Source text

South Yukon Forest Corporation v. Canada
Court (s) Database
Federal Court Decisions
Date
2010-05-05
Neutral citation
2010 FC 495
File numbers
T-2012-01
Decision Content
Federal Court
Cour fédérale
Date: 20100505
Docket: T-2012-01
Citation: 2010 FC 495
BETWEEN:
SOUTH YUKON FOREST CORPORATION
and LIARD PLYWOOD AND LUMBER
MANUFACTURING INC.
Plaintiffs
and
HER MAJESTY THE QUEEN
Defendant
REASONS FOR JUDGMENT
HENEGHAN J.
I. Preamble
[1] This action is about a mill that was built in Watson Lake, located in the Yukon Territory. The following Reasons address three questions: Why was the mill built, why did it close and what are the consequences at law?
[2] In this proceeding, South Yukon Forest Corporation (“SYFC”) and Liard Plywood and Lumber Manufacturing Inc. (“LPL”), collectively the “Plaintiffs”, seek recovery of damages from Her Majesty the Queen (the “Defendant”) representing the Minister of Indian Affairs and Northern Development (the “Minister”). The claim relates to the construction, operation and ultimate closure of a sawmill near the town of Watson Lake in the Yukon Territory.
[3] LPL is a body corporate, organized and incorporated under the laws of Yukon, on January 26, 1996. Initially, the corporation was called Liard Pulp and Lumber but changed its name on September 3, 1996.
[4] SYFC is a body corporate, organized and existing under the laws of Yukon. It was incorporated on November 5, 1997. It is the operating entity for the joint venture which built and operated the mill in Watson Lake.
[5] The Minister is responsible for the Department of Indian and Northern Affairs (“DIAND” or the “Department”), pursuant to the Department of Indian Affairs and Northern Development Act, R.S.C. 1985, c. I-6 (the “Act” or the “DIAND Act”).
[6] It is not disputed that the Plaintiffs opened a sawmill in October 1998, that it closed temporarily in December 1998, that it reopened on April 30, 1999, and that it closed permanently on August 4, 2000.
II. Procedural History
[7] This action was commenced by the filing of a Statement of Claim by SYFC on November 9, 2001. SYFC sought an order of mandamus to compel the Governor in Council to be ordered to designate certain Yukon territorial lands as land management zones and to make 200,000 m3 of timber per annum available by way of a Timber Harvesting Agreement (“THA”). In the alternative, SYFC sought damages for negligence, negligent misrepresentation, breach of fiduciary duty and misfeasance in public office.
[8] By Notice of Motion filed on May 29, 2002, the Defendant sought an Order to strike certain paragraphs of the Statement of Claim and for further and better particulars of SYFC’s Statement of Claim.
[9] The motion was argued on August 16, 2002. By Order dated August 20, 2002, the late Prothonotary Hargrave granted the motion in part, ordering that paras. 1.(a) and 1.(b) be struck, that the Plaintiff SYFC have leave to file an Amended Statement of Claim and that the Plaintiff SYFC provide further and better particulars. Specifically, Prothonotary Hargave struck SYFC’s request for an order of mandamus because that remedy must be sought pursuant to s. 18.1 of the Federal Courts Act, R.S.C. 1985, c. F-7.
[10] SYFC filed an Amended Statement of Claim on August 27, 2002. The Defendant filed an Amended Statement of Defence on October 30, 2002.
[11] On January 2, 2003, the Defendant filed a Notice of Motion seeking leave to file a counterclaim. Leave was granted in that regard by Order dated February 25, 2003 and an Amended Statement of Defence and Counterclaim was filed on February 26, 2003. The Counterclaim raises claims in trespass and nuisance relative to the Plaintiffs’ continued occupation of certain lands, as well as a claim for unpaid rent in the amount of $4,060 together with Goods and Services Tax and interest.
[12] On October 30, 2003, SYFC filed a Statement of Defence to the Counterclaim.
[13] On February 16, 2004, SYFC filed a Notice of Motion seeking to join LPL as a Plaintiff, that LPL and that SYFC be appointed to represent the joint venturers operating as SYFC in this proceeding, that the style of cause be amended, and that leave be granted to file a further Amended Statement of Claim.
[14] By Notice of Abandonment filed on March 17, 2004, SYFC abandoned the request set out in para. 2 of its Notice of Motion for the appointment of the intended Plaintiff LPL and the Plaintiff SYFC as the representatives of the joint venturers.
[15] By letter dated May 25, 2004 and filed with the Registry of the Court at Vancouver on May 25, 2004, the Defendant objected to the partial abandonment of the Plaintiff’s motion, that is with respect to para. 2, the appointment of the intended Plaintiff LPL and of the Plaintiff SYFC to act in a representative capacity pursuant to former Rule 114 of the Federal Courts Rules, SOR/98-106.
[16] On August 25, 2004, the Defendant filed a Notice of Motion seeking an Order for security of costs, as well as an Order that the Plaintiff produce an accurate and complete affidavit of documents and that Mr. Don Oulton be cross-examined upon the Plaintiff’s affidavit of documents.
[17] Prothonotary Hargrave directed that SYFC’s motion to join LPL be heard at a special sitting before the Court in Whitehorse. By Direction filed on September 13, 2004, the presiding judge directed that the Defendant’s motion for security for costs and other relief would be heard at the same time.
[18] Following a hearing in Whitehorse on November 4, 2004, two Orders were issued. In the first Order, SYFC’s motion to add LPL as a Plaintiff was dismissed but the motion to advance a claim for breach of contract was allowed.
[19] In the second Order, the Defendant’s motion for security for costs was granted and SYFC was ordered to post security for costs in the amount of $20,000. The sum of $20,000 was paid into Court on December 8, 2004, by SYFC in that regard.
[20] SYFC filed a Notice of Appeal on December 7, 2004 relating to the Order dismissing its motion to join LPL as a Plaintiff. The appeal file is A-641-04.
[21] Further to a letter dated December 20, 2004 from the Defendant respecting an apparent discrepancy in the wording of the Order allowing SYFC to advance a claim for breach of contract, a further Order was issued on January 11, 2005.
[22] In the meantime, a further Amended Statement of Claim was filed by the Plaintiff SYFC on December 3, 2004. The Defendant filed her Amended Defence and Counterclaim on December 17, 2004.
[23] By Order dated January 27, 2006, the Federal Court of Appeal allowed the appeal by SYFC from the dismissal of its motion to join LPL as a Plaintiff. The Federal Court of Appeal found that there was no clerical error in the Order of November 23, 2004 and that the Motions Judge had erred in misapprehending the factual basis upon which SYFC sought to join LPL as a Plaintiff, as well as misinterpreting Rule 104.
[24] In its Reasons for allowing the appeal, the Federal Court of Appeal observed that the Defendant was objecting to the Order of the Motions Judge by which leave was granted to introduce a claim for breach of contract and allowing the necessary incidental amendments to the Statement of Claim in that regard. At paras. 36 and 37 of its Reasons, the Federal Court of Appeal said the following:
[36] I must say, at the outset, that the first Order is clear. There is no ambiguity in that there cannot be any doubt that the Judge allowed the incidental amendments. Not only does the Order provide that the appellant's motion to amend the Statement of Claim and to introduce a claim in contract is allowed, but it directs the appellant to serve and file "a clean statement of claim" which is to incorporate the amendments sought, save for those pertaining to the joining of LPL as a plaintiff. The Order made by the Judge follows logically from what she says at paragraphs 23 and 24 of her Reasons. At paragraph 23, she explains that the amendments sought by the appellant are made for the purpose of introducing a new cause of action, i.e. in breach of contract, and for the purpose, inter alia, of particularizing the existing claim in negligence against the respondent. At paragraph 24, she refers to the jurisprudence of this Court regarding amendments to pleadings and states that that jurisprudence favours the granting of amendments. Thus, the wording of the first Order comes as no surprise. In fact, both the appellant and the respondent, in serving and filing their amended Statements of Claim and Defence, assumed that the Judge had granted leave to the appellant to make the incidental amendments. In my view, on the wording of the first Order, the appellant and the respondent were correct in their view that the incidental amendments had been allowed.
[37] In any event, it seems to me that, having pleaded to the second amended Statement of Claim without objection, it does not now lie in the respondent's mouth to argue that it is improper. If that is the respondent's view, it ought to have brought its own motion under Rule 58 before pleading to the second amended Statement of Claim.
[25] The Federal Court of Appeal disposed of the appeal by making the following Order:
[42] For these reasons, I would allow the appeal with costs, set aside the Order of January 11, 2005 and set aside the Order of November 23, 2004, to the extent that it dismissed the appellant's motion to add LPL as a plaintiff. Rendering the judgment which ought to have been rendered, I would allow, in its entirety, the appellant's motion to amend its Statement of Claim. As a result, I would modify the Order of November 23, 2004 as follows:
The plaintiff's motion to join LPL as a plaintiff, to amend its Statement of Claim to add a new cause of action in breach of contract and to make various incidental amendments with respect to existing causes of action is allowed.
