the Court, found that the work of a private company delivering mail under contract to the post office was “essential” to the post office’s functioning (at p. 183).  He did not stop there, however.  He went on to conclude, at p. 186, that the company was “an integral part of the effective operation of the Post Office”.  This supports the view that the ultimate test is whether, viewed realistically and functionally from the point of view of dominant character, the local entity’s connection to an interprovincial transportation or communications enterprise robs the local entity of its distinct character and transforms it into an integrated adjunct to the federal enterprise.

 


143                           Even where the federal work or undertaking is permanently dependent on a provincial work or undertaking, dependency is still not a certain indicator of a transfer to federal jurisdiction.  Many kinds of dependency of interprovincial works or undertakings on local works or undertakings carry little or no weight on the ultimate issue of whether the dominant character or function of the provincial work or undertaking has been erased so as to transform the provincial work or undertaking into an adjunct of the interprovincial work or undertaking.  For example, suppliers of material or fuel without which the interprovincial work or undertaking could not function remain within provincial jurisdiction:  Nor-Min, supra.  Again, firms shipping the goods and messages without which the interprovincial transportation or communications lines would lose their raison d’être and economic viability do not move into the federal sphere because of the interprovincial enterprise’s ultimate dependency on them.  As Jackett C.J. stated in Cannet Freight Cartage, supra, at p. 178, “a shipper on [a] railway from one province to another does not, by virtue of being such a shipper, become the operator of an interprovincial undertaking”.  In Central Western, supra, Dickson C.J. set out the above passage and stated (at pp. 1146-47):

 

I agree.  To hold otherwise would be to undermine completely the division of powers for, absent a requirement of functional integration, virtually any activity could be said to “touch” a federally regulated interprovincial undertaking.  In my view, moreover, this Court’s dicta consistently suggests that something more than physical connection and a mutually beneficial commercial relationship with a federal work or undertaking is required for a company to fall under federal jurisdiction.

 

 

To put it another way, even though a shipper’s operations are intricately connected with the interprovincial scheme, so long as the shipping enterprise retains its distinct identity and, as a result, is not functionally integrated with the interprovincial transportation enterprise, it remains under provincial jurisdiction.

 

144                           I come finally to the argument based on the interconnection between the processing plants and the interprovincial pipeline.  The plants are physically connected to, and feed gas into, a grid that supplies gas to other provinces and the United States.  The physical connection is an industry-wide feature, and is due to the nature of the gas.  This physical connection means that the plants must also be operationally and economically coordinated.  The Federal Court of Appeal placed great emphasis on this interconnection and the fact that viewed together, the gathering lines, processing plants and residue pipelines form a unified system for the supply of gas inside and outside British Columbia.

 


145                           The jurisprudence establishes that an interconnection between a local work or undertaking and an interprovincial work or undertaking, augmented by a mutually beneficial commercial relationship, is not enough to make the local enterprise part of the interprovincial enterprise: see A.G.T. v. C.R.T.C., supra, and Central Western, supra.  This is so even where the interconnection is sufficient to permit the local and interprovincial operations to be viewed as a unified system of widespread importance:  Empress Hotel, supra, at p. 140.  It follows that interconnection between a local work or undertaking and an interprovincial work or undertaking, and the fact that they function as “a unified system” are not enough to move the local enterprise into federal jurisdiction.  To adopt such a simple test would eviscerate provincial jurisdiction over local works and undertakings and would seriously deform the Constitutional division of powers.  Applied to a sophisticated, economically integrated society, it would bring a vast array of provincial works into federal jurisdiction.  More is required.  Functional integration to the point that the local work or undertaking loses its distinct character must exist before the local enterprise will be subsumed into the federal sphere through the operation of s. 92(10)(a).

 

146                           In considering whether the interconnection between a local work or undertaking with an interprovincial work or undertaking is sufficient (alone or in concert with other factors such as common ownership, common management or dependency) to deprive the local enterprise of its distinct character and transform it into a “fully integrated” part of an interprovincial work or undertaking (Central Western, supra, at p. 1130), we must remember that certain connections, coordinate operations and dependencies may be features of the particular industry under consideration, rather than indicators of functional integration with the interprovincial aspect of the industry.  A high level of cooperation and coordination between local and interprovincial enterprises should be permitted without the risk of incorporation of the provincial enterprises into federal jurisdiction through the operation of s. 92(10)(a). 

