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The Oxford Handbook of the Canadian Constitution edited by Oliver, Peter; Macklem, Patrick; Des Rosiers, Nathalie (19th October 2017)

Part IV Federalism, B Federalism in Context, Ch.25 The Exploitation of Natural Resources in the Federation

Luanne A. Walton

From: The Oxford Handbook of the Canadian Constitution

Edited By: Peter Oliver, Patrick Macklem, Nathalie Des Rosiers

(p. 533) Chapter 25  The Exploitation of Natural Resources in the Federation

1.  Introduction

Ownership of and jurisdiction over natural resources has been an area of interjurisdictional dispute since Canada’s Confederation in 1867. This chapter focuses on the ways in which the dispute has shifted over time, adapting and changing as necessary. In the years immediately following Confederation, the principal focus was establishing resource ownership for all provinces. Once that was established, legislative jurisdiction over resources became the issue. The caselaw from the first century or so after Confederation resulted in the resource amendment, which was the only change to the federal-provincial division of powers constitutionally entrenched in the Constitution Act, 1982. Issues of ownership and legislative jurisdiction were settled just in time for the courts to turn their focus to environmental protection. All of this has led us to the situation which exists today, when environmental protection and the desire for profit are going head to head in the courts.

(p. 534) 2.  Provincial Struggle for Ownership

Jurisdiction over resources was distinguished from ownership of those resources at a very early point in Canada’s history. In the Fisheries Reference,1 the Judicial Committee of the Privy Council was faced with this question in respect of provincial fisheries. The Court found that

… there is a broad distinction between proprietary rights and legislative jurisdiction. The fact that such jurisdiction in respect of a particular subject matter is conferred on the Dominion Legislature, for example, affords no evidence that any proprietary rights with respect to it were transferred to the Dominion.

At the same time, it must be remembered that the power to legislate in relation to fisheries does necessarily to a certain extent enable the Legislature so empowered to affect proprietary rights. An enactment, for example, prescribing the times of the year during which fishing is to be allowed, or the instruments which may be employed for the purpose … might very seriously touch the exercise of proprietary rights, and the extent, character, and scope of such legislation is left entirely to the Dominion Legislature.

Having achieved judicial recognition of the fact that federal legislative jurisdiction does not carry ownership with it, provincial ownership of public lands and their accompanying mineral rights became the issue. Section 109 of the Constitution Act, 1867 specified that the original four provinces were each granted control of the public “lands, mines, minerals and royalties” found within their borders. This practice was not continued as other provinces joined Canada. When Manitoba became a province in 1871, section 2 of its Terms of Union provided that the relevant portions of the Constitution Act, 1867 would also apply to Manitoba. However, section 30 of the Terms made an exception to this general principle: all ungranted and waste lands in the province would be held by the federal Crown “for the benefit of the Dominion”. As La Forest J. points out,2 this would include base mines and minerals3 and water rights,4 but would leave in provincial control minerals and other resources which would fall within the meaning of the term “royalties” in section 109.5 Section 2 of the British Columbia Terms of Union is almost identical to that of Manitoba. However, the land grant to that province was subject only to the railway belt of land granted back to the Dominion by section 11. This (p. 535) grant back to the Dominion was subsequently found not to have included royalties, just as in Manitoba.6 Prince Edward Island had no public lands when it joined Canada, so although section 109 applied to it, there was no real impact.

When they became provinces in 1905, Alberta and Saskatchewan can be considered to have received the worst deal of all of the provinces. Section 21 of their respective Terms of Union retained for the Dominion “all Crown lands, mines, minerals and royalties incident thereto” as well as all of the water rights.

As of 1905, with all provinces except Newfoundland within Confederation, it is clear that Manitoba, Saskatchewan, and Alberta were at a definite disadvantage. They alone did not have control and ownership over their own natural resources. After many years of unsuccessful complaints to Ottawa and two years of negotiations, this problem was solved through the three Natural Resources Transfer Agreements. An agreement was entered into between each of the prairie provinces and Canada, and all three agreements were given constitutional status by the Constitution Act, 1930. The effect was to put all provinces on the same footing as regards the control of the natural resources found within their boundaries.

3.  Legislative Tug of War

Post-1930, the provinces were faced with a new federal-provincial situation—capitalizing on the ownership of those resources in the face of the significant legislative powers of Parliament. The most urgent concerns in the 1930s with respect to oil and gas centred on physical conservation of the resources. “The Turner Valley field was being rapidly depleted by furiously unregulated drilling for oil and the flaring of vast quantities of natural gas”.7 In an effort to address the problem, the Alberta legislature adopted first the Oil and Gas Wells Act8 and then the Turner Valley Conservation Act by virtue of its powers over property and civil rights and matters of a local nature.9

There was also increasing government involvement on the federal side. In 1907, perhaps in anticipation of exports from Canada’s then newest provinces, Parliament enacted the Electricity and Fluid Exportation Act by virtue of the international/interprovincial branch of the trade and commerce power.10 However, it was only in the 1930s that the first licences were issued pursuant to this legislation.

