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While You Were Sleeping: Sexual Assault Involving Intoxicated or Unconscious Complainants

Tue, 11/24/2015 - 10:00am

By: Jennifer Koshan

PDF Version: While You Were Sleeping: Sexual Assault Involving Intoxicated or Unconscious Complainants

Case Commented On: R v Garrioch, 2015 ABCA 342

One of the contexts in which women are particularly susceptible to sexual assault is when they are intoxicated, asleep or unconscious. This context also creates challenges when it comes to assessing consent. Section 273.1(2)(b) of the Criminal Code specifically provides that no consent to sexual activity is obtained where “the complainant is incapable of consenting to the activity”, and this section has been interpreted to include circumstances where the complainant is unconscious or incapacitated by intoxication (see R v Esau, [1997] 2 SCR 777). Advance consent to sexual activity that takes place while the complainant is unconscious or asleep is also outside the scope of the consent provisions (see R v JA, [2011] 2 SCR 440; 2011 SCC 28 and see my post on that decision here). In addition, section 273.2 of the Criminal Code requires the accused to take reasonable steps to ascertain whether the complainant was consenting before he can raise the defence of a mistaken belief in consent. The difficult cases arise where the complainant’s intoxication is seen to fall short of producing incapacity to consent, but at the same time creates problems with her ability to recollect the incident in question. This type of scenario was at issue in a recent Alberta case, R v Garrioch, 2015 ABCA 342.

In Garrioch the accused was charged with sexual assault against two complainants, both described as having been “very intoxicated” at the time. The sexual assaults were alleged to have occurred at a party. At trial, the accused was convicted of sexual assault against only one of the complainants, N. N testified that “she fell asleep or passed out on a couch in the living room, [and] woke up in pain to find the appellant having anal sex with her. She told him to stop and fell back asleep until morning.” In the morning she noted blood in the toilet, anal pain, and soreness in her “other area” (at para 2). She testified that she did not consent to either vaginal or anal sex with the accused, but could not recall if she had said anything that would have led him to believe she was consenting. The accused testified that he and N had consensual vaginal sex and denied having anal sex, although he had earlier provided a statement to the police that he had both vaginal and anal sex with N. The trial judge found that the complainant was not so intoxicated that she was unable to consent to some sexual activity, but also that her level of intoxication meant that she did not have a good recollection of events. She was “prepared to accept that the complainant had consented to vaginal intercourse although she could not remember having done so” (at para 5), but convicted the accused of sexual assault in relation to the anal sex.

On appeal, the accused argued that the trial judge’s findings on consent to the vaginal and anal intercourse were inconsistent and that his conviction should accordingly be overturned. The Court of Appeal (Justices Picard, Paperny, and Rowbotham) disagreed, accepting the Crown’s argument that the trial judge’s finding of consent to vaginal intercourse was not based on a negative credibility determination against the complainant that would have tainted her credibility regarding anal sex as well. Rather, it was the complainant’s level of intoxication that led the trial judge to conclude that she could not remember the events clearly (at para 7). On the other hand the trial judge “gave detailed reasons as to why she believed the complainant’s evidence that anal intercourse had occurred, including the pain the act caused her at the time and for days following the event” (at para 9). The accused’s conviction based on non-consensual anal intercourse was upheld on appeal. The Court did not mention R v JA and the legal inability to consent to sexual activity that occurs during unconsciousness, which one would have thought to be relevant on these facts.

Cases involving women who were unconscious or asleep at the time of the sexual assault, whether because of intoxication, disability, medication or otherwise, are numerous, yet in spite of the Criminal Code provisions relating to capacity to consent and the reasonable steps requirement, acquittals are not uncommon in these cases (see e.g. Elizabeth Sheehy, “Judges and the Reasonable Steps Requirement: The Judicial Stance on Perpetration against Unconscious Women” in Sheehy, Sexual Assault in Canada: Law, Legal Practice and Women’s Activism (University of Ottawa Press, 2012) 483; Janine Benedet, “The Sexual Assault of Intoxicated Women” (2010) 22 Canadian Journal of Women & the Law 435). Acquittals may be based on the memory issues already noted, or on the failure of intoxicated complainants to live up to the standards of the “ideal victim” (see e.g. R v Wagar and ABlawg posts on that case here and here; see also Emily Finch & Vanessa Munro, “Juror Stereotypes and Blame Attribution in Rape Cases Involving Intoxicants: The Findings of a Pilot Study” (2005) 45 British Journal of Criminology 25).

This context was, in part, what led the Women’s Legal Education and Action Fund (LEAF) to argue against the recognition of advance consent in JA (see LEAF’s factum here; I was a member of the committee that developed LEAF’s arguments). In situations involving intoxication especially, it would be relatively easy for the accused to argue that the complainant had simply forgotten that she consented beforehand to sexual activity that occurred while she was passed out. As determined by a majority of the Supreme Court in JA, however, consent requires an ongoing, conscious state of mind while the sexual activity is occurring. Only this interpretation protects against the risk that the conscious party might exceed the limits of specific sexual activity that was agreed to in advance of the other party becoming unconscious. Similarly, only this interpretation protects the unconscious party’s right to revoke her consent if circumstances change, are not as she expected, or she otherwise changes her mind. The right to revoke consent is recognized in section 273.1(2)(e) of the Criminal Code, which provides that no consent is obtained “where the complainant, having consented to engage in sexual activity, expresses, by words or conduct, a lack of agreement to continue to engage in the activity.”

Nevertheless, there have been arguments that advance consent should be permitted in cases involving truly consenting sexual partners. Several dissenting justices (led by Fish J) took this position at the Supreme Court, raising concerns about the “sleeping spouse” scenario and whether intimate partners might be criminalized for awakening each other with a kiss or caress (For discussions see Elaine Craig, “Capacity to Consent to Sexual Risk” (2014) 17 New Criminal Law Review 103; Joshua Sealy-Harrington, “Tied Hands?: A Doctrinal and Policy Argument for the Validity of Advance Consent” (2014) 18 Canadian Criminal Law Review 119; Hilary Young, “R. v. A.(J.) and the Risks of Advance Consent to Unconscious Sex” (2010) 14 Canadian Criminal Law Review 273).

One solution proposed by Justice Fish to deal with this scenario was the approach taken in England and Wales, where the Sexual Offences Act 2003 (UK), c 42, introduced an evidential presumption of non-consent where the complainant was asleep or otherwise unconscious. For Justice Fish, this legislation offered a suggestion for how Parliament might respond to evidentiary concerns arising from a recognition of advance consent in Canada, such as the complainant not being able to recall what happened while she was asleep or unconscious coupled with the usual absence of corroborative evidence.

The Sexual Offences Act 2003 provides in section 74 that “a person consents if he agrees by choice, and has the freedom and capacity to make that choice.” Section 75 lists a number of evidential presumptions related to consent. Generally, if it is proved that the accused committed the relevant act and that certain circumstances existed to his knowledge, the complainant is presumed not to have consented unless sufficient evidence is adduced to raise an issue as to consent or reasonable belief in consent (section 75(2)). In addition to the presumption created where “the complainant was asleep or otherwise unconscious at the time of the relevant act,” evidential presumptions also exist in circumstances where there was violence or threats of violence against the complainant or another person; the complainant was unlawfully detained; the complainant was unable to communicate consent because of physical disability; and the complainant was given a stupefying substance (section 75(2)(a)-(f)). Additionally, the Sexual Offences Act 2003 provides for conclusive presumptions against consent in circumstances where the accused “intentionally deceived the complainant as to the nature or purpose of the relevant act” or “intentionally induced the complainant to consent to the relevant act” by impersonation (section 76).

This is a very different scheme than Canada’s Criminal Code, where we have a number of conclusive presumptions against consent in section 273.1(2) but no evidential presumptions. Indeed, the Sexual Offences Act 2003 has been critiqued on the basis that there is no apparent rationale for differentiating between the circumstances leading to conclusive versus evidential presumptions. Moreover, the lists of presumptions are closed, and omit certain circumstances where consent might reasonably be presumed to be absent, such as the complainant’s incapacity caused by voluntary intoxication (See Jennifer Temkin and Andrew Ashworth, “The Sexual Offences Act 2003:(1) Rape, sexual assaults and the problems of consent” [2004] Criminal Law Review 328, 336-7).

With respect to the evidential presumption involving complainants who were asleep or otherwise unconscious, Temkin and Ashworth argue that it “takes the law backwards” by altering the conclusive presumption at common law that there was no consent in these circumstances (at 337). The common law position was based on the understanding – similar to that of the majority of the Supreme Court of Canada in JA – that consent must be present at the time of the sexual act.

Case law on the application of the evidential presumption regarding sleeping or unconscious complainants in England and Wales raises some of the concerns enumerated by LEAF in its intervener factum in JA.

R v White, [2010] EWCA Crim 1929, involved a scenario where the accused took intimate photographs of himself engaged in sexual activity with the complainant, his former intimate partner, on his mobile phone. She testified that she did not consent to the photos being taken or the sexual activity they captured, which must have occurred while she was asleep. In cross-examination “she agreed that the images could have been taken after an act of consensual sexual intercourse [and that there] had been occasions when she had consented to sexual intercourse with the appellant when she had been drinking alcohol” (at para 3). This evidence was seen to be sufficient to rebut the evidential presumption relating to unconscious complainants by raising an issue of consent or belief in consent. According to the Court of Appeal, the jury’s question: “If she gave consent beforehand and then fell asleep during the photo preparation, is the consent still current?” should be answered in the affirmative and provide a defence to the accused (at paras 9, 12).

In another case, R v Ciccarelli, [2011] EWCA Crim 2665, the Court of Appeal considered a situation where the complainant was sexually touched by the accused while she was “fast asleep or unconscious through drink, and possibly drugs, without her consent” (at para 4). The only issue was the accused’s reasonable belief in consent. The trial judge concluded that sufficient evidence had not been raised to leave the issue of belief in consent with the jury. The Court of Appeal upheld this ruling, but also suggested that if there had been a previous relationship between the parties, that may have affected the question of whether there was sufficient evidence to rebut the presumption (at paras 5, 19).

This case law on section 75(2) of the Sexual Offences Act 2003 reinforces concerns with respect to the difficulties of proof in cases involving sleeping or unconscious partners. My research on marital rape in Canada shows that cases involving sleeping or unconscious complainants often only come to light where the accused recorded the sexual activity, as in White (see e.g. R v Berry, 2013 BCSC 1878; 2014 BCSC 284; 2015 BCCA 210; R v Truong, 2012 ABQB 661; 2013 ABCA 373; R v NW, 2013 ABCA 393; R v Cassels, 2013 MBPC 47; R v BJW, 2011 ONSC 5584; R v JH, 2013 ONCA 693; R v DR, 2013 ONSC 161). But in White the finding of sufficient evidence to rebut the presumption meant the case should have gone to the jury to decide whether the complainant consented to the sexual activity that occurred while she was asleep. In Canada, that activity would fall outside the parameters of the consent provisions. The evidential presumption in the Sexual Offences Act 2003 also raises the possibility of the introduction of sexual history evidence and the relaxation of standards around consent and mistaken belief in consent in cases involving a previous relationship between the parties, as the Court of Appeal adverted to in Ciccarelli.

I therefore maintain that the Supreme Court majority was correct in JA by holding that advance consent should not be permitted within the context of Canadian sexual assault law, and disagree with the dissent’s suggestion that it would be appropriate to introduce an evidential presumption similar to that under the Sexual Offences Act 2003. Even without an evidential presumption, it can be difficult to maintain Canada’s affirmative understanding of consent in cases involving complainants who were intoxicated, even to the point of passing out, as Garrioch shows.

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Everything Must Go!!!

Fri, 11/20/2015 - 10:00am

By: Theresa Yurkewich

PDF Version: Everything Must Go!!!

Case Commented On: Edmonton (City) v Peter, 2015 ABQB 635

It began with an ordinary accumulation of garbage bags. Next, a giant “Yard Sale” sign followed, made on cloth and propped up by the house. And in no time, the property located on Edmonton’s busy 113th Street was increasingly riddled with a variety of materials from household goods, to cardboard and other debris, and, on occasion, even a spray-painted “Closed” sign. By June 2015, it appeared Mr. Peter was running a permanent yard sale, visible from the street and encompassing both his front and back yard; and frankly, the City of Edmonton – and likely Mr. Peter’s neighbors – had enough. This article examines the decision of Justice J.B. Veit in Edmonton (City) v Peter, 2015 ABQB 635.

Under Section 546(1)(c) of the Municipal Government Act, R.S.A. 2000, c. M-26, the City of Edmonton sought, and received, an order in June 2015 requiring Mr. Peter to removal all garbage bags, cardboard, loose litter, and debris from his property. Mr. Peter, however, appealed this order to the License and Community Standards and Appeal Board and continued to accumulate debris on his property. In fact, in his refusal to comply, Mr. Peter issued a “notice” to the City, objecting to the entrance of enforcement officers on his property without a warrant.

The provisions of section 546 of the Municipal Government Act relied upon by the City to issue the removal order are as follows:

546(0.1) In this section,

(a) “detrimental to the surrounding area” includes causing the decline of the market value of property in the surrounding area;

(b) “unsightly condition”,

(i) in respect of a structure, includes a structure whose exterior shows signs of significant physical deterioration, and

(ii) in respect of land, includes land that shows signs of a serious disregard for general maintenance or upkeep.

(1) If, in the opinion of a designated officer, a structure, excavation or hole is dangerous to public safety or property, because of its unsightly condition, is detrimental to the surrounding area, the designated officer may by written order

(a) require the owner of the structure to

(i) eliminate the danger to public safety in the manner specified, or

(ii) remove or demolish the structure and level the site;

(b) require the owner of the land that contains the excavation or hole to

(i) eliminate the danger to public safety in the manner specified, or

(ii) fill in the excavation or hole and level the site;

(c) require the owner of the property that is in an unsightly condition to

(i) improve the appearance of the property in the manner specified, or

(ii) if the property is a structure, remove or demolish the structure and level the site.

(2) The order may

(a) state a time within which the person must comply with the order;

(b) state that if the person does not comply with the order within a specified time, the municipality will take the action or measure at the expense of the person.

The refusal by Mr. Peter to comply with the City’s order over the next 3 months, led the City to bring an application via section 554(1)(b) of the Municipal Government Act, seeking a mandatory injunction of Mr. Peter’s yard sale, thereby requiring him to end the sale and remove the items from his yard. This application was based on a variety of bylaw infringements, including Mr. Peter’s failure to apply for and obtain a business license for his yard sale, and the excessive accumulation of material amounting to unsightliness.

Mr. Peter opposed the injunction application on five grounds, including that the City had no evidence he was actually running a sale or had made a transaction, and therefore arguing he did not require a business license to operate the yard sale itself. Further, he argued the term “unsightly” was too subjective for the court to enforce.

In support of its position, the City relied on section 6 of the Community Standards Bylaw, City of Edmonton Bylaw 14600, which states in part:

6 (1) A person shall not cause or permit a nuisance to exist on land they own or occupy.

(2) For the purpose of greater certainty a nuisance, in respect of land, means land, or any portion thereof, that shows signs of a serious disregard for general maintenance and upkeep, whether or not it is detrimental to the surrounding area, some examples of which include:

(a) excessive accumulation of material including but not limited to building materials, appliances, household goods, boxes, tires, vehicle parts, garbage or refuse, whether of any apparent value or not.

The City further relied upon the definition of “business” and “general business” within the Business License Bylaw, City of Edmonton Bylaw 13138, and argued a yard sale met the classification of a second hand store, reading:

2 In this bylaw:

(a) “Business” means:

(i) a commercial, merchandising or industrial activity or undertaking,

(ii) a profession, trade, occupation, calling or employment, or

(iii) an activity providing goods or services,

as described in Schedule “A”, and whether or not for profit and however organized or formed, including a co-operative or association of Persons;

The relevant portions of Schedule A are as follows:

General Business: Any Business not otherwise specified in this Schedule.

Second Hand Store: Selling previously owned goods other than by Auction, Traveling or Temporary Sales or in a Flea Market or Farmer’s Market.

In addition, section 82 of the Business Licence Bylaw provides:

82 In addition to any other requirements, before the issue or renewal of a Licence for a Second Hand Store a Person must submit to the City Manager, in a form acceptable to the City Manager:

(a) if the applicant is a corporation:

(i) the full name and date of birth of all primary managers, owners, partners, directors and officers of the corporation; and

(ii) a recent Police Information Check issued by the Edmonton Police Service for all primary managers, owners, partners, directors and officers of the corporation;

(b) if the applicant is an individual:

(i) the full name and date of birth of the applicant; and

(ii) a recent Police Information Check issued by the Edmonton Police Service for the applicant;

(c) the full name, date of birth and job title of every Person working in the Second Hand Store.

The City acknowledged that an exemption from the Business License Bylaw exists for a garage sale that lasts a minimum of three days, and occurs only once per year. Mr. Peter’s “yard sale”, however, had been enduring long past that limitation.

The Court deemed it necessary to proceed with the City’s application, regardless of Mr. Peter’s pending appeal of the June 2015 order, stating that the application was not based on the same facts as the June 2015 order, given that the situation had escalated, as admitted by Mr. Peter and as illustrated through the City’s evidence.

The Court agreed with Mr. Peter that a yard sale is not a second hand store, however, as provided above, the Business License Bylaw still requires every business to be licensed as a general business. Referring to Stewart v Canada, 2002 SCC 46, the Court applied a two-stage approach to summarize the principles of a “business”. This approach includes determining whether the individual’s activity is undertaken in pursuit of profit, and if so, whether the source of the income is business or property. Where the individual’s nature of activity is clearly commercial, however, a pursuit of profit is established.

In regards to Mr. Peter’s activity, the Court looked subjectively at the evidence, searching for evidence of business like behaviour. In this case, the placement of a yard sale sign on the property was an indication of a commercial operation, regardless of whether any transactions actually occurred. The choice of the word “sale”, together with the photographs provided by the City, including the closed sign, established a commercial intent. In response to Mr. Peter’s argument that there was no evidence of any commercial transactions, at paragraph 43 the Court stated that “evidence of a transaction actually being concluded is not a necessary component of a “business”. A business owner that never concluded any transaction would be an unsuccessful business, but it would be a business all the same”.

Regardless of the lack of evidence that Mr. Peter was actually operating the sale, the Court relied on the circumstantial evidence, including his ownership and presumptive control of the land as well as his frequent attendance at the property.

In response to Mr. Peter’s argument that the term “unsightly” is too difficult to define, the Court applied section 6(2)(a) of the Community Standards Bylaw in conjunction with section 546(0.1) of the Municipal Government Act, to find that there was an excessive accumulation of material on Mr. Peter’s property, amounting to unsightliness, and ultimately permitting an order for removal of the materials and compliance by Mr. Peter.

In determining Mr. Peter was in breach of the City of Edmonton’s bylaws, the Court then turned to remedies, first discussing a typical hesitance to award injunctions. In this case, however, the Court stated there were no other remedies available to the City, especially given the City’s previous attempts to enforce the June 2015 order and the worsening of the situation. For this reason, the Court agreed that an injunction was necessary to resolve the situation and not only granted the City’s application, but also provided the City with the right to enter Mr. Peter’s property and remedy the situation if Mr. Peter did not do so himself.

It was Mr. Peter’s use of the word “sale” that ultimately led to his own downfall. In the end, the sign was ultimately relied upon to establish a commercial intent, rather than a personal endeavour, regardless of whether any transactions actually occurred on the property. Had Mr. Peter merely accumulated the materials in his yard, however, he would have still been trapped under the Community Standards Bylaw, due to his excessive accumulation of materials – seemingly increasing each day. For now, the moral of the story seems that the success of a business, or lack thereof, will not exempt an individual from the applicability of the Business License Bylaw, and if you wish to hoard items in your yard – limit it to a duration of three days per year.

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Protection for the Rights of Farm Workers Finally Proposed in Alberta

Thu, 11/19/2015 - 10:00am

By: Jennifer Koshan

PDF Version: Protection for the Rights of Farm Workers Finally Proposed in Alberta

Legislation Commented On: Bill 6, Enhanced Protection for Farm and Ranch Workers Act

On November 17, 2015 the Minister of Jobs, Skills, Training and Labour Lori Sigurdson introduced Bill 6 in the Alberta Legislature. She described the Enhanced Protection for Farm and Ranch Workers Act as an omnibus bill that:

proposes to amend workplace legislation so Alberta’s farm and ranch workers will enjoy the same basic rights and protections as workers in other industries. Proposed changes would remove the exemption of the farm and ranch industry from occupational health and safety, employment standards, and labour relations legislation. Bill 6 also proposes to make workers’ compensation insurance mandatory for all farm and ranch workers. If passed, Alberta would join every other jurisdiction in Canada in applying workplace legislation to Alberta’s farms and ranches. This is a historic day for Alberta (Hansard, November 17, 2015).

In a constitutional clinical course in winter 2014, my students undertook research and discussions with labour and employment groups and concluded that these changes were constitutionally mandated. Their conclusions, based on analysis of case law under Charter section 2(d) (freedom of association), section 7 (the right to life, liberty and security of the person) and section 15 (equality rights) can be found in ABlawg posts here:

Kay Turner, Gianna Argento, Heidi Rolfe, Alberta Farm and Ranch Workers: The Last Frontier of Workplace Protection

Brynna Takasugi, Delna Contractor and Paul Kennett, The Statutory Exclusion of Farm Workers from the Alberta Labour Relations Code

Nelson Medeiros and Robin McIntyre, The Constitutionality of the Exclusion of Farm Industries under the Alberta Workers’ Compensation Act

Graham Martinelli and Andrew Lau, Challenging the Farm Work Exclusions in the Employment Standards Code

See also my post The Supreme Court’s New Constitutional Decisions and the Rights of Farm Workers in Alberta, which argues that the constitutional mandate to include farm workers in labour and employment legislation was strengthened by a number of Supreme Court decisions from earlier this year.

Bill 6 proposes the following measures:

  • Part 1 will repeal sections 2(3) and (4) of the Employment Standards Code, RSA 2000 c E-9. These sections currently exclude farm and ranch workers from provisions of the Employment Standards Code relating to Hours of Work, Overtime and Overtime Pay, General Holidays and General Holiday Pay, Vacations and Vacation Pay, and Restrictions on the Employment of Children. It will also repeal section 138(1)(l) of the Code and section 1.1 of the Employment Standards Regulation, AR 14/97, both of which provide definitions of agricultural operations encompassed by the current exclusions. For arguments that these exclusions violate sections 7 and 15 of the Charter see Martinelli and Lau, above. The proposed amendments in this Part would come into force upon Proclamation, which the government anticipates for spring 2016. A government news release indicates that the delay is to allow “consultations with industry regarding exemptions that may be needed for unique circumstances such as seeding or harvesting”.
  • Part 2 will repeal section 4(2)(e) of the Labour Relations Code, RSA 2000 cL-1, which currently excludes farm and ranch workers from the entire Labour Relations Code. The exclusion deprives farm and ranch workers of the right to join a trade union and have that union collectively bargain on its behalf, the right to strike, and protection from unfair labour practices on the part of employers. For arguments that these exclusions violate sections 2(d), 7 and 15 of the Charter see Takasugi, Contractor and Kennett, above. The proposed amendments in this Part would come into force upon Proclamation in spring 2016. The government also contemplates the possibility of special provisions in this legislative context “to address the unique aspects of the farm and ranch industry” (see here).
  • Part 3 will repeal section 1(s)(i) of the Occupational Health and Safety Act, RSA 2000 cO-2, as well as the Farming and Ranch Exemption Regulation, AR 27/95. These provisions currently exclude farm and ranch workers, as defined in the Regulation, from workplace standards designed to protect the health and safety of workers, including the right to refuse unsafe work. For arguments that these exclusions violate sections 7 and 15 of the Charter see Turner, Argento, and Rolfe, above. Part 3 also proposes amendments to the Occupational Health and Safety Code 2009, adopted under the Occupational Health and Safety Code 2009 Order, AR 87/2009. These amendments would, unless expressly provided otherwise, maintain the exclusion of some farm and ranch workers from the Code. According to the government’s news release, it intends to develop specific occupational health and safety standards for farms and ranches that would presumably be included in the Code. The proposed amendments in Part 3 would come into force on January 1, 2016, with the government promising detailed standards by 2017.
  • Part 4 will repeal a number of exclusions in the Workers’ Compensation Regulation, AR 325/2002, Schedule A, by striking out the categories of farm and ranch workers who are currently excluded from mandatory workers compensation coverage, i.e. those involved in: agrology and agronomy services; operation of apiaries; artificial breeding services; breeding of animals, birds, fish or reptiles; collection of urine from pregnant mares; operation of dude ranches; commercial egg production; farming; farming contracting, including haying and threshing; operation of commercial feed lots; fertilizer spreading services; commercial fruit growing operations; game farms; horse exercising, training or racing; commercial poultry production; commercial rabbit production; ranching; operation of riding academes or horse stables; and commercial vegetable growing. For arguments that the current exclusions violate sections 7 and 15 of the Charter see Medeiros and McIntyre, above. The proposed amendments in Part 4 would come into force on January 1, 2016.

A number of town hall meetings will take place before the end of December to allow broad consultation into the proposed changes. The government has also developed a website on the Enhanced Protection for Farm and Ranch Workers Act that permits input to be provided online.

As noted in the government’s FAQ, Alberta is the only province where Occupational Health and Safety (OHS) legislation does not apply to farms and ranches. Ontario was one of the last provinces to extend its OHS legislation to farm workers, which it did in 2006. Ontario was also a hold out in extending labour relations protections to farm workers. Although Bob Rae’s NDP government did so in 1994, and farm workers were covered for a short time, the Mike Harris Conservatives repealed that legislation when they came to power in 1995. This resulted in litigation culminating with the Supreme Court of Canada’s decision in Dunmore v. Ontario (Attorney General), [2001] 3 SCR 1016, 2001 SCC 94. In Dunmore, the Court held that the blanket exclusion of farm workers from labour relations protections violated their freedom of association under section 2(d) of the Charter, and could not be justified by the government under section 1 on the basis of protecting “family farms”. As noted by the Court, farming has changed drastically over the last 100 years and often takes place in large scale commercial operations, making the family farm justification overbroad.

In spite of the decision in Dunmore (which I nominated as one of the top cases of the 2000s on ABlawg several years ago), successive Conservative governments in Alberta continued to maintain a blanket exclusion of farm and ranch workers from not just the Labour Relations Code, but from the Employment Standards Code, Occupational Health and Safety Act and Workers’ Compensation Act as well. This was in spite of some excellent advocacy on behalf of these workers by the Alberta Federation of Labour, the United Food and Commercial Workers, the Calgary Workers Resource Centre, the Farm Workers Union of Alberta, and Dr David Swann. It is about time that the government is proposing to extend to farm and ranch workers the same legislative protections enjoyed by other workers in this province and by farm and ranch workers elsewhere in Canada.

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Is there Space for the Homeless in our City’s Parks? A Summary and Brief Commentary of Abbotsford (City) v Shantz

Tue, 11/17/2015 - 10:00am

By: Ola Malik and Megan Van Huizen

PDF Version: Is there Space for the Homeless in our City’s Parks? A Summary and Brief Commentary of Abbotsford (City) v Shantz

Case Commented On: Abbotsford (City) v Shantz, 2015 BCSC 1909

The recent B.C. decision of Abbotsford (City) v Shantz) highlights the central issue which seems to arise whenever there is a conflict over the management of public city space – who does this space “belong” to, and who gets to use it? When we answer that question, many of us would agree that this space belongs to those who live in our communities — parents with strollers, families on an outing, people walking their dogs or playing with their kids. When we think about who belongs in our community, how many of us include the homeless?

The homeless are often excluded from our conception of community. It is easy to ignore the issue of homelessness when it is hidden from view. But as soon as the homeless become visible in our parks and neighbourhoods they are seen as a nuisance requiring a solution. The well-known phrase, “you don’t have to go home, but you can’t stay here” aptly captures the dilemma the homeless face — and when you have no place to call home – where do you go?

