BC Supreme Court rules on dispute between municipality and pipeline company over upgrade costs

The City of Surrey planned to expand the Fraser Highway.  The expansion would necessitate the upgrade of a pipeline owned and operated by FortisBC Energy Inc. (formerly Terasen), and Fortis commenced an action against Surrey in respect of the allocation of cost for the upgrade.  Fortis claimed that it had been assigned rights originally held by the British Columbia Electric Company under a Trunk Line Agreement from 1956.  Under that agreement, Fortas argued, the costs of the pipeline upgrade work were to be allocated by agreement between the parties or, failing agreement, were to be determined by arbitration.

In the alternative, Fortis sought a declaration that the highway project constituted a de facto expropriation of its statutory right-of-way along with directions that would require Surrey to proceed with the expropriation in accordance with applicable legislation.   Finally, in the further alternative, Fortis claimed compensation for the costs it had incurred already to protect its pipeline and to accommodate Surrey's highway project on the basis of quantum meruit or unjust enrichment.

Surrey disputed the validity and the application of the Trunk Line Agreement, saying that it had been superseded by legislation that requires Fortis to pay the full cost of the upgrade work.  In any event, Surrey alleged that Fortis had fundamentally breached and repudiated the Agreement.  Surrey counterclaimed against Fortis including claims for negligence, nuisance, negligent misrepresentation, breach of fiduciary duty and breach of contract.

In reviewing the Trunk Line Agreement, the BC Supreme Court found that provincial pipeline legislation enacted in 1955 was not intended to prohibit, supersede or override agreements such as the Trunk Line Agreement.  The Court then reviewed regulations made pursuant to the legislation and again found that the Agreement was neither superseded nor rendered illegal by the regulations.  However, the Court found that Fortis had repudiated the Agreement by refusing to consent to the dedication of the statutory right-of-way lands at the highway "unless Surrey either agreed to create a fee simple lot over the portion of the highway crossing the Pipeline, were paid all of the cost of the Pipeline upgrade work".  This deprived Surrey of substantially the whole of the commercial benefit of the Trunk Line Agreement and constituted a breach which went to the root of that contract.  The Court found that Fortis repudiated the Agreement, that Surrey accepted the repudiation, and that the agreement was terminated and ceased to bind the parties.

In the absence of the Agreement, the allocation of costs was determined by the Pipeline Regulation.  The Regulation provided that costs must be shared equally by a municipality and a pipeline company where a new highway is built within a municipality by the municipality on an existing right-of-way or on a newly dedicated right-of-way.  The Court found that the application of the Regulation to the pipeline upgrade work did not constitute a de facto expropriation because it would not "constitute a taking of virtually all of the rights of Terasen Gas with respect to the SRW or Pipeline".

Read the decision at: FortisBC Energy Inc. v. Surrey (City).

BC Court of Appeal allows landowner appeal in breach of easement agreement case

I last wrote about this case in 2010: Utzig #2 decision.  As I explained in that post, the litigation concerns whether a pipeline owned and operated by the plaintiff Terasen Gas Inc. (“Terasen”) that runs through a portion of Burns Bog in Delta, B.C. was damaged or put at risk by landfill operations on lands owned by the defendant Utzig Holdings (B.C.) Ltd. (“Utzig”). The landfill operations were conducted, with Utzig’s permission, by the other defendants Alpha Manufacturing Inc., Burns Developments Ltd. and Burns Developments (1993) Ltd. (“Alpha” and “Burns”).

The BC Court of Appeal has now released a decision limiting the scope of the breach of covenants finding made by the lower court and dismissing in its entirely the claim in nuisance against the landowner. 

The covenants by the "owner" to the "utility" read as follows: "Not to do or knowingly permit to be done any act or thing which might, in the opinion of [the utility], interfere with or injure the works or any part thereof" (1961 ROW agreements) and "Not to do or knowingly permit to be done any act or thing which might, in the reasonable opinion of [the utility], in any way whatsoever interfere with or injure or endanger the works or any part thereof or impair the operating efficiency thereof or create or increase any hazard to persons." (1981 instrument)

For the landowner Utzig, the issue was whether it had, at all material times or some material times, permitted other parties to endanger the pipeline.  A key date was October 10, 1993, when Utzig entered into an Agreement for Sale of the property, which was never registered on title to the property.   The purchase price of $4 million was to be paid in instalments by October 18, 1995.  Terasen went to Court to seek injunctive relief prior to October, 1995, and the sale was never completed because the purchaser failed to pay the entire purchase privce when due.  For this reason, Utzig remained the registered owner of the property at all material times.

