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AESO Issues its Long-Term Outlook for Electricity in AlbertaAESO Issues its Long-Term Outlook for Electricity in Alberta337BLG Blog PostKent D. Howiekhowie@blg.com | Kent D. Howie | 693A30232E777C626C6763616E6164615C6B686F776965 i:0#.w|blgcanada\khowie At least every two years the Alberta Electric System Operator (AESO) shares with the market its long-term (20 year) forecast of Alberta's electricity demand and the generation capacity needed to meet that demand. The forecast is called the Long-term Outlook ("LTO"), and the AESO uses it to help guide transmission planning in Alberta. This is because it is the AESO, and not transmission companies, that determines and implements transmission system expansions and enhancements. [Read more...]<p>At least every two y<img class="ms-rtePosition-1" alt="Energy.png" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Energy.png" style="margin:5px;width:150px;height:50px;" />ears the Alberta Electric System Operator (<strong>AESO</strong>) shares with the market its long-term (20 year) forecast of Alberta's electricity demand and the generation capacity needed to meet that demand.  The forecast is called the Long-term Outlook ("<strong>LTO</strong>"), and the AESO uses it to help guide transmission planning in Alberta.  This is because it is the AESO, and not transmission companies, that determines and implements transmission system expansions and enhancements.</p><p><span style="color:black;font-family:"arial",sans-serif;font-size:10pt;"></span>[<a href="/energy/Pages/Post.aspx?PID=337"><em>Read more</em></a>...]</p> ​What is the Long-term Outlook?At least every two years the Alberta Electric System Operator (AESO) shares with the market its long-term (20 year) forecast of Alberta's electricity demand and the generation capacity needed to meet that demand. The forecast is called the Long-term Outlook ("LTO"), and the AESO uses it to help guide transmission planning in Alberta. This is because it is the AESO, and not transmission companies, that determines and implements transmission system expansions and enhancements.The LTO is important to Alberta's electricity market participants because it describes some of the factors affecting future load growth, generation development and, though not expressly discussed in the LTO, power pool prices in Alberta. After all, the AESO has access to market data, stakeholder and government information, experts (including its own) and internal Alberta industry experience and knowledge that is not available to most of us in the market.The AESO recently published the 2017 LTO. It is no surprise that, despite the AESO's significant resources, its crystal ball is a little cloudy these days. Alberta's electricity industry is in a state of transition, due in part to changing government policies like Alberta's Climate Leadership Plan and the introduction of a capacity market. Uncertain economic conditions in the province also make forecasting difficult.This led the AESO to include not only a "Reference Case" (its main corporate outlook or base case for future load growth and generation development) in the 2017 LTO, but also six other scenarios to account for uncertainties and that answer plausible "what if" questions. What does the Reference Case tell us? According to the assumptions used by the AESO in its Reference Case Load Growth Future load growth in Alberta will be lower than the AESO previously forecasted, due to the adverse impact that low oil prices will have on future economic growth in Alberta, and to improvements in energy efficiency. The AESO now expects the load to grow in Alberta by an average of 0.9% per year until 2037 – significantly less than the 1.9% forecasted by the AESO in the 2016 LTO. However it is still growth, and will result in peak demand growing from 11,458 MW in 2016 to 13,947 MW in 2037.The AESO load growth prediction does run counter to the recent winter and summer record peaks set in Alberta, but the AESO claims that those record peaks are due to unusual weather and the ramp up of recently completed oil sands projects. Accordingly, the higher recent load growth is not forecasted to continue. Renewables Alberta will deliver on the promised 5000 MW of new renewable generation supported by the Renewable Electricity Program (REP). The AESO also assumes that additional renewables will be developed outside of the REP. After all renewable projects did get built in this province before the REP. As a result, Alberta is forecasted to achieve its 30% of electricity generated in Alberta coming from renewables by 2030 policy – actual renewable capacity is forecasted to get to 36% by 2030.Wind capacity is assumed to be added at a rate of about 400 MW per year (5000 MW in total) and will be split between the south and central regions, with some wind development anticipated to also occur in the northwest. This assumption is consistent with the AESO's stated goal of having regular rounds of procurements under the REP. Utility-scale solar will locate in the south (best) and central regions (highly suitable). Solar capacity additions will be lower than wind, and total 1000 MW by 2037. Hydro capacity additions of 350 MW are forecasted to occur on the Peace River around 2030, though the AESO acknowledges that other potential hydro resources also exist in Alberta. Coal Generation All coal-fired generation will be retired by the end of 2030 – no surprises here as the coal retirement assumption is consistent with both Alberta's and Canada's coal policy. This firm power will be replaced by gas-fired generation – a mix of coal-to-gas conversion, combined-cycle and simple-cycle additions. Coal-to-Gas Conversion About 2,400 MW of the current 6,299 MW of coal generation in Alberta is assumed to convert to gas in the early 2020s. The converted coal units are assumed by the AESO to be at Sundance (Units 3, 4, 5 & 6) and Keephills (Units 1 & 2). These converted units will operate for only 15 years before being forced to retire due to the likely federal emissions standards that will then apply to these units.Albertapowermarket.com recently described the economics behind coal-to-gas conversion decisions here in Alberta. New Capacity In total, about 13,900 MW of new capacity (excludes coal-to-gas conversion) is assumed to be developed in Alberta by 2037 to meet demand. The AESO assumed a 15% reserve margin in forecasting this new capacity.Besides renewables and the coal-to-gas conversion described above, the AESO also forecasts new gas-fired development will occur (7,000 MW) mainly at brownfield coal sites, and that some cogeneration development will occur (400 MW plus what is under development now) mainly at the Fort McMurray and Cold Lake oil sands facilities.Under the AESO's Reference Case the generation mix (capacity) in Alberta changes between now and 2037 as follows What do the other scenarios in the 2017 LTO tell us?Besides economic uncertainty, there is a lot of regulatory uncertainty around the potential for coal-to-gas conversion in Alberta. The federal government is currently developing gas-fired emission regulations which will set limits on the emissions of units converted from coal to natural gas. These emission regulations will apply to the converted units for 15 years or until 2045, whichever comes first, and after which a currently unattainable emissions requirement of 420 tCO2/GHh (a combined cycle standard) is expected to apply to the converted units.Industry is currently being consulted about the emissions intensity requirements that the coal-to-gas conversion units will initially be required to meet under these regulations. Those emissions requirements will impact the economics and technical feasibility of coal-to-gas conversion in Alberta. Accordingly, besides the Reference Case that assumes 2,400 MW of converted coal, the 2017 LTO includes a high conversion scenario where 5,400 MW is converted to gas, and another scenario where no coal-to-gas conversion occurs at all in Alberta.The 2017 LTO also recognizes that the Regional Electricity Cooperation and Strategic Infrastructure Initiative (RECSI) may impact Alberta's generation mix. RECSI is funded by the federal government and is looking at electricity projects in Western Canada and the Northwest Territories that could assist Alberta and Saskatchewan transition to a sustainable, non-emitting generation portfolio.Two projects being considered by RECSI are large scale hydro development in Alberta and a new intertie between Alberta and British Columbia. Accordingly, besides the Reference Case, the 2017 LTO includes 1) a scenario whereby a new 1,000 MW run-of-the-river hydro facility is built on the Slave River after 2030 and some uprates totaling 170 MW are also done on existing hydro facilities on the North Saskatchewan River; and 2) a scenario whereby a new 1,700 MW transmission line is built between Alberta and British Columbia to permit the increased import of electricity to Alberta.The 2017 LTO does not address all of the uncertainties that will impact Alberta's electricity market over the next 20 years. For example, the design of the capacity market and future election results will likely impact the future mix of Alberta's electricity generation. So will climate change, prices on carbon emissions, oil and gas prices, pipelines to tidewater, technology innovation, and the changing cost to construct and operate alternative types of generation. Alberta's generation mix will therefore not be what the AESO's 2017 LTO forecasts for 2037 – a bold prediction we know. But, if you are a facility owner, developer, investor, financier or just a person interested in some of the issues currently playing out in the Alberta electricity market then the 2017 LTO is worth a read.<p>​<img class="ms-rtePosition-1" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Energy.png" alt="" style="margin:5px;width:475px;height:139px;" /><strong>What is the Long-term Outlook?</strong></p><p style="text-align:justify;">At least every two years the Alberta Electric System Operator (<strong>AESO</strong>) shares with the market its long-term (20 year) forecast of Alberta's electricity demand and the generation capacity needed to meet that demand.  The forecast is called the Long-term Outlook ("<strong>LTO</strong>"), and the AESO uses it to help guide transmission planning in Alberta.  This is because it is the AESO, and not transmission companies, that determines and implements transmission system expansions and enhancements.</p><p style="text-align:justify;">The LTO is important to Alberta's electricity market participants because it describes some of the factors affecting future load growth, generation development and, though not expressly discussed in the LTO, power pool prices in Alberta.  After all, the AESO has access to market data, stakeholder and government information, experts (including its own) and internal Alberta industry experience and knowledge that is not available to most of us in the market.</p><p style="text-align:justify;">The AESO recently published the 2017 LTO.  It is no surprise that, despite the AESO's significant resources, its crystal ball is a little cloudy these days.  Alberta's electricity industry is in a state of transition, due in part to changing government policies like Alberta's Climate Leadership Plan and the introduction of a capacity market. Uncertain economic conditions in the province also make forecasting difficult.</p><p style="text-align:justify;">This led the AESO to include not only a "Reference Case" (its main corporate outlook or base case for future load growth and generation development) in the 2017 LTO, but also six other scenarios to account for uncertainties and that answer plausible "what if" questions.</p><p><strong>What does the Reference Case tell us?</strong></p><p>According to the assumptions used by the AESO in its Reference Case:</p><ol><li><strong>Load Growth: </strong>Future load growth in Alberta will be lower than the AESO previously forecasted, due to the adverse impact that low oil prices will have on future economic growth in Alberta, and to improvements in energy efficiency. The AESO now expects the load to grow in Alberta by an average of 0.9% per year until 2037 – significantly less than the 1.9% forecasted by the AESO in the 2016 LTO.  However it is still growth, and will result in peak demand growing from 11,458 MW in 2016 to 13,947 MW in 2037.</li></ol><p style="text-align:justify;">The AESO load growth prediction does run counter to the recent winter and summer record peaks set in Alberta, but the AESO claims that those record peaks are due to unusual weather and the ramp up of recently completed oil sands projects.  Accordingly, the higher recent load growth is not forecasted to continue.</p><ol start="2"><li><strong>Renewables:</strong> Alberta will deliver on the promised 5000 MW of new renewable generation supported by the Renewable Electricity Program (<strong>REP</strong>). The AESO also assumes that additional renewables will be developed outside of the REP. After all renewable projects did get built in this province before the REP.  As a result, Alberta is forecasted to achieve its 30% of electricity generated in Alberta coming from renewables by 2030 policy – actual renewable capacity is forecasted to get to 36% by 2030.</li></ol><p style="text-align:justify;">Wind capacity is assumed to be added at a rate of about 400 MW per year (5000 MW in total) and will be split between the south and central regions, with some wind development anticipated to also occur in the northwest. This assumption is consistent with the AESO's stated goal of having regular rounds of procurements under the REP. Utility-scale solar will locate in the south (best) and central regions (highly suitable).  Solar capacity additions will be lower than wind, and total 1000 MW by 2037.  Hydro capacity additions of 350 MW are forecasted to occur on the Peace River around 2030, though the AESO acknowledges that other potential hydro resources also exist in Alberta.</p><ol start="3"><li><strong>Coal Generation</strong>: All coal-fired generation will be retired by the end of 2030 – no surprises here as the coal retirement assumption is consistent with both Alberta's and Canada's coal policy. This firm power will be replaced by gas-fired generation – a mix of coal-to-gas conversion, combined-cycle and simple-cycle additions.</li></ol><ol start="4"><li><strong>Coal-to-Gas Conversion:</strong> About 2,400 MW of the current 6,299 MW of coal generation in Alberta is assumed to convert to gas in the early 2020s. The converted coal units are assumed by the AESO to be at Sundance (Units 3, 4, 5 & 6) and Keephills (Units 1 & 2).  These converted units will operate for only 15 years before being forced to retire due to the likely federal emissions standards that will then apply to these units.</li></ol><p style="text-align:justify;"><a href="https://albertapowermarket.com/">Albertapowermarket.com</a> recently described the economics behind coal-to-gas conversion decisions <a href="https://albertapowermarket.com/2017/05/29/making-sense-of-the-recent-coal-to-gas-conversion-announcements-in-alberta/">here</a> in Alberta.</p><ol start="5"><li><strong>New Capacity</strong>: In total, about 13,900 MW of new capacity (excludes coal-to-gas conversion) is assumed to be developed in Alberta by 2037 to meet demand. The AESO assumed a 15% reserve margin in forecasting this new capacity.</li></ol><p style="text-align:justify;">Besides renewables and the coal-to-gas conversion described above, the AESO also forecasts new gas-fired development will occur (7,000 MW) mainly at brownfield coal sites, and that some cogeneration development will occur (400 MW plus what is under development now) mainly at the Fort McMurray and Cold Lake oil sands facilities.</p><p style="text-align:justify;">Under the AESO's Reference Case the generation mix (capacity) in Alberta changes between now and 2037 as follows:</p><img alt="pic" src="https://albertapowermarket.files.wordpress.com/2017/09/pic.png?w=1540" style="margin:5px;" /><p><strong></strong> </p><p><strong>What do the other scenarios in the 2017 LTO tell us?</strong></p><p style="text-align:justify;">Besides economic uncertainty, there is a lot of regulatory uncertainty around the potential for coal-to-gas conversion in Alberta. The federal government is currently developing gas-fired emission regulations which will set limits on the emissions of units converted from coal to natural gas.  These emission regulations will apply to the converted units for 15 years or until 2045, whichever comes first, and after which a currently unattainable emissions requirement of 420 tCO<sub>2</sub>/GHh (a combined cycle standard) is expected to apply to the converted units.</p><p style="text-align:justify;">Industry is currently being consulted about the emissions intensity requirements that the coal-to-gas conversion units will initially be required to meet under these regulations. Those emissions requirements will impact the economics and technical feasibility of coal-to-gas conversion in Alberta.  Accordingly, besides the Reference Case that assumes 2,400 MW of converted coal, the 2017 LTO includes a high conversion scenario where 5,400 MW is converted to gas, and another scenario where no coal-to-gas conversion occurs at all in Alberta.</p><p style="text-align:justify;">The 2017 LTO also recognizes that the Regional Electricity Cooperation and Strategic Infrastructure Initiative (<strong>RECSI</strong>) may impact Alberta's generation mix. RECSI is funded by the federal government and is looking at electricity projects in Western Canada and the Northwest Territories that could assist Alberta and Saskatchewan transition to a sustainable, non-emitting generation portfolio.</p><p style="text-align:justify;">Two projects being considered by RECSI are large scale hydro development in Alberta and a new intertie between Alberta and British Columbia. Accordingly, besides the Reference Case, the 2017 LTO includes: 1) a scenario whereby a new 1,000 MW run-of-the-river hydro facility is built on the Slave River after 2030 and some uprates totaling 170 MW are also done on existing hydro facilities on the North Saskatchewan River; and 2) a scenario whereby a new 1,700 MW transmission line is built between Alberta and British Columbia to permit the increased import of electricity to Alberta.</p><p style="text-align:justify;">The 2017 LTO does not address all of the uncertainties that will impact Alberta's electricity market over the next 20 years.  For example, the design of the capacity market and future election results will likely impact the future mix of Alberta's electricity generation. So will climate change, prices on carbon emissions, oil and gas prices, pipelines to tidewater, technology innovation, and the changing cost to construct and operate alternative types of generation.  Alberta's generation mix will therefore not be what the AESO's 2017 LTO forecasts for 2037 – a bold prediction we know.  But, if you are a facility owner, developer, investor, financier or just a person interested in some of the issues currently playing out in the Alberta electricity market then the <a href="https://www.aeso.ca/grid/forecasting/">2017 LTO</a> is worth a read.</p>9/19/2017 4:00:00 AM2017-09-19T04:00:00ZTrue1float;#9.00000000000000float;#2017.00000000000string;#Septemberfloat;#201709.000000000GP0|#23e50663-be85-467e-acf9-7150e42ed669;L0|#023e50663-be85-467e-acf9-7150e42ed669|Energy;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#03fc5c71-a1cf-4529-a790-3febb462b5dc;L0|#003fc5c71-a1cf-4529-a790-3febb462b5dc|Electricity;GP0|#60a6f187-f0e0-4c65-a06c-b97febf6542e;L0|#060a6f187-f0e0-4c65-a06c-b97febf6542e|Oil & Gas;GP0|#68a53fee-4a86-4326-9cee-6b963cc47e1c;L0|#068a53fee-4a86-4326-9cee-6b963cc47e1c|Natural ResourcesEnergy;Electricity;Oil & Gas;Natural Resources
BLG’s Second Annual FSG Symposium BLG’s Second Annual FSG Symposium 336BLG Blog Post ​Join us for a up-close look at the major trends within Calgary's financial services market including the current state of the Alberta economy, the uncertainty of commodity prices and the impact thereof on the credit market and related credit documentation. [Read more...]<p>​Join u<img class="ms-rtePosition-1" alt="Financial Services Symposium.jpg" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Financial%20Services%20Symposium.jpg" style="margin:5px;width:100px;height:67px;" />s for a up-close look at the major trends within Calgary's financial services market including the current state of the Alberta economy, the uncertainty of commodity prices and the impact thereof on the credit market and related credit documentation.<span style="color:black;font-family:"arial",sans-serif;font-size:10pt;"><br></span> <span style="color:black;font-family:"arial",sans-serif;font-size:10pt;">[<a href="/energy/Pages/Post.aspx?PID=336"><em>Read more</em></a>...]</span></p> BLG's SECOND ANNUAL FINANCIAL SERVICES SYMPOSIUM Current Legal Trends and Issues in Financing in Alberta Join us for a up-close look at the major trends within Calgary's financial services market including the current state of the Alberta economy, the uncertainty of commodity prices and the impact thereof on the credit market and related credit documentation. In anticipation of the Calgary municipal election four days after the symposium, we are pleased to have His Worship Mayor Naheed Nenshi as our special keynote speaker to discuss his campaign and municipal issues in the Calgary business community. A full program of the symposium will follow. If you have any questions, please contact Ruxandra Andreiasi at rsvpcalgary@blg.com. Event Details Thursday, October 12, 2017 Registration and Breakfast 730 am - 800 am Symposium and Lunch 800 am - 100 pm Centennial Place West Tower 3rd Floor, 250 5 St SW Calgary, AB View Map >> RSVP Now<h1><strong><img class="ms-rtePosition-3" alt="PICTURE.jpg" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/PICTURE.jpg" style="margin:5px;" /></strong></h1><p><span class="ms-rteFontSize-4"><strong>BLG's SECOND ANNUAL FINANCIAL SERVICES SYMPOSIUM:<br></strong></span><span style="font-size:16pt;">Current Legal Trends and Issues in Financing in Alberta</span></p><p>Join us for a up-close look at the major trends within Calgary's financial services market including the current state of the Alberta economy, the uncertainty of commodity prices and the impact thereof on the credit market and related credit documentation.<br>  <br> In anticipation of the Calgary municipal election four days after the symposium, we are pleased to have His Worship Mayor Naheed Nenshi as our special keynote speaker to discuss his campaign and municipal issues in the Calgary business community.<br>  <br> A full program of the symposium will follow. If you have any questions, please contact Ruxandra Andreiasi at <a href="mailto:rsvpcalgary@blg.com?subject=BLG%E2%80%99s%20Second%20Annual%20Financial%20Services%20Symposium">rsvpcalgary@blg.com</a>.  </p><p><strong>Event Details:</strong></p><p>Thursday, October 12, 2017</p><p>Registration and Breakfast: 7:30 am - 8:00 am</p><p>Symposium and Lunch: 8:00 am - 1:00 pm</p><p>Centennial Place West Tower<br>3rd Floor, 250 5 St SW<br>Calgary, AB<br><a href="https://www.google.com/maps/place/250+5+St+SW%2c+Calgary%2c+AB+T2P+0R4%2c+Canada/%4051.0511355%2c-114.0751821%2c17z/data=%213m1%214b1%214m5%213m4%211s0x53716ffae8954d45:0xef86d53cab31992e%218m2%213d51.0511321%214d-114.0729881?hl=en&shorturl=1" target="_blank">View Map</a></p><p><strong>>> </strong><a href="http://bordenladnergervaisllp.com/s/1749840720ef65e41da0dacd1e62a0f90f87b57a" target="_blank"><strong>RSVP Now</strong></a></p>9/14/2017 4:00:00 AM2017-09-14T04:00:00ZTrue1float;#9.00000000000000float;#2017.00000000000string;#Septemberfloat;#201709.000000000GP0|#b01107da-49ba-46f5-940e-aca68ced7b53;L0|#0b01107da-49ba-46f5-940e-aca68ced7b53|BLG Events;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3caBLG Events