A Precursor: Victoria (City) v Adams

In the previous B.C. case of Victoria (City) v Adams (2008 BCSC 1363, 2009 BCCA 563), The City of Victoria sought to remove a tent city comprised of 20 tents which was being used by 70 homeless people in one of its downtown parks. The City of Victoria argued that the tent city was in contravention of its bylaws which prohibited people from temporarily erecting shelters, such as tents or other structures, and sleeping in parks overnight. The City of Victoria commenced civil proceedings and was initially successful in getting the tent city removed pursuant to a temporary civil injunction. However, The City of Victoria lost at trial where its bylaws were challenged on the basis that they infringed upon the homeless campers’ section 7 Charter rights because of arbitrariness and overbreadth. The trial judge found that The City of Victoria’s bylaws were both arbitrary and overbroad and therefore constituted a breach of their section 7 Charter interests which were not saved by section 1 of the Charter. The City of Victoria appealed to the BC Court of Appeal, which upheld the trial judge’s conclusions that the bylaws were overbroad (BCCA, at paras 112-116) but did not find that they were arbitrary (BCCA, at paras 117-124).

It is important to note how the constitutional question in the Adams case was framed. The City of Victoria’s bylaws allowed a person to sleep in a park during the daytime under a non-structural covering, such as under a blanket, in a sleeping bag, or under a tarp. What the bylaw prohibited was sleeping in parks overnight, and the erection of any structure, howsoever temporary, such as a tent, a tarp strung between trees, or cardboard boxes.

Taken together, the courts’ decisions in Adams establish that where the number of homeless exceeds the number of available shelter beds, prohibiting the homeless from sleeping overnight in municipal parks and from erecting temporary, adequate overhead shelter constitutes a breach of section 7 of the Charter. Erecting a temporary overhead structure in which to sleep invokes one of the basic life choices that go to the core of what it means to enjoy individual dignity and independence. This is because without some form of overhead protection from the elements, the homeless are significantly exposed to the elements and risk health problems such as hypothermia and even death. Consequently, the erection of some overhead structure is a necessary response to a person’s health and well being, and is therefore protected by the security interest enshrined in section 7 of the Charter.

The BC Court of Appeal agreed with the trial judge’s findings that the bylaw restrictions were overbroad: The City of Victoria didn’t prohibit sleeping in parks during the daytime, so what was the purpose for banning night-time sleeping? Further, The City of Victoria failed to establish how the erection of temporary, non-invasive structures or an increase in the number of homeless campers would have a more harmful impact on park assets than that caused by other park users.

The courts’ decisions in Adams leave us with three key issues which, as we shall see, remain relevant after Shantz:

  • The courts’ conclusions regarding the section 7 breach rest on a finding that there were insufficient shelter beds to provide overnight shelter. The courts acknowledged that a decision regarding the homeless’ section 7 Charter rights would be much more difficult if a municipality could prove that there were enough accessible, safe, shelter beds for the homeless to use (BCSC, at para 191; BCCA, at para 74).
  • Finding in favour of a section 7 Charter breach should not be viewed as constituting an interference with a municipality’s discretion in how it chooses to address homelessness, nor does it impose an obligation on a municipality to provide the homeless with adequate shelter (for more of a discussion on this, see Joshua Sealy-Harrington’s blog here where he discusses the Ontario Court of Appeal’s decision in Tanudjaja v. Canada (Attorney General), 2014 ONCA 852 which upheld a motion court’s decision to strike an application brought under section 7 of the Charter which sought to require the federal government and Ontario provincial government to provide for “affordable, adequate, accessible housing”). What the section 7 analysis is concerned with is whether government action deprives someone of their liberty rights, not with the imposition upon government of positive obligations to fix the problem. How government chooses to remedy a section 7 Charter breach is for government to decide, not the courts (BCSC, at paras 114-123; BCCA, at paras 90-96).
  • Adams does not grant the homeless with a vested property right, or a “free-standing constitutional right” to camp in a municipality’s parks. In Adams, both the trial judge and BC Court of Appeal were careful to point out that the homeless were not being granted an exclusive use of municipal park space. While overnight camping under temporary structures was allowed, there was nothing in the courts’ decision which opened the door (at least on the facts before them) for the establishment of permanent or semi-permanent homeless encampments or “tent cities” (BCSC, at paras 126-132; BCCA, at paras 98-101).

The Present: Abbotsford (City) v Shantz

In the case of Shantz, The City of Abbottsford had been dealing with the erection of various homeless camps. In the case of one camp, The City of Abbotsford obtained an interim injunction, requiring the removal of all structures of shelters and tents which had been erected (including a wooden structure) as part of a homeless camp. The City of Abbotsford brought an application to make the injunction permanent. The BC/Yukon Association of Drug War Survivors (“DWS”) responded by challenging the constitutional validity of The City of Abbotsford’s various bylaws pursuant to sections 2 (rights to freedom of expression, peaceful assembly, and association), 7 and 15 of the Charter.

In contrast to The City of Victoria’s bylaws under consideration in Adams which imposed a blanket prohibition on overnight camping and the erection of temporary shelters in its city parks, the City of Abbotsford’s bylaws subjected this very same activity to a permitting scheme. In order to camp overnight or erect a temporary structure such as a tent, building, shelter pavilion or other construction, you were required to obtain permission from the general manager of parks. A valid credit card was required to make the booking. The cost per night was $10.00 per tent or vehicle. Insurance was also required (at paras 22-23).

Would The City of Abbotsford’s permitting regime survive a Charter challenge?

In Shantz, the court arrived at the same ultimate conclusions as those arrived at in Adams: the homeless have a constitutionally protected liberty right under section 7 of the Charter to sleep overnight in parks under temporarily erected overhead shelters where a municipality does not have sufficient accessible shelter space to accommodate them. The permitting scheme which The City of Abbotsford had set up was not practically accessible by the homeless, and effectively acted as a prohibition.

It is important to note that in Shantz, The City of Abbotsford had engaged in various efforts to shut down some of the homeless camps and keep the homeless moving. These efforts included spreading chicken manure over one camp, spraying pepper spray into empty tents, and cutting tent straps and tents. The court was condemnatory of these tactics which affected the homeless psychologically and made it more difficult for The City of Abbotsford’s homeless providers to locate them and provide help (at para 209).

The court dismissed DWS’s Charter challenge brought forward for breaches of sections 2 and 15 (these won’t be discussed here) but otherwise concluded that The City of Abbotsford’s regulatory scheme infringed upon the homeless campers’ section 7 liberty interests and that the impact of the bylaws was overbroad and grossly disproportionate, thereby violating principles of fundamental justice.

With respect to overbreadth, the court (at para 200) cited the definition of overbreadth from (Canada (Attorney General) v. Bedford, 2013 SCC 72, (“Bedford”) and found that The City of Abbotsford’s permitting scheme was overbroad (at paras 200-203). The court indicated that less intrusive measures could have been imposed that would still have supported The City’s objectives of effectively managing its parks for all of its park users. Similar to the analysis of overbreadth, the court concluded that imposing a permitting scheme which the homeless could not satisfy and displacing the homeless from their camps was grossly disproportionate to these objectives (at paras 209, 221, 223-224).

Finally, the court found that the section 7 breaches were not saved by section 1 of the Charter (at paras 237-247). This is unsurprising as it is extremely rare that a court, having concluded that a law which infringes upon those fundamental personal rights protected by section 7 and a manner which in some way violates the principles of fundamental justice can ever be saved by more compelling societal interests.

In the result, the court declared that the bylaw provisions which prohibited overnight sleeping and the erection of temporary shelters violated section 7 and were of no force and effect, pursuant to section 52 of the Charter. Further, the court concluded that a minimally impairing bylaw would allow overnight shelters in The City of Abbotsford’s public parks between the hours of 7:00 pm and 9:00 am the following day.

The issues which we identified in Adams continue to be of interest following the court’s decision in Shantz.

  • For the court in Shantz, assessing whether The City of Abbotsford had sufficient overnight shelter accommodations invokes both quantitative and qualitative assessments (although this was not expressly articulated in this way). The quantitative question asks whether there are enough available shelter beds to meet demand. The qualitative question is more difficult and examines the nature of barriers that would prevent someone from accessing normally available shelter space. Examples of barriers include shelter open hours, restrictions pertaining to sobriety and drug abstinence, unaffordable rental fees, and, in some cases, the poor living conditions found in some of the market housing (at paras 47-68). In Shantz, the court essentially concluded there was both insufficient (quantitative) and inaccessible (qualitative) shelter space (at para 82).

As in Adams, the court in Shantz addressed The City of Abbotsford’s argument (at paras 76-77) that some homeless people prefer to camp outside despite the presence of available shelter beds. The City of Abbotsford tried to make the point that it was caught in an intractable bind — irrespective of how much accessible shelter space there was, there are homeless people that simply prefer to camp outside.

In Shantz, the court addressed this issue (at para 78) by referring to the Bedford decision where the Supreme Court of Canada expressly addressed the issue of “choice” for those engaging in risky activities at paras 86 and 87:

First, while some prostitutes may fit the description of persons who freely choose (or at one time chose) to engage in the risky economic activity of prostitution, many prostitutes have no meaningful choice but to do so. Ms. Bedford herself stated that she initially prostituted herself “to make enough money to at least feed myself”. As the application judge found, street prostitutes, with some exceptions, are a particularly marginalized population…Whether because of financial desperation, drug addictions, mental illness, or compulsion from pimps, they often have little choice but to sell their bodies for money. Realistically, while they may retain some minimal power of choice — what the Attorney General of Canada called “constrained choice” — these are not people who can be said to be truly “choosing” a risky line of business.

Second, even accepting that there are those who freely choose to engage in prostitution, it must be remembered that prostitution — the exchange of sex for money — is not illegal. The causal question is whether the impugned laws make this lawful activity more dangerous. An analogy could be drawn to a law preventing a cyclist from wearing a helmet. That the cyclist chooses to ride her bike does not diminish the causal role of the law in making that activity riskier. The challenged laws relating to prostitution are no different.

It’s important to point out how the courts in Adams and in Shantz address this question of “choice” as it pertains to section 7 interests.   All of us have heard the arguments that only those who make poor life choices or are otherwise irresponsible end up homeless. This is a convenient argument which releases us from any further obligation to render assistance because they have “chosen” how to live their lives, just as we have ours.

But making a Sophie’s Choice is not a free choice. In the same way in which court decisions such as Bedford and R v Parker ((2000), 49 O.R. (3d) 481, referred to in the Adams decision, BCCA, at para 106)) have refined the section 7 interests in respect of prostitutes and epileptics, the courts in Adams and Shantz have now examined these interests in respect of the homeless. This is how the court framed this issue in Shantz (at paras 81-82):

…[T]o assert that homelessness is a choice ignores realities such as poverty, low income, lack of work opportunities, the decline in public assistance, the structure and administration of government support, the lack of affordable housing, addiction disorders, and mental illness. I accept that drug and alcohol addictions are health issues as much as physical and other mental illnesses. Nearly all of the formerly homeless witnesses called by DWS gave evidence relating to some combination of financial desperation, drug addiction, mental illness, physical disability, institutional trauma and distrust, physical or emotional abuse and family breakdown which led, at least in part, the witness becoming homeless.

Given the personal circumstances of the City’s homeless, the shelter spaces that are presently available to others in the City are impracticable for many of the City’s homeless. They simply cannot abide by the rules required in many of the facilities that I have discussed above, and lack the means to pay the required rents at others. While some of those who are amongst the City’s homeless have declined available shelter, I am satisfied that at present there is insufficient accessible shelter space in the City to house all of the City’s homeless persons.

It appears that this issue of “choice” has now been put to rest. However, we wonder from a practical perspective whether a municipality would ever be able to demonstrate that it had sufficient accessible shelter beds to meet its homeless population. Providing the quantity of overnight shelter beds is, in itself, a difficult challenge for any municipality to meet. Now add to that the additional challenge of having to ensure that overnight shelter beds qualitatively meet the broad range of challenges by imposing suitably low barriers to admission. Can a municipality realistically ever prove that it has made available sufficient shelter space to meet a vast range of current, individualized needs? Can the test, which requires a municipality to show that it has both sufficient and accessible shelter space ever be met?

  • In Shantz, the court confirmed that the section 7 analysis should only focus on the effect of how laws deprive someone of their section 7 interests (at paras 181-182). Neither in Adams nor in Shantz did the courts affirm that section 7 of the Charter grants the homeless with a constitutionally protected right to adequate food, shelter or any other basic necessities of life. To do so, would constitute the granting of positive social and economical interests which the court in Shantz expressly declined to do based on previous case law (at paras 176,177 and 181).

However, in Shantz (at para 178), the court quoted from an article written by Martha Jackman titled The Protection of Welfare Rights Under the Charter ((1988) 20 Ottawa Law Review 257), which was cited by the trial judge in Adams:

…[A] person who lacks the basic means of subsistence has a tenuous hold on the most basic of constitutionally guaranteed human rights, the right to life, to liberty, and to personal security. Most, if not all, of the rights and freedoms set out in the Charter presuppose a person who has moved beyond the basic struggle for existence. The Charter accords rights which can only be fully enjoyed by people who are fed, are clothed, are sheltered, have access to necessary health care, to education, and to a minimum level of income…

There appears to be a growing consensus within the legal academy and the courts that our laws are not being carefully crafted enough to recognize their effects and impact upon those who live on the margins of our society. That conclusion should perhaps come as no surprise given that issues of poverty, homelessness, mental illness, drug addiction, and crime are complex and require deeper understanding. (For anyone writing on the intersection between laws and the homeless, we would strongly recommend two excellent articles written by Jeremy Waldron: Homelessness and Community, (2000), 50 University of Toronto Law Journal, 372-406; and Homelessness and the Issue of Freedom, 39 UCLA L. Rev. 295-324, (1991-1992)).

We’re curious to see how far the application of section 7 rights will extend to the rights of the homeless although we’re sure we’re at the start of what could be an enlargement of section 7 jurisprudence in this regard. That poses a challenge for municipalities to ensure that they carefully consider the interests of the marginalized who are often disproportionately impacted by municipal enforcement (for example, see Justin Douglas: The Criminalization of Poverty: Montreal’s Policy of Ticketing Homeless Youth for Municipal and Transportation Bylaw Offences (2011) 16 Appeal 49-64) and who very often don’t have sufficient input into the political or administrative process regarding the drafting of municipal bylaws.

  • In Adams, one of the questions which the courts considered was whether, in successfully establishing that they had they had a right to camp overnight in city parks, the homeless were being granted a property right in appropriating public park space. This is critically important for municipalities who fear this would create permanent tent cities. As you might recall, this was one of the central arguments which Canadian municipalities articulated in their efforts to rid their parks of the Occupy protest encampments which swept across Canada in late 2011.

In Adams, the trial judge suggested that The City of Victoria’s concerns regarding the environmental impact of overnight camping could be alleviated by requiring the overhead structures to be dismantled each morning and to delineate which ecologically sensitive park areas were off limits for sleeping and camping (BCSC at para 185). In Shantz, the court raised the idea that overnight camping be allowed in a roster of rotating, non-developed parks, closer to homeless facilities and perhaps more appropriate (from an ecological standpoint) for overnight camping (at para 278). As discussed above, the court disapproved of the displacement tactics which The City of Abbotsford used to move the homeless on because of their destabilizing impact on an already vulnerable group.

We might suggest that where there is any doubt as to what the correct strategy ought to be, municipalities are far better served redressing the issue of established homeless encampments through formal court proceedings or pursuant to trespass legislation rather than asking enforcement officials to exercise their individual discretion. While seeking court remedies takes much longer time, municipalities who avail themselves of the legal process will far often be seen as having acted properly, through the appropriate legal channels and in good faith, as compared to those who exercise questionably harsh tactics (as in Shantz). Further, effectively dealing with the homeless requires the assistance of specialized agencies, social workers and homeless advocates who understand the challenges of homelessness and who can suggest appropriate resources for follow-up help.

For many municipalities, the effect of the 2011 Occupy protest movement was to focus the mind on how to balance competing interests and demands brought to bear on public park space. To find the appropriate balance was novel for many municipalities who didn’t quite know how to balance the rights of those engaging in legitimate political protest with those who were concerned that their parks were being appropriated and rendered unusable by other park users.

In much the same way, the Adams and Shantz decisions challenge us to think about how we make our public spaces available to the homeless. What Jeremy Waldron argues in his article Homelessness and the Issue of Freedom, is that the homeless are unfree in virtually every activity they undertake and which the rest of us take for granted: the homeless can, like the rest of us, be in all of our public spaces. Yet none of those spaces allow them to do what you and I can do in our homes, our friends’ homes, bars, restaurants or nightclubs – sleep, eat, cook, wash, go to the bathroom, attend to personal hygiene or simply stand around. Because the homeless have no place to call their own, they can only engage in these basic human activities in public places which prohibit them from doing so (which the court in Shantz recognizes, para 278). To return to our initial question: When you have no place to call home – where do you go?

We suspect that the outcome of Shantz is that municipalities across Canada will (or at least should) re-assess their parks and other bylaws and their impact upon the homeless and marginalized. Yes, our public parks belong to parents with strollers, families on an outing, people walking their dogs or playing with their kids. And they also belong to our homeless.

This blog does not necessarily represent the views of The City of Calgary.

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Impaired Driving and Approved Screening Devices

Thu, 11/12/2015 - 10:00am

By: Shaun Fluker, Elliot Holzman, and Ian Pillai

PDF Version: Impaired Driving and Approved Screening Devices

Case Commented On: Goodwin v British Columbia (Superintendent of Motor Vehicles), 2015 SCC 46; Wilson v British Columbia (Superintendent of Motor Vehicles), 2015 SCC 47

In October the Supreme Court of Canada issued two companion judgments concerning the constitutionality and meaning of the Automatic Roadside Prohibition (ARP) provisions set out in the Motor Vehicle Act, RSBC 1996, c 318. In Goodwin v British Columbia (Superintendent of Motor Vehicles) the Supreme Court upheld British Columbia’s ARP scheme as valid provincial law that does not unlawfully invade federal criminal law power or contravene section 11 of the Charter, but the Court also ruled that the seizure of a breath sample using an approved screening device (ASD) under the scheme as previously administered was an unreasonable seizure under section 8 of the Charter. In ruling as such, the Supreme Court upheld the ruling of the Chambers Justice who heard the matters back in 2010. Subsequent to that initial ruling the Province of British Columbia amended the ARP scheme in an attempt to remedy the unreasonable seizure, and the Supreme Court’s companion judgment in Wilson v British Columbia (Superintendent of Motor Vehicles) concerns the interpretation of these new provisions employing principles of statutory interpretation. In this comment we provide an overview of the ARP scheme and the issues raised by the use of ASDs in impaired driving cases, and bring this matter into an Alberta context. We also examine the Supreme Court’s constitutional analysis in Goodwin and its application of the principles of statutory interpretation in Wilson.

Overview of the ARP Scheme and the Use of ASDs

Prior to 2010, impaired driving investigations in British Columbia looked similar to every other province. If an officer had reasonable and probable grounds that an individual had a blood alcohol level that exceeded 80 milligrams of alcohol in 100 milligrams of blood (“over 80”), they were statutorily required to serve a notice of driving prohibition on the individual. In practice, the grounds for serving notices came from a breath analysis by an approved instrument (“breathalyser”) usually done at the police station. This scheme was upheld as constitutional, as regards both the division of powers and s.7 of the Charter: Buhlers v Superintendent of Motor Vehicles (B.C.), 1999 BCCA 114.

In 2010, British Columbia instituted a regime in the Motor Vehicle Act (MVA) known as “ARP” – automatic roadside driving prohibition – and it marked a shift in the province’s approach to the regulation of impaired driving. Under s.215.41(3.1) of the MVA, reproduced in a later section of this analysis, instead of relying on the breathalyser reading at the police station, driving prohibitions would now be issued immediately at the roadside, following an analysis using an ASD.

The ASD is a handheld machine administered by a peace officer that a driver blows into at the roadside. Typically, the peace officer puts in a new straw every three blows and the machine will read “Fail” if a driver blows over the legal limit. In Alberta, the ASD is used as an investigatory aid rather than an evidentiary instrument in most impaired investigations. That is, no criminal charges flow from registering a “Fail” on an ASD. Rather, a peace officer, having formed reasonable and probable grounds that the driver is operating a vehicle while impaired by alcohol, will then demand a breath sample from the approved instrument at the station. The maintenance logs of an ASD used in an impaired investigation are not disclosed partly because there is no direct charge that result from blowing a “Fail” on an ASD, while the maintenance logs for the approved instrument are: see R v Kilpatrick, 2013 ABQB 5, leave denied in R v Kilpatrick, 2013 ABCA 168.

When a driver registers a “Warn” or “Fail” on the ASD under the British Columbia scheme, a peace officer must issue a Notice of Driving Prohibition, provided that the officer “has reasonable grounds… that the driver’s ability to drive is affected by alcohol.” A “Fail” reading (blood alcohol over 80mg) would immediately result in a 90-day driving suspension, while for the first time, a “Warn” reading (blood alcohol between 50mg and 80mg) would result in a suspension between 3 and 30 days, depending on past driving history.

A person issued an ARP can apply to the BC Superintendent of Motor Vehicles for a review. When this new scheme was enacted in 2010, the grounds for review by the Superintendent were limited to three areas: whether the applicant was actually the driver, whether in the case of a “Warn” reading, the prohibition was a subsequent prohibition, and whether the driver failed or refused, without reasonable excuse, to provide a sample. The scheme was amended in 2012 and now allows review by the Superintendent regarding the calibration of the ASD (i.e. whether the ASD was working properly).

Both appeals involved persons who were subject to an ARP. Richard Goodwin failed to provide an adequate sample into the ASD. Lee Michael Wilson was stopped at a police road check and provided two samples of his breath that registered a “Warn” reading. Wilson was served with a Notice, prohibiting him from driving for three days. Goodwin was prohibited from driving for 90 days, had his car impounded for 30 days, and was required to pay monetary penalties and fees.

Wilson: Principles of Statutory Interpretation and the ARP scheme

The Wilson judgment looks at the ARP provisions in the British Columbia Motor Vehicle Act as amended to address the section 8 Charter violations noted above. Wilson was pulled over at a road check where a police officer noted the odour of alcohol on his breath. Wilson provided breath samples into two ASDs – and both devices registered a “Warn” reading. As a result of these readings, the officer issued Wilson a Notice prohibiting him from driving for 3 days pursuant to the Act.

Wilson sought a review with the Superintendent of Motor Vehicles, asking that the Notice be revoked on the ground that the officer lacked reasonable grounds to believe his ability to drive was affected by alcohol. Wilson’s argument was that the applicable provision in the Act does not provide the officer with the power to form reasonable grounds on the basis of the ASD readings alone. The Superintendent dismissed Wilson’s appeal, finding that the “Warn” reading from the ASD alone provides the officer with reasonable grounds to issue the notice of driving prohibition under the relevant provision of the Act.

The relevant provision is section 215.41(3.1) of the Motor Vehicle Act as follows (emphasis added):

(3.1) If, at any time or place on a highway or industrial road,

(a) a peace officer makes a demand to a driver under the Criminal Code to provide a sample of breath for analysis by means of an approved screening device and the approved screening device registers a warn or a fail, and

(b) the peace officer has reasonable grounds to believe, as a result of the analysis, that the driver’s ability to drive is affected by alcohol,

the peace officer, or another peace officer, must,

(c) if the driver holds a valid licence or permit issued under this Act, or a document issued in another jurisdiction that allows the driver to operate a motor vehicle, take possession of the driver’s licence, permit or document if the driver has it in his or her possession, and

(d) subject to section 215.42, serve on the driver a notice of driving prohibition.

The legal issue here comes down to the meaning of the phrase ‘as a result of the analysis’ in clause (b) noted above. Specifically, can the analysis be solely the readings provided by the ASD in a roadside checkstop? Or must the analysis be in addition to the ASD readings?

The Supreme Court begins its analysis by observing the now familiar position in substantive judicial review that the interpretation by the Superintendent of its home legislation is presumptively owed deference (at para 17). The issue being one of statutory interpretation, the Court then cites the principle on statutory interpretation known as the ‘modern approach’ as the authority to determine whether the Superintendent’s interpretation of its home legislation is a reasonable one (at para 18). The modern approach essentially amounts to reading statutory provisions in their literal sense as well as in light of their nearby context and overall purpose, to decipher the intention of the Legislature (or Parliament for federal legislation) in relation to the meaning of legislative text. In cases where ‘real’ ambiguity in meaning remains after these various approaches, a reviewing court will turn to either or both of external context (eg. committee work or house debates) and common law presumptions to decide on meaning. The leading authorities on the modern approach are Rizzo and Rizzo Shoes Ltd (Re), [1998] 1 SCR 27 and Bell ExpressVu Limited Partnership v Rex, 2002 SCC 42.

The Court also notes the onus is on Wilson to not only provide a reasonable interpretation of the provisions in question, but also demonstrate the Superintendent’s interpretation is unreasonable (at para 20). This onus comes from the Court’s 2013 decision in McLean v British Columbia (Securities Commission), 2013 SCC 67 and was the subject of an earlier ABlawg.

Wilson argues section 215.41(3.1) requires the peace officer to have additional evidence of impairment in addition to the ASD readings in order to form reasonable grounds to believe a driver is impaired and issue the Notice to prohibit driving. His reading of the words “as a result of the analysis” in clause (b) is that the legislature would not have included this phrase if it were solely the ASD readings that triggered the obligation to issue the Notice, and therefore the phrase itself must stand for analysis in addition to the ASD readings (at paras 27 and 28). He further argues this reading is necessary to ensure section 215.41(3.1) is consistent with Charter values, and in particular the rights of drivers contained in sections 8 and 10(b) of the Charter (at paras 23 and 24).

Writing for the Court, Justice Moldaver rejects these arguments in favour of a reading that the phrase ‘as a result of the analysis’ in clause (b) can mean solely the readings provided by the ASD in a roadside checkstop. In other words where a driver triggers a “Warn” or “Fail” reading in two ASD samples, the officer administering the ASD test must issue the Notice to prohibit driving. Justice Moldaver dismisses the application of Charter values here because the Court sees no real ambiguity here (at para 25). As noted above, the modern approach only calls for external aids and presumptions such as the presumption that legislation conforms with Charter values where there is real ambiguity.

Justice Moldaver runs through a literal, contextual and purposive analysis to find the Superintendent’s interpretation is a reasonable one. The literal text of section 215.41(3.1) links the officer’s assessment of the driver to the ASD results. In the words of the Court: “The wording could not be clearer. The ASD analysis is the yardstick against which to measure the reasonableness of the officer’s belief” (at para 26). Justice Moldaver also looks at the factors a Superintendent may consider when hearing a review application from a driver on the issuance of a Notice, and he observes those factors are focused primarily on the manner in which the ASD is administered and the reliability of the results (at para 30). For Justice Moldaver this context supports the interpretation that analysis means ASD results only. Finally, Justice Moldaver looks to external aids of interpretation (other judicial decisions and Hansard debates) to confirm the Superintendent’s interpretation is in line with the overall public safety purpose of the legislation to confront and reduce impaired driving (at para 37).

This judgment is another example of the Court speaking of deference at the outset but seemingly applying correctness when it gets into the substance of the matter. Of note, we are never provided with the reasons of the Superintendent for rejecting Wilson’s appeal of the Notice in the first instance. Accordingly, Justice Moldaver’s statutory interpretation analysis stands alone and reads very much like the Court is deciding the interpretive issue for itself rather than deferring in any way to the Superintendent’s reasons.

And then there is the perception that the modern approach to statutory interpretation is a very results-orientated principle. The literal text of section 215.41(3.1) is not all that clear about linking the phrase ‘as a result of the analysis’ in clause (b) solely to the ASD readings. More clarity in the drafting of clause (b) to expressly link the analysis to that conducted by the officer under clause (a) would be helpful. And moreover the external context cited by the Court near the end of its judgment (at paras 36 to 39) in fact says nothing specific about relying on ASD readings alone as the basis for issuing Notices to prohibit driving under the legislation.

Goodwin: Constitutionality of the ARP Scheme

While the issue in Wilson came down to a question of statutory interpretation, the central issue in Goodwin was whether the ARP scheme was intra vires the province (see generally paras 16 to 34). The Supreme Court ruled it was. Goodwin argued that, in pith and substance, the scheme replaced the Criminal Code’s impaired driving provisions with a provincial regime of severe penalties – a roundabout way of ousting the criminal law. The province argued that the ARP scheme fell under s.92(13) of the Constitution Act, 1867, which gives the provinces jurisdiction over civil rights and property.