 

(d)   The Test

 


147                           In order for a provincial work or undertaking to fall under federal jurisdiction under s. 92(10)(a) by reason of its connection with an interprovincial transportation or communications work or undertaking, the provincial work or undertaking must be functionally integrated with the interprovincial transportation or communications enterprise.  Functional integration is established if the dominant character of the local work or undertaking, considered functionally and in the industry context, is transformed by its connection to the interprovincial enterprise, from that of a local work or undertaking with a distinct local character, into that of an interprovincial transportation or communications undertaking.

 

148                           Various factors may be relevant to whether this test is met.  Different factors may prove determinative in different cases, depending on the nature of the work or undertaking and the industry.  In this sense, a comprehensive factor-based test is elusive:  see A.G.T. v. C.R.T.C., supra, at p. 258.  Common management, common ownership and coordination, and dependency of the interprovincial enterprise on the local enterprise are among those factors which may prove useful.  The ultimate question, however, is whether the dominant functional character of the provincial work or undertaking has been transformed by the connection to the interprovincial enterprise into that of interprovincial transportation or communication.

 


149                           This test reflects the division of powers mandated by the Constitution, including s. 92A.  The purpose of s. 92(10)(a), as noted above, is to enable the federal government to maintain transportation and communication links between the provinces and other countries.  On the one hand, provincial works or undertakings which, when viewed substantively in the context of their activities, are of an interprovincial “connecting” nature, must be regulated federally if this purpose is to be achieved.  On the other hand, leaving under provincial jurisdiction local works or undertakings whose dominant character is not of an interprovincial nature poses little impediment to the achieving of this purpose.  Any inconvenience or cost that may be entailed by provincial regulation of works or undertakings which serve federally regulated interprovincial enterprises must be weighed against the damage that would be done to the division of powers if s. 92(10)(a) were used to sweep into the federal sphere the many local enterprises that supply products or services to, or are otherwise connected to, interprovincial enterprises.  The same response may be given to the argument that different regulatory regimes for different aspects of an industry lead to inconvenience.  Organizations like Westcoast, which acquire a variety of interests, must expect different regulatory regimes for different parts of their operations.  As La Forest J. wrote in Ontario Hydro, supra, at pp. 374-75:

 

Finally there is the argument based on inconvenience.  Bifurcating legislative power over labour relations in Ontario Hydro, a single enterprise, would, it is said, create practical difficulties.  Two sets of rules would apply to different employees and, of course, there is the difficulty of drawing the line between federal matters and provincial matters.  These problems are not really new.  The interrelationship between Parliament’s power over federal works and closely related provincial activity has always raised practical difficulties. . . . Various techniques of administrative inter-delegation have been developed to deal with problems of conjoint interest following upon the case of Winner, supra.

 

 

150                           To date the courts, sensitive to provincial concerns as well as federal needs, have applied s. 92(10)(a) cautiously, refusing to sweep into federal jurisdiction those provincial works or undertakings which have a distinct provincial, non-interconnecting function.  In this, I believe them to have been wise.

 

B.                Do the Processing Plants Fall Under Federal Jurisdiction?

 

(1)   Deference to the Decision of the National Energy Board

 


 

151                           A preliminary issue is what deference should be given to the decision of the National Energy Board.  The Board’s decision is squarely concerned with its jurisdiction.  The resolution of a jurisdictional question involving an administrative tribunal requires an examination of “the wording of the enactment conferring jurisdiction on the administrative tribunal, . . . the purpose of the statute creating the tribunal, the reason for its existence, the area of expertise of its members and the nature of the problem before the tribunal”:  see U.E.S., Local 298 v. Bibeault, [1988] 2 S.C.R. 1048, at p. 1088, per Beetz J.  The analysis is to be functional and pragmatic, with the ultimate goal being the determination of “the legislative intent in conferring jurisdiction on the administrative tribunal”:  see Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557, at pp. 589-90, per Iacobucci J.

 

152                           The National Energy Board has wide jurisdiction to inquire into matters of both law and fact:  s. 12 , National Energy Board Act .  However, there is a statutory right of appeal from decisions of the Board on questions of law or of jurisdiction:  s. 22 , National Energy Board Act , and s. 28(1) (f) of the Federal Court Act, R.S.C., 1985, c. F-7 .  The duty of the National Energy Board at issue in this appeal is to regulate the interprovincial transportation of natural gas.  None of the members of the panel of the National Energy Board which considered the Fort St. John application was a lawyer.

