Date: 19990729 Docket: 30093 Registry: Prince George IN THE SUPREME COURT OF BRITISH COLUMBIA BETWEEN: CARRIER LUMBER LTD. PLAINTIFF AND: HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF BRITISH COLUMBIA DEFENDANT REASONS FOR JUDGMENT OF THE HONOURABLE MR. JUSTICE W. G. PARRETT Counsel for the Plaintiff: D. Byl R. MacLeod Counsel for the Defendant: P. Pearlman D. House Place and Date of Hearing: Prince George, B.C. Sept 15 - 30, 1997 October 1 - 9 and 14,15,16, and 30, 1997 December 12, 1997 March 16 - 31, 1998 April 1 & 2, 1998 April 27 - 30, 1998 CARRIER LUMBER LTD. v. H.M.Q. INDEX PARAGRAPHS PAGE 1.0 INTRODUCTION 1 - 17 1 2.0 ISSUES 18 6 3.0 POSITIONS OF THE PARTIES 19 - 32 9 4.0 BACKGROUND 33 - 51 13 5.0 THE CONTRACT 52 28 5.1 MINISTRY OF FORESTS OFFER 53 - 55 28 5.2 CARRIER'S PROPOSAL 56 - 58 29 5.3 EVALUATION OF THE PROPOSALS 59 - 68 31 5.4 EVALUATION OF CARRIER 69 - 73 39 5.5 FOREST LICENCE A20022 74 - 82 41 6.0 CHRONOLOGY OF EVENTS 83 - 119 49 7.0 THE EVIDENCE 7.1 ADVERSE INFERENCES 120 - 169 58 7.2 FUNDAMENTAL BREACH, DECEIT & BAD FAITH 170 - 206 82 7.2.1 SILVICULTURE 207 - 243 100 7.2.2 THE BLOCKADES 244 - 250 118 7.2.2.1 BEEF TRAIL CREEK 251 - 320 121 7.2.2.2 NEMIAH TRAP LINE 321 - 325 153 7.2.2.3 BRITTANY TRIANGLE 326 - 400 155 7.3 SUSPENSION AND CANCELLATION 401 - 414 189 8.0 THE AFTERMATH 415 - 423 193 9.0 DISCUSSION 424 - 462 196 9.1 DECEIT 463 - 465 2O9 9.2 WRONGFUL SUSPENSION & CANCELLATION 466 210 9.3 GOOD FAITH 467 - 493 210 9.4 PUNITIVE, AGGRAVATED & EXEMPLARY DAMAGES 494 - 506 219 APPENDIX A PHOTOGRAPHS APPENDIX B THE CARTOON 1.0 INTRODUCTION [1] The present action raises broad claims for relief based on general claims for damages for breach of contract, deceit and wrongfully suspending and cancelling a Forest Licence (A20022) issued to the plaintiff by the defendant on December 31, 1983. [2] The complex specific issues arising from these general claims will be canvassed in more detail later in these reasons. [3] The factual background giving rise to these claims is itself complex and extraordinary spanning a period of over two decades and the emergence of major events which have shaped and continue to shape the present and future of this province. [4] The extraordinary nature of these events can be found not simply in those events themselves but in the typically Canadian way in which they remain so little known here in the province in which they occurred. [5] These events, however, arose mainly in the interior of the province of British Columbia, far from the major urban area of the lower mainland. [6] The Chilcotin Plateau lies some 200 kilometres west of the City of Williams Lake and some 540 kilometres north of Vancouver. It is high altitude semi-arid wilderness with sparse timber and low productivity per hectare. The haul distances to the nearest mill complexes in Williams Lake were such that the timber in the area was of little value and, as a result, no logging of note had taken place in this region prior to 1986. [7] In the 1970's the area was struck by an infestation of the Mountain Pine Beetle. Substantial volumes of timber were being destroyed each year and the result was an emergency in which the Crown was confronted with enormous timber losses, substantial timber stand rehabilitation costs and a large and growing risk of wild fire. [8] Between 1980 and 1983 the Crown tried to entice through timber offers in the area, harvesting which would begin to control the beetle infestation. Those efforts failed because of the remoteness of the area and the relatively poor quality and volume of the timber resources. [9] In late 1983 the Crown tried a new approach. In this attempt they offered an unprecedented sale of 5 million cubic metres of timber to be harvested over a period of ten years. By offering this combination of a very large volume and a 10 year license period they hoped to attract bids which would begin harvesting in the area, and some effort to control the beetle infestation. [10] The only serious bid came from the plaintiff, Carrier Lumber Ltd. ("Carrier"). Their bid was characterized by a unique and highly innovative approach to the problem of the Chilcotin Plateau. Instead of facing the substantial transportation costs for raw logs occasioned by the remote location, Carrier's proposal envisioned designing, manufacturing and transporting a series of modular pre- fabricated mills into the Chilcotin. This would enable them to mill and plane the timber in the area where it was harvested hauling finished timber not logs to the railhead at Williams Lake. [11] Carrier's proposal was a new solution to a problem for the Crown which was becoming increasingly difficult. The problems Carrier faced were substantial, not only would they have to design build and transport these modular mills, they would have to transport and establish them in a remote and isolated area lacking any real infrastructure. They needed to address power supply, a road structure, training and establishing a work force, and building and establishing camps for their work force. [12] The initial startup of this operation was slow and measured, in part, because of the difficulties they faced and, in part, because of the approach the Crown asked Carrier to take. Nevertheless by 1991 Carrier had established five timber processing facilities in the Chilcotin: sawmills at Holtry, Charlotte Lake and Eagle Lake and planer mills at Charlotte Lake and Eagle Lake. [13] The mills were modular mills, but they were certainly not the type of backyard bushmill that is sometimes operated. These were highly sophisticated, technologically advanced mills that were built in modules and transferred to the site where they were assembled. Each mill comprised between 30 and 40 semi tractor trailer loads. A measure of Carrier's project and their commitment can be seen by examining the photographs of these mills and their surrounding facilities. These photographs appear as Appendix A to these reasons. [14] By 1991 Carrier through this project had developed an industrial presence in the Chilcotin and created in excess of 250 jobs. [15] Other events, however, had also taken place, the Canada- U.S. softwood lumber dispute and the emergence of a more active stance by First Nations people led to major difficulty with Carrier's ability to harvest the timber covered by its license. [16] These complex and disputed events led to the suspension and eventual cancellation of Carrier's license and to the initiation of the present litigation. [17] This action, the plaintiff submits is about nothing more or less than the primacy of the rule of law and the subjugation of the Crown to it. The defendant broadly replies by submitting that the plaintiff, in effect, seeks through this action what amounts to immunity from the operation of key forestry statutes, regulations and policies which regulate forestry operations in the Central Interior of British Columbia. 2.0 ISSUES [18] In summary form the following issues were the subject of submissions in this action: 1) Did the Crown breach its contract with Carrier by failing to deliver the volume of timber agreed to? 2) Did the Crown breach its contract with Carrier by refusing to pay for silviculture and by imposing a more onerous silvicultural obligation on Carrier? 3) Did the Crown breach its contract with Carrier by failing to comply with an implied term to supply contiguous timber to Carrier mills? 4) Did the Crown breach its contract with Carrier by failing to issue cutting permits and ultimately suspending and cancelling Carrier's license? 5) Was there a mutual mistake on the part of the Crown (Ministry of Forests) and Carrier Lumber as to the silvicultural obligations imposed upon Carrier as a result of the legislative and regulatory changes created by the passage of Bill 70, the revised Interior Appraisal Manual ("IAM"), the silviculture regulations of 1988 and the change in stocking standards? 6) Should the way in which documents were disclosed by the Crown in the present case result in the drawing of adverse inferences, and, if so, what inferences should be drawn? 7) Was Carrier's license cancelled on the direction of the Minister of Forests rather than the Regional Manager Michael Carlson, and if so what is the legal effect of such? 8) What is the effect of the "new" maximum density standard set by the Chief Forester and the definition of "basic silviculture" in the "new" legislation? Is the maximum density standard required to be set by regulation? 9) Is the Silviculture "allowance" in the IAM in conflict with s. 129.3(a) of the Forest Act and therefore ultra vires? 10) Are Bill 70 and the Silviculture Regulation unconstitutional because they trench upon federal jurisdiction over trade and commerce? 11) Do provisions of the IAM, the Minimum Stumpage Regulation and/or the Silviculture Regulation conflict with provisions of the Forest Act and/or the Ministry of Forest Act such as to render them ultra vires? 12) Is the comparative value pricing scheme discriminatory in its application to Carrier? If so, should it be struck down on that basis? 13) Is the comparative value pricing scheme "unreasonable" and should it be struck down on this basis? 14) Are the meanings of the terms "free to grow" and "basic silviculture" in the IAM and the Silviculture Regulation so unclear that they are rendered void for uncertainty? 15) What obligation was the Crown under to deal with the road blockades by First Nations people preventing access to the Beef Trail and Brittany Triangle areas? 16) What are the Crown's relative obligations to Carrier and to the First Nations people involved in these blockades? What are the legal consequences, if any, of the Crown's conduct, given the allegations of bad faith, with respect to their contractual obligations to Carrier? 17) Did the Crown act in bad faith in withholding cutting permits, suspending and ultimately cancelling Carrier's license? 18) Is a finding in favour of the plaintiff on any of its constitutional or administrative law arguments sufficient to establish a breach of contract by the Crown? Do damages follow from such a finding? 3.0 THE POSITIONS OF THE PARTIES [19] A summary of the positions of the respective parties cannot do justice to the thoughtful and extensive submissions presented by counsel in this action or the enormous effort those submissions represent. Nevertheless it is useful to set out a summary of those positions in order to establish a framework for what follows. [20] The plaintiff submits that this is a case about the primacy of the rule of law, and the subjugation of the Crown to it. Central to those submissions are two critical points, that the Crown during the relevent time frame acted in bad faith consciously sacrificing Carrier and its interests to promote other goals and, secondly, that by a concerted effort they have suppressed documents and evidence in order to conceal their actions and the reasons behind them. [21] In the end, it is submitted Carrier was prevented, by actions directly attributable to the defendant from harvesting over one half of the 5,000,000 cubic metres of wood awarded to them under the Forest Licence A20022. The final total harvested under the license was 2,447,050 cubic metres. [22] The plaintiff has mounted a multifaceted attack on the Crown's conduct alleging five separate major incidents as separate breaches of contract, namely, the Crown actions in relation to the Beef Trail, their actions in relation to cutting permit CP106, their actions in relation to the Brittany Triangle, what Carrier asserts as an illegal suspension and then cancellation of their license, and the imposition on Carrier of additional and massive Silvicultural obligations. The Statement of Claim seeks general damages on the basis of breach of contract; deceit, and for wrongful suspension and cancellation of License A20022. In addition there is a plea of fundamental breach. [23] Carrier goes on to challenge the legality of the entire Comparative Value Pricing Scheme, and the constitutionality of s. 10 and 11 of Bill 70 and the Interior Appraisal Manual. [24] In the end Carrier submits they are entitled to recover compensatory, punitive, aggravated and exemplary damages. [25] The defendant submits that the plaintiff's attack amounts to a plea for immunity from the operation of key forestry statutes, regulations and policies which have regulated the operations of major licensees harvesting Crown timber in the interior of British Columbia since 1987. [26] The defendant submits that none of the Crown's conduct amounts to bad faith on their part and that all the defendants tried to do was to pursue sometimes conflicting interests by negotiations aimed at accommodating both Carrier's interests and those of the First Nations peoples. They go on to submit that Carrier consciously chose not to seek court injunctions to force access to the disputed areas. In doing so the defendant submits that Carrier made its own choice to pursue negotiations over confrontation. [27] Regardless of that the defendants submit that they are under no obligation to seek to control the conduct of Indian Band members. [28] In suspending and eventually acting to cancel Forest Licence A20022 the defendant submits it was simply acting, in good faith, because of Carrier's continuing refusal to accept its obligation to provide security for silviculture costs. There was on the evidence, they submit, no interference with the decision nor was Carlson directed by his superiors to take those steps. [29] The defendant's central submission with respect to the allegations of breach of contract as they relate to statutory and regulatory changes flow from Article 15.03 of the Forest Licence A20022. [30] This article provides that: This License in subject to the Forest Act. [31] The result of this provision was to make Forest Licence A20022 subject to change from time to time as the legislation and subordinate legislation was amended. This was no different they submit than the situation facing any other licensee. In essence the defendant's submission amounts to this: from the outset all parties knew the license was subject to the Forest Act and changes to that Act, the changes which occurred over the course of this license were brought about by events and policy decisions that were made in good faith by all of those involved on behalf of the defendant. [32] In the end the defendant submits that the plaintiff has failed to prove its case and the action should be dismissed with costs awarded to the defendant. 4.0 BACKGROUND [33] The area of concern to the present litigation lies within the Williams Lake Timber Supply Area ("TSA") and specifically along the western boundary of this TSA. The three western blocks cover an area some 200 kilometres west of Williams Lake. These blocks are bounded on the north by the Itcha mountains, on the west by Tweedsmuir Park, on the southwest by the Coast Mountains and on the east by the Chilcotin and the Taseko rivers. These three blocks cover an area of some 359,429 hectares, and are predominately a high altitude semi-arid climate where the major timber species found is lodgepole pine. [34] In the mid 1970's an infestation of mountain pine beetles was found in the Kleena Kleen Valley. This infestation spread rapidly in a north easterly direction out of the valley and into the western supply blocks. By 1984 the infestation was being described as the largest insect disaster that had been known to mankind. [35] A measure of the seriousness of the situation can be found in the following extracts taken from various reports prepared by or for the Forest Service: 1) In the 1981 Williams Lake Timber Supply Options Report at p. 53 the authors note that: One of the greatest problems facing the Cariboo Forest Region and especially the Williams Lake TSA is the Mountain Pine Beetle. In recent years this pest has reached epidemic proportions especially in the western portion of the TSA. This problem has not been addressed to a large extent in this analysis, however if the current rate of destruction of lodgepole pine continues it could have an extremely drastic effect on the present mature timber supply. Lodgepole pine makes up approximately 43% of the mature timber in the TSA and the loss of a considerable amount of this timber could cause the harvest for the next 100 years to drop below the present commitment level. Currently, most of the licensees are directing their harvesting efforts to the beetle-infested areas in an attempt to salvage the wood and slow the pest down. The problem will continue to be monitored and at the time of the next analysis there should be a better indication of the extent of the damage and its overall effect on the timber supply. 2) A follow up report the next year entitled Preliminary Report For Use In Development Of A Timber Supply Area Plan For The Williams Lake TSA, July, 1982 noted the limited harvest in the area of the three western supply blocks and the reasons for the problem at p. 19: This rate of harvest reflects the severe economic operating restrictions in the far western supply blocks of the T.S.A., the serious mountain pine bark beetle attacks in the lodgepole pine stands, the need to develop acceptable harvesting operations in environmentally sensitive areas, and the closer utilization standards required for lodgepole pine. In the three most western supply blocks, (Anahim, Tatla and Chilcotin) the extreme haul distance and poor quality timber make the operability of these areas uncertain at this time. As a result, the current yield from these blocks has been withheld from the A.A.C. determination. Timber volume from these blocks may be made available for harvesting as economic conditions improve. When viable operations in these areas are assured, the A.A.C. may be adjusted to reflect their contribution. The A.A.C. takes into account the necessity for accelerating the harvest to allow removal of timber infested with mountain pine bark beetle. Significant timber volume losses will continue to occur unless harvesting operations are directed into infested areas. Harvesting from some of the forest land base which supports this level of A.A.C. requires special techniques to preserve productivity of steep slopes and retain special scenic, recreational, and other resource values. The Junction Supply block in the Quesnel Lake region is one of these areas. Commensurate A.A.C. reduction will result if the forest industry does not meet the challenge of developing and implementing effective harvesting techniques in these areas. 3) The extent of the problem is identified in a report entitled Great West Sale - 1983 Protection Section Cariboo Forest Region which preceded the issuing of the license to Carrier. At p. 3 of the report it is noted that: The beetle infestation has been increasing steadily since 1972 in the West Chilcotin, starting in two main areas, the Kliniklini River and Konni Lake. . .the 1982 aerial surveys which estimated trees killed by beetles in 1981 indicated an increase of 50,000 hectares of beetle-killed pine in the Anahim, Tatla and Chilcotin Supply Blocks. the beetles presently completely infest all Three Blocks and there is tremendous beetle population pressure along the eastern boundary. The only areas which presently have merely scattered attack in them are the northern third of the Anahim, the northwest corner of the Tatla and the southern portion of the Chilcotin Supply Blocks. 4) In 1981 the Ministry of Forests had attempted to make a large sale of the timber in the vicinity of Charlotte Lake. The attempt was unsuccessful. an independent consultant, Fleming Einfeldt reported on this attempt to the president of the plaintiff in a letter dated December 1, 1981. The letter reads, in part: The auction date of the Charlotte Sale was August 21, 1981. There were no bidders. Subsequent to the auction the sale was available as a direct sale over the counter for a 60-day period. This has now expired. However, it may be possible that the area could still be sold as a direct sale especially if the purchaser was a reputable company with proven performance in the industry. . .as there were no bidders, at the auction, the Ministry of Forests is currently considering altering both the terms of sale and size of sale. The Ministry of Forests has had several parties indicate an interest in a modified version of the sale. Changes being considered including increasing the volume, including some better quality volume, increasing the term of the sale from a five-year to a ten-year term and adding possible rights of renewal to the tenure. The sale area as it was advertised covered approximately 38,000 hectares and was for a total cut of 550,000 cubic metres over a five-year period. . .The average volume is 119 to 140 cubic metres per hectare. The species composition is 90% pine and 10% spruce. The older pine was beetle attacked sometime ago but is still standing and usable. There is staining but not a lot of checking of the wood. The younger pine is now being attacked. The average tree height is 15 metres. The average diameter range is 15 to 20 centimetres. Very few stems are larger than 20 centimetres. Much of the timber is Aged Class 8, stunted and flat topped. The average volume per stem on an adjacent similar cutting permit is .17 to .2 cubic metres per tree. The Charlotte sale trees are estimated as 15% smaller than this and therefore contain .14 to .17 cubic metres per stem. . . post logging treatment of scarifying and planting would be done by the Ministry of Forests while any burning would be licensee's responsibility. . . [36] It is difficult to overstate the level of concern existing within the Ministry of Forests, even after the tendering for A20022 as Carrier began the slow buildup to its forest operations those concerns remained and found expression in a variety of ways at various levels. [37] During the course of his testimony at this trial, Michael Carlson, the Regional Manager for the Cariboo Forest Region of the Ministry of Forests, testified that: The infestation started spreading from Kleena Kleen, from Harvey's Creek east of Williams Lake, and from an area around Tyee Lake immediately north of Williams Lake, and we were seeing very, very dramatic spread every year, so that by 1982 we had a disaster of enormous proportion. Few people saw the disaster, but it is probably one of the greatest natural disasters that the province has seen, and it largely went unrecognized. We had literally tens of thousands of hectares of dead timber by that time. [Trial Transcript, March 16, 1998, p. 1426, ll. 11-20] [38] In writing a reply to a Mike McDonough on May 2, 1985, Ron Reeves, the District Manager of the Chilcotin Forest District, notes that: . . . The area in question has been established by Order in Council as a Provincial Forest, there exists within this forest a mountain pine beetle epidemic of disastrous proportions and Carrier Lumber Ltd. has been issued a ten year Forest Licence to harvest 5 million cubic meters of wood. This is completely in accordance with the legislative mandate under which the Ministry of Forests operates. [39] In responding to Mr. McDonough's concerns, Mr. Reeves goes on to comment on how the harvesting of the timber "sold" to Carrier will be carried out: . . . Exactly how and where this volume is to be harvested depends on the various planning stages and functions that Carrier Lumber is obliged to undertake. It is at one of these stages, ie. Development Planning, that public input has been solicited. It is this input that can be used in considering and determining the specifics of the "how" and the "where" of the logging. Your letter supplied nothing positive in this regard. Your statement that neither the Forest Service or Carrier Lumber Ltd. has assumed any responsibility for the well being of these (forest) resources is completely erroneous. The Forest service does have a responsibility decreed by legislation; refer to Part 4 of The Ministry of Forest Act. Carrier Lumber Ltd. has submitted a Proposal for Forest Licence, has been issued a Forest Licence, has submitted and has had approved a Management and Working Plan, has submitted a Development Plan, and is required to submit and have approved, cutting permit documents. In total these documents are voluminous and thorough. They serve to commit the Company to complete responsibility and liability as the holder of a Forest Licence. The preceding is not to mention the financial commitment already made by the Company. (emphasis added) [40] On June 13, 1985, in a news release issued by Julius Juhasz, the Director of Timber Management Branch of the Ministry of Forests, the following announcement was made public: ALLOWABLE CUT INCREASED IN BEETLE-INFESTED TIMBER VICTORIA BC -- THE RATE OF CUT FOR TIMBER IN THE WILLIAMS LAKE AND QUESNEL TIMBER SUPPLY AREAS IS BEING INCREASED BY FIFTY PERCENT IN AN ATTEMPT TO HARVEST PINE STANDS BEFORE THEY ARE DESTROYED BY THE MOUNTAIN PINE BEETLE, FORESTS MINISTER TOM WATERLAND HAS ANNOUNCED. LODGEPOLE PINE IN THE CARIBOO FOREST REGION IS BEING DEVASTATED BY THE BEETLE AND, IF WE DO NOT ACT QUICKLY, MOST OF THE 180 MILLION CUBIC METRES OF MATURE TIMBER IN THE AREA WILL BE LOST, HE SAID. THE ANNUAL TIMBER HARVEST IN THE TWO TSAS WILL BE INCREASED BY 2.4 MILLION CUBIC METRES. THIS MAY RESULT IN LOWER ALLOWABLE ANNUAL CUTS IN FUTURE YEARS. AS MUCH AS POSSIBLE, THE ADDITIONAL HARVEST WILL BE MADE AVAILABLE TO COMPANIES THAT CURRENTLY HAVE LICENCES TO CUT TIMER IN THE AREA. THE FOREST SERVICE REGIONAL MANAGER WILL INCREASE THE VOLUME ALLOCATED FOR THE SMALL BUSINESS ENTERPRISE PROGRAM BY 600 THOUSAND CUBIC METRES AND WILL OFFER THE BALANCE OF THE VOLUME FOR BID PROPOSALS IN FIVE-YEAR, NON-REPLACEABLE FOREST LICENCES TAILORED TO THE REQUIREMENTS OF LOCAL SAWMILLS. BIDDING WILL BE RESTRICTED TO COMPANIES CURRENTLY LICENCED TO HARVEST TIMBER IN EACH TSA. NORMAL STUMPAGE CHARGES WILL BE LEVIED AND COMPANIES WILL BE RESPONSIBLE FOR REFORESTATION WITH COSTS REIMBURSED BY THE PROVINCE. TEN-YEAR NON-REPLACEABLE FOREST LICENCES WITH EXPORT PRIVILEGES WILL BE OFFERED FOR SALVAGING TIMBER IN THE WESTERN PARTS OF THE WILLIAMS LAKE TSA WHICH ARE OUTSIDE THE ECONOMIC REACH OF EXISTING MILLS. THE BEETLE INFESTATION IS ESPECIALLY SEVERE IN THIS AREA. LODGEPOLE PINE STANDS LOSE THEIR COMMERCIAL VALUE AS SOON AS TWO YEARS AFTER THEY ARE ATTACKED BY BEETLES. IF NOT HARVESTED, THEY BECOME EXTREMELY DIFFICULT TO PREPARE FOR REFORESTATION AND ARE A SEVERE FIRE HAZARD. (emphasis added) [41] On June 21, 1985, the Minister of Forests, Tom Waterland, in a letter to the president of the Williams Lake Rod and Gun Club, commented on the problem and the Carrier proposal: With regard to the Carrier Lumber proposals in the Chilcotin, this action is proposed to salvage timber damaged and threatened by the mountain pine beetle epidemic. These beetles are killing the lodgepole pine trees at alarming rates, and by their very activity are drastically altering wildlife habitat. In the unmanaged environment, wildfire would eventually follow the beetle attack. In the Chilcotin, with the degree of beetle activity, the potential for enormous wild fires is a very real threat. We are attempting to salvage the timber values present, and reduce the wildfire danger at the same time. [42] The concerns of the Ministry of Forests were put in these words by Mr. Reeves during his evidence at this trial: Well originally the primary concerns were related to forest protection, both the loss of the merchantable stands that would result from the beetle infestation and probably even more importantly the risk of fire danger that these dead stands were presenting. The massive contiguous stretches of mature pine that was susceptible to the mountain pine beetle, once those stands were -- were killed and dead they became a very significant risk from a forest protection, wildfire suppression point of view. [Trial Transcript, Oct. 8, 1997, p. 1090; ll. 34-37] [43] Another aspect of that concern was confirmed by Mr. Juhasz during the course of an examination for discovery. This concern was that given an estimated volume loss due to the beetle infestation of some 9.5 million cubic metres from 1975 to 1983 there was a growing fear that the infestation would continue to spread northwards and perhaps into Tweedsmuir Park. [44] The scope of the problem, the remoteness of the location and the danger for a continuing expansion of the infestation again emerges from some of the evidence of Ron Reeves when discussing the reasons for advertizing the licence for the three western supply blocks: Well essentially those three supply blocks which were part of the Williams Lake timber supply area did not contribute to the then currently established allowable annual cut of the Williams Lake TSA, and that decision had been made by the Chief Forester apparently because of the fact that those three western supply blocks were so far from the rail head at Williams Lake and the current milling facilities that -- that they were determined uneconomic for harvesting, and essentially there had been very little interest expressed in harvesting in those supply blocks. So essentially they did not contribute to the then allowable annual cut. So there were no operations specifically going on in those supply blocks, and that's where the beetle problem was. Q. Now with respect to the Anahim supply block were there particular considerations which led to its inclusion in the call for proposals? A. Well the significant issue with the Anahim supply block was, as I recall, the beetle attack at that time in 1983 was only beginning to show up sporadically in the Anahim supply block, it was further west. It was a slightly higher elevation than where the beetle attack had started in the district, and the Anahim supply block contained some of the best stands of pine in the district. It was nearer the Coast Mountains, it was better weather, there had been less of a history of fire. There was a large volume of mature pine timber that was in the bank, as it were, that had never been harvested that would eventually be available for harvest in the Anahim supply block, plus because of the geographical nature of the supply block and the nature of the Dean River drainage that ran through the supply block, this -- this mature timber and -- that was there that was clearly very susceptible to mountain pine beetle attack, it formed as it were a conduit of mature timber north up the Dean River up into the timber supply areas in the Vanderhoof area. So it was seen that in the long-term if this beetle attack wasn't controlled that it could just run up this drainage through this mature susceptible stand and infect the stands further north in the Prince George timber supply area. (emphasis added) [Trial Transcript - Oct. 8, 1997, p. 1092 l. 40 to p. 1093 l. 33] [45] The Ministry of Forests began to plan a shift in their strategy to try and deal with these concerns. The shift was away from smaller individual licences to a much larger licence to serve as a sufficient incentive to develop both interest and a solution to these enormous problems. The shift in planning is obvious and is described in various ways by witnesses. [46] Ron Reeves described the plan in this way: . . . Well initially there was some small scale attempts at eradicating the mountain pine beetle in site specific areas that were clearly not effective. There was then an initiative where there was some fire -- or fuel breaks constructed throughout the Chilcotin in strategic areas that would not necessarily prevent a break in the fuel source should a wildfire begin from this attack, but would at least provide some -- some access in the event of a wildfire. And in the early days there was no attempt to do anything else but these token measures mainly related to -- to the fire hazard problem. Subsequently it became apparent that in order to -- to ameliorate the potential danger that his attack was going to present in terms of a fire suppression, the concept of harvesting was begun, large scale harvesting to not only remove the -- the dead and attacked stands but -- and to break up the fuel source, but also as a way of biological control of the beetle was -- started -- we started to think about those options. [Trial transcript - Oct. 8, 1997; p.1091, l.1-24] [47] In his evidence, Mike Carlson expressed similar observations in more detailed evidence: Q. And from your perspective . . . -- what were the Crown's primary objectives? A. Maybe I should just explain the situation immediately preceding the award of the -- or the advertising of the licence by stating that as this mountain pine beetle infestation continued to grow, the Crown was attempting to make this timber available to industry, and salvage the timber that had been killed. The area, the general area of the West Chilcotin had -- had limited operations in it prior to this period, and most of the operations had been in either good quality, green lodgepole pine stands, or in Douglas Fir type stands, species that weren't susceptible to the mountain pine beetle. So when we--when we realized that we were having very little luck in salvaging the timber that had been killed, and in fact we had made some -- we started with small timber sales that we advertised that -- and timber sales, let me say, are an area based tenure that define a specific area that we are selling. We had -- we had set up timber sale licences over areas that were heavily attacked with mountain pine beetle. If the sales were picked up by someone, often operations were intermittent and many of the timber sales were not successfully harvested. Immediately prior to the advertising of A20022 we advertized a very large timber sale licence in the area around Charlotte Lake, a timber sale licence of I believe it was 500,000 cubic metres. We got very little interest in that licence, and that caused us to -- to go back and examine our whole strategy in dealing with salvage requirements in the West Chilcotin. Specifically we went to the scientific community and asked the obvious questions of where the mountain pine beetle infestation was likely to go. We were advised that unless nature through cold winters or something like that intervened, and unless we had some type of strategy to reduce the beetle population, that likely the infestation would continue to spread north into the pine stands west of Quesnel and up towards Vanderhoof and Burns Lake. So at that point we decided to go to industry and ask industry what it would take to get operations going in the West Chilcotin. And first of all let me say that the local industry in the Cariboo was heavily committed to salvaging mountain pine beetle infested stands elsewhere in the timber supply area. There were significant infestations. As I mentioned before, in the Tyee Lake area, in the area immediately west of Williams Lake. So the existing manufacturing capacity in Williams Lake was largely already committed to existing salvage operations. So the industry told us if you -- if you want to make an opportunity available in the West Chilcotin, you should consider making an opportunity of sufficient volume and term to allow the construction and write-off of an average sized, modern interior manufacturing facility, which was in general terms viewed at - - in the neighbourhood of a half a million cubic metres a year, and a more or less accepted write-off period was considered to be in the neighbourhood of ten years. So that was one of our starting points then, is a licence that allowed a volume and term that would allow establishment of new milling capacity. The other thing that we had to consider by the suggestions of industry is quit trying to chase the mountain pine beetle, quit trying to salvage behind it, the salvage stands are evidence of where the beetle has already been, it serves no purpose in terms of control measures to try to clean up that wood when the active beetle population is in front of you. And in fact the Ministry of Forests was accused of a dog in the manager type management approach by not recognizing that the good quality green timber stands were almost inevitably going to be consumed by the beetle epidemic and a wiser strategy would be to liquidate the green pine stands in front of the beetle infestation, with a first priority of harvest being green stands that had an active beetle -population in them. So when we advertised A20022 that's specifically the way we set the proposed forest licence up, is ten years, 500,000 cubic metres, and not confined to salvage, but we asked that the proposal identify how they would address the stated priority of harvesting which was green attack, green susceptible, followed by red and grey. (emphasis added) [Trial transcript - Mar. 16, 1997; p. 1426 l. 27 to p.1428 l. 24] [48] During the relevant early time period Mr. John Szauer held various high level management positions within the Ministry of Forests in the Cariboo Forest Region and worked out of Williams Lake. From 1984 until his retirement in 1988 he held the position of Regional Manager for that area, and was heavily involved in the decision making process that led to the advertizing and awarding of forest licence A20022. Mr. Szauer's evidence concerning the change of direction and planning was revealing: Q. And at the regional office in this time did it become a matter of concern as to how this mountain pine beetle infestation should be dealt with? A. Yes, for a while our management team, which consisted basically of a man who was in charge of timber management and the staff managers, the timber and recreation manager and myself, Forestry Manager, with the Regional Manager discussed it on several occasions, and we were trying to find a solution to the problem and we started out issuing small salvage sales basically until we realized that the problem was far too big to be handled with small business sales, and we convinced each other and decided that we should -- because it was a big problem we cannot have small solutions to the problem and we were looking for a big solution and we decided to advertise a substantial timber sale. [Trial transcript - Sept. 30, 1997; p. 667, l.30-45] [49] He went on to describe some of the thinking behind the change: Q. Okay. Now what were some of the specific problems that the Forest Service faced with respect to dealing with this, first with respect to rehabilitation or cleanup, what was the problem there? A. Well the problem was that we didn't seem to have the capacity to -- to remove the beetle infested timber as fast as we should have removed it. Q. Yes? A. And I think we at that time all agreed that we were basically chasing the beetle problem rather than get ahead of it. We were directing our efforts to red attack and in some cases even grey attack, if you wish me to explain the categories I can do so, but basically we were chasing the beetles and it took us a while to realize that in order for us to get ahead of the problem and really come to grips with it we've got to do something different and we've got to have a much more drastic approach to the beetle salvage program, because it wasn't adequate. [Trial transcript - Sept. 30, 1997 p. 668, l. 20-38] [50] This then was the genesis of Forest Licence A20022 and the proposal presented by Carrier in response to the Crown's bid invitation. [51] The following findings are, in my view, clear and unequivocal on the evidence before the court: 1) The infestation by the mountain pine beetle was severe and spreading. 2) The responsible members of the Ministry of Forests viewed the infestation as both devastating and alarming. 3) The forestry officials viewed the infestation as potentially threatening both Tweedsmuir park and, if unchecked, parts of the Prince George Timber Supply Areas. 4) The areas of risk for the Crown included a substantial loss of timber revenue, a substantial loss in the form of enormous site rehabilitation costs and a large and growing risk of wild fire in the attacked timber stands. 5) The forestry officials concluded that given the relative lack of success of previous attempts to entice operators to this remote area that a new strategy was needed. 6) The form of A20022 was specifically designed by them in terms of length of term (ten years), the annual cut (500,000 cubic metres) and the total volume (5,000,000 cubic metres) to entice an operator to establish a new modern milling capacity in the area of the Chilcotin. This attempt was carried out with the full knowledge of the previous failed attempts and the marginal nature of the timber supply, as well as the remote nature of the location and the lack of any supporting infrastructure. 5.0 THE CONTRACT [52] Before turning to the heart of the contested evidence in this case it is useful to review the way in which Forest Licence A20022 came into existence, the details of the Crown advertisement, the Carrier proposal and the subsequent contract documents. 