Present: Lamer C.J. and La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin, Iacobucci and Major JJ.
on appeal from the court of appeal for newfoundland
Oil and gas ‑‑ Offshore exploration ‑‑ Application for declaration of significant discovery ‑‑ Application based upon results of offshore well which had been subject of earlier significant discovery declaration ‑‑ Whether application made under s. 71(1) of the Canada‑Newfoundland Atlantic Accord Implementation Act requires drilling of fresh offshore well ‑‑ Whether Canada‑Newfoundland Offshore Petroleum Board must refer application to Oil and Gas Committee ‑‑ Canada‑Newfoundland Atlantic Accord Implementation Act, S.C. 1987, c. 3, ss. 47 , 71(1) , 124 .
Administrative law ‑‑ Duty to act fairly ‑‑ Canada‑Newfoundland Offshore Petroleum Board ‑‑ Board chairman refusing to put application for declaration of significant discovery before Board because it was based upon results of offshore well which had been subject of earlier significant discovery declaration ‑‑ Whether applicant was entitled to a hearing ‑‑ If applicant's right to be heard was denied, whether remedies sought should be granted.
The appellant companies, interest owners under a gas exploration licence, drilled an offshore well near the coast of Newfoundland in 1982. They later requested a "significant discovery declaration" ("SDD") in respect of that well and 41 surrounding sections under the Canada Oil and Gas Act, which governed offshore activity at the time, but the Minister of Energy, Mines and Resources made an SDD covering only 11 sections. In 1990, after the Canada Oil and Gas Act was repealed, the companies applied to the Canada‑Newfoundland Offshore Petroleum Board, pursuant to s. 71 of the Canada‑Newfoundland Atlantic Accord Implementation Act (the "Implementation Act "), for an SDD comprising 25 sections, 19 of which were part of the original SDD application. Section 71(1) provides in part that "where a significant discovery has been made on any portion of the offshore area" described in an exploration licence, the "Board shall, on the application of the interest holder . . . make a written declaration of significant discovery" based upon "reasonable grounds". The Chairman of the Board responded by letter that the application would not be put before the Board because any application for an additional significant discovery would have to be based upon the results of a fresh well. Since the 1990 application was based upon the original well, it could not be considered a bona fide application pursuant to s. 71 . The companies applied to the Newfoundland Supreme Court, Trial Division seeking an order in the nature of certiorari to quash the Chairman's decision, and an order in the nature of mandamus to compel the Board to consider the 1990 application in accordance with s. 124 of the Implementation Act , which defines the nature of an oral hearing that may take place before the Oil and Gas Committee. The trial judge held that the companies did not receive the required hearing in respect of their 1990 application and the requested orders issued. The Board appealed. The Newfoundland Court of Appeal affirmed the trial judge's certiorari decision, but varied the mandamus order. The court held that the companies were entitled to an initial hearing before the Board, not the Committee. The companies appealed, and the Board cross‑appealed.
Held: The appeal should be dismissed and the cross‑appeal allowed.
An SDD application under s. 71(1) of the Implementation Act must involve an offshore well which has never been the subject of an earlier SDD. It is clear that under the Canada Oil and Gas Act, new SDDs required a well to be drilled, and amendments required further drilling. The "further drilling" requirement to amend the areal extent of an existing SDD has been largely preserved in s. 71(4) of the Implementation Act and strongly suggests that the traditional well requirement is part of the new scheme. Further, if amendments to an existing SDD could be achieved using s. 71(1), s. 71(4) would be rendered meaningless. Section 47 of the Implementation Act also supports the conclusion that a well requirement exists for s. 71(1) SDD applications. That section indicates that a significant discovery occurs only once in respect of a particular geological feature. The reference to the "first well" in s. 47 is intended to mean the "first and only well" existing at the time of an SDD application. The companies' 1990 application in this case could not have succeeded as a matter of law since it was in substance an application to amend the earlier SDD based upon the first well. The 1990 application should not be treated in a special way because the earlier SDD was obtained under the Canada Oil and Gas Act. Under s. 127(2) of the Implementation Act , pre‑existing SDDs, like SDDs arising under s. 71, are amendable only upon "further drilling" pursuant to s. 71(4).
When a significant discovery application is submitted to the Board by an interest holder pursuant to s. 71(1) of the Implementation Act , the Board is required to refer the application to the independent Oil and Gas Committee at the instance of the applicant whenever technical decisions are at issue. The language of s. 71, in particular the phrase "subject to section 124" in s. 71(1), (2) and (4), indicates that SDD decisions by the Board which involve technical considerations presuppose the potential involvement of the Committee. Section 124 of the Implementation Act permits a significant inquiry into whether "reasonable grounds" for an SDD exist for the purposes of s. 71(1) and provides some assurance that interest holders have ample opportunity to prove an entitlement objectively before the Committee. Although the Committee thus has a leading role to play, the Board and its agents can exercise a residual authority in respect of s. 71(1) applications. Here, the question of whether an SDD application can be made in the absence of a fresh well is a non‑technical issue which could not have benefited from Committee input. The Board therefore had jurisdiction to reject the 1990 application on a preliminary basis, without permitting a Committee reference.