The plaintiff shall serve and file a clean Statement of Claim incorporating all of the amendments, including those pertaining to the joining of LPL as a plaintiff, within ten (10) days of this Order. Leave is granted to the defendant to serve and file an Amended Statement of Defence within two (2) weeks after service of the clean Statement of Claim.
[26] The matter proceeded through pre-trial steps, including discovery examinations that were conducted by both the Plaintiffs and the Defendant.
[27] The trial began in Vancouver on March 31, 2008. Final supplementary submissions were held on September 17, 2008.
III. Evidence
A. General
[28] The evidence in this case consisted of the viva voce evidence of nineteen witnesses, including one expert witness, maps, a Response to Request to Admit, answers to undertakings, read-ins from the examination for discovery of the Plaintiffs’ representative and more than 1000 individual documents, including one expert report.
[29] There is an exceptional volume of evidence in relation to this proceeding. I will not refer to all of the evidence contained within the record but instead will base my conclusions upon that evidence which I found to be the most relevant, credible and reliable. I have reviewed all of the evidence and have not ignored any evidence to which I do not explicitly refer.
[30] Both parties have submitted multiple volumes of documents. These documents, for the most part, were produced by the parties during the discovery process. However, I take note that numerous, highly relevant, documents were not produced by the Defendant. The Plaintiffs came to possess those documents only through the Access to Information process.
[31] As I noted above, I have reviewed every piece of evidence in this proceeding. I am satisfied that the documents to which I have referred were properly introduced through witnesses or on the consent of both counsel, are business records as described by s. 30 of the Canada Evidence Act, R.S.C. 1985, c. C-5, or meet the requirements of necessity and reliability, as explained in R. v. Khan, [1990] 2 S.C.R. 531. I will however, briefly discuss one exhibit.
[32] Exhibit D-11 was the subject of much discussion throughout the course of this trial. This exhibit consisted of six volumes of documents that the Plaintiffs produced during the discovery process. The Defendant entered these documents for the truth and accuracy of their contents as the Plaintiffs had admitted as much in discovery. The Plaintiffs accepted the admission of these documents as true and accurate.
[33] The Defendant on numerous occasions restated that purpose for which Exhibit D-11 had been entered. In fact there is an agreement between counsel, “Protocol 1”, that is consistent with this position taken by the Defendant. The following evidence was read in from examination for discovery of the Plaintiff, at pages 2962 to 2963 of that transcript:
Q. Now, yesterday the parties came to an agreement in respect of the admission by the plaintiff as to the an authenticity of documents and the facts contained in those documents, and with Mr. Preston’s permission I’m going to ask the official reporter to read that agreement into the record, and then I’ll ask whether Mr. Preston and Mr. Kerr if that is the agreement that we’ve come to. So if Madam Reporter would read that into the record, please.
COURT REPORTER: (By reading)
“Protocol 1
October 19, 2005.
Penticton, BC
The following has been agreed to by the parties:
The plaintiff admits:
1. as to the authenticity of the documents created by the plaintiffs as contained in all the plaintiff’s affidavit of documents.
2. the facts that are stated in the document were at the time of the creation of the document believed by the author, who was peaking for and on behalf of the plaintiff, to be true and accurate based [upon] the information and knowledge of the plaintiff, subject to errors and omissions that may be apparent from the admissible evidence and/or the trial Judge’s discretion.
3. this agreement is applicable from Plaintiff’s Document 733 and all documents thereafter.”
MR. WHITTLE: My learned friend, has the official reporter read the agreement that we have come to correctly?
MR. PRESTON: Yes.
Q. MR. WHITTLE: Mr. Kerr, do you agree that that is the agreement that we have come to?
A. Yes.
[34] However, the Defendant subsequently attempted to resile from the purpose for which these documents were entered. Notwithstanding these attempts, it is a fact that the Defendant entered these documents for the truth and accuracy of their contents, the Plaintiffs having admitted that the contents of the documents were true and accurate.
[35] Insofar as any document in Exhibit D-11 was created by the Plaintiffs and refers to information which was in the knowledge of the Plaintiffs, I accept them for the truth and accuracy of their contents. The initial discussion relative to Exhibit D-11 can be found at page 550. A further discussion is found at pages 792 to 798 of the transcript.
[36] All quotations from the documentary exhibits, when reproduced below, appear in their original form. Any typographical errors are those of the original author.
B. The Plaintiffs’ Witnesses
[37] The first witness called on behalf of the Plaintiffs was Mr. Terrence Sewell. He is currently employed by the Government of Canada, Department of Indian and Northern Affairs in the position of Director-General of the Implementation Branch, Claims and Indian Government Sector. Mr. Sewell was employed by the Government of Canada, DIAND, as the Regional Director General (“RDG”), Yukon Region, stationed in Whitehorse.
[38] He began his employment with the Federal Government in December 1997, following a period of employment with the Yukon Territorial Government (the “YTG”) that began in 1982. Prior to that time, Mr. Sewell had worked with the Ontario Government, in a number of positions for 10 years. He began his employment with the Ontario Government following the completion of a master’s degree in economics.
[39] Mr. Sewell worked for DIAND in Whitehorse until September 2001 when he relocated to his current position with DIAND in the National Capital Region, working from an office in Gatineau.
[40] Mr. Sewell was called as a witness for the Plaintiffs, as an adverse witness, pursuant to the combined effect of the Canada Evidence Act and the British Columbia Supreme Court Rules, B.C. Reg. 221/90. Counsel for the Defendant objected to the proposed process, on the grounds that Counsel for the Plaintiffs had not given prior notice of his intention to call Mr. Sewell. At the same time, Counsel for the Defendant acknowledged receipt, on March 28, 2008, of the list of the witnesses whom the Plaintiffs intended to call. Mr. Sewell’s name was on that list.
[41] Following review of the relevant legislation, that is section 40 of the Canada Evidence Act, as well as Rule 17 of the British Columbia Supreme Court Rules and of the decisions in Farmer Construction Ltd. v. R. (1983), 48 N.R. 315 (F.C.A), and Weywakum Indian Band v. Canada and Wewayakai Indian Band (1995), 99 F.T.R. 1 (T.D.), aff’d except as to costs (1999), 247 N.R. 350 (F.C.A.), aff’d, [2002] 4 S.C.R. 245 and upon hearing submissions, Mr. Sewell was examined as the representative of an adverse party, that is the Defendant, without prejudice to the rights of the Defendant to call him as a witness on her behalf.
[42] Mr. Sewell provided general background information about the operations of the Regional Office in Whitehorse, as well as evidence about the practice in the public service as to participation in the drafting of replies by the Minster to correspondence and inquiries received concerning matters arising in the region, that is, in the Yukon Territory.
[43] Mr. Sewell was the most senior public servant in the region. He was responsible for the overall management of the Regional Office which was staffed at the time by about 400 people, some of whom worked on a seasonal basis.
[44] DIAND was responsible for the management of natural resources in the Yukon Territory. According to Mr. Sewell, the responsibilities of the Regional Office included regulation of the water, mineral and timber resources.
[45] As well, the Regional Office was mandated to work with First Nations. He said that the office worked with seventeen First Nations, that is fourteen in Yukon and three in British Columbia.
[46] In addition to regulation of natural resources and responsibility for First Nations, Mr. Sewell testified that the Department was responsible for economic development in the area.
[47] Mr. Sewell provided an organizational chart for the “chain of command” in the Regional Office. This document was entered on consent as Exhibit P-1. This shows that the RDG reported to the Deputy Minister (the “DM”) of the Department. The chart also shows that the Director of Renewable Resources reports to the RDG. During the time frame that is relevant to this action, Ms. Jennifer Guscott was the Director of Renewable Resources, including forestry, and later the Acting Associate Regional Director General (“ARDG”).
[48] Mr. Sewell testified that, within the organizational chart of the Yukon Regional Office, the ARDG is “in the same box” as the RDG. He explained that as the RDG, he took the lead on all First Nations matters and the ARDG was responsible for economic development, including forestry. This means that Ms. Guscott occupied the two most senior public service positions with respect to forestry during the relevant period of time.
[49] Mr. Sewell testified that he first became aware of LPL while he was employed as the Assistant Deputy Minister (“ADM”) of Economic Development with the YTG.
[50] Mr. Sewell initially testified that he first became aware of SYFC from a newspaper article in late 1998 that indicated that it was opening a sawmill in Watson Lake. He believed that the mill was already in operation at that time and he believed that this was later in 1998. He later testified that his memory had been refreshed and that he was a participant in email communications, with respect to SYFC, in August 1998, before the sawmill was opened.
