Ipsofactoj.com: International Cases  Part 5 Case 11 [SCC]
SUPREME COURT OF CANADA
Canadian Forest Products Ltd
- vs -
11 JUNE 2004
(delivered the majority judgment of the court)
In the summer of 1992, a forest fire swept through the Stone Creek area of the Interior of British Columbia about 35 kilometres south of Prince George. Approximately 1,491 hectares were burned over, including areas where the appellant Canadian Forest Products Ltd. ("Canfor") and other tenure holders were licensed to log, areas of steep slopes where it was uneconomic to log, still other areas where the trees were too immature to log, and areas along watercourses subsequently declared by the Crown to have too much environmental value to permit logging at all. It is the assessment of compensation for the Crown's claim for environmental damage in these last-identified areas, called Environmentally Sensitive Areas ("ESAs"), that has created particular difficulty.
There is no longer any dispute about responsibility for the blaze. In the previous year, Canfor had carried out a controlled burn of its slashing and other logging waste, which failed to extinguish itself over the winter as expected. This fact went undetected because of the negligence of Canfor. The fire flared up again at the end of June 1992. The trial judge found that, while Canfor's negligence contributed to the failure to suppress the resurrection of the fire, the Crown's inadequate firefighting efforts also contributed to the loss ( B.C.J. No. 1945 (QL)). He considered it impossible to apportion degrees of fault or blameworthiness and thus divided responsibility evenly. The Court of Appeal varied his decision by allocating 70 percent of the responsibility to Canfor and 30 percent to the Crown ((2002), 100 B.C.L.R. (3d) 114, 2002 BCCA 217). These findings are no longer in issue.
At trial, the Crown claimed damages for three categories of loss:
Expenditures for suppression of the fire and restoration of the burned- over areas;
Loss of stumpage revenue from trees that would have been harvested in the ordinary course (harvestable trees); and,
Loss of trees set aside for various environmental reasons (non-harvestable or protected trees).
The trial judge awarded the Crown $3,575,000 under the first heading (which was an agreed figure) but otherwise dismissed the claim on the basis the Crown had failed to prove a compensable loss with respect either to harvestable or non-harvestable trees. In doing so, he expressly accepted as "compelling" the valuation evidence of C. H. Gairns, Canfor's expert, and rejected the analysis of G. W. Reznik of Deloitte & Touche, the Crown's valuation expert, as "not persuasive".
The Court of Appeal dismissed the Crown's appeal on damages with respect to the harvestable trees, but awarded compensation for "diminution of the value" of the non-harvestable trees at a figure equivalent to one third of their commercial value. The task of assessing the commercial value of the non-harvestable trees, if the parties could not agree to it, was referred back to the trial court. This award is the subject matter of Canfor's appeal.
The Crown considers the award of compensation to be inadequate and in its cross-appeal claims the "auction value" of the standing timber in both harvestable and non-harvestable areas as of the date of the fire plus a premium over and above auction value for the degradation of the environment caused by destruction of the non-harvestable trees. In the alternative, it seeks an award of stumpage fees, plus the environmental premium on the non-harvestable trees. Canfor attacks the Crown's methodology and says that, on the evidence, the Crown has been overcompensated, not under-compensated, by the courts in British Columbia.
The question of compensation for environmental damage is of great importance. As the Court observed in R. v Hydro-Québec,  3 S.C.R. 213, at para. 85, legal measures to protect the environment "relate to a public purpose of superordinate importance". In Friends of the Oldman River Society v Canada (Minister of Transport),  1 S.C.R. 3, the Court declared at p. 16 that "[t]he protection of the environment has become one of the major challenges of our time". In Ontario v Canadian Pacific Ltd.,  2 S.C.R. 1031, "stewardship of the natural environment" was described as a fundamental value (para. 55; italics in original). Still more recently, in 114957 Canada Ltée (Spraytech, Société d'arrosage) v Hudson (Town),  2 S.C.R. 241, 2001 SCC 40, the Court reiterated at para. 1:
.... our common future, that of every Canadian community, depends on a healthy environment .... This Court has recognized that "[e]veryone is aware that individually and collectively, we are responsible for preserving the natural environment .... environmental protection [has] emerged as a fundamental value in Canadian society ....
If justice is to be done to the environment, it will often fall to the Attorney General, invoking both statutory and common law remedies, to protect the public interest. In this case, the Attorney General has not resorted to statutory remedies (as under s. 161(1) of the Forest Act, R.S.B.C. 1979, c. 140 (now R.S.B.C. 1996, c. 157), for payment where timber is damaged or destroyed) but has sought damages at common law. The present appeal raises, therefore, the Attorney General's ability to recover damages for environmental loss, the requirement of proof of such loss and a principled approach to the assessment of environmental compensation at common law.
The Crown in right of British Columbia says it sues not only in its capacity as property owner but as the representative of the people of British Columbia, for whom the Crown seeks to maintain an unspoiled environment. Thus the claim for an environmental premium is made "in recognition of the fact that it [the Crown], and the public on whose behalf it owned the Protected Trees, valued them more highly as part of a protected ecosystem ...." The Crown frames the issue on appeal as the valuation of tort damages for a "publicly owned resource", and makes reference to the "worth to society" of the trees in their protected state. The Crown states that "[f]air compensation also requires that wrongdoers pay the public for damaging their ecosystems" In thus framing its claims, the Crown invokes its role as parens patriae.
The relationship between the Crown's status as property owner and the Crown as parens patriae is one of the issues presented for consideration, as is the Crown's hybrid role as regulator of the forest industry and at the same time recipient of a revenue stream established and limited by its own regulatory system.
The Attorney General of Canada intervened in support of the Province to argue that full compensation for damage to protected natural resources must include reimbursement for financial expenditure on restoring the natural resource ("restoration cost"), compensation for the loss of use and passive use until such time as restoration is complete ("loss of use"), and, where the facts warrant, additional compensation for permanent loss of a unique resource where there is no prospect of restoration.
A claim for environmental loss, as in the case of any loss, must be put forward based on a coherent theory of damages, a methodology suitable for their assessment, and supporting evidence. No one doubts the need for environmental protection but, in this case, apart from the cost of reforestation, which was agreed to, the Crown claims only stumpage and "diminution of the value of the timber" within the burned-over area. The environment includes more than timber, but no allegations of loss were made in that regard. The pleadings, in other words, suggested a fairly narrow commercial focus and that is how the claim was defended.
The evidentiary record is also singularly thin on what precise environmental loss occurred, apart from damage to trees, and what value should be placed on it. The evidence of the Crown's own valuation experts, Deloitte & Touche, offered no support for the Crown's present expanded posture on environmental loss.
We cannot treat the Crown's argument as evidence; nor can we read into the record a theory of valuation that, rightly or wrongly, was supported by none of the experts. The Crown may have a more substantial environmental claim than is before us but she didn't prove it. Thus, while I would not interfere with the Court of Appeal's disposition of the claim in respect of the harvestable timber, in my opinion, with respect, the Crown did not establish its claim for compensation for environmental damage. I would therefore allow Canfor's appeal in that respect. The Crown's cross-appeal should be dismissed.
Canfor is one of the largest forest companies in British Columbia. At all material times it held a Forest Licence from the Province under the Forest Act, supra, permitting it to cut timber (the annual allowable cut) from year to year in the identified territory over a 20-year period in exchange for stumpage, i.e., a fee charged on each cubic metre of harvested timber, plus forest management services. The maximum allowable cut in each year was regulated by cutting permits, issued for terms not exceeding four years. The permit system gave licence holders such as Canfor a certain amount of flexibility in the pace, volume and location of its cutting operations. The fire spread to lands outside Canfor's licence area, including timber supply licence lots and woodlots held by different operators under other types of tenure.
The litigants variously described the plaintiff in terms of the, "Crown", the "Province" and the "Attorney General". In what follows, I generally refer to the Province as the interest holder and the Crown or Attorney General as its advocate.
The area affected by the fire had been harvested before on a number of occasions in the 1950s and 1960s. The timber in the area was not, by and large, old growth but it was big enough for the wood to be merely damaged (rather than consumed) by the fire.
The stumpage system in effect in British Columbia since 1987 has its roots, at least in part, in the softwood lumber dispute with the United States. According to the expert evidence, "the Americans were suggesting that the government of British Columbia was giving away its wood at inappropriately low rates". Accordingly, the Province adopted a stumpage "target rate" for wood harvested in the British Columbia Interior, and adopted a Comparative Value Pricing ("CVP") system to ensure that it was able to collect that target rate for each cubic metre of timber production. Forest productivity and costs of production vary from licence area to licence area within the B.C. Interior, and the Province's regulatory rate system, including the CVP, was calculated to ensure both cost sensitivity to local conditions and achievement by the Province of revenue that it hoped would calm the roiling waters of the U.S. softwood lumber lobby. As Crown counsel put it to Canfor's expert:
In 1987 the Ministry of Forests introduced the comparative value pricing system as part of a program to remove the 15 percent export tax which is imposed by Canada on softwood lumber exports to the U.S. in response to the threat of a U.S. tariff. Under the CVP, the stumpage rate is still determined on appraisal basis. The rate is then subjected to a mathematical manipulation to insure that the stumpage budget in B.C. approximates the target rate set by the government.
As found by the trial judge, the CVP system ensured "that responses by the Ministry of Forests to verifiable local high costs, or low timber values, would not affect Provincial revenues" (para. 121; emphasis added). Canfor's expert added, perhaps with a hint of cynicism, that "[t]hey adopted this system to boost government revenues, significantly boost government revenues. And they had a great excuse to do it, they could blame it on the Americans. That's my opinion".
It is against this background that the Court must determine the amount of compensation that will, so far as money can, put the Province in the same position as it would have been in if the fire had not occurred.
A. Calculation of Stumpage
"Stumpage", as mentioned, is an amount of money charged by the Province on each cubic metre of harvested timber. At the date of the fire, it was payable at rates determined in accordance with the policies and procedures approved for the forest region by the Minister. The relevant policies are set out in the "Interior Appraisal Manual" which has the force of subordinate legislation made pursuant to s. 105 of the current Forest Act (formerly R.S.B.C. 1979, s. 84). Canfor argues that the Crown's compensable interest was the creature of, and was limited by, the regulatory scheme that was put in place by the Province itself in 1987. The Province is not, in that respect, an ordinary landowner. It was entitled to a revenue stream and, says Canfor, there was no shortfall in that revenue stream attributable to the fire.
The regulatory scheme dealt separately with the Coastal Region and the Interior Region. The Crown established a target rate for each region which, when multiplied by anticipated timber production, yielded a target revenue.
Actual stumpage rates were adjusted from place to place, depending on local yields, to ensure that the Crown obtained no more and no less than the total harvest multiplied by the target rate. This produced stumpage at a higher rate in some places than others, depending on the comparative "value" of the wood harvested in a particular area in relation to the costs of production. Areas of poor yield were charged lower stumpage fees than more productive areas. For each cutting area, therefore, what was called a "value index" (VI) was established.
The next step was to pool the VI from all of the cutting areas in the B.C. Interior into a "mean value index" (MVI) to establish a benchmark. Local variation in net productivity above or below the benchmark determined the local stumpage rate.
Any operator with a higher VI would pay more than the base rate in stumpage whereas those with a VI lower than the MVI would pay less, with a view to achieving a constant and predictable revenue for the Province.
The stumpage system, including the CVP, was and is the only source of revenue for the Province under the Forest Act pursuant to which the Province was entitled to recover revenues. The Province could, of course, have devised a different system, and has since made a modification to exclude the effect of forest fires from the CVP calculation. However, as of the date of this fire in 1992, it had not done so.
B. The Waterbed Effect
These VI and MVI "values" were adjusted each fiscal quarter. Where, as in the case of the Stone Creek fire area, the "value" of the standing timber was reduced, thus lowering the VI of that area in relation to the MVI, and therefore giving rise to a reduced stumpage rate in the Stone Creek area, the regulatory system, through the CVP mechanism, adjusted the rates paid by other licensees in the following quarter to compensate. This was known as the "waterbed effect". As the trial judge found, at para. 121,
[i]t has been dubbed "the waterbed effect" by the forest industry because any special stumpage reduction factors negotiated by a Forest Licensee, or a group of licensees, results in increased stumpage rates for the others.
The "waterbed" effect built into the regulatory regime was a loss-spreading system that distributed local VI gains and VI losses amongst the forest licensees throughout the region in such a way that the Province did not, and could not, suffer a revenue loss as a result of a drop in productivity in any one area, such as Stone Creek.
All of these adjustments, including the impact on VI and MVI of the Stone Creek fire, were, as Canfor's expert put it, "business as usual". The regulator intended to maintain the Crown's revenue at a level low enough to encourage activity in the forest industry but high enough to pacify trade disputes with U.S. producers who claimed to function at a serious cost disadvantage in relation to their Canadian competitors.
The Crown objected at trial that the increased revenue yield achieved elsewhere under the CVP stumpage "waterbed" was a "collateral" effect and should not be taken into account to reduce the Crown's compensation, but this position was rejected by both the trial judge and by the Court of Appeal. In their view, and I agree, the Crown was unable to establish any compensable revenue shortfall.
C. Areas of Environmental Sensitivity
At the time of the fire, the Crown had established certain areas excluded from harvesting, where logging was prohibited. These included "steep, sensitive sites". It was recognized that conventional logging on steep hillsides would disturb the ground, leading to potential erosion. There were also limitations on cutting in areas of immature trees and wildlife areas designed to protect flora and fauna.
After the fire, but prior to trial, the Crown also established "riparian areas" in the forests where logging along rivers and creek banks was prohibited to protect watercourses, fish habitat, and other environmental values.
Canfor's expert took the view, valuing the loss as of the date of the fire in 1992, that riparian areas should be included in the valuation of the Crown's loss because they were available for logging at that time. For purposes of this case, therefore, such timber was treated as harvestable and therefore productive of revenue. However, Canfor's expert calculated that logging the steep, sensitive slopes in a way that was environmentally acceptable even in 1992 (i.e., by helicopter) would have been so uneconomic as to produce for the Crown, notionally, a negative stumpage rate. He therefore concluded that although logging the steep, sensitive slopes would have yielded a certain quantity of timber, it would not have financially advantaged the Crown. He calculated the Crown's revenue loss on both harvestable trees and non-harvestable or protected trees on steep, sensitive slopes at zero.
In the present case, the Crown claimed that approximately 85 percent (235,567 cubic metres) of the timber salvaged from the burnt area consisted of harvestable trees and 15 percent (42,881 cubic metres) of non-harvestable or protected trees.
D. Salvage Operations
After the fire, the burned-over cutting areas were logged. The fire-damaged timber was sold at a reduced price. This produced immediate revenue for the Crown of $1,528,857. The burned trees in some areas were left standing for environmental reasons, primarily to add stability to the soil.
E. Rehabilitation Plan
The Crown adopted a Rehabilitation Plan consisting largely of steps to prevent siltation of watercourses, construction of erosion bars, clearing of leaning trees and pushovers and sowing grass seed from helicopters to establish vegetation to reduce erosion and improve slope stability. Natural re-growth of the forest will, of course, take decades. The elements and cost of this plan were agreed to by the parties.
F. Expert Valuation of Loss of Harvestable Trees
The stumpage rate for the harvestable trees depended on the nature of the tenure: for Forest Licence timber (50 percent of total), it averaged $14.68 per cubic metre; for Timber Supply Licence timber (6 percent of total), it averaged $21.20; for Woodlot timber (44 percent of total), it averaged $12.95. The weighted average for stumpage rates at the time of the fire in 1992 was therefore $14.31 per cubic metre, as compared with the target stumpage rate for the B.C. Interior of $8.55.
Canfor's expert, Mr. Gairns, prepared a present value calculation of the Crown's loss by measuring the future stumpage revenue stream with and without the fire, using information that would have been available to the parties at the time of the fire, then applying the appropriate discount rate to reflect the benefit to the Crown of having the use of the money years ahead of the anticipated receipt. Specifically, he took the July 1, 1992 target rate and applied it to the volume of timber expected to be harvested in future in accordance with the probable cutting schedule anticipated before the fire, and deducted the present value of the stumpage revenue from the salvaged timber, to arrive at the Crown's net stumpage value loss or gain. He concluded that, because the Crown's receipt of revenue was accelerated dramatically by the fire, and the Crown would therefore have the use of over $1.5 million over a period of many years that it would not otherwise have had, the paradoxical result of the fire under the Province's regulatory stumpage system was a financial gain to the Crown of $100,291 (using a discount rate of 3.5 percent).
The Crown's expert, Mr. G. W. Reznik, of Deloitte & Touche, accepted Mr. Gairns' approach of valuing the expected revenue streams from stumpage fees with and without the fire. However, he assumed that a more aggressive cutting schedule would have been permitted (thereby reducing the discount effect). Moreover, in order to project Crown revenue had the fire not occurred, he used an average of actual stumpage rates imposed over the seven years after 1992, less the revenue received from salvage stumpage. Stumpage rates rose in the years after 1992. Using actual post-1992 rates magnified the loss. He arrived at an estimated Crown loss of $2,400,758 (using a 3.5 percent discount rate).
As stated, the trial judge accepted the evidence of Canfor's witness, Mr. Gairns, who acknowledged that "[i]nitially, it might appear unusual that the revenue received from the salvage logging more than made up for the loss of the timber for future harvests". However, Mr. Gairns put forward several reasons for this:
Although a large volume of timber in the Stone Creek area was damaged, the damage wasn't so severe as to make the timber significantly less valuable than green (i.e., pre-fire) timber.
The stumpage rates for the salvaged timber were still generally higher than the Interior Target Rate set for the relevant 1992 period.
The differences in stumpage rates calculated for pre-fire timber versus post-fire timber were relatively small.
Small business timber supply licensees, who generally paid higher stumpage rates than major operators such as Canfor, logged a greater proportion of the salvage timber in the Stone Creek fire area than they would have taken of "green" timber if the fire had not occurred.
Without the fire, the Crown would not have received stumpage revenue in the area for many years, as it was not scheduled for further logging until an initial harvest of some blocks in 2001 and further "passes" in 2016 and 2031. Some timber in one of the larger woodlots would not have been harvested for 66 years. The accelerated receipt by the Crown of stumpage up to 66 years in advance was a significant financial advantage and this was an important factor in the finding that the Crown suffered no loss.
[W]hy didn't you just consider a methodology for quantifying the Crown's loss by just multiplying the [salvaged] timber involved in the Stone Fire area times the applicable rate of stumpage at the time of the loss?
Because it could not have been harvested on that kind of a schedule.
