BC’s Environmental Appeal Board Overturns Nexen Water Licence on Appeal by Fort Nelson First Nation


On September 3, 2015, British Columbia’s Environmental Appeal Board (“EAB”) issued a precedent-setting decision (the “Decision”)1 granting an appeal brought on behalf of the members of the Fort Nelson First Nations (the “FNFN”) from a decision of the Assistant Regional Water Manager (the “Manager”) to issue a commercial water licence (the “Licence”). The Licence had been issued by the Manager to Nexen Inc. (“Nexen”), an oil and gas company based in Calgary. It allowed for the withdrawal of up to 2.5 million cubic meters of water per year from the Tsea River watershed in northeastern British Columbia for use in Nexen’s fracking operations. In a lengthy decision, the EAB cancelled the Licence on the basis that the terms and conditions of the Licence were “fundamentally flawed” and lacking in technical merit, and on the basis that the Crown had failed to consult in good faith with the FNFN regarding the Licence.

Throughout its Decision, the EAB provides helpful commentary for industry, particularly for applicants seeking water licences from the Ministry (even noting that its discussion is intended to “provide general guidance, should Nexen apply for a new water licence”),2 or those seeking to oppose the issuance of a licence.   For example, in assessing the technical merits of the Licence, the EAB provides guidance on the type, scope and reliability of information required to support an application for a water licence, having regard for the purposes served by the licensing framework in the Water Act, RSBC 1996, c 483. As it concludes that the necessary data can vary significantly depending on surrounding circumstances (including factors such as the size of the water withdrawals and the water source, the cultural importance of the area and the surrounding wildlife), this guidance provides industry with a useful framework to consider when gathering sufficient information to support the issuance of a licence (or, conversely, arsenal to challenge the adequacy of the supporting information). The Decision also provides helpful recommendations regarding procedural aspects of the consultation process, including emphasizing the importance for all parties involved to actively supply information. It also makes suggestions to ensure transparency and clarity of roles in the consultation process, which are important to applicants engaging in consultation as a delegate of a provincial Crown.

Due to the lengthy nature of the Decision, a summary of the background facts is set out below, followed by a discussion of the key issues and findings of the EAB.


The Tsea River watershed is a series of rivers and lakes located in northeastern BC, approximately 90km northeast of Fort Nelson, within the FNFN’s traditional territory.3 As of 2009, Nexen, a wholly-owned subsidiary of the China National Offshore Oil Corporation, held a short-term approval from the Oil and Gas Commission pursuant to section 8 of the Water Act. This approval allowed Nexen to withdraw surface water from five locations within the Tsea River watershed, which it stored and used in its natural gas hydraulic fracturing (“fracking”) operations.4 However, the approval was short-term (one year) and it limited the change in the lakes’ surface level to a maximum of 0.1 meters.5

In April 2009, Nexen sought to extend its water withdrawal rights by applying to the Ministry of Forests, Lands and Natural Resource Operations (the “Ministry”) for the issuance of a licence under section 12 of the Water Act.6 After some amendments, Nexen’s Application sought authorization to withdraw up to 2.5 million cubic meters of water per year from North Tsea Lake.7 In support of its Application, Nexen submitted various reports that analyzed data from the Tsea River watershed (and to the extent that was not available, data from another creek located approximately 150km south of the North Tsea watershed) and used various models to estimate the volume of water available for diversion by Nexen.8

Representatives of the Ministry, the FNFN and Nexen spent the next three years exchanging communications and holding meetings regarding the Application.9 A summary of many of these communications are set out in the Decision.10 Towards the end of these communications, in late January 2012, the Ministry sent a letter to the FNFN, advising that it had completed its preliminary review. The letter set out the Ministry’s preliminary findings that the Licence’s potential for adverse impact on fish, fish habitat and the surrounding environment impact was minimal, as well as the Ministry’s belief that the proposed Licence would not have an appreciable adverse effect on the FNFN’s ability to exercise their treaty rights in the area. The correspondence sought the FNFN’s input on these preliminary conclusions before the Licence was to be issued.11

