Date: 20120531
Docket: A-307-10
Citation: 2012 FCA 165
CORAM: EVANS
J.A.
SHARLOW
J.A.
STRATAS
J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
SOUTH YUKON FOREST CORPORATION
and LIARD PLYWOOD AND
LUMBER MANUFACTURING INC.
Respondents
REASONS FOR JUDGMENT
STRATAS J.A.
[1]
This
is an appeal from the judgment dated June 7, 2010 of the Federal Court (per
Justice Heneghan): 2010 FC 495.
[2]
The
Federal Court found that certain Crown officials in the Department of Indian
Affairs and Northern Development (the “Department”) promised and represented to
the respondents South Yukon Forest Corporation (“South Yukon”) and Liard
Plywood and Lumber Manufacturing Inc. (“Liard Plywood”) that if they built a
lumber mill in Yukon, the Crown would ensure that there would be an adequate,
long term supply of timber for the mill. South Yukon and Liard Plywood relied
on the promises and representations, and built the mill in Watson Lake, Yukon (the
“Watson Lake Mill”).
[3]
The
supply of timber was inadequate. First, the Watson Lake Mill closed briefly.
Later, starved for timber, and with no long term permit to harvest timber in
the offing, it shut down for good.
[4]
Based
mainly on these factual findings, the Federal Court found the Crown liable for
breach of contract, negligence and negligent misrepresentation. It awarded South Yukon and Liard
Plywood $67 million in compensatory damages, $50,000 in punitive damages,
prejudgment interest and costs.
[5]
The
Crown has appealed. I would allow the Crown’s appeal with costs. In my view, there
was no legal basis for liability on the part of the Crown in these
circumstances.
A. The essential
facts
[6]
This
is a complicated, factually intricate case. A clear and comprehensive summary
of the facts can be found in the reasons of the Federal Court.
[7]
For
a long time before the events that gave rise to this case, the Department wished
to develop a forestry industry in Yukon. However, that wish was
hobbled by the absence of a willing, viable private industry participant.
[8]
Regulatory
changes were introduced to attract development of the forestry industry and, in
particular, the processing of timber in Yukon. One change
was the adoption of the “60/40 rule.” Another was the establishment of a
two-tiered stumpage fee. Under the 60/40 rule, for a timber permit to be issued
to an applicant, the applicant had to process 60% of its timber in Yukon. Under the
two-tiered stumpage fee system, the stumpage fee charged on logs processed in
Yukon was less than for timber exported from Yukon.
[9]
These
regulatory changes and the Department’s enthusiasm for developing a Yukon forestry
industry formed a backdrop for the events that followed.
[10]
In
1995, discussions started between the Department and individuals who were or
would later become associated with South Yukon and Liard Plywood.
These discussions concerned the feasibility of building a lumber mill in Yukon.
[11]
A
major part of those discussions concerned whether sufficient timber would be
available to make a mill feasible. In fact, the topic of a long term, assured
timber supply arose constantly in meetings for the next few years. It was a
significant concern for South Yukon and Liard Plywood.
[12]
The
regulatory framework for harvesting timber in Yukon, as it
existed at that time, greatly affected the supply of timber and thus the
viability of a lumber mill.
[13]
The
Department was responsible for ensuring that timber resources in Yukon were
harvested in accordance with applicable legislation and its policies. While the
Department was keen to develop a forestry industry, it was also responsible for
ensuring long term sustainability of the forests.
[14]
Most
of the forests in Yukon are on Crown land and cannot be cut without authorization.
Authorization could be obtained in three ways:
● A
permit for less than 1,000 cubic meters of timber;
● A
Commercial Timber Permit, often referred to as a “CTP,” for a maximum of 15,000
cubic meters for one year: Yukon Timber Regulations, C.R.C. 1978, c.
1528, subsection 4(1). These permits were the principal means for harvesting
timber in Yukon, were issued
by local Department officials to individual loggers, and could be sold to third
parties.
● A
Timber Harvest Agreement, known as a “THA,” with the Government of Canada,
which granted the holder long term tenure: Territorial Lands Act, R.S.C.
1985, c. T-7, section 8. Such an agreement required the approval of the
Governor in Council by order in council. Further, as an administrative matter,
approval for a Timber Harvest Agreement was granted only upon submission of a
business plan and a forest management plan. A forest management plan is a “high
level policy document…designed to balance, and implement controls over, the
various social, environmental, economic and political factors that must be
considered with respect to forest use”: Federal Court reasons, at paragraph 168.
