Introduction and Summary

In 2023, courts and law makers in Canada grappled with critical issues of concern to businesses operating in Canadian jurisdictions, particularly those in the natural resources sectors. Climate change, environmental impact assessments, the duty to consult with First Nations, and the conduct of government regulators in refusing to approve major projects were all the subject of judicial consideration this year. These decisions reflect important developments in the ongoing discourse between the courts and the legislatures on difficult questions of resource development in the context of climate change and reconciliation with First Nations.

In this article, we begin by discussing the Supreme Court of Canada’s (SCC) highly anticipated reference decision opining on the (un)constitutionality of the federal Impact Assessment Act (IAA) and related Physical Activities Regulations (“Regulations”).

We go on to consider the Ontario Superior Court of Justice’s (ONSC) treatment of a constitutional challenge to Ontario’s Cap and Trade Cancellation Act, an ongoing appeal from which is likely to be an important foundational case for future climate change litigation.

We then review the Supreme Court of British Columbia’s (BCSC) decision in Gitxaala v British Columbia (Chief Gold Commissioner), which gave the province 18 months to design and implement changes to its mineral tenure system to account for the Crown’s duty to consult with First Nations.

Finally, we discuss the remarkable decision from the BCSC awarding a privately owned project developer CAD10.125 million in damages from the province, following a finding the province had unlawfully denied the plaintiff’s proposed hydroelectric project near Squamish, British Columbia (BC).

Federal Impact Assessment Act Unconstitutional, in Part

On 13 October 2023, the SCC released its highly anticipated advisory opinion in Reference re Impact Assessment Act, with a 5-2 majority concluding that the federal IAA and its Regulations overstepped the constitutional limits on federal authority.

The IAA was enacted 2019. It replaced the Canadian Environmental Assessment Act, 2012, following a four-year review of the federal environmental assessment process. The IAA and the Regulations “establish a complex information gathering and regulatory scheme” governing two types of projects: projects carried out or financed by federal authorities on federal lands or outside Canada (“Federal Projects”); and designated projects (“Designated Projects”), whose definition under the legislative scheme includes projects located within a province that are not clearly within federal regulatory jurisdiction, such as mines and metal mills, renewable energy projects, hazardous waste projects, and oil, gas and other fossil fuel projects.

The government of Alberta referred questions on the constitutionality of the IAA and Regulations to the Court of Appeal of Alberta, where a majority concluded the legislation was unconstitutional in its entirety. The Attorney General of Canada appealed from that decision to the SCC.

Writing for the majority, Chief Justice Wagner held the scheme established under the IAA for Designated Projects impermissibly exceeds the bounds of federal jurisdiction by infringing upon the provinces’ exclusive legislative jurisdiction to regulate in such areas as property and civil rights in the province, matters of a local nature, local works and undertakings, and non-renewable natural resources, forestry resources, and electrical energy.

The majority identified two overarching ways in which the IAA provisions dealing with Designated Projects are outside federal authority. First, the Designated Projects scheme requires decision-makers to consider a broad range of factors insufficiently tied to adverse federal effects in deciding whether to require an impact assessment, and whether and how to permit an assessed project to proceed. This shifts the focus of decisions away from adverse federal impacts to “the wisdom of proceeding with the project as a whole”, thus “grant[ing] the decision-maker a practically untrammelled power to regulate projects qua projects, regardless of whether Parliament has jurisdiction to regulate a given physical activity in its entirety.”

Second, the majority held that decision-making and the ability to regulate or prohibit activities with respect to a Designated Project are tied to an overbroad definition of “effects within federal jurisdiction” that does not comport with federal legislative competence in the Constitution. Consequently, this overbroad definition further dilutes the focus of the scheme’s decision-making functions and seeks to prohibit conduct beyond that which Parliament can validly regulate pursuant to Section 91 of the Constitution Act.

In dissent, Justices Karakatsanis and Jamal would have upheld the IAA and Regulations in their entirety on a significantly narrower characterisation of the IAA, as one establishing a process to assess and to impose restrictions on the environmental effects of physical activities or major projects on matters of federal jurisdiction, including federal lands, Indigenous peoples, fisheries, migratory birds, etc. Based on this narrower, federally-focused characterisation of the IAA, the dissent held the IAA was constitutional and anchored in Parliament’s legislative jurisdiction over “fisheries, navigable waters, Indians and lands reserved for Indians, criminal law, international and interprovincial rivers, and the peace, order and good governance power.”