Jurisdictional conflicts began in earnest in 1947 when significant deposits of oil were found at Leduc, Alberta. The federal and provincial governments had divergent interests (p. 536) in the find: Alberta saw the oil as an opportunity to transform its economy from its agricultural base, hoping to avoid another disaster like the Great Depression, and the federal government wanted to use the oil to assist in building the country following the end of World War II. Parliament fired the first salvo, introducing the Pipelines Act in 1949 in reliance on its federal power over interprovincial undertakings. Although it did not become law until 1952, the Bill signalled the federal intention to “exercise control over all interprovincial and international oil and gas pipelines in the country”.11 Alberta’s response was to require a permit for the removal of gas from the province. Given its relatively recent acquisition of ownership of its natural resources, the province’s prime motivator was seen to be the fear that it would once again lose control—this time through extra-provincial ownership:

Fear of outside monopoly under federal jurisdiction was behind the enactment of the Gas Resources Preservation Act in 1949, and it was also the dominant consideration underlying the idea for a provincial monopoly over gas-gathering within the province. A single integrated gathering system would act as a common carrier inside Alberta, distributing pooled gas to export companies … at the provincial border. This would keep the export companies—and Ottawa—out, and prevent encroachments on the province’s jurisdiction.12

As the 1950s went on, energy policy became an increasingly high priority for the federal government. In an effort to develop a comprehensive approach to these issues, the Royal Commission on Energy (the Borden Commission) was established by Order-in-Council on 15 October 1957. The Commission’s mandate was to recommend

… the policies which will best serve the national interest in relation to the export of energy and sources of energy from Canada; the problems involved in, and the policies, which ought to be applied to, the regulation of the transmission of oil and natural gas between provinces or from Canada to another country … the extent of authority that might best be conferred on a National Energy Board … ;13

Perhaps the Commission’s most significant recommendation was the National Oil Policy. Essentially, it was recommended that the oil pipeline which was being built east from Alberta would stop in the Ottawa Valley. The Commission members felt that Montreal refineries should continue to rely on foreign crude, which was lower in price than Canadian crude once the pipeline costs were factored in. This recommendation was adopted, and the National Oil Policy remained in effect until the dramatic changes of the 1970s. The Commission’s recommendations also led to the procedure of active surveillance of oil and gas exports as to quantity and price, and overall regulation of (p. 537) the oil and gas industry through the National Energy Board which it recommended be established and which was subsequently created by Parliament in 1959. By enacting the National Energy Board Act,14 Parliament asserted regulatory jurisdiction at the federal level over oil and gas pipelines and international power lines together with jurisdiction over the export and import of gas and the export of electric power.15

By all these means, the federal government sought to ensure security of supply to Canadian industry, in the medium term, and to carry out its other responsibilities (including the funding of its equalization obligations). The producing provinces, in what they perceived to be a temporary situation of advantage as owners of a depleting resource, considered the federal measures to be broad-based threats to their long-term development as well as to their short-term interests.16

4.  The 1970s

In 1973, the Organization of Petroleum Exporting Countries (OPEC) increased the price of oil to unprecedented levels. The result was long lineups at gas stations and concerns regarding domestic dependence on foreign oil. Throughout this period, Canadian intergovernmental energy negotiations reflected the very opposite of cooperative federalism at both levels of government.

Alberta and Saskatchewan responded to the energy crisis with policies and legislation designed to ensure that new resource wealth would accrue to them rather than to the federal government.17 They also wanted to control the pace of resource development in order to combat the “boom and bust” cycles familiar to the primarily agricultural prairie economies. They needed breathing space to attract and maintain secondary and manufacturing industries.

The Saskatchewan legislature enacted the Oil and Gas Conservation, Stabilization and Development Act, 1973.18 The Act imposed a mineral income tax on oil and gas produced in the province and imposed a royalty surcharge on oil and gas produced from Crown lands. Canadian Industrial Gas and Oil Ltd (CIGOL) opposed the new legislation, arguing that the tax was beyond provincial jurisdiction. In 1978, a majority of the Supreme Court19 agreed and found that the measures were ultra vires the taxation (p. 538) power of the provincial legislature as they did not constitute direct taxation. The majority also found that the measures interfered with federal powers over international trade and commerce. Of note is the finding by Dickson J., in dissent, that “[s]ubject to the limits imposed by the Canadian Constitution, the power of the Province to tax, control and manage its natural resources is plenary and absolute”.20

In 1979, the Supreme Court rendered another pivotal decision concerning natural resources: Central Canada Potash v Saskatchewan.21 The focus of this case was Saskatchewan’s Potash Conservation Regulations.22 The Regulations addressed potash overproduction and dumping and the associated price implications. The provincial government “strenuously contended” that “the natural resources, the mineral wealth of the Province was subject to provincial regulatory control alone, and that production controls or quotas were peculiarly matters within exclusive provincial legislative authority”.23 The Supreme Court found that the situation may be different where a province establishes a marketing scheme with price fixing as its central feature. Provincial legislative authority does not extend to the control or regulation of the marketing of provincial products outside of the province.24 The Court concluded that the pro-rationing scheme was a marketing scheme to fix prices. Given that the potash was marketed outside of the province, the legislation was found to be unconstitutional as infringing on federal jurisdiction over international and interprovincial trade and commerce.

The decisions in CIGOL and Canada Potash made it clear that although provincial ownership of natural resources was clearly established, legislative jurisdiction over exported natural resources remained firmly in Parliament’s grasp. The federal government was prepared to defend and to exercise this jurisdiction. For the federal government, the energy crisis foretold “traumatic adjustment and transformation for the world economy, supply uncertainties and unpredictable oil prices”.25 In addition, there were concerns that the distribution of benefits from oil and gas were “extra-ordinarily unfavourable” to the federal coffers.26 From 1973 to 1980, the federal government developed a series of policies to address natural resource exploitation and energy consumption.27 By far the most notorious of Parliament’s unilateral actions was the National Energy Program (NEP). Particularly high profile aspects of the NEP were the federal freeze on (p. 539) the price of domestic oil, and the imposition of an export charge on oil and natural gas for the purpose of increasing the federal share of resource revenues.