[51] Mr. Sewell also testified to the actions and knowledge of DIAND throughout the period relevant to this case.
[52] Mr. Leonard Bourgh was the second witness called on behalf of the Plaintiffs. He had worked in and around sawmills all his life, beginning as a young boy during the Second World War. Together with his brother, he had established a sawmill in British Columbia, first in Greenwood and later in the Cariboo area, south of Quesnel. He spent all of his working life in British Columbia until he moved to Watson Lake, Yukon, in 1995.
[53] He had visited the area previously and had concluded that there was a good supply of timber there. He made the move from British Columbia to Watson Lake with the intention “to try to build a sawmill”. In pursuit of that goal, Mr. Bourgh incorporated LPL pursuant to Yukon Territory legislation in 1996.
[54] Mr. Bourgh contributed the sum of $220,000, his life savings, to the capital of LPL.
[55] Mr. Bourgh testified about the initial planning and efforts taken by LPL to commence sawmill operations in Yukon. These efforts included the preparation of business plans, meetings with DIAND and with the Minister, at that time the Honourable Ron Irwin, in Dawson City, Yukon.
[56] Mr. Bourgh resigned his position as President of LPL in April 1997.
[57] Mr. William (“Bill”) Gurney next testified on behalf of the Plaintiffs. He had worked for twenty years in the forestry industry, both directly and indirectly. He has worked as logging contractor, sawmill owner, teacher of forestry at both high school and college levels, and as a forestry consultant. He worked in northern British Columbia, the Yukon Territory and in northwestern Alberta.
[58] Mr. Gurney moved to Watson Lake in or around 1995. He wanted to start a forestry consulting business. On a personal level, he had family there; his eldest daughter who was living with her husband Mr. Brian Kerr and their three children, in the town of Watson Lake.
[59] Mr. Gurney is not a shareholder in either LPL or SYFC. He worked for LPL as a consultant in 1996. He left Yukon in the spring of 1997.
[60] In addition to his work for LPL, Mr. Gurney performed consulting work for the YTG in laying out a portion of a main-line logging road south of Watson Lake. He also worked with the Liard First Nation (“LFN”), in 1996, helping them negotiate a timber harvest agreement (“THA”) in the amount of 75,000 m3. This THA was a “training THA” in order to enable the LFN to develop capacity in the forestry industry.
[61] Mr. Gurney testified that it took approximately six months, from start to finish, to negotiate this THA. While performing this task, he worked with employees of DIAND in Whitehorse, including Mr. Jeff Monty, his assistant, Mr. Bill Gladstone and Mr. Michael Ivanski, then the RDG, the senior DIAND official in Yukon.
[62] Mr. Gurney operated as a consultant under the name and style of “Heartwood Consulting”. In his capacity as a consultant to LPL, he prepared a number of documents, including market proposals, on behalf of LPL. This task included a documentary review of the forestry policy, practises and availability of timber in the Yukon Territory at the time.
[63] Mr. Edward (“Ted”) Staffen then testified. He is a member of the Legislative Assembly for the constituency of Riverdale North, Yukon and at the time he testified on behalf of the Plaintiffs, he was the Speaker of the Legislative Assembly.
[64] Mr. Staffen had spent nearly 40 years in Yukon, working in a number of businesses including a period of time working as a consultant with Mr. Ron Gartshore, advising various First Nations and businesses in the Yukon Territory.
[65] Mr. Staffen testified with respect to the consulting he had undertaken for LPL. This included the initial fundraising, participation in meetings with Minister Irwin, and the research and procurement of the initial sawmill equipment.
[66] Mr. Ron Gartshore next testified on behalf of the Plaintiffs. He is a consultant who moved to the Yukon Territory in 1988. He has principally lived and worked in Yukon since that time. He has worked in various positions and performed consulting services for First Nations and for the YTG. He was introduced to Mr. Bourgh, by Mr. Brian Kerr, in 1996. Mr. Bourgh told Mr. Gartshore about his plan to develop a mill in the Watson Lake area.
[67] Mr. Gartshore was involved with Mr. Bourgh and others in 1996 and 1997, in the preparation of business plans, drafting correspondence, and the scheduling and participation in meetings with Minister Irwin and representatives of the Department in Dawson City and Whitehorse. He was involved in raising capital for the project and was himself a shareholder.
[68] Mr. Gartshore worked with Mr. Bourgh and other proponents of the mill project from 1996 until some time in 1998. He was ill for several months in 1997 and unable to work. He stopped working for LPL around 1998.
[69] Mr. Gartshore actively participated in the preparation of the business proposals in 1996 and 1997. The business plans changed over time as a result of feasibility studies. The development of business plans was an evolving process to better reflect a model more suited to the Yukon Territory.
[70] Mr. Gartshore was engaged in raising capital for the project. He testified that the first 50 investors were mainly small businesses and individuals from Yukon, including many who were located in the Watson Lake area.
[71] Mr. Gartshore was active in the planning that preceded the start-up of the mill. Before the mill opened, he worked from an office attached to his home in Whitehorse. He was engaged with meetings with timber suppliers in Florida and financial sources in Calgary. He worked for a six month period from Kelowna before moving away from a daily relationship with the company.
[72] Mr. Brian Kerr was the next witness for the Plaintiffs. He was an early participant in the Watson Lake project. A former member of the Canadian Forces, he later trained as an electrician. He worked in Burns Lake and Smithers, British Columbia, before moving to Watson Lake in 1994. He opened a business as an electrical contractor.
[73] Mr. Kerr first heard about the Watson Lake mill proposal from his father-in-law, Mr. Gurney. At the invitation of Mr. Gurney, he attended a meeting with Mr. Bourgh who expressed an interest in engaging Mr. Kerr to do the electrical work on the mill.
[74] Mr. Kerr invested in the project and was one of the first shareholders. He introduced Mr. Bourgh to his brother Mr. Alan Kerr who had “substantial financial contacts”. Mr. Kerr also arranged the meeting between Mr. Bourgh and Mr. Gartshore.
[75] Mr. Kerr began working with Mr. Bourgh in the fall of 1996. While Mr. Bourgh was leading the effort to raise funds for the project, Mr. Kerr was doing research on the equipment side.
[76] Mr. Kerr was introduced to the B.I.D. Construction Ltd. Group (the “B.I.D. Group”), in Vanderhoof, British Columbia, late in 1996 or early in 1997.
[77] Mr. Kerr attended a meeting, later coined the “due diligence” meeting, on July 15, 1997 in Whitehorse. Mr. Kerr attended as a representative of LPL, with his brother Mr. Alan Kerr, representatives from the B.I.D. Group and the Department. Mr. Kerr said that a representation was made by the Department to supply timber if a mill was built. He said it was a direct result of this representation that the project went ahead and the mill was built in Watson Lake by LPL and SYFC, operating as a joint venture.
[78] Mr. Kerr was actively involved with the mill when it opened in October 1998. The mill suspended operations in December 1998, due to lack of timber. It reopened again on April 30, 1999 and operated until August 4, 2000, when it closed permanently, again due to lack of timber, according to Mr. Kerr.
[79] Mr. Kerr testified as to the events leading up to and surrounding the design, construction, operation and ultimate closure of the Plaintiffs’ sawmill in Watson Lake, Yukon. As well, there was evidence with respect to correspondence and meetings with DIAND and the other joint venture participants.
[80] Mr. Paul Heit was then called to testify on behalf of the Plaintiffs. He is a forest resource technologist by training and he worked for many years in the forest industry. He began employment with Vanderhoof Specialty Wood Products in 1991 as the Woodlands Manager. In 1998, he became the General Manager at that business and around the same time, he took on responsibility as the Woodlands Manager for SYFC in connection with the mill at Watson Lake.
[81] In brief, as Woodlands Manager, Mr. Heit was responsible for getting wood into the mill. In that regard, he familiarized himself with the wood allocation system in Yukon and he did so before the mill was built. He contacted employees of the Department and asked about the process of applying for wood. He learned that there were two existing methods for allocating wood, that is the commercial timber permit (“CTP”) process and a THA. Subsequently, Mr. Heit talked to local loggers about the allocation of timber under the CTP process.
[82] Mr. Heit, as the Woodlands Manager for SYFC, was responsible for ensuring a supply of wood for the mill. He oversaw the execution of log purchase agreements during the periods that the mill was operating. Those log purchase agreements related to the purchase of wood cut under the CTP process and the availability of timber depended upon timely processing of permit applications by the Department.
[83] Mr. Heit gave evidence about the necessity of a secure long-term timber supply, in terms of relieving administrative pressures on the Department and allowing SYFC to plan forward in dealing with the various matters associated with the issuance of CTPs. The ability to do forward planning, knowing that there was a secure supply of timber, would contribute to more flexibility in economic and market planning.
