Squeezing diamonds from coal: undermining public interest decisions through “regulatory takings” claims 

26 Feb Squeezing diamonds from coal: undermining public interest decisions through “regulatory takings” claims 

Recently, the news has reported over 15 billion claimed in lawsuits by coal companies against the Government of Alberta. Alberta has claimed this amount as a reason in its recent decision to open up the eastern slopes of the Rockies to coal mining. In this blog, The focus is on prioritizing unproven legal liabilities over government decisions made in the public interest. The lawsuits are far from guaranteed to succeed, both in substance and in the amount of money claimed.

How Did we Get Here?

Effective June 1, 2020, the Government of Alberta rescinded its 1976 A Coal Development Policy for Alberta (Coal Policy). Read more here.

The Government justified the recission as a modernization step. Many parts of the policy were either not in effect or not enforced. However, the four public land use categories for coal exploration remained in place.

When the policy was rescinded, it opened up Category 2, 3, and 4 lands to coal mining. Category 2 lands previously allowed limited exploration but not normally surface mining. Category 3 and 4 lands previously were subject to additional environmental scrutiny for development. These lands include areas in the mountains and foothills along the eastern slopes of the Rockies.

After rescinding the Coal Policy, the Government of Alberta began processing a backlog of stored applications for coal licences in this area and granting them. The Alberta Energy Regulatory (AER) began processing and approving applications for these new lease holders to begin exploration activities. Many did.

The decision to rescind the Coal Policy led to widespread public criticism.

On February 8, 2021, the Government of Alberta reinstated the Coal policy and directed the AER not to issue any new coal exploration approvals in Category 2 lands (Ministerial Order 054/2021). This means that coal companies that had attained property rights in the form of leases from the Crown would not be approved when they asked the AER for permission to begin exploration.

On November 10, 2021, the Government of Alberta directed the AER to pause coal exploration activities in Category 2 lands (Ministerial Order 093/2021). Finally, on March 2, 2022, the Government of Alberta further directed the AER to suspend approvals for exploration and development of Category 3 and 4 lands. No new lease applications for categories 2, 3, and 4 were to be allowed (Ministerial Order 002/2022).

In a January 15, 2025 letter to the AER, the Government of Alberta has lifted these suspensions on coal applications (AER Bulletin 2025-03).

The letter reopened the Eastern slopes of the Alberta Rockies once again to coal exploration, to the dismay of the civil society groups that had campaigned to protect this area just a few years earlier. This is because, even though the 1976 Coal Policy is in place, there are already leases and AER permissions approved for the area during the period that the Policy was not in place that can now begin or continue the regulatory process.

Effectively, the Government of Alberta has decided to open the Rockies to coal development again, this time citing the justification that it would avoid a huge liability based on lawsuits from coal companies (Global News article).

Screenshot of Coal mining in Global news article. https://globalnews.ca/news/10970067/danielle-smith-alberta-coal-moratorium-lifted/

The Lawsuits

Five coal companies who had acquired coal rights in the area made claims for damages totalling in the billions. The plaintiffs (those bringing the claims) are Atrum Coal, Black Eagle, Cabin Ridge, Northback Holdings, and Montem Resources (the “coal company plaintiffs”).

The basis of the claims is the law of de facto expropriation, explained below. Although several of the companies are also claiming damages on the basis of private nuisance and unjust enrichment, I comment solely on the de facto expropriation claims in this blog post.

All five companies are claiming that their property rights, coal rights in category 2 or 4 lands, were taken by the government informally through regulation (de facto expropriation) although some details vary.

Three types of interests in land are said to be de facto expropriated in the five claims. The first is freehold mineral rights. That means that the company owns the minerals under the land along with a right to access the surface to exploit those minerals. The second is private leases. This means another private party owns the freehold mineral rights and has leased them to the company. The third is Crown leases, where the Government of Alberta owns the mineral rights and has leased them to the company.

The companies have all claimed compensation for the net, pre-tax, or post-tax present value of the properties/rights. These claims are in the billions and seem to be the basis of the 15 billion cited by the media (See, for example, this CBC article).

The claims also separate out amounts spent on purchasing the rights, exploration costs, development, lease rental payments, and costs of delay, among other things. Where the amounts are quoted, these add up to significantly less than the present value claims.

