2005 BCSC 44 District of Kitimat v. Alcan Inc.

Before: The Honourable Mr. Justice Ehrcke

Reasons for Judgment

Counsel for the Petitioner	J. Hunter, Q.C.
Counsel for the Respondent	D. R. Bennett C. E. Jones
Date and Place of Trial/Hearing:	September 15, 16, and 17, 2004
	Vancouver, B.C.

Introduction

[1] In a petition filed January 16, 2004, the District of Kitimat (the “District”) seeks various forms of declaratory and injunctive relief against the respondent Alcan Inc. (“Alcan”) arising out of the sale to the United States of hydroelectric power produced by Alcan at its Kemano generating facilities and the simultaneous curtailment of production at Alcan’s smelter in Kitimat, British Columbia. The position of the District is that Alcan’s sale of power to the United States contravenes the terms of various agreements between Alcan and the Government of British Columbia (the “Province”), as well as the provisions of certain water licenses, administrative orders and statutory enactments. Alcan, by its notice of motion dated August 27, 2004, seeks to have the petition dismissed on the basis that the District lacks standing to bring its petition, or in the alternative, that it lacks the capacity to do so.

[2] The District takes the position that it has standing as of right as a third party beneficiary, and in the alternative that it ought to be granted public interest standing to test the legality of the power sales that it says are having a damaging effect on the local area’s economy. In addition, the District raises the question of whether the issue of standing should be decided on this preliminary motion. The District’s position is that the issue of standing should be decided along with all the substantive issues at the full hearing of the petition.

Should Standing Be Determined In Advance Of The Hearing?

[3] In Finlay v. Canada, [1986] 2 S.C.R. 607 the Supreme Court of Canada discussed the circumstances under which it may be appropriate to decide an issue of standing in advance of a full hearing on the merits and concluded at p. 617 that:

It depends on the nature of the issues raised and whether the court has sufficient material before it, in the way of allegations of fact, considerations of law, and argument, for a proper understanding at a preliminary stage of the nature of the interest asserted.

[4] One of the difficulties in trying to decide an issue of standing on a preliminary motion is that the court does not have all the evidence that would be led on the full hearing on the merits. Alcan strongly disagrees with many of the facts alleged by the District. However, for the purpose of this preliminary motion, Alcan submits that I should consider the facts as set out by the District in its petition. Alcan’s position is that even on the basis of those alleged facts, the District clearly lacks standing. Alcan agrees with the District, however, that if the issue of standing cannot be resolved without making findings of fact on evidence, then that issue will have to be deferred to the full hearing on the merits. I shall proceed in that manner to examine whether, on the facts as alleged by the District, there is a clear lack of standing.

[5] Accordingly, for the purpose of this preliminary motion and without making any final findings of fact, the following is a summary of the alleged facts as set out in the District’s petition.

The Facts And Position Asserted By The District In Its Petition

[6] The position of the District in this litigation is that the legislation, agreements and licences under which Alcan is permitted to use public water resources in its Kemano power plant require that the power generated there be used first for the smelter and secondly, for industry in the surrounding region, and that Alcan’s sale of power to the United States is therefore improper and unauthorized.

[7] In the late 1940s, the Province wanted to establish new industries and communities and to expand existing industries and communities in north western British Columbia. At the same time, Alcan wanted to build an aluminium smelter where a large and dependable supply of inexpensive electrical power, a key element for the production of aluminium, was available. The area around what is now Kitimat offered the potential for this supply of inexpensive power together with a year-round port. The Province possessed water rights which could be licensed to Alcan to permit them to generate electricity to produce aluminium.

[8] In 1949 the Province passed the Industrial Development Act, S.B.C. 1949, c. 31, the preamble of which states:

Whereas the prosperity of the Province depends on the development of its water-power sites and other natural resources, the expansion of its industry, and the establishment of new centres of population within its boundaries:

And whereas it is consequently in the best interest of the Province that the establishment of new industries and the expansion of existing industries that require the development of water-power sites be encouraged to the fullest possible extent:

And whereas the establishment in presently undeveloped sections of the Province of any permanent industry and in particular of an aluminium industry, which requires for its operations substantial quantities of electric power, involves extensive and costly preliminary investigations and engineering studies and the expenditure on the construction of hydro-electric works and industrial plants and facilities of very large sums of money over an extended period of years:

And whereas, in order to facilitate the establishment or expansion in the Province of such permanent industries, it is advisable that the Lieutenant-Governor in Council be empowered to make agreements respecting the use of natural resources:

Now therefore, His Majesty, by and with the advice and consent of the Legislative Assembly of the Province of British Columbia, enacts as follows:

[9] Section 3 of the Act provides:

3.(1) Notwithstanding any law to the contrary, the Lieutenant-Governor in Council may do any of the following things:

(a) Sell or lease on such terms and for such price or rental as he deems advisable to any person who proposes to establish or expand an aluminium industry in the province any Crown land or interest therein, and also on such terms and for such price or rental as he deems advisable grant a licence to any such person to store or use any unrecorded water in the Province;

(b) Make such other arrangements regarding the future operations of such industry as he may deem to be in the best interest of the Province;

(d) Authorize the Minister to execute any agreement for the above purposes.

[10] Section 4 of the Act as enacted in 1949 provided as follows:

4. Any agreement made pursuant to this Act may from time to time be amended or extended if deemed advisable by the Lieutenant-Governor in Council: Provided that the subject-matter of such amendment or extension could lawfully have been incorporated in the original agreement at the time it was made.

[11] On December 29, 1950, pursuant to Order-in-Council 2883/50, the Province and Alcan entered into an agreement (the “1950 Agreement”), clause 9 of which provides:

9. Sale of Power by ALCAN

In order that the promotion and development of the district and of other industries in the vicinity of the Works may be encouraged, ALCAN may sell to others electric energy generated at the WORKS and shall not by reason of such sales be deemed a public utility within the meaning of the “Public Utilities Act”.

[12] On the same date, pursuant to s. 3(1)(a) of the Act, a conditional license was issued to Alcan to store or use water. Paragraph (d) of the license provided:

The purposes for which the water is to be used are storage and power as set forth in an Agreement between the Government and the Licensee [Alcan] dated 29th December, 1950.