The court was unanimous in concluding that the regulatory scheme set out in the IAA governing Federal Projects was constitutional as a proper exercise of federal legislative authority, and severable from the balance of the Act.

As a reference decision, the SCC’s decision in Reference re Impact Assessment Act is advisory only, but Parliament is expected to revise the IAA and Regulations significantly in light of the decision. Projects that are undergoing review under the IAA’s exiting Designated Projects scheme may face delays while Parliament considers how to implement changes to the IAA. As for the future of federal environmental assessment legislation and federal environmental regulation more generally, the majority’s decision arguably reflects a view that regulation of major resource projects chiefly remains with provincial legislatures, and future federal legislation will have to focus more narrowly and precisely on activities within federal jurisdiction to pass constitutional muster.

Litigating Climate Change

In Mathur v His Majesty the King in Right of Ontario (Mathur), seven Ontarians between the ages of 15 and 27 challenged the constitutionality of Ontario’s Cap and Trade Cancellation Act, by which the government of Ontario established a target to reduce greenhouse gas emissions (GHG) by 30% below 2005 levels by 2030 (the “Target”).

The applicants in Mathur argued that the Target reflected a weakening of Ontario’s prior GHG reduction targets, and effectively authorised an amount of GHG emissions that violates their rights to life, liberty and security of the person enshrined in Section 7 of the Canadian Charter of Rights and Freedoms (the “Charter”). They also argued the Target, in its effect, violates their right to equality guaranteed by Section 15 of the Charter, on the basis that climate change disproportionately affects young people, who will bear the heavier burden of climate change over time, amongst other arguments. The applicants sought declarations that the Target is unconstitutional, and orders requiring the government to revise the Target to accord with the GHG emission reduction targets set out in the 2015 Paris Agreement adopted by the United Nations Framework Convention on Climate Change.

Ultimately, the applicants’ case was dismissed, with the ONSC finding no violation of the Charter. The court concluded that neither the Target nor its effects were arbitrary, because the Target’s objective was not to eradicate the effects of climate change but was instead to reduce GHG, so “there is a connection to its objective.” The court further found that gross disproportionality – which asks “whether the law’s effects on life, liberty or security of the person are so grossly disproportionate to its purpose, taken at face value, that they cannot be rationally be supported” – did not “have any application in a case like this one where the issue under Section 7 is that the government did not go far enough.”

The court agreed that the evidence showed that young people are disproportionately impacted by climate change. However, Section 15 of the Charter does not impose a general, positive obligation on the state to remedy social inequalities or enact remedial legislation. Nor did the court find that the worsening of the impacts of climate change was caused by the impugned legislation. Further, the court found that the adverse effects distinction alleged by the applicants was not a distinction based on age, but, rather, a temporal distinction, which did not violate Section 15.

However, in a “win” for climate change litigants going forward, the court concluded that the Charter issues raised by the applicants in this case were justiciable; in other words, these issues were suitable for judicial determination or issues appropriate for a court to decide. In considering whether a matter is justiciable, “the court must determine whether the question is purely political in nature and should, therefore, be determined in another forum, or whether it has a sufficient legal component to warrant the intervention of the judicial branch.” In concluding the majority of the issues raised by the applicants in Mathur were justiciable, the court distinguished the applicant’s claim from prior climate change cases like the 2020 decision of La Rose v Canada, where the Federal Court dismissed a climate change claim brought against Canada by fifteen children and youth on the basis the applicants’ case challenged sufficiently specific state action and legislation.

While the applicants in Mathur did not ultimately win the day, the decision dismissing their application is under appeal, and is notable for the court’s broad acceptance of the harms and risks posed by climate change to current and future generations. As Canada (and the rest of the world) continues to experience unprecedented extreme weather events causing natural disasters such as massive forest fires, flooding, and severe temperature highs and lows, cases like Mathur and similar climate action Charter cases are sure to continue and evolve.

