Environmental Law


While the situation is not as grave as it may be in the US, environmental and social risks are proving to be an additional hurdle for Canadian extractive companies squeezed for credit in an economic cycle marked by falling oil and commodity prices.

Indeed, the cost of delay arising from company-community conflict has been the subject of heightened attention since the June 2014 decision of the Supreme Court of Canada in Tsilhqot’in Nation v. British Columbia, which featured a 300-day trial and two appeals over the course of ten years that finally culminated in the revocation of a logging license. No surprise, then, Canadian lenders are evidencing a growing sensitivity to the risks associated with corporate-community conflicts in the extractive sector. And the question they’re asking is “How long are you going to be before the courts if I lend you this money?”

A recent study from the Harvard Kennedy School estimates that delay, including delay at the exploration stage, can add $20 million weekly to the costs of a major mining project with capital expenditures of $3-5 billion.

As the New York Times reported in March, an impressive list of financial institutions in the US, including Bank of America, Citigroup, Morgan Stanley, JP Morgan Chase, Wells Fargo, Credit Suisse and PNC Financial have “distanced themselves from coal companies involved in mountain top removal.”

Canadian institutions have not gone nearly as far, taking a different approach by moving into areas of business seen as progressive, such as lending in the Aboriginal sector. Still, many green advocates and politicians are critical of aspects of oil extraction in Canada and the ongoing discussion on “conflict metals” serve as reminders that coal is not the only target in the sights of the green movement. The upshot is that there is increasing pressure not only on producers, but on their source of funds and their means of product transportation.


The Ontario Court of Appeal has denied Inco’s request for some C$5.3 million in costs arising from a landmark environmental action.

Plaintiffs’ lawyers called the case “a very well written decision which makes it clear that section 31 of the Class Proceedings Act is alive and well.” Section 31 allows courts considering costs to take into account whether a class proceedings was a “test case, raised a novel point of law, or involved a matter of public interest.” Here, the court ruled that Smith v. Inco Limited met all three requirements.

The decision upholds the C$1.7 million in costs awarded following a 45-day trial in a class action proceeding that centered around emissions from an Inco refinery in Port Colborne, ON, one that had ceased functioning in 1984. The trial judge found for the class and awarded C$36 million in damages, but the Court of Appeal overturned the decision and dismissed the action. The Supreme Court of Canada denied leave to appeal.

With regard to costs, Inco’s legal team argued that the trial judge had erred in reducing the company’s legal fees from C$2.9 million to C$2 million; by imposing a 50 per cent reduction on the fees and disbursements that he found to be reasonable, pursuant to section 31(1) of the Class Proceedings Act; and by refusing to award costs on a substantial indemnity basis for the period following Inco’s offer to settle for C$2 million plus C$2 million in costs. The Court of Appeal ruled that the C$1.7 million award was neither “an error in principle” or “plainly wrong” and that the court was bound to give “considerable deference” to a trial judge’s costs award in class proceedings.

Here, the trial judge was correct in deciding that a novel point of law was involved because this was one of the first cases to apply traditional causes of action like nuisance to modern environmental concerns. It was also the first case to deal with physical environmental damage to a large number of properties caused by emissions from an industrial operation. Finally, this was the first mass environmental damage action to be certified as a class proceedings and the first to proceed to trial in a Canadian common law jurisdiction.

The trial judge was also correct in finding that the case involved the public interest. The fact that the plaintiffs sought to “vindicate” their own private property interest did not undermine that fact. “In many cases,” the Court of Appeal stated, “there is a mix of private interest and public interest.” Indeed, the Court added, this was a “paradigmatic example of a case that reflects the three goals of the CPA — access to justice, judicial economy and behavior modification.”

Ultimately, the trial judge’s award of C$2 million in costs was “methodical, logical and reasonable.” His approach in applying a 50 per cent discount was also correct, following the methodology that had been applied in other cases. Finally, absent a formal offer to settle under the Rules of Civil Procedure, the plaintiffs did not conduct themselves in a manner so “reprehensible” to justify costs on a substantial indemnity basis.

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