Canada: Federal or Provincial Regulation? One of the Many Challenges Facing Energy Projects

Background

From the small town of Smithers, British Columbia, Michael Sawyer applied to the National Energy Board (the "NEB") requesting it to determine and issue a declaratory order that the Prince Rupert Gas Transmission Project (the "Project") was properly within federal jurisdiction, and therefore subject to regulation by the NEB. The NEB found that Sawyer failed to demonstrate on a prima facie basis that the Project was a federal work or undertaking and therefore not subject to NEB jurisdiction. Sawyer applied for judicial review of the NEB's decision and the Federal Court of Appeal unanimously granted Sawyer's appeal, remitting Sawyer's original application back to the NEB for redetermination.

The judgment of Sawyer v Transcanada Pipeline Limited, 2017 FCA 159, 2017 CarswellNat 3405 [Sawyer v Transcanada] is interesting for a number of reasons:

  1. the facts demonstrate how significantly an individual may affect regulatory processes;
  2. the facts demonstrate the difficulties facing energy projects that are potentially subject to both provincial and federal regulation; and
  3. it provides a useful overview of how a court will likely consider, and how a regulatory tribunal should consider, whether or not a project is a federal work or undertaking.

The NEB's Decision

Standing

Sawyer's application was preliminary. Subsection 12(1) of the National Energy Board Act, RSC 1985, c N-7 (the "Act") grants the NEB full and exclusive jurisdiction to determine whether an inquiry is required to determine if the NEB has jurisdiction over a given project. Accordingly, the NEB held it was not necessary to apply a standing test for Sawyer at this preliminary stage. The NEB noted it "would not be in the public interest to limit" the NEB's discretion to take action under section 12 of the Act. In short, any individual may be able to apply to the NEB to argue that the NEB should inquire into its jurisdiction over a proposed project.

Decision

The NEB engaged in a constitutional analysis by opening with reference to subsection 91(29) and 92(10)(a) of the Constitution Act (1867). The NEB noted these sections govern jurisdiction over works and undertakings, such as pipelines. Further, they stated the judgment of Westcoast Energy Inc v Canada (National Energy Board), [1998] 1 SCR 322, 156 DLR (4th) 456 [Westcoast Energy] remains the applicable law in regards to whether or not a pipeline falls under federal jurisdiction.

The NEB stated Sawyer was required to establish a prima facie case to demonstrate that the NEB should hold an inquiry into its jurisdiction over the Project. The NEB held a prima facie case "is one that is made out at first appearance, until contradicted and overcome by other evidence." In its short reasons, the NEB concluded Sawyer failed to establish a prima facie case that the Project was a federal work or undertaking.

The Federal Court of Appeal's Decision

Justice Rennie, writing for a unanimous court, remitted Sawyer's application to the NEB for redetermination. In doing so, he noted the NEB "defined the public interest wholly in terms of constitutionality" (para 7), and therefore the NEB's decision attracted the correctness standard of review. The correctness standard demands that the NEB's decision will only stand if it is correct, and not simply if it is reasonable. The Federal Court of Appeal held the NEB erred in its application of the prima facie test and in its constitutional analysis (para 12). The judgment cautioned that it took no actual position on whether or not the Project was subject to the NEB's jurisdiction (para 73).

Analysis

The Prima Facie Test

Justice Rennie reaffirmed a work or undertaking may become subject to federal regulation if it satisfies either test from Westcoast Energy. However, at the preliminary stage, Sawyer only had to establish a prima facie case that the Project should be subject to federal jurisdiction. A prima facie test only asks only whether an arguable case has been established (para 27). However, the NEB erred as it "did not ask whether an arguable case had been made out – it answered the underlying question" (para 28).

The Constitutional Analysis

With reference to the law established in Westcoast Energy, a pipeline may be a federal work or undertaking where (paras 41, 42):

  1. the local (provincial) work or undertaking is part of a federal work or undertaking in the sense of being functionally integrated and subject to common management, control, and direction [Westcoast Energy, para 49]; or
  2. the local work or undertaking is essential, vital, and integral to a federal work or undertaking [Westcoast Energy, para 46].

Justice Rennie noted three issues in the NEB's constitutional analysis and application of Westcoast Energy. First, the NEB determined the Project was "functionally different" from the federal works it connected to. Justice Rennie corrected the analysis, emphasizing that the consideration is whether the parts of the Project are functionally integrated. One must ask how the parts work together and for what purpose (para 44). The NEB failed to define the relationship between the Project and the federal works: "[t]he Board looked at where the pipeline was, and did not ask what it did" (para 47). Examining this relationship between works involves a holistic analysis, and the NEB failed to consider the "symbiotic relationship" between the Project and what it connected to.

The second issue related to how the NEB focused on the commercial and billing relationship of the Project rather than the operation the Project actually performs. The NEB was required to go further and examine the inter-relationship between the activities and services of the Project in order to determine if they had a common direction and purpose. This would suggest they form a single undertaking (para 63). In sum, a mere examination of the commercial relationship will not suffice.

The third issue related to the common management, control, and direction of the works. The NEB held the Project and other works were managed by different teams but did not elaborate further. There was significant evidence regarding the management, control, and direction of the works that the NEB did not address. Justice Rennie therefore inferred that the NEB did not understand the test. It was not how the NEB handled the evidence, but that it appeared to not consider a significant portion of evidence before it.

Finally, Justice Rennie emphasized that substance trumps form, and one should not simply examine the "commercial costume worn by the entities involved" (para 68; quoting Alberta Government Telephones v Canadian Radio-Television & Telecommunications Commission, [1989] 2 SCR 225 at para 87, 61 DLR (4th) 193). The NEB was to answer whether or not the Project and the works or undertakings it integrated with were subject to the common management, control, and direction of Transcanada Pipeline Limited. There was significant evidence before the NEB to suggest Transcanada Pipeline Limited had common management, control, and direction (para 70), but the NEB did not address it.

Conclusion

Sawyer v Transcanada reaffirms the test established in Westcoast Energy as to whether or not a work or undertaking will be subject to federal jurisdiction. However, in order for the test to properly be applied, a tribunal or court must:

  1. examine the functional integration of the relevant works or undertakings, and this requires a holistic analysis. Where a local work is functionally integrated into a federal work, it is more likely the local work will fall under federal jurisdiction;
  2. examine the operation of the work or undertaking as it relates to other works and not simply consider their commercial relationship. Where a common direction and purpose exist amongst the separate works, it is more likely the local work will fall under federal jurisdiction; and
  3. examine the substance, not the form, of the management, control, and directing authority of the works. Where, in substance, the works are managed, controlled, or directed by the same authority, and that authority is subject to federal jurisdiction, it is more likely the local work will fall under federal jurisdiction.

Sawyer v Transcanada exemplifies the regulatory complexities facing modern energy projects and underscores how significantly a single individual may influence the regulatory process. We will blog about any further developments, as the NEB determines Sawyer's application following the guidance provided by the Federal Court of Appeal.

About BLG

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions