Project Law Blog

It’s “Buyer Beware” for Resource Developers When it Comes to Crown Consultation

Posted in Aboriginal, Consultation, Environmental, Mining, Oil & Gas Law, Project Development, Project Permitting
Comment

The duty to consult is a Crown responsibility. But what happens when the Crown’s consultation is inadequate? Can a company that suffers losses as a result claim compensation from the Crown? A recent decision of the British Columbia Court of Appeal in Moulton Contracting Ltd. v British Columbia, 2015 BCCA 89 indicates that it will be very difficult for companies to seek compensation from governments even where the Crown is found to have mishandled its consultation obligations.

Background

This decision arose from an appeal of a trial decision that ordered the Province of British Columbia (the “Province”) to pay damages of $1,750,000 to the respondent, Moulton Contracting Ltd., (“Moulton“) for breach of an implied term of a contract as well as liability in negligent misrepresentation.

A contract was granted by the Province to Moulton on June 27, 2006, for the sale of two timber licences (the “TSLs”) in the Fort Nelson Timber Supply Area. This part of British Columbia is covered by Treaty No. 8, to which the Fort Nelson First Nation (“FNFN”) is a signatory. The TSLs granted Moulton the right to harvest timber in defined areas as well as the right to enter the timber harvest areas. The damages awarded at trial were a result of losses suffered by Moulton when it was prevented from logging under the TSLs due to a blockade erected by the respondents, George Behn and his family, most of whom were members of FNFN. About a month after the granting of the TSLs and unbeknownst to Moulton, George Behn informed an employee of the Province that he intended to “stop the logging”. The Province did not inform Moulton of this threat until two months later, after Moulton had started logging. Almost immediately afterward, the blockade was erected and Moulton was unable to complete logging under the TSLs. Notably, Moulton was not involved in Crown consultation on the TSLs, as consultation was completed by the Province before it issued the TSLs.

Trial Decision

Moulton sued the Province, the Behns and FNFN in November of 2006. The trial judge concluded that the Province’s consultation with FNFN was inadequate, but imposed no liability on the Province on this basis, as this failure was not causative of the blockade. The trial judge further found that the limitation of liability clause in the TSLs exempted the Province from liability for the blockade with respect to inadequate Crown consultation.

However, the trial judge went on to find the Province liable for breach of an implied (unwritten) term of the TSLs, and for concurrent breach of an implied continuing representation in the same terms, for failing to inform Moulton of the blockade threats from Behn. The trial judge held that it was an implied term of the TSLs that the Province was not aware of any First Nations expressing dissatisfaction with consultations undertaken by the Province, except as disclosed by the Province.

Appeal

The appeal focused on the Province’s liability for 1) breach of the implied term and 2) negligent representation.

In rejecting the existence of the implied term, the Court of Appeal stated that the trial judge erred in basing the implied term on the “commercial reality” of parties who contract with the Province; rather, the test is “whether the parties intended such a term.” Further, the Court found the implied term to be contradictory to provisions of the TSLs that were clearly intended to limit the liability of the Province for the consequences of an event such as the blockade. Additionally, the Court rejected Moulton’s reliance on the Supreme Court of Canada’s recent Bhasin v Hrynew decision, finding that there was no basis to say that the Province acted dishonestly in failing to disclose the threatened blockade to Moulton.

In overturning the trial judge’s findings on negligent misrepresentation, the Court of Appeal found that there was no positive duty on the Province to inform Moulton of any First Nations’ dissatisfaction with the consultation, and that specific provisions in the TSLs shielded the Province from liability from occurrences such as the blockade.

Implications of the Decision

While this case arose in a forestry context, it has broader applications for other sectors as well — such as mining and oil and gas — where governments issue tenures that may affect aboriginal or treaty rights. The decision does not mean that the Crown can never be liable if it breaches its duty to consult, and a company is harmed as a result – it will depend on the facts of the case. However, it does mean that companies will have to carefully examine tenures or approvals from government to determine whether contractual language found therein shields or absolves the Crown of liability arising from inadequate Crown consultation.

We would also suggest that the decision reinforces the need for companies to adopt a “buyer beware” approach when seeking Crown dispositions that may trigger the Crown’s duty to consult, particularly where the Crown conducts is own consultations as opposed to delegating the process to the proponent. While the legal duty to consult clearly rests with the Crown, the Court of Appeal’s decision reinforces the message that it is industry, not the Crown, that will bear the consequences of the Crown’s failure to consult adequately. The decision is a reminder that proponents should undertake their own due diligence and review consultations undertaken by government agencies where possible, so that they can identify and address potential issues before committing significant financial resources to their projects.