There was some disagreement between the FNFN and the Ministry regarding when this January 2012 correspondence was received, and over the next three months, representatives of the Ministry and the FNFN exchanged correspondence trying to arrange a time to meet to discuss the Ministry’s preliminary conclusions. This ultimately did not occur and, on May 11, 2012, the Manager issued the Licence authorizing Nexen to withdraw up to 2.5 million cubic meters of water per year from North Tsea Lake, for a period until December 31, 2017.12 Having issued the Licence, the Manager sent a letter to the FNFN setting out the rationale for his decision, including reiterating his findings that any adverse impacts of the Licence on the FNFN’s treaty rights and fish habitat would be minimal, as well as his opinion that consultation with the FNFN had been adequate.13

The Appeal

Shortly thereafter, the FNFN appealed the Manager’s decision to issue the Licence on the following grounds:

  1. the Manager failed to adequately assess the potential direct and cumulative impacts of the Licence on the Tsea River watershed; and
  2. the Manager failed to uphold the honour of the Crown through meaningful consultation with the FNFN before issuing the Licence.14

Subsequent to the issuance of the Licence and the commencement of the appeal, there were drought conditions in northeastern BC in the summer of 2012, and the FNFN raised concerns to the Ministry that Nexen continued to withdrawal water during this period. When Nexen’s data was subsequently reviewed, the Ministry found that it had breached the Licence by allowing water output levels in the North Tsea River to fall below allowed levels.15 As a result, in April 2013, the Ministry issued an order (the “Order”) requiring Nexen to implement six remedial measures to prevent future breaches of the Licence, prior to starting water withdrawals in the summer of 2013. These measures were implemented by Nexen.16

The Decision

On September 3, 2015, almost 20 months after the oral hearing concluded in January 2014, a three-member panel of the EAB issued its lengthy (115 pages) Decision. The hearing of the appeal had encompassed 19 days of oral evidence and extensive documentary evidence.17 In reaching its conclusion that the Manager’s decision to issue the Licence should be overturned and Nexen’s licence cancelled, the EAB extensively considered several important issues, including:

  • the Jurisdiction of the EAB to consider decisions not expressly appealed from;
  • the role of the EAB in hearing an appeal from a decision to issue a water licence;
  • the technical merits of the Licence, taking into consideration the purposes of the Water Act, as well as the type and accuracy of information required to support a Licence; and
  • the adequacy of the consultation process between the provincial Crown and the FNFN, including an emphasis on procedural aspects.

These issues are discussed in more detail next.

Preliminary Issue: Jurisdiction & Nature of the Appeal Process

Before turning to the merits of the appeal in the Decision, the EAB considered a preliminary issue related to the remedial measures Order made by the Ministry in 2013. In considering its jurisdiction to assess the validity of the Order as part of the appeal, the EAB found that the Order was a standalone Ministry decision, separate and apart from the decision to grant the Licence. As the FNFN had not appealed from the granting of the Order (only the Licence) the EAB found that an assessment of the merits of the Order was beyond its jurisdiction.18 This serves as a reminder of the importance of considering all related decisions that may be brought before the EAB when contemplating an appeal.

The EAB also provided some useful commentary on the wide scope of its role on an appeal, confirming that it is not limited to reviewing the appealed decision or decision-making process for errors and that it is not limited to the evidence before the original decision-maker. Instead, it is empowered by section 92(7) of the Water Act to conduct the appeal as a de novo hearing and by section 92(8) to make any appropriate decision that the Manager could have made in considering Nexen’s Application.19 By way of these two sections of the Water Act, the EAB is empowered to itself assess the technical merits of the Licence on the basis of all the evidence before the EAB.20 However, with respect to the FNFN’s appeal on consultations, the EAB serves a more limited role. It confirmed that, as a quasi-judicial tribunal, it does not directly engage in consultations with First Nations, and that the appeal process could not be a substitute for consultations.21 Instead, the EAB’s role is to review whether the Ministry discharged its duty to consult with the FNFN.22 This may be contrast with the role of other bodies (such as the Oil and Gas Commission) that serve as administrative decision-makers and have an obligation to engage in consultations.23

