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Appeal court bucks sawmill decision

In overturning the original decision, the three-judge appeal panel concluded that the owners of the Watson Lake sawmill should have known better than to believe promises by government officials.

The Federal Court of Appeal has reversed a $67-million settlement awarded to a failed Yukon sawmill.

In overturning the original decision, the three-judge appeal panel concluded that the owners of the Watson Lake sawmill should have known better than to believe promises by government officials and politicians who promised them a steady supply of wood.

In August 2000, after two years of sporadic operations, the sawmill closed. As the territory’s largest private employer at the time, the closure put 150 people out of work.

The owners of the mill, South Yukon Forest Corporation and Liard Plywood and Lumber Manufacturing, blamed the closure on the government. They claimed that the mill was starved of wood despite repeated assurances made to the company by senior government staff and politicians that wood would be forthcoming.

The responsibility for managing forestry rested with Ottawa at the time.

When the mill closed, the federal government blamed market conditions and the mill’s operaters.

The department knew the mill needed 200,000 cubic metres of wood annually to operate but federal officials capped the wood supply at 128,000 cubic metres. This despite reports indicating an annual cut of 1.6 million cubic metres could be sustained.

In the mid-1990s the Yukon was going through a logging boom.

The “green gold rush” in southeast Yukon triggered protests and native blockades.

Federal staff, it seemed, sided with conservationists who felt there wasn’t enough wood to feed the mill, putting them at odds with officials in Ottawa.

The result was some very contradictory behaviour. The federal government poured millions of dollars into shoring up the mill operation while its own regional employees actively undermined the project.

In 2010, the companies sued the federal government and won.

After a 39-day trial, Justice Elizabeth Heneghan found the government at fault.

In her decision, she wrote that the Indian and Northern Affairs employees behaved in a “harsh, vindictive, reprehensible and malicious” manner towards the sawmill owners.

The government, she said, had committed breach of contract, negligence and negligent misrepresentation.

Regional staff, she concluded, conducted a “smear campaign,” providing misleading facts about the sawmill to their superiors in Ottawa, and manipulated statistics to match their own convictions there wasn’t enough wood to supply the mill.

Through access-to-information requests, company lawyers unearthed droves of incriminating correspondence.

“The lack of wood for 1998 was and is no accident,” one department employee wrote in an email. “It was well planned by inaction, complacency, disrespect of management and industry need and subtle disobedience.”

Much of the correspondence would not have seen the light of day if not for their lawyers’ efforts.

“Numerous, highly relevant” documents were never produced by the government at trial, noted Heneghan.

The $67 million Justice Heneghan awarded the companies was based on the projected profits from 20 years of operation.

In September 2010, Ottawa appealed the decision and late last month got the original decision overturned.

The appeal panel didn’t dispute Justice Heneghan’s findings but concluded that because federal officials overstepped their authority in promising a supply of wood, it couldn’t be considered a legal contract.

“Any promises or representations by the officials of the Department to the effect that a Timber Harvesting Agreement would be granted were outside their authority to make because a Timber Harvesting Agreement could only be granted by order-in-council,” the appeals panel concluded. “The officials had no authority to bind the Governor in Council.”

The former owners of the sawmill couldn’t be reached for comment.

Contact Josh Kerr at