The NEP was announced in the October 1980 Budget as a tax on all natural gas and gas liquids produced in Canada. On 12 November 1980, Alberta put a reference to the Alberta Court of Appeal challenging the constitutional validity of the tax.28 Alberta argued that natural gas owned by the province is shielded from the kind of charges imposed under the Petroleum Administration Act.29 When the case reached the Supreme Court of Canada30 a majority of six agreed with the Alberta Court of Appeal that the levy proposed under the law was not intended to act as a regulatory mechanism of an industry operating throughout Canada “but was to attain, in the eyes of the federal government, a more equitable sharing of gas revenues”.31

The majority concluded that federal taxation legislation could bind a province if the legislation was, in pith and substance, enacted incidental to another head of power. However, due to the operation of section 125,32 no provincial lands or property could be taxed pursuant to section 91(3).33 It fell to the federal government to show that the measures related to some other legislative function. The federal government could not. The majority found that the measures were, “purely and simply” taxation, “imposed for revenue purposes”. Of import to this conclusion were:

  • –  There was no language to indicate that the tax was imposed as a regulatory device or to reduce or eliminate the export of natural gas;

  • –  The tax was imposed in a uniform manner, whether the natural gas was consumed outside or inside Alberta;

  • –  It applied equally to distributors, to exporters, to consumers;

  • –  It was recoverable from anyone who sold or used natural gas.

The impugned legislation was a revenue raising statute.34 On a plain reading of the text, the proposed tax added nothing to the existing structure of regulation but revenue.35

(p. 540) 5.  The Resource Amendment

Section 92A was added to the Constitution Act, 1867 in 1982 to respond to provincial concerns following the CIGOL, Canada Potash, and Exported Natural Gas cases. Entrenchment of this provision resulted in the provinces gaining concurrent power with Parliament to impose indirect taxes and make laws in relation to interprovincial trade in resources. Subsection 92A(3) preserves federal jurisdiction and paramountcy in this area. Regulatory jurisdiction over international resources export is also left to Parliament. Subsection 92A(1)(c) confirmed exclusive provincial jurisdiction over electrical generation and production facilities (except nuclear generators and interprovincial undertakings).

In 1985, Roy Romanow wrote that “[t]here can be no doubt that section 92A has enhanced the scope of provincial legislative jurisdiction over natural resources”.36 It was anticipated, at least by some, that section 92A would provide greater scope for provincial legislation on land-use planning and environmental standard-setting, and that the scope for federal rule-making would be correspondingly diminished.37 Despite these high hopes, Professor Hogg characterizes the provision as “declaratory of the pre-1982 law”.38

That section 92A essentially reaffirmed pre-existing provincial jurisdiction was confirmed by La Forest J. in Ontario Hydro v Ontario (Labour Relations Board):

It may be, however, that s. 92A(1) is merely preliminary to the provisions that follow, although, as I will indicate, it, at a minimum, fortifies the pre-existing provincial powers. …

In a general sense, the interventionist policies of the federal authorities in the 1970s in relation to natural resources, particularly oil and other petroleum products, were a source of major concern to the provinces. …

It was to respond to this insecurity about provincial jurisdiction over resources—one of the mainstays of provincial power—that s. 92A was enacted. Section 92A(1) reassures by restating this jurisdiction in contemporary terms, and the following provisions go on, for the first time, to authorize the provinces to legislate for the export of resources to other provinces subject to Parliament’s paramount legislative power in the area, as well as to permit indirect taxation in respect of resources so long as such taxes do not discriminate against other provinces.39

Perhaps the most significant indicator that section 92A served only to codify existing law is the fact that there has been no significant caselaw focusing on section 92A. (p. 541) Following the entrenchment of the resource amendment, the focus of natural resources litigation shifted to the protection of the environment.

6.  The Rise of Environmental Protection

In the 1980s and 1990s, the protection of the environment emerged as an increasing focus for natural resources litigation. The issue of legislative jurisdiction over environmental protection was at the heart of this growing area of the law. Provincial jurisdiction over such matters of wildlife and resource management, property and civil rights, and local land use (among others) was fairly obvious. Not so obvious was the degree to which federal jurisdiction might come into play.

Perhaps the most significant statement from the Supreme Court of Canada addressing this issue was R. v Crown Zellerbach.40 This was the first case in which a majority (4-3) of the Supreme Court upheld the use of the peace, order, and good government power (POGG)41 as the jurisdictional underpinning for a federal measure concerning the environment. In issue was the Ocean Dumping Control Act which prohibited the dumping of any substance into the sea without a permit.

Although differing in the result in the particular case, the entire court concurred in identifying a number of analytical indicators to be used in determining whether a particular subject matter qualifies as a matter of the national concern branch of POGG. The Court in Crown Zellerbach emphasized that the doctrine applies to legislative subject-matters that either did not exist at the time of Confederation (such as aeronautics) or to matters that, although otherwise of a local and private nature, have now attained national dimensions (such as marine pollution).42 For a matter to so qualify it must have “a singleness, distinctiveness and indivisibility that clearly distinguishes it from matters of provincial concern and a scale of impact on provincial jurisdiction that is reconcilable” with the federal-provincial balance of powers. In making a determination on the latter point, one must consider issues such as the potential failure or incapacity of one or more provinces to deal effectively with the prohibition or regulation of the matter.