Mr. Gairns did not adjust the stumpage rates on a forward averaging basis, as did Deloitte & Touche, because in his view, such rate increases were due to a lot of factors that could not have been anticipated in 1992. Moreover, in his view, it was wrong to isolate only one "future" factor, i.e., stumpage rates, out of complex developments that included major changes in the regulatory system in 1996. The trial judge agreed, at para. 124, holding that:
Among other shortcomings, the Deloitte & Touche assessment utilizes changes in stumpage rates over the past seven years, but does not take into consideration other changes in the forest industry over that period. The report is not persuasive.
The Stone Creek fire displaced logging activities somewhat within the Prince George area but did not affect the overall magnitude of the logging effort or, consequently, Crown revenue. Mr. Gairns testified:
.... in the Prince George timber supply area .... there's something like 60 years supply of mature timber at the current levels of harvest. So a fire just changes the age class in the [burned over] portion of the timber supply area. It [the fire] doesn't really affect the ability to harvest the annual allowable cut. It moves it around but it doesn't affect the level of harvest.
Most of the timber that could not be salvaged would not have been harvested had the fire not occurred; and,
The CVP stumpage calculation was designed to take into account all local variations, including fires (whether started by natural causes or negligently). "The system was set up so that if somebody had to log low-grade timber, the Crown's revenue would not change. That's what it was for and that's what it did."
Mr. Gairns therefore concluded, and the trial judge agreed, that the Crown had suffered no financial loss with respect to harvestable trees. The Court of Appeal agreed.
G. Expert Valuation of the Loss of Non-harvestable Trees
Deloitte & Touche valued the loss of non-harvestable (or protected) trees on the basis of stumpage value, or alternatively, the auction value (i.e., as if the entire block of green forest had been put up for auction on the date of the fire). The Crown added a premium equivalent to about 20 percent over auction value on the basis that the Province must have valued non-harvestable trees more highly as part of a protected ecosystem than as harvestable timber, otherwise it would not have protected them. The 20 percent was acknowledged to be a somewhat arbitrary figure.
Canfor's expert concluded that the Crown had suffered no financial loss on the "protected" or non-harvestable trees either. As stated, he included the environmentally sensitive riparian areas in his revenue calculations because they had not been excluded from harvesting as of 1992. They therefore formed part of his general "no loss in revenue" calculation.
On the other hand, the "sensitive slope areas", in his opinion, would have been so expensive to log as to produce a negative return both for the operator and for the Crown, as stated.
On the more general question of environmental loss, however, Mr. Gairns had this to say in cross-examination:
If there is a value, it's the kind of value you measure in visitor days and fish caught and a lot of other things, but not in terms of stumpage revenue. There may be a way to value that, and I think there are experts in other fields of forest economics that could do that. I know of one that does wildlife and tourism types of economic evaluations and maybe there's something could be done there. I don't think it's a high tourist-use area, but I know that it has a value as a watershed. If there's degradation to the water supply, that could be valued. I didn't try to do that because I don't think that that's a loss of revenue to the Crown.
It doesn't look that nice because we've got skeletons of trees instead of green ones. I don't know and I don't believe Mr. Reznik [of Deloitte & Touche] knew of any good way to put a value on that degraded view. And so he said in lieu of not having anything, we'll just say it could have been logged and we'll use the stumpage rate. I think that's completely inappropriate.
The Crown called no expert evidence on the evaluation of environmental damage other than that of Deloitte & Touche.
The issues are:
The Crown seeks compensation both as landowner and in a representative capacity for environmental losses suffered by the public generally. Canfor says the Crown sued only as landowner in private law and it should not be allowed to float a "public interest claim" at this late stage of the litigation.
The Crown says that the harvestable areas were a capital asset whose value was greatly diminished by the fire and thus claims the difference between the "auction value" of the timber in the burnt area before and after the fire. Canfor says that auction value is irrelevant. Under the Forest Act and its regulatory scheme, the Province had tied up the relevant forest areas in long-term licences. The regulatory scheme did not permit "auction" of the harvestable timber. The Province's sole relevant entitlement was to receive the revenue stream provided for under a regulatory system that included the CVP "waterbed".
The Crown says the operation of the CVP system provides an irrelevant "collateral source of income" that ought not to have been taken into account to reduce the compensation payable by Canfor. Canfor says the CVP "waterbed effect" allowed the Province to achieve its target stumpage rate despite the fire. The Province was never entitled to anything more or less than the harvested timber multiplied by the target rate under the regulatory scheme. The Province therefore suffered no loss in relation to harvestable timber.
As to the non-harvestable trees, the Crown says it is entitled to the commercial value of the trees plus a premium for their environmental value. Canfor says even if the protected trees are taken into account, the Province proved no financial loss.
Canfor further says that Canadian common law does not provide for "environmental damages" as claimed by the Crown in this case, and that any change in the law governing environmental losses should be made by the legislators, if they think it wise to do so, not the courts.
III. JUDICIAL HISTORY
A. British Columbia Supreme Court
The trial judge concluded that compensation for lost stumpage revenue would restore the Province to its original position. As the experts had agreed on the "stumpage" approach to valuation, he rejected the Crown's claim to the "auction value" of the harvestable trees as a proper measure of damages. He accepted Canfor's argument that the fire had in effect accelerated the Province's receipt of revenue that would otherwise have been spread over a number of years, and to that extent the fire actually conferred a small benefit in purely financial terms.
Pursuing the "revenue stream" approach, the trial judge held that Canfor was entitled to have the increased revenue obtained by the Province from other licensees under the CVP system taken into account to neutralize the Stone Creek loss. In his view, the CVP system was not collateral to Canfor's negligence, and it was therefore relevant to the calculation of damages. There was no revenue loss. The application of the CVP plus other adjustments left the Province in no worse financial position than it would have enjoyed had the fire not occurred.
With respect to the non-harvestable trees, the trial judge stated, at para. 130:
There is no doubt that the trees in these areas had value. It was more than an aesthetic or amenity value. It was a pecuniary, utilitarian value. Mr. Gairns [Canfor's expert] said that, "Stone Creek provides both fish habitat and water supply to the local residents." The retention of the trees in those areas was simply the application of ecological and environmental sanity.
In the trial judge's view, the Province had lost something of value, but he considered the proper measure of damages to be restoration cost, namely, "the cost to replant and husband the area to ensure that it would regain its former self" (para. 133). He did not factor into his calculation the number of years required for the forest to regenerate to its 1992 dimensions. The costs of reseeding by helicopter and other restoration work had been agreed to. Consequently, no damages were awarded in respect of the non-harvestable ESA trees either.
Essentially, therefore, apart from the costs of the reseeding and other elements of the Forest Rehabilitation Plan already agreed to by Canfor, the Crown's claim for compensation was dismissed.
B. British Columbia Court of Appeal
The reasons of the Court of Appeal were given by Hall J.A., with separate concurring reasons on the CVP issue given by Smith J.A. (Huddart J.A. concurring).
1. Reasons of Hall J.A.
Hall J.A. held that the trial judge was correct to award no damages for loss of stumpage revenue on the harvestable trees. It was appropriate to take into account the "waterbed" effect of the CVP stumpage system. CVP revenue was not "res inter alios acta" (para. 56). On the contrary, there was a direct relationship between the stumpage revenue lost due to the fire and the additional revenue obtained from other forest operators via the CVP stumpage system. The CVP system had been put in place by the Province to "ensure that despite whatever vicissitudes might occur in any year in timber harvesting operations, provincial revenue would remain essentially unaffected" (para. 61). Account had therefore to be taken of the levelling effect of the CVP system. At the end of the day, the Province was not out of pocket on the stumpage fees.
Hall J.A then turned to damages for the non-harvestable trees. They were an asset, in his view, maintained in order to preserve the environment. However, since the trees were not intended to enter the marketplace, Hall J.A. felt it was "out of accord with commercial reality" (para. 65) to assess the value of the asset by reference to the market value of the trees. He thus rejected the Crown's attempt to value the non-harvestable trees by reference to their potential stumpage revenue as inappropriate.
Hall J.A. then considered how to value an asset that was deliberately withheld from the marketplace. In his view, there was a real loss however difficult it was to quantify. Having regard to Wood v Grand Valley Railway Co. (1915), 51 S.C.R. 283, and Penvidic Contracting Co. v International Nickel Co. of Canada,  1 S.C.R. 267, he held, at paras. 74-75, that the difficulty of estimating damages accurately should not relieve the wrongdoer of the need to pay damages, that the judge / jury must "do `the best it can' and its conclusions will not be set aside even if `the amount of the verdict is a matter of guesswork'". The Province had suffered a real loss. The trial judge had identified "ecological damage" which was tangible and real, not merely an amenity value. There was destruction of valuable tree habitat. Fish habitat and water supply to local residents had been harmed. While it was not easy to set a value on the damage, and though the assessment might lie "near the outer parameters of the possibility of estimation", he ordered compensation equivalent to one third of the commercial value of the non-harvestable trees.
2. Concurring Reasons of Smith J.A. (Huddart J.A. concurring)
Smith J.A. also rejected the Crown's claims for loss of stumpage revenue but did so on the basis of the rule against double recovery: Ratych v Bloomer,  1 S.C.R. 940. Since the effect of the CVP stumpage system was to prevent any overall loss to the Crown from the fire, and the Crown had already recovered its revenue at the "target rate", any recovery by the Crown in this litigation would amount to compensation for a loss the Crown had not suffered. The financial effect of the fire was revenue neutral. The Crown had not suffered a compensable loss.
It is now accepted that Canfor was principally responsible for a fire that, with sensible precautions, could have been avoided. The result has been serious physical damage to 1,491 hectares of formerly green forests. One could reasonably anticipate that the environmental impact, apart from "diminution of the value of the timber", was also significant. Erosion problems have likely been aggravated. Fish habitat likely threatened. Water supply to the local community to some extent degraded. Forest vistas replaced with the skeletons of blackened trees.
Yet, apart from stumpage, the Crown's claim was limited to "diminution of the value of the timber". On that point Canfor says that, as a matter of law, the Crown has failed to establish any financial loss in excess of the costs of sowing grass seed and other tasks under a forestry rehabilitation plan which will require decades to restore the forests to their pre-fire maturity.
This appeal is thus not about proof of physical damages, but about the proof and assessment of compensable loss. One does not have to agree with Mr. Gairns' characterization of environmental loss valuations as "pretty airy-fairy" to accept, nevertheless, that in assessing compensatory damages for environmental loss, the Court ought not to be engaged merely in punishment of the wrongdoer (which is the domain of regulatory offences) or imputing losses based on little more than a generalized desire to mete out rough justice to a tortfeasor. Quantification of the loss must be "fair to both the plaintiff and the defendant .... fairness is best achieved by avoiding both under-compensation and over-compensation": Ratych, supra, at p. 963.
It is one thing for the Court to say that the difficulty of estimating damages accurately should not relieve the wrongdoer of the need to compensate for a loss. It is another to dispense with proof of loss in the first place (recognizing, however, the realistic limits of proof inherent in the subject matter). I agree in principle entirely with Crown counsel's plea at trial that
.... environmentally sensitive areas serve many purposes, including prevention of slope erosion where it's located in steep areas, prevention of stream siltification from slope erosions, providing shade to streams, to support wildlife and food from the tree branches, habitat for wildlife and various other purposes [.]
However, Canfor says the Crown has framed this case as an ordinary commercial law suit and Canfor is entitled to have it pleaded and proved in the ordinary way.
It therefore becomes necessary to analyse the overall structure of the Crown's financial claim piece by piece.
A. Is the Crown Limited to Suing in its Capacity as an Ordinary Landowner?
The Crown sued and recovered compensation in the courts of British Columbia in its capacity as landowner of the Crown forests.
Can the Crown also sue as a representative of the public to enforce the public interest in an unspoiled environment? If the Crown cannot do so, who (if anyone) can? Reference was made to Prince Rupert (City) v Pederson (1994), 98 B.C.L.R. (2d) 84 (C.A.), where the court held that a municipal corporation cannot recover for the loss of "amenities" on behalf of its inhabitants arising from the destruction of trees.
In this Court, the Crown suggested that it was entitled to collect damages in negligence, "to effectively deter environmental harm and compensate the public for environmental damage". Canfor took the position that any such claim amounted to a "public law" remedy available only under special legislation such as the United States' Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. 9601-9675 (1980) as am. ("CERCLA"), often called the "Superfund" law. Such losses are not, Canfor says, recoverable by a landowner in tort. The Crown's argument, Canfor implies, confuses distributive justice with corrective justice. Canfor was supported in this regard by the industry intervener, the Council of Forest Industries ("COFI") and others. Canfor and COFI took the view that when the Crown sues in tort, it is limited to the rights of a private party. It was conceded that there is an accepted role for the Attorney General as defender of the public interest in the law of public nuisance, but the remedy available in such cases is injunctive, not compensatory.
Historically, of course, the Attorney General, representing the Crown, has been the appropriate party to sue for abatement of a public nuisance. Recently, the Court adopted as correct the proposition that "any activity which unreasonably interferes with the public's interest in questions of health, safety, morality, comfort or convenience" is capable of constituting a public nuisance: Ryan v Victoria (City),  1 S.C.R. 201, at para. 52. It seems to me that the act of Canfor in burning down a public forest is capable of constituting a public nuisance. It was also negligence.
While a public nuisance may also be a crime (see Criminal Code, R.S.C. 1985, c. C-46, s. 180 (1)), it is more often the subject of injunction proceedings brought by the Attorney General on behalf of the public. The usual objective is abatement. As put by McLachlin J. (as she then was) in Stein v Gonzales (1984), 14 D.L.R. (4th) 263 (B.C.S.C.), "[p]ublic rights, including claims for public nuisance, can only be asserted in a civil action by the Attorney-General as the Crown officer representing the public" (p. 265). McLachlin J. went on to say that it is the "Attorney-General who is entrusted and charged with the duty of enforcing public rights" (p. 268). The Attorney General's standing is sometimes attributed to the Crown's role as parens patriae: see W. Estey, "Public Nuisance and Standing to Sue" (1972), 10 Osgoode Hall L.J. 563, at pp. 566 and 576; see also Ontario Law Reform Commission Report on the Law of Standing (1989), at p. 10, and Law Reform Commission of British Columbia Report on Civil Litigation in the Public Interest (1980), No. 46, at p. 7.
It is true that the role of the Attorney General has traditionally been to seek a stop to the activity that is interfering with the public's rights. This has led to a view that the only remedy available to the Attorney General is injunctive relief. Some commentators regard the injunction as the "public remedy" obtained by the Attorney General, while damages are a "private remedy" available to those private citizens who have suffered a special loss such as personal injury or damage to private property: see, e.g., P.H. Osborne, The Law of Torts (2nd ed. 2003), at p. 364. The reality, of course, is that it would be impractical in most of these environmental cases for individual members of the public to show sufficient "special damages" to mount a tort action having enough financial clout to serve the twin policy objectives of deterrence to wrongdoers and adequate compensation of their victims: Bazley v Curry,  2 S.C.R. 534. Class actions will have a role to play but, as Professor Klar notes, "What has made public nuisance a particularly ineffective private law remedy is the special damages requirement" (L. N. Klar, Tort Law (3rd ed. 2003), at p. 647).
Canadian courts have not universally adhered to a narrow view of the Crown's available remedies in civil proceedings for public nuisance. In The Queen v The Ship Sun Diamond,  1 F.C. 3, the federal Crown sought damages in relation to cleanup costs it had incurred to mitigate damage from an oil spill in the waters off Vancouver. Damages were awarded for the cost of the water cleanup activities, in addition to costs to clean Crown-owned beach and foreshore property. Walsh J. commented, "what was done was reasonable and appears to be a good example of the parens patriae principle with the Crown .... acting as what is referred to in civil law as `bon père de la famille'." (pp. 31-32; emphasis added).
In Attorney General for Ontario v Fatehi,  2 S.C.R. 536, the Province sought damages in relation to the cost of cleaning up a public highway following an accident. This Court held that Ontario was entitled to claim damages for harm to its property, like any other private property owner, and needed no statutory authority to bring such an action. Moreover, Estey J., writing for the Court, went on to cite, at p. 546, the following passage of Lord Dunedin, in Glasgow Corp. v Barclay, Curle & Co. (1923), 93 L.J.P.C. 1, with apparent approval:
That a person, who, by his action, did something which made the highway impassable, and so destroyed the use of that highway by others, could be interdicted at the instance of a road authority I do not doubt .... and although suits for damages in respect of such action may be sought for in vain in the books, I do not doubt that they would lie.
The British Columbia Law Reform Commission in its Report on Civil Litigation in the Public Interest, supra, suggested that the reluctance of the courts to award damages against those who commit a public nuisance should be relaxed somewhat to provide an effective remedy (pp. 70-71). See also Ontario Law Reform Commission Report on Damages for Environmental Harm (1990), ("OLRC Report") at pp. 11-13.
In my view, Canfor takes too narrow a view of the entitlement of the Crown, represented by the Attorney General, to pursue compensation for environmental damage in a proper case.
Canadian courts have suggested that even municipalities have a role to play in defence of public rights. In Scarborough v R.E.F. Homes Ltd. (1979), 9 M.P.L.R. 255 (Ont. C.A.), Lacourcière J.A., in an oral decision, said at p. 257 that:
In our judgment, the municipality is, in a broad general sense, a trustee of the environment for the benefit of the residents in the area of the road allowance and, indeed, for the citizens of the community at large.
This expression was referred to, without elaboration, by L'Heureux-Dubé J. in 114957 Canada, supra, at para. 27.
The notion that there are public rights in the environment that reside in the Crown has deep roots in the common law: see, e.g., J. C. Maguire, "Fashioning an Equitable Vision for Public Resource Protection and Development in Canada: The Public Trust Doctrine Revisited and Reconceptualized" (1997), 7 J.E.L.P. 1. Indeed, the notion of "public rights" existed in Roman law:
By the law of nature these things are common to mankind - the air, running water, the sea ....
(T. C. Sandars, The Institutes of Justinian (5th ed. 1876), at 2.1.1)
A similar notion persisted in European legal systems. According to The French Civil Code, art. 538 (translated by E. B. Wright (1908)), there was common property in navigable rivers and streams, beaches, ports, and harbours. A similar set of ideas was put forward by H. de Bracton in his treatise on English law in the mid-13th century (Bracton on the Laws and Customs of England, translated by S. E. Thorne (1968), Vol. 2, at pp. 39-40):
By natural law these are common to all: running water, air, the sea and the shores of the sea .... No one therefore is forbidden access to the seashore ....
All rivers and ports are public so that the right to fish therein is common to all persons. The use of river banks, as of the river itself, is also public by the jus gentium ....