Pay First, Dispute Later (or Trial Now, Pay Later)? Pay First, Dispute Later (or Trial Now, Pay Later)? 335BLG Blog PostMiles Pittman;Leanne Desbaratsmpittman@blg.com | Miles Pittman | 693A30232E777C626C6763616E6164615C6D706974746D616E i:0#.w|blgcanada\mpittman;ldesbarats@blg.com | Leanne Desbarats | 693A30232E777C626C6763616E6164615C6C646573626172617473 i:0#.w|blgcanada\ldesbaratsIn Talisman Energy Inc. v Questerre Energy Corporation, 2017 ABCA 218 the Alberta Court of Appeal considered the pay first, dispute later provisions common in oil and gas joint operating agreements. These provisions generally provide that invoices issued under an operating agreement are a liquidated demand and a party receiving an invoice has no right to set-off or counterclaim. In another recent case, SemCAMS ULC v Blaze Energy, 2016 ABCA 113 ("SemCAMS") (discussed by BLG here, here and here), the Court of Appeal enforced one of these provisions, upholding an award of summary judgment against a non-operator for unpaid invoices notwithstanding that the non-operator disputed the operator's accounting methods. However, in this case the Court of Appeal distinguished SemCAMS and denied summary judgment to recover amounts pursuant to unpaid invoices in favour of Talisman Energy Inc. ("Talisman") on the basis that the issues were complex and warranted a trial. In particular, the Court of Appeal found that the facts were unclear as to which agreement the parties were operating under. This case is significant as it demonstrates that the pay first, dispute later provisions are not always appropriate for determination through the summary judgment process and can warrant a trial in certain circumstances. The case also highlights the limits on the utility of summary judgment in resolving issues expeditiously and in a cost-effective manner. <p style="text-align:justify;"><img class="ms-rtePosition-1" alt="Thumbnail.jpg" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Thumbnail.jpg" style="margin:5px;" />In <em>Talisman Energy Inc. v Questerre Energy Corporation, </em>2017 ABCA 218 the Alberta Court of Appeal considered the pay first, dispute later provisions common in oil and gas joint operating agreements. These provisions generally provide that invoices issued under an operating agreement are a liquidated demand and a party receiving an invoice has no right to set-off or counterclaim. In another recent case, <em>SemCAMS ULC v Blaze Energy, </em>2016 ABCA 113<em> </em>("<em>SemCAMS</em>") (discussed by BLG <a href="/energy/Pages/Post.aspx?PID=198" target="_blank">here</a>, <a href="/energy/Pages/Post.aspx?PID=163" target="_blank">here </a>and <a href="/energy/Pages/Post.aspx?PID=273" target="_blank">here</a>), the Court of Appeal enforced one of these provisions, upholding an award of summary judgment against a non-operator for unpaid invoices notwithstanding that the non-operator disputed the operator's accounting methods. However, in this case the Court of Appeal distinguished <em>SemCAMS </em>and denied summary judgment to recover amounts pursuant to unpaid invoices in favour of Talisman Energy Inc. ("Talisman") on the basis that the issues were complex and warranted a trial. In particular, the Court of Appeal found that the facts were unclear as to which agreement the parties were operating under. </p><p style="text-align:justify;">This case is significant as it demonstrates that the pay first, dispute later provisions are not always appropriate for determination through the summary judgment process and can warrant a trial in certain circumstances. The case also highlights the limits on the utility of summary judgment in resolving issues expeditiously and in a cost-effective manner. </p>In Talisman Energy Inc. v Questerre Energy Corporation, 2017 ABCA 218 the Alberta Court of Appeal considered the pay first, dispute later provisions common in oil and gas joint operating agreements. These provisions generally provide that invoices issued under an operating agreement are a liquidated demand and a party receiving an invoice has no right to set-off or counterclaim. In another recent case, SemCAMS ULC v Blaze Energy, 2016 ABCA 113 ("SemCAMS") (discussed by BLG here, here and here), the Court of Appeal enforced one of these provisions, upholding an award of summary judgment against a non-operator for unpaid invoices notwithstanding that the non-operator disputed the operator's accounting methods. However, in this case the Court of Appeal distinguished SemCAMS and denied summary judgment to recover amounts pursuant to unpaid invoices in favour of Talisman Energy Inc. ("Talisman") on the basis that the issues were complex and warranted a trial. In particular, the Court of Appeal found that the facts were unclear as to which agreement the parties were operating under. This case is significant as it demonstrates that the pay first, dispute later provisions are not always appropriate for determination through the summary judgment process and can warrant a trial in certain circumstances. The case also highlights the limits on the utility of summary judgment in resolving issues expeditiously and in a cost-effective manner. Background Talisman and Questerre Energy Corporation ("Questerre") were parties to a farmout agreement (the "Farmout Agreement") with respect to two properties in Quebec. The Farmout Agreement incorporated the 1990 CAPL Operating Procedure by reference and included a clause which allowed Talisman to… maintain an action or actions for such unpaid amounts and interest thereon on a continuing basis as such amounts are payable, but not paid by such defaulting Joint-Operator, as if the obligation to pay such amounts and the interest thereon were liquidated demands due and payable on the relevant dates such amounts were due to be paid, without resort of such Joint-Operator to set-off or counterclaim. In early 2010, Talisman proposed to drill the Fortierville well and issued an Independent Operations Notice (an "ION") to Questerre for the well, enclosing an Authorization for Expenditure ("AFE"). If Questerre elected to participate it would be required to pay 25% of the well costs and failure to participate would result in Questerre being in penalty for the well. The ION did not include completion costs. Talisman and Questerre traded several apparently ambiguous communications about the AFE. Questerre advised Talisman that it would not participate in the Fortierville well unless Talisman agreed to complete, test and evaluate the well as part of a comprehensive program and would run microseismic monitoring as part of the completion program on the well. After the expiry of the ION, Talisman sent a letter stating that it would drill and complete the well but it did not issue an ION or an AFE with respect to both drilling and completion. Questerre subsequently executed the original AFE. In May 2016, Questerre sent an email to Talisman stating that it was interested in joint operations with respect to the Ste. Gertrude well on the same basis as the Fortierville well. Talisman issued an ION and AFE for the Ste. Gertrude well and this AFE also included the drilling of the well, but not its completion. Talisman proceeded to take steps to complete both wells and then sought to recover 25% of the costs of that work from Questerre. Questerre refused to pay the amounts outstanding, stating that completion required a supplemental AFE. In its action against Questerre, Talisman sought to recover liquidated damages for Questerre's proportionate share of the costs of the drilling and completion of both wells and the drilling costs for four other wells that it had drilled with Questerre's participation. Questerre defended Talisman's claim, and counterclaimed for breach of Talisman's promise to complete both wells. Questerre's position was that the correspondence between the parties was a collateral contract whereby the parties agreed that Questerre would only pay for costs if Talisman agreed to both drill and complete the wells. Queen's Bench DecisionsMaster Prowse granted summary judgment to Talisman for the drilling costs claimed by Talisman but declined to award summary judgment for the completion costs on the basis that a trial would be required to determine whether the correspondence between the parties regarding the completion costs evidenced the existence of a collateral contract. On appeal, Justice Hawco found a trial was required with respect to the entirety of Talisman's claim given that a finding that there was a collateral agreement might have impacted Talisman's claim with respect to the drilling costs. Court of Appeal Decision The Court of Appeal upheld Justice Hawco's decision, finding that a trial was necessary to determine the nature, scope and effect of the alleged collateral agreement. The Court of Appeal held that ordinarily Talisman would be entitled to summary judgment for the drilling costs claimed by Talisman with respect to the other four wells, but it found that because Talisman continued to exercise its operator's lien over those wells until the litigation concerning the other two wells was resolved it "brings the fate of the four other wells into the ambit of the litigation, where a trial is necessary to resolve the outstanding issues". Implications The case is significant as it demonstrates a limit on the immediate recourse an operator has under the pay first, dispute later provisions of the CAPL operating procedures. A joint-operator can take the position that the provision does not apply to the operation in question in order to resist a summary judgment application. The scenario where the scope of an agreement is unclear is not that uncommon in the oil and gas industry where there are often a multitude of different agreements that govern jointly owned lands and an abundance of correspondence between the parties, including AFEs, that could arguably amend existing agreements or constitute separate collateral agreements. This can make it difficult to determine what, if any, agreements apply in specific circumstances.As BLG commented here, while summary judgment is an appealing alternative to the trial process, due to the fact that a summary judgment or dismissal action is heard first before a Master, is subject to a right of appeal, and then there is the possibility of a further appeal to the Court of Appeal, its usefulness in speeding up the trial process and providing for a less costly avenue to resolve disputes is somewhat compromised. In this case, Master Prowse initially issued his decision in December 2015. The Court of Appeal's decision was issued in June 2017 and now, if the parties proceed to trial, they will be looking at scheduling likely at some point later in 2018 at the earliest. That is a significant delay and presumably proceeding directly to a trial from the outset would have been led to a faster and more final resolution of the matters in dispute. While an accounting dispute under a CAPL operating procedure may seem like an appropriate dispute for summary determination, this case demonstrates that a summary judgment application could in fact cause more cost and delay than proceeding with the regular trial procedure. <p style="text-align:justify;"><img class="ms-rtePosition-1" alt="Full-Size.jpg" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Full-Size.jpg" style="margin:5px;width:300px;height:200px;" />In <em>Talisman Energy Inc. v Questerre Energy Corporation, </em>2017 ABCA 218 the Alberta Court of Appeal considered the pay first, dispute later provisions common in oil and gas joint operating agreements. These provisions generally provide that invoices issued under an operating agreement are a liquidated demand and a party receiving an invoice has no right to set-off or counterclaim. In another recent case, <em>SemCAMS ULC v Blaze Energy, </em>2016 ABCA 113<em> </em>("<em>SemCAMS</em>") (discussed by BLG <a href="/energy/Pages/Post.aspx?PID=198" target="_blank">here</a>, <a href="/energy/Pages/Post.aspx?PID=163" target="_blank">here </a>and <a href="/energy/Pages/Post.aspx?PID=273" target="_blank">here</a>), the Court of Appeal enforced one of these provisions, upholding an award of summary judgment against a non-operator for unpaid invoices notwithstanding that the non-operator disputed the operator's accounting methods. However, in this case the Court of Appeal distinguished <em>SemCAMS </em>and denied summary judgment to recover amounts pursuant to unpaid invoices in favour of Talisman Energy Inc. ("Talisman") on the basis that the issues were complex and warranted a trial. In particular, the Court of Appeal found that the facts were unclear as to which agreement the parties were operating under. </p><p style="text-align:justify;">This case is significant as it demonstrates that the pay first, dispute later provisions are not always appropriate for determination through the summary judgment process and can warrant a trial in certain circumstances. The case also highlights the limits on the utility of summary judgment in resolving issues expeditiously and in a cost-effective manner. </p><p style="text-align:justify;"><strong>Background </strong></p><p style="text-align:justify;">Talisman and Questerre Energy Corporation ("Questerre") were parties to a farmout agreement (the "Farmout Agreement") with respect to two properties in Quebec. The Farmout Agreement incorporated the 1990 CAPL Operating Procedure by reference and included a clause which allowed Talisman to:</p><blockquote dir="ltr" style="margin-right:0px;"><p dir="ltr" style="text-align:justify;margin-right:0px;">… maintain an action or actions for such unpaid amounts and interest thereon on a continuing basis as such amounts are payable, but not paid by such defaulting Joint-Operator, as if the obligation to pay such amounts and the interest thereon were liquidated demands due and payable on the relevant dates such amounts were due to be paid, <span style="text-decoration:underline;">without resort of such Joint-Operator to set-off or counterclaim</span>. </p></blockquote><p style="text-align:justify;">In early 2010, Talisman proposed to drill the Fortierville well and issued an Independent Operations Notice (an "ION") to Questerre for the well, enclosing an Authorization for Expenditure ("AFE"). If Questerre elected to participate it would be required to pay 25% of the well costs and failure to participate would result in Questerre being in penalty for the well. The ION did not include completion costs. </p><p style="text-align:justify;">Talisman and Questerre traded several apparently ambiguous communications about the AFE. Questerre advised Talisman that it would not participate in the Fortierville well unless Talisman agreed to complete, test and evaluate the well as part of a comprehensive program and would run microseismic monitoring as part of the completion program on the well. After the expiry of the ION, Talisman sent a letter stating that it would drill and complete the well but it did not issue an ION or an AFE with respect to both drilling and completion. Questerre subsequently executed the original AFE. </p><p style="text-align:justify;">In May 2016, Questerre sent an email to Talisman stating that it was interested in joint operations with respect to the Ste. Gertrude well on the same basis as the Fortierville well. Talisman issued an ION and AFE for the Ste. Gertrude well and this AFE also included the drilling of the well, but not its completion. </p><p style="text-align:justify;">Talisman proceeded to take steps to complete both wells and then sought to recover 25% of the costs of that work from Questerre. Questerre refused to pay the amounts outstanding, stating that completion required a supplemental AFE. </p><p style="text-align:justify;">In its action against Questerre, Talisman sought to recover liquidated damages for Questerre's proportionate share of the costs of the drilling and completion of both wells and the drilling costs for four other wells that it had drilled with Questerre's participation. Questerre defended Talisman's claim, and counterclaimed for breach of Talisman's promise to complete both wells. Questerre's position was that the correspondence between the parties was a collateral contract whereby the parties agreed that Questerre would only pay for costs if Talisman agreed to both drill and complete the wells. </p><p style="text-align:justify;"><strong>Queen's Bench Decisions</strong></p><p style="text-align:justify;">Master Prowse granted summary judgment to Talisman for the drilling costs claimed by Talisman but declined to award summary judgment for the completion costs on the basis that a trial would be required to determine whether the correspondence between the parties regarding the completion costs evidenced the existence of a collateral contract.  On appeal, Justice Hawco found a trial was required with respect to the entirety of Talisman's claim given that a finding that there was a collateral agreement might have impacted Talisman's claim with respect to the drilling costs. </p><p style="text-align:justify;"><strong>Court of Appeal Decision </strong></p><p style="text-align:justify;">The Court of Appeal upheld Justice Hawco's decision, finding that a trial was necessary to determine the nature, scope and effect of the alleged collateral agreement. The Court of Appeal held that ordinarily Talisman would be entitled to summary judgment for the drilling costs claimed by Talisman with respect to the other four wells, but it found that because Talisman continued to exercise its operator's lien over those wells until the litigation concerning the other two wells was resolved it "brings the fate of the four other wells into the ambit of the litigation, where a trial is necessary to resolve the outstanding issues".  </p><p style="text-align:justify;"><strong>Implications </strong></p><p style="text-align:justify;">The case is significant as it demonstrates a limit on the immediate recourse an operator has under the pay first, dispute later provisions of the CAPL operating procedures. A joint-operator can take the position that the provision does not apply to the operation in question in order to resist a summary judgment application. The scenario where the scope of an agreement is unclear is not that uncommon in the oil and gas industry where there are often a multitude of different agreements that govern jointly owned lands and an abundance of correspondence between the parties, including AFEs, that could arguably amend existing agreements or constitute separate collateral agreements. This can make it difficult to determine what, if any, agreements apply in specific circumstances.</p><p style="text-align:justify;">As BLG commented <a href="/energy/Pages/Post.aspx?PID=273" target="_blank">here</a>, while summary judgment is an appealing alternative to the trial process, due to the fact that a summary judgment or dismissal action is heard first before a Master, is subject to a right of appeal, and then there is the possibility of a further appeal to the Court of Appeal, its usefulness in speeding up the trial process and providing for a less costly avenue to resolve disputes is somewhat compromised. In this case, Master Prowse initially issued his decision in December 2015. The Court of Appeal's decision was issued in June 2017 and now, if the parties proceed to trial, they will be looking at scheduling likely at some point later in 2018 at the earliest. That is a significant delay and presumably proceeding directly to a trial from the outset would have been led to a faster and more final resolution of the matters in dispute. While an accounting dispute under a CAPL operating procedure may seem like an appropriate dispute for summary determination, this case demonstrates that a summary judgment application could in fact cause more cost and delay than proceeding with the regular trial procedure. </p>9/7/2017 4:00:00 AM2017-09-07T04:00:00ZTrue1float;#9.00000000000000float;#2017.00000000000string;#Septemberfloat;#201709.000000000GP0|#60a6f187-f0e0-4c65-a06c-b97febf6542e;L0|#060a6f187-f0e0-4c65-a06c-b97febf6542e|Oil & Gas;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#6ed29997-7c09-433d-9f4f-e4bb2ce1b29b;L0|#06ed29997-7c09-433d-9f4f-e4bb2ce1b29b|Litigation;GP0|#a8d93e98-a569-4c7f-ac81-5c92b85685cd;L0|#0a8d93e98-a569-4c7f-ac81-5c92b85685cd|AppealsOil & Gas;Litigation;Appeals
Set-Off – A Powerful Remedy Made Even More Powerful by Alberta CourtSet-Off – A Powerful Remedy Made Even More Powerful by Alberta Court334BLG Blog PostMiles Pittman;Jessica Cameron;Robin Jawandampittman@blg.com | Miles Pittman | 693A30232E777C626C6763616E6164615C6D706974746D616E i:0#.w|blgcanada\mpittman;jcameron@blg.com | Jessica Cameron | 693A30232E777C626C6763616E6164615C6A63616D65726F6E i:0#.w|blgcanada\jcameron;rjawanda@blg.com | Robin Jawanda | 693A30232E777C626C6763616E6164615C726A6177616E6461 i:0#.w|blgcanada\rjawanda​Set-off is one of the most effective and powerful remedies available to a creditor, and operators under oil and gas operating agreements find it especially useful, in that the operator can set off revenues or other funds or credits it receives as operator against amounts owed. Further, the operator's set-off rights are usually honoured in an insolvency. In Spyglass Resources Corp v. Bonavista Energy Corporation, 2017 ABQB 504, the Alberta Court of Queen's Bench opened the door to expanding the scope of set-off, as it approved the operator's setting-off of joint royalty credits it received against the non-operator's share of abandonment and decommissioning costs. Even though the credits arose under one contract and the costs under another – the Court did so in the name of business efficacy. Further, the Court found that set-off was effective against the non-operator's receiver and also awarded costs against the receiver for the application challenging the set-off. These developments in the law of set-off are sure to influence the actions of creditors and debtors alike, both in the oil and gas industry and elsewhere. [Read more...] <p style="text-align:justify;">​<img class="ms-rtePosition-1" alt="Pipline Thumbnail" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/INDUS_GRE-22-iStock_6021237Large-Thumbnail.jpg" style="margin:5px;" />Set-off is one of the most effective and powerful remedies available to a creditor, and operators under oil and gas operating agreements find it especially useful, in that the operator can set off revenues or other funds or credits it receives as operator against amounts owed. Further, the operator's set-off rights are usually honoured in an insolvency. </p><p style="text-align:justify;">In <a href="https://www.canlii.org/en/ab/abqb/doc/2017/2017abqb504/2017abqb504.html?resultIndex=1" target="_blank"><em>Spyglass Resources Corp v. Bonavista Energy Corporation</em>, 2017 ABQB 504</a>, the Alberta Court of Queen's Bench opened the door to expanding the scope of set-off, as it approved the operator's setting-off of joint royalty credits it received against the non-operator's  share of abandonment and decommissioning costs. Even though the credits arose under one contract and the costs under another – the Court did so in the name of business efficacy.  Further, the Court found that set-off was effective against the non-operator's receiver and also awarded costs against the receiver for the application challenging the set-off.  These developments in the law of set-off are sure to influence the actions of creditors and debtors alike, both in the oil and gas industry and elsewhere. </p><p style="text-align:justify;">[<a href="/energy/Pages/Post.aspx?PID=334"><em>Read more</em></a>...] </p>​Set-off is one of the most effective and powerful remedies available to a creditor, and operators under oil and gas operating agreements find it especially useful, in that the operator can set off revenues or other funds or credits it receives as operator against amounts owed. Further, the operator's set-off rights are usually honoured in an insolvency. In Spyglass Resources Corp v. Bonavista Energy Corporation, 2017 ABQB 504, the Alberta Court of Queen's Bench opened the door to expanding the scope of set-off, as it approved the operator's setting-off of joint royalty credits it received against the non-operator's1 share of abandonment and decommissioning costs. Even though the credits arose under one contract and the costs under another – the Court did so in the name of business efficacy. Further, the Court found that set-off was effective against the non-operator's receiver and also awarded costs against the receiver for the application challenging the set-off. These developments in the law of set-off are sure to influence the actions of creditors and debtors alike, both in the oil and gas industry and elsewhere. To read the full case summary please click here. Factual BackgroundBonavista Energy Corporation ("Bonavista") operated a series of wells, compressors, pipelines and a sour gas plant in the West Liege region of Alberta, for itself and Spyglass Resources Corp. ("Spyglass"). In accordance with its practice, Bonavista used one joint account to administer all the revenues and costs for the project, notwithstanding that the lands and facilities were each governed by different operating procedures and accounting procedures. The main project agreements were a Construction, Ownership and Operating Agreement for the plant (the "CO&O") and a Joint Operating Agreement (the "JOA") for the wells that incorporated a 1990 CAPL Operating Procedure (the "1990 CAPL"). As part of its original regulatory approval for the project from the Alberta Energy Regulator (the "AER"), Bonavista was required to prepare a Decommissioning and Land Reclamation Plan in case the plant stopped operating. The wells produced gas that overlaid bitumen deposits and continued production of the gas wells could have reduced the pressure in the bitumen reservoir such that the reservoir's viability could have been compromised. In late 2011, the AER issued a permanent shut-in order of the wells, and as a result Bonavista and Spyglass were entitled to gas-over-bitumen royalty credits (the "GOB Credits"). Due to the wells being shut-in, the plant also ceased production and Bonavista began decommissioning the plant and abandoning the pipelines, in accordance with the Decommissioning Plan. The CO&O required that where there were two facility owners, all Operating Committee votes were required to be unanimous, and also required the Operator to clean up and restore the site for the joint account, even without Operating Committee approval. Beginning in late 2013, Bonavista began issuing mail ballots and accompanying AFE's for plant decommissioning and pipeline abandonment, including one set of 35 AFE's, each with a face amount of less than $25,000.00.2 Each month, Bonavista issued Spyglass one joint interest bill (a "JIB") for the joint account detailing each cost borne by the project and GOB Credit (again, irrespective of the agreement pursuant to which the cost arose), and netted the GOB Credit against Spyglass's share of costs. Spyglass disputed the costs and did not pay the balance owing. During this time, Bonavista also ignored Spyglass's ongoing requests for a meeting to discuss the expenditures, and did not hold Operating Committee meetings to discuss the matter. Spyglass entered receivership in November 2015. Spyglass's receiver, Ernst & Young (the "Receiver") demanded the return of Spyglass's interest in the GOB Credits that had been netted against Spyglass's share of costs – prior to the receivership, Spyglass had not made this demand. Bonavista refused to pay, arguing it was entitled to set the GOB Credits off against Spyglass's unpaid costs.Bonavista also separately applied to the AER to determine the abandonment costs and to allocate to Spyglass its proportionate share. The AER issued an Abandonment Costs Order against Spyglass in June 2016, setting the decommissioning and abandonment costs at approximately $900,000 plus penalties.The Receiver advanced three arguments for return of the GOB Credits. Because Bonavista did not obtain Spyglass's approval for incurring the costs (as required by the CO&O), and because Bonavista was not required by law to incur the costs and also refused to meet with Spyglass as required by the governing agreements, the costs were improperly charged and Bonavista was responsible for the whole amount. Because it obtained the Abandonment Costs Order, Bonavista's remedy was limited to pursuit of the Order's enforcement and not other remedies. Bonavista was not entitled to exercise set-off rights against Spyglass, because the costs arose under one agreement and the credits another agreement; the costs were required to be ascertainable in order for set-off to be available; and the GOB Credits were not "intimately connected" to the costs. Each of the above arguments was rejected by the Court, and Bonavista's set-off was approved. The DecisionFirst, the Court concluded that the requirement to comply with the Decommissioning Plan trumped the requirement for unanimous Operating Committee approval of the operations, and while Bonavista may have been in breach of contract for not seeking Operating Committee approval, that did not mean that Spyglass was off the hook for its portion of