 


153                           Especially relevant to this appeal are the nature of the problem and whether the problem comes within the expertise of the tribunal.  The ultimate question in this appeal is constitutional, and goes to the heart of the National Energy Board’s jurisdiction.  With respect to the appropriate legal test, therefore, the standard is correctness and no deference is owed.  On matters of fact falling within the Board’s area of expertise, however, the courts may owe the Board deference:  see University of British Columbia v. Berg, [1993] 2 S.C.R. 353, at pp. 369-70.  Administrative tribunals, particularly with respect to the provision of a factual record, may play a “very meaningful role to play in the resolution of constitutional issues”, even where their members do not have formal legal training:  see Cuddy Chicks Ltd. v. Ontario (Labour Relations Board), [1991] 2 S.C.R. 5, at p. 17.  The “fact-finding expertise” of administrative tribunals should not be restrictively interpreted, and “must be assessed against the backdrop of the particular decision the tribunal is called upon to make”:  see Ross v. New Brunswick School District No. 15, [1996] 1 S.C.R. 825, at para. 29, per La Forest J. (referring to a human rights tribunal).  La Forest J. continued:

 

A finding of discrimination is impregnated with facts, facts which the Board of Inquiry is in the best position to evaluate.  The Board heard considerable evidence relating to the allegation of discrimination and was required to assess the credibility of the witnesses’ evidence and draw inferences from the factual evidence presented to it in making a determination as to the existence of discrimination.  Given the complexity of the evidentiary inferences made on the basis of the facts before the Board, it is appropriate to exercise a relative degree of deference to the finding of discrimination, in light of the Board’s superior expertise in fact-finding....  [Emphasis added.]

 

 

 

154                           In Ross, the wording of the legislation constituting the tribunal had “a limited privative effect” (para. 29).  While the same cannot be said for the legislation governing the National Energy Board, given that there is a statutory right to appeal on questions of law or of jurisdiction, the expertise of the National Energy Board is of a much more technical nature than that of a human rights tribunal, as is the evidence it must consider in making its decisions.  This extra degree of complexity seems to me to justify a degree of deference equivalent to that given in Ross.

 


155                           As discussed above, where the issue is legislative jurisdiction over a work or undertaking that is not itself an interprovincial connector, the test which emerges from the Constitution and the jurisprudence is whether the work or undertaking is functionally integrated with an interprovincial work or undertaking.  In order for there to be functional integration, the dominant character of the local enterprise, considered functionally and in the context of the industry as a whole, must, through its relationship with the interprovincial enterprise, be transformed from that of a local work or undertaking with a distinct local character, into that of an interprovincial transportation or communication undertaking.  This test has different facets.  While the Board must be correct on the facets which are strictly legal in nature, there are technical aspects of the analysis which require an intimate knowledge of the industry.  On these aspects, deference should be given.

 

156                           Specifically, in this case the determination of the dominant character of the processing plants requires an in-depth knowledge of the natural gas industry and the role processing plants play in that industry.  Like a finding of discrimination, the determination of dominant character is “impregnated with the facts”.  The National Energy Board is in the best position to make this determination.  It has the greatest knowledge about the business of interprovincial gas transportation and the related industries, and is in the best position to determine whether the processing plants operate as an adjunct to the interprovincial gas transportation enterprise, or whether on the contrary, they operate as a distinct and different business, perform a separate and independent function, and, as a result, possess a distinct non-interprovincial character.  On this facet of the analysis, I would adopt the approach accepted by this Court in Ross, supra, at para. 29:  “[g]iven the complexity of the evidentiary inferences . . . a relative degree of deference” is owed to the Board on the question of whether the facts satisfy the requirements of the legal test.

 

(2)   Application of the Test

 


157                           The works at issue are the processing plants; the interprovincial enterprise at issue is Westcoast’s interprovincial gas pipeline.  The task is to find the principal character of the processing plants, viewed substantively and on the basis of their day-to-day activities.  Is their dominant character that of interprovincial transportation, rendering them essentially adjuncts to the interprovincial pipeline?  Or do they possess a character distinct and separate from the interprovincial pipeline to which they supply refined natural gas?

 

158                           In asking whether the processing plants would function as fully integrated parts of the interprovincial pipeline, or whether, on the other hand, they retained a distinct identity despite their connection with the pipeline, the majority of the National Energy Board applied the correct legal test.  They concluded that while the processing plants and the interprovincial pipeline might be viewed as a unified system, the plants nevertheless retained their distinct non-transportation identity and hence were not essential or integral, in the required constitutional sense, to the interprovincial pipeline.  As a consequence, the processing plants remained under provincial jurisdiction.