Court suspends implementation of Mackenzie Valley “Superboard”

Posted in Aboriginal, Consultation, Environmental, Mining, Oil & Gas Law, Project Development, Regulatory
Comment

The Supreme Court of the Northwest Territories has granted an injunction to the Tlicho Government suspending the implementation of the Mackenzie Valley “Superboard” legislation. Creation of the Mackenzie Valley “Superboard” is contemplated in amendments to the Mackenzie Valley Resource Management Act (MVRMA) contained in the Northwest Territories Devolution Act, whose effect would be to collapse the functions of the Wek’eezhii Land and Water Board (WLWB), the Sahtu Land and Water Board, and the Gwich’in Land and Water Board into one single land and water board – or “Superboard”. The injunction means that the existing land and water boards will continue to exist until the underlying issues in this case are determined, including a determination of whether the Superboard legislation is unconstitutional because it is contrary to Tlicho Land Claims Agreement.

Background

Beginning in 2007, the federal government formally embarked on a review of environmental regulatory systems throughout the North. This process, which included negotiations with the Government of the Northwest Territories and various Aboriginal Governments in the context of NWT devolution, led to several changes to the MVRMA, including creation of the Superboard. Among other things, creation of the Superboard would mean that Tlicho participation in decisions affecting the Wek’eezhi (traditional territory of the Tlicho) would continue, but that the nature and extent of that participation would change. Notably, whereas participation of a Tlicho Government appointee in decisions about land and water use in the Wek’eezhi is guaranteed under the existing regime, participation under the amended regime is not.

The Superboard legislation was to take effect on April 1, 2015. Canada maintained that the legislation is necessary to increase efficiency in the regulatory process. The Tlicho objected on the grounds that the Tlicho Agreement expressly requires the establishment of the WLWB. The Tlicho further said that they were not consulted on the amendments.

As a result of this disagreement, the Tlicho Government commenced an action against the federal government in May 2014, seeking among other things a declaration that Superboard legislation is unconstitutional, as well as an injunction preventing the Superboard legislation from taking effect until the constitutionality of the Superboard can be determined.

The injunction

The decision deals only with the issue of whether an injunction should be granted. The underlying question of whether the Superboard is constitutional has not been determined. Rather, the Court applied well-known injunction principles to decide that implementation of the Superboard should be temporarily suspended until the constitutionality of the Superboard legislation can be determined.

Before turning to the injunction test, the Court had to first satisfy itself that an injunction against the Crown was available at all, given Canada’s arguments that an injunction was barred by reason of Crown immunity and because issuing an injunction would inappropriately interfere with the legislative process. On both counts, the Court found that Canada’s arguments failed. First, the Court held that neither crown immunity nor the common law principle of immunity are bars to granting injunctive relief against the Crown where constitutional rights are in issue. Second, the Court held that an injunction would not constitute interference with the legislative process because the legislation at issue had already been validly enacted – the only question was when it was to come into force, a question that was within the Court’s power to suspend.

Next, applying the injunction test, the Court found that the Tlicho had satisfied the three well-known criteria for granting an injunction:

  1. Is there a serious issue to be tried? Whereas Canada pointed to various provisions of the Tlicho Agreement that it said allowed it to create the Superboard, the Tlicho pointed to the provision of the Tlicho Agreement that state the WLWB “shall” be established. The Court found those positions to be legitimately in conflict and that this raised a serious constitutional issue to be tried.
  2. Would the Tlicho suffer irreparable harm if the injunction was not granted? The Court had no difficulty finding this requirement had been satisfied, appearing to agree with the Tlicho that, should they ultimately be successful, dismantling the WLWB in the interim would result in (1) loss of institutional knowledge and skill sets accumulated over many years and (2) permanent loss of opportunity to participate in decisions in the interim.
  3. Does the balance of convenience favour granting an injunction? In answering this question, the Court found that there is a very real public interest benefit in protecting the status quo where it has been demonstrated that there is a serious constitutional issue to be tried and that irreparable harm could result from the breach of a constitutionally protected right. It also found that there is a public interest in a stable regulatory regime, which could be lost if the constitutional validity of Superboard decisions are later called into question if the Tlicho are successful.  Lastly, the Court found that the risk for the federal government is significantly less than for that of the Tlicho. Should Canada succeed, the effect of the injunctive relief would be limited to a mere delay in implementing the new regulatory regime for developments in the Mackenzie Valley.

In granting the injunction, the Court found that the Superboard legislation is an “all or nothing” proposition, meaning that it was not possible for the Court to carve out the portions of the Superboard legislation that applied to the WLWB and leave those portions of the legislation applying to the Sahtu and Gwichin Boards in place. Accordingly, while the injunction application was brought only by the Tlicho with respect to the WLWB, the Sahtu and Gwichin Boards will also remain in place pending determination of the Tlicho issue by the Court.

