Canada: Appeals Court Overturns Damages Award To Proponent For Aboriginal Blockade

The BC Court of Appeal (BCCA) has overturned a significant trial decision that had ordered the province of British Columbia (Province) to pay $1.75 million in damages to a logging company arising from a blockade by members of a Treaty 8 First Nation.

The BCCA's decision, Moulton Contracting Ltd. v. British Columbia¹ could limit the potential grounds for relief by mining, forestry and other resource developers against government when blockades or other efforts by Aboriginal groups impede project development after permits are granted.

Factual Background

By way of background, in June 2006, an agency of the BC Ministry of Forests entered into two timber sale licence agreements under the Forest Act (TSLs) with Moulton Contracting Limited (Moulton) that permitted Moulton to harvest timber in the Fort Nelson Timber Supply Area. This area is located in northeastern BC within lands covered by Treaty 8. Before Moulton began logging, the Province was informed by an affected trapper of the Fort Nelson First Nation that he and his family planned to stop the logging. The Province did not notify Moulton of this issue before entering into the TSLs, and a long-term blockade was subsequently established across the access road by the affected trapper and his family once Moulton began logging. This blockade prevented Moulton from accessing its harvesting sites. It was forced to withdraw its crew and equipment and was unable to fulfill contractual commitments to deliver timber to a mill.

Following the decision of the Supreme Court of Canada (SCC) in Behn v. Moulton Contracting Ltd² in which the SCC dismissed the defences of the individual First Nation members against Moulton's tort action (see our commentary on that decision here), Moulton sought damages from BC and the First Nation defendants for its economic losses arising from the blockade. Justice Saunders of the BC Supreme Court dismissed Moulton's claim against the Aboriginal defendants but awarded Moulton $1.75 million in damages against the Crown.³ The trial judge awarded damages to Moulton on the basis of the Province's failure to inform Moulton if the blockade threat. The trial judge found that the TSLs contained an implied term that the Province was not aware of any First Nations expressing dissatisfaction with the consultation that the Province had undertaken (Dissatisfaction Term). The trial judge also held the Province concurrently liable in negligent misrepresentation for a breach of an implied continuing representation.

BCCA Decision

On February 26, 2015, the BCCA unanimously overturned the trial decision. The BCCA held that trial judge erred in finding an implied term in the TSLs by not applying the proper test: whether the parties to the contract intended such a term. The BCCA stated:

"The key element is that the implied term is more than just reasonable; it is necessary to make the contract as the parties intended. That is, without the term, the contract, as intended by the parties, would not be effective."⁴

The BCCA held that the trial judge appeared to make the finding on the basis of what reasonable parties would intend and did not making any findings of fact that would suggest that the actual parties intended the Dissatisfaction Term to be included in the TSLs or that it was necessary to give effect to the TSLs. The BCCA also held that, in any event, the limitation of liability clauses in the TSLs were inconsistent with such an implied term and would have precluded the Province's liability for the associated losses.

Notably, the BCCA considered the SCC's recent decision in Bhasin v. Hrynew, which recognized a general organizing principle of good faith and a duty of honest performance in contractual performance. [5] The BCCA held that the duty of honest performance did not apply because there was no basis to find that the Province acted unreasonably, dishonestly, arbitrarily or capriciously in failing to disclose the threats by the Aboriginal trapper when they were made.

With respect to negligent misrepresentation, the BCCA held that there was no express representation or evidence that Moulton was induced by or relied upon the Dissatisfaction Term in entering into the TSLs, and that such an implied term was inconsistent with the parties' contractual relationship and the limitation of liability clauses in the TSLs.

Implications

This decision may limit the ability of proponents, in certain circumstances, to successfully claim damages against the Crown for failure to warn of Aboriginal-related risks during permitting processes, either on the basis of implied terms or the duty of honest performance. An implied term requires evidence that the parties actually intended to agree to such a term, which can be difficult to prove.

That said, each case must be decided on its specific facts. In this case, the Province's liability was expressly limited in the TSLs (although the TSLs could be distinguished from other types of regulatory approvals that may not contain such terms). The evidence also showed that, prior to entering into the TSLs, Moulton did not make any inquiries with respect to the consultation that had occurred. Therefore, this decision also highlights the importance of pro-active due diligence by proponents in respect of resource development transactions and permitting processes.

This decision does not close the door to successful claims by proponents against the Crown, as each case will be fact-specific and there may be other legal bases upon which to claim damages. An interesting case to watch is Northern Superior Resources Inc. v. Ontario, which concerns a $125 million claim against Ontario by a Sudbury-based mining company, Northern Superior Sources (NSR). Among other things, NSR alleges that Ontario breached its duty of good faith and implied statutory duty of care to properly discharge Ontario's constitutional obligations to consult with affected First Nations. NSR claims that Ontario failed to warn NSR of its unstable relationship with affected First Nations and potential overlapping claims. NSR also alleges that Ontario breached its duty of good faith, duty of fairness and implied statutory duty of care under the Mining Act by creating the mineral exclusion zone. Ontario has denied all allegations and the matter is scheduled to go to trial later this year.

Footnotes

[1] 2015 BCCA 89, [2015] B.C.J. No. 331 (C.A.).

[2] 2013 SCC 26.

[3] Moulton Contracting Ltd. v. British Columbia, 2013 BCSC 2348.

[4] Moulton Contracting, at para. 55.

[5] 2014 SCC 71. McCarthy Tétrault's article on Bhasin v. Hrynew is available here.

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