the costs, because the costs were legally required to be borne by Bonavista. Second, the Court found that obtaining the Abandonment Costs Order did not preclude Bonavista from enforcing its other remedies, including exercising set-off rights. The Court found that the Abandonment Costs Order merely validated and allocated the abandonment costs and did not require Bonavista to give up its other remedies.Third, the Court assessed Bonavista's set-off right. There are three types of set-off under Alberta law Contractual set-off, where the contract itself provides set-off rights; Legal set-off, where there are offsetting debts and they are ascertainable; and Equitable set-off, where a court awards set-off, effectively because it would be manifestly unjust to allow one party to succeed on its claim while the other party is left to pay. In equitable set-off, the party claiming the remedy must arrive "with clean hands", having behaved appropriately. The Court held that the facts supported each of the types of set-off – a clean sweep for Bonavista. Contractual Set-off The set-off provisions in the CO&O and JOA created different set-off rights the CO&O only allowed set-off of costs against amounts due "pursuant to this Agreement", while the 1990 CAPL allows set-off of amounts arising "under this Operating procedure or under any other Agreement" between the parties. The GOB Credits arose under the JOA, while the decommissioning and abandonment costs were borne under the CO&O, and hence the Receiver argued that contractual set-off was not permitted because the CO&O only allowed Bonavista to set off revenues that arose pursuant to the CO&O. The Court found that, while the project was governed by a number of agreements each having its unique characteristics, the agreements in the aggregate should be interpreted as permitting netting of costs against credits to promote business efficacy, and therefore it awarded contractual set-off. The Court held that "it would be inimical to the interests of the parties whose activities are governed by a number of agreements, but for whom a single joint account is maintained, to deny the operator the ability to net amounts coming into the joint account under some of those agreements against amounts payable from the joint account under other agreements. In my view, such netting should be permissible when various revenues and expenses, accounted for through the use of the joint account, reflected integrated operations".3Legal Set-off Legal set-off requires that obligations existing between the two parties must be debts, the amounts of which can be ascertained with certainty; and they must be cross-claims between the same parties and in the same right. The Receiver argued that the costs did not crystallize until the AER issued the Abandonment Costs Order, which was after the date of receivership, and hence Bonavista was not entitled to exercise legal set-off. The Court disagreed with the Receiver's position, finding that the amounts owing by Spyglass were ascertainable through the delivery of the monthly JIBs by Bonavista and that such amounts crystallized when the time period for them to be paid expired –the Court therefore also awarded legal set-off.Equitable set-off In order to be awarded equitable set-off, Bonavista was required to show that the claims were "so clearly connected" that it would be manifestly unjust to enforce payment without considering the cross-claim. Bonavista argued that the costs were a direct result of the shut-in order, and the shut-in order led directly to the GOB Credits. Thus, the same order gave rise to the requirements to incur the costs, and the GOB Credits; and further that it would aksi require the costs to be paid without the corresponding credit. The Court agreed and awarded equitable set-off. ImplicationsThis case is significant for a number of reasons. First, the Court's characterization of the CO&O and the JOA in the "aggregate" to allow for contractual set-off is an expansive one. It looked at the entire business relationship of the parties rather than parsing the specific terms of the underlying contracts, and as the parties had operated with one joint account, found that their business relationship allowed for the set-off terms of the contracts to be read together. Operators that have resisted setting off costs because the governing agreements do not allow it should be rejoicing because the Court indicated it is prepared to look at the whole business relationship, including whether one joint account was maintained for the project, to determine whether contractual set-off is available. A less generous court might have found that because the CO&O only permitted set-off of costs against those revenues arising "under this Agreement", and not "under this Agreement and any other agreement between the parties", it would not grant contractual set-off, as the GOB Credits arose under the JOA and not the CO&O. Drafting parties should ensure that their agreements contain this broader set-off language, but this case may provide some protection if the agreements do not. Second, the Court's award of equitable set-off is a bit of a surprise. A party coming to a court looking for an equitable remedy is required to come with "clean hands". The Court could easily have viewed Bonavista's issuance of 35 AFE's of less than $25,000.00, and its refusal to hold Operating Committee meetings, as conduct which would preclude the award of an equitable remedy. Third, the Court allowed the exercise of set-off rights against the Receiver. While set-off against a Receiver is permissible where the constituent elements can be established, courts examine set-off more closely in insolvency situations. This is because the effect of a set-off is to give one creditor a priority claim in the insolvency, as the whole set-off claim is paid in advance of other creditors. Finally, the Court also found that the Receiver acted as a "real litigator" in this application as Spyglass had not commenced a claim prior to the receivership and did not challenge Bonavista's netting of the costs in the JIBs. As a result, the Court awarded costs against the Receiver, a relatively rare occurrence. This costs award may act as a deterrent against receivers aggressively pursuing future claims on behalf of a debtor if the debtor itself elected not to bring the claim prior to the receivership. 1Though the CAPL Operating Procedure uses the term "joint-operator", we have for ease used "non-operator" instead. 2Bonavista may have done so to avoid the requirement of AFE approval set out in the JOA. The Operator could spend up to $25,000 without issuing an AFE to the Joint-Operator. 3 Decision, para. 80.<p style="text-align:justify;">​<img class="ms-rtePosition-1" alt="Pipeline-original" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/INDUS_GRE%2022-iStock_000006021237Large.jpg" style="margin:5px;width:250px;" />Set-off is one of the most effective and powerful remedies available to a creditor, and operators under oil and gas operating agreements find it especially useful, in that the operator can set off revenues or other funds or credits it receives as operator against amounts owed. Further, the operator's set-off rights are usually honoured in an insolvency. </p><p style="text-align:justify;">In <a href="https://www.canlii.org/en/ab/abqb/doc/2017/2017abqb504/2017abqb504.html?resultIndex=1"><em>Spyglass Resources Corp v. Bonavista Energy Corporation, </em>2017 ABQB 504</a>, the Alberta Court of Queen's Bench opened the door to expanding the scope of set-off, as it approved the operator's setting-off of joint royalty credits it received against the non-operator's<sup>1</sup> share of abandonment and decommissioning costs. Even though the credits arose under one contract and the costs under another – the Court did so in the name of business efficacy.  Further, the Court found that set-off was effective against the non-operator's receiver and also awarded costs against the receiver for the application challenging the set-off.  These developments in the law of set-off are sure to influence the actions of creditors and debtors alike, both in the oil and gas industry and elsewhere. </p><p style="text-align:justify;">To read the full case summary please <a href="https://www.canlii.org/en/ab/abqb/doc/2017/2017abqb504/2017abqb504.html?resultIndex=1" target="_blank">click here. </a></p><p style="text-align:justify;"><strong>Factual Background</strong></p><p style="text-align:justify;">Bonavista Energy Corporation ("<strong>Bonavista</strong>") operated a series of wells, compressors, pipelines and a sour gas plant in the West Liege region of Alberta, for itself and Spyglass Resources Corp. ("<strong>Spyglass</strong>"). In accordance with its practice, Bonavista used one joint account to administer all the revenues and costs for the project, notwithstanding that the lands and facilities were each governed by different operating procedures and accounting procedures. The main project agreements were a Construction, Ownership and Operating Agreement for the plant (the "<strong>CO&O</strong>") and a Joint Operating Agreement (the "<strong>JOA</strong>") for the wells that incorporated a 1990 CAPL Operating Procedure (the "<strong>1990 CAPL</strong>").   As part of its original regulatory approval for the project from the Alberta Energy Regulator (the "<strong>AER</strong>"), Bonavista was required to prepare a Decommissioning and Land Reclamation Plan in case the plant stopped operating.  </p><p style="text-align:justify;">The wells produced gas that overlaid bitumen deposits and continued production of the gas wells could have reduced the pressure in the bitumen reservoir such that the reservoir's viability could have been compromised. In late 2011, the AER issued a permanent shut-in order of the wells, and as a result Bonavista and Spyglass were entitled to gas-over-bitumen royalty credits (the "<strong>GOB Credits</strong>"). Due to the wells being shut-in, the plant also ceased production and Bonavista began decommissioning the plant and abandoning the pipelines, in accordance with the Decommissioning Plan. </p><p style="text-align:justify;">The CO&O required that where there were two facility owners, all Operating Committee votes were required to be unanimous, and also required the Operator to clean up and restore the site for the joint account, even without Operating Committee approval. Beginning in late 2013, Bonavista began issuing mail ballots and accompanying AFE's for plant decommissioning and pipeline abandonment, including one set of 35 AFE's, each with a face amount of less than $25,000.00.<sup>2</sup> Each month, Bonavista issued Spyglass one joint interest bill (a "<strong>JIB</strong>") for the joint account detailing each cost borne by the project and GOB Credit (again, irrespective of the agreement pursuant to which the cost arose), and netted the GOB Credit against Spyglass's share of costs. Spyglass disputed the costs and did not pay the balance owing. During this time, Bonavista also ignored Spyglass's ongoing requests for a meeting to discuss the expenditures, and did not hold Operating Committee meetings to discuss the matter. </p><p style="text-align:justify;">Spyglass entered receivership in November 2015. Spyglass's receiver, Ernst & Young (the "<strong>Receiver</strong>") demanded the return of Spyglass's interest in the GOB Credits that had been netted against Spyglass's share of costs – prior to the receivership, Spyglass had not made this demand. Bonavista refused to pay, arguing it was entitled to set the GOB Credits off against Spyglass's unpaid costs.</p><p style="text-align:justify;">Bonavista also separately applied to the AER to determine the abandonment costs and to allocate to Spyglass its proportionate share. The AER issued an Abandonment Costs Order against Spyglass in June 2016, setting the decommissioning and abandonment costs at approximately $900,000 plus penalties.</p><p style="text-align:justify;">The Receiver advanced three arguments for return of the GOB Credits. </p><ol style="text-align:justify;"><li>Because Bonavista did not obtain Spyglass's approval for incurring the costs (as required by the CO&O), and because Bonavista was not required by law to incur the costs and also refused to meet with Spyglass as required by the governing agreements, the costs were improperly charged and Bonavista was responsible for the whole amount.</li><li>Because it obtained the Abandonment Costs Order, Bonavista's remedy was limited to pursuit of the Order's enforcement and not other remedies. </li><li>Bonavista was not entitled to exercise set-off rights against Spyglass, because:</li><ol><li>the costs arose under one agreement and the credits another agreement; </li><li>the costs were required to be ascertainable in order for set-off to be available; and</li><li>the GOB Credits were not "intimately connected" to the costs. </li></ol></ol><p style="text-align:justify;">Each of the above arguments was rejected by the Court, and Bonavista's set-off was approved. </p><p style="text-align:justify;"><strong>The Decision</strong></p><p style="text-align:justify;">First, the Court concluded that the requirement to comply with the Decommissioning Plan trumped the requirement for unanimous Operating Committee approval of the operations, and while Bonavista may have been in breach of contract for not seeking Operating Committee approval, that did not mean that Spyglass was off the hook for its portion of the costs, because the costs were legally required to be borne by Bonavista. </p><p style="text-align:justify;">Second, the Court found that obtaining the Abandonment Costs Order did not preclude Bonavista from enforcing its other remedies, including exercising set-off rights. The Court found that the Abandonment Costs Order merely validated and allocated the abandonment costs and did not require Bonavista to give up its other remedies.</p><p style="text-align:justify;">Third, the Court assessed Bonavista's set-off right. There are three types of set-off under Alberta law:</p><ol style="text-align:justify;"><li> Contractual set-off, where the contract itself provides set-off rights;</li><li>Legal set-off, where there are offsetting debts and they are ascertainable; and </li><li>Equitable set-off, where a court awards set-off, effectively because it would be manifestly unjust to allow one party to succeed on its claim while the other party is left to pay. In equitable set-off, the party claiming the remedy must arrive "with clean hands", having behaved appropriately. </li></ol><p style="text-align:justify;">The Court held that the facts supported each of the types of set-off – a clean sweep for Bonavista. </p><p style="text-align:justify;"><strong>Contractual Set-off: </strong>The set-off provisions in the CO&O and JOA created different set-off rights: the CO&O only allowed set-off of costs against amounts due "pursuant to this Agreement", while the 1990 CAPL  allows set-off of amounts arising "under this Operating procedure or under any other Agreement" between the parties. The GOB Credits arose under the JOA, while the decommissioning and abandonment costs were borne under the CO&O, and hence the Receiver argued that contractual set-off was not permitted because the CO&O only allowed Bonavista to set off revenues that arose pursuant to the CO&O. </p><p style="text-align:justify;">The Court found that, while the project was governed by a number of agreements each having its unique characteristics, the agreements in the aggregate should be interpreted as permitting netting of costs against credits to promote business efficacy, and therefore it awarded contractual set-off. The Court held that "it would be inimical to the interests of the parties whose activities are governed by a number of agreements, but for whom a single joint account is maintained, to deny the operator the ability to net amounts coming into the joint account under some of those agreements against amounts payable from the joint account under other agreements. In my view, such netting should be permissible when various revenues and expenses, accounted for through the use of the joint account, reflected integrated operations".<sup>3</sup></p><p style="text-align:justify;"><strong>Legal Set-off: </strong>Legal set-off requires that obligations existing between the two parties must be debts, the amounts of which can be ascertained with certainty; and they must be cross-claims between the same parties and in the same right. The Receiver argued that the costs did not crystallize until the AER issued the Abandonment Costs Order, which was after the date of receivership, and hence Bonavista was not entitled to exercise legal set-off. The Court disagreed with the Receiver's position, finding that the amounts owing by Spyglass were ascertainable through the delivery of the monthly JIBs by Bonavista and that such amounts crystallized when the time period for them to be paid expired –the Court therefore also awarded legal set-off.</p><p style="text-align:justify;"><strong>Equitable set-off</strong>: In order to be awarded equitable set-off, Bonavista was required to show that the claims were "so clearly connected" that it would be manifestly unjust to enforce payment without considering the cross-claim. Bonavista argued that the costs were a direct result of the shut-in order, and the shut-in order led directly to the GOB Credits. Thus, the same order gave rise to the requirements to incur the costs, and the GOB Credits; and further that it would aksi require the costs to be paid without the corresponding credit. The Court agreed and awarded equitable set-off.   </p><p style="text-align:justify;"><strong>Implications</strong></p><p style="text-align:justify;">This case is significant for a number of reasons. </p><p style="text-align:justify;">First, the Court's characterization of the CO&O and the JOA in the "aggregate" to allow for contractual set-off is an expansive one. It looked at the entire business relationship of the parties rather than parsing the specific terms of the underlying contracts, and as the parties had operated with one joint account, found that their business relationship allowed for the set-off terms of the contracts to be read together. Operators that have resisted setting off costs because the governing agreements do not allow it should be rejoicing because the Court indicated it is prepared to look at the whole business relationship, including whether one joint account was maintained for the project, to determine whether contractual set-off is available. A less generous court might have found that because the CO&O only permitted set-off of costs against those revenues arising "under this Agreement", and not "under this Agreement and any other agreement between the parties", it would not grant contractual set-off, as the GOB Credits arose under the JOA and not the CO&O. Drafting parties should ensure that their agreements contain this broader set-off language, but this case may provide some protection if the agreements do not. </p><p style="text-align:justify;">Second, the Court's award of equitable set-off is a bit of a surprise. A party coming to a court looking for an equitable remedy is required to come with "clean hands". The Court could easily have viewed Bonavista's issuance of 35 AFE's of less than $25,000.00, and its refusal to hold Operating Committee meetings, as conduct which would preclude the award of an equitable remedy. </p><p style="text-align:justify;">Third, the Court allowed the exercise of set-off rights against the Receiver. While set-off against a Receiver is permissible where the constituent elements can be established, courts examine set-off more closely in insolvency situations. This is because the effect of a set-off is to give one creditor a priority claim in the insolvency, as the whole set-off claim is paid in advance of other creditors. </p><p style="text-align:justify;">Finally, the Court also found that the Receiver acted as a "real litigator" in this application as Spyglass had not commenced a claim prior to the receivership and did not challenge Bonavista's netting of the costs in the JIBs. As a result, the Court awarded costs against the Receiver, a relatively rare occurrence. This costs award may act as a deterrent against receivers aggressively pursuing future claims on behalf of a debtor if the debtor itself elected not to bring the claim prior to the receivership. </p><p style="text-align:justify;"><span style="font-size:0.6em;"><sup>1</sup><em><sub><font size="2">Though the CAPL Operating Procedure uses the term "joint-operator", we have for ease used "non-operator" instead. </font></sub></em><br></span><span style="font-size:0.6em;"><sup>2</sup><em><sub><font size="2">Bonavista may have done so to avoid the requirement of AFE approval set out in the JOA. The Operator could spend up to $25,000 without issuing an AFE to the Joint-Operator. </font></sub></em><br></span><span style="font-size:0.6em;"><sup><em>3 </em></sup><sub><font size="2"><em>Decision, para. 80.</em></font></sub></span></p>9/5/2017 4:00:00 AM2017-09-05T04:00:00ZTrue1float;#9.00000000000000float;#2017.00000000000string;#Septemberfloat;#201709.000000000GP0|#6ed29997-7c09-433d-9f4f-e4bb2ce1b29b;L0|#06ed29997-7c09-433d-9f4f-e4bb2ce1b29b|Litigation;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#ce7f0211-1ba9-4936-92ec-7c7af811db0f;L0|#0ce7f0211-1ba9-4936-92ec-7c7af811db0f|Insolvency;GP0|#60a6f187-f0e0-4c65-a06c-b97febf6542e;L0|#060a6f187-f0e0-4c65-a06c-b97febf6542e|Oil & GasLitigation;Insolvency;Oil & Gas
Court of Appeal Denies Application for Stay of Enforcement in Redwater Decision Court of Appeal Denies Application for Stay of Enforcement in Redwater Decision 333BLG Blog PostMiles Pittman;Jessica Cameron;Curtis Fawcettmpittman@blg.com | Miles Pittman | 693A30232E777C626C6763616E6164615C6D706974746D616E i:0#.w|blgcanada\mpittman;jcameron@blg.com | Jessica Cameron | 693A30232E777C626C6763616E6164615C6A63616D65726F6E i:0#.w|blgcanada\jcameron;cfawcett@blg.com | Curtis Fawcett | 693A30232E777C626C6763616E6164615C6366617763657474 i:0#.w|blgcanada\cfawcett​On August 30, 2017, the Alberta Court of Appeal denied an application for a stay of enforcement of its majority decision in Orphan Well Association v. Grant Thornton Limited 2017 ABCA 124 (a.k.a. the "Redwater decision") pending appeal to the Supreme Court of Canada. The Alberta Energy Regulator (the "AER") and the Orphan Well Association (the "OWA") applied to have the decision stayed, on the basis that the effect of this decision, and the trial decision of Wittmann CJ in Redwater Energy Corporation (Re), 2016 ABQB 278, permit receivers and trustees in bankruptcy to continue disclaiming uneconomic assets, and they also prohibit the AER from considering an insolvent debtor's licensee management rating ("LMR") in its determination of whether to allow license transfers of the debtor's AER licensed assets. The AER and the OWA argued that the decisions result in disclaimed assets becoming the problem of the AER and the OWA, and thus the Alberta taxpayer, which given themselves of insolvencies in the upstream oil and gas business, is a large issue for the AER and the OWA. The precedential value of the Redwater decision on the insolvency process is enormous, and the AER and OWA were seeking a stay of the Redwater precedent, not of the actual order in the Redwater case. The decision denying the stay was emphatic, with Wakeling JA stating that a contrary outcome would be "heretical in nature" to stare decisis, the legal requirement that courts must follow precedents. [Read more...] <p style="text-align:justify;">​<img class="ms-rtePosition-1" alt="INDUS-BUSI 326-75X75.jpg" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/INDUS-BUSI%20326-75X75.jpg" style="margin:5px;width:91px;" />On August 30, 2017, the Alberta Court of Appeal denied an application for a stay of enforcement of its majority decision in <em>Orphan Well Association v. Grant Thornton Limited </em>2017 ABCA 124<em> </em>(a.k.a. the "<em>Redwater </em>decision") pending appeal to the Supreme Court of Canada.  