Effect of the Decision

As mentioned above, the effect of this decision is not that the Superboard legislation is unconstitutional. Rather, the decision suspends the implementation of the Superboard legislation until that issue can be tried in Court. In the meantime, the existing regulatory structure for project development in the Mackenzie Valley will continue.

Whether Canada will appeal the injunction, or whether this case will be determined together with a similar challenge to the Superboard legislation brought by the Sahtu Secretariat, remains to be seen.

Alberta Energy Regulator and Aboriginal Consultation Office Release Operating Procedures for First Nations Consultation on Energy Resource Activities

Posted in Aboriginal, Environmental, Oil & Gas Law, Project Development, Project Permitting
Comment

On February 4, 2015, the Alberta Energy Regulator (“AER”) and the Aboriginal Consultation Office (“ACO”) released the Joint Operating Procedures for First Nations Consultation on Energy Resources Activities (the “Operating Procedures”).

The Operating Procedures set out a framework to administer and coordinate the operations of the ACO and AER on matters relating to First Nations consultation for energy resource activities in Alberta. The Operating Procedures are required under the revised Aboriginal Consultation Direction (Ministerial Order 105/2014) issued on October 31, 2014, which applies to applications made to the AER under specified enactments, including the Environmental Protection and Enhancement Act, the Public Lands Act, the Mines and Minerals Act (part 8), and the Water Act. The Operating Procedures are to work in conjunction with The Government of Alberta’s Policy on Consultation with First Nations on Land and Natural Resource Management, 2013 and The Government of Alberta’s Guidelines on Consultation with First Nations on Land and Natural Resource Management.

The Operating Procedures outline four processes for consultation and coordination between the proponent, the AER, the ACO and First Nations. These processes are triggered by the level of consultation required by the ACO, ranging from no consultation, streamlined consultation, and standard consultation to extensive consultation, and the type of application to be submitted by the proponent. For applications where the ACO requires consultation, proponents must submit to the AER a “First Nations Impacts and Mitigation” table, which is to identify and describe potential adverse impacts to the rights of aboriginal people and proposed mitigation measures.

In clarifying the ACO’s role in the consultation process, the Operating Procedures state that the ACO’s determination of consultation adequacy is required before the AER can make a final decision under the specified enactments. Further, the ACO may provide advice to the AER in cases where the ACO believes impacts to Treaty rights and traditional uses need to be considered by the AER. In the event the AER holds a hearing to consider an application, the ACO may attend, observe, and produce a “hearing report” containing advice to the AER on impacts to Treaty rights and traditional uses raised during the hearing.

The Operating Procedures also require that a “First Nations Consultation Declaration” be completed and submitted to the AER as part of the application process. The declaration requires proponents to swear that the First Nations Impacts and Mitigation table “…accurately documents the potential adverse impacts on the existing rights of aboriginal peoples … or their traditional uses”.  The declaration is to be completed and submitted to the AER as part of any application for which the ACO determines consultation is required, and is to include the First Nations Impacts and Mitigation table described above.

The Operating Procedures come into effect on March 2, 2015.

 

Federal Government Approves Meliadine Gold Mine

Posted in Environmental, Mining, Project Development, Project Permitting
Comment

On January 27, 2015, the federal government accepted the Nunavut Impact Review Board (NIRB)’s recommendation — submitted in October 2014 and supported  by 127 terms and conditions — to approve Agnico Eagle’s Meliadine planned gold mine in the territory’s Kivalliq region. “It is evident that the board met its primary objectives … to protect and promote the existing and future well-being of the residents and communities of Nunavut, to protect the eco-systemic integrity of the Nunavut settlement area and to take into account the well-being of residents of Canada outside of the Nunavut settlement area,” Bernard Valcourt, Minister of Aboriginal Affairs and Northern Development, said in a Jan. 27, 2015 letter to the NIRB.

The Meliadine project, about 24 kilometers north of Rankin Inlet, will consist of one underground mine and five open pits, with a network of access roads, including, eventually, a two-lane all-weather road to the nearby Kivalliq community.  During its construction phase, the project would employ about 1,000 people, and about 750 people after mining operations start up. Following issuance of the NIRB Project Certificate, Meliadine will proceed to the operational permitting phase.

Lawson Lundell was counsel to Agnico Eagle during the environmental assessment process, including the public hearings held before the NIRB in Rankin Inlet, Nunavut during August 2014, with a team which included Brad Armstrong, Q.C., Christine Kowbel, Toby Kruger, Jennifer Nyland and Mia Chung.

