Altius Royalty Corporation, Genesee Royalty Limited Partnership, and Genesee Royalty GP Inc. (the plaintiffs) contend that regulatory changes for coal emissions from the Government of Canada and the Government of Alberta (the defendants) amount to a constructive expropriation or “taking” of their royalty interest in a coal mining facility located next to the Genesee Power Plant southwest of Edmonton, Alberta. The Court of Queen’s Bench of Alberta held that there was no expropriation as the activity being challenged—a 2018 regulation that required plants to meet a new emissions standard by December 31, 2019—did not meet the two-part legal test for expropriation set out by the Supreme Court of Canada in Canadian Pacific Railway Co. v Vancouver (City).
The coal emissions regulations of the federal government and the actions of the provincial government of Alberta that were challenged in this case were not considered “takings” under expropriation law. Therefore, the lawsuit brought by the plaintiffs against both levels of government was dismissed.
The plaintiffs are Altius Royalty Corporation, Genesee Royalty Limited Partnership, and Genesee Royalty GP Inc. In 2014, the plaintiffs collectively paid $460 million for a royalty interest in a coal mining facility located next to the Genesee Power Plant in the Edmonton region. The plant’s use of the coal generates CO2 emissions. In 2012, the federal government at that time adopted the Reduction of Carbon Dioxide Emissions from Coal-Fired Generation of Electricity Regulations, SOR/2012-167. Section 3(1) of the regulations established a prohibition of CO2 emissions from fossil fuel combustion that exceed an intensity of 420 tonnes per GWh of electricity produced by a unit each year.
The Genesee Power Plant consists of three different units; they were commissioned in 1989, 1994, and 2005. Under the 2012 federal regulations mentioned above, the units would be deemed to end their useful life in 2039, 2044, and 2055 respectively.
In a letter from Altius Minerals Corporation to its investors, it was revealed that the federal government has a goal to reduce Canada’s greenhouse gas emissions by 17% below 2005 levels by 2020 as part of the Copenhagen Accord. In order to meet this reduction goal, the federal government has implemented regulations that require significant reductions in greenhouse gas emissions by Canada’s largest industrial sectors. These regulations will likely make some power plants to close down.
In 2016, after the Paris Agreement on climate change was signed, a new federal government expressed their intention to pass more regulations relating to coal-fired emissions regulation. In 2018, new regulations came into force that require plants, including the Genesee Power Plant, to meet a new emissions standard by December 31, 2029.
The Plaintiffs allege that the 2012 regulation would have allowed them to count on their royalty stream being available until 2039, 2044 and 2055 in relation to the three Genesee Power Plant units. The Plaintiffs argue that the federal government’s enactment of the 2018 regulation is essentially constructive expropriation of their post-2030 royalty interest. They also argue that the Government of Alberta’s conduct, including their “off coal agreement” with compensation to Capital Power LP, will have effectively ended the coal fired operation of the Genesee Power Plant after 2030.
Preliminary Issue: Is the action premature?
The defendants argued that the Plaintiffs’ lawsuit was premature as it was impossible to know what the state of affairs would be like in 2030, whether the law will change before then, or what emissions technology will then exist. Alternatively, the Government of Alberta argued that the action was barred by the Limitations Act, RSA 2000.
In dealing with this argument, the Court distinguished this case from another case from 2019 called British Columbia (Attorney General) v Alberta (Attorney General) that related to proposed legislation for restricting oil and gas exports to British Columbia. In that 2019 case the Court decided a constitutional challenge to legislation that was not in force yet was premature. In this case, the issue relates to regulations that are already in force based on facts that have occurred—i.e. present rights were affected. Accordingly, the Court dismissed the argument that this lawsuit was premature.
A) Did the actions of the Government of Canada and the Government of Alberta amount to taking and constructive expropriation?
The Government of Canada and the Government of Alberta argued that the facts of this case did not meet the requirements established by the case law for a “taking”. The Court examined the relevant case law.
In Canadian Pacific Railway Co. v Vancouver (City), a case from 2006, the Supreme Court of Canada established that for a situation to be considered a taking that warrants compensation, two requirements must be met. There must be: (1) an acquisition of a beneficial interest in the property or flowing from it; and (2) removal of all reasonable uses of the property. For the first part of the test, there does not need to be a forced transfer of property; an acquisition of the beneficial interest related to the property is enough. The Supreme Court of Canada held that there was no taking as the zoning bylaw did not pass the test, it merely prohibited CPR from exploiting the lands to their full commercial potential and limited development.
The Court of Queen’s Bench of Alberta also examined a case from 1985 called R v Tener, in which the Supreme Court of Canada addressed expropriation law in context to similar facts to this case. In Tener, a mineral claim holder in British Columbia was negatively affected by a change in government policy in relation to a provincial park that was created over their mineral rights claims. The provincial government eventually made it clear that they would not consider providing permits for surface rights in the park so the mineral rights could not be exploited. The Court in Tener held that while there had not been any regulation reducing the value of the minerals or affecting the respondents’ opportunity to remove them, there was nevertheless a taking as the Park Act essentially allowed the Crown to recover part of the rights granted to the respondents in 1937. This conclusion was deemed to be consistent with the Supreme Court of Canada’s 1978 decision in Manitoba Fisheries Ltd. v The Queen. In Manitoba Fisheries, the establishment of a Crown corporation ended up putting Manitoba Fisheries out of business. Even though the company still had their assets, the Crown had deprived them of their goodwill which made the assets virtually useless. Therefore, the company was entitled to compensation. Similarly, in Tener, the respondents were left with minerals that were less profitable.
In short, the case law establishes that whether or not there has been a taking depends on the facts. When the Crown effectively acquires an owner’s business to its own benefit, there is a taking (such as in Manitoba Fisheries). When a municipality does not take the title to the land and just limits its possible uses, there is no taking (like in CPR). When the Crown effectively prevents the development of minerals, there may be a taking even if the rights to the minerals have not been expropriated for the purpose of Crown development (like in Tener).
The Alberta Court of Queen’s Bench analogized this case to Tener: the coal itself was not taken, but the ability to develop and exploit the coal was arguably taken, which made the coal useless.
The main point of contention between the parties was the target and effect of the regulation. The federal and provincial government argued that the target of the regulations is the coal-fired power plant that produces emissions, not the coal supplier; any losses suffered by the coal supplier are incidental and therefore do not justify a cause of action. Moreover, the governments said that the royalty was not affected by any closing of the plant. The Plaintiffs argued that the affected coal interests had been taken as they had been effectively sterilized.
The Court distinguished this case from Tener and Manitoba Fisheries. The Court reasoned that the royalty acquired by the Plaintiffs in 2014 was always susceptible to being affected by new emissions regulations and that the Plaintiffs were trying to bind subsequent governments to a former government’s regulatory scheme. In essence, they were trying to make the governments guarantors of their business transactions and assure them the opportunity to provide 50 years of coal supply. The Court pointed out that the underlying agreements in support of their transactions never made any such guarantees.
The Court agreed with the Plaintiffs’ assertion that the second part of the taking test was met as there was a financial benefit to the government. However, the Court concluded that the first branch of the test was not met because the governments did not get any beneficial interest in the coal or royalty interest. Therefore, the Court decided that there was no reasonable cause of action for the Plaintiffs to pursue at trial.
The Court also cited other cases on expropriation law that pointed out the need for expropriation claims to be considered in light of the fact that in modern Canada, extensive regulation of land use is the norm and private property owners are not immune from regulation. Accordingly, not every interference with property ownership is comparable to de facto expropriation. Sometimes, the interests of owners have to be sacrificed for the greater public interest.
Additionally, the Court pointed out that the Plaintiffs knew emissions regulation was a part of the industry when they entered into the transactions in question. Changes to emissions regulations should not come as a surprise. Canada merely exercised its regulatory powers. Finally, the Court noted the absurdity of requiring a regulator that is trying to regulate environmental hazards in good faith to pay the creator of those hazards in order to get them to stop polluting.
B) Final Issue: Did the Government of Alberta induce a breach of contract?
The Plaintiffs also argued that the Government of Alberta induced a breach of contract by entering into an agreement with the Genesee Power Plant operator to cease coal-fired emissions. The Court dismissed this argument because the royalty arrangement did not guarantee that the mine could supply coal for 50 years and there was no evidence that the Government of Alberta induced a breach of contract. The Court held that the Government of Alberta has a right to decide whether it is appropriate to compensate the plant owner and employees affected by the changes.
JUDGES: J.R. Farrington
Code Hunter LLP
Christian J. Popowich and Dextin Zucchi
for the Plaintiffs
Alberta Justice and Solicitor General
Melissa N. Burkett
Cynthia R. Hykaway
for the Defendant Her Majesty the Queen in Right of Alberta
Department of Justice
Attorney General of Canada
for the Attorney General of Canada