Cases Considered: Caron v Alberta (Chief Commissioner, Human Rights Commission), 2013 ABQB 13, and Chieriro v Michetti, 2013 AHRC 3.

The Caron language rights saga discussed in previous posts on ABlawg (see here) continues, as the next development in his continuing litigation was recently released by the Court of Queen’s Bench of Alberta. This post will discuss that decision, as well as a recent decision of the Alberta Human Rights Tribunal, Chieriro v Michetti, 2013 AHRC 3, which also raises issues about the protection of language-related rights.  

Mr. Caron was a seasonal worker for Edmonton’s Department of Transportation and Streets and in a complaint to the Alberta Human Rights Commission, he alleged that his co-workers subjected him to discriminatory treatment and that his employer, the City of Edmonton, terminated his employment for discriminatory reasons. After the former Chief Commissioner of the Alberta Human Rights Commission upheld the Director’s dismissal of Mr. Caron’s complaint as too trivial to justify a public tribunal hearing, Mr. Caron filed a judicial review application seeking to quash the Commissioner’s decision.  Mr. Caron’s complaint is based on section 7(1) of the Alberta Human Rights Act, RSA 2000, c A-25.5 (“AHRA”), which does not allow an employer to refuse to employ or continue to employ (section 7(1)(a)) or discriminate against any person in regards to employment (section 7(1)(b)) based on numerous protected grounds. The two grounds that Mr. Caron based his claim on are that of place of origin and ancestry because of his background as a Québecois. Mr. Caron alleged that he was called numerous offensive names throughout his employment with the City of Edmonton. The insulting names included “Frenchie,” “Chretien,” and “Gil”.  These are the comments that ultimately led Mr. Caron to his claim that he suffered from harassment at his workplace, which created an oppressive environment to work in.

In her decision, Justice M.T. Moreau could not determine what had led the Commissioner to decide that these terms were not offensive or significant enough to warrant a hearing. As a result, this lack of explanation in the Commissioner’s reasoning led Justice Moreau to hold that the Commissioner’s decision failed to meet the reasonableness standard. The Commissioner’s decision was quashed and the matter has now been returned to the current Commissioner to reconsider the allegations, but only in regards to section 7(1)(b) of the AHRA. We will now have to await a further decision by the Commission in regards to the narrowed issue surrounding section 7(1)(b) of the AHRA and whether it should proceed to a tribunal hearing.

In previous litigation, Mr. Caron made challenges regarding the lack of French language protection in Alberta, particularly regarding the language in which laws are enacted (see here and here) and the lack of availability of French language proceedings under the AHRA (see Caron v Alberta (Human Rights and Citizenship Commission), 2007 ABQB 525). In the latter decision, it was held that Mr. Caron was able to address the court in French during the judicial review proceedings because of section 4(1)(b) of Alberta’s Languages Act, RSA 2000, c L-6. Mr. Caron was also granted an interpreter based on section 14 of the Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, Schedule B to the Canada Act 1982 (UK), 1982, c 11 (Charter), which states that a person has a right to an interpreter in proceedings in which they do not understand or speak the language being used. Although it seems that there is some level of language protection via other legislation, what is the extent of the protection of language in human rights legislation?

Historically, in Canadian jurisdictions like Alberta where language is not a protected ground in human rights legislation, tribunals and courts have protected language vicariously through other grounds such as ancestry or place of origin. The Ontario Human Rights Commission has gone a step further and developed a policy that describes the approach that their courts and tribunals are to use in regards to language-based human rights claims (see here). Although the Alberta Human Rights Commission does not have a similar policy in place, based on the jurisprudence relating to language and human rights discrimination in Alberta, they seem to follow a similar method.  The Ontario Human Rights Commission explains that there is an inevitable link between a particular language that is spoken or an accent that a language is spoken in and grounds like ancestry, ethnic origin or place of origin.

There are numerous types of cases that have come forward regarding language in a variety of areas including services, although the majority of them are in the employment context. An example of a case in the services area is one of Mr. Caron’s previous litigation matters. As previously mentioned, Mr. Caron was granted an interpreter for his human rights judicial review hearing, but was denied an order to get the records and related files translated into French (see Caron v Alberta (Human Rights and Citizenship Commission), 2007 ABQB 200). If language was included as a protected ground then the court may have been forced to grant an order requiring all of the records and related files to be translated for his use. This would be quite an extensive and demanding task to be placed on tribunals and courts as well as a potentially dangerous precedent to set for future litigants.

An example of a human rights claim related to language in the employment area is the case of Dhamrait v JVI Canada, 2010 HRTO 1085, 70 CHRR D/373, (Dhamrait) where two employees were told by their supervisor that they should be speaking English, not Punjabi during their lunch break.  In this case it was found that even though language was not a protected ground in Ontario’s human rights legislation, it can be a proxy indicator of discrimination based on race, ethnicity or place of origin (at para 64). The Tribunal was able to make this connection by stating that the employees speaking Punjabi were not able to express themselves in their native language which placed a burden on them based on their race and ethnic background. In the case of Saadi v Audmax, 2009 HRTO 1627, (Saadi), a ban on speaking French within the office was put in place. A Muslim woman, Ms. Saadi, brought a complaint of discrimination based on race, colour, ancestry, place of origin and creed. The Ontario Human Rights Tribunal found that because the Muslim woman’s first language was not French nor was it a language she spoke at a high level, that the ban on the use of French did not constitute a proxy for racial discrimination (at para 39). The distinguishing factor between these two cases seems to be that in Dhamrait the claimants were able to show an inability to express themselves because they were being suppressed from speaking their first language, instead of a language that was neither their first language nor one they even spoke at a high level like in Saadi.

Interestingly, these sorts of language-based claims do not only arise in situations where people can or cannot speak a certain language, but also where individuals speak a language with a particular accent. The claimants tend to be less successful at claiming discriminatory treatment when their employment positions include a significant amount of communication with other individuals (Gajecki v Surrey School District (No. 36) (1989), 11 CHRR D/326 (BCCHR)) and more successful in circumstances where speaking a particular language plays a minor role (Dhaliwal v BC Timber Ltd (1983), 4 CHRR D/1520 (BC Bd of Inq)). Much of the claimants’ success or lack of success in their claim depends on the ability of the employer to justify their actions.

Although these cases were heard in other jurisdictions, the approach in Alberta is very similar. In the recent case of Chieriro v Michetti, 2013 AHRC 3, there is discussion by the Tribunal about discrimination on the basis of race, ancestry, place of origin and religion. During Mr. Chieriro’s employment, he was told that “…you need to use proper Canadian English. You need to speak like someone who is in Canada, not like someone who is in Africa” (at para 25). Although this is just one example of how Mr. Chieriro was subjected to discriminatory behaviour, these are some clear and direct references to the way in which Mr. Chieriro spoke. As it turns out in this case, the language-based claim was not necessary as there were other circumstances in which Mr. Chieriro had been directly discriminated against based on place of origin or ancestry. Whether or not a claim like this would be successful solely based on the language-related argument is an interesting question. If speaking to clients or customers was a regular part of his job, and if there had been any complaints regarding the accent in which Mr. Chieriro spoke English, these would likely be significant factors in answering this question. While it is an interesting question to debate, it was not discussed in detail in the case at hand as there was plenty of other evidence based on enumerated grounds that the Tribunal used in coming to its decision in favour of finding discrimination against Mr. Chieriro.

Although in the two recent Alberta decisions neither Mr. Caron nor Mr. Chieriro ultimately tested language protection in the human rights context, there will undoubtedly be cases around the corner that will continue to determine when and how claimants can be successful in language-related claims under the AHRA.

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Cases Considered: Canadian National Railway v Denise Seeley and Canadian Human Rights Commission, 2013 FC 117.

In 2010, the Canadian Human Rights Tribunal released three cases involving Alberta women who alleged they were being discriminated against on the basis of family status. In a previous post I wrote on the outcome (see “Accommodation for Family Status Required by Federal Human Rights Tribunal for Three Alberta Women” December 22, 2010 here) in which CNR was required to accommodate parental responsibilities of all three women. Canadian National Railway (CNR) applied for judicial review on the case of Denise Seeley. The decision of Justice Mandamin of the Federal Court presents an attempt to reconcile two lines of decisions that addressed what “family status” discrimination entails. On a larger scale, this case is one of several in which gender and family status discrimination are argued to be result of social construct or personal choice rather than the operation of law or the result of discrimination in an activity that is covered by human rights legislation (e.g., employment, tenancy, services, accommodation and publications).

For example, in the Canadian Charter of Rights and Freedoms,Part I of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (UK), 1982, c 11 (Charter) case of Symes v Canada, [1993] 4 SCR 695, the majority of the Supreme Court of Canada held that a female lawyer could not deduct the wages she paid to her nanny as a business expense in her personal income tax returns. They also noted that while women disproportionately incur the social costs of child care, this is not the result of the operation of law (e.g., the Income Tax Act, RSC 1985, c 1), and thus, Charter section 15(1) is not violated.

Likewise, in the Canadian National Railway v Denise Seeley and Canadian Human Rights Commission, 2013 FC 117 (Seeley) case, CNR argued that this case really dealt with the question of whether balancing family life and employment duties will be transferred from the home to the workplace. It argued that the CHRT had been mistaken when it equated family status with a parent’s choice as to how to define and meet his or her childcare obligations (Seeley at para 55).

The Canadian Human Rights Tribunal and the Federal Court both noted that two lines of cases had developed regarding what the ground of “family status” entails. The British Columbia Court of Appeal in Health Sciences Association of British Columbia v Campbell River and North Island Transition Society, 2004 BCCA 260 at para 39, 240 DLR (4th) 479 (Campbell River) said that “a prima facie case of discrimination is made out when a change in a term or condition of employment imposed by an employer results in a serious interference with a substantial parental or family duty or obligation of the employee” (emphasis added). Thus, there needs to be more than a conflict between work requirements and regular parental obligations in order to establish a prima facie case of family status discrimination. In the Campbell River case, a legitimate change in hours of work was going to affect the complainant’s ability to care for her disabled son. While the court found that the employer had prima facie discriminated against the complainant on the basis of family status, the matter was remitted to the arbitrator to determine whether the employer had met its duty to accommodate her to the point of undue hardship.

A less restrictive standard was set out by the CHRT in Hoyt v Canadian National Railway, 2006 CHRT 33, [2006] CHRD No 33, and endorsed by the Federal Court of Canada in Johnstone v Canada (Attorney General), 2007 FC 36, [2007] FCJ No 43 (Johnstone); affirmed in 2008 FCA 101, [2008] FCT No 427 (Fed CA). In Johnstone, the Federal Court of Canada held that the test in Campbell River was too stringent, and instead held that family status discrimination claims should be analyzed in the same way as other discrimination claims. The Court said that the Campbell River test effectively established a hierarchy of grounds of discrimination, thus making family status less important than the others. In particular, the requirement that the complainant must establish a “serious interference” with family status had the impact of relegating family status to an inferior type of discrimination.

In the Seeley case, although CHRT member Michel Doucet declined to apply the Campbell River test, he nevertheless concluded that the complainants faced a “serious interference with [their] parental duties and obligations” if they were forced to work in Vancouver (Seeley at para 109). This suggests that he would have found that there was a prima facie case of family status discrimination whether he followed the Campbell River or the Johnstone approach. Thus, childcare issues constitute a parental responsibility that falls within the ground of “family status” based on either test.

The CNR appealed the Seeley case. The CNR argued that CHRT had erred in finding that a case of family status discrimination had been made out, in finding that the CNR had not met its duty to accommodate, and in awarding extra damages based on CNR’s reckless conduct. The Federal Court dismissed CNR’s appeal.

Justice Mandamin of the Federal Court noted that the Canadian Human Rights Act, RSC 1985, c H-6 does not define “family status” (Seeley at para 59) and also suggested that the legal cases to date illustrated two distinct lines (Seeley at para 61). Some had taken a more broad approach and some had taken a more narrow approach. The Federal Court seems to have tried to reconcile these two approaches and noted that in order to have proper regard to “family” one must consider children and the relationship between parents and children (Seeley at para 68). Parents are obligated to care for their children and if Parliament had intended to exclude childcare obligations from “family status” it would have done so clearly (Seeley at para 68).  This interpretation of “family status” as including childcare obligations is within the scope of the ordinary meaning of the words (Seeley at para 70).  Thus, the CHRT’s interpretation of the meaning of “family status” was reasonable.

In determining whether there was a prima facie case of discrimination based on family status, and in attempting to reconcile the two lines of cases, Justice Mandamin said that the following questions needed to be answered (Seeley at para 78):

a. does the employee have a substantial obligation to provide childcare for the child or children; in this regard, is the parent the sole or primary care giver, is the obligation substantial and one that goes beyond personal choice;

b. are there realistic alternatives available for the employee to provide for childcare: has the employee had the opportunity to explore and has explored available options; and is there a workplace arrangement, process, or collective agreement available to the employee that may accommodate an employee’s childcare obligations and workplace obligations;

c. does the employer conduct, practice or rule put the employee in the difficult position of choosing between her (or his) childcare duties or the workplace obligations?

Clearly, the contextual factors of the individual case were significant (as with most discrimination cases). The following factors were considered by Justice Mandamin to be relevant to a finding that there was discrimination on the basis of family status:

• Ms. Seeley is the primary caregiver for two children of tender age;
• her husband works full time and is the breadwinner;
• she had considered whether childcare was available in nearby Hinton, AB;
• CNR never provided necessary information for exploring whether childcare options were available or feasible in Vancouver; and
• a realistic assessment of her circumstances discloses she would have significant difficulty in fulfilling her childcare obligations in responding to an indefinite recall assignment for the Vancouver shortage (Seeley at para 90).

Thus, Ms. Seeley’s specific parental childcare obligations and CNR’s response to her request for an extension to address possible options all resulted in prima facie discrimination on the basis of family status (Seeley at para 95).

In addition, CNR never considered the question of accommodation under the collective agreement before firing Ms. Seeley (Seeley at para 100). Further, the CHRT’s finding that CNR had not adequately responded to Seeley’s request for accommodation was reasonable (Seeley at para 107). Finally, the CHRT’s award of damages was also reasonable.

It appears, then, that childcare responsibilities are clearly part of “family status” and that this ground of discrimination should be given equal footing with the other grounds. The tribunal will consider the steps that the employee took to minimize the obligations that were imposed on his or her family responsibilities. The tribunal will also consider the individual circumstances of the complainant, the nature of the conflicting responsibilities and the barriers that are in place. The employer’s duty to accommodate will be tempered by the three factors (listed above) that the tribunal will consider, which in turn seeks to balance the responsibility for childcare issues between the employer and the employee.

As for the larger issue of the role of social construct in this case, it would appear that the court is willing to at least consider that in many cases childcare obligations can be substantial and can go “beyond personal choice.”

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Case commented on: Basha v Lofca, 2013 ABQB 159.

Introduction

It is quite common for certain legal areas to intersect with others in cases that come before the courts. In the recent Alberta Court of Queen’s Bench case of Basha v Lofca, this intersection arose within the areas of immigration and family law.

