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Environmental charges laid against Husky Energy Inc. and Husky Oil Operations Limited

Environment Canada and Climate Change (ECCC) recently laid a number of charges against Husky Energy Inc. and Husky Oil Operations Limited relating to the blended heavy crude-oil spill, in July 2016, which impacted the North Saskatchewan River, near Maidstone, Saskatchewan. The Government of Saskatchewan also filed a charge under the Environmental Management and Protection Act, 2010. These charges result from a 19-month joint federal-provincial investigation.

There are a total of ten charges which include one charge under subsection 36(3) of the federal Fisheries Act, one charge under subsection 38(5) of the federal Fisheries Act, six charges under subsection 38(6) of the federal Fisheries Act, one charge under the federal Migratory Birds Convention Act, 1994, and one charge under Saskatchewan’s Environmental Management and Protection Act, 2010.

The first appearance was at the end of March at the Lloydminster Provincial Court office.  According to the Premier of Saskatchewan’s office, the company faces a possible maximum $1 million fine.

Shoreline cleanup for the Maidstone-area oil spill (Jason Franson/Canadian Press)

Saskatchewan Minister of Environment Dustin Duncan said the spill led to significant changes in the provincial Pipelines Act; changes that include greater regulation, auditing powers, penalty provisions and licensing flowlines.

“We take this very seriously. There, to my knowledge, hasn’t been a charge with respect to the unintended release of oil from a pipeline in the province’s history,” he told reporters in late March.

Duncan said the site cleanup was completed by the end of last year, but Husky will have to work with the province’s Water Security Agency and the Ministry of Environment to make sure nothing else is required.  He said he expects full co-operation.

“In the last year, despite a very unsettling situation, Husky was very responsive when it came to the cleanup but also responding to the concerns by First Nations, by communities along the river, as well as to the requests that were made by the government department,” Duncan said.

All charges are currently before the Court, and they have not yet been proven. Under Canadian law, those charged are presumed innocent until proven guilty. Therefore, Environment and Climate Change Canada and Saskatchewan’s Water Security Agency, which has a responsibility for the specific charge under the provincial Environmental Management and Protection Act, 2010, will not be commenting further at this time.

 

New Brunswick Southern Railway pleads not guilty to charges related to oil transport

As reported by the CBC, New Brunswick Southern Railway has pleaded not guilty to 24 charges related to the transportation of oil.  Defence lawyer Catherine Lahey entered the pleas on the Irving-owned company’s behalf during a brief appearance in Saint John provincial court on earlier this month.

The charges against the railway, a subsidiary of J.D. Irving Ltd., stem from a Transport Canada investigation triggered by the 2013 derailment that killed 47 people in Lac-Mégantic, Que., prosecutors have said.  Twelve of the charges under the Transportation of Dangerous Goods Act relate to failing to create proper shipping documents for the purpose of transporting petroleum crude oil.  The other 12 charges relate to having unqualified personnel handling dangerous goods — crude oil.

The offences are all alleged to have occurred between Nov. 3, 2012, and July 5, 2013, at or near Saint John.  Irving Oil would have imported about 14,000 cars of crude for its Saint John refinery during that period.

New Brunswick Southern Railway is part if NBM Railways, a subsidiary of J.D. Irving Ltd., which also includes Cavendish Farms, Kent Building Supplies and Irving Pulp & Paper.

A trial date will be set on June 4.  Judge David Walker said the Crown is expecting to take about three weeks to present its case.  There is no word on how long the defence will take.  Pleas were delayed last month because the defence was still in the process of receiving an estimated 9,000 disclosure documents from the Crown.

The rail cars full of crude that exploded in Lac-Mégantic, Que., in July 2013 were destined for Irving Oil’s refinery in Saint John. (CBC)

In October 2017, Irving Oil was ordered to pay $4 million after pleading guilty to 34 charges under the same act.  Those charges related to failing to properly classify the crude oil it transported by train and inadequately training its employees in the transportation of dangerous goods.

The crude oil in the derailed rail cars that exploded in Lac-Mégantic was destined for Irving’s refinery in Saint John.

New Brunswick Southern Railway, along with its sister railways — Maine Northern Railway and Eastern Maine Railway — operates 883 kilometres of railway in New Brunswick and Maine.