[13] Pursuant to the Act, the conditional water license and the 1950 Agreement, Alcan built an aluminium smelter in Kitimat. As a result, the settlement of Kitimat was founded in 1950, and the petitioner, the District of Kitimat, was incorporated in 1953. Kitimat’s population today is approximately 10,000 people, although at one time it was as high as 14,500. Kitimat is largely dependent for its existence, stability and growth upon the operation of the Alcan smelter.

[14] In 1954 Alcan completed construction of both its smelter in Kitimat and the first phase of its power generation facility, Kemano I, located 80 kilometres from Kitimat. Currently the smelter requires 620 megawatts of electricity to operate at full capacity. Kemano I currently has an installed capacity of 896 megawatts and a firm operating capacity of 760 megawatts.

[15] In the 1960s and 1970s, Alcan advised Kitimat that in the long term, Kemano I would be expanded. The smelter would be expanded in turn, and Kitimat’s population would grow to approximately 50,000 people.

[16] The provision of power to other users, and the eventual connection to the B.C. Hydro power grid in 1978, is described in Global Mission, The Story of Alcan (Volume II), a book published under the auspices of Alcan, at pages 177 and 180:

From the beginning it was Alcan’s policy to try to avoid the “one industry town” at Kitimat and to attempt to strengthen and diversify the region’s industrial base. Initially Alcan provided power only to its smelter and the townsite but the company later played an important role in the industrial development of the area by providing excess power to B.C. Hydro, which that utility delivered and sold to its customers. In the early 1960s, B.C. Hydro constructed a 60 kv line from Kitimat to Terrace to meet the growing demand for power in Terrace, in particular from sawmills.

A 1966 contract between B.C. Hydro and Alcan called for an uninterrupted supply of surplus power to be fed into the region’s power grid. Over the next two years B.C. Hydro constructed a 287 kv line from Kitimat through Terrace to Prince Rupert, and a 138 kv line north from Terrace through the Nass Valley to Kitsault, where B.C. Molybdenum was setting up its mining operation. Thus, by the late 1960s, Alcan was providing power for residential, commercial and industrial use through B.C. Hydro to a large area delimited by Kitimat, Terrace, Kitsault and Prince Rupert. The availability of Alcan’s excess power prior to 1978 deferred B.C. Hydro’s need to spend about $100 million to upgrade its transmission system from Prince George to Smithers and the extension of the system from Smithers to Terrace. In 1978 the area was brought into the provincial power grid with completion of a 500 kv transmission line from Smithers to a substation near Terrace.

[17] In 1978 Alcan announced the Kemano Completion Project, which was intended to substantially expand the Kemano I facility, but would require the diversion of more water from the Nechako River. This expansion of Kemano was intended to provide power for the expansion of Alcan’s smelter.

[18] In 1980 the Federal Government ordered Alcan to release more water into the Nechako River. Alcan did not comply. The Federal Government commenced litigation and obtained a court order requiring Alcan to comply with the Federal Government’s requirements for water flow. In 1982 the Attorney General of British Columbia was added as a party in the litigation, and took the position that water flows are under Provincial jurisdiction. In September 1987 Alcan, the Provincial Government, and Federal Government reached a settlement. The agreement addressed water rights including water levels and water temperatures to protect salmon.

[19] Alcan began construction of the Kemano Completion Project in 1988, with an intended completion date of 1999, ahead of a contemplated expansion of the smelter, so that the expanded smelter would have sufficient power to operate. The expected deadline for concluding the Kemano Completion Project was 1999, in part because clause 2 of the 1950 Agreement stated that a final license would be issued to Alcan on December 31, 1999, based on the generating capacity installed by that time. Clause 2 of the 1950 Agreement went on to provide that at no time would the quantity of water available to Alcan be reduced below the quantity required for the full utilization of the generating equipment installed by December 31, 1999.

[20] On June 9, 1988, the Minister of Energy, Mines and Petroleum Resources issued an exemption order to Alcan pursuant to the provisions of the Utilities Commission Act, S.B.C. 1980, c. 60. That order permitted Alcan to sell power without becoming a public utility. However, the order was conditional; it was confined to surplus power. Further, Alcan was to sell such power to a specific facility located in Kitimat owned and operated by Eurocan Pulp and Paper Co. Such power sales to Eurocan were consistent with Alcan’s limited rights under clause 9 of the 1950 Agreement to sell power to encourage the promotion and development of industries in the vicinity of Alcan’s Kitimat Works.

[21] On February 27, 1990 Alcan entered into an agreement with B.C. Hydro known as the Long Term Electricity Purchase Agreement (the “1990 Agreement”). Alcan agreed to sell to B.C. Hydro for use in British Columbia 285 megawatts of power on average each year from 1995 to 2014 with a right of recall to Alcan in clause 5.4 for the purpose of using power in accordance with the rights granted to Alcan by the Province pursuant to the 1950 Agreement. The 1990 Agreement enabled Alcan temporarily to sell power surplus to its own industrial needs in Kitimat, in order to raise money to pay for the Kemano Completion Project. Further, it would enable Alcan to raise money to invest in the expansion of the Kitimat smelter once the Kemano Completion Project was finished, by selling power in excess of the smelter’s requirements.

[22] The recitals to the 1990 Agreement included the following:

WHEREAS:

A. Alcan owns and operates an electrical generation and transmission system as an integral part of its aluminum manufacturing facilities in British Columbia;

B. Alcan is expanding its electrical generation and transmission system to permit future expansion of its aluminum manufacturing facilities in British Columbia;

C. Upon completion of the expansion of its system, Alcan will have electricity surplus to its needs until required by Alcan for its own industrial purposes;

...

E. B.C. Hydro anticipates it will have a requirement for the surplus electricity available from Alcan.

[23] In order to facilitate the 1990 Agreement, the Minister of Energy, Mines and Petroleum Resources issued a second exemption order on December 15, 1989. This order exempted Alcan from regulation by the British Columbia Utilities Commission, but only with respect to power which was surplus to Alcan’s requirements and which was sold pursuant to the 1990 Agreement.

[24] In 1991 the Federal Court of Canada ordered a halt to the Kemano Completion Project because of a requirement for a federal environmental assessment. This order was reversed on appeal in 1992.