In Basha, the Court had to decide whether a provision in a family court order requiring that three children not be removed from Alberta or Canada could block a removal order issued under the Immigration and Refugee Protection Act, SC 2001 c 27 (IRPA).

Facts

In March of 2007, an Albanian mother arrived in Canada on a work permit, and later on became ill. Her husband and younger child arrived in the country on a temporary visitor’s visa later in the year, and the couple’s two older children were granted permission to enter the country in 2009, also on a temporary basis. Sadly, later on in the year the mother died, and the father and three children applied to extend their temporary visas and remain in Canada. However, Citizenship and Immigration Canada refused their applications, and the family was asked to leave the country on January 27, 2010.

Following this, the children’s aunt and uncle filed a claim for guardianship of the children under Alberta’s Family Law Act, SA 2003, c F-4.5. Although the father of the children was the respondent in the guardianship proceeding, the factual content of the filed material and the order granted by the chambers judge made it clear that the proceeding was friendly and unopposed in nature, and designed to give the children a better chance to stay in Canada (Basha, at para 10). The family court order was granted in January of 2010, and provided that “the children shall not be removed from the province of Alberta or country of Canada, without further order of this court.”

Later on in January, the Federal government requested that the entire family leave Canada voluntarily. The father did so, but the children remained in the country with their newly appointed guardians. Therefore, there were two legal process taking place. One was the Alberta Court of Queen’s Bench family law guardianship action, and the second was the Federal Court and tribunal immigration proceedings. The children made several applications through the Federal immigration process and in Federal Court in order to remain in Canada on a humanitarian and compassionate basis. These efforts failed, although some, particularly the review applications to the Federal Court, may have failed due to procedural non-compliance rather than a hearing on the merits of the case (Basha, at para 14).

In late 2012, the Attorney General of Canada applied to be added as an intervenor in the family law litigation, and requested that provision under the guardianship order preventing the removal of the children be struck out.

Positions of the Parties

The Federal Crown argued that the presence of the children in Canada was an immigration matter, and not a family law question of guardianship and custody. The Crown argued that there was no true family law dispute, and that the legal authority of the children to remain in Canada had expired. Therefore, the Crown wanted a variation order removing the order that prohibited the children from leaving Canada (Basha, at para 18).

The father, aunt, uncle and children took a common position and argued that the custody dispute was a proper family law matter, and that it was in the children’s best interest to remain in Canada (Basha, at para 18). They also argued that provincial courts of competent jurisdiction have, in certain cases, made decisions and orders that relate to family law and protection of children that allow the children to remain in the jurisdiction. A net, but indirect effect of these court activities is to preclude the ability of the Federal Crown to remove the children via immigration processes (Basha, at para 19). Finally, the respondents also argued that article 3 of the United Nations Convention on the Rights of the Child, 20 November 1989, United Nations, Treaty Series, vol 1577, p 3 (Convention) had a role to play in the matter (Basha, at para 20).

Analysis of the Court

The Court accepted the idea that a provincial superior court of inherent jurisdiction could make an order effectively blocking (at least temporarily) the removal of an individual from Canada by immigration authorities where a live and real family law litigation proceeding is underway. The Court provided an example where two parents, legally in Canada, bring their child into the country on a properly granted visitor’s permit. When the permit ends, one of the parents could wish to return home with the child, and the other may wish to apply for sole guardianship and oppose the removal of the child from the country by the other parent. The Court noted that in a context like this, where a real and substantive conflict exists, a superior court of inherent jurisdiction should have the jurisdiction to deal with collateral matters that flow from valid family law orders (Basha, at para 25).

However, the Court stated that in this case, no real litigation was underway, as the family law custody “dispute” was really a tactic, and not a real disagreement before the Court. Further, the Court noted that caselaw provides that a superior inherent jurisdiction court judge must exercise caution to avoid extending the scope of inherent jurisdiction so as to not intentionally interfere with other lawful processes (Basha, at para 26). The Court noted the decision of JH v FA, 2009 ONCA 17, 306 DLR (4^th) 496, where the Ontario Court of Appeal stated that the purpose of non-removal orders in family law legislation is not to prevent the deportation of persons ordered to be removed from Canada, but to prevent parents from removing children from the jurisdiction in contested family law proceedings. Where no real dispute exists, such orders should not be used to frustrate the IRPA (Basha, at paras 29-30). The Court also noted a memorandum from the Alberta Court of Appeal, which stated that “the interests of the children are protected [in the immigration review system] on the basis of the compassionate and humanitarian considerations that are part of that immigration review process”. Thus, the Court concluded that in typical immigration scenarios there is no ‘gap’ into which a court should intrude, apply its inherent jurisdiction, and provide a remedy that would otherwise be unavailable (Basha, at paras 32-33).

The Court also found that the United Nations Convention on the Rights of the Child gave the courts no additional power that they would not have already had to take jurisdiction and block the normal operation of the immigration apparatus (Basha, at para 38). Article 3 of the Convention essentially states that in all court actions concerning children, the best interests of the child shall be a “primary consideration” in the ultimate decision (Basha, at para 35). However, the Court noted that “primary consideration” does not equate to “the” or “the only” primary consideration, or that the interests of the children trump everything else (Basha, at paras 36- 37). Citing Chief Justice McLachlin in Canadian Foundation for Children, Youth and the Law v Canada (Attorney General), 2004 SCC 4 at para 10, [2004] 1 SCR 76, the Court noted that “the best interests of the child may be subordinated to other concerns in appropriate contexts…” (Basha, at para 37). Finally, the Court pointed out that within the immigration system, the best interest of the child is always a consideration, and that the immigration system is required to implement state policy that flows from international treaty obligations (Basha, at para 38). Based on all these reasons, the Court granted the Federal Crown’s request and ended the prohibition against the removal of the children from the province and Canada (Basha, at para 41).

Conclusion

For the most part, the Court’s decision seems reasonable. There was no real family dispute in this case and the Court was simply following what the caselaw dictated. However, the Court did note that some of the immigration applications launched by the children failed due to procedural non-compliance issues, instead of the merits of the case. Those courts that denied those applications would then seemingly not have considered the “best interests of the children” at all. Thus, it is somewhat surprising that the Court in this case did not look at the best interests of the children more closely, especially since the Court admitted that the children had lived “model and productive lives in Canada” (Basha, at para 40).

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Cases Considered: Equitable Trust Company v Lougheed Block Inc, 2013 ABQB 209.

The foreclosure proceedings taken with respect to the historic Lougheed Building at 604 – 1 Street S.W. in Calgary have generated a number of legal controversies. I have previously blogged on interest issues in the “Perennial Problem of Section 8 of the Interest Act” and on security deposits matters in “Who Bears the Loss for Converted Security Deposits?” This latest judgment — a decision of Mr. Justice Paul R. Jeffrey — concerns compensation paid by the City of Calgary for the decrease in the value of the building when it was designated an “historical resource” under the Historical Resources Act, RSA 2000, c H-9. A Lougheed Building Rehabilitation Incentive Agreement dated September 2006 provided that total compensation would be $3,400,000 and it would be paid in fourteen annual installments of $227,000 each and a final fifteenth payment of $222,000.  The question was who was to receive the balance of the annual installments. Would it be The Lougheed Block Inc (LBI), the owner of the building who entered into the Incentives Agreement with the City and did the required rehabilitation work? Or would it be 604 – 1^st Street S.W. Inc (604), the purchaser on the judicial sale after LBI defaulted on their mortgage with Equitable Trust Company and Equitable Trust foreclosed. The outcome depended on the answers to one property issue and one (far less interesting) contract issue.

Facts

The Historical Resources Act provides for compensation to owners of buildings designated by City Bylaw as Municipal Historical Resources. Designation means that the owners cannot remove, destroy, disturb, alter, rehabilitate, repair or other permanently affect the designated building except in accordance with the Standards and Guidelines for the Conservation of Historic Places in Canada. If the designation decreases the economic value of the building, the City is required to compensate the owner for that decrease. The City and LBI entered into the Incentive Agreement in order to specify the rehabilitation work to be done of the Lougheed Building and the conditions under which the City would compensate LBI for that work and for any decrease in the building’s economic value. Once the repairs were made to the satisfaction of the City’s Heritage Planner, the City would pay the owners $3,400,000 in fourteen annual installments. A caveat was registered against the title to the Lougheed Building property that referred to the Incentives Agreement and attached a copy of it.

As part of Equitable Trust’s foreclosure proceedings, the owner of 604 presented an offer to the court to buy the Lougheed Block (the Lougheed Building and the land on which it sits). That offer was approved by Master Prowse in July 2010. The lawyer for 604 requested, among other things requested for the closing, an assignment in favour of 604 of the Incentive Agreement with the City. LBI resisted that request, taking the position that LBI’s right to the City’s payments was not included in the purchase, and applied to a Master in Chambers for a declaration to that effect. The matter was argued before Master Laycock at the end of 2010. The Master ordered that LBI was entitled to the remainder of the annual installments: 2011 ABQB 269.

The purchaser, 604, appealed on two different grounds. First, 604 argued that it was entitled to the Incentive Agreement payments because the covenant to pay ran with the land — the property law issue. Second, and in the alternative, 604 argued that the right to receive the payments was included in the assets it bought in the judicial sale — the contracts issue.

Did the covenant to pay the Incentive Agreement payments run with the land?

Like Master Laycock, Justice Jeffrey found that the entitlement to receive the annual Incentive Agreement payments from the City was not a covenant that ran with the land. Because the covenant did not run with the land, 604 did not get the right to receive the annual payments when it became the owner of the Lougheed Block.

In order for a covenant to run with the land at common law:

(a) The covenant must be negative in substance and constitute a burden on the covenantor’s land analogous to an easement. …

(b) The covenant must be one that touches and concerns the land … [and] the land must be capable of being benefited by the covenant at the time it is imposed. …

(c) The benefited as well as the burdened land must be defined with precision in the instrument creating the restrictive covenant. …

(d) The conveyance or agreement should state the covenant is imposed on the covenantor’s land for the protection of specified land of the covenantee.

(e) Unless the contrary is authorized by statute, the titles to both the benefited land and the burdened land are required to be registered. …

(f) Apart from statute the covenantee must be a person other than the covenantor. (at para 38, citing Westbank Holdings Ltd v Westgate Shopping Centre Ltd, 2001 BCCA 268 at para 16).

The relevant covenant is that of the City, the covenantor, and it is for the City to make the annual Incentive Agreement payments. Such a covenant is positive in substance and thus fails part (a) of the test set out above, which requires a negative covenant.  A negative covenant, to use Justice Jefferey’s definition (at para 37), is one where “the covenantor promises to not do something.” I prefer to think of a negative covenant as one that can be fulfilled by the covenantor doing nothing. A positive covenant, on the other hand, requires the covenantor to do something. In this case, the covenant requires the City to spend money and it is therefore a positive covenant. The rule that positive covenants do not run with the land has been a settled principle of the common law for more than 100 years and has, without question, been adopted in Canada: Parkinson v Reid, [1966] SCR 162.  

604 argued that section 29 of the Historical Resources Act changed the common law and allowed positive covenants, including the City’s covenant to pay, to run with the land. However, section 29 does not apply to that covenant or that covenantor. The relevant portions of section 29 provide:

29(1) A condition or covenant, relating to the preservation or restoration of any land or building, entered into by the owner of land and

(a) the Minister,

(b) the council of the municipality in which the land is located,

(c) the Foundation, or

(d) an historical organization that is approved by the Minister,

may be registered with the Registrar of Land Titles.

(2) When a condition or covenant under subsection (1) is presented for registration, the Registrar of Land Titles shall endorse a memorandum of the condition or covenant on any certificate of title relating to that land.

(3) A condition or covenant registered under subsection (2) runs with the land and the person or organization under subsection (1) that entered into the condition or covenant with the owner may enforce it whether it is positive or negative in nature and notwithstanding that the person or organization does not have an interest in any land that would be accommodated or benefited by the condition or covenant.

(4) A condition or covenant registered under subsection (2) may be assigned by the person or organization that entered into it with the owner to any other person or organization mentioned in subsection (1), and the assignee may enforce the condition or covenant as if it were the person or organization that entered into the condition or covenant with the owner. (Emphasis added)

It is true that section 29(3) states that a covenant that has been registered against the designated land runs with the land. However, section 29(1) states that the covenants that can be registered are covenants that relate to the preservation or restoration of designated land or building — not covenants to pay compensation for the historical designation. Section 29 applies to LBI’s promises, not the City’s.

The purpose of making a covenant run with the land is to make it enforceable against the owner of that land, whoever they might be in the coming years. Thus section 29(3) also states that it is the entities listed in section 29(1) who may enforce the covenant, whether it is positive or negative in nature, and whether or not they have an interest in the land. Section 29(3) cannot be applied to the City’s covenant to pay. That would require reading section 29(3) to say that the City may enforce their own covenant to pay against the Lougheed Building even if their covenant is positive in nature and even if they have no interest in the Lougheed Building. That argument makes no sense. The City would not be the entity to enforce their own covenant to pay. And they would not enforce it against the Lougheed Building. Instead, it makes sense that the City could enforce LBI’s covenants to restore the Lougheed Building against that building and that is what section 29 is for — a covenant with a different subject matter and a different covenantor.

Justice Jeffrey recognized the same problems with 604’s arguments, although he refutes them in a different way (at paras 36-43). He focuses more on the fact the covenant is not a burden on the covenantor’s land and is not imposed on the covenantor’s land in order to point out the flaws in 604’s argument.

604 made one final point in its argument that the City’s covenant to pay ran with the land. That was that, insofar as 604 and the Lougheed Building were burdened by the obligations to preserve and restore the building, 604 should be entitled to the associated benefit, the annual payments. (Justice Jeffrey does not consider the substance of this argument, an argument that has received some acceptance in the UK as the doctrine of benefit and burden in Halsall v Brizell, [1957] Ch 169 and gained some ground in Ontario in Durham Condominium Corporation No 123 v Amberwood Investments Limited, 2002 CanLII 44913 (ON CA).) Master Laycock had considered 604’s argument and concluded that it is only the entity that owned the property at the time it was designated a historic resource that suffers an economic loss. A subsequent owner, such as 604, buys the already-designated building knowing about the designation and its impact on the property’s value and factoring that into a reduced purchase price. Justice Jeffrey agreed (at para 46) that the conclusion that the City’s covenant to pay does not run with the land was consistent with the purpose of the compensation provisions in the overall statutory scheme.

Was the right to receive the Incentive Agreement payments included in the assets bought in the judicial sale and assigned to 604?

What property did 604 offer to purchase in the judicial sale and what property was included in the Court’s acceptance of the 604 Offer? The 604 Offer was to purchase the “Property,” defined as being the Lougheed Block only. This was expanded to include some personal property in paragraph 10: “All fixtures, equipment and chattels located on the Property and which are owned by the Vendor shall be included in the Purchase Price.” Neither definition of the “Property” that 604 was purchasing included the City’s annual payments. However, 604 argued that its Offer also contained wording in two places that could be interpreted to expand the “Property” being purchased to include the right to receive the City’s annual payments.

