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By: Nigel Bankes
PDF Version: Methodological Pluralism: Canadian Utility Law Does Not Prescribe any Particular Prudent Expenditure or Prudent Investment that a Regulator Must Apply
Case Commented On: Ontario (Energy Board) v Ontario Power Generation Inc., 2015 SCC 44, (OPG) and ATCO Gas and Pipelines Ltd v Alberta (Utilities Commission), 2015 SCC 45 (ATCO)
The last two weeks of September 2015 saw the release of three important court decisions dealing with utility regulation, two from the Supreme Court of Canada, the OPG case and the ATCO case, and one from Alberta's Court of Appeal, the Utility Asset Disposition case (UAD): Fortis Alberta Inc v Alberta (Utilities Commission), 2015 ABCA 295. The two Supreme Court cases (which were heard together) deal with a utility's opportunity to recover operating costs and the application of prudency tests to those costs. Justice Rothstein is the principal author of both judgments. The ATCO case is unanimous while Justice Abella offers a dissent in the OPG Case. The UAD case deals with what I have previously referred to as the continuing fall-out from the majority decision of the Supreme Court in Stores Block (ATCO Gas and Pipelines Ltd. v Alberta (Energy and Utilities Board), 2006 SCC 4, [2006] 1 S.C.R. 140).
This post summarizes the holdings in the ATCO and OPG decisions and then offers some preliminary comments on their implications. The post begins with some general observations on utility regulation statutes. I will aim to do a separate post on the UAD case.
Utility Regulation Statutes
While there is some reason for thinking that there is a "common law of utility regulation" (see for example Chastain et al. v B.C. Hydro & Power Authority (1972), 32 D.L.R. (3d) 443, [1973] 2 W.W.R. 481 and British Columbia Electric Railway Co. v Public Utilities Commission of British Columbia, 1960 CanLII 44 (SCC), [1960] S.C.R. 837 (BC Electric)) it is also clear that any such common law concepts can be overridden by statute and that most utility law is indeed a creature of statute. This has the inevitable consequence that the applicable utility law in any particular case must be contingent on the details of the utility statute(s) in that jurisdiction (see OPG at paras 104 – 105).
It is thus important to begin by recognizing that provincial and federal utility statutes exhibit some diversity in approach across at least two different dimensions: rate-making methodology and policy considerations. As to the first, while some jurisdictions and statutes prescribe the methodology that a utility regulator must follow in order to set just and reasonable rates, other jurisdictions and statutes prescribe only the outcome i.e. that rates must be just and reasonable. It is evident that it will be very difficult to obtain judicial or appellate review of rate making decisions in these latter jurisdictions on the basis that the tribunal has failed to follow any particular methodology. The National Energy Board Act, RSC 1985, c. N-7 provides an example of this statutory approach. That statute simply provides that:
62. All tolls shall be just and reasonable, and shall always, under substantially similar circumstances and conditions with respect to all traffic of the same description carried over the same route, be charged equally to all persons at the same rate.
67. A company shall not make any unjust discrimination in tolls, service or facilities against any person or locality.
In a leading decision on the judicial supervision of the NEB's rate making authority British Columbia Hydro and Power Authority v West Coast Transmission Company Ltd. et al., [1981] 2 F.C. 646 at 655-56 (C.A.) the Federal Court of Appeal commented as follows:
There are no [prescriptive] provisions in part IV of the National Energy Board Act. Under it, tolls are to be just and reasonable and may be charged only as specified in a tariff that has been filed with the Board and is in effect. The Board is given authority in the broadest of terms to make orders with respect to all matters relating to them. Plainly, the Board has authority to make orders designed to ensure that the tolls to be charged by a pipeline company will be just and reasonable. But its power in that respect is not trammelled or fettered by statutory rules or directions as to how that function is to be carried out or how the purpose is to be achieved. In particular, there are no statutory directions that, in considering whether tolls that a pipeline company propose to charge are just and reasonable, the Board must adopt any particular accounting approach or device or that it must do so by determining cost of service and a rate base and fixing a fair return thereon.
Similarly, the jurisdiction of the Ontario Energy Board under s.78.1 of the Ontario Energy Board Act, 1998 is to provide for just and reasonable payments.
Alberta utility statutes offer an example of a more prescriptive approach, at least with respect to the need to establish a rate base and the methodology for doing so. Thus, s.37 of the Gas Utilities Act, R.S.A. 2000, c. G-5 provides that:
37(1) In fixing just and reasonable rates, tolls or charges, or schedules of them, to be imposed, observed and followed afterwards by an owner of a gas utility, the Commission shall determine a rate base for the property of the owner of the gas utility used or required to be used to provide service to the public within Alberta and on determining a rate base it shall fix a fair return on the rate base.
(2) In determining a rate base under this section, the Commission shall give due consideration
(a) to the cost of the property when first devoted to public use and to prudent acquisition cost to the owner of the gas utility, less depreciation, amortization or depletion in respect of each, and
(b) to necessary working capital.
(3) In fixing the fair return that an owner of a gas utility is entitled to earn on the rate base, the Commission shall give due consideration to all facts that in its opinion are relevant.
The GUA is less prescriptive in relation to other matters. This allowed Justice Rothstein in ATCO (ATCO at para 32) to conclude that the GUA did not impose a specific methodology for approving a utility's revenue requirements. Thus, s.36 of the GUA provides that:
The Commission, on its own initiative or on the application of a person having an interest, may by order in writing, which is to be made after giving notice to and hearing the parties interested,
(a) fix just and reasonable individual rates, joint rates, tolls or charges or schedules of them, as well as commutation and other special rates, which shall be imposed, observed and followed afterwards by the owner of the gas utility,
(b) fix proper and adequate rates and methods of depreciation, amortization or depletion in respect of the property of any owner of a gas utility, who shall make the owner's depreciation, amortization or depletion accounts conform to the rates and methods fixed by the Commission,
(c) fix just and reasonable standards, classifications, regulations, practices, measurements or service, which shall be furnished, imposed, observed and followed thereafter by the owner of the gas utility ….
For present purposes it is useful to note that the only reference to "prudence" or "prudent" in these sections (or indeed anywhere in the Act) is in s. 37(2)(a) in the context of the rate base. There is no reference to prudence in s.36 or in other sections dealing with the revenue requirements of a utility.
The Electric Utilities Act, S.A. 2003, c. E-5.1 takes a somewhat different approach. Section 121(2), like s.62 of NEBA, is concerned with the overall result. Thus the "Commission must ensure that"
(a) the tariff is just and reasonable, [and]
(b) the tariff is not unduly preferential, arbitrarily or unjustly discriminatory or inconsistent with or in contravention of this or any other enactment or any law ….,
But the EUA goes on in s.122 to instruct the Commission "to have regard" to "the reasonable opportunity to recover" principle and to a number of other factors:
122 (1) When considering a tariff application, the Commission must have regard for the principle that a tariff approved by it must provide the owner of an electric utility with a reasonable opportunity to recover
(a) the costs and expenses associated with capital related to the owner's investment in the electric utility, including
(i) depreciation,
(ii) interest paid on money borrowed for the purpose of the investment,
(iii) any return required to be paid to preferred shareholders of the electric utility relating to the investment,
(iv) a fair return on the equity of shareholders of the electric utility as it relates to the investment, and
(v) taxes associated with the investment,
if the costs and expenses are prudent and if, in the Commission's opinion, they provide an appropriate composition of debt and equity for the investment,
(b) other prudent costs and expenses associated with isolated generating units, transmission, exchange or distribution of electricity or associated with the Independent System Operator if, in the Commission's opinion, they are applicable to the electric utility,
(c) amounts that the owner is required to pay under this Act or the regulations,
(d) the costs and expenses applicable to the electric utility that arise out of obligations incurred before the coming into force of this section and that were approved by the Public Utilities Board, the Alberta Energy and Utilities Board or other utilities' regulatory authorities if, in the Commission's opinion, the costs and expenses continue to be reasonable and prudently incurred,
(e) its prudent costs and expenses of complying with the Commission rules respecting load settlement,
(f) its prudent costs and expenses respecting the management of legal liability,
(g) the costs and expenses associated with financial arrangements to manage financial risk associated with the pool price if the arrangements are, in the Commission's opinion, prudently made, and
(h) any other prudent costs and expenses that the Commission considers appropriate, including a fair allocation of the owner's costs and expenses that relate to any or all of the owner's electric utilities (emphasis added).
Again, for present purposes, it is important to emphasize (and this by contrast with the GUA) that there are multiple references to "prudence" and "prudently incurred" in this section, although as Justice Rothstein points out (ATCO at para 41) the words may be used differently in some of these paragraphs.
We can deal more quickly with the second variable which is that of public policy considerations. Here the principal divide in Canadian utility statutes is between energy utility statutes and telecommunication statutes. Generally, energy regulatory statutes do not expressly confer significant policy development and implementation functions on energy regulatory tribunals. That said such statutes may, for example, instruct the regulator to facilitate an energy market: see OEBA, s.1 and EUA, s.5. By contrast, federal telecommunications statutes have long conferred on the CRTC a significant role in developing and implementing Canada's telecommunications policy. This is particularly evident, for example, in the Supreme Court of Canada's decision in Bell Canada v Bell Aliant Regional Communications, 2009 SCC 40, [2009] 2 SCR 764.
Justice Rothstein begins both of his judgments with some general observations on the general regulatory framework. The discussions are similar. Justice Rothstein observes that both the OEB and the AUC must approve just and reasonable rates or the recovery of just and reasonable amounts. In both cases Justice Rothstein refers to the venerable authority of Northwestern Utilities Ltd. v City of Edmonton, 1929 CanLII 39 (SCC), [1929] S.C.R. 186 for the proposition that "fair and reasonable" rates are those "which, under the circumstances, would be fair to the consumer on the one hand, and which, on the other hand, would secure to the company a fair return for the capital invested" (NUL at pp. 192-93) (OPG at para 15 and ATCO at para 7). Justice Rothstein expands on this in OPG as follows (OPG at paras 16 and 17):
This means that the utility must, over the long run, be given the opportunity to recover, through the rates it is permitted to charge, its operating and capital costs ("capital costs" in this sense refers to all costs associated with the utility's invested capital). This case is concerned primarily with operating costs. If recovery of operating costs is not permitted, the utility will not earn its cost of capital, which represents the amount investors require by way of a return on their investment in order to justify an investment in the utility. The required return is one that is equivalent to what they could earn from an investment of comparable risk. Over the long run, unless a regulated utility is allowed to earn its cost of capital, further investment will be discouraged and it will be unable to expand its operations or even maintain existing ones. This will harm not only its shareholders, but also its customers: TransCanada Pipelines Ltd. v National Energy Board, 2004 FCA 149 (CanLII), 319 N.R. 171.
This of course does not mean that the Board must accept every cost that is submitted by the utility, nor does it mean that the rate of return to equity investors is guaranteed. In the short run, return on equity may vary, for example if electricity consumption by the utility's customers is higher or lower than predicted. Similarly, a disallowance of any operating costs to which the utility has committed itself will negatively impact the return to equity investors. I … observe that any disallowance of costs to which a utility has committed itself has an effect on equity investor returns. This effect must be carefully considered in light of the long-run necessity that utilities be able to attract investors and retain earnings in order to survive and operate efficiently and effectively, in accordance with the statutory objectives of the Board ….
ATCO deals with an application of the ATCO group of companies (both natural gas and electric utilities) to have the Commission permit it to recover in approved rates from its customers, the costs associated with providing cost of living increases (COLA) which matched the consumer price index (CPI) up to a maximum of 3 per cent under a defined benefit pension plan which covered some of ATCO's employees. The Commission took the view that the pension plan did not require employers to fully match CPI increases up to 3 per cent and benchmark evidence suggested that other entities in the comparator group covered between 50 and 75% of CPI. Accordingly, the Commission concluded that recovery of 50% of annual CPI (up to a maximum COLA of 3%) would be reasonable. ATCO took the view that the Commission's decision was unlawful. The pension plan had been prudently concluded and as a result the Commission could not now preclude recovery under either the GUA for ATCO's gas utilities or the EUA, for ATCO's electric utilities. In reaching its conclusion the AUC did not expressly address whether or not the two statutes required it to apply a no-hindsight prudence review; but, as Justice Rothstein acknowledged (at para 33), the fact that it proceeded without doing so implies that it understood that the relevant statutes did not require it to do so.
The Court of Appeal declined to interfere with the AUC's decision and the Supreme Court of Canada granted leave.
The next sections examine the Court's treatment of the standard of review and then the prudence analysis.
Standard of Review
Relying on Stores Block and another post-Stores Block case (ATCO Gas and Pipelines Ltd. v Alberta Utilities Commission, 2009 ABCA 246, 464 A.R. 275) as well as Shaw v Alberta Utilities Commission, 2012 ABCA 378, 539 A.R. 315, ATCO argued that the question at issue was a jurisdictional issue and that the standard of review was correctness. It will be recalled that in Stores Block, the majority, per Bastarache J, made a distinction between the AUC's authority under s. 26(2) of the GUA to approve the disposition of utility assets and the general rate setting jurisdiction of the AUC (or more correctly the AUC's predecessor, the Energy Utilities Board). While Justice Bastarache seemed prepared to concede that the Court should be deferential to the regulator's jurisdiction to set just and reasonable rates (see Stores Block at para 30 and ATCO at para 27), the power of the regulator under s.26 to allocate the proceeds of sale on the disposition of assets should attract review (at least pre-Dunsmuir, Dunsmuir v New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190) on a correctness basis. Justice Rothstein rejected the analogy between Stores Block and the issues arising here. The issues before the Court in this case involved ratemaking and did not involve a "true question of jurisdiction" even assuming that there are such questions (ATCO at para 27). Furthermore, (ATCO at para 28) the issues all turned on the interpretation of the AUC's home statutes as to which the standard of reasonableness presumptively applies: Alberta (Information and Privacy Commissioner) v Alberta Teachers' Association, 2011 SCC 61 (CanLII), [2011] 3 S.C.R. 654, at para 30.
The Prudence Analysis
As noted above, s.37 of the GUA contains one reference to prudence while s.122 of the EUA provides many references. As a matter of statutory interpretation (and referring, ATCO at para 34, to Rizzo & Rizzo Shoes Ltd. (Re), 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, at para 21) Justice Rothstein concluded (ATCO at para 34) that "the ordinary sense of the word is such that a prudent cost is one which may be described as wise or sound." But, given some variety in the dictionary definitions of the term, it was necessary to supplement that assessment with a contextual reading of the statutory provisions. This led Justice Rothstein to conclude (ATCO at para 35) that there really was no difference between prudence and reasonable:
In the context of utilities regulation, I do not find any difference between the ordinary meaning of a "prudent" cost and a cost that could be said to be reasonable. It would not be imprudent to incur a reasonable cost, nor would it be prudent to incur an unreasonable cost.
While s.121 of the EUA used the term prudent in different ways, use of the term (ATCO at para 41) did not "imply a specific methodology" nor did the statute say "anything about the time at which prudence must be evaluated." Furthermore, since prudence and reasonableness could be equated, s.121(4) of the EUA which imposes on the utility the burden of proving that proposed tariffs were just and reasonable also extends to establishing that expenditures are prudent. A utility is not entitled to the benefit of a presumption of prudence with respect to its expenditures. Thus, regardless of whether the costs are operating or capital, prior incurred, committed or forecast, the utility has the onus. Much the same was true of the GUA which also (s.44(3)) imposes on the utility the burden of showing that proposed rates are just and reasonable and therefore also (ATCO at para 46) "the burden of establishing the prudence of costs". Thus (ATCO at para 47):
…. the Commission is free to apply its expertise to determine whether costs are prudent (in the ordinary sense of whether they are reasonable), and it has the discretion to consider a variety of analytical tools and evidence in making that determination so long as the ultimate rates that it sets are just and reasonable to both consumers and the utility.
That said, it was still necessary to establish whether the Commission's application of its prudence analysis was reasonable (in the judicial review sense of that term). Here the Court noted the distinction between forecast and committed costs which it examined in OPG (see further discussion below) acknowledging that a no-hindsight prudence test might be appropriate in the case of committed costs (ATCO at para 48 and see also ATCO at para 65). But the distinction between forecast and committed costs may not always be clear and any assessment must take account of factual evidence as well as legal obligations (whether based on contract, fiduciary duty or regulatory obligations). The regulator's assessment of such matters is itself (ATCO at para 49) owed deference by the Court.
ATCO's final argument was that the AUC's decision was unreasonable insofar as it was motivated by the Commission's desire to protect customers from rate increases. The Court rejected that characterization of the AUC's decision and in so doing provided some useful guidance for future decisions. First, the Court emphasised that a regulator cannot deny recovery on the basis of rate shock. However, a regulator can "take into account the impact of rates in deciding how a utility is to recover its costs" (at para 61 and note 10 (the emphasis is Justice Rothstein's)) and referring as well to TransCanada Pipelines Ltd. v National Energy Board, 2004 FCA 149 (CanLII), 319 N.R. 171, at para 43.) Second (ATCO at para 61), "[w]here costs are determined to be prudent, the regulator must allow the utility the opportunity to recover them through rates."
Third, a regulator is entitled (and obviously so) to think about the interest of consumers. Justice Rothstein put the point this way (ATCO at para 63):
Indeed, it seems axiomatic that any time a regulator disallows a cost, that decision will be based on a conclusion that the cost is greater than ought to be permitted, which leads to the inference that consumers would be paying too much if the cost were incorporated into rates. But that is not the same as disallowing a cost solely because it would increase rates for consumers. … [And here the] Commission reasoned from the prudence of the costs themselves, not from a desire to keep rates down, to arrive at its conclusion to disallow costs.
Fourth, (and this is my assessment) it will always be difficult to review a regulator's decision on this basis (protection of consumers) absent some clear references (as in the BC Electric Case) in the regulator's reasoning that display a link between the regulator's objective of consumer protectionism and the disallowance of costs. Most regulators should be smart enough to avoid creating that link. Mere reference to the interests of consumers in not paying more than they "should" cannot be enough to render a decision unreasonable.
OPG dealt with the labour compensation costs element of OPG's revenue requirement. Both the Government of Ontario and the Board had previously warned OPG that it needed to get its costs, including its labour costs, under control. The Board had also instructed OPG to engage in bench-marking exercises. Benchmarking studies led the Board to conclude (OPG at para 32) that OPG was overstaffed and its compensation levels were excessive. Most of OPG's labour force is unionized and the remuneration rates of those employees are therefore the subject of collective bargaining. OPG sought to pass on to customers the results of its collective bargaining as part of its revenue requirements and ultimately as part of its approved tariff. The OEB refused to approve the tariff as filed and ultimately reduced OPG's proposed revenue requirement of $6.9 billion by $145 million. In so doing the Board (OPG at para 33) noted that there were opportunities for OPG to manage some of its labour related costs including staffing levels, promotions etc., but acknowledged that "OPG may not have been able to achieve the full $145 million in savings for the test period through the reduction of compensation levels alone because of its collective agreements with the unions." On appeal, the majority of the Ontario Divisional Court found the Board's decision reasonable and declined to interfere. The Ontario Court of Appeal however reversed and remitted the matter to the Board. The Court of Appeal drew a distinction between forecast costs and committed costs. In relation to the latter, the Board was required to conduct a no-hindsight prudence review and if that review suggested that the costs were prudently incurred then the Board should make provision for their recovery (summarized in OPG at para 37). The Board's failure to do so was unreasonable. The Supreme Court restored the judgment of the Divisional Court thereby confirming the OEB's decision.
The judgment contains a lengthy and important discussion (OPG at paras 41 – 72) of the standing of a regulatory tribunal to argue its case on an appeal or judicial review application. My colleague Shaun Fluker will post on this aspect of the decision and I will say no more about it here. I will focus instead on the prudence issues. The standard of review was straightforward in this case. All parties (OPG at para 73) accepted that "reasonableness is the appropriate standard of review for the Board's actions in applying its expertise to set rates and approve payment amounts under the Ontario Energy Board Act, 1998."
The Prudence Analysis
As noted above, the OEBA is less prescriptive than Alberta's utility statutes with respect to the OEB's rate setting functions; but as with the Alberta statutes, the burden of proof with respect to both reasonableness (and therefore prudence as in ATCO) is on the utility. Where the statute prescribes an element of the methodology that the regulator must follow (as in the case of the burden of proof), the regulator has no authority to vary that element of the methodology. Thus it is not open to the regulator to establish (OPG at para 80, and see also at para 104) a rebuttable presumption that the utility's expenditures are reasonable. "[T]his does not imply that the applicant must systematically prove that every single cost is just and reasonable. The Board has broad discretion to determine the methods it may use to examine costs — it just cannot shift the burden of proof contrary to the statutory scheme."
As noted in ATCO, the Court in OPG made a distinction between forecast costs and committed costs as follows (OPG at para 82):
Forecast costs are costs which the utility has not yet paid, and over which the utility still retains discretion as to whether the disbursement will be made…. [C]ommitted costs are those [which] the utility has already spent … [or has] entered into a binding commitment or [is] subject to other legal obligations that leave it with no discretion as to whether to make the payment in the future (emphasis added).
The disallowance of committed costs is particularly problematic for a regulated utility because (OPG at para 82) "the utility and its shareholders will have no choice but to bear the burden of those costs themselves." In the long run, disallowance may also not be in the interests of consumers since "[d]isallowing recovery of the cost of failed investments that appeared reasonable at the time, for example, may imperil the financial health of utilities, and may chill the incentive to make such investments in the first place. This effect may then have negative implications for consumers, whose long-run interests will be best served by a dynamically efficient and viable electricity industry." The disallowance of forecast costs is far less problematic since such a case (OPG at para 82) "presents a utility with a choice: it may change its plans and avoid the disallowed costs, or it may incur the costs regardless of the disallowance with the knowledge that the costs will ultimately be borne by the utility's shareholders rather than its ratepayers."
The problem of committed costs has led utilities and some legislators, regulators and courts to develop a prudent investor test, based on conditions as they stood at the time the investment was made (or costs incurred) as part of a methodology for establishing just and reasonable rates. For present purposes this gives rise to at least two questions. First, is there a common understanding of the test, and second, is its application both permissible and required. As to the first, Justice Rothstein offered various examples of the test but referred (OPG at para 99) in particular to the Ontario Court of Appeal's decision in Enbridge Gas Distribution Inc. v Ontario Energy Board (2006), 2006 CanLII 10734 (ON CA), 210 O.A.C. 4 where that court "endorsed …. a specific formulation of the prudent investment test framework" as follows:
As to the second, Justice Rothstein is clearly of the view (OPG at para 102) that "The prudent investment test, or prudence review, is a valid and widely accepted tool that regulators may use when assessing whether payments to a utility would be just and reasonable." While the test has principally been used in the context of capital investments Justice Rothstein saw no reason why a regulator might not also apply the test to operating costs. However, Justice Rothstein was equally clearly of the view that neither the general jurisprudence nor the specific statutory scheme of the OEBA required the OEB to apply the prudence test to committed costs such that (OPG at para 103) a regulator's failure to apply "would render its decision on payment amounts unreasonable." Nor did Justice Rothstein consider (OPG at para 103) that the Court should create such a rule.
As discussed above, where a statute requires only that the regulator set "just and reasonable" payments, as the Ontario Energy Board Act, 1998 does in Ontario, the regulator may make use of a variety of analytical tools in assessing the justness and reasonableness of a utility's proposed payment amounts. This is particularly so where, as here, the regulator has been given express discretion over the methodology to be used in setting payment amounts: O. Reg. 53/05, s. 6(1).
Thus, the OEB has a measure of discretion in deciding what test to apply as part of assessing reasonableness or prudence in each and every case.
The question of whether it was reasonable to assess a particular cost using hindsight should turn instead on the circumstances of that cost. I emphasize, however, that this decision should not be read to give regulators carte blanche to disallow a utility's committed costs at will. Prudence review of committed costs may in many cases be a sound way of ensuring that utilities are treated fairly and remain able to secure required levels of investment capital. As will be explained, particularly with regard to committed capital costs, prudence review will often provide a reasonable means of striking the balance of fairness between consumers and utilities (OPG at para 104).
While the Court was of the view that it was not automatically unreasonable for the OEB not to apply the prudent investment test to committed costs (and the Court did find that some of the OPG's costs were committed), it was still necessary to examine whether the Board's failure to apply such a test in this particular instance could be said to be unreasonable. Justice Rothstein concluded that the OEB's decision was not unreasonable and in doing so he emphasized a number of factors. First, he noted that the matter at issue here involved operating costs rather than capital costs. A "with hindsight" approach may be more problematic when applied to capital costs because it may impair the long run viability of the utility. Justice Rothstein put the point this way (at paras 107 – 108):
… prudence review, including a no-hindsight approach (with or without a presumption of prudence, depending on the applicable statutory context), may play a particularly important role in ensuring that utilities are not discouraged from making the optimal level of investment in the development of their facilities.
Operating costs, like those at issue here, are different in kind from capital costs. There is little danger in this case that a disallowance of these costs will have a chilling effect on OPG's willingness to incur operating costs in the future, because costs of the type disallowed here are an inescapable element of operating a utility. It is true that a decision such as the Board's in this case may have the effect of making OPG more hesitant about committing to relatively high compensation costs, but that was precisely the intended effect of the Board's decision.
Second, consideration of the reasonableness of the OEB's approach must take into account the fact that the relationship between a utility and its regulator is an ongoing relationship. It is a repeat-player relationship. The matter at issue here involved ongoing costs rather than a one-off expenditure and the OEB had already warned OPG that its staffing costs would be subject to scrutiny.
Third, the OEB did not take an "all-or-nothing approach" or an approach that made a hard and fast distinction between forecast costs and committed costs (OPG at paras 110 & 116). Rather the Board took a more global approach and effectively required the burden to be shared between consumers and shareholders. Given the difficulty of making the distinction between forecast and committed labour costs in the context of the labour costs, some of which were subject to collective agreements and some of which are subject to management's control, it was not unreasonable for the Board to proceed in this way and was consistent with the methodological discretion available to the Board and its appreciation that it is not equipped to micromanage OPG's business decisions (OPG at para 117). The Board's decision did not and could not force OPG to abrogate its collective agreements (OPG at paras 118 & 119) but it likely had an adverse impact on OPG's ability to earn its cost of capital in the short run; but in doing so it did send a clear message to OPG that it needed to improve its performance. That was entirely consistent with the Board's statutory mandate and its market proxy role (OPG at para 120).
These two decisions will provide much food for thought for counsel for utilities, consumers and regulators. While the language of the particular utility statute in question will always be a crucial and dominant consideration, the general flavor of these two decisions is to emphasize that utility regulators typically have a broad degree of methodological discretion in the manner in which they go about setting just and reasonable rates and in reviewing the reasonableness or prudency of utility expenditures. Past practice and judicial preference for certain methodologies should not be construed as requiring the application of any particular methodology. The actual application of any particular methodology may be questioned on reasonableness grounds where it will have the result of impairing the long run viability of the utility or its long run ability to earn a reasonable rate of return; but the refusal to apply any particular methodology cannot itself be unreasonable unless a method is directed by statute. The reasonableness of the application of a methodology can only be examined on a case by case basis. This suggests to me that on a go-forward basis it will be extremely difficult for any utility to question the methodological approach followed by its regulator, at least where the regulator has provided at least some reasons for its choice of methodology and some justification (at least in hard cases) why the application of that methodology does not impair the long run viability of the regulated utility.
The Court has not overruled its Stores Block decision. It had no need to. After all, the two cases before the Court involved the prudence of expenditures rather than the sharing of the surplus flowing from the disposition of utility assets (as in Stores Block) but I can't help but think that the methodological pluralism that this Court favours is far more consistent with Justice Binnie's dissenting judgment in Stores Block than it is with the methodological rigidity exhibited in Justice Bastarache's majority judgment.
Finally, the repeated references in both cases to the "long-run" health of the utility and to the opportunity that a utility must be accorded to earn its cost of capital over the long run (OPG at paras 16, 17, 76, 91 & 120 and ATCO at para 7) must surely be of some comfort to regulators like the AUC which are implementing performance based approaches to regulation (PBR). One implication of a PBR scheme is that utility performance is measured over a longer period than is traditionally the case, and the wish to provide incentives to improvement as part of PBR may mean that a utility will only achieve its target rate of return over the entire regulatory period and not within each year of that period.
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By: Emily Laidlaw
PDF Version: Legal or Social Responsibility? What are the Responsibilities of Internet Companies for Free Speech?