The Court found that the scheme was intra vires for two principal reasons. First, they rejected Goodwin’s submission that the true intent of the scheme was to provide a criminal law response to drunk driving without having to engage the Charter. The Court found that the purpose of the legislation was to prevent death and serious injury on the roads of B.C.

Second, the Court rejected Goodwin’s submission that the “punitive” nature of the penalties imposed by the legislation was akin to the criminal law. Goodwin asserted that the tendency for police officers to enforce the ARP scheme over the criminal law provisions set out in the Criminal Code illustrated the legislation’s “criminal” intent. The Court found that while Goodwin’s submission was a factor to consider in determining pith and substance, it was not determinative, as police are granted more discretion than other members of society to adopt different strategies to prevent death and serious injury.

These findings constitute further evidence of Canadian courts’ reluctance to use the Constitution to invalidate schemes that are regulatory and not penal, and deny persons the same procedural rights afforded to those accused of crimes: see also Guindon v Canada, 2015 SCC 41. Moreover, it is relevant that there is a growing tendency to use ARPs and not charge people under the Criminal Code when assessing the constitutionality of provincial legislation. The Court found that the scheme was not meant to oust the criminal law, yet in practice, that is exactly what it has done. It is our understanding that for the vast majority of first-time offenders, police go straight to the ARP scheme, thus denying many of the Charter rights that someone charged criminally would receive. Moreover, even where there is an accident causing bodily harm or death, or the individual has past impaired driving convictions, the ARP scheme is increasingly used over the Criminal Code provisions. So while the Supreme Court dismissed Goodwin’s submission on this point, there is evidence to support his claim that the scheme’s practical effects are ousting the criminal law as the preferred means of dealing with suspected impaired drivers.

ARPs Coming to a Province Near You?

In dismissing the appeals in Goodwin and Wilson, the Court may be opening the door for other provinces to enact similar schemes. Earlier this year, Justice Wakeling of the Court of Queen’s Bench of Alberta dismissed a challenge to section 88.1 of the Traffic Safety Act RSA 2000, c T-6 (TSA) on similar grounds that the Supreme Court used in Goodwin and Wilson: Sahaluk v Alberta (Transportation Safety Board), 2015 ABQB 142.

At issue in Sahaluk were amendments made to the TSA that provided for an immediate suspension of a person’s drivers’ licence who was charged with an alcohol-related driving crime. In practice, Albertans charged with alcohol-related driving crimes under sections 253 and 254 of the Criminal Code have their licenses suspended for the entire pre-trial period, and if found guilty at trial, face a mandatory one-year driving suspension for first-time offenders. Sahaluk raised similar arguments to Goodwin and Wilson: the Alberta scheme was ultra vires the head of government that enacted it, and if that argument failed, the scheme violated sections7, 8 or 11(d) of the Charter.

Similar to the decisions in Goodwin and Wilson, Justice Wakeling found no conflict between the provincial scheme and the Criminal Code, noting at para. 244 that section 88.1 of the TSA promoted highway safety, while the Criminal Code punishes the offender by imposing post-conviction sanctions. The Charter arguments were similarly dismissed: a person has no constitutional right to drive, therefore the liberty interests protected by section7 are not applicable. Moreover, the sanction under section 88.1 of the TSA does not charge the person with anything, therefore s.11(d) is not engaged.

The Alberta and B.C. schemes raise serious issues about procedural rights. Both cleverly sidestep basic Charter rights by using provincially administered suspension schemes to tackle the issue of impaired driving, which bar the accused from accessing the remedial provisions of the Charter. Both are an attack on the presumption of innocence by revoking the drivers’ licence of an individual before they can mount a defence at trial or in an administrative hearing. By removing these licences from people who have not been found guilty by a court or tribunal, it potentially extorts guilty pleas out of people who may have legitimate defences but who neither have the money nor time to spend months or sometimes years awaiting trial.

There is a common thread running the opening lines of these decisions. In Sahaluk, Justice Wakeling notes that the Government of Alberta is taking “dead aim at those who choose to drink and drive,” while the Supreme Court in Goodwin and Wilson mentions the “devastating consequences of impaired driving reverberate throughout Canadian society” and “Impaired driving is a matter of grave public concern in Canada.” In fact, some found it odd that the Supreme Court even granted leave to appeal in Goodwin and Wilson. After all, the Court essentially adopted the exact same position as the British Columbia Court of Appeal: see Sivia v British Columbia (Superintendent of Motor Vehicles), 2014 BCCA 79 and Wilson v British Columbia (Superintendent of Motor Vehicles), 2014 BCCA 202.

Perhaps the Supreme Court is trying to send a message that impaired driving is such a scourge on society that the Court is increasingly less likely to allow Charter arguments to continue to dominate impaired driving law. One also may wonder whether the Court was trying to send a message to the provinces that they will be more deferential to provincial schemes that avoid Charter rights by treating drunk driving as a regulatory, rather than criminal offence. Time will tell whether the provinces will heed the call.

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Court of Appeal Affords Deference to Alberta Securities Commission in Platinum Equities Case

Mon, 11/09/2015 - 10:00am

By: Shaun Fluker

PDF Version: Court of Appeal Affords Deference to Alberta Securities Commission in Platinum Equities Case

Case Commented On: Alberta (Securities Commission) v Chandran, 2015 ABCA 323

In February 2014 the Alberta Securities Commission found that Shariff Chandran was the governing mind of an elaborate scheme of capital market misconduct under the general umbrella of Platinum Equities and ruled that Chandran and others were guilty of contravening various provisions of the Securities Act, RSA 2000, c S-4 concerning the illegal distribution of approximately $58 million in securities to the public, misrepresentations, fraud, and conduct contrary to the public interest (See Re Platinum Equities Inc, 2014 ABASC 71). In addition to these administrative proceedings before the Commission, there are civil and criminal proceedings underway concerning Platinum Equities. In September 2014 the Commission issued its sanctions order 2014 ABASC 376 against Chandran and others for their misconduct under the Securities Act. Chandran asked the Court of Appeal to set aside a portion of these sanctions ordered by the Commission, and in Alberta (Securities Commission) v Chandran the panel of Justices Martin, O’Ferrall, and Shutz dismisses his appeal. The Court’s decision is a good example of how deference should work in substantive judicial review.

Section 38 of the Securities Act provides for a right of appeal to the Court by a person who is directly affected by a Commission decision. Notably section 38 does not limit this right of appeal to questions of law and neither does it require leave of the Court. Moreover, section 38 expressly states the Court may confirm, vary or reject the Commission decision, direct the Commission to re-hear the matter, or even decide the matter itself and substitute its decision for that of the Commission. In short, section 38 is a very generous and potentially intrusive statutory appeal provision.

I set out section 38 in some detail here to give the context for this decision from the Court, but also say a few words about where the Court seems to be headed on standard of review. Readers may recall I posted some entries earlier this year on decisions from the Court of Appeal on standard of review that seem to stray from the direction of the Supreme Court of Canada on the presumption of deference to administrative decision-makers interpreting their home legislation. In particular, see Where are we going on standard of review in Alberta? posted in March 2015 in relation to the Court’s decision in Edmonton East (Capilano) Shopping Centres Limited v Edmonton (City), 2015 ABCA 85 where the Court stated oddly that the presence of a statutory right of appeal is a strong indication that the presumption of deference is rebutted. In the Court’s words from Capilano:

Where the Legislature has specifically provided for a right of appeal to the ordinary courts, the Legislature clearly intended that the administrative decision maker make the initial decision, subject to review by the court. As pointed out in Pushpanathan at para 43 (quoted supra, at para 21), if a correctness review is not applied, this legislative scheme makes little sense. The presence of a statutory right of appeal may not invariably signal a correctness standard of review, but it is clearly enough to displace any presumption that reasonableness applies (Capilano, at para 24).

I noted back in March that the Court was far too strong in Capilano stating the presence of a statutory right of appeal provides for an exception to the presumption of deference, and the Court’s decision here in Chandran is case-in-point. Section 38 in the Securities Act is as broad and generous a statutory right of appeal as will be found in a legislative scheme and would thus under the reasoning of Capilano seemingly rebut the presumption of deference owed to the Commission. And yet the Court here in Chandran makes very short work of the standard of review applicable to the Commission sanction order, stating definitively that the standard is reasonableness (at paras 12 to 14). No mention of the Capilano decision or the generous statutory right of appeal in section 38 whatsoever. No question by the Court that it should defer to the Commission’s sanction order, which is itself a highly discretionary decision under sections 198 and 199 of the Securities Act.

As for what deference looks like in practice, I would say the Court’s decision here is a good example of that. In its September 2014 sanctions order, the Commission considers a number of factors such as the seriousness of the misconduct and any mitigating circumstances in deciding on appropriate sanctions to be applied against Chandran. The Court simply makes reference to the Commission’s analysis and justification for the sanctions ordered, and finds the Commission analysis to be intelligible and transparent, and the sanctions ordered to be within the range of acceptable outcomes. Accordingly, the Court finds the sanctions ordered to be reasonable and dismisses the appeal (at paras 15 to 22).

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When Judicial Decisions Go from Wrong to Wrongful – How Should the Legal System Respond?

Tue, 11/03/2015 - 2:30pm

By: Alice Woolley

PDF Version: When Judicial Decisions Go from Wrong to Wrongful – How Should the Legal System Respond?

Case Commented On: R v Wagar, 2015 ABCA 327 (CanLII)


Judges make wrong decisions. As I discussed in a recent ABlawg post, errors in judicial decisions are to be expected given the human frailty of participants in the judicial system – the judges, the lawyers and the parties. But at some point can the quality of an error in a legal judgment change – can it go from wrong to wrongful? That is, at some point does the error go from being a product of the judge’s humanity to being a product of a moral or ethical failure?  And if a judicial decision crosses that line, how ought the legal system to respond? In particular, how can it respond so as to respect judicial independence while also ensuring public confidence in the administration of justice?

In this blog I explore these questions through Judge Robin Camp’s decision and conduct in R v Wagar, a decision overturned by the Court of Appeal (R v Wagar 2015 ABCA 327 (Canlii) and summarized and commented on by my colleague Jennifer Koshan here. I argue that legal decisions go from being wrong to wrongful when they demonstrate both disrespect for the law and a failure of empathy in regards to the persons who appeared before the court.   In my opinion, Judge Camp’s decision falls within this category; it demonstrates both disrespect for the law governing sexual assault and a pervasive inability to understand or even account for the perspective of the complainant.

I also argue that while appellate courts, and official regulators like the Canadian Judicial Council, need to be cautious in sanctioning judicial decisions, they also need to be willing to do so when those decisions are wrongful. Because when a judge demonstrates disrespect for the law and disregard for the people the law affects, the need to act to maintain public confidence in the administration of justice outweighs concerns about protecting judicial independence. In addition, academics and lawyers must be willing to identify and criticize wrongful judgments, and rules in codes of conduct directing lawyers to “avoid criticism that is petty, intemperate or unsupported by a bona fide belief in its real merit” should be interpreted and applied carefully so as not to inhibit such criticism (Law Society of Alberta, Code of Professional Conduct, Rule 4.06(1), Comm’y; Federation of Law Societies, Code of Professional Conduct, Rule 5.6-1, Comm’y).

When Does a Judicial Decision Become Wrongful?

In his work on moral psychology, Jonathan Haidt argues that our moral judgments – our decisions and our reactions – flow from our intuitions and emotions. We do not reason through to moral conclusions; rather, we use reason to explain and justify our intuitive responses to moral circumstances (“The emotional dog and its rational tail: a social intuitionist approach to moral judgment” (2001) 108(4) Psychol Rev 814-34).

Haidt identifies key “other-condemning” emotions as anger and disgust. Triggers for anger include the moral wrongs of betrayal, insult and unfairness; triggers for disgust include “hypocrisy, betrayal, cruelty, and fawning” (Jonathan Haidt “The Moral Emotions” in R. J. Davidson, K. R. Scherer, & H. H. Goldsmith (Eds.), Handbook of affective sciences (Oxford: Oxford University Press, 2003) pp. 852-870; my papers on intuition/moral emotion and legal ethics can be found here and here).

Judge Camp’s conduct and reasons in Wagar angered and disgusted me. And, following Haidt, my claim here is that my anger and disgust are moral emotions elicited by the wrongfulness of that conduct and reasons. And the purpose of this part of this post is to use reason to explain those emotions, and by doing so to derive general lessons about the type of judicial behaviour that properly evokes anger and disgust – i.e., that is wrongful, rather than merely wrong.

The first disturbing aspect of Judge Camp’s reasons is with respect to his legal analysis. As Professor Koshan notes, Judge Camp suggested that the limits on questioning the complainant’s sexual history “hamstring the defence” and arose from “very, very incursive legislation” (Crown Factum, para. 73). Having made this comment, he then proceeded to allow cross-examination in this regard without complying with the requirements for a hearing under section 276(2) and section 276.1 of the Criminal Code.

Judge Camp also criticized the Canadian legal position that a judge ought not to consider whether a complainant reports the assault immediately.   As described in the Crown’s Factum:

In the Crown’s preliminary submissions, the Trial Judge commented that the Complainant “abused the first opportunity to report” before conceding this was “no longer contemporarily relevant”. In the Crown’s final submissions, he commented that the recent complaint doctrine (defined as complaining to your family or someone in authority as soon as you can) was “followed by every civilized legal system in the world for thousands of years” and “had its reasons” although “[a]t the moment it’s not the law”. When the Crown submitted that the antiquated thinking had been set aside for a reason, he replied “I hope you don’t live too long, Ms. Mograbee” (Crown’s Factum, at para 58).

The Supreme Court of Canada has been clear (in R v DD, [2000] 2 SCR 275 at para 60-63) that adverse inferences as to credibility, premised on the mere fact that a complainant failed to ‘raise a hue and cry,’ constitute an error of law. Judge Camp’s comments suggest that he was aware of that rule, but skeptical as to its validity given its departure from the historical practices of “every civilized legal system.”

The Crown also details in its Factum Judge Camp’s troubling approach to the law of consent, in which he appeared to place the onus on the complainant to “make it clear that she’s not consenting” (Crown’s Factum, at para 97) and also to assess the fact of the complainant’s consent from the respondent’s point of view (which would be relevant to a defence of a mistaken belief in consent, but not to the existence of consent itself) (Crown’s factum at paras 92-99).

In its reasons, the Court of Appeal stated “we are satisfied that the trial judge’s comments throughout the proceedings and in his reasons gave rise to doubts about the trial judge’s understanding of the law governing sexual assaults” (Wagar, at para 4).

Making a mistake when applying the law does not make a judgment wrongful, even in a serious criminal case. As noted above, judges make mistakes all the time and that they do so is an understandable product of their humanity. Mistakes merit neither anger nor disgust. But in this case, Judge Camp’s errors, when combined with his criticisms of the law and his overall attitude towards the complainant, suggest that the issue was not human error. Rather, it invites the inference that Judge Camp simply did not accept the parameters the law imposes on judging allegations of sexual assault, that the failures in his legal analysis arose not from a mistake, but because he did not like the law as it exists and so assessed the case through his personal judgment, not the legal judgment law requires.

As I have written about extensively in relation to the lawyer’s role (see, e.g., on advising here, on fiduciary duties here and in general here) fidelity to law – respect for the compromise to the problem of pluralism that the law reflects – is an essential ethical and legal obligation of lawyers. Lawyers ought to respect the confines of legality in their advising and in their advocacy (although what that looks like in each context is quite different). And if lawyers ought to do so, then surely no real argument needs to be made to assert that judges must as well. Indeed, what authority can a judge claim other than through the law? A judge who adopts an attitude other than fidelity to law seeks to rule by fiat, not by law. And that is wrongful.

The second disturbing aspect of the judgment arises from Judge Camp’s apparent inability to occupy a point of view different from his own. Here, to imagine what it would be like to be a broke and homeless 100 lb woman, and to imagine how that person might experience the world. Judge Camp implied through his questions that a 100 lb. woman may be able to avoid being sexually assaulted by a 240 lb man simply by closing her knees (“why couldn’t you just keep your knees together”) or by sinking her “bottom down into the basin” (Crown Factum, at para 59). He also implied that a rational response to a perceived threat of violence when you are a 100 lb woman is to scream, and that if that woman does not complain about an accused locking her in a bathroom with him, “She can take her chances, perhaps in the hope of getting him in trouble” (Crown Factum, at para 62). He suggested that a 19 year-old girl who is broke and homeless and steals does so not out of desperation, but because it “didn’t cross her mind that she should work to earn money to buy those things” (Appeal Record, p. 431).

What is troubling about this to me is not that this occurred in relation to a sexual assault complainant (although I agree very much with Professor Koshan’s critique of that aspect of the case). What is disturbing to me is that this occurred in relation to anyone at all whose conduct the judge is assessing. As a judge, it is essential that you be able to imagine what it would be like to be someone else, to have had a different set of cultural, socio-economic, gender or sexual experiences than the ones you have had or enjoyed. Otherwise you will simply fail to appreciate the evidence before you – you will draw the wrong inferences, and make the wrong findings, because what you think you see will not actually be what happened. As Justice Abella recently noted in Yukon Francophone School Board Education Area #23 v Yukon (Attorney General) 2015 SCC 25:

A judge’s identity and experiences are an important part of who he or she is, and neither neutrality nor impartiality is inherently compromised by them. Justice is the aspirational application of law to life. Judges should be encouraged to experience, learn and understand “life” — their own and those whose lives reflect different realities ((at para 34). See also: Adam Dodek “In Praise of Judicial Empathy, Humility and Sympathy”).

And perhaps because my lived experience is at least somewhat closer to that of the complainant, Judge Camp’s apparent perspective here seems illogical and even bizarre. A 100 lb woman will not prevent a 240 lb man from having sex with her by shutting her knees or dropping her bottom into the sink. In many circumstances staying quiet is the safest and most rational way for a physically weaker person to avoid harm. To be clear, I am not making any judgments about whether Mr. Wagar sexually assaulted the complainant. But what I am saying is that whatever the nature of that sexual encounter, the complainant’s failure to shut her knees, drop her bottom into the sink or to make a fuss when the door was locked could not be seen as relevant to consent by anyone who imagined, even for a moment, what it would be like to be her in those circumstances.

When you put those two aspects of the judgment together, you have I think the key elements of a wrongful judicial decision: disrespect for the law and an absence of empathy.  A judge who merely disrespects the law acts very badly. And a judge who lacks empathy does so as well. But it is the judge who does both, who disregards the law and the people who appear before him or who are affected by his judgments, who acts wrongfully, and whose judgments properly warrant anger and disgust.

How Do We Respond?

One response to a wrongful decision is censure of the judge by a higher court. That did not happen here. The Court of Appeal’s reasons, while clear and unequivocal in overturning Judge Camp’s decision, are also temperate and measured. They do not criticize the trial judge himself, or suggest that his decision had crossed from the wrong to the wrongful.

A different approach was taken by Justice L’Heureux-Dubé in her concurring decision in R v Ewanchuk [1999] 1 SCR 330. In that judgment Justice L’Heureux-Dubé said the following about then Alberta Court of Appeal Justice McClung:

In the Court of Appeal, McClung J.A. compounded the error made by the trial judge (at para 88).

Even though McClung J.A. asserted that he had no intention of denigrating the complainant, one might wonder why he felt necessary to point out these aspects of the trial record. Could it be to express that the complainant is not a virgin? Or that she is a person of questionable moral character because she is not married and lives with her boyfriend and another couple? These comments made by an appellate judge help reinforce the myth that under such circumstances, either the complainant is less worthy of belief, she invited the sexual assault, or her sexual experience signals probable consent to further sexual activity (at para 89).

The expressions used by McClung J.A. to describe the accused’s sexual assault, such as “clumsy passes” (p. 246) or “would hardly raise Ewanchuk’s stature in the pantheon of chivalric behaviour” (p. 248), are plainly inappropriate in that context as they minimize the importance of the accused’s conduct and the reality of sexual aggression against women (at para 91).

This case has not dispelled any of the fears I expressed in Seaboyer, supra, about the use of myths and stereotypes in dealing with sexual assault complaints (see also Bertha Wilson, “Will Women Judges Really Make a Difference?” (1990), 28 Osgoode Hall L.J. 507). Complainants should be able to rely on a system free from myths and stereotypes, and on a judiciary whose impartiality is not compromised by these biased assumptions (at para 95).

In response Justice McClung wrote a heated letter to a national newspaper, for which he was subject to censure by the Canadian Judicial Council. One famous Canadian lawyer, Eddie Greenspan, came to his defence, noting in an editorial that L’Heureux-Dubé had effectively labeled McClung “the male chauvinist pig of the century, the chief yahoo from Alberta, the stupid, ignorant, ultimate sexist male jerk”.   He described her judgment as “unnecessary and mean-spirited” and that she was “intemperate, showed a lack of balance, and a terrible lack of judgment.” In his view, Supreme Court judges “were not given the right to be bullies. They were not given the right to pull a lower court judge’s pants down in public and paddle him.” (reproduced in Lawyers’ Ethics and Professional Regulation, 2d ed (LexisNexis, 2012) pp. 583-584).

Greenspan does have a point. Judges in a superior court do have power in relation to lower court judges. They have the last word as well as the power to reverse. And if a superior court uses its power to excoriate lower court judges, those lower court judges may write to avoid censure rather than to search for justice – i.e., their independence may be impaired.

On the other hand, Greenspan’s rhetoric overstates to an absurd extent what Justice L’Heureux-Dubé actually said. Further, when a judge in a lower court makes a decision that crosses the threshold from wrong to wrongful – where he or she disrespects the law and exhibits a total failure of empathy – the decision brings the administration of justice into disrepute. It undermines the rule of law: the ability of people to receive a fair and impartial consideration of their position in law, and to believe that that consideration is available to them. At that point, the concern for judicial independence has to be balanced against the need to uphold both the reality and the belief in the rule of law, and the fair administration of justice.

As a consequence, while I admire the Court of Appeal’s restraint – and understand that it may have been warranted in part because of the failure of Wagar to participate in the appeal – I also think that superior court criticism of judges who make wrongful decisions are justifiable and appropriate for ensuring public confidence in the judicial system.

Another response to wrongful decisions is official regulatory sanction through the Canadian Judicial Council or, for Alberta provincial court judges, the Alberta Judicial Council. Regulatory sanctions against judges are rare, time-consuming and occasionally contentious; like appellate court criticism of lower court judges, they raise the real threat of interference with judicial independence. Again, however, regulators must – and do – take into account the need to maintain confidence in the administration of justice; judicial decisions which reflect a disregard for the law and a failure of empathy are appropriately subject to regulatory sanction.

Cases in which regulators have been willing to act against judges who have made wrongful decisions include the Dewar case out of Manitoba, where a judge was censured (and apologized and undertook sensitivity training) after making comments in a sexual assault trial which reflected “negative and outdated gender stereotypes, as casting blame on the victim and showing an unacceptable gender bias against women” (CBC, November 2011). They also include the Cosgrove case out of Ontario, where Paul Cosgrove resigned as a judge following the recommendation by the Canadian Judicial Council that he be removed from office. As summarized in the Council’s report:

The Inquiry Committee found that the judge’s conduct included: an inappropriate aligning of the judge with defence counsel giving rise to an apprehension of bias; an abuse of judicial powers by a deliberate, repeated and unwarranted interference in the presentation of the Crown’s case; the abuse of judicial powers by inappropriate interference with RCMP activities; the misuse of judicial powers by repeated inappropriate threats of citations for contempt or arrest without foundation; the use of rude, abusive or intemperate language; and the arbitrary quashing of a federal immigration warrant (Council Report, at para 6).

In a case out of New Brunswick, a provincial court judge was removed from office after saying that the people of the Acadian Peninsula were all dishonest (Moreau-Bérubé  v New Brunswick 2002 SCC 11 at para 3). In these cases, the regulatory concern has been that “the actions and expressions of an individual judge trigger concerns about the integrity of the judicial function itself.” (Moreau-Bérubé at para 58). Or as the Council put it in the Cosgrove case:

Public confidence in the judiciary is essential in maintaining the rule of law and preserving the strength of our democratic institutions. All judges have both a personal and collective duty to maintain this confidence by upholding the highest standards of conduct. After inquiring into the conduct of the Honourable Paul Cosgrove, we find that he has failed in the due execution of his office to such an extent that public confidence in his ability to properly discharge his judicial duties in the future cannot be restored (Council Report, at para 1).

In my view Judge Camp’s failures in this case – his failure to respect the law or to be able to imagine or perceive accurately the perspective of the complainant – are of this kind. They trigger concerns about the integrity of the judicial function and they undermine the rule of law and the strength of our democratic institutions.

It is noted that since the time he issued his decision in Wagar, Judge Camp has been appointed to the Federal Court of Canada. This could lead some to argue that there is no ongoing concern here, since he will no longer hear sexual assault cases. The Federal Court does, though, hear judicial reviews of immigration cases, and sexual violence can be an issue in that context, particularly in refugee claims. And even if that were not the case, it does not redress the injury to the administration of justice caused by this decision. That injury warrants official regulatory response.

The final response to wrongful judgment is informal – criticism by lawyers and academics of the kind offered here by myself and Professor Koshan.   While not having the power and authority of formal regulatory sanction, informal criticism has the benefit of being able to identify and respond to issues in a more timely fashion. It can also draw on a range of perspectives and expertise on the issues. And it can help to inform and motivate the formal regulatory agenda.

The various Codes of Conduct that govern Canadian lawyers, direct caution in criticizing judges. In the Commentary to Rule 4.06(1), the Law Society of Alberta Code states:

Proceedings and decisions of courts and tribunals are properly subject to scrutiny and criticism by all members of the public, including lawyers, but judges and members of tribunals are often prohibited by law or custom from defending themselves. Their inability to do so imposes special responsibilities upon lawyers. First, a lawyer should avoid criticism that is petty, intemperate or unsupported by a bona fide belief in its real merit, since, in the eyes of the public, professional knowledge lends weight to the lawyer’s judgments or criticism (See also, Federation of Law Societies Code of Professional Conduct, Rule 5.6-1).

This point is well taken. Judges cannot defend themselves and lawyers must ensure their criticisms are temperate and made in good faith. But at the same time, as the Code notes elsewhere:

Lawyers are often called upon to comment publicly on the effectiveness of existing statutory or legal remedies or the effect of particular legislation or decided cases, or to offer an opinion about cases that have been instituted or are about to be instituted. This, too, is an important role the lawyer can play to assist the public in understanding legal issues (Rule 6.05(1) Comm’y); FLS Rule 7.5-1 Comm’y).

Fair trials and hearings are fundamental to a free and democratic society. It is important that the public, including the media, be informed about cases before courts and tribunals. The administration of justice benefits from public scrutiny (Rule 6.05(2) Comm’y; FLS Rule 7.5-2 Comm’y).

The exhortation to fair and temperate criticism needs to be understood in light of these broader concerns. As the Supreme Court said in Doré v Barreau du Québec, 2012 SCC 12, [2012] 1 S.C.R. 395, “lawyers should not be expected to behave like verbal eunuchs. They not only have a right to speak their minds freely, they arguably have a duty to do so” (at para 68).

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Judging Sexual Assault Cases Free of Myths and Stereotypes

Mon, 11/02/2015 - 10:00am

By: Jennifer Koshan

PDF Version: Judging Sexual Assault Cases Free of Myths and Stereotypes

Case Commented On: R v Wagar, 2015 ABCA 327 (CanLII)

I am spending the fall term at the University of Kent’s Centre for Law, Gender and Sexuality, where I am working on a couple of projects related to the legal regulation of sexual assault. One of these projects has me immersed in the sexual assault laws of England and Wales, and in the course of doing some research in this area, I have learned that judges here routinely warn juries in sexual assault trials of the need to dispel any myths and stereotypes that they may bring in to the adjudication process. A recent judgment from the Alberta Court of Appeal in R v Wagar, 2015 ABCA 327 (CanLII), suggests that trial judges in Canada would do well to actively caution themselves in the same way. The trial decision of Judge Robin Camp in Wagar, overturned on appeal, is replete with sexual assault myths and stereotypes that influenced his decision to acquit the accused.

The Court of Appeal’s reasons in R v Wagar are very brief. Justice Brian O’Ferrall (Justices Peter Martin and Frederica Schutz concurring) delivered the substance of the Court’s decision in one paragraph:

Having read the Crown’s factum, portions of the trial transcript and having heard Crown counsel’s arguments, we are satisfied that the trial judge’s comments throughout the proceedings and in his reasons gave rise to doubts about the trial judge’s understanding of the law governing sexual assaults and in particular, the meaning of consent and restrictions on evidence of the complainant’s sexual activity imposed by section 276 of the Criminal Code. We are also persuaded that sexual stereotypes and stereotypical myths, which have long since been discredited, may have found their way into the trial judge’s judgment. There were also instances where the trial judge misapprehended the evidence (at para 4).