Court Rejects Environmental Consultant’s Third Party Claim Against Prior Owner/Occupants

by Stan Berger, Fogler Rubinoff

On March 22, 2018 the Ontario Superior Court of Justice in MVL Leasing Ltd. v CCI Group Inc. 2018 ONSC 1800 granted Rule 21 motions striking third party claims brought by an environmental consultant who was being sued by a purchaser of property for professional negligence and breach of contract. The lawsuit alleged that the plaintiff was led into closing the sale by the consultant’s Phase 1 and Phase 2 Environmental Site Assessments. The property turned out to be contaminated. The consultant in turn alleged that the contamination was caused by one or more businesses operated by the third parties. The consultant requested contribution indemnity from the third parties on 6 different grounds: nuisance, loss or damage caused by a spill pursuant to s.99 of Ontario’s Environmental Protection Act, the occupier’s duty under the Occupiers’ Liability Act to ensure the safety of persons entering upon the property, negligence, liability under the Negligence Act and unjust enrichment. The consultant argued that if found liable in the main action, it would have incurred pecuniary losses as a direct result of the spill, those damages being the plaintiff’s remediation costs and or the decrease in the property’s value.

Court’s Reasons for Rejecting the Third party Claims

The nuisance claim was rejected on the basis that the consultant did not own, occupy or possess the property, or any adjacent or nearby property impacted by the alleged contamination. The s.99 EPA claim was only available where the damages were directly caused by the spill and that was not the case. The occupier liability claim was rejected because the consultant suffered no damages as a result of entering the property in question. With respect to the negligence claim, the Court refused to impose a new duty of care upon the third parties. There was no proximity in the relationship between the consultant and the third parties. The potential economic harm to the consultant was not a reasonably foreseeable consequence of the alleged acts or omissions of the previous third party owners/occupiers. The Negligence Act claim was rejected on the basis that the consultant and the third parties did not meet the test under the Act of being concurrent tortfeasors for contribution and indemnity to be available. The plaintiff’s actual or potential causes of action against the consultant and the third parties were entirely different in nature. The damages allegedly caused by the third parties were different and discrete from those caused by the consultant. Finally, the unjust enrichment claim was rejected as the consultant had not pleaded any direct conferral of a benefit upon the third parties and the consultant had not suffered a corresponding detriment. If the consultant had incurred a detriment in the future by the plaintiff succeeding with its action, that detriment only related to the breach of contract and/or negligence of the consultant and the third parties were not parties to that relationship.

What can we take away from this Decision?

In order to sustain a third party claim against historic owners or occupiers of contaminated property, environmental consultants who are sued by a purchaser of contaminated property, will have to show that that the historic owners/occupiers were somehow responsible for or at least connected to the contractual breach or negligence which the purchaser alleges against the consultant.

This article was previously published by Fogler, Rubinoff LLP and can be found on the firm’s website.

About the Author

Stanley Berger is certified by the Law Society of Upper Canada as a specialist in Environmental Law.  He was called to the Ontario Bar in 1981.  He joined the law firm of Fogler Rubinoff in 2013.

 

SJC Clarifies Statute of Limitations for Contaminated Property Damage Claims but Raises Questions of Application

by Marc J. Goldstein, Beveridge & Diamond PC

Plaintiffs with property damage claims under the Massachusetts cleanup law have more time to bring their claim than might be expected under the three-year statute of limitations according to a recent ruling by the top Massachusetts court. The Supreme Judicial Court ruled that the statute of limitations begins running when the plaintiff knows that there is damage to the property that is “permanent” and who is responsible for the damage, pointing to the phases of investigation and remediation in Massachusetts’ regulatory scheme as signposts for when a plaintiff should have that knowledge. Grand Manor Condominium Assoc. v. City of Lowell, 478 Mass. 682 (2018). However, the Court left considerable uncertainty about when the statute of limitations might begin for arguably more temporary property damages such as lost rent.

In this Google image, the Grand Manor condominium complex is visible at the center-right.

In this case, the City of Lowell owned property that it used first as a quarry and then as a landfill in the 1940s and 50s before selling the property in the 1980s to a developer. The developer constructed a condominium project on the site and created a condominium association soon thereafter. As part of work to install a new drainage system in 2008, the contractor discovered discolored soil and debris in the ground. Subsequent sampling indicated that the soil was contaminated and that a release of hazardous materials had occurred. The condo association investigated in early 2009, and MassDEP issued notices of responsibility to both the condo association as well as the city in May 2009. The city assumed responsibility for the cleanup and worked the site through the state regulatory process known as the Massachusetts Contingency Plan (MCP). In the city’s MCP Phase II and III reports in June 2012, it concluded that the contamination was from the city’s landfill operations, that it would not be feasible to clean up the contamination, and proposed a pavement cap and a deed restriction.

