Decision Date: September 3, 2015

Panel: Alan Andison, Les Gyug, Reid White

Keywords: Water Act – ss. 10(1), 12(1); licence; aboriginal treaty rights; duty to consult aboriginal people; industrial purpose; hydraulic fracturing; monitoring; aquatic habitat; riparian habitat; hydrometric model; stream flow

Chief Sharleen Gale, in her own right and on behalf of the members of the Fort Nelson First Nation (the “First Nation”), appealed a decision of the Assistant Regional Water Manager (the “Regional Manager”), Ministry of Forests, Lands and Natural Resource Operations (the “Ministry”), to issue a water licence to Nexen Inc. (“Nexen”). The Licence authorized Nexen to divert water from North Tsea Lake during April 1 and October 31 for five years, store the water in dugouts, and use it throughout the year in the hydraulic fracturing or “fracking” process to obtain natural gas from underground.

North Tsea Lake is a shallow lake surrounded by muskeg vegetation, and is connected to two other lakes via the Tsea River. North Tsea Lake is located northeast of Fort Nelson, within the First Nation’s traditional territory. The First Nation’s members have rights under Treaty 8 to hunt, fish, and trap within their traditional territory. The First Nation’s members conduct traditional activities including hunting, fishing, and trapping in the vicinity of North Tsea Lake.

In 2007, Nexen began diverting water from North Tsea Lake and piping it to storage dugouts for use in the fracking process, pursuant to short-term (one-year) water use approvals issued under the Water Act.

In April 2009, Nexen applied for the Licence. Over the next three years, various telephone conversations, exchanges of correspondence, and meetings occurred between representatives of the Ministry, the First Nation, and Nexen. Also, Nexen and the First Nation agreed to have an independent expert review Nexen’s proposed water withdrawal scheme. In the final months before the Licence was issued, the First Nation was still expressing concern about the proposed Licence, and sought further consultation with the Ministry. However, the Regional Manager decided that the Licence would have no significant impact on the environment or the First Nation’s treaty rights. He also concluded that the First Nation had been given sufficient opportunity for consultation, but had failed to provide information about how its treaty rights may be affected by the Licence. The Regional Manager issued the Licence in May 2012.

The Licence authorized Nexen to divert up to 60,000 cubic metres of water per day, to a maximum of 2,500,000 cubic metres per year, from North Tsea Lake. The Licence contained certain conditions, including a requirement that withdrawals must cease when the flow of water in the Tsea River at a point downstream of North Tsea Lake fell below 0.351 cubic metres per second. The works authorized under the Licence were already in place, as they were constructed under Nexen’s short-term approvals.

The First Nation appealed the Licence on the grounds that the provincial Crown failed to adequately consult with the First Nation before the Licence was issued, and the Regional Manager failed to adequately consider and assess the impacts that the Licence would have on the environment and the First Nation’s treaty rights. The First Nation requested that the Licence be reversed, or alternatively, sent back to the Regional Manager with certain directions. The First Nation also requested that the Board order the Province to pay the First Nation’s costs associated with the appeal.

As a preliminary matter, the First Nation requested a stay of the Licence pending the Board’s decision on the merits of the appeal. A further preliminary issue was raised by the Regional Manager, who requested that the appeal be dismissed on the basis that the First Nation did not have standing under section 92(1) of the Water Act to appeal the Licence. Section 92(1) specifies the categories of persons who may appeal a decision to the Board.

After considering written submissions from all parties, the Board concluded that the First Nation had standing to appeal the Licence (Decision No. 2012-WAT-013(a), issued November 6, 2012). However, the Board denied the First Nation’s application for a stay of the Licence (Decision No. 2012-WAT-013(b), issued December 6, 2012).

The merits of the appeal were heard during a five-week oral hearing that included numerous technical documents and testimony from many witnesses, including several expert witnesses.

The two main issues in the appeal were: whether the Licence should be reversed due to technical flaws; and, whether the provincial Crown failed to adequately consult with the First Nation before the Licence was issued. The Board concluded that the Licence should be reversed due to serious technical flaws, as well as serious defects in the consultation process.