Issue 1: Technical Merits of the Licence

Turning to the first major issue being considered on appeal, the EAB considered the technical merits of the Licence and whether it should be reversed on the basis it is “inconsistent with the purposes of the Water Act, there is inadequate data to properly assess its impacts, and/or it is based on flawed design.” In considering this issue, the EAB provided important clarifications on several topics, including with respect to the purposes served by the Water Act, and the amount and certainty of information required in support of an application for a Licence.

Purposes of Water Act

The parties rooted their opposing arguments on the merits of the Licence on the purpose of the Water Act and the role that it serves in the licensing process. While all parties agreed that the legislation’s primary purpose was the allocation of water rights, there was disagreement on the extent to which the Water Act also served an environmental purpose. The EAB clarified this issue describing the “main purpose” of the Water Act’s licensing scheme as being the allocation and regulation of private rights to use water,24 but that environmental factors may be relevant considerations in deciding whether to issue a licence.25

On a related issue, the Decision also considered the extent to which the Ministry may consider the cumulative impact of activities on the environment in deciding whether to issue the Licence. The EAB found that it was consistent with the purposes of the Water Act for the Manager to consider the total demand on the water source and the impact of that total demand on stream flow and the surrounding habitat. However, it found that the legislation did not require the Manager to consider environmental impacts not arising from the Licence itself, such as the cumulative environmental impacts of broader oil and gas development (such as the development of roads, pipelines or wells) on the watershed, as those activities were regulated under other legislation.26 This suggests that an applicant for a water licence should ensure that it adequately addresses all withdrawal demands on the water source, including the cumulative impact of these withdrawals. However, there is not the same need for an applicant to expand its cumulative impact assessment to take into account other types of activities not covered by a water licence, as there is no basis for the Manager to consider the effect of those activities.

Supporting Information & Degree of Certainty

With the purposes of the Water Act in mind, the EAB turned to assess the documentation supplied in support of the Application, considering in particular the amount and type of information, and the degree of certainty of that information, required before the Manager may decide to grant the Licence. The FNFN strongly contended that the information considered by the Manager was “insufficient and inadequate to understand the potential impacts of the Licence” on the environment, particularly the hydrological impacts on the watershed and the wildlife in the area.27 It also argued that the Licence failed to comply with the precautionary principle,28 a doctrine rooted in international environmental law that provides that where an action threatens harm to the public or the environment, the burden of establishing that there will not be harm falls on those wishing to undertake the action (in this case, Nexen).

As a starting point, the EAB noted that the Water Act does not directly require an applicant to provide any information about the potential environmental impacts of the Application. However, the Manager has a broad discretion to require further information under the legislation, including environmental information, particularly in light of its finding that environmental factors may be a relevant consideration.29 As each water licence must be considered in the context of its own circumstances (including factors such as the characteristics of the water source, the quantity of water to be licensed, other demands on the water source and any associated works),30 the amount and type of data required may also vary with the circumstances. As an example, the Decision contrasts an application to divert 500 gallons of water per day for domestic use with an application to divert 2.5 million cubic meters of water per year for industrial use to emphasize that the information requirements of each would differ drastically.31 Accordingly, in assessing the supporting information required for an application, an applicant would be advisable to consider proportionality and to tailor the scope and precision of its documentation to fit the circumstances.

