I have reviewed many trade arbitration rulings over the years, primarily those under the WTO and NAFTA that have implications for environmental law. The recent ruling under Chapter 11 of NAFTA regarding the Whites Point Quarry proposed by Bilcon in Dibgy Neck, Nova Scotia, is the first such ruling where I have personal knowledge about the factual context within with the ruling was made. I gained this personal knowledge as I was asked, at times, to give legal advice to a number of intervenors in the Whites Point EA process. I also have a long-standing academic interest in EA, which has led me to followed all major environmental assessments in my home province, and beyond. I appeared as an independent witness before the Whites Point Panel to offer advice on the legal parameters of the Panel’s work. Finally, I have been involved in other EAs on behalf of proponents, intervenors, and as a panel member.

The insight this unique situation has provided me into the work of this NAFTA Chapter 11 challenge is nothing short of frightening. I have found a NAFTA Tribunal that lacked, with the exception of the dissenting member, even a basic understanding of the legal context within which the decisions it was asked to rule on where made. It also lacked any real appreciation for the factual context within which the decisions being challenged were made. Some of these shortcomings are pointed out in the dissent, however, they go much further.

I will try, in this post, to highlight some of the difficulties with the NAFTA tribunal’s findings. However, a full appreciation of the problem is only possible for those who are willing to read the full majority and dissenting opinions, as well as the Whites Point Panel report, the Panel’s terms of reference, the proponent’s environmental impact statement, the Panel’s information requests, and the proponent’s responses. Only then is it possible to appreciate how different the picture painted by the majority of the NAFTA tribunal is from what actually transpired and why.

The NAFTA tribunal majority’s core difficulty with the Whites Point Panel’s report was twofold. First, the Whites Point Panel focussed its reasons for rejecting the project on its conclusion that the proposed project was inconsistent with “core community values”. Second, the Panel, once it concluded that the project would result in significant adverse environmental effects that could not be justified, did not suggest measures to mitigate adverse effects to the extent possible in case the federal and provincial government decided not to follow the panel’s main recommendation to reject the project. On both issues, the majority reached its conclusion in large part based on “expert legal advice” filed on behalf of the proponent, advice which seems to have offered a one sided interpretation of the federal EA process, and no meaningful legal interpretation of the provincial EA process. Perhaps more importantly, it seems clear that the “expert legal advice” was completely misunderstood and misapplied by the majority of the NAFTA tribunal.

Lets look at the issue of “core community values” first. The NAFTA tribunal majority essentially seems to conclude that the concept of “core community values” was a methodology or test the Whites Point Panel applied to the project that was not consistent with the federal and provincial EA legislation it operated under, and that the proponent was not advised that its proposed project would be subjected to this methodology in the EIS guidelines or anytime before the hearings. First, as the dissent points out, “core community values” was not a methodology or a test, but rather was a phrase the Whites Point Panel developed to summarize its conclusions about the socio-economic effects of the project, having first applied the established test of “likely significant adverse environmental effect” in accordance with the terms of reference it was given.

To fully understand what happened, it is important to go back to the federal and provincial EA legislation under which the Whites Point Panel was established. The federal Act, CEAA 1995 (since repealed), included a definition of environmental effect that is focused on biophysical changes and socio-economic changes that result from biophysical changes. Under CEAA 1995, socioeconomic effects that are not linked to biophysical changes caused by a proposed project are not environmental effects, though they may still have relevance for decision makers (such as in the context of whether significant adverse effects are justified in the circumstances). Under the provincial EA process, all socio-economic effects of a project are considered environmental effects. As is common for joint review panels in this situation, the terms of reference for the Whites Point Panel define environmental effects broadly, consistent with the provincial definition, essentially leaving it up to the federal decision maker to sort out which effects identified by the Whites Point Panel are considered to be environmental effects for purposes of the federal decisions under CEAA. This means that when the panel report uses the term environmental effect, it includes all socio-economic effects of the project.

This is important because it means that when the majority talks about the Whites Point Panel’s failure to conduct a proper analysis of the proposed project’s likely significant adverse effects including mitigation and somehow replacing this analysis with the test of “core community values”, it ignores the fact that the Whites Point Panel was asked to consider the full range of “environmental effects”, not just biophysical effects and socio-economic effects that flow from biophysical effects. In other words, the Whites Point Panel’s careful analysis about the socio-economic effects of the project on the surrounding communities that the majority is so critical of is doing exactly the analysis the majority criticises the Whites Point Panel for not doing. It so happens that the Whites Point Panel identifies significant “socio-economic” rather than “biophysical” environmental effects. It concludes that the various biophysical effects can be mitigated so that they do not cross the significance threshold. The report is clear in applying appropriate and well-established methodologies to its analysis of the socio-economic effects of the project. As pointed out by the dissent, the concept of “core community values” only appears toward the end of the report, making it clear that it is a way of summing up the Whites Point Panel’s conclusions rather than a methodology for evaluating the project.

The second issue the majority seems to focus on is the Whites Point Panel’s decision not to offer recommendations on how to mitigate the effects of the project should government decision makers chose not to follow the panel’s main recommendation to reject the project. The proponent’s experts are correct that this was unusual. However, it must be pointed out that what was unusual about this was that the Whites Point Panel recommended rejecting the project. In spite of both provincial and federal EA processes (and the terms of reference for this panel) making it very clear that one of the possible outcomes of an EA is to reject a project outright, this had been rare before the Whites Point Panel, though it is clearly contemplated in both federal and provincial legislation. There is furthermore nothing in federal or provincial law or in the terms of reference of the Whites Point Panel that would require this panel to offer recommendations on mitigation measures once it recommended that the project not proceed. There were really no precedents to point to prior to Whites Point to make a case for an established practice in case of an outright rejection of a project by a panel, to offer mitigation recommendations in the alternative. Finally, any suggestion that it was not the role of the Whites Point Panel to recommend whether the project should proceed or not, is inconsistent with federal and provincial legislation and with the panel’s terms of reference.

What panels are required to do is to consider mitigation measures proposed by the proponent in determining whether the project is likely to cause significant adverse effects. The majority is confusing these two issues by suggesting repeatedly that the Whites Point Panel failed to consider mitigation in its significance analysis. The panel clearly considered mitigation proposed by the proponent in determining whether individual effects were likely to be significant, even thought the majority repeatedly suggests that the panel failed to do this.  What the panel refused to do was to offer recommendations on how the project might proceed, because it concluded that it should not.

As pointed out by the dissent, the Whites Point Panel concluded that no individual effect of the project in isolation was likely to be significant, but that the overall socio-economic impact of the project on the local community would likely be adverse and significant. As previously pointed out, these socio-economic effects of the project were, according to the terms of reference and according to the NS Environment Act, environmental effects. What is less clear is which of the socio-economic effects identified by the Whites Point Panel were environmental effects under CEAA. This, as discussed next, was an issue for the federal decision-maker, the Minister of Fisheries, not for the panel.

In short, the Whites Point Panel did exactly what it was asked to do. This leaves the question whether provincial and federal decision-makers made appropriate decisions based on the report. In this regard, it is clear that the NAFTA tribunal had no understanding of the provincial EA process, and it seems to acknowledge this. The proponent’s legal experts similarly are limited in their expertise to CEAA. Having said this, there is no legal basis on which to challenge the provincial decision. Because of the broad definition of environmental effect (that includes all socio-economic effects), and the broad discretion left to the provincial Minister to decide whether to approve a project, there is no question that the provincial Minister acted within his legal authority when he followed the recommendation of the Whites Point Panel to reject the project.

A more interesting legal question is whether the federal decision maker, in the form of the Minister of Fisheries (with approval of the Cabinet), had the legal authority to reject the project in light of the Whites Point Panel’s conclusions and recommendations. CEAA states, essentially, that if a project is likely to cause significant adverse environmental effects, and those effects cannot be justified in the circumstances, the Minister may not approve the project. If significant adverse environmental effects are justified, the Minister may approve the project. The Act is silent on whether the Minister has discretion to reject the project in case where the project does not cause a significant adverse environmental effect, but is otherwise not deemed acceptable, such as because of adverse socio-economic impacts. What is clear is that in such a case, the Minister has the ability to approve the project.

In this case, we don’t have a clear separation of socio-economic effects of the project that would fall under the definition of environmental effect under CEAA and those that would not. We also have the somewhat unusual situation of a panel concluding that the overall socio-economic effect of the project is significantly adverse, rather than pinpointing one individual effect as significant. Added to all this is the Ministers discretion to reject the panel’s conclusions and recommendations (with an obligation to offer reasons), and its regulatory discretion under the Fisheries Act, and we are left with a complex set of legal questions about whether the federal Minister of Fisheries had an appropriate basis on which to reject the project. The situation does raise legitimate legal questions, but there is far from a clear answer, and it is clear that a NAFTA tribunal is not the place to resolve them.

The proponent had every opportunity to challenge the federal decision through a judicial review application before the Federal Court. This would have been a wonderful opportunity to clarify a number of issues that practicing lawyers and legal academics have been debating for 20 years. None of this rich literature, by the way, much of it peer reviewed and supporting what the Whites Point Panel and the federal Minister did in this case, was referenced in the NAFTA ruling. The failure of the proponent to pursue any of the legal remedies available to it in Canada should have resulted in the dismissal of this case, as it leaves too much legal uncertainty for the NAFTA tribunal to deal with. There may be cases where this is not a problem, but in this case, the failure to explore readily available domestic remedies put the NAFTA tribunal in an impossible situation.

There are many other aspects of this ruling that are troubling. The suggestion that Whites Point Panel members may have been biased is key among them, as all three have a long-standing reputation of honesty and integrity, and the chair is among the most experienced panel chairs in the country. The comparative analysis carried out by the majority of the NADTA tribunal to show that the proponent was treated differently on the basis that it was a foreign company, is also very troubling and deserves a much more detailed review than is possible here. I will just briefly comment on two project EAs the tribunal relies upon. One was the reference to the Sable Offshore Energy Project, without acknowledging that the Sable Panel was a joint process with the quasi-judicial National Energy Board, and therefore was the exception rather than the norm for CEAA panels. The second example was a local LNG proposal involving a marine terminal that was only subjected to a screening, without any reference to the fact that this decision has been criticised in the literature.

The more general point is that these comparisons are made without adequate consideration of the factual and legal context. They cannot offer a meaningful basis for reaching any conclusion on whether the proponent in this case was treated better or worse than proponents in other cases. This leads me to making one final point. I have been involved in many EAs over the years. I have worked for proponents, I have represented intervenors, and I have served on panels. In all my experience, proponents have always worked hard to gain support for their project, and to respond to reasonable requests for information, particularly from members of the panel. The Whites Point Quarry review process is the only EA that I recall where this did not happen. It is troubling to see the Whites Point Panel blamed for the proponent’s mismanagement of the EA process.  It seemed clear throughout that the proponent thought that it was entitled to and was guaranteed to get approval for its project because of assurances from the province. It failed to understand that EA is actually a decision making process that depends on proponents being constructive participants in the process. Unfortunately, this ruling, if unchallenged, seems to vindicate the proponent’s approach.

A copy of the NAFTA ruling and other key documents are available at: http://tinyurl.com/odkqayo

To download some of my publications on EA, see http://ssrn.com/author=715387.  

 

Meinhard Doelle,

Director, Marine & Environmental Law Institute