2005 BCSC 56 Ogden v. Gulf Log Salvage Co-Operative Assocation and HMTQ

Before: The Honourable Mr. Justice Ralph

Reasons for Judgment

(In Chambers)

Counsel for the plaintiff	Mark G. Underhill and Mike Murphy
Counsel for the defendant Gulf Log Salvage Co-operative Association	David F. McEwen, Q.C. and Hillary Stephenson, Articled Student
Counsel for the defendant Her Majesty The Queen In Right Of The Province Of British Columbia	T. Leadem, Q.C. and Heidi Hughes
Date and Place of Trial/Hearing:	July 29-30, 2004
	Vancouver, B.C.

Introduction

[1] Mr. Ogden is a log salvor and brings this action against the defendants under the Class Proceedings Act, R.S.B.C. 1996, c. 50 (the "Act”). He says that he and the proposed class members have suffered damage and loss as a result of the failure of the defendants to meet their obligations to ensure that salvaged logs sold by the salvors in the Vancouver Log Salvage District (“VLSD”) were disposed of for the best price reasonably obtainable.

[2] In this application Mr. Ogden seeks to have the proceeding certified as a class proceeding pursuant to s. 4 of the Act. Section 4 of the Act provides:

4(1) The court must certify a proceeding as a class proceeding on an application under section 2 or 3 if all of the following requirements are met:

(a) the pleadings disclose a cause of action;

(b) there is an identifiable class of 2 or more persons;

(c) the claims of the class members raise common issues, whether or not those common issues predominate over issues affecting only individual members;

(d) a class proceeding would be the preferable procedure for the fair and efficient resolution of the common issues;

(e) there is a representative plaintiff who

(i) would fairly and adequately represent the interests of the class,

(ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and

(iii) does not have, on the common issues, an interest that is in conflict with the interests of other class members.

Background and the Positions of the Parties

[3] In my Reasons for Judgment of January 16, 2004, (Ogden v. Gulf Log Salvage Co-Operative Assn., [2004] B.C.J. No. 58 (QL), 2004 BCSC 53) ruling on the plaintiff’s application to add Her Majesty the Queen in Right of British Columbia (the “Province”) as a defendant in the proceeding, I described the log salvaging scheme as follows:

[3] The log salvaging scheme which gives rise to this action is established under the Forest Act, R.S.B.C. 1996, c.157 (“the Act”), which authorizes the Minister to establish a log salvage district and to regulate salvaging activity within it. Section 151(2)(c) of the Act empowers the Lieutenant Governor in Council to make regulations respecting log salvaging. Under this authority the Log Salvage Regulation for the Vancouver Log Salvage District, B.C. Reg. 220/81 (“the Regulation”) was enacted.

[4] In general terms, the Act and the Regulation provide a statutory arrangement which authorizes the Minister to establish a salvage district, to issue permits to persons who intend to salvage logs in the district, and to issue a licence to a person to accept the delivery of the logs salvaged by the permit holders.

[5] A licence holder must dispose of the logs according to provisions in the Act and the Regulation. If a licensee fails to comply with the licence, the Act or the Regulation, the Minister may suspend or cancel the licence.

[6] The Vancouver Log Salvage District is the only log salvage district that has been established under the Act and Regulation. Gulf Log Salvage holds the only licence that has been issued.

[7] A person must not salvage logs in the log salvage district without a log salvage permit and a permit holder may only dispose of salvaged logs in the manner provided in the Regulation. Mr. Ogden estimates that a total of approximately 4900 permits have been issued since the Regulation was made, of which 500 or 600 have been issued in the past ten years. He estimates that there are currently 300 active log salvors.

[8] The Regulation divides salvaged logs into two categories: salvaged logs for which an owner may be identified, and other logs for which no owner can be identified. If the owner in the first category claims the logs, a sale to the owner is negotiated or arbitrated. If the owner fails to claim the logs within three working days then the licensee is deemed to be the owner and is required to dispose of the logs at “the highest price reasonably obtainable.” Similarly, in cases where an owner cannot be identified, the licensee is also required to dispose of the salvaged logs at “the highest price reasonably obtainable.”