[15]
To
be viable, the sort of lumber mill envisaged by South Yukon and Liard
Plywood would require a long term, assured supply of 200,000 to 215,000 cubic
meters of timber per year. Only a Timber Harvest Agreement would suffice.
[16]
With
a view to obtaining such a supply, Mr. Bourgh of Liard Plywood briefly met with
Minister Irwin and his Executive Assistant in Dawson City in May
1996. At trial, Mr. Bourgh testified that after the Minister left the meeting,
the Executive Assistant said to him, “If you build a mill that will employ 100
people, why wouldn’t we give you the timber?”
[17]
In
June 1996, Mr. Ivanski, the senior regional official with the Department in Yukon, wrote a
letter to Mr. Bourgh. The Federal Court described the letter as follows (at
paragraph 683):
In his letter, Mr. Ivanski advised Mr. Bourgh on behalf of
[Liard Plywood], of the necessary steps to receive a [Timber Harvesting
Agreement]. He also stated that fulfilling all the relevant requirements did
not guarantee the grant of tenure.
“Tenure” in this context means the long
term tenure that would be granted under a Timber Harvesting Agreement.
[18]
The
Ivanski letter also said that a Timber Harvesting Agreement would be a
“fundamental tenet” in the overall concept of an operating lumber mill. Mr.
Ivanski invited Mr. Bourgh to make an “actual proposal which provides more
details.”
[19]
A
plan for the mill began to be formulated. Plans progressed to the point where a
site for the mill was acquired at Watson Lake and a
commercial building was constructed on it.
[20]
In
November 1996, Mr. Bourgh wrote the Minister, requesting that he provide a
“commitment for a long term timber supply.” In March 1997, the Minister
responded. The Minister stated that only short term Commercial Timber Permits
would be available until consideration of a long term comprehensive forestry
policy was completed. Once that policy was worked out, a long term Timber
Harvest Agreement could be entered into.
[21]
The
relevant portions of the Minister’s letter to Mr. Bourgh, found in paragraph
318 of the Federal Court’s reasons, are as follows:
Under DIAND’s current interim allocation policy, over
350,000 m3 of wood are available under commercial timber
permits in the Watson
Lake area. I
understand this harvest level should remain the same until new levels are
decided through the consultative process of developing sustainable forest
management plans for the forest management units most affected by your mill
location. These plans will be completed in two to three years. Meanwhile,
your plant will be able to secure timber supplies from local permitters for the
next few years.
The development of a comprehensive forestry policy began in
December 1996. The policy will address key issues around stumpage, allocation,
tenure, and other key elements of forest management. Your company requires long
term tenure between you and the Crown. There is a need for Yukoners to define
what forms of long term tenure they want. Pending the completion of
consultations on long term tenure, existing allocations will be followed until
the new strategy and policies are developed. With the exception of commercial
timber permits and salvage area wood, no new allocation will be given until the
allocation strategy is finalized after due consultation with First Nations, the
Government of Yukon, industry, stakeholders, and the public.
I wish you success with your project, as
I believe that projects such as yours are ideally suited for the Yukon. I hope your company will be an
active participant in helping Yukoners forge a new comprehensive forestry
policy.
[emphasis added in the Federal Court’s reasons]
[22]
The
first emphasized portion of the Minister’s letter, above, refers to obtaining
timber under Commercial Timber Permits. As mentioned above, individual
harvesters of timber could apply for Commercial Timber Permits and the amount
of timber that could be harvested annually under each Commercial Timber Permit was
strictly limited. But the viability of any lumber mill was dependent upon the
ultimate granting of a long term Timber Harvesting Agreement. The Minister’s
letter evidences an understanding that all parties were aware that if the
lumber mill were to survive, the provision of short term Commercial Timber
Permits would be, at best, a temporary measure, and that a Timber Harvest
Agreement would be essential.
[23]
The
second paragraph of the above passage from the Minister’s letter is also
significant. It shows that the Department began to develop a “comprehensive
forestry policy” in December 1996, and that no long term tenure under a Timber
Harvesting Agreement would be granted until that policy was settled. This
policy re-think was prompted by a dramatic increase in the demand for timber in
Yukon in 1995. The
number of Commercial Timber Permits granted went from a historical level of 175
to 1,300 in 1995.
