Environmental, Indigenous and Natural Resources Blog

The duty to consult is a Crown responsibility. But what happens when the Crown’s consultation is inadequate? Can a company that suffers losses as a result claim compensation from the Crown? A recent decision of the British Columbia Court of Appeal in Moulton Contracting Ltd. v British Columbia, 2015 BCCA 89 indicates that it will be very difficult for companies to seek compensation from governments even where the Crown is found to have mishandled its consultation obligations.

Background

This decision arose from an appeal of a trial decision that ordered the Province of British Columbia (the “Province”) to pay damages of $1,750,000 to the respondent, Moulton Contracting Ltd., ("Moulton") for breach of an implied term of a contract as well as liability in negligent misrepresentation.

A contract was granted by the Province to Moulton on June 27, 2006, for the sale of two timber licences (the “TSLs”) in the Fort Nelson Timber Supply Area. This part of British Columbia is covered by Treaty No. 8, to which the Fort Nelson First Nation (“FNFN”) is a signatory. The TSLs granted Moulton the right to harvest timber in defined areas as well as the right to enter the timber harvest areas. The damages awarded at trial were a result of losses suffered by Moulton when it was prevented from logging under the TSLs due to a blockade erected by the respondents, George Behn and his family, most of whom were members of FNFN. About a month after the granting of the TSLs and unbeknownst to Moulton, George Behn informed an employee of the Province that he intended to “stop the logging”. The Province did not inform Moulton of this threat until two months later, after Moulton had started logging. Almost immediately afterward, the blockade was erected and Moulton was unable to complete logging under the TSLs. Notably, Moulton was not involved in Crown consultation on the TSLs, as consultation was completed by the Province before it issued the TSLs.

Trial Decision

Moulton sued the Province, the Behns and FNFN in November of 2006. The trial judge concluded that the Province's consultation with FNFN was inadequate, but imposed no liability on the Province on this basis, as this failure was not causative of the blockade. The trial judge further found that the limitation of liability clause in the TSLs exempted the Province from liability for the blockade with respect to inadequate Crown consultation.

However, the trial judge went on to find the Province liable for breach of an implied (unwritten) term of the TSLs, and for concurrent breach of an implied continuing representation in the same terms, for failing to inform Moulton of the blockade threats from Behn. The trial judge held that it was an implied term of the TSLs that the Province was not aware of any First Nations expressing dissatisfaction with consultations undertaken by the Province, except as disclosed by the Province.

Appeal

The appeal focused on the Province's liability for 1) breach of the implied term and 2) negligent representation.

In rejecting the existence of the implied term, the Court of Appeal stated that the trial judge erred in basing the implied term on the “commercial reality” of parties who contract with the Province; rather, the test is “whether the parties intended such a term.” Further, the Court found the implied term to be contradictory to provisions of the TSLs that were clearly intended to limit the liability of the Province for the consequences of an event such as the blockade. Additionally, the Court rejected Moulton’s reliance on the Supreme Court of Canada’s recent Bhasin v Hrynew decision, finding that there was no basis to say that the Province acted dishonestly in failing to disclose the threatened blockade to Moulton.

In overturning the trial judge’s findings on negligent misrepresentation, the Court of Appeal found that there was no positive duty on the Province to inform Moulton of any First Nations' dissatisfaction with the consultation, and that specific provisions in the TSLs shielded the Province from liability from occurrences such as the blockade.

Implications of the Decision

While this case arose in a forestry context, it has broader applications for other sectors as well — such as mining and oil and gas — where governments issue tenures that may affect aboriginal or treaty rights. The decision does not mean that the Crown can never be liable if it breaches its duty to consult, and a company is harmed as a result – it will depend on the facts of the case. However, it does mean that companies will have to carefully examine tenures or approvals from government to determine whether contractual language found therein shields or absolves the Crown of liability arising from inadequate Crown consultation.

We would also suggest that the decision reinforces the need for companies to adopt a “buyer beware” approach when seeking Crown dispositions that may trigger the Crown’s duty to consult, particularly where the Crown conducts its own consultations as opposed to delegating the process to the proponent. While the legal duty to consult clearly rests with the Crown, the Court of Appeal’s decision reinforces the message that it is industry, not the Crown, that will bear the consequences of the Crown’s failure to consult adequately. The decision is a reminder that proponents should undertake their own due diligence and review consultations undertaken by government agencies where possible, so that they can identify and address potential issues before committing significant financial resources to their projects.