Environmental Bulletin - July 2004

Edited by Katherine van Rensburg

IN THE COURTS

• The Supreme Court of Canada and the Valuation of Environmental Loss

• Innovative Suit Against Large American Power Companies for Carbon Dioxide Emissions

• Stéphane Dion Appointed Minister of The Environment

• Canadian Scientists to Participate in Major International Study on Air Pollution

• Pest Control Product Safety Information Regulations

• Notice to Users of Methyl Bromide

• ONTARIO AND QUÉBEC

• Protecting the Great Lakes Basin
• ONTARIO

• Lakes and Rivers Improvement Act ("LRIA") Technical Guidelines
• British Columbia

• Environmental Management Act Comes Into Force

• Environmental Assessments in B.C

• Environmental Law Update for Peru

• Hydro One Task Force

In a recent decision, B.C. v. Canfor, the Supreme Court of Canada ruled on a claim for damages by the province of British Columbia for the loss of harvestable and non-harvestable timber in a fire that destroyed provincial logging lands. A majority of the Court held that, as a matter of evidence, the Crown was unable to prove any financial loss, and dismissed the claim for environmental loss as it had not been included in the original pleading that commenced the action in the B.C. trial court. The majority did acknowledge that it may be appropriate to consider awarding damages for ecological or environmental damage in a future case, on suitable evidence. Binnie, J. stated that the development of the common law, if it occurs in a principled and incremental fashion, could assist in achieving the "fundamental value of environmental protection". In a strong dissent, three judges of the court would have upheld the province's claim for damages for the loss of both harvestable and non harvestable timber and in doing so, provided an analysis in support of valuing environmental loss in Canada.

For a more detailed summary of the case and an analysis of its significance, see the article written by Gowlings summer student, Joanne Grower below.

Posted Aug 8, 2004

In 1992 Canadian Forest Products (Canfor) was responsible for a fire, damaging a large part of the Stone Creek area within the interior of British Columbia, where many tenure holders are licensed for logging.

The Crown claimed damages for:

1. the costs associated with suppressing the fire and restoring the burned areas;
2. the loss of stumpage revenue for harvestable trees; and,
3. the loss of non-harvestable trees, which were protected for environmental reasons.

The trial judge awarded as damages an amount to which the parties had agreed for suppressing the fire and restoring the forest. He dismissed the other claims as he found that the Crown had not proven a compensable loss regarding either the harvestable or non-harvestable trees. The Court of Appeal dismissed the Crown’s appeal on damages with respect to the harvestable trees. However, the Court awarded compensation for the diminution in value of the non-harvestable trees, referring the matter back to the trial court to quantify this value. This decision was appealed to the Supreme Court of Canada.

By a 4-3 majority, the Supreme Court of Canada allowed the appeal and restored the judgment of the trial judge. This case contains a significant dissenting decision.

Analysis

1. Suing in the Public Interest

The Court did not allow the Crown to sue in the "public interest," limiting the Crown to its claim as an ordinary landowner, as a public interest claim had not been argued in the courts below. It was open to the Crown to sue for compensation under the common law in nuisance or negligence, however in doing so the Court noted:

…there are clearly important and novel policy questions raised by such actions. These include the Crown's potential liability for inactivity in the face of threats to the environment, the existence or non-existence of enforceable fiduciary duties owed to the public by the Crown in that regard…and the spectre of imposing on private interests an indeterminate liability for an indeterminate amount of money for ecological or environmental damage.

Binnie J., writing for the majority, stated that this was not the "proper appeal" to consider these "difficult issues." However, he left the door open for another case to be the "proper" forum for consideration of these "clearly important and novel policy questions."

The dissenting opinion, written by LeBel J., noted that the Crown should not be limited by its statement of claim to damages attributable to a landowner of a tract of forest. LeBel J. noted, "The Crown, in seeking damages, is still fulfilling its general duty, its parens patriae function to protect the environment and the public's interest in it."

2. Damages for Harvestable Trees

1. Auction Value

The Court rejected the Crown’s claim for "auction value" as an approach to value the loss of the harvestable timber. The Crown argued that its loss was equivalent to the "auction" price it would have received if the trees had been sold at a timber auction on the date of the fire, plus the loss of use while the forest was restored. The Court agreed with Canfor that the Province had issued many complex long term licenses, "locking up its rights to harvest its timber," and had therefore "tied up its forest assets in such a way as to render this approach at odds with the Province’s own regulatory regime."

