2003BCSC0904

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:	*579327 BC Ltd. v. Allen et al*
	2003 BCSC 904

Date: 20030610

Docket: 08025

Registry: Prince George

Between:

579327 BC Ltd.

Plaintiff

And

Rodger Allen doing business as Allen Contracting

and the said Rodger Allen

Defendants

And

Robert Louis Allen, George Buhler

and Albert Cornelius Wiebe

Defendants by Counterclaim

Before: The Honourable Mr. Justice Rogers

Reasons for Judgment

Counsel for the plaintiff 579327 BC Ltd. and counsel for the defendants by counterclaim:	S.K. Gudmundseth, Q.C.
Appearing for the defendant, Rodger Allen:	R. Allen, In Person
Date and Place of Trial/Hearing:	March 24 ñ 28, 31, 2003 April 1 ñ 4, 7 ñ 11, 2003 April 21 ñ 24, 2003 May 8, 9, 12 ñ 16, 2003
	Prince George, B.C.

INTRODUCTION

[1] There lies near Manson Creek, British Columbia a certain 1,600 hectares of land. Since at least 1962 the mineral rights for these 1,600 hectares have been secured by a form of mineral tenure known as a Special Placer Mining Lease (S.P.M.L.). At all times material to this action, the S.P.M.L. was owned by the QuÈbec based company Martin Mine Ltd. Martin Mine Ltd.ís interest in the S.P.M.L. was for the gold that may lie beneath the ground.

[2] Gold, however, is not the only thing of value on the S.P.M.L. Being river bottom and in the middle of a forest, the S.P.M.L. also contains a large volume of merchantable timber. At all times material to this action Slocan Forest Products Ltd. was the forest licensee and timber tenure holder for the part of the Province in which the S.P.M.L. lies.

[3] In order for Martin Mine Ltd. to extract gold from the S.P.M.L. it first had to get the timber off the land. Martin Mine Ltd. wished to remove the timber, make some money from that harvest, and clear the land for placer mining. This lawsuit has to do with the defendantís acquisition from Martin Mine Ltd. of that companyís right to harvest timber on the S.P.M.L., and the defendantís subsequent sale of that right to the plaintiff.

[4] The plaintiff alleges that it was induced to purchase the right to harvest timber on the S.P.M.L. by the defendantís fraudulent misrepresentations or, in the alternative, the defendantís negligent misrepresentations. In the further alternative the plaintiff says that the defendant has breached the terms of the contract between them. Finally, as a last alternative, the plaintiff says circumstances arose which frustrated performance of the contract. For these reasons the plaintiff says that it is entitled to recover from the defendant $500,000, plus $155,121.47 for expenses thrown away in its abortive attempt to harvest timber on the S.P.M.L. The plaintiff also claims punitive damages against the defendant.

[5] For his part, the defendant counter-claims to recover the balance of the price of the contract, being $600,000, from the plaintiff and its three principals as guarantors.

INITIAL ISSUES

[6] The allegation of fraudulent misrepresentation puts the issue of credibility front and center in this lawsuit. All findings of fact and the legal consequences flowing from those findings will be heavily influenced by the credibility of one or the other of the parties and their witnesses. I will, therefore, deal first with the question of credibility.

THE DEFENDANTíS CREDIBILITY

[7] The defendant has a criminal record. In 1981 he participated in a series of transactions involving forged bank drafts and phoney fund transfers. He and two other individuals participated in these forgeries and conspired to defraud several financial institutions of hundreds of thousands of dollars. In 1985 the defendant was convicted of forgery and fraud related offences relating to those transactions.

[8] That record, if it were the only thing of its sort before me, would not be particularly persuasive. People often commit crimes; and often they are caught, charged, convicted, sentenced, and rehabilitated. Had the defendant remained innocent of wrong-doing after 1985, I would likely have concluded that he was among the rehabilitated and I would not have given much, if any weight, to those remote convictions.

[9] However, the defendant did not keep out of trouble. In 1995 he was convicted of forging the signature of a deceased person on a vehicle transfer, and of using that forgery with the intent that it be relied on as genuine. The 1995 offences involved the same sort of disregard for propriety as the earlier transgressions. The 1995 incident was on a smaller scale then the earlier affair, to be sure, but it demonstrates that as recently as 1995 the defendant was still not about to let a little forgery stand in the way of his commercial interest.

[10] Furthermore, on several occasions at trial the defendant did not give reliable evidence. By way of example:

a) During the trial the defendant asserted that in April 1999 he made an offer to return the plaintiffís money to them. Defence counsel confronted the defendant with his Credit Union bank statements for April and May of the year. Those statements showed that the defendant did not have enough money to make good on the offer. The defendant testified that he had other bank accounts he could have drawn money on at that time. He was assured and confident in his testimony at trial that he had other accounts in 1999.

In his examination for discovery, however, the defendant testified that in 1998 and 1999 he had only the Credit Union account. The defendantís attempt at trial to explain this discrepancy was unconvincing and did nothing to dispel the cloud on his testimony.