[84] Mr. Heit testified that SYFC made it clear from the beginning that it would require 200,000 to 215,000 m3 of timber per year, to permit it to operate for 250 days a year. SYFC did not anticipate that it would have to deal with the issue of a short-term timber supply as represented by the CTP. In his view, SYFC faced two challenges as time went on, that is the short-term timber supply and the long-term timber supply.
[85] Mr. Heit gave testimony about forestry practices, the issues in obtaining an adequate log supply, the shortfalls and challenges in the timber allocation system and in the efforts of SYFC to obtain a THA. This testimony included descriptions of meetings with DIAND.
[86] Mr. Keith Spencer was next called to testify on behalf of the Plaintiffs. He has worked in the forestry industry since 1970 and is knowledgeable about the equipment used in that industry, particularly in the area of sawmill equipment. He worked with West Fraser Mills in Quesnel, British Columbia as maintenance supervisor before moving to Vanderhoof, British Columbia in 1982 where he eventually became the General Manager of operations, including supply, with B.C. Timber.
[87] After 1991, Mr. Spencer got involved with the B.I.D. Group in Vanderhoof. This enterprise is engaged in the business of sawmill construction with both new and reconstructed materials. This enterprise also operated fabricating facilities in Vanderhoof.
[88] In 1997, Mr. Spencer became aware of the possibility of becoming involved in a sawmill proposed for Watson Lake for the processing of small logs. There was a meeting in Vanderhoof with the LPL group; he remembered that Messrs. Brian and Alan Kerr and Don Oulton attended. Mr. Spencer went to Watson Lake in early 1997 to look over the land.
[89] Also, in the summer of 1997, Mr. Spencer went to Whitehorse with Mr. David Fehr. The purpose of that meeting was to talk with representatives of the Department about timber supply. Mr. Fehr is also associated with the B.I.D. Group. Mr. Spencer did not recall who attended from the Department but testified that Mr. Brian Kerr and Mr. Alan Kerr were present, on behalf of LPL.
[90] Mr. Spencer testified that by this time he had already considered if the mill would be a worthwhile investment. He said that a supply of timber and its price were the two benchmarks that had to be met. While the B.I.D. Group was interested in the mill project, this meeting occurred because of outstanding concerns about the security of fibre. Mr. Spencer testified that Mr. Fehr made the decision to participate in the project as a result of this meeting.
[91] Once the decision was made to engage in the project, Mr. Spencer worked from Vanderhoof on the mill design and fabrication. The fabrication work began in September 1997. Much of the mill was made in Vanderhoof using reconditioned equipment. The mill was transported by truck to Watson Lake and installed.
[92] Mr. Spencer was involved, as well, in the training process for the mill employees and he worked on site in Watson Lake for several months beginning in late September, early October 1998. He was the senior management person in Watson Lake until December 1998 when Mr. Brian Kerr assumed the management role.
[93] Mr. Spencer testified that the focus of SYFC’s business plan was on the sales to the Japanese market where there was a high price for tight-grained small-knot products that could be obtained from the wood in the Watson Lake area. He spoke of the timber profile of the wood in the Watson Lake area.
[94] Mr. Spencer also spoke about the advantages of the mill in Watson Lake in relation to the Alaska market. Watson Lake is located on the Alaska Highway. The proximity of the mill to the Alaska Highway would facilitate delivery of the finished product to the Alaska market. Implementation of Phase 2 would have yielded a finished product that would be suitable for construction in Alaska, without the long transport, with the associated costs, from the south.
[95] Mr. Spencer participated in the development of the business plan dealing with Phase 2 of the mill.
[96] Phase 2 of the mill project included a kiln and planer, as well as a cogeneration plant, that is a facility for burning wood waste to create a heat source for heating the kiln and building, as well as generating steam in order to operate a turbine for the production of electricity. Production of electricity by way of a cogeneration facility would reduce operating costs for the facility and provide a source of income by selling excess power to the local power authority.
[97] Mr. Spencer also testified about standard forestry industry practices, SYFC mill operations, the inadequacy of the timber allocation system and the efforts of SYFC to obtain a THA. This evidence included description of meetings with DIAND and the other joint venture participants.
[98] Mr. Spencer frankly described himself as an entrepreneur and as a person who is prepared to take risks. In cross-examination he described a “calculated risk” as one where there is more opportunity to be successful than not. In his opinion, the business plan developed for the mill was credible. He was comfortable with the design of the mill, its machinery and equipment when it began operating.
[99] Mr. David Fehr was the next witness called on behalf of the Plaintiffs. He is a principal of the B.I.D. Group. He met Mr. Brian Kerr in Vanderhoof and discussed the use of reconditioned equipment for construction of the mill in Watson Lake.
[100] In early 1997, Mr. Fehr met in Vanderhoof with LPL; Messrs. Brian and Alan Kerr and Don Oulton attended. Mr. Fehr also flew to Watson Lake to view the LPL operation.
[101] Mr. Fehr had a lot of experience working the forestry industry, including the construction of sawmill facilities. He would have been involved in the selection of the equipment to be used for this mill and that equipment would have been chosen on the basis of the volume of fibre that was available. The term fibre can be used interchangeably with timber and wood. He testified that 200,000 m3 on an annual basis was the quantity of timber required. While Mr. Fehr gave evidence that Mr. Heit and Mr. Brian Kerr would have looked at the details of the project, he would have made the decision to participate.
[102] He attended the meeting in July 1997 in Whitehorse with representatives of both LPL and the Department. He wanted to find out about the security of supply to the mill. He was aware that, at this time, the Federal Government controlled the forest resources in Yukon. He testified that they, that is the proposed investors, were concerned about the security of supply if an investment were to be made.
[103] Mr. Fehr testified that a representation was made at this meeting, by the Department’s representatives, that if a mill was built then DIAND would ensure that there was a supply of timber. He said that the decision to build the mill was the result of this representation.
[104] Mr. Fehr testified about the incorporation of SYFC. He said he wanted a new company to act as the operating company since he preferred to “start clean” with the joint venture that his company was going to enter with LPL. He had earlier said, in a July 13, 1997 letter to LPL that he thought that LPL had “too much past baggage” to be the operating company.
[105] Mr. Fehr was questioned about the process of decision-making for the joint venture. He testified that the decision-making of the project would be under the control of the B.I.D. Group, for the purpose of starting-up the mill. Mr. Fehr also testified that he would have been advised by Mr. Keith Spencer on a regular basis about the situation with profits and losses in connection with the mill. As well, in his letter of July 13th to LPL, Mr. Fehr said that the B.I.D. Group would exercise management control of the sawmill operation through a management agreement.
[106] Mr. Fehr testified that the mill did not operate long enough to get to the stage of profitability. He also testified that there was a “start-up curve” for the project, that although they did not plan to make money on the first day, he anticipated that the project would generate income. He is a businessman and engages in business to make a profit.
[107] Mr. Alan Kerr was the next witness for the Plaintiffs. He is a former player of the National Hockey League, most recently with the Winnipeg Jets, and following his career as a professional hockey player, he is now the vice-president of hockey operations for Okanagan Hockey Schools Ltd. based in Penticton, British Columbia. He is also the brother of Mr. Brian Kerr. He grew up in Smithers, British Columbia where his father was employed in the forest industry.
[108] Mr. Alan Kerr became aware of the proposal to build the mill in Watson Lake from his brother Brian. He understood the proposal to be for a small log manufacturing facility. Mr. Brian Kerr, together with Mr. Gartshore and Mr. Bourgh, visited Mr. Alan Kerr in Kelowna to explain the proposal. Following that meeting, Mr. Alan Kerr invested $50,000 in the project and became a shareholder. This meeting took place after the meeting in Dawson City in May 1996 between Mr. Gartshore and Mr. Bourgh with Minister Irwin, and Mr. Jim Doughty, Minister Irwin’s executive assistant.
[109] Mr. Alan Kerr became a director of LPL in 1996. In 1997, he became the President of LPL, following the retirement of Mr. Bourgh. Mr. Alan Kerr served as President for four years, that is during the start-up, operations and final closure of the mill. During this time frame, he participated in meetings with other shareholders and with representatives of the Department.
[110] Mr. Alan Kerr testified about decisions made by SYFC. Those decisions related to the rental, purchase and leasing of equipment, its efforts to collect debts, its expenditures on professional fees including those associated with the entry of Kaska Forest Resources Ltd. (“KFR”) into the joint venture and c

