British Columbia v. Canadian Forest Products Ltd.

British Columbia v. Canadian Forest Products Ltd.
Collection
Supreme Court Judgments
Date
2004-06-11
Neutral citation
2004 SCC 38
Report
[2004] 2 SCR 74
Case number
29266
Judges
McLachlin, Beverley; Iacobucci, Frank; Major, John C.; Bastarache, Michel; Binnie, William Ian Corneil; Arbour, Louise; LeBel, Louis; Deschamps, Marie; Fish, Morris J.
On appeal from
British Columbia
Subjects
Torts
Notes
SCC Case Information: 29266
Decision Content
British Columbia v. Canadian Forest Products Ltd., [2004] 2 S.C.R. 74, 2004 SCC 38
Canadian Forest Products Ltd. Appellant
v.
Her Majesty The Queen in Right of the Province
of British Columbia Respondent
and between
Her Majesty The Queen in Right of the Province
of British Columbia Appellant
v.
Canadian Forest Products Ltd. Respondent
and
Attorney General of Canada, Forest Practices Board,
Sierra Club of Canada, David Suzuki Foundation,
Council of Forest Industries, Forest Products Association
of Canada and Coast Forest & Lumber Association Interveners
Indexed as: British Columbia v. Canadian Forest Products Ltd.
Neutral citation: 2004 SCC 38.
File No.: 29266.
2003: October 16; 2004: June 11.
Present: McLachlin C.J. and Iacobucci, Major, Bastarache, Binnie, Arbour, LeBel, Deschamps and Fish JJ.
on appeal from the court of appeal for british columbia
Damages — Environmental damages to public lands — Compensation — Forest fire — Valuation of loss of harvestable trees, and of non-harvestable trees in environmentally sensitive areas — Appropriate basis to calculate compensation — Province suing for compensation logging company responsible for fire — Whether Province can sue not only as ordinary landowner but also as parens patriae — Whether Comparative Value Pricing system can be taken into account to reduce compensation — Whether Province entitled to “auction value” of harvestable trees — Whether Province entitled to commercial value of non-harvestable trees plus a premium for environmental value — Whether common law provides for environmental damages.
In 1992, a fire swept through the Stone Creek area in the interior of British Columbia, damaging 1491 hectares of forest in a region where tenure holders are licensed to log. There is no dispute that the appellant (“Canfor”), a major licensee, is largely responsible for the blaze. After the fire, the burned-over cutting areas were logged. The fire-damaged timber was sold at a reduced price. The burned trees in some areas were left standing for environmental reasons, primarily to add stability to the soil, and the Crown adopted a rehabilitation plan. The Crown claimed damages against Canfor for three categories of loss: (1) expenditures for suppression of the fire and restoration of the burned-over areas; (2) loss of stumpage revenue from trees that would have been harvested in the ordinary course (harvestable trees); and (3) loss of trees set aside for various environmental reasons (non-harvestable or protected trees) in sensitive areas as established by the Crown.
In 1987, as part of its strategy to deal with the softwood lumber dispute with the United States, the Province adopted a stumpage “target rate” for wood harvested in the British Columbia Interior, together with a Comparative Value Pricing (“CVP”) system, which the Crown’s expert testified operates to ensure “that provincial revenues are not affected by low timber values” in any particular area. Forest productivity and costs of production varied from licence area to licence area within the British Columbia Interior, and the Province’s regulatory rate system was calculated to ensure cost sensitivity to local conditions. If the “value” of the standing timber was reduced in one area, therefore giving rise to a reduced stumpage rate in that area, the regulatory system, through the CVP mechanism, adjusted the rates paid by other licensees in the following quarter to compensate. This was known as the “waterbed effect”, which affected approximately 35 percent of the harvested timber from the Stone Creek fire. The stumpage system, including the CVP, was the only source of revenue for the Province under the Forest Act, pursuant to which it was entitled to recover revenues.
The trial judge awarded the Crown $3,575,000 (an amount agreed upon by the parties) under the first category of loss, but otherwise dismissed the claim on the basis that the Crown had failed to prove a compensable loss with respect to either harvestable or non-harvestable trees. The trial judge concluded that, as the fire had accelerated the Province’s receipt of revenue that would otherwise have been spread over a period of up to 66 years and that as the fire damage was not so severe as to make the salvaged timber significantly less valuable than it was before the fire, the Province had not suffered a loss in purely financial terms other than restoration costs. The trial judge also held that Canfor was entitled to have the increased revenue obtained by the Province from other licensees under the CVP system taken into account to determine if the Province had suffered a financial loss. In the result, he concluded, the fire left the Province in a financial position no worse than it would have enjoyed had the fire not occurred. With respect to the non-harvestable trees, the trial judge indicated that while the Province had lost something of value, there was no proof of loss other than restoration costs, which had been agreed to.