[25] The British Columbia Utilities Commission undertook a public review of the Kemano Completion Project. Following the commencement of that process, complaints surfaced against Alcan that it was building the Kemano Completion Project for the purpose of electricity sales instead of smelter expansion. Power sales under the 1990 Agreement were to begin in 1995.

[26] On January 17, 1994, W.J. Rich, Alcan vice-president for British Columbia, made submissions to the British Columbia Utilities Commission in the course of its Kemano Completion Project review. As the following extracts illustrate, his submissions emphasised that Alcan was committed to the business of making aluminum:

At page 2 …

In the early 1940s, we were first asked by the government of British Columbia to invest in this province what would today be billions of dollars to open up the Pacific Northwest to industrial development.

Why would a then relatively small Canadian company want to do that? For one simple reason: because we are in the aluminium business and the province was making it possible for us to develop a very efficient source of hydroelectricity -- a major raw material of aluminium production.

At page 7 …

Alcan fully supports the concept of local benefits, Madame Chair. We’re very much aware, for example, that our plant in Kitimat -- and the 2,000 direct jobs and 4,000 indirect jobs that it represents -- is the exception to the rule for hydro power developments in B.C. The jobs and lasting benefits stayed in the north; they didn’t all flow to the Lower Mainland.

At page 9 …

Why does Alcan require so much energy? Because energy is one of the two major raw materials that go into aluminium production. The other is alumina (or aluminium oxide) which is refined from bauxite. The metal is separated from alumina by running an electrical current through it at high temperatures, in a special electrolytic cell that uses a complex molten salt as electrolyte.

At page 10 …

But to make this product, we need energy. And energy is the cornerstone of Alcan’s development in Canada.

At page 14 …

“Alcan is building KCP to sell power to the United States” is another line we hear repeatedly. We are not selling power to the United States. We have contracts with B.C. Hydro to sell them the power from KCP. Their energy plan, filed with the commission, says that KCP power will be used to meet energy demand in British Columbia.

At page 15 …

There will be job losses in connection with these cutbacks – two to three hundred, I’m told. But they won’t be in Canada because our Canadian smelters are efficient, low-cost operations that will return to full production at the earliest opportunity.

At page 22 …

At this point, Madame Chair, I want to emphasize that the construction of Kemano 1 in the 1950s was a major impetus to economic growth in northern British Columbia ... and met the explicit expectations of the provincial government, as outlined in the 1950 Agreement.

The total cost of the hydroelectric project, the aluminium smelter at Kitimat, and construction of the towns of Kitimat and Kemano represents about $5 billion in today’s dollars.

The project opened up a new area of the province, spurred growth in existing centres, and has continued to provide economic gains for the province. Our operations in Kitimat and Kemano currently employ almost 2,000 people with annual compensation, in wages and benefits, of $129 million.

Eurocan Pulp and Paper, which produces high value-added liner board, and Methanex, producing methanol and ammonia from natural gas feedstock, are the other two world-class manufacturers who eventually established themselves in Kitimat. They were attracted by the industrial infrastructures created by Alcan’s Kitimat-Kemano project.

A second generation of people born in Kitimat are now growing up, and their grandparents are retiring, more and more often choosing to stay in the community where they raised their families.

The first of these hearings was held in Kitimat, Madame Chair. You’ve been there and you’ve seen what a successful community it is. I lived there for many years; my three sons were born there; my eldest son and my grandchildren live there now. It’s a great place to live and work, a wonderful place to raise children.

Over the years, thousands of people came to Kitimat looking for work. Many of them were new immigrants to the country. At one time in the 1970s – I don’t know if this is still true today – there were 48 languages spoken among the 11,000 people who lived in Kitimat.

At page 38 …

Will there ever come a time again when it’s okay to add to the world’s aluminium supplies? We think so.

We believe that, early in the next century, aluminium content in cars will be the next avalanche market for our product -- spurred largely by the relentless need to reduce the weight of cars and improve fuel efficiencies.

And as that avalanche gains momentum, there won’t be enough aluminium capacity in the world to meet the demand of automakers.

That’s why we retain our long-term intention to build new aluminium smelting capacity in British Columbia based on the power generated by KCP. This project is the future of the aluminium industry in B.C.

At page 62 …

But as I said at the outset of my remarks, we see KCP primarily as an investment in the future of the aluminium industry in British Columbia.

At page 63 …

The 1950 Agreement was the basis of Alcan coming to British Columbia; it was the basis for the communities of Kitimat and Kemano, for industrial growth and population development in the northwest; for 40 years worth of significant economic contributions to British Columbia.

…

That Agreement [i.e. the 1987 settlement agreement] represents a shared commitment among the government of B.C., the government of Canada, and Alcan to preserving the goals of the 1950 Agreement while attempting to equalize the balance between the economy and the environment.

[27] On January 24, 1994, a week after Mr. Rich addressed the Commission, the District’s Council unanimously passed a motion:

THAT the Administration write a letter to the Minister of Energy with a copy to the Premier and the President of B.C. Hydro indicating to them that Council views the commitment that was made for Alcan to supply hydro electricity by a certain date which now cannot be met because of the delay in the Kemano Completion Project should in no way lead to the shutting down of potlines and the loss of jobs in Kitimat in order to meet the commitment.

[28] Pursuant to that motion, on January 27, 1994 the District wrote to the Province:

Kitimat Council is very concerned that the power sale agreement, if fulfilled, between Alcan and B.C. Hydro will lead to production cuts and job losses at the smelter in Kitimat. The power agreement was based on the assumption that Kemano Completion power would be available as scheduled.

Kitimat Council feels strongly that any power sale arrangement between Alcan and B.C. Hydro should not result in production cuts and job losses in Kitimat. Council requests that B.C. Hydro and Alcan affirm production needs in Kitimat will be met as a higher priority than any sales to B.C. Hydro.

[29] On June 13, 1994 the Province responded in a letter from the Minister of Employment and Investment:

Thank you for your letter from Acting Mayor McLellan of January 27, 1994. I would like to assure you that any job impacts in Kitimat are of concern to myself and the government.

The Long Term Electricity Supply Contract entered into between B.C. Hydro and Alcan does not address the source of the power sold. It simply covers the sale of a certain amount of power by Alcan to B.C. Hydro.

B.C. Hydro has based its planning for the long term needs of the province on the contracts with Alcan. Most of B.C. Hydro’s major acquisitions are made well ahead of time so that we are not left with the risk of inadequate power to serve the needs of our industrial base, our businesses and our growing population. That is why the contract was made several years ago for power in the mid-nineties.