The condo association and many of its members filed suit in October 2012 for response costs under Chapter 21E, § 4 and damage to their property under G.L. c. 21E, § 5(a)(iii). At trial, the jury awarded the plaintiffs response costs under Section 4 but found that the plaintiffs had failed to prove that their property damage claim was brought within the three-year statute of limitations for such claims under G.L. c. 21E, § 11A. The Supreme Judicial Court took the case on direct appellate review. If you would like some public liability insurance to help along with a law case, then you may be interested in companies such as Wealth Simple, they can help with personal finance and TFSAs.

Section 11A provides that an action to recover damage to real property “be commenced within three years after the date that the person seeking recovery first suffers the damage or within three years after the date the person seeking recovery of such damage discovers or reasonably should have discovered that the person against whom the action is being brought is a person liable…” Quoting Taygeta Corp. v. Varian Assocs., Inc., 436 Mass. 217, 226 (2002), the Court summarized this as a requirement that the claim must be brought within three years of when plaintiff “discovers or reasonably should have discovered [1] the damage, and [2] the cause of the damage.”

The Court quickly agreed that “the damage” referred to in Section 11A was, for these purposes, the property damages of Section 5 and moved on to the plaintiffs’ contention that the limitations period should not run until they discovered or reasonably should have discovered that the damage was “permanent” or, in other words, not reasonably curable. Until that time, they argued, they could not know if they had a property damage claim because the site could be fully remediated.

The Court examined the application of the statute of limitations in the context of the statutory scheme for investigating and remediating sites in Massachusetts. The Court found that the primary purpose of Chapter 21E is to clean up environmental contamination and to ensure responsible parties pay for the costs of that cleanup. As a result, the statute prioritizes “performance and financing of cleanup efforts, and then considers the calculation of property damage that cannot be cured by remediation and remediation cost recovery.”

In interpreting the statute of limitations, the Court crystalized the question as “whether the word ‘damage’ in § 11A(4) refers specifically to damage under § 5, that is, damage that cannot be cured and compensated by the cleanup and cleanup cost recovery processes defined by the MCP and §§ 4 and 4A, such that the limitations period does not begin to run until the plaintiff knows there is residual damage not subject to remediation and compensation.” In order to have knowledge that a plaintiff has suffered damage that is not curable by the MCP remediation process, the MCP process must have run sufficiently to know that § 5 damages exist – that there is contamination that will not be addressed through remediation leaving the property at a diminished value. Since the liable party is required to determine the extent of the damage in Phase II and evaluate available remedies in Phase III of the MCP, as the Court noted, “[i]t would make little sense to require the plaintiff to independently determine whether residual property damage exists prior to the completion of these reports.” As a result, the Court concluded that the statute of limitations did not start to run until the plaintiff became aware that the site would not be fully remediated in the Phase II and III reports in June 2012 months before they filed their lawsuit. Exactly what constitutes full remediation remains to explored in further cases, as the range of outcomes from achieving background conditions, implementing deed restrictions, reaching temporary solutions, or even leaving just a few molecules of contamination left behind could impact this analysis.

The Court contended that this interpretation of the statute of limitations provides a “prescribed and predictable period of time” within which claims would be time barred, given that there are timetables associated with the production and submission of MCP Phase II and III reports. Under normal circumstances, the Court expected that a plaintiff will know it has a claim within five years of notifying MassDEP of contamination.

Despite the Court’s pronouncement that it had provided predictability for these types of claims, the statute of limitations for non-permanent property damages, such as lost rental value, or for sites where there is a long-term temporary solution in place, remain uncertain. Lawyers and clients evaluating how and when to bring claims for temporary and permanent damages will need to carefully evaluate a range of potential options in pursuing a preferred single case for property damage without unacceptable risk that an uncertain statute of limitation may have run.

The article was first published at the Beveridge & Diamond website.

Beveridge & Diamond’s Massachusetts office assists parties at all phases of contaminated sites, guiding clients through the MCP investigation and remediation process and prosecuting and defending claims in court for cost recovery and property damage. For more information about this practice, contact Marc Goldstein or Jeanine Grachuk.

About the Author

Marc Goldstein helps clients resolve environmental and land use disputes and to develop residential, commercial, and industrial projects. He serves as the Managing Principal of Beveridge & Diamond’s Wellesley, Massachusetts office and the Chair of the firm’s Technology Committee.

Marc provides practical, cost-effective advice to clients with environmental contamination issues, whether those clients are cleaning up hazardous materials and seeking contribution from previous owners or adjacent landowners or facing claims under Chapter 21E or Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for their alleged role in contamination.

