SOUTH YUKON FOREST CORPORATION v. LIARD PLYWOOD AND LUMBER, 2010 FC 495

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 m 3 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, aResponse to Request to Admit, answers to undertakings, read-ins from the examination for discovery of the Plaintiffs​ representative andmore 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 containedwithin the record but instead will base my conclusions upon that evidence which I found to be the most relevant, credible and reliable.

Ihave 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 theparties during the discovery process. However, I take note that numerous, highly relevant, documents were not produced by theDefendant. 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 Ihave referred were properly introduced through witnesses or on the consent of both counsel, are business records as described by s. 30 ofthe Canada Evidence Act, R.S.C. 1985, c. C-5, or meet the requirements of necessity and reliability, as explained in R. v. Khan, (SCC), [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 ofdocuments that the Plaintiffs produced during the discovery process.

The Defendant entered these documents for the truth and accuracyof their contents as the Plaintiffs had admitted as much in discovery. The Plaintiffs accepted the admission of these documents as trueand accurate. [33] The Defendant on numerous occasions restated that purpose for which Exhibit D-11 had been entered. In fact there is anagreement between counsel, ​Protocol 1​, that is consistent with this position taken by the Defendant. The following evidence was read infrom 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 documentsand the facts contained in those documents, and with Mr. Preston​s permission I​m going to ask the official reporter to read that agreementinto 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 Reporterwould 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 forand on behalf of the plaintiff, to be true and accurate based [upon] the information and knowledge of the plaintiff, subject to errors andomissions 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, thePlaintiffs 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 knowledgeof the Plaintiffs, I accept them for the truth and accuracy of their contents.

The initial discussion relative to Exhibit D-11 can be found atpage 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 typographicalerrors 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 ofCanada, Department of Indian and Northern Affairs in the position of Director-General of the Implementation Branch, Claims and IndianGovernment Sector. Mr.

Sewell was employed by the Government of Canada, DIAND, as the Regional Director General (​RDG​), YukonRegion, stationed in Whitehorse. [38] He began his employment with the Federal Government in December 1997, following a period of employment with theYukon Territorial Government (the ​YTG​) that began in 1982. Prior to that time, Mr. Sewell had worked with the Ontario Government, ina number of positions for 10 years. He began his employment with the Ontario Government following the completion of a master​sdegree in economics. [39] Mr.

Sewell worked for DIAND in Whitehorse until September 2001 when he relocated to his current position with DIAND inthe 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 CanadaEvidence Act and the British Columbia Supreme Court Rules, B.C. Reg. 221/90. Counsel for the Defendant objected to the proposedprocess, 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 BritishColumbia Supreme Court Rules and of the decisions in Farmer Construction Ltd. v. R. (1983), 48 N.R. 315 (F.C.A), and WeywakumIndian 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 SCC 79 , [2002] 4 S.C.R. 245 and upon hearing submissions, Mr. Sewell was examined as the representative of anadverse 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 asevidence about the practice in the public service as to participation in the drafting of replies by the Minster to correspondence andinquiries 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 m 3 .

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 ​s ubstantial 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 m 3 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. Spe ncer 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 m 3 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 13 th 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 community-based expenditures, including a picnic for the mill employees. He testified that in his opinion, all expenditures were made in a prudent manner. [ 111 ] Mr. Kerr testified about the July 15 th , 1997 ​due diligence​ meeting, the representation he says was made by the Defendant and the reliance upon it to build the mill. [ 112 ] Mr.

Alan Kerr also testified that SYFC lost money as the result of the mill closure. The operation would have continued if wood were available and the mill would have expanded through the construction of Phase 2. [ 113 ] Mr. Alan Kerr also gave evidence about the operations of SYFC and LPL, and their efforts to acquire a secure, adequate and long-term timber supply. His testimony, among other things, addressed meetings with DIAND, both in Whitehorse and Ottawa , and meetings between the joint venture participants. [ 114 ] The final witness called on behalf of the Plaintiffs was Mr.

Gerard Van Leeuwen, an expert who was retained by the Plaintiffs for the purpose of addressing the issue of damages. Mr. Van Leeuwen is a consultant in the wood products manufacturing industry with more than 25 years of operational experience in the forestry industry in British Columbia . He is now associated with International Wood Markets Group (​IWMG​) based in Vancouver, British Columbia as Vice President and has served in that position since 1998. [ 115 ] Mr. Van Leeuwen testified as to his qualifications as an expert witness.