2. Comparative Value Pricing System

The Court undertook a detailed analysis of the logging regulatory system, including a description of the "waterbed effect" or the loss spreading system that distributes local Value Index (VI) gains and losses amongst forest licenses in an area. This ensures that the Crown never experiences a loss in revenue from a drop in productivity in one area, as occurred in Stone Creek after the fire. In the quarter following the fire, the CVP mechanism acted to adjust the rate paid by other license holders, compensating for the losses incurred within the Stone Creek area. The ebb and flow of this system led to the term, the "waterbed effect."

The Crown had argued that the income from the CVP System was an irrelevant "collateral source of income" which could not be used to reduce its claim. This argument was dismissed by Binnie J. who stated: "[o]nce the Province’s claim is restricted to the impact of the fire on its projected revenue stream, its claim becomes impaled on the financial logic of its own forest regulatory regime," as the injured party should only be compensated for their loss. To do otherwise and ignore the Crown’s own regulatory system would be to allow the Province to enjoy a windfall. The Court found that the Province’s CVP system created a "revenue neutral" system, therefore the Province had not suffered a loss in the relevant revenue generating area due to the fire.

Again in stark contrast to the majority opinion, the dissent found that the Crown suffered a compensable loss in respect of harvestable trees "despite the CVP system." Until the forest is rejuvenated this source of revenue is lost. The Crown lost revenue from stumpage as well as the rights that were attached to the harvestable trees through the licensing system (such as forest management and infrastructure responsibilities.) Further, the dissent found that there was "no guarantee that the CVP system is revenue-neutral." They stated: "Canfor has only established that the target rate is maintained by charging higher stumpage rates to others. That the target revenue is maintained as a result is by no means certain." The dissent concluded that the Province received less stumpage revenue as a direct result of Canfor’s negligence, establishing a right of recovery in damages. The fact that the CVP system attempted to recoup losses incurred by the Crown was irrelevant.

3. Damages for Non-Harvestable Trees

Significantly, Binnie J. reiterated that "the issue of the Crown’s authority to seek damages on behalf of the public for environmental damage remains open for decision in a future appeal." However, he found that the Crown was unable to prove any financial loss in regards to the non-harvestable trees. He agreed with the finding of the trial judge, that the cost of extracting trees from the "steep, sensitive slopes" was greater than their commercial value.

The Court also rejected the Crown’s attempt to claim an environmental premium with respect to the non-harvestable trees as it was not pleaded in the statement of claim. The Court did state that the Crown’s proposition that the environment is "an asset of superordinate importance that cannot precisely be quantified by its market value is not seriously disputed." The Court acknowledged the types of evidence the Crown put forward to value environmental loss, such as the uniqueness of the ecosystem and the nature of the wildlife and plants protected by the resource, however the Crown led no evidence on these points at trial. Binnie J. found that the Crown’s claim to a 20% environmental premium was arbitrary stating, "the Crown cannot succeed in an unpleaded claim for ecological or environmental damage simply because the Crown on this issue occupies the moral high ground." However he then cited a case where damages were awarded for the destruction of trees on a country property despite the fact that "in market terms the financial value of the property had not been affected." Again, the issue was lack of evidence led by the Crown. Binnie J. stated, "No persuasive basis was given to expand the Crown’s claim in this case at this stage from landowner to arens patriae."

The Court rejected Canfor’s argument that environmental loss can be recovered only under a statutory regime such as the United States Comprehensive Environmental Response Compensation and Liability Act. In fact, Binnie J. noted that the development of the common law, if it occurs in a principled and incremental fashion, could assist in achieving the "fundamental value of environmental protection." However, he also warned that the court must be cautious in developing the common law to assist in achieving this value in the absence of a statutory regime.

This is the second major area where the dissenting opinion of the Court disagrees with the majority. The dissent would have allowed the Province to recover damages for the non-harvestable trees in the riparian zones and the steep slopes as these trees have "intrinsic value at least equal to their commercial value, despite their non-commercial use." The Province had argued that the commercial stumpage value should be assigned to the environmentally sensitive trees. The dissent acknowledged the flaws in this valuation technique, but found that the loss of the trees should still be compensated under tort law. The dissent agreed with the majority that the Crown should not be awarded damages beyond the commercial value of the trees in the form of an "environmental premium."

The dissent cited several Canadian decisions where damages were awarded for the loss of trees beyond their replacement value. They cited a case where damages were awarded for "wild trees" which belonged to a municipality and were wrongly cut down. These trees had no commercial value, and in awarding damages the court referred to the "loss of amenity." The dissent referred to another case where the B.C. Court of Appeal upheld a decision to award damages above restoration costs after the defendant removed 13 trees without the plaintiff’s permission. The damages were valued at $1000/tree for the loss of amenities, as there was "no measurable diminution in value of the property." Further, the dissent looks to Scarborough v. R.E.F. Homes Ltd., in which the Ontario Court of Appeal awarded damages for more than the replacement value for the loss of trees to the municipality, which the respondent company had removed on a road allowance.

