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Practical federalism: A cynical strategy...By Russell Robertson, Bernard LLP

By BCShippingNews 15 June 2018
Russell Robertson, Bernard LLP
An update on the interprovincial transport of oil...

Since my colleague, Karrisa Kelln, only one month ago wrote on this very topic, a number of new developments have occurred that have shifted the landscape yet again. B.C. has unveiled details of the draft legislation to regulate increases in diluted bitumen flows and announced it would refer the constitutionality of the proposed legislation to the court. In response, the legislatures of Alberta and Saskatchewan both tabled draft legislation to restrict oil or gasoline exports to B.C. In addition, the Supreme Court of Canada recently issued a landmark ruling on the so-called ‘free the beer’ case which focused on the related issue of interprovincial trade barriers.

First to B.C. In January, the B.C. government announced plans to provide additional environmental protections and raised the possibility of banning increased diluted bitumen exports flowing from Alberta through the Kinder Morgan Trans Mountain pipeline expansion. We now know more about those specific plans. B.C. proposes to create a new permitting regime under the Environmental Management Act S.B.C. 2003, c. 53. The regime would apply only to those with care and control of heavy oil or bitumen and it would apply only to increased volumes (over a 2013 to 2017 baseline). In other words, it would apply only to Kinder Morgan if the company were to go ahead with the Trans Mountain pipeline expansion, but would not affect the existing pipeline. The amendments would allow B.C. to base its permitting criteria on the results of new scientific studies of the effects of diluted bitumen spills and to alter that criteria as the scientific data evolves. If Kinder Morgan were lucky enough to be granted a permit, the permit would also include requirements for enhanced spill prevention, planning, response and compensation.

B.C. will refer the constitutionality of its proposed permitting scheme to the BC Court of Appeal. This is known as a reference question. A reference question is a submission by the federal or a provincial government to the court asking for an advisory opinion on a major legal issue, such as the constitutionality of legislation. The reference is treated in the same way as an appeal case. The Attorney General of BC is entitled to appear and to make submissions. The Attorney General of Canada and the Attorneys General of the other provinces are entitled to notice and may appear to make arguments on the case. Other interested parties are able to apply for intervener status to make submissions during the hearing. The Court of Appeal may also direct that certain persons be notified of the hearing and allowed to participate.

The B.C. government has framed the matter as a division-of-powers issue concerning the provincial government’s jurisdiction to legislate in relation to “property and civil rights” (s.92(13), Constitution Act, 1867) and the federal government’s jurisdiction to legislate in relation to “interprovincial undertakings” (s.92(10(a)). The Court will be asked three questions:

  • Is the draft legislation within provincial jurisdiction to enact?
  • Would the draft legislation be applicable to hazardous substances brought into B.C. by means of an interprovincial undertaking?
  • Is there inconsistent federal legislation that would render the draft legislation inoperative?

As anyone who has experienced litigation can likely attest, these things take time — and the B.C. government, the primary litigant, does not appear to want an expeditious hearing. Some may even accuse B.C. of stalling for tactical reasons. The case will proceed as an appeal case with multiple government parties and almost certainly multiple intervenors. Although the Court of Appeal would have the authority to demand tight timelines for the hearing of the reference question, it is unlikely that the court would give any less than 30 days for the Attorney General of Canada and the other responding parties to file their written arguments (called a factum), after receiving the Attorney General of BC’s factum. Only then could a hearing be scheduled. The Attorney General of BC has not yet filed its factum and there is currently no timeline for it to do so. Should procedural issues, such as parties’ intervenor status, become an issue, those determinations will need to be resolved well before the hearing takes place. Once the hearing does take place, the Court of Appeal can issue its judgment at any time; days, weeks or even months later. Following that decision, any party can pursue an appeal to the Supreme Court of Canada, and a new judicial procedure begins again.

It is not the intention of this article to render an opinion on the constitutionality of B.C.’s draft legislation. However, the governments of Alberta and Saskatchewan have likely considered that B.C., merely by taking these steps and submitting the reference question to the courts, has created a big enough cloud of uncertainty over the fate of the Trans Mountain pipeline expansion, that Kinder Morgan may back away. Suffice it to say, those provinces believe B.C.’s draft legislation is clearly an unconstitutional attack on an area of federal government jurisdiction and an attack on an industry critical to their provinces’ economy. They have retaliated.