[24]
In
July 1997, a meeting took place, described by the Federal Court as “critical”
(at paragraph 942). That meeting involved representatives of Liard Plywood and the
Department’s officials. The Federal Court found that during the meeting, one
Department official stated words to the effect that “if a mill was built [Liard
Plywood] would receive the timber to operate it” or “if you build a mill, we
will give you timber” (at paragraphs 966 and 998).
[25]
In
the Federal Court, South Yukon and Liard Plywood presented evidence about the
historical context of these comments. Earlier in the 1990s, the Department gave
long term tenure to another company in return for that company constructing and
operating a lumber mill. The company defaulted. South Yukon and Liard Plywood alleged
that this adverse experience made the Department keen to have them build a mill
first, and only then grant them long term tenure under a Timber Harvesting
Agreement.
[26]
Other
evidence suggested that it was a “risky business decision” to proceed with the
lumber mill in these circumstances (see Appeal Book at pages 1495, 1688-1689).
Nevertheless South
Yukon
and Liard Plywood pressed on. Having received the assurances in the July 1997
meeting from the Department official, and in light of other positive signals,
such as the meeting in Dawson City and the Department’s keenness to start a
forestry industry, South Yukon and Liard Plywood decided to proceed with
building their lumber mill at Watson Lake.
[27]
As
will be seen, the Federal Court judge held that the assurances in the July 1997
meeting were representations and promises that South Yukon and Liard
Plywood were entitled to rely upon.
[28]
The
Watson Lake Mill was completed and started operating in October 1998. When it
opened, most of the timber it received came from local loggers holding short
term Commercial Timber Permits.
[29]
However,
problems soon developed. The supply of timber was never sufficient. There were
delays in issuing Commercial Timber Permits. Some of the permits issued were
for areas where the characteristics or “profile” of the logs harvested was
inadequate.
[30]
Because
of problems with the supply of timber, the Watson Lake Mill shut down briefly
in December 1998. It re-opened in April 1999. However, with no Timber
Harvesting Agreement in sight and, thus, no long term assured supply of timber,
it shut down for good in August 2000.
[31]
South
Yukon and Liard Plywood never received a Timber Harvest Agreement.
[32]
Shortly
after the Watson Lake Mill shut down, the Department completed its review of
policies concerning timber harvesting in Yukon. As a result
of that review, in 2001 the Department issued a request for proposals for the
granting of two long term Timber Harvest Agreements. Those Timber Harvest
Agreements would authorize the holder to harvest 30,000 cubic meters of timber
per year over a five-year period. It is evident that even if the Watson Lake
Mill had continued to operate, a Timber Harvesting Agreement permitting such a
low harvest would not have allowed it to survive – as the Federal Court found,
the Watson Lake Mill needed at least 200,000 cubic meters of timber per year.
B. The decision
of the Federal Court
[33]
In
lengthy reasons for judgment, the Federal Court found the Crown liable for
negligence, negligent misrepresentation and breach of contract.
(1) Negligence
[34]
The
Federal Court concluded that the Crown owed a duty of care in law to South Yukon and Liard
Plywood, that harm to them was a foreseeable consequence of disruptions in the
supply of wood to the Watson Lake Mill and that the Crown breached the standard
of care. The breach of the standard of care occurred when the Crown failed to
issue in a timely way Commercial Timber Permits to persons seeking to cut
timber, and when the Crown failed to develop in a timely way a policy to govern
the long term access of South Yukon and Liard Plywood to timber under a Timber
Harvesting Agreement.
[35]
The
Federal Court found that, in breaching the standard of care, certain officials
in the Department acted in bad faith. In its view, the officials’ bad faith
precluded the Crown from maintaining that because the officials were developing
and applying policy, their conduct was excusable.
(2) Negligent
misrepresentation
[36]
The
Federal Court found the Crown liable for negligent misrepresentation. The
Federal Court found that Liard Plywood relied on the representation, described
above, to the effect that “if a mill was built [Liard Plywood] would receive
the timber to operate it” or “if you build a mill, we will give you timber.” Further,
reliance on the representation was reasonable, and South Yukon and Liard
Plywood would not have built the Watson Lake Mill had the statement not been
made. The representation was a continuing one which induced South Yukon and Liard
Plywood to build the Watson Lake Mill in the first place, and later to reopen
it after the initial shut down in December 1998.