By legal convention, ownership of such public rights vested in the Crown, as too did authority to enforce public rights of use. According to de Bracton, supra, at pp. 166-167:
[It is the lord king] himself who has ordinary jurisdiction and power over all who are within his realm .... He also has, in preference to all others in his realm privileges by virtue of the jus gentium. [By the jus gentium] things are his .... which by natural law ought to be common to all .... Those concerned with jurisdiction and the peace .... belong to no one save the crown alone and the royal dignity, nor can they be separated from the crown, since they constitute the crown.
Since the time of de Bracton it has been the case that public rights and jurisdiction over these cannot be separated from the Crown. This notion of the Crown as holder of inalienable "public rights" in the environment and certain common resources was accompanied by the procedural right of the Attorney General to sue for their protection representing the Crown as parens patriae. This is an important jurisdiction that should not be attenuated by a narrow judicial construction.
As stated, in the United States the CERCLA statute provides legislative authority for government actions in relation to the "public interest", including environmental damage, but this is not the only basis upon which claims in relation to the environment can be advanced by governments at the state and federal levels.
Under the common law in that country, it has long been accepted that the state has a common law parens patriae jurisdiction to represent the collective interests of the public. This jurisdiction has historically been successfully exercised in relation to environmental claims involving injunctive relief against interstate public nuisances: see, e.g., North Dakota v Minnesota, 263 U.S. 365 (1923), at p. 374; Missouri v Illinois, 180 U.S. 208 (1901); Kansas v Colorado, 206 U.S. 46 (1907); Georgia v Tennessee Copper Co., 206 U.S. 230 (1907); and New York v New Jersey, 256 U.S. 296 (1921). In Tennessee Copper, supra, Holmes J. held for the Supreme Court of the United States at p. 237 that, "the State has an interest independent of and behind the titles of its citizens, in all the earth and air within its domain" (emphasis added).
The American law has also developed the notion that the states hold a "public trust". Thus, in Illinois Central Railroad Co. v Illinois, 146 U.S. 387 (1892), the Supreme Court of the United States upheld Illinois' claim to have a land grant declared invalid. The State had granted to the railroad in fee simple all land extending out one mile from Lake Michigan's shoreline, including one mile of shoreline through Chicago's central business district. It was held that this land was impressed with a public trust. The State's title to this land was, at p. 452,
different in character from that which the State holds in lands intended for sale .... It is a title held in trust for the people of the State that they may enjoy the navigation of the waters, carry on commerce over them, and have liberty of fishing therein freed from the obstruction or interference of private parties.
The deed to the railway was therefore set aside.
The parens patriae and "public trust" doctrines have led in the United States to successful claims for monetary compensation. Thus in New Jersey, Department of Environmental Protection v Jersey Central Power and Light Co., 336 A. 2d 750 (N.J. Super. Ct. App. Div. 1975), the State sued a power plant operator for a fish kill in tidal waters caused by negligent pumping that caused a temperature variation in the fish habitat. The State sought compensatory damages for the harm to public resources. The court concluded that the State had the "right and fiduciary duty to seek damages for the destruction of wildlife which are part of the public trust" in "compensation for any diminution in that [public] trust corpus" (p. 759), noting that:
It seems to us that absent some special interest in some private citizen, it is questionable whether anyone but the State can be considered the proper party to sue for recovery of damages to the environment.
See also State of Washington, Department of Fisheries v Gillette, 621 P. 2d 764 (Wash. Ct. App. 1980), and State of California, Department of Fish and Game v S.S. Bournemouth, 307 F. Supp. 922 (C. D. Calif. 1969). The potential availability of damages in parens patriae and "public trust" environmental actions has also been affirmed in State of Maine v M/V Tamano, 357 F. Supp. 1097 (D. Maine 1973), and State of Maryland, Department of Natural Resources v Amerada Hess Corp., 350 F. Supp. 1060 (D. Md. 1972). These were all cases decided under the common law, not CERCLA.
It seems to me there is no legal barrier to the Crown suing for compensation as well as injunctive relief in a proper case on account of public nuisance, or negligence causing environmental damage to public lands, and perhaps other torts such as trespass, but there are clearly important and novel policy questions raised by such actions. These include the Crown's potential liability for inactivity in the face of threats to the environment, the existence or non-existence of enforceable fiduciary duties owed to the public by the Crown in that regard, the limits to the role and function and remedies available to governments taking action on account of activity harmful to public enjoyment of public resources, and the spectre of imposing on private interests an indeterminate liability for an indeterminate amount of money for ecological or environmental damage.
This is not a proper appeal for the Court to embark on a consideration of these difficult issues. The Crown's own expert evidence treated the Crown as owner of Crown forests seeking compensation on the same basis as any other landowner for stumpage and "diminution of the value of the timber". Reliance was placed on s. 11(1) of the Crown Proceeding Act, R.S.B.C. 1996, c. 89, which provides that "the rights of the parties must, subject to this Act, be as nearly as possible the same as in a proceeding between persons". Of course it is perfectly open to the Crown to assert its private law rights as a property owner: Fatehi, supra, and Toronto Transportation Commission v The King,  S.C.R. 510. The groundwork for a claim on some broader "public" basis was not fully argued in the courts below. The Crown now suggests that it claimed "commercial value as a proxy" for environmental damage but, with respect, the pleadings suggest otherwise. It would be unfair to the other parties to inject such far-reaching issues into the proceedings at this late date.
I therefore proceed on the basis that the Crown's entitlement in this particular case is limited to entitlement in the role the Crown adopted in its statement of claim, namely that of the landowner of a tract of forest.
B. Is the Crown, by Analogy with Private Landowners, Entitled to the "Auction Value" of the Harvestable Timber?
The Province was entitled to be restored to the position it would have enjoyed, to the extent money can accomplish it, had the tort not been committed: Ratych, supra, at pp. 962-63; Cunningham v Wheeler,  1 S.C.R. 359, at p. 396; and Sunrise Co. v Lake Winnipeg (The),  1 S.C.R. 3, at p. 27, per McLachlin J. dissenting in part, but endorsed on this point by L'Heureux-Dubé J. for the majority, at p. 17.
The Crown argues that the courts below "misconceived" the nature of the Province's claim. The courts erroneously characterized the Province's loss as a revenue entitlement. When loss of the harvestable trees is viewed "correctly", the Crown says, the best measure of its loss is the "auction" price which it could have obtained if the trees had been harvested and sold at a timber auction on the date of the fire, plus loss of use in the interim while the forest regenerates. The "auction approach" presupposes that the trees in the Stone Creek area were available for immediate harvesting in July of 1992. The Crown says the compensable loss, thus conceived, is $3,517,038.65. Canfor responds that the Province, having locked up its rights to harvest its timber under complex long-term licences, cannot now put itself forward on the same footing as an unencumbered landowner free to auction its property to the highest bidder: British Columbia (Minister of Forests) v Bugbusters Pest Management Inc.,  B.C.J. No. 84 (QL), 2003 BCSC 77.
In my view, Canfor's objection to an "auction" approach is entitled to prevail for both substantive and procedural reasons.
In its Further Amended Statement of Claim, the Crown did not claim auction value. It claimed "losses incurred relating to reduced stumpage due to fire damage" (para. 15(c)). The regulatory scheme provides that stumpage is paid over the lifetime of the logging operation which in this case was up to 66 years. It is not open to the Crown to ignore the legal effect of the licences previously granted to private parties to log in the Stone Creek area, including Canfor.
The regulatory scheme devolves much of the forest management responsibility on large operators such as Canfor. This is done through a complex licencing system, which confers long-term cutting rights on the licensee in exchange for stumpage and the licensee's undertaking of many responsibilities, some of which were formerly performed by government itself, including extensive road building and permanent infrastructure. Economic viability requires these licences to be long term (in this case 20 years). Under the regulatory licensing system in effect in 1992 in British Columbia, the Province was not entitled to auction off the right to an immediate cut of the entire territory eventually burned over, which is what "auction value" measures. The Provincial regulatory scheme schedules the right to log its forests from year to year and decade to decade in exchange for long-term stability, as well as the economic well-being of communities dependent on a sustainable forest industry. The practical effect is that the Province has tied up its forest assets in such a way as to render the "auction" approach at odds with the Province's own regulatory regime.
It seems to me that in making a claim for lost revenue the Crown is as surely bound by the regulatory regime under the Forest Act as are the private operators (who, unlike the Crown, are not in a position to amend it), subject to any special exemption. There are no special exemptions applicable here.
It is therefore not surprising that the Crown's own valuation experts did not support a claim to auction value at trial, but instead focussed on a claim for loss of stumpage revenue over a projected schedule of many years. The Crown's expert valuation witness expressly abandoned auction value as the legitimate measure of the Crown's loss. While the initial version of the Deloitte & Touche valuation report suggested in "scenario one" the possibility of auction value, that position was reversed in its subsequent report dated May 13, 1999, in favour of what they called "scenario three", namely the present discounted value of future stumpage value "which would have been obtained [in the normal course] had the [fire] not occurred". The Crown's expert, Mr. Reznik of Deloitte & Touche, confirmed in his examination-in-chief at trial his rejection of the "auction" value claim ("scenario one") in favour of stumpage revenue (called "scenario three"). Mr. Reznik then confirmed on cross-examination that he accepted that the proper approach to be followed was scenario three, i.e., discounted present value of stumpage revenue.
Accepting the consensus of the experts, the trial judge ruled against auction value as an appropriate measure of the Crown's loss as follows (at para. 113):
For the harvestable trees, the plaintiff's position, but for the fire, would be the receipt of stumpage revenue, as and when the trees were harvested. The plaintiff transferred her "rights" to her trees with, what is now, Timber Licence A40873. The defendant, subject to all necessary permits, acquired the right to harvest the trees. The plaintiff [Province] had a correlative duty not to do so. Therefore, to put her in possession of the stumpage revenue she would have received, is to "put her in the same position as she would have been had the tort not occurred".
On appeal to the British Columbia Court of Appeal, the Crown reiterated its reliance on a present discounted "stumpage revenue" method (as opposed to "auction value"):
The plaintiff's [Crown's] position is that it is entitled to the stumpage it would have received from this [harvestable] timber minus the amount it did receive in reduced stumpage as a result of salvage harvesting which took place in 1993. In order to calculate `the amount the Plaintiff would have received had the fire not occurred' a finding must be made as to the stumpage rate which would have been assessed on the wood located in the Stone Fire Area for each of the years harvesting would have taken place. In addition, an estimate of the volume which would have been harvested in each of those years would also have to be made.
(Canfor, Respondent's Authorities, Tab 5, p. 23, at para. 74)
In the circumstances, I do not think it is open to the Crown, unsupported by expert testimony, to pursue "auction value" as the appropriate basis on which to calculate compensation in its appeal to this Court.
C. The Crown Says the CVP System Provides an Irrelevant "Collateral Source of Income" Which Cannot Properly Be Taken into Account to Reduce its Compensation
Once the Province's claim is restricted to the impact of the fire on its projected revenue stream, its claim becomes impaled on the financial logic of its own forest regulatory regime. This is because the injured party "should be compensated for the full amount of his loss, but no more .... [H]e is not entitled to turn an injury into a windfall. In each case the task of the Court is to determine as nearly as possible the plaintiff's actual loss" (emphasis added): Ratych, supra, at p. 962.
Canfor says that the Crown cannot establish any revenue loss from the harvestable areas subject to the CVP stumpage system on various grounds, including the following:
The Province's increased income from other licences, obtained by modifying their stumpage rates to reflect the "target" rate overall, is the direct result of the fire and should therefore be taken into account in mitigation of the Crown's damages.
Alternatively, as the CVP system was designed to ensure revenue neutrality to the Province, the "waterbed" effect of the CVP system ensured that the "loss" never occurred, and there is therefore no "loss" to recover from the tortfeasor.
In the further alternative, if the Province collects both higher stumpage rates and compensation from Canfor for the lower yield in the burned area, it will have obtained double recovery for the same loss.
It should first be recognized that the "waterbed" element of the CVP stumpage system affected only a portion of the Crown's claim. As earlier mentioned, there were three types of timber tenures in the fire area: the Forest Licence, Timber Sale Licences and Woodlot Licences. Only timber harvested from the Forest Licence area was impacted by the CVP system. Approximately 35 percent of the harvested timber from the Stone Creek fire came from this tenure. Accordingly, the Crown's objection to the operation of the CVP system affects little more than a third of Mr. Gairns' revenue calculation.
At the root of this debate is a controversy over what "revenue" is at issue. The trial judge took the view that the relevant frame of reference was the revenue-generating system covering the B.C. Interior Region. That system was a self-contained regulatory unit that was designed to (and did) provide a revenue equivalent to the target rate multiplied by the cubic metres of harvested timber irrespective of the variation in local productivity. The Stone Creek fire was an example of a local variation, but it did not in fact detract from the revenue-generating capacity of the region. In other words, in the trial judge's view, the shifting of the gains and losses under the CVP in particular areas was a loss-spreading device that operated before, not after calculation of the relevant bottom line. Mr. Gairns thus testified in cross-examination:
I was evaluating the effect [of the fire] on Provincial revenues, not the effect on somebody paying stumpage in Stone Creek.
And later, in the same vein:
The difference in the Province's revenue between there being no fire and there being a fire is what I considered to be the economic loss to the Province.
The Crown's experts took a different view on this point. In their view, the relevant frame of reference was limited to the Stone Creek fire area itself. Taking the 1,491 hectare area burned by the fire as a stand-alone revenue-generating unit, they made a calculation of the stumpage value of the timber in that plot pre-fire and post-fire, and calculated a site-specific loss. They then turned to an examination of VI and MVI values under the provincial regulatory scheme to see where "the loss" ended up, and its potential effect on Crown revenues. This allowed the Crown to argue that Canfor should not be allowed to "pass on" the loss to other long-term forest licensees under the regulatory umbrella of the CVP system. In Canfor's view, accepted by the trial judge as a correct reading of the regulatory scheme, the 1,491 hectares did not constitute a stand alone revenue-generating unit. There was never a "loss" in the relevant revenue-generating unit, i.e., the B.C. Interior Region, and therefore nothing to "pass on".
My colleague LeBel J. challenges the finding of fact that the result of the CVP scheme was revenue neutral. He suggests the trial judge's conclusion "that the target revenue is maintained as a result [of the CVP "waterbed"] is by no means certain" because the analysis was not carried "to its bitter end" (para. 15). However, with respect, revenue neutrality was not only asserted by Canfor, and accepted by the trial judge, but was accepted as correct on the facts of this case by both the Crown's factual witness, Mr. Tigchelaar ("The comparative value pricing system, in effect, makes the harvested portion of timber damaged by a forest fire revenue neutral ...." (emphasis added)), and by the Crown's expert accounting witness (The CVP system "ensures that provincial revenues are not affected by low timber values" (emphasis added)). Revenue neutrality was not merely "presumed". It was established in evidence as a fact to the satisfaction of the trial judge.
In my view, the Court ought not to speculate "to its bitter end" about a factual matter which the parties, on the basis of a consensus among their forensic experts, agree upon, and for that reason did not pursue in the evidence. Mr. Gairns, as mentioned, stated categorically that "the Crown's revenue would not change. That is what [CVP] was for and that's what it did".
On the other hand, there were clearly opposing views about the relevancy of the CVP scheme. In the end the trial judge accepted Canfor's legal analysis of the regulatory system and, keeping that in mind, endorsed Mr. Gairns' approach to valuation as "more likely to define the money which can put the plaintiff in the same position as she would have been, had the tort not occurred, which is reasonable to both the plaintiff and the defendant" (para. 125).
In my opinion, the trial judge's analysis of the regulatory system was correct and it was open to him, after hearing the opposing expert approaches, to proceed as he did. Within the limits established by the trial judge's legal analysis, identification of the appropriate accounting framework is a matter for experts. Mr. Gairns is a professional forestry expert. He has worked in the forest industry since 1955, most recently as President and General Manager of Canada's largest forestry consulting firm doing work both for government and the private sector. Deloitte & Touche are chartered accountants. While interpretation of the regulations raises issues of law, the law does not dictate an answer to the factual valuation problem on which they were asked to give expert evidence. Expert evidence is not even admissible unless "ordinary people are unlikely to form a correct judgment about it, if unassisted by persons with special knowledge": Kelliher (Village) v Smith,  S.C.R. 672, at p. 684. The trial judge was required to choose between conflicting theories of valuation and he did so. His factual findings in this respect are entitled to deference. The Court of Appeal agreed with him.
The assessment of compensable loss is therefore heavily influenced by the regulatory structure which the Province itself designed and implemented. A somewhat similar issue arose in a different regulatory context in Aerlinte Eireann Teoranta v Canada (Minister of Transport) (1990), 68 D.L.R. (4th) 220 (F.C.A.). In that case, the Crown contended that the relevant framework for determining airport costs and revenues was on the aggregated basis of its "system" of eight international airports across Canada, including Mirabel. The effect was to impose Mirabel's deficit on some airlines that never used it. The airlines objected that, according to their experts, the relevant frame of reference for fixing regulatory charges was the individual airport where they did land. The Federal Court of Appeal concluded that the federal regulatory scheme had defined the relevant revenue-generating "system" to include all of its international airports, and the trial judge was correct to proceed on that basis. It seems to me that here, as well, it was open to the trial judge to conclude that the Province had defined the B.C. Interior Region as the appropriate frame of reference for revenue purposes, and that Canfor was entitled to rely on the "revenue neutral" system the Province had implemented. As the trial judge put it during the Crown's cross-examination of Mr. Gairns:
.... As I understand [Mr. Gairns] to be saying, this is the Provincial enterprise and I have plugged my numbers into the Provincial enterprise and this is the result I get. Now, have I misunderstood the evidence?
THE WITNESS [Mr. Gairns]:
No, that's exactly right.
As stated, the Province, in the course of this lawsuit, has amended the CVP system to exclude fire damage from the "waterbed" computation. The amendment does not prejudice Canfor in this case, but it means that after a future fire the tortfeasor will have to reckon with the Province's revenue structure as he finds it. For present purposes, however, the Crown, like the licence holders, is obliged to apply and live by the statutory scheme in existence in 1992.
With these observations, I turn to the Crown's specific arguments on this point, all of which, it seems to me, ignore the regulatory context in which the issue of alleged loss of revenue arises.
1. Mitigation of Damages
The law requires a plaintiff to take reasonable steps to mitigate its loss. When mitigation yields a sum of money equal to or greater than the original loss, the plaintiff has made himself whole, and cannot claim further from the defendant. The argument is that the Crown, having successfully recouped its loss under the CVP "waterbed" effect, has no further claim. Hall J.A. accepted the application of the mitigation principle here, relying on the well-known formulation of the principle in British Westinghouse Company Electric and Manufacturing Co. v Underground Electric Railways Co. of London Ltd.,  A.C. 673 (H.L.). In that case, the plaintiff, having lost the use of its obsolete generating equipment by reason of a breach of contract, took immediate steps to purchase more efficient generators whereby "all loss was extinguished .... actually the respondents made a profit by the course they took" (p. 688). In these circumstances, Viscount Haldane observed, at pp. 690-91:
The subsequent transaction, if to be taken into account, must be one arising out of the consequences of the breach and in the ordinary course of business.