He testified that he received a bachelor of commerce from the University of British Columbia, in 1972. He majored in marketing and finance. [ 116 ] He was employed by Sauder, a wood products company, immediately upon graduation. His work for this company involved the sales, marketing, and distribution of wood products. Over the next ten years he advanced through various management, training and development positions within this company. He held positions such as mill manager, production manager and general manager of the company​s sawmill group.

This sawmill group included four sawmills that produced five hundred million board feet (​BF​) of lumber per year. [ 117 ] This management position included responsibility for all aspects of their operations, day-to-day, capital investments, mill improvements, hiring, training, and labour relations.

[ 118 ] Additionally, he was responsible for the marketing and sales of the sawmill group​s products. The markets for these mills included Canada , the United States, Europe, Japan , Australia, China , Taiwan and the Middle East . [ 119 ] Mr. Van Leeuwen testified that in 1997 he left Interfor, the successor company of Sauder, and became a consultant with R.E. Taylor & Associates Ltd. This company later became IWMG. [ 120 ] According to Mr. Van Leeuwen, IWMG, and its predecessor R.E. Taylor & Associates Ltd . , is a consulting company that specializes in wood products development, marketing and business planning.

He testified that IWMG has consulted on evaluation of forestry companies​ business plans, financial situation, and market outlook during sawmill acquisitions and as consultants to financial institutions. [ 121 ] Mr. Van Leeuwen specializes in performing manufacturing audits of sawmills and wood manufacturing plants, sawmill performance reviews, developing market and business plans for existing sawmills or for the development of new sawmills. [ 122 ] The Court was referred to seven publications of IWMG. Mr.

Van Leeuwen testified that he was involved in the development and participation of almost all of these publications. A list of these publications and a

summary of Mr. Van Leeuwen​s education and work experience can be found at Exhibit P-14. [ 123 ] T he Plaintiffs submitted that Mr. Van Leeuwen was qualified to give ​expert opinion testimony on the projected financial, operational and product marketing analysis of sawmills, including cogeneration facilities, and in particular the sawmill owned and operated by the Plaintiffs.​ This characterization was based on his extensive work history in the applicable fields; see pages 1950-1951 of the transcript. [ 124 ] The Defendant stated that she was not challenging Mr.

Van Leeuwen​s qualifications as an expert. [ 125 ] In 2001, Mr. Van Leeuwen was engaged by KFR when his company was called R.E. Taylor & Associates Ltd., to conduct an audit of the Plaintiffs​ mill. The audit was titled the ​South Yukon Forest Products ​ Mill Audit & Evaluation of Product & Market Options​ (the ​Mill Audit​). The Mill Audit was entered as Exhibit D-16. He was subsequently engaged to prepare an expert report on the damages claimed by the Plaintiffs as a result of the mill closure. [ 126 ] In cross-examination, Mr.

Van Leeuwen explained what he meant in the Mill Audit by ​old, inefficient, cost-ineffective​. He also explained what he meant by ​half a mill​. He drew the distinction between a ​mill​ and ​plant​, and he said that the ​sawmill is just the part of the mill that takes the logs and makes rough green lumber​; see the following from pages 1970 and 1971 of the transcript: Q. And in your other report, you refer to it as ​old, inefficient, cost-ineffective​. A. Because it was only half the mill.

I think I was looking - - in this term - - you have to understand, there​s a term for a sawmill and there​s a term for a plant. You know, they​re not the same. They don​t mean the same. The sawmill plant means the whole plant with the sawmill, the kilns, the planer mill, the log processing. A sawmill is just the part of the mill that takes the logs and makes rough green lumber. [ 127 ] Mr. Van Leeuwen was the only expert witness wh o testified on the issue of damages. His expert report on damages was entered as Exhibit P-15.

Pursuant to Rules 279 and 280(2), his report was deemed to have been read into the record. The Defendant consented in this regard. C. The Defendant​s Witnesses [ 128 ] Mr. Ron Irwin, a former Minister of DIAND, was the first witness to testify on behalf of the Defendant. Mr. Irwin originally hails from Sault Ste. Marie, Ontario . A lawyer by training, he was first elected to Parliament in 1980 and he was appointed Minister of Indian Affairs and Northern Development in 1993, as well as a member of Treasury Board.

He served as a Cabinet Minister until the spring of 1997 and in the course of that appointment, there was contact with representatives of LPL concerning the mill project for Watson Lake in 1996.

[ 129 ] Mr. Irwin testified about the mandate of DIAND in the Yukon Territory , including economic development, his understanding of the Yukon forest industry, his communication practices as Minister, and the roles of the Minister and his assistant. [ 130 ] In addition, Mr. Irwin gave testimony on, among other things, the meeting in Dawson City and the correspondence that he, and his Department, had with LPL. [ 131 ] The second witness called by the Defendant was Mr. James Doughty. Like Mr. Irwin, he is originally from Sault Ste. Marie, Ontario . He was appointed special assistant to Mr.

