2017 Year In Review: Top 10 Judicial Decisions And Trends Of Import To The Canadian Energy Industry

In 2017, Canadian courts released an unusually large number of decisions affecting the energy industry directly.

The Alberta Court of Appeal rendered the much-awaited Redwater decision, confirming the right of a trustee in bankruptcy to disclaim uneconomic assets of a bankrupt debtor. The impact of this decision has been felt throughout the upstream and midstream oil and gas industry, as the Alberta Energy Regulator has required licensees to provide much more information and to be much more financially stable. An appeal to the Supreme Court of Canada was granted, and the industry is on tenterhooks awaiting the result.

Other crucial decisions of 2017 touched upon a wide variety of issues including:

clarifying the Crown's duty to consult First Nations as part of the project approval process; the definition of 'Working Interest' under oil and gas contracts; the interaction among rights of first refusal, contractual language, and the duty of good faith under a contract; the application of intellectual property principles to oil and gas technology; ongoing disputes between oil and gas operators and their partners, especially in regards to set-off; an energy regulator's liability for damages under the Canadian Charter of Rights and Freedoms; liability for matters carried out by affiliates in other jurisdictions; personal liability of corporate directors for oppression; and the deference owed to arbitration panels, an increasingly important dispute resolution forum for the energy industry. 1. The Crown's Duty to Consult: Clyde River (Hamlet) and Chippewas of the Thames First Nation.

In the companion decisions of Clyde River (Hamlet) v Petroleum Geo-Services Inc., 2017 SCC 40 ("Clyde River"), and Chippewas of the Thames First Nation v Enbridge Pipelines Inc., 2017 SCC 41 ("Chippewas"), the Supreme Court of Canada clarified several features of the Crown's duty to consult with and accommodate indigenous people prior to project approvals being granted. For a detailed summary of these cases and their implications, see our previous post here.

These two cases were likely chosen by the Court for their stark contrast, in order to illustrate how to, and how not to, discharge the duty. The Court found generally that while the duty to consult First Nations should be viewed as a matter of first instance for each project, it also confirmed that one way to ensure that the duty to consult would be satisfied is through that project's regulatory approval process. Though the Crown owed the affected First Nation the duty to consult, practically speaking, the project proponents are responsible for discharging the duty.

The Court provided the following four step road map that proponents can use to satisfy the duty to consult:

determine when the duty to consult is triggered; assess whether the tribunal has power to satisfy the Crown's duty to consult; attempt to determine the scope of the duty to consult (i.e. from shallow consultation to deep consultation) by assessing the Aboriginal rights claims and the seriousness of the impact of the project on those rights; and ensure that the Crown's obligation to consult is upheld in the specific tribunal process. In Clyde River, Petroleum Geo-Services Inc. and others applied to the National Energy Board ("NEB") under the Canada Oil and Gas Operations Act to conduct offshore seismic testing off the northeast coast of Nunavut. The proposed project contemplated towing air-guns through a project area and to produce underwater sound waves annually between July and November for five years. Under the Nunavut Land Claims Agreement (1993), the Inuit of Clyde River ceded all Aboriginal claims, rights, title and interests in the Nunavut Settlement Area, including Clyde River, in exchange for defined treaty rights, including the right to harvest marine mammals.

The NEB launched an environmental assessment of the seismic testing, and the Inuit of Clyde River and others filed a petition against the project with the NEB. The NEB held meetings in surrounding communities to collect public comment, and representatives of the project proponents attended these meetings. At these meetings, the proponents of the project were unable to answer basic questions about the effects of the seismic survey on marine mammals, including which mammals would be affected by the testing. Instead of answering the personally asked questions, the proponents filed a 3,926 page document with the NEB and delivered it to the Clyde River offices. The document was not translated into Inuktitut (the Inuit language), and due to limited bandwidth on Baffin Island the document could not be downloaded. Subsequently, the NEB approved the project noting that marine mammals could be affected, but that the testing was unlikely to cause significant environmental effects, given the mitigation measures undertaken by the proponents.

The Supreme Court found that the Crown's duty to consult had not been discharged and quashed the approval. Following the roadmap outlined above, the Court found that the duty to consult was triggered in this case and the NEB had broad procedural powers to implement consultation; that the consultation required in this case was "deep" and on the higher end of the continuum; and that the process used by the NEB did not discharge the duty to consult because it failed to require oral hearings and formal participation when it could have done so. Further, the proponents did not answer basic questions by the Inuit of Clyde River that went to the heart of their treaty right - the right to harvest marine mammals.

In contrast, in Chippewas, Enbridge Pipelines applied to the NEB to increase the capacity of its Line 9 oil pipeline. The NEB held a public hearing and 19 Aboriginal groups, including the Chippewas of the Thames First Nation were informed of the proposed project and the NEB hearing process. The First Nation participated in the NEB process but thereafter wrote a letter to the Crown stating that no Crown consultation had taken place. The federal Minister of Natural Resources relied on the NEB's process to fulfil the duty to consult.

The NEB approved the project subject to conditions, some of which related to indigenous communities. It assessed the potential impact on Aboriginal rights as being limited and was satisfied that the potentially affected Aboriginal groups had the opportunity to share their views through the NEB process. The Chippewas appealed, stating that the approval could not be issued without the duty to consult and accommodate being met.

Going through the same process as it did in Clyde River, the Supreme Court of Canada held that the commencement of the NEB process triggered the duty to consult and since the NEB was the final decision-maker on this project, the NEB process was capable of satisfying the duty. It was further found that the duty was in fact discharged by the NEB in this case by providing an opportunity to Chippewas to participate in the hearings, issuing a written decision recognizing the treaty rights, and imposing suitable conditions.

These decisions effectively set out a list of "what-to-do/what-not-to-do" when project proponents are discharging the duty to consult. Effectively, the Supreme Court found that Enbridge did everything right, and Petroleum Geo-Services did not. Therefore, using the Enbridge model of discharging the duty is something that project proponents are likely to adopt going forward.

2. Charter Damages Claim Against Provincial Energy Regulator: Ernst v Alberta Energy Regulator

   As discussed more fully in our previous posts on the decision here, here, here, and here, the plaintiff in Ernst v Alberta Energy Regulator, 2017 SCC 1, claimed that the Energy Resources Conservation Board (the "Board"), predecessor to the Alberta Energy Regulator, had violated her rights under the Canadian Charter of Rights and Freedoms (the "Charter") by (a) negligently administering a regulatory scheme; and (b) by violating her right to freedom of expression. The Plaintiff alleged that Encana Corporation's drilling program that used hydraulic fracturing caused her fresh water supply to become toxic. The Plaintiff sought damages in the amount of $33 million as a remedy for this loss pursuant to section 24 of the Charter.

   The Alberta Court of Queen's Bench found that the Plaintiff's claims was barred by section 43 of the Energy Resources Conservation Act (the "ERCA" or the "Act"). Section 43 of ERCA provided immunity to the Board or a member of the Board from actions or proceedings in respect of any act or thing done by the Board or a Board member in pursuance of ERCA, or a decision or order made by the Board under the Act. Section 43 of ERCA is now section 27 of the Responsible Energy Development Act. The Plaintiff appealed the lower court's...