The impugned decision, however, did not respect the principles of natural justice. The "final nature" of the s. 71(1) decisions, the important relationship between the Board and the interest owners, and the effect of the s. 71(1) decisions on the interest owners' investment, gave rise to a duty to act fairly on the part of the Board. A right of procedural fairness could also be inferred from the statutory regime itself. Indeed, it would be inconsistent with the overall concern for procedure in s. 124 to suppose that the Board could reject a novel legal argument without affording the applicant any procedural protection. While the Implementation Act absolutely cannot support the novel interpretation of s. 71(1) advocated by the companies, it goes too far to pretend that they did not deserve a full hearing, which could have been effected in writing, in respect of this interpretation. The Chairman's response was the product of an improper subdelegation of the Board's authority which effectively interrupted the companies' procedural guarantees. However, the exceptional circumstances of this case involve a heightened regard for finality and judicial economy. Under these circumstances, it is appropriate to withhold the discretionary remedies sought by the companies. It would be nonsensical to quash the Chairman's decision and to compel the Board to consider the companies' 1990 application now, since the Board would be bound in law to reject that application by the decision of this Court.
Cases Cited
Referred to: Cardinal v. Director of Kent Institution, [1985] 2 S.C.R. 643; Knight v. Indian Head School Division No. 19, [1990] 1 S.C.R. 653; Attorney General of Canada v. Inuit Tapirisat of Canada, [1980] 2 S.C.R. 735; Homex Realty and Development Co. v. Corporation of the Village of Wyoming, [1980] 2 S.C.R. 1011; Harelkin v. University of Regina, [1979] 2 S.C.R. 561; R. v. Monopolies and Mergers Commission, [1986] 1 W.L.R. 763.
Statutes and Regulations Cited
Canada‑Newfoundland Atlantic Accord Implementation Act , S.C. 1987, c. 3 , ss. 2 "fundamental decision", 17(1), 30, 47 "significant discovery", "significant discovery area", 51, 69, 70(1), 71(1), (2), (4), 96, 119 "exploratory well", 124, 127(2), 142(1), (2).
Canada‑Newfoundland Atlantic Accord Implementation (Newfoundland) Act, S.N. 1986, c. 37.
Canada Oil and Gas Act, S.C. 1980‑81‑82‑83, c. 81 [rep. 1986, c. 45, s. 130], s. 44(1), (3).
Declarations of Significant Discoveries Order No. 0‑6 (1986), SI/86‑156.
Authors Cited
Canada. House of Commons. House of Commons Debates, 2nd Sess., 33rd Parl., March 2, 1987, p. 3707.
Canada. House of Commons. Legislative Committee on Bill C‑6. Minutes of Proceedings and Evidence, Issue No. 1, November 4, 1986, p. 1:48.
Côté, Pierre‑André. The Interpretation of Legislation in Canada, 2nd ed. Translated by Katherine Lippel, John Philpot and William Schabas. Cowansville: Yvon Blais, 1991.
Driedger, Elmer A. Construction of Statutes, 2nd ed. Toronto: Butterworths, 1983.
Oxford English Dictionary, vol. IV, 2nd ed. Oxford: Clarendon Press, 1989, "discovery".
Wade, William, Sir. Administrative Law, 6th ed. Oxford: Clarendon Press, 1988.
APPEAL from a judgment of the Newfoundland Court of Appeal (1992), 95 Nfld. & P.E.I.R. 95, 301 A.P.R. 95, dismissing the Board's appeal but varying the mandamus order made by Wells J. (1990), 87 Nfld. & P.E.I.R. 58, 271 A.P.R. 58. Appeal dismissed and cross‑appeal allowed.
Michael F. Harrington, Q.C., for the appellants.
T. B. Smith, Q.C., and Angus Taylor, for the respondent.
The judgment of the Court was delivered by
Iacobucci J. -- The legislative context of this appeal is the statutory regime which governs petroleum exploration and development in the Newfoundland offshore region. In brief, a group of resource companies sought a kind of statutory interest in respect of an offshore area. Those companies failed to acquire the interest sought, and they allege that they were entitled to a hearing which they did not receive. In response, the regulatory board which controls the issuance of offshore interests submits that the resource companies were treated justly, and invites this Court to determine whether the kind of interest sought can properly be acquired in the absence of a new offshore well.
I. Facts
Mobil Oil Canada, Ltd., Gulf Canada Resources Limited, Petro-Canada Inc. and Chevron Canada Resources Limited (the "companies") are interest owners under Gas Exploration Licence 288. As owners, they are entitled to search for oil and gas in a defined portion of the continental shelf located off the coast of Newfoundland. Mobil Oil Canada, Ltd. ("Mobil Oil") is the operator responsible for exploration and lands administration.
The Canada-Newfoundland Offshore Petroleum Board (the "Board") is a body established by complementary federal and provincial legislation. The Canada-Newfoundland Atlantic Accord Implementation Act , S.C. 1987, c. 3 , and The Canada-Newfoundland Atlantic Accord Implementation (Newfoundland) Act, S.N. 1986, c. 37, jointly invest the Board with jurisdiction in respect of the scheme governing offshore hydrocarbon exploration and development. When it is necessary to make statutory references in these reasons, I will, for the sake of convenience, refer only to the federal Implementation Act .
In 1982, the companies drilled a well as permitted by Exploration Licence 288. That well is known as the Nautilus C-92 discovery well (the "Nautilus well"). Offshore activity was, at the time, governed by the Canada Oil and Gas Act, S.C. 1980‑81-82-83, c. 81, and the Canada Oil and Gas Lands Administration ("COGLA") was charged with the statute's administration.
In 1984, the following events occurred. On June 6, the companies requested a "significant discovery declaration" ("SDD") in respect of the Nautilus well and 41 surrounding sections. Briefly, an SDD is sought because an SDD licence, unlike an exploration licence, is not statutorily limited to a fixed term, and because an SDD is a necessary step along the road to production. On June 22, COGLA advised the companies that a 14 section SDD would be recommended to the Minister of Energy, Mines and Resources (the "Minister"). In response, on July 20, the companies resubmitted their SDD application seeking 30 sections. In apparent agreement, COGLA, on August 13, informed the companies that a 30 section SDD would be recommended, but an SDD did not immediately issue.
