Introduction

On Sept. 3, 2015, the British Columbia Appeal Board ("EAB") rescinded Nexen's water licence (the "Licence") in Northeast B.C. The Licence was issued in May 2012; since then, the licensed water has supported Nexen's fracking operations. Shortly after the Licence was issued, the Fort Nelson First Nation ("FNFN") appealed on technical and Aboriginal consultation grounds.

The decision comes after two preliminary rulings and a long de novo hearing, involving numerous highly technical reports and many expert and lay witnesses, which concluded in early 2014. The highly detailed decision has far-reaching implications and will likely inform the growing body of fracking litigation in Canada (at the time of writing, Sept. 29, 2015, neither Nexen nor the Crown have announced whether they will seek judicial review of the EAB decision).

The Flawed Technical Methodology

Prior to receiving its Licence in early 2012, Nexen withdrew substantial volumes of water from the Tsea watershed to service its nearby fracking operations under two consecutive one-year "approvals" issued pursuant to section 8 of the Water Act. Rather than continue to rely on consecutive one-year approvals, Nexen sought a longer (5‑year) term licence.

Nexen's Licence and its supporting Water Development Management Plan were designed to address the data-sparse nature of the shallow Tsea watershed. Unlike other water licences and approvals, the Licence regime used "adaptive management" which, for example, prescribed water withdrawals attuned to hourly water variations, required ongoing studies of possible effects on habitat, and called for annual reviews to revisit and adapt withdrawal parameters.

The EAB described the Licence regime as "novel" and stated that "Nexen's section 8 approvals imposed far less onerous requirements than the Licence" (para. 180). This general endorsement, however, was not sufficient to overcome two fatal methodological problems: misuse of hydrometric models and inadequate environmental impact assessments (paras. 337 and 338). These problems, the EAB concluded, created undue risk. Notably, however, the EAB did not cite any instance of actual environmental harm attributable to the licensed withdrawals (even after having reviewed two years of the Licence administration, including a two month period when Nexen allegedly withdrew water exceeding prescribed limits).

The Flawed Aboriginal Consultations

The Crown's review of the Licence application and associated consultations took some 3 years. The EAB found that the Crown in 2009-2011 was "genuinely willing" to consult with the FNFN, albeit in a way that was "not perfect" (para. 464). The EAB stated, for example, that the Crown should have as a preliminary matter consulted with the FNFN to "discuss the process itself" (para. 141). Moreover, once the review process unfolded, it lacked transparency over the respective roles of the Crown, Nexen and the FNFN (para. 448). The Crown was further criticized for untimely updates and "mixed messages" (para. 446).

These pre-2012 concerns were mitigated by the fact that the FNFN had failed to avail itself of opportunities to disclose its concerns to the Crown (paras. 465-467). This failure, the EAB stated, compromised the Crown's ability to consult over the proposed licence. It can be reasonably inferred from the decision that the consultations to the end of 2011 would have been deemed adequate to that time.

In early 2012, shortly before the Licence was issued, the Crown's conduct appeared to change to one "lacking in good faith". The EAB's criticism was blunt:

[484] The Panel finds that the Crown failed to consult with the First Nation in good faith. Based on the internal Ministry correspondence and the Manager's rationale, the Panel finds that by April 2012, the Manager intended to issue the Licence regardless of the promised meetings, and had no intention to substantially address any further concerns or information that may have been provided by the First Nation. The Panel finds that this conduct was inconsistent with the honour of the Crown and the overall objective of reconciliation. [emphasis added]

Ancillary Findings

The EAB made numerous findings that arguably did not necessarily affect the outcome of the appeal. These ancillary findings, however, have considerable practical relevance for informing future Crown, Aboriginal and industry strategies. For example:

  • Delegating Consultation to a Proponent. Not unlike other project reviews, both Nexen and the Crown contemplated that the former should engage regularly with the FNFN and that these discussions would constitute delegated consultation. The Crown's heavy reliance on Nexen/FNFN discussions was, however, criticized by the EAB, stating that "[f]rom the First Nation's perspective, Nexen may have been involved in consultation simply in furtherance of Nexen's interests, rather than because Nexen was a delegate of the Crown." (para. 447). The EAB went on to say that "[a]lthough a consultation agreement is not a prerequisite for consultation, such an agreement would have helped each party to understand the other parties' needs and expectations" (para. 442).
  • Cumulative Effects. The FNFN argued that the Crown's consultation should go beyond the proposed withdrawals and consider how the myriad of existing and proposed oil and gas activities in Northeast B.C. cumulatively affect treaty rights to hunt, fish, and trap. The EAB agreed with Crown and Nexen arguments that the Water Act did not authorize such a broad scope of impact assessment (paras. 168 and 170).
  • The "Precautionary Principle." The FNFN argued that the scientifically sound application of the Water Act should comply with the "precautionary principle." Essentially, the precautionary principle would put the legal onus on Nexen and the Crown to demonstrate that the proposed withdrawals would not be harmful. In other words, the onus would shift from the appellant FNFN (to prove a serious concern) to the respondents Nexen and the Crown to disprove potential harm. The EAB rejected the FNFN argument (para. 179).
  • Scoping Treaty Rights. The EAB acknowledged that the Crown was "generally aware" that the First Nation holds treaty rights in the Tsea area, but failed to identify "… exactly where, when or how the First Nation's members exercise treaty rights …" (para. 450). The EAB further held that the Crown should have considered "which species of fish, animals or plant are used" by the FNFN. In short, the EAB expected the Crown, at an early stage, to undertake a comprehensive research project, the findings of which would be used to scope relevant treaty rights and consultations. This high onus was apparently not diminished by the EAB's finding that the FNFN had failed to provide the Crown with information in its possession (para. 452). The EAB's expectation of a comprehensive data base prepared early in the process is arguably unique. In other cases, a lesser onus - implying a "preliminary" level of documentation - seems sufficient for scoping potentially affected rights and related consultations (for example, see Louis v. B.C. 2011 BCSC 1070, aff'd 2013 BCCA 412 which endorsed the use of a "preliminary" assessment of strength of claim). It remains to be seen whether the B.C. Crown will in future cases undertake the comprehensive site-specific approach required by the EAB.
  • Environmental Assessment. A central issue in the hearing concerned the degree of scrutiny that should be applied to review potential environmental impacts. The EAB agreed with the FNFN that a much deeper form of impact assessment should have been conducted prior to the issuance of the Licence. Indeed, the EAB set out a long list of environmental base line and impact assessment studies that should have been required by the Crown and completed prior to the issuance of the Licence (paras. 322, 327 and 332). The Crown and Nexen argued that such studies should be required only if the project was "reviewable" under the B.C. Environmental Assessment Act, which was not the case here. These arguments were not addressed directly by the EAB. Rather, the EAB's reasoning was based on section 10(1)(c) of the Water Act - this provision, which enables the Crown to require "information" from applicants, was interpreted liberally to mean that it could require the above-noted studies. The EAB's reasoning may leave future licence applicants uncertain as to whether, after filing an application, they face a lengthy and costly requirement to conduct a an environmental assessment not otherwise required under the Environmental Assessment Act.

Wally Braul was legal counsel to Nexen on this matter.