Trio of Recent Supreme Court of Canada Decisions Signals Provinces Cannot Impede Federal Undertakings under the Guise of Environmental Protection

Written by Jean Lortie, Dominique Amyot-Bilodeau, Jean-Philippe Mathieu, Patrick Ostiguy of McCarthy Tétrault LLP

On April 16, 2020, the Supreme Court of Canada dismissed an application to appeal a judgment rendered by the Québec Court of Appeal in 2019 regarding the inapplicability of certain provincial environmental requirements with respect to federally-regulated activities carried out on Port of Québec lands (Attorney General of Quebec v. IMTT-Québec inc., 2019 QCCA 1598). This ending to a fourteen-year saga consolidates a recent line of Supreme Court of Canada decisions limiting the application of provincial environmental permit requirements to federal undertakings such as ports, airfields and pipelines. McCarthy Tétrault LLP successfully represented the Quebec Port Authority (“QPA”) and IMTT-Québec Inc. (“IMTT”) in this significant matter, which will have direct and significant implications for many industries throughout the country.

The Port of Québec Matter

Background

IMTT is a federally-incorporated company that handles and stores bulk liquid products in large tanks on federal property it leases from the Quebec Port Authority (“QPA”). IMTT’s customers rent these tanks to transit the various products delivered to the Port of Québec mainly by ship. The products are then loaded onto railway tank cars, tank trucks or other ships and delivered to their final destination. Although IMTT is not responsible for handling the transshipment of products, IMTT monitors the operations, assists operators and provides its clients with heating, cooling, blending and dilution services.

While IMTT had previously obtained certificates of authorization from the Québec environmental authorities in accordance with the provincial Environment Quality Act (“EQA”), it decided not to seek provincial authorization when it began planning new tank construction projects to increase capacity in 2006. Claiming it was a company under federal jurisdiction not subject to the EQA, IMTT rather sought and obtained authorization from the QPA and federal authorities pursuant to the Canadian Environmental Assessment Act and the Canada Port Authority Environmental Assessment Regulations.

The Attorney General of Québec (“AGQ”) initially petitioned the Court for an injunction prohibiting IMTT from using the new reservoirs until a certificate of authorization was delivered pursuant to the EQA. Although the parties entered into a standstill agreement while attempting to reach a negotiated arrangement, IMTT terminated the agreement when provincial authorities decided to hold further public hearings about the project. IMTT and the QPA then initiated legal proceedings seeking a declaration that the EQA’s authorization scheme was either inapplicable or inoperative with regard to IMTT’s federal activities within the Port of Québec. The Attorney General of Canada (“AGC”) intervened in support of the applicants’ position as a result of the AGQ contending that the site of IMTT’s operations was not federal land.

The Trial Judgment

In a Superior Court decision rendered in 2016, the Honourable Gilles Blanchet concluded that the QPA’s and IMTT’s activities take place on federal property and that they also fall under the federal constitutional domains of navigation and interprovincial trade. Applying the doctrine of federal paramountcy, Justice Blanchet found that the challenged provisions of the EQA conflict with and frustrate the purpose of federal port and environmental legislation, including the Canada Marine Act, the Canadian Environmental Assessment Act and related regulations.

The Court of Appeal’s Ruling

On September 26, 2019, the Québec Court of Appeal essentially endorsed the QPA and IMTT’s arguments on both grounds of interjurisdictional immunity and federal paramountcy.

The Court of Appeal upheld the trial judge’s conclusions that IMTT’s activities take place on property belonging to the federal Crown and that they are closely integrated with navigation and shipping, thus falling within these two federal heads of power as per s. 91 of the Constitution Act 1867.

The Court of Appeal noted that the doctrine of interjurisdictional immunity is intended to prevent one level of government – generally provincial – from impairing the unassailable core of a jurisdiction attributed to another level of government. The trial judge had however found that the absence of precedent from a higher court applying the doctrine in the specific context of environmental legislation conflicting against the federal jurisdictions over shipping, navigation or Crown property prevented him from applying the doctrine in the case at bar. The Court of Appeal declined to follow this narrower interpretation of interjurisdictional immunity. Not only is the nature of the impugned provincial legislation not a material factor in the search for a precedent, but the Supreme Court of Canada also left the door slightly ajar in PHS Community Services (2011 SCC 44) to identify new areas of exclusive jurisdiction where interjurisdictional immunity applies. While the Supreme Court limited the scope of application of the doctrine mostly to situations already covered by precedents, interjurisdictional immunity continues to protect the “basic, minimum and unassailable” powers listed in ss. 91 and 92 of the Constitution Act 1867 from being “impaired” by legislation of another level of government.