The transaction was not res inter alios acta, but one in which the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach.
The British Westinghouse principle of mitigation has been extended to tort claims: Andros Springs v World Beauty,  P. 144 (C.A.); Bellingham v Dhillon,  Q.B. 304 (C.A.); 1874000 Nova Scotia Ltd. v Adams (1997), 146 D.L.R. (4th) 466 (N.S.C.A.); and S. M. Waddams, The Law of Damages (4th ed. 2004), para. 15.730. Waddams summarizes the effect of the mitigation cases, at para. 15.800:
These considerations suggest what seems to be a test often applied, that is, whether the plaintiff could, even in the absence of the wrong, have made the disputed profit. If so, it is treated as collateral. If not, it goes to reduce the plaintiff's loss.
See also Karas v Rowlett,  S.C.R. 1; Cemco Electrical Manufacturing Co. v Van Snellenberg,  S.C.R. 121; Apeco of Canada, Ltd. v Windmill Place,  2 S.C.R. 385; Asamera Oil Corp. v Sea Oil & General Corp.,  1 S.C.R. 633.
If mitigation principles were applicable here, I would agree with Hall J.A. that the CVP "waterbed" effect would have to be taken into account because, to paraphrase Viscount Haldane in British Westinghouse, supra, the CVP adjustment arose out of the consequences of Canfor's negligence and was made in the ordinary course of business. Or, in Professor Waddam's terms, the increased revenue obtained by the Crown from licensees outside the Stone Creek area under the operation of the CVP could not have been received by the Province but for the fire.
However, I agree with the majority of the Court of Appeal that it is difficult to frame this case in terms of mitigation. The most important contextual fact is the regulatory system. We are not determining whether a source of private revenue is collateral to, as opposed to "directly arising" from, the wrong. Mr. Gairns' testimony was that the CVP stumpage system was designed to ensure that the loss was never incurred. If there was no revenue loss, there was nothing to mitigate. A variant of the idea that the Crown never wins and the Crown never loses was incorporated into the regulatory system itself. There was no "loss" subject to after-the-fact mitigation in the sense contemplated in British Westinghouse.
2. The "Passing-On" Objection
At this point, it is convenient to mention the related "passing-on" argument made by the Crown.
Almost any business will have to "pass on" the impact of a business loss to its clients or customers. It is not generally open to a wrongdoer to dispute the existence of a loss on the basis it has been "passed on" by the plaintiff. Such an argument would require the court to engage in "the endlessness and futility of the effort to follow every transaction to its ultimate result": see Southern Pacific Co. v Darnell-Taenzer Lumber Co., 245 U.S. 531 (1918), per Holmes J., at p. 534; Oshawa Group Ltd. v Great American Insurance Co. (1982), 36 O.R. (2d) 424 (C.A.), at pp. 430-33; Attorney General for Nova Scotia v Christian (1974), 49 D.L.R. (3d) 742 (C.A.), at p. 752. However, if no revenue loss was suffered in the first place, no loss was "passed on", and the whole "passing-on" concept is irrelevant.
My colleague LeBel J. accepts the Crown's argument that it need only establish loss "in a proximate sense. The courts need not", my colleague continues, "go on to consider whether the plaintiff was able to recoup his or her losses by accessing other sources of revenue or exercising contractual or statutory rights" (para. 41). With respect, the Crown overlooks the difficulty that it failed to prove any loss in a "proximate sense" or otherwise. The courts below correctly concluded that the regulatory scheme was "revenue neutral". There was no loss expected and none arose. The Crown cannot ignore the actual operation of the regulatory scheme when the self same regulatory scheme defines the Crown's claim to lost stumpage which the experts agreed was the correct measure of its damages.
Moreover, even where a "proximate" loss is established, the courts routinely go on to consider whether a plaintiff can recoup the loss by accessing "other sources of revenue or exercising contractual rights". Contractual entitlements under collective agreements (Ratych, supra; Cunningham, supra), sick pay (Hussain v New Taplow Paper Mills Ltd.,  1 All E.R. 541 (H.L.)), private pension plans, CPP payments and other benefits discussed by my colleague LeBel J., at paras. 32 to 35 of his reasons, are all common instances where such consideration is given. The issue is thus not whether "other sources of revenue" can be taken into account, but whether there has been a proper analysis of the relationship between those other sources and "the loss" alleged by the plaintiff. Here the operation of the CVP is part and parcel of the pricing/revenue provisions of a legislative scheme which collectively define the Province's entitlement.
The principle embodied in the CVP that the Crown neither wins nor loses works, of course, in both directions. If the fire had not occurred, the higher stumpage rates that would have been received in the burn area would not have enured to the benefit of the Crown. They would have enured to other forest operators (including Canfor's other logging operations) in the B.C. Interior Region. The Crown's revenue entitlement stood above the fray in both good times and bad. Irrespective of the CVP swaps of VI advantages and VI disadvantages amongst forest licensees, the Crown would still have received from the B.C. Interior Region no more and no less than the "target rate" multiplied by the volume of timber logged in the region.
As the "passing-on" defence does not properly arise on the facts of this case there is no need to discuss it further.
3. The Loss Never Arose
The necessary inference from the trial judge's analysis of the Crown's revenue entitlement under the regulatory system in place in 1992, and his acceptance of Mr. Gairns' testimony, is that no loss arose in the first place. In McGregor on Damages (17th ed. 2003), at para. 7-097, the author says that cases of "no loss" are excluded from consideration under mitigation principles: "it may be that the benefit provided by the act of the third party prevents the loss from arising in the first place rather than reduces or eliminates a loss already incurred" (see Ratych, supra, at p. 981; and Cunningham, supra, at pp. 396 and 401 per Cory J., and at pp. 384-85 per McLachlin J. In this case, of course, it was the action of the Province itself, in putting in place a regulatory scheme to help resolve the softwood lumber dispute with the U.S. that assured that its revenue was protected against updrafts as well as downdrafts.
4. The Rule Against Double Recovery
In light of the trial judge's acceptance of Mr. Gairns' testimony, the Crown's tactic to isolate the Stone Creek fire area from the regulatory region of which it forms a part, must be rejected as an attempt to construct a financial loss that was not in fact suffered. Some of the testimony evidencing agreement among the experts on this point has already been mentioned. Thus, Mr. Gairns noted in his report of March 5, 1999:
This [CVP] process was introduced into stumpage pricing to ensure that responses by the Ministry of Forests to verifiable local high costs, or low timber values, would not affect Provincial revenues.
Similarly, Deloitte & Touche, for the Crown, explained in the May 13, 1999 report that if CVP is taken into account the fire did not affect provincial revenues:
[T]he [Mean Value Index] is lowered by inclusion of any low-value or fire salvage timber. A lowered MVI increases each cutting permit stumpage rate to compensate for the volume of low price timber harvested previously. This ensures that provincial revenues are not affected by low timber values.
It is therefore clear that if the Crown were permitted to ignore its own regulatory system, and calculate a "notional" loss by treating the Stone Creek fire area in isolation, it would by collection of that amount exceed the revenue otherwise intended to be collected by its own regulatory scheme and to that extent make a windfall rather than receive fair compensation for a proven loss.
D. The Crown Says It Is Entitled to the Commercial Value of the Non-harvestable or Protected Trees, Plus a Premium for their Environmental Value. Canfor Says Such Trees Were Never Intended to Be Logged, and Thus their Destruction Did Not Represent a Loss of Stumpage Income, Which Is All that the Crown, as Property Owner, Was Entitled to.
As indicated earlier, the issue of the Crown's authority to seek damages on behalf of the public for environmental damage remains open for decision in a future appeal.
This leaves for discussion in this case whether the Crown as landowner can recover compensation equivalent to stumpage on the non-harvestable or protected trees and, if so, whether such damage can be measured by commercial value and, in the further alternative, whether (as discussed in the next section of these reasons) there should be added a premium over and above commercial value to reflect lost environmental benefits. As will be seen, the environmental "premium" issue is not really invoked by the Crown as an ordinary landowner, but contains strong overtones of its disputed role as parens patriae.
The Crown says that commercial value should be the floor of potential compensation. After all, trees that were protected were capable of being harvested, albeit in some areas at a cost that was totally uneconomic. The Crown says that if it had not valued the trees as worth more for their environmental value than as harvested lumber, the trees would have been harvested. On this first branch of the argument, therefore, the Crown says protected or non-harvestable trees should be valued as worth at least as much as harvestable trees. After all, the salvaged timber from the fire-damaged protected trees did produce stumpage revenue at the established commercial rate.
Thus, Mr. Tigchelaar, Prince George fire centre manager for the Province, testified:
.... the value of [the trees in] the ES area, environmentally sensitive area, would be greater than the value of stumpage.... [I]f it wasn't, it wouldn't have been left in reserve. So it had a greater value to be left standing than being cut.
I accept in principle that in setting aside environmentally sensitive areas the Province concluded that the protected trees "had a greater value .... left standing than being cut". I also accept that the Crown should not be penalized for acting with "ecological and environmental sanity". On the contrary, "the fact that the owner of property does not desire to use it, or to use it to the best economic advantage, has not meant that its value is less than it would be in the hands of one who regarded it differently": Bilambil-Terranora Pty Ltd. v Tweed Shire Council,  1 N.S.W.L.R. 465 (C.A.), at para. 113. See also Waddams (looseleaf ed. 1991), at para. 1.1410.
Hall J.A. considered that it would be "out of accord with commercial reality" (para. 65) to assess the value of protected trees according to the marketplace because there is no relevant marketplace. However, if we accept as correct (as I do) the Crown's invitation to look at a "floor value" of protected trees on a "commercial basis", it still does not result in an award of damages on the facts of this case. We are simply brought back to the evidence of commercial valuation provided by the contending experts on the basis of lost stumpage. The trial judge found there was no lost stumpage revenue from the totality of the timber that included the trees in the environmentally sensitive areas, both trees growing on "steep, sensitive slopes" in the Stone Creek area, and trees growing in "riparian areas" along watercourses, including Stone Creek. [AR p. 372]
1. Steep, Sensitive Slopes
In their initial report dated February 5, 1999, the Crown's experts, Deloitte & Touche, did not assign a commercial value to trees growing on the "steep, sensitive sites" because the inaccessibility of these trees meant the cost of logging would be prohibitive. The Crown experts thus acknowledged that the Province would not in any event have received any stumpage from these trees.
Canfor's expert, on the other hand, actually calculated 1992 stumpage rates for the timber on "steep, sensitive sites", based on the use of helicopter logging methods. The cost of logging so much exceeded the value of the harvested timber as to produce, notionally, negative stumpage rates ranging between minus $14.72 and minus $17.42 per cubic metre of timber.
Commercial logging of steep, sensitive slopes would have been uneconomic. The attempt to apply "commercial value" to such trees would not, according to Mr. Gairns, have produced additional revenue for the Crown.
The Crown argued, and my colleague LeBel J. agrees, that "[t]he stumpage value of nearby, unprotected trees can serve as a proxy for the value of the destroyed trees on the steep, sensitive slopes" (para. 71). The Crown's approach, however, ignores the expert evidence accepted by the trial judge that it was precisely the cost of extracting trees from the "steep, sensitive slopes" that gave them a negative commercial value. "Nearby unprotected trees" were in a more accessible location, and were therefore more profitable to cut, and therefore, unlike the trees on the steep slopes, had a positive commercial value. I do not accept the Crown's attempt to use as a "proxy" the value of trees that, according to the expert evidence, are simply not comparable from a commercial perspective.
2. Riparian Areas
The Province permitted logging in riparian areas in 1992 despite the trial judge's concern about ecological and environmental sanity.
Deloitte & Touche, the Crown's experts, made a notional stumpage calculation on the basis the trees in these areas would have been harvested based on the same allocation and timing as the timber in surrounding areas. Mr. Gairns also included in his March 5th report "the areas in the riparian areas because they would have been harvested under 1992 rules". The trial judge therefore had before him conflicting evidence about "the commercial value" of the protected trees in the riparian areas. He accepted Mr. Gairns' calculations, already discussed, which showed that any loss in the commercial value of expected stumpage revenue was more than offset by the receipt of accelerated payments for the immediate harvest of salvage timber. There was no revenue shortfall. This is not to say that stumpage money is a satisfactory substitute for forest areas preserved for environmental purposes. It is merely to say that if the Crown wishes to assert commercial value as a benchmark, a finding by the trial judge that in fact there was no commercial loss precludes an award of damages on that basis: Ratych, supra, at p. 981.
E. The Crown's Claim to an Environmental Premium with Respect to the Non-harvestable Trees
The Crown sought commercial value of the non-harvestable trees plus a premium of 20 percent, which the Crown concedes is "necessarily somewhat arbitrary", but is said to be "on the low end of the reasonable range". The claim thus formulated would value the loss of the protected trees at $1,481,452.79 (auction value) or $736,352.53 (stumpage value).
The provincial Crown's position is supported by the federal Crown, who argues that excessive focus on market values is inappropriate when attempting to assess and quantify damages to the environment (quoting State of Ohio v U.S. Department of the Interior, 880 F. 2d 432 (D.C. Circ. 1989), at pp. 462-63):
While it is not irrational to look to market price as one factor in determining the use value of a resource, it is unreasonable to view market price as the exclusive factor, or even the predominant one. From the bald eagle to the blue whale and snail darter, natural resources have values that are not fully captured by the market system.
[emphasis in the original]
Canfor agrees that claims for environmental loss are possible but says the Crown's claim in this case is grounded neither in the pleadings nor in the evidence. I conclude that Canfor's objection in these respects is well founded.
In terms of pleading, the provincial Crown rested its entire case for environmental loss on an added claim in its Further Amended Statement of Claim for compensation for "diminution of the value of the timber impacted by the Stone Fire". No linkage is drawn in the pleadings to, for example, fish habitat or biodiversity.
The Crown's basic proposition that our environment is an asset of superordinate importance that cannot precisely be quantified by its market value is not seriously disputed. The Ontario Law Reform Commission made the point as follows:
Many writers in the environmental field state that the market price, even if it existed, cannot be considered an adequate proxy for the true economic value of an environmental resource. Adherence to the market value technique, it is argued, seriously undervalues the true worth of the environmental resource, results in a low assessment of damages, and leaves injuries largely uncompensated.... As one American author stated, the "value of the famous Lone Cypress of Monterey Peninsula cannot be reduced to its price as lumber".
(OLRC Report, supra, at pp. 37-38)
Even Mr. Gairns acknowledged that "nobody in their right mind would value Stanley Park on the basis of stumpage revenue that could be obtained from the trees".
Canfor argues the Court of Appeal was wrong, at paras. 74-75, to infer from what the trial judge said at para. 130 about "ecological and environmental sanity" that he was making a finding of actual damage. I disagree. In reading the trial judgment as a whole, it is clear Wilson J. made a finding that the fire damage had both commercial and environmental dimensions. It could hardly be otherwise after a blaze that covered 1,491 hectares. The trial judge's problem was that he was not given the tools to quantify the "ecological or environmental" loss. The Court of Appeal tried to finesse the issue of quantification by awarding one third of the commercial value. However, as discussed, the evidence accepted by the trial judge was that the commercial value was zero. One third of zero is still zero.
The Crown is well aware of the range and identity of evidence (both expert and non-expert) that could be marshalled in support of a claim for environmental loss. At paras. 64-66 of its factum in this Court, the Crown identified at least three components of environmental loss: use value, passive use or existence value, and inherent value.
"Use value" includes the services provided by the ecosystem to human beings, including food sources, water quality and recreational opportunities. Even if the public are not charged for these services, it may be possible to quantify them economically by observing what the public pays for comparable services on the market.
F. B. Cross, "Natural Resource Damage Valuation" 42 Vanderbilt L.R. 269 (1989) at pp. 281-292; O.L.R.C. Report, supra, ch. 3.
"Passive use" or "existence" value recognizes that a member of the public may be prepared to pay something for the protection of a natural resource, even if he or she never directly uses it. It includes both the psychological benefit to the public of knowing that the resource is protected, and the option value of being able to use it in the future. The branch of economics known as "contingent valuation" uses survey techniques to attempt to quantify what the public would be prepared to pay to maintain these benefits.
Finally, an ecosystem may be said to have an "inherent value" beyond its usefulness to humans. Those who invoke inherent value argue that ecosystems should be preserved not just for their utility to humans, but because they are important in and of themselves .... [T]o the extent humans recognize this inherent value, and are willing to forego income or wealth for it, it becomes a part of passive use value and becomes compensable.
Cross, "Natural Resource Damage Valuation", supra, at pp. 292-297
In the OLRC Report, supra, the Ontario Law Reform Commission contains many helpful observations including, at pp. 30-31:
.... although a person may never have visited Algonquin Park or the Rocky Mountains, he may want to do so some day and, consequently, may value the preservation of these sites .... In well-established private markets, as, for example, the market for agricultural commodities, traders will frequently pay a significant sum of money for an option on the right to use a product.
.... Bequest value is willingness to pay for the satisfaction associated with endowing succeeding generations with the environmental asset. For example, even though an individual has no intention of ever visiting the Cabot Trail in Cape Breton or of camping in the Northwest Territories, this person may desire that her descendants have the opportunity to enjoy these resources.
The inclusion of passive-use values was upheld in the context of CERCLA (Superfund) by the Court of Appeals for the District of Columbia in State of Ohio v Department of the Interior, supra, provided, the court added, such values could be reliably measured. The issue of reliable measurement (together with proper pleading) lies at the root of the present appeal.
The Crown also demonstrates in its factum (at para. 71) an awareness of some of the types of factual evidence that might lay the basis for appropriate valuation methodologies:
The nature of the wildlife, plants and other organisms protected by the environmental resource in question, and in particular whether rare or commercially valuable species are put at risk by damage or destruction of the ecosystem.
The uniqueness of the ecosystem from a biological perspective.
The environmental services provided by the resource, such as water quality and erosion control.
The recreational opportunities afforded by the resource.
The subjective or emotional attachment of the public to the damaged or destroyed area.