The current controversy concerning the new Calgary-based app Peeple which will allow users to rate anybody they know – from their colleagues, to their friends, to their exes and neighbours – raises many questions familiar to internet lawyers. What are the rights of the subject matters of these ratings? To privacy? To dignity? What rights of free speech exist for anyone using these apps? And what are the responsibilities of the app developer, legally or ethically? For more on this controversy, see here, here, and here. There are some that question whether the app is a hoax, and I question it myself. Regardless, the Peeple controversy serves as a useful platform for discussions of wider issues in Internet governance. While there is much to be analysed concerning the privacy and harassment implications of this app, with this post I am going to focus on a different aspect of the controversy and that is the social responsibility of technology companies for human rights. By shedding light on the discussions happening in the international community I hope it contextualizes why things like Peeple are so controversial; they strike at the core of larger problems concerning the roles and responsibilities of businesses for human rights and the line between law and voluntary commitments. My recent research on this topic has been focused on free speech, so I will discuss the issue here in that context.
New technologies have changed the way we communicate challenging traditional structures of speech regulation. In the Internet context, the transnational, instantaneous nature of communications makes it difficult for governments to directly control the information that enters and leaves a country. At the same time the power of companies, which control this information flow, increases, because the communication technologies that enable or disable participation in discourse online are often privately owned. In order to find information, we use search engines. In order to share information we use communication platforms such as Twitter. In order to access the Internet, we need to use Internet Service Providers. Thus we inevitably rely on these companies to exercise the right to freedom of expression online and they thereby become gatekeepers to our online experience. This is problematic for a human rights system that has treated human rights as a government responsibility, and has effectively privatised human rights in the digital environment.
Our reliance on these gatekeepers to exercise the right to free speech has had two effects. First, such gatekeepers have increasingly been the targets of legal measures designed to capitalise on their capacity to regulate third party conduct. This ranges from orders for ISPs to block access to copyright infringing websites and other unlawful content as seen in United Kingdom cases involving Pirate Bay and Newzbin2, to orders by the Egyptian government during the Arab Spring in 2011 for Vodafone to switch off mobile networks. These orders put pressure on companies, both domestically and internationally, to be advocates for users' free speech rights and to have in place governance codes that guide their conduct in this respect.
Second, in the Western World speech regulation in cyberspace has largely been left to self-regulation much the same way that regulation of the Internet in general has been light-touch. When Facebook decides to delete a group it deems offensive, Twitter suspends a user's account for the content of his or her tweets, or Amazon decides to no longer host a site such as Wikileaks, the determination tends to be made outside the legal system of human rights. The result is a system of private governance running alongside the law without any of the human rights safeguards one normally expects of state-run systems, such as principles of accountability, predictability, accessibility, transparency and proportionality.
The business, human rights and technology conundrum has received increasing public attention in recent years. Since 2010 we have seen a paradigm shift at an international level in the recognition of human rights in cyberspace. Access to the Internet as a fundamental right received the United Nations stamp of approval in a report by Frank La Rue, the Special Rapporteur on the promotion and protection of the right to freedom of opinion and expression. In 2012 the UN Human Rights Council passed a resolution affirming Internet freedom as a basic human right, in particular the right to freedom of expression. At a European level we have seen the Court of Justice of the European Union and the European Court of Human Rights issue judgments with strong rights-based arguments directed at the activities of technology companies. This can be seen in cases such as Scarlet v SABAM followed by Sabam v Netlog regarding ISP filtering, Ahmet Yildirim v Turkey regarding hosts and SL, Google Inc v Agencia Espanola de Proteccion de Datos, Marios Costeja Gonzalez regarding a right to be forgotten on search engines.
At the same time, the business and human rights agenda has been a focal point of international governance discussions, most importantly with the work of John Ruggie in drafting the UN Guiding Principles. They were endorsed by the UN in 2011 and have been widely praised by government, businesses and NGOs. They have been incorporated into many agendas on CSR, as seen in Europe and the UK, and have formed the basis of industry CSR codes and guides, such as the European Commission Guidance for ICTs and the Global Network Initiative. Despite its apparent popularity, the Guiding Principles are controversial. There continue to be calls for a treaty-based governance regime for the human rights obligations of businesses.
What we need to do now is move the conversation forward by extending the Internet regulatory debate to take account of CSR. In my research, most recently in my book Regulating Speech in Cyberspace: Gatekeepers, Human Rights and Corporate Responsibility (Cambridge University Press, 2015), I seek to challenge the traditional conception of human rights as a relationship between citizens and state, arguing that in the digital age the experience of human rights in general, and free speech in particular, often occurs with and through private parties. At the moment, companies have been largely left alone to address issues of free speech through CSR frameworks such as in-house codes of conduct seen in Terms of Service and other company policies, through the work of regulatory bodies such as the Internet Watch Foundation to address child sexual abuse images, and industry initiatives such as the Global Network Initiative to address privacy and free speech.
Apps such as Peeple are ripe platforms for abuse, and while Peeple corporate risks liability under defamation and data protection laws for hosting unlawful content, it also carries a wider social responsibility to take care in how it runs its platform. Peeple's commitment to privacy and free speech, or lack thereof (and regulatory savvy), can decide some aspect of your rights online. These types of informal corporate social responsibility codes and self-regulatory frameworks therefore emerge as powerful forces in shaping the right to freedom of expression online. In my book I propose an alternative governance model, the details of which are beyond the scope of this post. However, the take-away here is that in assessing the bigger picture of how to regulate the Internet, how to facilitate and protect rights online, and how to judge the behaviour of the creators of such things as Peeple, we must do a better job of understanding the promise and limits of CSR.
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By: Fenner Stewart and Tony Cioni
PDF Version: Risk Allocation in Operating Agreements for Unconventional Resources
Model contracts play a principal role in reducing transaction costs. They offer parties a series of rules, which allocates risk so that delays, disagreements, over-expenditures, and under-capitalizations can be managed (or avoided altogether). The best model contracts are highly responsive, quickly adapting to new realities. Accordingly, top drafters are pressed to doggedly re-evaluate whether or not their model rules are optimal in light of the ever-changing nature of law and technology.
Modern hydraulic fracturing is a disruptive technology that shifts the incentives within oil and gas joint venture projects. Drafters are adjusting their contracts to adapt. Experimentation with model rules is presently occurring in jurisdictions such as the United States, Canada and Australia, where unconventional resources abound.
This adaptation of model contracts (e.g. the third industry draft of the proposed updates to the 2007 CAPL Operating Procedure) has created a debate as to which model rules will be best for unconventional shale projects. As a contribution, this article first introduces how modern hydraulic fracturing has changed risk allocation in joint ventures, and then considers a couple of the central debates over what changes might need to be made so that model contracts can successfully adjust to this new reality.
What's In The Rocks
Wood MacKenzie defines the conventional asset life cycle as having four phases: exploration, appraisal, development, and production. In the exploration phase, the operator determines if hydrocarbons exist. In the appraisal phase, the operator determines if hydrocarbons exist in paying quantities. In the development phase, the operator devises and executes a plan to get the hydrocarbons out of the geological formation as efficiently as possible. In the production phase, the operator follows through with the plan, ensuring production until the reservoir is no longer commercially viable. An additional fifth phase is the decommissioning phase, in which the operator concludes operations and carries out reclamation initiatives.
The unconventional asset life cycle of the shale play differs in important ways. For such projects, Wood MacKenzie has devised four alternative phases: concept, pilot, ramp-up and exploit. In the concept phase, the operator devises a technical strategy to maximize the potential profitability of a shale play based mainly on the information on hand about its geological characteristics and anticipated economics. In this phase, a number of well designs will be devised for the acreage. In the pilot phase, the operator tests the hypothesis of the concept phase against the reality of the play's geology and rate of return. It does so by drilling a number of wells to test techniques for extracting hydrocarbons from the shale.
As the operator succeeds with in the pilot phase, a greater number of wells are drilled. As more wells are drilled, the commercial viability of the shale acreage becomes much clearer. If the results of the pilot phase indicate the project will be as viable as projected, the operator will dramatically expand operations. This expansion of operations is a key feature of the ramp-up phase.
The exploit phase is not the same as the production phase of conventional projects. The operator will drill many wells across the acreage. It will attempt to standardize production by re-using a limited selection of well designs, established during the concept and pilot phases. This standardization process increases efficiency and reduces transaction costs. At the same time, this standardization cannot be too rigid, since shale plays may have sharp decline curves, which demand reworking to sustain production. Put differently, well options must be responsive to changes in the subsurface characteristics of the play. Schlumberger calls this model the "flexible factory" model, because it takes a factory-style approach to standardization and combines it with a willingness to be responsive to change.
Ideally, the operator would not have to be flexible. The most efficient well design would be available and it could be replicated across the entire shale play. In such an ideal world, risk would be much easier to manage. However, this ideal would demand, for one, that the subsurface characteristics of any play be homogeneous. This is very unlikely; even the best plays will have a high probability of change in the subsurface characteristics. Furthermore, such a geological change may not be as foreseeable as it is for a conventional reservoir. In reality, when drilling a new well, the proposed well designs and fracturing programs may fail, and the operator will have to re-commence experimenting with techniques in the hopes of achieving commercially viable production levels.
To better appreciate such a shale project, imagine a number of drill pads equally spaced on one end of a sizable rectangular acreage. Attached to each drill pad are multiple wells that extend vertically down toward the shale formation. When approaching the shale formation, these wells begin to curve until they are running horizontally through the target area of the play. Placed like the teeth of a comb, these wells allow for optimal spacing of hydraulic fractures throughout the formation. As time elapses, more such multi-well pads populate the acreage as the project moves across the shale play, systematically fracturing and exploiting as much of it as possible. As it does so the operator attempts to always re-apply a selected number of well designs. While some wells move easily into the exploit phase, others may be transitioning between concept, pilot and exploit phases to cope with unforeseen subsurface characteristics.
New Risks
For a conventional project, the industry practice is well defined: drill one or two exploration wells, assess the results, create a development strategy to optimize production, install infrastructure to execute the plan, and maintain production. The project is linear. After the well is completed, the project risk drops dramatically. As long as there are no problems with the reservoir, the operator needs only to maintain equipment and keep production flowing. Nearing the end of the well's commercial production, when the reservoir is depleted, notable risk re–emerges. At this point, the operator engages in enhanced recovery strategies entailing additional capital investment and increased operating costs to maintain reservoir pressure until the reservoir is no longer commercially viable.
For an unconventional shale project, the subsurface risks play out differently. A greater number of wells need to be completed for commercial production. The cost of drilling more wells is multiplied by the fact that each well tends to be more expensive than a conventional one. This is because each needs to use horizontal drilling and hydraulic fracturing technologies. Accordingly, these projects have higher breakeven points and are more sensitive to risk.
Increased cost sensitivity is made more problematic because it is harder to predict the commercial viability of the acreage over the asset's life cycle. Shale plays rarely enjoy geological homogeneity across the play. Thus, at different locations within the play, the operator may have to invest more time, money, and effort to tease the hydrocarbons from the shale. These additional complications can make it difficult to predict costs.
Post completion, an operator of a successful conventional well tends to enjoy a time of more or less uninterrupted production from the reservoir's natural drive mechanism. Even after this, the operator can replace the natural drive artificially, extending the life of the asset. This is not to say that maintaining reservoir pressure will not have its complexities, just that a conventional well tends to have higher risk until it is completed and then the risk decreases dramatically during the production phase. By contrast, a shale play tends to have lower risk up front, but it tends to persist throughout the project's lifecycle. In other words, the risk profile tends to be flat. As a result, this continuing risk ensures that an operator of a shale project will not enjoy the same general risk profile as an operator of a successful conventional well.
There are at least three takeaways from comparing conventional and unconventional shale projects. First, the costs of unconventional projects are higher. Accordingly, such projects are more sensitive to risk. Second, although the geological risk of an unconventional project may be, on balance, lower than a conventional project, the risk does not tend to decrease, as it does for successful conventional projects. It follows that unconventional projects are not only more sensitive to risk, but the risk tends not to decrease over the life of the project. Third, while conventional asset life cycles are linear, unconventional asset life cycles may not be; they can move forward and backward through the phases in order to cope with changes in subsurface characteristics over the acreage. In sum, an unconventional project has higher costs, is more sensitive to risk, and sustains its level of risk over the asset's life cycle.
The Debate Over Model Rules
There are a number of debates as to which model rules are best suited for shale projects. This article introduces two of the main ones: Operator Control vs. Committee Control and Independent Operations vs. No Independent Operations.
Operator-Control vs. Committee-Control Model
For conventional projects, most domestic model agreements grant the operator sole authority over project management with only a few opportunities for the non-operators to contest its discretion. One such opportunity is that the non-operator can explain, using a prescribed process, how the operator could conduct operations more efficiently. If the suggestion is reasonable, the operator will have a set period of time to respond: choosing either to adopt the suggested mode of operation, or step aside and let the objecting party takeover management on the terms it prescribed in the complaint. If the operator steps aside, the objecting non-operator must act as operator on the prescribed terms for at least two years. Although never used all that effectively in practice, this requirement acts as a policing mechanism, ensuring that only reasonable demands will be placed upon the operator.
Another opportunity is the Authorizations For Expenditure (AFE) mechanism. If the operator selects a course of action and the total bona fide estimated cost of that action is more than a set amount (usually set at $50,000), then the operator is required to issue an AFE to the non-operators for approval. The AFE must contain sufficient information for the non-operators to make an informed decision. If a non-operator does not approve the AFE, this may trigger the independent operations mechanism (note that this mechanism is also called "exclusive operations" in some model agreements). Under this mechanism, those that want to continue with the project, as long as they are willing to assume the additional risk between them, can conduct the proposed operations without the non-participating parties.
Some, such as the Association of International Petroleum Negotiators (AIPN), suggest that this operator-control model is inappropriate for unconventional projects, because more decisions, well in excess of the traditional trigger amount for an AFE (i.e. $50,000), need to be made on an ongoing basis. The result is many more AFEs: each AFE representing a potential independent operation. Never knowing whether all the parties are financially committed to future actions reduces business certainty. This financial uncertainty can result in under-capitalization, since the higher costs of unconventional projects may require a greater risk appetite to go it alone.
One solution is to increase the set amount to trigger an AFE to $100,000 or $200,000. The downside of increasing the amount is that it will increase the discretion of the operator, and thus reduce the safeguard effect the AFE provides to non-operators. Ironically, this potential solution to the under-capitalization problem could lead to over-expenditure, because the operator can gamble with the investment of non-operators, and there are fewer safeguards over the operator's decisions.
In response to these concerns, the AIPN's 2014 Operating Agreement for Unconventional Resources (2014 UROA) offers a competing mechanism to operator-control. It employs the use of an operating committee, which usually features a voting threshold of 50-75% of the participating interests in the venture. The operator is beholden to the instructions of this committee and has only a limited discretion to act without that authority. This committee-control model grants non-operating parties greater capacity to contribute to management and helps to provide a mechanism for the creation and approval of annual budgets. When large and unforeseeable expenses arise, the committee-control model still provides non-operator consultation on an ad hoc basis, using AFEs on a much more limited basis. This largely locks in capital, and provides greater business certainty for such projects.
However, some drafters resist the committee model approach for a number of reasons, including in no small part that they perceive that the domestic users of their agreements are accustomed to, and prefer, how things are presently done. Furthermore, it is perceived that the committee approach increases opportunities for risk adverse parties to block development. This may or may not prove to be the case. Regardless, loyalty to the operator-control model creates a formidable challenge, that is: how to optimize development in a manner that avoids the increased threat of under-capitalization on one hand, but also the threat of over-expenditure on the other.
Independent Operations vs. No Independent Operations
When less than all parties are willing to fund a new project proposal, the independent operations mechanism may provide an opportunity for some members of the original joint venture, who have a larger risk appetite, to invest in a sub-consortium and push forward. This mechanism prevents any party from vetoing any proposed expansion of operations. If such a veto were allowed, the most risk adverse party could set the pace.
The parties can set the requirements for independent operations in a number of ways. For instance, it can be agreed that a party with an interest of less than a certain percentage of the total working interest (e.g. 5%) may not propose an independent operation. Another potential restriction could be that no such operation is permitted without the support of a minimum percentage of the total working interest (e.g. 25%). Another is that such operations may only be proposed after certain initial commitments are met under the original agreement. Such requirements can create a balance between the freedom to pursue profit and the ability to protect the joint venture as a whole.
When a party opts out of an independent operation, it does not necessarily lose the right to come back into the operation if the venture proves to be successful. In a successful independent operation, once the participating parties have recovered a multiple of costs (e.g. 400%), the non-participating parties start to get a share of production.
In conventional projects, not all independent operations are used for new exploration and drilling, some are for restoring, prolonging or enhancing the existing production of a well. That said, many independent operations result from disputes over new drilling opportunities and can be regarded as a kind of side bet. It is a side bet, because whether or not the independent operation pays out matters little to the success of the primary wells of the joint venture. So, in the domestic context, costs plus an additional bonus (e.g. 400% of costs) is an attractive stake for those with greater risk appetite. If they succeed in their wager, not only do they win, but also all parties to the venture win; and if they lose, only the risk-takers are out of pocket. This mechanism may have its critics, but on balance, few deny that it enhances the potential profitability of conventional projects in most cases.
In an unconventional project, things may play out differently. The disputes that arise as to further investment are rarely side bets, mere peripheral gambles; rather, they are integral to the project's success. If a party is allowed to elect not to participate (subject only to costs plus a penalty for re-entry), the non-participating party's election not to participate can be used as a weapon to unfairly shift more risk upon those, who the non-participating party knows are committed to ensuring that the project does not fail.
The remaining participating parties may choose, in retaliation, to under-capitalize to mitigate the extra risk/cost thrown upon them. As a result, under-capitalization may lead to less exploration, experimentation, and analysis. Accordingly, the operator might make less informed decisions as to drilling. This can result in suboptimal production, or in the worse case, the premature abandonment of the project. Either way, the project may suffer.
Although fears persist over allowing independent operations, the 2014 UROA has retained it, attempting to make it work by introducing safeguards, such as: (1) using annual budgets and work programs (reducing the opportunities for independent operations); (2) limiting reentry after a party opts out (preventing problematic de-risking strategies); and (3) adding further restrictions on their use (e.g. allowing such an operation on only one multi-well pad per quarter section per year).
This article has pointed to a few of the differences between conventional and non-conventional projects. Hopefully, it has also added to the current debate over what changes need to be made to model operating agreements, by offering some useful insights into the complexities in—and pitfalls of—modifying such agreements for unconventional shale projects.
An earlier version of this post was first published in CAPL's "The Negotiator" in October 2015.
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By: Alice Woolley
PDF Version: Liability and Lawyers
Case Commented On: Mraz v Herman, 2015 ABQB 573
The recent decision of Justice W.P. Sullivan in Mraz v Herman succinctly disposes of claims made against two Alberta lawyers. The first claim, based on a real estate lawyer's failure to make proper disclosure to his client, Mrs. Mraz, failed because the lawyer had discussed matters with Mr. Mraz, whom the Court found was Mrs. Mraz's agent (at para 18). The second claim, based on advice allegedly received from a lawyer participating in the Law Society of Alberta's lawyer referral service, failed because the plaintiff did not provide any evidence to demonstrate that the lawyer's conduct fell below the standard of care (at para 77).
The Court's analysis is straightforward. It does, though, make a few points worth noting and also raises one question (at least for me). First, while the Court does reject the claim against the real estate lawyer on its merits, the Court acknowledges that the lawyer's fiduciary duties include the obligation to make full disclosure. As I have discussed elsewhere, this approach reflects a consistent trend in the case law on lawyers as fiduciaries, one that while troubling to some commentators properly reflects the lawyer's central obligation to facilitate a client's decision-making.
Second, the Court effectively takes the position that the failure of a plaintiff to provide expert evidence in relation to the standard of care precludes proof that the lawyer was negligent (at para 65). While I understand the Court's point of view, requiring such evidence to assess a lawyer's negligence seems unduly onerous. Unlike with many other professions – e.g., doctors or engineers – the court is generally capable of independently assessing whether a lawyer's conduct met the standard of care. The Court can determine, for example, whether a lawyer's advice was sufficiently accurate, whether the lawyer made an unacceptable error such as missing a governing statute or Supreme Court decision, or if the lawyer failed to take appropriate steps to protect a client's privileged information. In exercising its inherent jurisdiction over its own processes courts routinely assess the conduct of counsel. As a consequence, while in certain circumstances expert evidence may be necessary, requiring it in every case creates an unnecessary hurdle to the assessment of liability. And given the problems of access to justice, which include the expense associated with pursuing claims, creating unnecessary hurdles to assessing liability is not something the Court ought to do.
Third, the Court clarifies that lawyers participating in lawyer referral services can be liable for the advice or information they provide. The Court notes, however, that the imposition of such liability must be sensitive to the importance of referral services in fostering access to justice:
While there has to be protection for those receiving legal advice so that they can rely on the information they are receiving, it benefits no one to go too far to the other end of the spectrum by placing too great a liability on legal referral services and their volunteers when they merely provide legal information. Such measures could have a chilling effect on participation in those services for fear of liability (at para 76).
And finally the question. One aspect of the judgment puzzles me. Specifically, the litigation in this case arose from the lawyer accepting a revised tender in a real estate sale without discussing it with Mrs. Mraz. I would have thought that the legal issue in that case would be that the lawyer acted without receiving proper instructions, not that the lawyer failed to make full disclosure. The absence of disclosure matters, but surely accepting a tender without being instructed to do so by your client is an even more obvious breach of the lawyer's duties. Nothing particularly turns on this – either way, Mr. Mraz being Mrs. Mraz's agent means that the lawyer did disclose and (presumably) received instructions to accept the revised tender. But the framing of the claim just seems odd to me because it seems much more egregious to act without instructions than to, say, act with instructions which were based on improper disclosure. The latter is bad – and a violation of the lawyer's fiduciary duties – but the former is worse, and does appear to be what was alleged (although not proven) to have happened here.
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By: Nigel Bankes
PDF Version: "Contract Depth" Does Not Mean Optimal Depth
Case Commented On: Shallow Gas Drilling Corp v Legacy Oil and Gas, 2015 ABQB 606
It would be nice to know a little more about the facts of this case; but what appears to have happened on the basis of the rather cryptic record provided by Justice Bensler's judgement is as follows. 1346329 Alberta Ltd (134) drilled a series of wells to earn interests in the Pierson properties. Earning was contingent on drilling the wells to contract depth which was defined as "a subsurface depth sufficient to penetrate 15 metres into the Spearfish." The wells were drilled between late 2007 and January 2008. It was admitted that all of the wells were drilled to depths between 28.3 and 30.65 metres into the Spearfish.
Shallow Gas Drilling (SGD) (the plaintiff and appellant) agreed to participate in 134's operations by providing a capital contribution. As a result it also earned a working interest in the properties. Legacy (the defendant and respondent) subsequently acquired 134's interest. SGD's participation was formalized under the terms of a Participation, Joint Operating and Clarification Agreement (the Participation Agreement). The CAPL 1990 Operating Procedure (CAPL 1990) was scheduled to that agreement.
The production results of the wells were disappointing. A report (the Sproule report) commissioned by Legacy suggested that the wells should have been completed higher within the Spearfish than they had been. As a result Legacy proposed a number of independent operations (the details of these operations are not discussed in the judgement but presumably they involved recompletion higher in the formation.) SGD declined to participate and as a result suffered a dilution of its interest (again there is no further discussion in the agreement of the operation of the penalty provisions of Article X of CAPL 1990).
SGD seems to have taken the view that Legacy breached the terms of the Participation Agreement by failing to complete in the optimal part of the Spearfish. SGD characterized this as both a breach of contract and actionable negligence. It further alleged that, given these breaches, the operation of the penalty provisions of CAPL 1990 effected an unjust enrichment which should be reversed.
On this record, Legacy sought and was granted summary judgement by Master Hanebury. Justice Bensler dismissed the appeal.
On the appeal SGD offered additional evidence in the form of an affidavit seeking to address the meaning of contract depth and what the parties might have intended by that term. Justice Bensler ruled that the proposed evidence was inadmissible:
[26] Litigants are not permitted to call evidence as to what they think the contract means: Dow Chemical Canada Inc v Shell Chemicals Canada Ltd., 2010 ABCA 126 at para 16, leave to appeal to SCC refused [2010] SCCA No 234. As a corollary to this rule, parties may not call expert evidence on the meaning of a contract: Dow at para 17; Lawson v Lawson, 2005 ABCA 253, at para 52.
[27] Applying the foregoing principles to the case at bar, I conclude that the Burnett Affidavit is not relevant and material because Burnett essentially provides an interpretation of the Agreement. After reciting several clauses from the Agreement, Burnett concludes that "Clause 2 of the Agreement indicates to this author that the test wells were intended to be drilled to a depth of 15 metres into the Spearfish" (emphasis added). Burnett later writes that "Based on the Agreement, the intended drilling depth of the test wells was 15 metres into the Spearfish and not 28, 29, or 33 metres into the Spearfish" (emphasis added). In other words, Burnett opines on the intentions of the parties at the time the contract was formed, which is within the exclusive purview of the Court.
[28] The Court is not persuaded by the Appellant's submission that Burnett provides an analysis of the drilling without providing an interpretation of the Agreement itself. Burnett's opinion that "the drilling depths of [the Test Wells] were all materially deeper than the Contract Depth … as defined in the Agreement" requires the reader to agree with Burnett that the parties intended "Contract Depth" to mean a depth of exactly 15 metres into the Spearfish and no more. In other words, Burnett cannot conclude that the drilling depths of the Test Wells exceeded the "Contract Depth" without first interpreting the meaning of that term, which he expressly does early in his report.
[29] It is also important to emphasize that the Burnett Affidavit addresses the meaning of "Contract Depth", which is the ultimate issue in this case. As held in the seminal decision R v Mohan, [1994] 2 SCR 9, at para 25, the criterion of relevance is applied strictly in assessing expert evidence in respect of an ultimate issue. See also Bernum Petroleum Ltd v Birch Lake Energy Inc, 2014 ABQB 652, at paras 53 to 54.
Justice Bensler was also of the view that Master Hanebury had been correct to reject each of the contract, tort and unjust enrichment claims. The contract claim must be rejected because the wells had in fact been drilled to the required depth (at para 50). The wells may not have been completed in the optimal part of the formation but that was not the issue. The tort claims must be rejected because at no point did the plaintiff actually allege negligence (at paras 55 – 57). And finally, the unjust enrichment claim must be rejected because the enrichment that occurred in favour of Legacy through the penalty provisions of the independent operations clause was justified by a juristic reason, namely the operation of the contract. The enrichment in favour of Legacy was therefore not an unjust enrichment (at paras 58 – 61).
All of which seems eminently reasonable.
The case would seem to bear a strong resemblance to the much older case of Hi-Ridge Resources Limited v Noble Mines and Oils Ltd, [1978] 5 WWR 552 (BCCA).
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By: Erin Sheley
PDF Version: Parole Ineligibility and the Double Edges of Consistency in Sentencing
Case Commented On: R v Ryan, 2015 ABCA 286
In R v Ryan the Alberta Court of Appeal clarifies how trial courts should apply some of the sentencing factors set out in sections 718-719 of the Criminal Code RSC 1985, c C-46 to the calculation of a period of parole ineligibility under section 745.4 for a person convicted of second degree murder. In that sense alone it has obvious pragmatic relevance for criminal practitioners and suggests answers to some interesting theoretical questions about the relationship between parole ineligibility and the denunciative function of a life sentence. Of potentially broader long-term significance, however, is the difference between the majority justices in this case. Madam Justice Ellen Picard reaffirms the status quo of broad judicial discretion in criminal sentencing. Though concurring in the result of allowing the Crown's appeal in this case, Justice Wakeling writes separately to assert that the interests of rationality, predictability and consistency require appellate courts to construct an analytical framework that will encourage sentencing courts to adopt a common methodology for sentencing. The justices' reasons trace lines of battle familiar to those who have watched the experiment with mandatory sentencing guidelines and its fallout in the United States. In the event that Ryan presages a sea change, practitioners should be aware of the analysis in both positions. But Canadian courts should be leery of starting down this fraught path.
In January 2006, drug dealer Gerald Robert Ryan, in the midst of a period of crack addiction, shot his employee Barry Head to death in retaliation for the latter's attempted theft of Ryan's truck and a large amount of cocaine. Ryan brought Head along with him while he pretended to pick up cash from another dealer's trailer but instead picked up his own gun and brought it back to the truck. According to Ryan's version of events, Head "reacted sneeringly and made a sarcastic comment" when Ryan got back to the truck, which prompted him to shoot the other man in the head (at para 4). Ryan was charged with first-degree murder but the trial judge was not satisfied beyond a reasonable doubt that the decision to kill Head had been planned and deliberate. The trial judge did, however, find that Ryan had "deliberately shot" Head and was therefore guilty of second-degree murder by intentional killing under section 229(a) of the Criminal Code (at para 8).