In argument the defendant recanted his testimony at trial, saying that he was mistaken about the date on which he opened the other bank account. I find that explanation unconvincing. The defendant made much of his settlement offer early in the trial and while he was cross-examining the plaintiffís principals. He knew that his Credit Union statements were in the plaintiffís hands. He must have anticipated that under cross-examination the plaintiff would make out that his offer was deceitful because Credit Union records showed he did not have the money to make good on the offer. Despite that, he gave misleading evidence at trial.

b) At trial the defendant testified that he made a contract with Martin Mine Ltd. for the timber rights on the S.P.M.L. as early as September 3, 1998, and identified Exhibit 57 as that document. On the other hand, in his examination for discovery the defendant was asked when he very first had a deal or even a tentative deal with Martin Mine Ltd. His answer was September 30, 1998. I have concluded that the defendant did not want his interrogator at the discovery to know about the September 3, 1998 contract and he did not tell the truth during his discovery.

c) The September 3, 1998 contract had been in the possession of Mr. John Funk. At trial the plaintiff showed the contract to Mr. Ed McGovern, principal of Martin Mine Ltd. Mr. McGovern was asked if he had seen the contract before and if he ever signed its second page. Mr. McGovern denied that it was so. The defendant was cautioned at the start of the trial and numerous times during the trial that he was obliged to confront witnesses with contrary evidence if he intended to call such. The defendant cross-examined Mr. McGovern but did not challenge him on his evidence, nor did the defendant put it to Mr. McGovern that he signed the September 3^rd contract. Later, the defendant called Mr. McGovern as a witness in his own case after the defendant made it clear that he wished to challenge Mr. McGovernís evidence on other points. Again, the defendant was warned that fairness required that he confront Mr. McGovern with any contradictory evidence he intended to adduce. On this second occasion the defendant again did not challenge Mr. McGovern with the proposition that he had in fact signed the September 3^rd contract.

I can come to no conclusion other than that the defendant did not wish to displace the evidence that Mr. McGovern never signed the September 3^rd contract. This is a significant issue because at that time the defendant was negotiating with Mr. Funk to do a deal much like the one the defendant later struck with the plaintiffs. Mr. Funk insisted on seeing documentation confirming that the defendant had a contract with Martin Mine Ltd. The defendant showed Mr. Funk the September 3, 1998 contract.

I conclude that the September 3^rd contract carried a forged signature of Mr. McGovern. The document originated from the defendant. The defendant gave it to Mr. Funk, and it only came to light when the plaintiffs approached Mr. Funk. The defendant did not give discovery of it and he was careful to not mention it in his examination for discovery. I conclude that the defendant wished to mislead the plaintiff in his discovery, and his purpose in doing so was to conceal from the plaintiff that there was a forged contract concerning the S.P.M.L. I conclude that the defendant probably had a copy of the September 3^rd contract either in his own files and that he could have obtained a copy from his counsel (the defendant testified that he always gave copies of important documents to his lawyer for advice). He failed to make discovery of the September 3^rd document for the same reason - he knew it was a fake and he knew that its existence would seriously impair his case.

d) In the fall of 1999, after his deal with the plaintiff collapsed, the defendant attempted to entice another businessman, one Leo Comtois, into a similar deal concerning the S.P.M.L. At that time the defendant knew that the government would charge stumpage on the order of $31 for timber on the S.P.M.L., yet he led Mr. Comtois to believe that stumpage would be only $6 - $12. The defendant had to have known that representation was false, and yet he made it anyway.

[11] For these reasons I accept very little of the defendantís evidence at trial. Where the defendantís evidence conflicts with the evidence of Messers Buhler, Wiebe, Allen, Joe Long, Rob Jones, Ed McGovern, Leo Comtois, and John Funk, I prefer their evidence over his.

[12] I could find no similar flaws in the credibility of the plaintiffís principals or the plaintiffís witnesses.

FINDINGS OF FACT

[13] In the summer of 1998, a miner who was then contracted to Martin Mine Ltd. gave the defendant to understand that there was a need to remove 100,000 cubic meters of timber from the S.P.M.L. The defendant, who is a log trucking contractor, became excited by the opportunity to haul that much wood. The defendant was not, however, a logging contractor, and he was in no position to actually cut down the trees. The defendant placed an ad in a Prince George newspaper soliciting interest from a logging contractor to remove 100,000 cubic meters of wood from the S.P.M.L.

[14] That advertisement attracted the interest of at least two persons other than logging contractors. One of those persons was Mr. David Pow. The other was Mr. Robert Jones. These gentlemen called the defendant and invited him to separate meetings to discuss his interest in the timber on the S.P.M.L. The defendant attended those meetings. They were held in September and October 1998.

[15] In the meeting with Mr. Pow the defendant learned that Mr. Pow was a manager employed by the Provincial Ministry of Energy, Mines and Petroleum Resources (for convenience and brevity hereafter the ìMinistry of Minesî). Mr. Pow advised the defendant that if a miner wished to remove timber on a S.P.M.L. the miner would first have to file a notice of work with the Ministry. The notice of work had to specify the nature and extent of the proposed mining activity. The defendant learned that for a small area of mining, say two hectares or less, the Ministry could process a notice of work and issue a permit to mine in about 30 days. It would take longer to process an application to mine a larger area, say five hectares or more. The defendant learned from Mr. Pow that a permit to mine would be contingent on the miner posting bonds to secure its obligation to reclaim land disturbed by mining and its obligation to reforest the land. Those bonds would be on the order of $2,500 for reclamation and $1,500 for reforestation. No mining could proceed until bonds were in place. The defendant learned from Mr. Pow that the Ministry of Mines would refer the minerís notice of work to the Ministry of Forests along with a request that Forestry issue a license to cut. Mr. Pow told the defendant that the license would be limited to the area of land that would be disturbed by the mining activity. Mr. Pow told the defendant that his Ministry had a preference that a license to cut be issued to the forest licensee for the area in which the mining was to take place. Mr. Pow did not say that his Ministry could require the Ministry of Forests to issue a cutting license to any particular entity, but he did make clear to the defendant that the Ministry of Mines preferred that the trees be removed by the forest licensee rather than the miner.