The difficulty, however, is that no evidence was led on these points. The Crown, for example, refers to the "contingent valuation" (CV) technique (at para. 72 of its factum), a method also endorsed by the Federal Attorney General (see AGC factum, at para. 32). Contingent valuation is a type of opinion poll that asks individuals according to established survey techniques what they would have paid to preserve, or what they would pay to restore, the Stone Creek area, including some old growth trees, fish habitat, clean water, wildlife, recreational potential, and so on. These are all "costs" which are not captured by a stumpage fee calculation. However, the Crown offered no such evidence for the trial court's consideration, even as it might relate to "diminution of the value of the timber". Had such evidence been offered, of course, Canfor would have had an opportunity to explore some of the "CV" technique's supposed frailties. Responses to CV surveys sometimes seem implausibly large. As a U.S. study points out, respondents are not always aware of the "budget constraints under which all must operate"; "it is difficult in CV surveys to provide adequate information to respondents about the policy or program for which values are being elicited and to be sure they have absorbed and accepted this information as the basis for their responses; .... respondents in CV surveys may actually be expressing feelings about public spiritedness or the `warm glow' of giving, rather than actual willingness to pay for the program in question": see K. Arrow et al., NOAA Report, supra, at p. 10, and generally at pp. 9-10.
Other valuation techniques have been put forward including travel cost valuation (e.g., what would you have paid to visit Stone Creek before as opposed to after the fire?) and hedonic valuation of environmental qualities (e.g., what premium are homeowners willing to pay for environmental benefits such as clean air?).
Even this short reference to some of the burgeoning literature on the assessment of environmental loss shows, I think, that the Crown's claim to an environmental "premium" of 20 percent of commercial value is overly arbitrary and simplistic. Less arbitrary techniques, which may or may not win eventual support in the courts, are available and will have to be carefully considered when and if properly presented.
The Crown now argues that the "courts should resist placing overwhelming and inefficient burdens of complexity and expense on government plaintiffs seeking to prove such damage to a civil standard". If by this the Crown means that the courts should not strangle legitimate claims that are properly pleaded because of overly technical objections to novel methods of assessment, I agree to the extent this can be done with fairness to both sides. I do not, however, agree that the Crown can succeed in an unpleaded claim for "ecological" or "environmental" damage simply because the Crown on this issue occupies the moral high ground. The Court and the alleged wrongdoer are entitled to require the Crown to adduce a proper evidentiary basis. Such evidence would be subject to cross-examination. Citation of articles in scholarly journals at this late stage is no substitute for evidence.
Our trial and appellate courts have routinely accepted environmental concerns as legitimate factors in the assessment of damages. For example, in R.E.F. Homes, supra, the Ontario Court of Appeal held that it was appropriate to take into account the passive-use value of the roadside trees that had been destroyed.
In Soutzo v Canterra Energy Ltd.,  A.J. No. 506 (QL), the Alberta Court of Appeal awarded damages for trees lost by fire plus damage for temporary loss of use and temporary loss of aesthetic value. In Kates v Hall (1991), 53 B.C.L.R. (2d) 322, the British Columbia Court of Appeal upheld an award of damages for the destruction of trees on a country property despite proof that in market terms the financial value of the property had not been affected. See also Chappell v Barati (1982), 30 C.C.L.T. 137 (Ont. H.C.J.).
Of course, in none of these cases did the claims approach the almost $1.5 million sought for environmental loss in this case, and the valuation issues were not explored in great detail. The valuation of a few trees plucked from a leafy urban boulevard poses fewer problems than valuing the environmental benefit of 1,491 hectares of trees clothing the slopes and valleys of the B.C. Interior.
Reference was made by the trial judge to damage to fish habitat and water quality, but the extent of this damage was not addressed in the evidence and no basis for its valuation was advanced by Deloitte & Touche or by Mr. Gairns. To the extent the claim includes compensation for loss of recreational use, for example, we do not know what recreational use was made of the burnt area. In any event, as stated, the Crown limited its claim to "diminution of the value of the timber."
It is true that we know there were trees growing in the ESAs, and that they were destroyed by Canfor's negligence. No expert was called to extrapolate these bare facts into a "20 percent premium", even as a matter of educated guesswork. No persuasive basis was given to expand the Crown's claim in this case at this stage from landowner to parens patriae.
The Crown alludes to principles of "general damages" developed in personal injury cases, and cites such authorities as Andrews v Grand & Toy Alberta Ltd.,  2 S.C.R. 229, but principles governing non-pecuniary loss where "what has been lost is incapable of being replaced in any direct way" and thus money is given as "solace for his misfortune" (Andrews, at p. 262) do not fit easily with renewable forest resources. In any event, the courts are not at the point of abandoning the search for more precise measures of loss and rational (though perhaps indirect) techniques of assessment of environmental losses.
I accept the admonition in Penvidic Contracting, supra, that a valid claim is not to be defeated by the difficulty of estimating damages, but unless more assistance is given a trial judge to value the environmental loss than was given in this case, I conclude that the award to the Crown in this case not only nears "the outer parameters of the possibility of estimation", as stated by the Court of Appeal at para. 75, but exceeds it. There was, with respect, no demonstrated error in the trial judge's rejection of the "environmental premium": Woelk v Halvorson,  2 S.C.R. 430.
It is open to the Crown to prove values for environmental harms not reflected in commercial value ("the premium") but this was not done. It is neither appropriate nor necessary to pronounce on the specific methodology that could be employed in valuation of environmental losses. This is a matter to be explored by the appropriate experts at trial.
The trial judge rejected the Crown's claim for "environmental loss" on the facts of this case and, on the record, I think he was right to do so.
F. Canfor Says that Our Law Does Not Provide for "Environmental Damages" as Claimed in This Case, and that Any Change in the Law Should Be Made by the Legislators, if They Think It Wise to Do So, Not the Courts.
I do not accept that there is anything so peculiar about "environmental damages" as to disqualify them from consideration by the Court. The legislatures may choose to bring in a statutory regime to address environmental loss as was done in the United States' CERCLA mentioned earlier. The Canadian Environmental Protection Act, 1999, S.C. 1999, c. 33, s. 40, and the Transportation of Dangerous Goods Act, 1992, S.C. 1992, c. 34, s. 34(1)(b), authorize compensation to persons or to the relevant government department: see J. Benidickson, Environmental Law (2nd ed. 2002), at pp. 187-89. However, there is no relevant legislation yet passed in British Columbia. That said, there is no reason to neglect the potential of the common law, if developed in a principled and incremental fashion, to assist in the realization of the fundamental value of environmental protection. However, the Court cannot act on generalizations and unsupported assertions. In the absence of statutory intervention, the Court must proceed cautiously. We do not have the basis in this record to proceed further at this time.
The appeal is allowed and the cross-appeal is dismissed. The decision of the trial judge is restored, with costs both in this Court and in the Court of Appeal. The award of costs at trial is unchanged.
(joined by Bastarache J and Fish J, dissenting)
I have had the pleasure of reading the reasons of my colleague. I must respectfully disagree with him on two major issues. The first area of disagreement relates to the problem of double recovery, or "passing on". Unlike my colleague, I conclude the Province of British Columbia should recover damages for the harvestable trees destroyed in the forest fire, despite the presence of the Comparative Value Pricing ("CVP") system. Secondly, I would allow the Province to recover damages for the non-harvestable trees in the Environmentally Sensitive Areas ("ESAs"), both in the riparian zones and on the steep slopes. These trees have intrinsic value at least equal to their commercial value, despite their non-commercial use. In the absence of better evidence, I accept B.C.'s contention that the value of nearby harvestable trees can serve as a yardstick to measure the value of the trees on the steep slopes, and Canfor's own expert report already includes the commercial value for the non-harvestable trees in the riparian zones. As a result, I would allow the cross-appeal of the respondent and I would dismiss the appeal of Canfor.
I am generally in accordance with the majority on the issue of standing, but I feel I must make the following additional comment. My colleague speaks of the importance of the Crown's parens patriae jurisdiction, and argues that it should not be attenuated by a narrow judicial construction (at para. 76). Unfortunately, he then goes on to adopt just such a narrow judicial construction by limiting the Crown's entitlement in this particular case to entitlement ".... in the role the Crown adopted in its statement of claim, namely that of the landowner of a tract of forest" (at para. 83). In my view, the fact that the Crown is trying to recover commercial value, or using commercial value as a proxy for the recovery of damages, should not limit the Crown's parens patriae jurisdiction. The Crown, in seeking damages, is still fulfilling its general duty, its parens patriae function to protect the environment and the public's interest in it. I found my colleague's legal analysis of the Crown's ability to sue in the public interest to be correct, up to the point where he asserts that this ability should somehow be limited at bar. The Crown's parens patriae jurisdiction allows it to recover damages in the public interest, even to the extent that the Crown adopts commercial value as a proxy for such damages. I therefore proceed on the basis that the Crown's entitlement in this particular case is not limited to the damages that a private landowner might receive.
I agree with the broad outline of environmental torts developed by my colleague Justice Binnie, and the concerns of the majority with respect to the drafting of the pleadings and the weakness of the evidence. I also agree that, with respect to valuing the damaged trees in question, harvestable or otherwise, the concept of auction value cannot apply at bar on the facts of the present case. Stumpage revenue must necessarily be the measure of damages. With proper evidence and pleadings I might have been open to using auction value as the measure of damages, because there is merit to the Crown's assertion that it should be compensated, in addition to stumpage fees, for the loss of "integrated resource management" it usually requires of its licensees. However, such an argument is best left for another day. I defer to the majority reasons for a review of the facts and judicial history. I will only add such further comment as may be required for the purposes of my analysis of the legal issues raised in the present appeal.
II. COMPENSATION FOR LOSS OF HARVESTABLE TREES
The Crown suffered a compensable loss in respect of harvestable trees despite the CVP system. The Court should not send a message that no loss has occurred by dwelling on the workings of what is, essentially, a system for setting prices. Until the fire-damaged forest has grown back to its original state this source of revenue for the Crown - these trees - are lost. The fact that the Crown has a system in place by which it charges higher prices to other customers within the B.C. Interior should not prevent the Crown from recovering damages for its very real loss.
The loss is all the more real when one considers that the Crown lost not only stumpage, but a bundle of rights attached to the harvestable trees through the licensing system. As Canfor's expert, Mr. Gairns, noted in the transcript of evidence: "The fire resulted in abandoning on that particular piece of land the sort of integrated resource management procedures that normally would have applied." Long-term tenures impose extensive forest management, protection, and development responsibilities on the tenure holder that ensure that forest resources are managed in the public interest. The obligations imposed on a tenure holder like Canfor include extensive silviculture requirements, road-building and infrastructure development, and forest management responsibilities. As Mr. Gairns notes in his testimony, these non-pecuniary benefits were lost to the Crown when Canfor's negligence resulted in the Stone Creek fire. The forest fire meant the loss of this additional bundle of rights for the Crown, constituting yet another reason why the Crown's very real loss should not be undervalued by dwelling inappropriately on the CVP system.
The CVP system is nothing more than a means of attempting to pass losses on to other forest licensees, just as a store owner might attempt to recoup losses by charging higher prices to other customers. A closer look at just how this system works will reveal that no other conclusion can be reached.
A. The Comparative Value Pricing System
Canfor's expert refers to the CVP as a "method of pricing timber". Under the system, a "value index" ("VI") is established for each stand of timber. This VI is basically the difference between product values (how much one can sell the timber for) and production costs (the costs of bringing the timber to market). This VI will vary from one stand of timber to the next because some timber is worth more than timber elsewhere and the cost of logging may change from one timber stand to the next.
The next step in determining a price for timber under the CVP system is to compare the VI for a given timber stand with the mean value index ("MVI"). The MVI is, as its title indicates, the mean value of all VI calculations in all recently logged areas for which a VI has been calculated in the B.C. Interior. Any particular stand of timber may have a VI greater than or less than the mean value for the whole Interior. In the case of a forest fire, "the MVI is lowered by inclusion of low-value fire salvage timber harvested during the previous year". The MVI for the quarter commencing July 1, 1992 was calculated to be $2.31/m3.
Canfor's expert then showed that the Ministry of Forests calculates, on a quarterly basis, a target stumpage rate for the Interior. This target rate rises or falls according to a Statistics Canada Index of Interior B.C. softwood lumber prices. The target rate for July 1, 1992 was $8.55/m3 (the time period relevant to the issue before this Court). What the Ministry of Forests seeks is to have stumpage revenues for the B.C. Interior equal to the revenues it would receive if it charged this target stumpage rate to everyone. In truth, stumpage rates vary from one timber stand to the next according to local conditions and timber values.
Next, the base rate must be calculated. This is higher than the target rate to account for something called the "half-cap" adjustment. The procedure in effect in the Interior Appraisal Manual, at July 1, 1992, required a reduction of stumpage rates, calculated to be above a "cap" of $14.00/m3, by half the amount in excess of $14.00/m3. This arbitrary reduction of the highest rates had to be factored in to the calculation of the base stumpage rate. This base rate is the actual average stumpage the Crown would require to achieve its revenue goals. It is the rate of stumpage one would charge on a timber stand with a VI exactly equal to the MVI. For the quarter commencing July 1, 1992 the base rate was $9.55/m3.
In order to calculate the stumpage rate for a particular tract of timber, the difference between the VI for that tract of timber and the MVI for the whole B.C. Interior is added to the base rate. If the VI for the specific tract of timber is greater than the mean for the whole Interior, then the licensee with timber rights for that tract pays a stumpage rate that is greater than the base rate. If the VI for a specific tract of timber is lower than the mean for the whole Interior, then the licensee pays a stumpage rate that is less than the base rate.
What happens when a forest fire occurs? Basically, the low-value fire salvage timber from the area where the forest fire occurred lowers the VI in that area. Such a reduction in turn lowers the MVI. A lower MVI means higher stumpage rates for everyone else in the Interior. Canfor's negligence means that other licensees in the B.C. Interior are charged higher stumpage rates. The effect is not immediate, as the calculation of the MVI is backwards-looking. A forest fire lowering the VI in a particular timber stand will raise stumpage rates for other licensees in the next quarter.
Canfor's expert argues, and my colleague accepts, that because of the CVP system the Crown can suffer the losses of a forest fire, and yet maintain its revenues. So many hectares of forest can be burned down, and the Crown can be found to have suffered zero damage. This is because the effective rate of stumpage that the Crown receives is the same, forest fire or no forest fire. With respect, this argument is faulty and the lower courts' acceptance of it was likely wrong in fact, in addition to being wrong at law.
B. Revenue Neutrality is Not a Certainty
First of all, there is no guarantee that the CVP system is revenue-neutral. As the majority of the Court of Appeal for British Columbia noted, at para. 54 of its reasons for judgment ((2002), 100 B.C.L.R. (3d) 114, 2002 BCCA 217):
The system has a target rate rather than a target revenue. In order to achieve the target or average rate the system makes adjustments quarterly which have the effect of ensuring there is no (or little) loss of revenue when a considerable amount of timber is harvested at rates substantially below the average. In the case of a large fire, the system will adjust all stumpage rates (in the Interior of the province) upwards to offset the effect of the fire damaged timber being harvested at low stumpage rates, thus ensuring the target rate is achieved.
[Underlining in original; italics added]
The potential for revenue loss is not ruled out by this statement. There may still be a "little" loss of revenue, as only the target rate is achieved. The trial judge also recognized that no actual evidence of revenue-neutrality has been led in this case. At para. 121 of his reasons, he notes that the "amount of that `increased stumpage' to others, (i.e., as a discrete sum), as a result of the fire, is not part of the evidence in this trial" ( B.C.J. No. 1945 (QL)).
Canfor has only established that the target rate is maintained by charging higher stumpage rates to others. That the target revenue is maintained as a result is by no means certain. In fact, a basic rule of economics states that when prices rise, quantity demanded falls. Even for a monopolistic supplier of timber licences, as the Crown is in the B.C. Interior, there are consequences to raising stumpage rates as a result of forest fires, consequences which are too numerous to consider and beyond the competence of the courts. If this Court wishes to allow the defence that the Crown has recouped all of its losses from the forest fire by charging higher stumpage rates to other customers in the B.C. Interior, then to be fair it should carry this analysis to its bitter end. This would require that the Court inquire into whether the Crown suffered any economic loss as a result of increased stumpage fees charged to other licensees. Did this lead to less harvesting overall? Did it result in less corporate taxes for the Crown? Did it have any effect on employment in the forest sector, thereby affecting personal income taxes and social program spending? As I will discuss below, in my consideration of the passing-on defence, this type of analysis would be "endless and futile" and would tax the institutional capacities of the courts. As Holmes J. stated, quite succinctly, in Southern Pacific Co. v Darnell-Taenzer Lumber Co., 245 U.S. 531 (1918), at pp. 533-34:
The general tendency of the law, in regard to damages at least, is not to go beyond the first step. As it does not attribute remote consequences to a defendant so it holds him liable if proximately the plaintiff has suffered a loss.
Here, proximately, the plaintiff has suffered a loss. To the extent that the Crown has shown that it has received less stumpage revenue in the Stone Creek fire area as a result of Canfor's negligence, they have established a right of recovery in damages. The fact that the Crown had a system in place whereby it attempted to recoup that loss by charging higher stumpage rates to others in the B.C. Interior should be an irrelevant factor when it comes to establishing a right to damages. To consider the CVP system is "to go beyond the first step".
Serious difficulties are inherent in going "beyond the first step" to determine if the CVP system, by raising prices for other licensees when a forest fire occurs, is in fact revenue-neutral. Meiklem J. considered the CVP and its "waterbedding" effect in the British Columbia (Minister of Forests) v Bugbusters Pest Management Inc.,  B.C.J. No. 84 (Q.L.), 2003 BCSC 77. This case also involved an assessment of damages in an action by the Province of British Columbia to recover damages resulting from a forest fire. The Province's expert in the case argued that the waterbed effect of the CVP system was not a guarantee that total stumpage revenues remained constant, because increased stumpage rates might reduce harvest levels (essentially a supply and demand argument). Mr. Gairns, the forest industry expert in that case as well, acknowledged that there was this theoretical argument, but concluded that there had been no decrease in harvest levels. Meiklem J., in accepting Mr. Gairns' assertion, had the following to say at paras. 27-29:
The plaintiff argued that Mr. Gairns' analysis is flawed because he relies largely upon lumber price index data rather than target rate data and because his observation that stumpage rate changes as much as $5.00/m3 have little or no impact on volumes harvested fails to take into account what the harvested volumes may have been if no stumpage rate increase had occurred. I find no merit in these criticisms. It is accepted that there is a correlation between the lumber price index and target stumpage rates, and the evidence seems clear that harvest levels are not sensitive to very minor increases in costs.
In the absence of empirical evidence to refute Mr. Gairns' analysis, I find it persuasive. I note that the overall goal of the CVP system is to achieve a certain level of constant revenue for the Crown. There are many factors other than fire that render various stands of timber of low value, thereby increasing the stumpage rates on other cutting permits. The system would not be achieving the purpose for which it was designed if cutting permit harvested volumes decreased when minor upward adjustments on stumpage occurred. The system has been in place since October 1987, and if it has been failing in its purpose I would think that some evidence to that effect would be available to the Crown by now.