The Court of Appeal therefore concluded that “the conduct of the trial and the trial judge’s reasons disclose errors of law” and ordered a new trial (at para 5).

The trial decision is not available on-line, but I was able to secure a copy of the transcripts and the Crown appeal factum. (The accused did not appear at the appeal hearing and did not file a factum.) We cannot post the transcripts as a whole on ABlawg because they contain the name of the complainant and the usual publication ban for sexual assault matters applies. I will do my best to summarize the trial decision and its problematic aspects here.

On September 9, 2014, Judge Robin Camp of the Alberta Provincial Court acquitted Wagar on a charge of sexual assault (Docket: 130288731P1). The undisputed facts of the case, as summarized in the Crown’s factum, were that:

Nineteen year old J.M. (“the Complainant”) first met Alexander Scott Wagar (“the Respondent”) at a youth centre where she was picking up groceries. She was broke and homeless at the time. At the invitation of another, the Respondent returned to the residence where the Complainant was temporarily staying. The next morning, she reported to the youth centre staff that the Respondent had sexually assaulted her the night before (at para 1).

The complainant testified at trial, as did the accused and two defence witnesses. There was also forensic evidence showing some bruising on the complainant’s back and the presence of DNA from the accused on her jeans. Without getting into details (which are available in the Crown factum), the alleged sexual assault occurred on December 13, 2011. The accused admitted to sexual activity with the complainant, but claimed it was consensual, or alternatively that he mistakenly believed it was consensual. The Crown argued that the accused failed to take reasonable steps to ensure the complainant was consenting, which he had a heightened duty to do because she was intoxicated at the time (see section 273.2(b) of the Criminal Code).

Judge Camp commenced his judgment by notifying the accused that he was being acquitted, and went on to deliver a lecture to the accused:

The law and the way that people approach sexual activity has changed in the last 30 years. I want you to tell your friends, your male friends, that they have to be far more gentle with women. They have to be far more patient. And they have to be very careful. To protect themselves, they have to be very careful.

The law in Canada today is that you have to be very sure before you engage in any form of sexual activity with a woman. Not just sex, not just oral sex, not even just touching of a personal part of a girl’s body, but just touching at all. You’ve got to be very sure that the girl wants you to do it. Please tell your friends so that they don’t upset women and so that they don’t get into trouble… (Appeal Record, at p 427).

This passage sets the tone for Judge Camp’s reasons for decision: women (or “girls”) are blameworthy, not to be trusted, and men must be protected from them.

In its factum, the Crown sets out several discredited myths and stereotypes about sexual assault and women complaining about sexual assault that were reflected in Judge Camp’s decision, with illustrations of each:

  • The myth that women cannot not be raped against their will
    • The trial judge asked the complainant questions such as “why didn’t you just sink your bottom down into the basin so he couldn’t penetrate you?” and “why couldn’t you just keep your knees together?” He also indicated that she had not explained “why she allowed the sex to happen if she didn’t want it” and noted that when she asked the accused if he had a condom that was “an inescapable conclusion [that] if you have one I’m happy to have sex with you” (Crown factum, at paras 59, 61, 94).
  • The myth that the victim is to blame, and that women are fickle and full of spite
    • The trial judge repeatedly referred to the complainant as “the accused”, and questioned why she hadn’t reacted differently when someone locked the door to the premises where the sexual activity occurred: “She doesn’t have to say don’t lock the door. She can take her chances. Foolishly she could do that. If she sees the door being locked, she’s not a complete idiot, she knows what’s coming next. In our law she doesn’t have to say unlock the door I’m getting out. She can take her chances, perhaps in the hope of getting him into trouble” (Crown factum, at paras 62, 64).
  • The myth that women who are raped react hysterically
    • The trial judge noted that the complainant only got angry after the alleged assault, and was far more upset when another person humiliated her that night (Crown factum, at para 65); for an excellent paper on the gendered nature of hysteria, see Jonnette Watson Hamilton, “The Use of Metaphor and Narrative to Construct Gendered Hysteria In the Courts” (2002) 1 Journal of Law 7 Equality 155.
  • The myth that only good girls get raped
    • The trial judge remarked that the complainant, “as will appear from the evidence, had spent the day in question sneaking into the movies without paying… She’d also spent a considerable amount of time stealing clothes, and then went on to steal … a considerable amount of liquor. It didn’t cross her mind that she should work to earn money to buy those things.” And later, “she certainly had the ability, perhaps learnt from her experiences on the street, to tell [him] to fuck off” (Crown factum, at paras 66-7; Appeal Record at pp 431, 450).

The Crown pointed to other inappropriate comments by the trial judge:

  • He commented that “sex and pain sometimes go together … that’s not necessarily a bad thing” (Crown factum, at para 72).
  • He referred to the accused’s testimony as reflecting “consensual, indeed even tender, sex” (Crown factum, at para 49, Appeal Record at p 451).

Judge Camp also suggested that section 276 of the Criminal Code, which constrains the use of sexual history evidence, “hamstring[s] the defence” and is “very, very incursive legislation” (Crown factum, at para 73). He allowed the accused to introduce evidence of the complainant’s previous sexual activities with someone else – more specifically her efforts to rebuff that person’s sexual advances – without conducting the required application under section 276.1 of the Criminal Code. In response to objections by the Crown, the trial judge stated that this was not evidence of sexual activity, rather evidence of a lack thereof, and saw this as relevant to whether the complainant “had the moral or physical strength to rebuff men if she felt like it” (Crown factum, at para 81). As argued by the Crown, Judge Camp’s comments reflect impermissible uses of sexual history evidence, which is recognized as irrelevant to issues of consent and credibility (see section 276(1) of the Criminal Code). Moreover, his comments further reinforce the myth that a woman cannot be raped against her will (Crown factum, at paras 84, 86). Judge Camp also permitted the accused to introduce evidence of the complainant’s sexual activity with someone else following the alleged offence, again without an application, which furthered the defence position that she had “enjoyed a weekend of promiscuous activity” (Crown factum, at para 88).

Overall, Judge Camp found that the complainant lacked credibility in claiming not to have consented, and this was the basis for his acquittal of the accused.

It is worthwhile to repeat Justice Claire L’Heureux Dubé’s comments in R v Seaboyer; R v Gayme, [1991] 2 SCR 577 at 654, 1991 CanLII 76 on how these sorts of myths and stereotypes may influence the determinations of legal actors in sexual assault matters:

Like most stereotypes, they operate as a way, however flawed, of understanding the world and, like most such constructs, operate at a level of consciousness that makes it difficult to root them out and confront them directly.  This mythology finds its way into the decisions of the police regarding their “founded”/“unfounded” categorization, operates in the mind of the Crown when deciding whether or not to prosecute, influences a judge’s or juror’s perception of guilt or innocence of the accused and the “goodness” or “badness” of the victim, and finally, has carved out a niche in both the evidentiary and substantive law governing the trial of the matter.

The Crown factum in Wagar illustrates how the myths and stereotypes invoked by Judge Camp were not just offensive, but also influenced his decision to acquit the accused based on his findings regarding the complainant’s consent and credibility. The Court of Appeal agreed.

This is where the UK practice of warning juries in sexual offence trials about the need to disabuse themselves of such myths and stereotypes comes into play. The Crown Court Benchbook was published in 2010 by the Judicial Studies Board to assist judges in crafting jury directions. Chapter 17 deals specifically with directions for sexual offences, and was included at the behest of the Solicitor General following research calling into question the impact of the Sexual Offences Act 2003, c 42 (UK), legislation overhauling this area of law with a view to decreasing wrongful acquittals in such cases. Chapter 17 describes the need for jury directions on improper stereotyping in cases involving sexual offences (at 353):

The experience of judges who try sexual offences is that an image of stereotypical behaviour and demeanour by a victim or the perpetrator of a non-consensual offence such as rape held by some members of the public can be misleading and capable of leading to injustice. That experience has been gained by judges, expert in the field, presiding over many such trials during which guilt has been established but in which the behaviour and demeanour of complainants and defendants, both during the incident giving rise to the charge and in evidence, has been widely variable. Judges have, as a result of their experience, in recent years adopted the course of cautioning juries against applying stereotypical images how an alleged victim or an alleged perpetrator of a sexual offence ought to have behaved at the time, or ought to appear while giving evidence, and to judge the evidence on its intrinsic merits. This is not to invite juries to suspend their own judgement but to approach the evidence without prejudice.

It goes on to provide several illustrative jury directions, including the following one on “avoiding judgements based on stereotypes” (at 357):

It would be understandable if one or more of you came to this trial with assumptions as to what constitutes rape, what kind of person may be the victim of rape, what kind of person may be a rapist, or what a person who is being, or has been, raped will do or say. It is important that you should leave behind any such assumptions about the nature of the offence because experience tells the courts that there is no stereotype for a rape, or a rapist, or a victim of rape. The offence can take place in almost any circumstances between all kinds of different people who react in a variety of ways. Please approach the case dispassionately, putting aside any view as to what you might or might not have expected to hear, and make your judgement strictly on the evidence you have heard from the witnesses.

Other sample directions include those related to situations where the complainant and defendant were known to one another or had a previous sexual relationship, and cases involving “provocative dress, hard drinking and flirtation”, lack of resistance, and absence of a recent complaint.

The Crown Prosecution Service guidelines on Rape and Sexual Offences also contain a chapter on societal myths around sexual assault, which reminds trial advocates “to suggest appropriate directions from the Bench Book to the trial judge for inclusion in his/ her summing up to the jury.”

Writing just after the introduction of the Benchbook in 2010, Jennifer Temkin, a leading expert on sexual assault law in the UK, characterized chapter 17 as “unequivocal and welcome recognition of the malign impact that stereotypes and myths can have in this area of the law.” However, she also questioned the impact it might have given that judges are not obliged to use these directions at all or as worded, and in light of research detailing problems with juries’ comprehension of instructions more broadly. Of more concern, there is “considerable risk that a direction will have the opposite effect to that intended and serve to entrench rather than overcome stereotypes and myths in the minds of the jury” (Jennifer Temkin, ““And Always Keep A-hold of Nurse, for Fear of Finding Something Worse”: Challenging Rape Myths in the Courtroom” (2010) 13 New Criminal Law Review 710 at 720-721, 725). Temkin recommended that the Benchbook be followed up with education of legal actors and the public, as well as the introduction of expert evidence in some cases where the issues tend to give rise to rape myths that are particularly entrenched.

Louise Ellison and Vanessa Munro have been at the forefront of research involving simulated jury trials for sexual offences in the UK, and one of their most recent papers examines the extent to which mock jurors were willing and able to understand and apply judicial directions from chapter 17 of the 2010 Benchbook. However, they used instructions focused on issues of consent and mistaken belief in consent rather than the instructions on “avoiding judgements based on stereotypes” (see “Telling Tales: Exploring Narratives of Life and Law within the (Mock) Jury Room” (2015) 35(2) Legal Studies 201). There do not yet appear to be any studies examining the impact of these specific instructions.

With these caveats in mind, the initiatives in the UK nevertheless remind us that it is crucial to the ongoing project of endeavouring to achieve justice in sexual assault trials that adjudicators (as well as other legal actors) disabuse themselves of discredited myths and stereotypes and apply sexual assault laws free from “ignorance, prejudice, and/or misconception about rape” (see Ellison & Munro, “A Stranger in the Bushes or an Elephant in the Room?: Critical Reflections on Received Rape Myth Wisdom in the Context of a Mock Jury Study” (2010) 13(4) New Criminal Law Review 781 at 788).

In Canada, there have been efforts by the National Judicial Institute (NJI) to offer judicial education on sexual assault and violence against women more broadly. The Canadian Judicial Council has also developed model jury instructions, including those for sexual offences (see chapter VII, available on the NJI website here). However, these instructions are organized around categories of sexual offences (sexual interference, incest, sexual assault, etc) and do not contain any specific directions cautioning juries about the operation of myths and stereotypes in trials of sexual offences. A separate direction is provided for cases where sexual history evidence was allowed under section 276 of the Criminal Code (see chapter II.7.20 and chapter III.11.20) and it merely requires judges to instruct juries that “You must not use that evidence [of the complainant’s sexual history] to infer that [s/he] is more likely to have consented to the sexual activity that forms the subject matter of the charge or to infer that s/he is less worthy of belief as a witness.” Given that sexual history evidence is one of the primary sites for the operation of rape myths, as recognized in Seaboyer (and as illustrated in Wagar), one would have thought that a more fulsome caution about inappropriate use of this evidence was warranted, in addition to cautions about the application of myths and stereotypes more broadly.

It is true that Wagar involved a judge sitting alone rather than a jury trial. But surely the foregoing discussion applies in this context as well. Indeed, judges sitting alone – although they are human and susceptible to the same predispositions and beliefs as the ordinary person – have a professional duty to actively disabuse themselves of rape myths. Let us hope that the judge hearing the new trial in this case takes seriously his or her duty in this regard.

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What Happens When an Insolvent Energy Company Fails to Pay its Surface Rent to a Landowner? Part 2

Tue, 10/27/2015 - 10:00am

By: Shaun Fluker

PDF Version: What Happens When an Insolvent Energy Company Fails to Pay its Surface Rent to a Landowner? Part 2

Cases Commented On: PetroGlobe Inc v Lemke, 2015 ABSRB 740; Portas v PetroGlobe Inc, 2015 ABSRB 708; Rodin v PetroGlobe Inc, 2015 ABSRB 737

This comment is an update to my July 2014 post What happens when an insolvent energy company fails to pay its surface rent to a landowner?. Readers are directed to this earlier comment for more background to this case and for this comment. In short, the matter involves the failure by PetroGlobe to pay its 2013 rent under a surface lease to the lessors Doug and Marg Lemke. The Lemkes filed an application with the Alberta Surface Rights Board (“Board”) under section 36 of the Surface Rights Act, RSA 2000 c S-24 to recover the unpaid rent. PetroGlobe was assigned into bankruptcy in 2013 under the federal Bankruptcy and Insolvency Act, RSC 1985, c B-3, and in its 2014 Lemke decision 2014 ABSRB 401 the Board ruled this federal legislation precludes the Board from proceeding with the Lemkes’ section 36 application under the Surface Rights Act. In April 2015, then Premier Jim Prentice announced he was asking the Board to reconsider its 2014 Lemke decision. The Board subsequently struck a new panel to hear additional submissions, and earlier this month the Board rescinded 2014 ABSRB 401 and replaced it with 2015 ABSRB 740. This new ruling from the Board upholds its earlier decision not to proceed with the Lemkes’ section 36 application, but does so with more reasons. This comment examines this new reasoning.

Where a landowner provides the Board with satisfactory evidence of non-payment of surface rent by a lessee, section 36 obligates the Board to demand payment from the energy company. Where the company fails to comply with this demand for payment, subsections (5) and (6) in section 36 provide the Board with the power to extinguish the company’s surface access rights and direct the Minister to pay the landowner. As I explained in my July 2014 post, we might then summarize section 36 simply as holding that Albertans collectively guarantee that a landowner will receive their rent as compensation for having to endure the disruptions to their quiet enjoyment brought by the oil and gas industry (although the Board has stated in this new ruling that these subsections do not amount to a true guarantee). The following table sets out the number of section 36 applications received by the Board over the past decade and the amount of monies it has directed the Minister to pay over that time:


Number of New section 36 applications received by the Surface Rights Board

Amount Directed to Pay pursuant to section 36(6) of the Surface Rights Act


































2015 (9 months)



*Source: Alberta Surface Rights Board

These numbers certainly suggest section 36 is an overworked provision, and that the failure by energy companies to pay their rent is not uncommon. Alberta taxpayers have paid out nearly $10 million to cover rent owed by the oil & gas industry to landowners over the past 10 years.

The Board’s position remains that it is precluded from proceeding with the Lemkes’ section 36 application (more later on why I’ve underlined this application specifically) because it runs afoul of provisions of the Bankruptcy and Insolvency Act which, generally speaking, state no proceeding outside of the federal bankruptcy and insolvency process may be commenced against a bankrupt, and that the doctrine of federal paramountcy means section 36 is inoperable for non-payment of rent by a bankrupt energy company. The Board rejected each of the following arguments put forward by the Lemkes in the review hearing:

  • The Lemkes argued the Surface Rights Act is intended to provide landowners with a guarantee that the compensation payable for the surface rights given to an energy company will be paid. This assurance is in return for what is tantamount to the expropriation of the landowner’s land.

The Board’s response is that the literal terms of section 36 only empower the Board to direct the Minister to pay a landowner, and even then, only after the Board has directed the company to pay its debt and on its failure to do so the Board has terminated the company’s rights under the lease. Thus section 36 does not provide a true guarantee for the landowner. A literal reading of section 36 certainly supports the Board’s position here, although judicial interpretation – as noted in my July 2014 ABlawg – has suggested section 36 operates like a guarantee in an insolvency scenario even if the section itself doesn’t expressly put it that way.

  • The Lemkes argued a section 36 application is a claim by the landowner against the Alberta government, rather than an action or proceeding against the energy company. The section provides the landowner with a right to pursue payment from the Minister, and this right is independent of the bankruptcy of the company. The effect of a successful section 36 application is to place the Minister into the shoes of the landowner for the recovery of the unpaid rent under the lease. Moreover, the Board is not a creditor of the bankrupt company, and thus any action taken by the Board against the company is not an action or a proceeding outside of the federal regime for a claim provable in bankruptcy.

The Board’s response is that the landowner’s application under section 36 and subsequent demand by the Board for payment of rent under section 36(4) and/or the termination under section 36(5) of the company’s surface rights does amount to a “proceeding” and that for rent owing prior to the petition into bankruptcy this proceeding is for “a claim provable in bankruptcy”. The Board relies – unsatisfactorily in my view – on Black’s Law Dictionary to give meaning to what is a ‘proceeding’ under the Bankruptcy and Insolvency Act and its finding that a section 36 application is thus a proceeding because it is a means for seeking redress from a tribunal or agency. In my view, the Board’s reasoning seems to overlook the simple fact that the landowner is a creditor of the bankrupt and the landowner never commences any action against the bankrupt. This fact is lost in the Board’s attempt to reason thru its position with statutory interpretation and references to case law interpreting the Bankruptcy and Insolvency Act. Indeed the Board itself acknowledges some of those cases are distinguishable from this case on the facts.

The foregoing is essentially the justification provided by the Board for denying the Lemkes’ claim here for a second time.

What is already a convoluted set of reasons is arguably made worse by the Board’s finding that it is not precluded from proceeding with a section 36 application for unpaid rent that accrues after an energy company goes bankrupt. In its September 2015 Portas v PetroGlobe Inc, 2015 ABSRB 708 decision the Board ruled that unpaid rent that accrued after PetroGlobe was assigned into bankruptcy was not a claim provable in bankruptcy under the Bankruptcy and Insolvency Act (at paras 11 – 17).

And then to take this matter even a step further toward the absurd, the Board has recently ruled in Rodin v PetroGlobe Inc, 2015 ABSRB 737 that while the Board is precluded from proceeding with a section 36 application for unpaid rent that accrued before an energy company goes bankrupt the Board is not precluded from directing the Minister to pay that prior amount where the landowner subsequently files a new section 36 application for unpaid rent owing by the bankrupt company that accrued after the assignment (as per Portas). The Board’s position here being that the direction to the Minister for the prior unpaid rent is not against the bankrupt debtor – the difference from Lemke being that the demand for payment and termination of surface rights is attached to the unpaid rent that accrued after bankruptcy.

If you find the Board’s reasoning across these cases hard to follow, I’m sure you are not alone. It seems the Lemkes may apply under section 36 to recover unpaid rent from PetroGlobe that accrued before it was assigned into bankruptcy, but that request will only be processed by the Board if it is attached to a further request for the recovery of unpaid rent that accrued after the company was assigned into bankruptcy. This is legal formalism at its worst.

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The Synthetic Transportation of Natural Gas

Mon, 10/26/2015 - 10:00am

By: Nigel Bankes

PDF Version: The Synthetic Transportation of Natural Gas

Case Commented On: Apache Canada Ltd v TransAlta Cogeneration LP, 2015 ABQB 650

In this decision Master Robertson concluded that the synthetic transportation of natural gas through a series of swap arrangements does not trigger the seller’s right of first refusal in a natural gas sales contract so as to allow the seller to re-acquire the gas, or that volume of gas, at the contract price and re-sell for its own account at the market price.

Apache agreed to sell natural gas to TAU for the specific purpose of fueling a cogeneration facility in Windsor, Ontario (the Windsor facility). The point of sale (i.e. where TAU took delivery of the gas) was Empress, Alberta. The contract had a 15-year term commencing in 1996. At that time, natural gas prices were depressed and Apache agreed to accept a fixed price with an escalation clause rather than a price determined by reference to an evolving spot market. Both parties clearly contemplated that TAU, having taken delivery of the gas at Empress, would transport that gas to its Windsor facility using TransCanada’s mainline and Union Gas’s facilities in Ontario. Indeed, the contract required TAU to arrange take-away pipeline capacity through agreements with “Buyer’s Transporters” (s.9.03) that were (at para 39):

…required to transport on a firm basis all volumes of Gas up to the DCQ [Daily Contract Quantity] from the Delivery point to the Project Facility … on terms acceptable to the Parties acting reasonably, which agreements shall, at a minimum, commit Buyer’s Transporters to accept such Gas for transport to Buyer commencing on or before December 1, 1996 and continuing for the balance of the Term.

The term “Buyer’s Transporters” was defined as follows:

any owner or owners of pipeline facilities, or other transporters having access to pipeline facilities by arrangement or agreement with the owner, either directly or indirectly, with whom Buyer, an Affiliate of Buyer or any other Person on behalf of Buyer, contracts for the transportation of the Gas purchased by Buyer from Seller hereunder from the Delivery Point to the Project Facility, or to such other point as Buyer may determine from time to time, including but not limited to TCPL and Union Gas.

Another clause in the contract also spoke to this issue (s.6.03):

Buyer shall be responsible for obtaining firm transportation service on the TCPL System and the Union System for the transport of the Gas subject to this Agreement from the Delivery Point to the Project Facility, or such other ultimate destination as may apply in the circumstances.

Given the depressed state of the market and the possibility of recovery over the course of the contract, Apache was clearly concerned to protect itself from a scenario in which TAU purchased gas at the contract price and then re-sold it at the market price. To address that concern the contract included a clause dealing with the “Alternate Use of Gas”. Part (a) of that clause addressed the scenario in which TAU did not require the gas for its Windsor facility but where it, or an affiliated company, required the gas for another facility. Part (a) clearly permitted TAU to reallocate the purchased volumes in accordance with this clause. Part (b) dealt with contract volumes not required by the Windsor facility or by TAU affiliates, in which case TAU was required to offer the volumes back to Apache for it to re-purchase at the contract price. Only if Apache failed to exercise that option (the right of first refusal (ROFR)) was TAU to be free to sell the gas to others. The text of these clauses provided as follows:

2.05     Alternate Use of Gas

(a) Notwithstanding anything in this Agreement to the contrary, if Buyer does not require Gas to be available for purchase by it hereunder for the Project Facility, Buyer shall have the right to nominate for and receive all volumes of Gas up to the DCQ, to the extent not required at the Project Facility, for utilization at such other project facilities as it may require in which either Buyer or its Affiliates have a material interest, or, subject to the provisions of this Section 2.05, or for the re-sale of such Gas to such persons as it deems appropriate. All other terms and conditions of this Agreement shall apply with respect to such sale of Gas.

(b) If any volumes of Gas in excess of those required for the Project Facility are not required by Buyer or its Affiliates, such Gas shall be made available to Seller for re-purchase by it at Buyer’s cost thereof (taking into account whether or not Seller charges Buyer with the NOVA Charges applicable to such Gas) determined at the Delivery Point.  If Seller does not elect to re-purchase such excess Gas on that basis within two (2) business day [sic] of it being offered by Buyer to Seller, Buyer or its Affiliates shall be free to sell such Gas to any other person(s) on terms and conditions no more favorable to such person(s) than those offered to Seller (emphasis supplied).

As TCPL’s mainline tolls increased over the duration of the contract TAU began to explore different transportation options eventually concluding (by 2006) a series of swap arrangements (effected through a series of 8 purchase and sale transactions) in which TAU swapped gas at Empress in return for delivery of other gas at the Dawn hub in Sarnia for onward shipment to the Windsor facility (hence the “synthetic transportation” term used in the title to this post). Apache argued that the agreement required physical delivery of the particular gas, and, that absent such transportation and delivery, that its ROFR had been triggered and that, had it been aware of what was happening, it would have exercised that right. Having been denied that option it alleged that it suffered losses in excess of $8 million.

Master Robertson decided in favour of TAU on, I think, three main grounds.

The first ground was that while the contract did make reference to the transportation of the purchased natural gas through the facilities of TCPL and Union these references could not be interpreted as a covenant by TAU to use those facilities for several reasons. First the definition of “buyer’s transporters” made it clear that the reference to TCPL and Union was not exhaustive of the transportation possibilities open to TAU. Second, and more generally, a contextual interpretation of the contract was that the on-going transportation of the natural gas ex-Empress was TAU’s responsibility. TAU was obliged to provide firm take away capacity but that should not be interpreted as a covenant that it use particular facilities. In one particular scenario at least (a TAU affiliate seeking to use the natural gas in Alberta), there would clearly be no need to use either TCPL’s main line or the Ontario facilities of Union Gas.

The second ground, was that, to the extent that Apache’s argument was based on the idea that TAU was obliged to transport this particular gas to its Windsor facility absent which the ROFR was triggered, that must be wrong since both parties must have understood (see especially at paras 15 – 19 & 72) that, unlike oil, natural gas is not batched for delivery but is instead commingled as soon as it is in the pipeline. Thus, there could be no expectation that TAU would transport these particular molecules to its Windsor facility.

And third, the trigger to the ROFR under both paragraphs (a) and (b) of s.2.05 (see italicized text above), was the idea that the natural gas was not required by either the Windsor facility or by any other facilities of TAU or its affiliates. The natural gas was in fact required for the Windsor facility because the gas delivered at Empress provided the essential underpinning for the delivery of other gas at Windsor. Master Robertson put it this way in the substantive concluding paragraph (at para 85) of his well-reasoned and commercially realistic judgment:

Apache concedes that TransAlta required the volumes of gas for the project facility in Windsor.  TransAlta then used all of this fungible commodity – these “volumes of Gas” – to arrange for equivalent amounts of gas to be delivered to the facility project in Windsor, and not for any other purpose.  There were no “volumes of Gas in excess of those required for the Project Facility … not required by Buyer.”  Therefore, the right of first refusal was not triggered.  The agreement was not breached.

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Interest Clause in a Drilling Contract Not a Penalty

Thu, 10/22/2015 - 10:00am

By: Nigel Bankes

PDF Version: Interest Clause in a Drilling Contract Not a Penalty

Case Commented On: Precision Drilling Canada Limited Partnership v Yangaarra Resources Ltd, 2015 ABQB 649

This decision of Master Prowse follows on from his earlier decision on the merits of the dispute between the parties: Precision Drilling Canada Limited Partnership v Yangaarra Resources Ltd 2015 ABQB 433. The case involved so-called knock-for-knock provisions in a standard form drilling contract. My post on that decision is here and I note that it has also been the subject of a comment in The Negotiator here. This matter was back before Master Prowse because the parties could not agree on the terms of the formal judgement and in particular could not agree on two issues relating to Yangarra’s liability to pay interest on the amounts found to be owing. The contract provided for the payment of interest at 18% commencing 30 days after an invoice was tendered. If that clause were applicable Yangarra would be liable for approximately $2.4 million. Yangarra contested the validity or applicability of the interest provision on two grounds. First Yangarra argued that the clause operated as an unenforceable penalty. Second, Yangarra argued that a clause in the contract which afforded it the opportunity to contest an invoice meant that the interest clause was inapplicable so long as the invoices in question were subject to a bona fide dispute.