The Supreme Court of Canada to Decide who pays to Clean-up Toxic Industrial Sites

The Supreme Court of Canada is hearing a controversial case this week concerning who is responsible for cleaning up toxic industrial sites when a company goes bankrupt.

At stake is potentially billions of dollars in environmental clean-up costs. And entities ranging from governments to Canada’s big banks to oil and gas companies and farmers are all looking to ensure that they don’t end up on the hook for cleaning up toxic sites – many of them in remote rural and northern areas of the country.

The case itself focuses on a small Alberta oil company, Redwater Energy, which entered creditor protection in 2015. Only a few of the company’s assets had value, so the bank wanted to sell those wells to recover some of its debt and abandon the rest of the oil and gas sites. The question became whether Redwater’s assets should help pay its debts or be used to pay for the cleanup cost of its worthless oil and gas wells?

The case will address a fundamental public policy dilemma about what happens when a resource company bites the dust. For instance, every mine in the country has environmental regulations attached to its licence about reclaiming the site when the mine closes.

But if the company goes belly up, does the bank take over those end-of-life responsibilities? If not, is the site abandoned or do taxpayers pick up the hefty tab?

The question for the Government of Alberta and area farmers that had Redwater oil and gas wells on their land became whether Redwater’s assets should help pay its debts or be used to pay for the clean-up cost of its worthless and contaminated work sites?

The Supreme Court case addresses a fundamental public policy dilemma about what happens when a resource company fails. Every mine operation in Canada has environmental regulations attached to its licence about reclaiming the site when the mine closes. But if the company goes belly up, does the bank take over those end-of-life responsibilities? If not, is the site abandoned or do taxpayers pick up the hefty tab when the provincial government pays to clean it up? And how much cost should farmers and other landowners bare for clean-up and reclamation costs?

“We need to be able to ensure the people of Alberta, collectively, are protected,” Alberta Premier Rachel Notley told reporters earlier this week.

The Alberta Energy Regulator (AER) says there are approximately 1,800 abandoned oil and gas sites in that province alone and pegs the cost to remediate them at $8.6 billion.

If the Supreme Court sides with previous court rulings, the AER will likely respond by increasing the orphan levy imposed on well licensees. However, a portion of the expense will inevitably fall to the provincial government, and thus to taxpayers. But if the Supreme Court decides to reverse the decision, it will create hesitancy among lenders. Financial institutions will likely respond by tightening their purse strings as they begin pricing the risk into new loans made out to the industry.

This case has consequences that reach far beyond one small energy company. The Redwater case could act as precedent in other provinces. If the previous rulings are upheld, it will send a clear signal to natural resource companies’ creditors that bankrolling fossil fuel infrastructure, mining projects, and pulp and paper mills without accounting for clean-up costs is not only acceptable, but encouraged in a legal climate where the public—not the polluter—pays.

“The Redwater decision impacts Alberta’s constitutional right to manage its own resources,” said AER spokeswoman Cara Tobin, adding that “By rejecting the polluter pays principle that underlies virtually all of Alberta’s oil and gas legislation, it’s shifted liability from the polluter to innocent third parties and the public.”

The provincial governments of Ontario, which currently has about 2,400 oil and natural gas producing wells, along with British Columbia and Saskatchewan have also joined the Supreme Court Case, which will be heard in Ottawa this week. The Canadian Association of Petroleum Producers is also an intervener in the legal case.

Mining company in B.C. fined $200,000 for Failure to Sample Effluent

Barkerville Gold Mines Ltd. (TSXV: BGM) was recently ordered to pay $200,000 after pleading guilty, in Provincial Court of British Columbia, to violations under the Canadian Fisheries Act related to the Metal Mining Effluent Regulations.

The fine was the result of routine inspections conducted by Environment and Climate Change Canada enforcement officers at the Cariboo gold mine in Central British Columbia.  During inspections, it was revealed that the company failed to complete sampling, notify authorities of having deposited effluent into fish-bearing water without authorization, and submit reports on time.  The effluent was deposited into Lowhee Creek, part of the Willow River system—an important fish-bearing watershed.  The Metal Mining Effluent Regulations authorize deposits of effluent provided that conditions stipulated in the regulations are respected.

About Barkerville Gold Mines Ltd. is focused on developing its extensive land package located in the historical Cariboo Mining District of central British Columbia. Barkerville’s mineral tenures cover 1,950 square kilometres along a strike length of 67 kilometres which includes several past producing hard rock mines of the historic Barkerville Gold Mining Camp near the town of Wells, British Columbia.