In conclusion not only am I unable to distinguish the facts of this case from the facts of Canfor in respect of the stumpage loss on cutting permits within the CVP system, but independently of that decision, I find that the Crown has not established a loss of stumpage revenue in respect of the fire damaged timber salvaged from the Cutting Permits 985, 986 and 987.
Implicit in Meiklem J.'s analysis was a recognition that the forest fire in question had lowered the value of timber on Cutting Permits 985, 986, and 987. What the trial judge did in Bugbusters, and what my colleague does in this judgment, was to force the plaintiff to go beyond proof of proximate damage, something that the law of damages has typically not required.
Consider what would happen if the damage from the fire in the case at bar had been 100 times greater. Presumably the majority's decision would still apply and the CVP system would remain a bar to recovery. The CVP mechanism would kick in, to ensure that "rates paid by other licensees in the following quarter" would compensate for the loss (majority reasons, at para. 27). However, to recover lost stumpage rates from such a large fire, presumably the increase in stumpage fees charged to other timber harvesters in the B.C. Interior would be 100 times greater. The increase in stumpage rates, this time, would be economically significant. Perhaps smaller harvesting companies would be forced out of business; even larger companies might feel the crunch. The Province's attempt to pass on its loss would likely fail. Nobody in these circumstances could argue that the Crown had not suffered a loss, despite the CVP. And yet, the approach of my colleague, applied as it would have to be in this analogous situation, would deny the Crown recovery. The only problem with the case at bar as compared to the above hypothetical example is that the economic side effects of passing the losses of the forest fire on to other customers are not immediately visible. The Crown in B.C. holds a significant, if not a complete, monopoly on the supply of timber licenses in the B.C. Interior. Having a monopoly makes one, up to a certain point, a price-setter and it makes one's customers, again up to a certain point, price-takers. Monopolies do, however, have their limits and every time a supplier has to increase prices there are a whole set of consequent effects, effects which are beyond the institutional capacity of this Court to measure.
It is by no means certain that the CVP system guarantees a steady revenue for the Crown. The argument, however, is that since the goal of the CVP system is to maintain steady revenues, the burden lies on the Crown to establish that the opposite is true. With respect, the law of damages does not require the plaintiff to establish this. The plaintiff need only establish damages in a proximate sense. So, even if it could be said that the CVP system, on the facts at bar, worked to maintain 100 percent revenue-neutrality for the Crown, such a finding would be irrelevant to an assessment of damages in tort. This will become clear from an analysis of the law with respect to mitigation, the rule against double recovery, and the defence of passing on.
C. The Mitigation Argument
Canfor argues that by charging higher prices to other timber licensees in the B.C. Interior (i.e. by the very nature of the CVP system) the Crown has mitigated its damages. With respect, the CVP system, a mechanism for charging higher stumpage rates to other timber licensees to compensate for lower timber value in a particular stand of timber, cannot be viewed as a form of mitigation. Passing on losses to other customers has never been accepted as mitigation.
In Waddams, The Law of Damages (looseleaf ed. 1991), at p. 15-4, the author describes the principle of mitigation as being that the plaintiff should not be able to recover compensation for a loss that, by taking reasonable action, could have been avoided. Professor Waddams cites this as the general principle one can take from the case of British Westinghouse Electric and Manufacturing Co. v Underground Electric Railways Co. of London Ltd.,  A.C. 673. Losses that could reasonably have been avoided are, in effect, caused by the plaintiff's inaction, rather than the defendant's wrong. There is also an underlying policy of avoiding economic waste. Thus, two principles underlie the requirement to mitigate: the plaintiff should not recover for a loss that he could reasonably have avoided and the defendant should not be forced to pay the plaintiff where the plaintiff has been wasteful after the fact of the wrongdoing.
The question at bar then is whether the Crown fully mitigated its damages by charging higher stumpage fees to other timber licensees in the B.C. Interior, by way of the CVP system. If the principle to be taken from British Westinghouse means that the plaintiff must do what is reasonable to mitigate losses, the key problem is whether this obligation includes raising prices for other customers to compensate for the loss caused by the defendant's negligence. If so, then the Crown should be denied recovery.
The analytical tool that the courts have developed to determine whether the plaintiff, by his actions after the wrongdoing, has avoided a loss is an inquiry into whether the gains made by the plaintiff are "collateral" to the tort, or res inter alios acta. If collateral to the tort, the gains (in our case increased stumpage fees from other licensees) should not be taken into account in assessing damages.
In British Westinghouse the plaintiff received deficient machinery from the defendant. The plaintiff replaced the machinery with machines of superior design. This ended up being more profitable to the plaintiff than the old machines would have been. In assessing damages, these extra profits were taken into account, meaning that the plaintiff could only recover nominal damages. At p. 690, Viscount Haldane stated:
The subsequent transaction, if to be taken into account, must be one arising out of the consequences of the breach and in the ordinary course of business.
This Court adopted the analysis of Viscount Haldane in APECO of Canada Ltd v Windmill Place,  2 S.C.R. 385. In APECO the lessor of space in a building, upon the lessee's repudiation, rented the same space to another tenant. Ritchie J. adopted the above rule from British Westinghouse but decided that the defendant had not established that the plaintiff should be seen as having mitigated his damages. Although the space the lessee vacated had been leased to another, the building remained half empty. Ritchie J. held that the transaction in question could have been concluded even if the defendant had not breached the original lease agreement. It was thus an independent transaction not arising out of the consequences of the breach by the appellant. The defendant could not point to the transaction as being mitigation of damages.
In both British Westinghouse and APECO the plaintiff engaged in another transaction. The plaintiff carried on business with someone else. In British Westinghouse this led to a finding of mitigation of damages because the transaction was a natural thing to do in the ordinary course of business (it made sense to buy the most modern machines) and the transaction arose as a result of the defendant's breach. In APECO the transaction was something done in the ordinary course of business but Ritchie J. found that it did not arise as a consequence of the breach.
In the case at bar, I agree that the Crown charged higher stumpage fees to other licensees as a direct result, or as a consequence of Canfor's negligence. The Crown had set up the CVP system so that this would be the inevitable result unless the government took action to change the system and stop the price increase from automatically occurring (something which it is perfectly capable of doing, and did do in 1999 after the 1998 forest fires). But I cannot agree with the notion that charging higher rates to other customers amounts to something that arises in the ordinary course of business. Charging higher prices to other customers to compensate for a loss is not something one does ordinarily, although one might unfortunately feel forced to do so as a result of the damage suffered. In the ordinary course of business, for someone in the Crown's position of having suffered a loss because of a negligently caused forest fire, it would make business sense to put forest rehabilitation measures in place (the Crown did this). It would also make business sense to allow as much timber to be salvaged as possible (this occurred, and the Crown's damages were reduced accordingly). Charging higher prices to other customers is not necessarily a smart business decision. Most business people (and the Crown is in the timber licensing business, in my opinion) do not have this option. If the typical businessperson raises prices, he or she runs the risk of their customers turning to cheaper substitutes, or foregoing consumption of the product. The Crown gets away with charging higher stumpage fees only because of its position as a monopolistic, price-setting supplier in the B.C. Interior. However, as I have tried to illustrate with my examples above, this type of behaviour has consequences down the line, although they may not be immediately visible to the courts.
The analysis of Rand J. in Karas v Rowlett,  S.C.R. 1, is helpful in elucidating the principle at play when it comes to mitigation. In Karas the plaintiff lost a lease because of fraud. He set up another business in an admitted attempt to offset some of his losses. Rand J. ruled that these profits (from the new business) could not be used to offset the damages payable by the defendant. Rand J. enunciated the following principle at p. 8 of Karas:
It is settled .... that the performance in mitigation and that provided or contemplated under the original contract must be mutually exclusive, and the mitigation, in that sense, a substitute for the other. Stated from another point of view, by the default or wrong there is released a capacity to work or to earn. That capacity becomes an asset in the hands of the injured party, and he is held to a reasonable employment of it in the course of events flowing from the breach.
No such "capacity to earn" has been released for the Crown on the facts at bar. The Crown could have raised this extra revenue before the tort occurred, but simply chose not to. The Crown was able to collect stumpage fees from salvaged timber now, as opposed to 30 or 50 years from now as previously planned. That is clearly a mitigating factor. However, charging other licensees more as a result of the forest fire does not amount to an increased capacity to earn. It is likely a disappointment for those who are charged more and should be unsettling for the Crown, since raising prices for other timber licensees in the B.C. Interior may affect business, tax revenue and jobs.
It is entirely possible that the Crown might decide, in similar circumstances in the future, not to allow the CVP system to automatically raise stumpage fees for other licensees in order to maintain the target rate, and perhaps the target revenue. In fact, that is exactly what the Crown did after forest fires that occurred in 1998. This is clear from Canfor's own evidence, as can be seen in the following passage from Mr. Gairns' expert report of March 5, 1999:
The Comparative Value Pricing (CVP) system is used to establish stumpage rates for all Cutting Permits under all types of long term tenure in B.C. and applied to both Canfor's Forest Licence and to the three Woodlots in the Stone Fire area.... Until January 1, 1999, all types of Cutting Permits under these licences were included in the MVI calculation, but this has now been changed to exclude salvage cutting permits for fire-killed timber from the 1998 forest fires. This January 1, 1999 change will avoid the increase to stumpage for non-salvage Cutting permits that would have normally occurred, but will result in a reduction in Provincial revenues in 1999 from what they would have been had the 1999 fires not occurred.
Assuming the 1998 fires were the result of negligence, would the defendant in the ensuing action be able to point to the plaintiff Crown's refusal to raise prices for others as a failure to mitigate? I would think not. The principles behind mitigation, in particular the principle of economic efficiency, require the injured party to exploit any new "capacity to earn" triggered by the defendant's tort. Mitigation principles do not require the injured party to attempt to recoup its losses by charging higher prices to other customers. In the present case, the plaintiff Crown, by allowing the CVP system to kick-in and charge higher prices to other timber licensees, was not exercising any "increased capacity to earn" and therefore should not be penalized in its damage award. Based on British Westinghouse, but more particularly on this Court's reasons in Karas and APECO, I conclude that the CVP system is not a mitigating factor in the assessment of damages against the defendant.
D. Double Recovery
Smith J.A., speaking for a majority of the Court of Appeal for British Columbia, correctly concluded that this was not a case of mitigation. The majority concluded instead that "the comparative value pricing system was in place before the fire occurred and its effect was to avoid any loss to the Crown from the fire" (para. 80). It also voiced a concern that if the Crown were allowed to recover damages in addition to the increased stumpage revenue it received from other licensees, it would be compensated twice for the same loss from different sources. This outcome would violate the rule against double recovery espoused in Ratych v Bloomer,  1 S.C.R. 940.
First of all, I would re-emphasize that it is not at all clear that the CVP system's effect is "to avoid any loss to the Crown from the fire". What the courts below really found was that the Crown was not able to rebut the presumption that the CVP system was revenue-neutral. Again, as was the case with mitigation, no such burden should be placed on the plaintiff at bar. The rule against double recovery is not invoked where the plaintiff's supposed double recovery stems from their decision to charge higher prices to other customers. If this Court chooses to deny the Crown recovery at bar, it may be invoking in part the principles against double recovery espoused in Ratych, but in truth the Court would be recognizing the defence of passing on in tort law.
Before turning to whether the passing-on defence exists at law, I wish to consider the decision of McLachlin J. (as she then was) in Ratych. Certain principles from Ratych can apply at bar, but generally speaking, the case is distinguishable as relating to collateral benefits such as sick pay, welfare payments, accident insurance benefits and the like. The case dealt squarely with receipt of loss-spreading benefits from third parties. In my opinion, charging higher prices to other customers cannot truly be analogized to the benefits of which McLachlin J. spoke in Ratych.
In Ratych, the respondent police officer was injured in a motor vehicle accident. The appellant was clearly at fault. The officer was unable to work for several months because of his injuries but continued to be paid pursuant to the terms of his collective agreement. The central issue was whether these payments, made by an employer during the period when a plaintiff could not work, should be brought into account in assessing his damages for loss of earnings. Since the officer had continued to receive wages, there was no actual wage loss to speak of. At p. 964, McLachlin J. stated as follows:
I conclude that the general principles underlying our system of tort law suggest that the damages awarded to the plaintiff should be confined to his or her actual loss, as closely as that can be calculated. The damages should be in an amount which will restore the plaintiff to his pre-accident position. Where pecuniary losses, such as loss of earnings, are at stake, the measure of damages is normally the plaintiff's actual financial loss. Unless the plaintiff can demonstrate such loss, he or she is not entitled to recover. This is because an essential element of tortious liability is lacking in the absence of loss. As Lord Diplock stated in Browning v War Office,  3 All E.R. 1089, at pp. 1094-95:
McLachlin J.'s argument in Ratych is well put: a plaintiff should not recover for losses which he or she has not actually incurred. With respect though, I have serious hesitations about applying the reasoning of Ratych to the facts at bar. Much of McLachlin J.'s discussion revolved around the inapplicability, or at least limiting the applicability, of the insurance exception to damages for personal injury in Bradburn v Great Western Rail. Co., [1874-80] All E.R. 195 (Ex. Div.). In Bradburn, it was held that damages for personal injury should not be reduced by amounts payable to the plaintiff by a private insurer. In Ratych, McLachlin J. showed, by way of a thorough analysis of the authorities in the U.K., Australia, the United States, and Canada, that although Bradburn was originally used to support the non-deductibility of all types of "benefits" (at p. 965), the general applicability of the insurance rule was being tapered down by the courts.
McLachlin J.'s overview of the U.K. jurisprudence is illustrative of the focus of her analysis. McLachlin J. began to illustrate how the general applicability of Bradburn had been eroding by considering Browning v War Office,  3 All E.R. 1089 (C.A.), where Lord Denning held that the amount of the plaintiff's veteran benefit should be deducted from a damage award. Only a few years later, Lord Reid held in Parry v Cleaver,  1 All E.R. 555 (H.L.), that a policeman's pension should not be deducted from damages for loss of earnings. Sick pay was, however, deemed deductible from a damage award in Hussain v New Taplow Paper Mills Ltd.,  1 All E.R. 541 (H.L.). McLachlin J. stated as follows in Ratych, at p. 967:
The jurisprudence in England on the question before this Court may be summarized as follows. While some benefits, like private insurance, remain non-deductible, wages or sick benefits paid during the period the plaintiff is unable to work have always been required to be brought into account in calculating the plaintiff's damages.
McLachlin J. then briefly showed that Australia has adopted a similar approach to deductibility of wage payments. In the United States the matter had been dealt with in large part by legislation providing for the deduction of an "array of different benefits" (at p. 968). McLachlin J. then turned to the Canadian jurisprudence. She determined that, as in the United Kingdom, the influence of Bradburn had caused the courts to take a general non-deductibility approach to all types of "collateral benefits" (at p. 969), but along with Lord Denning in Browning's case, Canadian courts shifted to deductibility. As McLachlin J. states at p. 969:
As a consequence of Browning's case, Canadian courts shifted to deductibility. They deducted from damages salary continuation payments, both ex gratia (Dell v Vermette (1963), 37 D.L.R. (2d) 101 (Ont. H.C.); Parsons v Saunders (1963), 39 D.L.R. (2d) 190 (N.S.S.C.)) and contractual (Dell v Vermette on appeal (1963), 42 D.L.R. (2d) 326 (Ont. C.A.); Woodsworth v Farmer (1963), 39 D.L.R. (2d) 179 (N.S.T.D.)) Sickness and accident insurance benefits from employers were deducted, (Rados v Neumann,  2 O.R. 269 (H.C.); Massia v Allen,  1 O.R. 419 (Co. Ct.); Brazier v Humphreys (1973), 38 D.L.R. (3d) 201 (Ont. H.C.)), as was sick pay (Dell v Vermette, supra; McCready v Munroe (1965), 55 D.L.R. (2d) 338 (B.C.S.C.); Menhennet v Schoenholz,  3 O.R. 355 (C.A.)) Again, the practice cannot be described as universal, some judges still refusing to deduct benefits.
McLachlin J. then went on to discuss other cases where "benefits" such as private pension plans, CPP payments, wage benefits, sick leave benefits, etc. were or were not deducted from damage awards.
Much of McLachlin J.'s analysis was then devoted to the minority's argument that the above types of benefits were analogous to insurance and should therefore not be deducted from an insurance award. She determined that wages paid while on sick leave could not be analogized to private insurance payments. McLachlin J. was not ready to assume that if an employee receives wages when he is not working, he has given up a quid pro quo for that benefit, and therefore has established a right to keep the benefit in the face of a damage award. At p. 973 of Ratych, she states:
In my view, it is inconsistent with the principles governing the recovery of damages in tort that the court should assume that because a benefit has been conferred by a third party, the plaintiff has suffered an equivalent loss. I know of no principle which could support such an assumption. The rule remains as it has always been - a plaintiff is obliged to prove his or her loss.
It becomes increasingly clear as one considers the analysis of McLachlin J. in Ratych that she was dealing with an entirely different set of facts than those the Court is faced with at bar. One can glean from her decision that general principles of tort law require the plaintiff to establish their loss. The plaintiff must not be allowed double recovery where at all possible. The rest of her analysis relates almost exclusively to whether "collateral benefits", in particular benefits that are akin to wages, or wage substitutes, should be deducted from any damage award for lost earnings. It seems that McLachlin J. puts a kind of onus on the plaintiff to show that these types of collateral benefits have been somehow earned by the plaintiff, that there was a quid pro quo for the receipt of the benefits in question. With respect, the "benefits" that Canfor wishes to have deducted from their damages award at bar are not benefits at all, but stumpage revenues from entirely separate transactions with third parties. These increased stumpage revenues are not analogous to the benefits paid by third parties to the injured party in Ratych. The Crown is merely attempting to rely on the generally held notion that no defence of passing on exists in Canadian law. As such, I turn now to a discussion of passing on.
E. The Passing-On Defence
The question of whether the defence of passing on exists at law in Canada was recently canvassed by Ground J. in Law Society of Upper Canada v Ernst & Young,  59 O.R. (3d) 214 (S.C.J.). Ground J. was faced with summary judgment motions by the defendants. The defendants' contended that even if breach of contract, negligence and negligent misrepresentation could be proven, the plaintiffs had suffered no damages since all of the unpaid claims liabilities and deficits incurred by the insurance plan in the subject years had been recouped by the plaintiffs as a result of supplemental or increased levies on Law Society members. In this manner, the plaintiff had "passed off" the losses to Law Society members by way of supplementary and increased insurance levies.