At this time, we are only aware that Alcan intends to supply the power promised to B.C Hydro to serve the needs of the province by the agreed date. We have not been advised by Alcan that any other source is being considered to supply the contract except Kemano II and to get an answer to that question you would have to query Alcan directly.

[30] In its Reply to Final Submissions of The Nechako Environmental Coalition dated September 14, 1994, Alcan advised the Commission at page 7:

Contrary to the submission of the NEC, Mr. Rich confirmed during the course of the public review that it remains Alcan’s long term strategic plan to use the electric power generated by KCP for aluminium smelting, which is Alcan’s primary business. Mr. Rich’s evidence on this point was clear and forthright.

[31] In December 1994, the Commission handed down its report entitled the Kemano Completion Project Review. In January, 1995, Premier Harcourt announced that the Kemano Completion Project would not proceed. In response, Alcan commenced litigation. It had spent more than $500 million on the Kemano Completion Project and asserted the right to complete it.

[32] The proceeding commenced by Alcan resulted in a settlement agreement made August 5, 1997 (the “1997 Agreement”). The settlement was designed to give Alcan the electricity it would have received if the Kemano Completion Project had gone ahead. Alcan was given a new water license in perpetuity. It also received extremely inexpensive electricity for use in the smelter. It acquired 115 megawatts of electricity at cost and a further 60 megawatts free of charge. This electricity was to be used for aluminium production. The 1997 Agreement included an amendment to the 1950 Agreement. As well, Alcan was given the right to sell its obligations under the 1990 Agreement to sell 285 megawatts of electricity. In the result, Alcan sold its obligation to sell 145 megawatts and, from January 1, 2003, has the right until December 31, 2014, to sell to another party its obligation to sell the other 140 megawatts.

[33] As part of the settlement, Alcan promised in clause 9 of the 1997 Agreement:

9. Announcement of New Smelter/Restart of Idle Capacity

Upon execution and delivery of this Agreement, Alcan shall announce publicly its intention to use all reasonable efforts, subject to market and economic conditions and force majeure, to construct, itself or in association with others, the New Smelter at Kitimat, B.C., and its decision to return any idle capacity at its existing smelter at Kitimat, B.C. to full capacity on a priority basis relative to other idle aluminium smelting capacity controlled by Alcan, and in any event, not later than January 1, 1998.

[34] As well, clause 7.2 of the 1997 Agreement dealt with proceedings taken by third parties to test the legality of provisions of the Agreement:

7.2 Dispute Resolution

If at any time before January 1, 2002:

…

(b) an action or proceeding is brought by a third party not assisted or supported … by Alcan … that results in a court … making a final order … that the Province or BC Hydro lacked the authority to enter into or to carry out their respective obligations under this Agreement, the Concurrent Agreements, the final Water Licence or the Amended Permit, provided that Alcan vigorously defends any such action or proceeding… Alcan and the province shall negotiate promptly … adjustments to this Agreement, the Concurrent Agreements, the final Water Licence or the Amended Permit …

“Concurrent Agreements” was defined to include the 1997 Amendment to the 1950 Agreement.

[35] Alcan had shut down operating line 7B at the Kitimat smelter early in 1994 to curtail production because of a decline in the aluminium market. Pursuant to clause 9 of the 1997 Agreement, Alcan recommenced operation of line 7B in the fall of 1997, but subsequently curtailed the smelter operation in order to have available electricity for export purposes. Alcan has not proceeded to construct a new smelter at Kitimat, notwithstanding that it has expanded aluminium production elsewhere.

[36] A factor in determining the capacity of any hydroelectric generation facility is the supply of water available to power its generators. In periods of low water, Alcan can maintain the Kitimat smelter at full capacity if it refrains from selling power from Kemano or sells less power from Kemano.

[37] Following a statutory consolidation and re-enactment in 1979, section 3 of the Industrial Development Act became section 1. As part of the 1997 settlement, subsection 1(1)(b) was amended. It now provides that the Lieutenant-Governor in Council may:

Make other arrangements regarding the future operations of that industry the Lieutenant Governor in Council believes to be in the best interest of British Columbia including arrangements for the sale or transfer of electricity to that person from sources other than the hydro electric development and works and facilities made and constructed by that person and on terms and for a price the Lieutenant Governor in Council considers advisable.

[38] Also as part of the 1997 settlement, the Province issued the final water license in perpetuity to Alcan superseding the conditional water license issued in 1950. Paragraph (d) of the final water license provides as follows:

The purposes for which this Licence is issued are storage and power as set forth in an Agreement between the Government of British Columbia and the Licensee, dated 29 December 1950, as amended on 29 December 1987, and further amended on August 5, 1997 (“the 1950 Agreement, as amended”).

[39] Around December 2000, Alcan allowed a significant number of pots (vessels where alumina is smelted with electricity into aluminium) to go down throughout the plant, in order to sell power to B.C. Hydro instead of using it to run the smelter. This was at a time when the water in the reservoir available for power production was low.

[40] Following its curtailment of aluminium production in December 2000, Alcan announced a plan to shut down 20% of the smelter capacity in order to have more power to sell to B.C. Hydro. This announcement resulted in community outrage in Kitimat and complaints to Alcan by the Mayor of Kitimat, the labour union certified to bargain on behalf of smelter workers in Kitimat and the Provincial Government. The Mayor wrote a letter to Alcan’s Chief Executive Officer on December 7, 2000, and the District issued a press release addressing this issue on December 8, 2000. In reaction to these public complaints, Alcan announced a compromise, whereby it would allow pots to go down in future which it would not start-up afterward. In this way, it would continue to curtail smelter operation and use the power instead to sell to B.C. Hydro.

[41] On June 8, 2001, Alcan announced an agreement to sell power from Kemano to the United States through Powerex, a subsidiary of B.C. Hydro. In that announcement, Alcan provided the following information:

-Alcan had sufficient water in its Nechako reservoir to produce 640 megawatts of power at Kemano from June, 2001 to the end of April, 2002;

-Alcan was in fact producing 640 megawatts at Kemano and intended to continue doing so at that rate;

-the Alcan Kitimat smelter required 610 megawatts to operate at full capacity;

-sufficient power was being generated at Kemano to run the Kitimat smelter at full capacity;

-in addition to Alcan delivering power to B.C. Hydro under the Long Term Electricity Purchase Agreement, Alcan was selling 115 megawatts of power to Powerex, the subsidiary of B.C. Hydro; and

-the power being sold to Powerex was to be resold to the United States.

