Canada: The Supreme Court Of Canada Rules That Part Of The Federal Impact Assessment Act Is Unconstitutional

On October 13, 2023, the Supreme Court of Canada rendered its highly anticipated decision regarding the constitutionality of Canada's Impact Assessment Act ("IAA") and Physical Activities Regulations ("Regulations"). In a decision authored by Chief Justice Wagner, a 5-2 majority concluded that the "designated projects" scheme set out in the IAA and the Regulations is unconstitutional.

This decision has significant implications for the development of natural resources, energy and infrastructure projects in Canada, and provides important constitutional guidance as to what the Federal Government can and cannot do in reviewing and approving such projects.

Background

The IAA was enacted in 2019 and establishes Canada's federal impact assessment regime for "designated projects", as well as projects carried out or financed by federal authorities on federal lands or outside Canada. Designated projects are physical activities that are designated either by the Governor in Council pursuant to the Regulations or by an order from the Federal Minister of Environment (the "Minister"). Once designated, the Impact Assessment Agency of Canada (the "Agency") gathers information about the project and determines whether an impact assessment is required for such a project. If so, the IAA requires that the project undergo a detailed federal assessment and be ultimately authorized by the Minister or the Governor in Council.

In May 2022, the Alberta Court of Appeal held that the IAA and the Regulations were ultra vires and unconstitutional in their entirety, on the basis they improperly intruded into matters of exclusive provincial jurisdiction. The Federal Government appealed this decision in June 2022 and the matter was heard by the Supreme Court of Canada in March 2023.

Key Findings

The majority of the Supreme Court determined that the IAA contains two distinct components which must be considered separately, namely: (A) the Designated Projects scheme, and (B) the assessment process relating to certain projects carried out or financed by federal authorities on federal lands or outside Canada.

The majority ruled that the scheme is not in pith and substance directed at regulating "effects within federal jurisdiction", because these effects do not drive the decision-making functions under the IAA. Rather, the majority determined that the pith and substance of this scheme is "to assess and regulate designated projects with a view to mitigating or preventing their potential adverse environmental, health, social and economic impacts". This exceeds the bounds of federal jurisdiction and cannot be classified under federal heads of power. Therefore, the majority concluded that Parliament has "plainly overstepped its constitutional competence in enacting this designated projects scheme".

While Parliament has the power to enact a scheme of environmental assessment, it also has the duty to act within the division of powers framework laid out in the Constitution. If both levels of government have the ability to regulate different aspects of a given project, the Court recognized that one jurisdiction may be broader than the other. Where Parliament is vested with jurisdiction to legislate in respect of a particular activity, it has broad discretion to regulate that activity and its effects. Conversely, Parliament's jurisdiction is more restricted where the activity falls outside of its legislative competence; in these cases, it can validly legislate only from the perspective of the federal aspects of the activity, such as the impacts of the activity on federal heads of power. Federal legislation that is insufficiently tailored — that is, whose pith and substance is to regulate the activity qua activity, rather than only its federal aspects — is ultra vires.

Applying these governing principles, the majority identified four decision-making junctures embedded in the IAA and addressed the constitutionality of each of them separately, namely: i) the Designation of Physical Activities; ii) the Screening Decision by the Agency; iii) the Scope of Information Gathering and Assessment; and iv) the Public Interest Decision.

The majority held that the mechanism pursuant to which physical activities are designated and brought within the ambit of the IAA is not problematic in itself from a constitutional perspective. The fact that a project involves activities primarily regulated by the provincial legislatures does not create an enclave of exclusivity. Requiring definitive proof that a project would have effects on areas of federal jurisdiction prior to an impact assessment would undermine the precautionary principle. The majority concluded that the designation mechanism's focus on federal effects was both "practically necessary and constitutionally sound".

While all designated projects are subject to the IAA's planning phase, they are not automatically subject to an impact assessment. Rather, the Agency is empowered under the IAA to make a screening decision as to whether an impact assessment is required for a particular project. Pursuant to the IAA, this decision must take into account various mandatory factors, all of which are seemingly of equal importance, and only two of which relate to adverse effects within federal jurisdiction.

The majority determined that this approach is constitutionally problematic because it allows an impact assessment to be required for reasons not sufficiently tied to the project's possible impacts on areas of federal jurisdiction. This decision must rather be rooted in the possibility of adverse federal effects.