(3) Contract
[37]
The
Federal Court also found the Crown liable for breach of contract. The representation
that timber would be available to a mill built by Liard Plywood and South Yukon
was a unilateral promise. When the Watson Lake Mill was built, the unilateral
promise was accepted and a unilateral contract was formed. The fact that South Yukon did not
exist at the time the promise was made did not matter to the Federal Court, as
the unilateral promise was made to the world at large.
[38]
The
Federal Court found that it was an implied term of the unilateral contract that
the annual volume of timber guaranteed to be supplied was 200,000 cubic meters
annually over twenty years.
[39]
Such
a long term supply of timber could only be obtained under a Timber Harvesting
Agreement granted by way of order in council. However, in the view of the
Federal Court, this was not an obstacle to liability in contract because “[i]t
lay within the power of the [Crown] to change the process or seek the necessary
authorization in accordance with her contractual obligations” (at paragraph
1097).
(4) Damages
[40]
The
Federal Court awarded South Yukon and Liard Plywood the loss of profits that they
would have made had the Watson Lake Mill remained open. Accepting that they
would have received a twenty-year permit to harvest 200,000 cubic meters
annually, the Federal Court awarded them compensatory damages of $67 million,
punitive damages of $50,000, pre-judgment interest and costs. It awarded
punitive damages because of the “misconduct” of the Crown and the “harsh,
vindictive, reprehensible and malicious” actions of certain Department officials
(at paragraph 1333).
C. The Crown’s
attacks on certain fact-based findings
[41]
In
this Court, the Crown attempted to challenge a number of findings of fact on
the basis of palpable and overriding error.
[42]
The
parties devoted a considerable portion of their argument to the issue of
whether the Federal Court’s judgment must be set aside because it rested upon
faulty findings of fact.
[43]
The
parties agreed that in order to succeed on this, the Crown must show the
presence of palpable and overriding error. However, during oral argument, it
became evident that the parties had a fundamentally different understanding of
the meaning of palpable and overriding error, particularly in a long and
complex case such as this. For this reason, I consider that some broader observations
on this issue are warranted.
[44]
In
defining palpable and overriding error, South Yukon and Liard Plywood relied
heavily upon the guidance given by the Court of Appeal for Ontario concerning
palpable and overriding error in Waxman v. Waxman (2004), 186 O.A.C.
201 at paragraphs 278-84. They forcefully submitted
that palpable and overriding error is a highly deferential standard of review
and that the Federal Court judge’s factual findings in this case cannot be
disturbed.
[45]
On
this, I agree with the respondents.
[46]
Palpable
and overriding error is a highly deferential standard of review: H.L. v. Canada
(Attorney General), 2005 SCC 25,
[2005] 1 S.C.R. 401; Peart v. Peel Regional Police Services (2006) 217
O.A.C. 269 (C.A.) at
paragraphs 158-59; Waxman, supra. “Palpable” means an error that
is obvious. “Overriding” means an error that goes to the very core of the
outcome of the case. When arguing palpable and overriding error, it is not
enough to pull at leaves and branches and leave the tree standing. The entire
tree must fall.
[47]
In
applying the concept of palpable and overriding error, it is useful to keep
front of mind the reasons why it is an appropriate standard in a complex case
such as this.
[48]
In
this case, there were 40 days of trial stretched out over 6 months, with 19
witnesses and over 1,000 documents, many of which were intricate and technical.
In clear and thorough reasons showing considerable synthesis and assessment of
the complex evidence before her, the Federal Court judge made key findings of
fact. Some of these were founded upon her assessment, clearly expressed, of the
credibility of the witnesses before her. Her credibility findings concerning
most of the Department’s officials who testified are quite negative.
[49]
Immersed
from day-to-day and week-to-week in a long and complex trial such as this,
trial judges occupy a privileged and unique position. Armed with the tools of
logic and reason, they study and observe all of the witnesses and the exhibits.
Over time, factual assessments develop, evolve, and ultimately solidify into a
factual narrative, full of complex interconnections, nuances and flavour.
[50]
When
it comes time to draft reasons in a complex case, trial judges are not trying
to draft an encyclopedia memorializing every last morsel of factual minutiae,
nor can they. They distill and synthesize masses of information, separating the
wheat from the chaff and, in the end, expressing only the most important
factual findings and justifications for them.