The first place was paragraph 3 of the Offer, which required the Court to direct the Receiver “to deliver … a registrable transfer of title, free and clear of all encumbrances save and except only the matters referred to in Schedule 1 hereto … together with … a general conveyance re assets …”. Schedule 1 included the caveat with the attached Incentive Agreement. However, Justice Jeffrey held (at para 59) that the effect of this reference was only to identify what the title did not have to be free and clear of, i.e., what could be on title. The reference to “a general conveyance re assets” was just not specific enough, in the face of the definition of “Property,” to include the annual payments under the Incentive Agreement.

The better argument relied on the last sentence in paragraph 6 of the Offer, which stated: “All leases and contracts that are assignable shall be assigned to the Purchaser as of the Closing Date and the Purchaser shall assume all obligations thereunder.” The Incentive Agreement is assignable. Nevertheless, Justice Jeffrey held (at para 62) that just because the Incentive Agreement the type of contract that could be assigned did not mean that it had to be assigned to 604. The earlier definitions of the “Property” being purchased and the property ancillary to it established the substance of the transaction. The last sentence in paragraph 6 only set out a process for the transaction. This conclusion is supported by the fact that paragraph 6 otherwise dealt with 604 agreeing to accept the Property “as is” and acknowledging that the 604 Offer constitutes the entire agreement between the parties — boilerplate provisions.

Conclusion

A covenant by a government or historical organizations to pay compensation to the owners of property for the decrease in value of that property on its designation as an historical resource will never run with the land at common law because it is a positive covenant. Neither will it run under the Historical Resources Act because the Act only relaxes the common law test for promises to preserve and restore made to the government or historical organization. However, it would be possible to draft an Offer to Purchase an historical resource that did include any remaining annual compensatory payments as part of the property being purchased.

This case thus illustrates one of the principle differences between property law and contract law. Whether compensatory payments run with the land is a question of law. As such, the parties and their wishes are irrelevant. Whether the payments were included in the Offer is a question of interpretation, and therefore all about what the parties want and what they have the bargaining power to negotiate.  

Context of discussion: Enbridge Northern Gateway Pipelines Project

This blog is to discuss what I call the “The Role of the Noble Savage” in the pursuit of environmental justice through social activism. I will use the Enbridge Northern Gateway Pipelines Project to provide context.

Enbridge is a thirty-one billion dollar corporation based out of Calgary, Alberta. Enbridge owns and operates the world’s longest crude oil and liquids pipeline system. This system transports more than 2 million barrels per day of crude oil and liquids, and provides natural gas to 1.9 million customers in Canada and the United States.

Northern Gateway is the marketing term for a proposed oil and gas pipeline to construct twin 1200 km pipelines running from Bruderheim, Alberta, to Kitimat, British Columbia. The eastbound pipeline would import natural gas condensate, and the westbound pipeline would export crude oil and bitumen from the Athabasca oil sands to the new marine terminal in Kitimat. From there, loaded oil tankers will be dispatched to markets along the Pacific Rim. The project will create 3000 construction jobs and 104 permanent jobs in British Columbia and Alberta.

But there is opposition from many quarters, especially environmental NGO’s, biologists, aboriginal communities, British Columbia towns and villages and large American environmental philanthropists. Among the numerous parties who are against the proposal, my focus today is on indigenous groups. Indeed, the bulk of the media focus in Canada has been on the indigenous opposition to the project, though the rationale for why this is so, is unclear. I will argue that while seemingly benign, the focus on the indigenous opposition demonstrates an underlying racial bias that can be harmful to First Nations and other indigenous peoples at the same time it is a strategically effective device to put the environmental issues before the public.

The pipeline has been criticized by indigenous groups because it crosses much of their traditional lands and threatens the habitat of wild salmon and other wild life upon which they rely for sustenance. Groups like the Yinka Dene Alliance have organized to campaign against the project. In December 2010, 61 First Nations bands, including many along the proposed pipeline route, signed the Save the Fraser Declaration in opposition to the project.

More compelling is the fact that opposition remains despite the offer by Enbridge to grant all First Nation communities within 50 miles of the line a 10% equity stake in the project. The offer has not resolved the impasse even though some bands have indicated they will take up the offer, especially those whose lands are farthest away from the proposed pipeline and will likely not be affected if there is a spill someday.

Given the history of leaks and spills with other Enbridge projects, the concerns of the aboriginal bands whose lands border on the pipeline route are well-founded. For example, in 2010 an Enbridge pipeline in Michigan ruptured, resulting in 3 million litres of oil leaking into the wetlands, Talmadge creek and the Kalamazoo River. Three years after the spill cleanup is still ongoing and costs are now being projected to be one billion dollars, 350 million dollars more than Enbridge’s insurance policy coverage (see Globe and Mail article, March 20, 2013). Also in 2010, 2000 gallons of oil seeped from a pipeline in the middle of a Chicago suburb. One fireman told the Huffington Post that “it looked like the Beverly Hillbillies in the opening scene when the crude is bubbling up from the ground” (see Huffington Post, September 9, 2010). The Wisconsin spill in 2012 resulted in 190,000 litres of spillage. In a 2008 pipeline installation in Wisconsin, over 500 regulatory violations were incurred in just a year of construction. The Kamloops Daily News pointed out in 2011 that since 1998 Enbridge has registered over 800 leaks and ruptures.According to a study by Sean Kheraj, an environmental history professor at York University, pipelines carrying oil or other liquids have experienced more than 1,600 failures between 2006 and 2010, spilling 174,213 barrels of oil in mostly rural locations in Alberta (see here).

Despite these glaring environmental disasters, media attention has focussed less on the obvious technical and engineering shortcomings of the company’s operations, and more on re-framing the debate to create a narrow narrative that says the First Nations oppose the pipeline because they do not want their “primitive naturalist lifestyle” to be interrupted by industrial progress and prosperity. While this is not an accurate portrayal of the ambition of First Nations and other indigenous groups in Canada, their stance on sustainable development and environmental protection allows both sides to use narrow stereotypes to advance their side of the debate and create leverage to win public support.

Although the history of colonialism and aboriginal oppression is beyond the scope of this discussion, the image that grounds my perspective today is rooted in it. In the 1960s, a group called Keep America Beautiful (or KAB) partnered a non-profit public interest organization to launch an anti-pollution campaign. Its objective was to dramatize the injurious effects of litter and other forms of pollution on the environment, and encourage individuals to take responsibility to protect it.

On Earth Day in 1971, KAB released its most notorious Public Service Announcement ever (see here for a critique of ‘corporate greening’). In it, a Native American (depicted by an Italian-American actor) is seen paddling his canoe down a beautiful river at dawn. The idyllic scene begins to transform as we see a newspaper floating by. Then a wide angle shot reveals the background – an industrial port with huge cranes and cargo ships dominating the skyline. As the music and the drumbeats build, the canoe paddling Indian fades into a backdrop of smoking factories.

As he gets out of his canoe on the riverbank, the Indian sees bottles, cans, and other rubbish strewn everywhere. The narration then starts talking about the beauty of the natural environment. The Indian looks up where he sees cars on a freeway. A passenger tosses out a bag of fast-food trash that explodes at his feet. A close-up of his face shows him sadly looking down at the garbage and then up to the camera. The camera zooms in just as a tear rolls down his cheek. The narrator then intones in a deep voice, “Some people have a deep, abiding respect for the natural beauty that was once this country, and some people don’t.” Then comes the memorable slogan: “People Start Pollution. People Can Stop It.” To see the video, go to here.

This caricature was nothing new for the times, but what it did was transplant an otherwise racist image of the primitive Indian onto a social imperative for keeping streets clean. That is, the polluting habits of the motorists were so shocking to the Indian that it drove him to tears. Don’t make this simple, grown man cry, the commercial implied, do not pollute! In the decades since, this image has never really disappeared from our public discourse. The genius of the “Crying Indian” ad is the feelings of guilt that it generates. It reminds the viewer that we are destroying the land and the Indians know it, because we did it to them, too. The underlying stereotype is that Indians are markers of loss. Their inevitable disappearance is the price we pay for progress. The ‘Crying Indian’ or the ‘Ecological Indian’ symbol is an updated version of a much older symbol, that of the ‘Noble Savage,’ which was also used to express nostalgic feelings for a ‘Golden Age’ of innocence and pre-industrial simplicity. As a literary and artistic device, colonizers have used the ‘Noble Savage’ for over 400 years to justify domination of a dying, exotic civilization.The Gradual Civilization Act of 1857 and the residential schools policy designed to “kill the Indian in the Child” of the early 1900’s fed off these perceptions, justifying their extremely damaging projects of assimilation and cultural genocide.

Mark Twain (the Galaxy, September, 1870) described the noble red man as follows, and which is depicted almost to a tee in the Crying Indian commercial:

He is tall and tawny, muscular, straight and of kingly presence; he has a beaked nose and an eagle eye. His hair is glossy, and as black as the raven’s wing; out of its massed richness springs a sheaf of brilliant feathers; on his arms and wrists and ankles are broad silver bands and bracelets; his buckskin hunting suit is gallantly fringed, and the belt and the moccasins wonderfully flowered with colored beads; he is a being to fall down and worship.

The word ‘Savage’ generates a powerful effect. Savagery is just another form of barbarism; of primitivism; of ignorance and even violence. Savages need to be civilised. ‘Nobility,’ on the other hand, is gracefulness. It is serenity, sophistication, even enlightenment. The ‘Noble Savage’ is innocent of his own shortcomings. And so, absent any malice, he deserves the chance to be welcomed into the Christian brotherhood and obtain salvation.

The ‘Noble Savage’ stereotype of the North American indigenous is a different type of creature than, say, stereotypical portrayals of Arabs or Africans, who are supposedly savage savages. The ‘Noble Savage’ in North America has a profound connection to nature. His primeval relationship with the land, water, and wildlife illustrates his innocence and reveals an authenticity of sorts. His desire for a clean environment is pure. His existence is not infiltrated by commerce, industry, learning, or any other complex machination of modern life. When he speaks of the environment, or, rather, when he sheds a tear for the environment, we should listen intently.

In the Canadian context, these stereotypes are being used advantageously by some First Nation activists against both the Gateway Pipeline and the Alberta oil sands, even though they have a much broader agenda. Their strategy is to seek the support of other nations to exert pressure on Canada so that their otherwise ignored concerns, are heard. By exploiting the ‘Ecological Indian’ or ‘Noble Savage’ stereotype, they tap into the special fascination many European and other countries have for North American indigenous populations, seeing them as objects of reverence and fascination.

In pursuit of this objective is the tireless Dene Elder Francois Paulette, whose battles with Ottawa a generation ago, launched the era of modern land claims. Paulette, who easily fits Twain’s physical description of the “noble red man,” has travelled around the world taking full advantage of orientalist attitudes in gaining access to leaders who, to put it colloquially, are far above his pay grade. This photo of Elder Paulette paddling British Royalty in his canoe on Blatchford Lake in the N.W.T. speaks eloquently to the stereotype.

When the G20 was held in Toronto for example, Paulette showed up to make his case for the cancer affected aboriginal residents downstream from various oil sands projects. Resplendent in braids, beads and a fringed buckskin vest, he was followed by television cameras wherever he went. Before the end of the proceedings, he miraculously gained access to several European heads of state when he was invited to dine with them. This was especially interesting, as our own Prime Minister did not have the time of day for Mr. Paulette and no other NGO or scientists received such attention. The meeting may have been shrugged off by the Canadian politicians as a publicity stunt, but, a year later, as the European Union contemplated introducing trade restrictions on the import of Canadian Oil Sands oil, suddenly Prime Minister Harper was on full alert, attempting to counter the claims made by Paulette and his aboriginal and non-aboriginal supporters.

Paulette’s speech to the UN climate change conference in Durban is another example, where he evoked the stereotypical images of the ‘Ecological Indian’ very effectively (see YouTube video clip from 5:29 to 9:07).

Although these interventions gain exposure to the environmental issues, they are also potentially problematic. If aboriginal peoples are reduced to caricatures, two kinds of effects are generated. On one hand, when First Nations groups protest on environmental issues their concerns are taken seriously, as Mr. Paulette’s reception internationally attests. After all, being at one with nature is the most important aspect of a native person’s existence, is it not? The stereotype gives positive credibility to the speaker, but while his words get the attention the issue requires, the one dimensional characterisation can carry a potentially large price tag. If Aboriginal advocacy on the environment gets attention only because of the racist view that indigenous people are inherently limited this narrow area of expertise, then virtually any other issue is relegated to secondary status, for example, their advocacy for other critical issues such as improved health care, resource revenue sharing, economic development, education or self government.

Even within the environmental sphere, an infantilized conception of environmental protection can be generated by the ‘Noble Savage’ or ‘Ecological Indian’ stereotype, one that denies that indigenous people are sufficiently able to contemplate the social, political, and economic complexities that engage any real discussion of environment. After all, the implication is, what do these naturalists know about industry? The pipeline will generate hundreds of millions of dollars and creates thousands of jobs. Their protest is ignorant of such weighty concerns, or so it is said. Surely, no rational person could value a few caribou, swamps and trees over the massive economic wealth these projects would create for our country.

It is these childlike simplifications promoted by the media and the oil companies that make serious advocacy difficult for indigenous groups in Canada. Their demands are taken seriously in one specific sphere, but are rendered insignificant in others that are vitally connected to it.

This narrow reframing also ignores or trivializes a deeper issue. The regulatory process surrounding the Gateway Pipeline has followed an impoverished understanding of the duty to consult, a requirement declared by the Supreme Court of Canada as a necessary step in development projects on aboriginal lands. Under the common law, if any project approved by the federal government infringes the property or constitutional rights of Canadian indigenous peoples, a consultation process must be conducted that seeks to understand and assuage the concerns of those affected.

The problem in Canada is that this duty is without any serious legal requirements, nor is the ultimate consent of the affected parties required so long as the federal government approves the project. Many First Nations opposed to the Gateway Pipeline construction have publically stated their dissatisfaction with the consultation process.

It is important to mention that the duty to consult is not merely the invention of Canada’s indigenous peoples. It is, in fact, rooted in a powerful collective statement of international law, the United Nations Declaration on the Rights of Indigenous Peoples, which our country initially opposed. Canada was a part of a group of four of the richest countries on earth, namely Australia, New Zealand, and the United States, who decided that indigenous populations did not merit the protections in the Declaration. In 2010, Canada officially endorsed the Declaration, though we continue to struggle with how Article 19 will fit into our constitutional framework.

Specifically, Article 19 requires that states shall consult and cooperate in good faith with the indigenous peoples concerned through their own representative institutions in order to obtain their free, prior and informed consent before adopting and implementing legislative or administrative measures that may affect them. The Northern Gateway project will affect over 50 First Nation communities in the most profound of ways, yet the major complaint is a lack of meaningful consultation.

Recently, Dene National Chief Bill Erasmus wrote the Premier of Alberta to express the Dene Nation’s concerns about recent pipeline failures and oil spills in the province. He states in the press release, “We are concerned that Dene communities have not been notified of some spills, nor have Dene communities been consulted or updated on spill remediation. Dene communities are impacted by these spills, and there must be communication between the Dene Nation, Dene communities, and Alberta’s government when spills occur,” Erasmus said (see Media Release, June 15, 2012).

So, what does all of this imply for the pursuit of environmental justice in the future?