Master Prowse rejected both arguments. As to the penalty argument, Master Prowse took the view that Yangarra had to establish (see H.F. Clarke Ltd. v Thermadore Corp., 1974 CanLII 30 (SCC), [1976] 1 S.C.R. 319) that the clause was both “extravagant and unconscionable” and that it had failed to do so. He further reasoned as follows (at paras 23 – 25):

[23] My observation is this: an agreed upon interest rate for payments in arrears saves both litigants’ time and the courts’ time. Otherwise, it would be necessary for an unpaid goods or services supplier, when suing for non-payment, to adduce evidence as to things such as its average return on capital and its blended average cost of borrowing. These figures would be constantly changing.

[24] While there is no doubt that an agreed upon interest rate of 18% contains an element of ‘incentive’ in addition to an element of compensation, I find nothing extravagant or unconscionable about a goods or service provider charging 18% interest if they are not paid on time for goods or services provided. In my many years of experience, interest charges are typically charged in such circumstances, and it is very common for such interest charges to range from 1.5% to 2% per month.

[25] As further evidence of the widespread use of 18% interest for unpaid goods and services, I note that the provision for 18% interest in the contract between Precision and Yangarra is taken from an industry wide precedent.

Paragraph 24 of Master Prowse’s reasons evidently rests on the doctrine of judicial notice.

The inapplicability argument failed because it was inconsistent with the terms of the contract since the very provision which allowed a party to contest an invoice also went on to say:

Any sum not paid when due (including sums ultimately paid in respect of any dispute) shall bear interest at the rate specified in the applicable program specification sheet [in this case 18%] (emphasis added by Master Prowse).

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Upstream UK Oil and Gas Contract Case of Interest to the Energy Bar

Wed, 10/21/2015 - 10:00am

By: Nigel Bankes

PDF Version: Upstream UK Oil and Gas Contract Case of Interest to the Energy Bar

Case Commented On: Scottish Power UL Plc v BP Exploration Operating Company Ltd et al, [2015] EWHC 2658 (Comm)

This case involved a long term agreement for the sale and purchase of natural gas between BP and its fellow working interest owners in the offshore Andrew field (Andrew owners\vendors) and Scottish Power, the purchaser. The dispute arose because the Andrew owners decided to shut-in the Andrew field and platform in order to allow the processing and related facilities to be reconfigured so as to permit resources from the adjacent Kinnoull field to be tied into the Andrew facilities and platform, as well as production from a deeper pool in the Andrew field. The entire project was referred to as the Andrew Area Development (AAD). The Andrew field was ultimately shut-in from 9 May 2011 – 26 December 2014 with full production not being attained until March 2015. During that period there were no deliveries to Scottish Power under the contract. The shut-in continued for longer than originally anticipated by the Andrew partners but nothing seems to turn on that. There was considerable common ownership in the Andrew and Kinnoull fields such that at the time of the litigation two of the Andrew owners (BP and Eni between them held a 79% interest in the Andrew field) also owned a 93% interest in the Kinnoull field.

The matter came on for hearing as a trial of certain preliminary questions. A central issue in the case was whether (assuming liability on the part of the Andrew owners) Scottish Power should be confined to the specific “default gas” remedies provided by the contract for default delivery or whether it could sue for damages at common law and claim, inter alia for the difference between the price of gas under the contract and the price it had to pay for make-up gas. The decision also discusses contractual interpretation issues (see discussion of the factual matrix at paras 24 et seq), force majeure issues and the reasonable and prudent operator standard. The post begins with this last issue.

The Reasonable and Prudent Operator Issues

The Andrew owners sought to argue that they had failed to deliver gas because they were fulfilling their obligation to operate the Andrew facilities according to the Standard of a Reasonable and Prudent Operator. The obligation to provide and operate the necessary facilities and the definition of the Standard of a Reasonable and Prudent Operator (the RPO standard) were framed as follows:

7.1 Throughout the Contract Period the Seller will, in accordance with the Standard of a Reasonable and Prudent Operator, provide, install, repair, maintain and operate those Seller’s Facilities which are (in the opinion of the Seller and the other Sellers) necessary to produce and deliver at the relevant times the quantities of Natural Gas from the Andrew Field which are required, in accordance with the terms of this Agreement, to be delivered to the Buyer at the Delivery Point.

[Definition] A Reasonable and Prudent Operator: a Person seeking in good faith to perform its contractual obligations and, in so doing and in the general conduct of its undertaking, exercising that degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected from a skilled and experienced operator engaged in the same type of undertaking under the same or similar circumstances and conditions, and the expression the ‘Standard of a Reasonable and Prudent Operator’ shall be construed accordingly.

It was the position of the Andrew owners that their operations were in accordance with the RPO standard because they were fulfilling third party access (TPA) obligations that they owed either pursuant to legislation or in accordance with industry standards, specifically an industry Code of Practice on Access to Upstream Oil and Gas Infrastructure on the UK Continental Shelf (“ICOP“).

Justice Leggatt concluded that the Andrew owners could not rely on the RPO standard to excuse themselves from performance principally (at para 79) on the basis that the standard could only offer cover to the Andrew owners if they were, in the language of the definition, actually “seeking … to perform their contractual obligations”. That was not the case here since the Andrew owners had made a deliberate decision not to perform in order to complete the tie-in of the Kinnoull field. Justice Leggatt recognized that he was acceding to a fairly literal interpretation of the text of the definition but felt justified in doing so on the basis (at para 80) that the definition “is quite elaborate and gives the impression of having been carefully formulated. I see no reason to suppose that it was drafted by a Mrs Malaprop.” Justice Leggatt did consider that there might be some situations in which the sellers could rely on the standard such as where they might shut-down the facility to undertake necessary repairs for safety reasons; but that was not this case (at paras 84 – 85):

The basic obligations of the Seller under the contract are, as reflected in Article 5.1(1), to deliver the quantities of natural gas properly nominated by the Buyer. The obligations under Article 7.1 to provide, install, repair, maintain and operate the Seller’s Facilities are expressly directed towards that aim. The Seller’s obligations must, moreover, be performed not just from day to day but over the whole life of this long term contract. Thus, what is necessary in order to comply with the first limb of the RPO standard, as I see it, is that the Seller should be acting with the aim of performing its obligations to deliver natural gas to the Buyer over the remainder of the contract period through facilities fit for that purpose.

On any fair reading of the requirement, however, it is plain that the Andrew owners were not complying with it when they decided to shut down production from the Andrew Field for what they knew would be a lengthy period for ulterior reasons which had nothing to do with enabling them to deliver natural gas to Scottish Power through facilities provided, repaired, maintained and operated for this purpose, and which were directly inconsistent with performance of their obligations to deliver natural gas

Perhaps more surprising was Justice Leggatt’s conclusion if the Andrew owners were able to bring themselves within the first branch of the RPO test. Here, Justice Leggatt went on to say that if that were the case the Andrew owners would have no need to rely upon a legislated or industry standard TPA obligations for it would be self-evident that any prudent operator would follow the course of action taken by the Andrew owners. Justice Leggatt put the case this way (at paras 89 – 90):

It is clear that the Andrew owners stood to gain substantial financial rewards from carrying out the AAD works and shutting in the Andrew Field for that purpose. The benefits to be gained from the agreement made with the Kinnoull owners for this purpose included: (i) the fees which the Kinnoull owners agreed to pay for the use of the Andrew facilities to handle oil and gas produced from the Kinnoull Field; (ii) cost savings from carrying out the works needed to develop the Lower Cretaceous reservoir in combination with the work involved in tying in the Kinnoull Field to the Andrew platform; and (iii) the fact that some two-thirds of the costs of carrying out the AAD works and the financial losses incurred as a result of shutting in the Andrew Field for that purpose were to be paid by the Kinnoull owners (subject to a cap). In addition, two of the Andrew owners (BP and Eni) who between them owned almost 79% of the whole interest in the Andrew Field also owned over 93% of the interest in the Kinnoull Field and hence also stood to gain the commercial benefits obtained by the Kinnoull owners from the tie-in.

In these circumstances I have no doubt at all that a person exercising, in the conduct of its own business, that degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected from a skilled and experienced operator engaged in the same type of undertaking under the same or similar circumstances and conditions as the Andrew owners would have taken the decision they did to shut in the Andrew Field to carry out the AAD works.

My instinctive reaction to these passages (and see also at para 118 where Justice Leggatt suggests that the failure to consider self (economic) interest in applying the RPO standard would “divorce [it] … from commercial reality and render it totally artificial.”) is that they must be wrong largely for two reasons. First, Justice Leggatt has turned an objective standard into a subjective standard by taking into account the particular circumstances of these vendors. Second. Justice Leggatt has de-contextualized the RPO standard beyond the four corners of this contract by allowing/encouraging the operator to take into account its own interests and specifically its own interests in relation to another property. While I appreciate that we are working within a contractual paradigm and that the vendors owe no duty of loyalty to the purchasers, the obligation is still an obligation of these vendors to operate this facility in order to provide gas to the purchasers. The vendors might be able to make a decision about efficient breach (i.e. breach the contract, pay damages and still come out ahead) but the idea that the vendors could pursue their self-interest and rely upon the RPO standard to escape breach and liability seems misconceived.

Could the Andrew owners rely on statutory obligations or industry standards with respect to TPA to bring itself within the RPO standard?

Notwithstanding the above conclusions Justice Leggatt did go on to consider whether the owners could rely on their legislated TPA obligations or the standard within the industry to justify shutting-in the facility. TPA is certainly a significant issue on the North Sea continental shelf as governments and industry seek to ensure that assets are not stranded, that new fields can be tied-in and that maximum and efficient use is made of existing facilities. However, this decision emphasizes that the obligations arising under the legislation (s. 17F of the Petroleum Act 1998) and industry standards are actually quite constrained.

Firstly, with respect to obligations arising under statute, Justice Leggatt emphasized that the powers of the Secretary of State were effectively limited to making an order with respect to the more efficient use of an existing pipeline. Justice Leggatt observed that the activities of the Andrew owners went far beyond this and included the construction of new processing facilities thus prompting the observation (at para 94) that “Section 17F of the Petroleum Act 1998 cannot reasonably be interpreted as giving the Secretary of State power to require the owner of a pipeline to provide such facilities or to carry out major construction works of this kind.” Justice Leggatt also considered other possible statutory obligations that might apply but overall concluded that the Secretary’s authority was limited to the use of existing facilities and did not extend to the construction of new facilities (at paras 95 – 100).

As for the industry standards embedded in ICOP (above), Justice Leggatt accepted (at para 101) that “a reasonable operator of the Andrew facilities would have considered that ICOP applied to the negotiations with the Kinnoull owners regarding the tie-in of the Kinnoull Field” and furthermore that the ICOP had a broader scope than did the legislation and did extend to the construction of additional capacity. So far so good (at para 106): “I accordingly find that the Andrew owners did, as a reasonable operator in their position would have done, take account of and seek to comply with the provisions of ICOP in negotiating the contract made with the Kinnoull owners.” But that evidently was not enough in Justice Leggatt’s view to allow the Andrew owners to hide behind the RPO standard; they could only do so if they could point to statutory authority which would allow the Secretary to intervene to prescribe an agreement if the parties could not agree. Once again Justice Leggatt found against the vendors concluding (as above) that the Secretary could not intervene to require the construction of new facilities but also finding that there was little chance that BP (for the Andrew owners) would even avail itself of the opportunity to involve the Secretary of State and the Department for a number of reasons. First, BP and the Andrew owners would have wanted to maintain a good relations with the Department. Second, the results of any referral might be unpredictable, and third, BP and the other Andrew owners were on both sides of the negotiation (at para 110):

I have no doubt that the representatives on each side sought to secure terms favourable to their interest, but it was clear from their evidence that they all regarded themselves as working towards a common goal. It was not of great overall significance to BP what balance was struck between the interests of the Andrew owners and the Kinnoull owners, since a disadvantage to them in one capacity constituted a benefit to them in the other. A key objective of the negotiators in these circumstances was to gain the support of the minority owners on each side for terms on which agreement could be reached so that the project which BP wanted to undertake could proceed. I find it difficult to contemplate in the circumstances that BP would ever have allowed a situation to arise in which [the Department] was asked to intervene.

Finally, all the evidence suggested that the negotiations between the two owners were based on mutual commercial advantage and had no reference to the ICOP or to the possibility of a referral to the Department.

In sum, even if the Andrew were entitled to invoke the RPO standard (they could not according to Justice Leggatt), and even if they needed to rely on TPA obligations whether based on statute or industry practice (they need not according to Justice Leggatt) they could not do so because the limited nature of the TPA obligations meant that they did not extend to the construction of new facilities or the reconfiguration of existing facilities.

Is Scottish Power limited to the remedy of default gas or could it sue for common law damages?

The contract contemplated that Scottish Power would nominate certain volumes for delivery for each and every following week over the duration of the contract. In the event that the vendors failed to deliver the nominated amount the shortfall was denominated as default gas to be delivered the following month at 70% of contract price. Scottish Power continued to nominate delivery volumes throughout the period of default. The crucial provision in the contract was Article 16.6 which states:

The delivery of Natural Gas at the Default Gas Price and the payment of the sums due in accordance with the provisions of Clause 16.4 shall be in full satisfaction and discharge of all rights, remedies and claims howsoever arising whether in contract or in tort or otherwise in law on the part of the Buyer against the Seller in respect of underdeliveries by the Seller under this Agreement, and save for the rights and remedies set out in Clauses 16.1 to 16.5 (inclusive) and any claims arising pursuant thereto, the Buyer shall have no right or remedy and shall not be entitled to make any claims in respect of any such underdelivery.

As one might anticipate, Scottish Power employed various strategies to argue that Article 16.6 did not preclude additional recovery. For example, Scottish Power attempted to argue that the real breach in question here was a breach of the Article 7 obligation to make available the necessary facilities to process and deliver gas. While Justice Leggatt seemed prepared to accept that there might be some cases that were not caught by the broad language of Article 16.6 (see at para 149), in general it was clear (at para 160) that the remedy of default gas was intended to be the exclusive remedy available to the purchaser for under delivery. Justice Leggatt concluded as follows (at para 175):

In reaching my conclusions on this issue, I have not overlooked the presumption [and see also the references to the relevant authorities at para 23] that parties do not intend to abandon remedies that arise by operation of law. It seems to me that the presumption must be less strong where the common law remedy is not simply excluded but is replaced by a different (and valuable) contractual one. I am satisfied in any case that – to the extent I have indicated – the terms of the Agreements make it sufficiently clear that this was intended.

If Scottish Power does have additional common law remedies can the Andrew owners claim the benefit of an exclusion clause?

Justice Leggatt did not need to address this argument since he had already concluded that such additional remedies were not available to Scottish Power but he still decided the exclusion clause point in obiter. The Andrew owners claimed to rely on Article 4.6 which states:

Save as expressly provided elsewhere in this Agreement, neither Party shall be liable to the other Party for any loss of use, profits, contracts, production or revenue or for business interruption howsoever caused and even where the same is caused by the negligence or breach of duty of the other Party.

Justice Leggatt made short work of this argument concluding that arguments to the effect that Scottish Power’s claim was a claim for loss of use or loss of production were (at para 179) “untenable”:

It is clear that Article 4.6 is not intended to exclude liability for all losses caused by the other party’s breach of duty – otherwise it would have said so. Rather, it excludes liability for certain specified types of loss. What these types of loss have in common is that they do not represent the basic or normal measure of loss caused by a breach of contract, but are all kinds of further loss that a party may suffer which go beyond that basic measure.

Justice Leggatt was of the view that Article 4.6 was directed not at the ordinary losses that would flow from breach of contract (here the cost of replacing the gas) but instead was directed at other consequential or secondary losses. Justice Leggatt out some flesh on what he meant by such a secondary loss in the context of loss of use or loss of production as follows (at para 181):

In the present case, the damages claimed by Scottish Power represent only the normal loss which arose from the need for Scottish Power to buy alternative supplies of gas in the open market to replace the natural gas which the Andrew owners should have delivered under the Agreements. Had there been difficulty or delay in procuring replacement gas, various types of secondary loss might also naturally have been suffered. Such losses would potentially have included losses resulting from Scottish Power’s inability to use the gas for the purposes of its own business. I think it clear that this is what is meant by “loss of use” in Article 4.6. The reference to “loss of profits” is directed at the possibility that, if Scottish Power was not able to buy gas to replace the gas which the Andrew owners should have delivered, it could lose profits which it would otherwise have made from selling the gas or using it in its business. …I interpret “loss of production” as meaning loss resulting from inability to produce other products (for example, to generate electricity) because gas is not delivered under the Agreements. “Loss of revenue” covers similar ground to “loss of profits”. The last item in the list, “business interruption”, again overlaps with other items and further indicates the general type of loss which the clause is concerned to exclude.

To the extent that the Andrew owners could bring themselves within the subject matter of the force majeure clause of the contract, were they precluded from relying on this clause by reason of their failure to comply with certain of the notice requirements in the clause?

The Andrew owners originally had two force majeure arguments. The broad claim (referred to at para 44) was that the entire period of the shut-in was covered by the force majeure provisions of the contract. This defence was ultimately withdrawn. The narrower version of the force majeure argument (at para 44 and at paras 194 – 237) was confined to the initial period of the shut-in. The Andrew owners originally shut the Andrew platform down on 9 May 2011 because a leak had been detected and thus the platform was shut-in for safety reasons. By May 20 the Andrew owners had decided to continue the shut-in and commence the AAD works rather than re-starting production and then shutting down again. The Andrew owners argued that they could rely on force majeure from 9 May to 20 May. The parties seemed to accept that the shut-in for safety reasons fell within the ambit of the definition of force majeure but Scottish Power argued that the Andrew owners were ultimately precluded from relying on force majeure because they had failed to follow some of the procedural steps outlined in the force majeure Article (Article 15). That Article required the party relying on force majeure to provide notice to the other party within 10 days of the event and then to provide an interim report within 5 days of the notification followed by a detailed report within 20 days. The Andrew owners complied with steps 1 and 2 but admitted that they had failed to provide the detailed report. Scottish Power argued that the requirement of a detailed report was either a condition precedent or a condition subsequent and that on either interpretation the Andrew owners were precluded from relying on force majeure since they had failed to fulfill the condition.

The principal objection to Scottish Power’s argument was that the terms of the contract did not expressly refer to the reporting requirement as a condition of any sort. This led Justice Leggatt to make two further inquiries. The first inquiry was to examine whether it was possible to infer that the parties intended that filing a detailed report should be a condition precedent for making a force majeure claim. Perhaps the strongest argument for this was that the clause would confer no worthwhile protection if Scottish Power were confined to the remedy of damages. Justice Leggatt was not convinced and clearly believed that there were compelling arguments for both views: neither view (at para 223) was “inherently more sensible or commercially reasonable” than the other”.

The second inquiry was whether the detailed report requirement should be viewed as an indeterminate (or innominate) term, breach of which was so serious that the Andrew owners should be precluded from taking the benefit of the force majeure characterization of the events. Readers will recognize (and see at para 233) that this argument is an attempt to apply the logic of Hong Kong Fir (Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, [1962] 2 QB 26) not to justify repudiation of the contract (clearly that was not possible in relation to this 11 day event, and nor presumably was it in Scottish Power’s interest in doing so), but instead to preclude reliance on a particular clause or benefit contained in the contract. Justice Leggatt seemed to accept the principle underlying the argument (at para 230 but see contra at para 234) but ultimately concluded that the argument must fail partly at least on the grounds that this approach would hardly contribute to commercial certainty (at para 235).

In sum, the failure of the Andrew owners to fulfill the requirement of filing a detailed report did not preclude them from relying on force majeure. It was a breach of the contract for which they might be liable in damages, but Scottish Power would need to be able to prove that it suffered damage as a result of that breach.

Next Steps

As noted in the introductory paragraphs, this represents judgment on a number of preliminary issues. The matter will now proceed to trial (assuming that the parties cannot reach a settlement based upon the matters decided here).

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The Regulatory Treatment of Stranded Assets in Alberta

Thu, 10/15/2015 - 10:00am

By: Nigel Bankes

PDF Version: The Regulatory Treatment of Stranded Assets in Alberta

Case Commented On: Fortis Alberta Inc v Alberta (Utilities Commission), 2015 ABCA 295

The Court of Appeal has now handed down its unanimous decision on the appeal of the Alberta Utilities Commission’s (AUC) decision known as the Utility Asset Disposition (UAD) Decision in which the AUC endeavoured to provide guidance to both electric and natural gas utilities as to the implications of the Supreme Court of Canada’s majority decision in Stores Block, ATCO Gas and Pipeline Ltd v Alberta (Energy and Utilities Board), 2006 SCC 4. I posted on the AUC’s decision here. The Court, in a reserved judgment written by Justice Myra Paperny (Justices Rowbotham and Watson concurring), declined to interfere with the AUC’s decision. In its judgment, the Court of Appeal emphasized that Stores Block and its progeny (see below) were still good law in Alberta. Furthermore, even though other jurisdictions had been able to distinguish Stores Block based upon the language of their utility statutes, or to confine it to its particular facts and circumstances, that was not possible in Alberta. Indeed, the jurisprudential record suggested (Fortis at para 74) that the Court of Appeal in Alberta had not taken a narrow and restrictive approach to Stores Block but had instead “applied the principles set out in that case more broadly”. As a result (Fortis at para 76):

The Commission, and this Court, are bound by Stores Block and the subsequent decisions from this Court. Only legislative amendment, reconsideration, or a reversal of Stores Block by the Supreme Court of Canada can change that.

For ease of reference the Stores Block progeny are as follows: ATCO Gas & Pipelines Ltd v Alberta (Energy & Utilities Board), 2008 ABCA 200 (CanLII), 433 AR 183 (Carbon), ATCO Gas & Pipelines Ltd v Alberta (Energy & Utilities Board), 2009 ABCA 171 (CanLII), 454 AR 176 (Harvest Hills), ATCO Gas & Pipelines Ltd v Alberta (Utilities Commission), 2009 ABCA 246 (CanLII), 464 AR 275 (Salt Caverns I), ATCO Gas & Pipelines Ltd v Alberta (Utilities Commission), 2014 ABCA 28 (CanLII), 566 AR 323 (Salt Caverns II).

As part of its decision the Commission concluded that Stores Block and subsequent court and AUC decisions had supported some 19 propositions of law. The issues on the appeal involved the way in which these propositions applied to stranded assets i.e. assets that are no longer used or useful for providing utility services which assets have not yet been fully depreciated. I reproduced all of those propositions in my note on the UAD Decision (above). The particular paragraphs that speak to stranded assets would seem to be paragraphs (c), (d), (e), (j), (k), (l), (m), (n), (p), (r) & (s).

(c) Utility assets are the property of the utility. Customers do not obtain a property interest in utility assets by virtue of receiving, and paying for, utility service (Stores Block, at paras 63, 64 and 68).

(d) Utility shareholders are entitled to the net proceeds of disposition of an asset sold outside of the ordinary course of business. Shareholders receive any gain and must bear any financial loss arising upon disposition. “Ownership of the asset and entitlement to profits or losses upon its realization are one and the same” (Stores Block, at paras 67, 39 and 70).

(e) “Shareholders have and they assume all risks as the residual claimants to the utility’s profit.” Utility “shareholders are the ones solely affected” when the actual profits or losses of a sale outside the ordinary course of business are realized; “the utility absorbs losses and gains, increases and decreases in the value of assets, based on economic conditions and occasional unexpected technical difficulties, but continues to provide certainty in service both with regard to price and quality” (Stores Block, at paras 68 and 69).

(j) The words “used or required to be used” in Section 37 of the Gas Utilities Act “are intended to identify assets that are presently used, are reasonably used, and are likely to be used in the future to provide services. Specifically, the past or historical use of assets will not permit their inclusion in the rate base unless they continue to be used in the system” (Carbon, at para 23).

(m) The Gas Utilities Act “does not contain any provision or presumption that once an asset is part of the rate base, it is forever a part of the rate base regardless of its function. The concept of assets becoming ‘dedicated to service’ and so remaining in the rate base forever is inconsistent with the decision in Stores Block….” “Previous inclusion in the rate base is not determinative or necessarily important” (Carbon, at para 29).

(n) “Past or historical use of assets does not permit their inclusion in rate base unless they continue to be used in the system.” An “asset no longer used to operate the utility is no longer part of the rate base, whatever its history or earning capacity.” (Salt Caverns, at paras 14 and 54).

(p) The Commission has the responsibility to determine the rate base, including “what assets (still) are relevant utility investment on which the rates should give the company a return” (Salt Caverns, at paras 30, 31 and 52).

(r) Gas utility assets that no longer have an operational purpose and are no longer used or required to be used by the utility in providing service to the public in Alberta, no matter what the historical use of such assets, should be removed from rate base and should not be reflected in customer rates (Decision 2011-450, at paras 312 and 315; Decision 2012-068, at para 147).

(s) The effective date for removal of a gas utility asset from rate base and customer rates is the earlier of: (i) the date that the utility advises the Commission that the asset is no longer used or required to be used; or (ii) the date the Commission determines that an asset no longer has an operational purpose and is no longer used or required to be used to provide service to the public (Salt Caverns, at paras 28, 31, 51, 52, 53 and 56; Decision 2009-253, at para 54; Calgary Leave, at paras 23 and 25; Decision 2012-068, at paras 146 and 147).

The Commission took the view (summarized by the Court in Fortis at paras 108 – 114) that all stranded assets should be removed from the rate base and any outstanding depreciation should be for the account of the utility and not its customers. These conclusions applied to both natural gas and electrical utilities.

Justice Paperny deals separately with the appeals of the gas utilities and those of electric utilities. I will follow that approach here.

The Appeal by the Gas Utilities

The gas utilities essentially argued that the owner of a gas utility was always entitled to a return of its investment once an item had been allowed in to the rate base. The Commission’s response to this is that the principal mechanism for ensuring a return of investment is through depreciation. Depreciation applies to pools of similar assets and depreciation rates are based on the statistical lives of assets within that pool. As the Court recognized (and quoting from the AUC’s factum in Fortis at para 140):

The reality is that some assets within the pool will be retired prior to the average service life and others will be retired after the average service life. However, the intent of the applicable depreciation principles is to recover all prudently incurred costs of all the assets within the pool over the average service life determined for the pool, when the assets are retired as the result of an ordinary retirement.

In sum, the concept of depreciation ensures that the utility is made whole on an average basis, except in extraordinary circumstances where something happens that was not contemplated in the depreciation studies. That something may be a natural event (e.g. a forest fire) or a technological development (which causes some elements of the utility’s infrastructure to become obsolete). The Commission concluded that these unforeseen costs should be borne by the utility. The Court in turn concluded that this decision was neither unreasonable nor unfair, and neither was it confiscatory.

I think that the Court really gives one principal reason for this conclusion which is that a utility is in a much better position to protect itself from at least some types of extraordinary circumstances than are its customers. For example, a utility should be in a position to assess potential obsolescence or declining use of facilities and that in turn may prompt the utility to apply to the regulator to change depreciation rates. The Court put the point this way (at para 145):

The effect of the Commission’s decision is not unfair. Consistent with the repeated assertion in the governing legislation that the utilities are to produce in a prudent manner in their business plans, operations, investments and expenses, the utilities must make reasonable accommodation in those plans, operations, investments and expenses for these extraordinary situations. There is nothing that ratepayers can do about such events. But the utilities can call in expert advice to ascertain the risks of their operations, and make submissions about those risks to the Commission, which may in turn react favourably in rate or tariff setting. The Commission’s determination that it should not, after the fact as it were, accept that unforeseen loss or obsolescence of capital investment should be passed on to the ratepayers, was not unreasonable. The utilities will have to adjust their strategies but that is not innately unfair, nor is it inconsistent with the objectives and proper interpretation of the governing legislation.

In relying on this analysis it seems to me that the Court is distancing itself from relying to any significant extent on the symmetrical application of Stores Block (i.e. the idea that since surpluses accrue to shareholders on the sale of utility assets so should the costs associated with stranded assets). Indeed I think that Justice Paperny makes this point explicitly (Fortis at para 148):

In my view, the UAD decision represents a reasonable approach that is well within the statutory authority vested in the Commission and also one that is in keeping with the jurisprudence from the Supreme Court as further interpreted by this Court. Even in the absence of that jurisprudence, the legislation clearly gives the Commission the authority to make this particular choice. It is not a foregone conclusion that the Commission would have chosen to treat stranded assets differently in the absence of the Stores Block line of cases.