Tervita v. Canada (Commissioner of Competition): Supreme Court of Canada Merger Analysis Case

Posted in Uncategorized
Comment

It has been quite some time since the Supreme Court of Canada considered the merger provisions contained in the Competition Act. On January 22, 2015, the SCC issued its decision in Tervita v. Canada (Commissioner of Competition), overturning the decision of the Federal Court of Appeal that had required Tervita to divest its interest in Babkirk Landfill Services Inc., a company it had acquired in 2011.  The Court agreed with the Commissioner of Competition’s position that the merger was likely to prevent competition substantially.  However, the Court concluded that the efficiencies defence in s. 96 of the Act had been made out, in large part because the Commissioner had not met her burden of proving quantitative anti-competitive effects to offset the efficiency gains established by the merging parties.

The case involves the operation of secure landfills in northeastern British Columbia for the disposal of hazardous waste generated by oil and gas operations in that region.  Landfills are regulated and operators require permits.  The provincial government had issued four permits for the region: two were held by Tervita (including through predecessor companies) for two operating facilities; one was held by a First Nations community, but not in connection with an operating facility; and one was held by Babkirk.  Babkirk had operated its site as a hazardous waste landfill but application had been made to operate a bioremediation facility at the same site.  The owners of Babkirk put the facility up for sale.  Tervita made an offer after an initial accepted offer had fallen through due to lack of financing.  Based on the size of the transaction, the merger was not notifiable under the Competition Act.  Although the merger was not notifiable, the Commissioner of Competition, upon receipt of a complaint from an unsuccessful bidder for the Babkirk business, opposed the transaction on the basis that it would prevent competition for secure landfill services in northeastern BC.

The case provides some clarity on the approach that should be taken to assess whether a potential competitor would have entered a market.  More significantly, the case addresses the efficiencies defence under s. 96 of the Act.  It explains the onus on the Commissioner to quantify all anti-competitive effects that can be quantified, so that they can be weighed against the asserted efficiencies.  The judgment also establishes that merging parties putting forward an efficiencies argument in a proposed merger will need to develop the quantitative and qualitative evidence of the positive effects of the merger that will offset any anti-competitive effects of the merger.

The outcome of the case was highly fact dependent; in particular, the majority judgment turned on the finding that the Commissioner had not presented evidence of the quantifiable effects of the anti-competitive results of the merger.

While fact-dependent, there are some key take-aways from the decision:

The Court confirmed that the Competition Bureau may assess a merger under s. 92 on the basis that it will prevent future competition.  Such assessment is made using a ‘but for’ analysis that addresses on a quantifiable basis what the competitive market would look like if the merger did not take, or had not taken, place.  The assumption under the ‘prevention’ branch of merger analysis is that a dominant player in a market will acquire an entity to stop competition from entering the market.

Prevention of competition analysis is forward-looking and the Competition Bureau must look at a discernable time-frame in which competition might reasonably have been expected to occur which would affect the existing market power of the merged entity.  The longer that time-frame, however, the less predictive it is and therefore the less likely such competition is to occur.  Such time-frames may vary from industry to industry depending upon factors such as barriers to entry, regulatory requirements, and the pace of change in a particular product or service delivery model.  The Commissioner must review whether, ‘but for’ the merger, a potential competitor would not only enter the relevant market, but would have the ability to impact the market power of the merging parties or either of them.

Prevention of competition analysis is necessarily predictive.  However, there must be some reasonable basis upon which the determination of the parties’ own behaviour can be evaluated – the analysis should not be based on pure speculation on the part of the Tribunal.  Such evidence would come from the merging parties’ own plans and evaluation of market conditions and must establish on a balance of probabilities that it is more likely than not that the merger would result in a substantial prevention of competition.  It should be noted that the Tribunal accepted somewhat speculative theories about the potential failure of a certain business strategy.

Where the efficiencies defence is raised by the merging parties, an assessment of the efficiency gains of the merger resulting from the integration of resources of the merging entities must be found to outweigh the anti-competitive effects of the merger for it to succeed.

The Commissioner of Competition has the burden of demonstrating the anti-competitive effects of the merger.  In the absence of such evidence, the merging parties’ evidence of efficiencies will be given weight, and the anti-competitive effects of the merger will be given zero weight, with the effect being that, on balance, the merger will create efficiencies that outweigh any anti-competitive effects.  While the Court found in this case that the Commissioner had not established her case and therefore this decision may have limited utility to future contested mergers, there are certain key principles that arise from the Court’s assessment of the efficiencies defence:

  • The Commissioner must quantify all quantifiable anti-competitive effects of the merger.  Estimates of quantifiable effects may be made, but they must be presented based on evidence that can be reviewed, weighed and challenged by the merging parties.
  • Non-quantifiable anti-competitive effects, such as the impact of the merger on product quality or service responsiveness, may be presented, but will generally carry less weight.
  • Quantifiable anti-competitive effects that are not supported by evidence will not be considered in the weighting given to qualitative effects by default.