[51]
Sometimes
appellants attack as palpable and overriding error the non-mention or scanty
mention of matters they consider to be important. In assessing this, care must
be taken to distinguish true palpable and overriding error on the one hand, from
the legitimate by-product of distillation and synthesis or innocent
inadequacies of expression on the other.
[52]
In
this Court, the Crown submitted that a number of the Federal Court’s findings
of fact should be set aside on the basis of palpable and overriding error.
[53]
In
my view, the Crown failed to establish palpable and overriding error as it has
been articulated above. The Federal Court judge had a basis in the record for
her key factual findings. The Crown views the basis for some of them expressed
in the reasons as being rather thin. In some regards that may be so but, as I
have explained, thinness alone is not palpable and overriding error.
[54]
Therefore,
in this appeal, I shall proceed on the basis that every one of the Federal
Court’s findings of fact must stand.
[55]
I
turn now to some of the fundamental grounds upon which the action of South
Yukon and Liard Plywood founders.
D. The reasonableness of
South Yukon and Liard Plywood’s reliance on
representations made by the Department’s officials
[56]
In
essence, South Yukon and Liard Plywood allege that the Crown represented to
them that if they built a mill, the Crown would ensure an adequate supply of
timber. The Crown would ensure that supply by granting permits to harvest
lumber, and by granting them in a timely fashion. South Yukon and Liard Plywood
say that their reliance on those representations was reasonable. The Federal
Court agreed.
[57]
The
reasonableness of South Yukon and Liard Plywood’s reliance is central to the
cause of action of negligent misrepresentation. If, as a matter of law, they
relied unreasonably on the Crown’s representations, the Crown cannot be held
liable: Queen
v. Cognos Inc., [1993] 1 S.C.R. 87 at page 110. In my view, their
reliance was unreasonable.
[58]
First,
as mentioned above, if the Watson Lake Mill were to survive, it would need to
receive a Timber Harvesting Agreement for the long term supply of timber. But
whatever assurances the Department’s officials gave South Yukon and Liard
Plywood about getting a Timber Harvesting Agreement, those assurances were not
capable of being relied upon. In the end, a Timber Harvesting Agreement could
only be made under the authorization of an order in council passed by the
Governor in Council under section 8 of the Territorial Lands Act. Under
that section, the Governor in Council could disagree with the Department’s
officials if it wished. Therefore, whatever assurances the Department’s
officials gave could not have been relied upon reasonably by South Yukon and
Liard Plywood as the basis for building the Watson Lake Mill.
[59]
Section
8 of the Territorial Lands Act provides as follows:
|
8. Subject to this Act, the
Governor in Council may authorize the sale, lease or other disposition of
territorial lands and may make regulations authorizing the Minister to sell,
lease or otherwise dispose of territorial lands subject to such limitations
and conditions as the Governor in Council may authorize.
|
8. Sous réserve des autres
dispositions de la présente loi, le gouverneur en conseil peut autoriser la
cession, notamment par vente ou location, de terres territoriales; il peut
également, par règlement, déléguer au ministre ce pouvoir et l’assortir
éventuellement de restrictions ou conditions.
|
The Governor in Council did not make an
order in council in this case concerning the Watson Lake Mill.
[60]
The
Governor in Council’s discretion under section 8 of the Territorial Lands
Act is very broad. The words of the section do not constrain that
discretion.
[61]
The
fact that the authority to decide whether or not to grant a Timber Harvesting
Agreement is vested in the Governor in Council sheds some light on the breadth
of the discretion. The Governor in Council is “a body of diverse policy
perspectives representing all constituencies within government”: League for
Human Rights of B'Nai Brith Canada v. Odynsky, 2010 FCA 307 at
paragraph 78.
Undoubtedly, in deciding whether to grant a Timber Harvesting Agreement, the
Governor in Council is to take into account an array of policy considerations,
in this case, the very sort of policy considerations that the Department was
investigating in the 1999-2001 period.