The Appeal by the Electric Utilities

The electric utilities pointed out that Stores Block and its progeny were all gas utility decisions. That afforded them the opportunity to argue that the symmetrical logic of Stores Block should not apply to them. Furthermore, they argued that the electric sector reforms that began in the 1990s and the provisions of the Electric Utilities Act, SA 2003, c. E, 5.1 (EUA) (which does not require the AUC to establish a rate base for a utility) meant that they enjoyed a particular regulatory compact which suggested that (Fortis at para 153) “the legislature intended that, once a cost is deemed to have been prudently incurred, the electric utility is entitled to full recovery of that cost, even if circumstances change and even if the asset is no longer used in the provision of service.” The utilities supported this approach by noting that under the scheme of the EUA a transmission facility owner can be required to construct a new line (s. 35).

Once again, the Court of Appeal declined to intervene. The interpretation offered by the electric utilities was certainly reasonable (Fortis at para 157) “(b)ut that, of course, is not the question. For the appeal to succeed, it must be the only permissible interpretation.” And that was not the case here for the legislation clearly afforded the Commission a degree of discretion in the way in which it treated the utility’s investments (at para 159):

The language chosen by the legislature may permit the “prudent cost recovery” model described by the appellants, but it does not mandate it. The legislation does not explicitly or implicitly guarantee full stranded cost recovery in all circumstances. It requires the Commission to provide a reasonable opportunity to recover prudently incurred costs, leaving flexibility with respect to approach in the hands of the Commission.

The Court went on to say that Stores Block might have limited the policy choices open to the AUC in administering its legislation. Indeed at one point the Court seems to go as far as suggesting (Fortis at paras 160 – 161) that Stores Block either prohibits or makes it much more difficult for the Commission to order the sharing of stranded asset costs between the utility and its customers. Ultimately however I think that the Court steps back from this position when it notes that the Commission has been careful not to fetter its discretion (Fortis at para 168):

[T]he Commission was also careful not to fetter its discretion to deal with future cases. In paras [297] to [305] and para [313] of the UAD decision, the Commission recognized its ability to adjust for depreciation and amortization expenses of assets removed from service for unanticipated causes through its amortization of reserve differences process. In doing so, it recognized the need to retain the flexibility to fulfill its mandate on a case by case basis.


The Stores Block decision decided that consumers had no right to share in the gains associated with the disposition of assets that were no longer used and useful in providing utility service. In making that decision the majority of the Court overruled decades of experience during which the regulator had applied its expertise to balance the interests of consumers and shareholders with an eye to fairness, to both and to the long term viability of the regulated utility. The Commission has now applied that approach to stranded assets which are removed from the rate base. The Commission’s decisions will generally leave the risk of such an event with the shareholders although both the Commission and the Court seem to have left the door open to a different result in any particular case. The Commission has also served notice on its regulated utilities that they have some opportunity to manage the risk of stranded assets through appropriate depreciation applications.

It remains to ask whether this decision is consistent with two recent Supreme Court decisions on the treatment of prudent expenditures Ontario (Energy Board) v Ontario Power Generation Inc., 2015 SCC 44, (OPG) and ATCO Gas and Pipelines Ltd v Alberta (Utilities Commission), 2015 SCC 45 (ATCO). Those decisions stand for the proposition that Canadian utility law does not prescribe any particular prudent expenditure or prudent investment test that a regulator must apply (unless of course there is an explicit statutory provision to that effect). More generally, the cases stand for a deferential approach to utility regulators in the application of their expert judgment to particular cases with the ultimate goal of establishing just and reasonable rates. But the cases also seem to reject a “one size fits all” approach. Thus utility regulators must be careful of laying down rules that are insensitive to the facts of any particular case. The Court in those decisions warned that while a utility regulator might not have to apply the prudent investor test to committed expenditures, and indeed committed capital expenditures, (such that those expenditures would always be recoverable) a regulator that chose instead to apply a “with hindsight” approach should be prepared to demonstrate why that is reasonable in terms of the long run health of the utility and the circumstances of the particular case (OPG at paras 102 – 105). I think that the AUC’s sensitive discussion of depreciation policies (as shown in the Court of Appeal’s decision) will be enough to shield this decision from interference by the Supreme Court of Canada. But if these two recent cases have any message for the AUC in dealing with stranded assets, it is that the AUC must remain open in any particular case to sharing the costs associated with stranded assets between consumers and shareholders. Alas, that option is not open with respect to the distribution of any surpluses flowing from the disposition of assets, unless and until Stores Block is overturned, either by the Court itself or by the Alberta legislature in relation to Alberta’s utility statutes.

As to that last point, this may well be an opportune time for legislative intervention. Clearly Alberta’s regulated utilities (and especially the ATCO group) had no enthusiasm for any change so long as they could enjoy the fruits of Stores Block. Now that the Court of Appeal (and perhaps the Supreme Court of Canada in these two recent cases) has confirmed that that Stores Block is not an unalloyed boon for the utilities and that regulators may reasonably require regulated utilities to bear the risk of stranded assets (at least in some if not most or all cases), this may be an opportune time for a legislative amendment to restore the discretion that Alberta’s utility regulators have reasonably exercised over the past decades in relation to gains on sales. That might be a fairer and more nuanced version of the regulatory compact than that sown by Justice Bastarache in Stores Block.

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The Fundamentals of Tribunal Standing and Bootstrapping in Judicial Review

Wed, 10/14/2015 - 10:00am

By: Shaun Fluker

PDF Version: The Fundamentals of Tribunal Standing and Bootstrapping in Judicial Review

Case Commented On: Ontario (Energy Board) v Ontario Power Generation Inc., 2015 SCC 44

In Ontario (Energy Board) v Ontario Power Generation Inc. the Supreme Court of Canada revisits the fundamentals of standing for a tribunal in a judicial review or statutory appeal of its impugned decision. The substance of this case involves utility regulation in Ontario, and my colleague Nigel Bankes has written on that substance here. The relevant facts for this comment are simply that the Ontario Energy Board disallowed certain labour costs submitted by Ontario Power Generation in its rate application to the Board. The Ontario Divisional Court dismissed an appeal by Ontario Power, but the Ontario Court of Appeal reversed this finding, set aside the Board’s decision, and remitted the case back to the Board for reconsideration. The Board appealed to the Supreme Court of Canada. No doubt in response to what then appears to be the Board attempting to defend its impugned decision before the Supreme Court, the proper role of the Ontario Energy Board in these proceedings was raised and my comment here focuses on what the Supreme Court of Canada decides in this regard.

The proper role of an administrative tribunal in an appeal or review of its own decision is ultimately determined in the discretion of the reviewing court. This much has been settled in the law for some time. The crux of the matter is how the reviewing court should exercise that discretion. In particular, how much and what kind of participation is the impugned tribunal entitled to have before the court? A tribunal which vigorously defends its decision may ultimately be ordered by the court to reconsider that decision, which raises serious concerns about whether the tribunal may become a judge in its own cause in that reconsideration. On the other hand, the tribunal’s participation before the court can shed important light on the specialized nature of the administrative regime and thereby assist the reviewing court in deciding whether an error in law has occurred. Traditionally, reviewing courts have been more concerned with the former than the latter and the leading authority called for a more limited role by a tribunal.

For the last several decades the leading authority on the role of a tribunal has been Northwestern Utilities v Edmonton, [1979] 1 SCR 684. In that case – which ironically also involved utilities regulation – the Supreme Court emphasized the natural justice concerns and expressly limited the role of an administrative tribunal during an appeal or review of its decision to that of amicus curiae (friend of the court) in explaining the tribunal record. In the words of the Supreme Court back in 1979:

One of the two appellants is the Board itself, which through counsel presented detailed and elaborate arguments in support of its decision in favour of the Company. Such active and even aggressive participation can have no other effect than to discredit the impartiality of an administrative tri­bunal either in the case where the matter is referred back to it, or in future proceedings involv­ing similar interests and issues or the same parties. The Board is given a clear opportunity to make its point in its reasons for its decision, and it abuses one’s notion of propriety to countenance its partici­pation as a full-fledged litigant in this Court, in complete adversarial confrontation with one of the principals in the contest before the Board itself in the first instance.

It has been the policy in this Court to limit the role of an administrative tribunal whose decision is at issue before the Court, even where the right to appear is given by statute, to an explanatory role with reference to the record before the Board and to the making of representations relating to jurisdiction (Northwestern Utilities at page 709).

Of course it should be noted that Northwestern Utilities was issued in 1979, the same year in which the Supreme Court drastically reconfigured the fundamentals of judicial review in Canada by ruling the common law doctrines of fairness and reasonableness applied to all administrative decision-making, not just those who exercised a quasi-judicial function (see Nicholson v Haldimand-Norfolk Regional Police Commissioners, [1979] 1 SCR 311 and C.U.P.E. v N.B. Liquor Corporation, [1979] 2 SCR 227). This application of the fairness and reasonableness doctrines to a wide range administrative decision-making would inevitably require the Court to revisit the rule that the participation of a tribunal in the review or appeal of its decisions be limited to representations on jurisdiction. Indeed the Supreme Court did purport to expand the role of a tribunal with its 1989 Caimaw v Paccar of Canada Ltd., [1989] 2 SCR 983 decision, holding that a tribunal could also speak to the applicable standard of review and even the reasonableness of its decision. But Northwestern Utilities was not expressly overruled, and the Supreme Court acknowledges in Ontario Power Generation (at paras 43 to 45) that Canadian courts have since struggled to reconcile Northwestern Utilities and Paccar in relation to the proper role for a tribunal in judicial review.

More recent decisions from the Alberta Court of Appeal on this subject have nonetheless cautioned against a rigid application of Northwestern Utilities. In Leon’s Furniture Limited v Alberta (Information and Privacy Commissioner), 2011 ABCA 94 and 1447743 Alberta Ltd. v Calgary (City), 2011 ABCA 84 the Court of Appeal endorsed a contextual approach towards establishing the proper role of a tribunal. In these decisions, the Alberta Court of Appeal held relevant considerations for a reviewing court may include applicable legislative provisions that speak to the tribunal’s role in the appeal and the nature of the tribunal proceedings, the more adjudicative tribunal proceedings are the more limited its participation will be in a judicial review of its decisions.

In Ontario Power Generation the Supreme Court of Canada expressly endorses this contextual approach, and the Court has overruled Northwestern Utilities to the extent it strictly limits the tribunal role to matters concerning the record or jurisdiction:

The considerations set forth by this Court in Northwestern Utilities reflect fundamental concerns with regard to tribunal participation on appeal from the tribunal’s own decision. However, these concerns should not be read to establish a categorical ban on tribunal participation on appeal. A discretionary approach, as discussed by the courts in Goodis, Leon’s Furniture, and Quadrini, provides the best means of ensuring that the principles of finality and impartiality are respected without sacrificing the ability of reviewing courts to hear useful and important information and analysis: see N. Semple, “The Case for Tribunal Standing in Canada” (2007), 20 C.J.A.L.P. 305; L. A. Jacobs and T. S. Kuttner, “Discovering What Tribunals Do: Tribunal Standing Before the Courts” (2002), 81 Can. Bar Rev. 616; F. A. V. Falzon, “Tribunal Standing on Judicial Review” (2008), 21 C.J.A.L.P. 21 (at para 52).

A reviewing court should first look to the tribunal’s governing legislation to see if it clearly establishes the role of the tribunal in an appeal or review of its decisions (at para 59). In cases where the participation of a tribunal is in dispute, it is likely because the legislation either does not expressly provide for the role of the tribunal or does not limit that role to strictly speaking to the record or jurisdiction. So in those cases where the governing legislation does not clearly set out the role of the tribunal, the matter is determined in the discretion of the reviewing court. Justice Rothstein sets out three factors for a reviewing court to consider in deciding what the proper role for the tribunal is in a given case (at para 59):

In accordance with the foregoing discussion of tribunal standing, where the statute does not clearly resolve the issue, the reviewing court must rely on its discretion to define the tribunal’s role on appeal. While not exhaustive, I would find the following factors, identified by the courts and academic commentators cited above, are relevant in informing the court’s exercise of this discretion:

(1) If an appeal or review were to be otherwise unopposed, a reviewing court may benefit by exercising its discretion to grant tribunal standing.

(2) If there are other parties available to oppose an appeal or review, and those parties have the necessary knowledge and expertise to fully make and respond to arguments on appeal or review, tribunal standing may be less important in ensuring just outcomes.

(3) Whether the tribunal adjudicates individual conflicts between two adversarial parties, or whether it instead serves a policy-making, regulatory or investigative role, or acts on behalf of the public interest, bears on the degree to which impartiality concerns are raised. Such concerns may weigh more heavily where the tribunal served an adjudicatory function in the proceeding that is the subject of the appeal, while a proceeding in which the tribunal adopts a more regulatory role may not raise such concerns.

Concern remains over the appearance of partiality that can arise with tribunal participation in an appeal or review of its decisions, but Ontario Power Generation confirms that this concern does not necessarily mean a tribunal is strictly limited to a neutral role.

The Court also addresses the related matter of bootstrapping – known in this context as a tribunal attempting to add to its initial decision with additional reasons or justifications provided in argument during judicial review proceedings. One might have expected the Court to state this is clearly improper based on the principle that a tribunal should not be allowed to use judicial review to amend or supplement the impugned decision (described as the principle of finality by the Court at para 65). However Justice Rothstein does not fully close this door (at paras 68-69):

I am not persuaded that the introduction of arguments by a tribunal on appeal that interpret or were implicit but not expressly articulated in its original decision offends the principle of finality. Similarly, it does not offend finality to permit a tribunal to explain its established policies and practices to the reviewing court, even if those were not described in the reasons under review. Tribunals need not repeat explanations of such practices in every decision merely to guard against charges of bootstrapping should they be called upon to explain them on appeal or review. A tribunal may also respond to arguments raised by a counterparty. A tribunal raising arguments of these types on review of its decision does so in order to uphold the initial decision; it is not reopening the case and issuing a new or modified decision. The result of the original decision remains the same even if a tribunal seeks to uphold that effect by providing an interpretation of it or on grounds implicit in the original decision.

I am not, however, of the opinion that tribunals should have the unfettered ability to raise entirely new arguments on judicial review. To do so may raise concerns about the appearance of unfairness and the need for tribunal decisions to be well reasoned in the first instance. I would find that the proper balancing of these interests against the reviewing courts’ interests in hearing the strongest possible arguments in favour of each side of a dispute is struck when tribunals do retain the ability to offer interpretations of their reasons or conclusions and to make arguments implicit within their original reasons: see Leon’s Furniture, at para 29; Goodis, at para 55.

What is or is not an ‘entirely new argument’ that violates the principle of finality as opposed to a proper one that is implicit in the reasons provided by a tribunal in its decision, will undoubtedly be the focus of future proceedings. And I share the discomfort expressed by Professor Paul Daly on this aspect of Justice Rothstein’s judgement.   However this statement on bootstrapping does appear to be somewhat consistent with other recent decisions where the Court has allowed a tribunal to supplement its initial decision with arguments it did not set out in its initial decision (See e.g., McLean v British Columbia (Securities Commission), 2013 SCC 67).

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Methodological Pluralism: Canadian Utility Law Does Not Prescribe any Particular Prudent Expenditure or Prudent Investment that a Regulator Must Apply

Fri, 10/09/2015 - 10:00am

By: Nigel Bankes

PDF Version: Methodological Pluralism: Canadian Utility Law Does Not Prescribe any Particular Prudent Expenditure or Prudent Investment that a Regulator Must Apply

Case Commented On: Ontario (Energy Board) v Ontario Power Generation Inc., 2015 SCC 44, (OPG) and ATCO Gas and Pipelines Ltd v Alberta (Utilities Commission), 2015 SCC 45 (ATCO)

The last two weeks of September 2015 saw the release of three important court decisions dealing with utility regulation, two from the Supreme Court of Canada, the OPG case and the ATCO case, and one from Alberta’s Court of Appeal, the Utility Asset Disposition case (UAD): Fortis Alberta Inc v Alberta (Utilities Commission), 2015 ABCA 295. The two Supreme Court cases (which were heard together) deal with a utility’s opportunity to recover operating costs and the application of prudency tests to those costs. Justice Rothstein is the principal author of both judgments. The ATCO case is unanimous while Justice Abella offers a dissent in the OPG Case. The UAD case deals with what I have previously referred to as the continuing fall-out from the majority decision of the Supreme Court in Stores Block (ATCO Gas and Pipelines Ltd. v Alberta (Energy and Utilities Board), 2006 SCC 4, [2006] 1 S.C.R. 140).

This post summarizes the holdings in the ATCO and OPG decisions and then offers some preliminary comments on their implications. The post begins with some general observations on utility regulation statutes. I will aim to do a separate post on the UAD case.

Utility Regulation Statutes

While there is some reason for thinking that there is a “common law of utility regulation” (see for example Chastain et al. v B.C. Hydro & Power Authority (1972), 32 D.L.R. (3d) 443, [1973] 2 W.W.R. 481 and British Columbia Electric Railway Co. v Public Utilities Commission of British Columbia, 1960 CanLII 44 (SCC), [1960] S.C.R. 837 (BC Electric)) it is also clear that any such common law concepts can be overridden by statute and that most utility law is indeed a creature of statute. This has the inevitable consequence that the applicable utility law in any particular case must be contingent on the details of the utility statute(s) in that jurisdiction (see OPG at paras 104 – 105).

It is thus important to begin by recognizing that provincial and federal utility statutes exhibit some diversity in approach across at least two different dimensions: rate-making methodology and policy considerations. As to the first, while some jurisdictions and statutes prescribe the methodology that a utility regulator must follow in order to set just and reasonable rates, other jurisdictions and statutes prescribe only the outcome i.e. that rates must be just and reasonable. It is evident that it will be very difficult to obtain judicial or appellate review of rate making decisions in these latter jurisdictions on the basis that the tribunal has failed to follow any particular methodology. The National Energy Board Act, RSC 1985, c. N-7 provides an example of this statutory approach. That statute simply provides that:

62. All tolls shall be just and reasonable, and shall always, under substantially similar circumstances and conditions with respect to all traffic of the same description carried over the same route, be charged equally to all persons at the same rate.

67. A company shall not make any unjust discrimination in tolls, service or facilities against any person or locality.

In a leading decision on the judicial supervision of the NEB’s rate making authority British Columbia Hydro and Power Authority v West Coast Transmission Company Ltd. et al., [1981] 2 F.C. 646 at 655-56 (C.A.) the Federal Court of Appeal commented as follows:

There are no [prescriptive] provisions in part IV of the National Energy Board Act. Under it, tolls are to be just and reasonable and may be charged only as specified in a tariff that has been filed with the Board and is in effect. The Board is given authority in the broadest of terms to make orders with respect to all matters relating to them. Plainly, the Board has authority to make orders designed to ensure that the tolls to be charged by a pipeline company will be just and reasonable. But its power in that respect is not trammelled or fettered by statutory rules or directions as to how that function is to be carried out or how the purpose is to be achieved. In particular, there are no statutory directions that, in considering whether tolls that a pipeline company propose to charge are just and reasonable, the Board must adopt any particular accounting approach or device or that it must do so by determining cost of service and a rate base and fixing a fair return thereon.

Similarly, the jurisdiction of the Ontario Energy Board under s.78.1 of the Ontario Energy Board Act, 1998 is to provide for just and reasonable payments.

Alberta utility statutes offer an example of a more prescriptive approach, at least with respect to the need to establish a rate base and the methodology for doing so. Thus, s.37 of the Gas Utilities Act, R.S.A. 2000, c. G-5 provides that:

37(1) In fixing just and reasonable rates, tolls or charges, or schedules of them, to be imposed, observed and followed afterwards by an owner of a gas utility, the Commission shall determine a rate base for the property of the owner of the gas utility used or required to be used to provide service to the public within Alberta and on determining a rate base it shall fix a fair return on the rate base.

(2)  In determining a rate base under this section, the Commission shall give due consideration

(a) to the cost of the property when first devoted to public use and to prudent acquisition cost to the owner of the gas utility, less depreciation, amortization or depletion in respect of each, and

(b) to necessary working capital.

(3)  In fixing the fair return that an owner of a gas utility is entitled to earn on the rate base, the Commission shall give due consideration to all facts that in its opinion are relevant.

The GUA is less prescriptive in relation to other matters. This allowed Justice Rothstein in ATCO (ATCO at para 32) to conclude that the GUA did not impose a specific methodology for approving a utility’s revenue requirements. Thus, s.36 of the GUA provides that:

The Commission, on its own initiative or on the application of a person having an interest, may by order in writing, which is to be made after giving notice to and hearing the parties interested,

(a) fix just and reasonable individual rates, joint rates, tolls or charges or schedules of them, as well as commutation and other special rates, which shall be imposed, observed and followed afterwards by the owner of the gas utility,

(b) fix proper and adequate rates and methods of depreciation, amortization or depletion in respect of the property of any owner of a gas utility, who shall make the owner’s depreciation, amortization or depletion accounts conform to the rates and methods fixed by the Commission,

(c) fix just and reasonable standards, classifications, regulations, practices, measurements or service, which shall be furnished, imposed, observed and followed thereafter by the owner of the gas utility ….

For present purposes it is useful to note that the only reference to “prudence” or “prudent” in these sections (or indeed anywhere in the Act) is in s. 37(2)(a) in the context of the rate base. There is no reference to prudence in s.36 or in other sections dealing with the revenue requirements of a utility.

The Electric Utilities Act, S.A. 2003, c. E-5.1 takes a somewhat different approach. Section 121(2), like s.62 of NEBA, is concerned with the overall result. Thus the “Commission must ensure that”

(a) the tariff is just and reasonable, [and]

(b) the tariff is not unduly preferential, arbitrarily or unjustly discriminatory or inconsistent with or in contravention of this or any other enactment or any law ….,

But the EUA goes on in s.122 to instruct the Commission “to have regard” to “the reasonable opportunity to recover” principle and to a number of other factors:

122 (1) When considering a tariff application, the Commission must have regard for the principle that a tariff approved by it must provide the owner of an electric utility with a reasonable opportunity to recover

(a) the costs and expenses associated with capital related to the owner’s investment in the electric utility, including

(i) depreciation,

(ii) interest paid on money borrowed for the purpose of the investment,

(iii) any return required to be paid to preferred shareholders of the electric utility relating to the investment,

(iv) a fair return on the equity of shareholders of the electric utility as it relates to the investment, and

(v) taxes associated with the investment,

if the costs and expenses are prudent and if, in the Commission’s opinion, they provide an appropriate composition of debt and equity for the investment,

(b) other prudent costs and expenses associated with isolated generating units, transmission, exchange or distribution of electricity or associated with the Independent System Operator if, in the Commission’s opinion, they are applicable to the electric utility,

(c) amounts that the owner is required to pay under this Act or the regulations,

(d) the costs and expenses applicable to the electric utility that arise out of obligations incurred before the coming into force of this section and that were approved by the Public Utilities Board, the Alberta Energy and Utilities Board or other utilities’ regulatory authorities if, in the Commission’s opinion, the costs and expenses continue to be reasonable and prudently incurred,

(e) its prudent costs and expenses of complying with the Commission rules respecting load settlement,

(f) its prudent costs and expenses respecting the management of legal liability,

(g) the costs and expenses associated with financial arrangements to manage financial risk associated with the pool price if the arrangements are, in the Commission’s opinion, prudently made, and

(h) any other prudent costs and expenses that the Commission considers appropriate, including a fair allocation of the owner’s costs and expenses that relate to any or all of the owner’s electric utilities (emphasis added).

Again, for present purposes, it is important to emphasize (and this by contrast with the GUA) that there are multiple references to “prudence” and “prudently incurred” in this section, although as Justice Rothstein points out (ATCO at para 41) the words may be used differently in some of these paragraphs.

We can deal more quickly with the second variable which is that of public policy considerations. Here the principal divide in Canadian utility statutes is between energy utility statutes and telecommunication statutes. Generally, energy regulatory statutes do not expressly confer significant policy development and implementation functions on energy regulatory tribunals. That said such statutes may, for example, instruct the regulator to facilitate an energy market: see OEBA, s.1 and EUA, s.5. By contrast, federal telecommunications statutes have long conferred on the CRTC a significant role in developing and implementing Canada’s telecommunications policy. This is particularly evident, for example, in the Supreme Court of Canada’s decision in Bell Canada v Bell Aliant Regional Communications, 2009 SCC 40, [2009] 2 SCR 764.

Justice Rothstein begins both of his judgments with some general observations on the general regulatory framework. The discussions are similar. Justice Rothstein observes that both the OEB and the AUC must approve just and reasonable rates or the recovery of just and reasonable amounts. In both cases Justice Rothstein refers to the venerable authority of Northwestern Utilities Ltd. v City of Edmonton, 1929 CanLII 39 (SCC), [1929] S.C.R. 186 for the proposition that “fair and reasonable” rates are those “which, under the circumstances, would be fair to the consumer on the one hand, and which, on the other hand, would secure to the company a fair return for the capital invested” (NUL at pp. 192-93) (OPG at para 15 and ATCO at para 7). Justice Rothstein expands on this in OPG as follows (OPG at paras 16 and 17):

This means that the utility must, over the long run, be given the opportunity to recover, through the rates it is permitted to charge, its operating and capital costs (“capital costs” in this sense refers to all costs associated with the utility’s invested capital). This case is concerned primarily with operating costs. If recovery of operating costs is not permitted, the utility will not earn its cost of capital, which represents the amount investors require by way of a return on their investment in order to justify an investment in the utility. The required return is one that is equivalent to what they could earn from an investment of comparable risk. Over the long run, unless a regulated utility is allowed to earn its cost of capital, further investment will be discouraged and it will be unable to expand its operations or even maintain existing ones. This will harm not only its shareholders, but also its customers: TransCanada Pipelines Ltd. v National Energy Board, 2004 FCA 149 (CanLII), 319 N.R. 171.

This of course does not mean that the Board must accept every cost that is submitted by the utility, nor does it mean that the rate of return to equity investors is guaranteed. In the short run, return on equity may vary, for example if electricity consumption by the utility’s customers is higher or lower than predicted. Similarly, a disallowance of any operating costs to which the utility has committed itself will negatively impact the return to equity investors. I … observe that any disallowance of costs to which a utility has committed itself has an effect on equity investor returns. This effect must be carefully considered in light of the long-run necessity that utilities be able to attract investors and retain earnings in order to survive and operate efficiently and effectively, in accordance with the statutory objectives of the Board ….


ATCO deals with an application of the ATCO group of companies (both natural gas and electric utilities) to have the Commission permit it to recover in approved rates from its customers, the costs associated with providing cost of living increases (COLA) which matched the consumer price index (CPI) up to a maximum of 3 per cent under a defined benefit pension plan which covered some of ATCO’s employees. The Commission took the view that the pension plan did not require employers to fully match CPI increases up to 3 per cent and benchmark evidence suggested that other entities in the comparator group covered between 50 and 75% of CPI. Accordingly, the Commission concluded that recovery of 50% of annual CPI (up to a maximum COLA of 3%) would be reasonable. ATCO took the view that the Commission’s decision was unlawful. The pension plan had been prudently concluded and as a result the Commission could not now preclude recovery under either the GUA for ATCO’s gas utilities or the EUA, for ATCO’s electric utilities. In reaching its conclusion the AUC did not expressly address whether or not the two statutes required it to apply a no-hindsight prudence review; but, as Justice Rothstein acknowledged (at para 33), the fact that it proceeded without doing so implies that it understood that the relevant statutes did not require it to do so.

The Court of Appeal declined to interfere with the AUC’s decision and the Supreme Court of Canada granted leave.

The next sections examine the Court’s treatment of the standard of review and then the prudence analysis.

Standard of Review

Relying on Stores Block and another post-Stores Block case (ATCO Gas and Pipelines Ltd. v Alberta Utilities Commission, 2009 ABCA 246, 464 A.R. 275) as well as Shaw v Alberta Utilities Commission, 2012 ABCA 378, 539 A.R. 315, ATCO argued that the question at issue was a jurisdictional issue and that the standard of review was correctness. It will be recalled that in Stores Block, the majority, per Bastarache J, made a distinction between the AUC’s authority under s. 26(2) of the GUA to approve the disposition of utility assets and the general rate setting jurisdiction of the AUC (or more correctly the AUC’s predecessor, the Energy Utilities Board). While Justice Bastarache seemed prepared to concede that the Court should be deferential to the regulator’s jurisdiction to set just and reasonable rates (see Stores Block at para 30 and ATCO at para 27), the power of the regulator under s.26 to allocate the proceeds of sale on the disposition of assets should attract review (at least pre-Dunsmuir, Dunsmuir v New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190) on a correctness basis. Justice Rothstein rejected the analogy between Stores Block and the issues arising here. The issues before the Court in this case involved ratemaking and did not involve a “true question of jurisdiction” even assuming that there are such questions (ATCO at para 27). Furthermore, (ATCO at para 28) the issues all turned on the interpretation of the AUC’s home statutes as to which the standard of reasonableness presumptively applies: Alberta (Information and Privacy Commissioner) v Alberta Teachers’ Association, 2011 SCC 61 (CanLII), [2011] 3 S.C.R. 654, at para 30.