On the facts of the case before it, the EAB noted that Nexen sought to use a large volume of water from a relatively small lake. This was contrasted with the limited data available with respect to the Tsea River watershed and the fact that there was no history of similar licences being granted in the area that could be used as guidance.32 These circumstances pointed towards the Manager needing to seek a larger amount of information about the potential environmental impacts of the Licence. However, the EAB recognized the impracticality of requiring the Manager to obtain too high of a degree of certainty on such issues:

While it is prudent in such circumstances to ask an applicant to provide further information about the water source and the potential impacts of the proposed licence, the Panel finds that it is impractical, and inconsistent with the objective of the licensing provisions of the Water Act, to expect applicants to delay developments indefinitely pending studies that attempt to conclusively predict impacts.33

The EAB also expressed a concern that making the licensing process too onerous could result in oil and gas companies seeking multiple short-term approvals under section 8 of the Water Act, as opposed to undertaking the process of gathering the data and studies necessary to obtain a multi-year licence, a result that would be undesirable from a water management perspective.34

Further, while a larger amount of more reliable data could reduce the uncertainty associated with issuing a Licence, the EAB recognized that some degree of environmental uncertainty would always remain.35 It rejected the adoption of the precautionary principle, finding that there was “no indication that the Legislature intended this principle to apply to water licensing decisions.”36 Despite this, the EAB very clearly emphasized the need for the Manager to have taken a conservative or cautious approach in making his decision to issue the Licence, particularly in light of the considerable uncertainty existing in the circumstances.37 Accordingly, while an applicant does not have to conclusively predict the impacts of a licence or rebut all risks of harm, it will increase its chances of obtaining a licence where it adequately addresses the uncertainties associated with the licence by taking a cautious approach in proposing the terms and scope of the licence.

The Technical Merits of Licence

Acknowledging that conclusive, site-specific information was not a requirement of obtaining any type of licence, the EAB identified the key issue as being “[h]ow to proceed cautiously with less than perfect data”,38 in applying the above principles to assess the technical merits of the Licence. While it had refused to find that applicants must provide certain types of environmental information or establish certainty in order to obtain a licence, it took a relatively strict approach in assessing whether the Manager had been sufficiently responsive to the various environmental concerns and uncertainties identified by the FNFN.

The EAB’s assessment of the merits of the Licence makes up a large portion of the Decision. It is technical in nature and quite specific to the data relied upon by Nexen and the terms of the Licence sought by Nexen. However, for a party seeking to obtain persuasive studies in support of a water application (or to challenge the validity of studies prepared by another), the EAB’s critique of the various methodologies and modelling used, as well as the technical terms of the Licence applied, would be well worth a careful review to avoid similar pitfalls.39

As a summary, the EAB found that there were many errors and inadequacies in the studies submitted by Nexen, and that these deficiencies had not been resolved by the subsequent data provided on the appeal.40 From a hydrological perspective, it found that Licence was “poorly rationalized” in that it was based on insufficient data.41 With respect to wildlife, it disagreed with the Manager’s conclusion that there would be no impact on fish or fish habitat, instead finding that the Manager had no information before him on these impacts. Further, based on the information available on appeal, the EAB found that there was, in fact, a real concern of adverse effects.42 The EAB also held that the Manager improperly failed to consider the potential impacts of the Licence on the beaver (a “keystone” species in the area) and surrounding vegetation.43 The data did not support a conclusion that the Licence would adequately protect against detrimental impacts on the aquatic and riparian environments.44 As a result, the EAB concluded that “the Licence should be reversed because it is fundamentally flawed in concept and operation”.45

Issue 2: Consultation

The second major issue raised by the FNFN in appealing from the issuance of the Licence was that the provincial Crown’s consultation had been inadequate, as it “failed to ascertain the nature and scope of the [FNFN’s] treaty rights, failed to properly assess the potential impact of the licence on those rights, and/or failed to properly discharge the duty to consult.”46

Level of Consultation Required

The EAB first considered the level of consultation that was required in the situation. In order for the Manager to determine the appropriate level, the EAB found that it needed to understand the nature and scope of the treaty rights that could be adversely affected by the Licence,47 and that the Manager had failed to do this. This failure was found to partially be the responsibility of the provincial Crown, as the Ministry had failed to consider certain relevant information that was known to the provincial Crown and had relied on other irrelevant and incorrect information.48 However, the EAB also attributed part of the blame to the FNFN, as it had failed to disclose relevant information about the exercise of its treaty rights to the Ministry.49 Later in the Decision, this finding formed part of the basis of the EAB’s denial of the FNFN’s application for costs, emphasizing the importance for all parties, including the First Nations, to ensure that they are actively and adequately exchanging information during consultation.