[62]
In
the end, in 2001, the Department issued a request for proposals for the
granting of a Timber Harvesting Agreement, ultimately for approval by the
Governor in Council. That request for proposals was based upon a forest
management plan that the Federal Court described as a “high level policy
document…designed to balance, and implement controls over, the various social,
environmental, economic and political factors that must be considered with
respect to forest use” (at paragraph 168). South Yukon and Liard
Plywood could not reasonably rely on any representations made by the Department’s
officials – the issuance of a Timber Harvesting Agreement was ultimately a
decision for the Governor in Council, not the Department’s officials, to make
on the basis of broad policy considerations.
[63]
South
Yukon and Liard Plywood submitted that section 8 of the Territorial Lands
Act was only a directory requirement, not mandatory. I disagree. Whether a
provision is mandatory or directory is determined by examining the object of
the statute and the effects of ruling one way or the other: M & D Farm Ltd. v. Manitoba Agricultural Credit Corp., [1999] 2 S.C.R. 961 at paragraph 44; British Columbia
(Attorney General) v. Canada (Attorney General); An Act respecting the
Vancouver Island Railway (Re), [1994] 2 S.C.R. 41 at pages 123-24. The Territorial
Lands Act is aimed at ensuring that territorial lands are managed in a
sound manner for the benefit of the territory and its people. By ensuring that territorial
land is only sold, leased or otherwise disposed of in accordance with the
policy-based approval of the Governor in Council, section 8 is essential to the
objects of the Act. If section 8 were only directory, an important restriction on
the sale, lease or disposal of territorial lands would disappear, with the
potential for lands to be used contrary to the best interests of Yukon.
[64]
South
Yukon
and Liard Plywood did not argue that they were unaware of section 8 of the Territorial
Lands Act. I would point out that even if they were unaware of it, that
would be of no consequence. Ignorance of the law is no excuse. South Yukon and
Liard Playwood must be taken to know that the Department’s officials had no
power to bind the Governor in Council and that the Governor in Council could
disagree with any recommendation of the officials or the responsible Minister
and refuse South Yukon and Liard Plywood a Timber Harvesting Agreement. See
generally Wind Power Inc. v. Saskatchewan Power Corp., 2002 SKCA
61, leave dismissed [2002] S.C.C.A. No. 283, discussed below.
[65]
In
the alternative, as a matter of law, the Federal Court could not have found
reasonable reliance on the part of South Yukon and Liard Plywood
given
the totality of the representations made to them. As is evident from Ivanski
letter and the Minister’s letter, described above, South Yukon and Liard
Plywood were on notice that it was far from certain that they would receive a
long term Timber Harvesting Agreement that would authorize the harvesting of
timber in the quantities needed.
E. No contract could
arise from the unilateral promises made by the Department’s officials
[66]
The
Federal Court found that the Department’s officials unilaterally promised that if South Yukon and Liard Plywood built
their lumber mill, they would receive an assured and adequate supply of timber.
When Liard Plywood and South Yukon built the
Watson Lake Mill, the unilateral promise was accepted, and a unilateral
contract came into being.
[67]
As a matter of law, a unilateral contract could not come into
being in these circumstances.
[68]
Any promises or representations by the officials of the Department
to the effect that a Timber Harvesting Agreement would be granted were outside
their authority to make because a Timber Harvesting Agreement could only be
granted by order in council. The officials had no authority to bind the
Governor in Council.
[69]
Where a statute regulates the power to make contracts, as section
8 of the Territorial Lands Act does in this case, a contract binding on
the Crown does not come into existence until the requirements of the statute
are fulfilled: Jacques-Cartier Bank v. The Queen (1895), 25 S.C.R. 84; The
King v. Vancouver Lumber Co. (1914), 41 D.L.R. 617 (Ex. Ct.) (ultimately
affirmed by the Privy Council (1919), 50 D.L.R. 6); The Queen v. CAE
Industries Ltd., [1986] 1 F.C. 129 (C.A.). Where there
are statutory restrictions on the authority of servants or agents to bind the
Crown, those restrictions must be complied with, and no actual, ostensible or
usual authority can override a statutory prohibition: Peter W.
Hogg and Patrick J. Monahan, Liability of the Crown, 3d ed. (Toronto:
Carswell, 2000) at page 225-226.
[70]
Very instructive on these points is the decision of the
Saskatchewan Court of Appeal in Wind Power Inc. v. Saskatchewan Power Corp.,
supra. The facts of Wind Power bear some resemblance to those in
this case.
