EASEMENTS, ERRORS, AND ENERGY PROJECTS: SHELF HOLDINGS REVISITED.

• Author: Thomson, Jane

1. Introduction

   Easements are most commonly known as rights of way over property owned by another. (1) Referred to by some as a backwater area of Canadian property law, (2) they are most often the subject of court cases between angry cottage owners. They are much less frequently viewed as critical legal tools of environmental activism. However, in 1987, the humble easement momentarily became a thorn in the side of an oil company and its ability to run pipelines through private farmland in Alberta. In the decision of Shelf Holdings v Husky Oil Operations Ltd, (3) the Alberta Court of Queen's Bench found that a privately granted right of way to an oil pipeline was invalid as it was not capable of meeting a basic common law requirement of easements. While the case itself had nothing to do with environmental activism, without a valid property interest registered on title, Husky Oil's installation of its pipeline became derailed.

   This derailment, however, turned out to be brief. The Alberta Court of Appeal (ABCA) swiftly overturned the trial judge's decision, holding that a pipeline could and, in the case before it, did meet all common law easement rules.

   To this day, Shelf Holdings continues to be referenced and reproduced in property law textbooks (4) to explain the fourth rule of easements: an easement must be capable of forming the subject matter of a grant. Specifically, an easement cannot constitute a possessory interest. This article provides a close read of that decision, its history, and the development of the Canadian case law in relation to the fourth rule of easements since the ABCA's decision was released. In doing so, it discusses three major problems with the ABCA's decision that arguably create more confusion than clarity on the issue of oil pipelines and the nature of easements in Canada.

   First and foremost, this article explains how and why the ABCA's findings concerning pipelines and common law easements were unnecessary and completely irrelevant to the real legal question at issue in that case. Second, it details how that Court's ruling effectively allows for a complete evasion of the fourth rule of easements through careful drafting. It also reviews how subsequent approaches to this question have differed from the ABCA's and explains why these latter decisions concerning the fourth rule of easements are more legally coherent than the decision in Shelf Holdings. Finally, this article discusses how the ABCA's judgment neglects the remaining easement rules and, in particular, ignores a problem concerning the second rule of easements and industrial oil pipelines.

   While the main goal of this article is to demonstrate and clarify the problems with a case used to teach the fourth rule of easements to Canadian law students, its purpose is not purely academic. Industrial oil pipelines are incapable of complying with at least two common law easement rules. While this fact is largely irrelevant in those jurisdictions where statutory rights of way exempt industrial pipelines from the common law rules of easements, it remains significant in those jurisdictions where the law concerning easements and pipelines is less clear. In such places a re-visitation of this now 30-year-old decision and its previously unaddressed dimensions may resonate in the context of present legal battles or infrastructure projects concerning pipelines both in Canada and other common law jurisdictions.

   This re-visitation, however, also uncovers what may be the inarticulate premise of the Shelf Holdings decision and should serve as a caution for would-be environmental activists turned litigators: principled legal reasoning can be glossed over by even high-level courts for the sake of industry and resource development.

2. The Facts

   The facts that lead to the dispute in Shelf Holdings are fairly straightforward. In 1967, a company called Peregrym Farms Ltd. entered into a purchase and sale agreement for Crown land with the Alberta government. In 1974, Peregrym granted Husky Oil a right of way for the purpose of constructing an oil pipeline under and through its land. The grant issuing this interest was subsequently entered into the day book of the North Alberta Land Registration District Land Titles Office. (5) However, when the land was purchased and eventually conveyed to Shelf Holdings, (6) the certificate of title issued by the Land Titles Office showed no registration on title of any instruments related to the construction of Husky's pipeline. (7)

   A year after the purchase from Peregrym, the Land Titles Office sought to correct the error through a memorandum. This was opposed by Shelf Holdings because it would prejudice the title taken, which was free of any registered right of way. (8) The main issue at trial became whether the interest granted to Husky qualified as an exception to the indefeasibility of title taken by Shelf Holdings. For reasons expanded on below, of his own motion, the trial judge found that in order for the interest granted to Husky to qualify as an exception to indefeasibility of title, it had to comply with the four common law rules of easements.