Ground J. ruled that as a general principle, a wrongdoer should not be immune from liability for its wrongful acts simply because the person harmed by those acts was able to recoup the amount of the losses incurred by accessing other sources of revenue or existing contractual or statutory rights. In essence, he ruled at the summary judgment stage that no defence of passing on existed in Canada. The only known exception was the ruling of La Forest J. in Air Canada v British Columbia,  1 S.C.R. 1161, a ruling which was restricted to a situation where a taxpayer brings an action to recover taxes paid under ultra vires legislation.
Borins J.A., at the Ontario Court of Appeal, overruled Ground J. ((2003), 65 O.R. (3d) 577), first on procedural grounds, but second because he concluded that it was not "plain and obvious" (para. 50) that the passing-on defence, as a matter of law, did not exist in Canada. Notably, one of the chief reasons, if not the chief reason why Borins J. A. felt that the passing-on defence could be considered at trial related to the fact that this Court had only recently granted leave to appeal in this case. At para. 50, Borins J.A. states:
In this appeal, there is no better indicator that the law concerning the recognition of a passing on defence is unsettled than the decision of the Supreme Court of Canada, announced on the second day of the hearing, to grant leave to appeal from a decision of the British Columbia Court of Appeal on the issue of whether the Court of Appeal erred in accepting the "passing-off" defence and awarding no damages for commercial timber damaged or destroyed in a fire ....
Ground J., although overruled with respect to the "plain and obvious" test, nonetheless conducted a very thorough and useful analysis of whether the defence of passing on exists at law in Canada. My overall conclusion is that the passing-on defence, on the facts of this case and generally, must not be allowed to take hold in Canadian jurisprudence. Although the plaintiff does indeed bear the burden of proving that he or she has suffered an actual loss, the plaintiff need only establish loss in the proximate sense. The courts need not go on to consider whether the plaintiff was able to recoup his or her losses by accessing other sources of revenue or exercising contractual or statutory rights.
Professor Waddams considers the defence of passing on in his text The Law of Damages, supra, at p. 15-38, and dismisses it outright. He discusses the case of Oshawa Group Ltd. v Great American Insurance Co. (1982), 36 O.R. (2d) 424 (C.A.), leave to appeal to S.C.C. refused  1 S.C.R. viii, where a passing-on defence was rejected. Professor Waddams states as follows:
In a free market, the price charged for goods reflects market prices. Had the fraud not been committed the plaintiff would have obtained its goods more cheaply and could have sold the same quantity at the prices actually charged making a larger profit on the same quantity or (if it thought it profitable to do so) could have reduced the price and sold a larger quantity. If the defendant's argument, sometimes framed in terms of a defence of "passing on", were sound, many enterprises would be incapable of suffering losses. Again, it is suggested that the key factor is that the plaintiff in the Oshawa Group case could have charged the prices actually charged, in addition to retaining the benefit of the cheaper goods that it would have obtained from its suppliers in the absence of the fraud.
Here, the Crown could have charged the other licensees higher stumpage rates if it so chose, even in the absence of a forest fire. The Minister of Forests sets its own rates, after all. The Crown could also have decided not to raise stumpage fees for other licensees as a result of the fire, as it did in 1999.
In an indirect way this Court recently considered the passing-on defence in Garland v Consumers' Gas Co., 2004 SCC 25, at para. 37 and paras. 63-66. The context was one of restitution. A type of passing-on defence was raised by the respondent utility company. The argument was that the utility company had passed on illegally obtained late-payment fees to other customers, and as such retained no benefit. The company was not enriched because it passed on the benefit. This Court refused to deal with the defence of passing on (a defence that Iacobucci J. correctly noted would fall under the broader rubric of a change of position defence in restitution law, at para. 37). In the law of restitution the enriched party cannot avail itself of the defence of change of position where the defendant is a wrongdoer. In Garland, supra, the defendant had collected the late payment fees in violation of the Criminal Code. The passing-on defence was passed over by this Court, for reasons of equity specific to restitution law. This equitable analysis, omnipresent in the restitution law context, is a good reason why the defence of passing on is perhaps best confined to that area of law. The Court decided that the defence did not apply for other reasons of equity, whereas presumably in tort law the same flexibility would not exist.
The only instance I am aware of where a passing-on defence has actually been allowed is the decision of this Court in Air Canada, supra. That decision dealt with the plaintiff airlines' claims for damages in the amount of gasoline taxes paid by them under a statute held to be ultra vires the Province. The case involved the law of restitution but, in essence, La Forest J. turned his mind to the question of whether the plaintiffs had actually suffered a loss, since the evidence indicated that the airlines had passed on the burden of the ultra vires tax to their customers. At pp. 1202-03, La Forest J. states as follows:
In this case, I have no doubt that the province has been enriched through the imposition of this unconstitutional tax. A more difficult issue which could preclude recovery in this case, even if I were to base my decision solely on the application of restitutionary principles, is whether the enrichment of the province was at the expense of the plaintiff airlines. The Attorney General argued that the airlines were able to pass on the burden of the tax to their passengers. Counsel for Air Canada, however, strongly pressed that the "passing on" defence should only be available where the tax has been specifically charged to other identified parties so as to make those parties the true taxpayers. He submits that otherwise the fact that a tax may have been passed on is no ground on which to deny recovery. Though the airlines may have increased their prices to raise revenue to pay the tax, the resulting higher prices may have had an impact on sales volume which may in turn have an out-of-pocket impact on the airlines' profit.
In my view there is merit to this observation, and if it was necessary I would apply it to this case as the evidence supports that the airlines had passed on to their customers the burden of the tax imposed upon them. The law of restitution is not intended to provide windfalls to plaintiffs who have suffered no loss. Its function is to ensure that where a plaintiff has been deprived of wealth that is either in his possession or would have accrued for his benefit, it is restored to him. The measure of restitutionary recovery is the gain the province made at the airlines' expense. If the airlines have not shown that they bore the burden of the tax, then they have not made out their claim. What the province received is relevant only in so far as it was received at the airlines' expense.
This alone is sufficient to deny the airlines' claim. However, even if the airlines could show that they bore the burden of the tax, I would still deny recovery. It is clear that the principles of unjust enrichment can operate against a government to ground restitutionary recovery, but in this kind of case, where the effect of an unconstitutional or ultra vires statute is in issue, I am of the opinion that special considerations operate to take this case out of the normal restitutionary framework, and require a rule responding to the specific underlying policy concerns in this area.
This Court stands at a crossroads. It must now decide whether the decision of La Forest J. in Air Canada, supra, should be limited to cases of taxes paid pursuant to an unconstitutional ultra vires statute (and perhaps also limited to the law of restitution), or whether the passing-on defence should be extended to the whole of private law.
The passing-on defence was also considered by the Ontario Court of Appeal in Air Canada v Liquor Control Board of Ontario (1995), 24 O.R. (3d) 403, again in the context of restitution law. In that case the airlines sought to recover monies paid pursuant to a misapplication of the provisions of the Ontario Liquor Licence Act, R.S.O. 1990, c. L. 19. Robins J.A. rejected the argument made by the Province that to refund the airlines any part of the mistaken payments would amount to a windfall. He did so, however, on the basis of factual findings of the trial judge which indicated that the economic burden of the mistaken payments were not shifted to passengers (at p. 432):
This windfall argument, as persuasive as it may at first blush appear, was rejected by the trial judge on a factual basis. In response to it, he found:
Robins J.A. dismissed the passing-on defence in Liquor Control Board on a "factual basis", as he put it. The question of whether the defence would have been successful in the absence of a factual basis to reject it was not addressed. The approach of Robins J.A. raises some interesting and problematic issues about a passing-on defence if applied to the law of torts. If this Court were to accept it, the plaintiff would effectively be forced to prove more than just the damages caused by the tortfeasor. The injured party would also have to show that it did not engage in any other business transactions which might have offset the loss, even if those business transactions did not stem from the injured party's increased capacity to earn that may have been the result of the defendant's negligence. So, for example, in the Bugbusters case and in the case at bar the plaintiff Crown was asked to establish both that a number of trees were destroyed by way of fire, and that this resulted in lower stumpage revenues for those particular trees. In addition, though, the plaintiff was also asked to engage in a very difficult economic analysis to show that it did not recoup those losses by charging higher prices to other customers. Significant dangers and difficulties arise with the imposition of this type of burden of proof. There are good reasons why the courts should not require a plaintiff to establish more than his or her proximate loss.
The policy considerations which militate against the acceptance of a passing-on defence outside the restitution law context are aptly summarized in the following commentary from Holmes J. in Southern Pacific, supra. In that case, the defendant railroads argued that there should be no recovery available to the plaintiff shippers, who were charged excessive freight rates, because the plaintiffs had been able to pass on to their customers all of the costs of such excessive freight rates. At pp. 533-34, Holmes J. responded:
The only question before us is that at which we have hinted: whether the fact that the plaintiffs were able to pass on the damage that they sustained in the first instance by paying the unreasonable charge, and to collect that amount from the purchasers, prevents their recovering the overpayment from the carriers. The answer is not difficult. The general tendency of the law, in regard to damages at least, is not to go beyond the first step. As it does not attribute remote consequences to a defendant so it holds him liable if proximately the plaintiff has suffered a loss. The plaintiffs suffered losses to the amount of the verdict when they paid. Their claim accrued at once in the theory of the law and it does not inquire into later events .... Perhaps strictly the securing of such an indemnity as the present might be regarded as not differing in principle from the recovery of insurance, as res inter alios, with which the defendants were not concerned. If it be said that the whole transaction is one from a business point of view, it is enough to reply that the unity in this case is not sufficient to entitle the purchaser to recover, any more than the ultimate consumer who in turn paid an increased price. He has no privity with the carrier .... The carrier ought not to be allowed to retain his illegal profit, and the only one who can take it from him is the one that alone was in relation with him, and from whom the carrier took the sum .... Behind the technical mode of statement is the consideration .... of the endlessness and futility of the effort to follow every transaction to its ultimate result .... Probably in the end the public pays the damages in most cases of compensated torts.
Consider the "endlessness and futility" of the effort the Crown would have to make to rebut the presumption that has been held against it in the courts below, the presumption that it fully recouped its losses by raising stumpage rates via the CVP system after the Stone Creek fire. For each individual third-party licensee it would become necessary to individually determine, perhaps by survey or otherwise, whether they decreased their consumption as a result of the increase in stumpage fees. That is, did they put off logging until the following year, or did they continue on as planned despite the increase in prices? On a macro-economic level, the Crown would be unable to separate the effect of the increased stumpage fees resulting from the forest fire from the effect of the increased stumpage stemming from other factors affecting the timber harvesting market in the B.C. Interior. The comments of White J. are apposite in Hanover Shoe Inc. v United Shoe Machinery Corp., 392 U.S. 481 (1968), with respect to conducting this kind of after-the-fact analysis. At pp. 492-93, White J. remarks:
We are not impressed with the argument that sound laws of economics require recognizing this [passing-on] defense [sic]. A wide range of factors influence a company's pricing policies. Normally the impact of a single change in the relevant conditions cannot be measured after the fact; indeed a businessman may be unable to state whether, had one fact been different (a single supply less expensive, general economic conditions more buoyant, or the labor market tighter, for example), he would have chosen a different price. Equally difficult to determine, in the real economic world rather than an economist's hypothetical model, is what effect a change in a company's price will have on its total sales. Finally, costs per unit for a different volume of total sales are hard to estimate. Even if it could be shown that the buyer raised his price in response to, and in the amount of, the overcharge and that his margin of profit and total sales had not thereafter declined, there would remain the nearly insuperable difficulty of demonstrating that the particular plaintiff could not or would not have raised his prices absent the overcharge or maintained the higher price had the overcharge been discontinued. Since establishing the applicability of the passing-on defense [sic] would require a convincing showing of each of these virtually unascertainable figures, the task would normally prove insurmountable.
To the concerns of White J. I would add that one should in theory also look into the effect on corporate taxes, jobs and income tax levels on the Crown's ultimate revenues. The analysis would be "endless and futile" and the burden on the Crown next to impossible. The costs of mounting such an action are cause for concern, without even considering the near impossibility of conducting the full economic analysis necessary to convince a court that the losses were not passed on.
Consideration of the passing-on defence raises a further troubling aspect. The trial judge in Liquor Control Board, supra, made mention of the fact that airlines had been suffering losses in recent years - this to him was an indication that the costs had not all been shifted to customers. Would companies that have lost money be able to recover, while companies with positive profits would not as they have obviously managed to pass on the costs of the tortfeasor's negligence? Ground J. in Ernst & Young, supra, makes reference to these concerns at pp. 407-8:
The claimants submit that the passing on defence has also been rejected by the courts on the basis that it would invite an endless and futile inquiry. They state that, as pointed out by Justice Holmes, every commercial entity could be accused of passing on all or part of any damages suffered by it, by its own rates or charges to its customers, and likewise, those customers could be accused of having passed on their increased costs by adjusting their own rates or charges when they deal with their customers, and so on and so on until one reaches the amorphous concept of "the public". Following commercial transactions to their "ultimate result" would be, as Justice Holmes suggests, endless and futile. The passing on defence would, in effect, result in an argument that no damages are ever recoverable in commercial litigation because anyone who claimed to have suffered damages but was still solvent had obviously found a way to pass the loss on.
Here the Crown has suffered damages in the proximate sense described by Holmes J. in Southern Pacific, supra. It has lost stumpage revenue on the damaged timber. The analysis should stop there, since looking to the CVP system means asking whether, by charging higher prices to other timber licensees, the Crown was able to offset its loss. This is an overly complicated and ultimately fruitless analysis. The Crown should not be punished because it attempted to recoup its losses by passing them on to other timber licensees in the B.C. Interior. At the outset of this trial, passing on was not a defence known to law outside of restitution law. At its finale, the result should be the same. Canfor's negligence resulted in a real loss. That loss was borne, not by the negligent party, but by the Crown to the extent that it was not able to pass on the loss, and by third parties, corporations and individuals within the B.C. Interior Region, to the extent that it was. I fail to see how this result is just and in conformity with long-held principles of tort law and damages.
F. Passing On Is an Unrecognized Legal Defence, Not a Finding of Fact
With respect for the views of my colleague, I cannot accept that it was open to the trial judge to find that the CVP system as a whole is the proper framework of analysis for determining loss, and that this finding of the trial judge should be awarded deference. To cast the trial judge's decision as a finding of fact is to let the legal defence of passing on in through the back door. The trial judge, in accepting Canfor's argument that the Crown suffered no loss as a result of the CVP system, was making a legal determination. The trial judge accepted that the Crown had not established their loss because they had passed on that loss to other timber licensees in the B.C. Interior. This, to my mind, is very much a question of law. No deference to the trial judge is due. This Court should face the passing-on defence head on.
My colleague recasts the losses from the Stone Creek fire as a mere local variation, which did not in any way detract from the revenue-generating capacity of the region (majority reasons, at para. 97). The majority cites from Mr. Gairns who states that in his expert report he was "... evaluating the effect [of the fire] on Provincial revenues, not the effect on somebody paying stumpage in Stone Creek". The majority then accepts that it was open to the trial judge to accept Mr. Gairns' approach. With respect, it was not open to the trial judge to accept Mr. Gairns' approach, because Mr. Gairns was essentially advocating a legal defence of passing on, even if cast in a factual light.
My colleague quite specifically states that the "... law does not dictate an answer to the factual valuation problem on which [the experts] were asked to give .... evidence" (majority reasons, at para. 102). With respect, the law does dictate an answer on this point - passing on is not a defence known to law. The trial judge erred in law in accepting the approach for valuing damages advocated by Canfor. It is irrelevant that this unrecognized defence was put forth by Canfor's expert. Mr. Gairns may have been correct in terms of numbers and figures, but when he decided that the whole of the B.C. Interior, and the CVP system, was "the appropriate accounting framework" within which to identify relevant costs and revenues (majority reasons, at para. 102), he crossed the line and made a finding of law, and an incorrect one at that.
Finally, I fail to see how the case of Aerlinte Eireann Teoranta v Canada (Minister of Transport) (1990), 68 D.L.R. (4th) 220, is at all relevant to the facts before this Court. The case was about the Crown's chosen method for setting landing fees, and whether it conformed with the wording of the Aeronautics Act, R.S.C. 1970, c. A-3. The case would perhaps be useful if the question before this Court was whether the CVP system for setting prices was intra vires the governing legislation. It is entirely irrelevant to the question of whether the CVP system for setting prices works to deny the Crown recovery in tort. Still more, Aerlinte Eireann Teoranta in no way stands for the proposition that the Crown is somehow limited by its own regulatory structure when seeking damages in tort.
I would accept the Crown's cross-appeal on this question and allow recovery of lost stumpage for the harvestable trees in the Stone Creek fire area.
III. COMPENSATION FOR THE ESA TREES
A. Compensation for Environmental Damage
As mentioned above, my second disagreement with the reasons of my colleague concerns compensation for the trees in the ESAs. The Crown is entitled to recover damages for the loss of the non-harvestable trees. Restoration costs cannot make the Crown whole given that the services of these trees will be lost for decades. The Province has put forward a type of benchmark or way to put a dollar value on their claim. That benchmark is the commercial value, i.e. stumpage value, of the environmentally protected trees. Significant flaws in the evidence persist, particularly with respect to the value of the environmental services the trees provided, but the ESA trees have value, the loss of which can and should be compensated in tort law to the extent the Crown was able to establish its loss. There is evidence of the commercial value of the trees in the riparian zones, and also on the steep slopes. The Crown should be awarded this commercial value, even if the trees in question have been set aside for environmental purposes.
The Crown seeks damages for the commercial value of the destroyed trees in the ESAs, plus what it terms an "environmental premium". I agree with the majority that no damages for an "environmental premium" can be awarded. The Crown should nonetheless receive the commercial value of the trees in the ESAs. If environmental protection were not a concern, the Crown could have allowed logging in the ESAs. The destroyed trees have at least this commercial value. The value of the Crown's property has been diminished to at least this extent. In fact, in several cases the courts have seen fit to award damages for lost trees, over and above restoration costs, even in the face of difficult evidentiary constraints.
In Dykhuizen v Saanich (District) (1989), 63 D.L.R. (4th) 211 (B.C.C.A.), for example, the respondent municipality sought damages from the appellant, who had wrongly cut down trees belonging to the municipality. The Court of Appeal for British Columbia stated as follows, at pp. 213-14:
The contention advanced for Mr. Dykhuizen that the trees had no value to the municipality because they were wild, of no practical commercial use and in any event doomed to come down when his further subdivision was approved, has, in my view, no validity ....
