The history of Ontario's Drainage Act stretches back to 1834 with the enactment by the Upper Canada Legislature of “An Act to regulate Line Fences and Watercourses”. The legislation is provincial and predates Canada’s Confederation in 1867 by over three decades. Under the British North America Act, 1867, the foundational law passed by British Parliament to create the Dominion of Canada, the federal Parliament was given jurisdiction over interprovincial undertakings (connecting provinces or going beyond the limits of the province) including railways. And so arose what should have been an age-old constitutional question: are interprovincial railways like CP and CN subject to the provincial Drainage Act? Are they obligated to pay assessments for municipal drains?
Despite history having long ago set up the showdown between provincial interests in managing surface water and federal interests in moving freight and passengers across the country, the question of a federal railway’s responsibility to pay an assessment on a municipal drain was the subject of a hearing held before the Acting Drainage Referee in October, 2025. The dispute centred on whether CP is constitutionally exempt from paying assessments levied under the Drainage Act for drainage works crossing its railway right-of-way. CP was made aware by the Municipality of the proposed drainage works (involving lowering and increasing the capacity of an existing drain crossing the right-of-way lands), but CP elected not to participate in any of the Drainage Act proceedings and did not exercise any of its appeal rights (including with respect to the assessment of costs of the drain). After the Municipality applied to the Referee for an order permitting the crossing of the CP right-of-way, CP served a Notice of Constitutional Question.
The evidence before the Referee was that until sometime in 2020, railways like CP and CN paid assessments under the Drainage Act and had for a century. From 2020 forward, however, the railways have refused to pay assessments and have declined to accommodate municipal drainage projects under the Drainage Act unless the municipality accedes to the demands of the railways that they bear none of the costs. The Referee noted that, as a result, many Drainage Act projects have not proceeded or have been deferred. At least six municipalities have sued CP or CN for unpaid assessments. Besides CP and the Municipality, the hearing involved several intervenors: the Attorney General of Ontario, CN, the Ontario Federation of Agriculture, and the Rural Ontario Municipal Association.
As noted by the Referee, the question of whether railways must pay Drainage Act assessments is an important one for rural municipalities:
Many of the affected municipalities are smaller, often rural communities
with a limited municipal tax base. It is not just a matter of the railways
targeting small municipalities that lack the resources to resist. Stormwater
management in larger urbanized communities is typically handled through storm
sewers in road allowances, which are financed by the municipality through
general municipal taxation and/or development charges. Smaller rural
municipalities depend upon the Drainage Act for their stormwater
management and rural farm drainage to support their agribusinesses; these
municipalities are otherwise hard-pressed to afford to provide the drainage
works, much less absorb the cost of maintaining the Drainage Act infrastructure,
if railway assessments were to evaporate.
The Referee’s conclusion on the constitutional question was that federally regulated railways are required to pay costs assessed to them for municipal drains in Ontario. The Referee found that the Drainage Act’s assessment provisions do not “trench” on the protected core of federal railway jurisdiction. The Act is a law of general application, designed to allocate costs for local drainage works among all benefiting landowners, including railways. The assessment is akin to a local improvement levy or property tax, not a regulatory interference with railway operations. The Referee emphasized that federal undertakings are not “enclaves immune from provincial laws of general application,” and there is no precedent for immunity from such assessments. Further, the Referee concluded that Drainage Act assessments do not impair the core of federal railway jurisdiction. The financial impact on CP is negligible compared to its revenues, and there is no evidence of operational impairment. The doctrine of interjurisdictional immunity (where federal undertakings are immune from provincial regulation) is to be applied with restraint and only in exceptional circumstances, which were not present in this situation.
The Referee also analyzed whether there is an operational conflict or frustration of federal purpose between the Drainage Act and federal statutes authorizing and governing interprovincial railways – the Transportation Act and the Railway Safety Act. The Referee found that the provincial and federal legislative schemes can operate concurrently and complementarily. The federal Transportation Agency’s authority is limited to apportioning costs for the physical crossing of the railway right-of-way, while the Drainage Act governs the broader watershed and cost allocation among all affected properties. The Referee rejected CP’s argument that the federal scheme precludes provincial assessments, noting that the Drainage Act’s assessment of costs is a zero-sum exercise. All landowners involved in the municipal drain are assessed their proportionate share of the costs. If one owner doesn’t pay, the cost is thrust upon everyone else.
According to a news release published on December 5, 2025 by the Rural Ontario Municipal Association, CP plans to appeal the Referee’s decision. More to follow.
Read the decision at: 2025 ONDR 12 (CanLII).