Applying these principles to the case at bar, the Court of Appeal concluded that there are in fact sufficient precedents establishing federal jurisdiction over the control and planning of Crown property, most notably Lafarge, in which the Supreme Court held that provincial law cannot affect a “vital part” of federal property rights. The Court of Appeal thus found that EQA’s discretionary authorization scheme could not apply to projects under exclusive federal jurisdiction, as it would impair federal jurisdiction over shipping, navigation and Crown property. Put otherwise, the Court of Appeal held that provincial environmental authorization mechanisms must be tied to projects falling under provincial heads of power, which was not the case here with IMTT’s activities.

Furthermore and alternatively, the Court of Appeal upheld the trial Judge’s conclusion that the EQA’s environmental authorization scheme was constitutionally inoperative with respect to IMTT’s activities pursuant to the doctrine of federal paramountcy. Federal paramountcy applies either where there is an operational conflict between a valid provincial law and a valid federal law, or where the provincial statute frustrates the purpose of the federal legislation. In the case at hand, the Court found that the EQA’s discretionary authorization mechanism conflicted with federal regulations, which are intended to grant federal authorities an exclusive right to assess and authorize port projects.

The Trans Mountain Pipeline Matter

Significantly, the Supreme Court of Canada’s decision not to hear the AGQ’s appeal in the Port of Québec matter is in line with other recent decisions from the Court.

On January 16, 2020, the Supreme Court unanimously endorsed the Court of Appeal for British Columbia’s reasons in the Reference re Environmental Management Act (British Columbia) matter (2019 BCCA 181) relative to the Trans Mountain pipeline.

The legislative provisions at hand essentially introduced a requirement that heavy oil companies obtain a hazardous substance permit, which could be withheld or issued with conditions at the province’s discretion. Amongst the admitted objectives of the impugned provisions were the protection of environment and the implementation of the “polluter pays” principle to oil carriers. The Court of Appeal concluded that it needed not to resort to the doctrines of interjurisdictional immunity or federal paramountcy to decide the matter. Rather, it found that the provisions were ultra vires, as their pith and substance was not to generally regulate the environment, but to regulate a federal undertaking, i.e. the interprovincial carrying and exportation of oil.

The Municipality of Mascouche Airfield Matter

On April 16, 2020, the Supreme Court also dismissed the AGQ’s application for leave to appeal in the 9105425 Canada Association file pertaining to the construction of an airfield. In 2018, the Superior Court of Québec had found that the requirement that the promotors of an airfield in the municipality of Mascouche obtain an authorization from provincial authorities to begin construction was constitutionally inapplicable to the project pursuant to the doctrine of interjurisdictional immunity, as it impaired the core of the federal jurisdiction over aeronautics. The Court of Appeal of Québec, in August 2019, declined to take position, as the promotors renounced to the construction of the airfield and the appeal thus became moot. Nevertheless, both the Court of Appeal and the Supreme Court did not see the need to intervene to recognize some form of provincial jurisdiction over the environmental aspects surrounding the construction of an airfield.

Conclusion

In 2007, the Supreme Court of Canada warned against an extensive application of the doctrine of interjurisdictional immunity and advocated in Canadian Western Bank judgment (2007 SCC 22) for the striking of a balance between federal and provincial powers especially in areas of overlapping jurisdiction. The recent Supreme Court of Canada developments highlight the borders of this balance and warn provinces against encroachment of federal undertakings under the guise of environmental protection. The implications of these decisions are significant for federally-regulated undertakings in Canada and will likely be discussed extensively in coming months as governments, industries and other stakeholders consider how to develop industrial projects rapidly as part of the economic recovery efforts, while seeking social acceptability and enhancing environmental protection measures.


About the Authors

Jean Lortie is a partner in the Litigation Group of McCarthy Tétrault in Montréal. His practice focuses on civil and commercial litigation, including class actions; shareholders’ remedies; corporate and securities litigation; insurance law; professional liability; construction law; product liability; property law and intellectual property law.

Dominique Amyot-Bilodeau is a partner in the Business Law Group of McCarthy Tétrault in Montréal. His practice focuses on the development of industrial projects and on environmental, energy and natural resources law.

Jean-Philippe Mathieu is an associate  in the Litigation Group of McCarthy Tétrault in Montréal. His practice includes civil and commercial litigation, class actions, insurance litigation and professional liability.

Patrick Ostiguy is an associate in the Litigation Group of McCarthy Tétrault in Montréal. His practice focuses mainly on civil and commercial litigation and medical liability.