The Alberta Energy Regulator (the "AER") and the Orphan Well Association (the "OWA") applied to have the decision stayed, on the basis that the effect of this decision, and the trial decision of Wittmann CJ in <a href="https://www.canlii.org/en/ab/abca/doc/2017/2017abca278/2017abca278.html?resultIndex=1" target="_blank"><em>Redwater Energy Corporation (Re), </em>2016 ABQB 278, </a>permit receivers and trustees in bankruptcy to continue disclaiming uneconomic assets, and they also prohibit the AER from considering an insolvent debtor's licensee management rating ("LMR") in its determination of whether to allow license transfers of the debtor's AER licensed assets. The AER and the OWA argued that the decisions result in disclaimed assets becoming the problem of the AER and the OWA, and thus the Alberta taxpayer, which given themselves of insolvencies in the upstream oil and gas business, is a large issue for the AER and the OWA. The precedential value of the <em>Redwater </em>decision on the insolvency process is enormous, and the AER and OWA were seeking a stay of the <em>Redwater </em>precedent, not of the actual order in the <em>Redwater </em>case. The decision denying the stay was emphatic, with Wakeling JA stating that a contrary outcome would be "heretical in nature" to <em>stare decisis, </em>the legal requirement that courts must follow precedents. </p><p>[<a href="/energy/Pages/Post.aspx?PID=333"><em>Read more</em></a>...] </p> ​BACKGROUNDOn August 30, 2017, the Alberta Court of Appeal denied an application for a stay of enforcement of its majority decision in Orphan Well Association v. Grant Thornton Limited 2017 ABCA 124 (a.k.a. the "Redwater decision") pending appeal to the Supreme Court of Canada. The Alberta Energy Regulator (the "AER") and the Orphan Well Association (the "OWA") applied to have the decision stayed, on the basis that the effect of this decision, and the trial decision of Wittmann CJ in Redwater Energy Corporation (Re), 2016 ABQB 278, permit receivers and trustees in bankruptcy to continue disclaiming uneconomic assets, and they also prohibit the AER from considering an insolvent debtor's licensee management rating ("LMR") in its determination of whether to allow license transfers of the debtor's AER licensed assets. The AER and the OWA argued that the decisions result in disclaimed assets becoming the problem of the AER and the OWA, and thus the Alberta taxpayer, which given themselves of insolvencies in the upstream oil and gas business, is a large issue for the AER and the OWA. The precedential value of the Redwater decision on the insolvency process is enormous, and the AER and OWA were seeking a stay of the Redwater precedent, not of the actual order in the Redwater case. The decision denying the stay was emphatic, with Wakeling JA stating that a contrary outcome would be "heretical in nature" to stare decisis, the legal requirement that courts must follow precedents. BLG's full summary and analysis of the Court of Appeal decision can be read here. BLG's analysis of the trial decision of Wittmann CJ can be read here. DECISIONAt issue was whether the Court of Appeal could in fact grant the kind of stay sought by the AER and the OWA – Wakeling JA determined that he could not grant the stay because there was nothing to stay. He reasoned that neither the decision of Wittmann CJ at trial, nor the Court of Appeal's dismissal of the appeal, compelled or authorized a party to the proceedings or any third party to do anything, as both decisions were declaratory in nature. Therefore a stay was unnecessary.The Court further held that there was no principled basis that justified the stay of anything occurring outside the Redwater litigation, and that the rights of other litigants having the same or similar facts would be subject to the same principles set out in the Redwater decisions, unless the Supreme Court of Canada granted leave to appeal and allowed the appeal. Wakeling JA was crystal clear that any other result would be contrary to the established judicial and legal principles of Canada – just because the decision has wide-ranging effects doesn't mean that its principles shouldn't be applied.The Court did not rule out the possibility of the AER seeking a stay limited to the parties to this particular litigation; however, as the Receiver had already sold Redwater Energy's assets pursuant to the decision of the lower court, there was again nothing to stay. IMPLICATIONSIn our view, a successful application by the AER and OWA was unlikely, irrespective of the implications for the insolvency and energy industries, in part because had they been successful, the implications would have been just as wide-ranging on how precedents are relied upon in Canadian law. The ability of trustees and receivers to disclaim assets, the inability of the AER to impose financial conditions on the transfer of a debtor's AER licensed property, be it through the posting of security or imposition of LMR requirements, and the priority of secured creditors over the AER's claims therefore remains. These do not appear to be changing until either the Supreme Court reaches a different result, or the federal government amends the Bankruptcy and Insolvency Act to address the matter. While the AER has filed for leave to appeal to the Supreme Court, leave has yet to be granted, and it is reasonable to expect that if leave to appeal is granted, a decision of the Supreme Court will not be rendered until well into 2019.BLG has published extensively on the impacts of the Redwater decision, which can be found here Where do we go from here? Alberta Court approves renouncement of AER-licensed assets by Trustees and Receivers to avoid monetary environmental obligations, Shifting environmental liabilities after Redwater decision.<p>​<img class="ms-rtePosition-1" alt="INDUS-BUSI 326-bigstock-Stack-of-white-papers-62813404 copy.jpg" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/INDUS-BUSI%20326-bigstock-Stack-of-white-papers-62813404%20copy.jpg" style="margin:5px;width:300px;height:198px;" /><strong>BACKGROUND</strong></p><p style="text-align:justify;">On August 30, 2017, the Alberta Court of Appeal denied an application for a stay of enforcement of its majority decision in <em>Orphan Well Association v. Grant Thornton Limited </em>2017 ABCA 124<em> </em>(a.k.a. the "<em>Redwater </em>decision") pending appeal to the Supreme Court of Canada.  The Alberta Energy Regulator (the "AER") and the Orphan Well Association (the "OWA") applied to have the decision stayed, on the basis that the effect of this decision, and the trial decision of Wittmann CJ in <a href="https://www.canlii.org/en/ab/abca/doc/2017/2017abca278/2017abca278.html?resultIndex=1" target="_blank"><em>Redwater Energy Corporation (Re), </em>2016 ABQB 278, </a>permit receivers and trustees in bankruptcy to continue disclaiming uneconomic assets, and they also prohibit the AER from considering an insolvent debtor's licensee management rating ("LMR") in its determination of whether to allow license transfers of the debtor's AER licensed assets. The AER and the OWA argued that the decisions result in disclaimed assets becoming the problem of the AER and the OWA, and thus the Alberta taxpayer, which given themselves of insolvencies in the upstream oil and gas business, is a large issue for the AER and the OWA. The precedential value of the <em>Redwater </em>decision on the insolvency process is enormous, and the AER and OWA were seeking a stay of the <em>Redwater </em>precedent, not of the actual order in the <em>Redwater </em>case. The decision denying the stay was emphatic, with Wakeling JA stating that a contrary outcome would be "heretical in nature" to <em>stare decisis, </em>the legal requirement that courts must follow precedents. </p><p style="text-align:justify;">BLG's full summary and analysis of the Court of Appeal decision can be <a href="/energy/Pages/Post.aspx?PID=310" target="_blank">read here</a>. BLG's analysis of the trial decision of Wittmann CJ can be <a href="/energy/Pages/Post.aspx?PID=208" target="_blank">read here</a>.</p><p><strong>DECISION</strong></p><p style="text-align:justify;">At issue was whether the Court of Appeal could in fact grant the kind of stay sought by the AER and the OWA – Wakeling JA determined that he could not grant the stay because there was nothing to stay. He reasoned that neither the decision of Wittmann CJ at trial, nor the Court of Appeal's dismissal of the appeal, compelled or authorized a party to the proceedings or any third party to do anything, as both decisions were declaratory in nature. Therefore a stay was unnecessary.</p><p style="text-align:justify;">The Court further held that there was no principled basis that justified the stay of anything occurring outside the Redwater litigation, and that the rights of other litigants having the same or similar facts would be subject to the same principles set out in the <em>Redwater </em>decisions<em>,</em> unless the Supreme Court of Canada granted leave to appeal and allowed the appeal. Wakeling JA was crystal clear that any other result would be contrary to the established judicial and legal principles of Canada – just because the decision has wide-ranging effects doesn't mean that its principles shouldn't be applied.</p><p style="text-align:justify;">The Court did not rule out the possibility of the AER seeking a stay limited to the parties to this particular litigation; however, as the Receiver had already sold Redwater Energy's assets pursuant to the decision of the lower court, there was again nothing to stay. </p><p><strong>IMPLICATIONS</strong></p><p style="text-align:justify;">In our view, a successful application by the AER and OWA was unlikely, irrespective of the implications for the insolvency and energy industries, in part because had they been successful, the implications would have been just as wide-ranging on how precedents are relied upon in Canadian law. The ability of trustees and receivers to disclaim assets, the inability of the AER to impose financial conditions on the transfer of a debtor's AER licensed property, be it through the posting of security or imposition of LMR requirements, and the priority of secured creditors over the AER's claims therefore remains. These do not appear to be changing until either the Supreme Court reaches a different result, or the federal government amends the <em>Bankruptcy and Insolvency Act</em> to address the matter.  While the AER has filed for leave to appeal to the Supreme Court, leave has yet to be granted, and it is reasonable to expect that if leave to appeal is granted, a decision of the Supreme Court will not be rendered until well into 2019.</p><p style="text-align:justify;">BLG has published extensively on the impacts of the Redwater decision, which can be found here: <a href="/energy/Pages/Post.aspx?PID=208" target="_blank"><em>Where do we go from here? Alberta Court approves renouncement of AER-licensed assets by Trustees and Receivers to avoid monetary environmental obligations</em></a>, <a href="http://blg.com/en/News-And-Publications/publication_4528" target="_blank"><em>Shifting environmental liabilities after Redwater decision.</em></a></p>9/1/2017 4:00:00 AM2017-09-01T04:00:00ZTrue1float;#9.00000000000000float;#2017.00000000000string;#Septemberfloat;#201709.000000000GP0|#a8d93e98-a569-4c7f-ac81-5c92b85685cd;L0|#0a8d93e98-a569-4c7f-ac81-5c92b85685cd|Appeals;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#5f2600c5-ac2f-4731-ab91-eb396c7c4c54;L0|#05f2600c5-ac2f-4731-ab91-eb396c7c4c54|Bankruptcy and Insolvency;GP0|#0cf193a5-1564-449f-827a-d442b5bcbc51;L0|#00cf193a5-1564-449f-827a-d442b5bcbc51|Director/Officer Liability;GP0|#80272199-c96f-4e96-a610-ee5c8caae603;L0|#080272199-c96f-4e96-a610-ee5c8caae603|Environment;GP0|#60a6f187-f0e0-4c65-a06c-b97febf6542e;L0|#060a6f187-f0e0-4c65-a06c-b97febf6542e|Oil & GasAppeals;Bankruptcy and Insolvency;Director/Officer Liability;Environment;Oil & Gas
Federal or Provincial Regulation? One of the Many Challenges Facing Energy ProjectsFederal or Provincial Regulation? One of the Many Challenges Facing Energy Projects332BLG Blog PostMiles Pittman;Michael Gabermpittman@blg.com | Miles Pittman | 693A30232E777C626C6763616E6164615C6D706974746D616E i:0#.w|blgcanada\mpittman;mgaber@blg.com | Michael Gaber | 693A30232E777C626C6763616E6164615C6D6761626572 i:0#.w|blgcanada\mgaber​From the small town of Smithers, British Columbia, Michael Sawyer applied to the National Energy Board (the "NEB") requesting it to determine and issue a declaratory order that the Prince Rupert Gas Transmission Project (the "Project") was properly within federal jurisdiction, and therefore subject to regulation by the NEB. The NEB found that Sawyer failed to demonstrate on a prima facie basis that the Project was a federal work or undertaking and therefore not subject to NEB jurisdiction. Sawyer applied for judicial review of the NEB's decision and the Federal Court of Appeal unanimously granted Sawyer's appeal, remitting Sawyer's original application back to the NEB for redetermination.The judgment of Sawyer v Transcanada Pipeline Limited, 2017 FCA 159, 2017 CarswellNat 3405 [Sawyer v Transcanada] is interesting for a number of reasons the facts demonstrate how significantly an individual may affect regulatory processes; the facts demonstrate the difficulties facing energy projects that are potentially subject to both provincial and federal regulation; andit provides a useful overview of how a court will likely consider, and how a regulatory tribunal should consider, whether or not a project is a federal work or undertaking.[Read more...]<p style="text-align:justify;">​<img class="ms-rtePosition-1" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Pipeline1Small.jpg" alt="" style="margin:5px;width:100px;height:67px;" />From the small town of Smithers, British Columbia, Michael Sawyer applied to the National Energy Board (the "NEB") requesting it to determine and issue a declaratory order that the Prince Rupert Gas Transmission Project (the "Project") was properly within federal jurisdiction, and therefore subject to regulation by the NEB. The NEB found that Sawyer failed to demonstrate on a <em>prima facie</em> basis that the Project was a federal work or undertaking and therefore not subject to NEB jurisdiction. Sawyer applied for judicial review of the NEB's decision and the Federal Court of Appeal unanimously granted Sawyer's appeal, remitting Sawyer's original application back to the NEB for redetermination.</p><p style="text-align:justify;">The judgment of <em>Sawyer v Transcanada Pipeline Limited</em>, 2017 FCA 159, 2017 CarswellNat 3405 [<em>Sawyer v Transcanada</em>] is interesting for a number of reasons:</p><ol style="text-align:justify;"><li>the facts demonstrate how significantly an individual may affect regulatory processes;</li><li>the facts demonstrate the difficulties facing energy projects that are potentially subject to both provincial and federal regulation; and</li></ol><p style="text-align:justify;">it provides a useful overview of how a court will likely consider, and how a regulatory tribunal should consider, whether or not a project is a federal work or undertaking.</p><p style="text-align:justify;">[<a href="/energy/Pages/Post.aspx?PID=332"><em>Read more</em></a>...]</p>​BackgroundFrom the small town of Smithers, British Columbia, Michael Sawyer applied to the National Energy Board (the "NEB") requesting it to determine and issue a declaratory order that the Prince Rupert Gas Transmission Project (the "Project") was properly within federal jurisdiction, and therefore subject to regulation by the NEB. The NEB found that Sawyer failed to demonstrate on a prima facie basis that the Project was a federal work or undertaking and therefore not subject to NEB jurisdiction. Sawyer applied for judicial review of the NEB's decision and the Federal Court of Appeal unanimously granted Sawyer's appeal, remitting Sawyer's original application back to the NEB for redetermination.The judgment of Sawyer v Transcanada Pipeline Limited, 2017 FCA 159, 2017 CarswellNat 3405 [Sawyer v Transcanada] is interesting for a number of reasons the facts demonstrate how significantly an individual may affect regulatory processes; the facts demonstrate the difficulties facing energy projects that are potentially subject to both provincial and federal regulation; and it provides a useful overview of how a court will likely consider, and how a regulatory tribunal should consider, whether or not a project is a federal work or undertaking.The NEB's DecisionStandingSawyer's application was preliminary. Subsection 12(1) of the National Energy Board Act, RSC 1985, c N-7 (the "Act") grants the NEB full and exclusive jurisdiction to determine whether an inquiry is required to determine if the NEB has jurisdiction over a given project. Accordingly, the NEB held it was not necessary to apply a standing test for Sawyer at this preliminary stage. The NEB noted it "would not be in the public interest to limit" the NEB's discretion to take action under section 12 of the Act. In short, any individual may be able to apply to the NEB to argue that the NEB should inquire into its jurisdiction over a proposed project.DecisionThe NEB engaged in a constitutional analysis by opening with reference to subsection 91(29) and 92(10)(a) of the Constitution Act (1867). The NEB noted these sections govern jurisdiction over works and undertakings, such as pipelines. Further, they stated the judgment of Westcoast Energy Inc v Canada (National Energy Board), [1998] 1 SCR 322, 156 DLR (4th) 456 [Westcoast Energy] remains the applicable law in regards to whether or not a pipeline falls under federal jurisdiction.The NEB stated Sawyer was required to establish a prima facie case to demonstrate that the NEB should hold an inquiry into its jurisdiction over the Project. The NEB held a prima facie case "is one that is made out at first appearance, until contradicted and overcome by other evidence." In its short reasons, the NEB concluded Sawyer failed to establish a prima facie case that the Project was a federal work or undertaking.The Federal Court of Appeal's DecisionJustice Rennie, writing for a unanimous court, remitted Sawyer's application to the NEB for redetermination. In doing so, he noted the NEB "defined the public interest wholly in terms of constitutionality" (para 7), and therefore the NEB's decision attracted the correctness standard of review. The correctness standard demands that the NEB's decision will only stand if it is correct, and not simply if it is reasonable. The Federal Court of Appeal held the NEB erred in its application of the prima facie test and in its constitutional analysis (para 12). The judgment cautioned that it took no actual position on whether or not the Project was subject to the NEB's jurisdiction (para 73).AnalysisThe Prima Facie TestJustice Rennie reaffirmed a work or undertaking may become subject to federal regulation if it satisfies either test from Westcoast Energy. However, at the preliminary stage, Sawyer only had to establish a prima facie case that the Project should be subject to federal jurisdiction. A prima facie test only asks only whether an arguable case has been established (para 27). However, the NEB erred as it "did not ask whether an arguable case had been made out – it answered the underlying question" (para 28).The Constitutional AnalysisWith reference to the law established in Westcoast Energy, a pipeline may be a federal work or undertaking where (paras 41, 42) the local (provincial) work or undertaking is part of a federal work or undertaking in the sense of being functionally integrated and subject to common management, control, and direction [Westcoast Energy, para 49]; or the local work or undertaking is essential, vital, and integral to a federal work or undertaking [Westcoast Energy, para 46].Justice Rennie noted three issues in the NEB's constitutional analysis and application of Westcoast Energy. First, the NEB determined the Project was "functionally different" from the federal works it connected to. Justice Rennie corrected the analysis, emphasizing that the consideration is whether the parts of the Project are functionally integrated. One must ask how the parts work together and for what purpose (para 44). The NEB failed to define the relationship between the Project and the federal works "[t]he Board looked at where the pipeline was, and did not ask what it did" (para 47). Examining this relationship between works involves a holistic analysis, and the NEB failed to consider the "symbiotic relationship" between the Project and what it connected to.The second issue related to how the NEB focused on the commercial and billing relationship of the Project rather than the operation the Project actually performs. The NEB was required to go further and examine the inter-relationship between the activities and services of the Project in order to determine if they had a common direction and purpose. This would suggest they form a single undertaking (para 63). In sum, a mere examination of the commercial relationship will not suffice.The third issue related to the common management, control, and direction of the works. The NEB held the Project and other works were managed by different teams but did not elaborate further. There was significant evidence regarding the management, control, and direction of the works that the NEB did not address. Justice Rennie therefore inferred that the NEB did not understand the test. It was not how the NEB handled the evidence, but that it appeared to not consider a significant portion of evidence before it.Finally, Justice Rennie emphasized that substance trumps form, and one should not simply examine the "commercial costume worn by the entities involved" (para 68; quoting Alberta Government Telephones v Canadian Radio-Television & Telecommunications Commission, [1989] 2 SCR 225 at para 87, 61 DLR (4th) 193). The NEB was to answer whether or not the Project and the works or undertakings it integrated with were subject to the common management, control, and direction of Transcanada Pipeline Limited. There was significant evidence before the NEB to suggest Transcanada Pipeline Limited had common management, control, and direction (para 70), but the NEB did not address it.ConclusionSawyer v Transcanada reaffirms the test established in Westcoast Energy as to whether or not a work or undertaking will be subject to federal jurisdiction. However, in order for the test to properly be applied, a tribunal or court must examine the functional integration of the relevant works or undertakings, and this requires a holistic analysis. Where a local work is functionally integrated into a federal work, it is more likely the local work will fall under federal jurisdiction; examine the operation of the work or undertaking as it relates to other works and not simply consider their commercial relationship. Where a common direction and purpose exist amongst the separate works, it is more likely the local work will fall under federal jurisdiction; and examine the substance, not the form, of the management, control, and directing authority of the works. Where, in substance, the works are managed, controlled, or directed by the same authority, and that authority is subject to federal jurisdiction, it is more likely the local work will fall under federal jurisdiction.Sawyer v Transcanada exemplifies the regulatory complexities facing modern energy projects and underscores how significantly a single individual may influence the regulatory process. We will blog about any further developments, as the NEB determines Sawyer's application following the guidance provided by the Federal Court of Appeal.<p style="text-align:justify;">​<strong><img class="ms-rtePosition-1" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Pipeline1Small.jpg" alt="" style="margin:5px;width:300px;height:200px;" />Background</strong></p><p style="text-align:justify;">From the small town of Smithers, British Columbia, Michael Sawyer applied to the National Energy Board (the "NEB") requesting it to determine and issue a declaratory order that the Prince Rupert Gas Transmission Project (the "Project") was properly within federal jurisdiction, and therefore subject to regulation by the NEB. The NEB found that Sawyer failed to demonstrate on a <em>prima facie</em> basis that the Project was a federal work or undertaking and therefore not subject to NEB jurisdiction. Sawyer applied for judicial review of the NEB's decision and the Federal Court of Appeal unanimously granted Sawyer's appeal, remitting Sawyer's original application back to the NEB for redetermination.</p><p style="text-align:justify;">The judgment of <em>Sawyer v Transcanada Pipeline Limited</em>, 2017 FCA 159, 2017 CarswellNat 3405 [<em>Sawyer v Transcanada</em>] is interesting for a number of reasons:</p><ol style="text-align:justify;"><li>the facts demonstrate how significantly an individual may affect regulatory processes;</li><li>the facts demonstrate the difficulties facing energy projects that are potentially subject to both provincial and federal regulation; and</li><li>it provides a useful overview of how a court will likely consider, and how a regulatory tribunal should consider, whether or not a project is a federal work or undertaking.</li></ol><p style="text-align:justify;"><strong>The NEB's Decision</strong></p><p style="text-align:justify;"><em>Standing</em></p><p style="text-align:justify;">Sawyer's application was preliminary. Subsection 12(1) of the <em>National Energy Board Act</em>, RSC 1985, c N-7 (the "Act") grants the NEB full and exclusive jurisdiction to determine whether an inquiry is required to determine if the NEB has jurisdiction over a given project. Accordingly, the NEB held it was not necessary to apply a standing test for Sawyer at this preliminary stage. The NEB noted it "would not be in the public interest to limit" the NEB's discretion to take action under section 12 of the Act. In short, any individual may be able to apply to the NEB to argue that the NEB should inquire into its jurisdiction over a proposed project.</p><p style="text-align:justify;"><em>Decision</em></p><p style="text-align:justify;">The NEB engaged in a constitutional analysis by opening with reference to subsection 91(29) and 92(10)(a) of the <em>Constitution Act</em> (1867). The NEB noted these sections govern jurisdiction over works and undertakings, such as pipelines. Further, they stated the judgment of <em>Westcoast Energy Inc v Canada (National Energy Board)</em>, [1998] 1 SCR 322, 156 DLR (4th) 456 [<em>Westcoast Energy</em>] remains the applicable law in regards to whether or not a pipeline falls under federal jurisdiction.</p><p style="text-align:justify;">The NEB stated Sawyer was required to establish a <em>prima facie </em>case to demonstrate that the NEB should hold an inquiry into its jurisdiction over the Project. The NEB held a <em>prima facie </em>case "is one that is made out at first appearance, until contradicted and overcome by other evidence." In its short reasons, the NEB concluded Sawyer failed to establish a <em>prima facie</em> case that the Project was a federal work or undertaking.</p><p style="text-align:justify;"><strong>The Federal Court of Appeal's Decision</strong></p><p style="text-align:justify;">Justice Rennie, writing for a unanimous court, remitted Sawyer's application to the NEB for redetermination. In doing so, he noted the NEB "defined the public interest wholly in terms of constitutionality" (para 7), and therefore the NEB's decision attracted the correctness standard of review. The correctness standard demands that the NEB's decision will only stand if it is correct, and not simply if it is reasonable. The Federal Court of Appeal held the NEB erred in its application of the <em>prima facie </em>test and in its constitutional analysis (para 12). The judgment cautioned that it took no actual position on whether or not the Project was subject to the NEB's jurisdiction (para 73).</p><p style="text-align:justify;"><strong>Analysis</strong></p><p style="text-align:justify;"><em>The Prima Facie Test</em></p><p style="text-align:justify;">Justice Rennie reaffirmed a work or undertaking may become subject to federal regulation if it satisfies either test from <em>Westcoast Energy</em>. However, at the preliminary stage, Sawyer only had to establish a <em>prima facie</em> case that the Project should be subject to federal jurisdiction. A <em>prima facie</em> test only asks only whether an arguable case has been established (para 27). However, the NEB erred as it "did not ask whether an arguable case had been made out – it answered the underlying question" (para 28).</p><p style="text-align:justify;"><em>The Constitutional Analysis</em></p><p style="text-align:justify;">With reference to the law established in <em>Westcoast Energy</em>, a pipeline may be a federal work or undertaking where (paras 41, 42):</p><ol style="text-align:justify;"><li>the local (provincial) work or undertaking is part of a federal work or undertaking in the sense of being <span lang="EN-CA" style="text-decoration:underline;">functionally integrated</span> and <span lang="EN-CA" style="text-decoration:underline;">subject to common management, control, and direction</span> [<em>Westcoast Energy</em>, para 49]; or</li><li>the local work or undertaking is essential, vital, and integral to a federal work or undertaking [<em>Westcoast Energy</em>, para 46].