The dissent found that the trees were set aside for specific environmental reasons, thus at minimum, their value was equal to their commercial value (i.e. stumpage value). Based on the case law referred to earlier in the dissenting opinion, the monetary figure by which the trees increased the property value of the land must be equal to the minimum value of the destroyed trees, in addition to a monetary figure which can be attributed to the loss of amenity and the environmental value of the trees. The dissent stated that to find the value of the trees in question as equivalent to only a portion of their commercial value is to "significantly devalue the Crown’s loss."

The dissent concluded by stating: "This Court has repeatedly stated that environmental protection is a fundamental value of Canadian society…[t]o imply that environmentally-protected commercial resources somehow lose their commercial value once they become the subject of environmental protection is to contradict that fundamental Canadian value."

In Summary, what key points should one take from this case?

1. The door has been opened for the Crown to plead in the "public interest" for environmental damages under the common law, for a tort such as public nuisance, rather than pleading only for an injunction to stop illegal or damaging activities.

2. The Court (majority) acknowledged the types of evidence the Crown put forward to value environmental loss. These are factors that counsel and trial courts are likely to utilize in the future when seeking damages for environmental loss; as the Court stressed that the difficulty in B.C. v. Canfor was that "no evidence was led on these points." The Court acknowledged the following types of evidence:

• The nature of the wildlife, plants and other organisms protected by the environmental resource in question, and in particular whether rare or commercially valuable species are put at risk by damage or destruction of the ecosystem;

• The uniqueness of the ecosystem from a biological perspective;

• The environmental services provided by the resource, such as water quality and erosion control;

• The recreational opportunities afforded by the resource; and

• The subjective or emotional attachment of the public to the damaged or destroyed area.

3. In addition, counsel and trial courts may utilize the dissent’s summary of how Canadian courts have already recognized and valued environmental loss:

1. First, they accepted that the destroyed trees were worth more than their mere replacement value.
2. Second, the courts set about to award further damages by basing their calculations on whatever evidence was before them. One consideration appears to have been the degree to which the loss of the trees involved affected property value (a commercial value assessment). In the cases cited by the dissent this was generally not relevant.
3. Considerations of aesthetic value and loss of amenity came next and the courts showed a willingness to award damages for this type of loss.
4. The environmental value of the trees was not dealt with in any of the cases, except that the question was dismissed in Scarborough for lack of evidence.

The June 11, 2004 decision in British Columbia v. Canadian Forest Products Ltd. is cited as [2004] S.C.J. No. 33.

Innovative Suit Against Large American Power Companies For Carbon Dioxide Emissions

Eight American States and the City of New York recently filed an innovative public nuisance suit against five of the United States' largest power corporations.

The City of New York and the Attorneys General of California, Connecticut, Iowa, New Jersey, New York, Rhode Island, Vermont and Wisconsin filed a suit in Manhattan's federal district court on July 21, 2004 claiming that the greenhouse gas emissions of the defendant power corporations are contributing substantially to a public nuisance-global warming. The claim does not seek monetary damages but asks for a court order requiring defendants, American Electric Power Company, the Southern Company, Tennessee Valley Authority, Xcel Energy Inc. and Cinergy Corporation, to cap and reduce their carbon dioxide (CO2) emissions, the primary greenhouse gas and contributor to global warming.

The plaintiffs contend that various practical, feasible and economically viable options for the reduction of CO2 emissions are currently readily available to the defendant corporations. In particular, the claim states that CO2 emissions may be reduced without a significant increase in related costs through various measures including changing fuels, improving efficiency, increasing generation from zero- or low-carbon energy sources such as wind, solar, and gasified coal with emissions capture, co-firing wood or other biomass in coal plants, employing demand-side management techniques, and altering the dispatch order of their plants.

Together, the defendant corporations own or operate 174 fossil fuel burning power plants with combined annual CO2 emissions totalling approximately 650 million tonnes. This accounts for almost one quarter of the annual CO2 emissions of the American utility industry and approximately 10 percent of the nation's total emissions from anthropogenic sources. These statistics are included in the claim to illustrate that the defendant corporations are substantial contributors to elevated levels of CO2 and, therefore, to global warming.

