Joe Sebestyen Michael Thackray Mai Rempel Bernie (Bernard) J. Roth July 9 2019 Reference re Environmental Management Act (British Columbia): one step forward for Trans Mountain Dentons | Litigation - Canada Joe Sebestyen, Michael Thackray, Mai Rempel, Bernie (Bernard) J. Roth Litigation IntroductionFactsDecisionImplicationsIntroductionOn 24 May 2019 the British Columbia Court of Appeal released its highly anticipated decision in Reference re Environmental Management Act (British Columbia).(1) In a unanimous five-to-zero decision, the Court of Appeal held that British Columbia does not have the constitutional authority to enact amendments to the provincial Environmental Management Act that would have required the Trans Mountain Expansion Project (TMX) to obtain a hazardous substance permit before transporting increased amounts of heavy oil across British Columbia. This case is significant because it has removed (at least for now) one of the barriers to the development and construction of the TMX. It has also provided some clarity on the roles that the federal and provincial governments may properly play in the regulation of interprovincial pipelines and, more broadly, in the complex area of environmental regulation.FactsAt issue in the present case were proposed amendments to the Environmental Management Act, which would prohibit the "possession, charge or control" of heavy oil (the provision applies only to heavy oil and not any other substances) without first obtaining a hazardous substance permit. The prohibition applies only to the possession, charge or control of heavy oil in an amount greater than the 'minimum amount', which is defined as "the largest annual amount… of the substance that the person had possession, charge, or control of during each of 2013 to 2017".(2)Against the backdrop of escalating tensions between the British Columbia and Alberta governments, on 26 April 2018 the British Columbia government referred the following three constitutional questions to the court of appeal in order to determine the validity of the proposed law:Is the draft legislation within the legislative authority of British Columbia legislature?If the answer to the first question is yes, would the draft legislation apply to hazardous substances brought into British Columbia by means of interprovincial undertakings?If the answers to the first and second questions are yes, would existing federal legislation render all or part of the draft legislation inoperative?The relevant constitutional provisions are set out in Sections 91 and 92 of the Constitution Act 1867.Sections 91(29) and 92(10)(a) provide the federal government with constitutional jurisdiction over the construction and operation of interprovincial "works and undertakings", including pipelines.Sections 92(13) and 92(16) provide the provinces with constitutional jurisdiction over property and civil rights in the province, and all matters of a merely local or private nature in the province.(3)DecisionThe court of appeal started its analysis by referencing recent Supreme Court of Canada jurisprudence, which has clarified that the first task in determining the constitutional validity of legislation is to determine its "pith and substance" or, in other words, its true character or dominant characteristic. If the law in question relates in substance to a federal head of power, that is "the end of the matter" and the province will have no legislative authority to enact the law.(4)The court of appeal then noted the unique and complex nature of environmental regulation. Environmental protection is not a head of power allocated to either level of government in the Constitution Act and does not "comfortably fit within the existing division of powers without considerable overlap and uncertainty". The federal government and all of the provincial governments have enacted valid environmental protection legislation and, in exercising their legislative powers, both levels of government may affect the environment. Legislation relating to both local and interprovincial works and undertakings, for example, will often consider environmental concerns. As the court of appeal noted, this approach is consistent with the recent trend in Supreme Court of Canada jurisprudence, which has encouraged "co-operative federalism", which, where possible, favours the concurrent operation of statutes enacted by governments of both levels.(5)This is, in fact, what British Columbia argued. It asserted that it has the power to regulate the TMX in the environment's interests – not exclusively, but to the extent that it may impose conditions on, or even prohibit the presence of heavy oil in, the province unless a hazardous substance permit is issued to the operator. British Columbia argued that the legislation's impact on the TMX is merely incidental and the proposed legislation's purpose is not to regulate an interprovincial pipeline, but rather to regulate the release of hazardous substances into the environment. According to the province, this is part of the its jurisdiction with respect to property and civil rights. It further asserted that this issue is primarily of a local nature, given that the expansion and operation of the TMX would have a disproportionate effect on the interests of British Columbians, as compared with other Canadians.The court of appeal disagreed, finding that the proposed legislation was not a valid exercise of provincial power, but was instead an impermissible regulation of a federal undertaking because it singled out the TMX pipeline, and had the potential to stop the entire operation of the TMX as an interprovincial carrier and exporter of oil. The court of appeal held that Part 2.1 of the Environmental Management Act:is not legislation of general application, but is targeted as one substance in one (interprovincial) pipeline. Immediately upon coming into force, it would prohibit the operation of the expanded Trans Mountain pipeline in the Province until such time as a provincially-appointed official decided otherwise…Both the law relating to the division of powers and the practicalities surrounding the TMX project lead to the conclusion, then, that the pith and substance of the proposed Part 2.1 is to place conditions on, and if necessary, prohibit the carriage of heavy oil through an interprovincial undertaking.