Ottawa owes sawmill operators $67M

Ottawa has been ordered by the federal court to pay $65 million in damages to the operators of South Yukon Forest Corporation's long-defunct sawmill outside Watson Lake.

Ottawa has been ordered by the federal court to pay $67 million in damages to the operators of South Yukon Forest Corporation’s long-defunct sawmill outside Watson Lake.

After a 39-day trial, on May 5 the court found federal officials had committed breach of contract, negligence and negligent representation in their dealing with the mill’s operators.

It remains unclear whether Ottawa will appeal.

The sawmill fell silent in August 2000, after operating in fits and starts for two years. The closure cost 150 jobs – the mill was the territory’s largest private employer at the time.

The mill closed because it was starved of wood, the judge concluded. That’s despite repeated assurances made to the company by senior staff and politicians that wood would be forthcoming.

“They said, ‘You build the mill, we’ll supply you with wood.’ It’s as simple as that,” said Don Oulton, a company director.

But this isn’t just a story about administrative incompetence, although there’s no shortage of that to be found in the judge’s summation of facts. It’s also a story of “harsh, vindictive, reprehensible and malicious” behavior on the part of Crown employees, in the words of Justice Elizabeth Heneghan.

Regional staff conducted a “smear campaign” of providing misleading facts about the sawmill to their superiors in Ottawa. They manipulated statistics to match their own convictions there wasn’t enough wood to feed the mill. Deadlines were repeatedly set and missed.

And the company continued to be assured wood would be forthcoming, while officials foot-dragged to ensure this would not occur.

All this occurred against the backdrop of the “green gold rush” that occurred in Southeast Yukon during the mid-1990s. A logging boom enriched some and infuriated others. It triggered protests and native blockades.

Department staff evidently sided with conservationists who felt there wasn’t enough wood to feed a major mill in the territory. This put staff at odds with their bosses in Ottawa.

The resulting friction helps explain the government’s schizophrenic behavior. It poured millions of dollars into shoring up the mill operation while its own employees actively undermined the project.

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

Such incriminating correspondence was only uncovered by company lawyers who had filed access to information requests. “Numerous, highly relevant” documents were never produced by the government at trial, noted Heneghan.

The testimonies of former Crown employees at trial, meanwhile, were consistently found to be untrustworthy by the judge.

Among them was Ron Irwin, former Liberal minister of northern affairs. Irwin had met with the company principals in Dawson City during the summer of 1996. During the meeting he offered assurances the mill would be fed timber.

But when Irwin took the stand in Vancouver this year, the judge found he “demonstrated a selective memory,”“sparred unnecessarily with counsel in order to avoid answering questions” and “frequently chose to avoid the question asked” by adding “irrelevant comments designed to distract from the main issues.”

The judge also took a dim view of Ted Staffen, one of the company’s investors, who is now speaker of Yukon’s legislature. While the judge agreed the principals did secure a promise from Irwin, she cast doubt on details added by Staffen about subsequent meetings that occurred in a Whitehorse restaurant. “I do not find his evidence to be reliable about this meeting and give it little weight,” the judge wrote.

When the mill folded, Ottawa blamed market conditions and the mill operators. It never suggested its screwups played a role.

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

High staff turnover and a surge in logging applications strained the office’s capacity, playing a part in the delays. In one year, logging applications rose in number to 1,300 from 175.

But bad faith on the part of bureaucrats played a big part in the mill’s failure, too, according to the judgment.

The regional office was “actively circumventing the minister’s commitment” to help the mill, said Heneghan.

Jennifer Guscott, the only employee to continuously staff the regional office from 1996 to 2000, “frequently maligned … without justification” the company in her communications with headquarters in Ottawa.

She claimed, falsely, “the company built the mill without ever consulting or meeting” with federal officials. This is untrue, and Guscott knew it, wrote Heneghan.

Guscott also told higher-ups that company representatives were “not clean” and “slick.” She insisted the minister only agreed to help the mill because he had not been “properly briefed.”

The judge found this behavior unfit for a civil servant.

Today, Guscott continues to work for Indian and Northern Affairs’ BC regional office as a project leader. Her absence at trial, Heneghan concluded, is explained by how “her evidence would have been harmful to the defendant’s case.”

Yukon’s trees may be skinny and slow-growing, but they produce top-grade lumber that is tight-grained with small knots. Buyers in Japan are willing to pay top dollar for such wood, investors in South Yukon Forest Corporation reasoned.

A decade has passed since the mill closed. Since that time, responsibilities for managing forestry have devolved from Ottawa to the Yukon government.

Yet there’s little sign of improvement for loggers with eyes set on southern Yukon. There’s still no long-term tenure freed up for large logging operations.

“Until there’s long-term timber available, I can’t see any mill opening,” said Oulton. “There’s ample wood out there.”

Contact John Thompson at

johnt@yukon-news.com.