Background
The Province was essentially ordered to pay $1,750,000 to Moulton Contracting Ltd. for failing to promptly notify the company of an individual Aboriginal trapper's threat to stop their logging activities.
The order was made based on a finding that the Province breached an implied term of a contract it entered into when it sold two timber sale licences to Moulton, as well as a finding that the Province had concurrent liability in negligent misrepresentation for breach of an implied continuing representation. Moulton’s claim for damages was based on losses it suffered when it was prevented from logging under the timber sale licences by a road blockade put up by an individual named George Behn from the Fort Nelson First Nation and other members of Behn’s family.
The trial judge held that the Province had impliedly promised and represented to Moulton that it had discharged its duty to consult to First Nations and was not aware of any First Nations expressing dissatisfaction with the Province’s consultation, except as disclosed to Moulton. After Moulton and the Province had contracted for the timber sale licences, Behn told an employee that he intended to “stop the logging” and the Province did not inform Moulton of this threat until two months later, by which time Moulton had started to log the area. A few days later the blockade was put up and Moulton was never able to complete logging under the timber sale licences. The Province was essentially found liable for failing to immediately inform Moulton of Behn’s threat to stop the logging and the damages awarded to Moulton were for its lost opportunities to enter into alternative logging contracts.
As an aside, an application arising from this same litigation eventually found its way to the Supreme Court of Canada: Behn v. Moulton Contracting Ltd.
The timber sale licences
The Court of Appeal noted that as part of the Province’s bid process for the timber sales licences, Moulton received and reviewed a document entitled Particulars of the Invitation for Applications that had a clause stating that “BC Timber Sales does not warrant nor has it ever warranted, the Licensee’s right of unfettered access to the cutting authority area which may be impeded by the actions of third parties including acts of disobedience”. The licences also contained a clause that would allow the Province to vary or suspend them if a court determined that the activities they authorized would unjustifiably infringe an Aboriginal right or title or a treaty right (clause 9.01). Furthermore, the licences contained a clause stating that the Province was not liable to the licensee for any losses caused by a third party’s actions, and this clause explicitly referenced interference with the licensee’s operations through road blocks (clause 14.01).
Court of Appeal’s decision
The Court of Appeal found that the trial judge had erred in law by implying a term that required the Province to immediately notify Moulton of Behn’s threat to stop its logging activities.
The Court of Appeal noted that in order for an implied term to be found in a contract it must be more than reasonable; it must be necessary to make the contract as the parties intended. In other words, an implied term must be grounded in “what the actual parties in the actual circumstances of the contract intended” and not in what reasonable parties would have intended. The trial judge had implied a term into the contract based on the “commercial reality” of parties who contract with the Province rather than finding that Moulton and the Province intended for the timber sale licences in this particular case to have the implied term found at trial. On the contrary, the Court of Appeal found that “on their face” clauses 9.01 and 14.01 of the licences were inconsistent with a conclusion that the parties intended the Province to have a duty to inform Moulton of information that was relevant to the logging company’s ability to “avail itself of its rights under the licences” or for the Province to be liable for losses resulting from road blocks such as the one erected by the Behns.
The Court of Appeal also rejected an argument from Moulton that the trial judge’s order could be justified based on the role played by good faith in contractual interpretation, finding no basis in the evidence for suggesting that the Province had acted dishonestly, unreasonably, capriciously or arbitrarily in failing to immediately disclose George Behn’s initial threat to Moulton.
The Court of Appeal also found that the trial judge had erred in finding the Province liable for negligent misrepresentation for failing to inform Moulton of any "First Nations dissatisfaction" with its consultation. It held that there was no persuasive legal authority to support imposing any such duty on the Province and found the trial judge’s conclusions in this regard to be contrary to his own interpretation of clause 14.01, which barred the Province from being liable for losses such as those suffered by Moulton.