[42] Consequently, Alcan reduced its smelter operation approximately 50% by shutting down production lines 1 and 2 and approximately 50 pots elsewhere in the smelter. Alcan dismissed over 40 staff workers who were not protected by a “no layoff” agreement, and later in 2001 announced the layoff of 200 more workers through early retirement and attrition.

[43] In 2002, Alcan announced that it would restart a portion of the smelter which it had previously shut down, as its ability to export power was constrained by the capacity of the transmission line into the B.C. Hydro grid.

[44] At present, two pot room buildings at the smelter remain shut down and one of them has had its cells removed with the result that it cannot be restarted. As a result of the curtailments of smelter production by Alcan, property values in Kitimat from 1999 to the present have declined approximately 20%-40%.

[45] Alcan directly employs approximately 1,600 people at its Kitimat operation. Immediately before June 2001, Alcan employed approximately 1,900 people at the Kitimat operation and offered employment in earlier years at a peak of approximately 2,400 people. In addition, approximately 2,900 people are employed today as contractors and in similar positions servicing or otherwise working on the Alcan plant in Kitimat. An estimated further 1,200 people are employed in community service industries because of the presence of Alcan in Kitimat. Furthermore, there are an estimated 1,300 people indirectly employed elsewhere in British Columbia as a result of the Kitimat smelter operation.

[46] The District argues that under the 1990 Agreement and the 1997 Agreement, Alcan made hundreds of millions of dollars selling power, but refused to use any of that money to purchase power on the spot market to supply B.C. Hydro and chose not to make adjustments in the timing of its obligations to B.C. Hydro or to exercise any rights of power recall which it had under its power sales agreements.

[47] The District submits that at all times Alcan has had available sufficient power to run the smelter at full capacity, and that smelting aluminium at Kitimat was and remains profitable, but since selling Kemano power is even more profitable, Alcan has elected to curtail smelter production at the expense of employment in Kitimat. According to the District, the smelter is operating at less than full capacity so that Alcan can use the power instead for export, at the expense of maximizing its smelter operation.

[48] The District’s position is that Alcan’s actions in December 2000 and the power sales it announced in June 2001 contravene its obligations under the Industrial Development Act, the 1950 Agreement, the Utility Commission’s exemption orders, and clause 9 of the 1997 Agreement and are contrary to the purpose and intention of the 1990 and 1997 Agreements generally, which intended and contemplated that Alcan would never curtail aluminium production in the Kitimat smelter for the sake of power sales.

[49] The relief sought by the District on the basis of these facts as alleged in its petition may be summarized as follows:

1) A declaration that the power generated by Alcan at its Kemano facilities can be used only for the establishment or enhancement of the aluminium industry and to encourage the promotion and development of Kitimat and other industries in the vicinity;

2) A declaration that permitting, authorizing or participating in the sale of power generated at Kemano for use outside Kitimat or its vicinity contravenes the Industrial Development Act, the 1950 Agreement, the 1950 Conditional Water Licence, and the 1997 Final Water Licence;

3) A declaration that any agreement entered into by Alcan which contravenes or is inconsistent with Industrial Development Act or the 1950 Agreement is unauthorized and without effect;

4) A declaration that Alcan is in breach of clause 9 of the 1997 Agreement;

5) An interlocutory and a permanent injunction restraining conduct in contravention of the Industrial Development Act and the 1950 Agreement;

6) A declaration that Alcan is in violation of the 1997 Final Water Licence.

Issues

[50] The District takes the position that the issue of standing should not be determined as a preliminary matter, but should rather be deferred until the hearing on the merits of its petition. For reasons which will become clear below, I am satisfied that the issue of standing can and should be determined now.

[51] The District asserts that it has standing on each of three alternate bases. First, the District says it has standing as a third party beneficiary to the agreements and statutory instruments between Alcan and the Province. Second, it claims standing on the basis of being specially affected by the actions of Alcan. Third, and in the alternative, it asks the court to exercise its discretion to grant it public-interest standing. A final issue raised by Alcan is whether the District lacks the capacity to bring its petition.

Does The District Have Private Interest Standing As A Third Party Beneficiary?

[52] The District asserts that it has standing to bring its application for declaratory and injunctive relief as a third party beneficiary of the various statutory and contractual instruments referred to in the petition. Alcan takes the position that since the District is not a party to any of the agreements, licences or statutory enactments, it has no private interest standing to seek redress in the courts for alleged contraventions of their terms.

[53] The doctrine of privity of contract was articulated by Wightman J. in Tweddle v. Atkinson (1861), 1 B. & S. 393, 121 E.R. 762 (Q.B.) at pp. 763-764 in this way:

Some of the old decisions appear to support the proposition that a stranger to the consideration of a contract may maintain an action upon it, if he stands in such a near relationship to the party from whom the consideration proceeds, that he may be considered a party to the consideration.... But there is no modern case in which the proposition has been supported. On the contrary, it is now established that no stranger to the consideration can take advantage of a contract, although made for his benefit.

[54] Courts have since Tweddle recognized some narrow exceptions to the doctrine of privity in cases where relationships of agency or trust exist: see, for example, New Zealand Shipping v. Satterthwaite, [1975] A.C. 154 (P.C). In the present case, however, the District does not assert any such relationship, nor does it seek to rely on such exceptions.

[55] Rather, the District asserts that even though it is not a party to any of the relevant agreements of instruments, it was, nevertheless, intended by the parties to be a beneficiary under them, and this should be sufficient to give it private interest standing. The District points out that clause 7.2 of the 1997 Agreement specifically anticipated a legal challenge being brought by a third party.

[56] The District relies on London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299, where the Supreme Court of Canada created a principled exception to the privity rule. The issue in that case was whether a limitation of liability clause in a warehouse company’s contract should also apply to limit the liability of its employees who negligently caused damage. The Court reasoned at p. 448 that the employees should be entitled to rely on the limitation of liability clause contained in their employer’s contract provided that two conditions were satisfied:

1) the limitation of liability clause must, either expressly or impliedly, extend its benefits to the employees (or employee) seeking to rely on it; and

2) the employees (or employee) seeking the benefit of the limitation of liability clause must have been acting in the course of their employment and must have been performing the very services provided for in the contract between their employer and the plaintiff (customer) when the loss occurred.