Irwin in 1994 and testified that he was hired to assist on economic development within the northern development portfolio in DIAND. He said that his work was mainly with aboriginal groups, consisting of receipt of proposals and ensuring that the ​paperwork​ went to the right person, whether it was an ADM or RDG. [ 132 ] Mr. Doughty testified that he had no recollection of involvement with the Department​s forestry files. [ 133 ] He also accompanied Mr. Irwin on trips. In those circumstances, his primary duty was to make sure that the Minister was ​looked after​. [ 134 ] Mr.

Doughty said that he had no authority to make promises to persons seeking a commitment from the Government. He described himself as a ​mailbox​ for the Minister, meaning that he would take delivery of proposals and the like. [ 135 ] Mr. Doughty characterized the mandate of the Department as relating to northern development, including economic development, above the 60 th parallel; the aboriginal affair aspect of the Department related to all of Canada . He was not familiar with the nature of industry or industrial development in Yukon .

While he said that he considered that he ought to have familiarized himself, given his responsibilities, he did not do so in the two years from taking on his responsibilities and participating in the meeting with LPL. [ 136 ] Mr. Doughty met Mr. Gartshore and Mr. Bourgh at the Gold Show in Dawson City in May 1996. He testified about this meeting, his knowledge of forestry matters, the communication practices within the Minister​s office, and his roles, duties and responsibilities within DIAND. [ 137 ] When Mr. Irwin​s appointment as Minister ended in 1997, Mr. Doughty left DIAND. [ 138 ] Mr.

David Sherstone was the next witness called by the Defendant. Mr. Sherstone holds a master of arts in the field of physical geography. He was employed from 1993 until 2003 with the Department, working in Whitehorse as the regional manager with water resources. He was mandated with the administration of certain federal statutes including the Canadian Environmental Assessment Act , S.C. 1992, c. 37 (​ CEAA ​) which requires environmental assessments for new projects that involve the use of water. [ 139 ] Mr.

Sherstone​s exposure to the forestry file occurred when he was the Acting Director of Renewable Resources, filling in for Mr. Bruce Chambers who was the full-time Director. That took place, on and off, during the years 1995 to 1997. In one fiscal year Mr. Sherstone was in this position for approximately five and a half months. At that time, he was responsible for the overall direction of the water, lands and forestry programs. [ 140 ] Mr. Sherstone testified about a blockade of the federal building in Whitehorse that took place in the latter part of October 1996.

This blockade was a protest in relation to a number of forestry issues and existing policies, including the allocation of timber in southeast Yukon . Mr. Sherstone testified that the Minister, Mr. Irwin at the time, ordered a program review with the aim of introducing a new policy or regulatory scheme to deal with this issue. [ 141 ] Mr. Sherstone had limited involvement with LPL, and none with SYFC. He testified that his only communication with LPL was during a meeting on November 4, 1996. He gave evidence about his recollection of this meeting.

[ 142 ] He acknowledged that the Department had a mandate for encouraging economic initiatives in the Yukon Territory . He was aware that this mandate is set out in the Act . He was aware that there was very high unemployment in Yukon, particularly in the Watson Lake area. [ 143 ] Mr. Sherstone gave evidence about internal DIAND discussions on the LPL proposal, his responsibilities as Acting Director Renewable Resources and the organization of DIAND​ s Yukon Regional Office. [ 144 ] Mr. Michael Ivanski was then called to testify for the Defendant.

At the time, he testified he was the Director-General of Finance and Administration with the Department of Justice, Government of Canada. From 1997 to 2003, he was the Director-General of Finance for DIAND. Before that, he was the RDG for the Yukon region of the Department from July 1993 to July or August 1997. In that position, he managed all the departmental responsibilities for the Yukon region, including those related to forestry. At that time, more than 90 percent of the land base in the Yukon Territory was under federal jurisdiction. [ 145 ] As the RDG, Mr.

Ivanski reported to the ADM, Northern Program for the Department. The ADM reports to the DM of the Department, who reports to the Clerk of the Privy Council. [ 146 ] Upon Mr. Ivanski​s arrival in Yukon in 1993, the forestry program was a regional one, without special demands. He visited Watson Lake to get an idea of the nature of the business. According to Mr. Ivanski, forestry was not a ​problem​ file when he arrived, but that changed and the forestry industry came under increasing scrutiny from the public and the forestry industry. [ 147 ] In his position as the RDG, Mr.