There is no minimum threshold for the establishment of efficiencies by the merging parties; the efficiencies may be marginal but the defence will still succeed if the marginal efficiencies outweigh the anti-competitive effects established by the Commissioner.  Therefore, the Court set a low bar for the potential success of the efficiencies defence.

Based on the outcome of the decision, parties who have any concern that a proposed merger will result in a potential determination of a substantial lessening of competition under s. 92 might more readily consider using the efficiencies defence, particularly if they believe that the Commissioner could  have difficulty establishing quantifiable anti-competitive effects of the merger.

Shortly after the decision was released, the current Commissioner of Competition issued a statement that, “The Bureau will consider the guidance provided on efficiencies and any changes to our analysis and information gathering that may be required during merger review.” (italics added).  Going forward, the Commissioner may ask for significantly more information in respect of his review in any merger where the efficiencies defence might be raised.

The majority of the Court noted that while Parliament may have intended that there be a minimum threshold that merging parties had to meet in terms of efficiency gains resulting from the merger, the language of the statute did not set any such threshold.  Accordingly, amendments to s. 96 might also be on the horizon.

Court strikes down Yukon’s Peel watershed land use plan

Posted in Aboriginal, Constitutional Law, Consultation, Mining, Oil & Gas Law, Project Development, Project Permitting, Regulatory
Comment

On December 2, 2014, the Yukon Supreme Court struck down the Yukon government’s Peel watershed regional land use plan because of the government’s failure to follow the process for developing that plan under final agreements (modern treaties) with the Na-Cho Nyak Dun, Tr’ondek Hwech’in and Vuntut Gwichin First Nations. The case marks the first time that a court has been asked to consider the meaning of land-use planning provisions contained in the Umbrella Final Agreement between Canada, Yukon and Yukon First Nations, which forms part of eleven final agreements across Yukon. Among other things, the final agreements provide First Nations with the right to participate in land and resource management decision-making processes for Crown lands, including land use planning processes, in exchange for the release of claims to Aboriginal rights or title to those lands.

While the decision deals specifically with the Peel watershed in northeast Yukon, the case will have direct implications for land use planning throughout the Yukon, and could have indirect impacts on consultative requirements under modern treaties for other governmental land and resource use decision making.

Background

The Peel watershed is a vast area covering 14% of Yukon. While it is almost entirely undeveloped and there are no mines in the area, as of summer 2011, there were nearly 8,500 active mining claims in the area. The area is considered to harbour a large portion of the Yukon’s oil and gas potential.

In 2004, the Peel watershed regional planning commission was established under the relevant final agreements to develop a regional land use plan for the Yukon portion of the Peel watershed. The mandate of the Commission was limited to land use planning for the Yukon, however, the final agreements all made provision to protect the interest of the Tetlit Gwich’in who live in the Northwest Territories but have traditional territory in the Yukon.

As set out in the judgment, land use planning under the final agreements follows six basic steps:

Step 1: the Commission forwards its Recommended Plan to the government of Yukon.

Step 2: the government of Yukon must Consult[1] with any affected Yukon First Nation and any affected Yukon community before approving, rejecting or proposing modifications to the Plan.

Step 3: the government of Yukon, if it rejects or proposes modifications to (but not if it accepts) the Recommended Plan, must provide written reasons to the Commission for rejection or modification.

Step 4: the Commission is to reconsider the Recommended Plan and make a “final recommendation” to the government of Yukon with written reasons. This is the Final Recommended Plan.

Step 5: the government of Yukon, before rejection, modification or approval, of the Commission’s “final recommendation”, must Consult with any affected Yukon First Nation and any affected community.

Step 6: the government of Yukon may approve, reject or modify the Final Recommended Plan as it applies to Non-Settlement Land.

Following years of background work and information gathering from First Nations, government and the general public, the Commission proposed a land use plan for the Peel watershed and recommended it to the government under Step 1. Under Steps 2 and 3, the government proposed modifications to the Plan and sent it back to the Commission. Under Step 4, the Commission then made some modifications and resubmitted the “Final Recommended Plan” back to the government. The controversy in the case arises from what the government did with the Plan after receipt of the Final Recommended Plan.

After receipt of the Final Recommended Plan, the government introduced further changes to the Plan beyond those it raised at Step 3, and approved a final Plan that, among other things, opened 71% of the Peel watershed for mineral exploration with 29% protected, compared to 80% protected and 20% open for mineral exploration under the Final Recommended Plan.