Although the dissenting judgment concluded that marine pollution did not satisfy the test, its author, La Forest J., did make some helpful statements regarding legislative jurisdiction in respect of the environment. He states clearly that environmental pollution as a whole is not a matter for either level of government:

To allocate environmental pollution exclusively to the federal Parliament would, it seems to me, involve sacrificing the principles of federalism enshrined in the (p. 542) Constitution. As Professor William R. Lederman has indicated in his article, “Unity and Diversity in Canadian Federalism: Ideals and Methods of Moderation” (1975), 53 Can. Bar Rev. 597, at p. 610, environmental pollution “is no limited subject or theme [it] is a sweeping subject or theme virtually all-pervasive in its legislative implications”. If, he adds, it “were to be enfranchised as a new subject of federal power by virtue of the federal general power, then provincial power and autonomy would be on the way out over the whole range of local business, industry and commerce as established to date under the existing heads of provincial powers”. And I would add to the legislative subjects that would be substantially eviscerated the control of the public domain and municipal government.43

Although La Forest J. did not say that POGG has no role to play in controlling pollution, his concern was that that role be appropriately circumscribed to preserve the federal-provincial balance. This position was subsequently adopted by the entire Court in Friends of the Oldman River Society v Canada (Minister of Transport):44

It must be recognized that the environment is not an independent matter of legislation under the Constitution Act, 1867 and that it is a constitutionally abstruse matter which does not comfortably fit within the existing division of powers without considerable overlap and uncertainty. A variety of analytical constructs have been developed to grapple with the problem, although no single method will be suitable in every instance. …

In my view the solution to this case can more readily be found by looking first at the catalogue of powers in the Constitution Act, 1867 and considering how they may be employed to meet or avoid environmental concerns. When viewed in this manner it will be seen that in exercising their respective legislative powers, both levels of government may affect the environment, either by acting or not acting.

The federal criminal law power45 is the other area of jurisdiction which the Supreme Court has found to be an option to ground legislation dealing with environmental protection. The debate was brought into focus in Attorney General of Canada v Hydro-Quebec.46 At issue in this case was the toxic substances regulatory scheme in the Canadian Environmental Protection Act. Writing for the 5-4 majority, La Forest J. found that the scheme could be supported by the criminal law power.

The accumulated case law dealing with the criminal law power has established several requirements for the exercise of this power. First, there must be an act which is prohibited with accompanying penal sanction. Second, the legislation must not encroach on areas of provincial jurisdiction—it must not be colourable. Finally, the legislation in question must have a “typically criminal purpose”. The classic statement of what would (p. 543) be considered such a purpose was made by Rand J. in Reference Re Validity of Section 5(a) of the Dairy Industry Act (the Margarine Reference):47

Is the prohibition then enacted with a view to a public purpose which can support it as being in relation to criminal law? Public peace, order, security, health, morality: these are the ordinary though not exclusive ends served by that law. …

A major impact of the decision in Hydro-Quebec is the following determination by the majority

I entertain no doubt that the protection of a clean environment is a public purpose within Rand J.’s formulation in the Margarine Reference … sufficient to support a criminal prohibition. It is surely an “interest threatened” which Parliament can legitimately “safeguard”, or to put it another way, pollution is an “evil” that Parliament can legitimately seek to suppress.48

This was a major breakthrough for environmental legislation. In the past, attempts had been made to tie criminal jurisdiction in the environment field to the protection of health and public safety, two traditional “criminal purposes”. However, having endorsed the protection of the environment as such a purpose, the Hydro-Quebec decision has certainly broadened the scope for environmental law supported by the criminal law power.

The other significant impact of the decision addressed the extent to which a criminal prohibition could be supported by significant “regulatory like” legislation. Parliament cannot call something a crime and proscribe a penalty when it is really attempting improperly to regulate an area of provincial jurisdiction. However, the majority in the Hydro-Quebec decision was quite willing to allow significant latitude in this respect.

In summary, as I see it, the broad purpose and effect of Part II is to provide a procedure for assessing whether out of the many substances that may conceivably fall within the ambit of s. 11, some should be added to the List of Toxic Substances in Schedule I and, when an order to this effect is made, whether to prohibit the use of the substance so added in the manner provided in the regulations made under s. 34(10) subject to a penalty. These listed substances, toxic in the ordinary sense, are those whose use in a manner contrary to the regulations the Act ultimately prohibits. This is a limited prohibition applicable to a restricted number of substances. The prohibition is enforced by a penal sanction and is undergirded by a valid criminal objective, and so is valid criminal legislation.

It is precisely what one would expect of an environmental statute—a procedure to weed out from the vast number of substances potentially harmful to the environment or human life those only that pose significant risks of that type of harm. Specific targeting of toxic substances based on individual assessment avoids resort (p. 544) to unnecessarily broad prohibitions and their impact on the exercise of provincial powers.49

Based on the Crown Zellerbach and Hydro-Quebec decisions, it was clear that both the criminal law power and the national concern branch of POGG would have a significant role to play in the enactment of federal environmental protection legislation. And in turn, that legislation would have a significant impact on natural resources exploitation.

7.  Profit versus Environment: The Future?

Money has always been a significant motive underlying natural resources litigation in Canada. However, with the rise in oil prices in the 1990s and 2000s, this became a more significant aspect. “Canada is on record as a strong supporter of sustainable development, yet the environmental costs of projects like the oil sands are justified by the creation of economic wealth.”50

As is discussed in the preceding section, this is the same period in which the goal of environmental protection increased in public support. At the same time, Canada witnessed a deliberate move on the part of the federal government to encourage the development of Canada’s resource industries and exports.

According to Jacques Leslie, “from 2008 to 2012, oil industry representatives registered 2,733 communications with [Canadian] government officials, a number dwarfing those of other industries. The oil industry used these communications to recommend changes in legislation to facilitate tar sands and pipeline development. In the vast majority of instances, the government followed through.”

As the Commissioner of the Environment and Sustainable Development recently observed, “[i]n 2006, the government first announced its intent to regulate GHG emissions from the oil and gas industry but has not yet done so even though emissions are growing fastest in this sector.” This failure to regulate the oil and gas industry is all the more striking given that “detailed proposals have been available internally for over a year,” but the government has only consulted privately, largely through “a small working group of one province [Alberta] and selected industry representatives.”51

Nowhere has that tension between economic development and environmental protection been manifest more clearly than in the ongoing struggle to build pipelines for oil and gas products in order to improve access to world markets.