[71]
The Saskatchewan Power Corporation tendered for a wind power
project. Wind Power Inc. submitted a bid, which the Saskatchewan Power
Corporation accepted. The relevant statute prevented the Saskatchewan Power
Corporation from entering into a contract without the approval of the
Lieutenant Governor in Council. The Lieutenant Governor in Council refused
approval. Wind Power nevertheless argued that there was an implied term of the
contract that required Saskatchewan Power Corporation to enter into a contract
with it. The Court of Appeal rejected this argument, finding that no such
implied term could exist in the face of the statutory requirement for approval
by the Lieutenant Governor in Council. It also added that a contractor dealing
with government is on notice of all statutory limitations placed on public
officers (at paragraph 76, citing Hogg and Monahan, supra at page 226
and The Queen v. Woodburn (1899), 29 S.C.R. 112).
[72]
Also instructive is Donald Frederick
Angevine v. Her Majesty the Queen, in Right of Ontario, 2011 ONSC 4523. The plaintiff, a lawyer,
alleged that he was promised by the Attorney General that he would receive a
judicial appointment to the Ontario Court of Justice. He was never appointed.
He sued for breach of contract. The Ontario Superior Court of Justice, noting
that a
judicial appointment is “a discretionary, executive function of Cabinet,”
concluded that a contract could not come into existence (at paragraph 8). It
held that “the Attorney General could not bind Cabinet to accept his
recommendation” and “if one party to negotiations knows, or ought to know, that
the other party lacks the capacity or authority to enter into the contract
being discussed, no such contract can be formed” (at paragraphs 19 and 20). In
the case at bar, the same can be said for the unilateral promises made by the
Department’s officials.
F. Causation of damage
[73]
In the case of negligence and negligent misrepresentation,
causation of damage is an essential element that South Yukon and Liard Plywood
had to establish in order to succeed. Specifically, they had to show that the
Governor in Council would have granted them a Timber Harvesting Agreement
allowing them to harvest timber in amounts required to keep the Watson Lake
Mill viable – as the Federal Court found, 200,000 cubic meters of timber per
year. Alternatively, they had to show that the prompt issuance of Commercial
Timber Permits would have caused a reliable and adequate supply of those same
amounts of timber.
[74]
They did not show this. Indeed, the evidence suggests the
contrary. In 2001, the various relevant policy factors led the Department to
issue requests for proposal for Timber Harvesting Agreements allowing the
harvest of only 30,000 cubic meters of timber per year.
[75]
That decision by the Department has not been challenged by way of
judicial review. Therefore, this Court must take it as fact that the policy
considerations, when finally analyzed and considered, supported a timber
harvest far below what the mill needed to survive.
[76]
The Minister’s letter, quoted in paragraph 21 above, shows that South
Yukon and Liard Plywood were advised and, thus, were well aware of the
fact that the Department was engaged in an assessment of the policy
considerations and that a moratorium on granting Timber Harvesting Agreements
was in force pending the completion of that assessment. In building the Watson
lake Mill in those circumstances, South Yukon and
Liard Plywood took the risk that they would not have a Timber Harvesting
Agreement of the sort they needed. That risk eventuated. As a matter of law,
fault for that cannot be laid at the feet of the Crown.
[77]
As for Commercial Timber Permits, whether sufficient
timber would be available for the Watson Lake Mill depended upon whether there
were sufficient applicants for the permits, a matter beyond the control of the
Department. The Federal Court did find that the Department issued Commercial
Timber Permits for areas where the timber possessed the wrong wood profile for
the mill, but this was not due to the Department’s conduct. Those applying for
the Commercial Timber Permits nominated the areas where they wanted to harvest
timber. In any event, in the end, South Yukon
and Liard Plywood shut the mill down once and for all due to the lack of an
assured, long term supply of timber, i.e., the lack of a Timber Harvest
Agreement. The acquisition of timber through Commercial Timber Permits was
always intended by Liard Plywood and South Yukon to be a short term fix until
such time as a Timber Harvest Agreement came into place. See the Federal
Court’s reasons at paragraph 1243 and Appeal Book at page 1395.
G. Legitimate
expectations as to substantive matters are not enforceable
[78]
The Federal Court’s decision essentially enforces South
Yukon and Liard Plywood’s substantive expectations, said to be
encouraged by the Department’s officials, that they would receive a long term
Timber Harvesting Agreement allowing for the harvesting of timber in the
quantities necessary to keep the Watson Lake Mill alive.