The Yukon government’s position was that the final agreement gave it the final word on approving a plan on non-settlement lands. The First Nations argued that the government had gone off on a “frolic of its own” and essentially replaced the Final Recommended Plan with its own plan, contrary to the consultative process set out in the final agreements.

The Decision

The Court specifically emphasized that its role was not to determine whether more or less protection for the Peel watershed is appropriate. Rather, its job was to interpret whether the planning process envisioned in the final agreements had been followed. The overriding issue, as stated by the Court, was “whether the Government of Yukon acted honourably and interpreted its constitutional obligations under the Final Agreements broadly and purposively rather than narrowly, divorcing the words of the Final Agreements from their purpose.”

In drawing on previous jurisprudence from the Supreme Court of Canada in Little Salmon/Carmacks and Manitoba Metis, including direction that modern treaties must be interpreted in a manner that fosters a positive long-term relationship between First Nations and government as well as between Aboriginal and non-Aboriginal communities, the court concluded that the process adopted by the Yukon government to enact the plan was not based upon a contextual interpretation of the final agreements, nor did it enhance the goal of reconciliation. In the words of the Court, “It was an ungenerous interpretation not consistent with the honour and integrity of the Crown”, resulting in the government usurping the Commission’s role and the planning process by introducing new land use planning tools and concepts at the final stage of the process.

As a result, the Court quashed the Yukon government’s approved plan, and directed that the government return to Step 5 and consult on the Final Recommended Plan. As much of the consultative process had already been undertaken and the government already had an opportunity to make submissions at Step 3 of the process, the Court held that, should the Yukon government wish to make any modifications to the Final Recommended Plan, it would have to do so in a manner consistent with its initial comments provided at Step 3.

Implications

While the decision does not challenge the Yukon government’s ultimate power to make decisions regarding management and use of Crown lands in the Yukon, it reminds governments – and project proponents relying on authorizations given by governments – that treaty rights contained in modern land claim agreements are to be given a large and liberal interpretation consistent with the objectives of the treaty and in a manner that upholds the honour of the Crown.  Proponents – particularly in the north where many modern treaties have been entered into – are reminded that treaty rights can apply to Crown lands and that First Nations may have a right to participate in decision-making for the management of public lands and resources.  The decision is yet another in a line of cases showing that courts will not allow governments to take a narrow, restrictive view of their obligations under modern treaties, and will step in where they feel that government actions are not consistent with the honour of the Crown.  Project proponents and governments must therefore pay close attention to any applicable treaties in areas where they wish to work and must ensure that the processes set out in the treaties are being observed in a manner that reflects ongoing Aboriginal interests in decisions affecting Crown lands within their traditional territories.


[1] “Consult” is a defined term in the Final Agreements. 

Federal Government Introduces Disclosure Law for Oil, Gas and Mining Companies

Posted in Aboriginal, Mining, Oil & Gas Law, Project Development
Comment

On October 23, 2014, the Government of Canada introduced the proposed Extractive Sector Transparency Measures Act into Parliament.  The proposed Act, which is contained with the omnibus budget Bill C-43, is intended to deter and detect corruption by requiring companies to report payments they make to governments in Canada and abroad.  The federal government is implementing the measures as part of international efforts to improve transparency surrounding payments made by companies in the oil and gas and mining sectors to governments.

The Reporting Requirement

The reporting requirements will apply to any company that is publicly traded in Canada, as well as any other company doing business in Canada that meet two of the following three criteria: it has at least $20 million in assets; it has at least $40 million in revenue; or it has at least 250 employees.  The federal government will be able to expand the reporting requirement to other companies by regulation.  Those companies will be required to report payments to governments in specified categories, including taxes, royalties, fees, production entitlement, bonuses, dividends and infrastructure improvement payments.  The federal government will have the power to expand the list of reportable payment categories by regulation.

Companies will be required to disclose payments within a category of payment that are made to the same government, if the total of all payments during the financial year is at least $100,000 (including the value of payments in kind), or any other amount specified in regulations.  The $100,000 threshold is lower than the US$100,000 applicable in the United States and the 100,000 euro threshold applicable in the European Union.  Companies which are subject to reporting requirements in the United States and Europe will have to keep these differing thresholds in mind.  The proposed Act does allow the federal government to deem compliance with other jurisdictions’ reporting requirements to meet requirements under the proposed Act, if the responsible Minister believes that the other jurisdiction’s reporting requirements meet the purposes of the proposed Act.

Companies are to report payments by filing reports within 150 calendar days of their financial year end.  Companies will be required to keep records related to reports for a period of seven years after filing.  In addition, the federal government will have the power to order companies to provide information, including audit results, needed to confirm that reporting requirements have been met.