There are no easy answers, though some lessons can be drawn. The ‘othering’ of aboriginal peoples in Canadian discourse are presently being met with two avenues of response, both of which are very limited.

First, in seeking to preserve the integrity and preservation of their land and ecology, aboriginal groups engage in political advocacy. It is not complicated but it requires money and influence over the right people. Just as other special interest groups have done, a well-funded lobby can do wonders for virtually any political cause. This assumes, however, that there is money available to pay for the high cost of lobbying and that those being lobbied will listen and be persuaded. The problems of stereotyping and racial bias discussed above, can compromise lobbying efforts even when funds are available.

The second approach is a legal one. Both the beauty and tragedy of our positivist legal structures in the West rests in their internal consistency and responsiveness to rules and procedure. The legal rules that do exist can be utilized by affected groups to some effect. Indigenous groups after all, have the lasting power in this dispute. As the thinking goes, corporate executives under pressure from shareholders with short time horizons are much more likely to buckle than the indigenous inhabitants of land who have put up with such encroachment for 500 years.

A few well-placed injunctions and well thought-out statements of claim could stall the proposed pipeline for years while the courts deliberate but the ultimate result is still a gamble and the result may be counterproductive to the original goals of the litigation.

The challenge of achieving environmental justice goes beyond lobbying and litigation, it goes to the root of our legal concepts. The fundamental rationale for disregarding indigenous protests about land use rests in the Locke’s concept of private property. Over the centuries, discrete parcels of the natural environment have come to be viewed by non-indigenous peoples and the legal system as commodities upon which its owner may exert whatever form of rational wealth-maximization he sees fit to the extent that he sees fit.

Comparatively, indigenous theories of property revolve around the concept of custodianship, or trusteeship, which find support in Rousseau’s philosophy. That is, those who possess the land in effect hold it in trust for its true owner. While the true owner is often understood in transcendental terms, a secular analysis would replace divine justifications with intergenerational loyalty.

My proposal asks whether the pursuit of environmental justice would have better outcomes if a theory of property ownership that took indigenous values into account, were used. Property law based on trusteeship or custodianship rather than the temporally impoverished idea of the fee simple estate, would require an entirely different analysis when environmental issues arise. Such an approach would at least partially remove racial and ethnic bias from the law by including the values and cultural reality of the first occupiers. The present analysis starts from the assumption that unused space, if not utilized towards some economic end, is inherently valueless. It becomes a dichotomy of the value of ‘doing something’ versus the value of ‘doing nothing.’

A reframing of the debate to take indigenous values into account would ask, why must an open space be understood as having no value? Do oil company executives not have backyards? Do they not own cottages by untouched lakes to which they rush on summer weekends? Why have grass at all? Why not pave it all over?

When the argument is put this way, even the staunchest capitalist would agree there is no question that open space left open, can have value. Indigenous priorities, however, take it one step farther. They calculate value not from within a specific time frame but rather on the notion that open space that provides sustainable sustenance and shelter can do so for all time. A large amount of wealth for a period of less than one generation is of little weight in this calculus. After all, how much longer will the oil sands last? While indigenous values do not preclude development, they do not endorse development at all costs. This is why the duty to consult is so very important so that all views can be heard and that consent to development on traditional lands is genuine.

In conclusion, my aim in developing this discussion has been to suggest that there are inherent biases, racial stereotypes and systemic discrimination against indigenous peoples that have informed the law and the thinking of people on both sides of the environment debate generally and the Gateway Pipeline debate in particular. Although stereotypes of the “Ecological Indian” or the “Noble Savage” can cut both ways and even assist in accomplishing some environmental goals of the indigenous population and other environmental activists in Canada, they can have a net negative effect on the perpetuation of inequality in the long run. For the indigenous population to take their rightful and equal place in Canada, they must be able to fully participate in the broad range of decisions that affect them and be able to see all their values and needs – not just those pertaining to the environment -  reflected in the law from a philosophical place as well as jurisprudentially. Before this can happen, the fundamental concept of property law must be re-thought by developers, judges and politicians, at least to the extent that it affects indigenous lands. Furthermore, there must be an expansion of understanding of the centrality of the land to all other aspects of indigenous life, including resource revenue sharing through planned and sustainable development projects. In the meantime, as systemic racism continues to exist in our society against indigenous peoples, its victims should take advantage of any positive opportunities that may arise that could create leverage for change. If these opportunities can be exploited by the indigenous peoples to derive some benefit while educating the public as to their multifaceted realities, then the “noble savage” may eventually fade into obscurity where he belongs.

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Case commented on: ANB v Hancock, 2013 ABQB 97.

ANB v Hancock is Associate Chief Justice John D. Rooke’s second written judgment about an Organized Pseudolegal Commercial Argument (OPCA) litigant. As summarized by Justice Rooke in ANB (at para 15), “OPCA concepts are legally incorrect schemes marketed and promoted by a collection of conmen [“OPCA gurus”] that claim to allow a person to avoid or impose legal obligation outside of recognized legal processes.” These concepts and schemes are all associated with OPCA indicia, which are “unusual motifs that are unique to or strongly associated with OPCA concepts and schemes” (at para 16). ANB builds upon Justice Rooke’s ground-breaking decision in Meads v Meads, 2012 ABQB 571. Like Meads, ANB arose in the family law context, although Meads arose out of a divorce and matrimonial property action commenced by Mrs. Meads, and ANB arose from the seizure of A.N.B.’s two children by Alberta Family Services and a subsequent order granting permanent guardianship of the children to the province. ANB both applies and extends Meads. It applies it by following through on some principles set out in Meads, including the provision of an explanation of court costs, characterized in Meads (at paras 637-638) as “a crucial aspect in the ‘limited duty’ a judge owes to these self?represented litigants.” It extends Meads by allowing Crown counsel to hide their identities in the face of conduct by A.N.B. which is the subject of criminal charges.

In this comment we do not address all of the issues dealt with in Justice Rooke’s judgment. A.N.B’s central claim was that he had absolute authority over his children and his consent was required before he was subject to the jurisdiction of Alberta’s child welfare system, the police, or the courts. Most of Justice Rooke’s decision (at paras 36-99) is taken up with explaining to A.N.B. why the OPCA arguments supporting this claim cannot succeed in a court of law. Instead, after setting the stage with a bit of background, we focus on only four issues:

• the use to which the identification of A.N.B. as an OPCA litigant is put;
• the shielding of the identity of Crown counsel as a security precaution;
• the allegation Justice Rooke was biased because he was the author of Meads; and
• the costs awarded against A.N.B.

Background

The seizure of A.N.B.’s two children by Alberta Family Services led to three separate actions. First is the appeal by A.N.B. of an order by Provincial Court Judge Ho granting the province permanent guardianship of the children. Justice Rooke is the case management judge and A.N.B. is represented by an experienced family lawyer on that appeal.

The second matter involves criminal charges. A.N.B. pled guilty in Provincial Court in September 2011 to two counts of intimidating justice system participants (Alberta Children and Youth Services employees) and one count of criminal harassment. He was sentenced to time served (four months) and put on probation for one year. A.N.B. is now facing further criminal charges of a similar nature. The Crown is proceeding with these new charges by way of indictment, with A.N.B. already committed to stand trial in the Court of Queen’s Bench following a preliminary inquiry. A.N.B. is represented by an experienced criminal law lawyer in those proceedings.

The third action is this civil action, and A.N.B. was self-represented in these proceedings. He commenced this lawsuit a year ago against a number of government agents, peace officers, Crown counsel, court clerks, judges, and A.R., the mother of A.N.B.’s two children. His lawsuit alleged a variety of illegal conduct by those defendants and demanded $20 million in gold and silver bullion and the return of his two children.

In January 2013, Justice Rooke orally granted an application by a number of the defendants to strike A.N.B.’s civil claim and thus put an end to this lawsuit. Justice Rooke’s written reasons were subsequently published for the express purpose of assisting A.N.B. to understand why his lawsuit failed and, because A.N.B. had walked out of the courtroom before Justice Rooke’s costs order, to explain to A.N.B. the basis of the costs awards against him (at para 3). The decision was also published because it discusses some novel points. At 27 pages and 109 paragraphs, ANB is a fairly lengthy judgment, but considerably shorter than the 736 paragraph, 156 page Meads decision.

Identification of an OPCA Litigant

As a preliminary matter, Justice Rooke easily concludes (at para 19) that A.N.B. is an Organized Pseudolegal Commercial Argument (OPCA) litigant. His documents and oral arguments were filled with OPCA indicia and invoked numerous OPCA strategies. For example, in the style of cause for the civil action, A.N.B. identified himself by two different names: [A.-N.] of the [B.] Family and “Trust #983170-321522-19305 otherwise known as the [A.N.B.]^TM dba, or the [A.N.B.] HOLDINGS”. The “double/split” character of the claim is discussed in ANB (at paras 66-71) and Meads (at paras 417?446). The Statement of Claim is also irregular in form and includes unconventional language. As examples of irregularities in form, the Statement of Claim includes a red thumb print surrounded by the text “SACRED OFFICE TRUSTEE 983170-321522-193058 SEAL” and is notarized. As examples of the unconventional language, the Statement of Claim claims violations of the U.C.C. (the Uniform Commercial Code of the United States) and “International Property and Copy Rights Law.” The unusual motifs are reviewed and quoted at length in ANB (at paras 8-14). The OPCA arguments in A.N.B.’s Statement of Claim and other documents are reviewed and addressed at even greater length (at paras 53-94).

To what purpose is A.N.B. identified as an OPCA litigant? To what purpose are his arguments characterized as OPCA strategies? As we have previously discussed (in “What has Meads v Meads wrought?”), courts have used Meads for a variety of purposes to date. It is therefore instructive to see what use Justice Rooke makes of his earlier decision in a new matter involving an OPCA litigant.

First, at the same time as he identifies A.N.B. as an OPCA litigant, Justice Rooke is careful to note (at para 19) that A.N.B.’s affiliations have no direct relevance to the validity of his claim. It is the legal substance of what he argues that matters. Of course, to the extent that A.N.B. only makes OPCA arguments already dismissed in numerous court actions across Canada, there is no legal substance to his arguments. Justice Rooke nonetheless explains why the specific claims brought by A.N.B. in this particular action do not have legal validity. Thus, for example, Justice Rooke notes that a claim in the tort of conspiracy that the defendants are denying A.N.B. access to his children cannot be brought in a family law proceeding given governing Supreme Court of Canada jurisprudence (para 53).

While identification of A.N.B. as an OPCA litigant may have no direct relevance to the validity of his claim, it does make certain types of procedural orders against him more readily available. In ANB, this point is illustrated by the next three issues we discuss.

Protective Anonymity for Crown Counsel

The first of these issues is another preliminary matter and concerns some unusual security precautions that Justice Rooke had ordered — precautions not specifically mentioned in Meads. The lawyer for fifteen of the defendants was allowed to identify herself by a pseudonym and communicate with A.N.B. is a way that shielded her identity. The lawyer for the four RCMP defendants was allowed to be identified only by his or her title, “Justice Canada Counsel.” The identity of these two lawyers was shielded not only from A.N.B. but also from his lawyers in the other two actions. The only lawyer identified by name was one appointed to represent A.N.B.’s children in the guardianship matter and apparently mistakenly named by A.N.B. as a defendant — mistakenly because A.N.B. made no allegations or claims against her in his Statement of Claim.

The identities of Crown counsel were shielded because A.N.B. had been convicted in September 2011, after pleading guilty, on two counts of intimidating justice system participants and one count of criminal harassment. However, Justice Rooke suggests (at para 26) that A.N.B.’s status as an OPCA litigant means that security precautions such as the orders shielding the lawyers’ identities should be easily available. Such security precautions should be available if a party is able to establish that there is an “air of reality to an actual or potential threat or danger.” This “air of reality” test offers a fairly low threshold, as Justice Rooke acknowledges (at para 26). However, he adds a caveat, namely, that the security precautions that can be ordered when this test is met cannot affect the OPCA litigant’s ability to make and respond to arguments in court.

In this case, A.N.B’s prior admitted guilt to intimidating justice system participants was, by itself, enough to meet the “air of reality” test with its low threshold. Justice Rooke left it open for a future case to determine whether mere affiliation or self-identification by a litigant with an OPCA movement with known violent propensities might be enough, by itself, to warrant security precautions. The groups identified by Justice Rooke in Meads as being OPCA movements with known violent propensities are the Freemen-on-the-Land, the Sovereign Man / Sovereign Citizen movement and the Church of the Ecumenical Redemption International [CERI] (Meads at paras 172-188, 257-263).

In ANB, Justice Rooke notes (at para 14) the basis for the violence in OPCA strategies:

One unfortunate and highly troubling aspect of persons associated with OPCA litigation and movements is that members of these groups are known to direct both harassing and violent activities to the persons they identify as their enemies … These enemies are typically peace officers, government and court employees, lawyers, and members of the judiciary. This potential aggression flows from the false historical and theoretical constructs within which OPCA concepts are advanced. An OPCA litigant is typically advised (incorrectly) by a guru with whom he is associated, that the state has no hold over the litigant. That is meant to indicate (again incorrectly) that any state action must be unlawful, and, in the result, the OPCA litigant is therefore (improperly) counselled to be free (and often encouraged) to strike back at his ‘oppressors’.

A significant challenge for courts will be to distinguish between those OPCA litigants who merely associate with ideas that could be used in an attempt to justify violence but do not themselves have violent tendencies or intentions, and those OPCA litigants who do. As discussed in our previous blog on judicial treatment of OPCA litigants post-Meads, some courts have used the fact of a litigant’s status as an OPCA litigant to assume that the litigant’s legal position is unmeritorious and that the litigant poses a danger. If applied unthinkingly, the air of reality test may reinforce this tendency and require OPCA litigants to proceed under distrust and suspicion, and without the normal ability to discuss a matter with opposing counsel. Those constraints can be justified where they are necessary, but we would suggest that merely espousing OPCA concepts, even the more extreme ideas of the “freemen of the land,” is not sufficient justification and should not provide the air of reality to concerns that the individual is a danger to other participants in the system.

We would further note that the approach adopted by Justice Rooke will present some practical challenges. How does one effectively shield the identity of lawyers and at the same time not interfere with the OPCA litigant’s ability to make arguments and respond in court? Will lawyers make submissions in court under pseudonyms? Will they make their submissions behind a screen? In the world of the Internet it may prove challenging to achieve both these goals simultaneously. This suggests another source of caution for the courts. Where the restrictions are being imposed for less tangible reasons than existed in this case, the courts ought to adopt restrictions at the moderate end of the spectrum.

Allegation of Bias against Justice Rooke as the author of Meads v. Meads

The final preliminary matter Justice Rooke dealt with was A.N.B.’s motion that Justice Rooke recuse himself for bias. A.N.B. argued that Justice Rooke ought to recuse himself because he is the judge who wrote the Meads decision, and “… since you made the decision you have a sort of personal stake in upholding that decision, correct, and that I feel you might not be totally objective …” (at para 32).