Ivanski had contact with LPL when the proposal to build the mill was first put forward. He met with LPL in early 1996, attended the Gold Show and responded to the LPL business proposal by letter dated June 6, 1996. [ 148 ] Mr. Ivanski gave evidence about the relevant forestry practices, policy, regulations and legislation. As well, he testified about, among other things, the process of development of departmental communications, the meetings with LPL, and the correspondence to LPL and within the Department. [ 149 ] Mr. Russell Fillmore was then called.

He is a graduate technician from the Forest Technical Program of the Ontario Forest Technical School . He has worked with the Ministry of Natural Resources for the Government of Ontario, with the Department of Renewable Resources for the YTG and with DIAND. He began employment with DIAND in March - April 1998 in the position of Regional Manager Forest Resources, for a one year term. [ 150 ] In that regard, he testified about email correspondence exchanged within the Department and with SYFC and LPL about accessing timber.

He also testified about having made a tour of the mill in Watson Lake in the fall of 1998 just before the mill opened for operations. [ 151 ] He testified that while he was working with the Department in Yukon , he was unaware that SYFC had been given a guarantee of wood supply. At the same time, Mr. Fillmore was not aware of discussions between LPL or SYFC and the Department prior to the construction of the mill. Mr. Fillmore also gave evidence about his meetings with representatives of LPL and SYFC, and exchanges of correspondence, often by email, with them.

Some of the communications related to acquiring a THA. He understood that the Plaintiffs were looking for a volume of 200,000 m 3 per year. Further, he understood that this figure was constant and did not change. [ 152 ] Mr. Fillmore believed that in order for the Plaintiffs to get a THA, they would have to first prove themselves with demonstrated ability to process timber in the mill. In fact, Mr. Fillmore testified that the Plaintiffs had to demonstrate capacity before they would even be entitled to a 15,000 m 3 CTP. [ 153 ] Mr.

Fillmore was involved with others in the Department in dealing with requests from the Plaintiffs and others for the delivery of timely information about access to wood. [ 154 ] In the course of his work with the Department, Mr. Fillmore was responsible for preparing ​Backgrounder​ or ​Background​

documents to be used both for internal information and for the media. He either reviewed the documents as prepared by someone else or he prepared them himself, but in any event, he was the person who approved the text. [ 155 ] Mr. Fillmore had a poor memory about some matters including the available volume of timber in the relevant forest management units (​FMU​), that is Y02 and Y03. Additionally, he did not remember what he said to SYFC with respect to what DIAND would expect in order to acquire a THA, the participation of KFR in the joint venture and other relevant matters. [ 156 ] Mr.

Fillmore also gave testimony about the regulatory framework for timber licensing, and the concerns of his staff with respect to the conduct of other DIAND employees. [ 157 ] Mr. Jeff Monty was the next witness called on behalf of the Defendant. He holds the degree of bachelor of science in forestry and a certificate of public administration. He was employed by DIAND from 1995 to 2001, working from Whitehorse , as the Regional Manager of Forest Resources. His responsibilities included building the forest program.

He focused on the concepts of forest renewal, protection, inventory and planning. [ 158 ] In the mid to late 1990s, devolution of control of the forest resources from the Federal Government to the YTG was pending. Mr. Monty believed it to be prudent to work collaboratively with the Yukon Government in the area of forest management and planning. A Yukon forest strategy had been developed by the Yukon Forest Commission and Mr. Monty was directed to work with it. [ 159 ] While in the Yukon region, Mr.

Monty was seconded to the YTG from April 1998 until June, July 1998, working with the Deputy Minister of Natural Resources. His job was to advise on the development of a forest policy prior to devolution. [ 160 ] Mr. Monty first met Mr. Bourgh in 1996 and learned of the proposal to build a mill in Watson Lake . He attended a meeting on April 18, 1996 with LPL and was involved in other meetings over the next 4 years. [ 161 ] Mr. Monty testified at length about the development of forest management plans, with an emphasis on the need for sustainability.

He referred to a report that was prepared for the Department in 1990 by Dendron Resource Surveys Ltd. called ​Development of a Forest Management Plan of the Southeastern Yukon​ (the ​Dendron Report​). He also referred to Volume 1 of a ​Forest Management Plan for Southeastern Yukon​ prepared by Sterling Wood Group Inc., dated March 1991 (the ​Draft Sterling Wood Report​). He testified that in his understanding, this plan was not approved.

This document, entered as Exhibit D-81, Tab 3 was a draft document. [ 162 ] A final version of the ​Forest Management Plan for Southeastern Yukon​ prepared by Sterling Wood Group dated August 1991 (the ​Final Sterling Wood Report​), consisting of three volumes, was entered as Exhibit P-38 in the course of Mr. Monty​s cross- examination. [ 163 ] Mr. Monty gave evidence about the meetings and correspondence that he had with both the Plaintiffs and other public servants. [ 164 ] Mr. Peter Henry was the next to testify on behalf of the Defendant.

