Nov 19, 2014

Alberta Court of Appeal Confirms Energy Regulator’s Immunity from Action for Alleged Negligence in Administration of Regulatory Regime

Ernst v. EnCana Corporation, 2013 ABQB 537 (CanLII)

In Ernst v Alberta (Energy Resources Conservation Board), 2014 ABCA 285 , the Alberta Court of Appeal confirmed that a claim by Jessica Ernst against the Energy Resources Conservation Board relating to alleged breaches by the Board of certain of its regulatory functions should be struck for disclosing no reasonable claim. Ernst had commenced an action against the Board and others in connection with damages allegedly caused by EnCana Corporation’s coal bed methane shallow drilling program, which allegedly included the use of hazardous and toxic chemicals in its hydraulic fracturing fluids. The Court of Appeal confirmed that the Board owed no private duty of care to specific individuals and that the claims were barred by legislation which provides the Board and its members immunity from action “…in respect of any act or thing done purportedly in pursuance of this Act...”. This case is consistent with well-established policy reasons for protecting administrative tribunals and their members from claims for damages.

Introduction

In Ernst v Alberta (Energy Resources Conservation Board), the appellant (“Ernst”), who owned land near Rosebud, Alberta, sued the defendant EnCana Corporation (“EnCana”) for damage to her fresh water supply allegedly caused by hydraulic fracturing and other related activities by EnCana in the region. Ernst also sued the Energy Resources Conservation Board (the “Board” or “ERCB”), predecessor of the Alberta Energy Regulator ("AER"): a) for “negligent administration of a regulatory regime” related to her claims against EnCana (the “Negligence Claim”); and b) for breach of her right to freedom of expression under s. 2(b) of the Canadian Charter of Rights and Freedoms (the “Charter”) as a result of the refusal by the Board to accept further communications from her (the “Charter Claim”). Although not relevant to the appeal, Ernst also sued Her Majesty the Queen in right of Alberta, alleging that Alberta Environment and Sustainable Resource Development (“AESRD”) owed her a duty to protect her water supply, and that it failed to respond adequately to her complaints about EnCana’s activities. Ernst claimed damages from EnCana, the Board and AESRD totaling in excess of $33 million.

Queen’s Bench Decision

In the Alberta Court of Queen’s Bench, the Board successfully applied to strike certain portions of Ernst’s pleading for failing to disclose a reasonable cause of action [decision found here].

The case management judge who heard the Board’s application, Chief Justice Wittmann, found that the Negligence Claim was unsupportable at law, since no private law duty of care was owed by the Board to Ernst. Alternatively, he found that any claim against the Board was barred by section 43 of the Energy Resources Conservation Act, RSA 2000, c. E-10 (the “ERCA”), which stated, in part, that “No action…may be brought against the Board…in respect of any act or thing done purportedly in pursuance of this Act...”. Section 43 has since been repealed and replaced by s. 27 of the Responsible Energy Development Act, SA 2012, c. R-17.3 (“REDA”), which has similar wording.

Although the Chief Justice concluded that the Charter Claim was not so unsustainable that it could be struck out summarily, he found that this claim was also barred by section 43 of the ERCA.

Court Of Appeal Decision

a. Introduction

In dismissing Ernst’s appeal, the Court of Appeal held that any pleading can be struck under Rule 3.68(2)(b) of the Alberta Rules of Court if it discloses no reasonable claim or defence to a claim, and that the “modern test” for striking pleadings is that set forth in R. v Imperial Tobacco Canada Limited, 2011 SCC 42 at paras. 19-21, [2011] 3 SCR 45 [found here]. That test was summarized (at para 14) by the Court of Appeal as “whether there is any reasonable prospect that the claim will succeed, erring on the side of generosity in permitting novel claims to proceed.”

b. The Negligence Claim

In finding that the Chief Justice correctly concluded that the Board did not owe a private law duty of care to Ernst, the Court of Appeal stated that the regulatory duties of the Board are owed to the public, and not to any individual, and that there exist “strong policy considerations against finding regulators essentially to be insurers of last resort for everything that happens in a regulated industry”. These policy considerations were found to include the following (at para 17):


  • Policy decisions should not readily be questioned by subjecting them to a tort analysis, and the distinction between policy and operating decisions is difficult to make;

  • Were the law to impose a duty of care, very difficult issues would then arise as to how one decides the standard of care to be applied;

  • All regulators have public duties owed to the community at large, so recognizing private law duties may place the regulator in a conflict;

  • The source of the supposed private law duty is a purely statutory obligation to perform a public duty, but the law is clear that a breach of statute is not per se negligence;

  • The fear of virtually unlimited exposure of the government to private claims may tax public resources and chill government intervention;

  • Where a regulatory statute provides a number of administrative and quasi-criminal remedies, but does not provide for any civil remedies, that strongly indicates that the statute contemplates no private civil duty; and

  • It is a long standing common law tradition not to expose persons performing judicial or quasi-judicial functions to personal liability for their decisions.