What is de facto expropriation

De facto expropriation (aka constructive taking) in Canada is considered to be a common law cause of action. This means it exists without being contained in any specific piece of legislation and was developed by courts over time. Although provinces have statutes that allow for compensation when the government takes title to a private party’s land, de facto expropriation happens outside of this system and title is never acquired. Instead, de facto expropriation describes a situation where a government regulates the land in such a way as to deprive the owner of all reasonable uses of it and gains an advantage in doing so.

In Annapolis Group Inc v Halifax Regional Municipality (Annapolis), the Supreme Court of Canada ‘clarified’ the test for de facto expropriation in a 5-4 decision penned by Justice Brown.[1] The two elements of the test are:

• An acquisition of a beneficial interest in the property or flowing from it, and
• removal of all reasonable uses of the property [2]

This blog focuses on the beneficial interest element of the test. Justice Brown found that a ‘beneficial interest’ is understood as an advantage and may arise from regulating land that “permits its enjoyment as a public resource.”[3] He found that “[i]t could also include confining the uses of private land to public purposes, such as conservation, recreation, or institutional uses such as parks, schools, or municipal buildings”.[4]

However, consideration of beneficial interest must be realistic and context-specific. It will include:

The nature of the government action (i.e., whether it targets a specific owner or more generally advances an important public policy objective), notice to the owner of the restrictions at the time the property was acquired, and whether the government measures restrict the uses of the property in a manner consistent with the owner’s reasonable expectations; … [5]

In Altius Royalty Corporation v Alberta the Alberta Court of Appeal has interpreted “advantage” in Annapolis as clarifying that “the focus is not necessarily limited to traditional property interests” and to distinguish between acquiring legal title vs acquiring a property interest without legal title[6] The Court stated that the property interest that was expropriated must correspond to the property interest that was acquired[7] Additionally, “generalized public benefit cannot constitute an acquisition flowing to the Crown”[8]

In a previous Supreme Court ruling in R v Tener (Tener), the court found there was expropriation where the government granted coal rights to the plaintiff in 1937 and later, through its Park Act, denied a permit to exploit the coal resources.[9] In that case, the permit requirements did not exist at the time the rights were granted. The rights were granted subject to laws respecting mineral claims that affect the compensation, but this was found not to include the expropriating parks legislation.[10] The advantage found to be acquired by the government was in effect the “recovery by the Crown of a part of the right granted to the respondents in 1937”.[11]

Comments on de facto expropriation

These de facto expropriation claims are complex, but they don’t support a reasonable interpretation that the Government of Alberta is in a corner with no choice but to allow environmentally destructive coal mining in our Eastern Slopes or pay 15 billion.

Before launching into the substance of the claims, consider the following three notes:

First, the Government of Alberta could formally expropriate, even now, the leases that it has granted under the Mines and Minerals Act. Section 8(1)(c) states that the Minister can cancel an agreement related to a location

when the Minister is of the opinion that any or any further exploration for or development of the mineral to which the agreement relates within that location or part of it is not in the public interest, subject to the payment of compensation determined in accordance with the regulations for the lessee’s interest under the agreement

This clearly allows the government to cancel its coal leases. Similarly, under section 8(1)(b) the government can expropriate private mineral rights in the public interest.

Compensation for expropriating a privately held mineral interest is calculated through the Expropriation Act. Compensation for cancelling a lease however is through the Mineral Rights Compensation Regulation. The compensation would include the amount that companies had paid for the rights, the amount that the companies had expended, determined fairly by the Minister, to explore and drill, the amount that reclamation will cost, and interest. Notably, this amount would not include the present value claimed by the coal company plaintiffs. For the Crown lease rights, this would be significantly less than the 15 billion quoted.  Any “uncovered” amounts may result in continued litigation.

Second, it may be in the public interest to do so. The Government of Alberta (as reflective of the public interest) may well choose to pay to cancel coal leases than be left to contend with the environmental damage that the mining would leave on our Eastern Slopes.

Finally, if the government decided to expropriate without any compensation or with reduced compensation, it could do so by changing the law.[12]

That said, here are some of the hurdles the coal company plaintiffs would face in proving their de facto expropriation claims:

The claims do not specify exactly what ‘beneficial interest’ the government gained by establishing the moratorium. As such, the potential advantages that may be raised based on existing case law are addressed below.

For lands where the coal company plaintiffs hold private mineral rights, the coal company plaintiffs might have trouble relying on a similar beneficial interest as that in Tener. In Tener, the advantage flowing to the Crown was the recovery of its mineral rights grant from 1937 (see above). In this case, the interest was not granted by the government and therefore the only party who could be said to in effect recover their interest is a private lessor.