He is a graduate of the University of Toronto and holds a bachelor of science in forestry. He began working with DIAND in 1990 as an inventory technician. He looked at the Dendron Report when it was delivered to the Department early in his term of employment. He also looked at the Sterling Wood Report but was unable to say if he had reviewed the draft report dated June 1991 or the final report dated August 1991. [ 165 ] Between May 1996 and May 1999, Mr. Henry held the position of inventory and planning forester.

For a period of time, he held the position of acting head of forest management. [ 166 ] In September ​ October 1997, Mr. Henry was instructed to prepare a timber supply analysis (​TSA​). He did so, relative to six FMUs across the southern Yukon from west to east. These FMUs were chosen because complete forest inventory information was available for them. Mr. Henry characterized a ​timber supply analysis​ as analytical work done to support a policy decision on which an annual allowable cut could be based. He completed his report in March 1998.

[ 167 ] Mr. Henry testified extensively about the process by which he developed his TSA. His evidence provided a detailed explanation of the use of geomatic information systems, the development of inventory and the environmental, social and political considerations involved in this process. [ 168 ] Mr. Henry​s report was not a forest management plan (​FMP​). A FMP is a high level policy document.

It is designed to balance, and implement controls over, the various social, environmental, economic and political factors that must be considered with respect to forest use. [ 169 ] Further, this preliminary TSA was directed to the CTP process, that is one year small volume permits, and not to long-term tenure via the THA process. His report was called a ​preliminary​ TSA because this was the first comprehensive approach to doing a TSA across southern Yukon . [ 170 ] In his preliminary TSA, Mr. Henry imposed a 10-kilometre access constraint.

This meant that only that timber that was within that buffer from existing access routes was included in the analysis. Mr. Henry testified that road access in Yukon is relatively poor. The 10-kilometre access constraint was imposed in order to reduce the amount of road construction since, at the time, most wood cutting in Yukon was done pursuant to the CTPs which were issued on an annual basis and there was no guarantee that permit holders would be harvesting in the same area every year. As previously mentioned, this TSA was intended to be applied to the CTP process.

This road constraint was a spatial constraint. [ 171 ] Mr. Henry also testified that in preparing the preliminary TSA, he used the ​even-flow​ approach. This is a harvest flow rule where the amount of timber being harvested in each projected term has to be equal, as opposed to the ​non-declining flow​ where the volume harvested every term increases but can never decrease. He testified that the even-flow approach is used in every Canadian jurisdiction with the exception of British Columbia and Ontario . [ 172 ] Mr.

Henry​s evidence with respect to the use of the even-flow approach is contradicted by the ​Timber Supply Review for the Coal and Upper Liard Forest Management Units: Information Report for Forest Management Planning​ (the ​MacDonell Report​), entered as Exhibit P-79, Tab 384. The MacDonell report was issued in January 2003 by the DIAND/YTG Technical Timber Supply Committee, as headed by Mr. MacDonell. [ 173 ] In his preliminary TSA, Mr. Henry proposed that the harvest ceiling for FMUs Y02 and Y03 be set at 128,000 m 3 . This harvest ceiling recommendation was accepted and implemented.

This was a significant decrease from the previous annual allowable cut (​AAC​). This change in the AAC was done without public consultation. [ 174 ] There was a period of consultation after the completion of the preliminary TSA. Comments were received from the public and these comments were summarized. A copy of the

summary was entered as Exhibit D-53. [ 175 ] Mr. Henry​s report was reviewed by Mr. Doug Williams who was engaged by the YTG to conduct a review. Mr. Williams was an independent consultant who does TSA work, according to Mr. Henry. His work was also reviewed by Mr. Herb Hammond under contract with the Yukon Conservation Society (​YCS​). [ 176 ] Mr. Henry had limited contact with the Plaintiffs but he learned of the mill project and toured the facility before it opened. He participated in some meetings and was aware of communications within the Whitehorse office about the mill.

He was aware of the constraints imposed by the regulatory amendment, colloquially known as the ​60/40 Rule​ and the two-tier stumpage regime. These amendments will be discussed in the context

section below. [ 177 ] He was also aware that the Department was mandated to encourage economic development and was looking for ways to establish a forestry industry. Mr. Henry was also aware that there was no existing facility in the southeastern Yukon with the capacity to process 350,000 m 3 of timber and further, that the Plaintiffs required an annual volume of 200,000 m 3 of fibre. [ 178 ] Mr. Howard Madill was the next witness called for the Defendant. He worked for DIAND in Yukon , based in Whitehorse , for the period June 1999 to July 2000.