Drillers at Barkerville Gold Mines’ Cow Mountain gold project in the Cariboo mining district

Canada: Courts Struggle to Mix Bankruptcy and Environmental Law – SCC To Hear Redwater Appeal

Article by John GeorgakopoulosGiselle Davidian and Serin Remedios

Willms & Shier Environmental Lawyers LLP

The Supreme Court of Canada (SCC) granted leave to hear the appeal of Orphan Well Association v Grant Thornton Limited.1 The SCC will reconsider whether trustees and receivers in bankruptcy must remediate wells in priority to the claims of secured creditors.

In April 2017, the Alberta Court of Appeal released its decision in Redwater.2 The Court found that the Government of Alberta’s environmental orders for oil well remediation did not have priority over secured creditors in bankruptcy proceedings.

In upholding the lower court’s decision, set out in our previous update, the Court of Appeal added to the “untidy intersection” between bankruptcy proceedings and provincial environmental law. Both Courts concluded that receivers and trustees were permitted to renounce an insolvent debtor’s interest in its licensed assets while selling valuable licensed assets to maximize recovery for secured creditors.

The decision, as it stands, allows receivers and trustees in bankruptcy to disclaim unprofitable assets and not be required to fulfill certain environmental obligations associated with those disclaimed assets.

Recap

The case revolves around the assets of a junior, insolvent oil and gas producer, Redwater Energy Corporation (Redwater).

Orphan Oil Well

When Redwater’s primary secured creditor began enforcement proceedings under the Bankruptcy and Insolvency Act (BIA), Grant Thornton Limited (GTL) was appointed as receiver and trustee.3 Several of Redwater’s oil wells had costs of remediation exceeding the value of the wells. GTL took control of only 20 of 127 Redwater’s assets and disclaimed the oil wells that had onerous environmental abandonment costs.

Alberta oil and gas legislation requires licensees, including trustees, to comply with “end-of-life” rules for oil wells. Where no one is financially capable of remediating and abandoning a well, the well is designated an “orphan well” under Alberta’s Oil and Gas Conservation Act (OGCA).4/em>

The Alberta Energy Regulator (AER) ordered GTL to remediate the disclaimed oil wells before distributing funds to creditors. When GTL indicated that it did not intend to remediate the wells, AER and the Orphan Well Association (OWA) brought applications asking the court to void GTL’s disclaimer of the non-producing wells and order GTL to comply with AER’s orders. AER argued that Redwater’s insolvency and bankruptcy did not affect Redwater’s environmental obligations and that GTL was legally required to discharge those obligations before paying Redwater’s creditors.

GTL brought a cross-application challenging the constitutionality of AER’s stance on GTL’s environmental obligations and seeking approval of the sale of Redwater’s valuable wells.

At issue was whether AER’s orders were provable claims in bankruptcy and therefore subject to bankruptcy proceedings. If AER’s orders were subject to bankruptcy proceedings, other creditor’s claims would take priority. The practical outcome being that the corporation would likely have no means of satisfying its environmental obligations after settling its obligations to other creditors. The cost of remediating the orphan wells would then fall on the Government of Alberta.

As we previously reported, Alberta Court of Queen’s Bench concluded that the applicable sections of the OGCA and Pipeline Act (PA) frustrate the federal purpose of the BIA of managing the winding up of insolvent corporations and settling the priority of claims against them. Based on the doctrine of paramountcy, the OGCA and PA were inoperable to the extent that they conflicted with section 14.06 of the BIA. This section of the BIA exempts a receiver or trustee from personal liability, allowing a trustee and receiver to disclaim assets, and prescribes the priority of environmental remediation costs.

OWRA and AER appealed the decision.

Court of Appeal Decision

The Court of Appeal upheld the lower court decision. The key issue on appeal was the priority and treatment of environmental claims in bankruptcy, and whether environmental claims were provable claims under section 14.06 of the BIA.

Priority and Treatment of Environmental Claims in Bankruptcy

The Court found that the BIA was amended in 1997 to specifically address environmental claims. The BIA now incorporates environmental claims into the general bankruptcy process, rather than exempting them. Following the test set out in Newfoundland and Labrador v AbitibiBowater Inc., the Alberta Court of Appeal found that AER’s orders were subject to bankruptcy proceedings.5 By refusing to permit the transfer of Redwater’s valuable assets unless funds were set aside for remediation, AER reduced the environmental obligations to “sufficiently certain” monetary claims. Accordingly, AER cannot indirectly interfere with the value of assets in a bankruptcy by placing financial preconditions on the transfer of AER licences.

Constitutional Law Issue

The Court of Appeal held that there was an operational conflict between federal and provincial regimes. The Court found that the provincial regulatory scheme frustrated the purposes of the BIA, which include determining the priority of claims against insolvent corporations. The practical outcome being that GTL did not have to comply with AER’s remediation obligations prior to settling claims of secured creditors.