At sentencing the judge took into account the fact that, after a period of juvenile criminality, Ryan appeared to live a pro-social life for some time, up until he "fell into the grip of a crack cocaine addiction" in 2005 (at para 10). Consequently, the trial judge determined that Ryan was "not a dangerous person earlier in his life, but that under cocaine addiction he acted out" (at para 11). Ryan received a life sentence with a thirteen-year period of parole ineligibility. The Crown appealed the sentencing judge's decision on parole ineligibility, which was reviewable, like other more traditional sentencing decisions, for errors in principle, failure to consider a relevant factor, over-emphasis of factors, or demonstrable unfitness. See, e.g., R v Shropshire, [1995] 4 SCR 227 at paras 43-53.
Issues on Appeal
The Court allowed the Crown's appeal and held that the appropriate length of parole ineligibility for Ryan should have been 17 years.
The Court's Reasons for Judgment
Of the four errors asserted by the Crown the Court found two to be errors in principle by the sentencing judge, with fairly straightforward reasoning on each.
On the issue of pre-sentence custody the Court states that it is now settled that pre-sentence custody is not deductible under section 719(3.1) of the Criminal Code from the period of parole ineligibility, because "Parliament has provided that the entire time spent in custody since arrest is counted by the corrections authorities as part of the ineligibility period imposed after trial" (at para 23). The Court further found that the sentencing judge's comments "reveal he was of the opinion that he was entitled to reduce Ryan's parole ineligibility by the amount of time Ryan spent in pre-trial custody" and that this error had a profound impact on the disposition (at para 26-27).
As to Ryan's offer to plead guilty to manslaughter, the Court holds it ought not to be relevant for mitigation purposes because (1) the offer, since it was unaccepted, has no evidential value; (2) giving credit for it would encourage accused persons to make gratuitous plea offers for lesser offences in the hopes of reducing their periods of parole ineligibility; and (3) the offer to plead guilty to a lesser offence like manslaughter does nothing in the way of encouraging the accused to accept responsibility for his or her actual crime—here second-degree murder—which is the normative principle embodied in section 718(f) of the Criminal Code (at paras 34-35). The Court therefore holds it to be an error in principle if the trial court gave any credit to Ryan's offer.
With regard to the pattern of prior dangerousness, the Court found that the sentencing judge accepted that Ryan had become dangerous while under the influence of cocaine but was not persuaded to infer that after years in prison Ryan would still be dangerous. The Court also read the sentencing judge's reasons as "essentially setting out Ryan's life narrative, and the damage done to it by drugs" and was not persuaded to lengthen the injunction against future parole based on a forecast that Ryan would not change his ways (at para 40). The Court thus found no error on that issue.
Finally, the Court found that the sentencing judge's reasons, including references to such factors as "planning or premeditation," indicated that he had properly taken denunciation into account in calculating the period of parole ineligibility. However, the Court expressed confusion over the sentencing judge's apparent position that "for the purposes of individual deterrence, the life sentence by itself carries great deterrent effect and consequently enhanced parole ineligibility would not much increase deterrence on an individual basis" (at para 43). Yet it did not find that this aspect of the sentencing judge's reasons had any real effect on his conclusion and thus did not find error on that basis.
Calculation of the Proper Range of Disposition: Should Courts Be Constrained?
The majority of the Court agree that the sentencing judge's errors resulted in too short a period of parole ineligibility for Ryan, but the difference within the majority justices (Justices Picard and Wakeling) in their analytical frameworks reveals two incompatible views of the judge's function in sentencing. Section 745.4 allows the sentencing judge to increase the period of parole ineligibility from ten years to any period up to 25 years, with regard to the character of the offender, the nature of the offence and the circumstances surrounding its commission, and to the recommendation, if any, made by the jury. After considering such factors as, on the one hand, Ryan's youth and the sentencing judge's finding that he was not a hardened criminal and, on the other, the signs of foresight on Ryan's part and his subsequent efforts to conceal the body, the Court concluded that had the sentencing judge not made his other errors he would have found that 17 years would have been the appropriate period of parole ineligibility.
In his concurring reasons for the majority, Justice Wakeling takes issue altogether with the discretionary approach to sentencing determinations exemplified by the Court's disposition of this appeal. The status quo, he argues, runs counter to the equality principle embodied in section 718.2 of the Criminal Code, which mandates that "a sentence should be similar to sentences imposed on similar offenders for offences in similar circumstances." Justice Wakeling argues that a purely discretionary regime results in unequal outcomes. His reasons outline a comprehensive system for realizing "rationality, predictability, and consistency" in sentencing (at para 66). They draw heavily on the Australian practice of allowing the highest court of each state to issue "guideline sentencing judgments" which consider appropriate sentences for offenders convicted of a specific offence grouped together by distinguishing features of the offence and other relevant traits (at para 67).
Justice Wakeling proposes three ranges of parole ineligibility to apply in all cases of second-degree murder, based upon the typical sentences he gleans from a lengthy review of the case law. One would span 10-15 years and apply to the least egregious offenders, typically those whose crimes were to some degree spontaneous. The second would span 16-20 years and apply in cases where: (1) the offender was or had been the domestic partner or was a parent or grandparent of the victim and the homicide was directly attributable to this relationship; (2) the offender betrayed the kindness extended by the victim; (3) the victim was a vulnerable member of the community. The third range, of 21-25 years would apply in cases of premeditation or extreme violence.
Madam Justice Picard addresses this proposal, noting that it was unsurprising that Parliament had not created such guidelines itself but rather left the courts with a broad scope of discretion. What Justice Wakeling decries as inequality Justice Picard sees as the flexibility to account for variations in fact that would escape the distinctions made by such broad categories. As Justice Picard puts it, "the potential for variation of facts, both aggravating and mitigating, within each area is as large as human behaviour can imagine" (at para 47). In turning to the language of section 745.4 Justice Picard observes that "[t]he reality is that there are many different factors comprised within the scope of what Parliament means by 'character' of the offender and 'nature' of the offence and 'circumstances'. None of these terms is expressed in literal, mathematical or formulaic terms" (at para 49). Second, Justice Picard asserts that it is more properly the task of Parliament to authorize such laws if it sees fit; as an example of judicial shortcoming when it comes to the task of legislating she points out that Justice Wakeling's somewhat specific categories are both over and under-inclusive. Finally, Justice Picard criticizes Justice Wakeling's discussion of R v Shropshire, which provided some of the basis for his category of "least egregious" offenders ranging up to 15 years as opposed to the ten-year period specifically mentioned in section 745.4 serving as its own distinct category. In Shropshire the Supreme Court of Canada referred to the ten-year threshold specified in the Code as the median. Justice Picard read the reference to a 'median' as simply recognizing the practical reality that the 'ordinary' or 'typical' period of parole ineligibility for second-degree murder may well be 10 years (at para 54). The distinction between the two opinions which form the majority judgment in Ryan is significant, because Justice Wakeling's interpretation would result in more punitive periods of ineligibility by as much as five years for the lowest category of offenders.
Additional Grounds for Caution
The experience of the United States with mandatory sentencing guidelines provides further grounds for caution in following the proposal by Justice Wakeling. The U.S. Federal Sentencing Guidelines, unlike Justice Wakeling's proposal, were the creatures of legislative, rather than judicial, initiative. Formally adopted in 1987, they were nonetheless motivated by similar concerns over consistency and predictability, which had already generated a number of parallel guidelines in the state courts (See Kate Stith & Steve Koh, "The Politics of Sentencing Reform: The Legislative History of the Federal Sentencing Guidelines," 28 Wake Forest L. Rev. 223 (1993)).
Most of the literature on the Guidelines, prior to their being rendered non-binding in 2005, has made the case that they run afoul of both of the primary theoretical justifications for punishment. As Madam Justice Picard predicts in Ryan, mandatory sentencing ranges tend to obviate proportionality goals by rendering case-specific information about the offense and offender irrelevant (Erik Luna, Testimony Before the United State Sentencing Commission (May 27, 2010), available here). For this reason they arguably offend the basic just deserts inquiry underlying retributive punishment. But they also appear to fail at capturing utilitarian goals. Certainty of punishment does not create appropriate deterrence unless the accused not only knows the rule, but also believes that the costs outweigh the benefits of violating it and correctly applies this information to his conduct. Empirical literature suggests, however, that offenders do not make these calculations correctly, thus thwarting the deterrent purposes of mandatory sentencing (See e.g., Paul H. Robinson & John M. Darley, The Role of Deterrence in the Formulation of Criminal Law Rules: At Its Worst When Doing its Best, 91 Georgetown L.J. 949, 953 (2003)).
U.S. observers have also noted how the existence of mandatory guidelines have increased the overall punitive nature of the criminal justice system, due to the power of prosecutors in plea negotiations. Because these conversations take place outside of the courtroom, the parties can essentially bargain about which facts will be formally taken notice of during sentencing. Prosecutors can thus negotiate around mandatory minimums by threatening to bring higher charges with even higher mandatory ranges (See William Stuntz, Plea Bargaining and Criminal Law's Disappearing Shadow, 117 Harvard L. Rev. 2548, 2569 (2004)). It is interesting to note that as applied to the facts of Ryan, the sentencing framework proposed by Justice Wakeling would result in a longer period of parole ineligibility by treating ten years as the floor for the lowest category of offender, as opposed to the typical sentence the Court appears to consider it attracts.
Finally, the theory by which the United States Supreme Court eventually held the mandatory Guidelines to be unconstitutional is relevant here as well. In United States v Booker, 543 U.S. 2005, the Court declared that the Guidelines, to the extent that they allowed courts to enhance sentences using facts not reviewed by juries, violated the accused's right to a jury trial. Justice Wakeling's model—while judge-created rather than legislated—nonetheless appears to create a similar problem vis-à-vis section 11 of the Charter. The Supreme Court of Canada has recently expressed skepticism over mandatory minimums, although under a section 12 cruel-and-unusual analysis rather than under section11. In R v Nur, 2015 SCC 15, the court held that mandatory minimums for gun crimes violate section 12 because "they emphasize denunciation, general deterrence and retribution at the expense of what is a fit sentence for the gravity of the offence, the blameworthiness of the offender, and the harm caused by the crime" (at para 44). Because, as noted in the American context, these proportionality problems are as likely to arise under all mandatory ranges–judicially-created as well as statutory–Nur suggest that Justice Wakeling's proposal is unlikely to become the law of the land any time soon.
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By: Alice Woolley
PDF Version: The Volkswagen Scandal: When We Ask, "Where Were the Lawyers?" Do We Ask the Wrong Question?
Every institutional ethics scandal – Watergate, the 2008 Financial Crisis, Enron, the Savings and Loan Scandal, the Daily Mail hacking scandal – prompts the question: where were the lawyers?
In its asking, "the question" expresses both faith and disappointment – faith that lawyers help ensure lawful conduct; disappointment that in this case (whichever case it is) they appear not to have done so. "The question" is, in short, fundamentally optimistic. While it acknowledges that here the lawyers failed, it rests on the premise – or at least maintains the hope – that, somehow, lawyers can do better: lawyers can prevent unlawful things from happening.
The Volkswagen emissions testing deception (nicely summarized by the NY Times and the BBC) is the latest scandal to raise the question. This post gives my analysis of it. While we don't know where Volkswagen's lawyers were – or if they were anywhere – we can plausibly speculate as to where they might have been, and what they could have done to prevent Volkswagen's wrongdoing.
But in so doing I also want to ask whether the question is misplaced. Are we wrong to put the faith we do in lawyers? And are we foolish to be disappointed when they fail to justify the faith we place in them? And if we are, is there a better question we could ask to understand institutional wrongdoing?
Lawyers' involvement in Volkswagen's deception could plausibly have occurred at one of two points: when the scheme to install the "defeat devices" was put in place, and in 2014-15 when Volkswagen was being investigated by the California Air Resources Board and the Environmental Protection Agency.
At the time the company decided to install the defeat devices, the role of the lawyers would have been advisory, providing some kind of opinion to the company about the legality of its approach. Under one scenario, the lawyers would have advised the company that its scheme was unlawful, but when the company ignored their advice and proceeded with the installation of the defeat devices, the lawyers – respecting solicitor-client privilege – said nothing. Under another scenario, the lawyers advised the company that its scheme was lawful. While one would like to think that no one could plausibly advise that installing devices to fake-out emissions testing is lawful, enough examples of egregious legal advice exist to prevent ruling out that possibility.
At the time the company was dealing with the California and federal investigations, the role of the lawyers would have been as advocates. They would have helped the company develop and implement its "very aggressive" response (as reported by the NYT) to those investigations. They would have facilitated Volkswagen's attempt to prevent its wrongdoing from being publicly exposed.
How could lawyers have prevented or reduced Volkswagen's deception? Their best chance would be at the advising stage. By providing unequivocal advice that installing the defeat device was unlawful, and taking that advice up the corporate structure, including to the company's board if necessary, they could have involved enough people to make it difficult for the company to proceed with such an unambiguously deceptive course of conduct. And certainly at the advising stage the lawyers could have declined to provide advice that would place a gloss of legality on the company's malfeasance.
At the advocacy stage the lawyers could conceivably have advised the company to cooperate with the investigation, but to do so would have had only a marginal impact; at that point the company had already sold millions of vehicles with the defeat devices installed. Further, it is not at all clear that lawyers ought to decline to provide advocacy for their clients, even when those clients have acted badly. Indeed, providing zealous advocacy for the badly behaved client seems like proper conduct for a lawyer, not improper. That the effect of such advocacy is to impair government investigations does not change the analysis.
The ability of lawyers to prevent Volkswagen's misconduct requires, though, that the company actually ask the lawyers for advice, which it is not obvious that they would have given the pretty clearly unlawful nature of what they did. It also requires that, when asked for their advice, the lawyers be willing to speak truth to power. To tell people at the company on which they economically depend – either as external counsel or in-house – and with whom they may have personal relations, that what they are doing is clearly wrong. And then – if their advice is ignored – to commit the social and professional solecism of calling out wrongdoing by their colleagues and, perhaps, their friends.
Lawyers should do that. In fact, anyone with knowledge of what Volkswagen was doing should have spoken out against it. Not much of a moral compass is required to realize that actively and purposefully deceiving a government regulator attempting to prevent pollution is really bad behaviour, and that something ought to be done to stop it.
But how surprised ought we to be that people didn't? We have any amount of evidence – experimental and historical – that most people fail to rise above their moral circumstances. When circumstances and institutional structures encourage bad behaviour, people are more likely to act badly then to act well. We properly assert the lawyer's obligation to respect and facilitate the rule of law, particularly when advising clients. Lawyers not only have a personal moral obligation to address Volkswagen's conduct but also – if they were asked for advice – a professional one. But we should also acknowledge that lawyers are only likely to fulfill those personal and professional duties when circumstances at least somewhat support them doing so. Lawyers have special duties. But they aren't special – they are ordinary people, likely to respond in the ways ordinary people do to the circumstances in which they find themselves. So when a lawyer fears a client's disapproval (or wants the client's approval), where the lawyer works in an environment in which certain kinds of misconduct become normalized or excused, where conformity is valued, or, conversely, creativity in "interpreting" rules is, it is not really that surprising that that lawyer does not act to prevent misconduct, even where satisfaction of his personal or professional obligations should lead him to do so.
This isn't an excuse. Everyone who participated in the Volkswagen deception acted wrongfully. But it is an explanation for the failure of lawyers to prevent wrongdoing, and one that suggests that when you ask the question, "where were the lawyers?" the answer is almost always going to be: where everyone else was.
Which means that if our goal is to prevent corporate misconduct then asking where the lawyers were isn't the right question or, at least, isn't a sufficient one. It focuses on individuals and their professional obligations, rather than on the circumstances in which those individuals acted as they did. And that limited focus will never fully explain the failure of those individuals to meet their obligations.
We have to ask tougher and more intractable questions. About the power structure of the lawyer-client relationship, particularly where lawyers work in-house. About the nature of corporate decision-making, and its potential to encourage or discourage moral conduct. About the potentially corrosive effect that lawyer advocacy has on lawyer advising.
In short, we have to ask not only where were the lawyers, but also about where the lawyers were.
This post originally appeared on Slaw.
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By: Fenner L. Stewart
PDF Version: Chevron Corp. v Yaiguaje: Judicial Activism and Cross Border Complexity
Case Commented On: Chevron Corp. v Yaiguaje, 2015 SCC 42
In 2013, Ecuador's highest court held that Chevron was liable to pay US$9.51 billion to forty-seven indigenous Ecuadorian villagers (the plaintiffs). Prior to this final judgment, in 2012, the plaintiffs started an action to seize Chevron Canada's CAN$15 billion in assets to satisfy the judgment. Chevron Canada's assets include its stakes in the Athabasca Oil Sands, the Hibernia Field, the Hibernia South Extension, the Hebron Field, the Duvernay Shale Field, and the Kitimat LNG Project.
In Chevron Corp. v Yaiguaje, the Supreme Court of Canada (SCC) addressed two questions. First, must there be a real and substantial connection between the defendant (or the dispute) and Ontario before an Ontario court has jurisdiction to recognize and enforce a foreign judgment? The Court answered no. Second, can an Ontario court have jurisdiction over a foreign judgment debtor's subsidiary when the subsidiary has no connection to the foreign judgement? The Court answered yes.
The fallout of this case will prove to be divisive. Human rights advocates will celebrate this case, hoping that it signals that Canadian courts will be taking a more active role in holding extraction companies accountable for human rights violations and environmental damages abroad. Skeptics will fear this case, believing that Canada's new role as a judicial trailblazer will come at a cost, discouraging foreign investment and potentially undermining international relations.
The Supreme Court Decision
On its face, this case is about whether Canadian courts have the jurisdiction to enforce foreign judgments. The court only addressed the following two issues.
The SCC held that an Ontario court has jurisdiction over a foreign judgment debtor if the foreign court had a real and substantial connection to the defendant or the subject matter of the dispute. In other words, if the foreign court had jurisdiction, an Ontario court has jurisdiction to recognize and enforce its judgment. In the SCC's opinion, the court is merely recognizing and enforcing an existing obligation and not reviewing the substantive merits of the case, and thus, the real and substantial connection test does not need to be applied to the Canadian court. The only other requirement is that the judgment had to be confirmed by the court of final appeal in the foreign jurisdiction in question. The judgment needs to be final. Thus, all a foreign judgment creditor needs to do to start the Canadian process is serve the debtor ex juris and commence an action.
Accordingly, an Ontario court had jurisdiction to enforce the judgment of Ecuador's Court because (a) there was a real and substantial connection between Ecuador's court and the subject matter of the dispute, and (b) the judgment came from Ecuador's final court of appeal.
The Supreme Court held that there was no difference between establishing jurisdiction over Chevron Canada and establishing jurisdiction over any other "bricks-and-mortar" business operating within Ontario (2015 SCC 42 at paras 79-81). The larger factual context did not matter. If the company is doing business in Ontario and it is served, then the court has jurisdiction. If there is no case, Chevron Canada merely needs to file a motion to dismiss. In other words, the court employed a traditional, presence-based approach to establishing jurisdiction.
The court dismissed the claim by Chevron that there is a requirement that the company have assets in Ontario before it can establish jurisdiction. The court rejected this position, reasoning:
In today's globalized world and electronic age, to require that a judgment creditor wait until the foreign debtor is present or has assets in the province before a court can find that it has jurisdiction in recognition and enforcement proceedings would be to turn a blind eye to current economic reality (2015 SCC 42 at paras 57).
That is, even if Chevron did not have assets in Canada today, it soon could given the globalized energy industry, where energy markets and investments are increasingly and unpredictably crossing national boundaries.
The Effect of The Case
The immediate effect of this case should not be exaggerated; this is merely a finding of jurisdiction. It means nothing more than the plaintiffs have the right to attempt to seek enforcement of the judgment against Chevron. Chevron has a number of arguments against enforcement; one of the most persuasive being the U.S. District Court's ruling that the plaintiff's American lawyer, Mr. Steven Donziger, ghostwrote the Ecuadorian judgment. (Chevron Corp. v. Donziger, 974 F. Supp. 2d 362 (2014)). In that case, Judge Kaplan held, in a nearly 500-page judgment, that the Ecuadorian ruling resulted from fraud committed by Mr. Donziger and members of the Ecuadorian courts.
Moreover, it is also unlikely that a Canadian court would pierce the corporate veil in such circumstances. However, depending on how Chevron Canada's shares were issued, the plaintiffs may not necessarily need to pierce the corporate veil to extract value from its wholly owned subsidiary. Chevron is the owner of Chevron Canada's shares—not Chevron Canada.
Although the immediate effect of this case may be limited, the judgment is not insignificant. One need not be able to divine the future to see that, moving forward, the impact of this judicial trailblazing may be far reaching.
An expanded version of this post will be published as a case comment in Journal of Energy & Natural Resources Law.
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By: Nigel Bankes
PDF Version: The Alberta Energy Regulator Announces that It will Publish a Broader Range of Decisions
Matter Commented On: AER Bulletin 2015-28, Posting of Participation and Procedural Decisions, September 23, 2015
Over the past few years, ABlawg and this writer in particular, have criticized the practice of the Alberta Energy Regulator (AER) in not publishing important procedural rulings. Examples of those posts are available here, here and here. It is therefore appropriate that we also acknowledge that the AER has recently announced an important and positive change in its practice. On September 23, 2015 the AER issued Bulletin 2015-28 in which it announced that "effective immediately" the AER will begin posting on its website participation or standing decisions and substantive procedural decisions made by both hearing panels and other AER decision-makers. These decisions will be available by following Applications & Notices > Decisions on the AER website.
The AER indicates that posting of these decisions will also be accompanied on the website by a brief description. Specifically, the AER states, "[a] brief description of the type of decision will be provided (e.g., hearing panel decision – participation), along with the application or proceeding number and the name of the applicant or proceeding (if there is no applicant)."
This is an important development in the administrative practices of the AER which should be welcomed by all parties interested in the work of the AER. Applicants, potential interveners, and lawyers will gain insights into how the AER might deal with their applications, and academics, journalists and others will be able to build a broader picture of how the AER the operates.
The Bulletin is careful to note that the change in practice is confined to these two categories of decisions: participation decisions and procedural decisions. The AER of course must make many other and more substantive decisions. In many cases the decision will be little more than the decision to issue or deny a particular application. Information about these decisions is available on the AER website through its "publication of decision" tool, here. This tool provides a link to the AER Integrated Application Registry which in turn provides a link to the AER disposition document and other documents. But these documents continue to be available only to the fleet of foot since they are only available for 30 days after the disposition decision is made (a concern that has also been noted in other posts, see here). The disposition decision itself is usually short and pro forma but in other cases there may be important reasoned "decisions" associated with the file. In sum, the Bulletin is an important step in making AER decisions more broadly available.
But I suspect that we (the AER's user group, aka "stakeholders") might also benefit if other categories of reasoned decisions were also to be made more readily available. I realize that I must be careful what I wish for. I am not interested in big data dump; I am interested in seeing important substantive decisions being made more broadly available as well as the participation and procedural decisions covered by this Bulletin.
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By: Shaun Fluker
PDF Version: The Niqab, the Oath of Citizenship, and the Blurry Line between Law and Policy
Case Commented On: Canada (Citizenship and Immigration) v Ishaq, 2015 FCA 194
Canada (Citizenship and Immigration) v Ishaq involves a challenge by Zunera Ishaq against a federal requirement that she remove her niqab (a veil that covers most of the face) when taking the Oath of Citizenship at a public citizenship ceremony administered under the Citizenship Act, RSC 1985, c C-29. Ishaq was previously successful at the Federal Court Trial Division before Mr. Justice Keith Boswell in Ishaq v Canada (Citizenship and Immigration), 2015 FC 156 and on September 15 the Federal Court of Appeal issued a 6 paragraph decision from the Bench dismissing the Minister's appeal and confirming that the federal requirement is unlawful. This is a significant policy issue for the Harper government. The Prime Minister himself has spoken strongly in favour of the requirement (see here), and not surprisingly the matter is now a significant issue in the federal election campaign. This comment uses the Federal Court of Appeal decision as an opportunity to revisit the rules governing the somewhat difficult relationship between law and policy.
The Citizenship Act provides the rules on becoming a Canadian citizen. A person who was not born in Canada but has become a permanent resident under the Immigration and Refugee Act, SC 2001, c 27, can apply for citizenship under section 5 of the Citizenship Act. The application process is prescribed by the Citizenship Regulations, SOR 93-246, and the Citizenship Regulations, No. 2, SOR 2015-124. In order to become a Canadian citizen section 3 of the Citizenship Act also requires an applicant to swear or affirm the Oath of Citizenship in accordance with section 24 of the Act and the regulations. The Oath of Citizenship is set out in the schedule to the Act as follows:
I swear (or affirm) that I will be faithful and bear true allegiance to Her Majesty Queen Elizabeth the Second, Queen of Canada, Her Heirs and Successors, and that I will faithfully observe the laws of Canada and fulfil my duties as a Canadian citizen.
Sections 19 and 20 of the Citizenship Regulation states that in the normal course the Oath of Citizenship given in Canada will be taken in a citizenship ceremony hosted in public before a citizenship judge appointed by the Governor in Council pursuant to section 26 of the Act.
Zunera Ishaq successfully completed her citizenship test in November 2013 and her application for Canadian citizenship was approved by a citizenship judge on December 30, 2013. All that remained was for her to take the Oath of Citizenship at a citizenship ceremony scheduled for January 14, 2014. Ishaq was informed that she would have to remove her niqab while taking the Oath, in accordance with provisions of the Citizenship and Immigration Policy Manual on citizenship ceremonies (see web version here) which states a person must be seen and remove any face covering while taking the Oath. According to the Manual, a person who refuses to remove face coverings will not be presented with the certificate of citizenship necessary to comply with Oath requirement in section 3 of the Citizenship Act. Ishaq indicated she was unable to comply with this requirement without betraying her religious faith as a Sunni Muslim which obligates her to wear the niqab in public. Immigration officials offered to arrange seating at the ceremony in a manner that would minimize her exposure to the public while taking the Oath, but they would not budge on the requirement to remove the niqab during the administration of the Oath. Ishaq filed for judicial review asking the Federal Court to enjoin immigration officials from applying these provisions of the Manual at her citizenship ceremony.
The Federal Court of Appeal agreed with the finding of Justice Boswell at Trial Division that the evidence in this case demonstrates the Manual provisions purport to impose a mandatory requirement concerning the taking of the Oath. The evidence before Justice Boswell included a series of emails within the Immigration department:
In looking over the hand written comments from the Minister, it is pretty clear that he would like the changes to the procedure to 'require' citizenship candidates to show their face and that these changes be made as soon as possible…My interpretation is that the Minister would like this done, regardless of whether there is a legislative base and that he will use his prerogative to make policy change (cited in 2015 FC 156 at para 46).
Under the new directive [Operational Bulletin 359] …all candidates for citizenship must be seen taking the oath of citizenship at a citizenship ceremony. For candidates wearing full or partial face coverings, face coverings must be removed at the oath taking portion of the ceremony in order for CIC officials and the presiding official (Citizenship Judge) to ensure that the candidate has in fact taken the Oath of Citizenship. Under this new directive there are no options for private oath taking or oath taking with a female official as all candidates for citizenship are to repeat the oath together with the presiding official (cited in 2015 FC 156 at para 47 – emphasis in original).
The Minister himself was quoted at the time the provisions were added to the Manual in late 2011 as stating that the Oath of Citizenship "is a public act of testimony in front of your fellow citizens, it's a legal requirement, and it's ridiculous that you should be doing so with your face covered"; and also that: "[y]ou're standing up in front of your fellow citizens making a solemn commitment to respect Canada's laws, to be loyal to the country, and I just think it's not possible to do that with your face covered" (cited in 2015 FC 156 at para 49).
These emails and public statements by the Minister perhaps only further demonstrate the strong policy position of the Harper government on this issue. However the text of the provisions in the Manual (at the time) also suggested removal of face covering is a mandatory requirement:
6.5.1. Witnessing the oath
It is the responsibility of the presiding official and the clerk of the ceremony to ensure that all candidates are seen taking the Oath of Citizenship.
To facilitate the witnessing of the oath taking by CIC officials, all candidates for citizenship are to be seated together, as close to the presiding official as possible.
Candidates wearing face coverings are required to remove their face coverings for the oath taking portion of the ceremony.
6.5.2. Candidates not seen taking the oath
In some circumstances, it is difficult to ascertain whether candidates are taking the oath (sometimes due to a face covering). When a candidate is not seen taking the oath by a presiding official or CIC official(s), the clerk of the ceremony must be notified immediately following the oath taking portion.
The legal problem for the Minister here is that under section 27(1)(h) of the Citizenship Act only the Governor in Council can make binding law (in the form of a regulation) respecting the taking of the oath of citizenship. So if these provisions in the Manual are binding law – as opposed to mere policy – then the provisions are ultra vires the Minister and his delegates. Indeed this is what the Court of Appeal affirms at paragraphs 3 and 4 of its judgment from the Bench. At Trial Division Justice Boswell came to the same conclusion by applying the Supreme Court of Canada's 2009 decision in Greater Vancouver Transportation Authority v Canadian Federation of Students, 2009 SCC 31 where at paragraphs 58 to 65 the Supreme Court sets out how to delineate between internal administration policy (not law) and binding law. That the Manual provisions are publicly available and purport to establish an identifiable obligation of general application places them within the realm of law under the Greater Vancouver Transportation authority.