</li></ol><p style="text-align:justify;">Justice Rennie noted three issues in the NEB's constitutional analysis and application of <em>Westcoast Energy</em>. First, the NEB determined the Project was "functionally different" from the federal works it connected to. Justice Rennie corrected the analysis, emphasizing that the consideration is whether the parts of the Project are functionally integrated. One must ask how the parts work together and for what purpose (para 44). The NEB failed to define the relationship between the Project and the federal works: "[t]he Board looked at where the pipeline was, and did not ask what it did" (para 47). Examining this relationship between works involves a holistic analysis, and the NEB failed to consider the "symbiotic relationship" between the Project and what it connected to.</p><p style="text-align:justify;">The second issue related to how the NEB focused on the commercial and billing relationship of the Project rather than the operation the Project actually performs. The NEB was required to go further and examine the inter-relationship between the activities and services of the Project in order to determine if they had a common direction and purpose. This would suggest they form a single undertaking (para 63). In sum, a mere examination of the commercial relationship will not suffice.</p><p style="text-align:justify;">The third issue related to the common management, control, and direction of the works. The NEB held the Project and other works were managed by different teams but did not elaborate further. There was significant evidence regarding the management, control, and direction of the works that the NEB did not address. Justice Rennie therefore inferred that the NEB did not understand the test. It was not how the NEB handled the evidence, but that it appeared to not consider a significant portion of evidence before it.</p><p style="text-align:justify;">Finally, Justice Rennie emphasized that substance trumps form, and one should not simply examine the "commercial costume worn by the entities involved" (para 68; quoting <em>Alberta Government Telephones v Canadian Radio-Television & Telecommunications Commission</em>, [1989] 2 SCR 225 at para 87, 61 DLR (4th) 193). The NEB was to answer whether or not the Project and the works or undertakings it integrated with were subject to the common management, control, and direction of Transcanada Pipeline Limited. There was significant evidence before the NEB to suggest Transcanada Pipeline Limited had common management, control, and direction (para 70), but the NEB did not address it.</p><p style="text-align:justify;"><strong>Conclusion</strong></p><p style="text-align:justify;"><em>Sawyer v Transcanada </em>reaffirms the test established in <em>Westcoast Energy</em> as to whether or not a work or undertaking will be subject to federal jurisdiction. However, in order for the test to properly be applied, a tribunal or court must:</p><ol style="text-align:justify;"><li>examine the functional integration of the relevant works or undertakings, and this requires a holistic analysis. Where a local work is functionally integrated into a federal work, it is more likely the local work will fall under federal jurisdiction;</li><li>examine the operation of the work or undertaking as it relates to other works and not simply consider their commercial relationship. Where a common direction and purpose exist amongst the separate works, it is more likely the local work will fall under federal jurisdiction; and</li><li>examine the substance, not the form, of the management, control, and directing authority of the works. Where, in substance, the works are managed, controlled, or directed by the same authority, and that authority is subject to federal jurisdiction, it is more likely the local work will fall under federal jurisdiction.</li></ol><p style="text-align:justify;"><em>Sawyer v Transcanada</em> exemplifies the regulatory complexities facing modern energy projects and underscores how significantly a single individual may influence the regulatory process. We will blog about any further developments, as the NEB determines Sawyer's application following the guidance provided by the Federal Court of Appeal.</p>8/23/2017 4:00:00 AM2017-08-23T04:00:00ZTrue1float;#8.00000000000000float;#2017.00000000000string;#Augustfloat;#201708.000000000GP0|#4e9fc7d5-bb0d-4cd4-878d-b18db04a4118;L0|#04e9fc7d5-bb0d-4cd4-878d-b18db04a4118|British Columbia;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#7ea7e480-c8e7-48db-baae-396516e81926;L0|#07ea7e480-c8e7-48db-baae-396516e81926|Pipelines;GP0|#60a6f187-f0e0-4c65-a06c-b97febf6542e;L0|#060a6f187-f0e0-4c65-a06c-b97febf6542e|Oil & Gas;GP0|#79f5b025-e6dd-4c66-873b-67e8780cf972;L0|#079f5b025-e6dd-4c66-873b-67e8780cf972|RegulatoryBritish Columbia;Pipelines;Oil & Gas;Regulatory
Saskatchewan Court of Appeal Upholds Decision Respecting ROFR Obligations in Light of Duty of Honest Performance of ContractsSaskatchewan Court of Appeal Upholds Decision Respecting ROFR Obligations in Light of Duty of Honest Performance of Contracts331BLG Blog PostGarrett Finegan;Miles Pittmangfinegan@blg.com | Garrett Finegan | 693A30232E777C626C6763616E6164615C6766696E6567616E i:0#.w|blgcanada\gfinegan;mpittman@blg.com | Miles Pittman | 693A30232E777C626C6763616E6164615C6D706974746D616E i:0#.w|blgcanada\mpittmanOn August 2, 2017, the Saskatchewan Court of Appeal (SKCA) released its decision in Northrock Resources v ExxonMobil Canada Energy, 2017 SKCA 60, an appeal from a Saskatchewan Court of Queen’s Bench decision regarding rights of first refusal (ROFRs). As BLG discussed in our previous blog post regarding the Queen’s Bench decision, the Northrock case raises important questions respecting how ROFR obligations will be interpreted and enforced in light of the principle of good faith and honest contractual performance set out by the Supreme Court of Canada in Bhasin v Hrynew, 2014 SCC 71. In dismissing the Northrock appeal and upholding every aspect of the Queen’s Bench decision, the SKCA provided additional insight into the interaction between ROFRs and the duty of good faith, and emphasized the importance of the deal struck by the parties. As a result, the case provides some welcome certainty for energy industry participants who are contemplating transactions in which ROFR obligations may be triggered, and also provides a roadmap of how parties can potentially avoid ROFR-related transaction obstacles. [Read more…] <p style="text-align:justify;"><img class="ms-rtePosition-1" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Hand%20Shaking1.jpg" alt="" style="margin:5px;width:113px;height:75px;" />On August 2, 2017, the Saskatchewan Court of Appeal (SKCA) released its decision in <a href="https://www.canlii.org/en/sk/skca/doc/2017/2017skca60/2017skca60.pdf"><em>Northrock Resources v ExxonMobil Canada Energy</em>, 2017 SKCA 60</a>, an appeal from a <a href="https://www.canlii.org/en/sk/skqb/doc/2016/2016skqb188/2016skqb188.pdf">Saskatchewan Court of Queen’s Bench decision</a> regarding rights of first refusal (ROFRs). As BLG discussed in our <a href="/energy/Pages/Post.aspx?PID=219">previous blog post</a> regarding the Queen’s Bench decision, the <em>Northrock</em> case raises important questions respecting how ROFR obligations will be interpreted and enforced in light of the principle of good faith and honest contractual performance set out by the Supreme Court of Canada in <a href="https://www.canlii.org/en/ca/scc/doc/2014/2014scc71/2014scc71.pdf"><em>Bhasin v Hrynew, </em>2014 SCC 71</a>. In dismissing the <em>Northrock </em>appeal and upholding every aspect of the Queen’s Bench decision, the SKCA provided additional insight into the interaction between ROFRs and the duty of good faith, and emphasized the importance of the deal struck by the parties. As a result, the case provides some welcome certainty for energy industry participants who are contemplating transactions in which ROFR obligations may be triggered, and also provides a roadmap of how parties can potentially avoid ROFR-related transaction obstacles. </p><p style="text-align:justify;">[<a href="/energy/Pages/Post.aspx?PID=331"><em>Read more</em>…] </a></p>On August 2, 2017, the Saskatchewan Court of Appeal (SKCA) released its decision in Northrock Resources v ExxonMobil Canada Energy, 2017 SKCA 60, an appeal from a Saskatchewan Court of Queen’s Bench decision regarding rights of first refusal (ROFRs). As BLG discussed in our previous blog post regarding the Queen’s Bench decision, the Northrock case raises important questions respecting how ROFR obligations will be interpreted and enforced in light of the principle of good faith and honest contractual performance set out by the Supreme Court of Canada in Bhasin v Hrynew, 2014 SCC 71. In dismissing the Northrock appeal and upholding every aspect of the Queen’s Bench decision, the SKCA provided additional insight into the interaction between ROFRs and the duty of good faith, and emphasized the importance of the deal struck by the parties. As a result, the case provides some welcome certainty for energy industry participants who are contemplating transactions in which ROFR obligations may be triggered, and also provides a roadmap of how parties can potentially avoid ROFR-related transaction obstacles. Background The central issue in this case was whether ExxonMobil Canada Energy (ExxonMobil) breached ROFR obligations it owed to Northrock Resources (Northrock) as part of a sale process. Rather than sell certain assets, ExxonMobil instead transferred them to wholly-owned subsidiaries, and then sold the shares of the subsidiaries to a third party, Crescent Point General Partner Corp. (Crescent Point). This type of transaction is referred to as a “busted butterfly”, and structuring the transaction this way provided ExxonMobil with more than $20MM in tax efficiencies. The busted butterfly structure also had the effect of preventing Northrock from exercising its ROFR, as the governing ROFR provisions specifically provided that transfers to ExxonMobil affiliates would not trigger a ROFR. The ROFR provisions were silent about whether the shares in such subsidiaries could subsequently be sold on to third parties.Northrock sued ExxonMobil, Crescent Point, and the subsidiaries, alleging that the transaction breached the well-established rule set out in GATX Corp. v Hawker Siddeley Canada Inc. (1996), 27 BLR (2d) 251 (Ont. Ct J.), which holds that sellers act in bad faith if they structure transactions for the purpose of avoiding ROFR obligations. The Court of Queen’s Bench rejected this argument, holding that ExxonMobil had negotiated an unqualified contractual right to transfer the assets to subsidiaries, and in choosing to exercise this right, had been motivated by tax considerations rather than a desire to avoid ROFR obligations. Northrock appealed the Court of Queen’s Bench decision, largely on the basis that the trial judge committed reversible errors by misinterpreting the ROFR provisions and misapplying the legal test for good faith contractual performance. The Decision Regarding the interpretation of the ROFR provisions, the trial judge had held that the plain language of the ROFR provisions was unambiguous in permitting unqualified dispositions of assets to subsidiaries – the parties could have negotiated ROFR provisions which were triggered by a subsequent share sales of subsidiaries to third parties, but had not done so. Northrock alleged that this interpretation of the ROFR provisions was flawed because it defeated the “general purpose” of ROFR provisions, which was “to enforce the parties’ right to control their business partners and accrete ownership interests”.1 To accord with this general purpose, Northrock argued that the ROFR provisions’ silence as to busted butterfly type transactions should be interpreted as preventing such transactions in the absence of a ROFR notice. The SKCA rejected Northrock’s claim that ROFRs have a “general purpose,” and instead characterized them as restrictions on a property-owner’s right to sell that only exist because they are specifically bargained for. The restrictiveness of a ROFR depends in each case on the bargain that is struck by the parties and memorialized in a written contract. Accordingly, determining the extent of a party’s ROFR obligations is simply a matter of contractual interpretation, without reference to any “general purpose”. The SKCA noted that the ROFR provisions in this case were not ambiguous – dispositions to subsidiaries were permitted without any qualifications or restrictions. Under the principles of contractual interpretation, implying a term that would place additional restrictions on ExxonMobil would unfairly alter the parties’ written bargain. Northrock also argued that the trial judge’s interpretation of the ROFR provisions was unreasonable because it would lead to a commercially absurd result. Northrock alleged that it would be absurd for a ROFR to be triggered when a transaction is structured as a straight-up asset sale, and not triggered by a busted butterfly transaction, because the ultimate purpose and effect of both transaction types would be to transfer the assets to a third party. The SKCA held that there is nothing absurd about holding parties to the clear terms of their bargain. In fact, the SKCA noted that it would be “commercially unreasonable—indeed, even absurd—to throw the ongoing contractual relationship into flux by interpreting the ROFRs as prohibiting something they do not prohibit”.2 Having found that the ROFR provisions clearly permitted busted butterfly transactions, the SKCA went on to consider whether ExxonMobil had chosen a busted butterfly in bad faith. Northrock argued that the trial judge had misapplied the test for bad faith by focusing on whether ExxonMobil had been motivated by a desire to avoid its ROFR obligations. In Northrock’s view, ExxonMobil’s motivation was irrelevant to bad faith – the correct test was whether ExxonMobil had conveyed the assets in way that appeared to comply with the express language of the ROFR provisions, but had the effect of frustrating their purpose.3 Northrock claimed that the ROFR provisions’ silence as to busted butterfly transactions was an “unintended loophole”, and argued that the duty of good faith prevented ExxonMobil from knowingly designing a transaction that exploited this loophole.4 In rejecting Northrock’s argument, the SKCA first noted that the principle of good faith identified in Bhasin calls for a “highly context-specific understanding of what honesty and reasonableness in performance require”.5 Recognizing the context-specific nature of good faith, the SKCA found that the trial judge properly focused on the ROFR-specific approach to good faith set forth in GATX and related jurisprudence.6 Relying on these cases, the SKCA identified the following principles as underpinning the duty of good faith in the ROFR context7 “the grantor of a right of first refusal must act reasonably and in good faith in relation to that right”;8 the grantor “must not act in a fashion designed to eviscerate the very right which has been given”;9 “the grantor of a ROFR has a duty to exercise its rights in such a manner to ensure that the other party’s rights are not rendered meaningless”;10 “[t]he duty [of reasonableness and good faith] is not discharged if the essential purpose of the sale to the third party is to frustrate the right of first refusal”;11 “unless … the whole transaction is structured to do indirectly that which triggers the right of first refusal, the right of first refusal does not apply”; 12 and the grantor “is not entitled to frustrate [a right of first refusal] by conveying the property in such a way as to avoid having to give the right in the first place”.13 In applying these principles to the facts, the SKCA emphasized that in GATX, the ROFR provisions had been interpreted broadly as capturing any and all dispositions to third parties. Because of this broad language, any transaction which had the effect of disposing of the assets to a third party would seemingly trigger the ROFR, regardless of the seller’s motivation. In these circumstances, whenever a seller entered into a transaction knowing that it would result in a disposition to a third party without triggering a ROFR, it would be acting in bad faith. In contrast, the ROFR provisions Northrock was relying on contained an unqualified exception permitting dispositions to subsidiaries. ExxonMobil clearly had a contractual right to use this exception, and the inevitable effect of doing so would be to avoid the ROFR. As a result, knowing avoidance of the ROFR could not be a reliable indicator of bad faith. Instead, the key question was why ExxonMobil knowingly chose a transaction structure which would avoid the ROFR. The SKCA deferred to the trial judge’s findings of fact in this regard, and confirmed that ExxonMobil had chosen a busted butterfly for tax purposes rather than to avoid Northrock’s ROFR. In support of its conclusion on the good faith issue, the SKCA noted that “acceptance of Northrock’s argument would imprudently broaden the duty of good faith in commercial relations”.14 Here, the SKCA emphasized that the duty of good faith recognized in Bhasin must be applied in a manner that is consistent with the common law of contract, “which generally places great weight on the freedom of contracting parties to pursue their individual self-interest.15 Specifically, the obligation to perform a contract honestly and in good faith “must not be used to circumvent the plain language of a contract because that would result in ad hoc judicial moralism and undermine the principle of certainty in contract”.16 Implications This case provides some needed certainty for transaction parties navigating the sometimes murky waters of ROFR obligations. Where a ROFR is drafted in broad, all-encompassing terms, a seller risks breaching the duty of good faith if the effect of a transaction is to avoid the ROFR, regardless of their motivation. However, where the language of the ROFR clearly exempts certain transaction types, Northrock stands for the proposition that sellers are free to creatively utilize such transaction types, provided they are not doing so for the purpose of avoiding the ROFR. As discussed in our previous blog post regarding the Queen’s Bench decision, maintaining a careful record of the reasoning behind transaction choices can help parties to demonstrate their good faith. The SKCA was able to point to specific evidence led by ExxonMobil which showed that the transaction was tax-driven and not avoidance driven. We encourage parties in these situations to maintain scrupulous notes and meeting minutes, as the parties’ intent at the time the ROFR was being considered and complied with will be highly relevant.Northrock is of particular relevance to the oil and gas industry, as the language in ROFR provisions at issue are broadly similar to the ROFR provisions found in CAPL Operating Procedures. The case will likely have high precedential value in future cases which revolve around CAPL ROFR provisions. One immediate implication of Northrock is that it should give transaction parties a degree of confidence that busted butterfly transactions are a viable option for assets governed by CAPL Operating Procedures. The Northrock decision is also relevant more broadly to cases involving good faith, because it is a reminder that Bhasin does not supplant or modify much of the common law of contract. For example, while the Northrock decision references Bhasin, the principles upon which the case turned were derived from ROFR-specific cases which significantly predated Bhasin. In addition, much of the commentary in Northrock re-emphasises that the general principle of good faith does not circumvent the written words of a contract or alter how they are to be interpreted. Finally, although Northrock provides some clarity, good faith performance of ROFR obligations can still be difficult for transaction parties to handle. Most notably, the case does not address the scenario in which a seller chooses a transaction type partly in order to avoid ROFR obligations, and partly to pursue other business drivers. Northrock would seem to work against the ROFR holder in such a scenario because it contains commentary – likely in obiter – which supports the notion that the duty of good faith only prevents transactions whose “entire purpose” is to defeat a ROFR.17 Despite these signals, sellers should remain cautious. Providing any indication that a transaction has been motivated, even partially, by a desire to avoid ROFR obligations continues to create a risk that a seller will be found to have acted in bad faith. 1 At para 14. 2 At para 21. 3 At para 25. 4 At para 26. 5 At para 29, citing Bhasin at para 69. 6 .GATX; Glimmer Resources Inc. v Exall Resources Ltd. (1997), 39 OTC 215 (Ont Ct J (Gen Div)); and Chase Manhattan Bank of Canada v Sunoma Energy Corp., 2002 ABCA 286; Landymore v Hardy (1991), 110 NSR (2d) 2 (SC (TD)). 7 At para 31. 8 GATX at para 71 9 GATX at para 71 10 Chase Manhattan at para 25, citing GATX at para 71 11 GATX at para 71 12 Glimmer Resources at para 18. 13 Landymore at para 97. 14 At para 41. 15 At para 29, citing Bhasin at para 70. 16 At para 47. 17 At para 43. <p style="text-align:justify;"><img class="ms-rtePosition-1" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Hand%20Shaking1.jpg" alt="" style="margin:5px;width:310px;height:206px;" />On August 2, 2017, the Saskatchewan Court of Appeal (SKCA) released its decision in <a href="https://www.canlii.org/en/sk/skca/doc/2017/2017skca60/2017skca60.pdf"><em>Northrock Resources v ExxonMobil Canada Energy</em>, 2017 SKCA 60</a>, an appeal from a <a href="https://www.canlii.org/en/sk/skqb/doc/2016/2016skqb188/2016skqb188.pdf">Saskatchewan Court of Queen’s Bench decision</a> regarding rights of first refusal (ROFRs). As BLG discussed in our <a href="/energy/Pages/Post.aspx?PID=219">previous blog post</a> regarding the Queen’s Bench decision, the <em>Northrock</em> case raises important questions respecting how ROFR obligations will be interpreted and enforced in light of the principle of good faith and honest contractual performance set out by the Supreme Court of Canada in <a href="https://www.canlii.org/en/ca/scc/doc/2014/2014scc71/2014scc71.pdf"><em>Bhasin v Hrynew, </em>2014 SCC 71</a>. In dismissing the <em>Northrock </em>appeal and upholding every aspect of the Queen’s Bench decision, the SKCA provided additional insight into the interaction between ROFRs and the duty of good faith, and emphasized the importance of the deal struck by the parties. As a result, the case provides some welcome certainty for energy industry participants who are contemplating transactions in which ROFR obligations may be triggered, and also provides a roadmap of how parties can potentially avoid ROFR-related transaction obstacles. </p><div style="text-align:justify;"> <strong>Background</strong> </div><p style="text-align:justify;">The central issue in this case was whether ExxonMobil Canada Energy (ExxonMobil) breached ROFR obligations it owed to Northrock Resources (Northrock) as part of a sale process. Rather than sell certain assets, ExxonMobil instead transferred them to wholly-owned subsidiaries, and then sold the shares of the subsidiaries to a third party, Crescent Point General Partner Corp. (Crescent Point). </p><p style="text-align:justify;">This type of transaction is referred to as a “busted butterfly”, and structuring the transaction this way provided ExxonMobil with more than $20MM in tax efficiencies. The busted butterfly structure also had the effect of preventing Northrock from exercising its ROFR, as the governing ROFR provisions specifically provided that transfers to ExxonMobil affiliates would not trigger a ROFR. The ROFR provisions were silent about whether the shares in such subsidiaries could subsequently be sold on to third parties.</p><p style="text-align:justify;">Northrock sued ExxonMobil, Crescent Point, and the subsidiaries, alleging that the transaction breached the well-established rule set out in <a href="http://www.canlii.org/en/on/onsc/doc/1996/1996canlii8286/1996canlii8286.html?resultIndex=1"><em>GATX Corp. v Hawker Siddeley Canada Inc</em>. (1996), 27 BLR (2d) 251 (Ont. Ct J.)</a>, which holds that sellers act in bad faith if they structure transactions for the purpose of avoiding ROFR obligations. The Court of Queen’s Bench rejected this argument, holding that ExxonMobil had negotiated an unqualified contractual right to transfer the assets to subsidiaries, and in choosing to exercise this right, had been motivated by tax considerations rather than a desire to avoid ROFR obligations. </p><p style="text-align:justify;">Northrock appealed the Court of Queen’s Bench decision, largely on the basis that the trial judge committed reversible errors by misinterpreting the ROFR provisions and misapplying the legal test for good faith contractual performance.</p><div style="text-align:justify;"> <strong>The Decision</strong> </div><p style="text-align:justify;">Regarding the interpretation of the ROFR provisions, the trial judge had held that the plain language of the ROFR provisions was unambiguous in permitting unqualified dispositions of assets to subsidiaries – the parties could have negotiated ROFR provisions which were triggered by a subsequent share sales of subsidiaries to third parties, but had not done so. Northrock alleged that this interpretation of the ROFR provisions was flawed because it defeated the “general purpose” of ROFR provisions, which was “to enforce the parties’ right to control their business partners and accrete ownership interests”.