Changes to Mineral Claims in BC

A recent decision of the BCSC, Gitxaala v British Columbia (Chief Gold Commissioner) (Gitxaala), will have major consequences for the mineral tenure system in the Province. The BCSC agreed with the petitioners (representatives acting on behalf of each the Gitxaala Nation and Ehattesahet First Nation) that the online system established under BC’s Mineral Tenure Act (MTA) that allows for automatic registration of mineral claims in the territories of First Nations, without creating a “system for consultation” with the affected First Nations, breached the petitioners’ rights under Section 35 of the Constitution Act, 1982. The court suspended its declaration that the Province owes the petitioners a duty to consult for 18 months to allow for the design and implementation of a pre-registration consultation programme.

The duty to consult arises “when the Crown has knowledge, real or constructive, of the potential existence of the Aboriginal right or title and contemplates conduct that might adversely affect it.” Canadian courts apply a three-part test to determine whether a duty to consult is owed:

• the Crown has knowledge (actual or constructive) of a potential Aboriginal claim or right;
• there is contemplated Crown conduct; and
• that conduct may adversely affect an Aboriginal claim or right.

The core issue in this particular case concerned the third element of the test.

The BCSC found that the granting of the mineral claims at issue had adverse cultural and spiritual impacts as well as adverse physical and economic impacts. The court emphasised that the concept of adverse impacts “must be viewed from an Indigenous perspective”. Physical disturbance of the land that was authorised by a mineral claim might be “nil or negligible” from the Province’s perspective, but “could potentially damage areas that are culturally or spiritually significant to the petitioners.”

Having found that “the granting of mineral claims under the MTA results in adverse impacts on First Nations”, and that the Crown breached its duty to consult, the court concluded that the MTA was nonetheless not “constitutionally invalid” because it “provided the necessary authority and discretion to the [Chief Gold Commissioner] to provide for pre-registration consultation.”

The petitioners also sought an additional declaration that the MTA’s process for granting mineral titles by way of the online registration system was inconsistent with the UN Declaration on the Rights of Indigenous People (UNDRIP). However, the court declined to make this declaration, finding that BC’s Declaration on the Rights of Indigenous People Act did not implement UNDRIP into the domestic law of the province. Further, the court found that UNDRIP does not create justiciable rights (ie, it does not “invoke the courts to adjudicate every instance where the laws of BC may be inconsistent with UNDRIP”).

The court also did not quash (extinguish) a number of mineral claims on the petitioners’ territories. Finding that “the fault in the system lies, not in the granting of individual mineral claims, but in the higher-level decision-making”, the court agreed with the Province that it would not be appropriate to quash those claims. Further, the court noted that “the quashing of the impugned claims could bring into question the validity of other mineral claims” and sought to emphasise that it was “making no finding and no order that affects the validity of existing mineral claims.”

While Gitxaala did not involve a claim for any sort of tortious conduct by public decision-makers, the next case summarised below serves as an important example of such an action brought against people acting on behalf of the provincial government.

CAD10 Million in Damages Awarded for Misfeasance in Public Office

In a decision of the BCSC released on 10 October 2023, the BC Provincial government was ordered to pay CAD10.125 million in damages to a private company for unlawfully denying its proposed hydro project.

The plaintiff in Greengen Holdings v British Columbia (Ministry of Forests, Lands and Natural Resource Operations) (Greengen) planned to develop a hydroelectric project on Fries Creek, near Squamish, British Columbia. Greengen had been awarded an Energy Purchase Agreement with BC Hydro, pursuant to which Greengen would sell the power it generated by the hydro-electric project to BC Hydro at a fixed price for 40 years.

The Fries Creek area is also home to a Squamish Nation cultural site that was established by a land use agreement with the Province in 2007. Greengen’s proposed river project would generate power by diverting water from Fries Creek into turbines, impacting the flow of water into the cultural site.

In order for the project to go ahead, Greengen was required to apply for a land tenure over Crown land pursuant to the provincial Land Act and a water license pursuant to the then-in-force provincial Water Act.

The land tenure and water license applications resulted in lengthy and extensive communications between Greengen and the relevant provincial ministries and regulatory agencies. In a telephone call in November 2008, two assistant deputy ministers advised Greengen’s representatives that both the land tenure and water license permits had been denied, and that letters to that effect would follow.

In August 2009, Greengen received letters from the relevant statutory decision-makers under the Land Act and the Water Act (people who were not on the November 2008 telephone call) formally advising Greengen that the permits had been denied. In the letters, the decision-makers explained that the reason for the denial was because – among other things— the hydro project would adversely impact the Squamish First Nation’s aboriginal rights in the Fries Creek area.

