Lexpert US Guides

26 | LEXPERT • June 2019 | www.lexpert.ca/usguide In Tsleil Waututh v. Canada (Attorney General), the Federal Court of Appeal (FCA) considered the duty to consult in the current federal regime for review and approval of interprovincial pipelines. In its decision in August 2018, the FCA quashed the federal government's approval of the Trans Mountain Pipeline expansion, which would facilitate bringing oil from Alberta's oil sands to the British Colum- bia coast, in part due to Canada's failure to fulfill its consultation and accommodation obligations to Indigenous peoples. The decision had "high-level impact," says Julie Abouchar, a partner in Willms & Shier Environmental Lawyers LLP in Toronto, and lawyers across Canada have taken two key points from that decision. "Most important is the need for an in- digenous consultation prior to getting a project approved. One of the reasons why the FCA … quashed the approval was be- cause it found that the government had not executed Indigenous consultation properly. At the highest level, what the FCA is saying is, meaningful two-way di- alogue is necessary, including responding to and addressing Indigenous concerns." The expectation that there be agree- ment with Indigenous communities be- fore major projects are approved is not as common in the United States, she says, but "with large projects in Canada, the successful ones have agreements with In- digenous communities." In British Columbia, where the appel- lants launched the case, there is no legal requirement to reach agreements, but this varies from province to province, Abouchar says. Under the Canadian Environmental Assessment Act, parties must look at the ancillary parts of a project, such as wheth- er or how marine life might be affected by increased tanker traffic. In this case, the National Energy Board was found to be in error in not considering the ancillary im- pact of endangered species from increased shipping of oil from the BC coast. "All that is very interesting, because the landscape of environmental assessment is changing," she says, which includes the in- troduction of Bill C-69. "The trend over the last decade is upward in terms of increasing inspections, prosecutions and amend- ments to legalization to in- crease penalties. The courts have said the most important is culpability, which goes back to having proper proce- dures in place [to] prevent an incident from occurring." Bradley Gilmour, Bennett Jones LLP, Calgary lawyer at Fasken Martineau DuMoulin LLP in Toronto, has also observed an up- tick in numbers of prosecutions under the Fisheries Act in particular, though it is "a trend you continue to see over time," and penalties have been much higher in the United States. "I think we're consistent in the sense that we're focused on enforce- ment," and penalties have generally in- creased in conformance with that. Lawyers have also been discussing with their clients the implications of the Supreme Court of Canada's January rul- ing in Orphan Well Association v. Grant Thornton Limited on companies doing business in the oil patch, or elsewhere where environmental issues may be at play. The implications of the decision – in which the Supreme Court ruled that the trustee for the bankrupt Redwater oil and gas company in Alberta couldn't walk away from its disowned sites, and that pro- vincial environmental obligations must be met before Redwater's creditors were paid – are significant, says Cooper. Initially, the decision was thought to be specific to Alberta statutes and its requirements for cleaning up exhausted oil wells; oil and gas companies there cannot transfer licenses without permission from the Alberta En- ergy Regulator, which requires that envi- ronmental obligations have first been met. "I think that may be underestimating the importance of the decision," Cooper says, and how it may translate to other regu- lators across Canada. "With some matters I'm dealing with [regarding] insolvency, regulators in Ontario have been looking at Redwater, and thinking they have en- hanced powers now. The Supreme Court's commentary in this decision indicates that its ruling in the Redwater matter "applies across the board, to all sorts of insolvency situations," and suggests that the environ- ment takes priority where assets are limited. This makes it important for lenders to take a hard look "at the nature of the busi- ness that's being undertaken, and potential environmental risks," she says, including obligations at closure time for mines, for example. Lenders must consider environ- mental obligations that will accrue to a particular company at the end of day, as a super-charge from a regulator will affect the ability of lenders to recover. "So, more due diligence will be done," as it should be, she says. "Does the mining company have a closure plan? What are the types of obligations that will occur at the end of the life of the mine, and is there comfort that there's adequacy in that re- gard? Has a peer review been done? Do we need something else, to give comfort that that's enough?" Regulators are referring to the decision and the enhanced powers they believe it gives them, she adds. From a policy perspective, the decision in Redwater was the right one, says Den- stedt, as the public purse was the last to have to pay for Redwater's cleanup. The policy behind the decision was that if lend- ers have the ability to do due diligence on the companies they lend money to, during bankruptcy proceedings they should not be able to disclaim the assets that have no value or that have liabilities attached that could have been discovered during due diligence. This could have a chilling effect on lending in situations where it's harder to discover liabilities, Denstedt says. "The energy industry has already been on a downturn for the past few years; this is one more concern we have" regarding the future of the energy sector. However, he notes, in the Redwater case both the Alberta Court of Appeal and the Supreme Court of Canada commented on the need for clarification from a policy per- spective in the Bankruptcy and Insolvency Act, which allows a trustee to walk away from environmental obligations. Environmental

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