The Prudence Analysis

As noted above, s.37 of the GUA contains one reference to prudence while s.122 of the EUA provides many references. As a matter of statutory interpretation (and referring, ATCO at para 34, to Rizzo & Rizzo Shoes Ltd. (Re), 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, at para 21) Justice Rothstein concluded (ATCO at para 34) that “the ordinary sense of the word is such that a prudent cost is one which may be described as wise or sound.”   But, given some variety in the dictionary definitions of the term, it was necessary to supplement that assessment with a contextual reading of the statutory provisions. This led Justice Rothstein to conclude (ATCO at para 35) that there really was no difference between prudence and reasonable:

In the context of utilities regulation, I do not find any difference between the ordinary meaning of a “prudent” cost and a cost that could be said to be reasonable. It would not be imprudent to incur a reasonable cost, nor would it be prudent to incur an unreasonable cost.

While s.121 of the EUA used the term prudent in different ways, use of the term (ATCO at para 41) did not “imply a specific methodology” nor did the statute say “anything about the time at which prudence must be evaluated.” Furthermore, since prudence and reasonableness could be equated, s.121(4) of the EUA which imposes on the utility the burden of proving that proposed tariffs were just and reasonable also extends to establishing that expenditures are prudent. A utility is not entitled to the benefit of a presumption of prudence with respect to its expenditures. Thus, regardless of whether the costs are operating or capital, prior incurred, committed or forecast, the utility has the onus. Much the same was true of the GUA which also (s.44(3)) imposes on the utility the burden of showing that proposed rates are just and reasonable and therefore also (ATCO at para 46) “the burden of establishing the prudence of costs”. Thus (ATCO at para 47):

…. the Commission is free to apply its expertise to determine whether costs are prudent (in the ordinary sense of whether they are reasonable), and it has the discretion to consider a variety of analytical tools and evidence in making that determination so long as the ultimate rates that it sets are just and reasonable to both consumers and the utility.

That said, it was still necessary to establish whether the Commission’s application of its prudence analysis was reasonable (in the judicial review sense of that term). Here the Court noted the distinction between forecast and committed costs which it examined in OPG (see further discussion below) acknowledging that a no-hindsight prudence test might be appropriate in the case of committed costs (ATCO at para 48 and see also ATCO at para 65). But the distinction between forecast and committed costs may not always be clear and any assessment must take account of factual evidence as well as legal obligations (whether based on contract, fiduciary duty or regulatory obligations). The regulator’s assessment of such matters is itself (ATCO at para 49) owed deference by the Court.

ATCO’s final argument was that the AUC’s decision was unreasonable insofar as it was motivated by the Commission’s desire to protect customers from rate increases. The Court rejected that characterization of the AUC’s decision and in so doing provided some useful guidance for future decisions. First, the Court emphasised that a regulator cannot deny recovery on the basis of rate shock. However, a regulator can “take into account the impact of rates in deciding how a utility is to recover its costs” (at para 61 and note 10 (the emphasis is Justice Rothstein’s)) and referring as well to TransCanada Pipelines Ltd. v National Energy Board, 2004 FCA 149 (CanLII), 319 N.R. 171, at para 43.) Second (ATCO at para 61), “[w]here costs are determined to be prudent, the regulator must allow the utility the opportunity to recover them through rates.”

Third, a regulator is entitled (and obviously so) to think about the interest of consumers. Justice Rothstein put the point this way (ATCO at para 63):

Indeed, it seems axiomatic that any time a regulator disallows a cost, that decision will be based on a conclusion that the cost is greater than ought to be permitted, which leads to the inference that consumers would be paying too much if the cost were incorporated into rates. But that is not the same as disallowing a cost solely because it would increase rates for consumers. … [And here the] Commission reasoned from the prudence of the costs themselves, not from a desire to keep rates down, to arrive at its conclusion to disallow costs.

Fourth, (and this is my assessment) it will always be difficult to review a regulator’s decision on this basis (protection of consumers) absent some clear references (as in the BC Electric Case) in the regulator’s reasoning that display a link between the regulator’s objective of consumer protectionism and the disallowance of costs. Most regulators should be smart enough to avoid creating that link. Mere reference to the interests of consumers in not paying more than they “should” cannot be enough to render a decision unreasonable.


OPG dealt with the labour compensation costs element of OPG’s revenue requirement. Both the Government of Ontario and the Board had previously warned OPG that it needed to get its costs, including its labour costs, under control. The Board had also instructed OPG to engage in bench-marking exercises. Benchmarking studies led the Board to conclude (OPG at para 32) that OPG was overstaffed and its compensation levels were excessive. Most of OPG’s labour force is unionized and the remuneration rates of those employees are therefore the subject of collective bargaining. OPG sought to pass on to customers the results of its collective bargaining as part of its revenue requirements and ultimately as part of its approved tariff. The OEB refused to approve the tariff as filed and ultimately reduced OPG’s proposed revenue requirement of $6.9 billion by $145 million. In so doing the Board (OPG at para 33) noted that there were opportunities for OPG to manage some of its labour related costs including staffing levels, promotions etc., but acknowledged that “OPG may not have been able to achieve the full $145 million in savings for the test period through the reduction of compensation levels alone because of its collective agreements with the unions.” On appeal, the majority of the Ontario Divisional Court found the Board’s decision reasonable and declined to interfere. The Ontario Court of Appeal however reversed and remitted the matter to the Board. The Court of Appeal drew a distinction between forecast costs and committed costs. In relation to the latter, the Board was required to conduct a no-hindsight prudence review and if that review suggested that the costs were prudently incurred then the Board should make provision for their recovery (summarized in OPG at para 37). The Board’s failure to do so was unreasonable. The Supreme Court restored the judgment of the Divisional Court thereby confirming the OEB’s decision.

The judgment contains a lengthy and important discussion (OPG at paras 41 – 72) of the standing of a regulatory tribunal to argue its case on an appeal or judicial review application. My colleague Shaun Fluker will post on this aspect of the decision and I will say no more about it here. I will focus instead on the prudence issues. The standard of review was straightforward in this case. All parties (OPG at para 73) accepted that “reasonableness is the appropriate standard of review for the Board’s actions in applying its expertise to set rates and approve payment amounts under the Ontario Energy Board Act, 1998.”

The Prudence Analysis

As noted above, the OEBA is less prescriptive than Alberta’s utility statutes with respect to the OEB’s rate setting functions; but as with the Alberta statutes, the burden of proof with respect to both reasonableness (and therefore prudence as in ATCO) is on the utility. Where the statute prescribes an element of the methodology that the regulator must follow (as in the case of the burden of proof), the regulator has no authority to vary that element of the methodology. Thus it is not open to the regulator to establish (OPG at para 80, and see also at para 104) a rebuttable presumption that the utility’s expenditures are reasonable. “[T]his does not imply that the applicant must systematically prove that every single cost is just and reasonable. The Board has broad discretion to determine the methods it may use to examine costs — it just cannot shift the burden of proof contrary to the statutory scheme.”

As noted in ATCO, the Court in OPG made a distinction between forecast costs and committed costs as follows (OPG at para 82):

Forecast costs are costs which the utility has not yet paid, and over which the utility still retains discretion as to whether the disbursement will be made…. [C]ommitted costs are those [which] the utility has already spent … [or has] entered into a binding commitment or [is] subject to other legal obligations that leave it with no discretion as to whether to make the payment in the future (emphasis added).

The disallowance of committed costs is particularly problematic for a regulated utility because (OPG at para 82) “the utility and its shareholders will have no choice but to bear the burden of those costs themselves.” In the long run, disallowance may also not be in the interests of consumers since “[d]isallowing recovery of the cost of failed investments that appeared reasonable at the time, for example, may imperil the financial health of utilities, and may chill the incentive to make such investments in the first place. This effect may then have negative implications for consumers, whose long-run interests will be best served by a dynamically efficient and viable electricity industry.” The disallowance of forecast costs is far less problematic since such a case (OPG at para 82) “presents a utility with a choice: it may change its plans and avoid the disallowed costs, or it may incur the costs regardless of the disallowance with the knowledge that the costs will ultimately be borne by the utility’s shareholders rather than its ratepayers.”

The problem of committed costs has led utilities and some legislators, regulators and courts to develop a prudent investor test, based on conditions as they stood at the time the investment was made (or costs incurred) as part of a methodology for establishing just and reasonable rates. For present purposes this gives rise to at least two questions. First, is there a common understanding of the test, and second, is its application both permissible and required. As to the first, Justice Rothstein offered various examples of the test but referred (OPG at para 99) in particular to the Ontario Court of Appeal’s decision in Enbridge Gas Distribution Inc. v Ontario Energy Board (2006), 2006 CanLII 10734 (ON CA), 210 O.A.C. 4 where that court “endorsed …. a specific formulation of the prudent investment test framework” as follows:

  • Decisions made by the utility’s management should generally be presumed to be prudent unless challenged on reasonable grounds.
  • To be prudent, a decision must have been reasonable under the circumstances that were known or ought to have been known to the utility at the time the decision was made.
  • Hindsight should not be used in determining prudence, although consideration of the outcome of the decision may legitimately be used to overcome the presumption of prudence.
  • Prudence must be determined in a retrospective factual inquiry, in that the evidence must be concerned with the time the decision was made and must be based on facts about the elements that could or did enter into the decision at the time [at para 10, of the Ontario CA’s judgment].

As to the second, Justice Rothstein is clearly of the view (OPG at para 102) that “The prudent investment test, or prudence review, is a valid and widely accepted tool that regulators may use when assessing whether payments to a utility would be just and reasonable.” While the test has principally been used in the context of capital investments Justice Rothstein saw no reason why a regulator might not also apply the test to operating costs. However, Justice Rothstein was equally clearly of the view that neither the general jurisprudence nor the specific statutory scheme of the OEBA required the OEB to apply the prudence test to committed costs such that (OPG at para 103) a regulator’s failure to apply “would render its decision on payment amounts unreasonable.” Nor did Justice Rothstein consider (OPG at para 103) that the Court should create such a rule.

As discussed above, where a statute requires only that the regulator set “just and reasonable” payments, as the Ontario Energy Board Act, 1998 does in Ontario, the regulator may make use of a variety of analytical tools in assessing the justness and reasonableness of a utility’s proposed payment amounts. This is particularly so where, as here, the regulator has been given express discretion over the methodology to be used in setting payment amounts: O. Reg. 53/05, s. 6(1).

Thus, the OEB has a measure of discretion in deciding what test to apply as part of assessing reasonableness or prudence in each and every case.

The question of whether it was reasonable to assess a particular cost using hindsight should turn instead on the circumstances of that cost. I emphasize, however, that this decision should not be read to give regulators carte blanche to disallow a utility’s committed costs at will. Prudence review of committed costs may in many cases be a sound way of ensuring that utilities are treated fairly and remain able to secure required levels of investment capital. As will be explained, particularly with regard to committed capital costs, prudence review will often provide a reasonable means of striking the balance of fairness between consumers and utilities (OPG at para 104).

While the Court was of the view that it was not automatically unreasonable for the OEB not to apply the prudent investment test to committed costs (and the Court did find that some of the OPG’s costs were committed), it was still necessary to examine whether the Board’s failure to apply such a test in this particular instance could be said to be unreasonable. Justice Rothstein concluded that the OEB’s decision was not unreasonable and in doing so he emphasized a number of factors. First, he noted that the matter at issue here involved operating costs rather than capital costs. A “with hindsight” approach may be more problematic when applied to capital costs because it may impair the long run viability of the utility. Justice Rothstein put the point this way (at paras 107 – 108):

… prudence review, including a no-hindsight approach (with or without a presumption of prudence, depending on the applicable statutory context), may play a particularly important role in ensuring that utilities are not discouraged from making the optimal level of investment in the development of their facilities.

Operating costs, like those at issue here, are different in kind from capital costs. There is little danger in this case that a disallowance of these costs will have a chilling effect on OPG’s willingness to incur operating costs in the future, because costs of the type disallowed here are an inescapable element of operating a utility. It is true that a decision such as the Board’s in this case may have the effect of making OPG more hesitant about committing to relatively high compensation costs, but that was precisely the intended effect of the Board’s decision.

Second, consideration of the reasonableness of the OEB’s approach must take into account the fact that the relationship between a utility and its regulator is an ongoing relationship. It is a repeat-player relationship. The matter at issue here involved ongoing costs rather than a one-off expenditure and the OEB had already warned OPG that its staffing costs would be subject to scrutiny.

Third, the OEB did not take an “all-or-nothing approach” or an approach that made a hard and fast distinction between forecast costs and committed costs (OPG at paras 110 & 116). Rather the Board took a more global approach and effectively required the burden to be shared between consumers and shareholders. Given the difficulty of making the distinction between forecast and committed labour costs in the context of the labour costs, some of which were subject to collective agreements and some of which are subject to management’s control, it was not unreasonable for the Board to proceed in this way and was consistent with the methodological discretion available to the Board and its appreciation that it is not equipped to micromanage OPG’s business decisions (OPG at para 117). The Board’s decision did not and could not force OPG to abrogate its collective agreements (OPG at paras 118 & 119) but it likely had an adverse impact on OPG’s ability to earn its cost of capital in the short run; but in doing so it did send a clear message to OPG that it needed to improve its performance. That was entirely consistent with the Board’s statutory mandate and its market proxy role (OPG at para 120).


These two decisions will provide much food for thought for counsel for utilities, consumers and regulators. While the language of the particular utility statute in question will always be a crucial and dominant consideration, the general flavor of these two decisions is to emphasize that utility regulators typically have a broad degree of methodological discretion in the manner in which they go about setting just and reasonable rates and in reviewing the reasonableness or prudency of utility expenditures. Past practice and judicial preference for certain methodologies should not be construed as requiring the application of any particular methodology. The actual application of any particular methodology may be questioned on reasonableness grounds where it will have the result of impairing the long run viability of the utility or its long run ability to earn a reasonable rate of return; but the refusal to apply any particular methodology cannot itself be unreasonable unless a method is directed by statute. The reasonableness of the application of a methodology can only be examined on a case by case basis. This suggests to me that on a go-forward basis it will be extremely difficult for any utility to question the methodological approach followed by its regulator, at least where the regulator has provided at least some reasons for its choice of methodology and some justification (at least in hard cases) why the application of that methodology does not impair the long run viability of the regulated utility.

The Court has not overruled its Stores Block decision. It had no need to. After all, the two cases before the Court involved the prudence of expenditures rather than the sharing of the surplus flowing from the disposition of utility assets (as in Stores Block) but I can’t help but think that the methodological pluralism that this Court favours is far more consistent with Justice Binnie’s dissenting judgment in Stores Block than it is with the methodological rigidity exhibited in Justice Bastarache’s majority judgment.

Finally, the repeated references in both cases to the “long-run” health of the utility and to the opportunity that a utility must be accorded to earn its cost of capital over the long run (OPG at paras 16, 17, 76, 91 & 120 and ATCO at para 7) must surely be of some comfort to regulators like the AUC which are implementing performance based approaches to regulation (PBR). One implication of a PBR scheme is that utility performance is measured over a longer period than is traditionally the case, and the wish to provide incentives to improvement as part of PBR may mean that a utility will only achieve its target rate of return over the entire regulatory period and not within each year of that period.

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Legal or Social Responsibility? What are the Responsibilities of Internet Companies for Free Speech?

Thu, 10/08/2015 - 10:00am

By: Emily Laidlaw

PDF Version: Legal or Social Responsibility? What are the Responsibilities of Internet Companies for Free Speech?

The current controversy concerning the new Calgary-based app Peeple which will allow users to rate anybody they know – from their colleagues, to their friends, to their exes and neighbours – raises many questions familiar to internet lawyers. What are the rights of the subject matters of these ratings? To privacy? To dignity? What rights of free speech exist for anyone using these apps? And what are the responsibilities of the app developer, legally or ethically? For more on this controversy, see here, here, and here. There are some that question whether the app is a hoax, and I question it myself. Regardless, the Peeple controversy serves as a useful platform for discussions of wider issues in Internet governance. While there is much to be analysed concerning the privacy and harassment implications of this app, with this post I am going to focus on a different aspect of the controversy and that is the social responsibility of technology companies for human rights. By shedding light on the discussions happening in the international community I hope it contextualizes why things like Peeple are so controversial; they strike at the core of larger problems concerning the roles and responsibilities of businesses for human rights and the line between law and voluntary commitments. My recent research on this topic has been focused on free speech, so I will discuss the issue here in that context.

New technologies have changed the way we communicate challenging traditional structures of speech regulation. In the Internet context, the transnational, instantaneous nature of communications makes it difficult for governments to directly control the information that enters and leaves a country. At the same time the power of companies, which control this information flow, increases, because the communication technologies that enable or disable participation in discourse online are often privately owned. In order to find information, we use search engines. In order to share information we use communication platforms such as Twitter. In order to access the Internet, we need to use Internet Service Providers. Thus we inevitably rely on these companies to exercise the right to freedom of expression online and they thereby become gatekeepers to our online experience. This is problematic for a human rights system that has treated human rights as a government responsibility, and has effectively privatised human rights in the digital environment.

Our reliance on these gatekeepers to exercise the right to free speech has had two effects. First, such gatekeepers have increasingly been the targets of legal measures designed to capitalise on their capacity to regulate third party conduct. This ranges from orders for ISPs to block access to copyright infringing websites and other unlawful content as seen in United Kingdom cases involving Pirate Bay and Newzbin2, to orders by the Egyptian government during the Arab Spring in 2011 for Vodafone to switch off mobile networks. These orders put pressure on companies, both domestically and internationally, to be advocates for users’ free speech rights and to have in place governance codes that guide their conduct in this respect.

Second, in the Western World speech regulation in cyberspace has largely been left to self-regulation much the same way that regulation of the Internet in general has been light-touch. When Facebook decides to delete a group it deems offensive, Twitter suspends a user’s account for the content of his or her tweets, or Amazon decides to no longer host a site such as Wikileaks, the determination tends to be made outside the legal system of human rights. The result is a system of private governance running alongside the law without any of the human rights safeguards one normally expects of state-run systems, such as principles of accountability, predictability, accessibility, transparency and proportionality.

The business, human rights and technology conundrum has received increasing public attention in recent years. Since 2010 we have seen a paradigm shift at an international level in the recognition of human rights in cyberspace. Access to the Internet as a fundamental right received the United Nations stamp of approval in a report by Frank La Rue, the Special Rapporteur on the promotion and protection of the right to freedom of opinion and expression. In 2012 the UN Human Rights Council passed a resolution affirming Internet freedom as a basic human right, in particular the right to freedom of expression. At a European level we have seen the Court of Justice of the European Union and the European Court of Human Rights issue judgments with strong rights-based arguments directed at the activities of technology companies. This can be seen in cases such as Scarlet v SABAM followed by Sabam v Netlog regarding ISP filtering, Ahmet Yildirim v Turkey regarding hosts and SL, Google Inc v Agencia Espanola de Proteccion de Datos, Marios Costeja Gonzalez regarding a right to be forgotten on search engines.

At the same time, the business and human rights agenda has been a focal point of international governance discussions, most importantly with the work of John Ruggie in drafting the UN Guiding Principles. They were endorsed by the UN in 2011 and have been widely praised by government, businesses and NGOs. They have been incorporated into many agendas on CSR, as seen in Europe and the UK, and have formed the basis of industry CSR codes and guides, such as the European Commission Guidance for ICTs and the Global Network Initiative. Despite its apparent popularity, the Guiding Principles are controversial. There continue to be calls for a treaty-based governance regime for the human rights obligations of businesses.

What we need to do now is move the conversation forward by extending the Internet regulatory debate to take account of CSR. In my research, most recently in my book Regulating Speech in Cyberspace: Gatekeepers, Human Rights and Corporate Responsibility (Cambridge University Press, 2015), I seek to challenge the traditional conception of human rights as a relationship between citizens and state, arguing that in the digital age the experience of human rights in general, and free speech in particular, often occurs with and through private parties. At the moment, companies have been largely left alone to address issues of free speech through CSR frameworks such as in-house codes of conduct seen in Terms of Service and other company policies, through the work of regulatory bodies such as the Internet Watch Foundation to address child sexual abuse images, and industry initiatives such as the Global Network Initiative to address privacy and free speech.

Apps such as Peeple are ripe platforms for abuse, and while Peeple corporate risks liability under defamation and data protection laws for hosting unlawful content, it also carries a wider social responsibility to take care in how it runs its platform. Peeple’s commitment to privacy and free speech, or lack thereof (and regulatory savvy), can decide some aspect of your rights online. These types of informal corporate social responsibility codes and self-regulatory frameworks therefore emerge as powerful forces in shaping the right to freedom of expression online. In my book I propose an alternative governance model, the details of which are beyond the scope of this post. However, the take-away here is that in assessing the bigger picture of how to regulate the Internet, how to facilitate and protect rights online, and how to judge the behaviour of the creators of such things as Peeple, we must do a better job of understanding the promise and limits of CSR.

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Risk Allocation in Operating Agreements for Unconventional Resources

Wed, 10/07/2015 - 10:00am

By: Fenner Stewart and Tony Cioni

PDF Version: Risk Allocation in Operating Agreements for Unconventional Resources

Model contracts play a principal role in reducing transaction costs. They offer parties a series of rules, which allocates risk so that delays, disagreements, over-expenditures, and under-capitalizations can be managed (or avoided altogether). The best model contracts are highly responsive, quickly adapting to new realities. Accordingly, top drafters are pressed to doggedly re-evaluate whether or not their model rules are optimal in light of the ever-changing nature of law and technology.

Modern hydraulic fracturing is a disruptive technology that shifts the incentives within oil and gas joint venture projects. Drafters are adjusting their contracts to adapt. Experimentation with model rules is presently occurring in jurisdictions such as the United States, Canada and Australia, where unconventional resources abound.

This adaptation of model contracts (e.g. the third industry draft of the proposed updates to the 2007 CAPL Operating Procedure) has created a debate as to which model rules will be best for unconventional shale projects. As a contribution, this article first introduces how modern hydraulic fracturing has changed risk allocation in joint ventures, and then considers a couple of the central debates over what changes might need to be made so that model contracts can successfully adjust to this new reality.

What’s In The Rocks

Wood MacKenzie defines the conventional asset life cycle as having four phases: exploration, appraisal, development, and production. In the exploration phase, the operator determines if hydrocarbons exist. In the appraisal phase, the operator determines if hydrocarbons exist in paying quantities. In the development phase, the operator devises and executes a plan to get the hydrocarbons out of the geological formation as efficiently as possible. In the production phase, the operator follows through with the plan, ensuring production until the reservoir is no longer commercially viable. An additional fifth phase is the decommissioning phase, in which the operator concludes operations and carries out reclamation initiatives.

The unconventional asset life cycle of the shale play differs in important ways. For such projects, Wood MacKenzie has devised four alternative phases: concept, pilot, ramp-up and exploit. In the concept phase, the operator devises a technical strategy to maximize the potential profitability of a shale play based mainly on the information on hand about its geological characteristics and anticipated economics. In this phase, a number of well designs will be devised for the acreage. In the pilot phase, the operator tests the hypothesis of the concept phase against the reality of the play’s geology and rate of return. It does so by drilling a number of wells to test techniques for extracting hydrocarbons from the shale.

As the operator succeeds with in the pilot phase, a greater number of wells are drilled. As more wells are drilled, the commercial viability of the shale acreage becomes much clearer. If the results of the pilot phase indicate the project will be as viable as projected, the operator will dramatically expand operations. This expansion of operations is a key feature of the ramp-up phase.

The exploit phase is not the same as the production phase of conventional projects. The operator will drill many wells across the acreage. It will attempt to standardize production by re-using a limited selection of well designs, established during the concept and pilot phases. This standardization process increases efficiency and reduces transaction costs. At the same time, this standardization cannot be too rigid, since shale plays may have sharp decline curves, which demand reworking to sustain production. Put differently, well options must be responsive to changes in the subsurface characteristics of the play. Schlumberger calls this model the “flexible factory” model, because it takes a factory-style approach to standardization and combines it with a willingness to be responsive to change.

Ideally, the operator would not have to be flexible. The most efficient well design would be available and it could be replicated across the entire shale play. In such an ideal world, risk would be much easier to manage. However, this ideal would demand, for one, that the subsurface characteristics of any play be homogeneous. This is very unlikely; even the best plays will have a high probability of change in the subsurface characteristics. Furthermore, such a geological change may not be as foreseeable as it is for a conventional reservoir. In reality, when drilling a new well, the proposed well designs and fracturing programs may fail, and the operator will have to re-commence experimenting with techniques in the hopes of achieving commercially viable production levels.

To better appreciate such a shale project, imagine a number of drill pads equally spaced on one end of a sizable rectangular acreage. Attached to each drill pad are multiple wells that extend vertically down toward the shale formation. When approaching the shale formation, these wells begin to curve until they are running horizontally through the target area of the play. Placed like the teeth of a comb, these wells allow for optimal spacing of hydraulic fractures throughout the formation. As time elapses, more such multi-well pads populate the acreage as the project moves across the shale play, systematically fracturing and exploiting as much of it as possible. As it does so the operator attempts to always re-apply a selected number of well designs. While some wells move easily into the exploit phase, others may be transitioning between concept, pilot and exploit phases to cope with unforeseen subsurface characteristics.

New Risks

For a conventional project, the industry practice is well defined: drill one or two exploration wells, assess the results, create a development strategy to optimize production, install infrastructure to execute the plan, and maintain production. The project is linear. After the well is completed, the project risk drops dramatically. As long as there are no problems with the reservoir, the operator needs only to maintain equipment and keep production flowing. Nearing the end of the well’s commercial production, when the reservoir is depleted, notable risk re–emerges. At this point, the operator engages in enhanced recovery strategies entailing additional capital investment and increased operating costs to maintain reservoir pressure until the reservoir is no longer commercially viable.

For an unconventional shale project, the subsurface risks play out differently. A greater number of wells need to be completed for commercial production. The cost of drilling more wells is multiplied by the fact that each well tends to be more expensive than a conventional one. This is because each needs to use horizontal drilling and hydraulic fracturing technologies. Accordingly, these projects have higher breakeven points and are more sensitive to risk.

Increased cost sensitivity is made more problematic because it is harder to predict the commercial viability of the acreage over the asset’s life cycle. Shale plays rarely enjoy geological homogeneity across the play. Thus, at different locations within the play, the operator may have to invest more time, money, and effort to tease the hydrocarbons from the shale. These additional complications can make it difficult to predict costs.

Post completion, an operator of a successful conventional well tends to enjoy a time of more or less uninterrupted production from the reservoir’s natural drive mechanism. Even after this, the operator can replace the natural drive artificially, extending the life of the asset. This is not to say that maintaining reservoir pressure will not have its complexities, just that a conventional well tends to have higher risk until it is completed and then the risk decreases dramatically during the production phase. By contrast, a shale play tends to have lower risk up front, but it tends to persist throughout the project’s lifecycle. In other words, the risk profile tends to be flat. As a result, this continuing risk ensures that an operator of a shale project will not enjoy the same general risk profile as an operator of a successful conventional well.


There are at least three takeaways from comparing conventional and unconventional shale projects. First, the costs of unconventional projects are higher. Accordingly, such projects are more sensitive to risk. Second, although the geological risk of an unconventional project may be, on balance, lower than a conventional project, the risk does not tend to decrease, as it does for successful conventional projects. It follows that unconventional projects are not only more sensitive to risk, but the risk tends not to decrease over the life of the project. Third, while conventional asset life cycles are linear, unconventional asset life cycles may not be; they can move forward and backward through the phases in order to cope with changes in subsurface characteristics over the acreage. In sum, an unconventional project has higher costs, is more sensitive to risk, and sustains its level of risk over the asset’s life cycle.