Source text

South Yukon Forest Corporation v. Canada Court (s) Database Federal Court Decisions Date 2010-05-05 Neutral citation 2010 FC 495 File numbers T-2012-01 Decision Content Federal Court Cour fédérale Date: 20100505 Docket: T-2012-01 Citation: 2010 FC 495 BETWEEN: SOUTH YUKON FOREST CORPORATION and LIARD PLYWOOD AND LUMBER MANUFACTURING INC. Plaintiffs and HER MAJESTY THE QUEEN Defendant REASONS FOR JUDGMENT HENEGHAN J. I. Preamble [1] This action is about a mill that was built in Watson Lake, located in the Yukon Territory. The following Reasons address three questions: Why was the mill built, why did it close and what are the consequences at law? [2] In this proceeding, South Yukon Forest Corporation (“SYFC”) and Liard Plywood and Lumber Manufacturing Inc. (“LPL”), collectively the “Plaintiffs”, seek recovery of damages from Her Majesty the Queen (the “Defendant”) representing the Minister of Indian Affairs and Northern Development (the “Minister”). The claim relates to the construction, operation and ultimate closure of a sawmill near the town of Watson Lake in the Yukon Territory. [3] LPL is a body corporate, organized and incorporated under the laws of Yukon, on January 26, 1996. Initially, the corporation was called Liard Pulp and Lumber but changed its name on September 3, 1996. [4] SYFC is a body corporate, organized and existing under the laws of Yukon. It was incorporated on November 5, 1997. It is the operating entity for the joint venture which built and operated the mill in Watson Lake. [5] The Minister is responsible for the Department of Indian and Northern Affairs (“DIAND” or the “Department”), pursuant to the Department of Indian Affairs and Northern Development Act, R.S.C. 1985, c. I-6 (the “Act” or the “DIAND Act”). [6] It is not disputed that the Plaintiffs opened a sawmill in October 1998, that it closed temporarily in December 1998, that it reopened on April 30, 1999, and that it closed permanently on August 4, 2000. II. Procedural History [7] This action was commenced by the filing of a Statement of Claim by SYFC on November 9, 2001. SYFC sought an order of mandamus to compel the Governor in Council to be ordered to designate certain Yukon territorial lands as land management zones and to make 200,000 m3 of timber per annum available by way of a Timber Harvesting Agreement (“THA”). In the alternative, SYFC sought damages for negligence, negligent misrepresentation, breach of fiduciary duty and misfeasance in public office. [8] By Notice of Motion filed on May 29, 2002, the Defendant sought an Order to strike certain paragraphs of the Statement of Claim and for further and better particulars of SYFC’s Statement of Claim. [9] The motion was argued on August 16, 2002. By Order dated August 20, 2002, the late Prothonotary Hargrave granted the motion in part, ordering that paras. 1.(a) and 1.(b) be struck, that the Plaintiff SYFC have leave to file an Amended Statement of Claim and that the Plaintiff SYFC provide further and better particulars. Specifically, Prothonotary Hargave struck SYFC’s request for an order of mandamus because that remedy must be sought pursuant to s. 18.1 of the Federal Courts Act, R.S.C. 1985, c. F-7. [10] SYFC filed an Amended Statement of Claim on August 27, 2002. The Defendant filed an Amended Statement of Defence on October 30, 2002. [11] On January 2, 2003, the Defendant filed a Notice of Motion seeking leave to file a counterclaim. Leave was granted in that regard by Order dated February 25, 2003 and an Amended Statement of Defence and Counterclaim was filed on February 26, 2003. The Counterclaim raises claims in trespass and nuisance relative to the Plaintiffs’ continued occupation of certain lands, as well as a claim for unpaid rent in the amount of $4,060 together with Goods and Services Tax and interest. [12] On October 30, 2003, SYFC filed a Statement of Defence to the Counterclaim. [13] On February 16, 2004, SYFC filed a Notice of Motion seeking to join LPL as a Plaintiff, that LPL and that SYFC be appointed to represent the joint venturers operating as SYFC in this proceeding, that the style of cause be amended, and that leave be granted to file a further Amended Statement of Claim. [14] By Notice of Abandonment filed on March 17, 2004, SYFC abandoned the request set out in para. 2 of its Notice of Motion for the appointment of the intended Plaintiff LPL and the Plaintiff SYFC as the representatives of the joint venturers. [15] By letter dated May 25, 2004 and filed with the Registry of the Court at Vancouver on May 25, 2004, the Defendant objected to the partial abandonment of the Plaintiff’s motion, that is with respect to para. 2, the appointment of the intended Plaintiff LPL and of the Plaintiff SYFC to act in a representative capacity pursuant to former Rule 114 of the Federal Courts Rules, SOR/98-106. [16] On August 25, 2004, the Defendant filed a Notice of Motion seeking an Order for security of costs, as well as an Order that the Plaintiff produce an accurate and complete affidavit of documents and that Mr. Don Oulton be cross-examined upon the Plaintiff’s affidavit of documents. [17] Prothonotary Hargrave directed that SYFC’s motion to join LPL be heard at a special sitting before the Court in Whitehorse. By Direction filed on September 13, 2004, the presiding judge directed that the Defendant’s motion for security for costs and other relief would be heard at the same time. [18] Following a hearing in Whitehorse on November 4, 2004, two Orders were issued. In the first Order, SYFC’s motion to add LPL as a Plaintiff was dismissed but the motion to advance a claim for breach of contract was allowed. [19] In the second Order, the Defendant’s motion for security for costs was granted and SYFC was ordered to post security for costs in the amount of $20,000. The sum of $20,000 was paid into Court on December 8, 2004, by SYFC in that regard. [20] SYFC filed a Notice of Appeal on December 7, 2004 relating to the Order dismissing its motion to join LPL as a Plaintiff. The appeal file is A-641-04. [21] Further to a letter dated December 20, 2004 from the Defendant respecting an apparent discrepancy in the wording of the Order allowing SYFC to advance a claim for breach of contract, a further Order was issued on January 11, 2005. [22] In the meantime, a further Amended Statement of Claim was filed by the Plaintiff SYFC on December 3, 2004. The Defendant filed her Amended Defence and Counterclaim on December 17, 2004. [23] By Order dated January 27, 2006, the Federal Court of Appeal allowed the appeal by SYFC from the dismissal of its motion to join LPL as a Plaintiff. The Federal Court of Appeal found that there was no clerical error in the Order of November 23, 2004 and that the Motions Judge had erred in misapprehending the factual basis upon which SYFC sought to join LPL as a Plaintiff, as well as misinterpreting Rule 104. [24] In its Reasons for allowing the appeal, the Federal Court of Appeal observed that the Defendant was objecting to the Order of the Motions Judge by which leave was granted to introduce a claim for breach of contract and allowing the necessary incidental amendments to the Statement of Claim in that regard. At paras. 36 and 37 of its Reasons, the Federal Court of Appeal said the following: [36] I must say, at the outset, that the first Order is clear. There is no ambiguity in that there cannot be any doubt that the Judge allowed the incidental amendments. Not only does the Order provide that the appellant's motion to amend the Statement of Claim and to introduce a claim in contract is allowed, but it directs the appellant to serve and file "a clean statement of claim" which is to incorporate the amendments sought, save for those pertaining to the joining of LPL as a plaintiff. The Order made by the Judge follows logically from what she says at paragraphs 23 and 24 of her Reasons. At paragraph 23, she explains that the amendments sought by the appellant are made for the purpose of introducing a new cause of action, i.e. in breach of contract, and for the purpose, inter alia, of particularizing the existing claim in negligence against the respondent. At paragraph 24, she refers to the jurisprudence of this Court regarding amendments to pleadings and states that that jurisprudence favours the granting of amendments. Thus, the wording of the first Order comes as no surprise. In fact, both the appellant and the respondent, in serving and filing their amended Statements of Claim and Defence, assumed that the Judge had granted leave to the appellant to make the incidental amendments. In my view, on the wording of the first Order, the appellant and the respondent were correct in their view that the incidental amendments had been allowed. [37] In any event, it seems to me that, having pleaded to the second amended Statement of Claim without objection, it does not now lie in the respondent's mouth to argue that it is improper. If that is the respondent's view, it ought to have brought its own motion under Rule 58 before pleading to the second amended Statement of Claim. [25] The Federal Court of Appeal disposed of the appeal by making the following Order: [42] For these reasons, I would allow the appeal with costs, set aside the Order of January 11, 2005 and set aside the Order of November 23, 2004, to the extent that it dismissed the appellant's motion to add LPL as a plaintiff. Rendering the judgment which ought to have been rendered, I would allow, in its entirety, the appellant's motion to amend its Statement of Claim. As a result, I would modify the Order of November 23, 2004 as follows: The plaintiff's motion to join LPL as a plaintiff, to amend its Statement of Claim to add a new cause of action in breach of contract and to make various incidental amendments with respect to existing causes of action is allowed. The plaintiff shall serve and file a clean Statement of Claim incorporating all of the amendments, including those pertaining to the joining of LPL as a plaintiff, within ten (10) days of this Order. Leave is granted to the defendant to serve and file an Amended Statement of