[16] In his meeting with Mr. Jones the defendant learned that Mr. Jones was employed by Slocan Forest Products Ltd. Mr. Jones told the defendant that Slocan held the forest license for the entire area within which the S.P.M.L. lay. The defendant learned from Mr. Jones that Slocan had already laid out a small cut block on Placer Lease Number 1411 which lay inside the S.P.M.L. That cut block extended a bit beyond the boundary of 1411 and covered some trees in the S.P.M.L. itself. The defendant also learned from Mr. Jones that Slocan laid claim to the right to cut all the timber in the S.P.M.L. and that it expected to harvest that timber at some point in the future. I find as a fact that at no time did Mr. Jones say to the defendant that Slocan had no interest in the timber on the S.P.M.L. In fact, I find to the contrary.

[17] In addition to talking to the defendant, Mr. Jones took it upon himself to call Mr. McGovern who he knew was the principal of Martin Mine Ltd. Mr. Jones alerted Mr. McGovern to the fact that the defendant was trying to arrange removal of timber on Martin Mine Ltd.ís S.P.M.L. As a consequence of that telephone call Mr. McGovern contacted the defendant. During that and a number of subsequent calls the defendant and Martin Mine Ltd. discussed Martin Mine Ltd.ís interest in developing mining on the S.P.M.L., and the defendantís interest in having a hand in removing timber from the S.P.M.L. It was during these preliminary discussions that the defendant generated Exhibit 57 with Mr. McGovernís forged signature.

[18] Finally, in November and December 1998, Martin Mine Ltd. and the defendant came to an agreement. That agreement came to be known as the ìhead agreementî, and it was the head agreement the defendant sold to the plaintiff. The head agreement required Martin Mine Ltd. to transfer to the defendant all of its right to remove trees from the S.P.M.L. When the head agreement was made the defendant knew that Martin Mine Ltd. would be permitted to remove only those trees that had to be cut down in order to facilitate mining activity. The defendant knew, therefore, that what he had acquired from Martin Mine Ltd. was limited to the right to harvest trees on land that Martin Mine Ltd. was permitted to mine. Furthermore, the defendant knew that before mining and timber harvesting could take place the miner had to post bonds on the order of $4,000 per hectare.

[19] In return for the right to harvest timber on mining land the defendant agreed to pay $300,000 to Martin Mine Ltd. together with a royalty of $3 per cubic meter of timber harvested. There were several versions of the contract but the final version was signed by both the defendant and Martin Mine Ltd. on December 3, 1998.

[20] During the fall of 1998 the defendant came into contact with Mr. Rick Weiss and Mr. Charlie Friday. These two gentlemen were partners and were considering making a contract with Martin Mine Ltd. to do placer mining on the S.P.M.L. Preparatory to that contract they met with the defendant to see about removing timber from the area they intended to mine. During those conversations the defendant gave Mr. Weiss and Mr. Friday to understand that in order to remove trees economically, their mining operation had to occupy a large enough area of land containing a sufficient volume of timber. To that end the defendant urged Mr. Weiss and Mr. Friday to apply for as large a mining area as possible. The defendant encouraged Mr. Weiss and Mr. Friday to apply for and get a permit to mine as much as 200 hectares of the S.P.M.L. Mr. Weiss and Mr. Friday both told the defendant that they could not possibly mine that much land in one season. They told the defendant that they could comfortably mine perhaps five hectares in one season. They also told the defendant that they could not possibly raise enough money to secure a bond for a large mining area. By these conversations, the defendant learned that Mr. Weiss and Mr. Friday were unwilling and unable to mine a significant portion of the S.P.M.L. The defendant knew that Mr. Weiss and Mr. Fridayís capacity to mine on the S.P.M.L. was limited to approximately 5 hectares per year.

[21] In late December 1998 Mr. Burt Wiebe heard that the defendant might have some logging work to be done in the Manson Creek area. Mr. Wiebe owns some logging equipment and was looking for contracts to keep him busy during the 1998 -1999 winter season. Mr. Wiebe called the defendant and inquired about work. The defendant and Mr. Wiebe met, and the defendant described to Mr. Wiebe the opportunity he had acquired to harvest timber on the S.P.M.L. The defendant told Mr. Wiebe that he was not in a position to offer Mr. Wiebe work because he was not going to actually log the area, all he wanted was a contract to truck timber off the S.P.M.L. The defendant told Mr. Wiebe that he was looking for a logging contractor to whom to sell the right to harvest timber on the S.P.M.L. Mr. Wiebe and the defendant exchanged information about this potential business opportunity. The defendant told Mr. Wiebe that there were 320,000 to 400,000 cubic meters of wood to be removed from the S.P.M.L. and that the wood needed to be removed quickly. The defendant gave Mr. Wiebe to understand that 100,000 cubic meters had to be taken from the S.P.M.L. during the approaching winter season. For his part, Mr. Wiebe advised the defendant that although he personally did not have money to capitalize a large logging operation, he knew people who did.