The importance of fully understanding the impacted treaty rights before determining the required scope of consultation is highlighted by the factors considered by the EAB. It found that the area around the Tsea River watershed was less developed than other areas in the FNFN’s traditional territory, and that it may have a higher importance to the FNFN for the exercise of its treaty rights, than other, more developed areas in the territory.50 This factor appears to have weighed heavily in the EAB’s conclusion on scope of consultation. It also considered the fact that the water use by Nexen was consumptive in nature (in that it would not be returned to the watershed after it was used), as well as its finding that the potential adverse impacts of the Licence were not merely speculative in nature and that there was a real risk that withdrawals in accordance with the Licence could have an adverse impact on riparian vegetation, fish and other species in the area.51 However, it weighed this information with the fact that there was no evidence to suggest that the Licence had actually resulted in the FNFN being unable to continue conduct their traditional activities in the area, or that this would occur in the future.52 Balancing these factors, the EAB concluded that the level of consultation required was in the mid-range of the spectrum.53

The Consultation Process

With respect to the consultation process itself, the EAB emphasized the need for flexibility as well as a sufficient degree of transparency for “each party to understand the other parties’ needs and expectations, particularly in terms of informational needs and the expected timelines for responses and decisions.”54 While it confirmed that a standard of perfection was not required from the parties, the EAB described the process as having suffered from a lack of understanding and clarity regarding the parties’ needs and expectations. This finding extended to the role of Nexen, which had played an active role in discussions with the FNFN through the Application process. However, as the Ministry had never clearly delegated any aspects of the consultation process to Nexen, the EAB was concerned that the FNFN may have believed that Nexen was only engaging to further its own interests, as opposed to consulting with the FNFN was a delegate of the Crown.55 The EAB found that the Ministry should have made greater efforts to discuss the parties’ roles and expectations to ensure the process was transparent.56

The Decision demonstrates how a consultation process can go awry as a result of an unclear process. The EAB provided parties with an important takeaway to prevent similar future problems, suggesting that the Ministry should have negotiated a consultation agreement with the FNFN or at least proposed a clear framework or process for the consultations at the outset.57 From an applicant’s perspective, it would be advisable to ensure that this process or agreement clearly describes any aspects of the consultation process that have been delegated to the applicant.

Duty to Consult in Good Faith

Regardless of the level of consultation required, the EAB confirmed that the provincial Crown must always consult in good faith, “with the intention of substantially addressing the concerns of the aboriginal peoples whose land is in issue…”58 While the EAB found that the provincial Crown had done so for the majority of the Application process, this changed in early 2012, around the time the January 2012 correspondence was sent to the FNFN. The EAB described the Ministry, during this period, as having “an intention to bring the consultation process to an end and issue the Licence” and as taking the view that further consultation would “simply delay the inevitable issuance of the Licence.”59 Its close-mindedness to new information was found by the EAB not to be in good faith or consistent with the honour of the Crown and the overall objective of reconciliation.60 This was particularly the case due to the lack of urgency for a decision, as Nexen had continued to operate under its short-term section 8 approval, and therefore would not suffer great prejudice from further delay.61 As a result of the Ministry’s failure to consult in good faith, the EAB found that the consultation process had been “inadequate and fundamentally flawed.”62

This finding demonstrates the need of the provincial Crown (and, to the extent applicable, an applicant as a delegate to the Crown) to be willing to keep an open mind through the entire consultation process, and to be willing to consider and act upon information that arises even very late in the consultation process.