The line between 'interpretive policy' and 'binding law' is a fine one and it can be difficult to clearly distinguish between these categories. That so much can be decided on such a fine line, can be troubling at times where a delegate of Parliament or a legislature attempts to subvert the legislative process by implementing general obligations via policy directives or, alternatively, where the judiciary seems to venture into policymaking by casting a wide legal net. This case is perhaps one example of the former. In my view the trouble with this case is indeed magnified by the suggestion in the emails that the Minister wanted this obligation implemented regardless of his legislative authority to do so.
All would have been fine had Parliament or the Governor in Council enacted the requirement for removing the niqab while taking the Oath. Indeed the Harper government has recently proposed exactly that, but the Oath of Citizenship Act died on the Order Paper with the dissolution of Parliament in August. Should the Conservatives form the next federal government, it seems certain this Bill will return to Parliament and be enacted into law. The law versus policy aspect of this issue will then no longer be relevant, however it will likely be replaced by a challenge to the new legislation under section 2(a) of the Charter as an alleged infringement of the freedom of religion. Stay tuned.
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By: Jennifer Koshan
PDF Version: Is There a Right to Private Health Care in Alberta? A "Constitutional Vivisection"
Case Commented On: Allen v Alberta, 2015 ABCA 277
To what extent do precedents in constitutional cases allow litigants to take short cuts on evidence and procedure in subsequent claims? According to the Alberta Court of Appeal in Allen v Alberta, 2015 ABCA 277, it depends on a number of considerations. Many of the criteria that Justice Slatter enumerates in his opinion in Allen are sensible ones. However, he uses this case – involving a section 7 Charter challenge to the ban on private insurance in the health care context – to mount a critique of previous section 7 decisions, the Supreme Court of Canada, and even the framers of the Charter. Justice Slatter's critique is arguably inconsistent with the role of the courts as guardians of the constitution, and Justices Martin and Watson, although concurring in the result, distance themselves from his critique. Ironically, Justice Slatter's reasons for judgment are often devoid of precedential support even as he is writing on that very subject.
Darcy Allen was a dentist who sustained injuries playing hockey and required back surgery, which he was told could not be scheduled for two years due to backlogs in the Alberta health care system. He was subjected to increasing back pain as a result of the deterioration of his lumbar discs and reached a point where he was no longer able to practice dentistry. Allen eventually had surgery in Montana at a cost of over $77,000, when he was still facing an 18 month wait time in Alberta.
Allen brought a claim under section 7 of the Charter, which provides that "Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice." He sought a declaration that his right to security of the person was violated by the prohibition on private health insurance in section 26(2) of the Alberta Health Care Insurance Act, RSA 2000, c A-20. He brought this Charter challenge by way of an Originating Application, supported by an affidavit which included a number of medical reports and proof of expenses. The government's response was also by affidavit, including background documents on the health care system and wait times. As noted by Justice Slatter, "No expert evidence was filed, and there was no viva voce evidence before the chambers judge" (at para 7).
If this seems a somewhat truncated way to bring a Charter claim, that is because Allen was relying on a Supreme Court of Canada decision where a similar ban on private health care insurance in Quebec was struck down – Chaoulli v Quebec (Attorney General), 2005 SCC 35, [2005] 1 SCR 791.
At the Court of Queen's Bench level, 2014 ABQB 184, Justice Paul Jeffrey found that the question of whether the prohibition on private health insurance violated Allen's right to security of the person was in part a question of fact. And on that question of fact, Allen had led insufficient evidence to demonstrate that Alberta's restriction on private health insurance caused the harms he suffered – for example, there was no evidence of whether, absent the prohibition, private insurance would have been available for the kind of back surgery Allen required. Allen's argument that the precedent in Chaoulli was per se sufficient to ground his claim was rejected.
Justice Slatter framed the overarching issue for the Court of Appeal as "whether the appellant provided a proper procedural platform and evidentiary record to decide the constitutionality of s 26(2) of the Act" (at para 13). The Court unanimously decided that he had not done so.
Justice Slatter's reasons for decision begin with a discussion of Canada's universal health care system, which he describes as "an example of co-operative federalism in action" (at para 15). He notes the primary objective of the Canadian health care system, which is set out in section 3 of the Canada Health Act, RSC 1985, c C-6: "reasonable access to health services without financial or other barriers". Key components of the system are economic universality and risk universality, which protect equal access to publicly funded health care regardless of one's income or medical profile. According to Justice Slatter, "These features … undoubtedly account, in large measure, for the public support of the system, and the willingness of Canadians to devote the substantial public resources necessary to operate it" (at para 16). No authority is cited for this proposition, but perhaps Justice Slatter was taking judicial notice of it.
As for the Alberta health care system, Justice Slatter notes (at paras 17-18) that it promotes universality through prohibitions on queue jumping, extra billing, and private insurance for services covered under the Alberta Health Care Insurance Plan – the prohibition challenged by Allen.
Justice Slatter then turns to a discussion of the role of courts in constitutional litigation. He indicates that "Cases in which the appointed judiciary override the will of the democratically elected legislatures fall into a special category", since constitutional supremacy provides an exception to the supremacy of Parliament (at para 20). He calls this an "unavoidable mandate of the judiciary" and notes that it "is not a task to be exercised casually" (at para 21). In particular, constitutional litigation must observe proper procedural safeguards, which must be:
(a) fair to the citizens challenging the statute, in the sense that they are given a reasonable opportunity to make the case for unconstitutionality: Canada (A.G.) v Downtown Eastside Sex Workers United Against Violence Society, 2012 SCC 45 (CanLII) at paras 31-2, [2012] 2 SCR 524.
(b) fair to the legislature, in the sense that the government has a reasonable opportunity to defend the statute;
(c) fair to the court, in the sense that the court has a reasonable record on which to exercise this important component of its jurisdiction; and
(d) fair to other governments and interested groups who are affected by and may want to intervene in the process (at para 21).
Apart from the first consideration, Justice Slatter does not provide authority for this list of procedural safeguards. He later cites Hryniak v Mauldin, 2014 SCC 7 at paras 4 and 29, but this was a case concerning the fairness of summary judgment in a civil claim between private parties, and in any event it does not contain any list of criteria akin to that set out by Justice Slatter. He could have cited a Supreme Court decision in the constitutional context, Doucet-Boudreau v Nova Scotia (Minister of Education), [2003] 3 SCR 3, 2003 SCC 62, in which the majority listed a number of considerations for courts deciding on "appropriate and just" remedies under section 24(1) of the Charter. These include both fairness to Charter claimants and fairness to the party(s) against whom a remedy is made (typically the government), as well as consideration of the different functions performed by the legislature, the executive and the judiciary (at paras 55-58). Although Doucet-Boudreau concerns constitutional remedies rather than procedural and evidentiary issues in constitutional claims, it still could have provided some support for Justice Slatter's list of considerations.
Interestingly, Justice Slatter does not apply his considerations for fair procedure to the facts, but cites a number of cases which establish the norm that constitutional cases must be decided on the basis of a full evidentiary record, often including expert evidence. He notes that this was the case in Chaoulli, as well as in other section 7 decisions such as Canada (A.G.) v Bedford, 2013 SCC 72, [2013] 3 SCR 1101 (a successful challenge to the criminal prohibitions on prostitution) and Carter v Canada, 2015 SCC 5, [2015] 1 SCR 331 (a successful challenge to the criminal prohibition against assisted suicide). Some of these cases proceeded by way of application rather than trial, but they nevertheless included evidence of specific state actions state that deprived the claimant of security of the person, the relevant principles of fundamental justice and how they applied to the facts, and evidence related to any section 1 justification by government (at paras 22-24). Based on these authorities, Justice Slatter found that the chambers judge "reasonably concluded that the record [was] not adequate to decide the constitutional issue presented" (at para 25).
As for Allen's argument that the precedent in Chaoulli allowed for a truncated procedure in his case, Justice Slatter again enumerated a list of criteria to be considered: (a) the scope of the precedent, (b) the pedigree of the precedent, (c) the constitutional provision that is engaged, and (d) the clarity of the precedent (at para 27). Once again, no authority is provided for this list.
The application of the first two criteria seem relatively straightforward for Justice Slatter. On the question of scope, he notes that "prior decisions are at best binding on points of law, not questions of fact" (at para 28). On the pedigree of the precedent, he notes that Chaoulli was decided in 2005 based on evidence led in 2000, and concerned the Quebec health care system. Circumstances may have changed since then, and may be different in Alberta (at paras 29-30).
It is in relation to the third criterion – the constitutional provision and issue engaged – that Justice Slatter begins his critique. After citing the text of section 7 of the Charter, Justice Slatter suggests that it is "notoriously open-ended, and its application to the constitutional review of social and economic policies is controversial and unsettled" (at para 31). No authority is provided for this statement, but perhaps the notoriety of the point brings it into the realm of judicial notice. Justice Slatter calls the wording of section 7 "vague" and "imprecise", and critiques the courts' interpretation of section 7 by saying that "an absence of institutional self-restraint by the judiciary makes the problem worse, not better." The Supreme Court is seen as part of the problem, as it has "recast the phrase "principles of fundamental justice" with even less precise terms like overbreadth, disproportionality and arbitrariness, none of which have been comprehensively defined" (at para 32). Furthermore, this interpretation takes section 7 beyond the intent of the framers of the Charter, which was to limit judicial review to procedural principles of fundamental justice, a point that Justice Slatter says the Supreme Court has "totally disregarded… with dramatic consequences" (at para 33). He cites Peter Hogg for this last point (see "The Brilliant Career of Section 7 of the Charter" (2012) SCL Rev (2d) 195 at 198), but fails to note that the Supreme Court grappled with the question of substantive versus procedural review under section 7 in one of its first Charter cases, Re B.C. Motor Vehicle Act, [1985] 2 SCR 486, 1985 CanLII 81. He also fails to note that the Supreme Court recently provided comprehensive definitions of overbreadth, gross disproportionality and arbitrariness in Bedford, supra at paras 96 to 123.
All of this leads Justice Slatter to state that "It is, unfortunately, sometimes difficult to discern the difference between these concepts and a simple disagreement by the judiciary with the public policy decisions of democratically elected officials" (at para 32). On the more specific issue of health care policy, he correctly notes that "The Charter does not confer a freestanding right to health care" (at para 35, citing Chaoulli at para 104), but then goes on to suggest that the government could remove services from the system without these "social policy choices" engaging the constitution. This is not correct; if for example the government were to remove coverage for abortion services or medically necessary services for people with disabilities, there would be a strong argument that this government action violated the Charter guarantee of equality. It is well accepted that although the government may not be obliged to provide a particular social program, once it does so it must comply with the Charter (see e.g. Eldridge v British Columbia (Attorney General), [1997] 3 SCR 624, 1997 CanLII 327).
Justice Slatter also makes the point that where an applicant such as Allen "seeks to isolate out one small portion of the entire complicated, intertwined health care system, and subject it to constitutional scrutiny in isolation" this kind of "constitutional vivisection" mandates a proper evidentiary record (at paras 35, 37). The record would need to include evidence allowing assessment of the government's social policy choices based on protection of equality of access to health care (at para 36). These are fair points, as the burden is on the claimant in litigation under section 7 of the Charter to prove both a violation of life, liberty or security of the person and a violation of the principles of fundamental justice. At the latter stage, if arbitrariness, overbreadth, or gross disproportionality are alleged, this requires consideration of the interplay between the government's objectives (such as equal access to health care) and the actual effects of its laws. Moreover, Justice Slatter's point that "It is inappropriate to focus on only a small portion of the overall Canadian health care system, and then subject that part to Charter scrutiny" (at para 49) is supported by Supreme Court jurisprudence, although he does not cite it (see Withler v Canada (Attorney General), [2011] 1 SCR 396, 2011 SCC 12 (an unsuccessful challenge to federal spousal survivor benefits under section 15 of the Charter)).
Justice Slatter is also critical in his application of the fourth criterion, the clarity of the precedent. He notes (at paras 38-41) that Chaoulli involved a 3:3:1 split, with 3 judges (McLachlin CJ, Major and Bastarache, JJ) finding that the prohibition on private health care violated section 7 of the Charter, another 3 judges (Binnie, LeBel and Fish JJ) finding that there was no violation of section 7, and the swing judge, Deschamps J, finding that the prohibition violated the Quebec Charter. He accuses Justices McLachlin, Major and Bastarache of "re-defin[ing]" the principles of fundamental justice "to include a concept of "arbitrariness"" (at para 39). However, arbitrariness was explicitly recognized as a principle of fundamental justice much earlier, in Rodriguez v British Columbia (Attorney General), 1993 CanLII 75, [1993] 3 SCR 519. He also levels the critique that "Notwithstanding that the democratically elected legislatures of Canada had collectively decided" that the policy of banning private insurance was justified, "the conclusion [that it was arbitrary] appears to be have been incontrovertible in the minds of these judges" (at para 39). Similarly, he critiques Justice Deschamps for "disagree[ing] with the experts who opined that private insurance would undermine the public system, essentially re-weighing all the evidence" (at para 41). Justice Slatter says that these decisions, to the extent they require governments to put more resources into the health care system or allow private insurance, suggest that "Only Goldilocks would know when the statute was constitutional" (at para 43) and that "the constitutionality of the length of the waiting lists [is] as variable as the length of the Chancellor's foot" (at para 44). These are harsh (and, in respect of Goldilocks, gendered) criticisms of some members of the Supreme Court. And once again, Justice Slatter does not cite any authority for his criticisms, even though plenty of critical commentary on Chaoulli is available in the academic literature (see e.g. Colleen Flood, Kent Roach & Lorne Sossin, eds, Access to Care, Access to Justice: The Legal Debate over Private Health Insurance in Canada (Toronto: University of Toronto Press, 2005); Martha Jackman, "The Last Line of Defence for [Which?] Citizens: Accountability, Equality and the Right to Health in Chaoulli" (2006) 44 Osgoode Hall LJ 349; Mel Cousins, "Health care and human rights after Auton and Chaoulli" (2009) 54 McGill LJ 717).
In contrast, the three judges who dissented in Chaoulli and would have upheld the prohibition on private health care are said by Justice Slatter to have "persuasively reasoned that health care policy choices were not within the legitimate mandate of the courts" (at para 40).
My sympathies also lie with the dissenting justices in Chaoulli and their attempt to shield the public health care system. And I tend to agree with Justice Slatter that Chaoulli did not provide the answer in and of itself to Allen's constitutional claim, and (although I have been critical elsewhere of the evidentiary burden sometimes imposed on Charter litigants) that more evidence was required to support this challenge. However, it must be noted that Justice Slatter is doing exactly what he accuses the Supreme Court majority of doing in Chaoulli and other cases – rendering an opinion that seems to flow from personal preferences rather than precedential authority. His use of colourful language to mount his critique enhances the impression that he is relying on rhetoric rather than precedent and reason.
Perhaps this is why Justices Martin and Watson declined to fully sign on to Justice Slatter's judgment. Justice Martin indicates (at para 55) that he concurs only with Justice Slatter's reasons on the insufficiency of the evidence (paras 1-26 and 54). Justice Watson concurs with Justice Slatter's conclusion (at para 56), and provides short reasons indicating he is more open to acknowledging that sometimes courts must assess the constitutionality of government decisions and policy choices (at para 60). That approach is the correct one; it is dictated by section 52 of the Constitution Act 1982, which provides that "The Constitution of Canada is the supreme law of Canada, and any law that is inconsistent with the provisions of the Constitution is, to the extent of the inconsistency, of no force or effect." To take a position to the contrary is, as I argued above, inconsistent with the role of the courts as guardians of the constitution.
Thanks to Jonnette Watson Hamilton and Shaun Fluker for comments on an earlier version of this post.
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By: Martin Olszynski and Meinhard Doelle
PDF Version: Ontario Power Generation Inc. v Greenpeace Canada: Form over Substance Leads to a "Low Threshold" for Federal Environmental Assessment
Case Commented On: Ontario Power Generation Inc. v Greenpeace Canada et al, 2015 FCA 186
In this decision, a majority of the Federal Court of Appeal (Justices Trudel and Ryer) overturned a ruling of the Federal Court (Justice Russell) finding that the environmental assessment of Ontario Power Generation's (OPG) Darlington New Nuclear project conducted by a Joint Review Panel failed to comply with the Canadian Environmental Assessment Act, SC 1992 c 37 (since replaced with the Canadian Environmental Assessment Act, 2012 SC 2012 c 19). Justice Russell found gaps in the Panel's assessment (specifically with respect to hazardous substances emissions, spent nuclear fuel, and a failure to consider the effects of a severe 'common cause' accident) that in his view were unreasonable in light of the purpose and scheme of the Act. The majority of the Federal Court of Appeal, on the other hand, endorsed a more formal approach to judicial review in this context, holding that reasonableness was a "low threshold" (at para 151) such that a panel need only give "some consideration" to a project's environmental effects (at para 130) to be reasonable; it is only where a panel "gives no consideration at all" that its assessment will be deemed unreasonable (at para 130). Justice Rennie dissented, agreeing with Justice Russell with respect to hazardous substances emissions (at paras 48 – 50) and endorsing the latter's characterization of CEAA as a two-step decision-making process that is intended to be evidence-based and democratically accountable (at para 52). Because of its potential to seriously undermine the effectiveness of the federal environmental assessment regime, this post focuses on the majority's approach to reasonableness review in this context. Both of us previously commented on Justice Russell's decision in separate blog posts (see here and here), and one of us wrote up a full case comment on it (forthcoming in the Dalhousie Law Journal).
Briefly, in the fall of 2006 Ontario Power Generation applied to the Canadian Nuclear Safety Commission (CNSC) for a site preparation license for several new reactors at its existing Darlington nuclear plant in Bowmanville, Ontario. Application for this license, as well as for authorizations under the federal Fisheries Act, RSC 1985 c F-14 and the Navigable Waters Protection Act, RSC 1985 c N-22 (now the Navigation Protection Act), triggered the application of the then CEAA. The project was referred to a joint review panel in 2008. Following 284 information requests (IRs) and seventeen days of hearings in the spring of 2011, the panel submitted its final report to the Minister in August of that same year, concluding that the project was not likely to result in significant adverse environmental effects. The applicants challenged the adequacy of the environmental assessment shortly thereafter.
For the purposes of this post, the relevant part of Justice Russell's decision is that dealing with the Panel's treatment of hazardous substance emissions. After reviewing the record, Justice Russell noted Environment Canada's complaint that notwithstanding several information requests, remaining gaps in OPG's submission prevented that department from assessing the project's effects with respect to effluent and storm water management (at paras 257 – 259). The Panel itself noted that "OPG did not undertake a detailed assessment of the effects of liquid effluent and storm water runoff to the surface water environment" but that OPG "committed to managing liquid effluent releases in compliance with applicable regulatory requirements and to applying best management practices for storm water" and on this basis concluded that significant adverse environmental effects were not likely to result (at paras 264 – 265). According to Justice Russell, such an approach was not consistent with the legislation:
[275] In essence, the Panel takes a short-cut by skipping over the assessment of effects, and proceeding directly to consider mitigation, which relates to their significance or their likelihood. This is contrary to the approach the Panel says it has adopted…and makes it questionable whether the Panel has considered the Project's effects at all in this regard.
Also for the purposes of this post, the relevant section of CEAA, 1992 is section 16, which set out the required considerations for every kind of environmental assessment under the Act:
16.(1) Every screening or comprehensive study of a project and every mediation or assessment by a review panel shall include a consideration of the following factors:
(a) the environmental effects of the project, including the environmental effects of malfunctions or accidents that may occur in connection with the project and any cumulative environmental effects that are likely to result from the project in combination with other projects or activities that have been or will be carried out;
(b) the significance of the effects referred to in paragraph (a); …
The Majority's Approach to Reasonableness Review
There was no dispute that Justice Russell chose the appropriate standard of review, i.e. reasonableness (at para 122). The issue was whether he applied it correctly. Before considering his approach, however, the majority first engages in what Professor Paul Daly has criticized as post-decision 'judicial supplementation': after-the-fact reformulations of administrative decisions that makes them more consistent with courts' preferred rationale for a given result (see Paul Daly, "The Scope and Meaning of Reasonableness Review" (2015) 52(3) Alberta Law Review at 20 – 21 (forthcoming)). According to the majority, although the Panel
…made no specific finding that it had complied with the consideration requirements in paragraphs 16(1)(a) and (b) of the Act…it is our view that…the Panel must be taken to have implicitly satisfied itself that it was in compliance with those statutory requirements. In applying the reasonableness standard to this question, we must…determine whether the Panel's implicit conclusion that it had complied with the consideration requirements is reasonable." [citing the Supreme Court of Canada in Agraira v. Canada (Public Safety and Emergency Preparedness), 2013 SCC 36 at para 53, which Professor Daly criticizes in his piece] [emphasis added].
The majority then cites two decisions from fifteen years ago as determinative of the appropriate approach to reasonableness review in this context. In the first, Friends of the West Country Assn. v Canada (Minister of Fisheries and Oceans), [2000] 2 F.C. 263, Justice Rothstein (as he then was) stated at paragraph 26: "The use of the word 'shall' in subsection 16(1) indicates that some consideration of each factor is mandatory" (emphasis added by the majority in Greenpeace). The second decision was by Justice Pelletier (as he then was) in Inverhuron & District Ratepayers' Assn. v Canada (Minister of the Environment), [2000] F.C.J. No. 682 (QL) at paragraph 71:
It is worth noting again that the function of the Court in judicial review is not to act as an "academy of science" or a "legislative upper chamber". In dealing with any of the statutory criteria, the range of factual possibilities is practically unlimited. No matter how many scenarios are considered, it is possible to conceive of one which has not been. The nature of science is such that reasonable people can disagree about relevance and significance. In disposing of these issues, the Court's function is not to assure comprehensiveness but to assess, in a formal rather than substantive sense, whether there has been some consideration of those factors in which the Act requires the comprehensive study to address. If there has been some consideration, it is irrelevant that there could have been further and better consideration (emphasis added by the majority).
According to the majority, this means that "the type or level of consideration that the Panel was required to give to those effects was simply…'some consideration.' It follows…that a failure of the Panel to consider…environmental effects can only be established if it is demonstrated that the Panel gave no consideration at all to those environmental effects." (at para 130, emphasis added).
Applying this "low threshold" (at para 151), and acknowledging that "[c]learly, the consideration by the Panel of the environmental effects of [hazardous substances emissions] was not undertaken to the same depth or extent as were other environmental effects" (at para 153), the majority concluded "that this lesser degree of consideration nonetheless constitutes 'some consideration' of the environmental effects" (ibid).
In our view, the majority's approach in Greenpeace (and in the cases on which it relies) places the bar far too low in terms of judicial supervision of the environmental assessment process required by CEAA (both the prior and current regime). While we would agree that in some cases the range of factual possibilities might be practically unlimited, it does not follow that reliance on a single factual possibility or scenario is sufficient. The goalpost in each case should be whether the assessment is reasonable in light of the particulars of the project being assessed and the kind of environmental effects that it can reasonably be expected to cause, something that the judiciary is perfectly capable of assessing (as further discussed below). The majority's 'some or none' approach, on the other hand, champions "formal rather than substantive" review for fear of becoming an academy of science (Inverhuron, at para 71) – something we thought Canadian courts had abandoned long ago.
In our view, the fear of becoming an academy of science is misplaced. There are numerous cases, in the environmental assessment context specifically but also environmental law more generally, where courts have efficiently and effectively engaged in a more substantive review of science-based decisions without becoming academies of science. With respect to environmental assessment, the Federal Court's decision in Pembina Institute v Canada 2008 FC 302 (CanLII) readily comes to mind. In the course of reviewing a panel's treatment of the greenhouse gas emissions of an oil sands project, Justice Tremblay-Lamer was puzzled by the panel's reliance, without justification or explanation, on intensity-based emissions caps as mitigation measures in light of the fact that under such an approach total emissions can actually continue to rise. In the course of her reasons, she noted that while panels are owed deference, this deference is not unlimited: "deference to expertise is only triggered when those conclusions are articulated" (at para 75, citing Canada (Director of Investigation and Research, Competition Act) v Southam Inc., [1997] 1 S.C.R. 748 at para 62). With respect to environmental law more generally, one can refer to any number of cases under the Species at Risk Act, SC 2002, c 29 [SARA]. For example, in Adams v Environment, 2011 FC 962, the court reviewed the Minister's decision not to recommend an emergency protection order for woodland caribou and found that her conclusion, that western populations could be replaced by eastern populations, "came 'out of the blue'" (at para 67). Under the Greenpeace majority's formal approach, such unsubstantiated conclusions on critical issues would constitute 'some consideration' and would therefore risk flying under the reasonableness radar. It is hard for us to accept that Parliament intended such a result.
In addition, while concerns about becoming an "academy of science" have been cited a number of times, few courts (if any) have reflected on the very specific – if not peculiar – procedural context in which this phrase was written. Vancouver Island Peace Society v Canada [1992] 3 F.C. 425 involved the application of CEAA's predecessor, the Environmental Assessment and Review Procedures Guidelines Order ((EARPGO), to visiting naval vessels that were either nuclear-powered or which carried nuclear weapons. The government applied to have the judicial review application converted into an action because, in its view, there would be "many difficult issues of fact to be determined as to whether there are 'significant' 'potentially adverse environmental effects'…" (at para 3). In other words, the government assumed that it was "the responsibility of the Court to sit on appeal from the factual determinations of the 'initiating department'" (at para 5). It is this role, and specifically with respect to findings of fact including gauging public concern, that Justice Strayer rightfully rejected in this case, which becomes clear when one considers the relevant passage in its entirety:
[14] For these reasons I am unsympathetic to the arguments…that there are difficult technical factual determinations to be made which will require pleadings and a trial and the cross-examination viva voce of experts and others. It is not the role of the Court in these proceedings to become an academy of science to arbitrate conflicting scientific predictions, or to act as a kind of legislative upper chamber to weigh expressions of public concern and determine which ones should be respected. Whether society would be well served by the Court performing either of these roles, which I gravely doubt, they are not the roles conferred upon it in the exercise of judicial review under section 18 of the Federal Court Act [emphasis added].
Although "academy of science" is obviously a strong turn of phrase, it is equally clear that Justice Strayer was reacting to an extreme proposition and that his decision should not be understood as precluding all substantive inquiry into the EA process; as noted by the Federal Court of Appeal in Inverhuron & District Ratepayers Ass. v. Canada (Minister of The Environment), 2001 FCA 203 (CanLII), to do so "would risk turning the right to judicial review…into a hollow one." For Justice Sexton in that case, this meant ensuring that the Minister had "a reasonable basis for arriving at her decision" (citing Athabasca Chipewyan First Nation v British Columbia Hydro & Power Authority, 2001 FCA 62 (CanLII)).
That being said, we readily acknowledge that the case law is mixed in terms of what this means or requires. Consequently, we conclude by strongly urging a return to first principles. Many of these are set out in the Greenpeace case comment referred to at the outset of this post, including the fundamental role for political accountability envisioned by environmental assessment legislation in nudging governments towards more environmentally-sustainable decision making. A return to first principles might also include the explicit application of the purposive approach to the interpretation and application of the Act, something that to our knowledge is relatively rare in the CEAA jurisprudence. Justice Rennie's dissent exhibits some elements of such an analysis (at para 51) but stops short. With respect to section 16 specifically, this would include recognizing not only the cost and time of environmental assessment (as many courts have), but also that all of this would be for naught if only 'some consideration' of environmental effects is required, an outcome that seems particularly egregious in the context of panel reviews, which as the courts in Pembina Institute (at para 17) and MiningWatch Canada v Canada (Fisheries and Oceans), 2010 SCC 2 (at para 14) noted represent the highest intended level of intensity, or rigor, of environmental review under the legislation.
We agree entirely that it is not the role of the courts to substitute their own views about the significance (or not) of projects' environmental effects (see Bow Valley Naturalists Society v Canada (Minister of Canadian Heritage), [2001] 2 FCR 461 at para 78, referring to whether projects should be authorized or not) but in Greenpeace the pendulum has swung much too far the other way. On this point, we can do no better than to cite some of the leading authorities in administrative law with respect to deference more generally:
[W]hile reviewing courts should normally show a measure of deference to a specialist agency's interpretation of its enabling statute, it is appropriate to scrutinize more closely those decisions that seem contrary to the interests of those intended beneficiaries of the legislation or to that aspect of the public interest that the legislation was enacted to protect. Examples include…the protection offered by various statutory programs to members of the pubic in their capacities as…breathers of air and drinkers of water.
Van Harten, D. Mullan, G. Heckman and J. Promislow, Administrative Law: Cases, Texts and Materials 7th ed, (Toronto: Emond, 2015) at 27.