[4] Mr. Ogden asserts that Gulf Log Salvage has consistently failed to dispose of the logs at the highest price reasonably obtainable and to base the salvors’ compensation on the best price reasonably obtainable. He also asserts that the Province has consistently failed to require Gulf Log Salvage to do so. It is his position that these alleged failures constitute a breach of the duty of care giving rise to a claim in negligence and also a breach of a fiduciary duty.

[5] Mr. Ogden says that the proposed class should be defined as:

All persons in the province of British Columbia who hold or, at any time since October 30, 1992, have held valid log salvage permits pursuant to the Vancouver Log Salvage District Regulation and who have delivered logs under such permits.

[6] As noted above, Mr. Ogden has estimated that there are currently approximately 300 active log salvors.

[7] Mr. Douglas Cooper, the general manager of Gulf Log Salvage, has deposed that approximately 40% of the total volume of logs salvaged in the Vancouver Log Salvage District is handled by the salvor making direct sales of salvaged logs to buyers at prices negotiated between the salvor and buyer. Some of these salvors do not deliver any logs to either of Gulf Log Salvage’s two receiving stations. Mr. Cooper estimates that in the period from October 1, 1996, to August 31, 2003, there were 204 permittees who made at least one delivery of logs to the receiving stations. Some permittees delivered their logs solely to the Howe Sound Receiving Station, some solely to the Fraser River Receiving Station and some to both stations.

[8] I note that in respect of “direct sales” by salvors to buyers, the Regulation nevertheless requires that payment be made to the salvor through Gulf Log Salvage. Gulf Log Salvage says, however, that it is does not interfere with the negotiated price between salvors and buyers and this statement is not disputed by the plaintiff.

[9] Mr. Cooper has deposed that Gulf Log Salvage has sold logs by three different methods since 1996. From 1996 to approximately 1998, saw logs and pulp logs delivered to the receiving stations were sold on an individual boom basis by negotiation with prospective purchasers. From 1998 to May 2002, saw logs continued to be sold using the same method but pulp booms were sold pursuant to negotiated agreements with the only two end-users. Since May 2002, the selling method for logs other than pulp logs has been changed to a tender process by which groups of eight to ten booms are offered to all log buyers known to Gulf Log Salvage. Mr. Cooper produced a list of 43 potential buyers.

[10] For a number of years, Gulf Log Salvage has periodically published a list of valuation rates for salvaged logs. The plaintiff says that the lists have become a “proxy” for what constitutes “the highest price reasonably obtainable.” It is the plaintiff’s submission, however, that the price lists do not reflect the best price reasonably obtainable for salvaged wood and, as a result, salvors are receiving less compensation than they would be entitled to if the Regulation was complied with.

[11] As “a comparison”, Mr. Ogden appended to his affidavit what are known as the “Vancouver Log Market” selling prices for July 1997 and Gulf Log Salvage’s “Valuation Rates for Salvaged Logs” for the same time period.

[12] Mr. Ogden also deposed that log salvors on the mid-coast outside of the Vancouver Log Salvage District, and therefore not subject to the Regulation, receive substantially more money for salvaged logs per grade than he receives from Gulf Log Salvage. There were, however, errors in Mr. Ogden’s evidence on this matter and his counsel appropriately did not seek to give this evidence any weight.

[13] Mr. Ogden also exhibited to his affidavit a copy of an internal audit report prepared by the Office of the Comptroller General in the Ministry of Finance for the Ministry of Forests in September 2001, which noted that, “in the opinion of three log buyers operating in the Vancouver Forest Region”, salvaged logs should normally sell for between 70 and 90% of the price of non-salvaged logs. The three log buyers were not identified and the basis for their opinion was not provided in the report. The audit report stated that in a comparison of receiving station sale prices to Vancouver Log Market prices, it was found that salvaged logs were sold at a discount of between 33 and 58% depending on the species.