<sup>1</sup> To accord with this general purpose, Northrock argued that the ROFR provisions’ silence as to busted butterfly type transactions should be interpreted as preventing such transactions in the absence of a ROFR notice. </p><p style="text-align:justify;">The SKCA rejected Northrock’s claim that ROFRs have a “general purpose,” and instead characterized them as restrictions on a property-owner’s right to sell that only exist because they are specifically bargained for. The restrictiveness of a ROFR depends in each case on the bargain that is struck by the parties and memorialized in a written contract. Accordingly, determining the extent of a party’s ROFR obligations is simply a matter of contractual interpretation, without reference to any “general purpose”. The SKCA noted that the ROFR provisions in this case were not ambiguous – dispositions to subsidiaries were permitted without any qualifications or restrictions. Under the principles of contractual interpretation, implying a term that would place additional restrictions on ExxonMobil would unfairly alter the parties’ written bargain. </p><p style="text-align:justify;">Northrock also argued that the trial judge’s interpretation of the ROFR provisions was unreasonable because it would lead to a commercially absurd result. Northrock alleged that it would be absurd for a ROFR to be triggered when a transaction is structured as a straight-up asset sale, and not triggered by a busted butterfly transaction, because the ultimate purpose and effect of both transaction types would be to transfer the assets to a third party. The SKCA held that there is nothing absurd about holding parties to the clear terms of their bargain. In fact, the SKCA noted that it would be “commercially unreasonable—indeed, even absurd—to throw the ongoing contractual relationship into flux by interpreting the ROFRs as prohibiting something they do not prohibit”.<sup>2</sup> </p><p style="text-align:justify;">Having found that the ROFR provisions clearly permitted busted butterfly transactions, the SKCA went on to consider whether ExxonMobil had chosen a busted butterfly in bad faith. Northrock argued that the trial judge had misapplied the test for bad faith by focusing on whether ExxonMobil had been <em>motivated</em> by a desire to avoid its ROFR obligations. In Northrock’s view, ExxonMobil’s motivation was irrelevant to bad faith – the correct test was whether ExxonMobil had conveyed the assets in way that appeared to comply with the express language of the ROFR provisions, but had the <em>effect </em>of frustrating their purpose.<sup>3</sup> Northrock claimed that the ROFR provisions’ silence as to busted butterfly transactions was an “unintended loophole”, and argued that the duty of good faith prevented ExxonMobil from knowingly designing a transaction that exploited this loophole.<sup>4</sup> </p><p style="text-align:justify;"> In rejecting Northrock’s argument, the SKCA first noted that the principle of good faith identified in <em>Bhasin </em>calls for a “highly context-specific understanding of what honesty and reasonableness in performance require”.<sup>5</sup> Recognizing the context-specific nature of good faith, the SKCA found that the trial judge properly focused on the ROFR-specific approach to good faith set forth in <em>GATX </em>and related jurisprudence.<sup>6</sup> Relying on these cases, the SKCA identified the following principles as underpinning the duty of good faith in the ROFR context:<sup>7</sup> <br></p><ol type="a" style="text-align:justify;"><li>“the grantor of a right of first refusal must act reasonably and in good faith in relation to that right”;<sup>8</sup> </li><li>the grantor “must not act in a fashion designed to eviscerate the very right which has been given”;<sup>9</sup></li><li>“the grantor of a ROFR has a duty to exercise its rights in such a manner to ensure that the other party’s rights are not rendered meaningless”;<sup>10</sup></li><li>“[t]he duty [of reasonableness and good faith] is not discharged if the essential purpose of the sale to the third party is to frustrate the right of first refusal”;<sup>11</sup></li><li>“unless … the whole transaction is structured to do indirectly that which triggers the right of first refusal, the right of first refusal does not apply”; <sup>12 </sup>and</li><li>the grantor “is not entitled to frustrate [a right of first refusal] by conveying the property in such a way as to avoid having to give the right in the first place”.<sup>13</sup></li></ol><p> </p><p style="text-align:justify;">In applying these principles to the facts, the SKCA emphasized that in <em>GATX, </em>the ROFR provisions had been interpreted broadly as capturing any and all dispositions to third parties. Because of this broad language, any transaction which had the effect of disposing of the assets to a third party would seemingly trigger the ROFR, regardless of the seller’s motivation. In these circumstances, whenever a seller entered into a transaction knowing that it would result in a disposition to a third party without triggering a ROFR, it would be acting in bad faith. </p><p style="text-align:justify;">In contrast, the ROFR provisions Northrock was relying on contained an unqualified exception permitting dispositions to subsidiaries. ExxonMobil clearly had a contractual right to use this exception, and the inevitable effect of doing so would be to avoid the ROFR. As a result, knowing avoidance of the ROFR could not be a reliable indicator of bad faith.  Instead, the key question was why ExxonMobil knowingly chose a transaction structure which would avoid the ROFR. The SKCA deferred to the trial judge’s findings of fact in this regard, and confirmed that ExxonMobil had chosen a busted butterfly for tax purposes rather than to avoid Northrock’s ROFR. </p><p style="text-align:justify;">In support of its conclusion on the good faith issue, the SKCA noted that “acceptance of Northrock’s argument would imprudently broaden the duty of good faith in commercial relations”.<sup>14</sup> Here, the SKCA emphasized that the duty of good faith recognized in <em>Bhasin </em>must be applied in a manner that is consistent with the common law of contract, “which generally places great weight on the freedom of contracting parties to pursue their individual self-interest.<sup>15</sup> Specifically, the obligation to perform a contract honestly and in good faith “must not be used to circumvent the plain language of a contract because that would result in ad hoc judicial moralism and undermine the principle of certainty in contract”.<sup>16</sup> </p><div style="text-align:justify;"> <strong>Implications</strong> </div><p style="text-align:justify;">This case provides some needed certainty for transaction parties navigating the sometimes murky waters of ROFR obligations. Where a ROFR is drafted in broad, all-encompassing terms, a seller risks breaching the duty of good faith if the effect of a transaction is to avoid the ROFR, regardless of their motivation. However, where the language of the ROFR clearly exempts certain transaction types, <em>Northrock </em>stands for the proposition that sellers are free to creatively utilize such transaction  types, provided they are not doing so for the purpose of avoiding the ROFR. </p><p style="text-align:justify;">As discussed in our <a href="/energy/Pages/Post.aspx?PID=219">previous blog post</a> regarding the Queen’s Bench decision, maintaining a careful record of the reasoning behind transaction choices can help parties to demonstrate their good faith. The SKCA was able to point to specific evidence led by ExxonMobil which showed that the transaction was tax-driven and not avoidance driven. We encourage parties in these situations to maintain scrupulous notes and meeting minutes, as the parties’ intent at the time the ROFR was being considered and complied with will be highly relevant.</p><p style="text-align:justify;"><em>Northrock </em>is of particular relevance to the oil and gas industry, as the language in ROFR provisions at issue are broadly similar to the ROFR provisions found in CAPL Operating Procedures. The case will likely have high precedential value in future cases which revolve around CAPL ROFR provisions. One immediate implication of <em>Northrock</em> is that it should give transaction parties a degree of confidence that busted butterfly transactions are a viable option for assets governed by CAPL Operating Procedures. </p><p style="text-align:justify;">The <em>Northrock </em>decision is also relevant more broadly to cases involving good faith, because it is a reminder that <em>Bhasin</em> does not supplant or modify much of the common law of contract. For example, while the <em>Northrock </em>decision references <em>Bhasin</em>, the principles upon which the case turned were derived from ROFR-specific cases which significantly predated <em>Bhasin. </em>In addition, much of the commentary in <em>Northrock </em>re-emphasises that the general principle of good faith does not circumvent the written words of a contract or alter how they are to be interpreted. </p><p style="text-align:justify;">Finally, although <em>Northrock </em>provides some clarity, good faith performance of ROFR obligations can still be difficult for transaction parties to handle. Most notably, the case does not address the scenario in which a seller chooses a transaction type partly in order to avoid ROFR obligations, and partly to pursue other business drivers. <em>Northrock </em>would seem to work against the ROFR holder in such a scenario because it contains commentary – likely in <em>obiter</em> – which supports the notion that the duty of good faith only prevents transactions whose “entire purpose” is to defeat a ROFR.<sup>17</sup> Despite these signals, sellers should remain cautious. Providing any indication that a transaction has been motivated, even partially, by a desire to avoid ROFR obligations continues to create a risk that a seller will be found to have acted in bad faith. </p><hr /><p style="text-align:justify;"><span style="font-size:7pt;"><sup>1</sup> At para 14.<br><sup>2</sup> At para 21.<br><sup>3</sup> At para 25.<br><sup>4</sup> At para 26.<br><sup>5</sup> At para 29, citing <em>Bhasin </em>at para 69. <br><sup>6</sup> .<em>GATX; </em><em>Glimmer Resources Inc. v Exall Resources Ltd. </em>(1997), 39 OTC 215 (Ont Ct J (Gen Div)); and <em>Chase Manhattan Bank of Canada v Sunoma Energy Corp.</em>, 2002 ABCA 286; <em>Landymore v Hardy </em>(1991), 110 NSR (2d) 2 (SC (TD)).<br><sup>7</sup> At para 31.<br><sup>8</sup> <em>GATX</em> at para 71<br><sup>9</sup> <em>GATX</em> at para 71<br><sup>10</sup> <em>Chase Manhattan</em> at para 25, citing <em>GATX </em>at para 71<br><sup>11</sup> <em>GATX</em> at para 71<br><sup>12</sup> <em>Glimmer Resources</em> at para 18.<br><sup>13</sup> <em>Landymore</em> at para 97.<br><sup>14</sup> At para 41.<br><sup>15</sup> At para 29, citing <em>Bhasin </em>at para 70.<br><sup>16</sup> At para 47.<br><sup>17</sup> At para 43.</span></p><div style="text-align:justify;">  </div>8/8/2017 4:00:00 AM2017-08-08T04:00:00ZTrue1float;#8.00000000000000float;#2017.00000000000string;#Augustfloat;#201708.000000000GP0|#60a6f187-f0e0-4c65-a06c-b97febf6542e;L0|#060a6f187-f0e0-4c65-a06c-b97febf6542e|Oil & Gas;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#6ed29997-7c09-433d-9f4f-e4bb2ce1b29b;L0|#06ed29997-7c09-433d-9f4f-e4bb2ce1b29b|Litigation;GP0|#cd8ceae9-5ad3-4b8a-b758-57331dbfc4c6;L0|#0cd8ceae9-5ad3-4b8a-b758-57331dbfc4c6|SaskatchewanOil & Gas;Litigation;Saskatchewan
Alberta Employers Cannot Claim “Blanket” Privilege on Materials Following a Workplace AccidentAlberta Employers Cannot Claim “Blanket” Privilege on Materials Following a Workplace Accident330BLG Blog PostAndrew Pozzobonapozzobon@blg.com | Andrew Pozzobon | 693A30232E777C626C6763616E6164615C61706F7A7A6F626F6E i:0#.w|blgcanada\apozzobonThe Alberta Court of Appeal recently released its decision in Alberta v Suncor Inc., 2017 ABCA 221, which clarified an employer's ability to claim privilege over information and materials that are created or collected during an internal investigation following a workplace accident. The Court of Appeal held that while an employer can assert litigation and/or legal privilege over an accident investigation or certain parts of it, employers cannot "throw a blanket over all materials" created or collected during the accident investigation and claim that all such materials are privileged. [Read more...]<p style="text-align:justify;"><img class="ms-rtePosition-1" alt="Industry" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Industry.jpg" style="margin:5px;width:113px;height:75px;" />The Alberta Court of Appeal recently released its decision in <em>Alberta v Suncor Inc.</em>, 2017 ABCA 221, which clarified an employer's ability to claim privilege over information and materials that are created or collected during an internal investigation following a workplace accident. The Court of Appeal held that while an employer can assert litigation and/or legal privilege over an accident investigation or certain parts of it, employers cannot "throw a blanket over all materials" created or collected during the accident investigation and claim that all such materials are privileged. </p><p style="text-align:justify;">[<a href="/energy/Pages/Post.aspx?PID=330"><em>Read more</em>...</a>]</p>The Alberta Court of Appeal recently released its decision in Alberta v Suncor Inc., 2017 ABCA 221, which clarified an employer's ability to claim privilege over information and materials that are created or collected during an internal investigation following a workplace accident. The Court of Appeal held that while an employer can assert litigation and/or legal privilege over an accident investigation or certain parts of it, employers cannot "throw a blanket over all materials" created or collected during the accident investigation and claim that all such materials are privileged. Background On April 20, 2014, an employee of Suncor was involved in a fatal workplace accident at Suncor's facility near Fort McMurray, Alberta. Alberta Occupational Health and Safety (OHS) officers issued a stop-work order that day. Immediately after the workplace accident, anticipating litigation, Suncor began an internal investigation and threw a privilege blanket over all information pertinent to its investigation. From May 2014 onward, OHS issued various demands for the release of information under Alberta's Occupational Health and Safety Act (OHSA). On November 14, 2014, in compliance with section 18 of OHSA, Suncor provided OHS with a report of its investigation. Suncor also produced materials that pre-dated or coincided with the workplace accident but asserted solicitor-client privilege and/or litigation privilege over materials created or collected in the course of its internal investigation after the accident. Her Majesty the Queen in Right of Alberta (Alberta) filed an originating application on February 26, 2016, seeking an order that Suncor provide the refused materials and allow OHS to interview Suncor's internal investigators, or at least provide further particulars about the claims of privilege. Court of Queen's Bench of Alberta Decision The Court of Queen's Bench of Alberta considered whether Suncor was entitled to claim privilege over the information collected during its internal investigation and whether the documents and other records created or collected during Suncor's internal investigation were privileged. The chambers judge noted that while Suncor had a statutory obligation under the OHSA to conduct an investigation and prepare a report on the accident, that obligation did not foreclose or preclude Suncor's entitlement to litigation privilege. The chambers judge found that as Suncor's internal investigation was carried out in anticipation of litigation, the information and documents created and/or collected during the internal investigation were done so with the dominant purpose that they would assist in the contemplated litigation, and therefore the information and documents were covered by litigation privilege. Alberta appealed the chambers judge's decision to the Court of Appeal. Court of Appeal of Alberta Decision On appeal, Alberta conceded that the occupational health and safety legislation, the OHSA, did not preclude claims of privilege. Notwithstanding its concession, Alberta argued that the chambers judge erred in making a general finding that the dominant purpose of Suncor's internal investigation as a whole was in contemplation of litigation. In particular, Alberta argued that the chambers judge's conclusion was contrary to the settled principle that the dominant purpose for creating any particular record must be established on a document-by-document basis. The Court of Appeal agreed with Alberta and found that the chambers judge had erred in finding that the dominant purpose of the internal investigation was in contemplation of litigation and therefore every document “created and/or collected” during the investigation was clothed with legal privilege. The Court of Appeal found that Suncor could not, simply by having legal counsel declare that an investigation had commenced, throw a blanket over all materials “created and/or collected during the internal investigation” so as to clothe them with solicitor-client or litigation privilege. The Court of Appeal noted that where a workplace accident has occurred and the employer has statutory duties under the OHSA and simultaneously undertakes an internal investigation, if the employer claims legal privilege over the materials derived as part of the investigation, an inquiry should be directed to a referee in order to determine the dominant purpose for the creation of each document or bundle of similar documents in order to assess the claim of privilege. The Court of Appeal noted that Suncor was required to independently distinguish between the nature of the privilege claimed and the evidentiary basis for the claim, in order to allow for a meaningful assessment by the referee. In this case, material Suncor claimed as privileged was not sufficiently detailed to identify whether the material was created in contemplation of litigation as opposed to merely collected for that purpose. Implications for Employers This decision confirms that the statutory obligation under Alberta's occupational health and safety legislation to conduct an investigation and prepare a report following a workplace accident does not foreclose the employer's ability to assert litigation and/or solicitor-client privilege over the accident investigation or certain parts of it. However, employers cannot "throw a blanket over all materials" and claim that all materials related to the investigation are privileged. In order to support a claim of either litigation or solicitor-client privilege, the employer must describe the documents in a way that indicates the basis for the claim, so that a meaningful assessment and review of each bundle of documents can be made. Even if the documents are sufficiently detailed, the inquiry may still be directed to a referee to determine the dominant purpose for the creation of each document or bundle of documents to assess the claims of privilege. <p style="text-align:justify;"><img class="ms-rtePosition-1" alt="Industry" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Industry.jpg" style="margin:5px;width:310px;height:205px;" />The Alberta Court of Appeal recently released its decision in <em>Alberta v Suncor Inc.</em>, 2017 ABCA 221, which clarified an employer's ability to claim privilege over information and materials that are created or collected during an internal investigation following a workplace accident. The Court of Appeal held that while an employer can assert litigation and/or legal privilege over an accident investigation or certain parts of it, employers cannot "throw a blanket over all materials" created or collected during the accident investigation and claim that all such materials are privileged. </p><p style="text-align:justify;"><strong>Background </strong></p><p style="text-align:justify;">On April 20, 2014, an employee of Suncor was involved in a fatal workplace accident at Suncor's facility near Fort McMurray, Alberta. Alberta Occupational Health and Safety (OHS) officers issued a stop-work order that day. Immediately after the workplace accident, anticipating litigation, Suncor began an internal investigation and threw a privilege blanket over all information pertinent to its investigation. </p><p style="text-align:justify;">From May 2014 onward, OHS issued various demands for the release of information under Alberta's <em>Occupational Health and Safety Act</em> (OHSA). On November 14, 2014, in compliance with section 18 of OHSA, Suncor provided OHS with a report of its investigation. Suncor also produced materials that pre-dated or coincided with the workplace accident but asserted solicitor-client privilege and/or litigation privilege over materials created or collected in the course of its internal investigation after the accident. </p><p style="text-align:justify;">Her Majesty the Queen in Right of Alberta (Alberta) filed an originating application on February 26, 2016, seeking an order that Suncor provide the refused materials and allow OHS to interview Suncor's internal investigators, or at least provide further particulars about the claims of privilege. </p><p style="text-align:justify;"><strong>Court of Queen's Bench of Alberta Decision </strong></p><p style="text-align:justify;">The Court of Queen's Bench of Alberta considered whether Suncor was entitled to claim privilege over the information collected during its internal investigation and whether the documents and other records created or collected during Suncor's internal investigation were privileged. The chambers judge noted that while Suncor had a statutory obligation under the OHSA to conduct an investigation and prepare a report on the accident, that obligation did not foreclose or preclude Suncor's entitlement to litigation privilege. The chambers judge found that as Suncor's internal investigation was carried out in anticipation of litigation, the information and documents created and/or collected during the internal investigation were done so with the dominant purpose that they would assist in the contemplated litigation, and therefore the information and documents were covered by litigation privilege. Alberta appealed the chambers judge's decision to the Court of Appeal. </p><p style="text-align:justify;"><strong>Court of Appeal of Alberta Decision </strong></p><p style="text-align:justify;">On appeal, Alberta conceded that the occupational health and safety legislation, the OHSA, did not preclude claims of privilege. Notwithstanding its concession, Alberta argued that the chambers judge erred in making a general finding that the dominant purpose of Suncor's internal investigation as a whole was in contemplation of litigation. In particular, Alberta argued that the chambers judge's conclusion was contrary to the settled principle that the dominant purpose for creating any particular record must be established on a document-by-document basis. </p><p style="text-align:justify;">The Court of Appeal agreed with Alberta and found that the chambers judge had erred in finding that the dominant purpose of the internal investigation was in contemplation of litigation and therefore every document “created and/or collected” during the investigation was clothed with legal privilege. The Court of Appeal found that Suncor could not, simply by having legal counsel declare that an investigation had commenced, throw a blanket over all materials “created and/or collected during the internal investigation” so as to clothe them with solicitor-client or litigation privilege. The Court of Appeal noted that where a workplace accident has occurred and the employer has statutory duties under the OHSA and simultaneously undertakes an internal investigation, if the employer claims legal privilege over the materials derived as part of the investigation, an inquiry should be directed to a referee in order to determine the dominant purpose for the creation of each document or bundle of similar documents in order to assess the claim of privilege. </p><p style="text-align:justify;">The Court of Appeal noted that Suncor was required to independently distinguish between the nature of the privilege claimed and the evidentiary basis for the claim, in order to allow for a meaningful assessment by the referee. In this case, material Suncor claimed as privileged was not sufficiently detailed to identify whether the material was created in contemplation of litigation as opposed to merely collected for that purpose. </p><p style="text-align:justify;"><strong>Implications for Employers </strong></p><p style="text-align:justify;">This decision confirms that the statutory obligation under Alberta's occupational health and safety legislation to conduct an investigation and prepare a report following a workplace accident does not foreclose the employer's ability to assert litigation and/or solicitor-client privilege over the accident investigation or certain parts of it. However, employers cannot "throw a blanket over all materials" and claim that all materials related to the investigation are privileged. In order to support a claim of either litigation or solicitor-client privilege, the employer must describe the documents in a way that indicates the basis for the claim, so that a meaningful assessment and review of each bundle of documents can be made. Even if the documents are sufficiently detailed, the inquiry may still be directed to a referee to determine the dominant purpose for the creation of each document or bundle of documents to assess the claims of privilege. </p><div style="text-align:justify;">  </div>8/1/2017 4:00:00 AM2017-08-01T04:00:00ZTrue1float;#8.00000000000000float;#2017.00000000000string;#Augustfloat;#201708.000000000GP0|#05db54b2-7a5f-4abd-b4d3-fe0dc1304321;L0|#005db54b2-7a5f-4abd-b4d3-fe0dc1304321|Labour and Employment;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#1eb0aeef-3188-486c-8353-ba825b2cedc8;L0|#01eb0aeef-3188-486c-8353-ba825b2cedc8|Occupational Health & SafetyLabour and Employment;Occupational Health & Safety