The Court of Appeal dismissed the Crown’s appeal on damages with respect to the harvestable trees, but awarded compensation for diminution of the value of the non-harvestable trees at a figure equivalent to one-third of their commercial value.
Held (Bastarache, LeBel and Fish JJ. dissenting): The appeal should be allowed and the cross-appeal dismissed. The decision of the trial judge is restored.
Per McLachlin C.J. and Iacobucci, Major, Binnie, Arbour and Deschamps JJ.: A claim for environmental loss, as in the case of any loss, must be put forward based on a coherent theory of damages, a methodology suitable for their assessment, and supporting evidence. No one doubts the need for environmental protection but, in this case, apart from the cost of reforestation, which was agreed to, the Crown claims only stumpage and “diminution of the value of the timber” within the burned-over area. The environment includes more than timber, but no allegation of such additional losses were made in that regard. The pleadings proceeded on a fairly narrow commercial focus and that is how the claim was defended.
The Crown’s entitlement to compensation for both harvestable and non-harvestable trees should be limited to entitlement in the role the Crown adopted in its statement of claim, namely that of the landowner of a tract of forest. While it is open to the Crown in a proper case to take action as parens patriae, for compensation and injunctive relief on account of public nuisance, or negligence causing environmental damage to public lands, such litigation would raise important and novel policy issues. Since the Crown sought compensation here on the same basis as any other landowner for stumpage and “diminution of the value of the timber”, this is not a proper appeal for the Court to embark on a consideration of those difficult issues. It would be unfair to the other parties to inject such a wide-ranging and important debate into the proceedings at this late date.
The Crown claimed “auction value” as the appropriate basis on which to calculate compensation for the harvestable trees. However, under the regulatory licensing system in effect in 1992 in British Columbia, the Province was not entitled to auction off the right to an immediate cut of the entire territory eventually burned over, which is what auction value measures. The Provincial regulatory scheme schedules the right to log its forests from year to year and decade to decade in exchange for long-term stability, as well as the economic well-being of communities dependent on a sustainable forest industry. The rights of the licensees were reciprocated in the imposition of corresponding obligations on the Province. The practical effect was that the Province had tied up its forest assets in such a way as to render the auction approach at odds with the Province’s own regulatory regime. The Crown is as bound by the legislative scheme of the Forest Act as are the private operators, subject to any special exemption. There are no special exemptions applicable here.
The CVP system provides a relevant source of income to the Province which can properly be taken into account to determine if it has suffered a loss. The Province’s claim is restricted to the impact of the fire on its projected revenue stream and the assessment of compensable loss is therefore heavily influenced by the regulatory structure which the Province itself designed and implemented. The trial judge’s analysis of the regulatory system was correct and it was open to him to conclude that the Province had defined the British Columbia Interior Region, and not the Stone Creek area itself, as the appropriate frame of reference for revenue purposes. Canfor therefore was entitled to rely on the “revenue-neutral” system the Province had implemented. Thus the Province had not, because of the fire, suffered a loss in the relevant revenue-generating unit.
The Crown’s tactic to isolate the Stone Creek fire area from the regulatory region of which it forms a part must be rejected as an attempt to construct a financial loss that was not in fact suffered. If the Crown were permitted to ignore its own regulatory system, and calculate a notional loss by treating the Stone Creek fire area in isolation, it would by collection of that amount exceed the revenue otherwise intended to be collected by its own regulatory scheme and to that extent make a windfall rather than receive fair compensation for a proven loss.
The legislative scheme put in place by the Forest Act is central to the analysis of the Province’s claim. According to the testimony of Canfor’s expert, which was accepted by the trial judge, the CVP stumpage system was designed to ensure that the loss was never incurred. If there was no revenue loss, there was nothing to mitigate. Thus the principles governing mitigation of damages are not pertinent. Similarly, the Crown’s argument that Canfor should not be allowed to “pass on” the loss to other forest licensees through the “waterbed effect” is misplaced. If no revenue loss was suffered in the first place, there was no loss to “pass on”.