[14] The report also commented on Gulf Log Salvage’s use of price lists. In testing Gulf Log Salvage’s compliance with its obligation to pay the highest price reasonably obtainable over a 21‑month period ending June 30, 2001, the auditors found that the use of the price lists “on average” undervalued by 10% the actual sale prices received for the logs.

[15] Mr. Stuart Messenger is a scaling manager with the Ministry of Forests, Coast Region. In an affidavit filed in this application, Mr. Messenger described the process by which average market values, often referred to as the Vancouver Log Market selling prices, are derived. He deposed that, although many sales transactions are reported to the Ministry, a mathematical process must be applied to the information in order to derive market values for each species and grade.

[16] Mr. Messenger says, however, that the sampled individual sale transactions may be made up of a number of species and grades assembled into different “sorts”, frequently based upon the specifications of purchasers. He states that for pricing purposes, sort specifications are more important than grading. He deposed:

Because of the variation in the “sort” description given to a parcel or boom, the different grades assigned to the logs, and the fluctuation in the prices, the AMVs [average market values] are not representative or typical of the actual prices.

[17] Mr. Messenger stated further that marine log salvage presents additional complexities that impact the marketing and pricing of salvaged logs. He says that the quality of logs varies significantly over periods of time. Potential purchasers recognize several risk factors that are associated with marine salvaged logs. Receiving stations are smaller scale operations and their “sorts” may not be comparable to the full range of domestic sorts recognized by traders.

[18] Mr. Douglas Cooper, the general manager of Gulf Log Salvage, further elaborated on the diversity of the log sorts and the variety of ways in which logs are delivered to the receiving stations by salvors. As an example, Mr. Cooper deposed that a delivery by Mr. Ogden in December 2003 was made up of 69 logs that were placed in eight different sorts, placed in eight different booms and sold through eight different transactions.

[19] Mr. Cooper also deposed that, in 2003, the highest net value of total deliveries paid to a single salvor was $102,034 and the lowest net payment to a salvor was $229. From October 1, 1996 to September 25, 2003, Mr. Ogden received $58,439 for the logs he delivered to the receiving stations in the Vancouver Log Salvaging District.

[20] In advancing his submission that salvors are receiving less compensation than they would be entitled to if the Regulation was complied with, the plaintiff intends to draw upon information relating to the price for non-salvaged wood contained in the Vancouver Log Market selling prices. It is Mr. Ogden’s submission that salvaged wood should normally sell at an ascertainable percentage of the price of non-salvaged wood, depending on the species and grade. He says that determination of the differential is likely to be the subject of expert evidence.

Issues

[21] While not confining their submissions to them, the parties agree that the issues central to the determination of this application are the questions of whether the claims of the class members raise common issues and whether a class proceeding would be the preferable procedure for the fair and efficient resolution of the common issues. While I have concluded that this application can be determined on the basis of the analysis of these two questions, I will also comment on the other requirements of s. 4(1) of the Act.

Do the Pleadings Disclose a Cause of Action?

[22] Some comment should be made regarding the submissions of the parties on whether the pleadings disclose a cause of action. Both defendants assert that no cause of action has been disclosed. For the purposes of the hearing of this application, counsel for the Province accepted that my ruling of January 16, 2004, to add the Province as a party determined the duty of care issue. The Province has filed an application in the Court of Appeal to seek leave to appeal this result and has reserved the right to contest whether there is a proper cause of action on appeal of any certification order. Counsel for the plaintiff accepted this position.

[23] Counsel for Gulf Log Salvage has taken the position that Mr. Ogden has no cause of action against the association. Given my January 16, 2004 ruling, counsel stated that he would not argue this point at the hearing and, if this matter proceeds to appeal, Gulf Log Salvage has reserved the right to argue this point at that level. Counsel for the plaintiff disputed Gulf Log Salvage’s entitlement to do so.

[24] In my opinion, the pleadings disclose a cause of action.

Is There an Identifiable Class?