While some effects of global warming have already been detected in the United States, the threatened future impacts of continued global warming specific to the plaintiffs, their citizens and residents are itemized and are generally cited in the claim as "increased heat related deaths due to intensified and prolonged heat waves; increased ground-level smog with concomitant increases in respiratory problems like asthma; beach erosion, inundation of coastal land, and salinization of water supplies from accelerated sea level rise; reduction of the mountain snow pack in California that provides a critical source of water for the State; lowered Great Lakes water levels, which impairs commercial shipping, recreational harbours and marinas, and hydropower generation; more droughts and floods, resulting in property damage and hazard to human safety; and widespread loss of species and biodiversity, including the disappearance of hardwood forests from the northern United States."

As a result of these CO2 emission induced threats, the claim alleges that the defendants' CO2 emissions are a public nuisance from which the plaintiffs have a right to protect their residents and property. Public nuisance is a legal doctrine that is commonly invoked in claims addressing environmental issues as American jurisprudence has established that it provides a right of action to those affected by air and water pollution emanating from sources in other states. The claim may however encounter some technical hurdles as CO2 is a natural part of the environment and has not been designated as a "pollutant" by the U.S. Environmental Protection Agency.

Although public nuisance law is often included in claims addressing environmental damages, this claim marks the first instance of the doctrine being used to address global warming. This is also the first time that local and state governments have sued private companies to require reductions in CO2 emissions, although it will not likely be the last. In fact, the likelihood of climate change litigation emerging in Canada and internationally as a means of holding corporations responsible for greenhouse gas emissions was recently referred to by Greenpeace, an international non-profit organization that focuses on worldwide threats to biodiversity and environment.

This article originally appeared in energy@gowlings.com - July 30, 2004 - Volume 2, Number 14.

Federal Legislation And Regulatory News

On July 20, 2004 Stéphane Dion was announced as the new Minister of the Environment. Mr. Dion, who is the Member of Parliament for St.-Laurent Cartierville (Québec) was first elected in 1996. Mr. Dion, who was Minister of Intergovernmental Affairs between January 1996 and December 2003, is a former academic, who was a professor of political science at the Université de Montreal from 1994 to 1996. Mr. Dion is the author of a number of books and articles on political science, public administration and management.

Canadian Scientists To Participate In Major International Study On Air Pollution

Approximately 40 scientists from Canada will take part in the International Consortium for Atmospheric Research on Transport and Transformation (ICARTT), joining a group of more than 500 researchers from 5 countries. The study will investigate the movement of air pollution to better understand how air pollutants move and change as they travel over Eastern North America and the North Atlantic Ocean and how pollutants affect air quality and climate.

For more information about the ICARTT is available at:

http://www.msc-smc.ec.gc.ca/research/icartt/index_e.html.

Pest Control Product Safety Information Regulations

The new Pest Control Products Act, which was given Royal Assent on December 12, 2002 will be brought into force once existing regulations have been revised and new regulations have been made. The proposed Pest Control Product Safety Information Regulations have been released for a 75 day comment period from July 7, 2004. Under the new PCPA, product safety information, including a material safety data sheet (MSDS) must be provided by registrants to workplaces where registered pesticides are used or manufactured. The proposed regulations specify the content and format of a pesticide MSDS and how the MSDS is to be provided to the Minister, to the distribution chain and to workplaces. The proposed requirements would be phased in over a 5 year period, beginning January 9, 2006, as registrations are granted, amended, renewed or confirmed. This date corresponds with the date when all formulants of concern must be shown on pesticide labels.

For more information and the text of the proposed Regulation see:

http://canadagazette.gc.ca/partI/2004/20040717/pdf/g1-13829.pdf.

Notice To Users Of Methyl Bromide

In accordance with Canada's obligations under the Montreal Protocol on Substances that Deplete the Ozone Layer, and pursuant to the provisions of CEPA, 1999, the production and consumption of methyl bromide will be phased out by January 1, 2005, subject to certain "critical" use exemptions. Users of methyl bromide are invited to submit prior to August 16, 2004, their nominations for critical use exemptions for the year 2006. The forms recommended for nominations for "critical" use can be obtained from Ms Nancy Seymour.