Nor did the Crown prove any financial loss with respect to the non-harvestable trees. Commercial logging of the steep, sensitive slopes would cost more than it was worth and according to the expert evidence would not have produced additional revenue for the Crown. With respect to the riparian areas (which could have been logged in 1992), the trial judge accepted the calculations of Canfor’s expert witness which showed that any loss in the commercial value of expected stumpage revenue was more than offset by the receipt of accelerated payments for the immediate harvest of salvaged timber. There was thus no revenue shortfall in that respect either. While stumpage money may well not be a satisfactory financial proxy for the value of forest areas preserved for environmental purposes, the Crown asserted a claim for commercial value and a finding by the trial judge that there was no commercial loss precludes an award of damages on that basis.
The Crown’s claim to an environmental premium with respect to the non-harvestable trees is grounded neither in the pleadings nor in the evidence. While the fire damage had both commercial and environmental dimensions, the trial judge was not given the evidence to quantify a distinct ecological or environmental loss. The lack of probative evidence, reliable measurement and proper pleading lie at the root of this case. No evidence was led about the nature of the wildlife, plants and other organisms protected by the environmental resource in question, the uniqueness of the ecosystem, the environmental services provided or recreational opportunities afforded by the resource, or the emotional attachment of the public to the damaged or destroyed area. The Crown’s claim to an environmental premium of 20 percent of commercial value is therefore overly arbitrary and simplistic. Less arbitrary techniques are available and will have to be carefully considered when and if properly presented. Courts should not strangle legitimate claims that are properly pleaded because of overly technical objections to novel methods of assessment, but the Crown cannot succeed in an unpleaded claim for ecological or environmental damage simply because the Crown on this issue occupies the moral high ground. The courts and the alleged wrongdoer are entitled to require a proper evidentiary basis.
Canfor’s argument that environmental losses should only be recoverable under a special statutory remedy such as the United States’ Comprehensive Environmental Response, Compensation and Liability Act should be rejected. There is nothing so peculiar about environmental damages as to cause the courts to neglect the potential of the common law which, if developed in a principled and incremental fashion, can assist in achieving the fundamental value of environmental protection. However, a court cannot act on generalizations and unsupported assertions. In the absence of a statutory regime to address environmental loss, the Court must proceed cautiously with the development of the common law. The trial judge in this case rejected the Crown’s claim for financial compensation for “environmental loss” on the facts of this case and, on the record, he was right to do so.
Per Bastarache, LeBel and Fish JJ. (dissenting): The Crown’s entitlement in this particular case is not limited to the damages that a private landowner would receive. The fact that the Crown is trying to recover commercial value, or using commercial value as a proxy for the recovery of damages, should not limit the Crown’s parens patriae jurisdiction. The Crown, in seeking damages, is still fulfilling its general duty, its parens patriae function to protect the environment and the public’s interest in it.
The Crown suffered a compensable loss in respect of harvestable trees despite the CVP system. This system is nothing more than a means of attempting to pass losses on to other forest licensees. Until the fire-damaged forest has grown back to its original state this source of revenue for the Crown — the trees — is lost. The fact that the Crown has a system in place by which it charges higher prices to other customers within the British Columbia Interior should not prevent the Crown from recovering damages for its very real loss. The loss is all the more real when one considers that the Crown lost not only stumpage, but a bundle of rights attached to the harvestable trees through the licensing system.
The argument that the effective rate of stumpage that the Crown receives is the same, forest fire or no forest fire, is faulty and the lower courts’ acceptance of it was wrong in fact and in law. There is no guarantee that the CVP system is revenue-neutral. Canfor has only established that the target rate is maintained by charging higher stumpage rates to others. That the target revenue is maintained as a result is by no means certain. Even for a monopolistic supplier of timber licences, as the Crown is in the British Columbia Interior, there are consequences to raising stumpage rates as a result of forest fires, consequences which are too numerous to consider and beyond the competence of the courts. If a court wishes to allow the defence that the Crown has recouped all of its losses from the forest fire by charging higher stumpage rates to other customers in the British Columbia Interior, then it should carry this analysis to its end and inquire into whether the Crown suffered any economic loss as a result of increased stumpage fees charged to other licensees. This type of analysis, however, would be endless and futile and would tax the institutional capacities of the courts. To the extent that the Crown has shown that it has received less stumpage revenue in the Stone Creek fire area as a result of Canfor’s negligence, it has established a right of recovery in damages. Even if the CVP system were in fact revenue-neutral, such a finding would be irrelevant to an assessment of damages in tort. The law of damages only requires the Province to establish damages in a proximate sense.