 


159                           The Federal Court of Appeal applied a different test.  Instead of focusing on the issue of the dominant character of the plants, the Federal Court of Appeal simply asked whether the plants and pipeline could be viewed as a single operation.   In essence, the Federal Court of Appeal applied an economic integration test.  This approach does not conform to the jurisprudence:  see Central Western, supra.  Nor does this approach place sufficient emphasis on the limited purpose of s. 92(10)(a) — to enable the federal government to maintain interprovincial transportation and communication links.  It is not enough that the local work or undertaking and the interprovincial enterprise can be viewed as “a unified system which is widespread and important”:  see Empress Hotel, supra, at p. 140.  More is required, namely, functional integration to the extent that the dominant character of the local work or undertaking is subsumed into the federal transportation enterprise,  depriving the local work or undertaking of a distinctive local character.

 

160                           In failing to conduct an analysis of the dominant character of the processing plants, the Federal Court of Appeal failed to engage the real issue:  whether — despite their coordination with the transportation aspects of the natural gas industry — the ways in which the processing plants differ from interprovincial gas transportation negate the conclusion that their dominant functional character is the interprovincial transport of gas.  It dismissed the Board’s finding that “gas processing and gas transmission are fundamentally different activities or services” with the statement that “this observation misses the mark” (p. 283).  It went on to assert, at pp. 283-84, that “[i]t 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”.  The Court provided no authority for this proposition.  The absence of a citation to authority is not surprising when one considers that it is the differences between the activities and services of the local work or undertaking and the interprovincial enterprise that lie at the heart of decisions like Empress Hotel, supra, and Nor-Min, supra

 


161                           In a sophisticated, post-industrial economy, virtually all works and undertakings are connected through a host of interprovincial and international transportation and communications networks.  These involve a high degree of coordination.  They also involve common direction or purpose at the most general level, whether it be getting goods to a certain person, getting electric power to a certain area, or getting messages to the public.  If interrelated activities and common direction and purpose is the test, as the Federal Court of Appeal proposes, the federal government, through its authority over interprovincial and international transportation and communication, has the power to sweep a vast array of provincial works and undertakings into the federal sphere.  Such an approach, as Dickson C.J. warned in Central Western, supra, at p. 1146, could “undermine completely the division of powers”.

 

162                           The majority of the National Energy Board applied the correct legal test.  This leaves the question of whether it can be said to have erred in applying that test to the facts, using the deferential approach suggested by this Court in cases such as Berg, supra, and Ross, supra.  The record supports no such claim.  On the contrary, it abundantly supports the Board’s conclusion that the processing plants retained their own identities and did not become mere adjuncts of the interprovincial pipeline system.

 


163                           The processing plants do much more than “strip” impurities from the raw gas.  They carry on a number of activities, related to a number of purposes having nothing to do with the interprovincial transportation of natural gas.  Their primary function is the processing of raw gas to separate it into its constituent parts, including sulphur, liquid hydrocarbons and sweet natural gas.  This separation requires complex chemical and mechanical processes.  The hydrogen sulphide is separated from the remainder of the gas through a catalytic chemical process.  Water is removed by a molecular sieve.  The liquid hydrocarbons are separated using a turbo-expander, and then the heavier hydrocarbons are separated from liquid hydrocarbon stream by a de-ethanizer.  The liquid hydrocarbons are further fractionated and treated.  The hydrogen sulphide stream is chemically converted to elemental sulphur.  Other compounds will be separated from the different streams as they move through the plants.  The plants’ various products — only one of which is sweet natural gas — are transported throughout British Columbia and elsewhere by truck, train and pipeline.  This supports the conclusion that the processing plants are much more than mere adjuncts of the interprovincial pipeline.  Viewed functionally and in substance, the dominant character of the plants that emerges is that of processors of raw gas, not that of interprovincial transporters of sweet gas.

 

164                           Westcoast itself acknowledges the distinct character of the plants by maintaining separate billing and contract arrangements for processing of raw gas and shipping one of its refined products, sweet gas.  This independent character is further exemplified by the fact that, to paraphrase Lord Reid in the Empress Hotel case, supra, at p. 144:  “there is little, if anything, . . . to distinguish [the processing plants] from . . . independently owned [processing plants] in a similar position”.