[25] The Province says that, in seeking to include in the class permittees who have never sold logs to Gulf Log Salvage, the class definition is unnecessarily broad. In its submission, the plaintiff has not established the necessary evidentiary foundation for maintenance of a class action complaint against the defendants.

[26] I conclude that there is an identifiable class of two or more persons. The class is that identified by the plaintiff but narrowed to include only those salvors who delivered logs to either of Gulf Log Salvage’s two receiving stations. The purpose of this modification is to exclude those salvors who only sell their logs by direct sale.

Do the Claims of Class Members Raise Common Issues?

[27] The plaintiff says that the action raises a limited number of questions. One question of law is whether a failure to base the compensation to salvors on the best price reasonably obtainable constitutes a breach of fiduciary duty or the duty of care owed by Gulf Log Salvage to the class members. A second question of law is whether any failure by the Province to enforce the Regulation constitutes a breach of fiduciary duty or a private duty of care owed to the class members. A further question is whether either of the defendants has acted in a manner deserving of punitive damages. The plaintiff submits that all of these issues are necessary for the resolution of each proposed class member’s claim and are therefore appropriate common issues.

[28] It is the plaintiff’s position that it will be necessary for the court to decide how the market value of salvaged logs should be determined, a question that he says will be necessary to resolve for the entire class, and that can be determined without reference to the specific circumstances of individual class members. Put another way, the plaintiff says that “the fact of loss” can be proven on a class-wide basis.

[29] The plaintiff identifies a second common factual issue of whether the Province failed to enforce the Regulation against Gulf Log Salvage.

[30] The plaintiff recognizes that ultimately it will be necessary to determine the loss each salvor has suffered. In the reply argument, counsel for the plaintiff stated:

Once the standard of care has been established through the common issues trial (i.e. what is the appropriate discount for salvaged wood), the determination of individual damages will largely be a mathematical exercise.

[31] In the submission of the defendant, Gulf Log Salvage, whether each sale was carried out reasonably must be assessed on an individual basis. For that reason, it says there are few, if any, common issues of fact in assessing for each individual permittee whether logs delivered were sold at the highest price reasonably obtainable.

[32] Gulf Log Salvage says further that there is no evidence to support the contention that the application of a theoretical model such as that proposed by the plaintiff could apply across the class. It also submits that, more fundamentally, the use of a relative comparison of sale prices based upon the grades of logs fails to recognize that it is the sort of the logs at the time of sale which will have a significant effect upon the price obtained. It notes that log sort specifications have also changed over time in response to changes in demand for logs and manufactured products.

[33] The Province says that the claimed common issues of whether a duty of care was owed and whether it was breached are at “the highest level of abstraction” and give an artificial air of commonality which is not met in fact. It says that there is no common factual underpinning that would allow a common answer to these legal questions for all class members. For example, the Province says that it has made many decisions relating to log salvage over the past 12 years. Some decisions may be relevant to certain class members; others will not. In addition, the court may find that some decisions breached the duty of care and others did not.

[34] The Province also makes a similar submission to that of Gulf Log Salvage that because there were thousands of individual market transactions governed by a panopoly of factors, it will be necessary for the court to assess the reasonableness of the price paid for each log delivery by each class member.

[35] In my opinion, absent a duty owed to the permittees by Gulf Log Salvage and a breach of that duty, there can be no breach of a duty to them by the Province. This circumstance has considerable importance for any litigation plan and has not been addressed in any detail by the plaintiff. One implication of this observation is that the issue of whether there are common issues relating to the liability of the Province does not arise for consideration unless there are common issues relating to the liability of Gulf Log Salvage.

[36] To assist a more practical analysis of the common issues proposed by the plaintiff in relation to the duty of Gulf Log Salvage, I think the proposed issues may be fairly restated in the following question: Was the defendant, Gulf Log Salvage, negligent or in breach of a fiduciary duty in failing to dispose of the logs delivered to it by permittees at the highest price reasonably obtainable?

