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One step closer to expanding Trans Mountain pipeline: a case comment on Reference Re: Environmental Management Act (British Columbia), 2019 BCCA 181

Energy Newsletter - November 2019
18.11.19
By Ben Otto

On May 24, 2019, the British Columbia Court of Appeals (BCCA) released its highly anticipated reference decision regarding proposed amendments (the Proposed Amendments) to British Columbia's Environmental Management Act (the Act). In a unanimous decision, the BCCA's five-member panel held that the Proposed Amendments were outside the Province's constitutional authority, finding that their pith and substance was to place conditions on, and if necessary, prohibit the carriage of heavy oil through an interprovincial undertaking, which is within the Federal Government's exclusive constitutional jurisdiction.

The Proposed Amendments were found to effectively restrict the transportation of heavy oil into and across British Columbia. The BCCA's judgement garnered national attention, primarily due to the Proposed Amendments' introduction of a hazardous substance permit and, more particularly, the Proposed Amendment's impact on the Trans Mountain Expansion Project (TMX). Unsurprisingly, the Federal Government, and several interested parties, including the Provincial Governments of Alberta and Saskatchewan, opposed the Proposed Amendments and submitted factums challenging the constitutionality of the Proposed Amendments.

Background

In May 2018, the Federal Government purchased the Trans Mountain pipeline from Kinder Morgan Inc. for $4.5 billion. The pipeline transports crude oil from Edmonton, Alberta to an export facility in Burnaby, British Columbia. Once completed, the TMX will nearly triple the Pipeline's capacity. However, the proposed increase in capacity would require a corresponding increase in tanker traffic in Vancouver's Burrard Inlet in order to facilitate additional shipments to Asia and other markets. The Provincial Government of British Columbia as well as the municipal governments of Burnaby and Vancouver have historically opposed the TMX. In British Columbia, a coalition government was formed between the New Democrat Party and the Green Party, indicating they would employ "every tool" available to stop the TMX. The City of Burnaby has withheld municipal permits in attempts to stop the TMX, and the City of Vancouver has legally challenged the TMX's environmental assessment certificate, each resulting in extensive litigation. While the Provincial Government was advised that it did not have the constitutional authority to stop the TMX, the Province did have the authority to apply regulations aimed at protecting its coast.

Issues

The BCCA was asked to determine the Proposed Amendments' constitutionality considering the heads of power under Sections 91 and 92 of the Constitution Act, 1867 (Constitution Act). British Columbia's Provincial Government asserted that its citizens are disproportionately affected by the transportation of heavy oil, asserting that the Province has the constitutional authority to regulate the pipeline in the interests of the environment – not exclusively, but to the extent that it falls under "Property and Civil Rights in the Province" or "Matters of a merely local or private Nature". Conversely, the Federal Government saw the Proposed Amendments as a disguised attempt to obstruct the TMX, arguing that they effectively lead to a situation of concurrent jurisdiction, contrary to the exclusive power to regulate interprovincial undertakings as provided under the Constitution Act.

Generally, the BCCA was asked to opine on the constitutional validity of the Proposed Amendments to the Act, and particularly, the Court was asked to answer the following questions:

  1. Validity: Are the Proposed Amendments within the Province's jurisdiction?
  2. Interjurisdictional immunity: If question 1 is answered in the affirmative, are the Proposed Amendments applicable to substances brought into British Columbia by means of an interprovincial undertaking?
  3. Paramountcy: If questions 1 and 2 are answered in the affirmative, does existing federal legislation that is inconsistent with the Proposed Amendments render the Proposed Amendments inoperative?

Proposed Amendments

The Proposed Amendments were designed to create a new regime for the possession of hazardous substances in British Columbia, introducing a permit requirement. However, the Federal Government saw this as "targeted legislation", as heavy oil was the only hazardous substance falling under the scope of the Act. Further, the permit requirement would only apply to persons (either a natural person or a corporation) who seek to increase their possession, charge or control of heavy oil in excess of the largest amount that person had in British Columbia in any of the years 2013-2017.

An additional point of dispute was the degree of the Province's discretion to grant or deny permits, which were to be issued and controlled under the discretion of the director under the Act. Similarly, the director was given broad mechanisms of enforcement, including suspending or cancelling permits, issuing restraining orders or even imposing fines and imprisonment.

The decision

The BCCA's decision was based on its analysis of the "pith and substance" of the Proposed Amendments, finding that their intended and sole effect was to set conditions for, and, if necessary, prohibit the possession and control of increased volumes of heavy oil within the Province. On behalf of the Court, Newbury J.A. provided that:

Even if [the Proposed Amendments] were not intended to 'single out' the TMX pipeline, it has the potential to affect (and indeed 'stop in its tracks') the entire operation of Trans Mountain as an interprovincial carrier and exporter of oil. It is legislation that in pith and substance relates to, and relates only to, what makes the pipeline "specifically of federal jurisdiction."… Unless the pipeline is contained entirely within a province, federal jurisdiction is the only way in which it may be regulated.

Accordingly, the Court found that the pith and substance of the Proposed Amendments did not relate to "matters of a merely local or private nature" nor to "property… in the province", but instead to Parliament's jurisdiction in respect of federal undertakings under Section 92(10) of the Constitution Act. The Court held that the Proposed Amendments were not of general application, and instead were "targeted at one substance in one (interprovincial) pipeline".

The Court noted that if enacted, the Proposed Amendments would prohibit the TMX until such time as a provincially appointed official (the director under the Act) decided otherwise. The National Energy Board (NEB), which was established by the National Energy Board Act (NEBA), is an independent federal agency that regulates pipelines crossing interprovincial and international borders. The NEBA, along with other existing federal legislation and regulations, such as the Pipeline Safety Act, the Canada Oil and Gas Operations Act and the National Energy Board Onshore Pipeline Regulation, establish rules and regulations respecting interprovincial pipelines, including environmental assessment, operational oversight, spill and accident responses and financial liability and compensation for harm done by spills. The Court found that the Proposed Amendments would effectively usurp the role of the NEB, providing that:

At the end of the day, the NEB is the body entrusted with regulating the flow of energy resources across Canada to export markets. Although the principle of subsidiarity has understandable appeal, the TMX project is not only a 'British Columbia project'. The project affects the country as a whole, and falls to be regulated taking into account the interests of the country as a whole.

Interprovincial undertakings fall under the Federal Government's jurisdiction so that a single regulator can consider the interests of Canada as a whole, which is the very role in which the NEB was tasked.

Finding that the true 'pith and substance' of the Proposed Amendments were outside of the Province's constitutional jurisdiction, the BCCA determined that it was unnecessary to answer, and therefore did not provide its opinion, on the latter questions regarding interjurisdictional immunity and paramountcy.

Implications

The reference case highlights the growing tension between various levels of governments pertaining to the appropriate regulation of oil and gas infrastructure in Canada, and although the BCCA found the Proposed Amendments to be unconstitutional, the TMX continues to face many legal and political hurdles. The BCCA's reference decision removed a potentially significant barrier to the construction of the TMX. However, in June 2019, the British Columbia Attorney General filed a notice of appeal to the Supreme Court of Canada (SCC), which is expected be heard on January 16, 2020. Once heard by the SCC, a finding one way or the other may have a broad impact on Canadian industry. If successfully appealed, the TMX will likely experience delays and may even be halted altogether; however, if upheld, the SCC’s decision will likely reinforce Federal authority over interprovincial pipelines which could encourage new interprovincial projects and development going forward. 

References can be found in the attached PDF.