For coal company plaintiffs with Crown leases, the argument that the government gained a beneficial interest in the form of a reversion of the government-granted interest appears more robust at first glance. However, in Tener, this turned on what laws the lease was subject to when it was granted. In that case, the lease granted was subject to mineral claims laws, but not the requirement to attain a permit through the Parks Act. The requirement to attain a permit through the Parks Act combined with a permanent refusal of that permit constituted the expropriating action.

However, the leases granted to the coal company plaintiffs are likely subject to the Responsible Energy Development Act, which is the stated basis for the government’s directive to the AER to suspend approvals. In applying the directive, the AER is exercising its powers under the Responsible Energy Development Act and the Coal Conservation Act. Justice Brown’s guidance in Annapolis regarding the reasonable expectations of the rights holders may be relevant here. It is difficult to see how a coal company dealing with a complex regulatory regime surrounding coal, could reasonably expect no regulatory barrier might ever act to prevent their mining activities.

Judge Farrington in Altius Royalty Corporation v Alberta (subsequently confirmed on two appeals, one mentioned above) rejected an argument for de facto expropriation where the Government of Canada regulated emissions for power plants and impacted the plaintiff’s royalty interest in a coal mine. He found that “when a party enters an industry knowing that emissions regulation is part of the landscape, it cannot in any way suggest that a change in emissions regulations is a surprise”, that the plaintiffs “hope to bind subsequent governments to a prior regulatory regime” and “seek to effectively make Canada and Alberta the guarantors of their business transaction”.[13] A similar argument can be made here.

Comments on compensation

Finally, even if a finding of de facto expropriation is made, it is far from clear that the government would be liable to pay the 15 billion quoted. The Newfoundland Court of Appeal in Lynch v St. John’s (City) found that the correct approach where de facto expropriation is found is to locate a law that could authorize a formal expropriation of that property (even though it hadn’t been invoked to do so) and[14] If this approach is taken, the Expropriation Act would likely apply for private rights and the Mines and Minerals Act would apply for Crown leases, as described above.

Compensation under the Expropriation Act for the value of private coal rights includes market value, the determination of which for a right to exploit minerals is very fact-specific. The coal company plaintiffs’ claims have not proceeded to the point where evidence has been brought on the value of the coal rights. Given that the assessment will depend on specific facts, only the following general observations can be provided:

First, there is evidence from past environmental assessment processes that coal companies overestimate the economic benefits of coal mining (see article linked here). Additionally, the price of coal is not stable, and many things might change the market for coal, including various kinds of regulation.

In fact, attaining coal rights is the first step in a long regulatory process in which a company could well be denied at the very next step: applying to the AER for an exploration permit. The rights granted by the Crown are subject to regulation. This will naturally affect market-based compensation because an informed purchaser of the rights would know this scheme is in place. In Morriss v HMTQ, where the court was valuing a mineral claim for the purpose of compensation, the Judge discusses that with proper evidence, valuing the mineral claims up or down based on the regulation that is in place is appropriate.[15]

In Casamiro Resource Corporation v British Columbia, the BC Court of Appeal confirmed the BC Expropriation Compensation Board’s decision to award $375,000 for the market value of a [16] Post-tax net present value (approximately $9-15 million) was rejected as the basis for compensation because it was too speculative [17] The Court of Appeal found that:

[N]ot only was the Board entitled to reject Mr. Glanville’s evidence on the ground it was “speculative”, but also it was entitled to reject it on the ground that the discounted cash flow method is wholly unsuitable to property which is not, and has never shown any real prospect of being, in commercial production.[18]

In this case, the potential of the resource was unknown but estimated, and market value was instead calculated on the basis of a specific share purchase.[19]

Similarly, in Adroit Resources Inc v HMTQ (British Columbia) the BC Court of Appeal did not overturn the judge’s finding that a determination of the value of the potential earnings from mining the resource, $4.6 million, was speculative and optimistic.[20] Instead, value of $300,000 was awarded on the basis of a mixed prospective expenditures approach and market approach.[21] Additionally, although the plaintiff claimed over $3 million in disturbance damages, only $3,633 was awarded and upheld on appeal for past exploration costs.[22]