The CVP system cannot be viewed as a form of mitigation. The principles behind mitigation, in particular the principle of economic efficiency, require the injured party to exploit any new “capacity to earn” triggered by the defendant’s tort. Mitigation principles do not require the injured party to attempt to recoup its losses by charging higher prices to other customers. The CVP system is therefore not a mitigating factor in the assessment of damages against Canfor.
The rule against double recovery is not violated by allowing the Crown to recover damages in addition to the increased revenue it received from other licensees under the CVP system. To deny the Crown recovery at bar would amount to recognizing in tort law the defence of passing on, which must not be allowed to take hold in Canadian jurisprudence. The trial judge erred in law in accepting the approach for valuing damages advocated by Canfor’s expert, because the expert was essentially advocating a legal defence of passing on, even if cast in a factual light.
The Province should be allowed to recover damages for the non-harvestable trees in the environmentally sensitive areas, both in the riparian zones and on the steep slopes. These trees have intrinsic value at least equal to their commercial value (i.e., stumpage value), despite their non-commercial use. In the absence of better evidence, the value of nearby harvestable trees can serve as a yardstick to measure the value of the trees on the steep slopes, and Canfor’s own expert report includes the commercial value for the non-harvestable trees in the riparian zones. To say as the Court of Appeal did that the value of the trees in question is only a portion of their commercial value is to significantly and fundamentally devalue the Crown’s and society’s loss. It is agreed with the majority that no damages for an environmental premium can be awarded.
Cases Cited
By Binnie J.
Referred to: R. v. Hydro-Québec, [1997] 3 S.C.R. 213; Friends of the Oldman River Society v. Canada (Minister of Transport), [1992] 1 S.C.R. 3; Ontario v. Canadian Pacific Ltd., [1995] 2 S.C.R. 1031; 114957 Canada Ltée (Spraytech, Société d’arrosage) v. Hudson (Town), [2001] 2 S.C.R. 241, 2001 SCC 40; Wood v. Grand Valley Railway Co. (1915), 51 S.C.R. 283; Penvidic Contracting Co. v. International Nickel Co. of Canada, [1976] 1 S.C.R. 267; Ratych v. Bloomer, [1990] 1 S.C.R. 940; Prince Rupert (City) v. Pederson (1994), 98 B.C.L.R. (2d) 84; Ryan v. Victoria (City), [1999] 1 S.C.R. 201; Stein v. Gonzales (1984), 14 D.L.R. (4th) 263; Bazley v. Curry, [1999] 2 S.C.R. 534; The Queen v. The Ship Sun Diamond, [1984] 1 F.C. 3; Attorney General for Ontario v. Fatehi, [1984] 2 S.C.R. 536; Glasgow Corp. v. Barclay, Curle & Co. (1923), 93 L.J.P.C. 1; Scarborough v. R.E.F. Homes Ltd. (1979), 9 M.P.L.R. 255; North Dakota v. Minnesota, 263 U.S. 365 (1923); Missouri v. Illinois, 180 U.S. 208 (1901); Kansas v. Colorado, 206 U.S. 46 (1907); Georgia v. Tennessee Copper Co., 206 U.S. 230 (1907); New York v. New Jersey, 256 U.S. 296 (1921); Illinois Central Railroad Co. v. Illinois, 146 U.S. 387 (1892); New Jersey, Department of Environmental Protection v. Jersey Central Power and Light Co., 336 A.2d 750 (1975); State of Washington, Department of Fisheries v. Gillette, 621 P.2d 764 (1980); State of California, Department of Fish and Game v. S.S. Bournemouth, 307 F.Supp. 922 (1969); State of Maine v. M/V Tamano, 357 F.Supp. 1097 (1973); State of