[22] As a consequence of that meeting in late December Mr. Wiebe contacted his cousin Mr. Buhler. Mr. Buhler hails from Revelstoke. He is a road construction contractor. Mr. Buhler had some experience in logging operations. Mr. Buhler and Mr. Wiebe met with the defendant in Prince George in late January 1999, and they discussed the possibility that Mr. Buhler might acquire the defendantís right to harvest logs on the S.P.M.L.

[23] Before that meeting, though, the defendant had some further exposure to the Ministry of Mines. The defendant gained that experience at a meeting he attended on January 8, 1999 at the office of the Ministry in Prince George. The meeting had been convened because Martin Mine Ltd. was concerned that notice to work applications filed for mining operations on the S.P.M.L. had not been processed as rapidly as expected. A number of individuals attended that meeting. They included:

a) the defendant;

b) Mr. McGovern;

c) Mr. Pow;

d) Mr. Beswick, who was Mr. Powís supervisor;

e) Mr. Al Taylor, president of the BC Placer Mining Association;

f) Mr. Joe Hirak, a miner contracted to Martin Mine Ltd.; and

g) Mr. Rick Weiss and Mr. Charlie Friday, whose partnership by then had contracted to Martin Mine Ltd.

[24] At the January 8, 1999 meeting the defendant learned from the Ministry of Mines that bonding would certainly be required for any mining activity on the S.P.M.L., and he heard again that the bonds would be on the order of $2,500 for reclamation and $1,500 for reforestation. During that meeting Mr. McGovern said words to the effect that his company wished to develop mining on the S.P.M.L. but that it was not going to do the mining itself. Instead, the company would rely on contract miners. Those contract miners were the Weiss and Friday partnership and Mr. Joe Hirak. The defendant also learned that Mr. McGovern wished to raise money to capitalize mining development of the S.P.M.L. but that he did not actually have money on hand for that purpose.

[25] Also at the January 8, 1999 meeting the defendant heard Mr. Pow say that disturbance of more than 500,000 tons of ground would trigger an environmental assessment. Someone, either Mr. Pow or Mr. Beswick, suggested that perhaps the S.P.M.L. could be divided into smaller blocks of 50 hectares each, and that individual mining permits could be issued for each of those blocks. By that method the amount of ground disturbed on each individual mineral tenure might be kept below the environmental assessment threshold. Mr. Pow acknowledged that such a plan might work. There was, however, no talk of there being miners in addition to the Weiss/Friday partnership and Mr. Hirak who might work on the subdivided leases.

[26] During the meeting Mr. McGovern said words to the effect that due to the onerous bonding requirements and the possibility of environmental assessment, Martin Mine Ltd. would limit its 1999 mining activity on the S.P.M.L. to 100 to 110 ha. The Ministry of Mines personnel at the meeting indicated that, for their part, they would process the notices of work on the S.P.M.L. as expeditiously as possible.

[27] Sometime in January 1999 and before getting together with Mr. Buhler and Mr. Wiebe, the defendant also had a meeting with the forestry consultant firm TDB in Prince George. The defendant hired TDB to assist in laying out cut-blocks on the portions of the S.P.M.L. that were to be mined. Mr. Doug World of TDB advised the defendant concerning stumpage charges on Crown timber. Mr. World told the defendant that a stumpage charge calculation is moderately complex and takes into account a number of factors. Mr. World told the defendant that one of the parameters that go into the stumpage calculation is the District Value Index (D.V.I.) for the various species of timber found on the area to be cut. Mr. World gave the defendant a chart setting out the D.V.I. for various areas in the British Columbia interior, including the Mackenzie District, within which the S.P.M.L. is located. According to that chart the D.V.I. for pine in the Mackenzie District was $7 per cubic meter and for spruce it was $18 per cubic meter. I accept Mr. Worldís evidence that he gave the defendant to understand that the D.V.I. was not the stumpage rate that would be charged for the timber on the S.P.M.L.

[28] We come now to the meeting between the defendant and Mr. Wiebe and Mr. Buhler at the end of January 1999. I accept Mr. Wiebe and Mr. Buhlerís testimony that during this meeting the defendant led them to believe that there was a great hurry to remove on the order of 100,000 cubic meters of wood from the S.P.M.L. during the winter and early spring 1999 logging season. The defendant did not tell Mr. Wiebe or Mr. Buhler that the volume of timber that could be harvested would be limited to only that volume standing on ground for which placer mining was permitted. The defendant did not say anything to Mr. Wiebe or Mr. Buhler about the fact that Martin Mine Ltd. did not have the money to do the mining itself and had no expertise or ability to do the mining in any event. The defendant did not tell Mr. Wiebe or Mr. Buhler that he knew that Slocan had a claim for all of the timber on the S.P.M.L. and Slocan had expressed a desire to harvest that timber at some point in the future. Neither did the defendant tell Mr. Wiebe or Mr. Buhler that he knew that the Ministry of Mines wished that timber be removed from mining areas by the forest licensee, that is to say Slocan, in preference to removal by the miner itself. Instead of telling Mr. Wiebe and Mr. Buhler all these things, the defendant painted a picture for them of a miner, that is to say Martin Mine Ltd. that was ready, willing and anxious to mine a large portion of the S.P.M.L. as soon as possible. The defendant said that Martin Mine Ltd. had $10 million at hand which it intended to devote to development of the S.P.M.L. He also told them that Martin Mine Ltd. had railcars full of equipment ready to ship to the mine site.