Although not an expropriation decision or a decision by Canadian courts, I am including the reasoning in Clayton/Bilcon v Canada (Bilcon) [23] Bilcon is an arbitration decision made by an international tribunal in accordance with the no longer in force North American Free Trade Agreement. The tribunal found that Canada had violated Articles 1102 and 1105 of NAFTA and awarded $7 million in damages to an investor whose quarry was rejected after an environmental assessment that was found to be flawed[24] The investor had claimed just under $443.40 million [25] In determining that lost profits would not be part of the award, the tribunal stated:

[T]he Investors have failed to prove, to the standard applicable under international law, that the Whites Point Project would have obtained environmental approval. The Tribunal’s analysis of the Investors’ lost profits claim ends here, as, without a high degree of certainty as to regulatory approval, it goes without saying that no damages based on the profitable operation of the quarry can be awarded. … [E]ven in the event of an approval, the long-term future profitability of the Whites Point Project must be regarded as uncertain. This is notably due to (i) possible changes in the Bay of Fundy ecology; (ii) possible new environmental regulations affecting quarry operation and/or shipping; (iii) possible market changes affecting the need for basalt over time; and (iv) possible macro-economic changes that may occur over the five decades of the projected life of the quarry.[26]

This reasoning is consistent with the idea that what the coal company plaintiffs would have lost, if their rights were expropriated, is an opportunity to submit the projects for approval in a complex regulatory process that had the potential to lead to either an uncertain level of profitability or full rejection of the projects.

Conclusions

The government’s response to the lawsuits raises the subject of regulatory chill. Regulatory chill occurs when regulation in the public interest is avoided in order to avoid liability from private interests that are impacted by the decision. This is particularly relevant where that liability is uncertain or novel, because the regulatory chill may take place in absence of any real risk.

Regulatory chill is not the regular exercise of balancing private and public interests in making regulatory or legislative decisions. Instead, it upends the balancing exercise by forcing governments to consider whether they can financially “afford” to regulate in the public interest.

Here, the Government of Alberta lifts a moratorium put in place in the public interest in order to avoid liability. In response to these lawsuits, the Government of Alberta has several options outside of the court process, alongside its ability to make a strong case that its actions in imposing a moratorium do not constitute de facto expropriation. Even if the mineral rights are found to have been de facto expropriated, compensation in the neighborhood of the 15 billion quoted in the media is far from guaranteed.

Instead, due to the Government of Alberta’s unexpected decision to rescind the moratorium, the public is faced with the environmental consequences of coal mining in the Eastern Slopes.

[1] Annapolis Group Inc v Halifax Regional Municipality, 2022 SCC 36 [Annapolis].

[2] Annapolis at para 25 citing Canadian Pacific Railway Co v Vancouver (City), 2006 SCC 5, [2006] 1 SCR 227 at para 30.

[3] Annapolis at para 4.

[4] Annapolis at para 45.

[5] Annapolis at para 45.

[6] Altius Royalty Corporation v Alberta, 2024 ABCA 105 at paras 16-17 [Altius].

[7] Altius at para 28.

[8] Altius at para 32.

[9] R v Tener, 1985 CanLII 76 (SCC), [1985] 1 SCR 533 [Tener].

[10] Tener at paras 42, 59.

[11] Tener at para 59.

[12] See Annapolis at para 22.

[13] Altius Royalty Corporation v Alberta, 2021 ABQB 3 at paras 38-39.

[14] Lynch v St. John’s (City), 2016 NLCA 35 at para 65 (case never appealed to the SCC).

[15] Morriss v HMTQ, 2006 BCSC 1043 at 23-27

[16] Casamiro Resource Corporation v British Columbia, 2000 BCCA 407 at paras 2, 4 [Casamiro].

[17] Casamiro at para 28-29.

[18] Casamiro at para 29.

[19] Casamiro at para 31.

[20] Adroit Resources Inc v HMTQ (British Columbia), 2010 BCCA 334 at paras 45-53 [Adroit Resources].

[21] Adroit Resources at paras 50-51.

[22] Adroit Resources at para 55, 59.

[23] Clayton/Bilcon v Canada (2019), Permanent Court of Arbitration Case No 2009-04 (Arbitrators: Bruno Simma, Donald McRae, Bryan P Schwartz) (Award on Damages) [Bilcon].

[24] Bilcon at paras 19, 303.

[25] Bilcon at para 87.

[26] Bilcon at paras 276-277.

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