A judge must recuse him- or herself if  “an informed person, viewing the matter realistically and practically, and having thought through the matter, would conclude that it is more likely than not that a judge, whether consciously or unconsciously, would not decide it fairly”: Wewaykum Indian Band v Canada, 2003 SCC 45 at para 60.

Justice Rooke declined to recuse himself for two reasons. First, he noted (at para 34) that because Meads has not been appealed, whether he or a different judge of the Court of Queen’s Bench of Alberta heard A.N.B.’s matter, “the principles of stare decisis means we would each apply the same law.” This is a bit of an over-statement. Stare decisis literally means “to stand by decided matters.” As Gerald Gall puts it in The Canadian Legal System, 4^th edition, (Scarborough, Ont: Carswell, 1995) at page 343, “the decision of a higher court within the same jurisdiction acts as binding authority on a lower court within that same jurisdiction” [emphasis added]. Meads may not have been appealed but it is still a decision of the Court of Queen’s Bench, and not that of a higher court. The question is whether a judge is bound by a previous decision of a different judge of co-ordinate jurisdiction in the same province, i.e., by another Court of Queen’s Bench of Alberta justice in this case. Gall characterizes the issue as one of “comity” among judges in the same jurisdiction (at 356). Such a judge would be expected to come to a decision in accord with other decisions made by other judges of the Court of Queen’s Bench of Alberta on the same issue. But another judge would not be bound to follow Meads, which s/he would be if Meads had been a decision of the Court of Appeal of Alberta or the Supreme Court of Canada. A more serious problem for the binding nature of the decision in Meads is the fact that much of Meads is simply not binding because it is obiter dicta, i.e., not necessary to the decision about whether to appoint a case management judge, which was the issue in that case.

Second, Justice Rooke analogized his position to that of Justice Myers in R v Lawson, 2012 BCSC 356, where Justice Myers rejected an allegation of bias for his role in the conviction and sentencing of the OPCA guru Russell Porisky, noting (at para 7) that . . . “no reasonably informed member of the public would conclude that a judge was biased because he had decided a prior case involving similar issues. That is something that occurs on a regular basis.” But, again, that analogy does not fully apply given that Justice Rooke did more than simply issue a decision in Meads addressing the particular circumstances of that OPCA litigant. Rather, he wrote an extensive analysis of the OPCA litigant phenomenon and drew various conclusions about the nature, quality and significance of that phenomenon. That analysis may give an OPCA litigant appearing before him a better reason to perceive Justice Rooke as pre-committed to a particular point of view on how OPCA litigation ought to be dealt with.

We do not agree that Justice Rooke ought to recuse himself from cases such as this one merely because he decided Meads, given that his decisions shows a sensitivity and fairness in dealing with OPCA litigants and a willingness to engage with their arguments that not all post-Meads decisions have shown. He has been clear that in each case a judge is obligated to consider the merits of the OPCA litigant’s actual claims and arguments, and to decide each case consistently on its own merits. That seems to ensure that any OPCA litigant may reasonably expect that, on the actual issues to be adjudicated, he will have a fair and impartial hearing.

It is the case, however, that an unusual judgment like Meads, which is closer to an academic article on the OPCA phenomenon than to a traditional judicial decision, poses certain conceptual problems. It involves a judge taking a position on general concepts with application across a variety of cases without that position being necessary to the case that was decided. That gives a litigant some reason to perceive Justice Rooke as committed to that position in a way that a judge might not be if only having issued a more usual and restricted judgment. On the other hand, it is also the case that academics who become judges do not generally have to refrain from deciding cases which raise issues on which they have previously taken an academic position. That is, presumably, because general positions are not seen as necessarily pre-determining the consideration of specific matters of fact or law arising in an individual case (see, e.g., Re Great Atlantic & Pacific Co of Canada Ltd and Ontario Human Rights Commission et Al, (1993) 13 OR (3d) 824). Justice Rooke’s judgment in Meads, while a judgment, may be analogous to that sort of academic analysis.

Ultimately the key point is this: the OPCA positions advanced by a litigant are not, in fact, the issue before the court. The issue is whatever the issue in the specific case is — e.g., that the government has interfered in the parent-child relationship — and the OPCA positions are generally a means for a litigant to talk about those substantive issues or the process through which they are to be adjudicated. Therefore, where a judge has been clear that those substantive positions are to be adjudicated on their merits through a fair process, we suggest that judge does not create a reasonable apprehension of bias even if he has taken a position on the merits of OPCA and the litigants who use them.

Costs awarded against A.N.B.

The final issue in ANB that we want to discuss was not a preliminary matter, but a consequential one. A.N.B. left the courtroom after Justice Rooke had struck his action and therefore did not make any submissions about costs or hear Justice Rooke’s order about the costs A.N.B. would be required to pay as a result of his lack of success. The defendants argued that they should receive solicitor-and-own-client indemnity costs for being dragged into an entirely frivolous and vexatious action that flowed from OPCA strategies. Justice Rooke agreed (at para 101) that, because A.N.B.’s action was fatally flawed and without any basis in law, it would be unjust for the defendants to be out-of-pocket.

Justice Moen, in Brown v Silvera, 2010 ABQB 224 at paras 29?35, surveyed numerous cases in which indemnity costs had been found to be appropriate, cases in which the conduct of a party has been “reprehensible, scandalous or outrageous” and where indemnity costs would satisfy the objectives of deterrence and punishment. And in connection with OPCA litigation in general, in Meads (at para 631) Justice Rooke had formulated the following general principle:

[I]nnocent parties [should] be indemnified for the legal costs associated with OPCA litigation. No, or little, cost should flow to a litigant who is abused by OPCA strategies.

In applying this principle in ANB, Justice Rooke awarded the defendants the costs that they asked for, costs that covered the expense of responding to A.N.B.’s Statement of Claim. In the case of the self-represented lawyer who had been appointed to represent A.N.B.’s children — the lawyer apparently named by mistake as no claim was made against her — the indemnity costs were what she calculated she would have earned had she not spent her time responding to A.N.B.’s lawsuit. Costs against A.N.B. totalled $20,000.

The indemnification nature of the cost award in ANB illustrates another point that Justice Rooke made in Meads (at para 638):

It has been this Court’s experience that OPCA gurus do not educate their customers on the purpose and operation of court cost awards. An OPCA litigant may perceive explanation of this mechanism as a threat, but this explanation is a crucial aspect in the “limited duty” a judge owes to these self?represented litigants. OPCA litigants seem to often believe there are no potential negative consequences to their adopting OPCA techniques and strategies. Evidence to the contrary is a challenge to that indoctrination.

Cost awards against OPCA litigants therefore appear to serve at least one purpose that is specific to the OPCA litigation context and that is that they are intended to shake litigants’ confidence in their gurus. Justice Rooke’s quoted comment from Meads also explains why he goes to great lengths in ANB to explain the costs award to A.N.B. even though he had walked out of the hearing. In ANB we see an illustration of an explanation of a costs award as “a crucial aspect in the ‘limited duty’ a judge owes to these self?represented litigants.” Cost awards — and especially large ones — also serve a purpose specific to the vexatious litigant context. “[P]ersistently failing to pay the costs of unsuccessful proceedings on the part of the person who commenced those proceedings” is listed in section 23(2)(e) of the Judicature Act, RSA 2000, c J-2 as one of the types of conduct that make proceedings vexatious. Unpaid costs awards allow defendants to apply to the courts to have OPCA litigants declared to be vexatious litigants. And, if they are declared to be vexatious litigants, then they cannot commence or continue legal proceedings without the permission of the court.

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PDF version: Independence of the Bar and the Prevention of Money-Laundering

Cases Considered: Federation of Law Societies of Canada v Canada (Attorney General) 2013 BCCA 147.

Introduction

On April 4, 2013 the British Columbia Court of Appeal issued its decision in Federation of Law Societies of Canada v Canada (Attorney General), 2013 BCCA 147 which upheld the earlier decision of a chambers judge that aspects of Canada’s money-laundering legislation violate section 7 of the Charter of Rights and Freedoms and cannot be saved under section 1.

In her initial judgment (2011 BCSC 1270) the chambers judge held that aspects of the money-laundering regime undermined the lawyer-client relationship and, in particular, eroded the solicitor-client privilege, which created an unjustified violation of section 7 (para 144). Because the alternative regime implemented by the provincial law societies was an effective alternative that had a more minimal effect on the liberty interests of clients, the money-laundering regime could not be saved under section 1. The law societies’ regulation ensured “that proportionate and dissuasive criminal, civil or administrative sanctions be available for non-compliance with anti-money laundering requirements” (para 154).

In its judgment the British Columbia Court of Appeal took a somewhat different approach. It held that the problems with the regime were not that they violated solicitor-client privilege, but rather that they jeopardized the liberty interests of lawyers and clients and were inconsistent with independence of the bar, a principle of fundamental justice.

After summarizing the decision, this blog will consider the Court’s use and definition of independence of the bar. I will suggest that while the Court’s general explanation of what independence of the bar means is vague and overbroad, its actual application of independence to the facts is both defensible and important. Where a statute interferes with a lawyer’s fulfillment of her legal duties in circumstances where the lawyer or client’s life, liberty or security of the person is at issue, then that interference is properly found to violate the Charter.

The Decision

The federal government’s attempt to regulate money laundering and terrorist financing began in 1989, but the provisions primarily at issue in the Court of Appeal decision were introduced in the form of regulations in 2007 and through legislative amendments in 2008 (paras 3 and 21). The Court of Appeal drew several conclusions about how this regime would apply to lawyers. First, it found that the regime did not apply only to lawyers “acting as financial intermediaries” (para 66) but also to lawyers receiving or paying funds in the course of providing legal advice (para 68). Any lawyer providing legal advice must comply with the record keeping and financial transaction monitoring provisions of the legislation, and also collect and retain client information (para 69). Second, while the legislation and regulations grant some protections and exclusions to information protected by solicitor-client privilege, they also require lawyers to “record client information which is prima facie the subject of solicitor-client confidentiality” (para 71). Solicitor-client confidentiality “is a broad descriptive term which includes, but is not limited to, information which is protected by solicitor-client privilege” (para 71). Third, while solicitor-client privilege is protected in some aspects of the regime, it is not wholly protected with respect to others, in particular the legislation’s search and seizure provisions (para 74). To assert a claim of privilege in the event of a search or seizure the lawyer is required “to disclose the client’s last known address” (para 76). Fourth, the use of information obtained through the search and seizure provisions is not restricted to determining whether lawyers are in compliance with their obligations. Once information has been disclosed to a law enforcement agency “there is no restriction on what use may be made of that information” (para 78).

In contrast to this regime, the Federation of Law Societies and its provincial members have adopted an alternative system to prevent the use of lawyer’s accounts for the purposes of money laundering. The Federation’s system has been in fact governing these matters since injunctions were obtained preventing the application of the federal money laundering regime to lawyers, both the provisions at issue in this case (para 24) and also earlier enacted provisions (para 17). The law societies’ regime has two key features. First, it prohibits lawyers from receiving or accepting more than $7,500 in cash in relation to a single matter except for the purposes of paying legal fees. If a lawyer receives cash payment for legal fees then any refund on those fees in excess of $1000 must also be paid in cash (para 19). Second, lawyers are required to perform client identification and verification “by recording basic information, such as the client’s name, address, telephone number and occupation (for an individual) or business activities (for a corporation or other entity) (para 22). The law societies ensure compliance with these rules through annual reports and audits (para 23). The Court noted that the governance by the law societies significantly differed from the government’s money laundering regime because information disclosed to the law societies was subject to the “same obligation to the client respecting the disclosure of that information as the lawyer from whom the information was obtained” and is not disclosed to others.

In brief, then, the federal money laundering regime requires lawyers to collect and disclose information that is protected by solicitor-client confidentiality and to provide that information to the state, where law enforcement agencies may use it without any particular restrictions. The law societies’ regime requires lawyers to collect information, and imposes restrictions on their use of cash transactions, but it controls and restricts the use made of that information in the event it is disclosed.

The Court of Appeal held that these aspects of the money-laundering regime rendered it unconstitutional. The legislation places the liberty interests of lawyers at risk because a lawyer who does not comply with her record-keeping and client identification obligations may be liable for a fine or term of imprisonment (para 82). It places the liberty interests of non-corporate clients at risk because it requires the disclosure of confidential information from those clients to law enforcement agencies who may use that information for any purpose, “including pursuing a criminal charge against the client” (para 90). The Court noted here that the regime does protect privileged information, but that “confidential information which is not found to be privileged has no such protection” (para 88).

The risk to lawyer and client liberty is not in accordance with fundamental justice. The Court of Appeal held that both solicitor-client privilege and independence of the bar are principles of fundamental justice. That the privilege is such a principle is well-settled as a matter of law (para 103). Independence of the bar can be recognized as a principle of fundamental justice in accordance with the requirements of R v Malmo-Levine, 2003 SCC 74, which requires that a principle of fundamental justice be a principle which a consensus recognizes as “fundamental to the way in which the legal system ought fairly to operate” and is “capable of being identified with sufficient precisions so as to yield a manageable standard against which to measure deprivations of life, liberty or security of the person” (para 101).

Independence of the bar satisfies this test because it is a legal principle which “has long been recognized as a fundamental feature of a free and democratic society” (para 107) and is “an integral part of Canadian society as a whole” (para 109). It is “an element of the rule of law which is essential to the constitution of a modern democracy” (para 111). It can also be defined: “independence of the bar consists of lawyers who are free from incursions from any source, including from public authorities” (para 114).

Contrary to the chambers judge, the Court of Appeal decided that the regime did not violate solicitor-client privilege. Generally speaking the provisions of the legislation granted “sufficient protection for solicitor-client privilege” (para 118). The Court held, however, that the legislation did not respect independence of the bar. In particular, the legislation requires that a lawyer choose between satisfying her duty of loyalty to her client or complying with the terms of the legislation (para 122). It “imposes conflicting interests and corresponding obligations on the lawyer, regarding clients’ interests, state interests, and Lawyer’s liberty interests” (para 123). Ultimately, “it attempts to make lawyers the agents of the state against the interests of their clients” (para 154).

The legislation was not saved by section 1. Its objectives are pressing and substantial, and there is a rational connection between the regime and those objectives given that lawyers have been involved in money laundering in the past (para 134). When compared to the rules and requirements imposed by the law societies, however, the regime cannot be considered to create a minimal impairment on the section 7 rights. Further, the approach of the law societies is sufficient to achieve the regime’s objectives, particularly since the law societies’ approach does not prevent the state from prosecuting lawyers who engage in unlawful money laundering: the money-laundering regime “may make the gathering of evidence of such activities easier, but if they are severed or struck down, such conduct on the part of lawyers would not be excused” (para 151). Finally, the Court held that the effect of the legislation was disproportionate to the accomplishment of its objectives.

There was a concurring judgment from Justice Frankel, concurred in by Justice Gerson. Justice Frankel agreed with the result but disagreed with the position of the majority that the regime infringed on the liberty interests of clients. He acknowledged that a client could end up facing legal consequences as a result of the lawyer’s compliance with the regime, but that would also be the case if a “stock broker or financial advisor” did so (para 165). Justice Frankel rejected the idea that simply creating a document that could potentially be used in an investigation or for evidence, engaged an individual’s liberty interests; the connection between the threat to liberty and compliance with the regime was too remote (para 168).