[29] There was no truth to these representations. I specifically reject the defendantís assertion that Mr. McGovern told him that Martin Mine Ltd. had such money or such equipment. At most, Mr. McGovern told the defendant from time to time that Martin Mine Ltd. was exploring the possibility of raising capital and was talking to a variety of entities, including public companies, in that effort. The defendant had no reasonable basis on which to found a belief that Martin Mine Ltd. was a large vibrant well-financed and experienced mining operator. That, however, is the picture the defendant painted of Martin Mine Ltd. for Messers Buhler and Wiebe.

[30] The defendant also represented to Mr. Wiebe and Mr. Buhler during these initial meetings that the stumpage that would be charged on the timber would be the district average. The defendant said that the district average for the Mackenzie area was $7 per cubic meter for pine and $18 per cubic meter for spruce. To substantiate this representation the defendant gave Mr. Wiebe and Mr. Buhler a copy of the D.V.I. chart. The defendant knew that the D.V.I. did not accurately reflect the amount of stumpage that would in fact be calculated and charged for the timber in the S.P.M.L.

[31] I specifically reject the defendantís denial that he told the plaintiff that the stumpage would be set at the D.V.I. rates. I also reject the defendantís assertion that he told the plaintiff that stumpage would be set at some higher but undefined rate he called the ìdistrict averageî. I accept the evidence of Ms. McDairmid of the Ministry of Forestís revenue branch, who said that due to the complexities of the system and the many ways an ìaverageî might be defined, there is no such thing as a district average stumpage rate. I note that there was no evidence from any Forestry personnel to the effect that there is a district average stumpage rate, or that such a figure has ever been reduced to writing, or that such a figure was communicated to the defendant. I note that Mr. Wiebe and Mr. Buhler were clear in their evidence that the only writing they received from the defendant was the D.V.I. chart and that the defendant told them that the stumpage would be set at those rates. I conclude that the defendant referred to the rates in the D.V.I. chart as the ìdistrict averageî, and that when he did so it was not an innocent mistake. The defendant knew from his earlier discussion with TDBís Mr. World that ìdistrict averageî or not, the figures in the D.V.I. chart did not represent the stumpage that would be charged for timber on the S.P.M.L.

[32] Mr. Buhler did not have the money to organize and operate a logging operation as large as the one the defendant led him to believe was needed on the S.P.M.L. Mr. Buhler contacted an acquaintance of his, Mr. Bob Allen, to assist him in financing the acquisition from the defendant of the right to remove timber from the S.P.M.L. and to set up a logging operation. Mr. Allen has some financial acumen but no logging experience. Mr. Allen heard from the defendant substantially the same representations as the defendant made to Mr. Buhler and Mr. Wiebe.

[33] Mr. Allen, Mr. Buhler, and Mr. Wiebe decided to incorporate a company and to use that company to run the logging operation. They negotiated with the defendant and their company, the plaintiff in this action, eventually agreed to purchase the defendantís interest in the timber on the S.P.M.L. for $1.1 million. That price was to be paid by a deposit of $100,000, a payment of $300,000, and 6 monthly payments of $100,000 each commencing March 25, 1999. The deposit was refundable and the $300,000 payment was not due until the plaintiff received a cutting permit for timber on the S.P.M.L. The deposit was paid in February, the contract was signed on March 5^th, a license to cut was issued on March 22^nd, and $400,000 (comprising $300,000 plus the first $100,000 periodic payment) was made to the defendant on March 31^st.

[34] In February the defendant met with Mr. Buhler and Mr. Wiebe to talk to them about Slocanís involvement with the S.P.M.L. Mr. Buhler and Mr. Wiebe recall that in the conversation the defendant alerted them that Slocan had a cut-block on 1411 (over which they had no interest) and that a small portion of the cut-block spilled onto the S.P.M.L. They recall that the conversation went on to cover the possibility that a small park area may be required near a lake at one end of the S.P.M.L. This would reduce by a small measure the volume of harvestable timber in the S.P.M.L. These things did not concern Mr. Wiebe and Mr. Buhler.

[35] The defendant says that during this conversation he told Mr. Buhler and Mr. Wiebe about the spill over of the small Slocan cut-block; about the park; and also that Slocan thought that it was entitled to harvest all of the timber on the S.P.M.L. It is this latter bit that Mr. Wiebe and Mr. Buhler do not recall and say did not happen.

[36] I reject the defendantís version of the February 1999 conversation. I do so because I simply do not accept that the defendant is a truthful individual. I do so as well because the note that the defendant had Mr. Buhler and Mr. Wiebe sign after the conversation does not mention in sufficient detail Slocanís claims to the whole of the S.P.M.L. It seems to me that if the conversation was about Slocanís desire to harvest all the timber on the S.P.M.L., then that desire would have been expressed in the clearest terms in the note. Instead, the note is couched in general and non-specific terms.

