Canada: Energy Update - January, 2010

Last Updated: February 4 2010

This is a joint publication between our Energy, Regulatory and Energy Litigation Practice Groups

Indian Property - Lien and Seizure Restrictions
By David Macaulay, Denise Bright, Mike Callihoo and Luke Morrison

Aboriginal groups have become much more active in the commercial mainstream in recent years, taking significant roles in joint ventures and other commercial arrangements. Much of this activity in Western Canada has been driven by the abundant energy related opportunities on or near reserve lands. In many cases, creative financing and structuring for the participation of the aboriginal group in the venture is required. Whether the venture involves a loan to the aboriginal group, a development on reserve lands or other business undertaking in which security is being taken over property of such aboriginal group located on reserve lands, the impact of restrictions on seizure and execution against Indian property under the Indian Act (Canada) must be examined. This article does not apply to any grant, lease, permit, licence or other disposition respecting oil and gas in Indian lands which are governed by the Indian Oil and Gas Act (Canada) and related regulations. Note that the terms Indian, band and reserve used below are as defined in the Indian Act.

The Section 89 Effect

Section 89(1) of the Indian Act provides that the real and personal property of an Indian or a band situated on a reserve is not subject to charge, pledge, mortgage, attachment, levy, seizure, distress or execution in favour or at the instance of any person other than an Indian or a band. In essence, it results in reserves being a safe-haven for an Indian or a band seeking to shield qualifying real or personal property from creditors.

Lenders to Indians and bands are not the only parties who should be concerned with respect to the restrictions under Section 89(1). For instance, joint ventures or partnerships with bands involving the joint development of assets on reserve lands may also be potentially exposed to the Section 89(1) restrictions such that the non-Indian participant may be prevented from seizing even its share of the assets, particularly where the interest is an undivided interest. Careful attention to the potential impact of Section 89(1) restrictions is important.

Real Property and Fixtures

The protection afforded by Section 89(1) to an Indian or band's real property is broad. Any interest in reserve land held by Indians or a band will fall within Section 89(1). However, the real property protections contained in Section 89(1) are mitigated by statutory exceptions. For instance, the Indian Act contains an express exception in respect of leaseholds in "designated lands". "Designated lands" are defined in the Act as being reserve lands to which a band has, for a limited time, released or surrendered its rights and interests. Accordingly, a leasehold interest in designated lands is not subject to the Section 89(1) restrictions.

In commercial ventures involving the development of assets on reserve lands, it is also important to assess any risk of personal property becoming affixed to such lands which may qualify as interest in land, thereby attracting the Section 89(1) protections.

Personal Property

The implications of Section 89(1) are less clear in respect of personal property. Section 89(2) clearly exempts conditional sales. Section 90(1) of the Indian Act provides that certain types of personal property are deemed always to be situated on reserve. These include property purchased by the government with Indian moneys, or property given to Indians or to a band under a treaty or agreement with the government.

However, in applying Section 89(1), the courts have struggled to provide a clear definition of what constitutes "on reserve" property. Case law indicates that the question of whether the property of an Indian or band is situated on or off reserve cannot be determined solely by the physical location of the property. In some cases, the courts have applied the "paramount location" test, which examines the pattern of use and safekeeping of the property in question. For example, in one case a school bus was physically stored off reserve, but its paramount location was found by the court to be on reserve due to its use and regular storage on reserve land.

In other instances, the courts have used a "connecting factors" analysis to determine the situs of personal property. Here the court will weigh the various connecting factors which tie the property to one location or another. Where the property is employment income, the residence of the individual, the type of work being performed, and the place where the work was done have been given great weight. For unemployment insurance benefits, courts have given the most weight to where the qualifying work was performed. In the context of business income, courts have placed greater emphasis on where the work was done and where the source of the income was situated than on other factors.

Other Exceptions

One general exception to the Section 89(1) restrictions lies in a corporate structure. The courts have determined that a corporation is not considered to be an Indian or a band within the meaning of the Indian Act, even if a corporation has its registered office on reserve and all shareholders are registered Indians and band members residing on reserve. This exception is often relied on by lenders or other parties wishing to take security over property that would otherwise be subject to Section 89(1). However a common obstacle to the use of a corporation is the lack of tax effectiveness of such structure to the band. For tax reasons, bands often prefer to use a partnership structure which may not be exempt from the Section 89(1) restrictions.

A further exception to the Section 89(1) restrictions to be noted is that the real and personal property of an Indian or band situated on a reserve is subject to charge, seizure, or execution in favour of an Indian or a band. Accordingly, a band can enforce security against on-reserve property of an Indian or another band, and an Indian may enforce a debt or seize the on-reserve property of another Indian or band.

Conclusion

Once the Section 89(1) risks associated with a proposed venture have been identified and assessed, to the extent that an exception to the restrictions is not available, the parties will need to consider ways of mitigating such risks including the structuring of the commercial agreements with appropriate covenants, rights, indemnities, representations and warranties, each of which will vary in their efficacy, or otherwise consider whether an enhanced return to compensate a party for bearing such risks is appropriate. Where the venture is robust, creativity abounds.