Analysis

In its reasons the Court expresses the idea of independence of the bar in two different ways. In the first articulation, where it sets out the “principle” included in fundamental justice, the court says that independence of the bar requires that lawyers be “free from incursions from any source, including from public authorities” (para 113). In the second articulation, where it applies that principle to the facts of this case, it says that independence of the bar is violated by the money-laundering regime because it requires lawyers to be “agents of the state against the interests of their client.”

The first articulation – that lawyers must be free from any state incursion – is quite typical of judicial invocations of independence of the bar. As I put it in a recent paper, “Rhetoric and Realities: What Independence of the Bar Requires of Lawyer Regulation” (2012) 45 UBC Law Rev 145, courts generally do not explain the relationship between independence of the bar and the ethical or legal duties of lawyers. Rather, “[i]ndependence of the bar is simply an abstract principle, like freedom, liberty, democracy, or, relatedly, the rule of law, invoked by the Court on its way to making a determination on some particular matter at issue” (at 152).

The claim that lawyers must be generally free from state interference is not accurate. All Canadian law societies exercise power granted by legislation, and are subject to judicial review in the event that they exceed that legislative authority. Further, lawyers are subject to obligations arising from other statutory schemes, as well as by virtue of judicial decisions. Under the rules of court, for example, lawyers can be required personally to pay costs where they file frivolous and vexatious motions or do not respect the process of the court. Yet we do not view the legislative empowerment of law societies, or the provisions of the rules of court, as requiring some sort of special justification because they involve a public authority determining what lawyers must do under threat of sanction; we would only require that justification if, like the money-laundering regime, the effect that they had was in some way contrary to the role that lawyers play in a free and democratic society. There is, in other words, no necessary problem with state interference with lawyers; there is only a problem where that state interference is of a particular kind.

This understanding of the actual point of independence of the bar is reflected well in the second articulation of independence of the bar, where the Court found that the money-laundering regime violated lawyer independence by making lawyers agents of the state against the interests of their clients. As I explain in the “Rhetoric” paper, the real point of independence of the bar is that state regulation of lawyer conduct ought not to discourage or inhibit lawyer advocacy for clients, and also ought not to discourage or inhibit lawyers from keeping their advocacy within the bounds of legality (at 162-163). The state can (and does) regulate what lawyers do, but that regulation must ensure that lawyers maintain their power and responsibility to facilitate the legal system’s function of achieving peaceful social cooperation in a diverse society.

That the money-laundering regime undermines lawyers’ accomplishment of their role as zealous advocates within the bounds of legality depends, though, on seeing that regime as contrary to the lawyer’s function as an advocate. Lawyers do not always act in accordance with their client’s wishes and, in some circumstances, have an obligation to take actions that may result in negative legal consequences for their client – to be in that sense agents of the state against the interests of their clients. If a client uses a lawyer’s services to accomplish a criminal scheme – to, for example, defraud a lender – the lawyer may be justified in reporting that client to authorities. The communications between the lawyer and client are not privileged because falling within the criminal communications exclusion, and are likely not confidential either (see Understanding Lawyers’ Ethics in Canada (Toronto: LexisNexis Canada, 2011) at 112-115). Similarly, a lawyer who receives inculpatory evidence of a crime from a client must disclose that information to the state, even though normally client property is treated as confidential. The lawyer must do so regardless of the negative effect for the client’s legal interests and, if she does not, she risks being found guilty of obstruction of justice (see R v Murray, [2000] OJ No 2182, 48 OR (3d) 544 (SCJ). So simply having a lawyer act in a way that furthers state interests at the client’s expense does not necessarily demonstrate that the money-laundering regime interferes with the lawyer-client relationship. Making that claim requires something more.

This is where the Court’s analysis of solicitor-client confidentiality comes in. The position of the Court appears to be that under the money-laundering regime information will be revealed by the lawyer that is confidential (although not privileged) and that revelation may result in negative legal consequences for the client. By revealing that information, the lawyer is compelled by statute to become an agent in the client’s downfall. But, as noted, that is not a unique phenomenon, and is also not one that is inherently problematic. It is only problematic if the lawyer is an agent in the client’s downfall and if doing so is inconsistent with the lawyer’s obligations to the client. Of course normally undermining your client is totally inconsistent with the lawyer’s obligations to that client, but as the examples in the previous paragraph show, it isn’t always.

So what distinguishes circumstances when a lawyer ought not to undermine her client, from those where doing so is unproblematic? I would guess that there are at least two circumstances that justify a lawyer undermining a client’s legal interests: first, where the client has no legal rights against the lawyer that would prevent the lawyer from doing so, or second, where the legal system imposes on the lawyer an overriding obligation to act contrary to the client’s interests in particular circumstances. The first instance is demonstrated by the criminal communications example. While a lawyer may or may not have a positive duty to report the financial fraud, the effect of the lawyer being the client’s dupe, and the operation of the criminal communications exclusion, means that the client has no legal right to prevent the lawyer from reporting his crime. The lawyer does not owe the client any duty that prevents reporting. Similarly, a lawyer may act for a new client in suing a former client in a matter unrelated to the earlier representation of the former client.  Again, while the lawyer has some duties to former clients that outlast the representation, but those duties do not prevent an unrelated representation against that former client.  Lawyers’ obligations to clients are extensive but they are also legally defined, and outside those obligations lawyers may lawfully act in ways contrary to the interests of those clients (or former clients).

The second instance is demonstrated by the physical evidence rule. While normally a client may ask a lawyer to keep her property confidential, the obligations of criminal law and the law governing lawyers override that obligation where the client’s property is evidence of a crime. Absent one of those circumstances – the absence of a legal duty to the client or an overriding legal obligation to act against the client’s interests in the particular circumstances – the lawyer must not act contrary to the client’s legal interests.

 So what about the money-laundering regime? The problem must be not just that the regime involves state regulation of lawyers, and not just that the regime involves lawyers acting contrary to their client’s interests. It must be that the state is requiring lawyers to act against their client’s interests in a way that is inconsistent with the lawyer’s duties to their clients, and is not required by any overriding legal duty applicable in the circumstances.

Extrapolating from the Court’s analysis, the problem appears to be that information protected by lawyer-client confidentiality – which is not a criminal communication, e.g. – is required to be disclosed, and that disclosure occurs without any specific analysis of whether the disclosure of this particular information is legally justifiable, as is the case, for example, when a lawyer discloses evidence of a crime. The protected information is just disclosed as a matter of course, and may be passed on to law enforcement agencies.

This more detailed analysis suggests some weaknesses with the majority’s reasoning, if not with its result. The reason the money-laundering regime is unconstitutional is because of the particular effect it has on the lawyer-client relationship, not simply because it is a state incursion on a lawyer’s work. It requires the lawyer to disclose information he is legally obligated to protect, and it does so without demonstrating that, in the particular circumstances, that disclosure is justified.

The reasons of the minority challenge this analysis. In the minority judgment they characterize the information of the client as no different from information that the client would give to a financial advisor or any other person. If this were the case then the majority’s result would be difficult to justify, and it is hard to see why the minority concurs with it. The lawyer faces a fine or imprisonment for not complying with the regime, but unless the information that the lawyer holds is in some way special, then what principle of fundamental justice does that outcome offend? It is only because the lawyer has a duty to protect that information – a special duty arising from the lawyer-client relationship that would not apply to, say, a financial advisor – that the state’s threat to the lawyer offends fundamental justice.

This may suggest that my analysis is incorrect, and that by independence of the bar the majority does indeed mean to suggest that any state incursion on lawyers’ work requires justification as a potential interference with lawyer independence. If so then I would suggest that the judgment is unfortunate. Lawyers serve a crucial function in the legal system, ensuring that individuals can access the rights and privileges that the law provides. Regulation (state incursions) to ensure that they fulfill that function, that they provide competent advocacy for their clients, that they protect client interests and not their own, and that their representation complies with law, is essential, and should not require special justification, even if it potentially affects a lawyer or client’s liberty. Justification is necessary not when the state regulates, but when it regulates in a way that interferes with lawyers’ accomplishment of their function in a free and democratic society. In those circumstances, and particularly where life, liberty or security of the person is at issue, then the regulation does indeed violate independence of the bar, and ought not to be permitted. This appears to be the specific determination made by the Court of Appeal, and it is the one that the decision ought to be cited for.

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Award commented on: Mobil Investments Canada Inc. and Murphy Oil Corporation v Canada, ICSID Case No ARB(AF)/07/4. Decision on Liability and Principles of Quantum, dispatched to the parties, May 22, 2012, redacted version released in the fall of 2012. Both the majority award (206pp) and a partial dissenting award (Professor Philippe Sands QC) are available here.

Case commented on: Hibernia Management and Development Company Ltd. v Canada-Newfoundland and Labrador Offshore Petroleum Board, 2008 NLCA 46 (CanLII)

In this Award a NAFTA Tribunal (by a Majority) found that Canada was in breach of the prohibition on domestic performance requirements of Article 1106 of NAFTA when the Canada Newfoundland Offshore Petroleum Board (CNOPB or Board) established and imposed a research investment target (the 2004 Guidelines) on operators working on the Newfoundland continental shelf. In doing so the Majority of the Tribunal ruled that Canada could not rely upon its country specific reservation. While Canada’s reservation protected the performance requirements that were in place at the time that NAFTA was entered into it did not protect the 2004 Guidelines. In reaching this conclusion the Majority severely constrains the ability of the host state to adopt new subordinate measures (e.g. regulations, guidelines and policies) to give effect to a reserved power. In effect, the Majority has adopted a one-way ratchet in which any subordinate measure adopted by a state that does not fully exploit the entire space offered by the text of a reservation may make it impossible for the host state to recover the lost ground. This, as the Dissent lucidly demonstrates, is an unreasonably narrow construction of the power of each NAFTA state to take a reservation to its general commitment not to impose domestic performance requirements on investors.

Less controversially, the Tribunal unanimously reached the conclusion that Canada was not in breach of Article 1105 of NAFTA. Here the Tribunal offers some useful guidance as to the limited scope of protection offered by the NAFTA version of the minimum standard of treatment. In particular, an investor cannot complain of regulatory change absent proof of promises, assurances or representations made by a government to the effect that the existing regime (here a benefits regime) would not change.

The background

Both Murphy and Mobil have interests in the Hibernia project (gross capital investment $5.8 billion, current production about 140,000 bbls per day) and the Terra Nova project (gross capital investment of about $3 billion, current production now less than 100,000 bbls per day) on the Newfoundland continental shelf. The projects are approved and regulated under the terms of federal and provincial mirror legislation implementing the Atlantic Accord. The federal legislation is the Canada-Newfoundland Atlantic Accord Implementation Act, SC 1987, c 3. The Act is principally administered by the Canada-Newfoundland Offshore Petroleum Board (the Board). Section 45 provides that the Board cannot approve a development plan for an offshore project without approving a Canada-Newfoundland benefits plan. Such a plan must include a proposal for research and development (R & D) and education and training (E & T). Section 15.1 (added in 1992, well before NAFTA entered into force on 1 January 1994) authorizes the Board to issue and publish guidelines on a number of matters including benefits plans. The Board first issued guidelines in 1986 and revised them successively in 1986, 1987, 1988 and 2004. The early versions of the guidelines focused on the exploration phase rather than the development phase of project activities. The 2004 Guidelines introduced the idea of an industry wide benchmark against which to measure R & D contributions. The Board introduced the Guidelines because of concerns that R & D investments were falling as the projects moved into the production phase.

Benefits Plans were established for each of the projects (Hibernia 1985 and Terra Nova 1997). Plans for both projects were heavy on principles rather than detailed commitments. The 2004 Guidelines require operators to make certain levels of expenditure on R & D matters for each of the exploration, development and production phases of the project. The Board calculated these expenditure targets based on Statistics Canada data for average R & D expenditures in the industry. In default thereof, operators were required to contribute any shortfall to a Board administered R & D Fund. The Guidelines were made enforceable by making them a condition of the operator’s Production Operations Authorization (POA).

It was these 2004 Guidelines that gave rise to the dispute. The applicants argued that these new requirements breached both the minimum standard of treatment (Article 1105) and the prohibition against domestic performance requirements provisions of NAFTA (Article 1106). The applicants further argued that the new requirements did not fall within the country specific reservation that Canada had taken upon ratification of NAFTA. Efforts by the operators to contest the validity of the Guidelines in the Newfoundland courts failed: see reference above and discussed at various points in the Award (e.g. at paras 86 and especially at paras 167 – 169 (in the context of the FET standard) and 354 – 355).

The performance requirement issue

Article 1106 of NAFTA, so far as relevant, provides as follows:

1. No Party may impose or enforce any of the following requirements, or enforce any commitment or undertaking, in connection with the establishment, acquisition, expansion, management, conduct or operation of an investment of an investor of a Party or of a non-Party in its territory:

…

(b) to achieve a given level or percentage of domestic content;

(c) to purchase, use or accord a preference to goods produced or services provided in its territory, or to purchase goods or services from persons in its territory;

…

3. No Party may condition the receipt or continued receipt of an advantage, in connection with an investment in its territory of an investor of a Party or of a non-Party, on compliance with any of the following requirements:

(a) to achieve a given level or percentage of domestic content;

(b) to purchase, use or accord a preference to goods produced in its territory, or to purchase goods from producers in its territory;

…

4. Nothing in paragraph 3 shall be construed to prevent a Party from conditioning the receipt or continued receipt of an advantage, in connection with an investment in its territory of an investor of a Party or of a non-Party, on compliance with a requirement to locate production, provide a service, train or employ workers, construct or expand particular facilities, or carry out research and development, in its territory.

5. Paragraphs 1 and 3 do not apply to any requirement other than the requirements set out in those paragraphs.

6. Provided that such measures are not applied in an arbitrary or unjustifiable manner, or do not constitute a disguised restriction on international trade or investment, nothing in paragraph 1(b) or (c) or 3(a) or (b) shall be construed to prevent any Party from adopting or maintaining measures, including environmental measures:

(a) necessary to secure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement;

(b) necessary to protect human, animal or plant life or health; or

(c) necessary for the conservation of living or non-living exhaustible natural resources.

It is also necessary to set out the provisions relating to reservations. Thus, Article 1108 provides that Article 1106 does not apply to:

(a) any existing non-conforming measure that is maintained by

(i) a Party at the federal level, as set out in its Schedule to Annex I or III,

(b) the continuation or prompt renewal of any non-conforming measure referred to in subparagraph (a); or

(c) an amendment to any non-conforming measure referred to in subparagraph (a) to the extent that the amendment does not decrease the conformity of the measure, as it existed immediately before the amendment, with Articles 1102, 1103, 1106 and 1107.

A reservation extends to and encompasses both the non-conforming measure and “any subordinate measure” (at para 264, referring to the text of Annex I). A reservation must identify (Annex I, para 2),  (a) sectors, (b) subsectors, (c) industry classification, (d) type of reservation, (e) level of government, (f) laws, regulations or other measures for which the reservation is taken  (g) description, and (h) if to be phased out.