(p. 545) Section 92(10)(a) exempts from provincial jurisdiction (therefore placing within federal jurisdiction)

(a) Lines of Steam or other Ships, Railways, Canals, Telegraphs, and other Works and Undertakings connecting the Province with any other or others of the Provinces, or extending beyond the limits of the Province.

This provision has been interpreted to apply only to interprovincial works and undertakings of transportation or communication. Interprovincial pipelines have been found to fall within the category of transportation undertakings. Perhaps the most comprehensive decision addressing this jurisdiction in the pipeline context was Westcoast Energy Inc. v Canada (National Energy Board).52 At paragraph 46 Iacobucci and Major JJ., writing for the 6-1 majority, identified the chief issue in the case as

Whether the Westcoast mainline transmission pipeline, gathering pipelines and processing plants, including the proposed facilities, together constitute a single federal work or undertaking.

They also identified the factors which lead to a determination of section 92(10)(a) jurisdiction:

In our view, the primary factor to consider is whether the various operations are functionally integrated and subject to common management, control and direction. The absence of these factors will, in all likelihood, determine that the operations are not part of the same interprovincial undertaking, although the converse will not necessarily be true. Other relevant questions, though not determinative, will include whether the operations are under common ownership (perhaps as an indicator of common management and control), and whether the goods or services provided by one operation are for the sole benefit of the other operation and/or its customers, or whether they are generally available.53

The majority compared two cases to illustrate the impact of common management and operational control: Luscar Colliers, Ltd. v McDonald54 and United Transportation Union v Central Western Railway Corp.55 In Luscar, the Court found that a short line of railway located entirely within the province of Alberta formed a part of the CNR federal railway undertaking. This finding was based on that fact that, although the line was owned by Luscar, it was operated by CN. In Central Western, Central Western owned the line, but CN did not operate it. The Court found that the operational control necessary for the two to be part of the same undertaking was not present.

(p. 546) In Westcoast, the Court concluded that physical connection between the processing plants and the mainline transmission pipeline and the fact that Westcoast owns both were insufficient by themselves. What determined the issue for the Court was the fact that it was clear that Westcoast managed them “in common as a single enterprise which is functionally integrated.”56 Key in this conclusion were the following facts:

  • –  facilities and personnel subject to common control, direction and management and operated in coordinated and integrated manner;

  • –  management personnel in Vancouver direct all field personnel;

  • –  all facilities operated by the same field personnel;

  • –  all facilities served by the same support services;

  • Vancouver personnel control flow in both gathering and main transmission pipelines;

  • –  processing plants operated by different people, but all directed from Vancouver; and

  • –  system connected by sophisticated telecommunications system.

In decisions concerning section 92(10)(a) the courts have emphasized over and over that although some guidance can be obtained from previous cases, each situation will be determined on its facts and on the actual nature of the operations in question. One clear principle does emerge: to the extent that the system is more integrated, more of the factors noted above will be present; to the extent that the system is less integrated, fewer of these factors will be present. Where sufficient integration is found, interprovincial transportation undertakings including pipelines fall within federal jurisdiction.

Although the subject matter was freight forwarding, the decision of the Supreme Court of Canada in Consolidated Fastfrate Inc. v Western Canada Council of Teamsters57 is relevant to a discussion of pipeline jurisdiction. The issue in this case was whether the employees of Fastfrate, a freight forwarder, were subject to provincial or federal labour laws. As provincial jurisdiction over labour relations is the default position, the company would only fall within federal jurisdiction if it was found to be an interprovincial transportation undertaking within the meaning of section 92(10)(a). Rothstein J. wrote for the 6-3 majority, with Binnie J. writing the dissent. The ultimate decision was that Fastfrate would not fall within federal jurisdiction because it was not found to be an interprovincial undertaking. In making this finding, Rothstein J. made some significant changes to the previously established test under section 92(10)(a). It is these changes which are relevant in the pipeline context.

Rothstein J. began with the text of the section, and the way in which the various terms were understood by the Constitution’s framers. He concluded that there was a common thread evident in the transportation undertakings given as examples in that provision.58 He (p. 547) identified this common thread as the fact that actual transport of goods or people must take place for a business to be considered to be an interprovincial transportation undertaking.

Rothstein J. used the necessity of actual transport to distinguish between transportation and communication undertakings:

It is true that in the communications context, the constitutional inquiry has at times focused on “the service that is provided and not simply … the means through which it is carried on”: Public Service Board v. Dionne [1978] 2 SCR 191, at p. 197. The difference between the communications and transportation contexts, however, is that communications undertakings can operate and provide international and interprovincial communication services from a fixed point. … [emphasis original]59

In the transportation context, it is not possible for an undertaking to operate an interprovincial transportation service where it does not itself perform the interprovincial carriage. A business can, of course, act as an intermediary between interprovincial carriers and consumers who want to access those carriers at a reduced price. This does not mean that such a business becomes the operator and provider of the interprovincial carriage, however. …60

On the basis of this distinction, Rothstein J. elaborated a separate test for interprovincial transportation undertakings. He made no mention of the fact that the previous jurisprudence had established one test for a section 92(10)(a) undertaking, regardless of whether it was in the transportation or communication fields. On behalf of the majority, he found that it was not enough for the company to be both the consolidator of the cargo at the beginning and the distributor of the cargo at the end. Rather, in order to be considered an interprovincial undertaking, a company must also physically transport the goods across provincial borders. Fastfrate did not pass this test because it contracted with other shippers to move the consolidated load from one province to another.