In 1986, based on "a review of more recent technical evidence", COGLA revised its opinion and informed the companies that it would recommend an SDD with respect to 11 sections only. The Minister, acting upon this recommendation, made an SDD for 11 sections by way of statutory instrument in the same year: Declarations of Significant Discoveries Order No. 0-6 (1986), SI/86-156, August 20, 1986. In response, Mobil Oil asked the Minister to review the matter, to exercise his discretion, and to include 30 sections in the SDD, but the Minister refused. The companies unsuccessfully applied for a writ of certiorari to quash the Minister's SDD decision in the Federal Court Trial Division: Mobil Oil Canada Ltd. v. Canada (Minister of Energy, Mines and Resources) (1990), 35 F.T.R. 50.
In 1990, after the Canada Oil and Gas Act was repealed, the companies applied to the Board under the new statutory regime for an SDD of 25 sections. Nineteen of the 25 sections had been part of the 1986 application. In the court of first instance, Wells J. stated that the area described in the 1990 proposal "is in close proximity to a previously declared [SDD] awarded to Mobil, and very nearly surrounds it".
The Chairman of the Board responded by letter to the 1990 proposal and stated that it would not be put before the Board "[b]ecause any application for an additional significant discovery would have to be based upon the results of a well other than Nautilus C-92 and because no additional well has been drilled, your letter, which is based upon the Nautilus C-92 well, cannot be considered a bona fide application pursuant to [s.] 71" of the federal Implementation Act .
After receiving the Chairman's letter, the companies applied to the Newfoundland Supreme Court, Trial Division seeking an order in the nature of certiorari to quash the decision evident in the Chairman's letter, and an order in the nature of mandamus to compel the Board to consider the 1990 proposal in accordance with s. 124 of the federal Implementation Act . Briefly, s. 124 defines the nature of an oral hearing which may take place before the independent Oil and Gas Committee (the "Committee").
The trial judge held that the companies did not receive the required hearing in respect of their 1990 proposal. The requested orders in the nature of certiorari and mandamus issued: (1990), 87 Nfld. & P.E.I.R. 58, 271 A.P.R. 58. The Board appealed. The Newfoundland Court of Appeal affirmed the trial judge's certiorari decision, but varied the mandamus order. The court held that the companies were entitled to an initial hearing before the Board, not the Committee: (1992), 95 Nfld. & P.E.I.R. 95, 301 A.P.R. 95. The companies appealed, and the Board cross-appealed.
II. Relevant Statutory Provisions
Canada-Newfoundland Atlantic Accord Implementation Act , S.C. 1987, c. 3 , ss. 47 , 71(1) , (2) , (4) , 124 , 127(2)
47. In this Part,
. . .
"significant discovery" means a discovery indicated by the first well on a geological feature that demonstrates by flow testing the existence of hydrocarbons in that feature and, having regard to geological and engineering factors, suggests the existence of an accumulation of hydrocarbons that has potential for sustained production;
"significant discovery area" means, in relation to a declaration of significant discovery made pursuant to subsection 71(1) or (2), those portions of the offshore area described in the declaration.
71. (1) Subject to section 124, where a significant discovery has been made on any portion of the offshore area that is subject to an interest or a share therein held in accordance with section 66, the Board shall, on the application of the interest holder of the interest or the share thereof made in the form and manner and containing such information as may be prescribed, make a written declaration of significant discovery in relation to those portions of the offshore area in respect of which there are reasonable grounds to believe that the significant discovery may extend.
(2) Where a significant discovery has been made on any portion of the offshore area, the Board may, by order subject to section 124, make a declaration of significant discovery in relation to those portions of the offshore area in respect of which there are reasonable grounds to believe the significant discovery may extend.
. . .
(4) Subject to subsection (5), where a declaration of significant discovery is made pursuant to subsection (1) or (2) and, based on the results of further drilling, there are reasonable grounds to believe that a discovery is not a significant discovery or that the portions of the offshore area to which the significant discovery extends differ from the significant discovery area, the Board may, subject to section 124 and as appropriate in the circumstances,
(a) amend the declaration of significant discovery by increasing or decreasing the significant discovery area; or
(b) revoke the declaration.
124. (1) In this section, "Committee" means the Oil and Gas Committee established by Part III.
(2) The Board shall, not less than thirty days before making any order or decision or taking any action in respect of which it is expressly stated in this Part to be subject to this section, give notice in writing to the persons the Board considers to be directly affected by the proposed order, decision or action.
(3) Any person receiving a notice under subsection (2) may, in writing, request a hearing within the thirty day period referred to in that subsection and, on receipt of such a request, the Board shall direct the Committee to appoint a time and place for a hearing and give notice thereof to the person who requested the hearing.
(4) Any person requesting a hearing under subsection (3) may make representations and introduce witnesses and documents at the hearing.
(5) For the purposes of a hearing requested under subsection (3), the Committee has, regarding the attendance, swearing and examination of witnesses and the production and inspection of documents, all such powers, rights and privileges as are vested in a superior court of record.
(6) On the conclusion of the hearing, the Committee shall submit to the Board its recommendations concerning the proposed order, decision or action of the Board, together with the evidence and other material that was before the Committee.
(7) Before making any order or decision or taking any action in respect of which a hearing has been held, the Board shall consider the recommendations of the Committee.