[37] In addressing the need for supporting evidence for applications for class certification in Hollick v. Toronto (City), [2001] 3 S.C.R. 158, 2001 SCC 68, McLachlin C.J. stated at ¶ 22:

The 1990 report of the Attorney General’s Advisory Committee is perhaps a better guide. That report suggests that “[u]pon a motion for certification ... the representative plaintiff shall and the defendant may serve and file one or more affidavits setting forth the material facts upon which each intends to rely” (emphasis added [in Hollick]): see Report of the Attorney General’s Advisory Committee on Class Action Reform, supra, at p.33. In my view the Advisory Committee’s report appropriately requires the class representative to come forward with sufficient evidence to support certification, and appropriately allows the opposing party an opportunity to respond with evidence of its own.

[38] At ¶ 25 the Chief Justice continued:

In my view, the class representative must show some basis in fact for each of the certification requirements set out in s.5 of the Act, other than the requirement that the pleadings disclose a cause of action. That latter requirement is of course governed by the rule that a pleading should not be struck for failure to disclose a cause of action unless it is “plain and obvious” that no claim exists. [References omitted]

[39] As I have stated above, the plaintiff proposes to prove that a duty existed and was breached by referring to Vancouver Log Market selling prices and expert evidence, which would enable the court to determine what his counsel has described as “the appropriate discount for salvaged wood.” That this approach is intended, is confirmed by the plaintiff’s submission that “the determination of individual damages will largely be a mathematical exercise.”

[40] The only “evidence” referred to by the plaintiff that may be said to support the validity of his intended approach to determining price is the reference in the audit report prepared for the Ministry of Forests which states the bare opinion of three unnamed log sellers. Mr. Messenger, however, sets out in considerable detail the manner in which the Vancouver Log Market selling prices are determined, their reference to pricing on the basis of species and grade, and his opinion that for pricing purposes sort specifications are more important than grading.

[41] In Koo v. Canadian Airlines International Ltd., [2000] B.C.J. No. 329 (QL), 2000 BCSC 281, the plaintiffs sought certification of their action as a class proceeding on behalf of passengers who had been “bumped” from flights for which they had been issued tickets. The court found that the ticket contract could be construed to obligate the airline to use its best efforts to transport its passengers with reasonable dispatch. That being the case, a determination of whether the airline used its best efforts in any individual case would require an examination of a number of factors. The court stated that such a determination would yield no helpful information as to whether it breached its obligation in relation to any other passenger.

[42] In my view, a determination of whether Gulf Log Salvage breached a duty in any given sale absent information about the nature of the sort in which the sale transaction takes place would similarly yield little helpful information as to whether Gulf Log Salvage failed to obtain the highest price reasonably attainable in a different transaction. As a result, individual hearings would be necessary not only for the assessment of damages of individual salvors, but also for the proof of loss as a component of liability. I conclude, therefore, that proof of the liability of Gulf Log Salvage could not be determined on a trial of the common issues but would be required to be addressed as an individual issue.

[43] The effect of this conclusion is to reduce the potential for common issues arising from whether Gulf Log Salvage owed a duty of care and a fiduciary duty to the proposed class members, as well as the possibility of punitive damages. It correspondingly increases the range of what would need to be determined as individual issues.

[44] In Mouhteros v. DeVry Canada Inc. (1998), 41 O.R. (3d) 63 at 73, 22 C.P.C. (4th) 198 (Ont. Sup. Ct. J.), Winkler J. stated:

The presence of individual issues will not be fatal to certification. Indeed, virtually every class action contains individual issues to some extent. In the instant case, however, what common issues there may be are completely subsumed by the plethora of individual issues, which would necessitate individual trials for virtually each class member. Each student’s experience is idiosyncratic, and liability would be subject to numerous variables for each class member. Such an [sic] class action would be completely unmanageable.

[45] Section 4(2)(a) of the Class Proceedings Act states:

4(2) In determining whether a class proceeding would be the preferable procedure for the fair and efficient resolution of the common issues, the court must consider all relevant matters including the following:

(a) whether questions of fact or law common to the members of the class predominate over any question affecting only individual members;...