Supreme Court of Canada Clarifies Duty to Consult and Accommodate Indigenous Populations - Sets Out Roadmap for Project Proponents on How to Satisfy DutySupreme Court of Canada Clarifies Duty to Consult and Accommodate Indigenous Populations - Sets Out Roadmap for Project Proponents on How to Satisfy Duty329BLG Blog PostMiles Pittman;Adam Chamberlain;Rick Williams;Alan L. Ross;Nadir André;Kent D. Howie;Steven Bodimpittman@blg.com | Miles Pittman | 693A30232E777C626C6763616E6164615C6D706974746D616E i:0#.w|blgcanada\mpittman;achamberlain@blg.com | Adam Chamberlain | 693A30232E777C626C6763616E6164615C616368616D6265726C61696E i:0#.w|blgcanada\achamberlain;rwilliams@blg.com | Rick Williams | 693A30232E777C626C6763616E6164615C726C77 i:0#.w|blgcanada\rlw;aross@blg.com | Alan L. Ross | 693A30232E777C626C6763616E6164615C61726F7373 i:0#.w|blgcanada\aross;nandre@blg.com | Nadir André | 693A30232E777C626C6763616E6164615C6E616E647265 i:0#.w|blgcanada\nandre;khowie@blg.com | Kent D. Howie | 693A30232E777C626C6763616E6164615C6B686F776965 i:0#.w|blgcanada\khowie;sbodi@blg.com | Steven Bodi | 693A30232E777C626C6763616E6164615C73626F6469 i:0#.w|blgcanada\sbodi The Supreme Court of Canada has unanimously clarified several features of the Crown’s duty to consult with and accommodate indigenous populations prior to project approvals being granted. The companion decisions of Canada’s top court in 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) clarify when the duty to consult is triggered; confirmed that the Crown can discharge its duty to consult through the project approval process undertaken by the regulatory body (including the National Energy Board (NEB), which for the most part had declined to assess how a project affected Aboriginal or treaty rights); and also illustrated how to, and how not to, discharge the duty. In our view, these decisions set out benchmarks for discharging the duty to consult, and while the duty to consult is the Crown’s obligation, it is project proponents who are often left to carry out or bolster the consultation process. Without the duty being discharged, a project approval process cannot proceed, and therefore it is essential that the project proponent ensure the Crown’s duty is discharged. This can mean paying for participation in the process by affected Aboriginal parties, for example, or providing the requisite information about the project to the affected parties so that consultation can be robust. Therefore, while the Court was clear that each situation should be viewed independently, the Court provides an illustrative roadmap for discharging the duty to consult, and in doing so has reduced some of the uncertainty plaguing Canadian project approvals. We expect these decisions to be parsed closely by project proponents, to ensure that they have discharged the duty, as if it can be shown later that the Crown’s duty to consult was not discharged, any project approval would be quashed on judicial review. Therefore the stakes in ensuring the Crown has discharged its duty consult are extremely high. [Read more...]<p style="text-align:justify;"> <img class="ms-rtePosition-1" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Pillars%20of%20Justice.jpg" alt="" style="margin:5px;width:75px;height:75px;" /></p><p style="text-align:justify;">The Supreme Court of Canada has unanimously clarified several features of the Crown’s duty to consult with and accommodate indigenous populations prior to project approvals being granted. The companion decisions of Canada’s top court in <strong><em><u>Clyde River (Hamlet) v. Petroleum Geo-Services Inc.</u></em><u>, 2017 SCC 40</u></strong> (<strong><em>Clyde River</em></strong>) and <em> <strong><u>Chippewas of the Thames First Nation v. Enbridge Pipelines Inc.</u></strong></em><strong><u>, 2017 SCC 41</u></strong> (<strong><em>Chippewas</em></strong>) clarify when the duty to consult is triggered; confirmed that the Crown can discharge its duty to consult through the project approval process undertaken by the regulatory body  (including the National Energy Board (<strong>NEB</strong>), which for the most part had declined to assess how a project affected Aboriginal or treaty rights); and also illustrated how to, and how not to, discharge the duty. </p><p style="text-align:justify;">In our view, these decisions set out benchmarks for discharging the duty to consult, and while the duty to consult is the Crown’s obligation, it is project proponents who are often left to carry out or bolster the consultation process. Without the duty being discharged, a project approval process cannot proceed, and therefore it is essential that the project proponent ensure the Crown’s duty is discharged.  This can mean paying for participation in the process by affected Aboriginal parties, for example, or providing the requisite information about the project to the affected parties so that consultation can be robust. </p><p style="text-align:justify;">Therefore, while the Court was clear that each situation should be viewed independently, the Court provides an illustrative roadmap for discharging the duty to consult, and in doing so has reduced some of the uncertainty plaguing Canadian project approvals. We expect these decisions to be parsed closely by project proponents, to ensure that they have discharged the duty, as if it can be shown later that the Crown’s duty to consult was not discharged, any project approval would be quashed on judicial review. Therefore the stakes in ensuring the Crown has discharged its duty consult are extremely high. </p><p style="text-align:justify;"> <a href="/energy/Pages/Post.aspx?PID=329">[<em>Read more</em>...]</a></p> The Supreme Court of Canada has unanimously clarified several features of the Crown’s duty to consult with and accommodate indigenous populations prior to project approvals being granted. The companion decisions of Canada’s top court in 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) clarify when the duty to consult is triggered; confirmed that the Crown can discharge its duty to consult through the project approval process undertaken by the regulatory body (including the National Energy Board (NEB), which for the most part had declined to assess how a project affected Aboriginal or treaty rights); and also illustrated how to, and how not to, discharge the duty. In our view, these decisions set out benchmarks for discharging the duty to consult, and while the duty to consult is the Crown’s obligation, it is project proponents who are often left to carry out or bolster the consultation process. Without the duty being discharged, a project approval process cannot proceed, and therefore it is essential that the project proponent ensure the Crown’s duty is discharged. This can mean paying for participation in the process by affected Aboriginal parties, for example, or providing the requisite information about the project to the affected parties so that consultation can be robust. Therefore, while the Court was clear that each situation should be viewed independently, the Court provides an illustrative roadmap for discharging the duty to consult, and in doing so has reduced some of the uncertainty plaguing Canadian project approvals. We expect these decisions to be parsed closely by project proponents, to ensure that they have discharged the duty, as if it can be shown later that the Crown’s duty to consult was not discharged, any project approval would be quashed on judicial review. Therefore the stakes in ensuring the Crown has discharged its duty consult are extremely high. BackgroundBoth the federal and provincial Crown owes a duty to consult indigenous populations whose Aboriginal or treaty rights are likely to be affected by a project approval. The duty arises from the Crown’s assumption of sovereignty over lands and resources formerly held by indigenous peoples. The scope of the duty is measured on a continuum, from minor or shallow consultation, to deep consultation. The scope depends on the strength of the Aboriginal rights claim of the affected indigenous population, and the seriousness of the potential impact of the exercise of those rights. Each duty to consult is unique, as it is based on a particular set of rights and impacts. One way to ensure the duty to consult is satisfied is through the project’s regulatory approval process itself. By ensuring meaningful Aboriginal participation in a process, and issuing a decision that is responsive to issues raised by affected Aboriginal populations, the Crown may well have discharged the duty to consult, depending on the breadth and depth of the scope of the duty. 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. Process for Satisfying Duty to ConsultIn these two decisions, the Supreme Court lays out an illustrative road map for satisfying the duty to consult. We have set it out below. Determine when the duty to consult is triggered – if the regulatory body has the power to make a final decision on a regulatory application, and that decision affects treaty or Aboriginal rights, then the duty is triggered when the regulatory process commences. Assess whether the regulatory tribunal has the power to satisfy the Crown’s duty to consult – i.e. can the tribunal compel witnesses and issue decisions commensurate with the scope of the duty. If it does, and the Crown is relying on the regulatory process to satisfy the duty, it must be made clear to the affected indigenous parties that the Crown is so relying. We note that the NEB had not generally assessed how a project had assessed Aboriginal or treaty rights in its project approval process, and the Court shows here that in these circumstances it was well equipped to do so. Attempt to determine the scope of the duty by assessing the Aboriginal rights claim and the seriousness of the impact of the project on those rights. Proponents would be well-advised to assume that discharging the duty will require substantial effort and funds. Ensure that the Crown’s obligation to consult is upheld in the specific tribunal process, through notification and active participation by affected Aboriginal parties in the regulatory process, provision of a written decision, and attachment of appropriate conditions to protect Aboriginal rights. A. Duty Not Discharged and Approval Quashed Clyde River In Clyde River, Petroleum Geo-Services Inc. (PGS) and others applied under the Canada Oil and Gas Operations Act, the legislation governing offshore exploration in the Arctic, to the NEB to conduct offshore seismic testing off the northeast coast of Nunavut as required. The proposed project contemplated towing airguns through a project area, to produce underwater sound waves, annually between July and November for five years. It was clear that the testing could negatively affect the marine mammal harvesting rights of the local indigenous population, the Inuit. 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 various surrounding communities to collect public comment, and representatives of the project proponents attended these meetings. Community members asked basic questions about the effects of the seismic survey on marine mammals, but the project proponents were unable to answer many of them, including which marine mammals would be affected by the testing. The proponents answered “That’s a very difficult question to answer because we’re not the core experts.” Oral hearings were not held by the NEB, and through the process the affected Inuit population filed letters of comment with the NEB, expressing concerns about the inadequacy of the consultation and about the testing generally. The proponents ultimately attempted to satisfy the Inuit’s questions about the seismic testing by filing a 3,926 page document with the NEB, and having that delivered to the Clyde River offices. No further efforts were made to ensure the questions were answered, 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 Inuit wrote to the Minister of Aboriginal Affairs and Northern Development stating that the duty had not been fulfilled, but could be fulfilled by a strategic environmental assessment. The Minister responded, disagreeing with the view that seismic testing should be put on hold pending completion of a strategic environmental assessment, and an NEB approval soon followed. The approval noted 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’s AnalysisThe Supreme Court analyzed the process undertaken by the NEB, found that the duty to consult had not been discharged and quashed the approval. The analysis proceeded in four clear steps. First, the Court found that the NEB approval process triggered the duty to consult. Next, the Court found that the NEB had broad procedural powers to implement consultation, and the remedial powers to accommodate affected Aboriginal claims where necessary. Therefore the NEB’s process could be relied by the Crown to completely or partially fulfill the Crown’s duty – in our view, the NEB has historically not addressed aboriginal or treaty rights in its approval process. This is a bold statement by the Court, and it confirms that the NEB’s robust process itself, if used appropriately, can be used to wholly or partially discharge the Crown’s duty to consult. Third, the Court had no difficulty characterizing the required level of consultation as “deep”, at the highest end of the continuum. In accordance with its previous jurisprudence, deep consultation requires “a strong prima facie case for the claim is established, the right and potential infringement is of high significance and the risk of non-compensable damages is high”. Here, there were established treaty rights that were at stake, as well as deep cultural attachment to marine mammals, and a significant risk that non-compensable damages would result. Fourth, the Court determined that the NEB’s process did not discharge the duty to consult. The NEB could have required oral hearings and formal participation in the process, but instead only limited opportunities for participation were made available. There was no participant funding. The proponents did not answer basic questions going to the heart of the treaty right, and in the words of the Court, “to put it mildly, furnishing answers to questions that went to the heart of the treaty rights at stake in the form of a practically inaccessible document dump months after the questions were initially asked in person is not true consultation.” We question whether the outcome of this matter would have been different had the report been provided sooner and in an accessible format, along with capacity funding for expert review along with sufficient time for that review to occur. The proponents’ failure to do so indicates their critical role in ensuring the Crown’s duty to consult is met. B. Duty Discharged ChippewasEnbridge Pipelines applied to the NEB to modify its Line 9 oil pipeline, reversing the flow of part of the pipeline, increasing its capacity and widening its specifications so it could carry heavy crude oil. 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 Chippewas of the Thames participated in the NEB process, and after their participation was complete, wrote a letter to the Crown, asserting Aboriginal and treaty rights, outlining the project’s potential impact, and stating that no Crown consultation had taken place. The Minister of Natural Resources responded after the NEB process was complete, stating that he would be relying 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, given that no new land would be acquired as a result of the project. Therefore, the NEB was satisfied that potentially affected Aboriginal groups had the opportunity to share their views through the NEB. The conditions required Enbridge to file an Environmental Protection Plan, an Ongoing Engagement Report and required Enbridge to include Aboriginal groups in Enbridge’s continuing education plan. The Chippewas of the Thames appealed, stating that the approval could not be issued without the duty to consult and accommodate being met; the Crown and Enbridge argued that the duty could be met through a regulatory hearing, and that the duty to accommodate was met through the conditions that were imposed.The Supreme Court’s AnalysisThe Supreme Court went through a remarkably similar process as it did in Clyde River when analyzing the Crown’s duty to consult the Chippewas of the Thames River. First, it held that the commencement of the NEB process triggered the duty to consult. Second, it held that the duty to consult can be fulfilled by a regulatory agency, provided the agency possesses the statutory power to do what the duty to consult requires in the circumstances. If the agency does not have the power or if it does not provide the adequate consultation and accommodation, the Crown must do so independently. As the NEB was the final decision-maker on this project, it was required to consider whether the Crown’s consultation was adequate, and was therefore capable of satisfying the Crown’s duty to consult. Third, while it did not specifically address where on the continuum of consultation this matter fell, it found that the Crown’s duty to consult was discharged by the NEB process. In doing so, the Court held that the opportunity to participate in the hearings was provided and taken, a written decision was issued recognizing the treaty rights, and suitable conditions were imposed. It also found that any potential impacts on the rights of the Chippewas of the Thames were minimal and could reasonably be mitigated, thus implying that the duty to consult was somewhat less onerous than in Clyde River. Finally, it found that the NEB had successfully balanced the treaty rights of the First Nation and the economic interests of Enbridge at the accommodation stage.Though the Crown failed to notify the Chippewas of the Thames that it intended to rely on the NEB hearing to discharge the duty to consult, and while the Chippewas argued that was fatal to the application, the Supreme Court found that they were provided with opportunities to participate, and did participate, in the process. Nevertheless, if project proponents wish to rely on the regulatory process to discharge the duty to consult, they would be well-advised to advise affected parties in advance.Conclusions and ImplicationsThese decisions confirm and clarify the process that project proponents and regulators should follow to satisfy the duty to consult and accommodate. Parties may try to copy what Enbridge did in on Line 9, and will avoid the Clyde River process undertaken by PGS and its partners. Provided the duty is assessed, and robustly discharged, applications to quash coming up after the approval is issued seem to have less chance of success. These decisions are very clearly and concisely written, and effectively show what to do, and what not to do. They therefore inject additional certainty into how the approval process should deal with the duty to consult –certainty which is more than welcome. <p style="text-align:justify;"> <img class="ms-rtePosition-1" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Pillars%20of%20Justice.jpg" alt="" style="margin:5px;width:310px;" /></p><p style="text-align:justify;">The Supreme Court of Canada has unanimously clarified several features of the Crown’s duty to consult with and accommodate indigenous populations prior to project approvals being granted. The companion decisions of Canada’s top court in <strong><em><u>Clyde River (Hamlet) v. Petroleum Geo-Services Inc.</u></em><u>, 2017 SCC 40</u></strong> (<strong><em>Clyde River</em></strong>) and <em> <strong><u>Chippewas of the Thames First Nation v. Enbridge Pipelines Inc.</u></strong></em><strong><u>, 2017 SCC 41</u></strong> (<strong><em>Chippewas</em></strong>) clarify when the duty to consult is triggered; confirmed that the Crown can discharge its duty to consult through the project approval process undertaken by the regulatory body  (including the National Energy Board (<strong>NEB</strong>), which for the most part had declined to assess how a project affected Aboriginal or treaty rights); and also illustrated how to, and how not to, discharge the duty. </p><p style="text-align:justify;">In our view, these decisions set out benchmarks for discharging the duty to consult, and while the duty to consult is the Crown’s obligation, it is project proponents who are often left to carry out or bolster the consultation process. Without the duty being discharged, a project approval process cannot proceed, and therefore it is essential that the project proponent ensure the Crown’s duty is discharged.  This can mean paying for participation in the process by affected Aboriginal parties, for example, or providing the requisite information about the project to the affected parties so that consultation can be robust. </p><p style="text-align:justify;">Therefore, while the Court was clear that each situation should be viewed independently, the Court provides an illustrative roadmap for discharging the duty to consult, and in doing so has reduced some of the uncertainty plaguing Canadian project approvals. We expect these decisions to be parsed closely by project proponents, to ensure that they have discharged the duty, as if it can be shown later that the Crown’s duty to consult was not discharged, any project approval would be quashed on judicial review. Therefore the stakes in ensuring the Crown has discharged its duty consult are extremely high. </p><p style="text-align:justify;"><strong><u>Background</u></strong></p><p style="text-align:justify;">Both the federal and provincial Crown owes a duty to consult indigenous populations whose Aboriginal or treaty rights are likely to be affected by a project approval. The duty arises from the Crown’s assumption of sovereignty over lands and resources formerly held by indigenous peoples. The scope of the duty is measured on a continuum, from minor or shallow consultation, to deep consultation.  The scope depends on the strength of the Aboriginal rights claim of the affected indigenous population, and the seriousness of the potential impact of the exercise of those rights. Each duty to consult is unique, as it is based on a particular set of rights and impacts.  </p><p style="text-align:justify;">One way to ensure the duty to consult is satisfied is through the project’s regulatory approval process itself. By ensuring meaningful Aboriginal participation in a process, and issuing a decision that is responsive to issues raised by affected Aboriginal populations, the Crown may well have discharged the duty to consult, depending on the breadth and depth of the scope of the duty. </p><p style="text-align:justify;">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. </p><p style="text-align:justify;"><strong><u>Process for Satisfying Duty to Consult</u></strong></p><p style="text-align:justify;">In these two decisions, the Supreme Court lays out an illustrative road map for satisfying the duty to consult.  We have set it out below. </p><ol style="text-align:justify;"><li><strong>Determine when the duty to consult is triggered – if the regulatory body has the power to make a final decision on a regulatory application, and that decision affects treaty or Aboriginal rights, then the duty is triggered when the regulatory process commences. </strong></li><li><strong>Assess whether the regulatory tribunal has the power to satisfy the Crown’s duty to consult – i.e. can the tribunal compel witnesses and issue decisions commensurate with the scope of the duty. If it does, and the Crown is relying on the regulatory process to satisfy the duty, it must be made clear to the affected indigenous parties that the Crown is so relying.  We note that the NEB had not generally assessed how a project had assessed Aboriginal or treaty rights in its project approval process, and the Court shows here that in these circumstances it was well equipped to do so. </strong></li><li><strong>Attempt to determine the scope of the duty by assessing the Aboriginal rights claim and the seriousness of the impact of the project on those rights. Proponents would be well-advised to assume that discharging the duty will require substantial effort and funds. </strong></li><li><strong>Ensure that the Crown’s obligation to consult is upheld in the specific tribunal process, through notification and active participation by affected Aboriginal parties in the regulatory process, provision of a written decision, and attachment of appropriate conditions to protect Aboriginal rights.<br></strong></li></ol><p style="text-align:justify;margin-left:20px;"><strong>A. </strong><strong><u>Duty Not Discharged and Approval Quashed: Clyde River</u></strong> </p><p style="text-align:justify;">In <em>Clyde River</em>, Petroleum Geo-Services Inc. (<strong>PGS</strong>) and others applied under the <em>Canada Oil and Gas Operations Act</em>, the legislation governing offshore exploration in the Arctic, to the NEB to conduct offshore seismic testing off the northeast coast of Nunavut as required. The proposed project contemplated towing airguns through a project area, to produce underwater sound waves, annually between July and November for five years. </p><p style="text-align:justify;">It was clear that the testing could negatively affect the marine mammal harvesting rights of the local indigenous population, the Inuit. Under the<em> Nunavut Land Claims Agreement</em> (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. </p><p style="text-align:justify;">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 various surrounding communities to collect public comment, and representatives of the project proponents attended these meetings. Community members asked basic questions about the effects of the seismic survey on marine mammals, but the project proponents were unable to answer many of them, including which marine mammals would be affected by the testing. The proponents answered “That’s a very difficult question to answer because we’re not the core experts.” Oral hearings were not held by the NEB, and through the process the affected Inuit population filed letters of comment with the NEB, expressing concerns about the inadequacy of the consultation and about the testing generally. </p><p style="text-align:justify;">The proponents ultimately attempted to satisfy the Inuit’s questions about the seismic testing by filing a 3,926 page document with the NEB, and having that delivered to the Clyde River offices. No further efforts were made to ensure the questions were answered, the document was not translated into Inuktitut (the Inuit language), and due to limited bandwidth on Baffin Island the document could not be downloaded. </p><p style="text-align:justify;">Subsequently the Inuit wrote to the Minister of Aboriginal Affairs and Northern Development stating that the duty had not been fulfilled, but could be fulfilled by a strategic environmental assessment. The Minister responded, disagreeing with the view that seismic testing should be put on hold pending completion of a strategic environmental assessment, and an NEB approval soon followed. The approval noted 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. </p><p style="text-align:justify;"><strong>The Supreme Court’s Analysis</strong></p><p style="text-align:justify;">The Supreme Court analyzed the process undertaken by the NEB, found that the duty to consult had not been discharged and quashed the approval. The analysis proceeded in four clear steps. </p><p style="text-align:justify;">First, the Court found that the NEB approval process triggered the duty to consult. </p><p style="text-align:justify;">Next, the Court found that the NEB had broad procedural powers to implement consultation, and the remedial powers to accommodate affected Aboriginal claims where necessary. Therefore the NEB’s process could be relied by the Crown to completely or partially fulfill the Crown’s duty – in our view, the NEB has historically not addressed aboriginal or treaty rights in its approval process. This is a bold statement by the Court, and it confirms that the NEB’s robust process itself, if used appropriately, can be used to wholly or partially discharge the Crown’s duty to consult. </p><p style="text-align:justify;">Third, the Court had no difficulty characterizing the required level of consultation as “deep”, at the highest end of the continuum<em>. </em>In accordance with its previous jurisprudence, deep consultation requires “a strong <em>prima facie</em> case for the claim is established, the right and potential infringement is of high significance and the risk of non-compensable damages is high”. Here, there were established treaty rights that were at stake, as well as deep cultural attachment to marine mammals, and a significant risk that non-compensable damages would result. </p><p style="text-align:justify;">Fourth, the Court determined that the NEB’s process did not discharge the duty to consult. The NEB could have required oral hearings and formal participation in the process, but instead only limited opportunities for participation were made available. There was no participant funding. The proponents did not answer basic questions going to the heart of the treaty right, and in the words of the Court, “to put it mildly, furnishing answers to questions that went to the heart of the treaty rights at stake in the form of a practically inaccessible document dump months after the questions were initially asked in person is not true consultation.”  </p><p style="text-align:justify;">We question whether the outcome of this matter would have been different had the report been provided sooner and in an accessible format, along with capacity funding for expert review along with sufficient time for that review to occur. The proponents’ failure to do so indicates their critical role in ensuring the Crown’s duty to consult is met. </p><p style="text-align:justify;margin-left:20px;"><strong><u>B. Duty Discharged: Chippewas</u></strong></p><p style="text-align:justify;">Enbridge Pipelines applied to the NEB to modify its Line 9 oil pipeline, reversing the flow of part of the pipeline, increasing its capacity and widening its specifications so it could carry heavy crude oil. 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 Chippewas of the Thames participated in the NEB process, and after their participation was complete, wrote a letter to the Crown, asserting Aboriginal and treaty rights, outlining the project’s potential impact, and stating that no Crown consultation had taken place. The Minister of Natural Resources responded after the NEB process was complete, stating that he would be relying on the NEB’s process to fulfil the duty to consult. </p><p style="text-align:justify;">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, given that no new land would be acquired as a result of the project. Therefore, the NEB was satisfied that potentially affected Aboriginal groups had the opportunity to share their views through the NEB.  The conditions required Enbridge to file an Environmental Protection Plan, an Ongoing Engagement Report and required Enbridge to include Aboriginal groups in Enbridge’s continuing education plan.  </p><p style="text-align:justify;">The Chippewas of the Thames appealed, stating that the approval could not be issued without the duty to consult and accommodate being met; the Crown and Enbridge argued that the duty could be met through a regulatory hearing, and that the duty to accommodate was met through the conditions that were imposed.</p><p style="text-align:justify;"><strong>The Supreme Court’s Analysis</strong></p><p style="text-align:justify;">The Supreme Court went through a remarkably similar process as it did in Clyde River when analyzing the Crown’s duty to consult the Chippewas of the Thames River. </p><p style="text-align:justify;">First, it held that the commencement of the NEB process triggered the duty to consult. </p><p style="text-align:justify;">Second, it held that the duty to consult can be fulfilled by a regulatory agency, provided the agency possesses the statutory power to do what the duty to consult requires in the circumstances. If the agency does not have the power or if it does not provide the adequate consultation and accommodation, the Crown must do so independently. As the NEB was the final decision-maker on this project, it was required to consider whether the Crown’s consultation was adequate, and was therefore capable of satisfying the Crown’s duty to consult. </p><p style="text-align:justify;">Third, while it did not specifically address where on the continuum of consultation this matter fell, it found that the Crown’s duty to consult was discharged by the NEB process. In doing so, the Court held that the opportunity to participate in the hearings was provided and taken, a written decision was issued recognizing the treaty rights, and suitable conditions were imposed. It also found that any potential impacts on the rights of the Chippewas of the Thames were minimal and could reasonably be mitigated, thus implying that the duty to consult was somewhat less onerous than in <em>Clyde River</em>. Finally, it found that the NEB had successfully balanced the treaty rights of the First Nation and the economic interests of Enbridge at the accommodation stage.</p><p style="text-align:justify;">Though the Crown failed to notify the Chippewas of the Thames that it intended to rely on the NEB hearing to discharge the duty to consult, and while the Chippewas argued that was fatal to the application, the Supreme Court found that they were provided with opportunities to participate, and did participate, in the process. Nevertheless, if project proponents wish to rely on the regulatory process to discharge the duty to consult, they would be well-advised to advise affected parties in advance.</p><p style="text-align:justify;"><strong><u>Conclusions and Implications</u></strong></p><p style="text-align:justify;">These decisions confirm and clarify the process that project proponents and regulators should follow to satisfy the duty to consult and accommodate. Parties may try to copy what Enbridge did in on Line 9, and will avoid the Clyde River process undertaken by PGS and its partners. Provided the duty is assessed, and robustly discharged, applications to quash coming up after the approval is issued seem to have less chance of success. These decisions are very clearly and concisely written, and effectively show what to do, and what not to do. They therefore inject additional certainty into how the approval process should deal with the duty to consult –certainty which is more than welcome. </p><div style="text-align:justify;">  </div>7/27/2017 4:00:00 AM2017-07-27T04:00:00ZTrue1float;#7.00000000000000float;#2017.00000000000string;#Julyfloat;#201707.000000000GP0|#23e50663-be85-467e-acf9-7150e42ed669;L0|#023e50663-be85-467e-acf9-7150e42ed669|Energy;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#79f5b025-e6dd-4c66-873b-67e8780cf972;L0|#079f5b025-e6dd-4c66-873b-67e8780cf972|Regulatory;GP0|#2cad29ca-54e6-43bb-a056-02b01b063aaa;L0|#02cad29ca-54e6-43bb-a056-02b01b063aaa|AboriginalEnergy;Regulatory;Aboriginal
The Limits of Judicial Intervention Where an Administrative Decision is Not Yet CompleteThe Limits of Judicial Intervention Where an Administrative Decision is Not Yet Complete328BLG Blog PostMichael Gaber;Miles Pittmanmgaber@blg.com | Michael Gaber | 693A30232E777C626C6763616E6164615C6D6761626572 i:0#.w|blgcanada\mgaber;mpittman@blg.com | Miles Pittman | 693A30232E777C626C6763616E6164615C6D706974746D616E i:0#.w|blgcanada\mpittman […] absent exceptional circumstances, parties cannot proceed to the court system until the administrative process has run its course [Canada (Border Services Agency) v CB Powell Limited, 2010 FCA 61 at para 31, [2011] 2 FCR 332]. The recent federal court case of Northern Cross (Yukon) Limited v Canada (Attorney General), 2017 FC 622, 2017 CarswellNat 2962 [Northern Cross] reaffirms the general principle that courts will be hesitant to intervene where an administrative decision is not yet finalized. [Read more...]<img alt="Yukon Winter" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Yukon-Winter.jpg" style="width:75px;margin-right:10px;float:left;" /> <p>[…]<em> absent exceptional circumstances, parties cannot proceed to the court system until the administrative process has run its course </em>[<em>Canada (Border Services Agency) v CB Powell Limited</em>, 2010 FCA 61 at para 31, [2011] 2 FCR 332].</p><p> The recent federal court case of<em> Northern Cross (Yukon) Limited v Canada (Attorney General)</em>, 2017 FC 622, 2017 CarswellNat 2962 [<em>Northern Cross</em>] reaffirms the general principle that courts will be hesitant to intervene where an administrative decision is not yet finalized. </p><p>[<em><a href="/energy/Pages/Post.aspx?PID=328">Read more</a></em>...]</p> […] absent exceptional circumstances, parties cannot proceed to the court system until the administrative process has run its course [Canada (Border Services Agency) v CB Powell Limited, 2010 FCA 61 at para 31, [2011] 2 FCR 332]. The recent federal court case of Northern Cross (Yukon) Limited v Canada (Attorney General), 2017 FC 622, 2017 CarswellNat 2962 [Northern Cross] reaffirms the general principle that courts will be hesitant to intervene where an administrative decision is not yet finalized. Background Northern Cross (Yukon) Limited (“Northern Cross”) submitted a proposal to a designated office of the Yukon Environmental and Socio-economic Assessment Board (the “Board”) for a multi-well exploration project in the Yukon. The designated office, after a lengthy and detailed process, referred the proposal to the Executive Committee of the Board for screening. The designated office did not make a final determination on the proposal. Instead, the proposal was referred because the designated office “could not determine whether the Project will have, or is likely to have, significant socio-economic effects” (para 29). The effect of referring the proposal to the Executive Committee of the Board was that any actual determination of the proposal would likely be delayed by one to two years. The designated office could not determine whether the proposal would have significant adverse environmental or socio-economic effects on a rather narrow ground. The designated office concluded it could not determine the “probability or magnitude” of changes to caribou migration. The need for greater certainty on caribou migration was necessary given the importance of the animals’ relation to the First Nation and Inuvialuit way of life, and the unprecedented scale of the proposal (para 28). Northern Cross applied for judicial review of the decision referring, the assessment of the proposal to the Executive Committee of the Board for screening, alleging that the process included breaches of procedural fairness and the decision to refer the proposal was a reviewable error. The Decision Although a number of issues were raised on appeal, Justice Boswell determined the federal court did have jurisdiction to hear the application but then determined the application for judicial review was premature; the application was dismissed with costs. Analysis The Legislative Framework and the Referral for Screening Northern Cross’ proposal was submitted to the designated office pursuant to the Yukon Environmental and Socio-economic Assessment Act, SC 2003, c 7 (the “Act”). The designated office is staffed by members of the Board, and the Board exists to implement the Act which includes, among other things, ensuring “that projects are undertaken in accordance with principles that foster beneficial socio-economic change without undermining the ecological and social systems on which communities and their residents, and societies in general, depend” (s 5(2)(e)). A designated office will conduct a review of a proposal to determine the adequacy of the submissions, the scope of the proposed project, and whether the project will be located, or might have significant environmental or socio-economic effects, in the territory of a First Nation (para 5). A designated office may then conclude its evaluation by making a recommendation or by referring the project to the Executive Committee of the Board for screening (s 56(1)). Pursuant to section 56(1)(d), the designated office referred the proposal to the Executive Committee of the Board for screening [s 56(1)] A designated office shall […] conclude its evaluation of the project by […] (d) referring the project to the executive committee for a screening, if, […], it cannot determine whether the project will have, or is likely to have, significant adverse environmental or socio- economic effects. The Federal Court’s Jurisdiction Jurisdiction was a threshold issue as the Act granted the Supreme Court of Yukon jurisdiction to hear applications for judicial review of decisions made under the Act (s 116) Notwithstanding the exclusive jurisdiction referred to in section 18 of the Federal Courts Act, the Attorney General of Canada, the territorial minister or anyone directly affected by the matter in respect of which relief is sought may make an application to the Supreme Court of Yukon for any relief against the Board, a designated office, the executive committee, a panel of the Board, a joint panel or a decision body […] Justice Boswell first concluded the Federal Court had jurisdiction to hear the application under the Federal Courts Act, RSC 1985, c F-7 and then concluded that section 116 of the Act did not displace the Federal Court’s jurisdiction. Instead, section 116 simply granted the Supreme Court of Yukon concurrent jurisdiction to review administrative actions made under the Act (para 42). That the Application was Premature The Attorney General argued the application was premature as the proposal’s reference to the Executive Committee of the Board was merely an “interlocutory step” in the ongoing assessment process; no decision was yet reviewable as the process had not concluded (para 50). Northern Cross argued the application was not premature as the project had reached a “natural break” and that the designated office itself had exhausted its statutory authority (para 46). Further, judicial review was necessary to remedy the breaches of procedural fairness. Justice Boswell was not persuaded by Northern Cross’ submissions. He cited a number of cases highlighting the principle “that a court should not review an administrative decision that has not yet been finalized” (para 54). He found that court intervention was not appropriate as the administrative process involving the proposal was not complete (para 60); following screening by the Executive Committee of the Board, the proposal could very well be approved. Finally, Justice Boswell was satisfied that the Board’s screening would provide Northern Cross with its opportunity to demonstrate why the proposal should be approved (para 61). Accordingly, the Act still provided Northern Cross with a clear method of addressing its concerns. Justice Boswell concluded an incomplete administrative process or a ‘referral decision’ will not be subject to judicial review absent “exceptional circumstances or a contravention of the requirements of procedural fairness” (para 58). He held there were no exceptional circumstances to warrant court intervention at the time of the application (para 60). Although Northern Cross did allege breaches of procedural fairness, Justice Boswell concluded those alleged breaches could still be addressed by the Executive Committee of the Board. The policy considerations underlying the judgment of Northern Cross emphasize the need for the efficient use of judicial resources and the desire for courts not to overstep their authority in reviewing decisions of administrative bodies. As stated in Re Wilson and Atomic Energy of Canada Ltd, 2015 FCA 17 at para 31, [2015] 4 FCR 467 The general rule against premature judicial reviews reflects at least two public law values. One is good administration — encouraging cost savings, efficiencies, promptness and allowing administrative expertise and specialization to be fully brought to bear on the problem before reviewing courts are involved. Another is democracy — elected legislators have vested the primary responsibility of decision-making in adjudicators, not the judiciary. Conclusion Absent exceptional circumstances or issues of procedural fairness, a court will not intervene on an administrative process that has yet to conclude. The judgment of Northern Cross provides the latest example of this general principle. Further, allegations of breaches of procedural fairness alone will not alone persuade a court to intervene. A court must be convinced that intervention is completely necessary to address the alleged breaches. Where the administrative process has not yet concluded, this threshold remains high.<img alt="Yukon Winter" src="/energy/PublishingImages/Lists/Blog%20Posts/AllItems/Yukon-Winter.jpg" style="width:310px;height:217px;margin-right:10px;float:left;" /> <p> […]<em> absent exceptional circumstances, parties cannot proceed to the court system until the administrative process has run its course </em>[<em>Canada (Border Services Agency) v CB Powell Limited</em>, 2010 FCA 61 at para 31, [2011] 2 FCR 332].</p><p> The recent federal court case of<em> Northern Cross (Yukon) Limited v Canada (Attorney General)</em>, 2017 FC 622, 2017 CarswellNat 2962 [<em>Northern Cross</em>] reaffirms the general principle that courts will be hesitant to intervene where an administrative decision is not yet finalized. </p><p> <strong>Background</strong> </p><p>Northern Cross (Yukon) Limited (“Northern Cross”) submitted a proposal to a designated office of the Yukon Environmental and Socio-economic Assessment Board (the “Board”) for a multi-well exploration project in the Yukon. The designated office, after a lengthy and detailed process, referred the proposal to the Executive Committee of the Board for screening. The designated office did not make a final determination on the proposal. Instead, the proposal was referred because the designated office “could not determine whether the Project will have, or is likely to have, significant socio-economic effects” (para 29). The effect of referring the proposal to the Executive Committee of the Board was that any actual determination of the proposal would likely be delayed by one to two years.</p><p>The designated office could not determine whether the proposal would have significant adverse environmental or socio-economic effects on a rather narrow ground. The designated office concluded it could not determine the “probability or magnitude” of changes to caribou migration. The need for greater certainty on caribou migration was necessary given the importance of the animals’ relation to the First Nation and Inuvialuit way of life, and the unprecedented scale of the proposal (para 28).</p><p>Northern Cross applied for judicial review of the decision referring, the assessment of the proposal to the Executive Committee of the Board for screening, alleging that the process included breaches of procedural fairness and the decision to refer the proposal was a reviewable error.</p><p> <strong>The Decision</strong> </p><p>Although a number of issues were raised on appeal, Justice Boswell determined the federal court did have jurisdiction to hear the application but then determined the application for judicial review was premature; the application was dismissed with costs.</p><p> <strong>Analysis</strong> </p><p> <em>The Legislative Framework and the Referral for Screening</em> </p><p>Northern Cross’ proposal was submitted to the designated office pursuant to the <em>Yukon Environmental and Socio-economic Assessment Act</em>, SC 2003, c 7 (the “Act”). The designated office is staffed by members of the Board, and the Board exists to implement the Act which includes, among other things, ensuring “that projects are undertaken in accordance with principles that foster beneficial socio-economic change without undermining the ecological and social systems on which communities and their residents, and societies in general, depend” (s 5(2)(e)).</p><p>A designated office will conduct a review of a proposal to determine the adequacy of the submissions, the scope of the proposed project, and whether the project will be located, or might have significant environmental or socio-economic effects, in the territory of a First Nation (para 5). A designated office may then conclude its evaluation by making a recommendation or by referring the project to the Executive Committee of the Board for screening (s 56(1)). Pursuant to section 56(1)(d), the designated office referred the proposal to the Executive Committee of the Board for screening:</p><p style="text-align:justify;margin-left:20px;"> <em>[s 56(1)] A designated office shall […] conclude its evaluation of the project by </em></p><p style="text-align:justify;margin-left:40px;">[…] </p><p style="text-align:justify;margin-left:40px;"> <em>(d) referring the project to the executive committee for a screening, if, […], it cannot determine whether the project will have, or is likely to have, significant adverse environmental or socio- economic effects. </em></p><p> <em>The Federal Court’s Jurisdiction </em></p><p>Jurisdiction was a threshold issue as the Act granted the Supreme Court of Yukon jurisdiction to hear applications for judicial review of decisions made under the Act (s 116): </p><p style="text-align:justify;margin-left:20px;"> <em>Notwithstanding the exclusive jurisdiction referred to in section 18 of the Federal Courts Act, the Attorney General of Canada, the territorial minister or anyone directly affected by the matter in respect of which relief is sought may make an application to the Supreme Court of Yukon for any relief against the Board, a designated office, the executive committee, a panel of the Board, a joint panel or a decision body […] </em></p><p>Justice Boswell first concluded the Federal Court had jurisdiction to hear the application under the <em>Federal Courts Act</em>, RSC 1985, c F-7 and then concluded that section 116 of the Act did not displace the Federal Court’s jurisdiction. Instead, section 116 simply granted the Supreme Court of Yukon concurrent jurisdiction to review administrative actions made under the Act (para 42).</p><p> <em>That the Application was Premature</em> </p><p>The Attorney General argued the application was premature as the proposal’s reference to the Executive Committee of the Board was merely an “interlocutory step” in the ongoing assessment process; no decision was yet reviewable as the process had not concluded (para 50). Northern Cross argued the application was not premature as the project had reached a “natural break” and that the designated office itself had exhausted its statutory authority (para 46). Further, judicial review was necessary to remedy the breaches of procedural fairness.</p><p>Justice Boswell was not persuaded by Northern Cross’ submissions. He cited a number of cases highlighting the principle “that a court should not review an administrative decision that has not yet been finalized” (para 54). He found that court intervention was not appropriate as the administrative process involving the proposal was not complete (para 60); following screening by the Executive Committee of the Board, the proposal could very well be approved. Finally, Justice Boswell was satisfied that the Board’s screening would provide Northern Cross with its opportunity to demonstrate why the proposal should be approved (para 61). Accordingly, the Act still provided Northern Cross with a clear method of addressing its concerns. </p><p>Justice Boswell concluded an incomplete administrative process or a ‘referral decision’ will not be subject to judicial review absent “exceptional circumstances or a contravention of the requirements of procedural fairness” (para 58). He held there were no exceptional circumstances to warrant court intervention at the time of the application (para 60). Although Northern Cross did allege breaches of procedural fairness, Justice Boswell concluded those alleged breaches could still be addressed by the Executive Committee of the Board.  </p><p>The policy considerations underlying the judgment of <em>Northern Cross</em> emphasize the need for the efficient use of judicial resources and the desire for courts not to overstep their authority in reviewing decisions of administrative bodies. As stated in <em>Re Wilson and Atomic Energy of Canada Ltd</em>, 2015 FCA 17 at para 31, [2015] 4 FCR 467:</p><p style="text-align:justify;margin-left:20px;"> <em>The general rule against premature judicial reviews reflects at least two public law values. One is good administration — encouraging cost savings, efficiencies, promptness and allowing administrative expertise and specialization to be fully brought to bear on the problem before reviewing courts are involved. Another is democracy — elected legislators have vested the primary responsibility of decision-making in adjudicators, not the judiciary.</em></p><p> <strong>Conclusion</strong></p><p>Absent exceptional circumstances or issues of procedural fairness, a court will not intervene on an administrative process that has yet to conclude. The judgment of <em>Northern Cross</em> provides the latest example of this general principle. Further, allegations of breaches of procedural fairness alone will not alone persuade a court to intervene. A court must be convinced that intervention is completely necessary to address the alleged breaches. Where the administrative process has not yet concluded, this threshold remains high.</p>7/25/2017 4:00:00 AM2017-07-25T04:00:00ZTrue1float;#7.00000000000000float;#2017.00000000000string;#Julyfloat;#201707.000000000GP0|#083b07fe-18bf-457e-a494-ae88d7a4dc72;L0|#0083b07fe-18bf-457e-a494-ae88d7a4dc72|Mining;GTSet|#939fe804-8a2a-4cfa-af8f-5756b32ac3ca;GP0|#60a6f187-f0e0-4c65-a06c-b97febf6542e;L0|#060a6f187-f0e0-4c65-a06c-b97febf6542e|Oil & Gas;GP0|#79f5b025-e6dd-4c66-873b-67e8780cf972;L0|#079f5b025-e6dd-4c66-873b-67e8780cf972|RegulatoryMining;Oil & Gas;Regulatory