(8) Where an order, decision or action referred to in subsection (2) is made or taken, the Board shall notify the person who requested a hearing in respect of the order, decision or action under subsection (3) and, on request by that person, publish or make available to that person the reasons for the order, decision or action.
(9) An order, decision or action referred to in subsection (2) takes effect as of
(a) the day that immediately follows the last day of the thirty day period referred to in that subsection, where no hearing is requested under subsection (3); or
(b) the day that the order or decision is made or the action is taken by the Board, where a hearing is requested under subsection (3).
(10) Any order, decision or action in respect of which a hearing is held under this section is subject to review and to be set aside by the Trial Division of the Supreme Court of Newfoundland.
127. . . .
(2) Where a declaration of significant discovery was made under section 44 of the Canada Oil and Gas Act and is in force on the coming into force of this section, it continues in force as it were made pursuant to section 71 of this Part.
III. Judgments Below
Newfoundland Supreme Court, Trial Division
Wells J. asked whether the Board had satisfied ss. 71 and 124 of the federal Implementation Act . He said it is implicit in the words of s. 71(1), viz., "where a significant discovery has been made", that someone must decide whether a "significant discovery" exists as a preliminary matter. Wells J. said the Board advocated a "threshold test", pursuant to which s. 71(1) applications can be disregarded unless a well has been drilled, but he found no statutory authority for such a test. He denied that an overwhelming number of applications based on insufficient and inadequate technical information would arise in the absence of a threshold test. Therefore, Wells J. held that the s. 71(1) applicant is the one who should initially conclude that a significant discovery has been made. Once this occurs, "[t]he Board is then required to consider the application in some manner" (p. 66). In the alternative, Wells J. held that, even if a threshold test were appropriate, the Board, rather than the Chairman, would apply it.
Wells J. next discussed natural justice and fairness. He said that the legislators obviously "intended to provide for a high degree of procedural fairness in [SDD] applications" (p. 67). He found this intention in s. 124 of the federal Implementation Act , and said that "[w]here there is room for doubt as to the proper interpretation of an Act, as there may well be in this case, procedural fairness, natural justice and the right to be heard, become very important considerations" (p. 68). Wells J. held that, by failing to consider the 1990 application and by failing to grant Mobil Oil a hearing, the Board contravened the principles of natural justice and the spirit of the enabling legislation.
Finally, the companies asked Wells J. to declare that more than one SDD can be made with respect to a particular geological feature even if no additional well has been drilled. He refused the request, however, stating that it went "to the very heart of the mandate which Parliament has given to the Board" (p. 68). Wells J. quashed "the decision not to consider the application" and ordered the Board "to accept the application and to deal with it in the manner prescribed by the Act" (p. 68).
Newfoundland Court of Appeal (Gushue J.A., Mahoney and O'Neill JJ.A. concurring)
Gushue J.A. stated that "[t]he matter is essentially one of statutory interpretation" (p. 102), and asked whether Mobil Oil was entitled to a hearing before the Board which it did not receive. Gushue J.A. examined the definition of "significant discovery" in s. 47 of the federal Implementation Act , and noted "an apparent gap in the legislation", inasmuch as "the Act contains no specific mechanism for the determination of a significant discovery per se. It does not state how such is to be determined, or by whom" (p. 103). In other words, Gushue J.A. held that before the Board can act under s. 71(1) or (2), and before s. 124 can come into play, a "significant discovery" as defined by s. 47 must be found.
Gushue J.A. rejected that an SDD applicant must be afforded a hearing before the Committee which considers all aspects of an application, including the preliminary recognition of a "significant discovery". He stated that both s. 71 and s. 124 are relevant only to the determination of an SDD's areal extent. Gushue J.A. concluded that the Board, acting alone, can determine whether a "significant discovery" exists, since it is the Board "which is charged with the operation and administration of the Act" (p. 104).
Gushue J.A. proceeded to deal with natural justice. He said that, if the Board believed that Mobil Oil's 1990 application did not comply with the federal Implementation Act , "then Mobil should, in the interests of natural justice and procedural fairness, [have been] afforded the right to a hearing before the Board" (p. 105, emphasis added). Further, Gushue J.A. stated that "as a quasi-judicial body, [the Board] may not reach a legal conclusion affecting rights of an interest holder without that interest holder, in this case Mobil, being given the opportunity to be heard" (p. 105).
Finally, Gushue J.A. considered whether Mobil Oil had complied with s. 47 of the federal Implementation Act since no new well had been drilled. Like Wells J., however, Gushue J.A. declined to resolve the well requirement issue, stating that "[t]he Board has been given that jurisdiction and must not be fettered in its right to interpret the Act and to reach its own decision" (p. 105). The orders of Wells J. were affirmed as varied.
IV. Issues
Although the parties argued a number of related sub-issues before this Court, I consider the following summary of the issues to be appropriate. The first arises in the appeal by the companies, and the second arises in the cross-appeal by the Board:
1. When an SDD application is submitted to the Board, is the Board required to refer the application to the Committee at the instance of the SDD applicant?
2. Must an SDD application under s. 71(1) of the federal Implementation Act involve an offshore well which has never been the subject of an earlier SDD?
For reasons which will become apparent, I find it convenient to address the second issue first.
V. Analysis
A.Must an SDD application under s. 71(1) of the federal Implementation Act involve an offshore well which has never been the subject of an earlier SDD?