Maryland, Department of Natural Resources v. Amerada Hess Corp., 350 F.Supp. 1060 (1972); Toronto Transportation Commission v. The King, [1949] S.C.R. 510; Cunningham v. Wheeler, [1994] 1 S.C.R. 359; Sunrise Co. v. Lake Winnipeg (The), [1991] 1 S.C.R. 3; British Columbia (Minister of Forests) v. Bugbusters Pest Management Inc., [2003] B.C.J. No. 84 (QL), 2003 BCSC 77; Kelliher (Village of) v. Smith, [1931] S.C.R. 672; Aerlinte Eireann Teoranta v. Canada (Minister of Transport) (1990), 68 D.L.R. (4th) 220; British Westinghouse Electric and Manufacturing Co. v. Underground Electric Railways Co. of London, Ltd., [1912] A.C. 673; Andros Springs v. World Beauty, [1970] P. 144; Bellingham v. Dhillon, [1973] Q.B. 304; 1874000 Nova Scotia Ltd. v. Adams (1997), 146 D.L.R. (4th) 466; Karas v. Rowlett, [1944] S.C.R. 1; Cemco Electrical Manufacturing Co. v. Van Snellenberg, [1947] S.C.R. 121; Apeco of Canada, Ltd. v. Windmill Place, [1978] 2 S.C.R. 385; Asamera Oil Corp. v. Sea Oil & General Corp., [1979] 1 S.C.R. 633; Southern Pacific Co. v. Darnell-Taenzer Lumber Co., 245 U.S. 531 (1918); Oshawa Group Ltd. v. Great American Insurance Co. (1982), 36 O.R. (2d) 424; Attorney-General for Nova Scotia v. Christian (1974), 49 D.L.R. (3d) 742; Hussain v. New Taplow Paper Mills Ltd., [1988] 1 All E.R. 541; Bilambil-Terranora Pty Ltd. v. Tweed Shire Council, [1980] 1 N.S.W.L.R. 465; State of Ohio v. U.S. Department of the Interior, 880 F.2d 432 (1989); Soutzo v. Canterra Energy Ltd., [1988] A.J. No. 506 (QL); Kates v. Hall (1991), 53 B.C.L.R. (2d) 322; Chappell v. Barati (1982), 30 C.C.L.T. 137; Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229; Woelk v. Halvorson, [1980] 2 S.C.R. 430.
By LeBel J. (dissenting)
Southern Pacific Co. v. Darnell-Taenzer Lumber Co., 245 U.S. 531 (1918); British Columbia (Minister of Forests) v. Bugbusters Pest Management Inc., [2003] B.C.J. No. 84 (QL), 2003 BCSC 77; British Westinghouse Electric and Manufacturing Co. v. Underground Electric Railways Co. of London, Ltd., [1912] A.C. 673; Apeco of Canada, Ltd. v. Windmill Place, [1978] 2 S.C.R. 385; Karas v. Rowlett, [1944] S.C.R. 1; Ratych v. Bloomer, [1990] 1 S.C.R. 940; Bradburn v. Great Western Rail. Co., [1874-80] All E.R. 195; Browning v. War Office, [1962] 3 All E.R. 1089; Parry v. Cleaver, [1969] 1 All E.R. 555; Hussain v. New Taplow Paper Mills Ltd., [1988] 1 All E.R. 541; Law Society of Upper Canada v. Ernst & Young (2002), 59 O.R. (3d) 214, rev’d (2003), 65 O.R. (3d) 577; Air Canada v. British Columbia, [1989] 1 S.C.R. 1161; Oshawa Group Ltd. v. Great American Insurance Co. (1982), 36 O.R. (2d) 424, leave to appeal refused, [1982] 1 S.C.R. viii; Garland v. Consumers’ Gas Co., [2004] 1 S.C.R. 629, 2004 SCC 25; Air Canada v. Liquor Control Board of Ontario (1995), 24 O.R. (3d) 403; Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968); Aerlinte Eireann Teoranta v. Canada (Minister of Transport) (1990), 68 D.L.R. (4th) 220; Dykhuizen v. Saanich (District) (1989), 63 D.L.R. (4th) 211; Prince Rupert (City) v. Pederson (1994), 98 B.C.L.R. (2d) 84; Kates v. Hall (1991), 53 B.C.L.R. (2d) 322; Scarborough v. R.E.F. Homes Ltd. (1979), 9 M.P.L.R. 255; Ontario v. Canadian Pacific Ltd., [1995] 2 S.C.R. 1031; 114957 Canada Ltée (Spraytech, Société d’arrosage) v. Hudson (Town), [2001] 2 S.C.R. 241, 2001 SCC 40; R. v. Hydro-Québec, [1997] 3 S.C.R. 213.
Statutes and Regulations Cited
Canadian Environmental Protection Act, 1999, S.C. 1999, c. 33, s. 40 .