In dissent, Binnie J. rejected the proposition that separate tests are appropriate for transportation and communication undertakings:

In my view, the relevant distinction in the s. 92(10)(a) jurisprudence is not between undertakings engaged in transportation and those engaged in communications, but between local undertakings within the province and undertakings whose service (whether transportation or communication) extends beyond the province. In this respect, there is no difference between the test for transportation cases and the test for communications cases. This was confirmed (again) by Dickson C.J. in the last of his series of “interprovincial undertaking” cases where he made a direct comparison between the scope of the intraprovincial transportation “service” offered in Central Western Railway with the interprovincial communications “service” offered by AGT (p. 548) (p. 1135). On this point, I agree with Watson J.A., speaking for the majority in the court below:

In our view, the jurisprudence does not give trumping status to, let alone mandate, the factor of physical transition as a pre-condition to finding an interprovincial work or undertaking. … More important than a physical connection is whether the functional nature of the operation is to connect the provinces. [Emphasis original.]61

He acknowledged that the technology is different between communications and transportation undertakings, but stated that “the legal test was (and is) the same.”62

Fastfrate is the new normal. In order to rely on section 92(10)(a) to support federal regulation of cross-border oil and gas pipelines, it will be necessary to satisfy the Fastfrate test.

It is settled law that federal jurisdiction will prevail where pipelines extend across provincial boundaries. However, natural resources litigation is not disappearing from the Canadian landscape any time soon. The essence of the litigation challenges which lie ahead is found in the decision of the British Columbia Supreme Court in Coastal First Nations—Great Bear Initiative Society and Gitga’at First Nation v Minister of Environment for British Columbia, NGP et al.63 This case focused on the construction of the Northern Gateway Pipeline (NGP) which is proposed to be constructed from the Alberta oil fields to the coast of British Columbia with the greatest portion to be built in British Columbia. At its heart, the issue in this case was whether federal jurisdiction to regulate interprovincial pipelines (manifest in the National Energy Board) is so exclusive that it cannot be touched by any provincial legislation at all. The trial judge points out that no head of jurisdiction—federal or provincial—carries this sort of immunity from laws of general application:

As the Court held in Canadian Western Bank, at para. 29, the doctrine of pith and substance “is founded on the recognition that it is in practice impossible for a legislature to exercise its jurisdiction over a matter effectively without incidentally affecting matters within the jurisdiction of another level of government.” It is not enough for NGP to argue that s. 17 of the EAA affects matters beyond the Province’s jurisdiction. As long as the “dominant purpose” of the legislation is intra vires, any secondary effects are not relevant to the question of constitutional validity. …64

This view is consistent with a long line of Supreme Court jurisprudence concluding that matters falling within federal jurisdiction do not become federal enclaves, immune from all provincial legislation. As La Forest J. stated in Air Canada v British Columbia, (p. 549) “[b]y and large federal undertakings, like other private enterprises functioning within the province, must operate in a provincial legislative environment.”65

Koenigsberg J. proceeded to an assessment of the validity of the BC Environmental Assessment Act (EAA) She concluded that: “Given that the dominant purpose of the EAA is regulation of the environment within British Columbia … , the statute represents a valid exercise of provincial power even inasmuch as it may affect certain aspects of an interprovincial pipeline.”66

As the justice points out, there can be no doubt that the BC Environmental Assessment Act67 is valid provincial legislation, standing on its own. It is a law of general application throughout British Columbia which addresses environmental impacts of construction and other projects occurring in British Columbia.

Given that the validity of the provincial legislation is clear, the legislation must be examined to determine whether its operation or application would be problematic. This directs the analysis to the issues of paramountcy and interjurisdictional immunity.68

Koenigsberg J looks first at the EAA itself and determines that there is nothing on the face of the Act which would raise issues of paramountcy or interjurisdictional immunity, without more:

I do not find that at this point any aspect of British Columbia’s laws or environmental protection regime amount to a prohibition, or are in anyway rendering the Project inoperative. I agree with the petitioners’ submissions that it is premature to engage in this analysis until the parties know whether the Province chooses to issue any conditions and, if it does, until it becomes clear what those conditions are.69

It is likely that the situation would be different if the EAA stated that no pipelines could be built in BC or alternatively, that no pipelines could be built unless the proponents can demonstrate no environmental effects. It would also be different if the province had enacted a statute addressing only the environmental effects of pipelines. In both situations, the result would very likely be a finding of invalidity, given that the provincial legislature would be dealing with pipelines, qua pipeline. The issue is different in the current situation because the law is one of general application.

For the trial judge, the issue of whether the EAA will be relevant to the construction of the pipeline can only be determined once the provincial process has taken place and conditions have been placed on the pipeline’s construction. Only with actual (p. 550) conditions will it be possible to conduct a paramountcy or interjurisdictional immunity analysis.

I agree that absent concrete conditions imposed by the Province in conjunction with an EAC, it would be premature to make a finding based on hypothetical conditions. The constitutional doctrines of inter-jurisdictional immunity and paramountcy cannot be adequately determined on merely speculative provincial conditions. As such, for the reasons that follow, there is currently no factual basis to make such a determination.70

This is entirely consistent with the Supreme Court jurisprudence elaborating the tests for paramountcy and interjurisdictional immunity.

The central proposition is that pipelines are not completely immune from any provincial regulation. Once that proposition is accepted, then it is clear that the paramountcy and interjurisdictional analyses cannot take place until any conditions are imposed as a result of the provincial process. The actual conditions will be used in the paramountcy analysis to determine if a conflict exists with the federal legislation or orders made in reliance on that legislation. In the interjurisdictional immunity analysis, the actual provincial conditions will be examined to determine if they impair the core of the undertaking’s ability to build and operate the pipeline.