Nortel and Northstar

The dissenting opinion briefly considered the two leading cases in Ontario on environmental claims in bankruptcy and insolvency: Nortel Networks Corporation (Re) and Northstar Aerospace Inc. (Re).6 In Nortel, the Court found that some of the Ministry of the Environment’s (MOE, as it then was) orders had priority over creditor claims, but in Northstar, the Court found that the MOE’s orders did not have priority.

Implications

The practical implications of Redwater may be far reaching not only for the worlds of bankruptcy & insolvency and oil & gas, but also for the world of director and officer liability.

Will we see more Alberta provincial environmental orders aimed at former directors and officers? In Northstar, after the Court found the MOE’s orders did not have super priority in insolvency proceedings, the MOE issued a remediation order personally against the former directors and officers.7

We will look to the SCC to provide clarity on this important, albeit untidy, area of law.

Footnotes

1 2017 ABCA 124 [Redwater].

2 Ibid.

3 RSC 1985, c B-3 [BIA].

4 Redwater at para 21; Oil and Gas Conservation Act RSA 2000, c O-6, s 70 [OGCA].

5 2012 SCC 67.

6 Nortel Networks Corporation (Re), 2013 ONCA 599 [Nortel]; Northstar Aerospace Inc. (Re), 2013 ONCA 600 [Northstar].

7 Northstar Aerospace, Inc. (Re), 2012 ONSC 4423. Subsequently, on November 14, 2012, the MOE issued a Director’s Order against the former directors and officers personally.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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About the authors

John Georgakopoulos resolves complex environmental legal issues for clients, uniquely drawing on his technical knowledge as a former senior environmental scientist with the Ontario Ministry of the Environment and Climate Change. John is called to the bars of Ontario and Alberta.

Giselle Davidian is an associate lawyer practicing in the areas of environmental law, environmental litigation, energy and natural resource law and Aboriginal law.  Giselle draws upon her technical knowledge as a former environmental scientist at a consulting engineering firm to help clients meet their goals.  Giselle is fluent in French and Armenian and has a working knowledge of Italian.  Giselle is called to the bar of Ontario.

Serin Remedios is an associate lawyer practicing environmental litigation as well as environmental, Aboriginal, northern and energy law.  Serin’s past experience in environmental science helps her understand clients’ problems and assist them in meeting their goals.  Serin is called to the bar in Ontario.

This article was first published in the Willms & Shier Environmental Lawyers LLP website.

Supreme Court of Canada to hear Alberta’s “orphaned” oil wells case

By – Michael Nowina and Glenn Gibson, Baker McKenzie

On November 9, 2017, the Supreme Court of Canada granted the Alberta Energy Regulator and the Orphan Well Association’s request for leave to appeal from the decision in Grant Thornton Ltd. v. Alberta Energy Regulator, 2017 ABCA 124.  By granting leave, Canada’s highest court will weigh in on the Alberta Court of Appeal’s determination that secured creditors in a bankruptcy should be paid before environmental claims arising from abandoned oil and gas wells.

Map of all Orphan Wells in Alberta

As described in our previous blog post, on April 24, 2017, a majority of the Alberta Court of Appeal determined that certain sections of the Oil and Gas Conservation Act and Pipeline Act were inoperative to the extent that they conflicted with the Bankruptcy and Insolvency Act (BIA). Under the appellate decision, a bankruptcy trustee or receiver is not required to satisfy the environmental remediation obligations in priority to other creditors.  On the other hand, the dissenting judgment noted concerns that the effect of the majority decision would be to create an incentive for corporations to avoid the end-of-life obligations of wells by using insolvency laws and shift the environmental remediation costs onto the public and other oil and gas producers.

 Leave to the Supreme Court

Leave to the Supreme Court will only be granted where the court is of the opinion that the question raised by the case is of public importance or one that ought to be decided by the Supreme Court. In their leave application, the Orphan Well Association and the Alberta Energy Regulator identified the following issues to be clarified by the Supreme Court:

(a) Given the exclusive jurisdiction of provinces to regulate their natural resources, whether regulatory obligations created by provincial legislation conflict with or frustrate the scheme of priorities set out in the BIA?

(b) Whether select provisions of the BIA enable a receiver or trustee to pick and choose which provincial laws it will comply with?

(c) Are end-of-life obligations associated with oil and gas development also duties owed to the public?