Madam Justice Newbury ruled (on behalf of 2 of the 3 judges on the panel) that the breach of the covenant not to permit only lasted up to the October 10, 1993 date:

In the result, I agree with the trial judge that up to October 10, 1993, Utzig retained sufficient authority over the subject property that it should be regarded as having “permitted” Alpha to do acts that might have interfered with or injured the pipeline. This constituted a breach of covenant. If in fact the works were so affected in this period, damages may be found to be payable in the second stage of this litigation. In respect of the post-AFS period, however, I would allow Utzig’s appeal on the ground that having sold the property under the AFS, it was no longer in a position to “permit”, or withhold permission for, Alpha’s activities. This result, in my view, accords with the reality that once land has been sold, it is for the new owner to be responsible for new breaches of the terms of instruments (such as rights of way or restrictive covenants) that are registered against the land. If it were otherwise, vendors would be obliged to obtain covenants from their purchasers repeating the covenants in such instruments, and one of the primary advantages of the Torrens registration system would be lost.

The last issue decided on the appeal related to Terasen's claim for nuisance - that Utzig was responsible for the landfill activities conducted on its land with its consent and that such activities substantially interfered with Terasen's use of its rights of way.  This claim related to the pre-October 10, 1993 period.  Utzig submitted that the threshold of “unreasonable interference” was not met in this case, given the lack of evidence of any “significant movement” of the pipeline until late 1994 and the fact the pipe was never “injured” physically.  The Court of Appeal ruled that, in the absence of clear evidence of substantial interference, the trial judge's finding of nuisance could not stand.

Read the decision at: Terasen Gas Inc. v. Utzig Holdings.

Pipeline landowner who sold land for highway not in breach of Statutory Right-of-Way

Terasen Gas Inc. (now FortisBC Energy Inc.) has lost its attempt to draw one of its pipeline landowners into a legal battle with the City of Surrey.  The dispute between Terasen and Surrey relates to Surrey's project to widen a portion of the Fraser Highway.  The highway crosses a Terasen high-pressure gas pipeline, which will require upgrades to permit the widening. 

Terasen expects to be on the hook for at least part of the cost of the upgrades, but contends that the City of Surrey should be responsible.  In addition, as part of an ongoing court case, Terasen claimed damages from Angus Properties Ltd.  Terasen says that Angus, which agreed to sell certain lands to Surrey for the road widening project, breached the terms of the 1957 Statutory Right-of-Way ("SRW") that applied to the lands in favour of Terasen:

In its Amended Statement of Claim filed March 30, 2010, Terasen alleges that Angus was aware of, consented to and cooperated in Surrey’s conduct of the highway project on the Additional Lands, and that Angus was aware of Terasen’s position that the project would interfere with the safe and efficient operation of the pipeline. It says that Angus nevertheless entered into the Purchase Agreement and granted Surrey a licence to enter the Additional Lands to prepare the site, in breach of the SRW. It claims that Angus breached the SRW by permitting Surrey to proceed with the highway project. It says that Terasen has suffered damage as a result, including the pipeline upgrade costs.

Angus brought a motion for summary judgment to strike out Terasen's claim against it.  The Court allowed the motion, finding:

Terasen says that Angus breached the SRW simply by entering into the Purchase Agreement with Surrey, since that agreement removed Angus’s ability to prevent Surrey from doing work on the Additional Lands which would endanger the integrity of the pipeline.
Counsel for Terasen placed some reliance on Terasen v. Utzig, a case with very different circumstances from those here. Angus agreed to sell the Additional Lands to Surrey and to facilitate Surrey’s highway widening project by permitting it to enter the lands for preliminary preparatory work prior to transfer. It did not agree to permit, and there is no evidence that it ever permitted, activities that would reasonably be seen to endanger the pipeline. In contrast, that is what the defendant in Terasen v. Utzig was found to have done.

I agree with counsel for Angus that Terasen v. Utzig, and the other cases upon which Terasen relies, are distinguishable.

I further agree that, as a general proposition, it cannot be the case that the owner of land breaches a statutory right of way simply by granting an interest in the land to another party, unless the terms of the particular statutory right of way so prohibit. The SRW here does not prohibit sale or other transfer of interests in the land. [emphasis added]

I find that Angus did not breach the SRW by entering into the Purchase Agreement.