5.1 THE MINISTRY OF FORESTS OFFER [53] By September of 1983 the efforts of the Timber Management Branch resulted in the advertising for a bid proposal and an application for tender for Licence A20022. The Ministry's press release issued at the time puts the matter in perspective: Forest Minister Tom Waterland today announced he is inviting bids for the annual harvesting of up to « million cubic metres of beetle infested lodgepole pine in the West Chilco. This represents the largest sale of Crown timber in BC in over 15 years, said Waterland. A sale made necessary because of a massive Mountain Pine Beetle attack. Large scale logging operations are needed to help keep the beetles from spreading. [54] Of the four proposals delivered to the Ministry of Forests only Carrier's proposal was a serious contender, the other three were for a) a minimal volume, b) the use of hot air balloons, and c) a proposal from a Williams Lake Consortium that contained numerous terms and conditions. [55] The process was initiated by ordering the publishing of a legal notice in the British Columbia Gazette. The relevant part of the notice read: NOTICE INVITING APPLICATIONS FOR A FOREST LICENCE(S) FOREST ACT (Section 11) TAKE notice that interested persons are invited to submit application in a sealed container, to the Chief Forester for Forest Licence(s) A20022, which will authorize the harvesting of 500 000m3 of beetle infested lodgepole pine timber per year for 10 years from lands within the Anahim, Tatla and Chilcotin supply blocks of the Williams Lake Timber Supply Area (T.S.A.) The Forest Licence(s) will be non-renewable at the expiry of its term and the successful applicant(s) shall not be entitled to replacement privileges under the Forest Act. 5.2 CARRIER'S PROPOSAL [56] Carrier's application and tender for Forest Licence dated October 28, 1983, was accompanied by a commitment to pay $350,000 comprised of -- a) an offer of a lump sum bonus of $150,000; b) the annual rent for one year in advance of $125,000; and, c) a security deposit of $75,000. [57] This document was accompanied by a 28 page written proposal which provided a very detailed breakdown of Carrier's proposal and the benefits which would accrue from it. The final page sets out in table form the estimated Crown revenues that would be derived from the project: ESTIMATED YEAR ITEM OF REVENUE AMOUNTS 0 Bonus Bid $ 150,000 Annual Rental 125,000 1 Stumpage 50,000 Annual Rental 125,000 Motor Fuel Taxes 12,000 Truck Licences 3,000 Provincial Sales Tax - Company Purchases 535,000 Provincial Logging Tax - Provincial Corporate Income Tax - Provincial Personal Income Tax - Employees 100,000 2 Stumpage 200,000 Annual Rental 125,000 Motor Fuel Taxes 150,000 Truck Licences 30,000 Provincial Sales Tax - Company Purchases 220,000 Provincial Logging Tax 195,000 Provincial Corporate Income Tax 310,000 Provincial Personal Income Tax - Employees 560,000 3 Stumpage 200,000 Annual Rental 125,000 Motor Fuel Taxes 150,000 Truck Licences 30,000 Provincial Sales Tax - Company Purchases 240,000 Provincial Logging Tax 340,000 Provincial Corporate Income Tax 540,000 Provincial Personal Income Tax - Employees 560,000 4 Stumpage 200,000 to Annual Rental 125,000 10 Motor Fuel Taxes 150,000 Truck Licences 30,000 Provincial Sales Tax - Company Purchases 270,000 Provincial Logging Tax 280,000 Provincial Corporate Income Tax 450,000 Provincial Personal Income Tax - Employees 560,000 Total 10 Year Crown Revenue $19,530,000 [58] The capital commitment made by Carrier to establish its position in the Chilcotin was not placed in evidence during this phase of the trial but it is obvious from the evidence as a whole that this was a very major investment, based on a long term licence and a large volume of timber. 5.3 THE EVALUATION OF THE PROPOSALS [59] The reaction of Ministry officials to Carrier's proposal is evident from both the testimony at this trial and documents and memoranda written at the time. It is clear on the evidence that, although Carrier had been a pioneer in the industry and had been involved in salvage projects where it utilized modular milling equipment it had never done so on such a large scale or in an economic environment such as the Chilcotin. [60] In his testimony John Szauer assessed it this way: Q What do you recall today about comparing the Carrier proposal to the others, how did it stand out? A Well my recollection is that Carrier's was far superior to any of the other bid proposals we had received from -- from other people. Q And in what respects was it so? A Well Carrier Lumber showed some initiative in terms of how to deal with the timber out in the West Chilcotin, it was a remote part of the province, it was uncommitted we called them, the uncommitted supply blocks, these supply blocks, and Carrier Lumber said they're going to move in some sawmills and they're going to utilize the timber locally and they were going to employ local people and they -- they didn't ask us for anything that some of the other proponents did. For instance in a nutshell some of the other proponents simply said if you pay us for logging the timber we'll take it, but Carrier Lumber said well all right, we are prepared to do the following things in order for us to get access to the timber, and it was -- I called it a very refreshing proposal anyhow. [Trial Transcript - Sept. 30, 1997 p. 671; ll. 9-29] Q And did you support the award of the licence to Carrier Lumber Limited? A I certainly did. As I recall -- I don't remember the detail of the other bids now, but Carrier's proposal certainly seemed to be clearly the best one of the lot, and it was -- it seemed to me to be quite (sic) appropriate proposal. Q And what particular factors about that proposal led you to that conclusion? A Well as I recall it was the most well researched, it was the most well prepared, Carrier had obviously done field work on the ground, they had -- they or their consultants had been on the ground, they had even talked apparently to some local people. It was a complete package. It also included what turned out to be quite innovative technology in terms of milling, and the whole principle that Carrier had of putting the mills where the wood was and making the finished product and transporting the finished product to rail head or to distribution centres rather than transporting logs all the way to Williams Lake. So -- so the two factors, I think, the concept that they had of milling on site and obviously the -- Carrier's identified history of successful milling operations like this and the fact that they had done good preparatory field work made it outstanding. (emphasis added) [Trial Transcript - Oct. 8, 1997 p. 1093; l. 39 to p. 1094, l. 17] [61] On December 1, 1983, J.A.D. McDonald the then Regional Manager for the Cariboo Forest Region wrote to J.J. Juhasz the Director of the Ministry's Timber Management Branch conveying to him his review of the proposals received with respect to A20022. [62] Of the proposals received only two could be considered serious contenders. The differences between the two is readily apparent from the following extract from Mr. McDonald's assessment: Of the four proposals received one is of particular merit. That one is the Carrier Lumber Co. proposal. All of the other three have basic flaws which rank them far below the Carrier proposal when considering that the primary objectives of this Forest Licence is to provide for the management and utilization of Crown timber. The Carrier proposal is for the full volume; has a $150,000 bonus bid; calls for harvesting at close utilization specifications; calls for sawmilling on site; makes no demands for cut control or species harvest concessions; and presents the foundation for a well thought out development plan. It even raises the possibility of site rehabilitation projects in stands of dead timber which cannot be harvested in a normal manner. In other words this company wants the wood we have to offer and is prepared to harvest it on our terms. The Weldwood/West Fraser/Lignum/Pinette & Therrien proposal (The Joint Proposal) is for four separate Forest Licences totalling 500,000m3 although the proposal is combined. Vague reasons, including reducing the potential economic risks, and making the marginal economic benefits equitable are given for combining the proposal. It is inferred that either all the licences are issued or none at all. This proposal is very aggressive in its demands, listing at least twenty, ranging from removal of cut control requirements to requiring a commitment from the Ministry of Forests that cutting permits will be issued within twenty days of receipt of the final application. The review concludes with the following: In conclusion, it is our recommendation that the Carrier Lumber Company proposal be accepted and all other proposals rejected with deposits refunded. The main reasons for our recommendation is that the Carrier proposal appears to be the most viable; milling is oriented towards the smallwood profile; it is not a proposal for a long term timber supply; it places no direct or indirect demands on the other supply blocks in the Williams Lake T.S.A.; and it proposes commencement of sawmilling operations by October 1984 without immediate demands for cut control concessions. Once the Carrier proposal has been accepted and the development plan approved, we will be in a position to assess the need for further sales or bid proposals in these three supply blocks based on the Mountain Pine Beetle situation at that point in time. If the Carrier proposal is accepted by the Minister it would be in both parties interest to meet to firm up several points to prevent any misunderstandings after the signing of the licence document. These points are as follows: 1. Acceptable cut block size must be established prior to commencement of further development planning. 2. Acceptability of stands for quarter minimums will be as per the Regulations. In other words, not all areas will qualify for quarter minimums. 3. It must be clarified that we may limit Section 88 funding to correspond with potential stumpage revenue. Also it may be the case that the majority of roads constructed will be operational, not Section 88. 4. We will require clarification on how Carrier intends to use the 50% red and grey wood as noted in their proposal. 5. It must be made clear that acceptance of their bid does not necessarily confer acceptance of the development plan portion of their proposal. Once the licence has been signed the development plan will be referred to the Fish and Wildlife Branch for comments and changes may be necessary. [63] On November 30, 1983, H. Waelti the Director of the Valuation Branch of the Ministry in a letter to the Assistant Deputy Minister, A.C. MacPherson gives the following overall assessment in transmitting his comments with respect to each of the proposals: Forest Licence A-20022 presents a challenge that has not been met by Cariboo operators in the recent past. Small average tree size, low volume per acre, and isolation have historically made a development of these stands a very unattractive proposition at best. The present deterioration of these stands by insect attacks adds to these obstacles the need to ensure timely as well as an adequate level of utilization of the sites. Only the Carrier proposal appears to present a suitable combination of fast performance, size, and degree of innovation and commitment required to surpass these obstacles. The Carrier proposal calls for portable milling inclusive of drying and planing and initially proposes to harvest stands with up to 50% dead trees. Utilization of byproduct chips and stands with a greater percentage of dead trees will be dependent upon market conditions and operating costs. The proposal is well suited to insect salvage as it enables considerable mobility to respond to changes in insect populations and corresponding changes in operating priorities. The Carrier proposal distinguishes itself from the other proposals in several other respects - makes provision for entire volume - tenders a bonus bid ($150,000) - includes a preliminary operating plan - proposal is not conditional upon other commitments from government which in some of the proposals as noted in attachment are contrary to the legislation. Our recommendation follows that only the Carrier Lumber proposal is worthy of consideration for award of this licence. (emphasis added) [64] In the same time period, on November 21, 1983, H.V. Lewis the Manager of the Economics section of the Ministry 's Strategic Studies Branch writes to Mr. MacPherson forwarding his evaluation of the proposals. In his covering letter he asks a question which was to become a contentious issue at this trial: On balance, the application from Carrier Lumber Ltd. appears to be the preferred choice. Quite apart from who gets the wood, why is it a forest licence rather than a TSL which is being offered? Non-replaceable TSALs have been converted to tenures with continuing rights in the past. It seems optimistic to expect that this won't occur with a forest licence if the operation proves viable. This would be less likely with a TSL and it would have the added advantages that we could define a specific area which would seem desirable if the point of the sale is to sell diseased or threatened wood and, in addition, we would avoid having to bend our normal cut control rules. [65] The report goes on to assess the advantages and disadvantages of the Carrier proposal: The choice between the remaining two proposals is more difficult to make, especially from Victoria and with a lack of detailed knowledge regarding current wood supply problems in the Williams Lake TSA and the probable cost of harvesting and milling marginal wood from the three westernmost supply blocks in the TSA. The advantages and disadvantages of proposal numbers 3 and 4 are listed below. Proposal number 3 - Carrier Lumber Ltd. Advantages - only proposal with a bonus bid ($150,000); - an innovative method for utilizing marginal timber which is far removed from the current milling centre, Williams Lake. If successful, this technique could have applications elsewhere in the province; - this risky development would be undertaken using private capital only and would not involve Section 88 charges against other stumpage revenue since Carrier has no other licences in the Cariboo Forest Region; - could provide an incremental chip supply to pulp mills in soft lumber markets. - up-front conditions associated with the proposal are minor compared to proposal number 4. Disadvantages: - milling jobs resulting from proposal would be created in a remote area away from normal social amenities such as schools and hospitals. (emphasis added) [66] In his evaluation of the Carrier proposal, forwarded to Mr. MacPherson on November 10, 1983, Mr. Juhasz writes: 1.3 An evaluation a) Employment and social benefits The company envisions moving the labour force from the Houston fire salvage operation, some 128 employees, and the creation of an additional 122 jobs, for a total of 250 jobs. Logging would be done for about 10 months per year, milling would be year-round. b) Management and utilization of the Crown timber Logging of the stands under consideration would serve three forest management objectives. First, it would provide for the utilization of timber that would otherwise be lost to insects, secondly, it would lessen the insect problem and, thirdly, it would put the logged areas back to production by undertaking the necessary site treatment and other necessary silviculture projects. c) Furthering the development objectives of the Crown Timber in the area under consideration has heretofore been assumed uneconomic to develop and utilize. If it can be economically utilized by the innovative way proposed in the application, it would not only extend the development horizon in this area, but most probably in other areas of the Province as well. d) Environmental quality The area under consideration is part of the relatively dry and "gentle" Chilcotin Plateau, hence logging in harmony with the natural environment is not considered a major problem. The application proposes to take all necessary precautions to protect or enhance the other resource values. e) Crown revenues The company offered a bonus bid of $125,000, and asked for no special considerations from the Crown. The company will pay stumpage and rental, and there will be substantial secondary financial benefits to the Crown from the proposed operations. 1.4 Summary - The proposal appears to be very well thought out, the applicant has a strong reputation for undertaking unusual projects, to be innovative, and to make a financial success of its undertakings. (emphasis added) [67] On December 8, 1983, Mr. MacPherson, acting in his capacity as the Deputy Chief Forester, provided his comments to the Minister of Forests. Within his covering memorandum is found the following assessment of the Carrier proposal: Carrier Lumber Proposal This proposal meets the intended objectives of the sale. It makes no demands for cut control, relaxation of utilization standards or species harvest concessions. The working plan and 10-year development plan are well thought out, and face the wood profile problem and operational usage square on. Road networks and cutting areas are designed to operate in the problem types, mostly comprising 75% pine (deadwood and red-attacked included), and approach the goal of salvaging and sanitation logging priority stands in those critical areas of the supply blocks, which would contribute significantly to diminishing the northward spread of the pine beetle population. Their specialized equipment and operating strategy is flexible and more suitable for the job. Their planning even raises the possibility of site rehabilitation in stands of dead timber which cannot be harvested in a normal manner. Their chart area is located totally in the north end of the Anahim and Tatla supply blocks, and as such, the furthest possible areas from Williams Lake. That is where the beetle problem is most severe and priority harvesting needs are evident. This proposal meets the primary objectives of the sale and is designed to harvest, salvage wood, sanitize stands and expend a co-operative effort to arrest the northward beetle spread on our terms. The above plus other considerations detailed in the attached table clearly suggest this is by and far the best proposal. [68] On December 9, 1993, the licence was awarded to Carrier. 5.4 THE EVALUATION OF CARRIER [69] The awarding of licence A20022 to Carrier was greeted by knowledgeable Ministry officials with enthusiasm. The reasons for that enthusiasm are readily apparent from the evidence. [70] Mr. Szauer described the reasons for his elation: Well because for years we had been faced with this beetle problem and we weren't really able to come up with any meaningful solution to it, and when I saw this, I said, gee, finally we've got somebody who is taking it seriously and is going to do something about it. And knowing Kordyban's reputation in other areas also, north of Prince George, And also I think he was logging at the time out west, I'm not exactly sure where it was, it was called the Swiss fire. Q The Swiss Fire? A Salvage operation or something like that. Q Yes? A So he had a good reputation for this kind of operation for salvage logging. So I thought it was a good choice. [Trial Transcript - Sept. 30, 1997 p. 672, l. 43 to p. 673, l. 9] [71] Similar opinions were held by Mr. Juhasz: Q All right. Mr. Kerley has the sentence here, "Carrier Lumber is, even in the opinion of the Ministry of Forests, the kind of innovative entrepreneurial and successful operation that is required in the forest industry in this province. In the words of another senior official of another forest company, Carrier and Bill Kordyban Sr. are the envy of most companies that operate sawmills. He can develop and operate sawmills in a way that no else can." That's the view that you hold? A Absolutely [72] The Assistant Deputy Minister Wesley Cheston agreed with similar wording: Q Okay. Was it the prevailing view within people working in the Executive offices in the Ministry of Forests in this time period that Carrier Lumber was an innovative, successful operator? A Yes [73] Mr. Phillip Halkett, the Deputy Minister, testified: Q Last paragraph on page 2: "To its credit, Carrier was willing to gamble that its milling techniques would work there and lumber markets would pick up. As time has shown, that was indeed the case. Many in this Ministry admire the company for its innovative milling techniques and its willingness to take on the challenge of milling in the remote Chilcotin area." Is that statement true to the best of your knowledge and belief? A Yes, it is. 5.5 FOREST LICENCE A20022 This Forest Licence was reduced to writing, made as of December 31, 1983, and executed on behalf of the Crown by J.A.D. McDonald and on behalf of Carrier by William Kordyban, Sr. [75] Among the many terms of the Forest Licence the following provisions are included: 1.0 GRANT OF RIGHTS AND TERM 1.01 Subject to this licence and in consideration of the Licensee's covenants in it, the Licensor grants to the Licensee the right to harvest from Crown land in the Anahim, Tatla and Chilcotin Supply Blocks of the Williams Lake Timber Supply Area an allowable annual cut of 500 000 m3 of Crown timber every year of the term of this licence, a) from areas specified in cutting permits, and b) according to management and working plans and to cutting permits. 1.02 The term of this Licence is ten (10) years, beginning December 31, 1983 1.03 Notwithstanding paragraph 1.01, the allowable annual cut shall be deemed, for the purposes of part 5.00, to be 500 000 m3 for 5 year cut control period beginning January 1, 1984. 1.031 This Licence shall expire on December 30, 1993 unless sooner terminated and no replacement shall be offered under the Forest Act. . . . 3.00 MANAGEMENT AND WORKING PLANS 3.01 Within 6 months after this Licence is entered into, the Licensee will submit for the Licensor's approval a proposed management and working plan for the 5 year period beginning January 1, 1984. 3.02 The Licensee will submit for the Licensor's approval proposed management and working plans for periods succeeding the period referred to in paragraph 3.01, as the Regional Manager directs by notice to the Licensee. . . . 3.07 A management and working plan shall be deemed to be part of, and shall be consistent with, this Licence. 4.00 CUTTING PERMITS 4.01 Without the written consent of the Licensor or the District Manager the Licensee will not cut timber under this Licence except under a cutting permit. 4.02 On application by the Licensee, the Licensor or the District Manager will, from time to time, issue cutting permits to the Licensee, to enable the Licensee to harvest timber from Crown land in the Supply Blocks specified in paragraph 1.01 within the limits specified in paragraph 5.02 and according to the management and working plan then in effect. 4.03 A cutting permit shall, subject to the management and working plan then in effect, (a) authorize Crown timber to be harvested under this Licence from a specific area of Crown land within the area specified in paragraph 1.01, (b) be for a term, not exceeding 3 years, (c) provide for the payment of stumpage rates applicable to timber harvested under it and may provide procedures for varying the stumpage rates, (d) prescribe utilization standards, other cutting specifications and forest practices to be followed in timber harvesting operations carried on under it, (e) prescribe the specifications and standards of roads to be built on the land subject to the cutting permit, (f) set out procedures for assessing timber wasted and damaged by the Licensee and damages payable to the Crown for timber wasted and damaged, (g) specify a timber mark to be used in conjunction with the timber harvesting operations carried on under it, (h) be deemed to be part of this Licence, and (i) include such other provisions, consistent with this Licence and the Forest Act, as the Licensor or the District Manager determines. . . . 5.02 The licensee will not permit the volume of timber harvested (a) during a calendar year to be less than 50%, of the allowable annual cut, or (b) during a 5 year cut control period to be less than 90%, of the 5 year allowable cut for the 5 year cut control period, or (c) to be less than 90% nor more than 100% of the cumulative allowable cut for the term of the Licence. 5.03 If the volume of timber harvested during the term of this Licence does not equal the allowable cut specified in subparagraph (c) of paragraph 5.02 (a) the Licensee will pay to the Crown, in addition to stumpage, as liquidated damages, an amount of money equal to two (2) times (i) the difference between the volume of timber harvested and the volume specified in subparagraph (c) of paragraph 5.02 multiplied by (ii) the current upset stumpage rates as determined by a Forest Officer (calculated according to procedures approved by the Minister) that is billed to the Licensee in statements issued on behalf of the Crown. 5.04 If the volume of timber harvested during a five year cut control period does not equal the allowable cut specified in subparagraph (b) of paragraph 5.02 (a) the Licensee will pay to the Crown, in addition to stumpage, as liquidated damages, an amount of money equal to two (2) times (i) the difference between the volume of timber harvested and the volume specified in subparagraph (b) of paragraph 5.02 multiplied by (ii) the current upset stumpage rate as determined by a Forest Officer (calculated according to procedures approved by the Minister) that is billed to the Licensee in statements issued on behalf of the Crown. 5.04 If the volume of timber harvested during each calendar year is less than the amount specified in subparagraph 5.02(a), then the Licensor may cancel this Licence under paragraph 14.01. . . . 9.00 FORESTRY 9.01 Following the completion of timber harvesting and slash disposal operations under a cutting permit and subject to the management and working plan then in effect, the Licensee will establish on the land subject to the cutting permit a crop of commercially valuable species of timber, in the manner and to the standards determined by a Forest Officer who is a registered professional forester and approved by the Licensor or the District Manager. 9.02 Where, under a management and working plan, the Licensee is to perform silviculture or develop a recreation site on Crown land within the area designated in paragraph 1.01, the Licensee may enter the Crown land and may perform the silviculture on it, or develop the recreation site on it, as the case may be, approved under the management and working plan. . . . 12.02 The Licensee will not cause a timber processing facility or facilities owned or operated by the Licensee that processes timber or wood residue or both, from this Licence (a) to be reduced in capability, or (b) to be closed for a sustained period of time, where such reduction or closure would, in the opinion of the Licensor reduce the Licensees ability to utilize fully the allowable annual cut authorized under this Licence, unless, and to the extent that, the Licensor or the District Manager exempts the Licensee form the requirements of this paragraph. . . . 13.03 Where the Licensee fails to perform an obligation it is required to perform under this Licence, a management and working plan, a fire protection pre-organization plan approved under paragraph 8.02, a cutting permit, or a road permit (a) the Licensor or the District Manager may perform the obligation on the Licensee's behalf, and (b) the Licensee will on demand pay the Crown an amount of money equal to the reasonable costs incurred under subparagraph (a) to perform the obligation. . . . 15.03 This Licence is subject to the Forest Act. [76] From a reading of the licence as a whole certain facts emerge from the language of the licence itself. 1) The agreement is, in many respects, a work in progress, under clause 3.07 the Management and Working Plan is "deemed to be a part of . . ." this licence. 2) This agreement is a true licence, although the plaintiff is granted in clause 1.01 a right to harvest, no cutting may take place except pursuant to a valid cutting permit or a written consent provided separately under the terms of clause 4.01. 3) Although the licence imposes potentially substantial penalties on the plaintiff for failure to perform the Crown retains virtually complete control over how that may be done. 4) Under the terms of clause 12.02 the Crown even imposed conditions on the way in which the Licensee could operate their timber processing facilities. [77] The approach to be taken to the construction of a forest licence was the subject of a decision of our Court of Appeal in 1995. In Carrier Lumber Ltd. v. British Columbia (Minister of Forests), (December 15, 1995) Vancouver CA019189 (B.C.C.A.) Donald J.A., writing for a unanimous court on the point expressed the view: 17. There is another perhaps preferable approach to the construction of the forest licence. That is to recognize its special features as a licence, a grant by a public authority, and while the contractual characteristics must be acknowledged (s. 10(a) of the Forest Act describes a Forest licence as a form of contract) the interpretation of the licence should not be constrained by any rule of contract interpretation which prevents a full inquiry into formation of the licence and the meaning of its terms. [78] If further support for this proposition is needed it can be found in the speech of Lord Wilberforce in Prenn v. Simmonds [1971] 3 ALL E.R. 237 at p. 239 where he states: In order for the agreement of 6th July 1960 to be understood, it must be placed in its context. The time has long passed when agreements, even those under seal were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. There is no need to appeal here to any modern, anti-literal, tendencies, for Lord Blackburn's well-known judgment in River Wear Comrs. v. Adamson provides ample warrant for a liberal approach. We must, as he said, enquire beyond the language and see what the circumstances were with reference to which the words were used, and the object appearing from those circumstances, which the person using them had in view. Moreover, at any rate since 1859 (Macdonald v. Longbottom) it has been clear enough that evidence of mutually known facts may be admitted to identify the meaning of a descriptive term. [79] These principles are, in my view, particularly applicable when the existing terms of a forest licence are subject to addition and expansion by, amongst other things, the incorporation of approved Management and Working Plans and Development Plans, which themselves contain substantial detail of the plans and intentions of the parties. [80] The "agreement" between the parties is, however, by no means restricted to the forest licence itself or even that licence and the Management and Working Plan. The structure of a forest licence under the legislation is a complex web which from the licence document itself envisions the creation and, in effect, the incorporation of a host of other documents and terms. These include in addition to the Management and Working Plan, or plans, Development Plans, Cutting Permits and later on Pre-Harvest Silviculture Prescriptions (P.H.S.P.'s). This web of documents incorporates various contractual rights and obligations from very narrow site specific conditions in the case of Cutting Permits and P.H.S.P.'s., to broader more general conditions in the case of the licence, the Management and Working Plan and the Development Plan. [81] In the present case, A20022 was a forest licence and not some other form of forest tenure. The significance of this form of tenure was the subject of evidence from Mike Carlson who testified: We chose to advertise a forest licence because a forest licence was a form of tenure that was awarded on the basis of proposals. It wasn't awarded with the primary award criteria being bonus bid, which is the other traditional licence that we consider in these types of situations, is a timber sale licence, which is awarded solely on the base of a bonus bid. We thought proposals would give a better chance to evaluate applications as to their suitability for addressing our priorities, suitability in terms of addressing economic viability, and generally we though that form of tenure would give us the flexibility that we felt we really needed with this licence. Another key component of a forest licence is it's a volume based licence within a broad geographically defined area. Normally forest licences are defined to a timber supply area, in this case we defined the forest licence to the three western supply blocks of the timber supply area. Q Why that area? A The primary reason that the licence was confined to that area is that is the area where we had an enormous mountain pine beetle problem, we had very little plans and operations that were addressing the problem, and the three western supply blocks were not considered as part of the traditional operating area of the major Williams Lake licensees, and we didn't view there much -- there as being much opportunity for the Williams Lake opportunities -- or Williams Lake licensees to move into that area and aid in salvaging control. So it was right from the -- I guess the late '70s when we shifted from public sustained yield units to timber supply areas, the three western supply blocks were a defined geographic area that was not part of the traditional timber supply of the established licensees in the Williams Lake timber supply area, and it was treated as a separate management unit. (emphasis added) [Trial Transcript - Mar 16, 1998; p. 1428, l. 31 to p. 1429, l. 21] [82] Four things emerge from this evidence. In choosing to advertise A20022 as a forest licence, the Ministry was specifically seeking to maximize their ability to evaluate proposals in light of their own priorities, the economic viability given the remoteness of the area and the "flexibility" with which they could control the licence. The next point is that it was clearly a sale of a specified and very large volume of timber in a specific area. Finally, the primary purpose was to deal with the "enormous mountain pine beetle problem". 6.0 THE CHRONOLOGY OF EVENTS [83] It is useful, in my view, to begin an approach to the evidence in this case by setting out a chronology of the main events which contributed to or serve as the background to the present litigation. [84] Following the awarding of the licence to Carrier on December 9, 1983, a meeting was convened between representatives of Carrier and the Ministry of Forest on January 12, 1984, prior to the signing of the licence. Shortly after this first meeting, in February of 1984 the first cut control modification was agreed to (effectively deferring the first years harvesting volume). [85] In October of 1984 Carrier's first Management and Working Plan (MWP) was filed. This MWP was approved by the Ministry of Forests on February 11, 1995. By 1985 the beetle infestation was viewed as having reached epidemic proportions and as Carrier worked towards establishing its mills in the Chilcotin the second Cut Control modification was agreed to in October 1985. [86] In May of 1986 the second countervail case was commenced by American Lumber interests targeting Canadian softwood lumber imported into the United States. This action led to the imposition of a 15% interim import duty in August 1986. In September of 1986 the Ministry of Forests began a comprehensive policy review and on December 30, 1986, a Memorandum of Understanding was signed between Canada and the United States whereby Canada agreed to collect a 15% charge on the export of specified softwood lumber products en route to the United States. The agreement included terms that would permit the Government of Canada to reduce or eliminate this charge on the basis of increased stumpage or other provincial charges. [87] During this time another significant event was occurring during the late fall or early winter of 1984/1985 and again in 1985/1986. The Chilcotin was hit with severe cold, apparently before there was significant snow cover. The effect of this weather was to kill off the beetle larvae and effectively end the spread of the mountain pine beetle. As matters stood this fact remained generally unknown until 1988 or 1989. [88] In February of 1987 the third Cut Control modification was agreed to. On May 25, 1987 Carrier submitted a modified MWP for the period from January 1984 to December 1993. This MWP which was approved by the Regional Manager Mr. Szauer provided that Carrier would ensure the successful regeneration of all logged areas subject to government funding. [89] On May 28, 1987, royal assent was given to the Softwood Lumber Products Export Charge Act. This legislation imposed a 15% export charge on softwood lumber products destined for the United States effective January 7, 1987. [90] In July of 1987, Carrier's first mill at Holtry commenced operations and on July 16, 1987 the Forest Amendment Act (No.1) was enacted. This was followed on December 15, 1987 by the introduction and first reading of the Forest Amendment Act (No. 2)(Bill 70). On December 16, 1987, this bill was given second reading and on the same day the Memorandum of Understanding between Canada and the United States was amended to reflect that, on certain conditions, the British Columbia government would have replaced the export charge as of December 1, 1987. [91] The next day, December 17, 1987, Bill 70 received third reading and was passed and parliament passed the Softwood Lumber Products Export Charge Compensation Act. [92] In 1988 as Carrier continued to establish its presence in the Chilcotin the legislative blizzard resulting from the Canada/United States softwood agreement continued. On January 28, 1988, by regulation, British Columbia was exempted from the 15% federal export charge on softwood lumber as of December 1, 1987. [93] In the spring of 1988 Carrier's Charlotte Mill began operations. This was followed on April 19, 1988 by the enactment of B.C. Reg. 147/88 which was the new Silviculture Regulation. [94] As 1989 arrived events in the Chilcotin moved to a new phase. On January 5, 1989 the Regional Manager (Now Mike Carlson) approved an undercut carryover of 1.9 million m3 into the next 5 year cut control period. This was followed by the submission of Carrier's new Development Plan which was approved in May. [95] On July 17, 1989, members of the Ulkatcho Indian Band established a road blockade preventing construction of the Tusulko bridge and blocking Carrier's access to the Beef Trail Creek area. On August 2, 1989, the Minister of Forests met with the Ulkatcho band. [96] During the winter of 1989 and 1990, Carrier completed construction of the Eagle Lake mill and transported it to that site. [97] This was followed by the commencement of operations of another mill at Tatla on February 5, 1990 and a separate planer mill at the same site in May. On May 2, 1990, District Manager Ron Reeves by memorandum notes it may be necessary to "ram it down their throats" referring to convincing Carrier to agree to the Ulkatcho's revised logging plans for the Beef Trail. [98] On July 30, 1990, Ron Reeves wrote to Carrier purporting to "unapprove" Carrier's already approved 1990 Development Plan for the Beef Trail Creek area. On October 9, 1990, Paul Klotz responded on behalf of Carrier alleging that the Ministry was in breach of its contract with Carrier. [99] On October 18, 1990 the Minister of Forests, Claude Richmond, met with members of the Ulkatcho band. [100] On December 17, 1990, the Chief Forester, Mr. Cuthbert fixed a maximum density for lodgepole pine of 5000 countable stems per hectare. [101] During 1991, relations between Carrier and the Ministry of Forests continued to suffer. On February 14, 1991, the Regional Office circulated the new maximum density standard to licensees and directed that it be incorporated in all future pre-harvest and silviculture prescriptions. [102] By March events with the Ulkatcho had reached a new level. On March 13, 1991, the band wrote to the District Manager advising of their preference for a "holistic logging approach" with no more than 20% of mature timber harvested in the "first pass" and openings of no more than 20 hectares. [103] Six days later, on March 19, 1991, Ron Reeves wrote a letter to Paul Klotz of Carrier expressing the view that the Ulkatcho were being more reasonable and expressing the view that a resolution of the Beef Trail issue seemed possible. A blind copy of this letter and an altered Larson cartoon was forwarded at the time to the Regional Manager Mike Carlson. [104] On May 22, 1991, what was referred to as the "bombshell" letter was forwarded by Reeves to Klotz requiring Carrier to provide security for silviculture. On the same day or the following day, Carrier's Cutting Permit Application CP54Y for logging in the Beef Trail was returned without being approved. [105] One week later, on May 29, 1991, a memorandum from Doug Harris of the Chilcotin Forest District office was forwarded to Ron Reeves estimating Carrier's silviculture obligations as between $15,687,997 if based on Chilcotin Forest District costs and $30,369,821 if based on the Appraisal Manual. [106] Meetings in June and September did little to resolve this issue and on October 7, 1991, Carlson proposed tieing the silviculture obligation to Carrier's Prince George replaceable licence. [107] In 1992 the end was rapidly approaching, with the Ulkatcho issue and blockade still outstanding, a new dispute with a second group surfaced. In a year when they added a second planer mill to the Tatla mill site to increase their milling capacity, Carrier's ability to supply wood to the mill was being seriously compromised. [108] The year began with a communication from the Minister of Forests, Dan Miller, on January 3, 1992, that Carrier must provide security in an amount determined by the Regional Manager, or tie the security to their Prince George licence or A20022 would be suspended. [109] After this auspicious start matters further declined, On May 7, 1992, members of the Nemiah people blockaded the bridge at Henry's Crossing preventing Carrier from gaining access to the Brittany Triangle. [110] On May 8, 1992, Carrier proposed a form of joint venture to the Chief of the Nemiah people. The counter- proposal offered by them in response was unacceptable to Carrier. [111] On May 12, 1992, Ron Reeves prepared a briefing note for Premier Harcourt with respect to the Henry's Crossing blockade. The following day, on May 13, 1992, Premier Harcourt, accompanied by Ministers Zirnhelt and Miller, met with the Tsilhqot'en Chiefs at the 108 Mile airport. It is apparent from the evidence at this trial that the Premier promised them that there would be no timber harvesting in their traditional territory without their consent. [112] Two days later, on May 15, 1992, Forest Minister Dan Miller wrote to Carrier threatening licence suspension for failing to comply with Bill 48. This was followed on May 21, 1992, by a letter to the Nemiah band indicating that there would be no logging in their disputed territory without a joint venture between the Nemiah people and Carrier. [113] On May 25, 1992, Ministers Miller and Zirnhelt met with the Tsilhqot'en Tribal Council. This was followed by a meeting between Carrier, the Nemiah and Ministry of Forests officials on May 28, 1992. [114] June 3, 1992, was a busy day. Forest Minister Dan Miller accompanied by other senior government officials including the Deputy Minister of Aboriginal Affairs and the Regional Director for the Ministry of the Environment met with the Tsilhqot'en Tribal Council at Alexis Creek before moving on to a meeting with Carrier and the Ulkatcho at the Puntzi Tanker Base. [115] From June 3 until June 10, 1992, successive drafts were prepared of a briefing note regarding the suspension of Carrier's licence. [116] On June 16, 1992, Carlson wrote to the President of Carrier advising him of impending suspension unless Carrier entered joint venture agreements with the native bands and complied with the silviculture obligations, as the Ministry saw them. [117] On July 20, 1992, Carlson wrote to Carrier indicating that their licence would be suspended as of August 11, 1992. Despite a series of meetings and discussions, Carrier's licence was suspended and eventually cancelled on March 31, 1993. This cancellation was upheld on appeal by the Chief Forester on May 31, 1993. [118] On February 9, 1995, that decision was reversed by the Appeal Board who found the cancellation was not justified, but by this time the Forest License had already expired on December 30, 1993. [119] Approaching the contested aspects of the evidence must begin with a consideration of the plaintiff's submission that this is a case in which adverse inferences should be drawn against the Crown. 