[ 179 ] He served as Regional Manager of Forest Resources until June 2000, during the period of time when Mr. Monty was working for the YTG. Following Mr. Monty​s return in June 2000, Mr. Madill worked on matters related to the devolution of the Fire Program to the YTG. Mr. Madill was seconded from his employment with the British Columbia Government to work for the Federal Government. [ 180 ] He was approached for this position due to his relationship with Ms. Guscott. They had previously worked together in the Northwest Territories . [ 181 ] Mr. Madill was examined as to his interactions with the Plaintiffs.

He repeatedly said that he endeavoured to treat all clients, that is all applicants for wood supply, in a fair and equitable manner, with no particular responsibility for the Plaintiffs. He demonstrated no awareness of the email message sent by Mr. Sewell to SYFC on June 7, 1999, entered as Exhibit P-79, Tab 182. In this email, Mr. Sewell advised SYFC that working with them would be a ​high priority​ for Mr. Madill. [ 182 ] By October 1999, Mr. Madill knew that SYFC was committed to the operation of the mill in Watson Lake and that it had plans for expansion.

He knew those plans included a planer and a kiln, as well as the development of a cogeneration plant. [ 183 ] Mr. Madill testified that he had visited the mill on more than one occasion. An email entered as Exhibit P-79, Tab 185, dated June 10, 1999 indicates that he was due to tour the mill on June 22, 1999. [ 184 ] Mr. Madill had no recollection of having been told by anyone at the Department that SYFC had been ​guaranteed​ a supply of timber. [ 185 ] Mr. Madill acknowledged that upon his arrival at the Regional Office of DIAND, files and records in the office were available to him.

He did not recall reviewing a transcript of the meeting held on April 7, 1999. He did not recall reviewing a briefing note, Exhibit P-79, Tab 137, that had been prepared prior to the meeting on April 7 th . He did not recall discussions with Ms. Guscott concerning the matters addressed in an email message from Ms. Clark, Exhibit P-79, Tab 155. [ 186 ] Mr. Madill was unaware of the commitment that was made by Mr. Moore in April 1999 for a THA in the summer of 2000. He said that he was not aware of any such commitment having been given to SYFC and he then said ​I don​t recall being aware​. [ 187 ] Mr.

Madill testified that he was aware of the 60/40 Rule and he considered that to be a means for the development of forest industry in Yukon . He understood that the regulation ​requires a certain amount of the wood to be milled in Yukon , and if you don​t have a mill in the Yukon then it can​t be milled in the Yukon ​. [ 188 ] Mr. Madill testified about going to Vanderhoof for several meetings on October 19, 1999. He produced a document that purported to be a memo concerning the three meetings that he attended on that day.

His memo was entered as Exhibit D-54. [ 189 ] Among the topics discussed at Vanderhoof were concerns with delays in wood supply. Mr. Madill could not recall if other persons were complaining about delays in getting permits for wood. [ 190 ] Lastly, Mr. Sewell was called to testify on behalf of the Defendant. [ 191 ] Mr. Sewell testified that he first became aware of LPL while he was working with the YTG. He had nothing negative to say about any of the employees and shareholders of both LPL and SYFC whom he met while employed with DIAND in Whitehorse . [ 192 ] Mr.

Sewell testified about the Department​s interest in developing a long-term forest policy for Yukon . He was most interested in seeing the participation of the YTG in the development of that policy since in light of the pending devolution of control over the forest resources, YTG would be involved in the implementation of a new forest policy.

[ 193 ] Mr. Sewell testified about the process that the Department was developing relative to a new long-term forest policy and the need for consultation with the community, including the YTG, First Nations and the general public. He spoke about a number of discussion papers and proposals that were developed by the Department. These documents were addressed by a number of witnesses for the Defendant. [ 194 ] Mr. Sewell interacted with representatives of the Plaintiffs, both in meetings and by way of correspondence.

He testified that he found the Plaintiffs​ representatives to be honest and honourable people. [ 195 ] Mr. Sewell testified that when he was the RDG, settlement of outstanding land claims on behalf of First Nations in Yukon was not a condition for the introduction of a long-term forest policy. iv. ​The Lay of the Land​: Context [ 196 ] In the mid to late 1990s, Yukon ​s population was approximately 30,000 people. More than 25 percent of the population were First Nations people. [ 197 ] The Yukon Territory covers an area of 48.3 million hectares. Of that total area, 27.5 million hectares is forest land area.