Defence within two (2) weeks after service of the clean Statement of Claim. [26] The matter proceeded through pre-trial steps, including discovery examinations that were conducted by both the Plaintiffs and the Defendant. [27] The trial began in Vancouver on March 31, 2008. Final supplementary submissions were held on September 17, 2008. III. Evidence A. General [28] The evidence in this case consisted of the viva voce evidence of nineteen witnesses, including one expert witness, maps, a Response to Request to Admit, answers to undertakings, read-ins from the examination for discovery of the Plaintiffs’ representative and more than 1000 individual documents, including one expert report. [29] There is an exceptional volume of evidence in relation to this proceeding. I will not refer to all of the evidence contained within the record but instead will base my conclusions upon that evidence which I found to be the most relevant, credible and reliable. I have reviewed all of the evidence and have not ignored any evidence to which I do not explicitly refer. [30] Both parties have submitted multiple volumes of documents. These documents, for the most part, were produced by the parties during the discovery process. However, I take note that numerous, highly relevant, documents were not produced by the Defendant. The Plaintiffs came to possess those documents only through the Access to Information process. [31] As I noted above, I have reviewed every piece of evidence in this proceeding. I am satisfied that the documents to which I have referred were properly introduced through witnesses or on the consent of both counsel, are business records as described by s. 30 of the Canada Evidence Act, R.S.C. 1985, c. C-5, or meet the requirements of necessity and reliability, as explained in R. v. Khan, [1990] 2 S.C.R. 531. I will however, briefly discuss one exhibit. [32] Exhibit D-11 was the subject of much discussion throughout the course of this trial. This exhibit consisted of six volumes of documents that the Plaintiffs produced during the discovery process. The Defendant entered these documents for the truth and accuracy of their contents as the Plaintiffs had admitted as much in discovery. The Plaintiffs accepted the admission of these documents as true and accurate. [33] The Defendant on numerous occasions restated that purpose for which Exhibit D-11 had been entered. In fact there is an agreement between counsel, “Protocol 1”, that is consistent with this position taken by the Defendant. The following evidence was read in from examination for discovery of the Plaintiff, at pages 2962 to 2963 of that transcript: Q. Now, yesterday the parties came to an agreement in respect of the admission by the plaintiff as to the an authenticity of documents and the facts contained in those documents, and with Mr. Preston’s permission I’m going to ask the official reporter to read that agreement into the record, and then I’ll ask whether Mr. Preston and Mr. Kerr if that is the agreement that we’ve come to. So if Madam Reporter would read that into the record, please. COURT REPORTER: (By reading) “Protocol 1 October 19, 2005. Penticton, BC The following has been agreed to by the parties: The plaintiff admits: 1. as to the authenticity of the documents created by the plaintiffs as contained in all the plaintiff’s affidavit of documents. 2. the facts that are stated in the document were at the time of the creation of the document believed by the author, who was peaking for and on behalf of the plaintiff, to be true and accurate based [upon] the information and knowledge of the plaintiff, subject to errors and omissions that may be apparent from the admissible evidence and/or the trial Judge’s discretion. 3. this agreement is applicable from Plaintiff’s Document 733 and all documents thereafter.” MR. WHITTLE: My learned friend, has the official reporter read the agreement that we have come to correctly? MR. PRESTON: Yes. Q. MR. WHITTLE: Mr. Kerr, do you agree that that is the agreement that we have come to? A. Yes. [34] However, the Defendant subsequently attempted to resile from the purpose for which these documents were entered. Notwithstanding these attempts, it is a fact that the Defendant entered these documents for the truth and accuracy of their contents, the Plaintiffs having admitted that the contents of the documents were true and accurate. [35] Insofar as any document in Exhibit D-11 was created by the Plaintiffs and refers to information which was in the knowledge of the Plaintiffs, I accept them for the truth and accuracy of their contents. The initial discussion relative to Exhibit D-11 can be found at page 550. A further discussion is found at pages 792 to 798 of the transcript. [36] All quotations from the documentary exhibits, when reproduced below, appear in their original form. Any typographical errors are those of the original author. B. The Plaintiffs’ Witnesses [37] The first witness called on behalf of the Plaintiffs was Mr. Terrence Sewell. He is currently employed by the Government of Canada, Department of Indian and Northern Affairs in the position of Director-General of the Implementation Branch, Claims and Indian Government Sector. Mr. Sewell was employed by the Government of Canada, DIAND, as the Regional Director General (“RDG”), Yukon Region, stationed in Whitehorse. [38] He began his employment with the Federal Government in December 1997, following a period of employment with the Yukon Territorial Government (the “YTG”) that began in 1982. Prior to that time, Mr. Sewell had worked with the Ontario Government, in a number of positions for 10 years. He began his employment with the Ontario Government following the completion of a master’s degree in economics. [39] Mr. Sewell worked for DIAND in Whitehorse until September 2001 when he relocated to his current position with DIAND in the National Capital Region, working from an office in Gatineau. [40] Mr. Sewell was called as a witness for the Plaintiffs, as an adverse witness, pursuant to the combined effect of the Canada Evidence Act and the British Columbia Supreme Court Rules, B.C. Reg. 221/90. Counsel for the Defendant objected to the proposed process, on the grounds that Counsel for the Plaintiffs had not given prior notice of his intention to call Mr. Sewell. At the same time, Counsel for the Defendant acknowledged receipt, on March 28, 2008, of the list of the witnesses whom the Plaintiffs intended to call. Mr. Sewell’s name was on that list. [41] Following review of the relevant legislation, that is section 40 of the Canada Evidence Act, as well as Rule 17 of the British Columbia Supreme Court Rules and of the decisions in Farmer Construction Ltd. v. R. (1983), 48 N.R. 315 (F.C.A), and Weywakum Indian Band v. Canada and Wewayakai Indian Band (1995), 99 F.T.R. 1 (T.D.), aff’d except as to costs (1999), 247 N.R. 350 (F.C.A.), aff’d, [2002] 4 S.C.R. 245 and upon hearing submissions, Mr. Sewell was examined as the representative of an adverse party, that is the Defendant, without prejudice to the rights of the Defendant to call him as a witness on her behalf. [42] Mr. Sewell provided general background information about the operations of the Regional Office in Whitehorse, as well as evidence about the practice in the public service as to participation in the drafting of replies by the Minster to correspondence and inquiries received concerning matters arising in the region, that is, in the Yukon Territory. [43] Mr. Sewell was the most senior public servant in the region. He was responsible for the overall management of the Regional Office which was staffed at the time by about 400 people, some of whom worked on a seasonal basis. [44] DIAND was responsible for the management of natural resources in the Yukon Territory. According to Mr. Sewell, the responsibilities of the Regional Office included regulation of the water, mineral and timber resources. [45] As well, the Regional Office was mandated to work with First Nations. He said that the office worked with seventeen First Nations, that is fourteen in Yukon and three in British Columbia. [46] In addition to regulation of natural resources and responsibility for First Nations, Mr. Sewell testified that the Department was responsible for economic development in the area. [47] Mr. Sewell provided an organizational chart for the “chain of command” in the Regional Office. This document was entered on consent as Exhibit P-1. This shows that the RDG reported to the Deputy Minister (the “DM”) of the Department. The chart also shows that the Director of Renewable Resources reports to the RDG. During the time frame that is relevant to this action, Ms. Jennifer Guscott was the Director of Renewable Resources, including forestry, and later the Acting Associate Regional Director General (“ARDG”). [48] Mr. Sewell testified that, within the organizational chart of the Yukon Regional Office, the ARDG is “in the same box” as the RDG. He explained that as the RDG, he took the lead on all First Nations matters and the ARDG was responsible for economic development, including forestry. This means that Ms. Guscott occupied the two most senior public service positions with respect to forestry during the relevant period of time. [49] Mr. Sewell testified that he first became aware of LPL while he was employed as the Assistant Deputy Minister (“ADM”) of Economic Development with the YTG. [50] Mr. Sewell initially testified that he first became aware of SYFC from a newspaper article in late 1998 that indicated that it was opening a sawmill in Watson Lake. He believed that the mill was already in operation at that time and he believed that this was later in 1998. He later testified that his memory had been refreshed and that he was a participant in email communications, with respect to SYFC, in August 1998, before the sawmill was opened. [51] Mr. Sewell also testified to the actions and knowledge of DIAND throughout the period relevant to this case. [52] Mr. Leonard Bourgh was the second witness called on behalf of the Plaintiffs. He had worked in and around sawmills all his life, beginning