7.0 THE EVIDENCE 7.1 ADVERSE INFERENCES [120] The plaintiff in this case submits that there has been a widespread campaign by agents or employees of the Ministry of Forests and/or the Attorney General's Branch to prevent disclosure of relevant documents in this action. [121] This assertion by the plaintiff is resisted strenuously by the defendant who nevertheless concedes that substantial documentation that is both relevant and material to the issues in this case was not disclosed by the Crown until after the plaintiff had closed its case. [122] The circumstances giving rise to this situation are quite extraordinary and led to rulings on October 30, 1997 and December 12, 1997 which were themselves extraordinary and resulted in a significant change of course in the conduct of this trial. [123] Regrettably it is necessary in dealing with the plaintiff's submissions on this point to canvass the circumstances under which those rulings were made and this trial eventually reconvened to run its altered course. [124] On October 2, 1997, the plaintiff closed its case in this action and the defence began its case with the calling of its first witness Hartley Lewis. On October 16, 1997, after an application made necessary because of the serious illness of an important defence witness the trial was adjourned. [125] On that same date by what amounts to pure coincidence, the plaintiff's Woodland's manager encountered a member of the Ulkatcho Indian Band and during the course of their discussion, the subject of this trial came up. As a result of their discussions a file and a number of documents were produced to him which originated with or had been delivered to the Crown. The documents had not been disclosed and are material and relevant to the issues in this trial. One of those documents was a letter signed by the Minister of Forests. [126] Mr. Byl, on behalf of the plaintiff, returned a motion in which he sought to have the defence struck. This application was adjourned on October 30, 1997, on conditions, and dismissed eventually on December 12, 1997. [127] The resulting orders and conditions permitted the plaintiff during an adjournment of this trial to effectively investigate the circumstances surrounding the non-disclosure by the Crown of quite literally hundreds, if not thousands, of material documents. [128] The orders of October 30, 1997, directed the cross- examination of a number of Ministry officials who had sworn affidavits concerning the disclosure process, an additional order directing immediate production of all documents relevant to the First Nations blockades of the Henry's Crossing Bridge and access to the Beef Trail Area. A further order required the defendant to provide affidavits verifying their lists of documents. [129] On December 12, 1997, following further information being placed before the court and hearing further submissions the plaintiff's application was dismissed. In dismissing that application directions were given that any reasonable application by the plaintiff to try and deal with the situation would be entertained including reopening of the plaintiff's case, orders directing the Crown to recall witnesses, and any necessary amendments amongst others. The conduct of the defendant was characterized in that ruling in these words: It is conduct which has caused a major and important trial in these courts to be embarked upon and carried out by a plaintiff who is seeking justice in these courts on the basis of a massive failure to honour the requirements of proper disclosure. If not for the serious illness of an important defence witness, it is likely that this trial would have gone to its conclusion without the facts, as we know them, having become known. [130] With this background I turn to the basis from which the plaintiff now seeks to have this court draw inferences adverse to the defendant. [131] In the weeks immediately preceding the commencement of this trial the plaintiff brought a number of motions related to the production of documents. It was a central theme to those applications that proper and required disclosure had not been made by the Crown. If there was any doubt concerning the position of the plaintiff it was laid to rest in their opening at this trial. In that opening the following passage is found: It is a theme in this case that documents in the possession or control of the Crown in respect to this issue have been produced reluctantly, under Court Order, and in some cases, not at all. The existence of such documents can be inferred from evidence that will be put forward in this trial. The Crown has, unfortunately, chosen to defend its position in part through the suppression of evidence. In doing this, it has breached its discovery obligations under Rule 26 of the Rules of Court, two court orders, and the terms of the Document Disposal Act. Carrier will argue that where such documents must reasonably exist, but have not been produced, such as Executive Minutes or Executive Briefing packages, the Court should rule adversely against the Crown, and find, on the basis of well-established law as set out in Barnes v. Union Steamship that such documents, if produced, would prove the Plaintiff's contention. [132] It is also significant that throughout this trial counsel for the plaintiff maintained this theme raising it with numerous witnesses. Throughout much of the period from the commencement of the trial until its adjournment on October 16, 1997, Ministry officials who were presumably knowledgeable concerning the events and, who in some cases authored or assisted in the drafting of some of those documents were present in the courtroom. This background makes the events which occurred following the adjournment on October 16, 1997, even more difficult to understand and accept. [133] In this action the defendant has delivered a list of documents, an expanded list of documents and what have been designated as the second through the twenty-third supplemental lists of documents. Those beginning with the fifteenth list were all delivered after the close of the plaintiff's case and after the adjournment of this trial on October 16, 1997. Those documents list in excess of 2,000 documents which were not previously disclosed by the Crown. [134] The way in which document disclosure occurred in this case is, as already described, quite extraordinary but the issue does not end there. The plaintiff maintains in its final submissions that what the evidence at this trial discloses is that despite all of the energy put into pursuing those issues at trial, despite the events that occurred with respect to document disclosure, despite the importance placed on the issue by the Court, and the orders that were made, document disclosure remains incomplete and demonstrably so. [135] The plaintiff's final submission focussed on four specific classes of documents which, whatever the final outcome, were material to the issues before the court. Those four classes of documents are: a) the Constitutional documents; b) the Regional A 20022 file; c) the Regional Nemiah file; and d) the Regional Ulkatcho file. [136] A measure of the plaintiff's concern about disclosure issues can be found in the fact that on the closing day of the first phase of the trial, the day it was adjourned as a result of Mr. Carlson's health problems, the plaintiff tendered Exhibit 80 at the trial. This volume of documents was produced and used in the cross-examination of Ron Reeves, the former District Manager for the Ministry of Forests in the area. The purpose of the exercise was to demonstrate on the basis of some documents that had been produced that nine separate meetings had taken place between Ministers of the Crown and various First Nations groups at various times during the crucial time period between August 2, 1989 and June 3, 1992. The proposition being advanced was that documentation with respect to these crucial meetings must exist yet had not been produced. [137] Regrettably this case is replete with examples which serve to highlight in sometimes vivid terms the failure of the defendant in this case to properly honour their obligations to disclose. It is not useful or practical to catalogue in detail those failures, but it is useful by way of example to demonstrate the scope and nature of them. [138] The first of the meetings canvassed within Exhibit 80 at Tab 1 was a meeting between then Minister of Forests, Dave Parker and representatives of the Ulkatcho band at Victoria on August 2, 1989. Three documents produced by the Crown and gathered at Tab 1 of Exhibit 80 indicated that such a meeting had taken place. These documents included the text of a briefing paper prepared by Chief Jimmy Stillas. [139] Coincidentally on the same day that these issues were canvassed at this trial and after the trial had been adjourned, an employee of the plaintiff was shown the file at the Ulkatcho Band office. Amongst the documents he discovered in that file was the original of a letter from the Minister of Forests to Chief Jimmy Stillas arising directly from the meeting of August 2, 1989. The letter which is dated August 14, 1989 (Exhibit 101, Tab 1) had not been previously disclosed. To demonstrate the significance of this discovery and the events which flowed from it, it is useful to set out the full text of the original letter: August 14, 1989 File: 870-3-2 Kluskus Ulkatcho Chief Jimmy Stillas Ulkatcho Indian Band General Delivery Anahim Lake, British Columbia V0L 1C0 Dear Chief Stillas: This is in reference to your letter of June 27, 1989, and our meeting of August 2, 1989, which was attended by yourself, associated members of your Band and members of the Blackwater Community Association. With reference to our discussions during that meeting, I would like to confirm my commitment to review the potential of opportunities for advertising a bid proposal for a forest licence located in supply blocks A, C & D of the Williams Lake Timber Supply Area, and to address your concerns regarding Carrier Lumbers' development in Beeftrail Creek. As agreed, by the end of September of this year, I will be contacting you and those groups who attended the August 2 meeting to discuss the above issues. I and my colleague, the Honourable J. Weisgerber appreciated the opportunity of meeting with you to discuss issues of concern to your Band members and the Community Association. Sincerely, (for)Dave Parker Minister cc: Honourable J. Weisgerber Ministers of State for Nechako and Northeast and Minister Responsible for Native Affairs [140] Two things are immediately apparent from this original letter, first that discussions had taken place between at least two Ministers of the Crown and the Ulkatcho leaders about their concerns ". . .regarding Carrier Lumbers' development in Beeftrail Creek. . ." and that copies of the letter must have existed in no less than two and perhaps three files. Those files would include the file designated in the upper right hand corner of the letter itself, a file in the hands of the Minister of State, the Honourable J. Weisgerber, and perhaps a correspondence file of the Minister of Forests. Despite this the document had not been produced. [141] The plaintiff having come into possession of the document immediately disclosed its existence by listing the document on their own list of documents and by exhibiting it in support of their application to strike the defence. That application was returned on October 30, 1997. Within days of discovering that the plaintiff knew of this document and had a copy the defendant produced a file copy of the original document. [142] The file copy, which was suddenly found with some considerable speed when necessary, is itself a remarkable document. The text of the file copy is as follows: !Date Typed: July 6, 1989 Minister Deputy Timber ** !Date Retyped: July 25, 1989! !Date Retyped: August 3, 1989! File: 870-3-2 Kluskus Ulkatcho Chief Jimmy Stillas Ulkatcho Indian Band General Delivery Anahim Lake, British Columbia V0L 1C0 Dear Chief Stillas: This is in reference to your letter of June 27, 1989, and our meeting of August 2, 1989, which was attended by yourself, associated members of your Band and members of the Blackwater Community Association. With reference to our discussions during that meeting, I would like to confirm my commitment to review the potential of opportunities for advertising a bid proposal for a forest licence located in supply blocks A, C & D of the Williams Lake Timber Supply Area, and to address your concerns regarding Carrier Lumbers' development in Beeftrail Creek. As agreed, by the end of September of this year, I will be contacting you and those groups who attended the August 2 meeting to discuss the above issues. I and my colleague, the Honourable J. Weisgerber appreciated the opportunity of meeting with you to discuss issues of concern to your Band members and the Community Association. Sincerely, "ORIGINAL SIGNED BY B.E. MARR" Dave Parker Minister cc: Honourable J. Weisgerber Minister of State for Nechako and Northeast and Minister Responsible for Native Affairs cc: Mike Carlson - Regional Manager - Cariboo! As discussed with Mike Wilkins please provide your comments to Operations Division, Exec., on the noted issues by Sept. 15 !BTS/GPBbge Timber 3192k! [143] It is immediately apparent from the additional notations on this file copy, that the preparation of the original document, was not a single passing action by one individual but rather a "team" effort by a Ministry staff mobilized to support their Minister. It was typed on no less than three occasions and it was copied to and/or discussed with both, Mike Carlson, the Regional Manager of the Cariboo District and Mike Wilkins. The initials in the bottom line indicates the involvement of some others. It is difficult to understand how a letter over the signature of the Minister of Forests touching on issues very much in contest in this action could go unnoticed, particularly given the way in which this particular letter was apparently treated. [144] The Crown's explanation for this non-disclosure is found in the affidavit of Paul Kennedy, an employee of the Ministry of Forests who holds the position as Small Business Forest Enterprise Program forester for the Cariboo Region. In an affidavit sworn on November 13, 1997 Mr. Kennedy deposes that: 3. On or about July 21, 997, in response to a request from Mr. Pearlman, I arranged to have photocopied three file folders containing documents relating to the Ulkatcho Indian Band. Those files covered the period from the early 1980s to the present, and included documents relating to the Ulkatcho Band's blockade of access to the Beef Trail area in 1989. I forwarded the documents photocopied from the Region's Ulkatcho Indian Band file to Crown counsel. I understood that those documents relevant to this litigation would be extracted from those files, listed and disclosed to Plaintiff's counsel. 4. On or about October 30, 1997, at the request of counsel, I compared the documents listed in the Defendant's Ninth Supplemental Document List with those contained in the Cariboo Region's Ulkatcho Indican Band files, and determined that a substantial number of documents from the Region's file were not listed. I copied all of those documents, and forwarded them to solicitor Dawn House. [145] This "explanation" confirms that at least some of the documents readily at hand in the Ministry's files were not listed in the Document lists provided to the plaintiff, a fact that, at the time of Mr. Kennedy's affidavit was beyond dispute. The explanation for how this happened or who was responsible for the failure to list a "...substantial number of documents from the Region's file..." is not addressed. [146] The Court is left with this indisputable fact, in the face of a lawsuit in which it was alleged in the Statement of Claim that senior employees of the Ministry of Forests "...set about to totally frustrate the Plaintiff's harvesting activities...", "...used its...powers...to make continued harvesting in the Supply Blocks impossible...", and that "...the Defendant..." conducted itself in bad faith, somehow the defendant failed on a massive scale to honour its disclosure obligations. [147] Even this fails to bring home the full magnitude of the impugned conduct, for in the face of repeated complaints that proper disclosure had not been made this matter was brought to trial. The disclosure which had been made as at the start of this trial was in significant cases selective. By the word selective I mean that out of specific files (ie. the Cariboo Regional Office's Ulkatcho Indian Band files) some documents were produced and others were not. [148] Those documents from this file initially disclosed are some 75 documents listed as documents 1655 to 1730 in the Ninth Defendant's Supplemental List of Documents. Those taken from the same files and listed in the Defendant's Sixteenth Supplemental List of Documents are some 76 documents numbered 2088 to 2164. [149] These documents cover a particularly important time period in the events at issue in this litigation. The period is that covering the period from a meeting between then Forest Minister Claude Richmond and the Ulkatcho Band in Kamloops on April 17, 1990 and a meeting in Victoria on October 18, 1990 between the Forest Minister, Regional Manager, Mike Carlson, and the Ulkatcho. During this period Carrier's approved Development Plan was "unapproved" and the Holtry Mill was shut down and demobilized instead of being moved as planned to the Beef Trail Creek area. [150] A review of the documents produced from this one file is revealing in terms of my use of the word selective. The following table sets out a partial list of those documents placed in chronological order with brief descriptions: Def. List #9 Def. List #16 Date Description 1693 3/90 Richmond to Stillas 1952 3/13/90 Richmond to Stillas 1694 3/13/90 Stillas to Reeves 1974 3/13/90 Richmond to Chief Jimmy 1695 3/14/90 Reeves/Carlson memo 1696 3/27/90 Reeves to Klotz 1697 Reeves to Klotz 1698 4/20/90 Stillas to Reeves 1699 4/30/90 Reeves to Stillas 2103 5/1/90 Cuk Tribe to Richmond 1701 5/2/90 Memo Re Beef Trail 2104 5/22/90 Draft Richmond to Cuk 2105 5/22/90 Richmond to Stillas 2106 5/23/90 Haines to Stillas 1700 5/23/90 Richmond to Chief Harry Def. List #9 Def. List #16 Date Description 2107 5/23/90 Chief Stillas to Reeves 1702 5/28/90 Balaski to Cheston 1703 5/29/90 Reeves to Stillas 2109 6/7/90 Schmid to Carrier 1704 6/8/90 Richmond to Stillas 2110 7/4/90 Ashcroft to Reeves 1705 7/20/90 Stillas to Richmond 1706 7/30/90 Stillas to Kordyban 1707 8/3/90 Memo Balaski/Carlson 1708 8/3/90 Levy/McNaughton Memo 1707.2 8/7/90 Levy/McNaughton Memo 1707.3 8/7/90 Richmond Stillas Draft 1707.1 8/9/90 Balaski Memo 1709 9/27/90 Stillas to Richmond 1710 10/9/90 Klotz to Reeves 2111 10/10/90 Levy to Carlson 2112 19.15.89 Briefing Note [151] It is obvious from this partial listing that the initial disclosure was "selective" in the sense that individual documents were removed from the ordinary sequence for disclosure. At times some documents dated the same day were produced while others were not. This is perhaps even more remarkable when one examines some of the contents of the initial documents lists produced by the defendant and what they reveal about the way in which disclosure was approached. As an example, in the Defendants Sixth Supplemental List delivered on June 9, 1997 the item listed as document 1584 is described as: Eight (8) boxes containing copies of all correspondence files and reports relating to Williams Lake T.S.A. Planning 1981-1996 from Cariboo Regional Office, Ministry of Forests. [152] It seems irrefutable that disclosure as it was carried out by the defendant was selective in the sense of not only withholding important documents but in supplying massive quantities of marginally relevant documents. [153] Mr. Carlson, during the course of a searching cross- examination on this issue essentially testified that so far as he was aware all relevant documents had been produced to representatives from the Attorney General's Ministry and that he instructed `his' staff to provide all the relevant information. [154] There is no question that one of the major difficulties faced by Carrier in relation to their efforts under Forest License A 20022 arose from the increasingly active efforts by First Nations people to exert their influence on the situation. These efforts reached their climax in two blockades. The first took place in July of 1989 when members of the Ulkatcho Band blockaded a road access preventing construction of the Tusulko bridge effectively denying Carrier access to the Beef Trail Creek area. This dispute was still ongoing when in May of 1992 members of the Nemiah Band blockaded the road leading to a bridge construction project at Henry's Crossing effectively denying Carrier access to a second key area known as the Brittany Triangle. These two disputes are key events in the factual issues that underlie the present litigation. I have already touched on the disclosure issues that emerge with respect to the defendants Ulkatcho file. At this point I will turn to the disclosure issues that arise with respect to the Nemiah blockade at Henry's Crossing. [155] In approaching this issue certain dates should be kept in mind. The present action was commenced on March 14, 1995. On Friday, August 22, 1997 an order was made by Meiklem, J. directing certain specified disclosure by the defendant. On September 15, 1997 the present trial began and proceeded until October 16, 1997 when it was adjourned on the application of the defendant because of the ill health of a key Crown witness. The plaintiff closed their case on October 2, 1997 and the defendants began theirs that same day. [156] On October 30, 1997 and again on December 12, 1997 the plaintiff's application to strike the defence was heard and a series of orders were made. The trial itself resumed on March 16, 1998 and concluded on April 30, 1998. [157] In the Defendants first three lists of documents they disclose a total of 15 documents from the Regional office file related to the Nemiah Band from the period of May and June of 1992. Of these 15 documents 9 of them were authored by, received by or copied to Carrier. This time frame is of critical importance in this litigation for it is in this time frame that the suspension of Carrier's license was being discussed within the Ministry and the Minister was considering imposing a moratorium on logging in the Brittany Triangle. [158] Among the documents disclosed at this early stage is Defence document 598. This is an e-mail message from Ron Reeves to Gerald Grant sent at 2:38 p.m. on June 10, 1992. The contents of the message are in carefully couched terms and included a comment that: Through the whole discussion I felt that Mr. Kordyban was not listening to what I said. [159] On the same day there was a flurry of documents and e-mail messages exchanged by Reeves and others concerning the Nemiah situation and the preparation of an important briefing note, none of the others despite their importance to the issue were produced until November of 1997. [160] In their written submissions counsel for the plaintiff summarized the disclosure dates of these important documents by way of a table. I have reviewed those documents and modified the Table to summarize the way in which disclosure of these important documents took place: DEFENDANT DOC DATE DESCRIPTION WHEN PRODUCED EXHIBIT REFERENCE 7807.6 May 7, 1992 Reeves/Cheston Briefing Note August 21, 1997 Ex. 14, Tab 1 7807.5 May 7, 1992 Reeves/Halkett Briefing Note August 21, 1997 Ex. 83, Ta 105 8343.1 May 7, 1992 Zirnhelt/Petter Note December 17, 1997 Ex. 113, Tab 123 7807.2 May 8, 1992 Reeves/Carlson Briefing Note August 21, 1997 Ex. 83, Tab 106 7807.0 May 9, 1992 Reeves/Carlson Briefing Note August 21, 1997 Ex. 82, Tab 107 8925 May 12, 1992 Dyck/MacArthur Briefing Note January 20, 1998 Ex. 113, Ta 124 7805 May 12, 1992 Harcourt/Reeves Briefing Note August 21, 1997 Ex. 82, Tab 110 8353.1 May 12, 1992 Miller/Halkett TSA Briefing Note December 17, 1997 Ex. 114, Tab 174 7806.2 May 14, 1992 Draft Reeves/Miller/W illiam letters August 21, 1997 Ex. 86, Tab 7 7806.1 May 14, 1992 Zirnhelt/Miller memo August 21, 1997 Ex. 86, Tab 7 7343 May 14, 1992 Zirnhelt/Miller letter (clearer copy) December 17, 1997 Ex. 86, Tab 8 8223 May 20, 1992 Briefing Note for May 25th meeting November 17, 1997 Ex. 83, Tab 117 8016 May 21, 1992 Letter with note "meeting has been held" November 10, 1997 Ex. 82, Tab 101 7803.2 May 21, 1992 "Indians expect better offer: memo August 21, 1997 Ex. 113, Tab 143 7803.1 May 21, 1992 Reeves/Carlson update August 21, 1997 Ex. 123, Tab 41 8211.5 May 21, 1992 Reeves/Carlson fax November 17, 1997 9007 May 21, 1992 Reeves/Miller Briefing Note November 17, 1997 Ex. 86, Tab 11 9004 May 23, 1992 Reeves/Friesen memo November 17, 1997 Ex. 113, Ta 145 8476.1 May 24, 1992 Zirnhelt/Petter Briefing Note December 22, 1997 Ex. 86, Tab 9 9002 May 25, 1992 Miller/Petter/ Zirnhelt Briefing Note November 17, 1997 Ex. 113, Tab 158 7787 May 25, 1992 Notes of Carlson August 21, 1997 Ex. 14, Tab 53 8952 May 25, 1992 Notes of MacArthur February 1998 Ex. 113, Tab 148 8224.1 May 25, 1992 Notes of Reeves November 17, 1997 Ex. 83, Tab 118 8227 May 28, 1992 Notes of Reeves November 17, 1997 Ex. 83, Tab 120 DEFENDANT DOC DATE DESCRIPTION WHEN PRODUCED EXHIBIT REFERENCE 8621 June 1, 1992 Reeves/Friesen Planning for June 3rd January 12, 1998 8609 June 2, 1992 Lists of Attendees of June 3rd January 12, 1998 Ex. 83, Tab 14 8623.1 June 2, 1992 Friesen/ McNaughton memo January 12, 1998 Ex. 83, Tab 121 8228 June 3, 1992 Tour Schedule November 17, 1997 Ex. 113, Tab 153 4039 June 3, 1992 Carrier/ Ulkatcho Joint Venture letter List 1, June 23, 1995 Ex. 101, Tab 19 2671 Nov. 28, 1997 Debbie/Halkett memo Never listed by Def. Plaint Sup 8 Ex. 91, Exhibit "J", Tab 12 8612 June 3, 1992 Friesen/Miller partial Briefing Note January 12, 1998 Ex. 118, Tab 18 8954 June 3, 1992 Notes February 1998 Ex. 113, Tab 52 7799 June 4, 1992 Request for log around Friesen/Reeves August 21, 1997 Ex. 71, Tab 178 7800 June 4, 1992 Friesen/Miller/ Friesen Briefing Note August 21, 1997 Ex.14, Tab 58 7797 June 8, 1992 Friesen/Miller/ Reeves Briefing Note August 21, 1997 Ex. 113, Tab 155 8232 June 9, 1992 Friesen/Carlson /Miller Briefing Note November 17, 1997 Ex. 86, Tab 17 8181 June 9, 1992 Friesen/Carlson /Miller Briefing Note November 10, 1997 Ex. 113, Tab 161 8233 June 10, 1992 Kill Carrier Note November 17, 1997 Ex. 86, Tab 20 8226.1 June 10, 1992 Draft Miller/Williams letter November 17, 1997 Ex. 86, Tab 19 8231 June 10, 1992 Friesen/Miller Briefing Note November 17, 1997 Ex. 83, Tab 127 6598 June 10, 1992 Carlson/Reeves e-mail of 14:38 hours - "Mr. Kordyban doesn't listen" August 26, 1996 Ex. 18, Tab 598 DEFENDANT DOC DATE DESCRIPTION WHEN PRODUCED EXHIBIT REFERENCE 8226 June 10, 1992 Reeves' corrections to the Miller/Williams letter - 16:50 hours November 17, 1997 Ex. 113, Tab 164 8226.3 June 10, 1992 Reeves' plans re Brittany RIMP - 11:32 Hours November 17, 1997 Ex. 113, Tab 166 8226.4 June 10, 1992 Reeves/Friesen "looks good" e- mail at 12:97 hours November 17, 1997 Ex. 113, Tab 164 [161] Of these 44 important documents two were listed as early as 1996 and 13 more were disclosed approximately three weeks before the trial began. One document has never been listed by the Crown. The remaining 29 documents (many of them key to an understanding of the way these events unfolded) were disclosed only after the fortuitous discovery of documents in the file of the Ulkatcho Indian Band and after the plaintiff had returned their application to strike the defence in this action. [162] The explanations offered by the Crown for their massive failure to honour their disclosure obligations fall as far short of providing a satisfactory explanation as their initial efforts at disclosure did. [163] I emphasize that the examples I have selected to demonstrate this issue are precisely that, examples, they are not exhaustive of the issue, indeed, in many respects, they are simply the tip of the iceberg. [164] In the face of this enormous failure on their part the defendant, at least in the person of Mike Carlson, remains unrepentant. His attitude seems to be reflected in the following passage taken from his cross-examination on March 24, 1998: Q. Why was this letter with marginal notations on the bottom produced after the plaintiff's case was closed? A. I didn't know it was, and I have no knowledge of the circumstances that it wouldn't be available. As I indicated I at all times thought we had fully complied with requests for information and when it became apparent that all of the information wasn't there, I instructed staff to do further searches, including shutting down my whole Regional Office for a week. We spent several person years searching for documents in my office alone. Q. Did you say several person years? A. I did. Between six and ten person years in my office alone. Q. And yet you can give no explanation as to why a letter such as what I assume would be a final product of what we see at Exhibit 111, why that hasn't been found? A. I have no knowledge, as I indicated. [165] I am very conscious of the difficulty document disclosure can be, particularly in an action such as this, which covers a complex series of events over a lengthy period of time, but the actions of civil servants and, indeed, those of the Crown are subject to the review of the Courts at the behest of the citizen who seeks his day in court. [166] The rules which apply to these types of proceedings must apply equally to all and are not to be avoided or ignored by the petulant arrogance of senior bureaucrats. [167] The evidence as a whole justifies the following findings: 1) The defendant in this action wholly failed in their obligation to provide to the plaintiff proper disclosure of relevant and material documents. 2) The additional documents disclosed after the unexpected adjournment of the trial include documents that are vital to a full understanding of the events and how they unfolded. 3) The explanations offered to attempt to explain the defendant's massive failure are completely inadequate to offer any reasonable overall explanation. 4) While some aspects of the defendants failure to disclose may be attributable to simple arrogance and a refusal to accept the proposition that they are subject to direction from the court or accountable for their actions, the disclosure in a number of key areas is indicative of active and careful suppression of evidence. 5) I am satisfied and find in key areas of evidence in this case notably those involving the events surrounding the blockades established by the Ulkatcho and the Nemiah peoples that there was an active and deliberate effort to suppress documents and withhold evidence as to the sequence of events. 6) I am equally satisfied that there are still documents which have not been disclosed which bear directly on the way in which key decisions were made. [168] In the course of his submissions counsel for the plaintiff asked the court to draw a series of very specific adverse inferences. Those inferences include the following: 1) The Briefing Notes, letters, memoranda, Option Papers and other documentation that must exist with respect to the U.S. Countervail action and its resolution, which have not been disclosed would support the finding that the Comparative Value Pricing system (CVP) was a replacement measure to replace the 15% Customs and Excise tax imposed on softwood exports to the United States. 2) That Forest Minister Claude Richmond promised the Ulkatcho a forest tenure in the Beef Trail Creek area when he must have known that in doing so, Carrier would not be able to harvest the volume of wood required under Forest License A20022. 3) That the critical events involving the Beef Trail and the Brittany Triangle were directed from Victoria with a moratorium and a license suspension being utilized to avoid the contractual commitment to Carrier. [169] The submission that these adverse inferences should be drawn will be dealt with within the body of these reasons. 