The Court concluded that the employees were entitled to rely on the limitation of liability. Even though the contract did not explicitly refer to the employees as beneficiaries, they were nevertheless implied third party beneficiaries in light of all the circumstances, and especially the fact that there was an “identity of interest” between the warehouse company and its employees.

[57] Alcan disputes the District’s claim that it is either an express or implied third party beneficiary. It says that this was never the intention of the parties. It submits that there is no identity of interest between the Province and the District, a point which it says is essential under the London Drugs test for coming within the exception to the normal rules of privity.

[58] If the case turned on this point, I would have concluded that the issue of standing should be deferred to the full hearing, on the basis that the true intention of the parties to the various agreements and instruments could only be finally determined after hearing all the evidence. However, in my view it is clear that in law, the District would not be entitled to private interest standing to assert a claim based on the various agreements and instruments even if it were able to establish that those agreements and instruments were intended by the parties, either expressly or impliedly, to be for the District’s benefit.

[59] The District relies on a passage at p. 452 of London Drugs where Iacobucci J. said:

In the case at bar, the parties have not chosen language which inevitably leads to the conclusion that the respondents were not to benefit from s. 11(b) of the contract of storage.

...(T)he respondents are not complete strangers to the limitation of liability clause. Rather they are unexpressed or implicit third party beneficiaries with respect to this clause.

[60] The District argues that it need only show that it is not a “complete stranger” to the contract. In support of this interpretation, it also refers to Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., [1999] 3 S.C.R. 108, where the Court explained the principle in London Drugs in this way at para. 27-28:

The respondent employees in London Drugs were unable to rely on existing principles of trust or agency. Rather than adapting these established principles to accommodate yet another ad hoc exception to the doctrine of privity, it was decided to adopt a more direct approach as a matter of principle. The Court held that, in the circumstances where the traditional exceptions do not apply, the relevant functional inquiry is whether the doctrine should be relaxed in the given circumstances.

In order to distinguish mere strangers to a contract from those in the position of third-party beneficiaries, the Court first established a threshold requirement whereby the parties to the contract must have intended the relevant provision to confer a benefit on the third party.

[61] Clearly the test for coming within the principled exception to the doctrine of privity of contract is not simply whether one can show that one is not a “complete stranger to the contract”. If that were all that was required, there would be virtually nothing left of the rule in Tweddle v. Atkinson. That such a sweeping change to the law of contract is not what the Supreme Court of Canada had in mind is clear from Mr. Justice Iacobucci’s admonition at p. 447 of London Drugs that any judge-made change must be incremental:

Regardless of the desirability of making a particular change to the law, I have already noted that complex changes with uncertain ramifications should be left to the legislature. Our power and duty as a court to adapt and develop the common law must only be exercised generally in an incremental fashion. This is particularly important when, as here, changes to substantive law are concerned, as opposed to changes to procedural law.

[62] In both London Drugs and Fraser River Pile & Dredge, the exceptions to the doctrine of privity of contract recognized by the Supreme Court of Canada were narrow in scope and represented only incremental changes to the law. A common feature in both cases is the fact that the contractual benefit conferred on the third party was being used to defend against a claim rather than to initiate a claim. That fact was clearly a crucial component in the Court’s decision to recognize an exception to the rule of privity of contract.

[63] Thus, in London Drugs, Iacobucci J., speaking for the majority, remarked at p. 450:

Third, it must be remembered that I am proposing a very specific and limited exception to privity in the case at bar; viz. permitting employees who qualify as third party beneficiaries to use their employer’s limitation of liability clauses as “shields” in actions brought against them, when the damage they have caused was done in the course of their employment and while they were carrying out the very services for which the plaintiff (customer) had contracted with their employer. In sum, I am recognizing a limited jus tertii.

[64] Similarly, in Fraser River Pile & Dredge, Mr. Justice Iacobucci, this time speaking for a unanimous Court, observed at para. 44:

In this case, I do not accept Fraser River's submission that permitting third-party beneficiaries to rely on a waiver of subrogation clause represents other than an incremental development. To the contrary, the factors present in London Drugs, in support of the incremental nature of the exception, are present as well in the circumstances of this appeal. As in London Drugs, a third-party beneficiary is seeking to rely on a contractual provision in order to defend against an action initiated by one of the contracting parties. Fraser River's concerns regarding the potential for double recovery are unfounded, as relaxing the doctrine to the extent contemplated by these reasons does not permit Can-Dive to rely on any provision in the policy to establish a separate claim.

[65] In short, while the principled approach to the doctrine of privity does not foreclose the possibility of finding new circumstances that may constitute an exception to the rule in Tweddle v. Atkinson, the example set by the Supreme Court of Canada suggests that any such exception must be used by the third party beneficiary as a shield to defend an action rather than as a sword to initiate one.

[66] Subsequent lower court decisions support the view that principled exceptions to the doctrine of privity are confined to the defence of an action: see for example, Dryburgh v. Oak Bay Marina (2000), 191 F.T.R. 99, [2001] 1 F.C. 192. Neither the District nor Alcan have referred to any cases in which the principles in London Drugs and Fraser River Pile & Dredge have been used by a third party to sue on a contract. Mention should be made, however, of two Ontario cases not referred to by the parties, that might be thought to support such a proposition: Higgins Estate v. Security One Alarm Systems Ltd., [2001] O.T.C. 466, [2001] O.J. No. 2447 (S.C.), and Vandewal v. Vandewal, [2002] O.J. No. 393, aff’d [2003] O.J. No. 3269 (C.A.).