[37] During January, February and March 1999, the defendant worked to complete the paperwork necessary to subdivide the S.P.M.L. into 36 separate 50 ha placer mining leases. He had a consulting firm survey the property and prepare a map for the subdivision. He submitted that map to the Gold Commissioner. That was the extent of the defendantís involvement in the subdivision effort. The subdivision never did go through, and the defendant did not have reasonable grounds on which he could believe that the subdivision of the S.P.M.L. had been accomplished or was imminent.

[38] Furthermore, during February the defendant learned from the Weiss and Friday partnership that the Ministry of Mines had demanded a $199,000 bond for the 56 ha mining permit for which they had applied. The partnership asked the Ministry of Mines to reduce the partnershipís mining area from 56 hectares to 10 hectares, five of which would be disturbed at any one time. By this request the partnership sought to reduce their bonding requirement to $20,000, the latter being a bond they thought they could afford. The partnership kept the defendant apprised of this development. The defendant did not, however, tell the plaintiff about it. The defendant knew this was a matter of extreme interest to the plaintiff. The defendant knew that timber could only be removed from land for which mining was approved and he knew that the partnershipís request to reduce their mining area would produce a concomitant reduction of the volume of timber to be removed. Despite knowing this the defendant kept silent and did not tell the plaintiff about it.

[39] The Ministry of Mines processed the partnershipís request for a smaller mining area. That Ministry passed on to the Ministry of Forests the partnershipís request to clear trees from the mining area. On March 22^nd, the Ministry of Forests issued a license to Martin Mine Ltd. The license was limited to timber on 8.6 hectares of land. That area was very much smaller than the plaintiff anticipated. The plaintiff, represented by its principal, Mr. Buhler, was disappointed and concerned by the discrepancy between the relatively small size of the license to cut compared to the relatively large area 100,000 cubic meters of wood would occupy. Mr. Buhler posed a number of questions to the defendant about this. Mr. Buhler also asked about the stumpage that would be charged and sought the defendantís confirmation of the amount.

[40] In his reply to Mr. Buhlerís queries, the defendant perpetuated the misrepresentations he had earlier made concerning the pace and rate of mining and hence timber harvesting on the S.P.M.L. It is important to note that by this time the plaintiff was aware that timber harvesting could proceed only in a 1:1 relationship with mining. The plaintiff asked the defendant what assurance he could offer that Martin Mine Ltd. could get approvals for the entire property. The defendant assuaged the plaintiffís concerns about the size of the initial cut by telling the plaintiff and its solicitor that applications had been made to subdivide the S.P.M.L., and that additional licenses to cut on the subdivided placer leases would be issued in due course.

[41] It is crucial to appreciate that at this time the defendant had absolutely no basis on which he could have reasonably believed that his assurance about the pace of mining was true. In fact, the defendant knew that there were only two miners lined up by Martin Mine Ltd. to conduct placer mining operations on the S.P.M.L. in 1999. He knew that both of those miners had difficulty posting the bonds required of them by the Ministry of Mines. He knew that the miners could not conduct large-scale mining operations in that year. He knew that the amount of land that the miners would be allowed to disturb would be very limited in 1999. He knew, therefore, that the amount of timber that needed to be removed in order to facilitate those mining activities was also extremely limited. He had not been told by anyone that Martin Mine Ltd. had even one additional miner organized and ready to file an application to mine a subdivided lease, much less the cadre of miners that would have been necessary to mine enough land to justify cutting down 100,000 cubic meters of timber. The defendant did not share that information with the plaintiff. Instead, he told the plaintiff and plaintiffís counsel that Martin Mine Ltd. had four railcars full of equipment from Quebec ready to go on to the mine site. There was no truth to that representation and the defendant knew that to be so. The defendant also knew that the plaintiff would rely on that representation when it made its decision to proceed with the contract.

[42] Furthermore, the defendant perpetuated his misrepresentations with respect to the stumpage. On March 23, 1999, the defendant told the plaintiffís solicitor that the stumpage on the timber varied every quarter, but the current rate was $7 for pine and $18 for spruce. Again, the defendant knew that this representation was untruthful. It was simply a lie, told by the defendant to the plaintiffís solicitor in order to keep the plaintiff committed to the transaction. The defendantís motivation is clear: he stood to profit handsomely if the deal went through.

[43] I note parenthetically that by March 30, 1999 the plaintiffís solicitor, and therefore the plaintiff, was no longer ignorant of Slocanís interest in the S.P.M.L. The plaintiffís solicitor had learned of Slocanís claims in conversations he had with the principal of the TDB consulting company and a March 30^th conversation with the defendant himself. During that latter conversation the defendant told the solicitor that Slocan considered it had a first right to cut timber on the S.P.M.L. The defendant did not, however, tell either the plaintiff or its solicitor that the Ministry of Mines and the Ministry of Forests preferred that Slocan get the cut. I conclude that it was fraudulent for the defendant to not advise the plaintiff that the entity with the power to decide who should cut the timber was inclined against bestowing that right on Martin Mine Ltd.