Civil Code (France), art. 538.
Comprehensive Environmental Responses, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601-9675 (1982 Supp. V 1987).
Criminal Code, R.S.C. 1985, c. C-46, s. 180(1) .
Crown Proceeding Act, R.S.B.C. 1996, c. 89, s. 11(1).
Forest Act, R.S.B.C. 1979, c. 140 [now R.S.B.C. 1996, c. 157], ss. 84 [now s. 105], 161(1).
Transportation of Dangerous Goods Act, 1992, S.C. 1992, c. 34, s. 34(1) (b).
Authors Cited
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British Columbia. Ministry of Forests. Interior Appraisal Manual, January 1, 1990.
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McGregor, Harvey. McGregor on Damages, 17th ed. London: Sweet & Maxwell, 2003.
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APPEAL from a judgment of the British Columbia Court of Appeal (2002), 100 B.C.L.R. (3d) 114, 166 B.C.A.C. 122, 271 W.A.C. 122, 11 C.C.L.T. (3d) 1, 49 C.E.L.R. (N.S.) 1, [2002] B.C.J. No. 692 (QL), 2002 BCCA 217, allowing in part the Province’s appeal and dismissing the logging company’s cross-appeal from a decision of the British Columbia Supreme Court, [1999] B.C.J. No. 1945 (QL). Appeal allowed and cross-appeal dismissed, Bastarache, LeBel and Fish JJ. dissenting.
G. Bruce Butler and Birgitta von Krosigk, for the appellant/cross-respondent.
J. Douglas Eastwood, Karen Horsman and J. Gareth Morley, for the respondent/cross-appellant.
Donald J. Rennie and Mark Kindrachuk, for the intervener the Attorney General of Canada.
John R. Pennington, for the intervener the Forest Practices Board.
Jerry V. DeMarco, Anastasia M. Lintner and Robert V. Wright, for the interveners the Sierra Club of Canada and the David Suzuki Foundation.
John J. L. Hunter, Q.C., and K. Michael Stephens, for the interveners the Council of Forest Industries, the Forest Products Association of Canada and the Coast Forest & Lumber Association.
The judgment of McLachlin C.J. and Iacobucci, Major, Binnie, Arbour and Deschamps JJ. was delivered by
1 Binnie J. _ In the summer of 1992, a forest fire swept through the Stone Creek area of the Interior of British Columbia about 35 kilometres south of Prince George. Approximately 1,491 hectares were burned over, including areas where the appellant Canadian Forest Products Ltd. (“Canfor”) and other tenure holders were licensed to log, areas of steep slopes where it was uneconomic to log, still other areas where the trees were too immature to log, and areas along watercourses subsequently declared by the Crown to have too much environmental value to permit logging at all. It is the assessment of compensation for the Crown’s claim for environmental damage in these last-identified areas, called Environmentally Sensitive Areas (“ESAs”), that has created particular difficulty.
2 There is no longer any dispute about responsibility for the blaze. In the previous year, Canfor had carried out a controlled burn of its slashing and other logging waste, which failed to extinguish itself over the winter as expected. This fact went undetected because of the negligence of Canfor. The fire flared up again at the end of June 1992. The trial judge found that, while Canfor’s negligence contributed to the failure to suppress the resurrection of the fire, the Crown’s inadequate firefighting efforts also contributed to the loss ([1999] B.C.J. No. 1945 (QL)). He considered it impossible to apportion degrees of fault or blameworthiness and thus divided responsibility evenly. The Court of Appeal varied his decision by allocating 70 percent of the responsibility to Canfor and 30 percent to the Crown ((2002), 100 B.C.L.R. (3d) 114, 2002 BCCA 217). These findings are no longer in issue.
3 At trial, the Crown claimed damages for three categories of loss:
(1) Expenditures for suppression of the fire and restoration of the burned-over areas;
(2) Loss of stumpage revenue from trees that would have been harvested in the ordinary course (harvestable trees); and,
(3) Loss of trees set aside for various environmental reasons (non-harvestable or protected trees).
4 The trial judge awarded the Crown $3,575,000 under the first heading (which was an agreed figure), but otherwise dismissed the claim on the basis the Crown had failed to prove a compensable loss with respect either to harvestable or non-harvestable trees. In doing so, he expressly accepted as “compelling” the valuation evidence of C. H. Gairns, Canfor’s expert, and rejected the analysis of G. W. Reznik of Deloitte & Touche, the Crown’s valuation expert, as “not persuasive”.