Removing Roadblocks: A Legislative Solution
By Alison Gray

Land disputes associated with oil and gas development may give rise to roadblocks or other forms of protest in an attempt to impede access by oil and gas and other resource companies to those lands. The Alberta government has enacted legislative provisions that may assist in providing a remedy to those who find their use of public roads to access well sites or other facilities hindered by such protest.

Subsections 54.03(6) and (7) of the Public Lands Act (PLA) offer a solution to oil and gas producers faced with blockades or disruptions on public roads to which the company has a right of access.

Sections 54.01 and 54.03 of the PLA were passed by the Alberta Legislature in order to allow the Alberta government "...to deal swiftly and effectively with instances of non-compliance of public lands involving industrial roads." (Hansard, No. 1691, November 18, 2003) Section 54.01(3) of the PLA provides:

No person shall block, disrupt, hinder, impede, interfere with or otherwise obstruct free access to or passage on or over, or use by any other person of, a highway, road or trail located on public land unless that person was authorized to do so by the Minister or under this Act or the regulations.

Section 54.01(6) provides that anyone who has been prevented from having free access to or passage on or over a road due to a contravention of s. 54.01(3) may apply to a judge of the Court of Queen's Bench for a short-term or long-term order. The only difference between a short-term and long-term order is that the short-term order must be for a period of seven days and a long-term order must be for a period exceeding seven days, but not exceeding one year.

Pursuant to s. 54.03(3), an application for a short-term order can be made ex parte and must be supported by affidavit evidence, which may be based on information and belief. An application for a long-term order must be made by originating notice on at least two days' notice and must be supported by affidavit evidence. In granting a short-term or long-term order under the PLA, a Judge may:

(a) Prohibit any person from engaging in or continuing in the activity that constitutes a contravention,

(b) Authorize a police officer to remove or seize and remove any material, barrier, equipment, vehicle, structure or obstruction used in the contravention, and

(c) Make any other order the Judge considers appropriate.

Thus, in those cases in which a company finds its right to access a public road is obstructed and operations impeded by a protesting group, an order may be sought to prohibit any such groups from hindering access. While this provision has not yet been the subject of a reported decision, it represents another avenue for resolving such matters on a short-term basis.



Energy Development in British Columbia versus Alberta: Comparing Aboriginal Consultation Processes
By Duncan M. McPherson, Deirdre Sheehan, Marie Buchinski

Differing legal bases for the principal oil and gas regulators in B.C. versus Alberta result in divergent approaches to aboriginal consultation, with practical implications for developers.

The Energy Resources Conservation Board (ERCB) in Alberta is an administrative tribunal, with the capacity to hold hearings on energy project applications. As a quasi-judicial body, independent of government, the ERCB does not have a duty to consult holders of aboriginal or treaty rights (Dene Tha' v. Alberta (Energy and Utilities Board), 2005 ABCA 68). Analogizing from the recent Standing Buffalo decision (see Are Administrative Tribunals Required to Rule on the Crown's Aboriginal Consultation Duties?) involving the NEB, it appears the ERCB is also not required to decide on the adequacy of Crown consultation when assessing proposed projects, despite the provisions of Alberta's Administrative Procedures and Jurisdiction Act that authorize the ERCB to determine questions of constitutional law.

Akin to the ERCB in Alberta, the Oil and Gas Commission (OGC) regulates oil and gas activities, including pipelines, within British Columbia. In an effort to streamline regulatory requirements, however, B.C. established the OGC in 1998, not as an administrative tribunal, but rather as an agency of government issuing all permits required for oil and gas development through a single wicket. As such, unlike the ERCB and NEB, the OGC does not hold hearings on energy applications. As a branch of government, however, the OGC does have a constitutional duty to consult aboriginal parties affected by its decisions on energy developments (Saulteau First Nations v. British Columbia (Oil and Gas Commission), 2004 BCCA 286). Moreover, a statutory duty on the OGC to consult aboriginal communities is also established by section 4 of the Oil and Gas Commission Act, which requires the OGC to "encourage the participation of First Nations and aboriginal persons in processes affecting them."

In practice, consultation processes for projects can unfold quite differently in B.C. as compared to Alberta. In B.C., the OGC takes the lead in consultations with First Nations affected by proposed energy developments. The OGC has developed established consultation processes with the aboriginal communities with which it has frequent contact. The details of these processes are set out in several Consultation Process Agreements with the respective First Nations. Certain Treaty 8 First Nations in northeast B.C., where natural gas development is focused, have also entered an Economic Benefits Agreement providing financial benefits linked to economic activity and provincial revenues generated in the area.