Based on the trial judge’s analysis, we are left with the result that both the National Energy Board (NEB) and provincial legislation will have a role to play in the planning, approval, and construction of interprovincial pipelines.

While I agree that the Province cannot go so far as to refuse to issue an EAC and attempt to block the Project from proceeding, I do not agree with the extreme position of NGP that this invalidates the EAA as it applies to the Project.71

As with so much of Canadian division-of-powers law, the heart of the issue is where to draw the line. What is the meaning of “block the Project from proceeding”? Is it only refusal to issue the appropriate certificate in the provincial process which will result in “blocking” a project? Or can overly onerous conditions placed on that certification also be considered to “block” the project? Will “blocking” take place if the conditions impose such a financial burden on the project’s proponent that the project is no longer financially viable?

These questions are likely to be answered only through future litigation emerging from the imposition of actual conditions. There are arguments on both sides. If the provincial conditions effectively prevent the pipeline from being built, there would certainly be a good argument that interjurisdictional immunity would be engaged. (p. 551) Interjurisdictional immunity requires that federal jurisdiction or a federally regulated undertaking is impaired by the application of provincial legislation.72 It is difficult to envision a more significant impairment than preventing the construction of the project at all.

Weighed against the interjurisdictional immunity argument is the relatively recent trend of the Supreme Court of Canada toward cooperative federalism. An excellent example of this trend is manifest in the opinion rendered in the Reference re Securities Act.73 The Court concluded that

… we may appropriately note the growing practice of resolving the complex governance problems that arise in federations, not by the bare logic of either/or, but by seeking cooperative solutions that meet the needs of the country as a whole as well as its constituent parts.

Such an approach is supported by the Canadian constitutional principles and by the practice adopted by the federal and provincial governments in other fields of activities. The backbone of these schemes is the respect that each level of government has for each other’s own sphere of jurisdiction. Cooperation is the animating force. The federalism principle upon which Canada’s constitutional framework rests demands nothing less.74

Going forward, the tension between these two arguments is likely to be the focus of most natural resources litigation.

Bibliography

  • Secondary Sources

  • Blackman S, Keeping J, Ross M, Saunders JO, ‘The Evolution of Federal/Provincial Relations in Natural Resources Management’ (1994) 32 Alta L Rev 511
  • Cairns RD, Chandler MA, Moull WD, ‘The Resource Amendment (Section 92A) and the Political Economy of Canadian Federalism’ (1985) 23 Osgoode Hall LJ 253
  • Doern GB, and Toner G, The Politics of Energy: The Development and Implementation of the NEP (Methuen 1985)
  • Hogg PW, Constitutional Law of Canada (looseleaf ed, Carswell 1992)
  • La Forest GV, Natural Resources and Public Property under the Canadian Constitution (University of Toronto Press 1969)
  • Lucas AR, ‘Harmonization of Federal and Provincial Environmental Policies: The Changing Legal and Policy Framework’ in JO Saunders, Managing Natural Resources in a Federal State (Carswell 1985)
  • (p. 552) MacLean J, ‘Striking at the Root Problem of Canadian Environmental Law: Identifying and Escaping Regulatory Capture’ (2016) 29 J Env L & Prac 111
  • McLeod-Kilmurray H, and Smith G, ‘Unsustainable Development in Canada: Environmental Assessment, Cost-Benefit Analysis, and Environmental Justice in the Tar Sands’ (2010) 21 J Env L & Prac 65
  • Meekison JP: ‘Negotiating the Revenue-sharing Agreements’ in JO Saunders, Managing Natural Resources in a Federal State (Carswell 1985)
  • Minister of Energy, Mines and Resources Canada, The National Energy Program, 1980 (Energy, Mines, and Resources Canada 1980)
  • Romanow R, ‘Federalism and Resource Management’, in Saunders JO (ed), Managing Natural Resources in a Federal State (Carswell, 1986)
  • Toombs R, Canadian Energy Chronology, 1998 http://geoscan.nrcan.gc.ca/starweb/geoscan/servlet.starweb?path=geoscan/downloade.web&search1=R=297918
  • Cases

  • Attorney General of British Columbia v Attorney General of Canada (1889) 14 AC 295
  • Canadian Industrial Gas and Oil Ltd v Saskatchewan [1978] 2 SCR 545
  • Central Canada Potash Co v Saskatchewan [1979] 1 SCR 42
  • Consolidated Fastfrate Inc. v Western Canada Council of Teamsters [2009] SCC 53, [2009] 3 SCR 407
  • Friends of the Oldman River Society v Canada (Minister of Transport) [1992] 1 SCR 3
  • R. v Crown Zellerbach [1988] 1 SCR 401
  • Reference re Proposed Federal Tax on Exported Natural Gas [1982] 1 SCR 1004
  • United Transportation Union v Central Western Railway Corp. [1990] 3 SCR 1112.
  • Westcoast Energy Inc v Canada (National Energy Board) [1998] SCR 322

Footnotes:

General Counsel, Constitutional, Administrative and International Law Section, Justice Canada. The views expressed in this chapter are the author’s and do not necessarily reflect the views of the federal Department of Justice.

1  AG Canada v AG Ontario et al [1898] AC 700 at 709–710 and 713 [hereinafter Fisheries Reference].

2  GV La Forest, Natural Resources and Public Property under the Canadian Constitution (University of Toronto Press, 1969) 30–31.

3  Attorney General of British Columbia v Attorney General of Canada (1889) 14 AC 295.

4  Burrard Power Co Ltd v R [1911] AC 87; [1911] CCS No 60.

5  Ibid.

6  Ibid.

7  S Blackman, J Keeping, M Ross, JO Saunders, ‘The Evolution of Federal/Provincial Relations in Natural Resources Management’ (1994) 32 Alta L Rev 511, 513.