as a young boy during the Second World War. Together with his brother, he had established a sawmill in British Columbia, first in Greenwood and later in the Cariboo area, south of Quesnel. He spent all of his working life in British Columbia until he moved to Watson Lake, Yukon, in 1995. [53] He had visited the area previously and had concluded that there was a good supply of timber there. He made the move from British Columbia to Watson Lake with the intention “to try to build a sawmill”. In pursuit of that goal, Mr. Bourgh incorporated LPL pursuant to Yukon Territory legislation in 1996. [54] Mr. Bourgh contributed the sum of $220,000, his life savings, to the capital of LPL. [55] Mr. Bourgh testified about the initial planning and efforts taken by LPL to commence sawmill operations in Yukon. These efforts included the preparation of business plans, meetings with DIAND and with the Minister, at that time the Honourable Ron Irwin, in Dawson City, Yukon. [56] Mr. Bourgh resigned his position as President of LPL in April 1997. [57] Mr. William (“Bill”) Gurney next testified on behalf of the Plaintiffs. He had worked for twenty years in the forestry industry, both directly and indirectly. He has worked as logging contractor, sawmill owner, teacher of forestry at both high school and college levels, and as a forestry consultant. He worked in northern British Columbia, the Yukon Territory and in northwestern Alberta. [58] Mr. Gurney moved to Watson Lake in or around 1995. He wanted to start a forestry consulting business. On a personal level, he had family there; his eldest daughter who was living with her husband Mr. Brian Kerr and their three children, in the town of Watson Lake. [59] Mr. Gurney is not a shareholder in either LPL or SYFC. He worked for LPL as a consultant in 1996. He left Yukon in the spring of 1997. [60] In addition to his work for LPL, Mr. Gurney performed consulting work for the YTG in laying out a portion of a main-line logging road south of Watson Lake. He also worked with the Liard First Nation (“LFN”), in 1996, helping them negotiate a timber harvest agreement (“THA”) in the amount of 75,000 m3. This THA was a “training THA” in order to enable the LFN to develop capacity in the forestry industry. [61] Mr. Gurney testified that it took approximately six months, from start to finish, to negotiate this THA. While performing this task, he worked with employees of DIAND in Whitehorse, including Mr. Jeff Monty, his assistant, Mr. Bill Gladstone and Mr. Michael Ivanski, then the RDG, the senior DIAND official in Yukon. [62] Mr. Gurney operated as a consultant under the name and style of “Heartwood Consulting”. In his capacity as a consultant to LPL, he prepared a number of documents, including market proposals, on behalf of LPL. This task included a documentary review of the forestry policy, practises and availability of timber in the Yukon Territory at the time. [63] Mr. Edward (“Ted”) Staffen then testified. He is a member of the Legislative Assembly for the constituency of Riverdale North, Yukon and at the time he testified on behalf of the Plaintiffs, he was the Speaker of the Legislative Assembly. [64] Mr. Staffen had spent nearly 40 years in Yukon, working in a number of businesses including a period of time working as a consultant with Mr. Ron Gartshore, advising various First Nations and businesses in the Yukon Territory. [65] Mr. Staffen testified with respect to the consulting he had undertaken for LPL. This included the initial fundraising, participation in meetings with Minister Irwin, and the research and procurement of the initial sawmill equipment. [66] Mr. Ron Gartshore next testified on behalf of the Plaintiffs. He is a consultant who moved to the Yukon Territory in 1988. He has principally lived and worked in Yukon since that time. He has worked in various positions and performed consulting services for First Nations and for the YTG. He was introduced to Mr. Bourgh, by Mr. Brian Kerr, in 1996. Mr. Bourgh told Mr. Gartshore about his plan to develop a mill in the Watson Lake area. [67] Mr. Gartshore was involved with Mr. Bourgh and others in 1996 and 1997, in the preparation of business plans, drafting correspondence, and the scheduling and participation in meetings with Minister Irwin and representatives of the Department in Dawson City and Whitehorse. He was involved in raising capital for the project and was himself a shareholder. [68] Mr. Gartshore worked with Mr. Bourgh and other proponents of the mill project from 1996 until some time in 1998. He was ill for several months in 1997 and unable to work. He stopped working for LPL around 1998. [69] Mr. Gartshore actively participated in the preparation of the business proposals in 1996 and 1997. The business plans changed over time as a result of feasibility studies. The development of business plans was an evolving process to better reflect a model more suited to the Yukon Territory. [70] Mr. Gartshore was engaged in raising capital for the project. He testified that the first 50 investors were mainly small businesses and individuals from Yukon, including many who were located in the Watson Lake area. [71] Mr. Gartshore was active in the planning that preceded the start-up of the mill. Before the mill opened, he worked from an office attached to his home in Whitehorse. He was engaged with meetings with timber suppliers in Florida and financial sources in Calgary. He worked for a six month period from Kelowna before moving away from a daily relationship with the company. [72] Mr. Brian Kerr was the next witness for the Plaintiffs. He was an early participant in the Watson Lake project. A former member of the Canadian Forces, he later trained as an electrician. He worked in Burns Lake and Smithers, British Columbia, before moving to Watson Lake in 1994. He opened a business as an electrical contractor. [73] Mr. Kerr first heard about the Watson Lake mill proposal from his father-in-law, Mr. Gurney. At the invitation of Mr. Gurney, he attended a meeting with Mr. Bourgh who expressed an interest in engaging Mr. Kerr to do the electrical work on the mill. [74] Mr. Kerr invested in the project and was one of the first shareholders. He introduced Mr. Bourgh to his brother Mr. Alan Kerr who had “substantial financial contacts”. Mr. Kerr also arranged the meeting between Mr. Bourgh and Mr. Gartshore. [75] Mr. Kerr began working with Mr. Bourgh in the fall of 1996. While Mr. Bourgh was leading the effort to raise funds for the project, Mr. Kerr was doing research on the equipment side. [76] Mr. Kerr was introduced to the B.I.D. Construction Ltd. Group (the “B.I.D. Group”), in Vanderhoof, British Columbia, late in 1996 or early in 1997. [77] Mr. Kerr attended a meeting, later coined the “due diligence” meeting, on July 15, 1997 in Whitehorse. Mr. Kerr attended as a representative of LPL, with his brother Mr. Alan Kerr, representatives from the B.I.D. Group and the Department. Mr. Kerr said that a representation was made by the Department to supply timber if a mill was built. He said it was a direct result of this representation that the project went ahead and the mill was built in Watson Lake by LPL and SYFC, operating as a joint venture. [78] Mr. Kerr was actively involved with the mill when it opened in October 1998. The mill suspended operations in December 1998, due to lack of timber. It reopened again on April 30, 1999 and operated until August 4, 2000, when it closed permanently, again due to lack of timber, according to Mr. Kerr. [79] Mr. Kerr testified as to the events leading up to and surrounding the design, construction, operation and ultimate closure of the Plaintiffs’ sawmill in Watson Lake, Yukon. As well, there was evidence with respect to correspondence and meetings with DIAND and the other joint venture participants. [80] Mr. Paul Heit was then called to testify on behalf of the Plaintiffs. He is a forest resource technologist by training and he worked for many years in the forest industry. He began employment with Vanderhoof Specialty Wood Products in 1991 as the Woodlands Manager. In 1998, he became the General Manager at that business and around the same time, he took on responsibility as the Woodlands Manager for SYFC in connection with the mill at Watson Lake. [81] In brief, as Woodlands Manager, Mr. Heit was responsible for getting wood into the mill. In that regard, he familiarized himself with the wood allocation system in Yukon and he did so before the mill was built. He contacted employees of the Department and asked about the process of applying for wood. He learned that there were two existing methods for allocating wood, that is the commercial timber permit (“CTP”) process and a THA. Subsequently, Mr. Heit talked to local loggers about the allocation of timber under the CTP process. [82] Mr. Heit, as the Woodlands Manager for SYFC, was responsible for ensuring a supply of wood for the mill. He oversaw the execution of log purchase agreements during the periods that the mill was operating. Those log purchase agreements related to the purchase of wood cut under the CTP process and the availability of timber depended upon timely processing of permit applications by the Department. [83] Mr. Heit gave evidence about the necessity of a secure long-term timber supply, in terms of relieving administrative pressures on the Department and allowing SYFC to plan forward in dealing with the various matters associated with the issuance of CTPs. The ability to do forward planning, knowing that there was a secure supply of timber, would contribute to more flexibility in economic and market planning. [84] Mr. Heit testified that SYFC made it clear from the beginning that it would require 200,000 to 215,000 m3 of timber per year, to permit it to operate for 250 days a year. SYFC did not anticipate that it would have to deal with the issue of a short-term timber supply as represented by the CTP. In his view, SYFC faced two challenges as time went on, that is the short-term timber supply and the long-term timber supply. [85] Mr. Heit gave testimony about forestry practices, the