The proposed Act provides significant penalties for contraventions, including fines of up to $250,000 for failure to report payments and for deliberately structuring payments so as to avoid triggering reporting obligations.  Any official, director, or agent of a company that directs, authorizes, assents to, acquiesces in or participates in a contravention of the reporting requirements will also be guilty of an offence and liable to a fine of up to $250,000.

Application to Aboriginal Governments

 

The proposed Act will apply to payments made to Aboriginal governments in Canada, but not for two years after the Act comes into force.  At that time, companies will be required to report payments made to First Nations, Metis settlements and other Aboriginal governments (for example those north of 60º) that are within the listed categories.

At present, the categories of reportable payments do not include consultation capacity funding payments, nor are “social” payments for training and education, employment, and community development purposes expressly included in the reporting requirements.  However, the scope of the “infrastructure improvement payments” category is undefined, and could potentially capture community investment payments made by companies to Aboriginal governments under impact benefit agreements, depending on the purpose or intended use of the payment.

Coming Into Force

There are no defined timelines for bringing the proposed Act into force.  However, the spring 2014 federal consultation paper on establishing mandatory reporting standards for the extractive sector states that Canada has committed to implementing the measures by June, 2015.  Assuming the proposed Act is passed by Parliament along with the other provisions of Bill C-43, the Act will come into force on a date or dates to be determined by the federal government.  Resource companies will want to monitor the implementation of the proposed Act, and ensure that appropriate internal tracking and compliance measures are in place prior to the proposed Act coming into force.

Water Use in BC: Recurrent short-term water use approvals are lawful

Posted in Administrative Law, Environmental, Oil & Gas Law, Project Permitting, Regulatory
Comment

In yet another indication of the increasing prominence of water use issues in BC, the Supreme Court of British Columbia recently upheld the practice of the BC Oil and Gas Commission to grant recurrent short-term water approvals for oil and gas activities under the Water Act. In Western Canada Wilderness Committee v British Columbia (Oil and Gas Commission), 2014 BCSC 1919, (a case we first reported on here) the petitioners, Western Canada Wilderness Committee and Sierra Club of British Columbia Foundation, alleged that the Commission’s practice of granting recurrent short-term water use approvals to the same oil and gas companies for the same location was in violation of the Water Act. The Court disagreed, holding that there was nothing illegal about the Commission’s practice of evaluating each successive application for an approval on a fresh basis and according to established criteria.

Facts

Under the Water Act, the ownership of all water in British Columbia, as well as the right to use it, is vested in the Crown. The government, through various agencies, may issue licences or short-term approvals to use water. In this case, the narrow issue was the Commission’s practice of issuing recurring short-term approvals.  However, because the Ministry of Forests, Lands and Natural Resources Operations (FLNRO) employs a similar practice of issuing short-term approvals to various users (land or mine owners, municipalities, water users’ communities, federal and provincial ministries, and so on), the case has implications that go beyond the oil and gas industry.

As set out by the Court:

In order to consider an application for a s.8 [short term] approval, the applicant must provide FLNRO with information, such as the proposed source of the water, the point(s) of diversion of the water, the total volume of water to be used, the maximum rate of withdrawal, the time frame for the diversion and the purpose for which the water is to be used. FLNRO considers the application in terms of whether there are conflicting users, whether there is any environmental impact, how much water is available and the interests of third parties. Approvals normally restrict the amount of water, set the term of the approval and impose other appropriate conditions.

Similarly, pursuant to section 8(1) of the Oil and Gas Activities Act, the Commission has the authority to grant short-term approvals of no more than 24 months to oil and gas operators for the use or diversion of surface water sources in relation to “oil and gas activities”. In this case, the Commission had issued a number of short-term approvals to Encana in relation to the exploratory stages of its oil and gas plays in northeast British Columbia. Encana said that at the exploratory phase its water use would be of a short-term nature, and that its water use would change as its operations change throughout the life cycle of its operations, such that it may acquire a more permanent water use licence at more mature stages of the play.

Discussion

The crux of the Petitioners’ argument was stated as follows:

The Commission grants repeated Section 8 Approvals that combine to authorize companies to use or divert water for more than one term and for more than 24 months. While no Section 8 Approval singularly exceeds one term or the statutory limit, multiple approvals are routinely granted over multiple years to the same company, for the same purposes, at the same locations and thereby violate s. 8 of the Water Act.

Accordingly, the issue before the Court was whether the Commission has the power to grant section 8 approvals that extend for more than one term or more than 24 months.