The Court of Appeal (at para 18) went on to state that:

Forcing the Board to consider the extent to which it must balance the interests of specific individuals while attempting to regulate in the overall public interest would be unworkable in fact and bad policy in law. Recognizing any such private duty would distract the Board from its general duty to protect the public, as well as its duty to deal fairly with participants in the regulated industry. Any such individualized duty of care would plainly involve indeterminate liability, and would undermine the Board’s ability to effectively address the general public obligations placed on it under its controlling legislative scheme.

The Board had argued, in the alternative, that even if there existed a private law duty of care, any action was foreclosed by section 43 of the ERCA. Interestingly, Ernst argued that section 43 should only protect the Board from claims arising from “any act or thing done”, and not from “omissions”, something which is now specifically mentioned in section 27 of REDA. In agreeing with the Board, the Court of Appeal found (at para 21) that the Chief Justice correctly concluded that “such a narrow interpretation of the section is inconsistent with its broader purpose within the legislation” and that “the distinction between acts and omissions is, in any event, illusory.” The Court of Appeal held (at para 22) that the inclusion of “omissions” in REDA “should be seen as an effort to provide certainty in this area, and does not declare the previous state of the law: Interpretation Act, RSA 2000, c. I-8, s. 37.”

c. The Charter Claim

With respect to the Charter Claim, the Chief Justice declined to strike out the related portions of the claim, finding that this area of the law was sufficiently novel and undeveloped. He went on, however, to conclude that even if such a claim was potentially available, it too was barred by section 43 of the ERCA.

On appeal, Ernst argued that section 43 cannot bar a claim under the Charter. In dismissing this argument, the Court of Appeal held that in determining whether a Charter remedy is “appropriate and just” in accordance with section 24 of the Charter, the court will have regard to traditional limits on remedies, including limitation periods and requirements for leave to appeal or to seek judicial review. The Court further held (at para 28) that the legislatures have a legitimate role in specifying the broad parameters of remedies that are available, on the following basis:

Having well established statutory rules about the availability of remedies is much more desirable than leaving the decision to the discretion of individual judges. Any such ad hoc regime would be so fraught with unpredictability as to be constitutionally undesirable. If the availability of a remedy were only known at the conclusion of a trial, it would defeat the whole point of protecting administrative tribunals from the distraction of litigation over their actions, and the consequent testimonial immunity.

The Court referred (at para 29) to Vancouver (City) v Ward, 2010 SCC 27 at para. 20, [2010] 2 SCR 28 [found here]:

…the state must be afforded some immunity from liability in damages resulting from the conduct of certain functions that only the state can perform. Legislative and policy-making functions are one such area of state activity. The immunity is justified because the law does not wish to chill the exercise of policy-making discretion.

The Court went on to find that limits on Charter remedies do not offend the rule of law, so long as there remain some effective avenues of redress. The long standing remedy for improper administrative action has been judicial review, and there is nothing in section 43 that would have prevented Ernst from seeking an order in the nature of mandamus or certiorari to compel the Board to receive communications from her. Further, she could have appealed any decisions of the Board to the Court of Appeal, with leave.

The Court of Appeal concluded that section 43 of the ERCA barred Ernst’s Charter Claim.

Implications

The Ernst decision is not surprising and provides the certainty and protection required for the Board, and now the AER, to perform its administrative and quasi-judicial function without fear that it or its members will be held personally liable for the consequences arising from the performance of those functions. However, we note that the protection from liability, under either common law or pursuant to section 43 of the ERCB (now section 27 of REDA) is not unlimited. For example, in circumstances of bad faith, the common law and statutory protection will not apply. However, the existence or proof of bad faith will be very rare.

We also note that the protection of the ERCB through section 43 of the ERCA, and now the protection of the AER pursuant to section 27 of REDA, is stronger than found in other legislative regimes relevant to the energy industry. For example, some relevant legislative regimes do not expressly provide protection from action, while others only provide protection for the individual members, decision-makers or actors, not the administrative tribunals. While this may cause some concern that these other administrative tribunals may be more exposed to civil action for damages arising out of the administration of their regulatory regimes, based on Ernst and the many decisions the Court of Appeal cited in its reasons, in most cases liability in negligence will still be excluded by virtue of the fact that the common law will not likely recognize that administrative tribunals owe a private duty of care to individual persons.

The differences found in other legislation may become more relevant in future cases where Charter breaches are alleged. Had section 43 of the ERCA not applied to provide immunity from Ernst’s Charter Claim, the Chief Justice would have allowed that claim to survive the motion to strike and to proceed to trial. This means that in future cases involving different legislative regimes which do not have protections like section 43 of the ERCA or section 27 of REDA, Charter claims may go to trial.

The Ernst case is not concluded and will continue to be of interest to oil and gas industry participants. It has been reported that Ernst intends to seek leave to appeal this decision to the Supreme Court of Canada, and to continue her lawsuit against Alberta and EnCana. In particular, Ernst’s claim against AESRD for allegedly failing to protect her water supply or to adequately respond to her complaints about EnCana’s activities were not struck and may be the subject of future judicial commentary.

(This article originally appeared on the BLG Energy Law Blog)