Failure to assess the readily foreseeable environmental effects of a project, such as the hazardous substance emissions of a nuclear plant, is a clear example of a decision contrary to the interests of CEAA's intended beneficiaries, i.e. the Canadian public. As noted by Justice Russell, it renders both public accountability and public participation more difficult (at paras 237 and 249, respectively). If anything, it furthers the interests of government agencies and proponents, whose poor track record of taking environmental considerations into account was the impetus for environmental assessment legislation in the first place.
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By: Brett Code, Q.C.
PDF Version: R v Porter: Self-incrimination – Judicial Restraint of State Coercion
Case Commented On: R v Porter, 2015 ABCA 279
It should not have been necessary, because the applicable law on the matter has been settled since 1999, but for those police officers and prosecutors who might have forgotten, the Court of Appeal in R v Porter has once again forcefully stated that statutorily compelled statements are inadmissible in criminal trials because they violate the principle against self-incrimination and section 7 of the Canadian Charter of Rights and Freedoms. Insistent upon guarding against the admissibility of potentially unreliable confessions, against potential abuse of state power, and against the improper use by the Crown of otherwise properly-collected, statutorily required information, the Court confirmed the principle of fundamental justice that the state may not conscript the accused against himself or herself but must build any case to meet without compelled evidence from the suspect.
At issue was the use, if any, that could be made of information contained in compulsory accident reports made to police under section 71 of the Traffic Safety Act, RSA 2000, c T-6 (TSA) and in compulsory statements made to insurers for insurance purposes following an accident. The Court's decisive conclusions were that:
The facts are set out in full here, not only because they provide a lesson in good legal advice and apt, as well as effective waiver of solicitor-client privilege in the client's interest, but also because they set out starkly how gravely statutory reporting obligations can trench on fundamental rights and freedoms protected by the Charter.
On June 13, 2012, Andrew Green pulled over on Anthony Henday Drive in Edmonton to assist another motorist with a tire. While they were discussing the situation, a passing vehicle struck and killed Mr. Green. The driver of the vehicle did not stop.
The next morning, Mr. Porter contacted a lawyer about his involvement in an accident. His lawyer advised him that he had a right to remain silent but that he had an obligation to make a collision statement to the police under the TSA. He further advised Mr. Porter that the TSA statement could not be used against him in a prosecution under the Criminal Code or the TSA. The lawyer also advised Mr. Porter that he was obligated to provide a statement regarding the collision to his insurance company, and referred Mr. Porter to an expert in insurance law.
The lawyer contacted the police and advised them that he had a client who needed to make an accident report under the TSA. The lawyer spoke with Cst. Jones and said his client was the driver of the vehicle involved in the accident. He also gave Cst. Jones Mr. Porter's name, but noted that he was only doing so as a part of the TSA report. They agreed to meet at police headquarters for the purpose of Mr. Porter providing a TSA statement.
Mr. Porter attended with his lawyer at the police station and provided the TSA report. Both Cst. Jones and his supervisor, Sgt. Bates, met with Mr. Porter and his lawyer. Cst. Jones informed the lawyer that the police wanted to seize Mr. Porter's vehicle; the lawyer replied that they were entitled to inspect it under section 66 of the TSA but would have to obtain a warrant if they wanted to seize it. The typed TSA statement was provided to Sgt. Bates, who placed it in a sealed envelope.
Cst. Jones placed Mr. Porter under arrest. He asked Mr. Porter where his vehicle was, but Mr. Porter declined to answer any questions on the advice of his lawyer. He did not make any statements during the interview.
After being interviewed by Det. Yarmuch, Mr. Porter was released. Sgt. Bates, Det. Yarmuch and Cst. Jones then reviewed the TSA statement. Cst. Chandra swore an Information to Obtain ("ITO") for a warrant to seize Mr. Porter's car. He had been told that Mr. Porter was driving a 2008 Porsche Cayenne that was located at his residence, and he was provided with the licence plate number. The ITO included information obtained from the TSA statement, including the statement from Mr. Porter's lawyer that his client had been involved in the fatal collision, Mr. Porter's name, and the make and location of Mr. Porter's vehicle. The ITO did not mention that any of that information was obtained as part of a compelled statement pursuant to the TSA. The warrant was granted, the police seized Mr. Porter's vehicle, and they found incriminating evidence on the vehicle [emphasis added].
Mr. Porter subsequently contacted his insurance broker, TD. In early August 2012, TD opened a fatality file after it learned the collision had caused Mr. Green's death. The file was assigned to a TD claims adjuster, who assigned an independent adjuster, Ms. Fitzpatrick, to collect evidence in relation to the claim. Ms. Fitzpatrick was told that Mr. Porter could make his statement with counsel present, but that a statement was required if he wanted coverage.
At a meeting with Mr. Porter, Ms. Fitzpatrick explained to Mr. Porter that it was a condition of his policy that he provide a statement, and that failure to do so could result in a denial of coverage. On August 15, 2012, Ms. Fitzpatrick received a written statement from Mr. Porter. The statement indicates that he was involved in the collision, but does not mention the fatality. Mr. Porter asked who would get a copy of the insurance statement, and Ms. Fitzpatrick gave him several assurances that she would give it only to TD. She said she would not give it to the police without a court order, and testified that she had never seen that happen in her time as an adjuster. Mr. Porter asked to have his lawyer review the statement before it was released to TD, which was done.
The police eventually learned of the insurance statements and obtained production orders to get them. Cst. McKenna swore an ITO for a production order on February 14, 2013. In it, he referred to information obtained from the TSA report, the evidence seized from the vehicle, as well as information from other sources that the police had investigated. The Court of Appeal states here that the second ITO mentioned that Mr. Porter had provided a TSA report, but the Court does not state whether the second ITO advised that the information relied upon had been compelled by the TSA.
Eventually, Mr. Porter was charged, and acquitted, of one count of careless driving under the TSA and of one count of failure to stop at an accident under the Criminal Code, RSC 1985, c C-46. The Crown appealed the acquittals. The Court of Appeal unanimously dismissed the appeal.
Commentary Arising from the Facts
Beyond their demonstration of sheer competence by Mr. Porter's lawyer, the facts relating to the legal advice demonstrate two important things, and the emphasized sentence above gives rise to inferences that are not complimentary.
First, it is obvious that from the moment he was instructed, Mr. Porter's lawyer knew exactly what to do. He knew that Mr. Porter must complete a police report on the accident, even though it violated his right to silence, but the latter caused him no concern. He also knew, presumably because the law was settled by the Supreme Court of Canada in R v White, [1999] 2 SCR 417 1999 CanLII 689 (SCC), that whatever Mr. Porter said in the TSA statement could not be used against him in a prosecution under either the Criminal Code or the TSA, and that such compelled information was inadmissible as evidence against Mr. Porter. Every move he made and everything he said was guided by that knowledge.
The value of clear, decisive guidance on the rules as they relate to the admissibility of evidence is that it can be used and applied not only by every lawyer in Canada as they advise their clients, but by every judge in every courtroom in every province or territory in Canada. Clear rules provide for certainty in legal advice and certainty of application by Courts, thus ensuring equal justice across the general run of cases, as opposed to the approximate justice arrived at by discretionary application of such rules depending upon vague notions of fairness, prejudice or the like. The rule, well known and expertly applied here by the lawyer, permitted proper legal advice. Being correct advice, his client ought to have been able to rely on it. He trusted his lawyer, provided the compelled information with legal advice, and completed the required insurance as his lawyer had advised.
Imagine the surprise on Mr. Porter's face when he was placed under arrest and then later when he learned he was to be prosecuted, both for the very thing that his lawyer told him unequivocally could not be done. Imagine the ire of the lawyer, made to look foolish by the police and later by the Crown, in the face not only of settled principles of fundamental justice but also of settled rules of admissibility flowing directly from those principles.
The second thing of note is the recitation by the Court here of the legal advice given to Mr. Porter by his lawyer, an unqualified recitation of information that was obviously protected by solicitor-client privilege. Nothing is said by the Court of the waiver of solicitor-client privilege, but that privileged information was not released and so casually reported by the Court as the result of some unwitting mistake. Mr. Porter's counsel, again demonstrating a striking level of competence, had to have made the strategic decision to have his client waive privilege so that he could strengthen the arguments in favour of having the evidence being used against his client by the Crown excluded. Knowing that any admission of such evidence would demonstrate direct and extensive harm to Mr. Porter's Charter-protected rights, his counsel was well aware that early waiver could, if it arose, permit him to strengthen any arguments for exclusion under the first and second branches of the Grant analysis (R v Grant, 2009 SCC 32). (In Porter, as in White, the evidence tendered in violation of section 7 of the Charter is excluded either under section 24(1) of the Charter or pursuant to a trial judge's "common law duty to exclude evidence whose admission would render the trial unfair" (White at para 89)). Such waiver comes with many risks, but, when the law is as settled as it was here, the risk is mitigated, and the advantage of having his right to counsel essentially vitiated by the state's violation of his right against self-incrimination, would strongly swing the balance in favour of the exclusion of the evidence by the trial judge in exercising her Grant discretion, if called upon depending on the circumstances.
Knowing the rules of evidence, and knowing that they will be enforced by the Court, permits a lawyer to plan the client's case in a way that anticipates the places in a trial where the trial judge will exercise an evidentiary discretion, and to prepare arguments that will cause, as here, the judge to go the way of the accused against the Crown.
One further point deserves comment. It relates to the sentence emphasized by me above. The Court did not focus on it but easily could have. In swearing the ITO in support of their application for a warrant to seize Mr. Porter's car, the police failed to mention that all of the information they were relying on was statutorily compelled. There is a slight possibility that these experienced police officers did not know that they could not use compelled information in their investigation and prosecution of Mr. Porter. But much more likely, in my opinion, is that they were fully aware that they could not use the information but knew that they would not obtain the warrant if they advised that they were using compelled information to build their case to meet, that is, that they were using Mr. Porter to incriminate himself. They appear to me to have proceeded despite their knowledge of the law, but no finding is made on that question, so I could well be mistaken. The Court does not castigate the Crown for using the evidence so obtained; nor does it criticize the police for this failure. That may be because such criticism is unnecessary, and that the remedy of exclusion is criticism enough. But it may also be that no Grant analysis was performed here. Had it been, such criticism would have been unavoidable.
The Principle Against Self-Incrimination
In very recent years, the Supreme Court of Canada has waffled in its embrace of what Chief Justice Lamer developed with his Court regarding the principle, as compared to the right, against self-incrimination and more particularly its embrace of his concept of the case-to-meet. Those concepts were enunciated strongly by the Supreme Court of Canada in the 1990s in several cases and were most succinctly enunciated by him, for the majority in R v P. (M.B.), [1994] 1 SCR 555 (M.B.P.) at paras 36 and 37:
Perhaps the single most important organizing principle in criminal law is the right of an accused not to be forced into assisting in his or her own prosecution: M. Hor, "The Privilege against Self-Incrimination and Fairness to the Accused", [1993] Singapore J. Legal Stud. 35, at p. 35; P. K. McWilliams, Canadian Criminal Evidence (3rd ed. 1988), at para 1:10100. This means, in effect, that an accused is under no obligation to respond until the state has succeeded in making out a prima facie case against him or her. In other words, until the Crown establishes that there is a "case to meet", an accused is not compellable in a general sense (as opposed to the narrow, testimonial sense) and need not answer the allegations against him or her.
The broad protection afforded to accused persons is perhaps best described in terms of the overarching principle against self-incrimination, which is firmly rooted in the common law and is a fundamental principle of justice under s. 7 of the Canadian Charter of Rights and Freedoms. As a majority of this Court suggested in Dubois v The Queen, 1985 CanLII 10 (SCC), [1985] 2 S.C.R. 350, the presumption of innocence and the power imbalance between the state and the individual are at the root of this principle and the procedural and evidentiary protections to which it gives rise.
That principle protects a suspect from compulsion, from being compelled to provide information, in any circumstance where the state attempts to extract incriminating evidence from him or her. The state is permitted to compel its citizens to provide it with information. The Province of Alberta is permitted to compel its citizens to report themselves when they have been involved in accidents. That is what the Traffic Safety Act does. It is valid, constitutional legislation. But the Province and its agents are not then permitted to use that information to assist the police in their investigations or to assist the Crown in its prosecutions. All that was decided in White, a case that followed and adopted M.B.P. and confirmed that the principle against self-incrimination forbids the state from using such statutorily compelled information in building the case-to-meet against those who comply with the statute.
Worth remembering briefly are the justifications and purposes of justice underlying the principle against self-incrimination, including the idea that coerced statements designed to be used against a suspect are likely to be unreliable. Excluding potentially unreliable statements whose potential non-reliability is the direct consequence of state decision-making or state law-making promotes accurate fact-finding and adjudication. As was said by the Supreme Court of Canada in White (at para 43):
The definition of the principle against self-incrimination as an assertion of human freedom is intimately connected to the principle's underlying rationale. As explained by the Chief Justice in Jones, supra, at pp. 250-51, the principle has at least two key purposes, namely to protect against unreliable confessions, and to protect against abuses of power by the state. There is both an individual and a societal interest in achieving both of these protections. Both protections are linked to the value placed by Canadian society upon individual privacy, personal autonomy and dignity: see, e.g., Thomson Newspapers, supra, at p. 480, per Wilson J.; Jones, supra, at pp. 250-51, per Lamer C.J.; and Fitzpatrick, supra, at paras 51-52, per La Forest J. A state which arbitrarily intrudes upon its citizens' personal sphere will inevitably cause more injustice than it cures [emphasis added].
By 1999 when White was decided, the principle established by Chief Justice Lamer's Court, and only being developed in M.B.P., was well established. As Justice Iacobucci, writing for the majority (6-1) said in White, at paragraphs 40 and 41:
It is now well-established that there exists, in Canadian law, a principle against self-incrimination that is a principle of fundamental justice under s. 7 of the Charter. The meaning of the principle, its underlying rationale, and its current status within Canadian law have been discussed in a series of decisions of this Court, notably Thomson Newspapers, supra; R v Hebert, [1990] 2 S.C.R. 151; R v P. (M.B.), [1994] 1 S.C.R. 555, per Lamer C.J.; R v Jones, [1994] 2 S.C.R. 229, per Lamer C.J.; S. (R.J.), supra; British Columbia Securities Commission v Branch, [1995] 2 S.C.R. 3; and Fitzpatrick, supra.
The principle against self-incrimination was described by Lamer C.J. in Jones, supra, at p. 249, as "a general organizing principle of criminal law". The principle is that an accused is not required to respond to an allegation of wrongdoing made by the state until the state has succeeded in making out a prima facie case against him or her. It is a basic tenet of our system of justice that the Crown must establish a "case to meet" before there can be any expectation that the accused should respond: P. (M.B.), supra, at pp. 577-79, per Lamer C.J., S. (R.J.), supra, at paras 81 to 83, per Iacobucci J.
The Court of Appeal's Decision in Porter
Because the facts in White were very similar to those in Porter, the Court of Appeal made short work of the main point on appeal. In White, the Supreme Court had already considered the application of those principles to provincial legislation that compelled drivers involved in accidents to make a report of the accident to the police. As here, the accused in White was involved in a fatal hit and run at the side of a highway, but in British Columbia. The next morning, she called the police to report the accident and, in the course of that morning, she had three conversations with the police about the accident. She testified that she knew she had a duty to report the accident, and felt obliged to speak to the officers who attended at her house. The Crown sought to admit the statements into evidence at her criminal trial. At issue was section 61 (as it was then) of the British Columbia Motor Vehicle Act RSBC 1996, c 318 which established a statutory scheme requiring and regulating the reporting of motor vehicle accidents in the province. The issue was whether the admission into evidence in a criminal trial of statements made by the accused under compulsion of the Motor Vehicle Act, offends the principle against self-incrimination as embodied in section 7 of the Charter. The majority answered that question in the affirmative, stating simply, at para 30:
"Statements made under compulsion of s 61 of the Motor Vehicle Act are inadmissible in criminal proceedings against the declarant because their admission would violate the principle against self-incrimination".
Moreover, the Supreme Court of Canada rejected the possibility that the information contained in a compulsory accident report could be admissible in a limited way, by requiring a driver to provide his or her name and address and to acknowledge that he or she was driving at a particular place and time, at para 70:
The protection afforded by the principle against self-incrimination does not vary based upon the relative importance of the self-incriminatory information sought to be used. If s. 7 is engaged by the circumstances surrounding the admission into evidence of a compelled statement, the concern with self-incrimination applies in relation to all of the information transmitted in the compelled statement.
In Porter, the Crown made a further argument, essentially purporting to be able to do indirectly what it could not, applying White, do directly. The Court also made short work of that argument, but it may be that the Crown could at least argue that there is not as yet a finally settled rule governing the indirect use of statutorily compelled information. All that existed specifically on point were unanimous judgments of the British Columbia and the Ontario Courts of Appeal, with regard to both of which the Supreme Court of Canada had denied leave to appeal.
The Crown argued that the court in White considered only the admissibility of the compelled statements themselves. It did not expressly consider whether information from the compelled statements could be used to gather additional evidence. Here, the Crown argued that the principles in White should not be applied to the broader question of whether information from a TSA statement can form part of the grounds to obtain a search warrant.
The Court of Appeal agreed with the trial judge, who rejected that argument, preferring the reasoning of the British Columbia and Ontario Courts of Appeal in R v Powers, 2006 BCCA 454 (CanLII), leave denied [2006] SCCA No. 452, and R v Soules, 2011 ONCA 429 (CanLII), leave denied [2011] SCCA No. 375, respectively.
In Powers, the British Columbia Court of Appeal determined that statutorily compelled statements of an accused are not admissible in a criminal proceeding for any purpose, including to establish reasonable grounds for a roadside demand or a breath sample demand. Although the court recognized that the use of the statement was less direct than in White, the evidence was a necessary link in the chain of evidence to convict the accused (at para 13). The Ontario Court of Appeal applied the same reasoning and reached the same conclusion in Soules. The accused, having been involved in an accident, was statutorily compelled to make a statement to the police. The statutorily compelled statement was not admissible for the purpose of establishing grounds to make an approved screening device demand. The Court of Appeal in Porter, then concluded, in paras 26 and 27:
26. If police wish to use in criminal proceedings information acquired from the driver through questioning, the information must not be provided pursuant to the duty in statutes like the Motor Vehicle Act: White at para 65; Soules at para 52. The courts in both White and Soules recognized that this requirement might cause logistical issues in police investigations, but as the trial judge here pointed out, this case law is not new and the police were aware the information from the TSA statement was not admissible.
27. The same reasoning is applicable here. The conclusion of the Supreme Court in White, as applied by the appellate courts in Powers and Soules, is determinative of the issue. The statutorily compelled statements from the respondent are not admissible for the purpose of establishing reasonable and probable grounds to obtain a search warrant or production order.
Compelled Statements to Insurers – Also Inadmissible
To supplement the evidence that they had to know was going to be ruled inadmissible, the police and the Crown obtained and then tried to tender statements compelled by Mr. Porter's insurance company. The Crown argued that statements to insurance companies are not compelled but voluntary since they arise not from statute but from contract. They also argued that, even if insurance statements are essentially compelled by a statutory regime that requires them, not all compelled statements are inadmissible and that somehow these ought to be admitted rather than excluded.
Relying on the same principles, on White and on R v Fitzpatrick, [1995] 4 SCR 154, 1995 CanLII 44 (SCC), the Court of Appeal also dismissed these arguments. The relationship between insurer and insured is contractual, but it is mandatory, and its mandatory nature is the consequence of statute. Mandatory reporting under contracts of insurance is not consented to freely or willingly: insurability, which is statutorily required, compels it.
Not every statutorily compelled statement engages the section 7 protection against self-incrimination. The early cases emphasized contextual and circumstantial analysis. In Fitzpatrick, the Supreme Court introduced factors that might indicate whether the principle against self-incrimination applied. In White, the Court referred to four: the existence of coercion by the state; the existence of an adversarial relationship between the accused and the state at the time the statements were made; the risk of unreliable confessions; and the risk of abuse of power by the state as a result of the statutory compulsion.
The Court of Appeal in Porter agreed with the trial judge that each was engaged here. Coercion exists by the mandatory nature of vehicle insurance and the mandatory reporting requirements in the statutory conditions for insurance.
Despite the Crown's arguments that an adversarial relationship between the state and Mr. Porter was not relevant to the insurance statements, the Court found that the relationship was adversarial for purposes of this contextual analysis, because Mr. Porter was the subject of a criminal investigation when he admitted facts relevant to that investigation to his insurer, and because he was concerned, and said so, that the statements might be released to the police.
The risk and fear of unreliable confessions was likely determinative of this analysis by the Court. As in White, drivers who find themselves reporting a serious accident to their insurer may feel a strong incentive to provide a false statement, particularly if they know the information reported might be passed on to the police. In this respect, the Court said, "there is little to distinguish the insurance statements from the TSA statement considered in White" (at para 36).
Finally, the Court held that there is a risk of abuse of power by the state from the statutory compulsion. The insured is required to provide notice, with all available particulars, of any accident, among several other things. As the Court provides in paragraph 37:
To permit the information so obtained to be used in criminal proceedings would permit the state to avoid the protection of s 7 and accomplish, through the insurance statements, what White prohibits the state from doing with TSA statements. Moreover, as was noted in White, statements by a driver, occurring shortly after an accident, are the type of communication that the principle of self-incrimination is designed to protect: White at para 66.
This is an excellent, decisive judgment by the Court of Appeal. By relying as it does on case law from the pinnacle of the Charter-based development of the principle against self-incrimination by the Supreme Court of Canada and of the idea that individuals cannot be compelled to assist the state in developing the case-to-meet without undermining the fairness of any trial that results from the conscription of such evidence, the Court provides hope that the broad principle of fundamental justice continues to protect those suspected and accused of crimes from the governing spirit of the day, the spirit that appears to believe that too many guilty people go free, whether by way of technical rules of evidence or by way of discretion in sentencing among other things. In Porter, the Court of Appeal shines a bright light over these dark days.
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By: Shaun Fluker
PDF Version: What Policy Direction should Alberta Follow on Carbon Emissions?
Matter Commented On: Climate Leadership – Discussion Document (Government of Alberta, August 2015)
Alberta's Climate Change Advisory Panel is seeking public input on what direction provincial climate change policy should follow going forward. One method of providing your input is to complete an online survey on or before September 18. This is the second part of a two-step process announced by the Minister of Environment and Parks in late June 2015 (see here for the post by my colleague Nigel Bankes on this announcement). To inform this important public dialogue, in August 2015 the Climate Change Advisory Panel published the Climate Leadership – Discussion Document. This 62 page document sets out the overall carbon emissions profile in Alberta (at 9 – 17) and then discusses emissions by individual economic sector and summarizes policy tools that have been used in Alberta and elsewhere to reduce emissions in that sector: oil & gas (at 20 – 26), electricity (at 27 – 34), transportation (at 35 – 40), commercial and residential buildings (at 41 – 46), industrial and manufacturing (at 47 – 51), agriculture, forestry, and waste (at 52 – 56). The Minister's announcement together with the overall tone and content of the discussion document make it clear the current intensity-based emissions reduction policy implemented by the Specified Gas Emitters Regulation, Alta Reg 139/2007 will be replaced on or before the end of 2017. I believe the centrepiece of Alberta's new direction should be joining the cap-and-trade system currently operating in Quebec and California, along with Ontario which in April 2015 announced its intention to join.
The post-Kyoto international climate change framework will almost certainly include the pursuit of a global carbon market that consists of linked regional and national carbon emission trading systems. The hope will be that someday in the not too distant future the key market indicators displayed on monitors across the globe will include the price per ton of carbon emissions alongside the price of the US dollar or a barrel of crude. When (or if) that day arrives, we will have realized the work of economists who have argued for decades that the market is the preferred policy tool to address excessive emissions into the atmosphere. The seminal work here includes Dales, Pollution, Property & Prices: An Essay in policy-making and economics (Toronto: University of Toronto Press, 1968) and most prominent advocate in recent times is likely Professor Robert N Stavins at Harvard University who has labelled climate change the worlds 'ultimate commons problem' (see Robert N Stavins, "The Problem of the Commons: Still Unsettled after 100 Years" (2011) 101:1 American Economic Review 81 at 96-103).
Scholarship on the design of a cap-and-trade carbon emissions trading system suggests there are 4 fundamental policy decisions to be made: (1) prescribe the emissions cap, (2) delineate the scope of coverage in regulated emitters, (3) decide how to allocate entitlements to emit carbon, and (4) determine what measures will be available for regulated emitters to control compliance costs. What follows is some discussion on these parameters.
The overall objective being a reduction in carbon emissions, the starting point is to legislate a cap on the total allowable quantity of absolute carbon emissions during a compliance period (say annually). The most common approach is to set the cap based on historical emissions in the jurisdiction. Over successive compliance periods the cap is lowered. This is how the Quebec-California system caps and reduces overall carbon emissions. The current Alberta framework does not require an absolute reduction in emissions but rather requires an emitter to reduce emissions calculated per unit of production levels. A regulated emitter under the current rules can increase its absolute emission levels so long as emissions efficiency improves along with increased economic production.
The next step is to determine who will be subject to the cap on emissions. All jurisdictions which have implemented cap-and-trade systems to date have chosen to impose emissions obligations on only select economic actors. No doubt political influence has been exerted in many jurisdiction to ensure dominant industries avoid emissions reduction obligations. A clear example of this is in New Zealand where that country's carbon emissions obligations are not imposed on the agricultural sector despite the fact it generates about 50% of the nation's carbon emissions. Some jurisdictions have chosen to impose emissions reduction obligations only on the so-called upstream activities, where the source of carbon is extracted or enters the economy. Others have decided to include downstream activities where carbon is released in manufacturing processes or otherwise in the consumption of carbon-based fuel (e.g. in driving vehicles). Including consumers in the regulatory net of carbon obligations ensures a very liquid and active trading market, but also significant difficulties in the administration of market oversight. So there is a balance to be had between ensuring enough emitters are subject to the cap while at the same time minimizing the administrative costs necessary to administer the scheme. A popular measure used to draw this line is to only regulate those entities who emit carbon above a legislated minimum threshold. The lower the threshold, the more emitters who are captured by the reduction obligation.
The allocation of entitlements to emit carbon is a key policy decision in the design of a cap-and-trade system. The basic idea is that the total amount of allowable emissions for a compliance period is divided into allowance units and distributed into the market. The most common allocation method in cap-and-trade systems is to distribute entitlements to regulated emitters at no cost based on their historical emission levels. Other methods include lotteries, first-in-time/first-in-right, or auctions. An emitter who emits more carbon than their allocated units has to acquire additional units from another market participant for a price in order to meet a compliance obligation. Free allocation is the most common distribution method likely because it ensures existing emitters only have to internalize the cost of emissions in excess of historical levels – thereby avoiding the 'sticker shock' of a new regulatory system. The Quebec-California system employs a hybrid of free allocation and state auction, whereby regulated emitters receive entitlements to emit based on historical emissions but can acquire additional entitlements for the reserve price set in quarterly state auctions. An emitter who is left with units in hand after accounting for its emissions in a compliance period can sell those excess units into the market, thereby generating an economic incentive to reduce carbon emissions.
The primary means for an emitter to control compliance costs in a cap-and-trade system is to engage in trades with other market participants. If the cost to reduce actual emissions to equal the number of units on hand is higher than the cost to acquire the necessary additional units, an emitter can minimize its compliance costs by purchasing units in the market. The theory here is that the collective trading of entitlements to emit carbon by market participants ensures actual emissions abatement is implemented by those entities with the lowest marginal cost to emit. The realization of this efficient outcome however requires adequate liquidity, transparency and order in the trading market, and these are the traditional objectives of legal rules in market regulation. Unfortunately, thus far legal frameworks governing carbon emission trading systems have not directed sufficient, if any, attention to these parameters. I remain puzzled as to why state officials in jurisdictions with carbon markets have not directed their capital market regulators to oversee carbon trading. For example in Alberta, why not direct the Alberta Securities Commission to oversee carbon trades?
The current Alberta framework focuses heavily on the other tools for cost containment: carbon offsets and a cash payment option. Simply put, carbon offsets are generated by non-regulated entities who reduce their actual emissions below a business-as-usual level. Carbon emission offsets are commonly generated by carbon sequestration associated with land use, land use change and forestry, and underground carbon capture and storage (Professor Bankes has examined how carbon capture and storage will generate offsets in Alberta here). Alberta has a relatively mature and comprehensive carbon emissions offset program, and since 2007 nearly 200 offset-generating projects have been registered with the province. Agricultural land management protocols for projects that eliminate or reduce tillage have been the most common source of offsets thus far. The cash option in Alberta under the current framework is to cover excess emissions with a per ton payment into the Climate Change and Emissions Management Fund, which the Minister announced in June would be raised from $15 to $30 per ton between now and 2017.