The issue on the cross-appeal is the issue which the companies wanted to argue before the Board and the Committee. It can be succinctly stated. Section 71(1) of the federal Implementation Act provides in part that "where a significant discovery has been made on any portion of the offshore area" described in an exploration licence, the "Board shall, on the application of the interest holder . . . make a written declaration of significant discovery" based upon "reasonable grounds". The term "significant discovery" is partly defined in s. 47 of the Implementation Act to mean "a discovery indicated by the first well on a geological feature" which suggests the potential for hydrocarbon production in the manner indicated. Reading these two sections together, the companies assert that, if at least one well has been drilled on a geological feature, the "reasonable grounds" required by s. 71(1) can be proved using seismic and other data only. Thus, in making its 1990 application, Mobil Oil denied the proposition implicitly asserted in the Chairman's letter, namely, that every s. 71(1) application requires the drilling of a fresh well.
The companies argue that this Court, following the approach of the courts below, should decline to analyze the well requirement issue. However, a concern for finality and the value of judicial economy mandate a different course. This is so because the issue on the cross-appeal is a question of law for which there is an inevitable answer with which we agree. It is therefore unnecessary to consider the standard of review applicable in this case.
An analysis of history, legislative intent, statutory words, statutory context, and the object or scheme of the federal Implementation Act demonstrates that there is nothing ambiguous about ss. 47 and 71(1), and that a well requirement exists.
In terms of history and legislative intent, it is relevant to compare the current legislative scheme to that which existed under the Canada Oil and Gas Act. Pursuant to s. 44(1) of the Canada Oil and Gas Act, the Minister was invested with significant discretionary authority in respect of SDDs. Under the current regime, however, this discretion has given way to an objective test which favours industry participants. Whereas the Minister under s. 44(1) had to be "satisfied" that a significant discovery existed before he "may" have made a declaration, under s. 71(1), the Board "shall" make declarations once "reasonable grounds" have been proved.
Given the obvious contrast between the old s. 44(1) and the current s. 71(1), it is noteworthy that other aspects of the Canada Oil and Gas Act are explicitly retained in the federal Implementation Act . In particular, s. 71(4) of the current Act is substantially identical to s. 44(3) of the former Act. Both provisions deal with the redefinition of an SDD's areal extent "based on the results of further drilling".
It is quite clear that under the former legislative regime, new SDDs required a well to be drilled, and amendments required further drilling. This is recognized in the affidavit of J. Strain (Chairman of the Board):
[I]t is my experience in the oil industry that it has always been recognized by the industry that, in order to apply for a declaration of significant discovery, whether under the Former Act [the Canada Oil and Gas Act], the Federal Act or the Provincial Act or other similar legislation, it is necessary to base such an application upon the results of the drilling of a well. . . .
Similarly, when A. R. Nielsen (Chairman and Chief Executive Officer of Mobil Oil) wrote to the Minister to complain about the areal extent of the 1986 SDD, he stated that "[i]t is clear [that] in the Canada Oil and Gas Act (COGA) enlargements or reductions to significant discoveries areas (sic) are to be based on results of additional drilling". Thus, since it was commonly recognized under the Canada Oil and Gas Act that s. 44(1) applications required new wells and that SDD amendments involved recourse to s. 44(3) and the "further drilling" requirement, and since s. 44(3) has been largely preserved in the form of s. 71(4) of the current statute, it is easy to infer that the traditional well requirements were supposed to be part of the replacement scheme. The new scheme was intended to introduce objectivity, but retention of the statutory structure contradicts the suggestion that well drilling requirements were also intended to be different.
The words used in the federal Implementation Act reinforce this assertion. It is true that s. 71(1) of the Implementation Act expressly requires only that "a significant discovery" exist before an application is made. Thus, it can be argued that one "significant discovery" as defined in s. 47 can ground more than one s. 71(1) application. However, in my view this stretches the definition of "significant discovery" to the breaking point. By establishing that a "significant discovery" is a "discovery indicated by the first well on a geological feature", s. 47 means to establish that a particular geological feature can support only one "significant discovery". The reference in s. 47 to the "first well" is obviously intended to mean the "first and only well" existing at the time of an SDD application. It must be highlighted that a "significant discovery" is first and foremost a "discovery", and at least one connotation of the word "discovery" suggests a more sudden or dramatic recognition of success than is suggested by the reinterpretation of seismic data over time: see The Oxford English Dictionary (2nd ed. 1989), vol. IV. Further, it is notable that the French text of s. 71(1) refers not to "une découverte" but to "la découverte", although I do not wish to make too much of this point since the parallel provincial enactment is unilingual.
That the "significant discovery" definition intends to permit only one discovery per geological feature is reinforced by the plain language of other provisions. For example, s. 96 of the Implementation Act (which deals with Canadian ownership requirements) refers to "the drilling of the first well that indicated the discovery" (emphasis added), and thus points to the "one geological feature/one discovery" correlation. Similarly, it is interesting that the term "exploratory well" is defined in s. 119 as "a well drilled on a geological feature on which a significant discovery has not been made". This provision, too, demonstrates that discovery occurs only once in respect of a particular geological feature.
The broader context of the Implementation Act is also significant because of s. 71(4). In particular, if the argument of the companies prevailed, s. 71(4) would be rendered meaningless. To the extent that s. 71(4) provides a means of amending the areal extent of an SDD "based on the results of further drilling" alone, it would serve no logical purpose if amendments could be achieved using s. 71(1). "[F]urther drilling" could obviously give rise to "reasonable grounds" within the meaning of s. 71(1) as interpreted by the companies. As stated by E. A. Driedger, it is appropriate to adopt a construction "that gives effect to the whole of the statute . . . in preference to one that renders part thereof meaningless": Construction of Statutes (2nd ed. 1983), at p. 92.