5 The Court of Appeal dismissed the Crown’s appeal on damages with respect to the harvestable trees, but awarded compensation for “diminution of the value” of the non-harvestable trees at a figure equivalent to one third of their commercial value. The task of assessing the commercial value of the non-harvestable trees, if the parties could not agree to it, was referred back to the trial court. This award is the subject matter of Canfor’s appeal.
6 The Crown considers the award of compensation to be inadequate and in its cross-appeal claims the “auction value” of the standing timber in both harvestable and non-harvestable areas as of the date of the fire plus a premium over and above auction value for the degradation of the environment caused by destruction of the non-harvestable trees. In the alternative, it seeks an award of stumpage fees, plus the environmental premium on the non-harvestable trees. Canfor attacks the Crown’s methodology and says that, on the evidence, the Crown has been overcompensated, not undercompensated, by the courts in British Columbia.
7 The question of compensation for environmental damage is of great importance. As the Court observed in R. v. Hydro-Québec, [1997] 3 S.C.R. 213, at para. 85, legal measures to protect the environment “relate to a public purpose of superordinate importance”. In Friends of the Oldman River Society v. Canada (Minister of Transport), [1992] 1 S.C.R. 3, the Court declared, at p. 16, that “[t]he protection of the environment has become one of the major challenges of our time.” In Ontario v. Canadian Pacific Ltd., [1995] 2 S.C.R. 1031, “stewardship of the natural environment” was described as a fundamental value (para. 55 (emphasis deleted)). Still more recently, in 114957 Canada Ltée (Spraytech, Société d’arrosage) v. Hudson (Town), [2001] 2 S.C.R. 241, 2001 SCC 40, the Court reiterated, at para. 1:
. . . our common future, that of every Canadian community, depends on a healthy environment. . . . This Court has recognized that “(e)veryone is aware that individually and collectively, we are responsible for preserving the natural environment . . . environmental protection [has] emerged as a fundamental value in Canadian society” . . . .
8 If justice is to be done to the environment, it will often fall to the Attorney General, invoking both statutory and common law remedies, to protect the public interest. In this case, the Attorney General has not resorted to statutory remedies (as under s. 161(1) of the Forest Act, R.S.B.C. 1979, c. 140 (now R.S.B.C. 1996, c. 157), for payment where timber is damaged or destroyed) but has sought damages at common law. The present appeal raises, therefore, the Attorney General’s ability to recover damages for environmental loss, the requirement of proof of such loss and a principled approach to the assessment of environmental compensation at common law.
9 The Crown in right of British Columbia says it sues not only in its capacity as property owner but as the representative of the people of British Columbia, for whom the Crown seeks to maintain an unspoiled environment. Thus the claim for an environmental premium is made “in recognition of the fact that it [the Crown], and the public on whose behalf it owned the Protected Trees, valued them more highly as part of a protected ecosystem”. The Crown frames the issue on appeal as the valuation of tort damages for a “publicly owned resource”, and makes reference to the “worth to society” of the trees in their protected state. The Crown states that “[f]air compensation also requires that wrongdoers pay the public for damaging their ecosystems.” In thus framing its claims, the Crown invokes its role as parens patriae.
10 The relationship between the Crown’s status as property owner and the Crown as parens patriae is one of the issues presented for consideration, as is the Crown’s hybrid role as regulator of the forest industry and at the same time recipient of a revenue stream established and limited by its own regulatory system.
11 The Attorney General of Canada intervened in support of the Province to argue that full compensation for damage to protected natural resources must include reimbursement for financial expenditure on restoring the natural resource (“restoration cost”), compensation for the loss of use and passive use until such time as restoration is complete (“loss of use”), and, where the facts warrant, additional compensation for permanent loss of a unique resource where there is no prospect of restoration.
12 A claim for environmental loss, as in the case of any loss, must be put forward based on a coherent theory of damages, a methodology suitable for their assessment, and supporting evidence. No one doubts the need for environmental protection but, in this case, apart from the cost of reforestation, which was agreed to, the Crown claims only stumpage and “diminution of the value of the timber” within the burned-over area. The environment includes more than timber, but no allegations of loss were made in that regard. The pleadings, in other words, suggested a fairly narrow commercial focus and that is how the claim was defended.