One of the more significant problems with the current Alberta framework is that it focuses too much on cost containment for regulated emitters. For example, there is no limit on the number of carbon offsets that an emitter can submit for compliance purposes – which in practice means a regulated emitter may exceed its cap by a significant amount by acquiring relatively cheap offsets generated outside of the regulatory net. Other cap-and-trade systems deal with this issue, as well as the concern over whether offsets represent real emissions reductions (see here for some discussion) by limiting the number and source of offsets that can be submitted for compliance. In order to join the Quebec-California market Alberta is going to have to face the prospect of limiting access to carbon offsets, which promises to be a difficult political issue.
In a forthcoming paper to be published by the McGill International Journal of Sustainable Development Law & Policy, I examine these design features in the carbon emission trading systems operating in Alberta, Quebec and New Zealand. An earlier version of this paper can be found on SSRN.
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By: Nigel Bankes
PDF Version: ITLOS, The Enrica Lexie Incident and the Prescription of Provisional Measures: Saying That There is Urgency Does Not Make It So
Decision Commented On: ITLOS, The Enrica Lexie Incident: Order in respect of request for the prescription of provisional measures, Italy v India, 24 August 2015
Article 290 of the Law of the Sea Convention of 1982 (LOSC) accords the International Tribunal of the Law of Sea (ITLOS) the authority to prescribe provisional measures in two different circumstances. Paragraph one authorizes ITLOS (along with the International Court of Justice, and any relevant international tribunal properly seized with an application) "to prescribe any provisional measures which it considers appropriate under the circumstances to preserve the respective rights of the parties to the dispute or to prevent serious harm to the marine environment, pending the final decision" provided that ITLOS, the Court or an arbitral tribunal (as the case may be) has prima facie jurisdiction, to consider the matter.
The power to indicate (see Article 41 of the Statute of the International Court of Justice, and the LaGrande Case, 2001) or prescribe provisional measures is a standard element of the jurisdiction of any court or tribunal, domestic or international, expressly or as part of the tribunal's inherent jurisdiction, to preserve the rights of the parties pending judicial determination. While the text of Article 290(1) does not refer to "urgency" it is generally understood that an international tribunal should only make a provisional measures order in a case of urgency. For affirmation of this point in the context of ITLOS see, for example, Dispute Concerning Delimitation of the Maritime Boundary between Ghana and Côte d'Ivoire in the Atlantic Ocean, Order at para 42.
More unusual is the jurisdiction conferred by Article 290(5). This paragraph authorizes ITLOS to prescribe provisional measures in situations where the parties to a dispute have selected an arbitral tribunal other than ITLOS to consider a dispute under the LOSC. In such a case paragraph 5 authorizes ITLOS to make a provisional measures order pending the effective constitution of the tribunal. The text, so far as relevant, provides as follows:
Pending the constitution of an arbitral tribunal to which a dispute is being submitted under this section, any court or tribunal agreed upon by the parties or, failing such agreement within two weeks from the date of the request for provisional measures, the International Tribunal for the Law of the Sea … may prescribe, modify or revoke provisional measures in accordance with this article if it considers that prima facie the tribunal which is to be constituted would have jurisdiction and that the urgency of the situation so requires. Once constituted, the tribunal to which the dispute has been submitted may modify, revoke or affirm those provisional measures, acting in conformity with paragraphs 1 to 4.
I previously posted on the ITLOS Provisional Measures Order in the ongoing dispute between Ghana and Côte d'Ivoire. The Order by the chamber empaneled in the case engaged the Tribunal's jurisdiction under Article 290(1). The current dispute between Italy and India engages Article 290(5) since Italy instituted proceedings against India seeking to establish an Annex VII Arbitral Tribunal on 28 June 2015. The tribunal has yet to be constituted although Annex VII contemplates that it should be fully constituted in a matter of months. ITLOS has considered several previous applications for provisional measures under Article 290(5): (1) Southern Bluefin Tuna, (2) The MOX Plant Case, (3) Case Concerning Land Reclamation (Straits of Jahore), (4) The Arctic Sunrise Case (the subject of a post by Alex Oude Elferink here), and (5) The ARA Libertad Case.
While paragraphs 1 and 5 must be read together, there are several differences between the two texts. First, while paragraph 5 expressly refers to the urgency of the situation there is no similar reference in paragraph 1. Thus, while urgency might well still be a part of any application for provisional measures (see above), it might follow that the quality of the urgency that an applicant must demonstrate under paragraph 5 is even more demanding. Judge Treves for example took this approach in his Separate Opinion in Southern Bluefish Tuna. Second, while paragraph 1 contemplates that a provisional order may operate "pending the final decision" (subject to review and possible modification or revocation pursuant to paragraph 2 "as soon as the circumstances justifying them have changed or ceased to exist"), paragraph 5 expressly contemplates that the Annex VII Tribunal should have the opportunity to "modify, revoke or affirm" (emphasis added), and of its own motion, any provisional measures prescribed by ITLOS once the arbitral tribunal is established. Neither paragraph refers to irreparable harm or irreparable prejudice although both domestic courts and international tribunals frequently take the view that the only interests that merit interim protection are those interests the interference with which cannot be properly compensated by damages (for an ITLOS example see Judge Mensah, sep. op. MOX Plant Case; for an ICJ Decision see the Order in Aegean Sea Continental Shelf Case at para 33). Similarly, while neither paragraph makes the point expressly, it is broadly understood that provisional measures constitute an exceptional and non-routine remedy (see Judge Mensah, sep. op. MOX Plant Case and Judge Lucky, sep. op. Case Concerning Land Reclamation (Straits of Jahore) at para 10).
The Factual Matrix
While the detailed facts of the dispute remain contested and will only be resolved (so far they can be) following a hearing on the merits, the essential elements seem to be as follows:
The separate and dissenting opinions variously emphasized several of these "facts" including the fact that Italy did not commence Annex VII arbitration for some two and a half years since the incident and that no formal charges have ever been laid against the two marines (although in part this may be due to the domestic proceedings in Indian courts questioning their constitutional validity).
The Issue on the Merits
The issue on the merits is variously stated in the ITLOS Order and one of the separate declarations as follows:
…which State has jurisdiction to decide on the Enrice Lexie incident (Order at para 128)
Italy claims a right of "exclusive" jurisdiction over the incident. (Declaration of Judge Paik at para 2)
I suspect that a more precise statement might simply be whether India has breached any of the LOSC provisions listed by Italy: Articles 2(3), 27, 33, 56, 58, 87, 89, 92, 94, 97, 100 & 300.
Italy's Application for Provisional Measures
In its application for provisional measures, Italy sought the following Order:
(1) India shall refrain from taking or enforcing any judicial or administrative measures against Sergeant Massimiliano Latorre and Sergeant Salvatore Girone in connection with the Enrica Lexie Incident, and from exercising any other form of jurisdiction over the Enrica Lexie Incident; and
(2) India shall take all measures necessary to ensure that restrictions on the liberty, security and movement of the Marines be immediately lifted to enable Sergeant Girone to travel to and remain in Italy and Sergeant Latorre to remain in Italy throughout the duration of the proceedings before the Annex VII Tribunal;
The ITLOS Order
The Tribunal, by a majority of 15 votes to 6, made the following Order:
Italy and India shall both suspend all court proceedings and shall refrain from initiating new ones which might aggravate or extend the dispute submitted to the Annex VII arbitral tribunal or might jeopardize or prejudice the carrying out of any decision which the arbitral tribunal may render.
Vice-President Bouguetaia, and Judges Chandrasekhara Rao, Ndiaye, Cot, Lucky and Heidar voted against the adoption of the Order, principally but not exclusively, on the grounds that Italy had not been able to demonstrate the urgency of the application. Indeed, the possible absence of urgency was a cause for concern for some of those who voted for the Order (see in particular the Sep. Op. of Judge Kateka, discussed below).
This post first lists the relevant considerations that ITLOS must consider before making a provisional measures order under Article 290(5) and then considers how the Tribunal dealt with these considerations, focusing on the test for urgency that an applicant for provisional measures under Article 290(5) must meet.
Preliminary Tests
In order to be able to exercise its discretion and grant a request for provisional measures under Article 290(5), ITLOS must establish that the application meets a number of preliminary tests. These tests arise not only from paragraph 5 but also paragraph 1 and other provisions of Part XV of LOSC. In sum, these requirements are as follows:
(1) The existence of a legal dispute as to the interpretation or application of LOSC (see Articles, 279, 283 and 286 and for the requirement that the dispute be a legal dispute see Southern Bluefin Tuna Case at para 44). The dispute must relate to LOSC; it is not enough that it relates to the international customary law of the sea unless such norms have been incorporated by reference into LOSC: The ARA Libertad Case, esp. Sep. Op. Judges Wolfrum and Cot.
(2) Evidence that the Parties have exchanged views as to the dispute (Article 282). This test is relatively easy to meet since ITLOS has consistently stated that all that is required is the applicant once having commenced an exchange of views has now reached the conclusion that the possibilities of reaching agreement have been exhausted: (MOX Plant Case, Order, at para 60; ARA Libertad Case, Order, at para 71).
(3) That the claim does not involve an abuse of process (see Article 294).
(4) That the dispute is not one that requires the exhaustion of local remedies or, if it is, that such local remedies have been exhausted (see Article 295).
(5) That the relevant (other) tribunal would prima facie have jurisdiction (Article 290(5) (or, to put it another way, that there is nothing that obviously precludes an Annex VII tribunal from assuming jurisdiction).
Once the Tribunal has satisfied itself as to these preliminary tests it can then assess whether it is "appropriate in the circumstances" to make an order of provisional measures and to that end will consider:
(6) The urgency of the situation so requires (Article 290(5)).
(7) That the provisional measures are required to preserve the respective rights of the parties to the dispute or to prevent serious harm to the environment (Article 290(1)).
The Tribunal need only consider the last two requirements (6 and 7) if it has first satisfied itself (where relevant) as to the first five requirements. The Tribunal consistently takes the view that in settling on provisional measures it is not confined to the measures requested by the parties (a view criticized by Judge ad hoc Shearer in the Southern Bluefin Tuna case). Moreover, the Tribunal will be careful to avoid passing judgement on the merits of the claim in formulating provisional measures.
A Dispute as to a Provision of LOSC
As to the first requirement there was little doubt that there was an ongoing legal dispute between the Parties. Indeed the Order recites, at para 51, that the Parties agree that there is a dispute between them as to facts and law. More specifically, Italy alleged that the dispute might involve the application or interpretation of a number of LOSC provisions as listed above. India took issue with some or all of these assertions and some members of the Tribunal were not convinced that any or all of these provisions were at issue (see, in particular, Diss. Op. Vice President Bouguetaia at paras 10 – 17), However, the majority emphasized that Italy need only establish prima facie jurisdiction in relation to one such provision (see Order at para 52) and contented itself with observing, rather blandly, (at para 53) that
Considering that, having examined the positions of the Parties, the Tribunal is of the view that a dispute appears to exist between the Parties concerning the interpretation or application of the Convention;
It bears emphasizing that at no point did the majority indicate which provision(s) it was relying on.
An Exchange of Views
There was similarly little difficulty with the requirement for an exchange of views in relation to the dispute since there was evidence of ongoing diplomatic negotiations over an extended period (Order at para 59).
Abuse of Process?
As to the third requirement, India evidently took the position that there was an abuse of process on the ground that once Italy had elected to participate in the domestic court proceedings it had lost the opportunity to pursue its options under Section 2 of Part XV of LOSC. The majority scotched that idea noting (Order at para 73):
… that article 290 of the Convention applies independently of any other procedures that may have been instituted at the domestic level and Italy is therefore entitled to have recourse to the procedures established in that article and, if proceedings are instituted at the domestic level, this does not deprive a State of recourse to international proceedings.
Exhaustion of Local Remedies
The fourth element (exhaustion of local remedies where applicable) has been the occasion of some difficulty for the Tribunal in the past in relation to issues on the merits (see in particular M/V Saiga (No. 2) Case, Merits). In this case, however, the Tribunal found it unnecessary to express an opinion on the point on the ground that the issue was inevitably bound up with the substance of the dispute and need only be considered on the merits (Order at para 67).
Prima Facie Jurisdiction
The fifth element (prima facie jurisdiction in relation to at least one issue) is a core and express requirement of Article 290(5). It is not so much an independent criterion as it is a conclusion that the tribunal must reach following consideration of the previous criteria and provided that there is nothing else that would obviously serve to deny an Annex VII tribunal jurisdiction. An example of the latter would be a case in which a state had taken advantage of the opportunity provided by Article 298 to opt out of binding dispute resolution in relation to a category of dispute, and the dispute in question fell squarely within that category. That was not the case here.
The Rights to be Protected and Urgency
The sixth and seventh elements must be considered together since urgency is contextual and must be established in the context of the rights which are to be protected, pending either a final order resolving the dispute (Article 290(1)), or, more narrowly in the case of Article 290(5), pending the constitution of the Annex VII tribunal. It is logical to examine the rights at issue before moving to the question of urgency. The Order accepts that logic.
Italy asserted (Order at para 76) that the rights it sought to have protected were: (1) its right of exclusive jurisdiction over the Enrica Lexie incident, and (2) its rights in relation to its own immunity and the immunity of its officials. Thus Italy contended that any continuation of India's own proceedings in relation to these matters would irrevocably prejudice Italy and might (my words) make the outcome of the Annex VII proceedings moot. India in turn contended that it had the right to continue its own judicial proceedings and hence that any Order should not prejudice that entitlement (Order at para 81). Both claims were, in the opinion of the Tribunal, "plausible" (Order at para 85).
On the question of urgency, the Tribunal formulated the test by quoting the reference to urgency in Article 290(5) and then it referred to Article 290(1) and a leading ITLOS decision on paragraph 1 as follows:
Considering that article 290, paragraph 1, of the Convention stipulates inter alia that the Tribunal may prescribe any provisional measures which it considers appropriate under the circumstances to preserve the respective rights of the parties, which implies that there is a real and imminent risk that irreparable prejudice could be caused to the rights of the parties to the dispute pending such a time when the Annex VII arbitral tribunal to which the dispute has been submitted is in a position to modify, revoke or affirm the provisional measures (see M/V "Louisa" (Saint Vincent and the Grenadines v. Kingdom of Spain), Provisional Measures, Order of 23 December 2010, ITLOS Reports 2008-2010, p. 58, at p. 69, at para 72);
It is perhaps important to emphasize that the M/V Louisa case was only concerned with Article 290(1) and not (notwithstanding the reference in the quoted paragraph) with Article 290(5). The Tribunal in the instant case concluded its statement of the relevant test by acknowledging (Order at para 89) that the Annex VII Tribunal would be in a position to "modify, revoke or affirm" any provisional measures once it was in place.
In assessing Italy's request for provisional measures against this test, the Tribunal concluded that neither of the two forms of relief requested by Italy "would equally preserve the requested rights of both Parties" (Order at para 127). Accordingly, the Tribunal elected, consistent with past practice, to formulate different and more limited provisional measures (Order at para 127). Thus the Tribunal reformulated Italy's first measure in the form of an Order directed at both parties requiring each to suspend existing court proceedings and refrain from initiating new ones that might aggravate or extend the dispute or prejudice the carrying out of any decision the arbitral tribunal might make. The Tribunal declined to make any Order in relation to the status of the two marines on the ground that were it to do so it would be trespassing on the merits of the case (Order at para 132). That said it did choose to reaffirm that "considerations of humanity" do apply to the law of the sea as they do apply in other areas of the law.
Thus, in the end, the Tribunal had remarkably little to say about urgency, either the basic standard of urgency, or, as India put it (quoted in the Order at para 100), the aggravated urgency standard of Article 290(5). The same is equally true of irreparable harm or prejudice. At no point does the Tribunal suggest that there was any likelihood that the Indian courts were likely to resume their proceedings in respect of the matter before the Annex VII tribunal was constituted. Indeed, the only information on that point, was the information provided by counsel for India and quoted above to the effect that it was unlikely that the suspended proceedings would be resumed in this short interim period. Somewhat curiously the Tribunal immediately juxtaposed this reference with a statement to the effect that "the Tribunal places on record assurances and undertakings by both Parties during the hearing"; but the statement by counsel for India fell far short of any assurance or undertaking.
The absence of any real urgency (especially after the long lapse of time between the initiation of criminal proceedings by India and the initiation of Annex VII arbitration proceedings and this request for provisional measures) clearly troubled some of the dissenting members of the Tribunal including Judge Heidar (Diss. Op. at para 14), Judge Lucky (Diss. Op. at paras 56 – 65), Judge Chandrasekhara Rao (Diss. Op. at paras 1 – 15), Judge Ndiaye (Diss. Op. at paras 27 – 36) and Vice President Bouguetaia (Diss. Op. at paras 19 – 34). Even Judge Kateka who joined the majority expressed the following concerns (Sep. Op. at paras 3 & 4):
My main hesitation about the Order concerns the issue of urgency. The Tribunal can exercise its power to prescribe provisional measures only if there is a real and imminent risk that irreparable prejudice will be caused to the rights in dispute …. No such real and immediate risk of irreparable damage has been established by the facts and arguments submitted by the Applicant.
In the present case, the Tribunal has not only acted without giving full reasons for urgency but has also prescribed measures different from those requested by the Applicant…
In light of these reservations one wonders how Judge Kateka was able to vote in favor of the Order. For Judge Jesus on the other hand, any continuation by India of the criminal proceedings carried the risk of irreparable prejudice (Sep. Op. at para 14) as "the possible punishment of the imprisonment of the marines would render ineffective, or even moot, any decision of the Annex VII arbitral tribunal determining which of the Parties has jurisdiction to deal with the incident, in the event that the arbitral tribunal decided the issue of jurisdiction in favor of Italy. This alone justifies the urgency of the situation with respect to the prescription of provisional measures to suspend any exercise of criminal jurisdiction by either of the Parties pending a decision of the arbitral tribunal." Judge Jesus would also have extended his conclusion as to urgency to the second head of relief requested by Italy; as would Judge ad hoc Francioni who also added, inexplicably (Sep. Op. at para 21), that it "would be misleading to assess the 'urgency of the situation' only in the limited time frame of the weeks or months that will pass before the Annex VII tribunal is constituted and can rule on the question." Such an observation flies in the face of the distinction paragraphs 1 and 5 of Article 290 make between provisional measures "pending the final decision" and provisional measures pending effective constitution of the Annex VII tribunal.
This comment was first posted on the blog of the KG Jebsen Centre of the Law of the Sea of the University of Tromsø, the Arctic University of Norway.
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By: Kirk Lambrecht, Q.C.
PDF Version: The Governor in Council Occasions Change and Delay in the National Energy Board's Review of the Trans Mountain Pipeline Expansion Project: The Curious Case of PC 2015-1137
Matter Commented On: Order in Council PC 2015-1137
In plain language, it seems that the Governor in Council shot the Trans Mountain Pipeline Expansion Project in the foot just as the Project was about the cross the finish line of a two year environmental assessment and regulatory review process overseen by the quasi-judicial National Energy Board [NEB]. A Governor in Council decision to appoint a Proponent's witness to the NEB, taken while a Panel of the NEB was still considering the Proponent's application, has occasioned the striking of a part of the Proponent's evidence in the ongoing environmental assessment process (described here) and regulatory review process (described here) for the Trans Mountain Pipeline Expansion Project (described here). The Governor in Council's action will cause unexpected changes and delays to these processes; and the clouds of future litigation which lay on the horizon for this Project now darken as a further consequence. This comment is structured around four questions: (1) what happened? (2) how could this happen? (3) will this affect Aboriginal consultation? and (4) what happens next?
What Happened?
On July 28, 2015, the Governor in Council filled one of two vacancies in the nine-member NEB by exercising powers conferred upon the Governor in Council by section 3 of the National Energy Board Act, RSC 1985, c N-7 (see PC 2015-1137 and NEB Governance Information). The appointment was amongst the final Orders in Council promulgated prior to the calling of a general election on August 2, 2015.
On August 20, 2015, the Proponent of the Trans Mountain Expansion Project filed its Final Argument with the NEB. A News Release accompanying the filing described the Final Argument as the culmination of more than three years of work, and concluded: "The scrutiny and rigour this Project has undergone, both inside and outside of the formal NEB process, is unprecedented."
On August 21, 2015, one day after the Final Argument was filed, the Panel of the NEB charged with the responsibility for the environmental assessment and regulatory review of the Trans Mountain Pipeline Expansion project issued a letter [NEB Panel Letter]. The NEB Panel Letter noted that the individual appointed to the NEB by the Governor in Council on July 28 had provided written evidence to the Panel on behalf of the Proponent (see Written Evidence of Appointee), that this evidence addressed issues which included oil market supply and demand, and that the evidence was contested.
The NEB Panel Letter went on to state that the appointment of the Proponent's witness to the NEB could mean that "this Panel of the Board may be in the position of having to assess this evidence after the appointment to the Board became effective." The NEB Panel stated that "[t]here can be no question that public confidence in the impartiality of tribunal decision-makers is integral to the administration of justice" and that the dual role of the appointment "as a person who prepared evidence in this proceeding and as a future Board member, may raise concerns about the integrity of this hearing process." The letter stated that the Panel therefore "has decided on its own volition to strike from the hearing record all evidence prepared by or the under the direction of" the witness who had been appointed to the NEB.
The NEB Panel Letter went on to adjourn final arguments, then scheduled to conclude in September of 2015. Parties were invited to make submissions, and the Panel indicated that it "will issue a procedural update shortly thereafter advising all participants how it intends to conduct the remaining process steps to conclude its review of the Project application."
How Could this Happen?
The Minister of Natural Resources is 'responsible' for the NEB, and the Order in Council identifies the Minister of Natural Resources as the Minister on whose advice the Governor in Council acted. It is certain that tools were available to the Governor in Council, and also the Minister of Natural Resources, to identify the legal risks of PC 2015-1137 in the course of its passage through the Order in Council process (generally described here).
The appointment process leading to PC 2015-1137 must have involved consideration of section 3(4) of the National Energy Board Act. This section provides that a person is not eligible to be appointed as a member of the Board if that person is "as owner, shareholder, director, officer, partner or otherwise, engaged in the business of producing, selling, buying, transmitting, exporting, importing or otherwise dealing in hydrocarbons or electricity or holds any bond, debenture or other security of a corporation engaged in any such business". Beyond an inquiry according to the ambit of this section, however it may be interpreted, one could reasonably anticipate that those involved in PC 2015-1137 should have considered the potential impact of the appointment of a Proponent's witness to the NEB on perceptions of the integrity of the NEB's hearing process for the Trans Mountain Pipeline Expansion Project. After all, the importance of maintaining the appearance of integrity in the NEB hearing process is the foundation for textbook jurisprudence on apprehension of bias: Committee for Justice and Liberty et al. v National Energy Board et al., [1978] 1 SCR 369, 1976 CanLII 2.
The Minister of Justice for Canada is responsible for advising the Government on all matters of law by virtue of the Department of Justice Act, RSC 1985, c J-2, and for advising on legal risks in the Order in Council process specifically. The Minister also provides legal advice to Government under the Project Agreement for the Trans Mountain Pipeline Project signed by Deputy Ministers, including the Deputy Minister of Natural Resources, and the CEO of the NEB under the Major Project Management Office initiative (discussed further below). Legal risk management is well documented in Justice Canada (See Legal Risk Management in the Department of Justice). Under the legal risk management regime, the Minister of Justice advises on the nature and extent of legal risk, but the Government ultimately decides whether, or not, to accept the legal risk of its actions.
Critical thought leads to three lines of analysis. First, the tools available were not used (perhaps because of the haste of a Government appointment process undertaken in the summer and within days of the commencement of a general election; or, perhaps, for other unknown reasons). Second, if the tools were used, the legal risks which arose were not foreseen. Third, if foreseen, the legal risks were not afforded sufficient, or any, weight; or, if given appropriate weight, were thought to be acceptable by those who received the advice. Persons may opine which of these is most likely, but a conclusive forensic legal analysis of why the tools were not effective is impossible because of cabinet confidence in the appointment process leading to PC 2015-1137 by virtue of section 39 of the Canada Evidence Act, RSC 1985, c C-5. Why the Governor in Council, acting on the advice of the Minister of Natural Resources, did what was done will remain inexplicable unless cabinet confidence is waived.
PC 2015-1137 was issued under the shadow of imminent economic recession, and after an announcement at the 2015 Energy and Mines Ministers' Conference that "[t]he continued advancement of energy infrastructure projects … is fundamental to … generating economic growth" (See Press Release – Federal, Provincial And Territorial Ministers Responsible For Energy And Mines Highlight Priorities For Upcoming Year). The appointment had been lauded by the Minister responsible for the NEB, who described the appointment as adding " … a valuable asset to the National Energy Board as it continues to fulfil its mandate" … (see here). The NEB Panel was of the view that the appointment created a potential for perception of harm to "the integrity of this hearing process." These are curiously incongruent statements in an economically important context.
The irony of process change and delay occasioned by the Governor in Council is most evident when examined in the context of the legislative reforms of the first omnibus Bill of 'the Harper Government' (the Government of Canada was referred to as the Harper Government as a consequence of an internal directive described here). Process change and delay are not congruent with the legislative reforms introduced in the Jobs, Growth and Long-Term Prosperity Act, SC 2012, c 19 (discussed here). That Act passed through Parliament as Bill C-38. Part 3 of the Bill was titled as 'Responsible Resource Development'. R2D was the acronym used to refer to responsible resource development, and R2D was associated with the Government initiative known as 'Canada's Economic Action Plan'. Division 2 of Part 3 made numerous changes to the National Energy Board Act. Division 2 was said "to establish time limits for regulatory reviews under the Act and to enhance the powers of the National Energy Board Chairperson and the Minister responsible for the Act to ensure that those reviews are conducted in a timely manner" (See Government Summary of R2D in Bill C-38). It also made the Governor in Council responsible for making all final decisions on whether, or not, to issue Certificates of Public Convenience and Necessity. The Government Summary in Bill C-38 states: "Division 2 of Part 3 amends the National Energy Board Act to allow the Governor in Council to make the decision about the issuance of certificates for major pipelines."
Will this affect Aboriginal Consultation?
Aboriginal consultation for the Trans Mountain Pipeline Expansion Project is fundamentally integrated into the NEB regulatory review process by virtue of the Cabinet Directive on Improving the Performance of the Regulatory System for Major Resource Projects (See here), the Major Project Management Office [MPMO] initiative which followed that Directive, and the Project Agreement concluded under the supervision of MPMO and including the NEB as a signatory. Occasioning change and delay in the NEB process as a consequence of PC 2015-1137 will therefore certainly affect Aboriginal consultation. PC 2015-1137 may also give rise to Aboriginal concerns about the relationship between the Order in Council process, including any future Governor in Council decision about the issuance of certificates of public convenience and necessity, and the duty to consult. Such concerns fall outside of the NEB hearing process administered by the NEB Panel, and it remains uncertain whether or how these may be addressed.
The R2D initiative included the creation of the MPMO. The MPMO mandate is "to provide overarching project coordination, management and accountability for major resource projects within the context of the existing federal regulatory review process." This is done by ensuring that a Project Agreement is created for each Major Project within the MPMO inventory. MPMO then 'tracks' the timely progress of the Project through the milestones in the Preview process (See MPMO Tracker).
A project agreement outlines roles and responsibilities of federal departments and agencies throughout a particular regulatory review process. In this case the Project Agreement was signed by numerous Deputy Ministers, and also the CEO of the NEB; indeed, the Deputy Minister of Natural Resources appears to have been the first to sign it. The Project Agreement is supposed to ensure a coordinated, 'whole of government' approach to Aboriginal consultation.
According to the Project Agreement, "[t]he Government of Canada will to the extent possible rely on the NEB process, including the hearing, to discharge any duty to consult for the Project. Aboriginal groups that have Project related concerns should convey these concerns to the NEB" (underline added). Appendix I to the Project Agreement is entitled Key Milestones and Service Standards for the Environmental Assessment, Regulatory Review and Aboriginal Consultation. It does not expressly anticipate Aboriginal consultation and accommodation after the NEB Report and before the Governor in Council makes a decision in respect of the issuance of a Project Certificate. Appendix III of the Project Agreement is entitled Aboriginal Engagement and Consultation Approach and Roles and Responsibilities. It anticipates that all Aboriginal concerns will be addressed within the NEB process, and states that "[s]upplementary Crown consultation activities will occur, should there be outstanding issues or concerns raised by Aboriginal groups that fall outside of the NEB process."
Early in the NEB regulatory process, the NEB wrote to Aboriginal entities describing how the NEB's hearing process would work:
After receipt of an application and ensuring it is complete, the Board will schedule a public hearing on this Project. One purpose of the hearing process will be to test the Project information (referred to as evidence in the hearing), which will have been filed with the Board. … This information will include details of Trans Mountain's Aboriginal consultation program and the outcomes of that program. It will also include information from Trans Mountain regarding the impacts the Project may have on Aboriginal interests and any proposed mitigation measures.
