Canada: Federal Court Decision In Kearl Creates Further Uncertainty And Delay For Oil Sands Projects

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Energy - Oil & Gas/Litigation, May 2008

As described in the March 2008 Blakes Bulletin on Environmental Law entitled Environmental Assessments and Greenhouse Gas Emissions, in a decision released on March 5, 2008, the Federal Court held that the Report of the Joint Review Panel approving Imperial Oil's Kearl Oil Sands Project (Kearl Project), did not provide a rationale for its conclusions on greenhouse gas emissions. As a result, the Court remitted the matter back to the same Panel with a direction to provide a rationale for its conclusions. Following the Federal Court's decision, the Department of Fisheries and Oceans (DFO) (which had initially granted the Authorization for the Kearl Project to proceed) wrote to Imperial Oil advising that its Authorization was, as a result, a nullity and advised that the Kearl Project could not proceed.

From April 11 to May 6, 2008, the Panel was reconstituted and on May, 6, 2008 (the day before the hearing of Imperial Oil's application to reinstate the DFO's Authorization), it issued an Addendum to its initial Report. Based on its review of Imperial Oil's Environmental Impact Assessment (EIA), the proposed mitigation measures, as well as the federal and provincial governments' initiatives on air emissions, the Panel reaffirmed its conclusion in its initial Report that the Kearl Project "is not likely to result in significant adverse environmental effects to air quality, provided that the mitigation measures and recommendations proposed are completed and implemented." A major factor relied upon in supporting the Panel's conclusions was its determination that the projections in Imperial Oil's EIA were conservative and over-predicted potential effects. In addition, the Panel emphasized the onus on the governments of Canada and Alberta to implement a regulatory framework for greenhouse gas emissions.

Notwithstanding the Panel's reconsideration in favour of Imperial, the DFO refused to reinstate its Authorization. Imperial Oil challenged the DFO's opinion and sought to proceed to develop the Kearl Project on the basis of the Authorization already provided. In a decision released May 14, 2008, Mr. Justice Campbell of the Federal Court denied Imperial Oil's application.

The Court held that the Authorization issued by the DFO was a nullity since it was based on a "fundamentally flawed Report which, thereby, could not lawfully receive the approval of the Governor in Council." Accordingly, the Court held that a valid Authorization could not be granted until the Panel completed its Report and submitted it for a new Authorization from the DFO. In addition, the Court considered whether the DFO had the legal authority to revoke or rescind an Authorization which remained legally valid. The Court held that in light of the fact that the issuance of the Authorization was a nullity, the subsequent letter from the DFO confirming that fact to Imperial did not constitute a revocation of the Authorization, but rather was an "expression of opinion based on operation of law".

As a result, the Panel's completed Report must once again be submitted for approval by the Federal Cabinet. If the new Report receives approval, a new authorization must then be granted by the DFO. Both steps are estimated to take months, not to mention the additional delays if a decision is appealed or an application for judicial review is brought (it took five months for the government to approve the Panel's initial Report and then an additional six months to obtain the DFO Authorization).

The overall effect of the Court's decision for major projects, including oil sands such as the Kearl Project, will be a greater emphasis on the importance of the initial regulatory approval process and the decision rendered as a result of that process. The impact of this decision may likely result in material delays associated with the overall regulatory process for these projects.

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