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Can the government be liable for financial damages, when they refuse environmental permits for unreasonable reasons, or cause an unreasonable delay in issuing a permit? Yes, it is possible, according to the British Columbia Court of Appeal! Given the chronic delays in federal and provincial environmental permitting across the country, this could be an important new remedy for aggrieved applicants. It should also ratchet up the importance of swifter decision making on applications for most environmental permits.

In Carhoun & Sons Enterprises Ltd. v. Canada (Attorney General), 2015 BCCA 163, a commercial property developer sued the federal Crown for economic losses it allegedly sustained when Fisheries and Oceans Canada took nearly three years to issue a s. 35(2) (Fisheries Act HADD) permit to fill in two ravines. The Court of Appeal refused a federal government motion to strike out the claim, which can now proceed towards trial.

The Facts:

“[5] Between approximately 1987 and 2009, Carhoun purchased and consolidated six contiguous parcels of land encompassing about 33 acres located in the District of Mission. Carhoun planned to build a large commercial development on the assembled property.

[6] Two of the parcels of land were traversed by ravines considered to be potential fish habitat. Filling the ravines could potentially result in harm to a fish habitat, and accordingly, Carhoun could then be liable under s. 35(1) of the Fisheries Act unless an exemption was provided pursuant to s. 35(2) before development commenced.

[7] In 2009, Carhoun applied for such an authorization to fill the ravines, by submitting a request for review under the fish habitat protection provisions of the Fisheries Act. Before an exemption could be provided under s. 35(2), Fisheries and Oceans Canada (“DFO”) would first need to trigger an environmental assessment and obtain a screening report pursuant to the Canadian Environmental Assessment Act, S.C. 1992, c. 37 (“CEAA”). On October 26, 2009, Canada, through the DFO, advised Carhoun that the authorization would not be issued because it would result in an unacceptable harmful alteration, disruption, or destruction of fish habitat. Despite Carhoun’s requests, the DFO did not trigger an environmental assessment at that time.

[8] After two subsequent requests, the DFO reconsidered its decision and conducted an environmental screening, after which it issued the permit on certain conditions. Carhoun received the s. 35(2) authorization from the DFO on May 29, 2012. By then its financing had collapsed. It now claims damages.

[9] Carhoun pleads at paras. 29–31 of its Notice of Civil Claim that in its initial 2009 rejection, Canada improperly referenced two earlier rejections from 2002 and 2003, had predetermined the application, and was biased. At para. 32, Carhoun pleads that such conduct amounted to bad faith and “malfeasance”. On appeal, both parties have proceeded on the basis that the claim of “malfeasance” goes to the tort of misfeasance in public office, and I shall also proceed from that characterization.

[10] Carhoun also pleads that Canada did not commence the environmental assessment application for 343 days from the date of delivery of its request for review; that the application should have commenced in September 9, 2009; and that the environmental assessment screening process took a further 546 days to complete from the time it was actually commenced.

[11] Carhoun pleads that the 993 days it took, in total, to receive the authorization from the time it was initially requested was both unreasonable and unwarranted.

[12] At para. 92 Carhoun pleads: DFO exhibited bias, bad faith and malfeasance throughout the approvals process by disregarding the plaintiffs repeated advice that it required the completion of the authorization process in a timely manner.”

The government argued, unsuccessfully, that the lawsuit was doomed to fail:

[24] …Canada argues that it is plain and obvious that the officials administering the applicable regulatory schemes do not owe a duty of care to those seeking to profit at the expense of the environment. Such a duty, Canada says, would conflict with the purpose of the relevant legislation…

[25] In response, Carhoun argues that although the authorization was eventually granted, the unwarranted and unreasonably long approval process compromised Carhoun’s financial capability to proceed with the development, resulting in significant financial losses in the millions of dollars. The property went into foreclosure; Carhoun’s investment and profits were lost…

The court decideed that a civil cause of action may lie against the Crown for refusing to issue an environmental permit for unreasonable reasons, or for causing an unreasonable delay in issuing a permit. With regards to negligence, it is not plain and obvious that Canada did not owe a duty of care to the developer, and with regards to the claim for misfeasance in public office, the pleadings could be amended to plead the essential elements.

[43] I begin by noting that public regulators are not exempt from civil liability. The Supreme Court of Canada has affirmed the importance of this liability, saying: “It is important for public authorities to be liable in general for their negligent conduct in light of the pervasive role that they play in all aspects of society. Exempting all government actions from liability would result in intolerable outcomes”: R. v. Imperial Tobacco, 2011 SCC 42 at para. 76.

Where government regulators are required to balance public and private interests, and do so negligently, private liability is possible:

[103] …the CEAA provides for the balancing of public and private interests…

[104] This legislative scheme suggests Canada is to conduct environmental assessments having regard to multiple interests, including both the public interest in maintaining healthy fisheries and the private interest in efficiently processing an application. The CEAA states within the preamble that the Minister is to “promote economic development that conserves and enhances environmental quality”. The promotion of economic development may entail a consideration of the interests of the proponent. The legislation, therefore, cannot be interpreted as expressly prohibiting consideration of the proponent’s interests. Instead, it operates from the presumption that these two interests are not irreconcilable…

True policy decisions of government cannot be the subject of civil damages, but incompetence can:

[125] I agree that it would not be appropriate for a court to second-guess a decision to prioritize environmental interests over the proponent’s interest in an expeditious process. As discussed, there are numerous possible explanations for the lengthy delay in this case that may come down to “true questions of policy”. However…incompetently carrying out the operation of the CEAA screening process, such that it takes far longer than it should have, is not a true policy decision.

[126] There is nothing within the pleadings to confirm whether the undue delay was a result of a true policy decision, or, alternatively, whether it was the result of some operational negligence. …

[128] …it is not plain and obvious that Canada did not owe a duty of Care to Carhoun.

[129] Since a duty of care cannot be ruled out at this stage of the proceedings, it is not plain and obvious that Carhoun’s claim would fail. I would therefore not accede to this ground of appeal.

The claim can therefore proceed towards trial. It will be very closely watched.

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