[44] The plaintiff was induced by these misrepresentations to commit its $100,000 deposit, to pay the defendant $300,000 as required by the contract, and to pay the defendant the first $100,000 periodic payment. Those funds were transferred to the defendant on March 31^st, 1999. On that date the defendant knew that the Weiss/Friday partnership had not posted a bond to secure their reclamation and reforestation obligations on the 8.6 hectares for which the initial license to cut was issued. The defendant did not advise the plaintiff that although the license to cut was issued, no cutting could in fact take place because the bonding had not been posted. Also, on March 31^st, the defendant knew that Mr. Hirak could not afford and would not pay the bonds required for his mining operation on the S.P.M.L. The defendant knew, therefore, that no timber could or would be harvested with respect to Mr. Hirakís mining operation. Nevertheless, the defendant did not share that information with the plaintiff. His failure to do so was, in my view, fraudulent and reprehensible. By his silence, the defendant fraudulently induced the plaintiff into completing the contract.

NEGLIGENT MISREPRESENTATION

[45] Although these findings of fact are sufficient to found a rescission of the contract based on fraudulent misrepresentation, given the alternate nature of the pleadings, I must go carry on to consider negligent misrepresentation. The evidence at trial established beyond question that at all material times the defendant instructed the plaintiff to not make any inquiries of either the Ministry of Mines or the Ministry of Forests. Furthermore, the defendant instructed the plaintiff that it was not to make any inquiries of or to try to contact Martin Mine Ltd. In essence, the defendant acted to ensure that the plaintiff would not make inquiries which might have revealed the depth and scope of his deceit.

[46] If the defendant did not act fraudulently, then I find that he was negligent in his various representations to the plaintiff in the course of his dealings with it. There was a special relationship between the defendant and plaintiff which created a duty of care. That special relationship was founded on the fact that the defendant set himself up as the sole conduit of information needed by the plaintiff in order to assess the sensibility of the transaction it was contemplating. At all material times the defendant knew that the plaintiff would and did rely on information he supplied with respect to the administration of mining and forestry approvals and with respect to Martin Mine Ltd.ís. ability and capacity to carry out a large-scale mining operation on the S.P.M.L.

[47] The defendant was negligent in not ensuring that the plaintiff knew all that he knew about the limitations and risks with respect to harvesting timber to facilitate a mining operation. The defendant knew or ought to have known that the plaintiff would be vitally interested in Slocanís claim over all of the timber on the S.P.M.L., and would be equally interested to know that the government Ministries preferred that Slocan cut the timber in preference to the miner. The defendant knew or ought to have known that the plaintiff would be vitally interested in the risk that a large-scale mining operation could trigger an environmental assessment and that assessment would likely slow if not stop the pace of mining and timber harvesting. The defendant knew that the amount of stumpage was of considerable interest to the plaintiff and that the stumpage rate played a major role in the plaintiffís consideration of the profitability of the transaction it was contemplating. Leaving aside whether he actually mislead the plaintiff about the stumpage, at a minimum the defendant was negligent in giving the plaintiff the D.V.I. chart without cautioning the plaintiff that the numbers in the chart did not represent actual stumpage rates. The defendant was negligent in assuming in the absence a reasonable basis for that Martin Mine Ltd. had the capacity and the finances to launch a large-scale mining operation in 1999.

FRUSTRATION

[48] The plaintiff also claims for frustration of the contract. The plaintiff says that the intercession of Slocanís interest in the S.P.M.L., the government policy to award cutting rights to Slocan in preference to Martin Mine Ltd., and the setting of stumpage rates acted to render performance of the contract impossible in the fashion contemplated by the parties.

[49] I do not accept that argument.

[50] Slocanís claim and the governmentís preference that Slocan cut the timber on the S.P.M.L. were obviously risks the plaintiff ought to have been told about from the outset. However, the evidence is that Slocan did not wish to cut very small piecemeal portions of the S.P.M.L., and the evidence is that at best the plaintiff would have had an opportunity to cut only small piecemeal portions of the S.P.M.L.

[51] The fact is that when it came time to issue the first license to cut, that license was issued to Martin Mine Ltd., not to Slocan. I conclude that the plaintiff could have cut some timber on the S.P.M.L. provided that the miner posted the requisite bond (which it did, albeit sometime after March 22). The contract was, therefore, uneconomic and unprofitable to the plaintiff, but it was not radically different from what the plaintiff contemplated.

BREACH OF CONTRACT

[52] The plaintiff claims that the defendant breached the contract by failing to provide ongoing assistance to the plaintiff after the $400,000 payment was made. There is ample evidence that the defendant actively tried to interfere with the plaintiffís performance of the contract. In fact, in September 1999 the defendant attempted to sell to Mr. Leo Comtois the very same rights he had already conveyed to the plaintiff. It can hardly be said that the defendant was working to advance the plaintiffís interests by selling those self-same rights to a third party.

[53] I find that the defendant breached his obligation under the terms of the contract and, if I am not correct with respect to fraudulent and negligent misrepresentation, I find that the defendant is liable to the plaintiff for his breach of contract. The evidence at trial was, in my view, not adequate to accurately determine the amount of those damages. If necessary the parties have leave to reconvene the trial to the evidence with respect to damages consequent to the defendantís breach.