Once an impact assessment is required for a given project, section 22 of the IAA provides a list of factors that must be considered in conducting such an assessment. Alberta argued that several of these factors go significantly beyond matters with a clear connection to federal jurisdiction.

The majority disagreed with this view and noted that the federal government can gather information about a wide range of factors in conducting an environmental assessment. In light of the interrelated nature of environmental matters, it would be both artificial and uncertain in the Court's view to limit the factors that could be studied or considered to those that are federal. Accordingly, the level of government undertaking an impact assessment is not restricted to studying or gathering information about those effects that fall within its legislative jurisdiction.

Pursuant to the IAA, the Minister or Governor in Council must ultimately decide whether or not designated projects are in the "public interest" and can therefore proceed, subject to specific conditions that can be imposed by such authorities. This public interest decision must take into account several mandatory factors listed in the IAA, and dictates the nature and extent of ongoing federal oversight of a project.

The majority opined that the broad list of such factors, as set out in the IAA, "represents an unconstitutional arrogation of power by Parliament" because it transforms what is prima facie a determination of whether adverse federal effects are in the public interest into a determination of whether the project as a whole is in the public interest.

For example, s. 63(a) of the IAA requires the Minister to consider the project's "sustainability", defined as "the ability to protect the environment, contribute to the social and economic well-being of the people of Canada and preserve their health in a manner that benefits present and future generations". Such a factor encompasses all environmental, social and economic effects of the project, not only those that the federal government has jurisdiction to regulate. This reinforced the Court's conclusion that the pith and substance of the scheme cannot be classified under federal heads of power and that the scheme is therefore ultra vires.

As previously mentioned, the Court analysed separately sections 81 to 91 of the IAA, which establish an impact assessment process applicable mostly to projects carried out or financed by federal authorities on federal lands or outside Canada.

According to the majority, the pith and substance of this scheme is to "direct the manner in which federal authorities that carry out or finance a project on federal lands or outside Canada assess the significant adverse environmental effects that the project may have." The constitutionality of this scheme had not been specifically challenged, and the Supreme Court confirmed that those provisions of the IAA are constitutional. In this regard, the majority held that the federal government can consider all potential impacts of projects that it undertakes or funds and make decisions about those projects accordingly.

Dissenting Reasons

In their dissenting opinion, Justices Jamal and Karakatsanis indicated that the IAA and the Regulations should be upheld in their entirety. In their view, the screening decision stage is constitutional because the Agency's discretionary decision is anchored in the possibility that the designated project would cause adverse federal effects. If the Agency were to exercise its discretion to require a project with little or no potential for adverse federal impacts to proceed to an impact assessment, such a decision would be unreasonable and would be subject to judicial review.

The minority also held that the public interest decision process is constitutional. In support of this view, it noted that the Court's jurisprudence recognizes that a federal environmental assessment process can involve an integrated decision-making process that weighs both the federal and non-federal harms that may be caused by a designated project, as well as any benefits that may accrue from the project. Again, if federal authorities try to rely on a trivial adverse federal effect as a "constitutional Trojan horse" enabling them to conduct a far ranging inquiry into a designated project, the federal action would be subject to judicial review.

Conclusion

The Court's decision will have consequences on proponents whose projects are designated under the IAA, in particular for natural resources, energy and infrastructure projects in Canada.

This case confirms that the Federal Government has the power to enact broad impact assessment laws and consider a wide range of factors in conducting such assessments. However, the federal impact assessment scheme should be carefully crafted to ensure that only projects that can result in adverse federal effects are targeted. Where the Federal Government does not have jurisdiction over a specific activity (e.g. mining operations), federal legislation must also be sufficiently tailored to avoid regulating the activity itself and focus instead on the federal aspects of such activity.

In a statement released on October 13, 2023, the Federal Minister of Environment acknowledged the decision and declared that the Government of Canada will work quickly to improve the IAA through Parliament and collaborate with provinces and Indigenous groups to ensure an impact assessment process that works for all Canadians. The Minister also declared that the Government's immediate priority will be to provide guidance to stakeholders and Indigenous partners to ensure as much predictability as possible for projects affected by the Court's opinion in the IAA Reference.

These upcoming developments will require careful consideration by project proponents and represent a unique opportunity for all stakeholders to voice their expectations and concerns regarding the future of federal impact assessments in Canada.

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