issues in obtaining an adequate log supply, the shortfalls and challenges in the timber allocation system and in the efforts of SYFC to obtain a THA. This testimony included descriptions of meetings with DIAND. [86] Mr. Keith Spencer was next called to testify on behalf of the Plaintiffs. He has worked in the forestry industry since 1970 and is knowledgeable about the equipment used in that industry, particularly in the area of sawmill equipment. He worked with West Fraser Mills in Quesnel, British Columbia as maintenance supervisor before moving to Vanderhoof, British Columbia in 1982 where he eventually became the General Manager of operations, including supply, with B.C. Timber. [87] After 1991, Mr. Spencer got involved with the B.I.D. Group in Vanderhoof. This enterprise is engaged in the business of sawmill construction with both new and reconstructed materials. This enterprise also operated fabricating facilities in Vanderhoof. [88] In 1997, Mr. Spencer became aware of the possibility of becoming involved in a sawmill proposed for Watson Lake for the processing of small logs. There was a meeting in Vanderhoof with the LPL group; he remembered that Messrs. Brian and Alan Kerr and Don Oulton attended. Mr. Spencer went to Watson Lake in early 1997 to look over the land. [89] Also, in the summer of 1997, Mr. Spencer went to Whitehorse with Mr. David Fehr. The purpose of that meeting was to talk with representatives of the Department about timber supply. Mr. Fehr is also associated with the B.I.D. Group. Mr. Spencer did not recall who attended from the Department but testified that Mr. Brian Kerr and Mr. Alan Kerr were present, on behalf of LPL. [90] Mr. Spencer testified that by this time he had already considered if the mill would be a worthwhile investment. He said that a supply of timber and its price were the two benchmarks that had to be met. While the B.I.D. Group was interested in the mill project, this meeting occurred because of outstanding concerns about the security of fibre. Mr. Spencer testified that Mr. Fehr made the decision to participate in the project as a result of this meeting. [91] Once the decision was made to engage in the project, Mr. Spencer worked from Vanderhoof on the mill design and fabrication. The fabrication work began in September 1997. Much of the mill was made in Vanderhoof using reconditioned equipment. The mill was transported by truck to Watson Lake and installed. [92] Mr. Spencer was involved, as well, in the training process for the mill employees and he worked on site in Watson Lake for several months beginning in late September, early October 1998. He was the senior management person in Watson Lake until December 1998 when Mr. Brian Kerr assumed the management role. [93] Mr. Spencer testified that the focus of SYFC’s business plan was on the sales to the Japanese market where there was a high price for tight-grained small-knot products that could be obtained from the wood in the Watson Lake area. He spoke of the timber profile of the wood in the Watson Lake area. [94] Mr. Spencer also spoke about the advantages of the mill in Watson Lake in relation to the Alaska market. Watson Lake is located on the Alaska Highway. The proximity of the mill to the Alaska Highway would facilitate delivery of the finished product to the Alaska market. Implementation of Phase 2 would have yielded a finished product that would be suitable for construction in Alaska, without the long transport, with the associated costs, from the south. [95] Mr. Spencer participated in the development of the business plan dealing with Phase 2 of the mill. [96] Phase 2 of the mill project included a kiln and planer, as well as a cogeneration plant, that is a facility for burning wood waste to create a heat source for heating the kiln and building, as well as generating steam in order to operate a turbine for the production of electricity. Production of electricity by way of a cogeneration facility would reduce operating costs for the facility and provide a source of income by selling excess power to the local power authority. [97] Mr. Spencer also testified about standard forestry industry practices, SYFC mill operations, the inadequacy of the timber allocation system and the efforts of SYFC to obtain a THA. This evidence included description of meetings with DIAND and the other joint venture participants. [98] Mr. Spencer frankly described himself as an entrepreneur and as a person who is prepared to take risks. In cross-examination he described a “calculated risk” as one where there is more opportunity to be successful than not. In his opinion, the business plan developed for the mill was credible. He was comfortable with the design of the mill, its machinery and equipment when it began operating. [99] Mr. David Fehr was the next witness called on behalf of the Plaintiffs. He is a principal of the B.I.D. Group. He met Mr. Brian Kerr in Vanderhoof and discussed the use of reconditioned equipment for construction of the mill in Watson Lake. [100] In early 1997, Mr. Fehr met in Vanderhoof with LPL; Messrs. Brian and Alan Kerr and Don Oulton attended. Mr. Fehr also flew to Watson Lake to view the LPL operation. [101] Mr. Fehr had a lot of experience working the forestry industry, including the construction of sawmill facilities. He would have been involved in the selection of the equipment to be used for this mill and that equipment would have been chosen on the basis of the volume of fibre that was available. The term fibre can be used interchangeably with timber and wood. He testified that 200,000 m3 on an annual basis was the quantity of timber required. While Mr. Fehr gave evidence that Mr. Heit and Mr. Brian Kerr would have looked at the details of the project, he would have made the decision to participate. [102] He attended the meeting in July 1997 in Whitehorse with representatives of both LPL and the Department. He wanted to find out about the security of supply to the mill. He was aware that, at this time, the Federal Government controlled the forest resources in Yukon. He testified that they, that is the proposed investors, were concerned about the security of supply if an investment were to be made. [103] Mr. Fehr testified that a representation was made at this meeting, by the Department’s representatives, that if a mill was built then DIAND would ensure that there was a supply of timber. He said that the decision to build the mill was the result of this representation. [104] Mr. Fehr testified about the incorporation of SYFC. He said he wanted a new company to act as the operating company since he preferred to “start clean” with the joint venture that his company was going to enter with LPL. He had earlier said, in a July 13, 1997 letter to LPL that he thought that LPL had “too much past baggage” to be the operating company. [105] Mr. Fehr was questioned about the process of decision-making for the joint venture. He testified that the decision-making of the project would be under the control of the B.I.D. Group, for the purpose of starting-up the mill. Mr. Fehr also testified that he would have been advised by Mr. Keith Spencer on a regular basis about the situation with profits and losses in connection with the mill. As well, in his letter of July 13th to LPL, Mr. Fehr said that the B.I.D. Group would exercise management control of the sawmill operation through a management agreement. [106] Mr. Fehr testified that the mill did not operate long enough to get to the stage of profitability. He also testified that there was a “start-up curve” for the project, that although they did not plan to make money on the first day, he anticipated that the project would generate income. He is a businessman and engages in business to make a profit. [107] Mr. Alan Kerr was the next witness for the Plaintiffs. He is a former player of the National Hockey League, most recently with the Winnipeg Jets, and following his career as a professional hockey player, he is now the vice-president of hockey operations for Okanagan Hockey Schools Ltd. based in Penticton, British Columbia. He is also the brother of Mr. Brian Kerr. He grew up in Smithers, British Columbia where his father was employed in the forest industry. [108] Mr. Alan Kerr became aware of the proposal to build the mill in Watson Lake from his brother Brian. He understood the proposal to be for a small log manufacturing facility. Mr. Brian Kerr, together with Mr. Gartshore and Mr. Bourgh, visited Mr. Alan Kerr in Kelowna to explain the proposal. Following that meeting, Mr. Alan Kerr invested $50,000 in the project and became a shareholder. This meeting took place after the meeting in Dawson City in May 1996 between Mr. Gartshore and Mr. Bourgh with Minister Irwin, and Mr. Jim Doughty, Minister Irwin’s executive assistant. [109] Mr. Alan Kerr became a director of LPL in 1996. In 1997, he became the President of LPL, following the retirement of Mr. Bourgh. Mr. Alan Kerr served as President for four years, that is during the start-up, operations and final closure of the mill. During this time frame, he participated in meetings with other shareholders and with representatives of the Department. [110] Mr. Alan Kerr testified about decisions made by SYFC. Those decisions related to the rental, purchase and leasing of equipment, its efforts to collect debts, its expenditures on professional fees including those associated with the entry of Kaska Forest Resources Ltd. (“KFR”) into the joint venture and c

South Yukon Forest Corporation v. Canada

Source text

Full judgment (source text)

Childs v Desormeaux

Related cases

Childs v Desormeaux

Canada (Sécurité publique et Protection civile) c. Yihdego

Mackey c. Canada (Procureur général)

Cooper v Hobart

Hodgkinson v Simms

M(K) v M(H)

Exam & revision prep

South Yukon Forest Corporation v. Canada

Source text

Full judgment (source text)

Childs v Desormeaux

Related cases

Childs v Desormeaux

Canada (Sécurité publique et Protection civile) c. Yihdego

Mackey c. Canada (Procureur général)

Cooper v Hobart

Hodgkinson v Simms

M(K) v M(H)

Exam & revision prep