13 The evidentiary record is also singularly thin on what precise environmental loss occurred, apart from damage to trees, and what value should be placed on it. The evidence of the Crown’s own valuation experts, Deloitte & Touche, offered no support for the Crown’s present expanded posture on environmental loss.
14 We cannot treat the Crown’s argument as evidence; nor can we read into the record a theory of valuation that, rightly or wrongly, was supported by none of the experts. The Crown may have a more substantial environmental claim than is before us but she didn’t prove it. Thus, while I would not interfere with the Court of Appeal’s disposition of the claim in respect of the harvestable timber, in my opinion, with respect, the Crown did not establish its claim for compensation for environmental damage. I would therefore allow Canfor’s appeal in that respect. The Crown’s cross-appeal should be dismissed.
I. Facts
15 Canfor is one of the largest forest companies in British Columbia. At all material times it held a Forest Licence from the Province under the Forest Act, permitting it to cut timber (the annual allowable cut) from year to year in the identified territory over a 20-year period in exchange for stumpage, i.e., a fee charged on each cubic metre of harvested timber, plus forest management services. The maximum allowable cut in each year was regulated by cutting permits, issued for terms not exceeding four years. The permit system gave licence holders such as Canfor a certain amount of flexibility in the pace, volume and location of its cutting operations. The fire spread to lands outside Canfor’s licence area, including timber supply licence lots and woodlots held by different operators under other types of tenure.
16 The litigants variously described the plaintiff in terms of the “Crown”, the “Province” and the “Attorney General”. In what follows, I generally refer to the Province as the interest holder and the Crown or Attorney General as its advocate.
17 The area affected by the fire had been harvested before on a number of occasions in the 1950s and 1960s. The timber in the area was not, by and large, old growth but it was big enough for the wood to be merely damaged (rather than consumed) by the fire.
18 The stumpage system in effect in British Columbia since 1987 has its roots, at least in part, in the softwood lumber dispute with the United States. According to the expert evidence, “the Americans were suggesting that the government of British Columbia was giving away its wood at inappropriately low rates”. Accordingly, the Province adopted a stumpage “target rate” for wood harvested in the British Columbia Interior, and adopted a Comparative Value Pricing (“CVP”) system to ensure that it was able to collect that target rate for each cubic metre of timber production. Forest productivity and costs of production vary from licence area to licence area within the B.C. Interior, and the Province’s regulatory rate system, including the CVP, was calculated to ensure both cost sensitivity to local conditions and achievement by the Province of revenue that it hoped would calm the roiling waters of the U.S. softwood lumber lobby. As Crown counsel put it to Canfor’s expert:
In 1987 the Ministry of Forests introduced the comparative value pricing system as part of a program to remove the 15 percent export tax which is imposed by Canada on softwood lumber exports to the U.S. in response to the threat of a U.S. tariff. Under the CVP, the stumpage rate is still determined on appraisal basis. The rate is then subjected to a mathematical manipulation to insure that the stumpage budget in B.C. approximates the target rate set by the government.
19 As found by the trial judge, the CVP system ensured “that responses by the Ministry of Forests to verifiable local high costs, or low timber values, would not affect Provincial revenues” (para. 121 (emphasis added)). Canfor’s expert added, perhaps with a hint of cynicism, that “[t]hey adopted this system to boost government revenues, significantly boost government revenues. And they had a great excuse to do it, they could blame it on the Americans. That’s my opinion.”
20 It is against this background that the Court must determine the amount of compensation that will, so far as money can, put the Province in the same position as it would have been in if the fire had not occurred.
A. Calculation of Stumpage
21 “Stumpage”, as mentioned, is an amount of money charged by the Province on each cubic metre of harvested timber. At the date of the fire, it was payable at rates determined in accordance with the policies and procedures approved for the forest region by the Minister. The relevant policies are set out in the “Interior Appraisal Manual” which has the force of subordinate legislation made pursuant to s. 105 of the current Forest Act (formerly s. 84). Canfor argues that the Crown’s compensable interest was the creature of, and was limited by, the regulatory scheme that was put in place by the Province itself in 1987. The Province is not, in that respect, an ordinary landowner. It was entitled to a revenue stream and, says Canfor, there was no shortfall in that revenue stream attributable to the fire.
22 The regulatory scheme dealt separately with the Coastal Region and the Interior Region. The Crown established a target rate for each region which, when multiplied by anticipated timber production,