Data Centres, Water Licences and the Duty to Consult: How a Misstep Can Cool Off Your Project

Overview

Artificial intelligence data centres (“AI Data Centres”) are being proposed and constructed across the country. These projects can be controversial as they place demands on local water and energy supply, and may affect surrounding communities. Project proponents may experience a growing number of legal challenges, both prior to and following the regulatory approval process. The recent case of Sturgeon Lake Cree Nation v Alberta (Minister of Indigenous Relations), 2026 ABKB 569, offers a lesson for project proponents that is about paperwork rather than power.

The Alberta Court of King’s Bench dismissed an application to strike a First Nation’s judicial review of a Water Act licence for a proposed AI Data Centre project (see the “Decision” here). The Court held that the project proponent had not established that it was a party “directly affected” by the judicial review, and therefore was not a party the First Nation was required to name and serve in its application.

Background

In April 2025, the Alberta Ministry of Indigenous Relations and Ministry of Environment and Protected Areas (collectively, “Alberta”) issued to the Municipal District of Greenview No. 16 (“Greenview”) a licence under Alberta’s Water Act to divert 6 million cubic metres of water from the Smoky River. The purpose of the diversion was to provide cooling for an AI Data Centre to be built by O’Leary Digital Limited (“ODL”). Under a purchase and sale agreement signed in March 2025 (the “Contract”), ODL had a contractual right to the licence Greenview obtained.

Sturgeon Lake Cree Nation (“SLCN”) has reserve lands within Treaty 8 territory, near the Smoky River, and exercises Aboriginal and treaty rights in the area. Greenview’s initial application for the water license in 2023 involved the diversion of 24 million cubic metres of water. Alberta’s Aboriginal Consultation Office advised that consultation with SLCN was required. Greenview revised its license application in November 2024 to reduce the amount of water to be diverted to 6 million cubic metres. Following the revision, Alberta’s Aboriginal Consultation Office decided that Greenview’s application for the licence no longer triggered the duty to consult. In April 2025, Alberta issued the water licence to Greenview.

In October 2025, SLCN asked the Court to review both the licence and the decision that the duty to consult was not engaged. SLCN named Alberta and Greenview in its court application, but not ODL.

ODL brought a separate application asking the court to strike SLCN’s challenge, arguing that ODL had an interest in the water licence and would be “directly affected” by the judicial review application, and should have been served in the proceeding. In the alternative, ODL asked to join the judicial review an intervenor or respondent, so it could defend Alberta’s decision and keep the licence in place as granted.

The Decision

Justice Johal dismissed ODL’s application in its entirety. SLCN’s judicial review will move forward without ODL as a party, intervenor or respondent.

The Court considered multiple rights and interests that may support a finding that a person is “directly affected,” and provided the following reasons for its decision:

• The Contract did not give ODL ownership of the licence. Greenview did not hold the licence on ODL’s behalf, and did not hold the licence in trust for ODL. The contract only provided that Greenview would make reasonable efforts to transfer the licence, and the Contract was signed before the licence even existed.
  

• ODL was not the owner of the land. A water licence is tied to the land. Although documentation indicated that the project would be carried out on the land in question, ODL did not produce a certificate of title showing ODL as the owner of the land. Therefore, ODL could not show that it would be “directly affected” by the application as an owner of the lands.
  

• ODL’s interest was speculative and indirect. ODL’s stake came from its business deal with Greenview, not from the licence itself. Several more requirements under the Contract needed to be fulfilled before SLCN’s application would affect ODL’s interest. Considering two previous decisions, Forest Ethics Advocacy Association v Canada (National Energy Board), 2013 FCA 236 and Kainaiwa/Blood Tribe v Alberta, 2024 ABKB 401, the Court characterized ODL’s stake as consequential or indirect, arising from a commercial relationship with the licence holder rather than from the licence itself. The Court held that Greenview, as the licence holder, would be “directly affected” by the judicial review application, and ODL, as a contracting party, had only a speculative, commercial interest.

• ODL redacted majority of the Contract. ODL filed the Contract with five of 59 pages legible, asserting commercial sensitivity rather than privilege. As a result, the Court found there was an insufficient evidentiary basis to establish ODL as a “directly affected” party. Citing MBH v CKI, 2023 ABKB 284 and Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53, the Court held that where redactions are disputed, the proper course is a fulsome review of the document by the court to determine the relevance of the redacted protions. Because Sattva requires a contract to be read as a whole, and ODL bore the onus, the resulting gap in the record prevented the finding ODL sought.

SLCN’s judicial review application regarding Alberta’s issuance of the water licence decision that consultation with SLCN was not required remains before the Court. In the meantime, ODL, the developer whose proposed project would rely on that licence, is not a party to the proceeding and must leave its defence to Greenview and Alberta.

Take-Aways

Project proponents must understand all of the permitting obligations that apply to AI Data Centres. Provinces and municipalities will have different permitting requirements, different processes and different timelines. Where a project may adversely impact Aboriginal and/or treaty rights, project proponents must also be aware of obligations to ensure meaningful consultation and engagement with those impacted Indigenous communities. In some cases, there may be opportunities to partner with impacted Indigenous communities as co-owners of projects. All of this takes time and a clear understanding of applicable legal and regulatory obligations. 

It is crucial for project proponents to consider Indigenous consultation obligations early in their project timeline, to allow for adequate time to build relationships with local Indigenous communities and carry out the duty to consult where it applies. Consultation that happens early and often is more likely to result in positive project outcomes, addressing issues early, keeping project timelines on track, and reducing the risk of legal challenge following the issuance of regulatory licences and permits, particularly for an AI Data Centre.

Circumventing regulatory and constitutional obligations can delay a project, add substantial legal costs, and result in contractual disputes that add layers of complexity to a project. As this case shows, project proponents that rely on permits obtained by other parties may not be able to step into a court challenge of that permit.

More specifically, for project proponents:

• Know who holds the permit. If a municipality, vendor, or other party holds a permit your project relies on, you may have no right to defend it in court. Any missteps by the party holding the permit may have an impact on your project timelines. Where possible, obtain the permit in your own name or have it transferred early. If that is not possible, make sure your contract says what happens if the permit is challenged.
  

• Do not delay transfers. Until the land and the licence are in your name, you only have a contract. Ownership rights have not yet vested. Permit challenges are most likely to occur immediately following the issuance of a permit. Transfers of ownership should occur as soon as possible.

For those challenging a permit:

• Know who to name. In Alberta, under the Alberta Rules of Court, only those “directly affected” must be included in an application for judicial review, not every business with an interest at stake. However, failing to include a relevant party in your legal challenge can raise real and potentially successful arguments in response to your appeal. Additionally, the deadline to file and serve materials is strict, so work out who to name at the start.
  

• Aboriginal and Treaty rights matter. The Court did not decide at this time whether the duty to consult was triggered. We expect the next decision in this matter to provide that clarity.

This bulletin is provided for general information only and does not constitute legal advice.

Please contact Joanna Vince, Willms & Shier Environmental Lawyers LLP for advice on these matters.