Only 7.5 million hectares of forest land is considered productive. Timber in Yukon grows slower than in the more southerly regions. This results in tight rings, smaller knots and a higher tensile strength. As a result, lumber produced from Yukon timber is particularly desirable in the Asian markets where these qualities are highly sought. [ 198 ] The forest resources of the Yukon Territory lay within the legislative mandate of the Government of Canada, pursuant to the Territorial Lands Act , R.S.C. 1985, c. T-7 and the Yukon Timber Regulations , C.R.C. 1978, c. 1528.

Control of the forest resources was transferred to the Yukon Government by the Yukon Act , S.C. 2002, c. 7 , effective April 1, 2003. The process of the devolution of control of forest and other resources was ongoing for many years as appears from the evidence of many of the Defendant​s witnesses, including Mr. Sewell, Mr. Monty, Mr. Fillmore, Mr. Ivanski and many of the documents that were introduced as exhibits at trial. [ 199 ] For the relevant time in this case, Yukon ​s forest resources were under the control of the Department. The legislative mandate of the Department is laid out in the DIAND Act .

The Act charges the Minister with the responsibility, powers and duties as contained within sections 4 and 5 of the Act , as follows: 4. The powers, duties and functions of the Minister extend to and include all matters over which Parliament has jurisdiction, not by law assigned to any other department, board or agency of the Government of Canada, relating to (

a) Indian affairs; (

b) the Yukon Territory and the Northwest Territories and their resources and affairs; and (

c) Inuit affairs. 5. The Minister shall be responsible for (

a) coordinating the activities in the Yukon Territory and the Northwest Territories of the several departments, boards and agencies of the Government of Canada;

(

b) undertaking, promoting and recommending policies and programs for the further economic and political development of the Yukon Territory and the Northwest Territories ; and (

c) fostering, through scientific investigation and technology, knowledge of the Canadian north and of the means of dealing with conditions related to its further development. [ 200 ] The Regional Offices of the Department were located in Whitehorse . The most senior representative of the Department located in Whitehorse was the RDG. In the time frame that is relevant for the purposes of this action, that position was occupied by Mr. Ivanski from July 1993 to July or August 1997 and by Mr.

Terrence Sewell from December 1997 until September 2001. [ 201 ] The Yukon forest industry has historically been focused in the region surrounding Watson Lake . Watson Lake is a community 454 kilometres southeast of Whitehorse , with a population in the mid-1990s of approximately 1500 people. Historically, there had been very high levels of unemployment in the community of Watson Lake. A road trip between Watson Lake and Whitehorse , along the Alaska Highway, was a journey of some 4 - 4 ½ hours duration. [ 202 ] There has been a forest industry in the Yukon Territory since the 1950s.

The history of this industry has not been a positive one. George Tough noted that ​[t]he Yukon landscape includes too many failed forest enterprises​ in his April 2002 report titled ​Yukon Forest Issues: A Reality Check and a New Direction ​ A Report to the Minister of Indian Affairs and Northern Development​ (the ​Tough Report​). This history includes several forest company bankruptcies and the layoffs and personal hardships for employees, their families and their community that naturally follow. [ 203 ] The industry in 1990 consisted of one large sawmill operation and four smaller operations.

The small operators relied upon 15,000 m 3 CTPs to supply their mills. The large operation, Yukon Pacific Forest Products, held a THA for 150,000 m 3 per year. In 1992, KFR purchased Yukon Pacific Forest Products and the THA was conditionally assigned to KFR. KFR is the operating entity of the LFN and the Lower Post First Nation. [ 204 ] In the early 1990s, the Department was concerned about rationalizing the commercial uses of the forest with other conflicting uses.

The Dendron Report was produced in April 1990. [ 205 ] In the introduction, the Dendron consultants describe Yukon forests as among the most productive in the world.

They noted that the purpose of their study was to develop a framework for ​the preparation of an integrated forest management plan of the southeastern Yukon ​ with reference to the FMUs of Y01, Y02 and Y03, that is the La Biche, Coal and Upper Liard management units, respectively. [ 206 ] The Dendron Report noted that the AAC could be as low as 30,000 m 3 per year, if only large logs were considered, or greater than 1,000,000 m 3 per year if small ​pulpwood​ logs were included in the harvest.

The Dendron Report explained that an AAC ​expresses the ability of the planning area to support a certain level of wood production​. The AAC must be established, according to the Dendron Report, on a sustained-yield basis before a FMP can be implemented. The next step was to undertake a forest inventory, in conjunction with the development of a FMP. [ 207 ] Subsequently, the Sterling Wood Group Inc. was engaged to conduct a forest inventory and prepare a FMP. The Draft Sterling Report, entered as Exhibit D-81, Tab 3, was produced on January 6, 1991.

