Supreme Court decision on Red Chris provides environmental assessment clarity

Vancouver – In a decision more than three years in the making, the Supreme Court of Canada ruled the ministries working under the Canadian Environmental Assessment Agency (CEAA) were wrong to reduce the scope and rigour of the assessment needed to approve Imperial Metals’ (III-T) Red Chris project in northwest British Columbia. Justice Marshall Rothstein found the CEEA Act alone determines the scope of a federal environmental assessment, based on the characteristics of the proposed project, and the authorities responsible for the project cannot alter that decision.

However, Justice Rothstein allowed an exception in the case of Red Chris. Noting that litigant MiningWatch Canada specifically chose not to challenge the findings of environment assessment process but rather to challenge the process itself, and taking into consideration that Imperial Metals acted in good faith but was misled , the judge upheld the federal environmental assessment certificate for Red Chris.

The end result is that Imperial Metals can move Red Chris towards a development decision with all necessary environmental permits in hand. More generally, even though the federal government cannot reduce the scope of an environmental assessment under the current laws, Justice Rothstein encouraged a streamlining of provincial and federal efforts wherever possible.

Red Chris is a large copper-gold deposit in northwest B.C., 80 km south of Dease Lake. A 2005 feasibility study estimated the project’s proven and probable reserves at 276 million tonnes grading 0.349% copper and 0.266 gram gold, enough to support 30,000-tonne-per-day operation for 25 years. The planned pit is some 1.8 km long and up to 1 km wide, covering two zones known as the Main and East zones.

Drilling has expanded both of those zones significantly in the last four years but Imperial has not updated the project’s resource estimate or feasibility numbers since hitting environmental assessment stumbling blocks in 2006. The company submitted a project description to the B.C. Environmental Assessment Office (BCEAO) in 2003 and, following a two-year process that included public consultation, was awarded a provincial environmental assessment certificate in 2005.

Halfway through the provincial process, Red Chris triggered the need for a federal environmental review when it applied to the Department of Fisheries and Oceans (DFO) to build tailings impoundment dams. In mid-2004 the CEAA announced that the DFO, as a responsible authority, would conduct a comprehensive study of the project. A few months later, Natural Resources Canada (NRCan) was added as a second responsible authority.

Everything proceeded as normal until late 2004, when the DFO announced it has re-scoped the project’s environmental assessment to exclude the mine and mill, instead only considering the components applicable to the DFO’s mandate. With the mine and mill – which were already undergoing provincial environmental assessment – out of the picture, a comprehensive review was no longer necessary. As such the DFO and NRCan re-assigned the project to proceed via screening review. One of the key differences between a comprehensive review and a screening review is the lack of public consultation in the latter process.

In mid-2006 the federal screening process concluded Red Chris was not likely to cause significant adverse environmental effects and the responsible authorities decided the project could proceed. Just over a month later, MiningWatch Canada filed an application in Federal Court for judicial review of the decision to conduct a screening review, alleging breach of duty under the CEAA Act.

The first judge to review the case agreed with MiningWatch, ruling the DFO did not have the authority to res-cope the project. He quashed the federal environmental assessment certificate and ordered a full comprehensive study.

An appeal judge then decided there was room for DFO and NRCan to appeal the decision based on different perspectives on the definition of “project”. The question was whether the ‘project’ being referenced was the description as submitted by the external party, in this case Imperial Metals, or was the project “as scoped” by the responsible authorities, in this case the DFO and NRCan. The appeals judge went with the latter description, finding the responsible authorities have the right to scope a project – that is, determine which components are included and which are not – before the project description is applied to the CEAA Act to determine the level of review.

That sent the case to the Supreme Court. In his ruling, Justice Rothstein found the CEAA Act defines a ‘project’ as the entity as proposed, not the entity after being broken into parts, or scoped, by the responsible authorities.

“The responsible authorities were free to use any and all federal-provincial coordination tools available, but they were still required to comply with the provisions of the CEAA pertaining to comprehensive studies,” wrote Rothstein “The responsible authorities in this case acted without statutory authority by conducting a screening.”

The judge, however, was more gentle when it came to ordering remedy. Justice Rothstein notes three key points. First, the DFO and NRCan decided to re-scope the project – break the mill and mine out of the project description – based on a 2004 Federal Court decision that seemed to give them the authority to do so.

“It is difficult to fault the responsible authorities for following a decision of the Federal Court on the very matter with which they were dealing,” he wrote.

Second, Imperial Metals should not be held to blame for what was really a procedural error. Rothstein wrote that, although the company is the one party that would be harmed by an order to re-do the federal environmental assessment, Imperial Metals “…did nothing wrong. The approach to the environmental assessment was determined by the government,” he wrote.

And third, the litigant, MiningWatch Canada, did not challenge the findings of either the provincial or federal environmental assessments. In fact MiningWatch made a strategic decision to not challenge the findings for Red Chris but rather brought the case to court to test the federal government’s obligations and authorities under the CEAA.

As such, Justice Rothstein decided to let Red Chris’ federal environmental assessment stand.

“I acknowledge that in exercising discretion to grant declaratory relief without requiring the parties to substantially redo the environmental assessment, the result is to allow a process found not to comply with the requirements of the CEAA to stand in this case,” he wrote. But he argued that the court has the power to exercise discretion in granting remedy.

“I can see no justification in requiring [Imperial Metals] to repeat the environmental assessment process when there was no challenge to the substantive decisions made by the responsible authorities,” he concluded.

Imperial Metals initially gained on the Red Chris decision, adding $1.07 to its share price in a day to hit $16.50. In the tough trading days of late January and early February, however, the gain was more than erased and Imperial Metals closed recently at $13.83. The company, which also operates two copper mines in B.C., has a 52-week trading range of $2.01 to $16.93 and has 34 million shares outstanding.