7.2 FUNDAMENTAL BREACH, DECEIT AND BAD FAITH [170] The plaintiff advances it's case in the present litigation by way of allegations of both fundamental breach and deceit. [171] The authorities have described fundamental breach in a variety of different but similar ways. It has been defined as one which effectively destroys "the whole contractual substratum" (Suisse Atlantique Soci‚t‚ d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale, [1967] 1 A.C. 361 at 433 per Lord Wilberforce); as undermining the whole contract (Hong Kong Fir Shipping Co. v. Kawasaki Kisen Kaisha Ltd., [1962] 1 All E.R. 474 at 479; as involving a totally different performance of the contract from that intended by the parties (R. G. McLean Ltd. v. Canadian Vickers Ltd. (1970), 15 D.L.R. (3d) 15 at 20). and as involving an event which deprives the innocent party of substantially the whole benefit which that party was to obtain under the contract (Harbutt's Plasticine Ltd. v. Wayne Tank & Pump Co., [1970] 1 All E.R. 225 at 239). [172] A helpful description of the concept can be found in G.H.L. Fridman, The Law of Contract in Canada (3rd Ed.) (Toronto : Carswell;1994) at p. 566 where the following paragraph is found: Perhaps the idea which most satisfactorily enshrines the idea of a fundamental breach is that which appealed to Lord Diplock in the Photo Production case, and to Wilson J. in the Hunter Engineering case, as differentiating such a breach from breach of condition. This is the notion of some act which substantially deprives the innocent party of the intended benefit such party was to obtain under the contract. However defined, a fundamental breach is one which is more significant in factual terms, and more effective in respect of the rights and liabilities of the parties and the continued existence of the contract and their "primary obligations", in Lord Diplock's phrase, than any other kind of breach. [173] The determination of whether there has been a fundamental breach arises from a careful examination of the surrounding matrix of facts. Continuing with the passage from Fridman he puts it this way: In every instance, it is a question of fact whether the breach complained of by the innocent party amounts to a fundamental breach. That question, in turn, depends upon: the terms of the contract; the intended benefit to the innocent party; the purpose of the contract; the material consequences of the breach; and, perhaps, though this has never been discussed in the cases, the extent to which the loss incurred by the innocent party can be remedied adequately by an award of damages. One point is clear. Whether a breach is fundamental does not appear to depend upon any express terms of the contract. The determination of a fundamental breach is a teleological question not one that involves construction of the contract in the narrow, literal sense. The concept of fundamental breach seems to transcend the normal issues of contractual interpretation. It involves investigation of the underlying nature and purpose of the contract into which the parties have entered, and the respective benefits designed to be obtained or ensured by the agreement. [174] The basic test which emerges from the authorities involves an examination and determination of the real purpose of the contract, the true benefit to be gained by the injured party and the extent to which the defendants performance fell short of that he contracted for. In the end the application of the doctrine is aimed at denying to the defendant any benefit from the performance provided. [175] In this country the Supreme Court of Canada in Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R., 426 (1989 57 D.L.R. (4th) 321 gave a decision which touched on the application of fundamental breach in the context of a commercial contract between business partners. Four of the five judges held that exclusion clauses should, prima facie, be enforced according to their true meaning, even in the face of a fundamental breach, the four found that there was, regardless of the presence of an exclusion clause, a power to grant relief, if the exercise of the clause was "unconscionable" (Dickson, C.J.C.; La Forest, J.) or that it was "unfair or unreasonable" to give effect to it in the circumstance of the breach (Wilson, J.; L'Heureux-Dub‚, J.) [176] For reasons I will expand on later in these reasons I equate the provision of Article 15.03 of the Forest License to an exclusionary clause in the circumstances of this case. [177] The approach which, in my view, must be taken and the reasons for it can be found in two decisions of Lord Denning, M.R. who in considering the interpretation and construction of an indemnity clause wrote in Gillespie Brothers and Co. Ltd. v. Roy Bowles Transport Ltd., [1973] Q.B. 400 at p. 415-416: What is the justification for the courts in this or any other case, departing from the ordinary meaning of words? If you examine all the cases you will, I think, find that at bottom it is because the clause (relieving a man from his own negligence) is unreasonable, or is being applied unreasonably in the circumstances of the particular case. The judges have then, time after time, sanctioned a departure from the ordinary meaning. They have done it under the guise of "construing" the clause. They assume that the party cannot have intended anything so unreasonable. So they construe the clause "strictly". They cut down the ordinary meaning of the words and reduce them to reasonable proportions. . .. The time may come when this process of "construing" the contract can be pursued no further. The words are too clear to permit of it. Are the courts then powerless? Are they to permit the party to enforce his unreasonable clause, even when it is so unreasonable, or applied so unreasonably, as to be unconscionable? When it gets to this point, I would say, as I said many years ago: "there is the vigilance of the common law which, while allowing freedom of contract, watches to see that it is not abused". . .. It will not allow a party to exempt himself from his liability at common law when it would be quite unconscionable for him to do so. [178] Five years later in Levison v. Patent Steam Carpet Cleaning Co. Ltd., [1978] Q.B. 69 Lord Denning, M.R., after referring both to Suisse Atlantique and to the fact that the phenomenon of fundamental breach was still prospering in Ontario wrote at p. 81: I would hold, therefore, that the doctrine of fundamental breach, as it was enunciated by this court in many cases, still applies in standard form contracts, where there is inequality of bargaining power. If a party uses his superior power to impose an exemption or limitation clause on the weaker party, he will not be allowed to rely on it if he has himself been guilty of a breach going to the root of the contract. [179] What then in the present case, was the real purpose of the contract emerging from the matrix of facts which existed, at the time Forest License A20022 was awarded, and what were the true benefits sought by both parties? [180] The findings of fact detailed in paragraph 51 above are the starting point for examining the real purpose behind Forest Licence A20022. [181] It is significant that in a highly contentious trial in which the parties are quite literally poles apart this area of the evidence is not controversial. [182] The defendant, and in particular, the Ministry of Forests, was faced with a huge problem. The infestation by the mountain pine beetle had led to an estimated loss of timber volume in the area of 9.5 million cubic metres from 1975 to 1983. This loss created many concerns for the Ministry of Forests, at first their primary concerns were related to forest protection although the loss of huge stands of merchantable timber would translate directly into the loss of government revenue and (less directly) jobs. The Ministry viewed the presence of massive contiguous stands of dead mature pine as representing a very significant wildfire risk. [183] The Crown had made a number of attempts to entice operators to begin operations in the Chilcotin all without success. In August of 1981 they had attempted to initiate a major harvesting operation in the area. The offer was of a sale of 550,000 cubic metres at Charlotte Lake (T.S.L. A14485) the results of the effort were summarized by R.P.L. Mumford the Forest Service Operations Superintendent at Alexis Creek, in a report dated April 14, 1983: Much to no ones surprise, we have a big problem out west which is getting bigger annually. . . . Specifics - (from my calculations and gleanings) - Approximately twenty five percent of gross mature volume for all species was affected by Mountain Pine Beetle in 1981. (15 175 951 m3 affected) - Approximately thirty nine percent of gross mature pine volume was affected by Mountain Pine Beetle in 1981. (15 175 951m3 affected) - Approximately five percent of gross mature pine volume was "lost" to Mountain Pine Beetle in 1981. (1 857 551m3 lost) - None of the above percentages include grey attack (ie. 1980 attack and older) nor do they include 1982 attack) . . . - Our first attempt at initiating a major harvesting operation in beetle kill was T.S.L. A14485 (Charlotte Lake, - 550,000m3). This sale was auctioned Aug. 21, 1981 and there were no bidders. Feedback indicated the tenure was not long enough to warrant the investment. A guarantee of log/chip export was also cited as a reason for not bidding. A second auction of this sale was held a year later on Aug. 26, 1982. The sale was awarded for upset - there was no competition from other parties. No logging has taken place to date. This sale may or may not fly. We have had no indications that this sale will be successful. - Logging is the most practical way of rehabilitating beetle killed stands. If we don't log and are cohered into rehabilitating, we should expect the following costs: - site prep $300/ha - if we have to plant 260/ha - planting stock 200/ha Therefore, site rehabilitation will cost between $300 - $860/ha. PROPOSAL Based on the preceding information, I don't believe we have any alternative but to once again attempt to initiate another major harvesting operation in these supply blocks. It is becoming obvious, however, that we need to enter into a "bigger and better" proposition than the Charlotte Lake sale. [184] The Ministry of Forests was painfully aware of the economic impact of this problem, in fact in a somewhat later report entitled Cariboo Forest Region Bark Beetle Action Plan 1986/1987 one aspect of that exposure is very specifically quantified: B) SILVICULTURE Infested stands, if left unlogged, will require site rehabilitation to bring these areas back into production. The most cost effective means of rehabilitating mountain pine beetle attacked stands is by harvesting. Regardless of whether infected stands are logged or lost, basic access is required to manage these areas for successive crops. If harvesting does not keep pace with infestation levels, we will be faced with large acreages of dead timber requiring rehabilitation. A conservative rehabilitation cost is $300 per hectare (1985 rates). The implications are enormous. Not only have we lost the value of the existing crop, but unless we pay enormous rehabilitation costs 500,000 ha x $300/ha equals $150,000,000) we have also lost the productivity from this site for a long period. In addition, these tracts of dead timber represent a serious fire risk to adjacent healthy stands as well as the replacement stand under the beetle-killed trees. At the present time, we have a significant area which is already considered to be lost and which falls in the above category. We are presently identifying these areas and will be assessing site rehabilitation implications in the near future. [185] It can be seen from this passage that these figures are calculated at the site preparation costs identified in the Mumford report. If the same calculations are carried out adding Mumford's planting costs ($300 + $260/ha) the figures are (500,000 ha x $560/ha equals $280,000,000 and if the planting stock costs he identifies are added in an additional $300/ha brings those numbers to (500,000 ha x $860/ha equals $430,000,000). [186] From the defendants perspective the genesis of A20022 and the benefits to be derived from it were obvious and well known to them. They were facing enormous losses of timber and potential revenue, huge site rehabilitation costs and a major and growing risk of wildfire. Their efforts to attract operators to the area had wholly failed for reasons that were very apparent to them. Those reasons were well known within the Ministry, they found ready expression in a letter from then Forest Minister Tom Waterland to Dr. Greenaway dated May 28, 1985. Dr. Greenaway had expressed some concern about proposed clear cutting in the area: Further, while there may be a better method for harvesting pine elsewhere, we must emphasize that the general poor quality of the pine in the West Chilcotin (i.e. small average diameter, short height, lower average stand volume/hectare) makes it essential that we harvest every stick of merchantable wood available within a cut block in order to defray the high costs of operating in that area. . . . (emphasis added) [187] The Forest Minister goes on to explain his ministry's intention for the area: With respect to your second question, what the Forest Service's plan is for the area, I would like to advise you that it is our intention to harvest as many of the Mountain Pine Beetle infested stands, and as many of the other stands that are undoubtedly going to be attacked in the next few years, as soon as possible. [188] The evidence given at this trial by Mike Carlson and Ron Reeves confirmed that A20022 was specifically designed: . . .So the industry told us if you -- if you want to make an opportunity available in the West Chilcotin, you should consider making an opportunity of sufficient volume and term to allow the construction and write-off of an average sized, modern interior manufacturing facility, which was in general terms viewed at -- in the neighbourhood of a half a million cubic metres a year, and a more or less accepted write-off period was considered to be in the neighbourhood of ten years. So that was one of our starting points then, is a licence that allowed a volume and term that would allow establishment of new milling capacity. [189] The fact is that from the outset the Ministry knew that operations in the area were marginal at best and that in order for them to induce an operator into the area so that the concerns of the Ministry could be addressed they had to make the opportunity one which was economically viable. The whole concept was that anything less than 500,000 cubic metres per year for ten years would not allow for the establishment of new milling capacity and would leave the defendant without a resolution for the problems they were facing. The evaluation of Carrier's proposal quoted earlier in these reasons demonstrates both the delight of the Ministry officials that their problems were going to be addressed and their recognition that Carrier's innovative approach was a solution that made an uneconomic situation viable. [190] During the course of the Plaintiff's case they called John Szauer as a witness. Mr. Szauer has retired from a lengthy career with the Ministry of Forests. He started that career in April of 1962 and retired in May of 1988. Mr. Szauer is a registered professional forester who left Prince George and moved to Williams Lake in 1972 when the Cariboo Forest Region was created. He held a variety of senior positions in that region including that of Regional Manager from 1984 until his retirement in 1988. [191] Mr. Szauer brought to this trial an important perspective both because of the important positions he held at significant stages of the events with which this action is concerned and because he is no longer directly employed by the Ministry of Forests. [192] In a series of questions centered around the enactment of Bill 70 and some significant changes in silviculture obligations, he was asked whether those changes enacted in 1987 applied in his view to A20022. His perspective on that license as the then Regional Manager can be found in the following passages of his evidence: Q Mr. Szauer, you testified that you understood the changes of 1987 to apply to major licences, did you understand those changes to apply -- those legislative changes to apply to A20022? A No. Q Why did you feel the changes did not apply to A20022? A I just didn't think that the Carrier licence fit the mold, it was an emergency licence, it was a salvage licence, it was a non replaceable licence, it was -- it just didn't have what it took, in my mind anyhow, to make it a major forest licence under which we would impose those kind of conditions. We were glad to have Carrier Lumber come along and make the kind of proposals they did, at least I was, and say hey, here's an operator who is willing to chip in and help us out with our huge problem here and -- I just never looked at that licence as an ordinary forest licence, I didn't. I looked at it as a salvage licence, period. [193] Mr. Szauer's recollection of his assessment of the various proposals is also instructive: Q What do you recall today about comparing the Carrier proposal to the others, how did it stand out? A Well my recollection is that Carrier's was far superior to any of other bid proposals we had received from -- from other people. Q And in what respect was it so? A Well Carrier Lumber showed some initiative in terms of how to deal with the timber out in the West Chilcotin, it was a remote part of the province, it was uncommitted we called them, the uncommitted supply blocks, these supply blocks, and Carrier Lumber said they're going to move in some sawmills and they're going to utilize the timber locally and they were going to employ local people and they -- they didn't ask us for anything that some of the other proponents did. For instance in a nutshell some of the other proponents simply said if you pay us for logging the timber we'll take it, but Carrier Lumber said well all right, we are prepared to do the following things in order for us to get access to the timber, and it was -- I called it a very refreshing proposal anyhow. [194] If there is any doubt that the Ministry was aware prior to the awarding of A20022 of the marginal nature of the forest resource in the Chilcotin that is laid to rest by the recommendation of H. Waelth, the Director of the Ministry's Valuation Branch on November 30, 1983 he wrote in part: ...Forest Licence A-20022 presents a challenge that has not been met by Cariboo operators in the recent past. Small average tree size, low volume per acre, and isolation have historically made development of these stands a very unattractive proposition at best. The present deterioration of these stands by insect attacks adds to these obstacles the need to ensure timely as well as an adequate level of utilization of the sites. Only the Carrier proposal appears to present a suitable combination of fast performance, size, and degree of innovation and commitment required to surpass these obstacles. [195] Central to Carrier's proposal was the establishment of mills in the Chilcotin to turn a marginal economic situation into a profitable operation. The concept was openly presented in their initial proposal: C. PROPOSED MANUFACTURING FACILITIES 1. Operating Concept Small, short timber and a long haul distance have so far prevented any substantial forest operations in the West Chilcotin area. Primitive bush sawmills have suffered from low recovery, high hauling costs for rough lumber and no chip revenue. The cost of transporting logs from the Anahim Supply Block and northwestern portion of the Tatla Supply Block to Williams Lake mills is prohibitive. Carrier Lumber Ltd. proposes to use modern efficient portable sawmills to achieve high lumber recovery with minimum logging costs. Lumber will be dried and planed before hauling to rail. It is estimated that the transportation component of finished lumber costs can be reduced by over $80.00 per Mfbm by hauling finished lumber instead of logs. Although the value of pulp chips produced by mills on rail offsets this cost saving to some extent, at worst, the cost of hauling both chips and finished lumber to Williams Lake would still provide a transportation cost saving of about $40.00 per Mfbm compared to hauling logs. [196] Three points are readily apparent both from the whole of the evidence and from the text of Carrier's initial proposal, first that the establishment of modern efficient mills in the area would enable Carrier to transport finished lumber instead of raw logs, second that harvesting large stands of timber in the areas of the mills would substantially reduce high hauling costs, and third that the full volume of 5,000,000 cubic metres would enable them to offset the substantial costs involved in this operation over a sufficient volume to justify the project. [197] It was these three critical factors that turned an otherwise uneconomic project into an economically viable one, and to the knowledge of both parties formed the basis for Carrier's being awarded A20022. [198] In his evidence at this trial Mr. Carlson suggested that Carrier's requirement for contiguous stands of timber came about after the license was awarded and was not a part of the initial proposal. That testimony is difficult if not impossible to reconcile with the opinions he expressed during the events and prior to the commencement of this litigation. [199] In a letter he forwarded to the Assistant Deputy Minister, Wes Cheston on September 15, 1989 he expressed quite different views: Ministry of Forests Cariboo Region Executive Office 1450 Government Street September 15, 1989 Victoria, BC V8W 3E7 A20022 Attention: W. Cheston Assistant Deputy Minister Re: Report of Carrier-Ulkatcho Issue At the meeting with representatives of the Ulkatcho Indian Band, the Minister made a commitment that by mid-September he would report back on the possibility of alternate operating areas for Carrier Lumber. Attached is a report which was compiled by the District Manager, Chilcotin Forest District, which reviews the issues and circumstances around the Ulkatcho Indian Band blockade of Carrier Lumber's operations in the Beef Trail Creek area. Based on my review of this report, I see the following points as the critical elements of evaluating the possible courses of action: 1. The license was originally issued as an aggressive short term strategy to assist in dealing with the mountain pine beetle infestation. It was well recognized that the volume commitment and operating strategy for that volume were likely not sustainable. 2. There is a perception that vast amounts of available volume in the three western supply blocks should provide ample alternatives to operating in the Beef Trail Creek area. However, as detailed in the report, this is simply not the case, given other resource considerations and sawlog merchantability of the remaining stands. 3. There is volume available in the western supply blocks. However, given Carrier's defined needs to support the economics of their portable milling strategy, the location of this volume is unsuitable to Carrier. 4. In light of the above, there are not any alternative areas available to Carrier Lumber, which are well enough located, or contiguous enough, to replace the Beef Trail area. 5. A detailed review of all resource values present in the Beef Trail Creek area, and a review of the planning process undertaken for this area indicate that the development proposal would normally be acceptable to the Ministry. 6. If Carrier modifies their criteria for acceptable operating area, then they could be moved into the remaining scattered areas identified in the forest inventory, but we speculate that the economics of this would be very marginal. As an option, this would have to be dependant on Carrier's defining what they could live with as a bottom line. 7. The long term prospects for further development within the western supply blocks are unknown at this time. Any further allocations, including some form of replacement for Carrier, proposed for this area should be justified on the basis of further detailed economic analysis of the distribution and extent of existing values. It is likely that such a review would indicate that the remaining stands in the area are best suited to a combination of sawlog and fiber economies. 8. The value of the current stands is a function of the fact that they are unmanaged, and overstocking has resulted on many of the sites. The actual long term productive capacity of the area under a managed regime is potentially much higher than is currently realized. In summary, we do not see any viable alternative to operating in the Beef Trail Creek area, given Carrier's defined operating criteria*. Furthermore, our assessment of the Beef Trail area still leads us to believe that existing values in the area are accounted for in the Carrier development proposal. Another option is for Carrier to redefine their needs, if the economics of their operation allow this, and then have them disperse their operations across a wide geographic area. If the above alternatives are not acceptable or possible, Carrier will not be able to fulfill their contract conditions. Furthermore, the Ministry could be criticized for not fulfilling our end of the contract by not making the volume available in the context in which the licence was issued. I hope that you will find the attached report from my staff contains sufficient detail to support the difficult decisions which have to be made. We would be pleased to provide any clarification if such is needed. M. Carlson, R.P.F. Regional Manager Cariboo Forest Region (*emphasis in original) (other emphasis added) [200] This assessment, including the summary which follows the numbered paragraphs demonstrates a full appreciation of Carrier's defined operating requirements, the marginal nature of the operation, and the potential consequences to Carrier of any disruption of their wood supply. This understanding and knowledge is set out at a time when there was in existence only one blockade and at a time when Carrier had designed, manufactured and set up in the Chilcotin three timber processing facilities and was in the process of establishing two more within the next 18 months. [201] The purpose of establishing this milling capacity, from Carrier's perspective was to enable them to process the full 5,000,000 cubic metres of wood in the time remaining to them on F.L. A20022. It is clear on the evidence that Carrier made those commitments, expended the funds and established all five mills for that purpose with the full knowledge of the defendant. [202] This was a substantial project which in the early years of the license required significant planning and resources to be directed to the project. In addition, those initial years were marked by poor market conditions, and agitation by both environmental and First Nations groups. Carrier adopted a slow measured approach to the project in part at the request of the defendant. It was Carrier's plan to establish sufficient milling capacity to enable them to process the volume required of them in the remaining years of their license. [203] These difficulties were understood and agreed to by the Crown who on three occasions granted modifications to the cut control provisions of the licence. [204] In addition, Carrier's licence, because it was a non- replaceable licence was governed by the cut control provisions of s. 5.01 and 5.02 of the licence. These provisions required a minimum of 50% of the Annual Allowable Cut (AAC) in any calendar year (but no maximum) with a 90% requirement of the cumulative AAC in a five year period, again with no maximum. [205] The waiver of cut control in calendar years 1984, 1985 and 1986 recognized the challenges and difficulties Carrier was facing and deferred those volumes into the remaining years of the licence. The gradual build up can be seen from the actual harvest volumes during the first five years of the licence: YEAR VOLUME HARVESTED 1984 NIL 1985 NIL 1986 32,407 m3 1987 89,463 m3 1988 428,336 m3 [206] Over the course of this initial five year period Carrier had addressed the infrastructure problems and established its first mill at Holtry, that mill began operations on July 13, 1987. The mill at Charlotte Lake began operations in the spring of 1988 with a production capacity of some 350,000 m3 per year. Carrier's third mill was fabricated during the winter of 1989/1990 and moved to Eagle Lake that winter. The Tatla mill was placed in operation on February 5, 1990. With the addition of planer mills at Charlotte Lake and Tatla Carrier had milling capacity in place which exceeded that necessary to process one million cubic metres per year. 7.2.1 SILVICULTURE [207] One of the more contentious issues at this trial is the plaintiff's obligation with respect to silviculture. At the inception of F.L. A20022 this obligation was covered by s. 145 of the Forest Act R.S.B.C. 1979, c. 140 and amendments which provided that: 145. A person who harvests Crown timber under an agreement entered into under this or the former Act shall establish a crop of commercially valuable species of timber on the area in the manner and to the standards provided (a) in the agreement, if the agreement so provides; or (b) in the regulations, if the agreement does not so provide, unless he obtains an exemption from the regional manager or district manager. (emphasis added) [208] In the context of the present case the reference in s. 145(a) to an agreement by virtue of s. 10 of the Act includes a reference to a Forest Licence. In this case s. 9.00 of Forest Licence A20022 specifically deals with Forestry issues and therefore governs. This portion of the licence reads: 9.00 FORESTRY 9.01 Following the completion of timber harvesting and slash disposal operations under a cutting permit and subject to the management and working plan then in effect, the Licensee will establish on the land subject to the cutting permit a crop of commercially valuable species of timber, in the manner and to the standards determined by a Forest Officer who is a registered professional forester and approved by the Licensor or the District Manager. (emphasis added) [209] The language of Carrier's 1984 Management and Working Plan (MWP) is found in s. 2.24: 2.24 Silviculture 2.241 Basic The Licensee will ensure the successful regeneration of all areas logged under authority of Forest Licence A20022. The objective is to restock the newly denuded forest sites with desired tree species within an acceptable time frame. Site Preparation Where required the Licensee will carry out site preparation to facilitate natural or artificial regeneration. Landing rehabilitation will be conducted as directed by the Forest Officer when necessary, and consistent with regional guidelines. Natural Regeneration Natural regeneration is expected on all the pine sites in this particular locale. The Licensee will implement the appropriate harvesting and site preparation practices to achieve satisfactory levels of restocking with acceptable species within a maximum of seven years. Artificial Regeneration The hot dry summers experienced in this general area will make successful planting difficult. Fortunately very little planting, if any, is expected to be necessary as natural regeneration is usually successful in pine types such as these. However, should natural regeneration be unsuccessful further site treatment and if necessary planting will be done to put the land back into production. Sites not expected to regenerate naturally will be site prepared as necessary and seeded or planted within a maximum of three years. [210] This language in 1984 had a clear meaning within the industry. What was expected of the licensee was that after logging operations they would be required to drag scarify the areas to provide for natural regeneration and to replant small areas of spruce. Anything beyond those steps was at the time considered to be Intensive Silviculture. In particular no requirement for spacing or thinning was considered as part of basic silviculture. [211] Quite apart from the language and the understanding in the industry neither party was under any illusion as to what was within the understanding of the parties. The approved 1984 MWP included not just the definition of Basic Silviculture quoted above, it drew a clear distinction between Basic and Intensive Silviculture. The MWP dealt with Intensive Silviculture in s. 2.242. in these terms: 1.242 Intensive The intensive silviculture objective is to produce a grain in productivity on crown land. The temporary nature of the sale makes it awkward for the licencee to become involved in intensive silviculture projects. However, in the event that Section 88 funds became available for intensive forestry projects during favourable market conditions, Carrier Lumber Ltd. would be prepared to consider rehabilitation projects in stands of dead timber which cannot be harvest in the normal manner. Other specific intensive silviculture projects such as mistletoe eradication for newly regenerating forests may also be considered. (emphasis added) [212] Appendix 3 of the 1984 MWP set out the detailed cost breakdown on an annual basis of the estimated costs of s.88 expenditures. The total costs estimated for drag scarification was $920,625 with an additional $49,100 being expended for come and seedbed surveys. These two expenditures were expected to total some $969,725, or approximately .18 per cubic metre. [213] In 1987 sweeping changes were taking place in the Forest sector. The Forest Amendment Act 1987 (No. 1), S.B.C. 1987, c. 40 received Royal Assent and paved the way for the introduction of the Comparative Value Pricing system of stumpage appraisal. This was followed by B.C. Reg. 280/87 which was deposited on August 17, 1987, and the enactment of the Forest Amendment Act (No. 2), S.B.C. 1987, c. 54 which received royal assent on December 17, 1987. [214] The latter legislation goes to the very heart of the present litigation including within it the following provisions: 1. Section 1 of the Forest Act, R.S.B.C. 1979, c. 140, is amended (a) by adding the following definitions: "basic silviculture" means such harvesting methods and silviculture operations including seed collecting, site preparation, artificial and natural regeneration, brushing, spacing and stand tending and other operations as are prescribed to be required for the purpose of establishing a free growing crop of trees of a commercially valuable species; "free growing crop" means a crop of healthy trees, the growth of which is not impeded by competition from plants, shrubs or other trees; 129.1 (1) The requirements of this Part and of the regulations respecting basic silviculture apply notwithstanding any agreement referred to in section 10, or any cutting permit, whether the agreement or cutting permit was entered into or issued before or after this Part or a provision of it came into force. (2) Nothing in this Part applies in respect of free use permit, a licence to cut, a road permit or a Christmas tree permit. . . . 129.3 (1) A holder of a major licence who harvests timber under the licence shall, at his own expense and in accordance with (a) the regulations, and (b) a pre-harvest silviculture prescription approved under this section, carry out during harvesting, and continue without interruption after harvesting, basic silviculture on the land from which the timber is harvested. (emphasis added) [215] It is readily apparent that the new definition of "basic silviculture" is a substantial departure from what previously existed. [216] The passage and enactment of this legislation was followed on April 19, 1988 by the passage of the Silviculture Regulation (B.C. Reg. 147/88). Within these regulations was included an obligation of persons required to carry out basic silviculture to space and thin stands. [217] Lost within this legislative blizzard was an amendment to Carrier's Management and Working Plan. As a result of a request from the Ministry that Carrier amend its MWP ". . . to make a commitment to Pre-Harvest Silvicultural Prescriptions and Basic Stocking Standards". Carrier proposed draft changes by a letter dated May 14, 1987. On May 25, 1987 the proposed amendment was approved by the Regional Director, John Szauer. The amendment to s. 2.241 of the MWP reads: BASIC Carrier Lumber Ltd. will ensure the successful regeneration, subject to government funding, of all areas logged under authority of Forest Licence A- 20022. The objective is to restock the newly denuded forest sites with the desired tree species within an acceptable time frame. Furthermore, before harvesting commences on any cut block, Carrier Lumber will obtain Ministry of Forests and Lands approval for: 1. Pre-harvest Silvicultural Prescriptions. 2. Determine the basic stocking standards for the cut block. (emphasis added) [218] The first five year cut control period for this licence ended at the end of 1988. The cut control requirement for that first five year period was two million five hundred thousand cubic metres, or one half the total volume of the licence. Over that period for the reasons I have already touched upon Carrier had actually harvested 550,206 cubic metres leaving an undercut volume of 1,949,794 cubic metres. [219] Under the Forest Act (s. 55.3(4)) undercut volumes could be carried over into subsequent cut control periods with the Minister's approval. On November 22, 1988 Carrier made a presentation to the Minister of Forests and the Chief Forester in Victoria. During the course of the meeting Carrier pointed out the difficulties they had encountered during the initial years of the licence. They went on to suggest two solutions, either extending the licence by three years or by establishing a third mill in the area to increase their milling capacity. [220] The Minister advised that F.L. A20022 could not be extended but eventually approved the undercut carryover on conditions. The conditions are found in a letter dated January 5, 1989 from Mike Carlson to Paul Klotz and required Carrier to establish a third mill. These requirements led to the establishment of the Tatla Mill which began operations in February of 1990. The relevant passage of the letter reads: This will confirm our discussions and the decision made at our meeting on December 22 regarding the undercut carryover and your revised Development Plan proposal of December 6 relative to the above Forest Licence. The undercut portion of approximately 1 900 000 m3 of the 2 500 000 m3 attributable to first five year cut control period of the Licence ending December 31, 988, may be carried over into the second 5 year cut control period of the Licence providing you meet the following conditions: 1. Approximately 1 100 000 m3 of this volume may be taken from the Eagle Lake area of the Tatla Supply Block as indicated in your harvest schedule dated December 1988 and the map attached thereto. A third mill will be required to be established to process this volume. [221] The fourth condition imposed required Carrier to take the lead role in ". . . the public involvement process for this licence. . .". This requirement was not new, it was a requirement imposed on Carrier at the outset of F.L. A20022 and one that they carried out with considerable success, it was also one of the major factors in the initial delay of their harvesting operations. [222] What is of substantial importance in assessing these meetings and documents which involved the participation of the Minister, the Assistant Deputy Minister, Wes Cheston, the Regional Manager, Mike Carlson and the District Manager, Ron Reeves, is that at no time is there a single reference to any change in the silviculture obligation attached to A20022. There is not a single note in any set of minutes, notes, or correspondence that indicates the issue was ever raised in relation to the Carrier licence. [223] The significant feature of this is found in the fact that at the same time the Williams Lake licensee's had begun negotiations with many of these same forestry officials over the extent to which their basic silviculture obligations had changed with respect to their Forest Licences as a result of the 1987 legislation and the new Silviculture Regulation passed in April of 1988. [224] When Mike Carlson approved the undercut carryover he also required Carrier to prepare and provide a revised Development Plan. The 1989 Development Plan was forwarded to Carlson on January 13, 1989. This plan was approved by the District Manager by a letter dated May 12, 1989, included within the body of that letter were the following comments: Your development plan for Forest Licence A20022, date January 13, 1989, is hereby approved. This approval is subject to various conditions and constraints outlined below. Beef Trail Proposed development in the Beef Trail area is approved with minor exceptions. Portions of Planning Blocks 432 and 433 lie within a proposed addition to Tweedsmuir Park. Portions of Blocks 470 and 471 may be reserved to provide a visual screen along the Beef Trail, which is proposed as a major entry route or loop trail to Tweedsmuir park. Timber volumes lost to you as a result of these decisions will be recouped north of Planning Block 479. I appreciate that you have completely revised your plan for Beef Trail, recognizing constraints on block sizes, furbearer habitat, and long term forest planning. We expect that this plan will be replaced by an undated plan by November 1, 1990. I wish to commend you for your efforts in preparing this plan, and for the cooperative spirit which you hae shown in working with other resource users and the local public. (emphasis added) [225] It is clear from the evidence that Carrier was going to considerable lengths (and expense) to accommodate so far as possible other interests while it proceeded to pursue its commercial interest. [226] These events, however, and the 1989 Development Plan in particular when considered in context have some very peculiar features. Clause 1.2 of the 1989 Development Plan deals with silviculture, it reads: 1.2 SILVICULTURE Carrier Lumber's intent is to reforest areas harvested. Specific details will be addressed on the Pre-Harvest Silviculture Prescriptions on an individual Cutting Permit basis. [227] Only 8 days before this development plan was forwarded to Mike Carlson on January 5, 1989 Carlson had forwarded to "All Forest License Holders" a detailed revised development plan outline. It is clear that Carrier's plan did not comply with the new outline requirements, as far as silviculture was concerned. [228] On April 6, 1989, before it was approved, the plan was submitted to the Regional Silviculture staff for their review. The response of the silviculture staff is clear and unequivocal: The silviculture component of this Development Plan shows no scheduling of activities (surveys, treatments, etc.). For each proposed cut block we should be scheduling the appropriate silviculture treatments designed to establish a free-growing crop. It isn't good enough to say that it will all be addressed in the PHSP like this plan does. All other plans I (have) seen had good scheduling of silviculture activities. This plan from a silv. point of view is not acceptable. Mr. Grant who reviewed that comment replied that: We thought there was so much uncertainty in Carrier's Plan that it would be wasted effort to include detailed silviculture schedules in this Plan, GG [229] These concerns were not communicated to Carrier and their Development Plan was approved. [230] What makes these events puzzling is that during the exact same time period, the same officials of the Ministry were dealing with the application of the Williams Lake Licensee's to have their opportunity licenses extended for two years. By letter dated July 24, 1989 the Regional Manager, Mike Carlson, extended those licenses at full volume for two years. These extension letters are strikingly similar to the undercut approval letter sent to Carrier on January 5, 1989 with one glaring exception, in the letters to the Williams Lake Licensee's condition 8 reads: 8) Areas logged under this Licence are subject to basic silviculture as required under part 10.1 of the Forest Act. No such condition is included in the letter Carlson had earlier sent to Carrier. Mike Carlson's explanation for this difference is found in this passage of his evidence: Q Your letter to Mr. LaPointe says areas logged under this are subject to basic silviculture as required under 10.1 of the Forest Act, very, very clear, why is there not such a paragraph in the letter to Klotz? A I wasn't amending their licence. As I indicated at the time that we were extending or replacing licences we brought them into harmony with the legislation. In the case of the issue I was dealing with on the Carrier licence I wasn't amending any of the terms of the licence, I was granting authority that was allowed within the licence, and the Forest Act prevailed in any case. Trial Transcript March 19, 1998 p. 1629 l. 1-12 [231] It is necessary to get a full appreciation of events and their significance to avoid isolating individual issues and to examine the full sequence of events and the interrelationship of those events. Before turning to the major events involving the Beef Trail Creek area and the Brittany Triangle, the ultimate emergence of the silviculture issue should be placed in context. [232] On May 3, 1991, J.B. Jenkins, the Cariboo Regions Timber Officer, forwarded a memorandum to Ron Reeves. The text of the memorandum reads: Re: Carrier Lumber's Forest License (FL) A20022 Members of your staff have indicated a concern that Carrier Lumber's FL A20022 will expire on December 30, 1993 and there is no silviculture deposit to ensure funds are available for any basic silviculture obligations Carrier Lumber might neglect to complete. This memo is a reminder of the course of actions that are available if they are felt to be necessary. Bill 48 (attached) has given the District Manager and the Regional Manager the power to request a silviculture deposit at any time, for any amount and in any form they require, for basic silviculture obligations on non-replaceable major tenures. To date we have dealt with the holders of non- replaceable Forest