In February 2018, Bill C-69, which would amend two federal environmental acts, was introduced in Parliament; it has now passed second reading in the Senate.
In January 2019, the Supreme Court of Canada ruled that a bankrupt oil and gas company in Alberta had to fulfill provincial environmental obligations before paying its creditors. Along with a Federal Court of Appeal ruling last August that insufficient consultation had been done with Indigenous peoples in the construction of the Trans Mountain Pipeline extension, the past year has seen notable rulings – and possible legislative changes – affecting environmental law in Canada.
“There’s still a lot of uncertainty over how the environmental assessment process will end up, as a result of Bill C-69,” says Shawn Denstedt,
Vice Chair of Western Canada at Osler, Hoskin & Harcourt LLP
, from his Calgary office. Denstedt travels extensively in his job, and particularly in Asia, he finds that the outcome of this process is a hot topic for potential investment in Canada.
“What will the regulatory system look like? And how will it impact investment? I think there’s a wait-and-see attitude,” he says. “People who might invest in Canada say, ‘until Canada sorts itself out, we’re going to sit on the sidelines.’ I think that is the number one trend or issue facing investment in Canada right now.”
Bill C-69, “An Act to enact the Impact Assessment Act
and the Canadian Energy Regulator Act,
to amend the Navigation Protection Act
and to make consequential amendments to other Acts,” would, if passed, affect how major infrastructure projects are reviewed and approved in Canada. Changes could include replacing the National Energy Board, which approves such projects, with a new Canadian Energy Regulator; and an amended federal environmental assessments process would see a new Ottawa-based Impact Assessment Agency review a range of environmental impacts.
After a bill has passed third reading in Canada’s House of Commons it goes through a similar process in the Senate, where Bill C-69 has now passed second reading. Once both Chambers pass the bill in the same form, it is given Royal Assent and becomes law.
The Canadian Association of Petroleum Producers, for one, has expressed concern that the new Act would create greater regulatory uncertainty and litigation risk. Denstedt agrees.
“Bill C-69, in my view, will not solve the uncertainty issue in relation to environmental assessment; it will make it worse the way it’s currently drafted,” he says. The bill has been drafted within the context of individual projects, which is a poor way to make policy decisions, he says; and it eviscerates the expertise available under the Calgary-based National Energy Board for regulating energy projects, by separating the environmental review from the NEB’s mandate.
“The problem with that is the people who are best equipped to understand the impacts of energy development are no longer charged with that obligation.”
The National Energy Board was created as an expert regulator in all aspects of the energy business, from economic to environmental to safety to social aspects, he says, “and by separating those functions, we’re doing the exact opposite of what sustainable development really means, which is to actually integrate those decision-making processes.” The Impact Assessment Agency will be charged with looking at the environmental assessment of a project, and the National Energy Board will then look “at the energy side of it” under the proposed new legislation, says Denstedt; “so you’ve actually pulled those two pieces apart.”
Penalties have also increased significantly in environmental prosecutions, particularly under the Fisheries Act
and the Migratory Birds Convention Act
(MBCA) since increased penalties were introduced in 2013 and 2017, says Bradley Gilmour
, a partner at Bennett Jones LLP
“The trend over the last decade is upward in terms of increasing inspections, prosecutions and amendments to legalization to increase penalties,” says Gilmour. Under the above-noted two Acts, penalties have increased significantly — for example, for a second offence, if the Crown chose to proceed summarily, the fines could reach as much as $8 million, with fines multiplying by the number of days an environmental incident is not successfully managed.
The trend has crystallized into considering five different factors, Gilmour adds: culpability, prior record, damage or harm, remorse and deterrence. “The courts have said the most important is culpability, which goes back to having proper procedures in place [to] prevent an incident from occurring” and will provide a defense or at least will lower the penalty. Due diligence is key. The second most important factor would be the degree of damage or harm, he says.
an environmental lawyer at Fasken Martineau DuMoulin LLP
in Toronto, has also observed an uptick in numbers of prosecutions under the Fisheries Act
in particular, though it is “a trend you continue to see over time,” and penalties have been much higher in the United States. “I think we’re consistent in the sense that we’re focused on enforcement,” and penalties have generally increased in conformance with that.