[79]
It is well-established that an action does not lie to enforce
substantive expectations encouraged by officials: Old St.
Boniface Residents Assn. Inc. v. Winnipeg (City), [1990] 3
S.C.R. 1170 at page 1204; Reference Re
Canada Assistance Plan (B.C.), [1991] 2 S.C.R. 525 at page
557; Baker v. Canada
(Minister of Citizenship and Immigration), [1999] 2
S.C.R. 817 at paragraph 26.
H. Negligence arising
from delays
[80]
The Federal Court found that the Crown was negligent in not
granting Commercial Timber Permits on a timely basis. In the end, however, this
did not factor into the Federal Court’s assessment of damages. As mentioned
above, the Federal Court granted South Yukon
and Liard Plywood damages on the footing that they had a twenty-year Timber
Harvesting Agreement from 2001 to 2020. Further, in the view of the Federal
Court (at paragraph 388), “these permits were too small to have
any value to a commercial operation.” It noted (at paragraph 468) that the
Minister himself, perhaps with a bit of exaggeration, referred to the quantity
of timber available under a short term Commercial
Timber Permit as “firewood.”
[81]
The Federal Court found that the reason for the final mill shutdown
was the inability of South Yukon and Liard Plywood to secure long term tenure
through the issuance of a Timber Harvesting Agreement, not any problem with the
granting of Commercial Timber Permits (at paragraph 1243).
[82]
The Federal Court also found that the Crown was negligent in
proceeding too slowly with the process of considering whether a Timber
Harvesting Agreement should issue. In its words, “the failure
of the Department to develop a process for accessing long term supplies of
timber was due to inordinate delay” and “this inordinate delay constitutes
negligence” (at paragraphs 845 and 848).
[83]
On the evidence, the Crown did fall behind the schedule it
originally envisaged for its development of policies concerning the harvesting
of timber in Yukon. That is frequently the case when the policy
considerations are multiple and complex. But in any event, as mentioned above,
given the fact that the Governor in Council had the ultimate say, South Yukon
and Liard Plywood had no reasonable assurance that a Timber Harvesting
Agreement would ever issue.
[84]
In the face of delay in the Timber Harvesting Agreement process, South
Yukon and Liard Plywood had two options:
● They could bring an application for mandamus
or procedendo in order to require the Department and the Governor in
Council to complete their policy considerations and decide upon a Timber
Harvesting Agreement within a particular period of time. They did not do so. In
any event, South Yukon and Liard Plywood would have faced the objection that
such policy matters and the timing when they are made are not the subject of a
duty susceptible to enforcement by mandamus: Apotex Inc.
v. Canada (Attorney General), [1994] 3 S.C.R. 1100,
adopting the reasoning in [1994] 1 F.C. 742 (C.A.).
● They could delay the building of the Watson Lake
Mill until a Timber Harvesting Agreement was in hand or until the Department’s
policy review was completed and the prospects of a satisfactory Timber
Harvesting Agreement was more certain. They did not do so. Instead, they went
ahead, knowing of the risks, and accepting them.
In these circumstances, in law,
South Yukon and Liard Plywood’s alleged loss
cannot be attributed to the delay of the Crown.
I. Other
issues
[85]
The Crown raised several other issues that, if decided in its
favour, would result in a finding that it was not liable. These included
whether a duty of care arises in this case when the
Crown decided for policy reasons in 2001 – in a decision not challenged by way
of judicial review – that long term Timber Harvesting Agreements should be
limited to only 30,000 cubic meters of timber each year: see Just
v. British Columbia, [1989] 2 S.C.R. 1228; Brown v. British Columbia
(Minister of Transportation and Highways), [1994] 1 S.C.R. 420; Comeau’s
Sea Foods Ltd. v. Canada (Minister of Fisheries and Oceans),
[1997] 1 S.C.R. 12. It is unnecessary for us to consider
this and other issues raised by the Crown, as the action of South
Yukon and Liard Plywood for damages against the Crown
must fail for the reasons set out above.
J. Proposed
disposition
[86]
Therefore, for the foregoing reasons, I would allow the appeal,
set aside the judgment of the Federal Court, and dismiss the action of South
Yukon and Liard Plywood, with costs throughout.
"David
Stratas"
“I
agree.
John
M. Evans J.A.”
“I
agree.
K.
Sharlow J.A.”
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