In 2016, Greengen commenced an action against the Province for misfeasance of public office, alleging the actual decision to deny the permits was made at the time of the November 2008 phone call, and was not made by the appropriate decision-makers; and the decisions to deny the permits were not made for the stated purposes, but for collateral political purposes related to the Province’s relationship with the Squamish Nation and its desire to avoid a lawsuit from the Squamish Nation and the negative publicity that may result from that.

Following a three-month trial and a lengthy procedural history, including a decision from the British Columbia Court of Appeal confirming that a failure to specifically name the individual public officers involved as defendants was not fatal to the plaintiff’s case, Justice Loo concluded people acting on behalf of the provincial government, albeit not the relevant ministers, had committed the tort of misfeasance in public office.

In lengthy reasons for judgment, Justice Loo describes that an action for misfeasance in public office can be brought where a government official deliberately misuses its powers. The Supreme Court of Canada in Odhavji Estate v Woodhouse established two ways that a plaintiff can prove a misfeasance claim:

• category A: by showing that a public officer engaged in conduct that is specifically intended to injure the plaintiff; or
• category B: by showing that a public officer acted with knowledge both that they had no power to do the act complained of and that the act was likely to injure the plaintiff.

Both categories require the plaintiff to prove that the public officer’s conduct was unlawful, meaning they acted in excess of the powers granted to them under the applicable statute, or for an improper purpose. For example, a decision will be unlawful where:

• the decision is made by persons other than the decision-maker designated by the applicable legislation;
• the decision-maker “fetters” its discretion, meaning they fail to exercise their discretion in making the decision but rather bind themselves to policy or the views of others.

Greengen advanced its claim under Category B.

Justice Loo considered whether the decisions to deny the permits were unlawful, and found the November 2008 call was the “key to this case and the most troubling aspect of the [Province’s] conduct.” Justice Loo found that neither applicable statutory decision-maker had independently made the decision to deny the permits prior to the November 2008 call, when their assistant deputy ministers advised Greengen the permits were denied.

Justice Loo went on to find that in the autumn of 2008, discussions escalated between the Squamish Nation and the Province with respect to Greengen’s proposed project, with senior politicians and ministers becoming involved. It was very clear from these discussions that the Nation would consider it a breach of its Land Use Agreement if the Province granted the water and land tenure permits. Based on the foregoing, Justice Loo inferred that someone higher up in government directed or persuaded the relevant decision-makers to deny the permits to appease the Squamish Nation. While Justice Loo was unable to identify which government officials actually made the decisions denying the permits, he inferred that the decisions were not made by the relevant ministers.

As a result, Justice Loo concluded that the November 2008 decisions denying the permits were unlawful, because the decisions were made by persons other than the relevant statutory decision-makers, or that these public officers had fettered their discretion for improper purposes. Justice Loo found that certain of the government officials involved knew (or were reckless to the fact) that the November call was unlawful and would cause Greengen harm.

In calculating damages, Justice Loo found that, as a result of its hydro project being unlawfully denied, Greengen had lost past and future potential earnings totalling CAD56.25 million. However, after factoring in “a number of significant risks” that the proposed project would have faced, Justice Loo reduced the damages award to CAD10.125 million.

This decision followed a three-month trial and a lengthy procedural history. It is notable for several reasons. Prior to the Odhavji decision which established Category B misfeasance claims, plaintiffs could only prove misfeasance by showing that the public official exercised their power for the specific purpose of harming the plaintiff (ie, a category A claim), resulting in very few successful actions. A plaintiff advancing a claim under category B need only show a flaw in the decision-making process and that the public officer knew or was reckless to the fact that its conduct was unlawful and would injure the plaintiff. This is no doubt an easier standard to meet in most cases, and opens the door for plaintiffs like Greengen to bring misfeasance actions.

Some Closing Thoughts

The decisions summarised above all illustrate how the law is not static but can evolve, particularly when it comes to resource development and the competing interests involved. It is possible that decisions such as Mathur and Greengen will serve as catalysts, prompting other claims concerning misfeasance in public office or the effects of climate change to be brought. What is evident from these cases is that ongoing changes to the resources sector, and more broadly to the environment, present opportunities for litigation and in turn further developments in the law.