The affected landowner, so long at least as the landowner is not committed to destruction of the affected property, is entitled to require that a wilful trespasser provide full compensation for that which he has destroyed. Nothing less is consistent with the owner's right to decide what shall be done with the land - a right which a municipality enjoys for the benefit of its inhabitants.
The principal that one can take from the words of Taylor J.A. in Dykhuizen is that damages are available even where the trees are "wild" and "of no practical commercial use".
The Court of Appeal for British Columbia thus awarded damages for the wild trees, stating as follows (at pp. 214-15):
It is my view that the municipality in this case was entitled to be compensated for the loss of value .... In the case of trees used for the purpose of public or private enjoyment, damage for their deliberate destruction is not limited to the resulting diminution in value of the land, or the value of the wood as lumber or firewood, or the value which might be awarded in respect of them as compensation on an expropriation. The damages in such cases may extend to the cost of restoration or restitution, within reasonable bounds, together with compensation for loss of amenity to the extent that complete restoration cannot reasonably be affected.
Dykhuizen speaks to the notion that trees, and other environmental goods, have intrinsic value over and above their commercial value. The Court of Appeal for British Columbia in Dykhuizen spoke of a "loss of amenity" but the principle is there: those trees were deemed to have intrinsic value, separate from their commercial value. This concept of the intrinsic value of environmental goods, as separate from commercial value, is in keeping with the fact that environmental protection is a fundamental value of Canadian society. Implicit in the judgment of the Court of Appeal in Dykhuizen is that the injured party can at least be rewarded damages for lost commercial value. Dykhuizen merely stated that in that case, where no commercial use was anticipated or possible, other forms of valuation exist.
I note in passing that Dykhuizen was overruled in Prince Rupert (City) v Pederson (1994), 98 B.C.L.R. (2d) 84 (C.A.), but only on the issue of the standing of the municipality to collect for loss of amenities. The appellant in Prince Rupert wrongly cut down 89 trees, all approximately 50 years old. On my reading of the case, the notion of the intrinsic value of trees was not disputed, in fact the appellant conceded that "loss of amenities", if sought by an individual landowner, as opposed to a municipality, would be compensable. At para. 21, Southin J.A. states:
The appellants accept that if a trespasser cuts down the trees of a householder, the latter may be awarded some amount for loss of amenities. As to what are the amenities provided by a tree, I adopt the words of May J., as he then was, in a decision arising on the English tree preservation legislation, ".... the underlying purpose of the relevant legislation is the preservation of trees and woodlands as amenities, as living creatures providing pleasure, protection and shade ...." (Barnet London Borough Council v Eastern Electricity Board,  2 All E.R. 319 (Q.B.) [p. 323]).
The decision in Prince Rupert is a further case where the court would have awarded damages in excess of restoration costs because of the intrinsic value that trees have "as amenities, as living creatures providing pleasure, protection and shade". The trees did not have commercial value per se but the Court of Appeal would nonetheless have awarded damages for the intrinsic value of the trees, for the loss of amenities associated with it, if it weren't for their concerns about standing.
In another decision of the Court of Appeal for British Columbia, Kates v Hall (1991), 53 B.C.L.R. (2d) 322 (C.A.), Proudfoot J.A. upheld the trial judge's decision to award damages over and above restoration costs. The defendant had cut down 13 trees on the plaintiff's property without permission. The trial judge awarded $1,000 per tree for loss of amenities. Again, the trial judge made this award even though there was "no measurable diminution in value of the property" (p. 331). And at p. 333, Proudfoot J.A. noted that "[n]o profits have been lost here. This case involved the appropriate award to compensate for the loss of 13 evergreen trees which the appellants may have chosen not to replace and which have no commercial value."
In Scarborough v R.E.F. Homes Ltd. (1979), 9 M.P.L.R. 255, the Ontario Court of Appeal tackled head on the problem of how to assess damages for destroyed trees. The case concerned damages for the loss of three trees which the respondent company had cut down on a road allowance. The decision is notable because despite being faced with less evidence than it would have liked, the court was nonetheless determined to award some form of damages representing the intrinsic value of the damaged trees. At p. 257, the court states as follows:
In our judgment, the municipality is, in a broad general sense, a trustee of the environment for the benefit of the residents in the area of the road allowance and, indeed, for the citizens of the community at large. While the diminution in value of the road allowance stands on a different footing than that of private land deprived of ornamental or shade trees, it is nevertheless a real and substantial loss. The appellant Borough, as a responsible local government, spent a great deal of money in nurturing these trees to maturity, pruning and taking care of them over the years. No doubt, the restoration process will be long and costly. In the meantime, the road allowance has been reduced in monetary as well as aesthetic value. Although the evaluation method is said to be intended for use in evaluating trees in landscape designs as well as street planting, the criteria in the formula for the compensation of private owners suffering loss of trees cannot be adopted in this case because the loss to a municipality is quite different. The diminution in value of a road allowance, which normally is not marketable land, must necessarily differ from that of privately owned, landscaped property, even if the trees on both properties are intrinsically similar. No such distinction is made by the horticultural experts who prepared the formula, or by the experts at trial whose opinion was based on it. No argument was addressed to us as to how one assesses damages for the loss to a municipality of the intrinsic or environmental value of trees which have been destroyed; therefore consideration of the compensability or calculation of that element of damage must be left to be determined in an appropriate case.
We are satisfied that the learned trial Judge correctly rejected the formula which may be appropriate, when supported by expert evidence, in the calculation of the loss of ornamental shade trees on private residential, commercial or industrial property. In our view, however, the appellant has suffered a greater loss than the mere replacement value which appears to have been assessed at trial. The difficulty presented in the appraisal of such damages should not preclude a Court from attempting it, even though the record is unsatisfactory. On the evidence before us, we assess the damages of the appellant at $1,500.00 for the loss of each of the two larger trees and $1,000.00 for the 18 inch tree, for a total assessment of $4,000.00 ....
So, the Ontario Court of Appeal acknowledged that it was not going to address the issue of the intrinsic or environmental damages from the loss of trees, but nonetheless held that damages were due for more than the mere replacement value of the trees. The court also went ahead with an assessment of damages, even though the task was a difficult one. The Ontario Court of Appeal then awarded $4,000 in damages for three trees where it appeared that replacement costs were only $400 for similar trees, with a considerable amount of time needed for the trees to mature (at p. 256). The court came up with a number, even in the face of unsatisfactory evidence. With respect, this Court should do as the Ontario Court of Appeal did in Scarborough, and tackle the problem of damages, even if the evidence on assessing intrinsic and environmental damages is not entirely satisfactory.
If I could summarize the approach of the courts in the cases above, they accepted first that the destroyed trees were worth more than their mere replacement value. Second, the courts set about to award further damages by basing their calculations on whatever evidence was before them. One consideration appears to have been the degree to which the loss of the trees involved affected property value (a commercial value assessment) - in the above cases this was generally not relevant. Considerations of aesthetic value and loss of amenity came next and the courts showed a willingness to award damages for this type of loss. The environmental value of the trees was not dealt with in any of the cases, except that the question was dismissed in Scarborough for lack of evidence.
B. The Approach of the Court of Appeal
The Court of Appeal for British Columbia awarded the Crown one third of the commercial value of the ESA trees. In the words of Hall J.A. at para. 76:
In a case where proper assessment of damages is as fraught with uncertainty as it is here, I think that a court should exercise caution in deciding on an appropriate award of damages for the proven loss suffered. For the reasons I have enunciated above, to award damages equivalent to or greater than the valuation of the commercial timber would not seem right to me. In this case, I believe it would not be unfair, however, to award a proportion of that value as a fair estimate of the loss suffered by the appellant. I would therefore order that the appellant recover on account of the timber destroyed in the E.S.A.s a sum equivalent to one third of its value.
With respect, and in light of the above case law, commercial value, i.e. the degree to which the presence of the trees raises the property value of the land in question must be the minimum value of the destroyed trees, with loss of amenity, aesthetic value and environmental value added on. The commercial value of the ESA trees can be nothing less than a lower bound in the determination of damages. To say that the value of the trees in question is only a portion of their commercial value is to significantly devalue the Crown's loss.
The trees were set aside for environmental reasons. This to me indicates that they have a value at least equal to their alternative commercial value. I note also that the trees in the riparian zones were slated for commercial logging at the time of the fire and it was only after the fire that they were designated to be in ESAs. As the majority also notes in their reasons, even Canfor's expert took the view that the riparian areas should be included in the valuation of the Crown's loss, although they did so because the trees in the riparian zones were available for logging at the time of the fire. In my view, even if the trees had not been slated for logging in 1992, the time of the fire, the Crown should still be awarded the alternative commercial value of the trees in the ESAs. The analogy one can draw is to a homeowner who refuses to sell his or her house. Since the owner refuses to sell at, say $100,000, the conclusion is that the house is worth more than $100,000 to the homeowner. Even if the home is so valuable to that individual that he or she would not sell at any price, there is still no logical reason to conclude that the value of the house is less than $100,000.
This Court has repeatedly stated that environmental protection is a fundamental value of Canadian society: Ontario v Canadian Pacific Ltd.,  2 S.C.R. 1031; 114957 Canada Ltée (Spraytech, Société d'arrosage) v Hudson (Town),  2 S.C.R. 241, 2001 SCC 40; R v Hydro-Québec,  3 S.C.R. 213. To imply that environmentally-protected commercial resources somehow lose their commercial value once they become the subject of environmental protection is to contradict that fundamental Canadian value. To accept the approach of the Court of Appeal is to fundamentally undervalue the Crown's and society's loss.
C. Commercial Value Works as a Proxy for the Crown's Loss
Although it is an imperfect measure, stumpage value can serve as a proxy for the value of the trees destroyed in the ESAs. Mr. Gairns already included the value of the riparian zone trees in his report. The stumpage value of nearby, unprotected trees can serve as a proxy for the value of the destroyed trees on the steep, sensitive slopes. The Province's expert, Mr. Reznik, also set his mind to the question of how to value the ESA timber. The following questions were asked of Mr. Reznik in the examination in chief by the Crown:
All right. Sir, just to be clear, this is timber that is generally located in environmentally sensitive areas?
And despite the fact that it's - the government basically prohibits the logging of that, you assigned a value to it. Why - what value did you assign?
We assigned it based on the assumption that it was harvested in the same manner as the - as the merchantable timber. In our original report, we .... valued this component of the claim based on the value - based on the stumpage rates in existence as of the date of the Stone Fire. We subsequently changed that. It's a difficult area to value because of the environmental value and I'm not an expert in environmental issues. So I took the - the economic approach and assigned it that value.
(Joint Appeal Record, Vol. II, Tab 11, p. 262)
The Province may have adopted a method of valuation that understates the full economic, intrinsic and environmental loss associated with the destruction of the ESA trees, but they nonetheless adduced evidence as to its partial value, namely its commercial component. I would therefore adopt the Crown's chosen approach to valuation of the ESAs.
I would dismiss Canfor's appeal. I would allow the Crown's cross-appeal and permit recovery of the commercial value of the protected trees in the ESAs.
Friends of the Oldman River Society v Canada (Minister of Transport),  1 S.C.R. 3; Wood v Grand Valley Railway Co., (1915) 51 S.C.R. 283; Penvidic Contracting Co. v International Nickel Co. of Canada,  1 S.C.R. 267; Ryan v Victoria (City),  1 S.C.R. 201; Stein v Gonzales (1984), 14 D.L.R. (4th) 263; Bazley v Curry,  2 S.C.R. 534; The Queen v The Ship Sun Diamond (The),  1 F.C. 3; Attorney General for Ontario v Fatehi,  2 S.C.R. 536; Glasgow Corp. v Barclay, Curle & Co. (1923), 93 L.J.P.C. 1; North Dakota v Minnesota, 263 U.S. 365 (1923); Missouri v Illinois, 180 U.S. 208 (1901); Kansas v Colorado, 206 U.S. 46 (1907); Georgia v Tennessee Copper Co., 206 U.S. 230 (1907); New York v New Jersey, 256 U.S. 296 (1921); Illinois Central Railroad Co. v Illinois, 146 U.S. 387 (1892); New Jersey, Department of Environmental Protection v Jersey Central Power and Light Co., 336 A.2d 750 (1975); State of Washington, Department of Fisheries v Gillette, 621 P. 2d 764 (1980); State of California, Department of Fish and Game v S.S. Bournemouth, 307 F. Supp. 922 (1969); State of Maine v M/V Tamano, 357 F. Supp. 1097 (1973); State of Maryland, Department of Natural Resources v Amerada Hess Corp., 350 F. Supp. 1060 (1972); Toronto Transportation Commission v The King,  S.C.R. 510; Cunningham v Wheeler,  1 S.C.R. 359; Sunrise Co. v Lake Winnipeg (The),  1 S.C.R. 3; Kelliher (Village) v Smith,  S.C.R. 672; Andros Springs v World Beauty,  P. 144; Bellingham v Dhillon,  Q.B. 304; 1874000 Nova Scotia Ltd. v Adams (1997), 146 D.L.R. (4th) 466; Cemco Electrical Manufacturing Co. v Van Snellenberg,  S.C.R. 121; Asamera Oil Corp. v Sea Oil & General Corp.,  1 S.C.R. 633; Attorney-General for Nova Scotia v Christian (1974), 49 D.L.R. (3d) 742; Bilambil-Terranora Pty Ltd. v Tweed Shire Council,  1 N.S.W.L.R. 465; State of Ohio v U.S. Department of the Interior, 880 F. 2d 432 (1989); Soutzo v Canterra Energy Ltd.,  A.J. No. 506 (QL); Chappell v Barati (1982), 30 C.C.L.T. 137; Andrews v Grand & Toy Alberta Ltd.,  2 S.C.R. 229; Woelk v Halvorson,  2 S.C.R. 430; Southern Pacific Co. v Darnell-Taenzer Lumber Co., 245 U.S. 531 (1918); British Columbia (Minister of Forests) v Bugbusters Pest Management Inc.,  B.C.J. No. 84 (QL), 2003 BCSC 77; British Westinghouse Electric and Manufacturing Co. v Underground Electric Railways Co. of London Ltd.,  A.C. 673; APECO of Canada, Ltd. v Windmill Place,  2 S.C.R. 385; Karas v Rowlett,  S.C.R. 1; Ratych v Bloomer,  1 S.C.R. 940; Bradburn v Great Western Rail. Co., [1874-80] All E.R. 195; Browning v War Office,  3 All E.R. 1089; Parry v Cleaver,  1 All E.R. 555; Hussain v New Taplow Paper Mills Ltd.,  1 All E.R. 541; Law Society of Upper Canada v Ernst & Young, (2002) 59 O.R. (3d) 214; Air Canada v British Columbia,  1 S.C.R. 1161; Oshawa Group Ltd. v Great American Insurance Co. (1982), 36 O.R. (2d) 424, leave to appeal refused,  1 S.C.R. viii; Garland v Consumers' Gas Co., 2004 SCC 25; Air Canada v Liquor Control Board of Ontario (1995), 24 O.R. (3d) 403; Hanover Shoe, Inc. v United Shoe Manufacturing Corp., 392 U.S. 481 (1968); Aerlinte Eireann Teoranta v Canada (Minister of Transport) (1990), 68 D.L.R. (4th) 220; Dykhuizen v Saanich (District) (1989), 63 D.L.R. (4th) 211; Prince Rupert (City) v Pederson (1994), 98 B.C.L.R. (2d) 84; Kates v Hall (1991), 53 B.C.L.R. (2d) 322; Scarborough v R.E.F. Homes Ltd. (1979), 9 M.P.L.R. 255; Ontario v Canadian Pacific Ltd.,  2 S.C.R. 1031; 114957 Canada Ltée (Spraytech, Société d'arrosage) v Hudson (Town),  2 S.C.R. 241, 2001 SCC 40; R. v Hydro-Québec,  3 S.C.R. 213.
Canadian Environmental Protection Act, 1999, S.C. 1999, c. 33, s. 40.
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. 9601-9675 (1980).
Criminal Code, R.S.C. 1985, c. C-46, s. 180(1).
Crown Proceeding Act, R.S.B.C. 1996, c. 89, ss. 11(1).
Forest Act, R.S.B.C. 1979, c. 140 [now 1996, c. 157], s. 84 [now s. 105], 161(1).
Transportation of Dangerous Goods Act, 1992, S.C. 1992, c. 34, s. 34(1)(b).
Authors and other references
Arrow, Kenneth, et al.
Report of the NOAA Panel on Contingent Valuation. Washington, D.C.: National Oceanic and Atmospheric Administration, 1993.
Benidickson, Jamie. Environmental Law, 2nd ed. Toronto: Irwin Law, 2002.
British Columbia. Law Reform Commission of British Columbia. Report on Civil Litigation in the Public Interest, No. 46. Vancouver: The Commission, 1980.
British Columbia. Ministry of Forests. Interior Appraisal Manual. January 1, 1990.
de Bracton, Henry. Bracton on the Laws and Customs of England. Translated by Samuel E. Thorne. Cambridge, Mass.: Belknap Press of Harvard University Press, 1968.
Estey, Wilfred. "Public Nuisance and Standing to Sue" (1972), 10 Osgoode Hall L.J. 563.
France. The French Civil Code (as amended up to 1906). Translated into English by E. Blackwood Wright. London: Stevens & Sons, 1908, art. 538.
Klar, Lewis N. Tort Law, 3rd ed. Toronto: Thomson Carswell, 2003.
Maguire, John C. "Fashioning an Equitable Vision for Public Resource Protection and Development in Canada: The Public Trust Doctrine Revisited and Reconceptualized" (1997), 7 J.E.L.P. 1.
McGregor, Harvey. McGregor on Damages, 17th ed. London: Sweet & Maxwell, 2003.
Ontario. Ontario Law Reform Commission. Report on Damages for Environmental Harm. Toronto: The Commission, 1990.
Ontario. Ontario Law Reform Commission. Report on the Law of Standing. Toronto: The Commission, 1989.
Osborne, Philip H. The Law of Torts, 2nd ed. Toronto: Irwin Law, 2003.
Sandars, Thomas Collett. The Institutes of Justinian, 5th ed. Chicago: Callaghan & Co., 1876.
Waddams, S.M. The Law of Damages, looseleaf ed. (2nd ed.) Toronto: Canada Law Book, 1991.
Waddams, S.M. The Law of Damages, 4th ed. Toronto: Canada Law Book, 2004.
G. Bruce Butler and Birgitta von Krosigk, for the appellant the Canadian Forest Products Ltd (instructed by Harper Grey Easton, Vancouver).
J. Douglas Eastwood, Karen Horsman and J. Gareth Morley, for the respondent Her Majesty The Queen in Right of the Province of British Columbia (instructed by Ministry of the Attorney General of British Columbia, Vancouver).
all rights reserved