[67] In Higgins Estate, Daudlin J. awarded damages to the estate of Alice Higgins for her injuries arising out of a failure of the defendant’s monitoring system. The monitoring system agreement had not been signed by Alice Higgins but rather by her daughter-in-law, and there was accordingly no privity between Alice Higgins and the defendant. The court found, however, that the contract was clearly for her benefit and that “the deceased was entitled to expect and rely upon the express and implied undertaking by the defendant that they would provide a safety and security system that would permit her to continue to reside on her own....” The court referred to both London Drugs and Fraser River Pile & Dredge in support of the “right of a third party beneficiary to enforce contractual provisions made for his or her benefit.” Nevertheless, it does not appear that the award of damages was ultimately based in contract. On the contrary, after reviewing the facts, the court observed at para. 34, “All of the above taken in conjunction one with the other result in a breach of duty of care by the defendant owed to the deceased.” The court then referred to s. 38(1) of Ontario’s Trustee Act for the proposition that, “the executor/administrator of any deceased person may maintain an action for all torts or injuries to the person or to the property of the deceased.” In the result, at para. 39-40 the court awarded $55,000 non-pecuniary damages for “tort for breach of the contractual obligation to provide the security and safety of life expectation which arose from the contract....” In light of the fact that the award of damages was based in tort rather than contract, this case cannot be regarded as an exception to the rule of privity of contract, despite the references to London Drugs and Fraser River Pile & Dredge.

[68] The Vandewal case related to a 1988 written contract between a father with his two sons, Ron and John, whereby the father transferred title in his farm to his sons in exchange for their agreement to pay him a salary, wage, or draw equal to what they took from the farm. John Vandewal later became ill and could not work, so in 1996 he entered into a subsequent written agreement with his bother Ron whereby he transferred his interest in the farm to him, and both brothers agreed to convert their financial obligations to their father into a fixed sum of $900 per month each. The sons presented the agreement to their father. Although the father did not sign the agreement, the court found that he “ratified and accepted the new deal”. When John Vandewal stopped making his $900 payments, his father sued him to collect the money owing. John Vandewal argued that his father lacked standing to bring his claim because he was not a party to the 1996 contract between the two brothers. The court gave judgment for the plaintiff father, holding, at para. 17:

The doctrine of privity of contract applies to situations in which one of the parties to an agreement has undertaken to confer a benefit on a third party. Here, the Defendant and his brother Ron agreed to confer the benefit to the Plaintiff of $900 per month each. The Defendant now argues that the Plaintiff lacks standing to bring this claim. Accordingly, Ron Vandewal would have to sue the Defendant. I find that the January 1996 agreement, when presented to the Plaintiff, was accepted by him as a new agreement, although not in writing. They acted upon it. The privity defense does not apply. If I am incorrect, I find that this situation would fall within an exception to the doctrine of privity as outlined in Fraser River Pile and Dredge Limited v. Can-Dive Services Limited.

[69] I conclude that, as in the case of Higgins Estate, the reference in Vandewal to the principles in Fraser River Pile & Dredge must be regarded as obiter dicta. The basis of the decision in Vandewal is not that a third party can sue on a contract despite the lack of privity, but rather that when the 1996 agreement was presented to the father and he accepted it, the latter agreement effectively replaced the 1988 contract, to which the father plaintiff was a party. That is, the court found that there was a new oral contract between the father and the sons, and this new contract, to which the father was a party, was the basis for granting judgment in his favour.

[70] If I am wrong and the Ontario cases can be said to stand for the proposition that a third party beneficiary is entitled, on the basis of London Drugs and Fraser River Pile & Dredge, to sue to enforce a contract, then I would respectfully decline to follow them, on the basis that the Supreme Court of Canada has given a clear indication that a principled exception to the doctrine of privity can only be used as a shield, not a sword.

[71] In the present case, the District seeks to use its purported position as a third party beneficiary not as a means to defend an action, but rather as a platform from which to initiate its petition claiming declaratory and injunctive relief against Alcan. In my view, it cannot do so based on the principles of private interest standing.

Standing Based On The Rule In Boyce v. Paddington

[72] The relief sought by the District is based not only the various agreements between the Province and Alcan, but also on various pieces of Provincial legislation, orders in council, and licences, which it says were enacted for the benefit of the people of Kitimat. It therefore seeks declaratory and injunctive relief.

[73] Generally, where declaratory or injunctive relief is sought to enforce a public right, the Attorney General must be a party. As set out in Finlay, supra, at pp. 617-618:

Only the Attorney General has traditionally been regarded as having standing to assert a purely public right or interest by the institution of proceedings for declaratory or injunctive relief of his own motion or on the relation of another person. His exercise of discretion as to whether or not to give his consent to relator proceedings is not reviewable by the courts: see London County Council v. Attorney-General, [1902] A.C. 165, and Gouriet v. Union of Post Office Workers, [1978] A.C. 435. In such a case a private individual may not sue for declaratory or injunctive relief without the consent of the Attorney General unless he can show what amounts to a sufficient private or personal interest in the subject-matter of the proceedings.

[74] In the present case, the Attorney General has not been named as a party, nor has he given his consent to the District bringing this petition.

[75] The rule requiring that the Attorney General be named as a party is subject to an exception described by Buckley J. in Boyce v. Paddington Borough Council, [1903] 1 Ch. 109 at p. 114:

A plaintiff can sue without joining the Attorney-General in two cases: first, where the interference with the public right is such that some private right of his is at the same time interfered with (e.g., where an obstruction is so placed in a highway that the owner of the premises abutting upon the highway is specially affected by reason that the obstruction interferes with his private right to access from and to his premises to and from the highway); and, secondly, where no private right is interfered with, but the plaintiff, in respect of his public right, suffers special damage peculiar to himself from the interference with the public right.

[76] In commenting this rule, the Supreme Court of Canada explained in Finlay at p. 619 that:

The “private right” referred to by Buckley J. has been said to be “a right the invasion of which gives rise to an actionable wrong within the categories of private law, for example, a breach of contract or trust or the commission of a tort”: S. M. Thio, Locus Standi and Judicial Review (1971), p. 161. It has also been observed that the exception for private rights applies not only to common law rights but to a right created by statute for the benefit of a plaintiff: I. Zamir, The Declaratory Judgment (1962), p. 269. The nature of the interest reflected by the words “special damage peculiar to himself” in the second exception in Boyce has been variously characterized in the cases.

[77] In the present case, the District claims that there has been a loss of employment and reduction of property values as a result of Alcan’s diversion of electrical power from the smelter to exports to the United States, and that this is the sort of special damage contemplated by the cases.