Finally, attention must be given to the object and scheme of the legislation at issue. The federal and provincial Implementation Acts gave effect to the provisions of the Atlantic Accord, and the Board must conduct itself with the Accord in mind: s. 17(1). Two purposes of the Accord were "to provide for a stable and fair offshore management regime for industry" and "to provide for a stable and permanent arrangement for the management of the offshore": see clauses 2(f) and (g).
The quoted provisions of the Atlantic Accord are particularly significant when one considers the argument that Mobil Oil's 1990 letter should be treated in an exceptional way because the 1986 SDD was obtained under a pre-existing federal statute. In my view, a complete rejection of this argument exists in s. 127(2) of the Implementation Act , which provides that a pre-existing SDD is to be considered "as if it were made pursuant to section 71". This section makes it abundantly clear that pre-existing SDDs, like SDDs arising under s. 71, are amendable only upon "further drilling" pursuant to s. 71(4). This well requirement, although arguably illogical from a technical standpoint (since "reasonable grounds" for the determination of an SDD's areal extent could be otherwise determined) may serve the values of stability and permanency. These values might be undermined if s. 71(1) applications could be based simply on reinterpreted seismic or other data.
For these reasons, the position of the companies must be rejected as a matter of law. In order to found an SDD application under s. 71(1) of the federal Implementation Act , it is necessary for an applicant to drill a well. As a corollary, in order to modify the areal extent of an existing SDD, recourse must be had to s. 71(4) which demands further drilling. In substance, Mobil Oil's 1990 proposal was an application to amend the 1986 SDD which could not have succeeded as a matter of law.
B.When an SDD application is submitted to the Board, is the Board required to refer the application to the Committee at the instance of the SDD applicant?
As described by the companies, the reasoning of the Court of Appeal "bifurcates" the usual SDD application process. Focusing on the phrase "where a significant discovery has been made", Gushue J.A. held that before s. 71(1) or 124 can be invoked, a "significant discovery" as defined in s. 47 must be located by the Board acting without the Committee. He noted the four components of the s. 47 "significant discovery" definition which could thus be determined by the Board alone (at p. 103):
[T]he requirements for a "significant discovery" are set out in s. 47. These appear to be four in number. There must be:
1.a discovery of hydrocarbons
2.indicated by the first well on a particular geological feature
3.that demonstrates by flow testing the existence of hydrocarbons in that feature
4.suggesting an accumulation of hydrocarbons having the potential for sustained production, as determined by geological and engineering factors.
All of these ingredients must be present before it can be determined that there has been a significant discovery. . . .
While I agree with this break down of the "significant discovery" definition, and while I agree that s. 71(1) is awkwardly drafted in the manner noted by Gushue J.A., I do not agree that the application process is ordinarily "bifurcated". Rather, I believe that the Committee is ordinarily involved whenever technical decisions are at issue.
Pursuant to s. 142(1) of the Implementation Act , at least two of the five members of the Committee must possess technical expertise. Section 142(2) stipulates that the Committee is independent of the Board. I consider this Committee status significant when it is examined in the overall structure of the Act. A form of control over Board decisions is retained by the executive branch of government regarding many "fundamental decisions" as defined in the Act: s. 2. However, at the SDD stage, s. 30 operates to exclude such control.
It is no coincidence that executive control over Board decision making ceases when Board decisions become predominantly technical in nature. Equally, it is no coincidence that Committee involvement is specifically contemplated at this stage of offshore regulation. This sentiment is aptly reflected in a statement by the Hon. Marcel Masse (then Minister of Energy, Mines and Resources) in the Minutes of Proceedings and Evidence of the House of Commons Legislative Committee on Bill C-6, Issue No. 1, November 4, 1986, at p. 1:48: "[A]ll of the Board's decisions are final with respect to questions of a technical nature, such as the statement of discovery". (Emphasis added.)
The involvement of the Committee in respect of technical decisions is clearly intended by the offshore scheme. As already noted, one purpose of the Atlantic Accord was "to provide for a stable and fair offshore management regime for industry" (clause 2(f), emphasis added). The most significant recognition of this purpose has also already been described, inasmuch as the ministerial discretion which governed SDDs under s. 44(1) of the Canada Oil and Gas Act was replaced by s. 71(1) and a procedure which compels the objective reasonableness of declarations.
In my view, given the s. 71(1) focus on "reasonable grounds", it would be illogical to prevent Committee input into "significant discovery" decisions which involve technical questions. In particular, I do not think it helpful to distinguish between the existence of a significant discovery and the determination of a significant discovery's areal extent. In the s. 47 definition of "significant discovery", the words "discovery" and "geological feature" clearly connote a physical location. A physical location must have physical boundaries, i.e., an areal definition. Equally, the "potential for sustained production" cannot be logically dissociated from the size of a discovery; the discovery is defined as "significant" because of its size and its potential to produce.
Without reviewing s. 124 of the Implementation Act in great detail, it is clear that it permits a significant inquiry into whether "reasonable grounds" for an SDD exist for the purposes of s. 71(1). The procedural protections found in that provision go some distance toward ensuring that interest holders have ample opportunity to prove an entitlement objectively before the Committee. The Board must consider the recommendations of the Committee (s. 124(7)), and this must have a significant impact on the Board's ability to determine whether "reasonable grounds" exist to support an SDD under s. 71(1).