In this case, the law set out in the Annex is the federal Act and the description refers to the requirements for a benefits plan. The reservation did not identify any particular section. The parties agreed that section 45 of the federal Act was an existing non-conforming measure (at para 273). Section 15.1 (the section pursuant to which the guidelines were adopted (at para 274)) was more contentious. However, the tribunal appears to accept (at paras 279 – 281) that section 15.1 in principle is covered by the reservation while at the same time concluding that not every guideline adopted under the authority of the section will be covered (more on that momentarily).

In addition to “measures” (i.e. the federal Act), NAFTA also refers to “subordinate measures.” But, as the tribunal acknowledges, (at para 284):

Articles 1106 and 1108 of the NAFTA do not refer to the term “subordinate measure,” and it is not found in Chapter 11 of the NAFTA at all. However, it appears in paragraph 2(f) of Annex I. Provided it meets certain conditions, a subordinate measure forms a part of a reservation made by a NAFTA Party with respect to existing measures that do not conform with obligations imposed by Article 1106. (Emphasis supplied)

Did the Guidelines Constitute a Domestic Performance Measure?

The most important part of the Award deals with the interpretation of the reservations provisions of NAFTA as they apply to Article 1106, but before discussing those provisions the Tribunal first had to conclude that the Guidelines were domestic performance requirements within the meaning of Article 1106. On that issue there were two preliminary points, first, did the R & D and E & T requirements of the Guidelines fall within the scope of Article 1106(1) at all, and if so, second, did the Guidelines impose a duty to acquire goods or services locally?

Did the R & D and E & T requirements of the Guidelines fall within the scope of Article 1106(1)?

The Tribunal acknowledged (at para 215) that Article 1106 does not specifically refer to R & D and E & T issues but took the view that the term ‘services’ as used in Article 1106(1)(c) (at para 216) “covers a broad range of economic activities, and R & D and E & T may be seen as mainstream forms of service sector activity.” Such a reading was also consistent with how services are treated more broadly in the text of NAFTA (at paras 219 and 225) and in any event (at para 222) “the requirement to utilize domestic sources of R & D and E & T appears rather clearly to be a form of performance requirement imposed on an investor.”

Did the Guidelines impose a duty to acquire good or services locally?

The Tribunal was equally dismissive (and rightly so) of Canada’s efforts to suggest that there was no necessary domestic content to the Guideline and that it might be possible for an operator to meet the terms of the Guidelines without purchasing domestic goods and services. That was clearly unrealistic (at paras 237 and 238): “In practice, the Tribunal fails to see how the operators could, in reality, be required to spend millions of dollars on R & D and E & T in the Province without in practice being required to purchase, use, or accord a preference to domestic goods or services.” Furthermore, unlike earlier NAFTA cases R & D and E & T spending was not just an ancillary element of the regulatory regime “it was a central feature” of the 2004 Guidelines (at para 242).

The Article 1108 Exceptions

A preliminary point with respect to the Exceptions arguments was the question of whether the exceptions should be interpreted in any different manner than any other provisions of NAFTA. The Claimants in particular evidently wished to argue that they should be interpreted restrictively but at the end of the day all the parties seemed to accept that they should be interpreted (as with all of the other provisions of NAFTA) in accordance with the interpretation rules (Articles 31 – 33) of the Vienna Convention on the Law of Treaties (VCLT) (at paras 250 and 254; and see also Dissent at para 4):

Each NAFTA Party was free to identify and put forth its own reservations, which represented one Member’s binding commitment. That said, it is important to stress that the reservations are an integral part of the NAFTA. The task of ascertaining the meaning of a reservation, like the task of interpreting any other treaty text, involves understanding the intention of the NAFTA Parties, and it is to be achieved by following the customary rules of interpretation of public international law, as reflected in Articles 31 and 32 of the VCLT. There is no dispute on this point between the parties. The Tribunal proceeds on that basis.

In doing so the Tribunal understood that it should not presumptively accord a broad or narrow meaning to the reservations. The Tribunal was very much aware that its interpretation might have implications for the “system of reservations as a whole” embedded in NAFTA.

The System of Reservations

NAFTA contemplates that each of the contracting parties should be able to make reservations with respect to existing non-conforming measures pertaining to performance requirements. This is provided for by Article 1108 and the relevant Annexes, especially Annex I. In order to claim a reservation, Annex I requires each party to provide detailed information as to the elements of the reservation (at paras 260 – 263). By contrast (and as the Dissent emphasizes at several points (Dissent at paras 11 & 36)) there is no requirement in Article 1108 or anywhere else for a Party to set out any ‘subordinate measure’ that has been adopted or maintained. The reservation once made extends to the non-conforming measure itself including: (1) the continuation or prompt renewal of that measure or an amendment to the measure (provided that it does not decrease the conformity of the measure), and (2) any subordinate measure of the non-conforming measure.

The existing measure in this case was the federal Accord Act (at para 269) (hereafter the reserved measure). The description element refers to benefits plans but does not refer to any specific section of the Accord Act. That led to some discussion as to the scope of Canada’s reservation. Canada argued that the reservation covered the entire statute while the claimant suggested that it should be confined to section 45 (problematic from Canada’s perspective since it was agreed (at para 274) that the Guidelines were adopted under section 15.1). Faced with these two alternative positions the Majority (moving seamlessly from the statutory provisions themselves to the Guidelines) reasoned as follows (at para 279):

The Tribunal considers that the more plausible approach is to examine the reserved measure as qualified by the “Description element,” and then in accordance with the VCLT determine whether a particular provision of the Federal Accord Act is covered or not. In the present case, the qualification addresses the requirement that the Benefits Plan ensure that  expenditures be made for research and development to be carried out in the province, and for education and training to be provided in the province. Section 151.1 of the Federal Accord Act is not specifically mentioned in the “Description element” but looking at the Federal Accord Act as a whole, the 2004 Guidelines issued pursuant to Section 151.1 provide a means, not necessarily the only means, by which guidance is offered on how to ensure that expenditures on research and development are carried out in the Province.

What the Tribunal seems to be saying here (and what the subsequent paragraphs of the Award clarify) is that section15.1 is included in the reserved Measure but that the Guidelines themselves constitute a subordinate measure the validity or conformity of which is still to be examined. The Tribunal also concluded that Board decisions approving particular Plans are not themselves reserved Measures but might qualify as subordinate measures.

In view of this approach it then became crucial for the Tribunal to determine under what circumstances something might qualify as a subordinate measure not least because (at para 284) “Provided it meets certain conditions, a subordinate measure forms a part of a reservation made by a NAFTA Party with respect to existing measures that do not conform with obligations imposed by Article 1106.”

There are three principal qualifying elements for a subordinate measure. First, such a measure must be “adopted or maintained,” second it must derive its “authority” from the reserved measure, and third it must be consistent with the measure. The controversial issue here related to the scope of the consistency analysis.

Adopted or maintained

The Tribunal held that the two terms were not synonymous and concluded that the term “maintained” refers to a subordinate measure that was in force when NAFTA came into effect whereas “adopted” refers to a measure that came into force after NAFTA came into effect (at para 297): i.e. a “new subordinate measure”. The implications in this case were as follows (at paras 298 – 299):

… the Hibernia  Benefits Plan and Decision 86.01, having been adopted before January 1, 1994, are “subordinate measures” that are “maintained,” within the meaning of paragraph 2(f)(ii) of  Annex I.

With respect to the Terra Nova Benefits Plan and Decision 97.02, as well as the 2004 Guidelines, (having been adopted after January 1, 1994) they are “subordinate measures” that have been “adopted,” within the meaning of paragraph 2(f)(ii) of Annex I, and are each to be considered “new subordinate measures.”

Under the Authority of the Measure

The Tribunal made surprisingly heavy weather of this issue. It soon concluded (at para 329) that “it is the reserved measure that provides the legal basis or origin of the subsequent measure” but that led to another “what is the applicable law” for determining authority? Is it national law, NAFTA or both? The Dissent was firmly of the view that the issue must be determined by national law (and that it had been – see the judgement of the Newfoundland Court of Appeal) and the United States and Mexico seemingly agreed with that as well – and perhaps even the majority at certain points (see here at para 350). But at other points the Majority (who by this time were carefully paving the way for their holistic take on the concept of consistency) were much more equivocal. Here is what the Majority had to say on the issue of authority (at para 330):

In the Majority’s reading, “authority” certainly requires that the subordinate measure must be determined in relation to the reserved measure. Whether other existing subordinate measures, in addition to the reserved measure, are also a critical part of that evaluation of “the measure” will depend on the facts of the case. On the facts we have before us, the Hibernia and Terra Nova Benefits Plans and related Board Decisions are “under the authority” of the Federal Accord Act. The 2004 Guidelines are also issued pursuant to the Federal Accord Act. It clearly makes no sense to suggest that the 2004 Guidelines, which are measures of general application, have to be “under the authority” of the Hibernia and Terra Nova Benefits Plans and Board Decisions, which are subordinate measures that apply to particular investment projects. Both sets of subordinate measures are authorized separately by the Federal Accord Act in a vertical relationship to that Act, but are not in a vertical relationship with each other. In this case, “the measure” that is the necessary reference for determining the “authority” of the 2004 Guidelines is the Federal Accord Act alone. It does not necessarily follow that this fact pattern will always be the case. The Majority can envision other factual circumstances, arguendo, where there are a number of subordinate measures that are in a vertical relationship to each other, such that a new rule or regulation is specifically introduced in order to implement a provision of an existing subordinate measure, both of which legally owe their existence to the reserved measure. In such circumstances, to understand whether the new subordinate measure is under the authority of the reserved measure, the treaty interpreter would be required to look at the reserved measure as well as other subordinate measures in the vertical chain in order to make sense of the legal framework.

And even if the matter was to be determined by domestic law, there was (at least from the claimants’ perspective and perhaps also from the perspective of the Majority) the problem of just what it was that the Court of Appeal had decided. After all, in the pluralistic world of domestic administrative law, it is not as if a Court sitting on a judicial review application is typically determining correctness. A Court sitting in review generally owes some degree of deference to the tribunal and accordingly the standard of review is more likely to be reasonableness than correctness. That was indeed the case here (see 2008 NLCA 46 especially at paras 32 – 58). While the Majority of the Tribunal ultimately deferred to the authority of the domestic law and the domestic court on the issue one gets the sense (see especially at para 355) that they did so with some reluctance.

The measure with which the subordinate measure must be consistent

The question here was whether the context for assessing consistency and authority was confined to the federal Act (i.e. the reserved Measure itself) or whether, as the claimant contended, the subordinate measure must also be consistent with other relevant subordinate measures and in particular (at para 310) the Hibernia and Terra Nova benefits plans and related Board decisions. The Majority found for the claimant on this point (at para 325) relying in large part (at para 324) on an interpretative note to a Party’s Schedule to an Annex which provides that the term “measure” refers to the reserved measure (in this case the Act) and “includes subordinate measures adopted or maintained under the authority of and consistent with the measure.” The Majority justified this conclusion and expanded upon the consequences of this interpretive approach as follows (at para 326):

The Majority agrees with the argument advanced by the Claimants that there is nothing in the interpretative note that provides an exception so as to exclude a subsequent subordinate measure that meets the test in paragraph 2(f). In our reading of this text, once a subordinate measure passes the crucial test laid out in paragraph 2(f)(ii), it is correctly “included” within the ambit of the non-conforming and expressly listed measure for the purposes of evaluating a subsequent subordinate measure. Thereafter, and depending on the facts of the case, the reserved measure and the subordinate measure should be interpreted together for the purposes of Annex I. It is in this way that the non-conforming measure includes the subordinate measure.

Such an approach demanded a complex analytical structure. The Majority provided the necessary elaboration through a series of questions designed to test the consistency of the 2004 Guidelines with the Federal Accord Act, the Hibernia and Terra Nova Benefits Plans and related Board decisions (at para 392):

(1) can there be a change in the methodology for requiring and calculating the expenditures to be made for research and development to be carried out in the province, and for education and training to be provided in the province, as compared with that which pertained on 1 January 1994, and what are the key characteristics of the methodology introduced by these 2004 Guidelines as compared with the existing measures;

(2) can there be an extension of the requirement to make such expenditures in relation to the development and production phase, as compared with it being limited to the exploration phase as pertained on 1 January 1994, and what are the consequences of this extension;

 (3) can the amounts of such expenditures to be imposed in a Benefits Plan be specified, rather than determined through the self identified needs of the project operator, and also increased beyond those that would have pertained under the previous Benefits Plans as now required by the 2004 Guidelines; and

(4) can additional oversight and reporting requirements be introduced that reduce the discretion of the operators via the now mandatory pre-approval process, and against what standard should such adjustments … be evaluated?

The Majority was however careful to caution that these questions and the answers to them must be read contextually – there was no bright line. For example, the Majority suggested (at para 394) that a mere change in the methodology for determining the level of required expenditures was not itself problematic. Neither was the extension of the benefits requirements from the exploration phase of the projects to the development and production phases (at para 399), nor the mere fact that additional expenditures might be required (at para 400) What seems to have been fatal here was a combination of things: (1) the decision to base the level of contributions on industry norms thereby severing the connection between these particular projects and the requirements of the Guidelines (see in particular at paragraph 397, “requirements based on a methodology that is unrelated to the specific needs of the project”), (2) the substantially increased amounts of domestic expenditures over what the Plans would have required during the development and production phases of the project (at para 401), and (3) the enhanced monitoring and reporting requirements that were imposed (paras 402 – 404). The result of the analysis was unequivocal for the Majority (at para 398):

The particular approach contained in the 2004 Guidelines has introduced expenditure requirements, reporting requirements, and financial administrative adjustments that result in a set of additional obligations with respect to the Hibernia and Terra Nova projects that are different in nature and degree than those previously applied to these investment projects. Examining all of these attributes together, the Majority is of the view that the changes that have been introduced and applied to Hibernia and Terra Nova amount to more than mere changes in the methodology, but in fact reflect a fundamentally different approach to compliance, compared to the Federal Accord Act and the Hibernia and Terra Nova Benefits Plans.

Taken together this resulted in (at para 409) a “local content regime that [was] … more non-conforming with Article 1106 than was the case when the measures that applied to the Hibernia and Terra Nova investment projects were defined by the Federal Accord Act, the Hibernia and Terra Nova Benefits Plans, and related Board Decisions.”

Article 1105 and the Minimum Standard of Treatment

While there are several other NAFTA decisions that deal with Performance Requirements, none have provided such a detailed and sophisticated interpretation of the relevant texts as has this Award. Indeed as the Tribunal acknowledges some important part of its decision were matters of first impression (e.g. at para 249). But this was clearly not the case with respect to Article 1105 which has already been the subject of numerous arbitral awards as well as an agreed Interpretation Note (2001) issued by the contracting parties and designed to curb some of the more expansive interpretations of the fair and equitable treatment standard (FET) that were emerging in the jurisprudence. For the text of the Interpretation Note see here.

The claimants made two arguments under Article 1105 (at para 111): first that Canada had failed to provide a stable regulatory framework for the claimants’ offshore petroleum development operations, and second that Canada had frustrated the claimants’ legitimate expectations with respect to that regulatory framework.