Another purpose of the hearing process will be to allow persons who are directly affected by the Project, or have relevant information or expertise relating to the Project, to express their views. These could include views in favour or against the Project or views on how the Project may impact Aboriginal communities, the use of traditional territory and any potential or established Treaty or Aboriginal rights.
If, in practice, there were a 'Whole of Government' approach to Aboriginal consultation and accommodation for the Trans Mountain Pipeline Project as described in the Project Agreement, then the Minister of Natural Resources and also the Governor in Council must have been aware that PC 2015-1137 involved the appointment to the NEB of a Proponent's witness in a context where the Crown, itself, was relying on the NEB process to discharge the constitutional obligations of aboriginal consultation in a manner consistent with the Honour of the Crown.
Critical thought suggests three possible scenarios for Aboriginal concerns about the consultation process.
First, if the Governor in Council and Minister of Natural Resources were aware that PC 2015-1137 involved the appointment of a Proponent's witness, then Aboriginal groups may have a concern about how the Crown acted. This is because the NEB Panel states that PC 2015-1137 created a situation which might affect the integrity of the process which discharges constitutional obligations of consultation and accommodation; and, in any case, PC 2015-1137 occasioned unexpected change in and delay to the process.
Second, if the Governor in Council and Minister were not aware that PC 2015-1137 involved the appointment of a Proponent's witness, then Aboriginal groups may have a different concern. This is because lack of awareness implies that PC 2015-1137 actually reveals a systemic dysfunction in the MPMO Project Agreement system, by virtue of which the 'whole of government approach' is merely convenient phrase for public relations rather than a coherent practice.
Third, whether or not anyone knew, Government does not consider the Governor in Council's issuance of PC 2015-1137, acting on advice of the Minister of Natural Resources, to be within the operational ambit of the phrase "whole of government approach." In this type of scenario, Aboriginal groups may have a concern because it necessarily follows that the Crown is of the view that the constitutional duty to consult does not attach to Governor in Council decision making; and, yet, it is the Governor in Council which must ultimately determine whether to direct the issuance of a Project Certificate for the Project. In this scenario, the Project Agreement phrase "to the extent possible" (underlined above) is practically applied by Government as 'absolutely'; and Aboriginal consultation and accommodation is something done by the NEB and the Departments, within their respective regulatory mandates, but is not something that troubles the Minister or the Governor in Council. A very recent example of such absolute reliance on NEB process by Government is seen in Hamlet of Clyde River v. TGS-NOPEC Geophysical Company ASA (TGS), 2015 FCA 179 (See also Professor Nigel Bankes' ABlawg here), where the Court found that the Crown engaged in "no additional or independent consultation" outside of absolute reliance on the NEB process. The Federal Court of Appeal warned the Crown that although the duty to consult may be integrated into "robust" environmental assessment and regulatory review processes, "when the Crown relies on the Board's process, in every case it will be necessary for the Crown to assess if additional consultation activities or accommodation is required in order to satisfy the honour of the Crown."
What Happens Next?
PC 2015-1137 is going to occasion additional costs for all involved in the NEB process for the Trans Mountain Pipeline expansion. Overlaying the date of PC 2015-1137 onto the Project Tracker maintained by MPMO reveals that PC 2015-1137 was issued when the Project was at the point bureaucratically described as milestone 19 of 23. The Proponent had made an application to the NEB for a Certificate of Public Convenience and Necessity on December 16, 2013(see here, the narrow Canadian Environmental Assessment Act, 2012, SC 2012, c 19, s 52 had been found to apply, the NEB had issued its Hearing Order OH-001-2014, participant funding was made available and distributed, multiple rounds of information requests had been completed, many motions had been dealt with, the NEB had received many Aboriginal concerns and evidence, and the NEB had released draft conditions. According to the MPMO tracker, all that remained were final submissions, the close of the hearing record, and the submission of the final NEB recommendations to the Governor in Council.
The Proponent must now replace the evidence which was struck, and address procedural changes which are as yet unknown as of the date of publication of this commentary. The Proponent's first response was on August 28. In this letter the Proponent identified the evidence prepared by the witness who had been appointed to the NEB, advised the Panel that it intends to replace the evidence which was struck by September 21, 2015, (described as "narrow") and requested "that the Panel expedite the remaining procedural steps required to conclude its review of the Project Application."
Responses from other participants have also been filed with the NEB. The City of Burnaby calls for a restart of the NEB process before a new Panel. There are many other positions by many other participants in the NEB hearing process, including calls for additional participant funding in order to address an unexpectedly prolonged hearing process.
As of the date of publication of this commentary, the NEB Panel has not yet revealed how it will respond to the numerous submissions it has received. Readers can follow what happens next in that process by reviewing the documents filed in the NEB's online document repository at the link given at the outset of this commentary. It contains all documents filed with the NEB, including the Panel's Procedural Directions and Rulings.
The Governor in Council which appointed the Proponent's witness to the NEB will also ultimately decide whether to direct the NEB to issue a certificate of public convenience and necessity for the Trans Mountain Pipeline Expansion Project. PC 2015-1137 can therefore reasonably be expected to be the subject of judicial consideration far beyond the conclusion of the current NEB process. The next textbook Supreme Court of Canada decision may well deal with whether it is consistent with the Honour of the Crown for the Governor in Council (acting for reasons which are inexplicable because of cabinet confidence) to appoint a Proponent's witness to the NEB while a Panel of the NEB is still considering the Proponent's application (and thereby unilaterally occasion changes to a regulatory review process relied upon by the Crown to discharge constitutional obligations of aboriginal consultation and accommodation in a manner consistent with the Honour of the Crown).
Finally, the Proponent must not be forgotten. In addition to being delayed and obliged to incur unexpected hearing expenses, the Proponent may suffer financial loss if the Crown's consultation process is ultimately found to be inconsistent with the Honour of the Crown by reason of the Governor in Council action. Whether the Proponent may seek, or successfully obtain, financial compensation from the public purse in such a case remains uncertain (see here).
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By: Nigel Bankes
PDF Version: Provincial Environmental Appeal Boards: A Forum of Choice for Environmental (and First Nation) Plaintiffs?
Decision Commented On: Chief Gale and the Fort Nelson First Nation v Assistant Regional Water Manager & Nexen Inc et al, Decision No. 2012-WAT-013(c), BC Environmental Appeal Board, September 3, 2015
In this important (and lengthy) decision (115pp), British Columbia's Environmental Appeal Board (EAB) revoked Nexen's commercial water licence for two reasons: first, the terms and conditions of Nexen's licence were not technically supportable, and second, the Crown was in breach of its constitutional obligation to consult the First Nation with respect to the decision to issue the water licence.
I think that the decision is important for at least four reasons (notwithstanding the fact that the days for the version of the Water Act, RSBC 1996, c 483 in force at the time of this licence decision are numbered since it is due to be replaced by the new BC Water Sustainability Act in early 2016 and for comment see here). First, and most generally, it is an excellent example of the important role that environmental appeal boards can play in shining a light on the administrative practices of line departments. In the same vein, it is also offers a dramatic illustration of the differences between the role of an EAB and the role of a court on a judicial review or statutory appeal application. An EAB can offer a searching, de novo, technical re-assessment of the merits of the department's decision; a court is inevitably more deferential and precluded from engaging in an assessment of the merits. I have written at length on this important role that EABs serve, see "Shining a light on the management of water resources: the role of an environmental appeal board" (2006), 16 Journal of Environmental Law and Practice 131 – 185.
Second, the EAB offers some important and useful observations on the Water Act and the role of the EAB and also on the role of both precaution and caution.
Third, the Board's discussion of the duty to consult in a treaty context is detailed and well-reasoned and an interesting example of Board (rather than a court) assessment of the (non)satisfaction of the duty to consult: see Rio Tinto Alcan Inc v Carrier Sekani Tribal Council, [2010] 2 SCR 650 and my post on that decision, here).
Fourth, the remedy is significant since the outcome of a successful breach of a duty to consult case is rarely a decision to quash: see, for example Haida Nation v British Columbia (Minister of Forests), [2004] 3 SCR 511. The remedy was especially significant here since the licence authorized diversion of significant volumes of water (2.5 million cubic meters per year) and Nexen depends on this water licence for at least some of its fracking operations in the Horn River Basin.
The following attempts to summarize some of the more important of the EAB's observations and conclusions (with the aid of some fairly liberal "cutting and pasting") under the following headings: (1) a preliminary jurisdictional issue, (2) the role of an EAB on an appeal, (3) the object and purposes of the Water Act, (4) decision-making with incomplete information, (5) the Board's review of the merits of the licence decision, (6) the duty to consult, (7) the decision to revoke the licence, and, (8) implications for Alberta.
(1) A Preliminary Jurisdictional Issue
The EAB dealt with one preliminary jurisdictional issue at the outset, namely whether or not it had the jurisdiction to review a remedial Order that the Department had issued subsequent to the licence. The First Nation evidently contended that the Order also triggered the duty to consult which the Crown had failed to discharge. The EAB was of the view that the Order was a separate decision and that the First Nation should have taken out an additional appeal if it wished to put that Order at issue. Accordingly, the EAB concluded (at para 127) that it had no jurisdiction to consider the Order. This seems entirely correct and simply serves as a reminder of the need to recognize that there may be multiple decisions that need to be considered and separate applications made for each. In most cases EABs and courts will be able to join such applications. See, for example, my post on the Northern Gateway litigation here.
(2) The Role of the EAB on an Appeal
I can do no better than cut and paste the EAB's observations (at paras 157 – 158) as to its role:
The Board's powers and procedures for hearing and deciding an appeal under the Water Act are not limited to reviewing the appealed decision, or the decision making process that led to that decision, for errors. The Board is authorized under … the Water Act to conduct an appeal as a new hearing. As such, the Panel may consider evidence that was not before the Manager, as well as any information that the Manager considered. Indeed, in the present appeal, the evidence before the Panel consisted of 19 days of oral evidence (over 2,000 pages of transcript) and 42 exhibits, some of which were short documents or maps, and some were multi-volume sets running to hundreds or thousands of pages. Both expert opinions and published hydrological literature were included in the evidence provided to the Panel. Moreover, under section 92(8) of the Water Act, the Board has broad remedial powers in deciding an appeal. In the present case, the Panel may make any decision that the Manager could have made and that the Panel considers appropriate in the circumstances.
Consequently, the Panel is not limited to determining whether there were errors or inadequacies in the Manager's decision-making process or his decision to issue the Licence. Rather, the Panel is entitled to consider the technical merits of the Licence based on all of the relevant information presented at the appeal hearing, including information that became available after the Licence was issued, and the changes that were made in the 2013 Water Plan Addendum. As such, the Panel's findings on the technical merits of the Licence will focus on assessing the extensive body of evidence that is before the Panel, rather than simply deciding whether the Manager's decision or his decision-making process was flawed.
(3) The Object and Purpose of the Water Act and Other Interpretive Issues
The Board took the view that the Water Act is principally a water allocation statute (at pars 161 – 162). However, this did not mean that decision makers under the Water Act could ignore the environmental context of their decisions (at para 163):
… in deciding whether to issue a licence, the potential effects of the licensed water use on aquatic and riparian species and their habitat may be a relevant consideration. Water is a finite resource which may be subject to competing demands from private users, and adequate water quantity and quality is critical for maintaining aquatic ecosystems, including fish and fish habitat. Licensed water use may affect not only the amount of water available in a stream, but also the physical characteristics of the stream channel and banks.
The Board also commented on the ability of the original decision-maker (and itself as effectively the substitute decision maker) under the Water Act to take into account the cumulative effects of activities licensed by others that might have an impact on the ability of First Nations to exercise their treaty rights. Examples would include roads, wells and other resource developments and resource-related construction activity. The EAB concluded that such issues fell outside the Water Act and could not be considered (at para 170):
… the Panel finds that there is no basis under the Water Act for a manager, in assessing a water licence application, to consider the broad cumulative environmental effects of oil and gas developments, such as roads, gas pipelines and gas wells, in the watershed. Those activities, and their environmental impacts, are regulated under other legislation, including the Oil and Gas Activities Act. Consequently, the Panel finds that, in deciding the present appeal, the Board has no jurisdiction to order the Manager or Nexen to "examine the effect of proposed withdrawals together with other activities that may have ecological or hydrological effects on the lake or stream, such as the construction of roads, bridges or pipelines," as requested by the First Nation.
On the other hand, decision makers under the Water Act can and must take into account the cumulative effect of other water withdrawals (at para 168):
The Panel finds that it is consistent with the purposes of the Water Act to consider the total demand from all authorized water uses on the water source, and the impact that the total demand may have on stream flow as well as habitat in and about the stream.
Again this distinction makes sense in an administrative law context, but it cannot release the Crown from its obligations with respect to treaty rights: see in particular Grassy Narrows First Nation v Ontario (Natural Resources), 2014 SCC 48 and my post on that decision here.
The EAB also considered whether the precautionary principle should be read-in to the normative order of the statute. The Board declined to do so reasoning (at para 179) as follows:
… the Panel finds that the precautionary principle is not mentioned in the Water Act and there is no indication that the Legislature intended this principle to apply to water licensing decisions. At para 129 of Burgoon, [decision available here] the Board rejected the proposition that the precautionary principle is one of the factors that must be taken into account in deciding whether to issue a water licence under section 12 of the Water Act. The Panel agrees with that finding in Burgoon.
However, the Board's aversion to precaution did not prevent it from embracing (at para 183) caution:
Given the uncertainty involved in estimating stream flows and attempting to predict the potential impacts of a licence on the aquatic and riparian environment, a manager should take a conservative or cautious approach to making licensing decisions and setting conditions in a licence.
The Board returned to the need for caution several times in its discussion: see at paras 218 and 253 referring to the need for cautious use of comparator basins and instream flow models which might not be applicable in a muskeg basin setting. There are differences between caution and the precautionary principle. The latter is definitively normative (the decision maker ought to…) whereas "caution" is just good pragmatic advice, but in practical terms the outcomes may be similar in many contexts.
(4) Decision-making with Incomplete Information
The discussion throughout the decision makes it clear that the department was put in the position of making decisions on Nexen's application with inadequate information. While this theme pervades the decision, the EAB also addressed it explicitly in relation to what seems to have been the First Nation's argument to the effect that, given the inadequacy of the information, no licence should have been issued. The Board addressed this argument in two ways. First, it examined the requirements of the Act and regulation with respect to the information that an applicant must provide and then commented as follows (at para 176):
The Panel notes that section 2 of the Water Regulation does not require an applicant to provide information about the potential environmental impacts of the proposed licence. The information required under section 2 focuses on identifying the applicant, the water source, the intended amount of the water to be used, the purpose of the use, the location of the diversion point and the water use, and the locations of any works to be built and any land that may be physically affected by the water use. However, a manager has broad discretion to issue directions to the applicant and to require further information pursuant to sections 10(1)(b) and (c) of the Water Act. Given the purposes of the Water Act discussed above, additional information about the potential impacts of a licence on the water source, including aquatic and riparian species and their habitat, may be relevant to assessing a licence application, depending on the circumstances of a particular application.
Second, the Board emphasized that information requirements in any particular case must be context specific (at para 177): "The amount and type of information needed to properly assess an application to divert 500 gallons of water per day for domestic use may be quite different from the amount and type of information needed to properly assess an application to divert 2.5 million cubic metres of water per year for industrial use." In this case, the information needs were large (at para 178):
In the present case, Nexen sought to use a large volume of water from a relatively small lake (i.e., not a major river or reservoir) for several years. There was no history of licences of a similar nature to provide guidance in assessing Nexen's application, and there was limited hydrological information about northeast B.C., and almost no hydrological information about the Tsea River before 2009. Consequently, there was a high level of uncertainty regarding the potential effects of the Licence, and an elevated level of risk associated with those potential effects. In these circumstances, the Panel finds that additional information concerning the potential impacts of the Licence was warranted.
However, while that reasoning seemed to support the contentions of the First Nation, the EAB was not prepared to go that far, and indeed continued as follows (also at para 178):
While it is prudent in such circumstances to ask an applicant to provide further information about the water source and the potential impacts of the proposed licence, the Panel finds that it is impractical, and inconsistent with the objective of the licensing provisions in the Water Act, to expect applicants to delay developments indefinitely pending studies that attempt to conclusively predict impacts.
The EAB reinforced that message by referring to the reality that a hard line in licence applications would simply cause applicants to pursue temporary diversion approvals rather than licence, a practice which, while recently upheld as lawful (see Western Canada Wilderness Committee v. British Columbia (Oil and Gas Commission), 2014 BCSC 1919 (CanLII)), was sub-optimal from a water management perspective (at para 180):
… the Panel notes that placing excessively onerous requirements on an applicant to gather data and conduct studies before a licence may be issued could simply result in the applicant seeking a number of section 8 approvals over a period of years, instead of a licence that lasts for a period of years. In the present case, Nexen could have continued to apply annually for section 8 approvals, as it had done since 2009, rather than applying for the Licence. Nexen's section 8 approvals imposed far less onerous requirements than the Licence. Nexen's section 8 approvals simply required compliance with a 0.1 metre maximum drawdown of the lake level, measured from the commencement of operations, and monthly and annual reporting. From a water manager's perspective, a water licence provides a means to take a longer-term approach to regulating water use and monitoring impacts. In general, a longer-term approach to managing and regulating water use will better serve the objective of conserving water resources and protecting aquatic and riparian ecosystems.
But all that said, the Board was very demanding when it came to examining the merits of the licence and its terms and conditions. Thus, what the Board seems to be saying is that while a poor information base should not automatically preclude the issuance of a licence, the decision-makers in the department must still be able to show that the licence terms and conditions are responsive to the information uncertainties. So, as with precaution and caution, so with information uncertainties!
(5) The Merits of the Licence Decision and the Terms and Conditions Attached to the Licence
This is the most extensive section of the EAB's report. In it the EAB examines various methodological matters with respect to issues such as measuring stream flows, hydrological models, instream flow methodologies as well as the specific terms of the licence in light of these matters. I will leave the task of examining the details of this discussion to others. Suffice it for present purposes to offer the EAB's summative conclusions (at paras 337 and 338):
In conclusion, after assessing the evidence regarding the technical aspects of the Licence and the flow-weighted withdrawal scheme set out in the 2011 Water Plan (including the 2013 Water Plan Addendum), the Panel finds that the Licence should be reversed because it is fundamentally flawed in concept and operation. It authorizes a flow-weighted withdrawal scheme that is not supported by scientific precedent, appropriate modelling, or adequate field data. Also, the flow-weighted withdrawal method relies on a set of withdrawal parameters that, except for the Zero Withdrawal Limit and the 15% withdrawal rate, are arbitrary and have no basis in scientific theory or hydrometric modelling. These parameters also rely on an Inferred Median Flow that could not be explained or justified by Nexen or the Manager. In addition, compliance with the withdrawal parameters relies on a hydrometric monitoring program that is not included in the Licence, either as an express condition or by reference to the monitoring plan in the 2011 Water Plan and the 2013 Water Plan Addendum.
Further, the Manager's conclusion that the withdrawals would have no significant impacts on the environment, including fish, riparian wildlife, and their habitat, was based on incorrect, inadequate, and mistaken factual information and modelling results. The new, but still limited, data and information about the Tsea River watershed that became available after the Licence was issued does not support a conclusion that the Licence, together with the 2011 Water Plan and the 2013 Water Plan Addendum, adequately protect against detrimental impacts on the aquatic and riparian environment. Rather, the evidence before the Panel establishes that excessive water withdrawals may cause adverse effects on the habitat of aquatic and riparian species, including species that the First Nation depend on for the exercise of their treaty rights, as discussed further under Issue 2.
(6) The Duty to Consult
The EAB's duty was a duty to assess whether the Crown (as aided by Nexen at least to the extent that there was a clear delegation of responsibilities) had discharged its obligations to consult and accommodate the interest of the First Nation. It was not a duty to engage in consultation itself (at paras 159 and 428).
In issuing the licence the department took the view that it had engaged in a lengthy and informed consultation process and had fully discharged its obligations. A major premise for that assessment was the conclusion that the proposed diversion would have no impact on the First Nation's treaty rights. However, it was clear from the Board's analysis (above) that that premise and conclusion were not supportable because the departmental decision-makers simply could not come to such a definitive judgement on the information available and the methodologies applied to understand the impact of the diversion. This had implications for both the overall conclusion and the depth of the consultation required along the Haida spectrum.
The EAB's key conclusions on the duty to consult were as follows:
Given the relative importance of the North Tsea Lake area, and downstream portions of the Tsea River, to members of the First Nation for the exercise of their treaty rights, and the Licence's potential to adversely affect the habitat of fish, beaver, moose and waterfowl in that area that the First Nation depend on to exercise their treaty rights, the Panel finds that the level of consultation required in this case was at the mid-range of the spectrum.
To ascertain the appropriate level of consultation, the Manager, on behalf of the provincial Crown, needed to consider the potential impacts of the Licence on the First Nation's treaty rights. To properly understand the potential impacts on the First Nation's treaty rights, the Manager needed to understand the nature and scope of the treaty rights that could be adversely affected by the Licence.
The Crown did not in this case.
The Panel finds that the Crown failed to consult with the First Nation in good faith. Based on the internal Ministry correspondence and the Manager's rationale, the Panel finds that by April 2012, the Manager intended to issue the Licence regardless of the promised meetings, and had no intention to substantially address any further concerns or information that may have been provided by the First Nation. The Panel finds that this conduct was inconsistent with the honour of the Crown and the overall objective of reconciliation.
(7) Decision to Revoke the Licence
While alive to the prejudice that Nexen would suffer the Board still concluded that revocation of the licence (rather than, say, changing its terms and conditions) was the appropriate remedy. The Board reasoned as follows (at para 490):
In contrast [to the Chief Harry Case, available here], in the present case, the Licence authorizes a much greater percentage of the stream flow from a relatively small water source, and the Panel has found that the Licence and the flow-weighted withdrawal scheme are fundamentally flawed and lacking in technical merit. There remains considerable risk that the licensed water withdrawals could cause harm to aquatic and riparian habitat and species that the First Nation depends on for the exercise of its treaty rights. In addition, the Panel has found that the consultation process was seriously flawed, as the Ministry never explained the process it intended to follow or Nexen's role in the process, the Manager did not consider critical information that was available to him regarding the First Nation's exercise of its treaty rights in the Tsea Lakes area, the Manager considered inaccurate and irrelevant information, and the Crown failed to consult in good faith. The Panel finds that suspending the Licence pending further consultation would not necessarily address the serious flaws in the licensing regime, or "protect Aboriginal rights and interests to promote the reconciliation of interests called for in Haida Nation" as stated in Rio Tinto.
(8) Implications for Alberta
The direct implications of this decision for Alberta are, I think, quite limited for two reasons. First, and most obviously, the creation of the Alberta Energy Regulator has effectively limited the jurisdiction of Alberta's EAB. While the EAB generally does have jurisdiction of water licensing decisions under Alberta's Water Act, RSA 2000, c. W- 3, it has no such jurisdiction where the water licence is issued by the AER as part of the single window approach to licensing energy projects which lies at the heart of the Responsible Energy Development Act, SA 2012, R- 17.3 (REDA). I commented on this aspect of REDA here. Second, the vigour and reach of an EAB very much depends on the standing rules for commencing an appeal. These rules are very tightly and narrowly defined in Alberta and thus it is extremely difficult for parties, and especially ENGOs, to obtain standing. And since these standing rules are effectively jurisdictional rules for commencing an appeal there is little chance of persuading the courts to adopt a more general public interest standing approach. See here in particular Alberta Wilderness Association v Alberta Environmental Appeal Board 2013 ABQB 44 commented on by Professor Fluker here and Bankes, Sharon Mascher and Martin Olszynski, "Can Environmental Laws Fulfill their Promise? Stories from Canada" (2014), 6 (4) Sustainability online The AER's own standing rules are also particularly demanding, especially for First Nations asserting treaty rights. See my post on the AER's practice here.
There are however some indirect implications to consider. First, both of the arguments recited above beg the question of whether Alberta should learn from BC. Or, to put it another way: (1) should Alberta allow a merits-based review of AER decisions, and (2) should the EAB's jurisdictional standing rules in Alberta continue to ignore the developments in public interest standing that we have seen over the last decade, or, should the relevant statutes be amended to allow a broader range of parties to question departmental decisions in appropriate cases. I understand that the government is busy right now addressing royalty issues and climate change law and policy, but perhaps when things die down these questions might be worth examining again! Second, I think that the detailed discussion of the trigger to the duty to consult in a treaty context and the content of that duty in the context of resource licensing decisions provides a useful learning opportunity for both the AER and Alberta's EAB.
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By: Shaun Fluker
PDF Version: At Long Last – Legal Protection for the Castle Wilderness
Matter Commented On: Alberta Environment and Parks, News Release "Province to fully protect Castle area" (September 4, 2015)
On September 4 the Alberta government announced its intention to legally protect the area in southwestern Alberta known as the Castle wilderness with a new wildland provincial park and a new provincial park. What this legal protection exactly amounts to remains to be seen, but the September 4 announcement states there will be no further approvals granted for resource development in the Castle and existing approvals, other than for oil & gas, will be cancelled. Readers who follow land use decision-making in Alberta will know this announcement follows on the heels of the South Saskatchewan Regional Plan which was enacted just one year ago in September 2014 with its own direction for protecting the Castle. And those familiar with the Castle wilderness specifically will know this announcement is a monumental shift in policy direction. What follows is some context for this announcement, and some consideration of the applicable law in relation to implementing this new policy direction. The analysis concludes by suggesting the Alberta government consider enacting dedicated legislation to protect the Castle wilderness.
The Castle region was once included within the boundaries of Waterton Lakes National Park. When Alberta obtained administration and control over public lands in the Castle in 1930, the province managed the area following the wise-use principles of the time including timber harvesting, game management and water conservation. Demands on the landscape began to escalate in the 1960s with the increase in local populations, road building, recreation, and resource development, while at the same time environmental values entered the policy discourse and advocates lobbied public officials to protect these vast forested areas as undisturbed wilderness. I think Steven Kennett said it best in 2003 when he wrote the land use challenges in the Castle stem from an abundance of riches (Steven A Kennett, Spinning Wheels in the Castle: A Lost Decade for Sustainability in Southwestern Alberta (Canadian Institute of Resources Law, 2003) at 1). The region is environmentally and culturally significant in many ways, a storehouse of economically valuable resources, home to endangered flora and fauna, amenable to a host of recreational activities, and very aesthetic. If Alberta was going to face a land use crisis, it most certainly would surface in the Castle region. And indeed it has.
Competing visions of land use in the Castle have faced each other in many forums over the years. The earliest such battle may be the proposal by Shell Canada in the mid-1980s to drill for natural gas in the South Castle river valley. The construction of the Waterton gas plant in the 1960s ensured the region would be exploited for natural gas (for an excellent novel on this topic I highly recommend local author Fred Stenson's latest book Who By Fire), but for years gas exploration focussed on the front range canyons and valleys. This Shell proposal was notable for its location deep in the heart of what was otherwise considered at the time to be untouched wilderness. The Alberta Energy Resources Conservation Board (predecessor to the Alberta Energy Regulator) conducted a public hearing to consider the proposal, and received submissions from local and international groups who argued the South Castle valley should be protected from industrial development. The Energy Resources Conservation Board approved this application in Decision D86-2 and went on to approve numerous additional wells and pipelines in the Castle following surface and mineral rights dispositions granted by the Alberta government, even while acknowledging at times that biological thresholds in the Castle had already been seriously degraded by resource development (See for example Decision 2000-17 at p 10).
In 1993 the Alberta Natural Resources Conservation Board issued what might still be its most notable and significant decision in conditionally approving the expansion of the Westcastle Ski Resort located in the West Castle river valley. The Board's process included a detailed assessment of the social, economic and environmental effects that the expansion would produce in the Castle. Steven Kennett provides a thorough review of the Board's decision in Spinning Wheels in the Castle at pages 6 to 18 and summarizes the Board's decision as "a groundbreaking, controversial and ultimately unsuccessful attempt to incorporate sustainable development principles into land and resource management in the Castle" and "the most thorough discussion to date of broader land-use issues in the Castle, including the adequacy of the overall regime for environmental and resource management in the region" (at 3). The Board concluded the expansion should proceed but only if a new protected area – the Waterton Castle Wildland Recreation Area – was designated by the Alberta government to offset the environmental impacts the new project would have in the region. In an odd turn of events the Alberta government initially accepted the Board's decision and struck a committee of local stakeholders to plan for its implementation, but then later rescinded the Board's decision. Kennett describes how disagreement between local stakeholders over land-use in the Castle led to the demise of the Board's work (at 15-16).