ONTARIO AND QUÉBEC

Both the Ontario and Québec governments are seeking public comment on draft agreements negotiated between themselves and the eight Great Lakes states to protect and conserve Great Lakes Basin waters. The draft agreements follow on the Great Lakes Charter, an agreement signed in 1995 by the premiers of Ontario and Québec and the governors of Illinois, Indiana, Michigan, Minnesota, New York, Ohio, Pennsylvania and Wisconsin. The Charter commits to the protection and conservation of the waters of the Great Lakes Basin (the watershed of the Great Lakes and the St. Lawrence river up-stream from Troix Riviere, Québec). The first draft agreement that has been released, the Great Lakes Basis Sustainable Water Resources Agreement, involves all ten parties. The second agreement, the Great Lakes Basin Water Resources Compact, is an agreement among the 8 Great Lakes states. The draft agreements were released on July 19, 2004 in all 10 jurisdictions for a 90-day public consultation. The agreements will establish the minimum environmental standard for provinces and states to manage and regulate proposed water uses and will guide the review of regionally significant proposals by the 10 jurisdictions. The draft agreements also propose to set up a regional body that would review major proposals for water use against the minimum environmental standard and would monitor the implementation of the agreement.

For more information on the draft agreements see:

http://204.40.253.254/envregistry/023323ep.htm.

The Ministry of Natural Resources has released new draft technical guidelines that update the 1977 Guidelines and Criteria for Approvals under the LRIA. According to the Ministry, the revised version "incorporates more fully values of ecological sustainability" and "requires the consideration of the potential environmental impacts of proposed in-water works." There are defined requirements for operation, maintenance and emergency preparedness plans as part of the approval process for dams. The MNR notes that the revised Guidelines reflect current industry practices.

The Lakes and Rivers Improvement Act Technical Guidelines - Criteria and Standards for Approval can be found at:

http://www.ene.gov/on/ca/envregistry/022346ep.htm.

The Environmental Management Act (the "EMA") came into force on July 8, 2004. The EMA replaces the Waste Management Act and the Environment Management Act. In addition to consolidating both pieces of legislation, new provisions are included that will provide regulatory authority for area based planning and administrative monetary penalties. Certain regulations have been amended as a result of the EMA. An important change to the Contaminated Sites Regulation is that the Ministry will no longer be able to reopen certificates of compliance when environmental standards change. There is a new regulation, the Waste Discharge Regulation, which also came into force July 8th. For certain prescribed industries and activities, Ministry authorization is required for the introduction of waste into the environment. These activities are prescribed in schedules to the regulation and include a wide cross-section of industrial activities, including chemicals manufacturing, electrical power, pulp mills, dairy products and commercial waste management.

A draft Implementation Guide has been developed for this Regulation and is available at:

http://wlapwww.gov.bc.ca/epdiv/env_mgt_act/implement_guide.pdf..

Environmental Assessments In B.C.

In July 2004 the Environmental Assessment Office released a new publication "A Guide to Preparing Terms of Reference for an Application for an Environmental Assessment Certificate."

This document can be found at:

http://www.eao.gov.bc.ca.

On July 2, 2004, the Peruvian Congress enacted Law No. 28271, which will regulate environmental liabilities associated with mining in Peru. The law deals with the identification of and allocation of responsibility for environmental liabilities, along with financing for reclamation, and the mitigation of negative impacts on people, property and the environment. The law requires preparation of a closure plan by mine titleholders within one year of notification by the relevant authority, and permits titleholders to negotiate contracts with the Ministry of Energy and Mines in relation to mine remediation.

On July 22, 2004, regulations were enacted under the General Law of Solid Waste which establish obligations for waste generators, transporters, and operators of treatment and disposal facilities. Generators of industrial, agricultural and hazardous waste must submit a "Waste Management Declaration," while operators of transport, treatment and disposal facilities must submit an "Operator Report," within 180 days of the approval of the regulations. The regulations also establish incentives and sanctions in relation to solid waste management. Infringement of the regulations could result in suspension, closure, or fines ranging from US $400 to US$550,000, depending upon the severity of the infraction. Compliance will be promoted by conferring tax benefits and preferential treatment in public bidding processes, for companies that manage wastes properly.

This update on developments in Peru is provided courtesy of Estudio Grau Abogados, a full-service firm specializing in environmental law, and by the Peruvian representative to RIELA, Jorge Gastelumendi Fernández - Concha.

For more information please contact Jorge Gastelumendi Fernández - Concha.

WHAT'S NEW AT GOWLINGS?

David Estrin and Jennifer Mesquita have recently been retained by the Hydro One Task Force, comprised of representatives of the municipal councils and staff of the Towns of Markham and Aurora, York Regional Council, and local residents in relation to a controversial proposal by Hydro One to expand transmission line capacity in York Region. Hydro One's proposal would nearly double the height of existing transmission towers and has raised concerns over the health impacts of the electro-magnetic fields from new transmission lines and potential impacts on property values.

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.