Licenses in a couple different ways. For the two-year Forest Licenses A36000 and A39342 in the Quesnel Timber Supply Area (TSA), we have amended the replaceable Forest Licenses of these licensees so that they are responsible under their replaceable Forest License for all basic silviculture required on areas harvested under their non- replaceable license. With this amendment we can use the deposit under their replaceable Forest License for any outstanding work on the short term Forest Licenses. We have had to deal with C & C Wood Products Ltd. two year non-replaceable Forest License in a different manner as they do not have a replaceable license in the Quesnel TSA. In C & C wood Products Ltd.'s FL A39343 there is a separate silviculture deposit requirement of $5.50/m3 of volume billed. This deposit is collected every six months based on the volume billed to that date. It has been agreed, that as certain silviculture activities are completed on individual blocks, a portion of the deposit for that block will be refunded, but until a free growing stand is achieved a minimum of 46 percent of the deposit for a block will be maintained. Neither of these examples relate well to the situation that we have with Carrier Lumber. They do not have a replaceable license in the Williams Lake TSA and they are more than half way through the term of their license. We have another example that we have not sorted out yet. The FL A25300 expired July/90. Over 20 000 hectares have been logged under this license and the only deposit we have is the $129 000 required under the regulations. At this point we have sent a letter to the licensee requesting a report on the status of all the blocks that were logged under the license with a list of outstanding treatments. The licensee was made aware that this report would help us decide on how much of their existing deposit would be required to be maintained or if addition (sic) funds would be required as allowed for under Bill 48. [233] The reference to Bill 48 is, of course, a reference to the first of the two Forest Amendment Acts passed in 1987, four years earlier. [234] Ron Reeves' response is written in his handwriting across the bottom of the document: Chris/Steve - we will have to mull this over. Timing of any decision critical in view of Ulkatcho situation vis-a-vis Beef Trail, Minister's offer/Buffalo Head etc. R. [235] On May 22, 1991, Ron Reeves, the District Manager, wrote to Paul Klotz of Carrier what has been characterized as the "bombshell" letter. The text of the letter is as follows: Dear Mr. Klotz This is to advise that I am currently evaluating a process to undertake the requirement of Section 129.3(4) of the Forest Act, (Bill. 48 - 1990 forest Amendment Act (No. 2), 1990) with respect to the above forest licence. This is essentially the requirement for security to guarantee your performance of the silviculture obligations of this non replaceable major licence. I am willing to consider any suggestions or preferences you may wish to offer with respect to how this legislative requirement may be met. You should note that the costs of basic silviculture for areas harvested since October 1, 1987 and not declared "free growing" as well as those projected silviculture costs for areas planned for harvest for the duration of the licence will be considered in the determination of a process to provide the Crown with the required security for performance. I look forward to your early response. [236] Within a week of Reeves forwarding this letter he received a report he had requested from his silviculture officer estimating Carrier's silviculture costs under the "new" free growing standard at between $15,687,997 and $30,369,821. The passage from the report which is dated May 29, 1991 summarizes the calculations: SUMMARY: When using costs from the Appraisal Manual it is estimated that $30,369,821 will be required for areas harvested by Carrier to reach Free Growing. When using revised costs from the Chilcotin Forest District it is estimated that $15,687,997 will be required for these areas to reach Free Growing. [237] The report goes on to outline a series of six options to recover these silviculture costs from Carrier. The options are reported as follows: OPTIONS TO RECOVER SILVICULTURE COSTS A - Pay Total Appraisal Cost = $30,369,821 B - Pay Total Chilcotin Cost = $15,687,997 C - Pay Appraisal Cost to Date = $ 8,802,960 Pay Remainder ($21,566,861) over remaining volume (3,550,706) =6.07m3 D - Pay Chilcotin Cost to Date = $ 4,547,304 Pay Remainder ($11,140,693) over remaining volume (3,550,706) = $ 3.14/m3 E - Pay Total Appraisal Cost Over Remaining Volume $30,369,821 ö 3,550,706 = $ 8.55/m3 F - Pay Chilcotin Cost Over Remaining Volume $15,687,997 ö 3,550,706 = $ 4.42/m3 [238] To put options E and F in perspective they can be compared to the original estimates known to both parties and detailed in schedule 3 of Carrier's MWP. That approved document estimated Carrier's silviculture obligation at .18 per cubic metre or a total expenditure estimated at $969,725. [239] There was, however, yet another distinction between these two levels of silviculture cost. Under the system in place when the agreement was entered into and the Forest Licence issued, Carrier's silviculture costs of $969,725 would have been funded through s. 88 of the Forest Act and credited against stumpage payable by the licensee. Under the "new" system the holder of a "major licence" was required, by s. 129.3(1) to perform "basic silviculture" to the new substantially expanded definition " . . . at his own expense . . .". The end effect of this was that the increase in silviculture cost alone to Carrier in those provisions was not the difference between the originally anticipated costs of $969,725 and the new maximum estimate of $30,369,821 but the total of those two numbers or some $31,339,546. [240] To take a different perspective on these "new" silviculture estimates in relation to the original bargain between the parties these estimates of from $15,687,997 to $30,369,821 can be compared to the table of estimated government revenue attached to Carrier's original proposal which estimated the total Crown revenue over the term of the licence at $19,530,000. This comparison is obviously unrelated in any real sense but provides an interesting comparison on the order of magnitude of the new silviculture costs. [241] At a meeting held on January 15, 1992 between Bill Kordyban, Sr. and Jr., and Paul Klotz and the regions silviculture staff, the issues arising from this letter were discussed. Jenkins' notes of the meeting reveal the position being taken by Carrier: Does not accept responsibility for long term silviculture - was not part of original agreement and not reasonable to apply to a non-replaceable tenure. Negotiate changes to his agreement. Feels we should negotiate a sharing of silviculture responsibility because of salvage of timber values and negative stumpage. - Carrier cannot place burden on P.G. operation. (Never mortgage home to support business . . . ) - He is prepared to take longterm silviculture responsibilities into a Ulgatcho (sic) joint venture replaceable tenure. - To carry on without some renegotiation of the document is to dig a deeper grave economically. [242] What is apparent from these notes is that Carrier was quite prepared to discuss a reasonable solution and Mr. Kordyban was very straightforward in stating the obvious, that these costs were never a part of the original deal. Carrier does not, however, close the door on discussion or compromise or the issue, providing such a solution was reasonable. [243] I have not the faintest hesitation in finding that an imposition of costs of this magnitude seriously jeopardized Carrier's whole operation in the Chilcotin and that if known at the outset would have precluded the project from ever beginning. 7.2.2 THE BLOCKADES [244] The key to an understanding of the ending of Carrier's venture in the Chilcotin is to be found in the militancy of the First Nations' people which led to the blockades which prevented Carrier from gaining access to the timber in the Beef Trail Creek area and then that located in the Brittany Triangle. These events and the dealings of government with the First Nations' people in relation to them are at the heart of Carrier's submissions in this action and at the heart of the document disclosure issue. [245] It is important to an understanding of the pressures at work during this crucial time frame, however, to understand the pressure that was no longer at work. [246] Two cold winters in succession beginning with a cold October 1984 followed by a record cold snap in November 1985 had substantially impacted the population of mountain pine beetle in the region. The timing of these two cold snaps which had occurred early in the winter and before any significant snow cover had fallen in the area had decimated the beetle larvae reducing their population by 86% or more up to a high estimated to be in the area of 97%. [247] The Cariboo Forest Region Bark Beetle Action Plan 1986/1987 strikes a note of cautious optimism and notes in its introduction: Two cold winters in succession have significantly reduced the mountain pine beetle populations in the Cariboo Region thereby generating a degree of cautious optimism. Mountain pine beetle larval mortality surveys indicated that the record cold snap in November, 1985 further impacted the beetle population already suffering the effects of the cold October of 1984. Now is an opportune time to use aggressive control techniques to mop up. It is felt that control can be achieved in 2 to 5 years. The Cariboo Region 1986/87 action plan suggests a change in emphasis from host liquidation to direct control. [248] The report goes on to discuss the action plan for the Williams Lake TSA: B) ACTION PLAN The Williams Lake T.S.A. is also a beneficiary of the beetle larval mortality from the two cold winters (especially in the Chilcotin District). In general, the highest levels of larval survival were found east of Highway #97, where the average larval mortality was 86%, the highest level of survival in the Region. The 1986/87 Action Plan Stress detection, pheromone baiting and single-tree disposal. It is believed that aggressive pheromone baiting and single-tree programs in many of the District's high value stands can be effective in significantly reducing mountain pine beetle populations. Road construction projects in the Chilcotin District depend on the harvesting plans of Carrier Lumber and additional Regional Manager Timber sale which may be offered in the West Chilcotin. [249] This report suggests a significant change in the concern and the techniques to be employed against the remaining beetle population. The emphasis has changed from open warfare on a massive scale to aggressive but apparently more focused mop up activities. [250] With this development in mind I turn to the events in the Beef Trail. 7.2.2.1 BEEF TRAIL CREEK [251] The Beef Trail Creek area was an important part of Carrier's approved plans for harvesting the timber volume under A20022. In the 1989 development plan the volume to be taken from this area was 1,400,000 cubic metres. This represented 28% of their total licence volume. [252] The problems began shortly after their development plan was approved when a tree which had been "spiked" caused over $45,000 worth of damage to the Charlotte mill. This incident in June of 1989 resulted in an examination of logs in the mill yard and the discovery of others which had been spiked with the head of the spikes cut off and sunk into the logs to conceal them. [253] The Ulkatcho Indian Band had, with professional assistance, prepared an alternative development plan for the Beef Trail. This "holistic' plan was inconsistent and incompatible with Carrier's approved plans for the area. [254] In July of 1989, Carrier was already at work clearing their mill site in the Beef Trail and building their access road north of highway 20 to that mill site. There was some urgency to the project as it required the construction of a bridge across the Tusulko river. As a result of restrictions imposed by the Department of Fisheries this bridge could only be built in a narrow time window that closed at the end of August of each year. [255] On July 17, 1989, a "cease and desist" order signed by the Chief and three counsellors of the Ulkatcho Band was hand delivered to Carrier. The text of the "order" read: Re - Access road and logging activities North of Highway 20. This is an official notification from the elected Government of the Ulkatcho Band that you are to cease and desist in your activities IMMEDIATELY ! Please remove machinery to south side of HWY 20! Failure to do so will result in serious COUNTER- ACTION by the Ulkatcho Band. [256] It is Carrier's position that throughout the events involving the Ulkatcho and later on the Nemiah peoples, key Crown officials from senior employees of the Ministry of Forests, up to and including Ministers of the Crown and even the Premier of the province, made promises to First Nations People which were not sustainable in law and which could not be honoured without breaking the agreements they had with third parties. Much of this conduct was, they submit, deliberately concealed by their refusal or failure to disclose documents. [257] This conduct began the day the Ulkatcho delivered their cease and desist "order" to Carrier. On that date the District Manager, Ron Reeves, requested a "one-on-one" meeting with Ulkatcho Chief Jimmy Stillas. The informal meeting requested by Reeves was actually something quite different. He arrived to find, in addition to the Chief, Bill Horswill of the C.U.K. Nations and some 20 to 30 natives who were not introduced. The entire three hour meeting was videotaped by band members. [258] From Carrier's perspective, Reeves' written report to Carlson contains some deeply disturbing warnings: I endeavoured to set the tone of the meeting by advising what I personally was not* able to do (halt Carrier Lumber's operation, grant the band a wholistic (sic) T.F.L., etc. etc..) At the same time I made if (sic) perfectly clear (again) that I was still willing and able to see that alterations or modifications be made to Carrier Lumber's plans if there were any specific modifications, concerns, or suggestions that the band was able to identify, including ideas for "wholistic" (sic) harvesting. None were forthcoming; again I was told that the band's "plans for management of the area" were still being formulated and we would be given them when completed. The other positive point of my advice to the Band was the clear offer of harvesing (sic) tenure which could be considered, to provide the band with economic aid and opportunity for employment. We discussed T.S. Licences, Woodlot Licences and even the concept of Forest Licences. I made it clear that even areas currently included in Carrier's plans would be considered. Basically, except for general discussion of a Woodlot Licence around an unidentified piece of private property, I was told that they wanted the whole Beeftrail Creek area (as a part of a T.F.L.) or no tenure at all. When I asked why the band or its members did not bid on the recent S.B.E.P. sales initiated with the band in mind, they told me it was that they were told that the harvest technique was to be clearcut, which in their view was not "wholistic" (sic) and was therefore unacceptable. I went so far as to tell them that should they be successful in attaining a timber sale licence that I would do my best to allow them to selectively log pine in a "wholistic" (sic) manner. Despite my best selling pitch, none of my suggestions were met with any interest; let alone enthusiasm. . . . This meeting lasted for almost 3 hours, with much old ground revisited and considerable conceptualizing and philosophizing on the part of the band. The entire session was videotaped and there is little doubt that statements I made, if taken out of context, may be misleading or worse. Generally however the meeting was reasonably cordial; I personally have met and dealt with some of these people for some years and I believe some trust and empathy exists with my staff and the Ministry. The obvious underlying intent and desires of the band is for control of a major land base to maintain and enhance traditional lifestyles. Rather than using cultural or heritage values as the reason for this desired control, the band is basing their demands on a tenure (T.F.L.) which they see will give them the same control while at the same time should gain acceptance under the guise of forest management. In this endeavour they are clearly being supported, encouraged and supplies with quasi technical information by Horswill and other non native advisors. Subsequent to my meeting with the band, I met with Carrier Lumber operational staff and discussed minor accomodations (sic) to the band which will be ongoing. Apperantly (sic) not satisfied with my discussions and offers, members of the band hand delivered the attached letter to Carrier's cat operator working on the road in question. Carrier Lumber intend to proceed with road construction as authorized until such event that they judge their employees, equipment or other individuals to be endangered. Any significant disruption of planned development as scheduled will negatively affect Carrier's ability to meet harvesting schedules and Licence committments (sic). (* emphasis in original) (other emphasis added) [259] From this first day it is clearly and unequivocally recognized any significant disruption would compromise Carrier's harvesting schedule and perhaps even their ability to meet their licence commitments. [260] Some of Reeves fears materialized within days of this meeting. On the morning of July 20, 1989, Carrier's operation was blockaded by the Ulkatcho. [261] In an e-mail message sent the same day, Reeves advised Carlson that: As I feared, Horswill apparantly (sic) quoted me as saying (confirmed by the video tape of my meeting Monday) "that Carrier could go somewhere else." I did say this but in the context of my defending the operation not being "too much volume too fast" given that the LRSY for the supply blocks was considerably more than the 500MM3 of Carrier's Licence and indeed the licence did apply to the three supply blocks. [262] Even from this first meeting the pattern is established. Reeves made statements that were videotaped which he immediately recognized as being " . . . misleading or worse . . .". Within days those very statements are being used by the Ulkatcho leadership to justify their disruption of Carrier's operations, yet nothing is done to correct or retract the statements. [263] Although some of the documents made available to Carrier indicated that a meeting had taken place on August 2, 1989, between Forest Minister, Dave Parker, Native Affairs Minister J. Weisgerber and members of the Ulkatcho Band. Certain important documents arising from this meeting were not disclosed. First and foremost of those is the August 14, 1989, letter of the Minister of Forests which was the centerpiece of the disclosure issue which emerged the day this trial was adjourned on October 16, 1997. Although this letter is quoted earlier in these reasons, two paragraphs of that letter are important to the present consideration: With reference to our discussions during that meeting, I would like to confirm my commitment to review the potential of opportunities for advertising a bid proposal for a forest licence located in supply blocks A, C & D of the Williams Lake Timber Supply Area, and to address your concerns regarding Carrier Lumbers' (sic) development in Beeftrail Creek. As agreed, by the end of September of this year, I will be contacting you and those groups who attended the August 2 meeting to discuss the above issues. (emphasis added) [264] This "commitment" was made at a meeting in which the Ulkatcho presented the Minister with a briefing paper which contained two very specific short term requests: 1. Instruct your Regional and District staff to find alternate timber supplies for Carrier Lumber Ltd. south and west of Highway 20 and which emphasize beetle salvage which are outside of our T.F.L. application area. These supplies should be sufficient to satisfy Carrier's needs for a one year period. This will provide time to develop and process a T.F.L. proposal for the area possibly involving a joint venture with Carrier Lumber Ltd. 2. Alternative wood supply for Carrier will allow a 1 year delay of development of the road into the Beef Trail area. However, every attempt will be made to arrive at a mutually satisfactory cutting plan in the Beef Trail. [265] The immediate impact of the Minister's "commitment" is evident from a memorandum forwarded by the District Aboriginal Affairs officer to Ron Reeves on August 8, 1989. After noting that he had received a telephone call from Mike Carlson concerning the Ulkatcho meeting with the Forest Minister he very succinctly records their instructions and notes their effect on Carrier: Carrier is not to do any further development until decision is made. Therefore they have lost a year because they can only construct a bridge in August due to fisheries concerns. [266] It must be recognized that this "commitment" by the Minister was made in the face of an approved development plan, a valid licence and a considerable commitment from Carrier. It was also made in the face of full realization by those most familiar with the area that a delay in harvesting in the Beef Trail might well jeopardize Carrier's ability to fulfill its licence commitments. [267] The Minister in his letter of August 14, 1989, agreed to contact the Ulkatcho by the end of September. In anticipation of that meeting a detailed analysis of the situation was carried out by the Ministry of Forests. The results of that analysis find expression in a report described by Ron Reeves as being " . . . relative to the current conflict between the Ulkatcho Indian Band and Carrier Lumber Ltd. and their development of the Beef Trail Creek operating area of F.L. A20022". [268] This report was forwarded by Reeves to Carlson on September 12, 1989. Carlson, in turn, after adding his comments and analysis in a letter dated September 15, 1989, forwarded the report to the Assistant Deputy Minister, Wes Chester. Carlson's letter is quoted earlier in these reasons, but his summary, despite the evidence he chose to give at this trial, is powerful and unequivocal: In summary, we do not see any viable alternative to operating in the Beef Trail Creek Area, given Carrier's defined operating criteria. Furthermore, our assessment of the Beef Trail area still leads us to believe that existing values in the area are accounted for in the Carrier development proposal. Another option is for Carrier to redefine their needs, if the economics of their operation allow this, and then have them disperse their operations across a wide geographic area. If the above alternatives are not acceptable or possible, Carrier will not be able to fulfill their contract conditions. Furthermore, the Ministry could be criticized for not fulfilling our end of the contract by not making the volume available in the context in which the licence was issued. (emphasis in original) [269] These conclusions flow directly from the detailed analysis carried out in preparation of the underlying report. The following extracts taken from that report are highly instructive even if one reads no further than the initial executive summary: September 13, 1989 Executive Summary - Beef Trail Creek . . . Considerably more planning than is often the case has been undertaken by this Forest Licence holder since issuance of the Licence in 1983. The Forest Service as well has entered into several detailed resource use plans and has carried out many public meetings, and presentations to Natives and other interest groups. Despite all efforts to accommodate other resource uses and users, no acceptance by a segment of this Native Band and some other commercial recreation users has been realized. Further consultation and planning is clearly not likely to satisfy this local population who want no harvesting. The Band has more recently been demanding "community controlled" harvesting in the form of a T.F.L. issued to the Band for this, and a large adjacent area. An analysis of the forest inventory statistics was undertaken for the western supply blocks. This review netted down the inventory to account for social and technical constraints as well as for what Carrier has already logged, and plans to log. The results are that if the Beef Trail area is lost (1.4 million m3), replacement volumes cannot be found that will meet their needs. . . . This diminished available volume in these Supply Blocks creates a situation in which Carrier Lumber is unlikely to find elsewhere, the required 1.4 million m3 presently existing and planned in the Beef Trail Creek operating area. The result may be that Carrier Lumber will be unable to harvest the total five million m3 allocated under this Forest Licence. (emphasis added) [270] Within the body of their report the scope of the planning involved and Carrier's efforts to accommodate other interests becomes clear: Planning for harvesting of this area has been reasonably and rationally developed within the approved planning framework. There was adequate time for the original 1985 Development Plan to be considerably modified and refined to recognize the dynamics of forest harvesting priorities based on natural events such as mountain pine beetle populations, or input received from other concerned parties. The currently approved Development Plan for the 5 year period of 1989 - 1993 is for approximately 4.2 million m3 remaining in the Licence. This plan has approximately 60% of this volume originating from stands of between 20% and 80% mountain pine beetle grey attack; the original 10 year plan scheduled only approximately 20% of the volume to originate from these type of stands. However, the Beef Trail Creek area has always been planned for harvesting and is a green, non beetle attacked area; though highly susceptible. Concerns expressed by public and special interest groups have resulted in three separate, detailed planning processes within these 3 supply blocks. These plans cover 105,000 ha. in areas with significant other resource valued. The results of these plans have decreased availability of timber for harvest by Carrier Lumber. [271] This passage of the report demonstrates yet another aspect of why the Beef Trail area was important to Carrier. Though much of the timber they would be harvesting was significantly damaged by beetle attack, this area represented a substantial volume of better quality wood. [272] The report continues noting that: The currently approved plan for the Beef Trail Creek area reflects the Forest Service's required modifications to the originally submitted plan, to meet current standards for smaller cut block size and the "total chance" planning concept. This revised and approved Development Plan is essentially a two- pass system for the operating area, and was judged to provide the optimal balance between the economic needs for harvesting and the locally expressed wish to minimize long term access needs. It must be stressed that the planning process for this area has resulted in modification of harvesting plans to accommodate good forestry practices, the needs of other resource management agencies, and to a large extent, the desires of other licenced resource users in the area. Only a segment of the local natives and some residents who want no harvesting or development in the area, remain dissatisfied. (emphasis added) [273] The report then proceeds through an analysis of the available timber inventory in the three western supply blocks. Without going through the detailed point by point analysis, one point should be noted, that is the reports clear understanding of Carrier's operating criteria: 6. Any assumptions for available volume must also finally be viewed in the context of Carrier Lumber's harvesting and milling strategy. Their criteria are as follows: - a minimum of 3 years continuous operation at a particular mill site - minimum volume of 1 000 000 m3 to come to a site from a contiguous operating area. - volumes within a 50 km off highway haul distance from the mill. [274] The report reaches the following conclusions: Conclusions 1. A thorough analysis of the forest inventory statistics for the western supply blocks did not reveal any candidate areas which should be further examined to see if they could replace the Beef Trail volume. 2. A decision to send Carrier into the remaining scattered stands in the western supply blocks would probably not have sufficient economic justification to be acceptable to Carrier, given their operating criteria. It was recognized when this license was first awarded that the program was aimed at the best areas with the most susceptible volume at risk to mountain pine beetle. This study confirms the original expectation that Carrier's operation would not be sustainable with this strategy. It was never the intent of this licence to expect development of the scattered or isolated stands. 3. If the volume in Beef Trail Creek remains unavailable to Carrier Lumber, a shortfall in total volume harvested for the duration of this Forest Licence may well occur. (emphasis added) [275] From this point on there could have been little doubt in anyone's mind that unless Carrier gained access to the timber in the Beef Trail there was likely to be a significant shortfall in the volume harvested under A20022. The volume was variously estimated as being on the order of a shortfall of some 500,000 to 1,000,000 cubic metres. [276] The early months of 1990 brought an apparent softening of the Ulkatcho position to the point where Ron Reeves noted that "They are getting reasonable again". [277] On April 17, 1990, there was a meeting at the Kamloops office of then Forest Minister Claude Richmond. The Forest Minister together with Mike Carlson met with various First Nations people including the Ulkatcho. Carrier was not notified of nor asked to attend the meeting. [278] The information available with respect to this meeting though far from complete paints an interesting picture. In an interview published in the Williams Lake Tribune two days later Chief Jimmy Stillas is quoted as saying that the Minister "almost committed himself" that some kind of forest tenure will be issued to the Ulkatcho and Kluskus bands within the next 90 days. The newspaper article goes on to quote Chief Stillas as saying that: We were assured by Richmond that Beef Trail Creek has not been committed yet. We want forestry to hold off issuing any permits for it for at least 90 days, until Richmond has time to get back to us. [279] One of the Minister's letters with respect to this meeting is dated June 8, 1990, and says, in part: I was very encouraged by the positive, cooperative approach exhibited at our recent meeting in Kamloops with members of the CUK Tribal Council. At that meeting, native concerns were discussed in an open and honest manner. I feel the meeting was very productive, and I am confident that if we continue to work together, that we will be able to come to a mutually agreeable resolution of your Band's concerns. At our meeting in my Kamloops office, I indicated that I would be prepared to commence negotiations on forestry issues within 90 days. I intend to meet this commitment to you, and will advise you soon when I have prepared an agenda and am able to schedule this meeting. As you have been an important contact for myself and my staff, I felt that you should be advised that we are still working hard to develop solutions to the complex problems we face together. In the interim period, I will forward a series of options being developed by my staff which will hopefully provide a positive basis for negotiations. I look forward to your input on this document as your comments will be very important in moving towards a final solution. (emphasis added) [280] Once again, it should be noted that the context in which the Minister of Forests has committed himself to negotiations is in the face of Carrier's forest licence and their approved development plan for the Beef Trail Creek operating area. [281] Two sets of minutes from this meeting were placed in evidence during the course of this trial, interestingly enough, both originate with the native groups attending the meeting. There are some differences between the two sets of minutes but they confirm at least areas of discussion. The minutes attribute to the Forest Minister an announcement that either the cabinet had already approved or would shortly be asked to approve his plan to sit down with First Nations groups to negotiate forest licences. [282] They go on to record remarks attributed to Mike Carlson that Carrier's licence had four years left to run and 3,500,000 cubic metres left to harvest. He is attributed as ending his comments by pointing out that the Band holds the whip hand, not Carrier. [283] During the course of his cross-examination Mr. Carlson sought to explain, qualify and minimize the comments attributed to him. Two points should be made with respect to those efforts. Firstly, whatever words were actually spoken, the impression created in the minds of the Ulkatcho leaders was that they had been promised by those in charge a measure of control over their area of concern (the Beef Trail) and that they had the stronger position, not Carrier. Secondly, I was less than favourably impressed with the credibility of Mike Carlson. This was a witness who over the course of eight days on the witness stand demonstrated time and time again an inability to be candid and forthright. Mr. Carlson was a witness who found truth and accuracy an unfortunate handicap which he was prepared to sacrifice in favour of the higher goal of articulating what he considered to be in his own or his Ministry's best interest. The specific instances which led to this conclusion were many and varied ranging from very broad issues where he denied the accuracy of information, conclusions and positions clearly reduced to writing and bearing his signature (Exhibit 69, Tab 69), to minor issues where he defended issues based on narrow hair splitting as to the meaning of specific words in a manner which appeared calculated to mislead (Trial Transcript, March 23, 1998, p. 1716, l. 11 - p. 1717, l.15). [284] Whatever the actual words spoken during the course of this meeting it is clear that the Ulkatcho wanted a tree farm licence ("TFL") but in light of a moratorium in place with respect to TFL's their choice would be a forest licence. The Ulkatcho's interest in a TFL was based on the fact that such a licence was a form of tenure that carried with it exclusivity within a particular area. It is clear from subsequent correspondence and Carlson's evidence that at the meeting in Kamloops on April 17, 1990, Carlson had outlined the possibility of giving the Ulkatcho and Kluskus Bands a forest licence which would be an area based licence with exclusive rights within a supply block. The words attributed to him, which he acknowledged, were that it was possible to create a forest licence that "walks and talks like a TFL". [285] It is not necessary or useful to trace the numerous exchanges and meetings which followed. The Ulkatcho set about retaining their own experts to prepare their "alternative plan" for the Beef Trail. Once again the Ministry's position emerges clearly. On April 20, 1990, Chief Jimmy Stillas in a letter to Ron Reeves announced that: We are totally against any plan that approximates the quantity of harvest suggested by Carrier's present proposal. He goes on to indicate that: We realize you are in a difficult position, and we appreciate your efforts to find a mutually acceptable solution. We are trying to cooperate in that process and will submit to you within a month our own proposal toward a solution. [286] One might reasonably anticipate that at some point Reeves might point out that Carrier's plan was not a proposal but an approved development plan and that some recognition of Carrier's interest might emerge. Instead, Reeves replies, on April 30, 1990: Thank you for your letter dated April 20. I appreciate your clearly stated intentions to present an alternate plan for the development of the Beef Trail Creek area by Carrier Lumber Ltd. You have my assurance that I will carefully consider any such rational alternative as a basis for amendment of Carrier Lumber's present development plan. I look forward to hearing further from you. [287] It is difficult to believe that the carefully worded niceties of this letter would be received by the Ulkatcho as a ringing endorsement of Carrier's contractual right to log in the Beef Trail. This letter, in my view, served precisely the opposite purpose, it encouraged the Ulkatcho to pursue their alternative plan, while allowing the defendant to argue that they were "protecting" Carrier's interest. [288] The cc at the bottom of Reeves' letter speaks volumes. It reads: :cc. Reg. Mgr., Attn Tbr. :cc. Ken Salaski - have not sent copy of either the orig. or this reply to Carrier in case it upsets the "delicate balance of current negotiations." comment? [289] Within days Reeves is recording his thoughts and expectations in an internal memorandum dated May 2, 1990. Three passages from this memorandum are of interest: Our meetings and letters to Ulkatcho Band seem finally to be getting results regarding firm (reasonable?) alternate proposals for development in Beef Trail Creek. . . . Hopefully such a plan will be reasonable and recognize the large volume of reasonable quality, mature to overmature pine volume in the area and will include an economically viable harvesting plan. The planned 1.4 mmm3 cut will not be available obviously and we will still have the problem of finding it elsewhere for Carrier. We will still have the task of selling (or ramming it down their throats) such a revised plan to Carrier. There is agreement with Haynes at least, that such a harvesting plan, if approved by the F.S. would be suitable either for Carrier Lumber, a joint venture Carrier/natives, or natives alone depending on Ministerial decision. . . . I view this whole scenario as one with real potential to indicate to us what a coalition of natives and a variety of other resource users (and with some expert opinion and input) see as an acceptable framework for development. If it is reasonable, and we can buy it, and sell it to a licencee, we have come a long way. We will also have information which can be valuable in other areas of IRM. (emphasis in original) [290] These passages once again acknowledge that Carrier will not harvest 1.4 million cubic metres out of the Beef Trail, but they also demonstrate an attitude to Carrier that fails to recognize any level of equality of interest or even of contractual right. It also indicates that the decision as to who will log in the Beef Trail has passed to Victoria and the Minister. [291] After the April 17, 1990, meeting in Kamloops, four letters over the signature of the Minister of Forests were sent to First Nations leaders. These were letters of May 22, 1990, directed to Chief Jimmie Stillas of the Ulkatcho (Ex. 81, Tab 36); and to John Hanson, the administrator of the Chilcotin Tribal Council (Ex. 105, Tab 59); that of May 23, 1990, to Chief Andrew Harry of the Anahim Band (Ex. 105, Tab 62); and, that of May 24, 1990, to Chief Roger Jimmie of the Kluskus Band (Ex. 81, Tab 37). [292] Of these four letters only one, that to the Chief of the Anahim Band (a Band not central to the present litigation), was produced prior to trial and it only three weeks before the start of this trial. [293] On May 24, 1990, the Ulkatcho produced the Paish Alternative Logging Plan. Among its conditions were a 20% first pass volume restriction and a 20 hectare cut block size. From the outset it was clear to District and Regional staff that this plan was totally inconsistent and incompatible with Carrier's Development Plan, and, in fact, with Ministry policy. [294] On June 16, 1990, Chris Schmid, the District Harvesting Operations Manager, in an internal Ministry of Forests memorandum, makes the following note: Problem - as you are aware, Carrier has a licence to harvest plus minus 4 million cubic metres of wood in the Western Supply Blocks over the next three years (original term 10 years for 5 million cubic metres). With restrictions on amount of harvest being "imposed" on Beef Trail and most likely Corkscrew, Kappan and Holtry, I would like to review options. In addition I feel that priority for harvest should be dead Mountain Pine Beetle, not green wood. Solution - we need an inventory of what merchantable timber is left in the Western Supply Blocks that Carrier has not already included in their Development Plan. The attached map indicates these areas. Could you please give me a rough inventory of merchantable volume in areas outlined in red. [295] No explanation for the use of the word "imposed" was offered during the