Did Angus breach the SRW by permitting Surrey to perform its work on the Additional Lands? Angus had granted Surrey a licence to “access, use and enter” the Additional Lands to facilitate “preliminary site preparation, pre-engineering and highway construction” and to “perform such tests as the City deems appropriate, including soil tests”. However, no work was done on the Additional Lands in connection with the highway widening project, by Surrey or any other party, until after the Consent Order of June 30, 2008 had been made. The work was done only after Terasen had prepared the pipeline so that it would not be endangered, and had given permission, in the Consent Order, for Surrey to proceed with the preloading.

Thus, when Surrey actually came onto the Additional Lands and performed the work, it was with Terasen’s consent and it was in circumstances in which the integrity of the pipeline was not endangered. Angus’s failure to prevent Surrey from doing the work, in these circumstances, did not in itself constitute a breach of the SRW.

I find that Angus did not breach the terms of the SRW either by entering into the Purchase Agreement or by failing to prevent Surrey from performing the work on the Additional Lands.

The Court found nothing wrong with Angus' agreement to sell its land to Surrey.  Implied in the Court's ruling, however, is that Angus may have been in breach of the SRW by allowing the preliminary work for the road widening to take place on its lands.  But for the consent for that work already granted to Surrey by Terasen, it is possible that the Court would not have granted the summary judgment motion, leaving the issue of whether or not Angus breached the SRW by allowing for the endangerment of the pipeline to be decided at trial.  That said, the Court found in any event that the damages sought by Terasen were not recoverable in any event because they did not "flow naturally from the breach" of contract alleged by Terasen:

The damages sought by Terasen do not flow naturally from the breach it alleges (Angus’s entering into the Purchase Agreement and removing its own ability to prevent Surrey from doing work on the Additional Lands). If Terasen in the end is found responsible for the costs of the pipeline upgrade, or for more of those costs than Terasen thinks it should bear, that will be a result of the legal framework governing pipeline operators and municipalities, and of the legal relationship between Terasen and Surrey, and not a result of Angus’s entering into the Purchase Agreement.

Read the decision at: Terasen Gas Inc. v. Surrey (City).

B.C. Court decision in Terasen v. Utzig (No. 2) released re landowner damage to pipeline

This litigation concerns whether a pipeline owned and operated by the plaintiff Terasen Gas Inc. (“Terasen”) that runs through a portion of Burns Bog in Delta, B.C. was damaged or put at risk by landfill operations on lands owned by the defendant Utzig Holdings (B.C.) Ltd. (“Utzig”). The landfill operations were conducted, with Utzig’s permission, by the other defendants Alpha Manufacturing Inc., Burns Developments Ltd. and Burns Developments (1993) Ltd. (“Alpha” and “Burns”).

In a judgment delivered on January 25, 2010, Terasen Gas Inc. v. Utzig Holdings (B.C.) Ltd., 2010 BCSC 90 (CanLII) [Terasen v. Utzig #1], the British Columbia Supreme Court held that Utzig (“the defendant”) had breached covenants in statutory right of way agreements in favour of Terasen and, in the alternative, that the defendant had committed the tort of nuisance in the period prior to October 1993. However, certain defences (consent, acquiescence, laches, estoppel and waiver) had been pleaded but were not addressed in submissions. After the delivery of judgment and further submissions from counsel, the defendant made submissions on those defences at a continuation of the trial, and the plaintiff made submissions in response. The defendant also wished to make submissions on causation, remoteness of damages and mitigation but the Court concluded that submissions on those matters should be heard at the damages phase of the trial (the issue of liability, whether someone is liable to pay damages, is often separated from the determination of the amount or quantum of damages).  Read my post on the earlier decision at: Terasen v. Utzig #1.

In the latest chapter of the case, the defendant landowner elected to make submissions only on estoppel and waiver, and abandoned the defences of consent, acquiescence and laches.  The questions for determination, relating to waiver and estoppel respectively, were as follows:

(1) Did Terasen, with full knowledge of its rights under the statutory right of way agreements, consciously and unequivocally abandon those rights?
(2) In the alternative, did Terasen do something beyond mere delay to encourage Utzig to believe that Terasen did not intend to rely on its strict rights, and did Utzig act to its prejudice in reliance on that belief, such that it would be unconscionable to grant relief to Terasen?

Based on the facts, the Court rejected both lines of defence and set down a case management conference to determine the next steps in the proceedings.

Read the decision at: Terasen Gas Inc. v. Utzig Holdings (B.C.) Ltd. (No. 2).