In its Award the Tribunal (and the Tribunal was unanimous on the Article 1105 issues) carefully reviewed the existing arbitral jurisprudence before concluding as follows (at paras 152 and 153) as to the applicable standard:

152. On the basis of the NAFTA case-law and the parties’ arguments, the Tribunal summarizes the applicable standard in relation to Article 1105 as follows:

(1) the minimum standard of treatment guaranteed by Article 1105 is that which is reflected in customary international law on the treatment of aliens;

(2) the fair and equitable treatment standard in customary international law will be infringed by conduct attributable to a NAFTA Party and harmful to a claimant that is arbitrary, grossly unfair, unjust or idiosyncratic, or is discriminatory and exposes a claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety.

(3) in determining whether that standard has been violated it will be a relevant factor if the treatment is made against the background of (i) clear and explicit representations made by or attributable to the NAFTA host State in order to induce the investment, and (ii) were, by reference to an objective standard, reasonably relied on by the investor, and (iii) were subsequently repudiated by the NAFTA host State.

153. This applicable standard does not require a State to maintain a stable legal and business environment for investments, if this is intended to suggest that the rules governing an investment are not permitted to change, whether to a significant or modest extent. Article 1105 may protect an investor from changes that give rise to an unstable legal and business environment, but only if those changes may be characterized as arbitrary or grossly unfair or discriminatory, or otherwise inconsistent with the customary international law standard. In a complex international and domestic environment, there is nothing in Article 1105 to prevent a public authority from changing the regulatory environment to take account of new policies and needs, even if some of those changes may have far-reaching consequences and effects, and even if they impose significant additional burdens on an investor. Article 1105 is not, and was never intended to amount to, a guarantee against regulatory change, or to reflect a requirement that an investor is entitled to expect no material changes to the regulatory framework within which an investment is made. Governments change, policies changes and rules change. These are facts of life with which investors and all legal and natural persons have to live with.

The Tribunal then proceeded to apply the standard to the facts concluding that the claimants had been unable to establish that the governments and\or the Board had made any promises or representations that there would be no changes to the regulatory regime (at para 156). There were no such representations in the relevant legislation (at paras 159 – 160) and this was equally true of the approved plans themselves (at para 161). The plans did not amount to a contract (at para 166) and there was no evidence (at para 169) that the claimants had sought assurances that the benefits requirements would not change as a result of the Board’s monitoring activities if those activities suggested that R & D expenditures were insufficient (so long as such changes could be made consistently with Canadian law, a matter already established by the Newfoundland Court of Appeal).

Damages for breach of the prohibition on domestic performance requirements

The claimants sought compensation for the incremental expenditures that they would incur as a result of the application of the Guidelines from the time that they came into force until 2036 (at para. 414) (the Hibernia property was projected to continue producing until 2036 (see para. 49)). Article 1116(1) provides that “An investor of a Party may submit to arbitration under this Section a claim that another Party has breached an obligation [of Chapter XI]…and that the investor has incurred loss or damage by reason of, or arising out of, that breach.” This language as well as the decisions of other arbitral awards led Canada to argue that the Tribunal could not award damages for prospective losses and could only make an award in relation to losses actually incurred (at paras 415 – 419). The majority of the Tribunal however took a broader view concluding (at para 427), at least as a matter of jurisdiction, that:

A breach giving rise to future and prospective damage may, in general terms, fall within Article 1116. There is nothing in the language of Article 1116 (1) that convinces us that the provision is directed only to damages that occurred in the past and does not extend, in principle, to damages that are the result of a breach which began in the past (the adoption of the 2004 Guidelines) and continues (the implementation of the 2004 Guidelines) resulting in the incurring of losses which crystallise (i.e. become quantifiable) and must be paid sometime in the future (hereafter “future damages”). We consider by extension that the same reasoning applies to damages in the past which are already identified or quantified, but must be paid in the future.

That was not conclusive of the Claimants’ claim to prospective damages since they still had to show (at para 431) “whether the amount of these damages can be established with sufficient certainty to be compensated.” As to the relevant principles for determining these issues the Majority concluded that (at para 437)

… the Claimants do not have to prove the quantum of  damages with absolute certainty. The Majority further accepts that no strict proof of the amount of future damages is required and that “a sufficient degree” of certainty or probability is sufficient. However, the amount claimed “must be probable and not merely possible.”

The Majority also had to address the actual losses claimed by the claimants as of the date of the Award. The issue was significant here since the claimants’ own liability under the Guidelines was in the alternative. The claimants either had to make the actual R & D expenditures calculated under and required by the Guidelines (rather than on some notional business as usual (BAU) position under the relevant benefits plans) or they had to make a contribution to the fund, and to this point there had been a degree of forbearance by the Board in realizing any obligation pending the outcome of both the domestic proceedings and the arbitration. Given these circumstances when did the claimants actually incur a loss for which they could seek restoration (at para 440):

In the Majority’s view, actual damages occur when there is a firm obligation to make a payment and there is a call for payment or expenditure, or the occurrence of payment or expenditure has transpired. Indeed, expenditure of money is not always required for damages to be compensable. Expenditures which have not yet been paid may be included as compensation if a claimant can prove that they are under an obligation to pay such expenses (e.g. there has been some kind of call for payment).

Whatever view one takes of the Claimants’ claims it is clear that there are a number of variables that have to be taken into account in quantifying the scope of the Claimants’ obligations under the Guidelines and therefore any possible claim to damages. These variables included: production volumes, oil revenues (calibrated either in US dollars or perhaps Canadian dollars); the BAU R & D and E & T expenditures; the qualification of R & D expenses; the relevant Statistics Canada benchmark; and Board determinations as to level of deductibility of R & D and E & T expenses. At a later point in the Award (at para 474) the Majority helpfully categorizes these factors as two different types of variables: “One group of variables consists of objective, market-based factors, and the second consists of the results of the Board’s regulatory decisions.”

Having established the relevant tests the Majority divided the Claimants’ claims into three relevant periods: 2004 – 2008; 2009; and 2009 – 2036. The first of these periods was obviously the period for which the Claimants and the Tribunal had the most complete information, but even here the Majority concluded that the matter was not yet ripe for the Tribunal to award damages, principally it seemed because the Claimants’ obligations had yet to crystallize (at para 470):

With regard to the 2004 – 2008 period, the various actions of the Board to implement the 2004 Guidelines, such as the calculation of the required incremental expenditures, the crediting for actual expenses and the determination of the spending shortfall, the conditioning of the POA on compliance with the 2004 Guidelines, all confirm that the Board was seriously pursuing the Claimants’ spending obligation under the 2004 Guidelines for the 2004 – 2008 period. However, we are not aware that the Respondent has actually required the Claimants to make such payments by a certain date, nor whether it has indicated the prospect of sanctions for noncompliance. The Claimants have indicated that there may have been actions the Board has taken to date in pursuance of the spending obligation, namely a requirement for HMDC and Suncor to provide a promissory note secured by a letter of credit, but they have not provided evidence as to any steps being taken in furtherance of this requirement to show that it amounts to a firm obligation to pay or has entailed costs. Until the Claimants submit evidence of actual damage, the claim for the cost of compliance with the 2004 Guidelines for the 2004 – 2008 period is not ripe for compensation by this Tribunal.

The same conclusion followed with respect to the 2009 period as it must for the 2009 – 2036 period, although with respect to this final period the Majority of the Tribunal did offer some useful additional observations. One important observation was that arbitral awards dealing with assessment of prospective losses in cases of expropriation were really not pertinent in a case (as here) in which the “investment is not destroyed but encumbered” (at para 476). In the case of expropriation the tribunal “has no choice but to project future damages in the form of lost future profits.” But that is not this case. In this case the losses will at some time in the future become actual losses “thereby removing the necessity to forecast losses which has been present in other cases,” Even those cases in which tribunals had awarded compensation for future losses in other non-expropriation situations were not especially useful. In each of those cases the projections were relatively short term; here the situation was different (at paras 477 and 478):

While some variables in the current case may be more amenable to assessment than others (e.g. production level estimates for developed production sites in the near term may be more likely to be accurate than those that focus on longer term production forecasts), looking at the totality of relevant and necessary variables that would comprise the  calculation of damages, we are simply unable to have confidence that the estimation of the  entire picture is one that meets a test of “reasonable certainty.” The evaluation of future damages for such a long period is extremely hazardous and it does not, on balance, seem to us that the estimates are more probable than not.

…

In our view, there is no basis to grant at present compensation for uncertain future damages. Given that the implementation of the 2004 Guidelines is a continuing breach, the Claimants can claim compensation in new NAFTA arbitration proceedings for losses which have accrued but are not actual in the current proceedings.

While this all seems correct, it does suggest that if the parties are unable to agree we will be looking at installment litigation\arbitration for many years to come.

The Dissent

In my view the Dissenting opinion of Professor Phillippe Sands offers a devastating and persuasive critique of the majority opinion as it relates to the subordinate measures issues. Professor Sands is in agreement with the Majority on two important parts of the Award. Thus he agrees that there was no breach of Article 1105 and he also agrees that the Guidelines were caught by the Article 1106 rules relating to domestic performance requirements. But Sands fundamentally disagrees with the Majority on the interpretation and application of the subordinate measures provisions of Annex I. In his view the validity of a subordinate measure is to be examined solely by reference to the reserved measure itself and not by reference to other existing subordinate measures such as the earlier Benefits Plans adopted for the Hibernia and Terra Nova projects. Sands also dissented from the portions of the Majority award dealing with damages, principally on the basis that since Canada was not in breach there was no damages issue for the Tribunal to consider.

The Dissent offers a number of different critiques of the Majority’s opinion but three points in particular stand out. First, Sands, like the Majority, emphasises that the NAFTA text draws a clear distinction between the reserved measure and subordinate measures. One particular important distinction is that while the text establishes that amendments to reserved measures must not decrease conformity with the basic Article 1106 standards there is no similar test with respect to existing or new subordinate measures (Dissent at paras 21 and 24); such measures need only be established under the authority of the reserved measure and consistent with the reserved measure – a requirement that, as Mexico offered (Dissent at para 29), must be determined under domestic law (which it had been). Second, Sands emphasizes that the Majority has elevated the requirement of consistency from a formal jurisdictional requirement that a subordinate measure fall within the scope of the measure to an holistic and contextual demand for consistency with the “overall legal framework” that goes way beyond the text of the treaty and (Dissent at para 28) “seems to have been plucked out of the air.” Third, and as indicated in the introduction of this post, the effect of the Majority’s opinion is to introduce a one way ratchet in which the space available to the host state to protect its interests as contemplated by the reservation system is progressively reduced, and the ceiling (Dissent at para 37) on the range of acceptable measures gradually lowered. Not only does this afford different subordinate measures the same limiting effect as the higher norm of the measure itself (Dissent at para 37) but it will lead to increasing difficulties of application over time, especially since the state (as noted above) need not publish subordinate measures. But even if published the interpretive difficulties associated with establishing “authority” and “consistency” with an increasingly long list of previous measures will tax the ability of even the most highly paid arbitrators.

Commentary

The Majority’s interpretation of the subordinate measures provisions is startling. It carries the implication that every exercise of the power to make subordinate measures will necessarily limit any future exercise of the power. This applies equally to the situation where the state exercises the power to make subordinate measures after NAFTA enters into force (i.e. adopt) but also with respect to subordinate measures in force before NAFTA enters into force (i.e. maintains). In effect, what the Majority concludes is that when Canada listed the federal statute as a reserved measure, it was in reality only listing a gutted version of sections 45 and 15.1.

I can perhaps illustrate the point more graphically by asking the reader to imagine the power to make new subordinate measures (as described in the statute) as a full box (the statutory power describes the size of the box). The moment that the holder of the statutory authority exercises the power to adopt a subordinate measure we must empty the box of all of the unexercised powers contained within its corners. Subsequent subordinate measures must fall within the reduced content of the box. Or to put the matter another way, if the measure allows the statutory authority to adopt subordinate measures in relation to matters B to F; the exercise of the power in relation to matter B renders the statutory authority functus with respect to matters C to F. This is an extraordinary result and it is seemingly achieved by having the tail of the interpretive note wag the dog of the principal provisions of the text. While defending its conclusion in the name of a highly contextualized interpretive approach, the Majority ends up decontextualizing the simple claim made by the state reserving its authority to maintain domestic performance requirements. This one-way ratchet (which Professor Sands refers to as the progressive lowering of the acceptable regulatory ceiling (Dissent at para 37)) is fundamentally inconsistent with the discretion afforded to each NAFTA state to craft its own reservations and to decide upon the extent to which it was prepared to liberalize (and indeed eliminate) its domestic performance requirements. The treaty specifically contemplates that a party may establish the duration of the measure (i.e. a possible phase out commitment) and may make a liberalization commitment; and the clear inference is that a contracting party need not to do either. But the result of the Majority’s opinion is to commit each party to continuing liberalization. It seems incredible to think that any of the contracting parties thought that they were reserving less than the full box of power embraced by the relevant statutory provision.

One wonders about the implications of all of this for other domestic performance requirements (a.k.a. domestic benefit programs) in Canada whether developed under other federal oil and gas legislation (and in particular the Canada Oil and Gas Operations Act, RSC 1985 c. O-7 (COGOA), or under Yukon’s Oil and Gas Act), or under the terms of modern land claim agreements which routinely provide for the negotiation of impact and benefit agreements. Canada did file a reservation that referred to COGOA and to “Measures implementing Yukon Oil and Gas Accord” and the Northwest Territories Accord.” The reservation, so far as relevant, reads as follows:

1. Under the Canada Oil and Gas Operations Act, the approval of the Minister of Energy, Mines and Resources of a “benefits plan” is required to receive authorization to proceed with any oil and gas development project.

2. A “benefits plan” is a plan for the employment of Canadians and for providing Canadian manufacturers, consultants, contractors and service companies with a full and fair opportunity to participate on a competitive basis in the supply of goods and services used in any proposed work or activity referred to in the benefits plan. The Act permits the Minister to impose an additional requirement on the applicant, as part of the benefits plan, to ensure that disadvantaged individuals or groups have access to training and employment opportunities or can participate in the supply of goods and services used in any proposed work referred to in the benefits plan.

6. Provisions similar to those set out above will be included in laws or regulations to implement the Yukon Oil and Gas Accord and Northwest Territories Oil and Gas Accord which for purposes of this reservation shall be deemed, once concluded, to be existing measures. (Emphasis added)

A particular concern in this regard is that the federal government has long contented itself, at least during the exploration phase of northern oil and gas operations, with an especially vague and hortatory commitment to northern benefits requirements: see here. This is not the place for a detailed analysis but the Majority opinion, as flawed as it clearly is, creates regulatory risk for Canada in the event that it, or a successor territorial government, elects to take a more aggressive approach to capturing local and industrial benefits in the future than are contained in the current requirements. In such a case the federal government may have inadvertently set the ceiling so low that northern Canadians won’t even be able to stand up! Or perhaps given the analytically demanding and highly contextualized approach of the Majority it will just be exceptionally difficult to figure out where the ceiling is until you bang your head; another, and perhaps especially acute form of regulatory chill, if not regulatory concussion. But perhaps the underlined text may allow a subsequent Tribunal to distinguish this Award.

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