Alberta has tabled Bill 12, named the Preserving Canada’s Economic Prosperity Act, which would establish a permitting process for individuals or corporations seeking to export energy products outside the province. Last week, Saskatchewan followed suit by tabling the very similar Energy Export Act. The Minister of Energy is given complete discretion to issue permits if considered to be in the public interest, but the specific enumerated goal is to ensure “adequate pipeline capacity is available to maximize the return on resources.”

The constitutionality of these latest two moves by Alberta and Saskatchewan is dubious in light of the Supreme Court of Canada’s decision in R. v. Comeau, 2018 SCC 15; the so-called ‘free the beer’ case. In that case, a challenge was made to the constitutionality of New Brunswick’s law that prohibited having anything more than a very small amount of liquor purchased from anyone other than the New Brunswick Liquor Corporation. Mr. Comeau was charged under that law for bringing more than the allowable amount back home from a shopping trip across the border in Quebec. The challengers claimed the law (and any other laws like it) violated s. 121 of the Constitution Act, 1867 which says: “All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.”

The Supreme Court disagreed with the challengers and sided with New Brunswick. In the Court’s opinion s. 121 “…prohibits governments from levying tariffs or tariff-like measures (measures that in essence and purpose burden the passage of goods across a provincial border); but, s. 121 does not prohibit governments from adopting laws and regulatory schemes directed to other goals that have incidental effects on the passage of goods across provincial borders.” The liquor law did not violate s. 121 because although it in essence functioned as a tariff, the objective of the regulatory scheme was not to restrict trade across a provincial boundary, but to enable public supervision of the production, movement, sale and use of alcohol within New Brunswick. The law served this primary objective and thus its effect as a tariff was only incidental.

Alberta and Saskatchewan’s draft laws, on the other hand, appear to lack any objective other than to restrict interprovincial trade and to punish B.C. Their constitutionality is doubtful and those who drafted the laws probably know it. Suffice to say they were born out of frustration with the seeming lack of respect B.C. has shown for the otherwise valid exercise of federal jurisdiction over the Trans Mountain pipeline. Arguably, B.C. has demonstrated contempt for the very principle of federalism; something that should concern all of us. As the Supreme Court stated in Comeau, quoting from its previous decision in Reference re Securities Act, 2011 SCC 66, at para. 7:

It is a fundamental principle of federalism that both federal and provincial powers must be respected, and one power may not be used in a manner that effectively eviscerates another.

It is a fair comment that B.C.’s attempt to ban, or at least regulate, increased diluted bitumen flowing through the province, even if found to be constitutional on its face, effectively eviscerates the authority all of us understood the federal government exercised over the Trans Mountain pipeline as an interprovincial undertaking. Would the federal government have engaged in the three-year national energy board review of the project if approval was always only subject to B.C.’s ultimate right to restrict flows of goods through the province?

If B.C. believes its proposed legislation is constitutional, what does this say about B.C.’s views on federalism and the role of our federal government? For example, does B.C. also believe it could introduce a law to prohibit the transportation of Canadian military equipment and armaments through the province? Ultimately, does B.C. see Canada more as a united country or a name brand for a loosely organized collection of sovereign provinces?

We must leave those existential questions aside and return to the practical reality. One thing is for sure, May 31, Kinder Morgan’s deadline for the federal government to resolve uncertainty, will pass long before the BC Court of Appeal renders its ruling. Thus, the company will have to decide if it is still interested in choosing Canada as a country to do business in. Kinder Morgan no doubt considers the matter knowing that it has already spent many millions over the last 10 years laying the legal ground work for the pipeline and fighting wave after wave of administrative and legal obstacles. If Kinder Morgan is prepared to abandon the pipeline after all of that, we can be sure that many other organizations will simply avoid Canada in the first place.

If Kinder Morgan abandons the Trans Mountain pipeline, B.C. will have won the battle simply by stalling and creating a climate of uncertainty — a strategy that could be described as practical federalism. As Ms. Kelln pointed out last month, the danger in playing fast and loose with the Constitution is that it becomes easier with repetition. Practical federalism may become the new normal.

Russell Robertson is a maritime lawyer at Bernard LLP and can be reached at robertson@bernardllp.ca