8  SA 1931 c 46.

9  SA 1932 c 6.

10  SC 1907 c 16.

11  S Blackman et al. above (n 7).

12  GB Doern and G Toner, The Politics of Energy: The Development and Implementation of the NEP (Methuen, 1985) 66.

13  P.C. 1957-1386.

14  SC 1959, c 46 [hereinafter NEB Act].

16  RD Cairns, MA Chandler, WD Moull, ‘The Resource Amendment (Section 92A) and the Political Economy of Canadian Federalism’ (1985) 23 Osgoode Hall LJ 253, 260.

17  R Romanow, ‘Federalism and Resource Management’, in J Owen Saunders (ed), Managing Natural Resources in a Federal State (Carswell, 1986) 2, 3.

18  SS 1973-74 c 72. Amended by SS 1973-74 c 73.

19  Canadian Industrial Gas and Oil Ltd v Saskatchewan [1978] 2 SCR 545 [hereinafter CIGOL].

20  Ibid 574.

21  Central Canada Potash Co v Saskatchewan [1979] 1 SCR 42 [hereinafter Canada Potash].

22  Potash Conservation Regulations, 1969, Sask. Reg. 287/69.

23  Central Canada Potash above (n 21) 73.

24  Ibid 74.

25  Minister of Energy, Mines and Resources Canada, The National Energy Program, 1980 (Energy, Mines, and Resources Canada 1980) referred to by the majority in Reference re Proposed Federal Tax on Exported Natural Gas [1982] 1 SCR 1004, 1058 [hereinafter Exported Natural Gas].

26  Exported Natural Gas above (n 25) 1059.

27  J Peter Meekison: ‘Negotiating the Revenue-Sharing Agreements’ in JO Saunders, Managing Natural Resources in a Federal State (Carswell, 1985) 84.

28  Exported Natural Gas above (n 25) 1062–1063.

29  1974-75-76, c. 47 (PAA). The Act enabled the federal government to authorize charges on exported oil, to regulate distribution, to set the price of oil and natural gas entering international trade, and to set the price of oil and gas entering interprovincial trade. PAA powers to set the price of oil and natural gas were not exercised until the federal government attempted to do so under the NEP. See Romanow above (n 17).

30  Exported Natural Gas above (n 25).

31  Ibid 1046.

32  “No Lands or Property belonging to Canada or any Province shall be liable to Taxation”. S. 125, Constitution Act 1867.

33  “The raising of Money by any Mode or System of Taxation” Section 91(3), Constitution Act 1867.

34  Exported Natural Gas above (n 25) 1072–1073.

35  Ibid 1073–1074.

36  Romanow above (n 17) 5.

37  Alastair R Lucas, ‘Harmonization of Federal and Provincial Environmental Policies: the Changing Legal and Policy Framework’ in JO Saunders, Managing Natural Resources in a Federal State (Carswell, 1985) 84.

38  Peter W Hogg, Constitutional Law of Canada (looseleaf ed, Carswell, 1992) s 29–18.

39  [1993] 3 SCR 327 [81].

40  [1988] 1 SCR 401 [hereinafter Crown Zellerbach].

41  Introductory words s 91, Constitution Act 1867.

42  Crown Zellerbach above (n 40) 431–432.

43  Ibid [71].

44  [1992] 1 SCR 3 [94–95].

45  Section 91(27) Constitution Act 1867.

46  Attorney General of Canada v Hydro-Quebec [1997] 3 SCR 213 [hereinafter Hydro-Quebec].

47  [1949] 1 DLR 433 (SCC) 473 [hereinafter Margarine Reference].

48  Hydro-Quebec above (n 46) 293.

49  Ibid 308.

50  Heather McLeod-Kilmurray and Gavin Smith, ‘Unsustainable Development in Canada: Environmental Assessment, Cost-Benefit Analysis, and Environmental Justice in the Tar Sands’ (2010) 21 J Env L & Prac 65, 65–68.

51  Jason MacLean, ‘Striking at the Root Problem of Canadian Environmental Law: Identifying and Escaping Regulatory Capture’ (2016) 29 J Env L & Prac 111 at 123.

52  Westcoast Energy Inc v Canada (National Energy Board) [1998] SCR 322 [hereinafter Westcoast].

53  Ibid [65].

54  [1927] AC 925.

55  [1990] 3 SCR 1112.

56  Westcoast above (n 52) [68].

57  [2009] SCC 53, [2009] 3 SCR 407 [hereinafter Fastfrate].

58  “Lines of Steam or other Ships, Railways, Canals … ”

59  Fastfrate above (n 57) [60].

60  Ibid [61].

61  Ibid [88] citing the Alberta Court of Appeal decision: [2007] ABCA 198, [2007] 79 Alta LR (4th) 201, [53].

62  Ibid [85].

63  [2016] BCSC 34, [2016] BCWLD 1415 [hereinafter Coastal First Nations].

64  Ibid [56].

65  [1989] 1 SCR 1161 1191.

66  Coastal First Nations above (n 63) [75].

67  SBC 2002, c 43.

68  For further discussion of paramountcy and interjurisdictional immunity, see the chapter by Eugénie Brouillet and Bruce Ryder in this Handbook.

69  Coastal First Nations above (n 63) [65].

70  Ibid. [47].

71  Ibid [55].

72  Canadian Western Bank v Alberta [2007] SCC 22, [2007] 2 SCR 3 [48].

73  [2011] SCC 66, [2011] 3 SCR 837 132.

74  Ibid [132–133].