Northern Cross suit could cripple the Yukon

If a lawsuit recently brought by Northern Cross against the Yukon government is to believed, the territory is on the hook for $2.2 billion — an amount roughly equal to our gross domestic product for one year.

If a lawsuit recently brought by Northern Cross against the Yukon government is to believed, the territory is on the hook for $2.2 billion — an amount roughly equal to our gross domestic product for one year.

Why? Because our elected government — acting in response to concerns raised by Yukoners — decided to place to a moratorium on fracking in most of the territory. And that limits the amount of gas that Northern Cross can extract from the Eagle Plains region.

Whether or not Northern Cross has a legal case against the Yukon government is a legal question lawyers and bureaucrats would have to answer. I offer no opinion on this question — although the amount of the claim seems dubious. It would seem to assume a lot of what-ifs — including future fuel prices, the cost of production, the amount of reserves, the likelihood that production would have ever occured — going the company’s way to arrive at that gargantuan figure.

However, the question of whether private companies ought to have a claim for compensation against elected governments that decide for various social or environmental reasons to make policy decisions that have a detrimental effect on business prospects is a more interesting philosophical and political one.

It is also one of particular practical importance for our little territory of modest means, which is being eyed up for its resources from Outside by some rather big players.

Back in the early 90s and a stone’s throw from our southern border, the B.C. government paid the owners of the Windy Craggy mineral claims a $103 million settlement after that government decided to create what is now the Tatshenishini-Alsek Provincial Park effectively precluding the owners from developing their claims.

There was nothing overly unusual about that payout. And provincial governments, with budgets in the tens of billions can afford these occasional settlements.

The Yukon government? Not so much. We may enjoy considerable largesse on a per capita basis, but in absolute terms we are a very small fish.

If the Yukon government ever had to make a payout of the kind made in the Windy Craggy case (which is plausible) we’d be talking about something in the neighbourhood of 10-15 per cent of territorial revenues for that year — an absolutely crippling price for the audacious act of listening to constituents who prefer conserving a particular area over developing it.

But this is always going to be a risk we take if we allow investors to obtain resource rights in our territory and then decide for one reason or another to make policy decisions that might strand those assets.

In the case of Northern Cross it only took the issuance of some oil and gas licenses and exploration approvals to give rise to this lawsuit against our government. And even if it takes a small fraction of that amount to settle this claim it will have serious fiscal repercussions for our small jurisdiction.

The question of compensating interest holders also arises in the case of the Peel. One of the concerns raised by proponents of the previous government plan was that an overly restrictive approach in the region would expose the territorial government to lawsuits by existing claims owners. Once the land use planning process is complete we may still have to contend with another round of suits similar to the one brought by Northern Cross.

Back in 2013, then-Energy Mines and Resources Minister Brad Cathers suggested that, for example, Chevron might sue if it lost access to the Crest iron ore deposit (a suggestion the company refused to speculate on at the time). This is part of the reason Premier Sandy Silver spoke repeatedly in the last election about the importance of getting the land use planning process back on track.

But the completion of land use planning is no guarantee of anything, so perhaps we ought to seriously consider bringing some clarity to the question in a broad and comprehensive manner. After all, it is within the powers of the Yukon legislative assembly to pass legislation setting out if and when compensation will be paid in these types of situations. It can legislate away this type of lawsuit if it wishes. Or it can set limits on the amount companies might be entitled to, and under what circumstances.

The main counter-argument of practical implication to such a move is the effect of that kind of uncertainty would have on investment.

After all, who wants to spend money investing in a jurisdiction that could change its mind tomorrow and effectively sticks investors with the bill?

That is certainly a risk we take if we say, as a territory, that we reserve unto ourselves the right to make changes to our social and environmental policies as circumstances evolve without any promise of compensation.

But investment decisions about resource activity already have a significant amount of risk that returns will never come to fruition priced in so it seems doubtful that the possibility of future regulatory changes is going to be a show-stopper.

And the alternative — that we surrender our ability to determine our future out of fear of paying crippling damage claims made against our elected government by outside investors — is far worse.

Private property is an important principle. But it is unreasonable to tell a democratic society that it must choose between environmental protection of its land, air and water and paying large sums of money we do not have to investors.

Kyle Carruthers is a born-and-raised Yukoner who lives and practises law in Whitehorse.

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