Officials of the Department of Indian Affairs and Northern Development (DIAND) represented to South Yukon Forest Corp. (SYFC) and Liard Plywood and Lumber Manufacturing Inc. (LPLM) that if they built a lumber mill in the Yukon the Crown would ensure an adequate, long-term supply of timber. The mill was built, the timber was not forthcoming, the mill shut down at a loss. The Federal Court found the Crown liable for breach of contract, negligence and negligent misrepresentation.
The Federal Court of Appeal, while accepting the factual findings of the trial court, held that SYFC and LPLM relied unreasonably on the assurances they received about the supply of timber, as they should have known that such a supply could be guaranteed only under a long-term timber-harvesting agreement (THA) with the Crown: Canada v South Yukon Forest Corp, 2012 FCA 165. A THA is contingent on the filing of a timber management plan and is granted at the discretion of the federal Cabinet. DIAND officials had no authority to bind the Crown to grant the THA necessary to guarantee a profitable level of timber. This was something the two companies ought to have figured out for themselves. In any event, the totality of the DIAND representations left it far from certain that SYFC and LPLM would ever get a THA. The officials did not have the authority to bind the Crown, so there was no breach of contract. By operating the mill under a short-term permit, the companies took the risk that a THA might not be forthcoming. They had no legitimate expectation as to the substantive matter of timber supply and could not say the Crown was negligent in taking its time in considering the granting of a THA.
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