The Court approached the issue by setting out the process that the Commission and FLNRO follow in granting an approval in any given case:

Each application for a s. 8 approval undergoes a risk rating by the Commission. Section 8 approvals all have an expiry date and that date may not be extended or continued. If the approval has expired, the operator must re-apply for a new approval. It is the Commission’s policy, as confirmed by the applicable application manual, that any re-application is to be considered as a new or “fresh” application with updated field information and documentation being required from the applicant, consistent with what is outlined above. This new application is then fully reviewed afresh by Commission staff with all relevant and up to date data and input from relevant persons.

After conducting an extensive analysis of whether the Petitioners had standing to bring the case (they did) and the applicable standard of review (reasonableness), the Court dismissed the Petitioners’ argument by stating:

On a plain reading of section 8 of the Water Act, in context with the scheme of the Act, the object of the Act, and the intention of the legislature, there is simply no prohibition relating to consecutive short term water use approvals or even recurrent approvals lasting in total in excess of 24 months. I agree with Encana that, to the contrary, when read in context with the entire Act, this provision gives FLNRO, or the Commission in respect of oil and gas activities under the Oil and Gas Activities Act, broad discretion to provide for effective and efficient processes for the review of applications for short term water use approvals and to ensure that applications that are approved are in the public interest having regard to environmental, economic and social factors.

The Court went on to say that there is no basis in either the Act itself or from a public policy perspective to prevent someone who had previously received an approval from re-applying for the same or similar permission – the situation would be no different if a third party came along and applied for the same or similar approval.  In either case, FLNRO or the Commission would have the statutory authority to consider the application and make a decision based on the present information before it.

Implications

The case provides clarity and reassurance to all those relying on short-term water approvals issued under section 8 of the Water Act and reassures regulators such as FLNRO or the Commission that the practice they have been following is a sound one. It is important to keep in mind though, as previously noted, that the Water Act is soon to be overtaken by the Water Sustainability Act, which expressly provides that approvals for both water and ground water may be recurrent. In the meantime, however, those seeking recurrent approvals under the existing Water Act are reminded that the Court was very clear that a recurrent approval is considered to be a new application and subject to the same application process as a new approval – meaning that existing approval holders will not be “grandfathered” or favoured in respect of an application for a recurrent renewal.

New Regulations Issued by BC OGC for LNG Facilities

Posted in Aboriginal, Environmental, Oil & Gas Law, Project Development, Regulatory
Comment

On July 21, 2014, the new Liquefied Natural Gas Facility Regulation, BC Reg 146/2014, was enacted by the BC Oil and Gas Commission (“OGC”). As the name suggests, the regulation is intended to address regulation of LNG facilities, and also updates LNG-related provisions previously in the Pipeline and Liquefied Natural Gas Facility Regulation, BC Reg 281/2010, which has been renamed the Pipeline Regulation. The OGC has also issued version 1.0 of its Liquefied Natural Gas Facility Permit Application and Operations Manual, which provides guidance for applicants wishing to construct an LNG facility in accordance with the new regulation.

Province Releases Kitimat Airshed Study

Posted in Environmental, Oil & Gas Law, Project Development, Project Permitting
Comment

On July 18, 2014 the Province of British Columbia released the long-awaited Kitimat Airshed Study (though completed on April 25, 2014, the study was not previously released pending review).

The study is an independent assessment intended to assist the Province’s regulatory decision-making process by providing information that will be used to ultimately determine how many industrial facilities can be added to the Kitimat airshed without causing unacceptable impacts to human health and the environment. The study area spans the length of the Douglas Channel from its entrance near Hartley Bay, includes Kitimat, and continues up the Kitimat River towards Terrace. This area, covering some 6,772 km2, is of great importance to a number of projects due to its attractive location for industries seeking a marine terminal along BC’s Pacific Coast in order to access foreign markets.

The study provides an assessment under various scenarios of the likely effects on human health and the environment of SO2 and NO2 emissions from existing and proposed facilities in the area, namely the existing Rio-Tinto Alcan aluminum smelter, projected emissions from four proposed LNG terminals (Kitimat LNG, Douglas Channel LNG, Triton LNG, and LNG Canada), a proposed oil refinery, and gas turbine powered electrical generation facilities, as well as related marine transportation sources.

While the study does identify potential risks to human health (especially in relation to SO2 emissions in proximity to industrial areas) and environmental impacts (particularly impacts to soil and lakes), BC’s Environment Minister, Mary Polak, says:

“This study tells us that with proper management there is significant capacity in the Kitimat airshed to safely accommodate industrial growth, while still protecting human health and the environment.”

Notably, the study does not propose absolute limits on the amount of emissions that would be acceptable in the Kitimat airshed.

This study will likely provide guidance for project proponents with respect to the Province’s approach to regulation of air emissions not only in the Kitimat area, but also in nearby Prince Rupert and Grassy Point, where results from this study are also intended to help inform regulatory decision making.