Industry is encouraged by the OGC to engage aboriginal communities prior to submitting applications to the Commission. In addition, the OGC may invite proponents to participate in discussions or issue resolution processes when the Commission consults with First Nations on applications, in order to identify options to minimize adverse impacts. Ultimately, however, the OGC undertakes the consultation with First Nations, is responsible for its adequacy, and reflects any accommodation of aboriginal concerns in conditions to project approvals.

In Alberta, in contrast, oil and gas developers are charged with initiating and, in many respects, conducting First Nations consultations. This is a function of two instruments. First, the ERCB's general consultation directives identify the parties with whom the proponent is required to consult. The ERCB expects proponents to address potential impacts on aboriginal groups as part of this public consultation. Second, where decisions of the Crown (not the ERCB), such as dispositions of Crown land, are required for an energy project to proceed, then the Alberta government's constitutional duty to consult potentially affected aboriginal groups is engaged. However, pursuant to Alberta's First Nations Consultation Guidelines on Land Management and Resource Development, the government expects project proponents to do much of the groundwork by carrying out procedural aspects of consultation such as notifying First Nations of the project proposed, providing them project-specific information, and meeting to discuss comments and concerns to determine potential mitigation measures.

The law recognizes that government can delegate procedural aspects of its consultation obligations to third parties, but ultimate legal responsibility rests with the Crown, raising potential litigation risk if excessive delegation occurs. This risk can be mitigated by seeking to involve Crown representatives directly in consultation efforts, regularly corresponding with the Crown, undertaking consultations early in project development phases, and, to the extent possible, discussing project-related issues with aboriginal groups on a with-prejudice basis. Project proponents remain vulnerable to court cases concerning alleged inadequacies in Crown consultation, which may cause project approvals to be quashed or delayed. In B.C., proponents may benefit from the proactive role of the OGC in aboriginal consultation to help allay this risk, whereas in Alberta, proponents are charged with the procedural aspects of aboriginal consultation, potentially affording them more control over the outcomes of consultation processes.



Are Administrative Tribunals Required to Rule on the Crown's Aboriginal Consultation Duties?

The National Energy Board (NEB), in its quasi-judicial function, does not owe a fiduciary duty to aboriginal parties (Québec (Attorney General) v. Canada (National Energy Board), [1994] 1 S.C.R. 159). The NEB is not the Crown nor its agent. On October 23, 2009, the Federal Court of Appeal confirmed that the NEB does not itself owe a duty of consultation to aboriginal communities affected by applications before it. The Court also clarified that the NEB, when considering the merits of an application, is not required to determine whether a Crown duty of consultation exists in respect of the proposed project, or whether such a duty has been discharged: Standing Buffalo Dakota First Nation v. Enbridge Pipelines Inc., 2009 FCA 308.

In the Standing Buffalo decision, three First Nations appealed to the Federal Court of Appeal the decisions of the NEB to grant approvals to two new major trans-border crude oil pipelines and one diluent pipeline. The Appellants argued that the NEB was required and failed to consider whether the Crown had adequately consulted the First Nations in respect of the proposed projects. The Court denied the appeal, finding that because the applicants for the pipelines were all private sector entities, the NEB's determinations on the applications did not need to encompass conclusions on the Crown's consultation. The Court further found that the proponents were required to consult with the First Nations pursuant to NEB consultation requirements, that this process ensured due regard to aboriginal rights by the project applicants, and that consideration of the performance of these obligations was within the NEB's mandate. Furthermore, while the NEB is not required to adjudicate the adequacy of Crown consultation as part of its hearings, the Court of Appeal stressed that aggrieved aboriginal groups would have recourse to court-based litigation to resolve such issues.

However, in Carrier Sekani Tribunal Council v. British Columbia (Utilities Commission), 2009 BCCA 67, the British Columbia Court of Appeal (BCCA) reached the opposite conclusion, holding that the British Columbia Utilities Commission (BCUC) did have an obligation to decide consultation disputes which arose within the scheme of its regulation. In Standing Buffalo, the Federal Court of Appeal had distinguished Carrier Sekani on the basis that the applicant before the BCUC (B.C. Hydro) was the Crown or its agent, whereas the applicants before the NEB were private sector entities. On December 5, 2009, the Supreme Court of Canada granted leave to appeal the BCCA Carrier Sekani decision on the general question of, "Does the honour of the Crown require administrative tribunals to decide disputes about the Crown's duty to consult First Nations, regardless of the tribunal's statutory mandate?" In December 2009, an application for leave to appeal Standing Buffalo to the Supreme Court of Canada was also filed by two of the First Nations involved. The applicant First Nations have asked, if leave to appeal is granted, that the Supreme Court hear the appeal of Standing Buffalo concurrently with the appeal of Carrier Sekani.

The Supreme Court has not yet rendered a decision on whether to grant leave to appeal the Federal Court of Appeal's decision in Standing Buffalo. However, given that leave has been granted in Carrier Sekani, there is some prospect that leave may also be granted in Standing Buffalo and that further direction on these issues will be forthcoming from the Supreme Court.

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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