   The word "easement" is not a term of art and in order for a property interest to qualify as one, it must conform to four distinct requirements: (9)

   1. There must be a dominant and servient tenement;

   2. The easement must accommodate the dominant tenement;

   3. The dominant and servient tenements cannot be owned and occupied by the same person; and

   4. The easement must be capable of forming the subject matter of a grant.

   The first rule requires that in order to enjoy an easement over the land of another (the servient tenement), one must hold a real property interest in an appurtenant piece of land, known as the dominant tenement. The second rule demands that the easement convey a benefit to the dominant land rather than to any particular owner of that land. The third rule prohibits land owners from granting an easement to themselves over land owned exclusively by them. Finally, the fourth rule is comprised of three subprinciples pertaining to what form an easement may take; specifically, its description cannot be too vague, it cannot constitute a possessory interest, and it cannot be for the purpose of mere recreation. (10)

   In Shelf Holdings, the trial judge found that the interest granted to Husky by Peregrym amounted to a possessory interest and consequentially violated one of the sub-principles of the fourth rule. (11) The Alberta Court of Appeal reversed the trial judge's decision, finding that the fourth rule was met as the language of the grant did not convey an interest of exclusive possession. (12) However, as revealed by the eventual registration of Husky's interest on title and a subsequent decision by the Alberta Court of Appeal, the ABCA's finding in Shelf Holdings was completely unnecessary.

3. The Irrelevancy of the Decision

   Apart from being problematic in nature, the Court of Appeal's finding that a pipeline could qualify as a common law easement was also unwarranted. This was because, in focusing on the issue as framed by the trial judge, the ABCA overlooked the real legal question in the case which needed to be answered.

   In his reasons, the trial judge identified that the most likely way (13) for Husky's interest to be recognized on Shelf Holding's certificate of title was if it qualified as an exception to indefeasibility of title under the Alberta Land Titles Act. (14) In Justice Andrekson's view, the relevant provision was section 65(g) (15) that read:

   65(1) The land mentioned in any certificate of title granted under this Act is. by implication and without any special mention therein, subject to ... (g) any right of way or other easement granted or acquired under any Act or law in force in Alberta. However, in his interpretation of section 65(g), Justice Andrekson focused only on the first half of the provision, "any right of way or other easement". Indeed, neither the trial nor the appellate decision engaged substantively with the latter half of the provision or explained what "granted or acquired under any Act or law in force in Alberta" meant. (16) At least one commentator expressed concern that the Court of Appeal's decision opened up a chasm of exceptions to indefeasibility of title, clearly not envisioned by the statute nor in keeping with the provision's primary objective. (17) Perhaps in response, less than a year after the ABCA's decision in Shelf Holdings, a different bench of the Court held that instrument-granted easements, with no reference to any statutory power to impose an easement, failed to quality under section 65(g) of the Land Titles Act. (18)

   Therefore, the question that should have been canvassed in Shelf Holdings was not what kind of interest was granted to Husky but under what authority it was granted. Regardless, even if one accepted that privately granted rights of way could qualify under section 65(g) of the Act, the finding that these interests had to be common law easements was based on Justice Andrekson's unnecessarily restrictive interpretation of the term "right of way".

   Since at least 1950, Alberta's legislation has recognized statutory interests called Utility Rights of Way (URWs). (19) URWs need not conform with any of the common law easement rules. (20) Further, their legislative description expressly provides for the "laying, constructing, maintaining and operating [of] pipelines for the transmission, transportation or conduct of any substance". (21)

   The trial judgement in Shelf Holdings appears to at least consider the notion that what had been granted was a URW. Indeed, this was Husky Oil's initial argument. (22) Furthermore, the original easement agreement still on record with the Northern Alberta Land Titles Office identified no dominant lands within the terms of the grant, indicating that the interest granted was always meant to be a URW. (23)

   Regardless, Justice Andrekson did not believe that...