The Debate Over Model Rules

There are a number of debates as to which model rules are best suited for shale projects. This article introduces two of the main ones: Operator Control vs. Committee Control and Independent Operations vs. No Independent Operations.

Operator-Control vs. Committee-Control Model

For conventional projects, most domestic model agreements grant the operator sole authority over project management with only a few opportunities for the non-operators to contest its discretion. One such opportunity is that the non-operator can explain, using a prescribed process, how the operator could conduct operations more efficiently. If the suggestion is reasonable, the operator will have a set period of time to respond: choosing either to adopt the suggested mode of operation, or step aside and let the objecting party takeover management on the terms it prescribed in the complaint. If the operator steps aside, the objecting non-operator must act as operator on the prescribed terms for at least two years. Although never used all that effectively in practice, this requirement acts as a policing mechanism, ensuring that only reasonable demands will be placed upon the operator.

Another opportunity is the Authorizations For Expenditure (AFE) mechanism. If the operator selects a course of action and the total bona fide estimated cost of that action is more than a set amount (usually set at $50,000), then the operator is required to issue an AFE to the non-operators for approval. The AFE must contain sufficient information for the non-operators to make an informed decision. If a non-operator does not approve the AFE, this may trigger the independent operations mechanism (note that this mechanism is also called “exclusive operations” in some model agreements). Under this mechanism, those that want to continue with the project, as long as they are willing to assume the additional risk between them, can conduct the proposed operations without the non-participating parties.

Some, such as the Association of International Petroleum Negotiators (AIPN), suggest that this operator-control model is inappropriate for unconventional projects, because more decisions, well in excess of the traditional trigger amount for an AFE (i.e. $50,000), need to be made on an ongoing basis. The result is many more AFEs: each AFE representing a potential independent operation. Never knowing whether all the parties are financially committed to future actions reduces business certainty. This financial uncertainty can result in under-capitalization, since the higher costs of unconventional projects may require a greater risk appetite to go it alone.

One solution is to increase the set amount to trigger an AFE to $100,000 or $200,000. The downside of increasing the amount is that it will increase the discretion of the operator, and thus reduce the safeguard effect the AFE provides to non-operators. Ironically, this potential solution to the under-capitalization problem could lead to over-expenditure, because the operator can gamble with the investment of non-operators, and there are fewer safeguards over the operator’s decisions.

In response to these concerns, the AIPN’s 2014 Operating Agreement for Unconventional Resources (2014 UROA) offers a competing mechanism to operator-control. It employs the use of an operating committee, which usually features a voting threshold of 50-75% of the participating interests in the venture. The operator is beholden to the instructions of this committee and has only a limited discretion to act without that authority. This committee-control model grants non-operating parties greater capacity to contribute to management and helps to provide a mechanism for the creation and approval of annual budgets. When large and unforeseeable expenses arise, the committee-control model still provides non-operator consultation on an ad hoc basis, using AFEs on a much more limited basis. This largely locks in capital, and provides greater business certainty for such projects.

However, some drafters resist the committee model approach for a number of reasons, including in no small part that they perceive that the domestic users of their agreements are accustomed to, and prefer, how things are presently done. Furthermore, it is perceived that the committee approach increases opportunities for risk adverse parties to block development. This may or may not prove to be the case. Regardless, loyalty to the operator-control model creates a formidable challenge, that is: how to optimize development in a manner that avoids the increased threat of under-capitalization on one hand, but also the threat of over-expenditure on the other.

Independent Operations vs. No Independent Operations

When less than all parties are willing to fund a new project proposal, the independent operations mechanism may provide an opportunity for some members of the original joint venture, who have a larger risk appetite, to invest in a sub-consortium and push forward. This mechanism prevents any party from vetoing any proposed expansion of operations. If such a veto were allowed, the most risk adverse party could set the pace.

The parties can set the requirements for independent operations in a number of ways. For instance, it can be agreed that a party with an interest of less than a certain percentage of the total working interest (e.g. 5%) may not propose an independent operation. Another potential restriction could be that no such operation is permitted without the support of a minimum percentage of the total working interest (e.g. 25%). Another is that such operations may only be proposed after certain initial commitments are met under the original agreement. Such requirements can create a balance between the freedom to pursue profit and the ability to protect the joint venture as a whole.

When a party opts out of an independent operation, it does not necessarily lose the right to come back into the operation if the venture proves to be successful. In a successful independent operation, once the participating parties have recovered a multiple of costs (e.g. 400%), the non-participating parties start to get a share of production.

In conventional projects, not all independent operations are used for new exploration and drilling, some are for restoring, prolonging or enhancing the existing production of a well. That said, many independent operations result from disputes over new drilling opportunities and can be regarded as a kind of side bet. It is a side bet, because whether or not the independent operation pays out matters little to the success of the primary wells of the joint venture. So, in the domestic context, costs plus an additional bonus (e.g. 400% of costs) is an attractive stake for those with greater risk appetite. If they succeed in their wager, not only do they win, but also all parties to the venture win; and if they lose, only the risk-takers are out of pocket. This mechanism may have its critics, but on balance, few deny that it enhances the potential profitability of conventional projects in most cases.

In an unconventional project, things may play out differently. The disputes that arise as to further investment are rarely side bets, mere peripheral gambles; rather, they are integral to the project’s success. If a party is allowed to elect not to participate (subject only to costs plus a penalty for re-entry), the non-participating party’s election not to participate can be used as a weapon to unfairly shift more risk upon those, who the non-participating party knows are committed to ensuring that the project does not fail.

The remaining participating parties may choose, in retaliation, to under-capitalize to mitigate the extra risk/cost thrown upon them. As a result, under-capitalization may lead to less exploration, experimentation, and analysis. Accordingly, the operator might make less informed decisions as to drilling. This can result in suboptimal production, or in the worse case, the premature abandonment of the project. Either way, the project may suffer.

Although fears persist over allowing independent operations, the 2014 UROA has retained it, attempting to make it work by introducing safeguards, such as: (1) using annual budgets and work programs (reducing the opportunities for independent operations); (2) limiting reentry after a party opts out (preventing problematic de-risking strategies); and (3) adding further restrictions on their use (e.g. allowing such an operation on only one multi-well pad per quarter section per year).


This article has pointed to a few of the differences between conventional and non-conventional projects. Hopefully, it has also added to the current debate over what changes need to be made to model operating agreements, by offering some useful insights into the complexities in—and pitfalls of—modifying such agreements for unconventional shale projects.

An earlier version of this post was first published in CAPL’s “The Negotiator” in October 2015.

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Liability and Lawyers

Tue, 10/06/2015 - 10:00am

By: Alice Woolley

PDF Version: Liability and Lawyers

Case Commented On: Mraz v Herman, 2015 ABQB 573

The recent decision of Justice W.P. Sullivan in Mraz v Herman succinctly disposes of claims made against two Alberta lawyers. The first claim, based on a real estate lawyer’s failure to make proper disclosure to his client, Mrs. Mraz, failed because the lawyer had discussed matters with Mr. Mraz, whom the Court found was Mrs. Mraz’s agent (at para 18). The second claim, based on advice allegedly received from a lawyer participating in the Law Society of Alberta’s lawyer referral service, failed because the plaintiff did not provide any evidence to demonstrate that the lawyer’s conduct fell below the standard of care (at para 77).

The Court’s analysis is straightforward. It does, though, make a few points worth noting and also raises one question (at least for me).  First, while the Court does reject the claim against the real estate lawyer on its merits, the Court acknowledges that the lawyer’s fiduciary duties include the obligation to make full disclosure. As I have discussed elsewhere, this approach reflects a consistent trend in the case law on lawyers as fiduciaries, one that while troubling to some commentators properly reflects the lawyer’s central obligation to facilitate a client’s decision-making.

Second, the Court effectively takes the position that the failure of a plaintiff to provide expert evidence in relation to the standard of care precludes proof that the lawyer was negligent (at para 65). While I understand the Court’s point of view, requiring such evidence to assess a lawyer’s negligence seems unduly onerous.   Unlike with many other professions – e.g., doctors or engineers – the court is generally capable of independently assessing whether a lawyer’s conduct met the standard of care. The Court can determine, for example, whether a lawyer’s advice was sufficiently accurate, whether the lawyer made an unacceptable error such as missing a governing statute or Supreme Court decision, or if the lawyer failed to take appropriate steps to protect a client’s privileged information. In exercising its inherent jurisdiction over its own processes courts routinely assess the conduct of counsel. As a consequence, while in certain circumstances expert evidence may be necessary, requiring it in every case creates an unnecessary hurdle to the assessment of liability.  And given the problems of access to justice, which include the expense associated with pursuing claims, creating unnecessary hurdles to assessing liability is not something the Court ought to do.

Third, the Court clarifies that lawyers participating in lawyer referral services can be liable for the advice or information they provide. The Court notes, however, that the imposition of such liability must be sensitive to the importance of referral services in fostering access to justice:

While there has to be protection for those receiving legal advice so that they can rely on the information they are receiving, it benefits no one to go too far to the other end of the spectrum by placing too great a liability on legal referral services and their volunteers when they merely provide legal information. Such measures could have a chilling effect on participation in those services for fear of liability (at para 76).

And finally the question. One aspect of the judgment puzzles me. Specifically, the litigation in this case arose from the lawyer accepting a revised tender in a real estate sale without discussing it with Mrs. Mraz. I would have thought that the legal issue in that case would be that the lawyer acted without receiving proper instructions, not that the lawyer failed to make full disclosure. The absence of disclosure matters, but surely accepting a tender without being instructed to do so by your client is an even more obvious breach of the lawyer’s duties. Nothing particularly turns on this – either way, Mr. Mraz being Mrs. Mraz’s agent means that the lawyer did disclose and (presumably) received instructions to accept the revised tender. But the framing of the claim just seems odd to me because it seems much more egregious to act without instructions than to, say, act with instructions which were based on improper disclosure. The latter is bad – and a violation of the lawyer’s fiduciary duties – but the former is worse, and does appear to be what was alleged (although not proven) to have happened here.

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“Contract Depth” Does Not Mean Optimal Depth

Mon, 10/05/2015 - 10:00am

By: Nigel Bankes

PDF Version: “Contract Depth” Does Not Mean Optimal Depth

Case Commented On: Shallow Gas Drilling Corp v Legacy Oil and Gas, 2015 ABQB 606

It would be nice to know a little more about the facts of this case; but what appears to have happened on the basis of the rather cryptic record provided by Justice Bensler’s judgement is as follows. 1346329 Alberta Ltd (134) drilled a series of wells to earn interests in the Pierson properties. Earning was contingent on drilling the wells to contract depth which was defined as “a subsurface depth sufficient to penetrate 15 metres into the Spearfish.” The wells were drilled between late 2007 and January 2008. It was admitted that all of the wells were drilled to depths between 28.3 and 30.65 metres into the Spearfish.

Shallow Gas Drilling (SGD) (the plaintiff and appellant) agreed to participate in 134’s operations by providing a capital contribution. As a result it also earned a working interest in the properties. Legacy (the defendant and respondent) subsequently acquired 134’s interest. SGD’s participation was formalized under the terms of a Participation, Joint Operating and Clarification Agreement (the Participation Agreement). The CAPL 1990 Operating Procedure (CAPL 1990) was scheduled to that agreement.

The production results of the wells were disappointing. A report (the Sproule report) commissioned by Legacy suggested that the wells should have been completed higher within the Spearfish than they had been. As a result Legacy proposed a number of independent operations (the details of these operations are not discussed in the judgement but presumably they involved recompletion higher in the formation.) SGD declined to participate and as a result suffered a dilution of its interest (again there is no further discussion in the agreement of the operation of the penalty provisions of Article X of CAPL 1990).

SGD seems to have taken the view that Legacy breached the terms of the Participation Agreement by failing to complete in the optimal part of the Spearfish. SGD characterized this as both a breach of contract and actionable negligence. It further alleged that, given these breaches, the operation of the penalty provisions of CAPL 1990 effected an unjust enrichment which should be reversed.

On this record, Legacy sought and was granted summary judgement by Master Hanebury. Justice Bensler dismissed the appeal.

On the appeal SGD offered additional evidence in the form of an affidavit seeking to address the meaning of contract depth and what the parties might have intended by that term. Justice Bensler ruled that the proposed evidence was inadmissible:

[26] Litigants are not permitted to call evidence as to what they think the contract means: Dow Chemical Canada Inc v Shell Chemicals Canada Ltd., 2010 ABCA 126 at para 16, leave to appeal to SCC refused [2010] SCCA No 234. As a corollary to this rule, parties may not call expert evidence on the meaning of a contract: Dow at para 17; Lawson v Lawson, 2005 ABCA 253, at para 52.

[27] Applying the foregoing principles to the case at bar, I conclude that the Burnett Affidavit is not relevant and material because Burnett essentially provides an interpretation of the Agreement. After reciting several clauses from the Agreement, Burnett concludes that “Clause 2 of the Agreement indicates to this author that the test wells were intended to be drilled to a depth of 15 metres into the Spearfish” (emphasis added). Burnett later writes that “Based on the Agreement, the intended drilling depth of the test wells was 15 metres into the Spearfish and not 28, 29, or 33 metres into the Spearfish” (emphasis added). In other words, Burnett opines on the intentions of the parties at the time the contract was formed, which is within the exclusive purview of the Court.

[28] The Court is not persuaded by the Appellant’s submission that Burnett provides an analysis of the drilling without providing an interpretation of the Agreement itself. Burnett’s opinion that “the drilling depths of [the Test Wells] were all materially deeper than the Contract Depth … as defined in the Agreement” requires the reader to agree with Burnett that the parties intended “Contract Depth” to mean a depth of exactly 15 metres into the Spearfish and no more. In other words, Burnett cannot conclude that the drilling depths of the Test Wells exceeded the “Contract Depth” without first interpreting the meaning of that term, which he expressly does early in his report.

[29] It is also important to emphasize that the Burnett Affidavit addresses the meaning of “Contract Depth”, which is the ultimate issue in this case. As held in the seminal decision R v Mohan, [1994] 2 SCR 9, at para 25, the criterion of relevance is applied strictly in assessing expert evidence in respect of an ultimate issue. See also Bernum Petroleum Ltd v Birch Lake Energy Inc, 2014 ABQB 652, at paras 53 to 54.

Justice Bensler was also of the view that Master Hanebury had been correct to reject each of the contract, tort and unjust enrichment claims. The contract claim must be rejected because the wells had in fact been drilled to the required depth (at para 50). The wells may not have been completed in the optimal part of the formation but that was not the issue. The tort claims must be rejected because at no point did the plaintiff actually allege negligence (at paras 55 – 57). And finally, the unjust enrichment claim must be rejected because the enrichment that occurred in favour of Legacy through the penalty provisions of the independent operations clause was justified by a juristic reason, namely the operation of the contract. The enrichment in favour of Legacy was therefore not an unjust enrichment (at paras 58 – 61).

All of which seems eminently reasonable.

The case would seem to bear a strong resemblance to the much older case of Hi-Ridge Resources Limited v Noble Mines and Oils Ltd, [1978] 5 WWR 552 (BCCA).

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Parole Ineligibility and the Double Edges of Consistency in Sentencing

Fri, 10/02/2015 - 10:00am

By: Erin Sheley

PDF Version: Parole Ineligibility and the Double Edges of Consistency in Sentencing

Case Commented On: R v Ryan, 2015 ABCA 286

In R v Ryan the Alberta Court of Appeal clarifies how trial courts should apply some of the sentencing factors set out in sections 718-719 of the Criminal Code RSC 1985, c C-46 to the calculation of a period of parole ineligibility under section 745.4 for a person convicted of second degree murder. In that sense alone it has obvious pragmatic relevance for criminal practitioners and suggests answers to some interesting theoretical questions about the relationship between parole ineligibility and the denunciative function of a life sentence. Of potentially broader long-term significance, however, is the difference between the majority justices in this case. Madam Justice Ellen Picard reaffirms the status quo of broad judicial discretion in criminal sentencing. Though concurring in the result of allowing the Crown’s appeal in this case, Justice Wakeling writes separately to assert that the interests of rationality, predictability and consistency require appellate courts to construct an analytical framework that will encourage sentencing courts to adopt a common methodology for sentencing. The justices’ reasons trace lines of battle familiar to those who have watched the experiment with mandatory sentencing guidelines and its fallout in the United States. In the event that Ryan presages a sea change, practitioners should be aware of the analysis in both positions. But Canadian courts should be leery of starting down this fraught path.


In January 2006, drug dealer Gerald Robert Ryan, in the midst of a period of crack addiction, shot his employee Barry Head to death in retaliation for the latter’s attempted theft of Ryan’s truck and a large amount of cocaine. Ryan brought Head along with him while he pretended to pick up cash from another dealer’s trailer but instead picked up his own gun and brought it back to the truck. According to Ryan’s version of events, Head “reacted sneeringly and made a sarcastic comment” when Ryan got back to the truck, which prompted him to shoot the other man in the head (at para 4). Ryan was charged with first-degree murder but the trial judge was not satisfied beyond a reasonable doubt that the decision to kill Head had been planned and deliberate. The trial judge did, however, find that Ryan had “deliberately shot” Head and was therefore guilty of second-degree murder by intentional killing under section 229(a) of the Criminal Code (at para 8).

At sentencing the judge took into account the fact that, after a period of juvenile criminality, Ryan appeared to live a pro-social life for some time, up until he “fell into the grip of a crack cocaine addiction” in 2005 (at para 10). Consequently, the trial judge determined that Ryan was “not a dangerous person earlier in his life, but that under cocaine addiction he acted out” (at para 11). Ryan received a life sentence with a thirteen-year period of parole ineligibility. The Crown appealed the sentencing judge’s decision on parole ineligibility, which was reviewable, like other more traditional sentencing decisions, for errors in principle, failure to consider a relevant factor, over-emphasis of factors, or demonstrable unfitness. See, e.g., R v Shropshire, [1995] 4 SCR 227 at paras 43-53.

Issues on Appeal

  1. Whether the sentencing judge erred in awarding credit for the time Ryan spent in pre-sentence custody?
  2. Whether the sentencing judge erred in giving an unspecified amount of credit against parole ineligibility no the basis that Ryan, at the outset of the trial, had unsuccessfully offered to plead guilty to the included manslaughter pursuant to s 606(4) of the Criminal Code?
  3. Whether the sentencing judge erred in using the lack of the aggravating factor of a pattern of prior dangerousness as if it were a mitigating factor?
  4. Whether the sentencing judge erred by setting aside two key sentencing objectives under section 718 of the Criminal Code: specifically whether the sentencing judge improperly reasoned that deterrence and denunciation were largely subsumed in the automatic life sentence and therefore had little weight in determining parole ineligibility?
  5. Whether the appropriate period of parole ineligibility, having regard to all relevant considerations, is 22 years as opposed to 13 years?


The Court allowed the Crown’s appeal and held that the appropriate length of parole ineligibility for Ryan should have been 17 years.


The Court’s Reasons for Judgment

Of the four errors asserted by the Crown the Court found two to be errors in principle by the sentencing judge, with fairly straightforward reasoning on each.

On the issue of pre-sentence custody the Court states that it is now settled that pre-sentence custody is not deductible under section 719(3.1) of the Criminal Code from the period of parole ineligibility, because “Parliament has provided that the entire time spent in custody since arrest is counted by the corrections authorities as part of the ineligibility period imposed after trial” (at para 23). The Court further found that the sentencing judge’s comments “reveal he was of the opinion that he was entitled to reduce Ryan’s parole ineligibility by the amount of time Ryan spent in pre-trial custody” and that this error had a profound impact on the disposition (at para 26-27).

As to Ryan’s offer to plead guilty to manslaughter, the Court holds it ought not to be relevant for mitigation purposes because (1) the offer, since it was unaccepted, has no evidential value; (2) giving credit for it would encourage accused persons to make gratuitous plea offers for lesser offences in the hopes of reducing their periods of parole ineligibility; and (3) the offer to plead guilty to a lesser offence like manslaughter does nothing in the way of encouraging the accused to accept responsibility for his or her actual crime—here second-degree murder—which is the normative principle embodied in section 718(f) of the Criminal Code (at paras 34-35). The Court therefore holds it to be an error in principle if the trial court gave any credit to Ryan’s offer.

With regard to the pattern of prior dangerousness, the Court found that the sentencing judge accepted that Ryan had become dangerous while under the influence of cocaine but was not persuaded to infer that after years in prison Ryan would still be dangerous. The Court also read the sentencing judge’s reasons as “essentially setting out Ryan’s life narrative, and the damage done to it by drugs” and was not persuaded to lengthen the injunction against future parole based on a forecast that Ryan would not change his ways (at para 40). The Court thus found no error on that issue.

Finally, the Court found that the sentencing judge’s reasons, including references to such factors as “planning or premeditation,” indicated that he had properly taken denunciation into account in calculating the period of parole ineligibility. However, the Court expressed confusion over the sentencing judge’s apparent position that “for the purposes of individual deterrence, the life sentence by itself carries great deterrent effect and consequently enhanced parole ineligibility would not much increase deterrence on an individual basis” (at para 43). Yet it did not find that this aspect of the sentencing judge’s reasons had any real effect on his conclusion and thus did not find error on that basis.

Calculation of the Proper Range of Disposition: Should Courts Be Constrained?

The majority of the Court agree that the sentencing judge’s errors resulted in too short a period of parole ineligibility for Ryan, but the difference within the majority justices (Justices Picard and Wakeling) in their analytical frameworks reveals two incompatible views of the judge’s function in sentencing. Section 745.4 allows the sentencing judge to increase the period of parole ineligibility from ten years to any period up to 25 years, with regard to the character of the offender, the nature of the offence and the circumstances surrounding its commission, and to the recommendation, if any, made by the jury. After considering such factors as, on the one hand, Ryan’s youth and the sentencing judge’s finding that he was not a hardened criminal and, on the other, the signs of foresight on Ryan’s part and his subsequent efforts to conceal the body, the Court concluded that had the sentencing judge not made his other errors he would have found that 17 years would have been the appropriate period of parole ineligibility.

In his concurring reasons for the majority, Justice Wakeling takes issue altogether with the discretionary approach to sentencing determinations exemplified by the Court’s disposition of this appeal. The status quo, he argues, runs counter to the equality principle embodied in section 718.2 of the Criminal Code, which mandates that “a sentence should be similar to sentences imposed on similar offenders for offences in similar circumstances.” Justice Wakeling argues that a purely discretionary regime results in unequal outcomes. His reasons outline a comprehensive system for realizing “rationality, predictability, and consistency” in sentencing (at para 66). They draw heavily on the Australian practice of allowing the highest court of each state to issue “guideline sentencing judgments” which consider appropriate sentences for offenders convicted of a specific offence grouped together by distinguishing features of the offence and other relevant traits (at para 67).

Justice Wakeling proposes three ranges of parole ineligibility to apply in all cases of second-degree murder, based upon the typical sentences he gleans from a lengthy review of the case law. One would span 10-15 years and apply to the least egregious offenders, typically those whose crimes were to some degree spontaneous. The second would span 16-20 years and apply in cases where: (1) the offender was or had been the domestic partner or was a parent or grandparent of the victim and the homicide was directly attributable to this relationship; (2) the offender betrayed the kindness extended by the victim; (3) the victim was a vulnerable member of the community. The third range, of 21-25 years would apply in cases of premeditation or extreme violence.

Madam Justice Picard addresses this proposal, noting that it was unsurprising that Parliament had not created such guidelines itself but rather left the courts with a broad scope of discretion. What Justice Wakeling decries as inequality Justice Picard sees as the flexibility to account for variations in fact that would escape the distinctions made by such broad categories. As Justice Picard puts it, “the potential for variation of facts, both aggravating and mitigating, within each area is as large as human behaviour can imagine” (at para 47). In turning to the language of section 745.4 Justice Picard observes that “[t]he reality is that there are many different factors comprised within the scope of what Parliament means by ‘character’ of the offender and ‘nature’ of the offence and ‘circumstances’. None of these terms is expressed in literal, mathematical or formulaic terms” (at para 49). Second, Justice Picard asserts that it is more properly the task of Parliament to authorize such laws if it sees fit; as an example of judicial shortcoming when it comes to the task of legislating she points out that Justice Wakeling’s somewhat specific categories are both over and under-inclusive. Finally, Justice Picard criticizes Justice Wakeling’s discussion of R v Shropshire, which provided some of the basis for his category of “least egregious” offenders ranging up to 15 years as opposed to the ten-year period specifically mentioned in section 745.4 serving as its own distinct category. In Shropshire the Supreme Court of Canada referred to the ten-year threshold specified in the Code as the median. Justice Picard read the reference to a ‘median’ as simply recognizing the practical reality that the ‘ordinary’ or ‘typical’ period of parole ineligibility for second-degree murder may well be 10 years (at para 54). The distinction between the two opinions which form the majority judgment in Ryan is significant, because Justice Wakeling’s interpretation would result in more punitive periods of ineligibility by as much as five years for the lowest category of offenders.

Additional Grounds for Caution

The experience of the United States with mandatory sentencing guidelines provides further grounds for caution in following the proposal by Justice Wakeling. The U.S. Federal Sentencing Guidelines, unlike Justice Wakeling’s proposal, were the creatures of legislative, rather than judicial, initiative. Formally adopted in 1987, they were nonetheless motivated by similar concerns over consistency and predictability, which had already generated a number of parallel guidelines in the state courts (See Kate Stith & Steve Koh, “The Politics of Sentencing Reform: The Legislative History of the Federal Sentencing Guidelines,” 28 Wake Forest L. Rev. 223 (1993)).

Most of the literature on the Guidelines, prior to their being rendered non-binding in 2005, has made the case that they run afoul of both of the primary theoretical justifications for punishment. As Madam Justice Picard predicts in Ryan, mandatory sentencing ranges tend to obviate proportionality goals by rendering case-specific information about the offense and offender irrelevant (Erik Luna, Testimony Before the United State Sentencing Commission (May 27, 2010), available here). For this reason they arguably offend the basic just deserts inquiry underlying retributive punishment. But they also appear to fail at capturing utilitarian goals. Certainty of punishment does not create appropriate deterrence unless the accused not only knows the rule, but also believes that the costs outweigh the benefits of violating it and correctly applies this information to his conduct. Empirical literature suggests, however, that offenders do not make these calculations correctly, thus thwarting the deterrent purposes of mandatory sentencing (See e.g., Paul H. Robinson & John M. Darley, The Role of Deterrence in the Formulation of Criminal Law Rules: At Its Worst When Doing its Best, 91 Georgetown L.J. 949, 953 (2003)).

U.S. observers have also noted how the existence of mandatory guidelines have increased the overall punitive nature of the criminal justice system, due to the power of prosecutors in plea negotiations. Because these conversations take place outside of the courtroom, the parties can essentially bargain about which facts will be formally taken notice of during sentencing. Prosecutors can thus negotiate around mandatory minimums by threatening to bring higher charges with even higher mandatory ranges (See William Stuntz, Plea Bargaining and Criminal Law’s Disappearing Shadow, 117 Harvard L. Rev. 2548, 2569 (2004)). It is interesting to note that as applied to the facts of Ryan, the sentencing framework proposed by Justice Wakeling would result in a longer period of parole ineligibility by treating ten years as the floor for the lowest category of offender, as opposed to the typical sentence the Court appears to consider it attracts.

Finally, the theory by which the United States Supreme Court eventually held the mandatory Guidelines to be unconstitutional is relevant here as well. In United States v Booker, 543 U.S. 2005, the Court declared that the Guidelines, to the extent that they allowed courts to enhance sentences using facts not reviewed by juries, violated the accused’s right to a jury trial. Justice Wakeling’s model—while judge-created rather than legislated—nonetheless appears to create a similar problem vis-à-vis section 11 of the Charter. The Supreme Court of Canada has recently expressed skepticism over mandatory minimums, although under a section 12 cruel-and-unusual analysis rather than under section11. In R v Nur, 2015 SCC 15, the court held that mandatory minimums for gun crimes violate section 12 because “they emphasize denunciation, general deterrence and retribution at the expense of what is a fit sentence for the gravity of the offence, the blameworthiness of the offender, and the harm caused by the crime” (at para 44). Because, as noted in the American context, these proportionality problems are as likely to arise under all mandatory ranges–judicially-created as well as statutory–Nur suggest that Justice Wakeling’s proposal is unlikely to become the law of the land any time soon.

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