The Minister of Justice and Solicitor General of Alberta intervened in the leave application. In supporting the leave application, the Province of Alberta’s position on leave was that the majority decision of the Court of Appeal interfered “with critical provincial regulatory functions in a manner that is inconsistent with the constitutional division of legislative powers and the balance of confederation.”

The Supreme Court granted a motion to expedite the appeal, and it will likely hear the appeal in the first half of 2018. The Supreme Court’s decision is an opportunity for the court to clarify the interaction of federal insolvency laws with the province’s jurisdiction to regulate natural resources as well as whether the public and other oil and gas producers ought to bear the burden of environmental remediation. The decision will have significant implications for the oil and gas industry, lenders, and regulators across the country. We will continue to provide updates on the status of the hearing as it becomes available.

This article was originally published on the Baker McKenzie website.

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About the Authors

Michael Nowina is a member of the Firm’s Dispute Resolution and Global Financial Restructuring & Recovery practice groups. Mr. Nowina has a diverse civil litigation practice, with a focus on fraud recovery, insurance defence and insolvency law. Mr. Nowina has appeared before all levels of courts in Ontario and regularly appears on matters on the Commercial List in Toronto.

Glenn Gibson is a member of Baker McKenzie’s Litigation & Government Enforcement Practice Group in Toronto. She joined the Firm in 2015 as a summer student and completed her articles of clerkship in 2017.  Glenn acts for various clients on contractual disputes, jurisdictional disputes, commercial class actions, matters involving fraud and commercial arbitration. She is a contributor to www.canadianfraudlaw.com, www.globalarbitrationnews.com, and the Baker McKenzie International Arbitration and Litigation Newsletter.

When Is a Discharge to Groundwater Subject to the U.S. Clean Water Act? Can You Say “Significant Nexus”?

By Seth Jaffe, Foley Hoag LLP

Whether the United States Clean Water Act regulates discharges to groundwater has been a topic of significant debate.  At this point, there seems to be something of a trend in the cases towards concluding it does, but it remains true that all of the courts of appeal that have addressed the issue have concluded that it does not.  As I have noted, the problem with the “yes” answer is that pretty much all groundwater eventually discharges to surface water, making all such discharges subject to the CWA.  How can that be, given that groundwater is not considered to be “waters of the United States?”

Chief Judge Waverly Crenshaw recently addressed the issue in Tennessee Clean Water Network v. TVA.  Judge Crenshaw’s solution was creative – meaning he pretty much made up out of whole cloth.  That doesn’t necessarily mean that it’s wrong, however.

The case involves coal ash management at the TVA’s Gallatin plant.  Some of the – unlined – ponds directly abut the Cumberland River.  The plaintiff citizen groups brought claims under the CWA, alleging that TVA was discharging pollutants to the River – via groundwater – without an NPDES permit.  They requested an injunction requiring that the TVA remove the coal ash from the ponds, at a cost of $2 billion.

Gallatin power plant, operated by the Tennessee Valley Authority in mid-Tennessee on the north bank of the Cumberland River. Location of the main coal-burning facility is indicated by the icon and label.

Judge Crenshaw was clearly frustrated by an absolutist position on either side.  Clearly, he does not think that any link between groundwater and surface water, no matter how attenuated, can be enough for jurisdiction to attach.  On the other hand, he was also trying to reckon with the specific case in front of him.  As he saw it, the Gallatin ash ponds were a complete environmental mess.  They immediately abut the Cumberland River, clearly a water of the United States.  Can the outcome really be different if the ponds discharge directly to the River than if they discharge to groundwater 10 feet from the River, where that groundwater then discharges to the river?

His solution?

the Court concludes that a cause of action based on an unauthorized point source discharge may be brought under the CWA based on discharges through groundwater, if the hydrologic connection between the source of the pollutants and navigable waters is direct, immediate, and can generally be traced.

I confess I like this solution, because it is practical and will generally yield reasonable results.  It avoids either effectively regulating all groundwater under the CWA or having to conclude that the CWA can’t reach situations such as the Gallatin ash ponds.

The problem?

There’s no textual support for this solution in the CWA.  To me, this test sounds a lot like Justice Kennedy’s “significant nexus in Rapanos.  There too, his position received a lot of support at a practical level, while many commentators noticed that the CWA says nothing about a “significant nexus.”

We all know how well that’s worked out.

This article was first published in Law and the Environment, a blog from Foley Hoag LLP.