Lawyers have also been discussing with their clients the implications of the Supreme Court of Canada’s January ruling in Orphan Well Association v. Grant Thornton Limited
on companies doing business in the oil patch, or elsewhere where environmental issues may be at play.
The implications of the decision – in which the Supreme Court ruled that the trustee for the bankrupt Redwater oil and gas company in Alberta couldn’t walk away from its disowned sites, and that provincial environmental obligations must be met before Redwater’s creditors were paid – are significant, says Cooper. Initially, the decision was thought to be specific to Alberta statutes and its requirements for cleaning up exhausted oil wells; oil and gas companies there cannot transfer licenses without permission from the Alberta Energy Regulator, which requires that environmental obligations have first been met.
“I think that may be underestimating the importance of the decision,” Cooper says, and how it may translate to other regulators across Canada. “With some matters I’m dealing with [regarding] insolvency, regulators in Ontario have been looking at Redwater, and thinking they have enhanced powers now. The Supreme Court’s commentary in this decision indicates that its ruling in the Redwater matter “applies across the board, to all sorts of insolvency situations,” and suggests that the environment takes priority where assets are limited.
This makes it important for lenders to take a hard look “at the nature of the business that’s being undertaken, and potential environmental risks,” she says, including obligations at closure time for mines, for example. Lenders must consider environmental obligations that will accrue to a particular company at the end of day, as a super-charge from a regulator will affect the ability of lenders to recover.
“So, more due diligence will be done,” as it should be, she says. “Does the mining company have a closure plan? What are the types of obligations that will occur at the end of the life of the mine, and is there comfort that there’s adequacy in that regard? Has a peer review been done? Do we need something else, to give comfort that that’s enough?” Regulators are referring to the decision and the enhanced powers they believe it gives them, she adds.
From a policy perspective, the decision in Redwater was the right one, says Denstedt, as the public purse was the last to have to pay for Redwater’s cleanup. The policy behind the decision was that if lenders have the ability to do due diligence on the companies they lend money to, during bankruptcy proceedings they should not be able to disclaim the assets that have no value or that have liabilities attached that could have been discovered during due diligence. This could have a chilling effect on lending in situations where it’s harder to discover liabilities, Denstedt says.
“The energy industry has already been on a downturn for the past few years; this is one more concern we have” regarding the future of the energy sector.
However, he notes, in the Redwater case both the Alberta Court of Appeal and the Supreme Court of Canada commented on the need for clarification from a policy perspective in the Bankruptcy and Insolvency Act
, which allows a trustee to walk away from environmental obligations.
In Tsleil Waututh v. Canada
(Attorney General), the Federal Court of Appeal (FCA) considered the duty to consult in the current federal regime for review and approval of interprovincial pipelines. In its decision in August 2018, the FCA quashed the federal government’s approval of the Trans Mountain Pipeline expansion, which would facilitate bringing oil from Alberta’s oil sands to the British Columbia coast, in part due to Canada’s failure to fulfill its consultation and accommodation obligations to Indigenous peoples.
The decision had “high-level impact,” says Julie Abouchar, a partner in Willms & Shier Environmental Lawyers LLP in Toronto, and lawyers across Canada have taken two key points from that decision.
“Most important is the need for an indigenous consultation prior to getting a project approved. One of the reasons why the FCA … quashed the approval was because it found that the government had not executed Indigenous consultation properly. At the highest level, what the FCA is saying is, meaningful two-way dialogue is necessary, including responding to and addressing Indigenous concerns.”
The expectation that there be agreement with Indigenous communities before major projects are approved is not as common in the United States, she says, but “with large projects in Canada, the successful ones have agreements with Indigenous communities.”
In British Columbia, where the appellants launched the case, there is no legal requirement to reach agreements, but this varies from province to province, Abouchar says.
Under the Canadian Environmental Assessment Act
, parties must look at the ancillary parts of a project, such as whether or how marine life might be affected by increased tanker traffic. In this case, the National Energy Board was found to be in error in not considering the ancillary impact of endangered species from increased shipping of oil from the BC coast.
“All that is very interesting, because the landscape of environmental assessment is changing,” she says, which includes the introduction of Bill C-69.