ANALYSIS AND CONCLUSION

[54] I have concluded that the defendant induced the plaintiff to enter into the contract by fraudulent representations. Those representations were that:

a) Martin Mine Ltd. was capable of conducting a large-scale mining operation and that a large volume of timber therefore needed to be removed from the S.P.M.L. in a short period of time;

b) that stumpage on the timber would be on the order of $7 for pine and $18 for spruce;

and by withholding from the plaintiff information critical to its decision-making process, including the fact:

a) that Slocan would compete with it to harvest timber on the S.P.M.L.;

b) that the Ministry of Mines and the Ministry of Forests would prefer that Slocan harvest any large volume of timber from the S.P.M.L.;

c) that a large volume of mining could trigger a costly environmental assessment; and

d) that the miners contracted by Martin Mine Ltd. to work on the S.P.M.L. were unable to post bonds or to work anything greater than a minor area of placer mining in any given season.

[55] Fraudulent representation unravels everything: Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., [2002] S.C.J. No. 20.

[56] The defendant argues that the plaintiff could have educated itself about these risks. He says that the plaintiff did not perform due diligence. He says that the court should not, therefore, rescind the contract.

[57] The difficulty with the defendantís position on due diligence is that he placed himself in the way of questions the plaintiff might have asked the government Ministries and Martin Mine Ltd. The defendant told the plaintiff that if it did make such inquiries the deal was off ñ he would go and sell the timber rights to some other logger. The defendant basically told the plaintiff ìask no questions, ruffle no feathers, make no inquiries, and trust what I say, or I will not make a deal with youî. Having taken that attitude, it does not lie well in the defendantís mouth to say ìWell, the plaintiff should have asked questions and made independent inquiries and if it had it would not be in this mess nowî.

[58] To say the plaintiff was naive is an understatement. To say that the plaintiff was ill-served by a solicitor who made no meaningful effort to determine his clientís risk is to state the obvious. I infer that any natural business caution the plaintiff might have possessed was overwhelmed by its desire to profit by the harvest of these trees. However, where a plaintiff is induced by fraud to make a contract, the defendant may not be excused from his fraud by the plaintiffís naivetÈ or, for that matter, by the plaintiffís greed addled judgment: Parallels Restaurant Ltd. v. Yeungís Enterprises Ltd., [1990] B.C.J. No. 1861 (C.A.).

[59] I have, therefore, no hesitation in concluding that the plaintiff is entitled to return of the $500,000 it paid to the defendant, together with the special damages it claims.

PUNITIVE DAMAGES

[60] Finally, the plaintiff claims for punitive damages against the defendant. An award of punitive damages is discretionary. That discretion must be exercised judicially. In Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd. the Supreme Court of Canada set out the factors the court is to consider when contemplating an award of punitive damages. Those factors include whether:

a) a compensatory damage award plus an award of solicitor-client costs together have a punitive effect;

b) the defendant was stigmatized by the judicial finding that he acted in a way that was ìfraudulent, dishonest and deceitfulî;

c) there was anything about the case to distinguish it from other cases of business fraud;

d) the defendant profited from his misconduct; and

e) there were examples of good behaviour of the defendant, alongside the bad.

[61] In the present case, I intend to award party-party costs on Scale 3. The plaintiff will be entitled to recover its lost money together with interest. Together, the plaintiffís recovery will be many hundreds of thousands of dollars. That award will, in my judgment, be adequately punitive to the defendant.

[62] Whether the defendant will be stigmatized by my finding that he acted fraudulently will depend, I should think, on how widely this decision is known in the business community. I cannot gauge the impact this judgment will have on the defendant. In the absence of information on that point, I am reluctant to found an award of damages on it.

[63] At all material times the plaintiff was motivated by a desire to make profit. There was in its behaviour no element of dynasty building or of serving a greater good or of doing anything other than lining their own pockets. The defendant was likewise motivated. No poor widow woman was displaced from the family homestead. No orphan went to bed hungry. There was no element of breach of public trust. In short, there was nothing about the case to distinguish it from a conventional business fraud.

[64] The defendant did, no doubt, profit from his deceit. However, by this order he will be required to make good that profit and to pay interest for his use of the plaintiffís funds.

[65] All in all, although the defendantís behaviour was fraudulent and deceitful, I cannot conclude that an award of punitive damages would serve any useful purpose here.

SPECIAL DAMAGES

[66] The plaintiff tried to realize some benefit from the deal it had made. It bought and installed a bridge to give access to the S.P.M.L. It spent money on development of the property, and other matters incidental to the transaction. Mr. Buhler testified that the plaintiff spent that money, the defendant made no inroads in his cross-examination on the issue, and on my examination of the plaintiffís claims those expenses are properly recoverable as special damages. The plaintiffís expenses total $155,121.47. It will have judgment for that sum, together with Court Order Interest commencing 6 months after March 31, 1999.

COUNTER-CLAIM

[67] Although it may not be entirely necessary to say, I find that the defendantís counterclaim for recovery at $600,000 from the plaintiff and its principal is ill-founded in law and cannot succeed. The counter-claim is dismissed.

SUMMARY

[68] The plaintiff will have judgment against the defendant as follows:

Damages for fraudulent misrepresentation:	$ 500,000.00
Special Damages:	$ 155,121.47

[69] Court order interest will accrue on the $500,000 commencing March 31, 1999, and on the special damages 6 months later.

[70] The plaintiff will have its costs of the claim on Scale 3.

[71] The defendantís counter-claim is dismissed. The plaintiffís principals will have their costs of the counter-claim on Scale 3. The principalsí interests were identical in the counter-claim, and they were represented by a common counsel. They may present a single bill of costs on the counter-claim.

ìP. Rogers, J.î
The Honourable Mr. Justice P. Rogers