(6)The proposed amendment applies only to those persons who, in the course of business, have possession, charge or control of heavy oil in an amount that exceeds the largest amount that the person had in any of the years from 2013 to 2017. As the court of appeal pointed out,"Part 2.1 would… actually apply only to Trans Mountain's heavy oil, in transit from Alberta in Trans Mountain's expanded pipeline".(7)Having found that the proposed legislation, in pith and substance, related to the federal power over interprovincial undertakings and was therefore beyond the authority of the British Columbia legislature, the court of appeal did not have to address the doctrines of paramountcy and interjurisdictional immunity (as set out in the second and third questions). Paramountcy applies where the validly enacted laws of two levels of government conflict, or the purpose of the federal law is frustrated by the operation of the provincial law. Where this occurs, the provincial law will be rendered inoperative to the extent necessary to eliminate the conflict or frustration of purpose. The doctrine of interjurisdictional immunity, which is now less commonly applied, arises when a valid law of a province impairs the core of a matter under exclusive federal jurisdiction.ImplicationsThis decision removes an impediment to the potential advancement of the TMX by the federal government. Had the court of appeal found that British Columbia has the legislative authority to enact the proposed amendments, the TMX would have faced the daunting prospect of needing to obtain a provincial hazardous substance permit. However, as with the rest of the convoluted history surrounding this project, the court of appeal decision is not the final word. British Columbia Attorney General David Eby has indicated that the province will exercise its right to appeal the decision to the Supreme Court of Canada (presumably by way of a seldom-used provision in the Supreme Court Act)(8) and that it will seek to expedite the hearing.If British Columbia does appeal, it would be reasonable to expect the Supreme Court of Canada to come to a similar conclusion as the court of appeal. Although the trend towards cooperative federalism is certainly alive and well, the proposed amendments to the Environmental Management Act so directly and significantly interfere with federal jurisdiction that it seems likely that the Supreme Court of Canada will conclude that the proposed legislation is beyond British Columbia's authority. As the court of appeal noted, the proposed legislation: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… and notwithstanding the attraction of co-operative federalism, [the Supreme Court] has recently reminded us that 'the dominant tide of flexible federalism' cannot sweep the allocation of powers in ss. 91 and 92 of the Constitution Act 'out to sea'.(9)In that context, an application of the pith and substance analysis or the paramountcy doctrine (or perhaps even the interjurisdictional immunity doctrine), would likely lead to the conclusion that the proposed legislation is beyond British Columbia's constitutional authority.In recent years, political and legislative developments, along with some lower court decisions, have created some uncertainty regarding the legal and regulatory processes applicable to interprovincial pipeline projects. Clear direction from the Supreme Court of Canada would provide much-needed clarity in this area and may help to encourage new projects and new investment in national infrastructure.This decision is, of course, just one in a series of legal and political hurdles facing the TMX. In 2018 the Federal Court of Appeal quashed the TMX's certificate of public convenience and necessity after finding that:the federal government had not adequately consulted with potentially affected aboriginal groups; andthe National Energy Board (NEB) had failed to properly consider the impacts of project-related marine shipping.The Federal Cabinet had until 18 June to decide on whether to reapprove the project based on the NEB's reconsideration of marine shipping and on the new round of Phase III aboriginal consultation that the federal government is conducting. It remains to be seen whether the court of appeal's decision, and the prospect of an appeal to the Supreme Court of Canada, will affect the reapproval decision.For further information on this topic please contact Joe Sebestyen, Michael Thackray or Mai Rempel at Dentons' Vancouver office by telephone (+1 604 687 4460) or email ([email protected], [email protected] or [email protected]). Alternatively, please contact Bernard J Roth at Dentons' Calgary office by telephone (+1 403 268 7000) or email ([email protected]). The Dentons website can be accessed at www.dentons.com.Endnotes(1) Reference re Environmental Management Act (British Columbia), 2019 BCCA 181.(2) Environmental Management Act (SBC 2003, Chapter 53, Part 2.1).(3) Constitution Act 1867.(4) Supra note 1, at Paragraph 92.(5) See Friends of the Oldman River Society v Canada (Minister of Transport) (1992) 1 SCR 3, at Paragraphs 94 and 95.(6) Supra note, 1 at Paragraphs 103 and 105.(7) Ibid at Paragraph 56.(8) Supreme Court Act RSC 1985, Chapter S-26, Section 26.(9) Supra note 1, at Paragraphs 51 and 101.