[46] Section 7(a) of the Act states:

7 The court must not refuse to certify a proceeding as a class proceeding merely because of one or more of the following:

(a) the relief claimed includes a claim for damages that would require individual assessment after determination of the common issues...

[47] In Hollick, supra, McLachlin C.J. stated at ¶ 30:

The question of preferability, then, must take into account the importance of the common issues in relation to the claims as a whole. It is true, of course, that the Act contemplates that class actions will be allowable even where there are substantial individual issues.... I cannot conclude, however, that the drafters intended the preferability analysis to take place in a vacuum. There must be a consideration of the common issues in context.

[48] Because I have found that proof of liability cannot be determined on a trial of the common issues, I conclude that the remaining common issues of duty of care, breach of fiduciary duty, and punitive damages, assuming such damages to be a common issue, not only do not predominate over questions affecting only individual members, but are of little assistance in advancing the action. Each claim would continue to require an examination of the circumstances and factors which were present at the time of each sale of delivered logs.

Would a Class Proceeding be the Preferable Procedure for the Fair and Efficient Resolution of the Common Issues?

[49] The plaintiff asserts that, in addition to the presence of common issues, a class action is the preferable procedure in this case. He says that such a proceeding meets the three goals of improved access to justice, judicial economy and modification of behaviour. In his submission, the administration of the class proceeding will not present greater difficulties than those likely to be experienced if relief were sought by other means.

[50] The defendant, Gulf Log Salvage, says that given the discrete nature of each transaction between each of the class members and Gulf Log Salvage, and the multitude of factors that determine the price paid for each log salvaged over a period of more than twelve years, resolution of the issues cannot be accomplished efficiently or appropriately in a class action proceeding.

[51] In arguing that the class action is not the preferable procedure, Gulf Log Salvage also submits that the class action is not the most efficient procedure. In particular, it says that the plaintiff’s projection of a ten‑day trial grossly underestimates the length of time required to hear the evidence on the individual claims of the class members. It says that it will be necessary to consider the price paid to each salvor in each transaction to properly determine whether each class member suffered a loss. In its submission, such a requirement would fail to achieve the judicial economy that the plaintiff asserts would be a benefit in certifying this proceeding as a class proceeding.

[52] The Province says that a class action is not the preferable procedure since each class member’s case turns on individual issues that would predominate over the common issues. The Province argues that, despite this, the plaintiff has not offered any plan as to how the factual complexity required to determine if each class member was fairly treated in each transaction could be managed within the class action structure. Moreover, in the Province’s submission, complex individual trials will be required regardless of how the class proceeding is structured.

[53] For that reason, the Province states that there are other more practical and efficient means of resolving the claims, particularly as they relate to claims against the Province, including: pursuing the claim against the Province under the Judicial Review Procedure Act, R.S.B.C. 1996, c. 241.; proceeding with the action as a test case; taking a small claims action in relation to some individual claims; and joinder of a small number of individual cases.

[54] As stated above, I have concluded that liability cannot be determined as a common issue. In light of the significant impact of the proof of liability being an individual matter, prosecution of claims by individual action or consolidation of a small number of individual actions are likely to be a more practical means of resolving the claims.

[55] In considering the application of s. 7(a) of the Act to these proceedings, it is my view that the concern in this application is not simply that damages claimed would require individual assessment after determination of the common issues. The concern rather is that the need to determine whether a loss has been proved must be carried out on an individual basis. It is this need which makes the class proceeding an inappropriate procedure for this action.

Disposition

[56] For these reasons I find that, despite the presence of some common issues, a class proceeding is not the preferable procedure for the fair and efficient resolution.

[57] As a result of this conclusion, it is not necessary for me to determine if Mr. Ogden would be a suitable representative plaintiff.

[58] In the result, the plaintiff’s application for certification is dismissed.

“Bryan F. Ralph, J.”
The Honourable Mr. Justice Bryan F. Ralph

Citation:	*Ogden v. Gulf Log Salvage Co‑operative Association and HMTQ,*
	2005 BCSC 56