course of this trial but within days of this notation a Ministry briefing paper dated June 19, 1990, proposing and analyzing four options for increasing Native involvement in Forest Management was forwarded,. Although this document is stamped confidential it clearly found its way into the hands of the Ulkatcho as it formed the basis for Chief Jimmy Stillas' letter to the Minister on July 20, 1990, expressing the Ulkatcho's preference for options 1 or 2. [296] Throughout this period Carrier continued to work towards fulfilling the ongoing requirement of the Ministry of Forests. On June 25, 1990, Chris Schmid wrote to Carrier reporting that they had completed their preliminary review of Carrier's updated Development Plan. After pages of requests for the usual technical clarifications the letter ends on this note: BEEF TRAIL CREEK - We note no major alteration to the previously approved plan for this area. As you are aware, this area is very much subject to the concerns of the Ulkatcho Indian Band. Therefore, no comments on this area are offered pending the outcome of further discussions between the Ministry and this Band. [297] In the meantime very different events were happening. On July 30, 1990, Ron Reeves wrote to Carrier purporting to withhold approval for Carrier's current Development Plan for the Beef Trail Creek area. Two paragraphs of this letter are important: The Ulkatcho Band submitted to you their report entitled "An Alternative Approach to a Development Plan for Forest Licence # A20022 Within the Ulkatcho T.F.L. Application Area." This report was not precisely what was envisioned as public comment on a Development Plan, nor was it what was requested of this band. You should however consider it as comment on this Development Plan. . . . In view of this mounting input by this band, I wish to make it clear by this letter, that I will be unable to approve the current submitted Development Plan for the Beef Trail Creek operating area, or other areas to which these comments apply, unless you give recognition and consideration to these identified concerns. [298] The contents of this letter are quite remarkable when viewed in the context of Reeves written reply to the Ulkatcho on receipt of this same report two months before on May 29, 1990. At that time, he wrote: After a preliminary and cursory review of this report and maps I must advise you that it does not appear to meet my understanding of what was immediately required and what was discussed and agreed to by yourself and Noel Haynes. I had hoped that you would have provided a map with a specific alternate harvesting plan for the Beef Trail Creek operating area, with a few brief statements for the rationale for the plan relative to other forest uses and values within this area. It was only this Beef Trail Creek area about which you had recently expressed specific concerns regarding intensity and area of planned harvesting. . . . In the meantime, I reiterate that a specific plan, including maps, for harvesting in the Beef Trail Creek area, considering all the information and principles that you detail in the above report, would be welcome and would be given serious consideration as an alternative to the presently approved development plan for this area. [299] The final sentence of the passage quoted from the letter to Carrier to the effect that he will be unable to approve Carrier's Development Plan unless it recognized and considered the Ulkatcho's "identified" concerns is remarkable in light of Reeves full and admitted knowledge that those concerns were completely inconsistent with the Carrier plan and their operations. The explanation lies in the fact that it is part of a carefully calculated scheme to divert attention and lay the blame for the failure of this licence on Carrier. [300] In this same time frame the Forest Minister received Chief Stillas' letter of July 20, 1990, expressing their preference for a Forest Licence. The Minister's note to his staff directed that they get moving on it immediately. Those notes are dated August 2, 1990 and August 3, 1990. [301] Throughout the balance of August and into the fall of 1990 the situation with respect to the Beef Trail remained unchanged. In August, another window for construction of the bridge across the Tusulko opened and closed without any progress and a second year was lost. [302] On October 9, 1990, Paul Klotz, Carrier's Woodlands Manager, wrote to Ron Reeves in response to his letter of July 30, 1990. The letter was copied to Mike Carlson. The text of this response is worth setting out in full: Dear Sirs: RE: LICENCE A20022/ULKATCHO BAND We have your letter of July 30th, 1990. We do not understand the fourth paragraph on the first page, wherein you advise that you will be "unable to approve the Development Plan for the Beef Trail Creek Operating Area" unless we take into consideration the various native concerns you have set out. The Development Plan has been approved by your Ministry, and we specifically refer you to your letter to us of May 12, 1989. Pursuant to that letter, Carrier has an absolute contractual right and, in fact, a statutory obligation to log, pursuant to that Plan, in the Beef Trail. Although Carrier has gone and will continue to go to great lengths to address aboriginal concerns, this gesture of good will should not be construed by Carrier as a waiver of its rights. We are simply attempting, as good corporate citizens, to address in a constructive manner, the concerns of the Ulkatcho people. We are concerned however, that your Ministry has turned a blind eye to this situation, and now, in response to aboriginal pressure, wishes to undo a negotiated contract. We are also concerned that Carrier's economic interests are being totally ignored by your Ministry in this exercise. We ask that you not forget that Carrier has built an enormous infrastructure of sawmills, roads and mill sites in this region. The cost of this has been staggering, and has been deferred only in part by the initial harvesting of marginal, beetle killed timber. We did this to assist the Ministry in addressing a serious environmental problem that existed in the region. And we did this on the strength of your verbal and written representations that, starting in the fall of 1989 we would be permitted to harvest the more merchantable timber in the Beef Trail Area. It would be manifestly unfair and in fact a breach of contract, if your Ministry would now, retro-actively deny us access to the Beef Trail. We believe that the loss to this company would be fifteen to twenty million dollars for the Anahim operations. We are prepared to re-formulate our Development Plans, and in fact are even prepared to alter our strategy in the entire region to accommodate the Ulkatcho People. But in turn, we would want consideration from your Ministry for the loss that this company would incur. We are not hostile to negotiations with them in an attempt to resolve this issue. But your Ministry is blithely prepared to let Carrier suffer whatever losses may flow as a consequence of the Ministry altering its plans to accommodate the Ulkatchos. Although the Ulkatcho problem should be settled, and promptly, Carrier ought not to be the party to bear the burden of this settlement. That is the responsibility of both the Federal and Provincial governments, and, unfortunately, they seem but too eager to place this burden on the shoulders of private enterprise. We urgently require a meeting with you to discuss these concerns. Time is crucial here in that our Development Plan requires us to operate in the Beef Trail now and we will be in an undercut situation if this matter is not addressed immediately. [303] The language of this letter could not be more plain. It frankly and clearly sets out Carrier's position, openly alleges breach of contract and gives an estimate of Carrier's damages if they are not permitted to harvest the more merchantable timber in the Beef Trail at fifteen to twenty million dollars. It shows a level of candour that stands in stark contrast to the communications of the defendant. [304] The letter was sent to the District Manager and copied to the Regional Manager yet no written response was ever made, and there is no evidence or documents that suggest that the existence of that document was even made known to anyone up the chain of command. Given the way in which the Beef Trail and the Ulkatcho issues were being dealt with in Victoria at high levels I consider that possibility extremely remote. [305] Given the overall evidence in this case I find it much more likely that the documents have been suppressed. [306] On October 16, 1990, Paul Klotz and counsel met with Carlson and Reeves. During the course of that meeting Klotz advised Carlson and Reeves that they would be shutting down the Holtry Mill on December 1, 1990, and that they were prepared to shut down the whole operation. Two days later, on October 18, 1990, Carlson was in Victoria for a meeting between the Minister and the Ulkatcho at which the whole situation and Carrier's licence were discussed. It is inconceivable that Carrier's letter of October 9, 1990, was not discussed and that not a single document including even a draft reply was ever generated. [307] As events moved into 1991 the situation worsened with the Ulkatcho becoming more insistent that these "requirements" be applied to any harvesting in the Beef Trail. [308] On March 13 1991, the Ulkatcho Band Council wrote to the Regional Manager concerning Carrier's Development Plan. It is necessary, because of the importance I place on the events and correspondence that flowed from this letter, that the text of it be set out in full: Dear Sir, We are in receipt of your letter dated march (sic) 7th, 1991 concerning Carrier Lumber's Development Plan. We appreciate the spirit of cooperation which is being shown by yourself and your staff particularly those at the District level. We are continuing with meaningful discussions with Carrier Lumber Ltd. in our attempts to resolve our philosophical differences. The Band was not included in the referral process, so we have not had a chance to see the revised Development Plan. However we are very concerned that it may contain only minor modifications from the previous year. If that is so, we feel it is important you know before it is approved by MOF that the Ulkatcho Band along with the other members of the W.C.C.R.B. will be strenuously opposing it - for the following reasons, which are most clearly demonstrated in the Beef Trail Creek area: 1) The level of cut over the remaining three years of the license (sic) far exceeds the sustainable quantity. In fact in the Beeftrail (sic) Area it approximates 50% of the mature timber volume in an area where there is NO BEETLE KILLED TIMBER. 2) Within this Beeftrail (sic) Area there are several operational big game guiding licenses (sic) and trap lines. The cutting blocks - as shown on the Development Plan will effectively destroy these licenses (sic) which have been in existence and have been used operationally for almost 40 years. 3) The Beeftrail (sic) Area has provided the Bands food requirements in moose meat over the years. With the unrestricted extensive development of the area this traditional source of food will be lost through excessive hunting pressures. We are NOT against Development nor are we against logging. However we are strongly opposed to this Development Plan which clearly indicates, in our opinion, a lack of sensitivity for all of the other resource values. We would like to see a more detailed level of planning implemented - and an overall reduction both in the level of cut and in the opening size. What we are recommending is that no more than 20% of the mature timber in any given area be logged in a single pass. That optimum size of openings be 20 ha. That riparian areas be protected. That all logging roads be of restricted access and that access into areas of high wildlife values be severely controlled. This we feel would not only provide for a sustainable forest industry, but it would also protect all of the other resource values which are very appreciable. Thank you. (emphasis added) [309] It was clear to all in the Ministry of Forests that the "holistic" logging approach of the Ulkatcho was completely inconsistent with the mechanized approach to logging Carrier had adopted in this marginal timber area. It was equally clear that the Ulkatcho approach was not economically viable. [310] District Manager, Ron Reeves, in his evidence at this trial, put his opinion of this "holistic" plan in these words: Q And would you agree with me that these two guidelines, the 20 hectare cut block size and the 20 percent first pass volume, were totally inconsistent with Carrier's established logging plan? Or development plan I should say. A Not only that it was inconsistent with Ministry policy at the time and from resource management point of view was unlikely to make good sense. [311] Despite those widespread opinions within the Ministry and the specific opinions held by Ron Reeves he forwarded the Ulkatcho letter of March 13, 1991, to Carrier with the following covering letter: Dear Mr. Klotz: I have attached for your information, a letter recently sent by the Ulkatcho Band to the Regional Manager. It appears from this letter that the position being taken by the Band is somewhat more reasonable than their past position(s) with respect to planned harvesting in the Beef Trail Creek area. If the major issues remaining are actually only the size of cutblocks, the percentage of mature volume to be harvested (I believe the current development plan only identifes (sic) something slightly greater than 20% harvest,) and post harvesting access/hunting control, there may be grounds for imminent compromise and agreement. If you are agreeable, I would suggest that we consider a mutually agreeable strategy to meet with the band (whoever represents them; note signatures on letter) and discuss these apparent only issues of concern with Beef Trail Creek. I am prepared to commit whatever District assistance and resources are reasonable if they will help provide a solution to this apparent impasse. (emphasis added) [312] Without question the contents of the second paragraph of this letter are untrue insofar as they suggest that the Band is "somewhat more reasonable" and the suggestion that " . . . there may be grounds for imminent compromise and agreement" it in no way reflected Reeves actual opinion and belief. [313] If there is any doubt concerning that, and in my view there is not, it is laid to rest by the copy of the letter which was sent to the Regional Manager, Mike Carlson. While Paul Klotz and Carrier received the one page letter previously quoted and a copy of the letter from the Ulkatcho Band Council, Carlson received the one page letter and a second page. At the top of the second page, Reeves had written the following: !Mike: faxed this to Klotz & spoke to him on the phone about it. He's willing to try anything but is not optimistic. Says that during their ongoing "negotiations" with the Band they have been extremely unrealistic with their demands. He also points out that the people signing the letter of March 13 addressed to you, are a completely different set of people than those they have been discussing the joint venture with!! In any case I believe we should still call their bluff and offer them (most of) what they are asking for in their most recent letter. (emphasis added) [314] Beneath this note was reproduced a Larson cartoon which Reeves had altered as a comment on the Ulkatcho proposal. The cartoon shows a body slumped forward over a stockade wall with an arrow in his back and a note on the shaft of the arrow. On the stockade are standing two cavalry officers, one labelled Ron [Reeves] the other Chris [Schmid]. "Chris" in the cartoon is reading the note. The caption beneath reads: Good News! - they only want 20% harvest, access control & 20 ha. cut blocks. The dead body slumped across the stockade wall with the arrow in his back is labelled Bill Kordyban. A copy of the covering letter and the second page including the cartoon is filed with these reasons as Appendix "B". [315] During the course of his evidence Ron Reeves apologized and suggested that he meant no disrespect to Mr. Kordyban. With the greatest of respect, that is not the issue. What the second page including both the note to Mike Carlson about calling their bluff and the cartoon demonstrate is that Mr. Reeves had not the faintest belief in the words he had written to Carrier. In my view it clearly and unequivocally demonstrates the actions of a District Manager who is calculatedly and deliberately creating not a true and accurate record but one calculated to deceive and conceal the actions of the Ministry while at the same time laying the blame for any failure at Carrier's door. [316] If there is any doubt that the position taken by the Ulkatcho was a "bluff" one only has to look at events that have taken place in the Chilcotin since the end of Carrier's licence. This can be seen in the following extract from the evidence of Gerald Grant, the present District Manager for the Chilcotin Forest District, who from 1991 to 1993 held the position of Operations Manager for the same District: Q Now is the Ulkatcho logging under A55903 today in a manner that is consistent with the holistic forest guidelines that they presented in the spring of 1990? A If -- if you're referring to 20 percent removal and 20 hectare cut blocks? Q Yes. A It's -- it's not. Q Thank you. And the other joint venture that exists now is a joint venture consisting of three groups, the Ulkatcho as a one-third holder, CAT Resources, being a community based organization out of Anahim being a one-third holder, and Carrier being a one-third holder; that's correct? A That's as I understand it, yes. Q All right. And this joint venture operates today the mill at Charlotte, owns and operates it? A That's my understanding, yes. Q And this joint venture today is harvesting timber in the Beef Trail; correct? A Certainly they have -- they have been last winter and will be -- you know, they're not harvesting anything today, certainly all winter they were up there, yes. Q All right. And in the harvesting that it is -- has been doing recently, last year for instance in the Beef Trail, has this joint venture been applying the holistic guidelines of Mr. Hammond and Mr. Paish? A I don't believe they're practising anything close to that. (Trial Transcript, March 31, 1998 p. 2116, l. 29 to p. 2167, l.9) [317] The level of duplicity being practised by senior officials of the Ministry of Forests finds clear expression yet again in a draft letter prepared by Ron Reeves for the signature of Mike Carlson. The letter which is addressed to Chief Sill of the Ulkatcho includes the following two paragraphs: In the meantime, as I pointed out in my letter of March 7, time is running out for the Forest Service to give final approval of the development plan for this forest licence. In fact, the District Manager has now approved in principle the majority of this plan. Only the Beef Trail Creek operating area remains subject to final approval. I see it as a positive indication that only a few specific items are still to be resolved. This development plan has been referred to the Ministry of Environment. This agency will be (sic) also be commenting on each proposed cut block and the effect it will have on the water resource or wildlife wetland habitat, prior to the issuance of cutting permits. Your remaining concerns regarding the percentage removal of mature stands, the size of cut blocks and access control, are items which are open for discussion on a site specific basis. (emphasis added) [318] This draft clearly conveys to the Ulkatcho that Carrier's plan for the Beef Trail has not been approved and that the Ministry is still prepared to discuss their concerns. The fact that the Ministry is openly encouraging the Ulkatcho while excluding Carrier despite the fact that they know that the Ulkatcho's proposals are not "operationally feasible" is evident from Reeves' note to Carlson on the draft: !Mike: This is a desparate (sic) 11th hour proposal about which I am not that optimistic but see little to be lost. We have decided to approach this issue between the Band and the Forest Service. The negative vibes we are getting from Carrier may well be infectious at a meeting with the Band and may thereby preclude any reasonable compromise. We are working on a GIS type map to defend and hopefully sell the percentage of harvest they say they will accept. Access should be no problem as long as we can gain F&W's cooperation. "Riparian zones" are a red herring hopefully. 20 ha. cutblocks, while not operationally feasible or necessary in all areas, have downsides in terms of additional access req'mts. and more developed area which we may be able to sell to the band if we can get into any serious specific discussions. Major task will be to actually get them to discuss specifics and to find the individual who can and is willing to made a decision for the band. [319] The encouragement provided to the Ulkatcho bore further fruit. In April they sought to apply their "holistic" requirements to the Corkscrew, a proposed logging area to the east of the Beef Trail and in early May they indicated that they wanted them applied to the areas of Holtry Creek, Charlotte Lake East, Corkscrew Creek, Kappan Creek, and the Hotnarko River. [320] The beginning of May 1991 was an interesting time, when a number of key events began to merge. One of those key events was the dispute with the Nemiah Indian Band which had been dormant since December of 1990. 7.2.2.2 THE NEMIAH TRAPLINE [321] The traditional territories claimed by the Nemiah Indian Band lay within the southern part of the Tatla supply block. In the fall of 1989, Carrier had prepared the necessary documents to obtain Cutting Permit 106 (CP 106). The area covered by this cutting permit lay within the Nemiah Indian Band's trapline area. [322] On April 18, 1990 an action was commenced in Victoria which sought a declaration that the aboriginal right to trap took precedence over harvesting rights granted in the area. This issue came to a head in December 1990 with the band applying for an injunction to prohibit Carrier logging in the area of CP 106. [323] The Crown declined to issue CP 106 and as a result Carrier agreed to look elsewhere for its timber. A consent order was entered into on December 17, 1990, adjourning the Band's injunction application on Carrier's undertaking to close its access road to the area and to give the Band or its counsel 3 months notice of its intention to seek cutting authority in the area claimed by the Band. [324] At the time that this temporary resolution was reached Carrier was aware that the Crown had declined to issue the cutting permit and that an alternative source of wood for the time being had been found. What Carrier was not aware of and remained unaware of until three weeks before the start of this trial was that Ron Reeves had sworn an affidavit which had not been filed at the time the consent order was agreed to. Reeves, in his affidavit, effectively supported the Nemiah application. Paragraph 3 of his affidavit reads: 3. Carrier has applied for authorization in the nature of a Cutting Permit, which has been assigned an administrative number, i.e. "Y06" by the Ministry to harvest timber. . . . Such authorization has not been granted. There is no present intention to grant authorization. In the absence of authority from the Ministry, cutting cannot take place legally. [325] On May 6, 1991, Carrier issued the written three months notice contemplated by the consent order. The delivery of this notice resulted in a briefing note from Reeves to the Assistant Deputy Minister, Wes Cheston. 7.2.2.3 THE BRITTANY TRIANGLE [326] With the completion of the initial review of Carrier's 1991 Development Plan, Reeves approved, on March 4, 1991, Carrier's plans for the Brittany Triangle. In order to deliver this wood to the Tatla mill, Carrier needed access by means of the Henry's Crossing Bridge across the Chilko River. On July 4, 1991, Reeves was advised that the bridge could not safely be used by off-highway logging trucks. [327] Reeves' immediate response makes clear both the problem and the reasons for their concern: Subject: HENRIES CROSSING BRIDGE This is not good news. Off Hwy. haul was an up front component of the bid proposal the Ministry accepted for this Forest Licence in 1983 and Carrier will be pressing us for this component of the operation. Worse still, this bridge is a critical link to the highest priority wood remaining to be harvested on the licence. The dev. plan volume for this area is 335,000 m3 and we see it to be the area where we would like to see the shortfall +- 500,000 m3 found. We will be following up with a request for a proposal to upgrade a bridge which has never seen a load of logs over it in its 17 year existance! Time is of the utmost importance here. Carrier's plan calls for rebuilding & degazetting of hwys portion of the access west of the bridge and immed. construction of road east of bridge; there is less than 2 1/2 years remaining on this Forest Licence. RON REEVES, District Manager Chilcotin Forest District [328] Only the day before Reeves had painted a black picture of the prospects of Carrier finding the full volume of wood in the time remaining on its licence. In a memorandum to A.K. Balaski, the region's Staff Manager, he wrote: Re: Update on Carrier Lumber-Ulkatcho Issue As requested, I have reviewed our September 12, 1989 report. The situation as summarized at that time in your covering memo to W. Cheston remains basically unchanged with only the following modifications: 1. A revised development plan for the Beef Trail Creek area will be approved by July 15, 1991. This amended plan will take into consideration the several recommendations and comments submitted by the Ulkatcho Band in their letter dated March 13, 1991 and will address the hydrological issues recently raised by the Blackwater Ootsa Community Association. The volume available in this soon to be approved plan will be approximately 800,000m3 rather than the 1,400,000m3 identified in the earlier development plan. 2. Negotiations continue between Carrier Lumber, Ulkatcho/Buffalo Head and between the Ministry, Ulkatcho for harvesting tenure in the Beef Trail Creek and other areas adjacent to Anahim Lake. It is unlikely that the Indians and their local support groups will accede to Carrier's harvesting in Beef Trail Creek area until this tenure issue is resolved. 3. Approximately 94,000m3 in the Eagle Lake area is presently unavailable to Carrier Lumber due to the threatened litigation by the Nemaiah Indian Band relative to their trapline. 4. In Carrier Lumber's 1991 development plan update, an additional 76,000m3 was proposed in the area south of Choelquoit Lake. This area will also be given conditional approval by July 15. It should be noted however that resource use conflicts are expected in this area and that it too is within the Nemaiah Indian Band trapline area. 5. The 335,000m3 of generally high priority wood planned in the Brittany Creek development area is currently in limbo due to the present uncertainty of the condition/capacity of the Henry's Crossing bridge. These constraints on volume availability compound the essence of the problem outlined in the 1989 report. My staff estimate a total licence shortfall of between 500,000 m3 and 1,000,000m3 dependent on the outcome of these various issues. This is based on Carrier's current, and final development plan for this forest licence. (emphasis added) [329] The wood from the Brittany Triangle was scheduled for the summer of 1992 and everyone knew the importance of gaining access to that area. Through a series of detailed planning sessions the reconstruction of the bridge was scheduled for the first available fisheries "window" at the beginning of May 1992. The Ministry was well aware that this wood supply was necessary to allow the Tatla Mill to operate beyond September of 1992. [330] On May 6, 1992, work commenced on the bridge at Henry's Crossing with the removal of the decking from the bridge. The next day, on Thursday May 7, 1992, members of the Nemiah band blockaded the project preventing further work on the bridge and leaving it in a partially dismantled and dangerous state. [331] Attempts were made to resolve the issue by both Carrier and the Ministry. Carrier's proposal to pursue a joint venture was rejected with the Nemiah presenting a counterproposal. The standoff and the urgency generated a series of briefing notes from Ron Reeves to Wes Cheston, Phil Halkett, Mike Carlson and finally to the Premier, Mike Harcourt. The urgency is made apparent from an extract of the briefing note sent to Wes Cheston: The condition of this bridge necessitated its replacement in order that approximately 400,000m3 of volume could be accessed by Carrier Lumber Ltd. who hold a forest licence in the area. This planned harvesting was included in a Development Plan finally approved in March 1991. The urgency of the requirement for this volume to sustain production of Carrier's Tatla Lake mill led to a recent meeting with, and subsequent extraordinary approval by the Department of Fisheries and Oceans and the Ministry of Environment, Lands and Parks, for the replacement of this bridge during the period of May 1 - May 10, rather than the normal period of July 15 - August 1. A contract has been let for the bridge replacement which is currently underway. A 50 - 50 cost sharing agreement between the Forest Service and Carrier Lumber has been arrived at to facilitate this urgent bridge replacement. [332] The briefing note directed to Phillip Halkett presented a series of three options for consideration. The first of these options was to "accede to the Indian's apparent underlying demand that there be no harvesting in what they claim as their traditional territory pending further discussions . . ." [333] The negative implications of this option identified within the briefing notes were the following: Negative: - Carrier Lumber Ltd. would have to be refused issuance of road permits and cutting permits in the area accessed by the bridge. (Legal authority for such refusal is not evident considering the Forest Licence is in good standing and there is an approved development plan in place.) - The Ministry would incur all costs of bridge replacement, (approximately $200,000 as opposed to $100,000) subject to an existing cost sharing agreement, if harvesting approval to Carrier Lumber was delayed. - The 300,000 m3 of high priority mountain pine beetle timber salvage proposed by Carrier Lumber would be in jeopardy of not being wholly utilized given the ongoing deterioration of the stands. - This course of action may be seen by Indian Bands as further indication that physical blockades will result in Indian's demands for resource control being met. - A further substantial volume of high priority salvage volume would continue to be unavailable for utilization by other potential harvesting tenure holders. - The wood supply to Carrier Lumber's Tatla Lake mill would be jeopardized. No replacement volumes are on stream or have been identified to satisfy the continued operation of this mill for the term of the Forest Licence. A considerable number of changes and concessions with respect to amendments to Carrier Lumber's development plan have been made and are ongoing. All options for suitable replacement volume attributable to this mill have been considered. A mill shutdown for an indeterminate period is inevitable. - Any additional inpediment (sic) delay and costs added to those already incurred by Carrier Lumber could result in an immediate surrender of this non replaceable Forest Licence. Such precipitous action on the part of the licencee would result in a major economic blow to the Chilcotin region, including the eventual loss of an estimated 100+ jobs. (emphasis added) [334] In the briefing note prepared for Premier Harcourt, the background to the dispute is summarized including the six demands being advanced by the Nemiah. Those demands as set out in the body of the briefing note were: 1. No logging will proceed in the disputed area without the written consent of the Nemiah Indian Band. 2. All conditions of logging will be set by the Nemiah Indian Band on a sustained yield basis. 3. The share in any joint venture company would be 60% Nemiah Band and 40% Carrier Lumber Ltd. and could not prejudice future land claims. 4. Any logging would have to be labour intensive with at least 60% of the work force being comprised of Nemiah Band members. 5. Carrier Lumber would have to provide assistance with the purchase of equipment required by Band members. 6. All silviculture contracts must be given to Band members. [335] The two options presented to the Premier were as follows: IV OPTIONS: OPTION 1 Repeat in writing, the offer by the Forest Service not to issue road building or harvesting authority in the disputed area until resolution of the joint venture proposal. Implications: Requires the agreement (implicitly provided) by the forest licence holder as there is no legal authority provided for such a decision since Carrier has a valid forest licence and approved development plan. This offer would reiterate and reinforce the offer already made by the Forest District as a reasonable and credible offer, which would solidify relations between District Forest Service staff and the Indian Band. May well not be accepted by the Band which would result in a continuation of the existing stalemate with respect to completion of the bridge repair. Significant further delay (more than a month or so) in resolution of this issue will affect the ability of the forest licence holder to harvest a significant volume of high priority timber and may jeopardize in the longer term (approximately 6 months), the continued operation of the Tatla Lake mill creating attendant job loss. OPTION 2 Accede to the Indian's demands for control of the area in question which would result in no harvesting, either by Carrier Lumber Ltd. or any other non-Indian licensee, being undertaken in the area in dispute. Implications: Would set a dangerous precedent with respect to many other Indian Bands with similar demands. It would be expected that logging in traditional areas would be halted as a result of road blocks or other demonstrations. Would almost certainly result in a premature termination of Carrier Lumber's Tatla Lake milling operation. There is simply no other suitable volume available to replace this high priority volume. V RECOMMENDATIONS: Option 1. (emphasis added) [336] On May 13, 1992, Premier Harcourt accompanied by then Minister of Forests, Dan Miller, and then Minister of Economic Development, Small Business and Trade, David Zirnhelt, and others, met with the Tsilhqot'in Chiefs at the airstrip at 108 Mile. [337] The events of this meeting would have enormous repercussions to Carrier and potentially to the whole Province of British Columbia. [338] It is clear that during the course of this meeting Premier Harcourt promised the Nemiah people that there would be no harvesting in their traditional territory without their consent. The fact that this commitment was given is not even disputed, indeed, in a case marred at every turn by issues of document disclosure the documents on this point clearly and unequivocally demonstrate that this commitment was made. [339] The significance of that commitment was lost on very few of those in attendance at the meeting or who learned of it after the fact. [340] The next day the scope of the Premier's agreement was documented in a memorandum forwarded by Minister David Zirnhelt to a number of his colleagues. The memorandum reads: DATE: May 14, 1992 FROM: The Honourable David Zirnhelt Minister of Economic Development, Small Business and Trade To: The Honourable Dan Miller Minister of Forest The Honourable Andrew Petter Minister of Aboriginal Affairs The result of the meeting of the Premier, myself and the Tsilhqot'in Chiefs is as follows: The Premier Agreed that: 1. The Minister of Forest will send a letter to the Nemiah Valley Indian Band stating that no cutting permits or road building permits will be issued unless agreed to by the Nemiah Valley Indian Band. (This is option 1 of the Briefing Note) We understand the Band has agreed to allow the bridge replacement to go ahead once they receive the letter from M.O.F. 2. A facilitator be appointed to bring Nemiah Valley Indian Band and Carrier together to resolve the joint venture issue, prior to the meeting with Tsilhqot'in Chiefs on May 25th, i.e. to determine if a deal is possible. 3. The Ministry of Forests and the Ministry of Aboriginal Affairs are to prepare options for the Tsilhqot'in Nation involvement in forest and resources management for discussion at the May 25th Meeting. The Premier indicated that C.O.R.E. would be part of the regional planning process for the Cariboo Chilcotin involving Tsilhqot'in people, and further that joint forest management options should relate to C.O.R.E. activities respecting integrated resource management, i.e. in addition to the protected areas. I am enclosing a copy of the Tsilhqot'in Chiefs proposal. 4. We will have to act fast as the Premier has told the Tsilhqot'in Chiefs he expects the May 25th meeting to produce results. 5. It is absolutely essential that staff of the provincial departments and Tsilhqot'in Nation refine the agenda for the May 25th meeting. cc: The honourable John Cashore, Minister of Environment Steven Owen, Commissioner, Commission of Resources and Environment. [341] First and foremost, the commitment given by the Premier, was not Option 1 on the briefing note (at least not on the briefing note produced in evidence at this trial.) Option 1 on the briefing note contemplated an agreement that no road building or harvesting authorities would be issued "until resolution of the joint venture proposal . . .". a requirement for the consent or agreement of the Nemiah Band is, with respect, something quite different. [342] In a single statement any remaining hopes of Carrier harvesting their full volume in the time remaining on their licence were dashed, but the significance of that event pales in comparison to the other implications. [343] A measure of the seriousness with which this commitment was greeted by those knowledgeable both in and out of the Ministry can be found in the reaction of Phillip Halkett, who had held Deputy Ministerial posts in various Ministries in the Provincial Civil Service since 1987 including two terms as Deputy Minister of Forests, a post he held at the time of this meeting. In Mr. Halkett's sworn evidence he gave the following answers: 701 Q And here in Mr. Zirnhelt's letter, this memo, you see the following, paragraph 1 of his May 14th, 1992 memo: "The Minister of Forests will send a letter to the Nemiah Valley Indian Band stating that no cutting permits or road building permits will be issued unless agreed to by the Nemiah Valley Indian Band." I would suggest to you, Mr. Halkett, that that is a very significant departure from the law as it is spelled out in the Forest Act? A Correct. 702 Q That being a very experienced civil servant you would have, I'm sure, seen that immediately upon reading it, you would have appreciated the effect of that? A Correct. 703 Q And you are now presented with a situation where the Premier and a Minister of the Crown have made such -- apparently made such a statement to five Tsilhqot'in Chiefs? A Correct. 704 Q What was your reaction when you saw that? A In polite society? 705 Q Yes, yes. A The Premier had no authority to make that promise. 706 Q Did you appreciate when you read that, that that could place the Crown in a position that it would be unable to fulfill its obligations to provide timber to Carrier Lumber under A20022? A That was not the first impression that came to my mind. 707 Q What was the first impression? A You cannot by verbal statement transfer lawful authority to an Indian Band, you cannot -- another way of putting the same thought is you cannot by ministerial statement by any Minister transfer jurisdiction from the Provincial Crown. 