In Moulton Contracting Ltd. v British Columbia, 2015 BCCA 89, the BC Court of Appeal recently overturned the trial judge’s decision (reported at 2013 BCSC 2348, and summarized in an earlier update here) which had awarded $1.75 million in damages against the Province of BC for failing to inform Moulton Contracting Ltd. (“Moulton”), a logging company, of the dissatisfaction expressed by certain members of the Fort Nelson First Nation (the “FNFN”) regarding two Timber Sales Licenses (the “Licenses”) granted by the Province to Moulton.

The litigation began in 2006 when Moulton sued the Province, the FNFN and certain individual members of the FNFN for losses suffered as a result of a road blockade obstructing Moulton’s logging access road. The BC Supreme Court dismissed the action against the FNFN and individual defendants, but found the Province liable for failing to inform Moulton of the threat against its logging activities advanced by an individual member of the FNFN. The Court imposed liability based upon breach of an alleged implied term in the Licenses that “the Province was not aware of any First Nation expressing dissatisfaction with the consultation undertaken by the Province, save as the Province had disclosed to Moulton Contracting.” The trial judge also held the Province concurrently liable for negligent misrepresentation on the same basis.

On appeal, the Court held that the trial judge applied the wrong legal test for implying a term into the contract between the Province and Moulton. The trial judge approached the issue from the perspective of reasonable parties that contract with the Crown, rather than focusing on the proper legal test of whether or not Moulton and the Province had actually intended the term the trial judge implied into the Licenses. The BC Court of Appeal ruled that the test is not what reasonable parties would have intended, but what the actual parties to the agreement actually intended. Similarly, the Court rejected Moulton’s argument that the recently recognized duty of good faith and honesty in contractual performance (see Bhasin v Hrynew, 2014 SCC 71, summarized here) supported the implied term. In this case, the Province had not acted dishonestly, capriciously or arbitrarily in their dealings with Moulton.

The BC Court of Appeal also overturned the trial judge’s finding on liability for negligent misrepresentation. There was no express representation made by the Province to Moulton, nor was there any evidence that Moulton relied upon and was induced to purchase the Licenses on the basis of any continuing representation regarding First Nations consultation. In addition, the Court held that an exclusion of liability clause in the Licenses protected the Province from liability in any event. The clause expressly provided that the Province would not be liable for third party interference, including by roadblocks or other means. The exclusion of liability clause applied because Moulton’s losses were caused by the roadblock itself, not the failure to warn of the threat of a roadblock.

Following speculation that the trial decision may lead to additional cases of Crown liability for situations involving a flawed consultation process, the decision of the BC Court of Appeal indicates that courts will be reluctant to impose liability against the Crown on the basis of an implied term of contract, implied continuing representation, or the duty of honest contractual performance, without clear evidence that the parties intended such terms to exist or that an express representation was made. The ruling also confirms that the Supreme Court of Canada’s recent endorsement of the duty of good faith and honesty in contractual performance will not apply so broadly as to import issues of good faith and honest contractual performance to every case. However, the decision indicates that it remains a good practice for companies operating in areas which may be susceptible to a First Nations blockade to review the history of consultation with First Nations and to have periodic contact with the government to monitor First Nations relations in order to avoid the potential for business disruption or prolonged litigation.