The language of s. 71 is clear with respect to Committee involvement. In ss. 71(1), (2) and (4), the phrase "subject to section 124" indicates that SDD decisions by the Board which involve technical considerations presuppose the potential involvement of the Committee. To the extent that the SDD process is initiated by the interest holder, e.g., in a s. 71(1) application, automatic reference to the Committee will be qualified to the extent that a Committee hearing must be requested by the applicant whose interests are at stake. It is interesting to note that when Mr. Jack Shields (then Parliamentary Secretary to the Minister of Energy, Mines and Resources) reintroduced Bill C-6 to Parliament following the Legislative Committee reference, he stated that the Committee's main function was a review function initiated "at the request of an interest holder" (House of Commons Debates, 2nd Sess., 33rd Parl., March 2, 1987, at p. 3707).
By recognizing a leading role for the Committee, however, I do not suggest that the Board or its agents can exercise no residual authority in respect of s. 71(1) applications. For example, the trial judge recognized that summary rejection of a so-called "application" would be appropriate if the "application" was submitted by a non-interest holder, or if the "application" did not comply with any relevant form, manner, or information regulations made pursuant to s. 71(1). Additionally, however, as my resolution of the issue in the cross-appeal demonstrates, the question of whether an SDD application can be made in the absence of a fresh well is a non-technical issue which could not have benefitted from Committee input. Of the four components of the "significant discovery" definition enumerated by Gushue J.A., the "first well on a particular geological feature" component must be non-technical in this case, since there is only one well at issue (the Nautilus well) and since that well was previously the subject of the 1986 SDD. In another case, satisfaction of this first well component might become technical if, for example, two wells had been drilled and it had to be determined whether the wells were drilled into the same "geological feature".
Thus, on the facts, I would hold that the Board had jurisdiction to reject Mobil Oil's 1990 application on a preliminary basis, without permitting a Committee reference. However, this does not mean that rejection could properly have occurred without regard for fairness or the principles of natural justice. Before I dispose of this appeal, it is necessary to consider both the status of Mobil Oil's 1990 application and the manner in which that application was rejected.
C. Administrative Law Considerations
Before this Court, the companies argued that when Mobil Oil's 1990 application was rejected, their vested rights as interest owners were affected. They argued that a hearing before the Committee should have occurred, in so far as there is a presumption against interference with such rights: see P.-A. Côté, The Interpretation of Legislation in Canada (2nd ed. 1991), at p. 152. In my view, however, this case does not involve legislation which impinges upon vested rights in such a fashion as to make the argument relevant. Section 71(1) of the Implementation Act operates to convey a new statutory interest to successful applicants. Section 71(1) does not affect the term of the applicant's existing right in the exploration licence (see ss. 69 and 70(1)). Rather, it simply requires an exploration licensee to satisfy certain preconditions before a new class of statutory rights will be available.
Having said this, however, it would be inconsistent with both the statutory scheme and the history of administrative law jurisprudence to suggest that Mobil Oil was seized of no procedural rights in this case. As recognized in Cardinal v. Director of Kent Institution, [1985] 2 S.C.R. 643, and restated in Knight v. Indian Head School Division No. 19, [1990] 1 S.C.R. 653, at p. 669, when procedural guarantees are at issue, it may be relevant to consider the nature of a decision, the relationship between an affected party and a decision maker, and the effect of a decision on an affected party's rights.
In this case, since an exploration licensee must obtain an SDD or watch a licence expire, the s. 71(1) decision has a "final nature" (Knight, supra, at p. 670). Additionally, although it is technically correct to regard the s. 71(1) interest owner as an applicant seeking additional rights, interest owners are participants in the offshore. To acquire this status, interest owners spend large sums of money and significantly interact with regulators, such that there is clearly an important "relationship between the Board" and the interest owner: Knight, supra, at p. 670. Finally, although a s. 71(1) applicant does not lose rights as exploration licensee simply because an application is rejected, the interest owner's investment in the offshore can only be preserved if an SDD is obtained, and so the s. 71(1) decision may have a significant effect on that investment.
Like the trial judge, I could also infer a right of procedural fairness in this case from the statutory regime itself. I have noted that industry fairness was an important goal of the Atlantic Accord: clause 2(f). The trial judge was right to note that s. 124 evinces a significant legislative concern for procedural guarantees in respect of technical decisions. Although I have held that satisfaction of a well requirement does not involve technical considerations in this case, it would be inconsistent with this overall concern for procedure to suppose that the regulator could reject a novel legal argument without affording the applicant any procedural protection at all. This may be particularly true on the facts, inasmuch as the Board was willing to concede that the 1986 SDD -- as a product of ministerial discretion -- may well have under-defined the extent of the offshore interest demonstrated by the Nautilus well.
Of course, once a role for natural justice or fairness has been recognized, the content of that role must still be determined. There is nothing about the facts or in the Implementation Act to suggest that an oral hearing before the Board would have been a necessary response to Mobil Oil's 1990 application. Rather, that application involved only a proposed interpretation of the Board's governing statutes, and if a complete exchange had taken place with respect to that interpretation, nothing more would have been required. In all probability, a complete exchange could have occurred by way of correspondence between the Board and Mobil Oil: Attorney General of Canada v. Inuit Tapirisat of Canada, [1980] 2 S.C.R. 735.
The Board argued in this Court that each party understood the other's position before the 1990 application was summarily rejected by the Chairman. Indeed, prior to that application, Mobil Oil and the Board did exchange a number of letters which demonstrate two things: first, that the 1986 SDD was a source of discontentment for Mobil Oil from the outset; and, second, that the Board continually rejected arguments to the effect that new technical information could be used to redefine the SDD in the absence of new drilling. Viewed this way, it might be argued within the meaning of Knight, supra, that "everything that had to be said had been said" (p. 686). This might be especially argued since the Board undertook a transitional role in respect of the Canada Oil and Gas Act regime, and was thus in a good position to observe Mobil Oil's response to the 1986 SDD: see the Atlantic Accord, clause 65.