The Final Sterling Report, marked as Exhibit P-38, was completed in August 1991. This document, that is the Final Sterling Report, was produced not by the Defendant in the course of pre-trial discovery and disclosure of documents, but by the Plaintiffs, in the course of the cross-examination of Mr.

Monty, a witness for the Defendant. [ 208 ] Both the Draft Sterling Report and Final Sterling Report referred to the annual sustainable volume of harvestable timber in the southeastern Yukon in Y01, Y02 and Y03 as exceeding 1.5 million m 3 . [ 209 ] The Sterling Wood Group reports are evidence that the Department was looking at the issue of forest management by 1990.

The two reports indicate that Sterling proceeded with their mandate by considering a number of factors, including the sustainability of the forest and the interests of various stakeholders which were ascertained through their participation on the management plan steering committee and through contributions to, or participation in, the process. Every stakeholder group had involvement in one of these ways.

[ 210 ] A similar perspective on the state of the forest resources in Yukon emerges from Exhibit P-75, that is a response developed through the RDG, in reply to a petition that had been presented to the House of Commons on July 6, 1995. The document includes early drafts of the Government​s response to the petition from the Yukon Forest Coalition, as well as the final response.

The final response is set out in Exhibit P-75, and described the Yukon forest resource as follows: The Yukon land base is comprised of 48 million hectares (ha) of which 27 million ha (56%) is forest land ​ land primarily intended for growing, or supporting, forest. Within the forest land base, 7.4 million ha is considered productive forest land ​ land capable of producing a merchantable stand within a reasonable length of time.

The annual allowable cut (AAC), the amount of timber that is permitted to be cut annually from a specified area, is used to regulate the harvest level to ensure a long-term supply of timber. The greater Yukon AAC is estimated at 3.4 million cubic meters (m3) (gross merchantable) of which 1.8 million m3 comes from the southeast Yukon . The southeast Yukon is the area where most harvesting activity occurs. The total Yukon roundwood harvest in 1992 equaled 128, 000 m3 (1992). This harvest level accounted for only 4% of the territory​s estimated AAC.

A recent harvest level of 354,000 m3 (1994-95) represents only 10.5% of the estimated AAC limit. Most other jurisdictions in Canada harvest well over 50% of their AAC limits. [ 211 ] The circumstance giving rise to the petition was the establishment of the AAC for 1994/95 as 450,000 m 3 .

The petitioners demanded a return to historical timber harvest levels which were significantly lower than 450,000 m 3 . [ 212 ] The response to the petition referred to the AAC of timber in Yukon , saying that the estimated AAC of the ​greater Yukon ​ is 3.4 million m 3 (gross merchantable) with 1.8 million m 3 attributed to the southeastern region. The response went on to say the following: The estimated 1.8 million m3 AAC for the southeast Yukon is based on a comprehensive timber inventory of three southeast forest management units (Units Y01, LaBiche; Y02, Coal; and Y03, Liard ).

This inventory formed the basis of the forest management plan and AAC limit in August 1991. However, the forest management plan and AAC limit has not been form formally implemented pending further discussions with Yukon forestry constituents including Yukon First Nations. The greater Yukon AAC figure of 3.4 million m3 is based upon a forest inventory that covers approximately 70% of the Yukon forest land base. DIAND has used the estimated AAC limit to guide the allocation of Yukon timber. Furthermore, the AAC for the greater Yukon will be set considerably lower than the current estimated limit.

The proposed AAC limit for the 1995-96 harvest season is 450, 000 m3. This AAC limit represents only 13% of the original AAC estimate. DIAND has limited the AAC to 450,000 m3 to maintain the Yukon forest industry which employs approximately 300 direct jobs. [ 213 ] This response refers to the initiative of the Government in conducting an inventory of the timber resources in Y01, Y02 and Y03.

The response demonstrates that DIAND publicly represented, including to the Parliament of Canada, that the inventory conducted by the Sterling Wood Group was comprehensive and that a conservative AAC limit was imposed. [ 214 ] It is noteworthy, as well, that at this time, that is in the early 1990s, the timber resources of the Yukon Territory were exempt from the tariffs and countervailing duties imposed pursuant to the Softwood Lumber Agreement with the United States.

Any lumber produced in Yukon would have a significant advantage over similar products produced in most other Canadian jurisdictions. [ 215 ] The Territorial Lands Act provided two methods by which authority to harvest timber in Yukon could be granted. Timber could be harvested by a permit, referred to as a CTP, or by ​other disposition of territ

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