On the first issue, the Board found that the Licence was fundamentally flawed in both concept and operation. The Licence relied on a novel flow-weighted withdrawal scheme that was not supported by adequate data, scientific analysis, or appropriate hydrometric modelling. In addition, the Licence did not include requirements to monitor the flow rate in the Tsea River, on which the flow-weighted withdrawal scheme relied, or requirements to monitor the effects of the withdrawals on aquatic or riparian habitat and species. The failure of Nexen’s stream flow monitoring program during drought conditions in 2012 resulted in Nexen continuing to withdraw water for several weeks in violation of the conditions in the Licence. The Board also found that the Licence was contrary to the purposes of the Water Act, in that it authorized Nexen to withdraw over double the volume of water per year that Nexen would use during the term of the Licence. Moreover, the information that was available to the Regional Manager, as well as field data that became available after the Licence was issued, did not support the Regional Manager’s conclusion that the water withdrawals would have no significant impacts on fish, fish habitat, or wildlife. On the contrary, the Board found that the evidence established that the water withdrawals could cause adverse effects on aquatic and riparian habitat, and the species that depend on that habitat.

Based on its conclusions under the first issue, the Board held that the appropriate level of consultation was in the mid-range of the spectrum, and not at the low end of the spectrum as asserted by the Regional Manager. In particular, the evidence established that the North Tsea Lake area was important to the First Nation’s exercise of its treaty rights. The evidence also established a logical causal relationship between the water withdrawals, which diverted up to 14% of the estimated annual discharge at North Tsea Lake for a consumptive water use, and the potential for adverse impacts on habitat and species that the First Nation depended on for the exercise of its treaty rights.

Regarding the adequacy of the consultation process, the Board held that the Ministry was unclear with the First Nation regarding the consultation process that the Ministry intended to follow, the Ministry’s expectations for the process, and the roles of the Ministry and Nexen in the process. The Ministry also failed to keep the First Nation regularly informed about the status of Nexen’s application. Further, the Regional Manager considered insufficient information about the nature and extent of the First Nation’s treaty rights in the North Tsea Lake area. This was partly due to his consideration of incorrect information about potential impacts, and his failure to consider the existence of a registered trapline near North Tsea Lake which was within the Crown’s knowledge. However, the First Nation also failed to provide the Ministry with relevant information about the exercise of its treaty rights in the North Tsea Lake area, which was within the knowledge of its members. Although the First Nation lacked the capacity to respond to the Ministry’s requests for more specific information during the early stages of the consultation process, the First Nation had the capacity to provide that information later in the process.

Despite those shortcomings, the Board found that the Ministry appeared to be genuinely willing to share and receive information with the First Nation up to January 2012. The evidence showed that, in the final months before the Licence was issued, the Ministry’s approach changed. During a teleconference between staff of the Ministry staff and Nexen in January 2012, it was decided that the technical assessment of Nexen’s application was complete and the Licence could be issued within months, but consultation with the First Nation remained a “major hurdle”. Shortly thereafter, the Ministry issued a letter that gave the First Nation 30 days to respond to the Ministry’s preliminary assessment that the Licence would have no significant impacts on the environment or the First Nation’s treaty rights. In addition, internal Ministry correspondence during the final months of the consultation process indicated that, despite the Ministry’s promises to meet with the First Nation to discuss its concerns, the Ministry had concluded that further consultation would give rise to no new information about potential impacts and would only delay the issuance of the Licence, which the Ministry intended to issue regardless of further discussions with the First Nation. Based on the evidence, the Board held that the Ministry failed to consult in good faith, and failed to uphold the honour of the Crown.

Regarding the appropriate remedy in the circumstances, the Board found that suspending the Licence pending further consultation would be inadequate, given the serious technical flaws in the Licence and the serious defects in the consultation process. The Board considered the potential prejudice to Nexen that may result from cancelling the Licence, but found that Nexen’s water works were installed before the Licence was issued, and as such, Nexen could not claim that it had relied on the Licence in incurring costs to construct those works. Furthermore, Nexen had benefitted by using the Licence for three years out of its five-and-a-half year term, despite the potential adverse effects on the First Nation’s treaty rights. The Board concluded that the decision to issue the Licence should be reversed, and the Licence should be cancelled such that no further water diversion would occur. However, the Board allowed Nexen to use the water that it already had in storage as of the date of the Board’s decision.

Finally, the Board concluded that there were no special circumstances in this case that warranted an order of costs in favour of the First Nation.

Accordingly, the appeal was allowed, and the First Nation’s application for costs was denied.