If proposed pipeline fails, Kinder Morgan could take Canada to court

Kinder Morgan has spent plenty of time recentlyon the defensive as it faces legal challenges against its proposed Trans Mountain expansion pipeline. However, if the project fails, the Houston-based company could go on the offensive to try torecoup billions of dollars.

Investors are already asking whether the company will take such action, and some legal experts say ithas a legitimate case against Canada because of how the B.C. government andsome municipalities have tried to oppose the project.

If the company seeks damages, it would likely useNAFTA, since Chapter 11 of the agreement allows foreign companies to file compensation claims in countries where they have investments and believe a government action is unfair and discriminatory.

• 5 things to know about the Trans Mountain pipeline battle
• B.C. pipeline opposition remains steadfast

Similar to Keystone XL

It's the same step Calgary-based TransCanadatook two years ago after then-president Barack Obama rejected the Keystone XL project. TransCanadaasked for $15 billion US because the company felt it did not receive fair and equitable treatmentin the review process, whileother companies were able to construct pipelines with few delays.

The$15billion in damages in the NAFTA claim related toTransCanadatrying to recoup its investment and the lost future economic return for the project. The company dropped the claim and corresponding lawsuit after President Donald Trump approved the project.

A New York-based analyst asked Kinder Morgan on a Monday morning conference call whether it would potentially sue British Columbia to recover costs, but chief executiveStevenKeansaid, "That is way too premature to discuss."

Kinder Morganannounced it is suspending non-essential activitiesand related spending for the $7.4-billion Trans Mountain pipeline expansion. The company set a deadline of May 31 to solve the political risk posed by B.C. and its legal challenges, or else it will likely abandon the project.

"It's not a normal course of business regulatory process here. What we have is a government that is openly in opposition and has reaffirmed that opposition," said Kean.

• Kinder Morgan 'open to' Alberta investing in pipeline

Several court challenges

Last month, the Federal Court of Appeal dismissed the B.C. government'sapplication to appeal a National Energy Boardruling allowing Kinder Morgan to bypass City of Burnaby bylaws during construction. The company still faces other court challenges.

B.C. PremierJohn Horgan promised to "use every tool in the toolbox"to stop the project. So far, those efforts seem to be working.

"They're being creative. They're trying to figure out any way they can stop it," saidJames Coleman, an energy law professor at Southern Methodist University, who previously worked at the University of Calgary.

Coleman said Kinder Morgan would have a legitimate NAFTAclaim. Even if the company believes a province or municipality is the problem, under NAFTA, the claim would target the federal government.

"They would say Canada hasn't done enough to ensure that their investment wouldn't be effectively expropriated or stolen."

American companies have been successful in recouping costs using NAFTA.The federal government paid Americanforestry giant AbitibiBowater Inc. $130-million after Newfoundland and Labradorexpropriated someof its assets in 2008.

"This is a crisis," says CEPA about how Kinder Morgan is struggling to construct the Trans Mountain expansion.

6 years ago

Duration 0:47

Chris Bloomer calls on the federal government to ensure the expansion of TransMountain.

Fair treatment

NAFTA claims have been madewhen there is a "lack of clarity about the role of municipal governments versus federal and provincial governments," according to Nigel Bankes, a law professor at the University of Calgary. He too said Kinder Morgan could make a claim against Canada for "breach of fair and equitable treatment."

The B.C.government still plans to have the courts decide whether the province could implement a temporary ban on increased exports of bitumen from Alberta.

Not everyone is so sure a NAFTAclaim against Canada would be successful, though.

"I really don't. I think Kinder Morgan has had an opportunity to participate in the judicial process. All British Columbia is trying to do right now is propose regulations that would have the effect of protecting its lands and waters from a spill," saidJason MacLean, a law professorat the Universityof Saskatchewan and director at the Victoria-based Pacific Centre for Environmental Law and Litigation.

The courts have made it clear that projects like Trans Mountain are in federal jurisdiction. However, one court case shows the responsibility to protect the environment is shared jurisdiction.

A few years ago, the B.C. Supreme Court sided with Coastal First Nationsin a case involvingEnbridge'sproposed Northern Gateway project. The judge decided the provincial governmentshould do its own environmental assessment and consult with First Nations and other local stakeholders.