The Castle was also nominated for protection under Alberta's Special Places 2000 program in the mid-1990s. Special Places 2000 was a policy guiding the Alberta government to protect biodiversity in each of the province's eco-regions by the end of the 1990s (Steven Kennett describes Special Places 2000 in more detail here). Once again the Alberta government struck a local committee of stakeholders to consider the nomination and land use priorities for the Castle region. The competing visions for land use in the Castle inevitably led to factions within the local committee. Ultimately the committee recommended the Castle Special Management Area be designated as a multiple-use area to accommodate the existing commercial and recreational interests in the region. The Alberta government designated the Castle Special Management Area, but to this day has continued to manage the area as a multiple-use region of public lands with no real legal protection and managed by a large swath of non-transparent discretionary power exercised by public officials.
Alberta environmental groups and others who have advocated for real legal protection in the Castle obviously left the 1990s with bitter feelings, but the campaign to protect the Castle did not subside. In 2008 these groups and individuals formed a working group – the Castle Special Place Citizens Initiative – to develop a conceptual proposal for legal protection in the Castle. Their work concluded that the Castle Special Management Area be designated as a wildland provincial park. At about the same time, the provincial recovery team for the Alberta grizzly bear population released a recovery strategy that identifies the Castle region as core habitat for the bear and identifies many of the existing resource development and recreational activities in the Castle as a threat to maintaining a viable population of grizzly bears in the area. In the face of growing opposition to resource development in the Castle and the mounting scientific evidence that significant environmental thresholds had been passed in the region, the Alberta government nonetheless continued to approve new resource development activity in the Castle.
Land use in the Castle was once again on the planning agenda with the development of the South Saskatchewan Regional Plan under the Alberta Land Stewardship Act, SA 2009, c A-26.8 The committee responsible for advising the Alberta government on the content of the Plan recommended a new wildland provincial park in the Castle, but restricted its boundaries to essentially the sub-alpine and alpine regions of the area and notably excluded much of the South Castle valley and all of the forested region surrounding the Carbondale river. The South Saskatchewan Regional Plan was enacted into force on September 1, 2014 and Appendix F (at pages 140 to 142) sets out new conservation areas called for by the Plan, including a proposed wildland provincial park (map on page 142). Environmental groups have criticized the existing proposal as inadequate to protect the biodiversity and environmental values in the Castle. Noting for example the current Plan does not call for an end to logging or gas exploration in the Castle and surprisingly makes no reference to the region as core habitat for the endangered grizzly bear in Alberta.
The NDP included legal protection for the Castle wilderness in their 2015 campaign platform, and last week's announcement demonstrates the Alberta government will now follow thru with that promise. The government proposes to designate two new protected areas in the Castle – an expanded version of the wildland provincial park proposed in the current South Saskatchewan Regional Plan and a provincial park to thereby cover the entire Castle Special Management Area. Most notably, the new proposal also calls for logging and mining to cease in the Castle. Existing oil and gas dispositions will be honoured but no new surface access will be granted for oil and gas activities in the Castle. The wildland park will be managed primarily for low-impact, non-motorized recreational activities, while the provincial park will accommodate a wider range of recreation and facilities. The proposal will shift the land use priority in the Castle from resource development to environmental protection. In light of the history briefly surveyed above, this is a monumental shift in public policy.
The implementation of this new direction will require an amendment to the South Saskatchewan Regional Plan. Section 4 of the Alberta Land Stewardship Act provides the Lieutenant Governor in Council with power to amend the description of the Castle conservation areas in the Plan, subject to the requirement in section 5 for public consultation on the proposed amendment – that consultation is currently underway until October 5 – and placing the amendment before the Legislative Assembly which will presumably happen this Fall.
The actual designation of the new provincial parks by the Lieutenant Governor in Council will occur under section 6 of the Provincial Parks Act, RSA 2000, c P-35. Section 8 of this Act is also important here as it provides the Minister of Environment and Parks with the power to grant new dispositions and/or cancel existing dispositions in the provincial parks. And moreover section 12.3 provides that the Minister's discretion under section 8 must be exercised in accordance with any applicable regional plan enacted under the Alberta Land Stewardship Act. This constraint on discretion is important here because otherwise there is no legal constraint on dispositions in provincial parks designated under the Provincial Parks Act. In other words, the legislation does not otherwise preclude the exploration for and development of subsurface mines and minerals or logging in provincial parks. On the other hand, the Provincial Parks (Dispositions) Regulation, Alta Reg 241/1977 does generally preclude new dispositions for the exploration and development of subsurface mines and minerals in wildland provincial parks. The Regulation does not, however, preclude forestry dispositions in wildland provincial parks. And so any amendment to the South Saskatchewan Regional Plan will have to include a statement to the effect that logging is prohibited in both the new wildland park and the new provincial park. Whether or not compensation is payable to holders of existing dispositions in the Castle which will be cancelled is not an issue I am addressing here, but my colleague Nigel Bankes has previously addressed the topic in the context of the regional plans here.
It is an understatement to declare this as a significant victory for the many who have advocated relentlessly for legal protection in the Castle region despite the many legal and policy setbacks and frustrations over the years – only a few of which I have mentioned above. These folks are no doubt celebrating this moment, as they should. My suggestion going forward is that instead of designating the protected areas under the Provincial Parks Act the Alberta government should enact dedicated legislation to protect the Castle – along the lines of the Willmore Wilderness Park Act, RSA 2000, c W-11 which appears to contain the same sort of land use rules consistent with real environmental protection intended for the Castle with this new announcement. The enactment of dedicated legislation in the Legislative Assembly – say the Castle Wilderness Act – would not only provide a symbolic and formal moment for achieving real legal protection in the Castle wilderness, but it would also make it much harder for future governments to reverse this achievement.
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By: Jonnette Watson Hamilton
PDF Version: Reasonable Notice of Termination in an Executive, Short-Term Employment Context
Case Commented On: Bahrami v AGS Flexitallic Inc, 2015 ABQB 536 (CanLII)
The issue in this case was the appropriate amount of severance pay for a senior manager dismissed without notice and without cause after only eight-and-a-half months' employment with a company supplying industrial gaskets to the oil and gas industry. The decision may be of interest because most employees with executive status have employment contracts that include an end date or termination provisions; the common law seldom governs as it did in this case. However, because the dismissal occurred early in 2014 and the employee found similar work by August 2014, i.e., months before the collapse of oil prices that began in October 2014, it may not offer much guidance for those in similar circumstances in today's harsher marketplace. Additionally, because this decision was the result of a summary judgment application, there was less evidence than there might have been following full trial, and so some caution must be exercised in adopting the court's approach to the issue of the character of the employment.
Mr. Bahrami was hired as Vice President, Finance in late May 2013 at an annual salary of $150,000 plus allowances and benefits. The parties did not disagree about Mr. Bahrami's job title or duties, but they did differ on how much status he was accorded within AGS. Mr. Bahrami argued he was a member of the executive team, a true vice president with high-level responsibilities. AGS argued he was operating at a lower, albeit senior, management level. Approximately eight-and-a-half months after Mr. Bahrami started with AGS, the company terminated his employment without cause and without notice. He was paid $6250 in severance pay. After a little less than five months of searching for a new job, Mr. Bahrami was hired as a corporate controller, but at a lower salary.
General Principles
As Justice Shelley notes, employers may terminate the employment of their employees on indefinite-duration contracts without cause if the employee is given reasonable notice of termination (at para 18, citing Machtinger v HOJ Industries Ltd, 1992 CanLII 102 (SCC), [1992] 1 SCR 986 at 997). The question of what is a reasonable notice period is a matter of fact to be determined on a case-by-case basis. The factors which courts must consider are well settled and taken from the judgment of McRuer CJHC in Bardal v Globe & Mail Ltd (1960), 24 DLR (2d) 140 (Ont H Ct J) at para 21:
The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.
This oft-cited starting point — approved by the Supreme Court of Canada in Machtinger at 998-99 and again in Wallace v United Grain Growers Ltd, [1997] 3 S.C.R. 701 at para 82 — lists four factors: (1) the "character" of the employment, (2) the length of the employment, (3) the age of the employee, and (4) the availability of similar employment. These factors are not exhaustive (Wallace at para 82), but, as Justice Shelley notes (at para 20), they were all that needed to be considered in Mr. Bahrami's case.
"Character of the employment"
While "character of employment" may include more than job status, it was the rank of Mr. Bahrami's job within the AGS hierarchy that was the focus of the court's analysis of this factor. As noted by Justice Shelley, courts generally apply a factual presumption (i.e., they take judicial notice) that the higher up an employee is in a company's hierarchy, the longer the length of notice the employee should receive if their employment is terminated without cause (at para 21). According to Justice Shelley (at para 23) and Peter Neumann and Jeffrey Sack, eText on Wrongful Dismissal and Employment Law, 1st ed, Lancaster House, Updated: 2015-03-30 (CanLII) at 22.214.171.124.1, this presumption is based on the idea that there are fewer employment opportunities with similar salaries and benefits open to those with the specialization and skills higher managerial positions demand. Why this is relevant to the "character of employment" factor and not the "availability of similar employment" factor is not made clear; it seems like there may be some double counting if this presumption is used.
Not only was there a disagreement between the parties about how much status Mr. Bahrami was accorded within AGS, there is also disagreement within the case law on the weight to be given to the "character of employment" factor. As Justice Shelley notes (at para 23), one of the leading cases on the challenge to the presumption that high status within an organization's hierarchy requires longer notice periods is Cronk v. Canadian General Insurance Co, 1994 CanLII 7293 (ON SC), 19 OR (3d) 515 (Gen Div), reversed, 1995 CanLII 814 (ON CA), 25 OR (3d) 505 (CA). The trial judge awarded a lengthy twenty month period of notice to a 55-year old clerical employee with 29 years' service but no university education, based on empirical studies showing that it was easier for those with post-secondary training to find alternative employment than it was for high school graduates. On appeal, the majority of the Ontario Court of Appeal reversed, upholding the distinction between clerical and managerial employees in the "character of the employment" factor.
Although the challenge to the factual presumption was unsuccessful in Cronk, the Courts of Appeal in New Brunswick and British Columbia subsequently refused to take judicial notice of the supposed nexus between the character of the employee's former position, and the length of time it might take that employee to find alternative employment: Bramble v Medis Health and Pharmaceutical Services Inc, 1999 CanLII 13124 (NB CA), 46 CCEL (2d) 45, and Byers v. Prince George (City), 1998 CanLII 6422 (BC CA), 38 CCEL (2d) 83. Even the Ontario Court of Appeal has called the "character of the employment" a factor of "declining importance": Di Tomaso v Crown Metal Packaging Canada LP, 2011 ONCA 469 (CanLII) at para 27 and Arnone v Best Theratronics Ltd, 2015 ONCA 63 (CanLII) at para 11.
These diverging lines of cases have been considered previously in Alberta. However, in Tanton v. Crane Canada Inc, 2000 ABQB 837 (CanLII), Justice Watson expressly declined to resolve any disagreement between Bramble and Cronk (at para 163). The employee in Tanton was a warehouse worker with limited skills and the court held that his hourly rate of pay "already brings about enough recognition of any sort of 'senior/junior' discrepancy on character of employment". As a result, the employee was awarded a 22-month notice period, near the top end of notice periods for wrongful dismissal (at para 167). It does appear that the court in Tanton did favour the Bramble approach because Justice Watson rejected the presumption affirmed by the Court of Appeal in Cronk.
Justice Shelley did expressly indicate that she was persuaded by the reasoning in Bramble and the line of cases adopting the same approach (at para 33). She tied her disavowal of the presumption that high status within an organization's hierarchy requires longer notice periods to Alberta's post-2008 economic and job market uncertainty, the age of the Bardal and Cronk decisions (55 and 20 years respectively), and an increasing reluctance on the part of courts to make factual presumptions rather than rely on evidence. That this was a summary judgment application, with limited evidence, seemed to weigh heavily. Justice Shelley concluded that, without clear evidence of an employee's status within an organization's hierarchy and the relevance of that status to the employee's prospects for re-employment, she did not see any basis for taking judicial notice "of the difference made by a distinction between an executive-level employee and a non-executive senior manager in Alberta at the time of Mr. Bahrami's termination" (at para 33).
The distinction between an executive-level employee and a non-executive senior manager that Justice Shelley refused to draw is, however, a much finer distinction than that between an executive and a warehouse worker, as in Tanton, or between a senior manager and a clerical employee, as in Cronk. It is difficult to see the presumption, had it been applied, would have done much work in this case. Justice Shelley ends up characterizing Mr. Bahrami's employment as that of "a senior manager with substantial recognition of and key indicia of an executive status" (at para 34), a compromise between the parties' positions.
"The length of service of the servant"
AGS had argued that Mr. Bahrami's short period of service — less than nine months — required a shorter notice period, whereas Mr. Bahrami argued that the short period of employment was less relevant due to his higher status. Justice Shelley appears to have sided with the employer on this factor (at para 38).
"The age of the servant"
Mr. Bahrami's age of 44 years was not argued as something that called for either a longer or shorter notice period. It lay in the middle of the range of ages for typical productive employment (at para 35).
"The availability of similar employment, having regard to the experience, training and qualifications of the servant"
Justice Shelley acknowledged that "the availability of similar employment" factor is a prediction to be made as of the time of the employee's termination. The general rule is that the approach to this factor should be prospective, based on the situation at the time of dismissal, and not on how long it actually took the employee to find similar employment (at para 36). However, Justice Shelley relied on the British Columbia Court of Appeal decision in Saalfeld v Absolute Software Corp, 2009 BCCA 18 (CanLII), 71 C.C.E.L. (3d) 29, holding that a judge could consider the dismissed employee's job search as evidence of the availability of alternative employment (at para 36). The fact it took Mr. Bahrami slightly less than five months to find similar employment seemed to be relevant to the result.
Similar Cases
After discussing the four Bardal factors, Justice Shelley then turns to eight previously-decided cases she characterized as "similar" and sets out three of the four Bardal factors for each case. The availability of similar employment was not summarized in her review; only job title, age and length of employment were presented (at paras 40-47). Recall that Mr. Bahrami, age 44, had been employed for almost nine months in what Justice Shelley determined to be a senior position with indicia of executive status.Case Title Age Length of employment Severance pay award Harvey v Shoeless Joe's Ltd,
2011 ONSC 3242 (CanLII) Vice-President, Operations 41 5-1/2 months 2-1/2 months Taner v Great Canadian Gaming Corp, 2008 BCSC 129 (CanLII) Marketing Vice President 36 Almost 11 months 10 months Martin v International Maple Leaf Springs Water Corp (1998), 1998 CanLII 6739 (BC SC) A senior operating and marketing position 46 9 months Almost 11 months Campbell v Wellfund Audio-Visual Ltd (1995), 1995 CanLII 294 (BC SC), Vice President 40 8-1/2 months 6 months Miller v Goldfan Holdings Ltd (1992), 44 CCEL 224 (Ont Ct J (Gen Div)) Vice President 46 5 months 4 months McDonald v LAC Minerals Ltd, 1987 CarswellOnt 2333 (Ont SC (H Ct J)) Corporate Controller 37 Almost 11 months 9 months Hall v Canadian Corporate Management Company Ltd (1984), 4 CCEL 166 (Ont SC (CA)) Vice President of Marketing and Merchandising 51 Almost 11 months 6 months Hoff v Lampliter Lighting Corp (1978), 93 DLR (3d) 634 (BC SC) Vice President of Finance 49 Almost 11 months 3 months
In addition to the missing "availability of similar employment" Bardal factor and the wide range in what has been considered reasonable notice in these cases cited as similar to Mr. Bahrami's circumstances — from 2-1/2 months to 11 months — the age and jurisdiction of these cases is notable. When Justice Shelley stated that she was persuaded by the reasoning Bramble, one of the reasons she advanced was that Bardal was decided 55 years ago and Cronk was decided 20 years ago (at para 33). She contrasted the age of these decisions with the frequent reports of economic and job market uncertainty in Alberta these days. But only two of Justice Shelley's comparable cases were decided in 2008 or later; the rest were decided 17 to 37 years ago. None are Alberta decisions. As a result, the emphasis in this list of cases is on the job title and the length of employment and it is very acontextual.
Justice Shelley determined that a reasonable period of notice in this case was six months. Coincidently, that period is very close to the 6-1/2 month average of the comparable cases she cited. It is also very close to the five months it took Mr. Bahrami to secure similar employment.
As Mr. Bahrami did not receive six months' notice, he was entitled to damages of $60,000 in lieu for the five months between his dismissal and the start of his new job. He also received the difference between the salary of his new job as compared to his old job for the remaining one month, plus his car allowance and benefits and less the amount of severance pay he had already received.
Because this matter was heard as a summary judgment application, with no facts in dispute and with senior counsel experienced in employment law submitting written briefs, the decision was handed down only three weeks after the matter was heard and only eighteen months after Mr. Bahrami was wrongfully dismissed. That might seem like a long time to Mr. Bahrami, but it is a relatively quick resolution for a contested court action in the Court of Queen's Bench of Alberta. Probably the only way the dispute could have been resolved much quicker was if Mr. Bahrami's employment contract with AGS had contained termination provisions, thereby precluding the need for (and possibility of) a wrongful dismissal action.
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By: Nigel Bankes
PDF Version: The Federal Crown Fulfilled its Consultation Obligations when the National Energy Board Approved a Seismic Program in Baffin Bay
Case Commented On: Hamlet of Clyde River, Nammautaq Hunters and Trappers Organization – Clyde River and Jerry Natanine v TGS-NOPEC Geophysical Company, Petroleum Geoservices Inc, Multi Klient Invest AS and the Attorney General of Canada, 2015 FCA 179
This case is of interest for two principal reasons: (1) issues of standing (although the Court seems to have ducked the hard issues), and (2) the circumstances in which the Crown can rely on the procedures of a regulatory board to fully and completely discharge the Crown's constitutional obligation to consult and accommodate.
The Facts
TGS-NOPEC Geophysical Company ASA (TGS), Petroleum Geo-Services Inc. (PGS) and Multi Klient Invest AS (MKI) (the proponents) applied to the National Energy Board (NEB, the Board) for a Geophysical Operations Authorization (GOA) under the terms of paragraph 5(1)(b) of the Canada Oil and Gas Operations Act, R.S.C. 1985, c. O-7 (COGOA). The proponents proposed to undertake a 2-D offshore seismic survey program in Baffin Bay and the Davis Strait (the Project) over a period of five years. The Board granted the GOA subject to terms and conditions. As part of its decision-making on the GOA, the Board also had responsibilities under the Canadian Environmental Assessment Act, S.C. 1992, c. 37 (CEAA, 1992) (no longer in force but it was at the relevant time and none of the parties took issue with its applicability (at para 53).) In fulfillment of its responsibilities under that statute the Board conducted an environmental assessment (EA) and reached the conclusion that (at para 6):
…. with the implementation of [the project operator's] commitments, environmental protection procedures and mitigation measures, and compliance with the Board's regulatory requirements and conditions included in this [Environmental Assessment] Report, the Project is not likely to result in significant adverse environmental effects.
The EA report is available on the Board's website here. The applicants, Hamlet of Clyde River, Nammautaq Hunters and Trappers Organization (HTO) – Clyde River and Jerry Natanine (a resident and the Mayor of Clyde River) brought this application for judicial review. The application belongs before the Federal Court of Appeal because of section 28(1)(f) of the Federal Courts Act, RSC 1985, c F-7. For more general discussion of judicial supervision of the NEB see my earlier post here.
Justice Dawson summarized the issues (at para 8) as follows:
A. Standing
The parties parsed the standing issues into two: (1) standing to raise administrative law questions, and (2) standing to raise questions relating to the duty to consult and accommodate. The Attorney General (AG) contested standing on both grounds. The proponents appear to have conceded standing in relation to the administrative law matters and joined the AG in contesting standing on the consultation and accommodation issues (at paras 10 & 11).
As to the administrative law issues, Justice Dawson concluded that the applicants (and apparently all of them, the HTO, the Hamlet itself and the mayor) had standing on the basis that they were all directly affected:
The Board acknowledged in its environmental assessment that a number of potential adverse environmental effects could flow from the Project. These included a decrease in local ambient air and water quality, potential disturbance of traditional and commercial resource use if the seismic survey changed the migration route of marine mammals or fish, and adverse changes to the "ecosystem process" and marine presence due to spills or accidents. As the realization of any of these potential adverse impacts would affect the applicants' natural environment and the livelihood of the members of the HTO, they are directly affected by the decision within the meaning of subsections 18.1(1) and 28(2) of the Federal Courts Act, R.S.C. 1985, c. F-7.
While this conclusion may be contested in relation to the Hamlet and perhaps Natanine in his capacity as mayor (but not as Inuk beneficiary and hunter as he presumably is), it must surely be unassailable that the HTO had standing – although it might have been better to describe the HTO as bringing the application on behalf of its members or at least to refer to section5.7.1 of the Nunavut Land Claim Agreement (NLCA). That section provides that "Where a right of action accrues to an Inuk, the HTO of which that Inuk is a member may, with the consent of that Inuk, sue on that Inuk's behalf."
Justice Dawson's reasoning on the issues of consultation and accommodation is more puzzling. Although one might have expected her to start the analysis by asking who is the rights bearer both under the NLCA and more generally under section 35 of the Constitution Act, 1982 (which might have led to some discussion of Behn v Moulton Contracting Ltd, 2013 SCC 26 esp at paras 26 -36), but instead of doing so she immediately launched into a discussion of public interest standing. The juxtaposition is as follows (at paras 18 and 19):
I next consider whether the applicants should be granted standing to pursue claims based upon Aboriginal or treaty rights.
In Canada (Attorney General) v Downtown Eastside Sex Workers United Against Violence Society, 2012 SCC 45 (CanLII), [2012] 2 S.C.R. 524, at paragraph 37, the Supreme Court enumerated three factors to be considered in the exercise of discretion to grant public interest standing:
i) whether there is a serious justiciable issue raised;
ii) whether the applicant or plaintiff has a real stake or genuine interest in the issue; and
iii) whether, in all of the circumstances, the proposed proceeding is a reasonable and effective way to bring the issue before the courts.
I am not sure how the second paragraph follows from the first.
In the end Justice Dawson concluded that the HTO at least might also claim public interest standing. That itself is a puzzle since logically a public interest standing conclusion must be a finding in the alternative since the Court only gets to public interest standing if it has concluded that there is no reasonable prospect of the issue being brought forward by another party with standing as of right. But, however we dice this, there was clearly one party with standing to raise both the administrative law and constitutional law issues.
B. Had the Crown fulfilled its duty to consult and accommodate?
Much of the judgment is taken up with an assessment of the evidence. The key legal conclusions are these.
I conclude that the Board has a mandate to engage in a consultation process such that the Crown may rely on that process to meet, at least in part, its duty to consult with Aboriginal peoples. Of course, when the Crown relies on the Board's process, in every case it will be necessary for the Crown to assess if additional consultation activities or accommodation is required in order to satisfy the honour of the Crown.
In this case the Crown apparently conceded (see at para 70) that it did not engage in any other activities of consultation and accommodation.
The Court was careful to note that its conclusion on this matter applied to the CEAA 1992 Act only.
As to the potential effect of the Project upon this right, migratory marine mammals harvested by the Inuit move through the Project area. Potential adverse environmental effects found by the Board include:
i) Sensory and physical disturbance to marine mammals causing: temporary reduction in hearing sensitivity; permanent hearing impairment; masked communication; and, changes in behaviour and distribution including avoidance of the seismic ship and alteration of migration routes.
ii) Potential disturbance to traditional and commercial resource use if the survey changes the migration routes of marine mammals or fish.
iii) Adverse changes to marine life presence due to spills or accidents releasing hydrocarbons into the marine environment.
C. Did the Board err in issuing the GOA?
Under this heading the applicants sought to attack: (1) the reasons offered in support of the Board's decision, (2) the Board's conclusions with respect to the significance of the adverse environmental effects of the project, and (3) the Board's consideration of aboriginal and treaty rights. The standard of review in relation to the questions raised under this heading was reasonableness.
On the reasons issue, the principal difficulty for the Attorney General was that in a purely formal sense there were no reasons accompanying the issuance of the GOA. Instead there was simply a cover letter (1.5 pages) and the actual GOA itself (three pages in length and consisting of some 15 conditions). However, it is evident that Justice Dawson was not prepared to take such a technical approach given the Board's detailed consultation exercise and the principal outcome of that exercise which was the Board's 30+ page EIA Report (referred to above). That broader context (at paras 102 – 103) provided the necessary reasons:
I see no merit in this submission. The Board's reasoning is found in the environmental assessment and the terms and conditions imposed on the GOA. These reasons deal with the real controversy: what are the potential impacts of the Project on the section 35 Aboriginal right to harvest wildlife.
When the GOA is read in the light of the environmental assessment, the terms and conditions imposed upon the GOA and the entirety of the Board's record, this Court is well able to understand why the GOA was issued.
While the EIA report did not deal with all of the issues that the Board needed to consider under COGOA, Justice Dawson seems to have been of the view that these other issues were either not of core significance or were such that the reasons could be inferred from the terms and conditions that had been attached.
As for the remaining issues Justice Dawson had little difficulty dismissing the applicants' claims. It will always be a challenge to raise any assessment of "significance" to the level of a reviewable error and, given all of the background here, the failure of the EIA report to mention aboriginal and treaty rights and the Crown's duty to consult was not material. While at one level this latter point seems convincing when put together with the complete delegation of all consultation obligations to the Board, and the failure to provide reasons that spoke to the Crown's duties, it is much less convincing, since it suggests that a decision-maker can engage in the discharge of a constitutional obligation without realizing and articulating the normative quality of the interests at stake. It brings to mind the argument that we sometimes see from governments to the effect that: (1) we had no obligation to consult, but, (2) if we had such an obligation we discharged it. I don't think that the Crown or a delegated authority of the Crown can discharge its obligations in such a non-reflective manner.
D. Was the Crown obliged to seek the advice of the Nunavut Wildlife Management Board (NWNB)?
The NLCA establishes a number of boards and authorities with different public government functions including the Nunavut Impact Review Board and the NWMB. This particular contention of the applicants raised a relatively simple question of interpretation of the Agreement. Section 15.3.4 of the NLCA provided as follows:
Government shall seek the advice of the NWMB with respect to any wildlife management decisions in Zones I and II which would affect the substance and value of Inuit harvesting rights and opportunities within the marine areas of the Nunavut Settlement Area. The NWMB shall provide relevant information to Government that would assist in wildlife management beyond the marine areas of the Nunavut Settlement Area. [Emphasis added by Justice Dawson.]
The narrow question was whether the decision to grant a GOA was a wildlife management decision. Evidently it was not. True, such a decision might affect Inuit harvesting rights, but that does not make it a decision in relation to wildlife management. Otherwise all decisions involving resource projects would so qualify.
A Final Comment
This decision, along with Taku River, is authority for the proposition that in the appropriate circumstances the Crown can discharge its obligation to consult and accommodate entirely through a regulatory board such as the NEB. Justice Dawson concedes that this will not always be the case (at para 65) but she gives little if any guidance as to when something more might be required. What then might be some relevant considerations, or how might one frame an appropriate test?
One way to frame the test would be to say that the regulatory tribunal might be able to discharge the Crown's obligations where the tribunal had exclusive jurisdiction over the approval(s) required for the project, the issues raised during the consultation exercise, and where the tribunal's decision is final. This test would not be met where: (1) the project required multiple approvals and from decision-makers other than the regulatory tribunal, (surely the norm and not the exception, but it might be necessary to seek judicial review of each of those decisions), (2) the issues or solutions offered by those consulted (i.e. the proposed accommodations) go beyond the authority of the tribunal (for an example see the decision of the Alberta Energy Regulator (AER) in Prosper Petroleum Ltd., 2014 ABAER 013 and the AER's discussion of the proposed Moose Lake Protection Plan), and (3) where the final decision is to be made by another body such as the Governor in Council which might be able to take into account a broader range of circumstances (for example, the new procedures for granting a certificate of public convenience and necessity under the National Energy Board Act, R.S.C. 1985, c. N-7), or perhaps change the terms and conditions of the tribunal's proposed decision.
In any such a case it would be up to the Crown to show why it might still be entitled to rely exclusively on the consultation activities engaged in by the regulatory tribunal. In this particular case the Minister did have to make an additional decision before the GOA was issued and that was the responsibility under section 5.2 of COGOA to approve a benefits plan or waive the need for such a requirement. While Justice Dawson refers to this requirement in the context of the adequacy of the Board's reasons (at para 101) there is no discussion of the requirement in the context of the duty to consult. Perhaps the issue was not raised in this context by counsel for the applicants but is this not is an example of a situation that actually required incremental consultation and where the Minister (the Crown) could not just rely on the Board's EIA process as satisfaction? It is true that the community was adamantly opposed to the project but does that relieve the Minister from consulting on the potential economic benefits which might flow from the five year project? After all, if the community bears the risks there needs to be some assessment of potential benefits as well. One of the preambular paragraphs to the NLCA refers to providing Inuit the "means of participating in economic opportunities."
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