Decision & Aftermath

Having concluded that both the Licence and the consultation process had been “fundamentally flawed” the EAB turned to the appropriate remedy.63 While the FNFN sought to have the issuance of the Licence reversed, Nexen argued that it would suffer significant prejudice from this result.64

In balancing these arguments, the EAB emphasized the large amount of water being diverted from a small water source, based on a Licence that was fundamentally flawed and lacking in technical merit and that this gave rise to a considerable risk of harm to the area. It also noted the seriously flawed consultation process.65 On the other hand, it recognized the prejudice that Nexen could suffer from the cancellation of the Licence. However, it found that this prejudice was minimized by the fact that many of Nexen’s works had been constructed during a time when Nexen was still operating under its short-term approval, such that it would have incurred those expenses regardless of whether it received the Licence. Further, despite all of the flaws with the Licence, the EAB noted that Nexen had enjoyed the benefits of the Licence for more than half of its term.66 In all of the circumstances, the EAB found that the Manager’s decision to issue the Licence should be reversed based on both its serious technical flaws as well as the flawed consultation process.67


* Erica C. Miller is a lawyer at Farris, Vaughan, Wills and Murphy LLP in Vancouver, practicing in the areas of commercial litigation and regulatory law. She gratefully acknowledges lawyers Ludmila B. Herbst and Jason K. Yamashita for their input and comments in the preparation of this article.

  1. Chief Gale v Assistant Regional Water Manager & Nexen (3 September 2013), Decision No 2012-WAT-013(c) (BC Environmental Appeal Board) online: EAB <http://www.eab.gov.bc.ca/water/2012wat013c.pdf> [Gale].
  2. Ibid at para 339.
  3. Ibid at paras 3 and 7.
  4. Ibid at paras 18-19.
  5. Ibid at para 19.
  6. Ibid at paras 18-19.
  7. Ibid at para 31.
  8. Ibid at paras 20-26.
  9. Ibid at para 33.
  10. Ibid at paras 33-86.
  11. Ibid at paras 65-66.
  12. Ibid at paras 87-88.
  13. Ibid at para 90.
  14. Ibid at para 93.
  15. Ibid at paras 108-113.
  16. Ibid at paras 115-117.
  17. Ibid at para 157.
  18. Ibid at para 127.
  19. Ibid at paras 157-158.
  20. Ibid at para 158.
  21. Ibid at para 159.
  22. Ibid at para 428.
  23. See Saulteau First Nations v Oil and Gas Commission, 2004 BCSC 92 at paras 130-138, aff’d 2004 BCCA 286
  24. Gale, supra note 1 at para 162.
  25. Ibid at para 163.
  26. Ibid at paras 168-170.
  27. Ibid at para 172.
  28. Ibid at para 179.
  29. Ibid at para 176.
  30. Ibid at para 177.
  31. Ibid at para 177.
  32. Ibid at para 178.
  33. Ibid at para 178 [Emphasis Added].
  34. Ibid at para 180.
  35. Ibid at para 182.
  36. Ibid at para 179.
  37. Ibid at para 183.
  38. Ibid at para 193.
  39. See Gale, supra note 1 at paras 185-339.
  40. Gale, supra note 1 at para 296.
  41. Ibid at para 297.
  42. Ibid at paras 302, 321.
  43. Ibid at para 327.
  44. Ibid at para 338.
  45. Ibid at para 337.
  46. Ibid at para 337.
  47. Ibid at para 449.
  48. Ibid at para 451.
  49. Ibid at para 452.
  50. Ibid at para 435.
  51. Ibid at para 435.
  52. Ibid at para 439.
  53. Ibid at para 440.
  54. Ibid at para 441.
  55. Ibid at para 447.
  56. Ibid at para 448.
  57. Ibid at paras 443-444.
  58. Ibid at para 468, citing Delgamuukw v British Columbia, [1997] 3 SCR 1010 at para 168.
  59. Gale, supra note 1 at para 474.
  60. Ibid at para 484.
  61. Ibid at para 483.
  62. Ibid at para 485.
  63. Ibid at paras 337, 485.
  64. Ibid at para 486.
  65. Ibid at para 490.
  66. Ibid at paras 491-492.
  67. Ibid at para 494.

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