708 Q Yes. A Now road building, authorization to hunt animals, mining claims, access to water resources, access to any type of resources, we happen in our conversation to be talking about trees, but the implication of the statement is that we had just transferred jurisdiction of Crown land, what we considered Crown lands, to the Nemiah Valley Indian Band, and that -- 709 Q Yes? a And with -- and you cannot do that on the authority of any person, even if that person is the Premier. [344] From this remarkable evidence we turn to the equally remarkable attempt at "damage control" which followed the meeting of May 13, 1992. [345] The Ministry was instructed to act quickly as the Premier expected the May 25, 1992, meeting to produce results. [346] On May 21, 1992, Forest Minister Dan Miller forwarded the letter promised by the Premier's agreement. By this time the implications had been brought home to him, and the letter reflected the option 1 joint venture language and not that of the statement actually made by the Premier. Any hope of a confrontation on this issue being avoided was quickly dashed along with any possibility that the Native leaders had missed the implications of the Premier's statement. [347] In a briefing note prepared for Ministers Miller, Zirnhelt and Petter on May 22, 1992, the following report is made: 1) The letter the Minister of Forests sent to the Nemiah First Nation has been rejected because it failed to state that no cutting or road building permits would be issued unless agreed to by the Band. The Minister of Forests letter was based on an earlier briefing note that indicated that . . . "the Forest Service [is] not to issue road building or harvesting authority in the disputed area until resolution of the joint venture proposal." The facilitator appointed to address the joint venture issue believes that this event has diminished the chance for the Tsilhqot'in First nation to accept the proposals regarding joint stewardship process, etc. to be offered at the meeting. 2) The facilitator suggested by the Nemiah First Nation has been hired and has met with the interested parties to discuss a potential joint venture with Carrier Lumber Ltd. The facilitator has arranged for a meeting on May 28 and 29, 1992 between the Nemiah First Nation, Carrier Lumber Ltd., and Forest District Managers and staff to discuss the specific development plan and joint venture. This meeting will now take place at the blockade. [348] On the narrower issue of the impact of the Premier's commitment on Carrier's ability to reach a resolution with the native bands, it is put succinctly by the appointed facilitator, Gordon Erlandson, in a May 21, 1992 update in these words: Erlandson has met with both Nemiah Band and Carrier Lumber and has initiated his mediations for an eventual joint venture agreement. Both parties seem willing to work toward a resolution at this time. The Band however has made it clear that they have expectations for a more advantageous offer from government resulting from the scheduled May 25 meeting between the Chilcotin Tribal Council and Ministers Miller and Zirnhelt. Further discussions will only take place after that meeting. [349] As the meeting in Victoria was convened on May 25, 1992, the Premier was conspicuously absent. Ministers Miller and Zirnhelt together with various Tsilqhot'in Chiefs. The difficulty faced by the Crown and the strength of the First Nation position is evident from the various minutes. While none of then purport to be a verbatim record, the Forest Minister is attributed in Ron Reeves notes as stating that: I don't have legislative mandate to give away my decision - making responsibilities and Mr. Harcourt's agreement was his sincerity of intention to negotiate in good constructive ways . . . [350] While the sincerity of intention and purpose may have applied to the Premier and the Crown in their dealing with the First Nations people no such sincerity can be seen with respect to the interests of Carrier Lumber. There seems to be no recognition or expression during those dealings of the fact that the Crown had issued a licence to Carrier, that they had approved Carrier's Development Plan, that Carrier had a right to log in that area, and that there was no other place for Carrier to go to achieve the volume authorized by A20022. [351] This incident is, in many respects, similar to the incident with Ron Reeves at the commencement of the Ulkatcho blockade when he expressed the view that comments he made on videotape, if taken out of context, "may be misleading or worse". Once again a commitment had been made which at its most charitable was totally contrary to Carrier's interests, and for reasons identified in the briefing note. This time, however, it was not the district manager, it was the Premier of the province speaking to a group of First Nations people. A group of people who by their heritage and tradition carried a particular view of the position of the Chief. [352] Once again, as in the first incident, no serious or adequate attempt was made to openly correct what was considered by some to be a major mistake on the part of the Premier, instead his ministers were trying to minimize the commitment made by the Premier. [353] On June 3, 1992, the Forest Minister took his show on the road flying with much of his senior staff to the Puntzi Tanker Base before travelling to Alexis Creek where he met with the Tsilhqot'in Tribal Council before returning to the Puntzi Tanker Base where he met with Carrier and representative of the Ulkatcho. [354] The next day, R.S. Friesen, by memorandum, directed Reeves to prepare a briefing note evaluating a "log around" strategy. The text of this memorandum reads: To: Ron Reeves From: Corporate Policy and District Manager Planning Branch Chilcotin Forest District Date: June 4, 1992 Our File: 10450-20/NEMAI Your File: Re: Chilcotin Tribal Council/Nemaiah Band Please prepare a Briefing Note, for decision evaluating a log around strategy for the disputed triangle area. The term of the log around would be six months and the objective is to prepare an IRM plan in cooperation with the Nemaiah Band during that six month period. It may be useful to consider two viewpoints: (1) no harvesting, no road building, no bridge building; (2) [no] harvesting, no road building, but with bridge reconstruction to our specifications. Please ensure the implications cover the general Chilcotin situation as well as our forest management objectives. Thank you for your assistance. R.S. Friesen Director [355] It is clear on the whole of the evidence that the direction contained in this memorandum emerged from the meetings the day before. The facsimile transmission header on the document indicates that it was transmitted to Reeves at 12:41 on June 4, 1992. In a remarkable display of speed and efficiency Reeves transmitted his first draft of not one, but two, briefing notes to Carlson for his comments at 16:06 (or 4:06 p.m.) the same afternoon. The first deals with the log around strategy, the second with the suspension of Carrier's licence. [356] The covering note to Carlson reads: This has not gone to Friesen yet. Note that none of the options help Carrier much. Hence, the second briefing note which should have some implications included (?) your thoughts (?) [357] Both of these draft briefing notes were a particular class of briefing note. Part I reads, in each case, "Prepared for the Honourable Dan Miller, Minister of Forests, for decision". Each on its last page bears the line and signature block in two locations for the Minister's signature approving or not approving the recommendation. [358] On the next morning the two briefing notes were forwarded to Victoria with a covering note from Reeves: Carlson has reviewed & approved in principle. [359] What is important about these documents is that the decision making process with respect to the suspension is now connected directly with the log around strategy and the certainty that with the recommended deferral of harvesting in the Brittany Triangle Carrier could not be provided with the full volume of wood. [360] It is important that in this instance we have a series of drafts which show the evolution of this briefing note and the linking of these two issues. [361] In Reeves first draft under the heading of Implications, the consequences of the log around strategy to Carrier are clearly identified: Carrier Lumber Ltd. requires approximately 30 thousand cubic meters a month to operate the Tatla Lake sawmill. Excluding the Brittany area, there is approximately 250 thousand cubic meters presently approved for cutting. However about one third of this timber is in very poor quality stands and may not be economically feasible to harvest. If all of this timber proves harvestable, these approved permits will allow the mill to continue to operate until January 1993. Should this timber prove to be uneconomic to harvest, the mill will not be able to operate on wood from this licence beyond the end of September, 1992. The Tatla Lake mill will therefore require a minimum of 120 thousand cubic meters to a maximum of 200 thousand cubic meters from the Brittany area to permit operation through breakup 1993. To access either volume of timber, Carrier must construct 32 kilometers of main road and a similar length of operational road. These roads should be useable in the Winter of 1992/93. All options for suitable replacement volume tributary to this mill have been considered. There is no other timber available to replace the volume from the Brittany area. [362] Returning to Reeves' initial covering note to Carlson its significance is apparent, none of the available options help Carrier "HENCE" the second briefing note. What is apparent here is that the Ministry of Forests has concluded that in the circumstances they could not provide Carrier with the required volume under A20022. They no longer required Carrier because the mountain pine beetle population had been largely eliminated and Carrier had completed establishing the infrastructure and milling capacity which makes the harvesting of timber in the region viable. It is time to be rid of Carrier on terms that lay the blame for that failure at Carrier's door. [363] These inferences flow clearly, in my view, from the available evidence and documents. The difficulties and potential shortfall which had been well known to the Ministry since September of 1989 had become more likely as the Ulkatcho situation dragged on and it became apparent that access to the Beef Trail could not be obtained. This "likelihood" became a certainty after Premier Harcourt's remark to the Tsilquot'in Chiefs and the hardening of the Nemiah's position with respect to the Brittany Triangle. The Ministry was faced with at least a six month deferral of logging in the Triangle and the clear evidence that the Tatla mill would be forced to close with all of the attendant publicity and loss of jobs. [364] It was time for damage control and a plan to divert attention. In my respectful view these briefing notes demonstrate nothing less than the evolution of that strategy in a Ministry that was cynically prepared to use Carrier when it suited them and to sacrifice them when it was in the Ministry's interest. [365] This is nothing more and nothing less than another part of the Ministry's attempt to alter reality and protect their own positions. It is part of an overall scheme which included the writing of self serving and demonstrably untrue memos and correspondence, the holding of "secret" meetings without the knowledge of key and materially interested parties and the suppression and withholding of key documents which would fully reveal their conduct. [366] The evolution of the strategy and the development of the suspension as a part of the solution is seen in the draft that Bob Friesen sent by facsimile transmission to Carlson on June 9, 1992, with the request that Carlson read it ASAP and call him. [367] The attached draft merges Reeves two briefing notes into one. A new "spin" has been generated. Friesen's grasp of the facts is limited but the new spin is quite evident: Carrier employs some 400 people in harvesting and in the sawmill, they have a non-replaceable forest licence which runs to December 1993. Carrier Lumber Ltd. has not been living up to its silviculture obligations and their licence may be suspended. The resource issues, nevertheless, need resolution. [368] The third option which now forms part of a single briefing note (and that recommended in the draft) is: 3. Suspend Carrier operations (with bridge ahead). Suspend Carrier's Licence when they run out of suitable fibre (approximately September, 1992), with Forest Service reconstructing the bridge, and allow the mill to close. Advantages:  This will enable planning in the disputed area to proceed paving the way for future salvage operations.  The deferral on logging will enable the bridge to be reconstructed, but at a cost of $ to the government which may be recoverable from a licencee holder in the future. Disadvantages:  May send a signal that we are prepared to sacrifice licences in conflict areas.  Loss of 400 jobs earlier than planned. V. RECOMMENDATIONS: Option 3. Stress the silviculture problems, not the blockade. APPROVED NOT APPROVED Honourable Dan Miller Honourable Dan Miller Minister of Forests Minister of Forests (emphasis added) [369] After discussions with Carlson on June 9, 1992, which I find despite Carlson's recollections did take place, Friesen's next draft is transmitted to Ron Reeves at 10:55 a.m. on June 10, 1992. Key portions of the draft have been modified and the "spin" to support sacrificing Carrier is being refined: Carrier Lumber Ltd. has a non-replaceable Forest Licence which runs to December 1993 and employs some 400 people in harvesting and in two sawmills. Carrier, contrary to law, has not given the assurance that they accept their silviculture obligations. The resource issues, nevertheless, need resolution. [370] The fact Carrier's licence is non-replaceable and will soon end has now been moved to the fore and Carrier is now being described as acting "contrary to law": 3. Suspend Carrier operations (with bridge ahead). Suspend Carrier's Forest Licence now because of their failure to accept silviculture obligations, with Forest Service reconstructing the bridge. Advantages:  This will enable planning in the disputed area to proceed paving the way for future salvage operations.  The absence of a licensee will enable the bridge to be reconstructed, but at an additional cost of $100,000 to the government.  Allows government to avoid a log around or deferral. Disadvantages:  May send a signal that we are prepared to sacrifice licences in conflict areas.  Loss of 400 jobs earlier than planned.  Should Carrier make good on the silviculture obligation issue, this option fails to deal with the bridge/planning issue. V. RECOMMENDATIONS: Option 3. Stress the silviculture problems, not the blockade. [371] Option 3 has continued to evolve the recommendation being put forward for the Minister's approval is now the immediate suspension of Carrier's Forest Licence with the reason (because of their failure to accept silviculture obligations) being added in. Under advantages the deferral on logging has been deleted and it is now "The absence of a Licensee . . ." which will enable the bridge to be reconstructed. The third advantage now added puts forward the proposition that this allows the government to avoid a log around or a deferral. Finally, we have added to the disadvantage category the recognition of a problem if "Carrier makes good on the silviculture obligation issue . . .". [372] The answer to the disadvantage of sending a signal that they are prepared to sacrifice licencees in conflict areas is found in Friesen's recommendation "stress the silviculture obligation problem, not the blockade". [373] This is a strategy which the Ministry adopted with alacrity and has maintained throughout this trial, it is a strategy designed to obscure the real events, and try to minimize the fact that they were prepared to sacrifice Carrier to leave themselves and the government an open field to deal with the aboriginal issues. [374] It is clear that the evolution of this briefing note was a matter that was treated as being urgent and that it was the product of a collaboration between Friesen, Carlson and Reeves. Significantly, not one of the advantages identified under Option 3 relates to the silviculture issue. [375] At this point the trail of the briefing note ends. Despite all of the urgency so evident and the effort put into completing it, no final version which would have gone to the Minister was produced. Two aspects of this evidence touch directly on the credibility of Mike Carlson, in his evidence at this trial Carlson maintained that other than providing his comments to Reeves initially he didn't have any part in developing this briefing note. The second aspect is that Carlson throughout his evidence maintained that he was the person who made the decision to suspend that he had obtained legal advice in 1991 and that he knew that it was his decision and no one else's. During the course of his evidence the following exchange took place: THE COURT: We will do that momentarily, Mr. Byl. Mr. Carlson, I want to clarify something, if I may. Do you still have Exhibit 113 in front of you? A Yes, My Lord. THE COURT: Could you please have Tab 162 and 163 before you. A I have them My Lord. THE COURT: Now on several occasions this morning you told me, and I'm paraphrasing, I haven't got your words exactly, that you were not involved in the preparation of this briefing note, do you recall saying that? A Is what I was referring to , My Lord, if I can clarify, is I saw the briefing note under Tab 162, provided my comments I believe to Mr. Reeves, and that's the last I ever saw of the issue. THE COURT: There's no -- I just wanted to clarify that because there's no question you did that, at least that much? A There's no question I did that. THE COURT: The cover note on Tab 162 directs your attention to it and asks you to call Bob Friesen, and I take your evidence to be that you can't recall whether you did that or not, but your best recollection is that you faxed your comments to Ron Reeves, do I have that? A My -- my testimony I believe was I don't recall calling Mr. Friesen. I'm drawing the conclusion that I probably faxed my comments to Mr. Reeves because that's the only way that I can explain that Mr. Reeves' comments would be written on the same copy as mine. THE COURT: I understand that. But you don't have any recollection of calling Mr. Friesen, but you don't deny that you may have done that? A That's correct, My Lord. And as I indicated in the normal course of events if I was in my office I would have -- and I received a request like that, I would have phoned Mr. Friesen. THE COURT: And over the course of the last I'm sure very long seven days for you, or eight days, approaching eight days, you have told me in this courtroom very strongly that the decision to suspend Carrier's licence was yours and no one else's and you made that decision? A That's correct, My Lord. I had advice from my counsel in the fall of 1991 that that's exactly the role I had to play, and in fact I believe we even advised Carrier that the decision would be at my sole discretion. THE COURT: Now what puzzles me, Mr. Carlson, and I would like your comments on it is at Tab 162, which you undoubtedly saw, you have a briefing note with your handwritten comments all through it, or I shouldn't say all through it, but on each page of the document which concludes by recommending, whether it ever went to him or not, to the Minister of Forests for his decision Option 3 on this briefing note. If you turn to page 4, Mr. Carlson, what is Option 3? A Suspend Carrier operations with bridge ahead. THE COURT: I've read very carefully your notes on this Tab 162 document, I don't see anywhere a comment that that isn't a decision for the Minister to make, or anything remotely touching on that, do you see such a note? A No, I do not, My Lord. THE COURT: Can you explain to me why if you were so focused on this being your decision and nobody else's why you wouldn't have reacted to that? A I have no -- no specific recollection, My Lord, and I indicated that previously in the discussion where there was the two briefing notes. I -- I can only speculate that I may have had discussions. I have no recollection of discussing it with -- I can sit here and honestly say I knew that was my decision then, and I knew that it was only my decision. THE COURT: Then why did you participate in the process of preparing a briefing note that's going to the Minister for him to apparently consider that recommendation? I'm sorry, Mr. Carlson, I just don't understand why would you do that. Can you help me with that? A Not having any recollection of any discussion I can't offer any help, I'm sorry, that's -- [376] I have earlier commented on difficulties I had with Mr. Carlson's evidence and his credibility. Putting it as plainly as I can, I simply don't accept his evidence on these two points. Indeed, his evidence on these two aspects of this action is so distinctly out of harmony with the preponderance of probabilities as to stretch credulity beyond the breaking point. Mr. Carlson would have me believe and accept that having been concerned enough in the fall of 1991 to request and obtain a legal opinion that the decision to suspend Carrier's licence by statute fell within his sole discretion and that he would never permit anyone to interfere with it, he then participated in the drafting of a briefing note which he read over, added comments on and then, in Reeves' words, approved in principle. I am well aware that Carlson has testified that he did not participate beyond reviewing the first draft, evidence which I specifically reject. The difficulty with that evidence is that even in the first draft that he admits to reviewing the issue of suspending Carrier's licence is, by that briefing note, referred to the Minister, for decision. [377] The recommendation could not be clearer; that section of the first draft reads: V. RECOMMENDATION: Option 1: Instruct the Regional Manager to suspend Forest Licence A20022 until such time as the Licensee complies with the requirements of the Forest Act, Section 129.3 (4). Approved Not Approved Honourable Dan Miller Honourable Dan Miller Minister of Forests Minister of Forests [378] The existence of these briefing notes, the fact they are designed to elicit a ministerial decision, the express wording of this recommendation, Carlson's review of this briefing note and his approval of it in principle are all utterly inconsistent with his sworn testimony that no-one was going to be allowed to interfere with his exercising his statutory decision making power. [379] The sequence of events on June 10, 1992, is also significant particularly in light of the completely inadequate disclosure of documents from this time frame. [380] At 11:32 a.m. that morning, Ron Reeves records a lengthy memo which he sends to himself, presumably as a form of memo to his file. The opening notation leaves little doubt of what the intention is: BASED ON THE REPORT BY GORDON ERLANDSON REGARDING HIS FACILITATION WITH THE NEMIAH INDIAN BAND AND CARRIER LUMBER LTD. MEETING JUNE 9 AND IN KEEPING WITH THE INTENT OF RECOMMENDED OPTION BEING PRESENTED TO THE MINISTER VIA BRIEFING NOTE FROM BOB FRIESEN, IT IS OUR INTENT TO DO THE FOLLOWING: (emphasis added) [381] The cynical disregard for Carrier's interest is also apparent from the following passage of the same memorandum: WHILE CARRIER LUMBER'S DEVELOPMENT PLAN MAY BECOME A NON ISSUE (IF THE LICENCE IS SUSPENDED), THE INFORMATION AVAILABLE AND THE WORK DONE WILL BE VERY USEFUL [382] While casually dismissing the importance of Carrier, whose licence is about to be suspended, Reeves recognizes the value to the Ministry of the massive amount of planning and information Carrier has prepared so they can continue planning for someone else's benefit (presumably the Nemiah). [383] At 4:15 the same afternoon, Friesen's office transmitted a draft of a different document to Reeves. The document is the draft of a letter from the Minister to the Chief and Band Councillors of the Nemiah Band. The substance of the letter is the communication of the Minister's decision to the Band. The details are found in the following extract: After full consideration of the issues, I am prepared to provide a period of time for continuing discussions between this government and the First Nation to resolve the issues to our mutual satisfaction. Accordingly, you have my assurance that no harvesting or road building permits will be issued in the Brittany Lakes Triangle, in the next three months, during which time we will participate in substantive discussions on forest management and planning. Carrier Lumber Ltd., will in the interim continue harvesting activities in areas outside the Triangle, east of the Chilko River. [384] Halkett's evidence was that the briefing note which had seen such feverish activity over the preceding few days was never finished and never went to the Minister. [385] Yet, the end result of the activity is clear, the draft letter for the Minister communicating the three month moratorium decision was finalized, signed by the Minister and forwarded on June 15, 1992. The letter was copied to the Premier, Ministers Petter and Zirnhelt and others. [386] The next day, on June 16, 1992, Carlson forwarded the following letter to Carrier: Dear Mr. Kordyban: This letter is in reference to our continuing efforts to resolve the issue of legislated silviculture responsibilities related to Forest Licence A20022. You will recall that in your letter of January 16, 1992 addressed to the Chilcotin District Manager, you proposed to surrender this licence and apply for two forest licences which would see you assume the silviculture responsibilities for Forest Licence A20022. It was this proposal that was accepted as an interim step in bringing this matter to a resolution. Based on your proposal, I did not proceed with suspension proceedings as outlined in the District Manager's letter to you dated December 24, 1991. I note that your joint venture proposal with the Ulkatcho Indian Band dated June 3, 1992 failed to contain the required assurances that you would comply with these statutory silviculture obligations. Your ongoing discussions with the Nemiah Valley Indian Band must also deal in a satisfactory manner with these silviculture obligations for Forest Licence A20022 should you choose to pursue the course of action outlined in your January 16, 1992 letter. The other options for you to meet the requirements of the Forest Act are outlined in the letter to you dated January 3, 1992 signed by the Honourable Dan Miller, Minister of Forests. In view of your apparent deviation from your earlier proposal to meet this obligations, please advise immediately how you intend to comply with the Forest Act, Section 129 3(4). Should you fail to respond with a satisfactory proposal to this request by July 17, 1992, I will have no alternative but to proceed with suspension of Forest Licence A20022 in accordance with Section 59 of the Forest Act. [387] To conclude that this letter was unrelated to the Minister's decision communicated to the Nemiah the day before would fly in the face of reason and common sense. It also would ignore the probabilities emerging from the entire sequence of events as we know them. I conclude that a meeting took place with the Minister late on the afternoon of June 10, 1992, and that at that meeting a decision was made to announce the three month moratorium and to instruct Carlson to suspend Carrier's licence. [388] It is improbable that a decision of such magnitude would be taken without a briefing note setting out the options for the Minister. This was in fact the very system designed and implemented by Deputy Minister Halkett and to which he demanded rigid adherence. The only candidate for that role is the briefing note which had seen such feverish activity leading up to the very afternoon on which this decision was obviously made. I conclude on the whole of the evidence that a final form of the briefing note was placed before the Minister and was the basis of the decisions taken that afternoon. Those decisions found expression in the Minister's letter eventually finalized on June 15, 1992, and in the Carlson letter sent to Carrier the next day. [389] The absence of the final briefing note put before the Minister, any records related to the meeting, which in my view clearly must have taken place, and any documents other than the one draft communicating directions arising from the meeting must be considered an attempt to conceal the events and to "set up" the evidence advanced at trial that Carlson as the statutory decision maker was the only person involved in the decision to suspend. [390] It is difficult to imagine a stronger case for the drawing of an adverse inference. The pattern of behaviour of this Ministry and these individuals is simply too well established on the evidence for there to be a) no briefing note before the Minister, b) no documents communicating his instructions, c) no documents reflecting Carlson's decision to take the step of suspending Carrier's licence, and d), no drafts of Carlson's letter of June 16, 1992. I conclude that such documents clearly existed and that they have been deliberately withheld. I draw the inference adverse to the defendant that those documents, if produced would have established the events took place as I have described, and that contrary to the evidence led and relied upon by the defendant at trial Carlson was instructed to suspend Carrier's licence. [391] Neither the author of the briefing note (Friesen) nor its ultimate recipient (Forest Minister Dan Miller) were called as witnesses. Instead, the Crown chose to rely on the evidence of Phil Halkett on this issue. Mr. Halkett's evidence and recollection on those events is unreliable. [392] All of these conclusions and inferences flow logically from the analysis of the documents which are before the court and the sequence of events themselves. However, there is one other document of considerable interest in examining these events and the credibility of Phillip Halkett's "recollection". [393] Document 2233 is a set of handwritten notes, of Ron Reeves, disclosed on the defendant's seventeenth supplemental list of documents on November 17, 1997. [394] These notes, according to Reeves' sworn answers to interrogatories put to him concerning them, are: . . . notes I made of a telephone conversation. I am unable to recall exactly who I spoke with on that occasion. However I believe that person was either Phillip Halkett, Bob Friesen, or Mike Carlson. He went on in his answers to note that: This undated document was likely created in the time period of June 10, 1992 to June 16, 1992. and that: It is my belief that I made these notes to record telephone advice I received from Mr. Halkett, Mr. Friesen or Mr. Carlson regarding what Deputy Minister Halkett had said about how the Ministry of Forests intended to respond to the Nemiah Indian Band's blockade of the Henry's Crossing bridge on the Chilko River. I believe the reference in my notes to "letter to Roger from Minister" refers to the letter sent by Minister Millar to Chief Roger William on June 15, 1992 . . . [395] In his answers to the interrogatories Reeves also provided a complete transcription including an expansion of his abbreviations of his handwritten notes. That transcription is as follows: Halkett - we had opp(ortunity) to kill Carrier - (therefore) silvic(ulture) after Indians issue - concern for perception Give Indians 3 mos (months) - no road or harvest - discuss meanwhile - meanwhile Carrier go on for 3 mons (months) then minister decide - ensure Carrier doesn't take green wood - jump on silvic(ulture) after 3 mos (months) letter to Roger from Minister F.S. (Forest Service) rep(resentative) for negotiations Letter 1st then - local plans - negotiation bridge as result of ministers letter Halkett wants 250 people out of work due to Indians [396] These notes according to Reeves' best guess were made during the course of a telephone conversation on June 10, 1992 at or about 4:15 p.m. when Bob Friesen's office transmitted the draft Minister's letter. [397] I find on the balance of probabilities that these notes are either the notes of a conversation with Phillip Halkett or Bob Friesen calling on Halkett's behalf and instructions. I further find that the purpose of the conversation was to communicate the tactical decisions taken at the meeting that I have found took place with the Minister. [398] These notes trace in reasonably direct and cynical terms the very pattern of decisions I have found to emerge from the documents and events themselves. There was in fact a high level decision to kill Carrier, to manage the perception which may emerge from the events and to keep Carrier away from the green (quality) wood while the time counts down and the perception is properly created. [399] A note of disgust appears to enter into Reeves' final note, which reflects an apparent view that: Halkett wants 250 people out of work due to Indians. [400] It is difficult to conceive of a more compelling and cynical example of duplicity and bad faith. The words "managing perception" may have a gloss which seems to carry with it some high purpose. The reality is, at least in this case, little more than a process of altering reality by concealing the truth and presenting a fabricated cover story. 7.3 SUSPENSION AND CANCELLATION [401] The introduction to this aspect of the case must begin by stepping back in time. From May 23, 1991 until December 24, 1991, the Ministry of Forests withheld and refused to process cutting permits in certain areas of Carrier's licence. On December 24, 1991, Christmas eve, Reeves forwarded a letter to Carrier enclosing two cutting permits. This step was taken only after he was advised by his superiors that there was no lawful authority to withhold the permits in the face of approved development and working plans. Despite the absence of lawful authority the permits were withheld for a period of seven months at a time when everyone knew Carrier would have to work very hard to achieve the harvesting of their licence volume. [402] What emerged following Carlson's letter of June 16, 1992, threatening suspension is an important part of the plaintiff's allegation of bad faith. [403] The decision taken on June 10, 1992 found ministerial expression in a letter dated July 10, 1992. This letter was forwarded two days after Carrier replied to Carlson's letter of June 16, 1992. In their response Carrier seeks a 90 day extension to permit them time to meet with the Minister. [404] On July 13, 1992, a letter, in virtually identical terms to the July 10, 1992 letter to Carrier, was forwarded by the Forest Minister to the Ulkatcho. [405] With this background a meeting took place at the Ministry of Forests offices in Williams Lake, on July 15, 1992. Bill Kordyban, Sr.; Bill Kordyban, Jr. and Paul Klotz met with Mike Carlson, Ken Balaski and Barry Trenholm. [406] Detailed minutes of the meeting were kept by Paul Klotz which I accept as being generally accurate. There is, from Carrier's perspective, a certain bitter irony in some of the comments made by Mike Carlson at this meeting. When asked by Paul Klotz if he can convince the natives to take on the silviculture responsibility , he replies that: I will only say I told Ulkatcho to strike a deal with Carrier. If they don't . . . anyway, there will be another license (sic) and Ministry of Forests will decide who gets it - Ulkatcho or Carrier. Unfortunately, the natives think they are in a no lose situation. Miller has given them less indication they will get the license (sic) than previous Ministers. They feel all they have to do is wait Carrier out. (emphasis added) [407] These are the comments to Carrier from the man who was attributed as having said to the Ulkatcho at the April 17, 1990, meeting in Kamloops that it was they and not Carrier who had the whip hand. [408] On July 10, 1992, the same day as the Minister's letter was forwarded, Carlson replied to Carrier's letter of July 8, 1992. In that letter he reaffirms his intention to proceed with suspension on July 17, 1992. Although a copy of this letter was given to Carrier during the course of the meeting on July 15, 1992, it had in fact been forwarded by mail. [409] The situation facing Carrier is noted in their response: This letter is in response to our letter of July 8, 1992, your letter of July 10, 1992, and the Honourable Minister's letter of July 10, 1992. We received both letters in the last few days, yours on the 15th and the Minister's on the 16th. Unfortunately this does not give us sufficient time to submit an alternative proposal to you by July 17th. [410] On July 20, 1992, Carlson forwarded his formal suspension notice: Certified Mail Carrier Lumber Ltd. #203 - 1717 Third Avenue Prince George, BC V2L 3G7 Dear Sirs: Further to my letter of July 10, 1992 and having received no satisfactory proposal, I have no option but to proceed. This letter constitutes notice of suspension of Forest License (sic) A20022 pursuant to Section 59 (1) (c) of the Forest Act. Suspension of Forest License (sic) A20022 will take effect at 12:01 a.m. on August 11, 1992. This suspension has been necessitated by your failure to provide security for the performance of your duty to carry out basic silviculture, as described in Section 129.3 (4) of the Forest Act. Yours truly, "MA Carlson" M.A. Carlson, R.P.F. Regional Manager Cariboo Forest Region [411] The Reality is that there was no serious consideration of Carrier's position or time given them to pursue an alternative. The suspension "totally crippled", in Bill Kordyban's words, their ongoing negotiations with both the Uulkatcho and the Nemiah, a consequence that was readily foreseeable. In addition, Carlson's letter followed precisely the recommendation found in the "incomplete" briefing note to suspend Carrier's operations and "stress the silviculture problems, not the blockade". [412] The charade is at this point nearly complete. The fact that the Ministry is completely unable to deliver the wood, and that they have chosen to deal with the First Nations and encourage them at Carrier's expense is hidden from view, instead Carrier's failure to provide security for their silviculture obligations has been put forward, at least in the documents, as the reason for the suspension of their licence. [413] The fact that this "obligation" arose as a result of legislation passed five years before in 1987, and nearly four years after the inception of the licence is, according to the Crown, irrelevant. [414] On August 7, 1992, the suspension letter is confirmed by Balaski on behalf of Carlson and a week later the Minister rejected a proposal jointly presented by Carrier and the Ulkatcho. 8.0 THE AFTERMATH [415] August 11, 1992, marked all but the formal end of A20022. With its mills idled, its employees out of work, and 2,552,950 cubic metres of wood, much of it the most valuable, still to be harvested, a venture that had begun with such hope and promise came to a quiet end, not because of any failure of Carrier's but because of the defendant's changing priorities and the need to cover the Crown's position which was contributed to in no small part by Premier Harcourt's promise at 108 Mile. [416] On October 1, 1992, Carlson, by letter, threatened cancellation of the licence. After a brief extension, Carlson moved to cancel the licence on March 31, 1993. Following this, Carrier initiated the appeal process, the cancellation was upheld by the Chief Forester following a hearing on January 28, 1993. [417] On February 9, 1995, the appeal was heard by an Appeal Board established under the Act. The Appeal Board found that the Forest Licence was improperly cancelled. The reasons for that finding are, in turn significant, for the Appeal Board found that Carlson had never made a "determination" as to the amount and form of security required as set out in s. 129.3(4) of the Forest Act. The failure to properly determine the security required of course deprived Carrier of any chance of considering whether or not they would do so. [418] The reason for this "failure" is now obvious. The suspension and subsequent cancellation of Carrier's licence had nothing to do with silviculture or security. This was merely the excuse identified in the briefing note as the means of diverting attention from the fact that both the Ministry of Forests and the Government were prepared to sacrifice licences in areas of conflict particularly if the conflict involved First Nations people. A determination of the amount and form of security would have raised the prospect of Carrier actually considering and accepting it, a prospect specifically identified as a disadvantage in the last of the draft briefing notes. [419] A careful review of the documents that are available and particularly the four stages of the development of this briefing note reveals no analysis whatsoever of the requirements of the Act with respect to silviculture, no requests for details of Carrier's shortcomings on silviculture (there were none), and no estimate of what that obligation might be, being communicated to the Executive group. The absence of this information is only explainable on the basis that it was not the issue driving the decision but rather the excuse being prepared to allow the Ministry and the government to extricate themselves from the difficulties created by their own conduct and to lay the blame on Carrier. [420] At least one reason for the absence of this information is glaringly obvious. Carrier was not just doing a passable job on silviculture, it was doing an outstanding job. [421] Ron Reeves, during the course of his evidence, confirmed that in this passage: Q Okay. And then Mr. Jenkins writes this, "recent audit shows Carrier is 100 percent on silviculture responsibilities", and he puts in quotes, "right up to snuff"? A Correct. Q That is a correct statement, isn't it? A I believe it was, to the best of my knowledge in the given time that I was in the Chilcotin Carrier always fulfilled the obligations they had up to that -- any particular period in time. [422] As a final comment on this issue under the general heading of Fundamental Breach, Deceit and Bad Faith, it is interesting to note that during the course of this trial and after it had become clear that the plaintiff was in this case attacking the validity of the maximum density standard for lodgepole pine, an Order in Council was passed on January 1, 1998. [423] Carrier's attack on this standard, which formed the major part of their "new silviculture obligation" had been mounted on the basis that the standard had been fixed by the Chief Forester and not by regulation. After the trial was adjourned and before it was resumed, the regulation was promulgated. 