On September 3, 2015, the British Columbia Environmental Appeal Board (the “EAB”) reversed a water licence issued to Nexen due to serious technical flaws in the scientific evidence upon which the licence was granted, as well as defects in the consultation process with the Fort Nelson First Nation (the “FNFN”).

Nexen applied for the licence on April 6, 2009 under s. 12 of the British Columbia Water Act, R.S.B.C. 1996, c. 483. The Ministry of Environment (the “Ministry”) granted the licence on May 11, 2012.  The licence authorized Nexen to divert water from the North Tsea Lake into storage dugouts for the purpose of oilfield injection and storage.  The term of the licence was from May 11, 2012 to December 31, 2017.  Prior to being granted the licence, Nexen was diverting water from the North Tsea Lake based on short-term approvals, and had constructed works for that purpose.  Due to drought conditions and extremely low river water levels in 2012, on April 18, 2013 the Ministry issued an order imposing conditions on the licence.  The EAB found it did not have jurisdiction to review that order and only reviewed the decision to issue the licence.

Technical Flaws

The EAB held that the licence was flawed in both concept and operation.  It concluded that the flow-weighted withdrawal scheme was not supported by “scientific precedent”, appropriate modelling or field data.  In the EAB’s opinion, the withdrawal rate, (which in some years was as high as 14% of the North Tsea Lake) was arbitrary and without basis in scientific theory or hydrometric modelling.  The rationale for the withdrawal rate could not be explained by the Ministry or by Nexen.  In addition, the licence failed to impose a requirement that a hydrometric monitoring program be carried out.

In particular, the EAB held that the Ministry’s conclusion that the withdrawals would have no significant impacts on the environment “was based on incorrect, inadequate, and mistaken factual information and modelling results.”  Data that became available after the licence was issued did not support the conclusion that the licence provided adequate protection for the aquatic and riparian environment. To the contrary, it led the EAB to conclude that the authorized withdrawals could cause adverse effects on aquatic and riparian species.

Flawed Consultation

The EAB held that the Ministry incorrectly determined the level of consultation owed to the FNFN, based on the mistaken premise that granting the licence would not impact the environment or the FNFN’s treaty rights.  While the EAB noted that there was uncertainty regarding the actual impacts to the FNFN’s treaty rights, it stressed that a First Nation does not need to establish that there will be an adverse impact, only that there would be a potential, non-speculative, impact.  Given that the intended water use was consumptive and that Nexen used 14% of the North Tsea Lake in 2012, and 9% in 2013, the EAB found that there was a “logical causal relationship between the withdrawal and use of the water….and the potential for adverse effects on (species and habitat) that the (FNFN) depends on for the exercise of its treaty rights” (underlining in original).

The EAB also found that the consultation process was flawed and lacked transparency.  It noted that the Ministry (unlike the Oil and Gas Commission), did not have a consultation agreement with the FNFN and that the Ministry had failed to propose a consultation framework or inform the FNFN that it would be following the Provincial Consultation Policy.  Moreover, the Ministry failed to keep the FNFN informed of the process or the status of Nexen’s application.  The Ministry also failed to expressly or impliedly delegate procedural aspects of consultation to Nexen, despite Nexen’s efforts to consult the FNFN.  Taken together, the EAB held that these procedural defects resulted in a consultation process in that lacked the requisite clarity about each parties’ needs and expectations.

With respect to the issue of treaty rights, the EAB found that the Ministry failed to inform itself of the scope and extent of the FNFN’s treaty rights by not informing itself of the specific locations the FNFN exercised its treaty rights and which species it harvested.  On this point, however, the EAB also rebuked the FNFN, noting that although it did not have the capacity for consultation throughout the entire process, during the time it did, it did not exercise that capacity sufficiently.  The EAB found that the FNFN had specific information about its treaty rights that it failed to provide to the Ministry.  By not doing so, the EAB held that the FNFN did not live up to its obligation to provide information about its interests. 

The EAB also found the Ministry had not consulted the FNFN in good faith.  It noted that while consultation proceeded for over two years without hard deadlines, this approach changed suddenly following a teleconference between the Ministry and Nexen.  During that call, the Ministry concluded that the “technical side of the assessment was complete” and a licence would be achievable in a matter of months, but that “consultation remained a ‘major hurdle’”.  Shortly thereafter, the Ministry issued a letter to the FNFN imposing a 30-day deadline for consultation.  During this period, internal Ministry correspondence indicated that the Ministry intended to grant the licence and it had no intention of substantively addressing the FNFN’s concerns.  As a result, the EAB concluded that by undertaking this course of action, the Ministry was not consulting in good faith and did not uphold the honour of the Crown.

Remedy

Given the serious technical flaws upon which the licence was granted, the numerous defects in the consultation process, and the volume of water being diverted, the EAB determined that the mere suspension of the licence would not be an adequate remedy, and revoked the licence. In considering the resulting prejudice to Nexen, the EAB noted that Nexen had already benefitted by having had the licence for three out of the five-and-a-half years for which it had originally been granted.  The EAB also found that Nexen installed the works authorized by the licence prior to its issuance under short-term approvals.  As such, Nexen could not claim that it had relied on the licence when it incurred those costs.