Canada: Environmental Damages - Observations from the Supreme Court of Canada

This article was originally published in Blakes Bulletin on Environmental Law - October 2004

In June, the Supreme Court of Canada handed down its decision in British Columbia v. Canfor (known as the Stone Fire case), which considers a government’s right to recover environmental losses, such as the loss of a protected natural area and related values. This decision is important because it recognizes environmental losses as recoverable damages within the common law and it examines the supporting principles. However, on the facts of this case, no environmental losses were awarded to the government of British Columbia. Nonetheless, the door remains open for future litigants to claim environmental losses. In our view, this will be of most significance to government claimants, but it also creates opportunities for public interest class actions and expanded claims by First Nations. For a discussion of this case at the B.C. Supreme Court and Court of Appeal levels, see Blakes Bulletin on Environmental Law, October 2003.

In 1992, a forest fire caused by Canfor destroyed about 1,500 hectares of public forest land in northern B.C., including trees located in certain environmentally sensitive areas (ESAs) that were protected from commercial logging. The protected trees bordered along Stone Creek, which was used as a source of drinking water and fish habitat. These trees were set aside to protect water quality and control floods and erosion. In 2003, the B.C. Court of Appeal ruled that the ESA trees were worth one-third of their commercial value. This decision was contrary to the trial court’s finding that any loss of the ESA trees was included in the province’s claim for expenses related to fire suppression and restoration. These expenses were found to be $3.5 million and were the only damages awarded at trial. At trial, the province had also claimed damages for the loss of the harvestable trees and the ESA trees.

On appeal to the Supreme Court of Canada, Justice Binnie, writing for the majority of the Court, observed that the following three issues were raised by the appeal: (i) the Attorney General’s ability to recover damages for environmental loss; (ii) the requirement of proof of such loss; and (iii) a principled approach to the assessment of environmental compensation at common law.

The Supreme Court began its decision by noting that the "question of compensation for environmental damage is of great importance." In particular, this case considers the government’s role as both a landowner and the protector of the public interest in an unspoiled environment, as well as its role as regulator of the forest industry by establishing a scheme for revenue generation for forest harvesting activities. Canfor argued that the B.C. government’s right to recovery is limited by its own regulatory scheme, that is, the government is no ordinary landowner and, by establishing the stumpage system for revenue generation under the Forest Act, its only entitlement was to revenue loss. In this case, Canfor stated that there was no shortfall in revenue caused by the fire. This view prevailed before all levels of Courts hearing this matter, including the Supreme Court, which determined that the B.C. government was unable to establish any compensable revenue shortfall.

Notwithstanding success on the revenue loss issues, Canfor also argued that environmental damages were exclusively the domain of the legislature. The Supreme Court disagreed. Based on the notion that the common law is rooted, since Roman times, in the concept that public rights in the environment reside in the Crown or the government, the Court acknowledged the right of the province to seek monetary compensation for the loss of public resources. On this fundamental point, Justice Binnie found that there was no legal barrier to the province of B.C. suing for compensation. However, he observed that the converse was also true and that the province could be held liable due to its inactivity in the face of threats to the environment. In this regard, the "public" would be the potential claimant against the government given the Court’s remark that such potential liability is related to the "existence or non-existence of enforceable fiduciary duties owed to the public."

However, in this case, the province’s claim on some broader "public" basis was not fully argued. Justice Binnie observed that such cases raise important and novel policy questions that the Court need not consider in this appeal. Instead, the ability of the government to claim environmental losses for the ESA trees was limited by the way it framed its case as a landowner. The last part of the decision deals with considerations about quantifying the damages claimed by the B.C. government. This entitlement, the Court stated, was necessarily limited by the role the B.C. government adopted in its claim, namely that of landowner rather than as protector of the public interest.

The Court examined whether the province as landowner can recover compensation equivalent to the regulatory "stumpage" (or harvesting "tax" payable to the province) on the ESA trees, essentially a measure for lost revenue to the province, or some other measure of commercial value, including a premium. While accepting that a "commercial basis" could form a "floor value" for the ESA trees, the Court concluded that, on the facts of this case, no such damages were proven. As noted above, all courts hearing this case accepted that there was no revenue shortfall. Thus, the commercial value basis was a non-starter. With respect to the province’s claim for a 20% premium for the ESA trees above their commercial value, the Court concluded that this claim, while apparently trying to occupy the moral high ground, was overly arbitrary and simplistic and commented as follows:

"Less arbitrary techniques, which may or may not win eventual support in the courts are available and will have to be carefully considered when and if properly presented."

As a result, the Court left for another day how exactly environmental damages can be proven. The Court said these are matters to be explored by appropriate experts at trial as to the assessment of compensable loss (not just proof of physical damage). Justice Binnie observed that the quantification of such loss need not be based on "airy-fairy" valuations, as argued by Canfor,

or on the inclination to mete out rough justice and punish the wrongdoer, a principle endorsed by the province. He stated that fairness is the guiding principle and it is "best achieved by avoiding both undercompensation and overcompensation".

In its final paragraph, the Court highlighted that, in the absence of statutory intervention, courts must proceed cautiously on the basis of proper evidence:

". . . there is no reason to neglect the potential of the common law, if developed in a principled and incremental fashion, to assist in the realization of the fundamental value of environmental protection. However, the Court cannot act on generalizations and unsupported assertions. In the absence of statutory intervention, the Court must proceed cautiously. We do not have the basis in this record to proceed further at this time."

Finally, three judges (of nine) wrote a dissenting opinion, finding that there was a revenue loss for the harvestable trees. In addition, the dissent held that the ESA trees had intrinsic value at least equal to their commercial value, despite their non-commercial use. Despite admitting the persistence of "significant flaws" in the evidence, these judges accepted that the commercial value could serve as a yardstick to measure the appropriate damages. However, they agreed with the majority that in this case a premium award was not in order.

The government’s authority to seek damages on behalf of the public for environmental losses remains open for decision in a future case. As a result, companies engaged in carrying out forest activities need to be aware that they are now potentially at risk for paying damages for the loss of environmental values associated with carrying out these activities.

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