Although enticing, the Board's argument cannot withstand analysis. While it is true that the 1990 application was, in many ways, the culmination of an ongoing dispute, it is equally clear that the 1990 application constituted a proposed resolution by Mobil Oil which was novel. Prior to the date of the application letter, Mobil Oil had not formally argued in favour of a new s. 71(1) SDD, and it is notable that the application sought an SDD in respect of six offshore sections which were not part of the 1986 SDD application.
Perhaps Mobil Oil could have anticipated that the Board would not accede to the legal interpretation apparent in the 1990 application. However, this is the same argument which was made in Homex Realty and Development Co. v. Corporation of the Village of Wyoming, [1980] 2 S.C.R. 1011, where there had been "detailed negotiations and an exchange of correspondence" (p. 1032) prior to the making of an impugned decision. In Homex, this Court held that "[i]n the full and final sense Homex did not receive an opportunity to make known its position once fully aware of the Village's final position" (p. 1032). Likewise, although the Board's position in respect of the 1990 application was in some sense predictable, that reality does not obviate Mobil Oil's procedural rights.
In fact, in this case, whether or not the Board could have summarily rejected the 1990 application without giving Mobil Oil an opportunity to respond to the case against the application, it must be emphasized that it was not the Board which initially responded, but the Chairman. Although the Board is able to delegate to the Chairman pursuant to s. 51 of the federal Implementation Act , no argument in favour of a legal delegation was made in this case, so there must have been no such delegation prior to the Chairman's response. Although the Chairman's position was apparently ratified by the Board before the companies applied for judicial review, it has not been suggested that Mobil Oil was apprised of this ratification nor given an opportunity to respond to it.
Mobil Oil's application was greeted by a letter from the Chairman which stated that the application could "not be brought before the Board" because it was not "bona fide". While I agree that the Implementation Act absolutely cannot support the interpretation advocated by Mobil Oil, it goes too far to pretend that Mobil Oil did not deserve a full hearing, which could have been effected in writing, in respect of its novel interpretation. The Chairman's response was the product of an improper subdelegation which effectively interrupted Mobil Oil's procedural guarantees. Indeed, before this Court counsel for the Board admitted that it would have been preferable for Mobil Oil to have been given a Board hearing. If it would have been preferable, why should another result be accepted?
In light of these comments, and in the ordinary case, Mobil Oil would be entitled to a remedy responsive to the breach of fairness or natural justice which I have described. However, in light of my disposition on the cross-appeal, the remedies sought by Mobil Oil in the appeal per se are impractical. While it may seem appropriate to quash the Chairman's decision on the basis that it was the product of an improper subdelegation, it would be nonsensical to do so and to compel the Board to consider now Mobil Oil's 1990 application, since the result of the cross-appeal is that the Board would be bound in law to reject that application by the decision of this Court.
The bottom line in this case is thus exceptional, since ordinarily the apparent futility of a remedy will not bar its recognition: Cardinal, supra. On occasion, however, this Court has discussed circumstances in which no relief will be offered in the face of breached administrative law principles: e.g., Harelkin v. University of Regina, [1979] 2 S.C.R. 561. As I described in the context of the issue in the cross-appeal, the circumstances of this case involve a particular kind of legal question, viz., one which has an inevitable answer.
In Administrative Law (6th ed. 1988), at p. 535, Professor Wade discusses the notion that fair procedure should come first, and that the demerits of bad cases should not ordinarily lead courts to ignore breaches of natural justice or fairness. But then he also states:
A distinction might perhaps be made according to the nature of the decision. In the case of a tribunal which must decide according to law, it may be justifiable to disregard a breach of natural justice where the demerits of the claim are such that it would in any case be hopeless.
In this appeal, the distinction suggested by Professor Wade is apt.
Likewise, it is apt to cite R. v. Monopolies and Mergers Commission, [1986] 1 W.L.R. 763 (C.A.). In that case, a Chairman interpreted a statute administered by his Commission in order to determine whether a take over proposal had been abandoned. When he decided that abandonment had, in fact, occurred, he stopped a monopolies and mergers reference at the threshold stage. Upon judicial review, the Court of Appeal held that the Chairman had properly interpreted the statute, but the court also held that he had no statutory authority to act alone. Nonetheless, the discretionary remedies at the disposal of the court were withheld, at least partly because "[g]ood public administration is concerned with substance rather than form" and because the Commission "would have reached and would now reach the same conclusion as did their experienced chairman" (p. 774). Given the circumstances of this case as I have described them, this statement is accurate here, although I would reiterate its exceptional character and would not wish to apply it broadly.
VI. Disposition
For the reasons described, I would allow the cross-appeal and hold that applications made under s. 71(1) of the federal Implementation Act require the drilling of a fresh offshore well. Although I have found that the Chairman acted without authority and that Mobil Oil's right to be heard was denied, I would exercise this Court's discretion and withhold the remedies sought by Mobil Oil. Accordingly, I would dismiss the appeal.
The disposition I make is contrary to the interests of the companies in a practical sense. The companies, however, put forward an interpretation of the offshore scheme -- particularly with respect to the Board/Committee relationship -- which I have at least partly recognized in these reasons, and I have noted that Mobil Oil was not treated fairly on the facts. For these reasons, it is appropriate that each party bear its own costs, both in the courts below and before this Court.
Appeal dismissed and cross‑appeal allowed.
Solicitors for the appellants: Stewart McKelvey Stirling Scales, St. John's, Newfoundland.
Solicitors for the respondent: Stikeman, Elliott, Ottawa.
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