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About the Authors

Seth D. Jaffe

A partner at Foley Hoag, Seth Jaffe is recognized by Chambers USA, The Best Lawyers in America and Massachusetts SuperLawyers as a leading… MORE

Kathleen Brill

Kathleen Brill is an Associate practicing in the Administrative Department of Foley Hoag’s Boston office. Before joining Foley Hoag, Kathleen had considerable experience…MORE

 

Heiltsuk First Nation to sue Kirby Corporation over 2016 diesel spill

As reported in Coast Mountain News, this month marks the one-year anniversary of the October 13 oil spill in Bella Bella, British Columbia. With the community’s recovery efforts undermined by government and Kirby Corporation’s refusal to take responsibility for the spill and to cooperate in its aftermath, the nation says it has no option but to turn to the courts.

“The oil spill continues to be a catastrophic injury to our food sources, culture, and economy,” says Heiltsuk Tribal Council Chief Councillor, Marilyn Slett. “Thanks to Kirby Corporation and the governments of British Columbia and Canada, our community’s road to recovery keeps getting longer and longer.”

The Nathan E. Stewart articulated tug/barge was southbound from Alaska when it ran aground at Edge Reef near Athlone Island on Oct. 13, 2016. (Photo Credit: Western Canada Marine Response Corporation)

Kirby Corporation and government have kept information secret about what occurred on October 13, 2016 when the Nathan E. Stewart grounded, sank and spilled oil into Gale Pass. The Heiltsuk Tribal Council made numerous separate requests for information to the polluter (Kirby Corporation) and various government agencies, including Transport Canada, the Transportation Safety Board, and the Canadian Coast Guard. Those requests were largely denied or ignored.

The Nation claims this secrecy and lack of collaboration has continued throughout the post-spill recovery.

“Recently, we learned the B.C. Ministry of Environment and Kirby have been secretly negotiating an agreement on the post-spill environmental impact assessment since early this year,” says Chief Councillor Slett. “Since this nightmare began, the polluter and provincial and federal governments have ignored our questions and environmental concerns, our collaboration attempts, and our rights as indigenous people. We have no choice but to turn to the courts.”

The nation is preparing to take legal action, aiming to recover damages suffered by its members as well as to examine the actual state of Canada’s “world class” oil spill response system.

The case will seek compensation for loss of commercial harvesting of marine resources and infringement of Aboriginal rights relating to food, social and ceremonial importance of marine resources — factors that the current oil spill liability framework does not account for.

“When I’m not harvesting Gale Pass to feed my family, I am working there as a commercial fisherman, earning an income to support them – and I’m one of many,” says harvester and volunteer oil spill responder, Robert Johnson. “Despite our reliance on Gale Pass, the governments of British Columbia and Canada and Kirby the polluter have little interest in understanding the impacts of this oil spill on the health of my community, this environment, or our economy.”

The existing oil spill response framework excuses the polluter and government from full responsibility for oil spill impacts on Aboriginal rights otherwise protected by the Constitution.

As such, the government of British Columbia and Kirby are not required by law to do comprehensive impact assessments of the oil spill. To date, they have rejected multiple Heiltsuk requests to participate in a study of the current and long-term impacts of the oil spill on the health of the ecosystem and marine resources and the social and economic consequences associated with the loss of harvest and use of the impacted area.

Instead, Kirby Corporation and the BC Ministry of Environment are proposing a limited environmental assessment covering a minority of the area and species affected.

Heiltsuk Nation will be asking the courts to assess whether this existing regime of liability for oil spills can really be considered constitutional.

“We’re learning the hard way that indigenous people and coastal communities can’t count on polluters, Western Canada Marine Response Corporation, or the governments of B.C. and Canada in a crisis situation,” says Kelly Brown, Director of the Heiltsuk Integrated Resource Management Department. “For our sake, and the sake of our neighbours, we are consulting with a range of experts to assess damages, recovery times, and, ultimately, determine how we can prevent a similar disaster in the future.”

The Nathan E. Stewart sinking off Bella Bella, British Columbia

Analyses of the oil spill response have revealed massive safety and planning oversights by the polluter and federal and provincial government regulations. They include: a lack of spill response materials; ineffective booms and delays in employing them; a lack of safety instructions and gear for Heiltsuk first responders exposed to diesel and dangerous marine conditions; and confusion over who was in charge in the early hours of the oil spill.

“Government representatives travel the province, country, and the world preaching reconciliation and nation-to-nation relationships with first people. Meanwhile, back home, they are avoiding our calls and emails, excluding us from meetings, and ignoring our rights,” says first responder and Hereditary Chief Harvey Humchitt. “If the courts have to explain that this is not what nation-to-nation relationships and reconciliation look like, so be it.”

The Heiltsuk Tribal Council expects the results of the various impact assessments, legal analyses, and evaluations to materialize in the coming weeks.