9.0 DISCUSSION [424] The first four issues identified in paragraph 18 of these reasons are subsumed within the general issue of fundamental breach to which I earlier referred. [425] The specific pleading is found within paragraph 20 of the second amended statement of claim, which reads: 20. The Plaintiff alleges that the Defendant fundamentally breached its Contract with the Plaintiff when, contrary to the Amendment, the Defendant insisted that the Plaintiff should pay for the more onerous silvicultural obligation that was imposed upon it by the Defendant. The Plaintiff further alleges that this fact was well known to the Defendant and that the Defendant deceitfully, and in bad faith, did not advise the Plaintiff that it intended to seek to impose additional silvicultural obligations on the Plaintiff until after the Plaintiff had constructed its facilities and infrastructure, and after the Plaintiff had conducted harvesting activities in pursuance of the Contract. [426] In my view, the present case is clearly one in which there is an inequality of bargaining power, indeed, the present case is one which could be used as the textbook example of such inequality. Not only did the defendant retain a high degree of control over the project they had access to the use of legislative power which in this case was exercised to fundamentally alter the terms of the contract. [427] The genesis of A20022 has already been detailed in the passages following paragraph 186 of these reasons. This was a licence deliberately designed and tailored by the defendant to induce an operator to establish a new milling facility in the Chilcotin. It was offered and awarded to Carrier with the full knowledge that anything less than a volume of 5,000,000 cubic metres would not economically justify establishing such milling facilities. It was also offered with the full knowledge of the defendant that unless an operator was induced to undertake the project the Crown would certainly lose any revenue from the affected timber resource, face a huge risk of massive wildfire in the area, and the certainty of incurring monumental costs associated with site rehabilitation and replanting of the area. [428] Carrier brought to the project all of the finest attributes of the entrepreneurial spirit. Their solution was innovative and unique. They asked for nothing in the way of concessions, they utilized their own skills and resources and they carved out of a remote portion of the province a means of bringing a modern and efficient industry to a wilderness which was without any form of industrial infrastructure. [429] What they expected out of the undertaking was 5,000,000 cubic metres of wood, and, perhaps, some recognition and gratitude when it came to bidding on other future licences in the area. [430] When Carrier was asked to take the lead in holding effectively public hearings to deal with unrest in the area they threw themselves and their own resources into the project in a way which is viewed by many as a model for responsible corporate participation. [431] The defendant in this action has not identified a single way in which Carrier failed to fulfill the obligations it took on at the outset of this licence. Indeed, in virtually every conceivable category it not only met but exceeded goals that were set for them. They established not one but five modern milling facilities in the Chilcotin and all of the necessary supporting infrastructure. [432] When the First Nations issues emerged, first with the Ulkatcho and subsequently with the Nemiah they attempted to deal with those issues in good faith by negotiation rather than confrontation. They proposed joint ventures whereby Carrier would apply their expertise and experience to training the First Nations people in the industry. They continued to bring in and establish additional milling capacity to enable them to mill the required volume in the remaining time on their licence. [433] During Carrier's initial years in the Chilcotin they harvested largely priority stands of timber that had been attacked by the mountain pine beetle. As they began to move to areas such as the Beef Trail, they expected to move to higher quality timber stands which represented in many respects the wood which would provide the profit margin for the project. [434] What Carrier did not anticipate is that the destruction of the bulk of the beetle larvae in cold snaps in October 1984 and November 1985 and their own successful operations would remove much of the pressure on the Ministry of Forests. [435] Instead of displaying gratitude, the defendant began to pursue other interests at Carrier's expense. [436] I do not wish anyone to take any portion of these reasons as being critical of First Nations people or of those people pursuing what they consider to be their best interests. This case is not about analyzing those issues at all. What this case involves is a consideration of the Crown's obligations to parties with whom they have chosen to enter contractual relations. [437] In this case, for reasons I have traced in considerable detail, the conclusion is inescapable that the Ministry and the Government changed their priorities and their direction. In the course of doing so they made a conscious choice to sacrifice Carrier to enable themselves a free hand to deal with the First Nations issues. They did so with full knowledge of what the scope of their initial agreement was with Carrier and what the consequences of their decisions would be to the plaintiff. [438] This action is not about the scope of the obligations of Government to deal with First Nations people, it is about the scope of their obligation to deal with those with whom they have entered contracts, fairly and reasonably. By any acceptable standard they have failed that test. [439] The defendant, in answer to the plaintiff's claims, assert that they "amount to a plea for immunity from the operation of key forestry statutes, regulations and policies which have regulated the operations of major licensees harvesting Crown timber in the interior of British Columbia since 1987". [440] The Crown then seeks, in their submissions, to rely on the legislation, subordinate legislation and policy decisions which were made well after the awarding of Forest Licence A20022. The linchpin for all of these submissions is article 15.03 of the Forest Licence, which provides that: This licence is subject to the Forest Act. [441] The essence of this submission comes to little more than the assertion that the Crown can do no wrong, that in granting the Forest Licence it was explicitly, and to the knowledge of all subject to the provisions of the Forest Act. The submission in effect asserts the proposition that any legislative provision validly enacted amends the bargain between the parties and must be accepted by them. [442] As an example drawn at least in theory from the present case the imposition after the fact on a contractor of an entirely new silviculture obligation of $30,000,000 or $60,000,000 or $90,000,000 if validly enacted can have no effect on the bargain between the parties. [443] With the greatest of respect, this is not a sound proposition in law. The Crown is itself a party which is subject to the common law of contracts in much the same fashion as any private party. In Journal Publishing v. The King [1930] 4 D.L.R. 644 at 649, the proposition was put in these words: It follows therefore that in matters of contract the legal rights and liabilities of the Crown are substantially the same as those arising between subject and subject. [444] The present case is complicated in part by the fact that the changes to the terms of Carrier's licence were brought about by the passage of amendments to the Forest Act and associated regulations. [445] The leading case on the power of the Crown to take possession of property without compensation is Attorney General v. De Keyser's Royal Hotel Ltd. [1920] A.C. 508 (H.L.). In this case the British army, during World War I, required accommodation for its troops in London. It took over the hotel under the Defence of the Realm Regulations. The receiver of the hotel brought action for compensation. The House of Lords held the Crown liable to pay compensation. Lord Atkinson, at page 542, says: Neither the public safety nor the defence of the realm requires that the Crown should be relieved of a legal liability to pay for the property it takes from one of its subjects. The recognized rule for the construction of statutes, is that, unless the words of the statute clearly so demand, a statute is not to be construed so as to take away the property of a subject without compensation. [446] A leading Canadian case in this area is Manitoba Fisheries v. The Queen (1978) 88 D.L.R. (3d) 462. In this case, the Parliament of Canada enacted the Freshwater Fish Marketing Act, which created a corporation and gave it the exclusive right to carry on the business of fish exporting from Manitoba and other provinces. The plaintiff, since 1926 had purchased freshwater fish in Manitoba, processed and exported them to other parts of Canada and the United States. After passage of the Act the plaintiff lost all of its business and was forced to close. The Act empowered the Federal Minister to enter into an agreement with the provincial government for the provision of compensation, but the Manitoba government refused to compensate the plaintiff. [447] Ritchie, J., speaking for the court found that the legislation: . . . had the effect of depriving the appellant of its goodwill as a going concern and consequently rendering its physical assets virtually useless and that the goodwill so taken away constitute property of the appellant for the loss of which no compensation whatever has been paid. [448] Applying the reasoning of Lord Atkinson in De Keyser's, the Supreme Court of Canada held that the Federal Crown was obliged to pay compensation to the appellant in an amount equal to the fair market value of its business as a going concern. [449] In the present case, the Forest Amendment Act 1987 (No. 1), S.B.C. 1987, c.40, when it received Royal Assent on July 16, 1987, brought into force along with its other provisions a series of transitional provisions including: 25.(2) Notwithstanding an agreement entered into under the Forest Act, the amendments enacted by sections 12 and 13 of this Act apply to: (a) all agreements under which stumpage is payable, whether entered into before, on or after the date this subsection comes into force, and (b) all permits, licences or other documents issued pursuant to the agreements referred to in paragraph (a) that are issued before, on or after the date this subsection comes into force. (3) No compensation or damages are payable by the government and no proceedings shall be commenced or maintained to claim compensation or damages from the government or to obtain a declaration that compensation or damages are payable by the government in respect of: (a) a variation to an agreement or to a licence, permit or other document issued pursuant to the agreement, caused directly or indirectly by the enactment of this section or of sections 11, 12, 13 or 15 of this Act, or (b) an alteration in royalty, annual rental or stumpage rates or amounts payable under an agreement or under a licence, permit or other document issued under an agreement, caused directly or indirectly by the enactment of this section or sections 11, 12, 13, 14 or 15 of this Act. [450] This legislation paved the way for the establishment of the comparative value pricing system of stumpage appraisal. It was followed by the Forest Amendment Act (No.2) 1987, S.B.C. 1987, c. 54, which instituted a new system of silviculture requirements. This legislation received Royal Assent on December 17, 1987, and it as well contained a provision with respect to compensation: 19. No compensation or damages are payable by the government and no proceedings shall be commenced or maintained to claim compensation or damages from the government or to obtain a declaration that compensation or damages are payable by the government in respect of any loss caused or resulting, directly or indirectly, by or from the enactment of any provision of this Act. [451] The defendant submits that the provisions of this legislation insofar as they are inconsistent with the provisions of F.L. A20022 and Carrier's Management and Working Plan override them and constitute a full answer to the plaintiff's claims with respect to the defendant breaching the licence by imposing additional silviculture obligations or by refusing to pay for the costs of silviculture. [452] The defendant also submits that s. 19 bars the plaintiff from any recovery of compensation or damages in respect of any loss caused or resulting, directly or indirectly, from the enactment of the Act. [453] I equate in the circumstances of this case the potential operation of s. 25 and s. 19 quoted above to the situation of an exemption or limitation clause as those terms are used within the authorities dealing with fundamental breach. These conditions were imposed not simply by the stronger party but during the course of the contract and after substantial performance by Carrier. [454] The answer to the application of these statutory provisions is found in the fact that the defendant in this case fundamentally breached the agreement with Carrier outside the term of any application of the provisions of either Forest Amendment Act. I have found that the defendant early on determined that they might not be able to deliver the volume of wood contemplated by the Forest Licence they had issued, that likelihood emerged clearly from the study done in September of 1989. This likelihood became a probability when no resolution of the Ulkatcho dispute emerged and a certainty with the start of the Nemiah blockade at Henry's Crossing. [455] In the face of these difficulties the defendant chose to cover its own failings, to sacrifice Carrier and to orchestrate matters to conceal their own breach. Through a series of maneuvers and self serving documents they sought to frustrate Carrier's harvesting activities and then to proceed with the suspension and eventual cancellation of their licence. [456] The underlying reason was the fact that the Crown could not deliver the wood required, that they wished to be able to deal with the First Nation's without the distraction and impediment of Carrier's presence, and to cover any problems that may arise from their promises to the First Nations people. [457] The effect of the Crown's action can be reduced to these terms. They had induced Carrier to move into the Chilcotin to solve problems the defendant was facing in that area. They had offered 5,000,000 cubic metres of wood knowing that was the minimum volume necessary to justify economically the establishment of new milling facilities. After Carrier had spent enormous amounts of time, effort and their own resources to establish milling facilities in the area, the defendant through Mike Carlson's letter of January 5, 1989, approved the carryover of Carrier's 1,949,749 cubic metre undercut into the second 5 year cut control period. This approval would, of course, allow Carrier to harvest and process the full 5,000,000 cubic metres, but the approval was given on the condition that Carrier establish a third sawmill. Carrier proceeded to build and establish the Tatla mill which began operations in February of 1990, after the September report within the Ministry which indicated that in order to achieve their volume under the licence Carrier had to have access to the Beef Trail. [458] After all Carrier's infrastructures and mills were in place, the defendant began withholding cutting permits, eventually suspending and purporting to cancel their licence, leaving them with a final harvested volume of 2,447,050 cubic metres, less than half the volume promised. Left behind was 2,552,950 cubic metres of wood that the defendant could provide to others (such as the First Nations groups) and the infrastructure and mills established by Carrier, at their own expense, which made the harvesting of that timber economically viable. [459] With the greatest of respect to the submissions advanced on behalf of the defendant, the conduct demonstrated by the evidence in this case effectively seeks to deprive Carrier of substantially the whole benefit they were to obtain under the contract while the defendant reaps the full benefit of Carrier's efforts while diverting the profits to others. [460] In the circumstances of this case, I find that the defendant breached the terms of their agreement with Carrier; firstly, by failing to provide the volume of wood required under the licence; secondly, by manipulating the administrative procedures within its power to withhold cutting permits improperly and to use its powers to suspend and cancel improperly to frustrate performance of the contract; and thirdly, by making promises and commitments to the First Nations peoples which clearly had the effect of preventing any reasonable resolution of the dispute and hence prevented the performance of their contract with Carrier. [461] These breaches went to the root of the contract between the parties and constituted a fundamental breach of that contract. [462] In the circumstances of this case and in light of the conduct of the defendant's servants it would be completely unconscionable to permit the defendant to retain the benefits of this contract while depriving the plaintiff of what they bargained for and worked so hard to achieve. The plaintiff is entitled to recover damages associated with the breach. 9.1 DECEIT [463] To succeed in recovering damages for the tort of deceit and plaintiff must prove that (1) a false representation or statement was made by the defendant; (2) which was knowingly false; (3) was made with the intention of deceiving the plaintiff; and (4) which materially induced the plaintiff to act, resulting in damage. [464] A direct lie is not the only form of actionable misrepresentation, the tort may also be founded on either incomplete disclosure, D.R.F. Hltg. Ltd. v. Fundy Chem. Int. Ltd. (1981) 19 C.C.L.T. 263, or active concealment by conduct, Brown & Assoc. Advertising Inc. v. Farmco Steel Bldgs. Ltd. (1983) 26 Sask. R 305. [465] The allegation of deceit found within paragraph 20 of the statement of claim is restricted to the allegation that the defendant deceitfully failed to advise the plaintiff of their intention to seek to impose additional silviculture obligations until after the plaintiff had constructed its facilities and infrastructure. While a great deal of criticism may be heaped on the conduct of the defendant in relation to this matter, I am not satisfied that the claim as pleaded has been made out. John Szauer, the Regional Manager until 1988, testified that it was his view that the "new" silviculture obligations simply didn't apply to the Carrier licence. In light of that evidence, the delay in seeking to apply those obligations and my findings that the silviculture obligations were the excuse used to cover and conceal the defendant's real reasons, this claim, as pleaded, has not been made out, and it must fail. 9.2 WRONGFUL SUSPENSION AND CANCELLATION OF A20022 [466] In the plaintiff's prayer for relief they seek general damages for the wrongful suspension and cancellation of Carrier's licence. I have already detailed in these reasons my conclusions as to the way in which these steps were taken and what motives lay behind those steps. With the greatest of respect to that pleading, it cannot and does not found a separate claim for relief. This claim constitutes, in essence, an allegation of breach of contract and is subsumed within the successful claim of fundamental breach. 9.3 GOOD FAITH [467] The test to be applied in addressing the issue of good faith is that found in the reasons of our Court of Appeal in Dorman Timber Ltd. v. British Columbia (26 September 1997), Victoria Registry No. V02670 (B.C.C.A.): [72] My conclusion is that the correct test of good faith is subjective: there is good faith if the public servant honestly believes (understood as a state of mind) that he or she has authority. There are of course limits to a belief that, even though genuine, a court can accept as honest. Where there is absolutely no foundation at all for the belief, it will not be honest. Likewise, if the public servant is willfully blind to the true facts, the belief will not be honest. In this context, the reasonableness of a belief will assist in determining whether the belief is honest. But a belief may be unreasonable and yet honestly held because of the subjective situation of the public servant. [468] There is little doubt that the Crown in the circumstances of this case owed duties to Carrier, and to the First Nations people with whom they were dealing. It is equally obvious that those duties were not always easily reconciled. [469] The defendant submits that when faced with opposition from these groups there were really only two options: to seek an injunction or to negotiate. The defendant had little option because the licensee in this case as a matter of its own corporate policy preferred negotiation to confrontation. It is a matter of some considerable irony that the Crown in this case argues in support of their activity that Carrier " . . . quite explicitly declined to take action to compel the removal of the blockades". The irony is complete when they go on in their written submissions to assert that: When the Nemiah Valley Indian Band applied for an injunction to restrain logging by Carrier, and other licensees, within the Nemiah Valley Indian Band trapline area, Carrier, in December, 1990, agreed not to apply for CP Y106, or any other cutting authority within the boundaries of the Nemiah Valley Band trapline, without first giving the Band three months' notice. Further, on October 11, 1991, Carrier consented to an interlocutory injunction restraining it from logging within the Nemiah Valley Indian Band's trapline area until the trial, or other disposition of those proceedings. [470] What is not mentioned is that the Crown, through their District Manager, Ron Reeves, had no intention of issuing cutting permits and had sworn an affidavit (without Carrier's knowledge) in support of the Nemiah's injunction application. To suggest that this was a position somehow forced on the Crown by Carrier's position is simply out of keeping with the whole of the evidence. Another example of this can be found in Reeve's memorandum when he speaks of the prospect of selling an agreement to Carrier or " . . . ramming it down their throats". This was not in any sense some passive defendant following dutifully Carrier's lead, but rather a bureaucracy content to exercise the power they held to ensure that they got exactly what they wanted. [471] The defendant goes on to submit that on the basis of Miller v. Canada [1985] F.C.J. 420, that " . . .neither the Minister nor the Crown is obliged to control the conduct of the Band Council or members of the Band . . .". [472] With the greatest of respect, this authority is of little value in defending the actions of the defendant's servants who used their involvement with those First Nations people to actively encourage their expectation of achieving more from government than they would from any joint venture with Carrier. [473] Carlson's comment that "they had the whip hand not Carrier" during the meeting in Kamloops and Premier Harcourt's remark at 108 Mile which effectively granted the Nemiah a veto over logging operations in the Brittany Triangle were but two examples of active interference with any prospect of Carrier achieving any negotiated resolution. [474] While Carrier may have been aware of some of the Ministry's efforts to deal with these issues, much of the detail was kept from them both before and even during this trial, and what information they were given was not often marred by truthfulness, accuracy and candour. [475] In Dorman, the Court of Appeal held that the District Manager's duty towards the forest company was " . . . to be mindful of the plaintiff's interests in going about his or her business . . .". For reasons which have already been set out above, I have concluded that the defendant's documents are in many cases demonstrably self-serving. The evidence in this case supports the inference that the defendants were quite capable of providing lip service to the plaintiff's interests while effectively pursuing their own. [476] Reeves' letter to Carrier of March 19, 1991, and the cartoon and note that accompanied the copy sent to Carlson is a masterpiece of doubledealing deception. It by itself speaks volumes about the level of good faith being exercised by Reeves, and the danger of accepting what he writes at face value. It most assuredly does not stand alone. I have little doubt that at the outset matters were different but by the critical time period when the support of the Ministry was critical to assist the licensee, it was nowhere to be found. [477] Whatever the scope of the Crown's obligation to Carrier it included an obligation to avoid actively interfering with Carrier's efforts to achieve a reasonable solution yet that is precisely the effect of a good many of the Crown's actions. [478] The test of good faith may well be subjective but it is not satisfied by an arrogant self-assurance that whatever one chooses to do is right. This is precisely the way in which the defendant dealt with the plaintiff and their interests after the beginning of the Ulkatcho blockade to the end. Their conduct was driven by a desire to cover their own potential liability and to serve other interests. It wholly failed to meet any acceptable standard of good faith. [479] In some respects counsel on both sides of this action have, in my respectful view, fallen into the trap lawyers, particularly lawyers involved with issues of contract, often fall into. The focus of much of their efforts in argument has been on a series of highly refined and narrowly focused issues in which their attention has been engaged with issues which the general public might well view as the splitting of hairs. [480] In these comments I do not wish to be taken as being critical of counsel or their efforts, indeed this is a case in which the gratitude of the court should be extended to the counsel who appeared at this trial. In attempting to carry out their task, counsel is required to refine and articulate their respective clients' positions in seeking to advance them. It is a process which is by design and necessity, a partisan one in which, in theory, the truth emerges from the adversarial process. [481] The nature of the discipline of law and the techniques of legal analysis tend towards a type of focused and narrow analysis which isolates attention on narrow issues. [482] The task of the trial judge must be to bring to the process a detached examination of the case as a whole before turning to any microscopic examination of any individual issue. [483] In opening his written and oral submissions, counsel for the defendant characterized the plaintiff's case as a ". . . multifaceted attack on the defendant's administration and ultimate suspension and cancellation of F.L. A20022". He went on to further refine that characterization as effectively amounting to ". . . a plea for immunity from the operation of key forestry statutes, regulations and policies . . ." designed to regulate the Forest Industry. [484] These characterizations move the conflict from the personal to the theoretical, they engage amorphous and broad issues of public policy and focus attention on technical matters. [485] With respect, that is not, in reality, what this action is about. This case is about a much more profound and yet simple question. Can the defendant induce a private citizen, in this case a corporation, to enter into a contract which offers to the plaintiff payment in very specific terms by delivery of 5,000,000 cubic metres of wood, and then through use of its power and legislative capacity fundamentally change the bargain, years later? [486] In much more precise terms the question refines itself to this - Is the defendant entitled to induce Carrier Lumber with an offer of 5,000,000 cubic metres to move to the Chilcotin, apply their expertise and resources to solving the defendant's problems in the area, have Carrier, at their expense, establish all the necessary industrial infrastructure and five mills and then effectively refuse to deliver the wood they promised, excluding Carrier from the area, effectively keeping for themselves the benefit of all of Carrier's efforts, and over half of the wood without paying compensation? [487] The result in this case is a result which emerges primarily from the facts, but as the plaintiff's counsel said at the opening of this trial, frequently throughout the course of it, and at the start of his closing submissions, "This case is about the primacy of the rule of law, and the subjugation of the sovereign to it". [488] The concept of the rule of law and the Crown's subjugation to it can be traced to Runnymede where the English nobles imposed the Magna Carta on King John in June 1215. For nearly 800 years the evolution of the common law has been shaped by the events and concepts of that document. [489] Article 39 of the original document (29 in the reissues) still speaks in profound, if archaic language, across a gulf over seven countries: No Freeman shall be taken, or imprisoned, or be disseised of his Freehold, or Liberties, or free Customs, or be outlawed, or exiled, or any otherwise destroyed; nor will we pass upon him, nor condemn him, but by lawful Judgment of his Peers, or by the Law of the Land. We will sell to no man, we will not deny or defer to any man either Justice or Right. (emphasis in original) One of the important aspects of the rule of law was described by the Supreme Court of Canada in Attorney General of Canada v. Lavell [1974] S.C.R. 1349 at p. 1366: It means again equality before the law or the equal subjection of all classes to the ordinary law of the land administered by the ordinary courts; the 'rule of law' in this sense excludes the idea of any exemption of officials or others from the duty of obedience to the law which governs other citizens or from the jurisdiction of the ordinary courts. [490] The conduct of the defendant traced throughout these reasons is, in my view, conduct unacceptable under our common law or to the Canadian public generally. When the power of the legislator or the bureaucrat is abused it is in this country subject to the review of an independent judiciary. The power of review must be carefully exercised and jealously guarded for it is the foundation of the protection of the citizen from the power of the state. [491] Where, as in the present case, the impugned conduct is unconscionable and amounts to an expropriation of both the benefits the plaintiff bargained for and the resources and efforts they freely supplied to achieve those benefits, the court is compelled to intervene. [492] As a result, this, in the end, is not an issue of neat interpretation of statutory language, it is not a case which requires the determination of the constitutionality of the various legislation challenged by the plaintiff, for as important as those issues are to Carrier, they are unnecessary to the outcome of the present litigation. [493] These issues have far broader and far reaching implications which should only be addressed in a case which requires their determination. 9.4 PUNITIVE, AGGRAVATED AND EXEMPLARY DAMAGES [494] During the course of the trial the plaintiff amended its pleadings to advance these additional damage claims. [495] The plaintiff seeks awards under these heads of damage on the basis that the Crown, in this case, behaved in a highhanded, arrogant manner with open disregard for the plaintiff's rights. [496] The leading English case in this area is Rookes v. Barnard [1964] A.C. 1129 (H.L.), Lord Devlin, at p. 1221, dealt with the concept of exemplary damages: Exemplary damages are essentially different from ordinary damages. The object of damages in the usual sense of the term is to compensate. The object of exemplary damages is to punish and deter . . . It must be remembered that in many cases of tort damages are at large, that is to say, the award is not limited to the pecuniary loss that can be specifically proved. In the present case, for example, and leaving aside any question of exemplary or aggravated damages, the appellant's damages would not necessarily be confined to those which he would obtain in an action for wrongful dismissal. He can invite the jury to look at all the circumstances, the inconveniences caused to him by the change of job and the unhappiness maybe by a change of livelihood. In such a case as this, it is quite proper without any departure from the compensatory principle to award a round sum based on the pecuniary loss proved. Moreover, it is very well established that in cases where the damages are at large the jury (or the judge if the award is left to him) can take into account the motives and conduct of the defendant where they aggravate the injury done to the plaintiff. There may be malevolence or spite or the manner of committing the wrong may be such as to injure the plaintiff's proper feelings of dignity and pride. These are matters which the jury can take into account in assessing the appropriate compensation. Indeed, when one examines the cases in which large damages have been awarded for conduct of this sort, it is not at all easy to say whether the idea of compensation or the idea of punishment has prevailed. [497] In LaPointe v. Canada (Minister of Fisheries & Oceans) (1992) 4 Admin.L.R. (2d) 298 at p.318, Collier J., of the Federal Court, says that: . . . The defendants implemented their decision to cancel Mr. LaPointe's licence knowing full well the Minister lacked authority to do so. The defendants have maintained throughout, their actions were not undertaken in a high-handed or arrogant manner but rather were proceeded with after much deliberation and with the sole objective of protecting and preserving the fishing industry. I am not persuaded in the least by this assertion. The evidence in this case clearly indicates an award of exemplary damages to be proper. The defendants, acting as servants and agents of Her Majesty, deliberately chose to disregard the law in order to make an example of Mr. LaPointe. It is irrelevant what the defendants' objectives were in doing so if the achievement of that objective required the unlawful exercise of its powers. The defendants deliberately abused their powers knowing the actions taken were without legal authority. By proceeding to follow a chosen course of action, without heed to its legality and with complete indifference to the rights of the plaintiffs, the defendants caused undue hardship to the plaintiffs. The potential loss to the plaintiffs as a result of the defendants' action was considerable. The loss of the licences threatened the economic viability of the plaintiffs and would have deprived Mr. LaPointe of a livelihood in which he had been engaged for 21 years. In his decision to quash the Minister's actions, Rouleau J. noted the cancellations would more than likely have resulted in bankruptcy for the plaintiffs Pisces Marien Ltd. and Mr. LaPointe. It must be stressed the actions of the defendants in the present case were not only unlawful, a fact which in and of itself would not necessarily give rise to claim for damages, but were also excessive and high-handed. Neither can the indifferent attitude of the defendants be overlooked. I award the plaintiffs punitive damages in the amount of $10,000. I note that those damages will come out of the pockets of we taxpayers, not the individual bureaucrats and Minister involved. [498] The LaPointe case has many parallels to the case at bar. The defendant, however, argues that in awarding the plaintiffs special costs arising from the Crown's failure to make adequate and timely production of documents the court has already signified its disapproval. [499] In Craig v. British Columbia (6 November 1997) Vancouver A943590, I had occasion to comment on the award of special costs: [6] Although an award of special costs provides a successful party with a large measure of indemnification for their actual legal costs, that is not the primary purpose of an award of special costs. The authorities in this province have established that the primary purpose of such an award is to punish the unsuccessful party for conduct the court has found to be reprehensible; Garcia v. Crestbrook Forest Industries Ltd. (1994) 9 B.C.L.R. (3d) 242 (C.A.); Leung v. Leung (1993) 77 B.C.L.R. (2d) 314 (S.C.); Fullerton v. Matsqui (District) (1972) 74 B.C.L.R. (2d) 311 (C.A.); McPhillips v. B.C. Ferry Corp. (1993) 16 C.P.C. (3d) 284 (S.C.). [7] While there is some comment in the authorities that suggest that misconduct prior to the commencement of action can give rise to an award of special costs (Stiles v. Workers' Compensation Board of British Columbia (1989) 38 B.C.L.R. (2d) 307 (C.A.); Haida Inn Partnership v. Touche Ross & Co. (1991) 48 C.P.C. (2d) 61 (S.C.)). The weight of authority draws a clear distinction between reprehensible conduct preceding the court proceedings and that which occurs in the proceedings themselves. The rationale for this distinction can be found in Foundation Co. of Canada Ltd. v. United Grain Growers Ltd. [1996] B.C.J. No. 2090 (April 4, 1996), Vancouver Registry C902032/C911710; where Brenner, J., at paragraph 32 writes: . . . In my respectful view, CMI;s submission confuses misconduct prior to litigation and misconduct by a party once litigation commences. Party misconduct prior to litigation will presumably give rise to a cause of action which will be pleaded by the aggrieved party along with a claim for appropriate relief such as, for example, punitive damages. Costs, on the other hand, are assessed based on conduct after litigation has commenced. [500] Damage awards which extend beyond the class of compensatory damages have found expression in a variety of terms but the most common of these are exemplary and punitive damages. The term "exemplary" was preferred by the House of Lords, Cassell & Co. Ltd. v. Broome [1972] A.C. 1027, while "punitive" is the term used in many Canadian Courts, H.L. Weiss Forwarding Ltd. v. Omnus [1976] 1 S.C.R. 776. These two terms are, in effect, interchangeable. Aggravated damages are in fact a form of compensatory damages which incorporates intangible aspects of the wrong. [501] The conduct of the defendant's servants in the present case has been found to be both deceptive and the result of bad faith. The bad faith in question is illustrated by attempts and conduct calculated to conceal their real actions and motivations and to create a different appearance calculated to cast the blame and the resulting losses on the plaintiff. That conduct reveals a course of dealing that extends from the time of these events in the Chilcotin until the end of this trial. While some aspects of the defendant's document disclosure failure are certainly attributable to other factors, in some selective areas I have identified the non-disclosure is, in my view, the product of system and design. [502] When public servants choose to embark on such conduct, utilizing the powers they hold to cause damage to others and to cover their own actions, they must understand, clearly and unequivocally that they will be held accountable for such abuse. [503] The plaintiff has established the basis for an award of punitive damages in this case. [504] Counsel have leave to make submissions as to the quantum of that award. [505] As the first phase of this trial was aimed at determining liability, counsel are at liberty to address the issue of how the damages issues will proceed. [506] If counsel are unable to agree on costs they may be spoken to. "W. G. Parrett, J." n.b. Appendix "A" of photographs and Appendix "B" letter are not available in electronic copy.