 


165                           The fact that Westcoast owns both the plants and the pipeline cannot change the constitutional picture.  Nor is it determinative that the plants and pipeline are operated in a coordinated fashion.  As found by the majority of the National Energy Board, coordinated operation is a universal feature of the industry:  all gas processing plants must coordinate their production with those who ship their product.  As for dependency of the interprovincial pipeline on the gas processing plants, the only dependency is that of the pipeline on the processing plants for product to ship.  This type of dependency does not support a finding that the plants are interprovincial transporters of gas, and hence subject to federal regulation.  The argument that the plants transform the gas into a form that is cheaper and safer to transport in the pipeline changes nothing.  No one suggests that a manufacturer that bottles its product to make it easier and safer to ship by railway is thereby swept into the federal sphere.  No more should a plant be swept in the federal sphere by virtue of rendering gas safer and cheaper to ship on a pipeline.  Shippers or manufacturers are not swept into the federal regulatory net because they use interprovincial lines of transport.  The purpose of s. 92(10)(a) is to permit the federal government to maintain the means of interprovincial and international transport, not to ensure that the interprovincial transporters have product to ship. 

 

166                           Section 92A of the Constitution supports this conclusion.  The plants are processors of non-renewable natural resources and yield products that fall under the definition of “primary production”.  The ability to control and manage aspects of natural resource production is a core area of provincial jurisdiction.  As stated by La Forest J. in Ontario Hydro, supra, one purpose of the amendment which introduced s. 92A into the Constitution was precisely to avoid the very result being argued for here -- that the federal government might acquire control over resource development and production by assimilating resource development and production facilities into its interprovincial transportation power through the means of s. 92(10)(a).

 

167                           In conclusion, I can find no error in the decision of the majority of the National Energy Board.  It applied the correct legal test.  It examined the facts pertinent to the issue before it and drew inferences from those facts to determine whether the processing plants were under federal jurisdiction according to that test.  The inferences it drew are thoroughly supported by the record.  Even in the absence of deference, there would be no basis for overturning the decision of the majority of the Board.

 

168                           I add this.  Westcoast’s position before this Court was that both the processing plants and related gathering facilities fell within federal jurisdiction as part of Westcoast’s single integrated interprovincial undertaking.  Westcoast did not make an alternative submission that, in the event the processing plants were held to be within provincial jurisdiction, the gathering facilities would still fall under federal jurisdiction.  I therefore need not consider this possibility.

 


C.                Do the Processing Plants Come Within the Definition of “Pipeline” in the National Energy Board Act ?

 

169                           In light of my finding that the processing plants do not fall under federal jurisdiction, it is not necessary to answer this question.

 

VII.             Disposition

 

170                           I would allow the appeal with costs and restore the decision of the majority of the National Energy Board.  The constitutional question should be answered as follows:

 

Q.   Given the division of authority between the Parliament of Canada and the legislatures of the provinces in the Constitution Acts, 1867 to 1982, are ss. 29 , 30 , 31 , 33 , 47 , 52 , 58  and 59  of the National Energy Board Act, R.S.C., 1985, c. N-7 , applicable to the facilities proposed to be constructed by Westcoast Energy Inc. in respect of:

 

(a)       its Fort St. John Expansion Project, the subject of the application in proceeding GH-5-94 before the National Energy Board, and

 

(b)       its Grizzly Valley Expansion Project, as described in Order No. MO-21-95 of the National Energy Board?

 

A.   (a)       No.

 

(b)       No.

 

Appeal dismissed with costs, McLachlin J. dissenting.

 

Solicitors for the appellant:  Russell & DuMoulin, Vancouver.

 

Solicitors for the respondent Westcoast Energy Inc.:  McCarthy, Tétrault, Vancouver.


Solicitor for the respondent the National Energy Board:  The National Energy Board, Calgary.

 

Solicitor for the respondent the Attorney General of Canada:  The Attorney General of Canada, Ottawa.

 

Solicitor for the respondent the Attorney General of British Columbia:  The Attorney General of British Columbia, Victoria.

 

Solicitor for the intervener the Attorney General of Nova Scotia:  The Attorney General of Nova Scotia, Halifax.

 

Solicitor for the intervener the Attorney General for Saskatchewan:  The Attorney General for Saskatchewan, Regina.

 

Solicitor for the intervener the Attorney General for Alberta:  The Attorney General for Alberta, Edmonton.


 

 

 

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