[78] Can it be said, however, that the District itself has suffered this special damage? The District’s answer to this question, as set out at para. 91 of its written submissions, is that the citizens and businesses of Kitimat have suffered the harm, and the District has filed the petition in a representative capacity on their behalf:

While it is true that the harm that has accrued as a result of Alcan’s change of use of the Kemano power falls on individuals and businesses within the District, none individually would be specially harmed within the meaning of the authorities so as to enable them to bring this proceeding. The District is the authorized representative of the citizens of Kitimat to clarify the scope of these critical contractual provisions.

[79] However, in Re Energy Probe et al. and Attorney-General of Canada (1987), 61 O.R. (2d) 65 (H.C.J.) at p. 70, Montgomery J. rejected a similar argument that the City of Toronto had standing to bring an action based on Boyce and Finlay in a representative capacity for its citizens:

What the applicants seek is to engage in “public interest litigation”. To do so, subject to the exception in the Borowski case later described, they must show that they have been particularly affected in some way, that is, that there is interference with a public right, which also interferes with one of their private rights, or which causes a special damage peculiar to them. None of the material filed discloses any legal interest of any of the applicants in the constitutionality of the Nuclear Liability Act. None of the applicants has suffered personal injury or property damage as a result of a nuclear accident and had claims restricted by the Nuclear Liability Act.

The city as a corporation cannot sustain injury. It cannot bring a proceeding in a representative capacity on behalf of its residents. In refusing to add a municipal corporation to a proceeding, Mr. Justice Lieff had this to say in Re Orangeville Highlands Ltd. et al. and Township of Mono et al. (1974), 5 O.R. (2d) 266 at pp. 267-8 (Div. Ct.):

One must distinguish between what concerns Orangeville as a municipal corporation as distinguished from what concerns its residents or taxpayers. The municipality has shown no direct interest in this application as a municipal corporation. It has not been shown that the concern of a municipality flows from apprehended nuisance or anything of that kind. Consequently, the only interest the municipal corporation has is as a representative of the people of Orangeville and that is not a direct interest. In our view there is no reason why Orangeville should be added as a party because its presence is not really necessary in order to enable the Court to adjudicate upon the questions involved in the application effectually and completely. We can see no rights, duties, or privileges of Orangeville as a corporation which can be prejudicially affected by any order which this Court could make.

[80] The decision of Montgomery J. was appealed to the Ontario Court of Appeal: Energy Probe et al. v. Attorney-General of Canada (1989), 68 O.R. (2d) 449 (C.A.). While the appeal was allowed on other grounds, it was conceded that the City of Toronto could not obtain standing based on Boyce and Finlay. Carthy J.A. speaking for the court remarked at p. 464, “The appellants do not say that they suffer in a manner different from other members of the public.” Although public interest standing was granted to a coalition of interested parties, including the City of Toronto, on the basis of the principles in Minister of Justice (Canada) v. Borowski, [1981] 2 S.C.R. 575, Carthy J.A. observed at p. 467 that even that result might have been different had the City of Toronto stood alone as plaintiff instead of being part of the coalition.

[81] I find that the District is not itself specially affected by Alcan’s diversion of power, nor can it rely on its representative capacity to establish special damage. Accordingly, it has no standing to bring this petition based on the principles in Boyce v. Paddington.

Should The District Be Granted Public Interest Standing?

[82] In a trilogy of pre-Charter cases, the Supreme Court of Canada granted public interest standing to private litigants who otherwise lacked private interest standing: Thorson v. Attorney General for Canada, [1975] 1 S.C.R. 138; Nova Scotia Board of Censors v. McNeil, [1976] 2 S.C.R. 265; and Minister of Justice (Canada) v. Borowski, supra. Each of those cases involved a challenge to the validity of legislation. In Thorson, a taxpayer was granted standing to seek a declaration that Canada’s Official Languages Act, R.S.C. 1970, c. O-2 was unconstitutional. In McNeil, a citizen was permitted to challenge the validity of Nova Scotia’s Theatres and Amusements Act, R.S.N.S. 1967, c. 304. And in Borowski, the court granted an anti-abortion activist standing to seek a declaration pursuant to the Canadian Bill of Rights that sections of the Criminal Code permitting therapeutic abortion were invalid and inoperative. In those cases, the Court set out three principles governing the discretion to grant public interest standing to a litigant seeking declaratory relief: the litigant must demonstrate that it is directly affected or has a genuine interest in the validity of the legislation, that there is a serious constitutional issue involved, and that there is no other reasonable and effective way to bring the issue before the court: see Borowski, at p. 598.

[83] A few years later in Finlay, the Court extended the potential scope of public interest standing to include not only challenges to the constitutionality of legislation, but also non-constitutional challenges to the statutory authority for administrative action. The Court also made clear at p. 635 that the discretion to grant public interest standing could extend to applications for injunctive as well as for declaratory relief. At p. 631, the Court reaffirmed the three criteria for granting public interest standing articulated in Borowski, and explained the judicial concerns underlying them:

The traditional judicial concerns about the expansion of public interest standing may be summarized as follows: the concern about the allocation of scarce judicial resources and the need to screen out the mere busybody; the concern that in the determination of issues the courts should have the benefit of the contending points of view of those most directly affected by them; and the concern about the proper role of the courts and their constitutional relationship to the other branches of government.

[84] In Canadian Council of Churches v. The Queen, [1992] 1 S.C.R. 236 Cory J., speaking for the Court, compared the principles for granting public interest standing in Canada with those in other jurisdictions and concluded at p. 252 that “the principles for granting public standing set forth by this Court need not and should not be expanded.” He then rearticulated the Borowski test in this way at p. 253:

It has been seen that when public interest standing is sought, consideration must be given to three aspects. First, is there a serious issue raised as to the invalidity of legislation in question? Second, has it been established that the plaintiff is directly affected by the legislation or if not does the plaintiff have a genuine interest in its validity? Third, is there another reasonable and effective way to bring the issue before the court?

[85] In the present case, the District submits that it satisfies the three part test for public interest standing. On the first point, it submits that its claims raise “serious and justiciable issues of legality regarding the interpretation of the Industrial Development Act and the agreements authorized by that statute.” On the second, the District says it has a clear and genuine interest in the validity of Alcan’s actions since the creation of the District was contemplated in the Industrial Development Act as one of the

Citation:	*District of Kitimat v. Alcan Inc.,*
	2005 BCSC 44